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While you were sleeping: BusinessWire overnight wrap

Thursday 2nd October 2008

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US manufacturing activity fell to the lowest level since the 2001 recession, providing evidence that the impact of the housing slump and credit crisis is spreading.

The Institute for Supply Management's factory index fell to 43.5 in September from 49.9 in the previous month. A level below 50 indicates a contraction. Other figures showed US private sector employers cut 8,000 jobs last month, according to ADP Employer Services.

Stocks on Wall Street fell after the report. The Standard & Poor's 500 Index declined 0.5% to 1160.97. The Dow Jones Industrial Average fell 0.5% to 10792.92 and the NASDAQ Composite dropped 1.2% to 2066.21.

General Electric fell 3.3% to US$24.65. The company plans to sell US$12 billion of ordinary shares and investor Warren Buffet's Berkshire Hathaway agreed to buy US$3 billion of preferred shares, helping GE boost its capital amid the credit market squeeze. IBM fell 7.3% to US$108.48.

Citigroup led financials higher, rising about 12% to US$22.96 after the US Senate agreed to vote later today on a US$700 billion rescue package. Bank of America climbed 8.8% to US$38.07 and JPMorgan Chase advanced 4.8% to US$4.82.

Senate Democratic and Republican leaders expect the rescue package to win approval today after tweaks that tie the proposal to an increase in insurance limits on bank deposits and tax breaks. The House of Representatives is likely to vote on the plan on Friday in the US.

The US dollar strengthened against the euro to $1.4045 per euro in New York from $1.4092 as overseas banks were forced to pay more for US currency held by financial institutions unwilling to lend to each other. Benchmark rates for lending between banks have jumped. Three-month dollar Libor rose to a 10-month high 4.15%.

US Treasury bonds rose after the weak manufacturing numbers and expectations the Federal Reserve will cut interest rates by 50 basis points this month to ease credit markets and lift the economy out of its slump. The yield on 10-year Treasury notes fell to 3.7% from 3.82%.

Fed funds futures on the Chicago Board of Trade indicate traders are see a 100% certainty that the Fed will cut its target ate on Oct. 29, Bloomberg reported. The probability of a 50 basis points cut rose to 42% percent from 22%, it said.

In Europe, France and Germany were at odds over creating a fund to bail out banks, with France urging the region to adopt a plan that helped lenders in smaller European states.

European stocks rose on optimism about the US rescue plan gaining approval. Barclays Plc rose 4.4% to and UBS AG gained 6.7%. The Dow Jones Stoxx 600 Index rose 0.7% to 257.75. The FTSE 100 rose 1.2% 4959.6 and the DAX 30 fell 0.4% to 5806.330.

Crude oil fell on a US Energy Department report that showed inventories gained a more-than-expected 4.28 million barrels to 294.5 million barrels. Crude oil for November delivery fell 2.1% to $98.53 a barrel on the New York Mercantile Exchange.

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