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While you were sleeping: Greek budget cuts ahead

Wednesday 3rd March 2010

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Stocks in the US and Europe rose overnight, paced by news that the Greek government would implement budget cuts to rein in its deficit and ease concerns about its debt crisis.

Bloomberg News reported that the Greek government was preparing 4.8 billion euros worth of cuts. Creidt-default swaps linked to Greek government bonds fell to their lowest in about six weeks.

At midday, the Dow Jones Industrial Average rose 0.4% and the Standard & Poor’s 500 gained 0.59%. The Nasdaq Composite rose 0.6%.

US shares got a boost from the latest auto sales figures with General Motors reporting a 12% increase in February. Just after midday, Ford Motor reported a 43% surge in US sales.

Merger and acquisition activity also bolstered the market. CF Industries Holdings Inc raised its offer to US$47.40 per share in cash and stock, sending Terra Industries' Inc shares leapt 13%. CF shares dropped 4.5%.

Dow Chemical Co said it would sell its Styron basic plastics unit to Bain Capital Partners for US$1.63 billion. Dow shares rose 1.6%.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ fell 2.13% to 18.85.

In Europe overnight, the Dow Jones Stoxx 600 rose 0.7% to 250.52.

Among national benchmarks, the UK ’s FTSE 100 rose 1.45%, Germany’s DAX 30 rose 1.1% and France ’s CAC 40 gained 1.12%. Greece’s ASE index ended up 2.7% at a one-month high.

Some of the biggest movers included National Bank of Greece, PSA Peugeot Citroen and Deutsche Lufthansa AG.

“Cyclical stocks are climbing and if investors are turning to those shares, it means a rebound may be on the way,” Arnaud Scapaci, a fund manager at Agilis Gestion in Paris, told Bloomberg. “The main worries about Greece are already priced into the stock market.”

On the economic and monetary policy fronts, Japan reported a decline in its January jobless rate, Australia’s central bank increased its key interest rate and the Bank of Canada opted to hold its key rate steady.

In its statement, the Bank of Canada said it expected to keep rates steady “until the end of the second quarter of 2010” based on its positive outlook for inflation.

“The ongoing global economic recovery is being driven largely by strong domestic demand growth in many emerging-market economies and supported in advanced economies by exceptional monetary and fiscal stimulus, as well as extraordinary measures taken to support financial systems,” Canada’s central bank said.

While the U.S. has so far resisted increasing its rates, Federal Reserve officials are continuing to lay the groundwork for a rise.

"When you have zero rates that go on indefinitely, you are inviting future problems," Kansas City Federal Reserve Bank President Thomas Hoenig said in an interview on CNBC overnight.

"We know that zero is non-sustainable ... the market already knows that," Hoenig said

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.02% to 80.64.

In midday trading, the euro was flat at US$1.3560, after earlier dropping as low as US$1.3435, according to Reuters data, its weakest since mid-May 2009.

Technical analysts said the next support level to be tested for the euro was US$1.3405 - the 61.8% retracement of the rally from the 2008 low of US$1.2328 to 2009's high at US$1.5144.

Against the yen, the U.S. dollar fell 0.1% to 89.00 yen.

The greenback fell against the Canadian dollar to $C1.0311. The pound fell 0.4% to US$1.4926 and the Australian dollar rose 0.2% to US$0.9033.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 07% to 274.61.

Oil was little changed ahead of weekly data from the U.S.

The American Petroleum Institute is set to publish its data later today, and the U.S. government will release its number tomorrow.

U.S. crude for April delivery rose US$1.08 to US$79.78 a barrel, while London ICE Brent for April delivery was up US$1.21 to US$78.10.

OPEC meets next on March 17 and ministers are already suggesting there will be no change to current output quotas, Reuters reported.

Spot gold was bid at US$1120.60 an ounce. U.S. gold futures for April delivery on the COMEX division of the New York Mercantile Exchange rose US$3.30 to US$1121.60 an ounce.

Most active copper for May delivery added 2.20 cents, or 0.66%, to US$3.3720 per lb on the New York Mercantile Exchange's COMEX division. The price surged to near a two-month high yesterday in the wake of supply concerns after the earthquake in Chile.

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