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While you were sleeping: Caution rules market

Friday 9th July 2010

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Stocks in the US gave up earlier gains as investors were cautious before earnings season starts next week.

Analyst Meredith Whitney cut earnings estimates for Goldman Sachs Group Inc and Morgan Stanley.

In late trading, the Dow Jones industrial average gained 0.47%, the Standard & Poor's 500 Index edged 0.15% higher and the Nasdaq Composite Index slipped 0.09%.

Among the most active stocks on Wall Street were DuPont Co, Boeing Co, J.C. Penney Co and Abercrombie & Fitch Co.

High unemployment and a moribund housing market have increased risks to the US economic recovery, while the public debt looms large and needs to be cut, the International Monetary Fund said today.

In a statement after annual consultations with US authorities, the IMF raised its US growth forecasts to 3.3% for 2010 and 2.9% for 2011, but said unemployment would remain above 9% for both years.

The lofty jobless rate, coupled with a large backlog of home foreclosures and high levels of negative home equity, posed risks of a "double dip" in the housing market, it said. But the IMF said it did not think a renewed recession was likely.

"The outlook has improved in tandem with recovery, but remaining household and financial balance sheet weaknesses - along with elevated unemployment - are likely to continue to restrain private spending," the Fund said.

The IMF revised its global growth outlook to 4.6% in 2010, reflecting a stronger-than-expected first half. That would be the biggest gain since 2007 and compares with the Washington-based fund’s April projection of 4.2%. Growth next year is projected to be 4.3%, unchanged from the April forecast.

US Labor Department figures today showed the number of Americans applying for jobless benefits last week fell by 21,000 in the week ended July 3 to 454,000.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, rose 0.19% to 26.89.

The Stoxx Europe 600 Index advanced 1% to 248.6.

Across Europe, the UK’s FTSE 100 climbed 1.81%, Germany’s DAX gained 0.71% and France’s CAC 40 climbed 1.57%.

Among the most active stocks in Europe were Xstrata Plc, Antofagasta Plc, BNP Paribas SA and Barclays Plc.

European Central Bank President Jean-Claude Trichet said Europe’s economy was stronger than some investors thought and signalled the bank didn’t intend to do more to fight the sovereign debt crisis for now.

The ECB left its benchmark rate at a record low of 1% after its regular monthly meeting.
US Treasuries fell after the latest claims data damped bonds’ haven appeal.

Yields rose for a second day, even after the government drew more bids than average at a record-tying US$12 billion in 10- year inflation-linked securities. The US government said it would auction US$69 billion of notes and bonds next week.

The yield on the conventional 10-year note increased 4 basis points, or 0.04 percentage point, to 3.02% at 1.45pm in New York, according to BGCantor Market Data.

The sale of 10-year Treasury Inflation Protected Securities, or TIPS, drew a yield of 1.295%, compared with 1.340% in the average forecast in a Bloomberg News survey of seven of the Federal Reserve’s primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.88, compared with an average of 2.45 for the previous 10 sales.

The Dollar Index, which measures the greenback against a basket of six major currencies, barely budged, rising 0.01% to 83.83.

The euro climbed to the highest level in two months  against the US dollar as US and Australian economic data restored faith in the global economic recovery and boosted appetite for higher yielding currencies.

A jump in Australian employment in June drove the Australian dollar up more than 1% on the day against the US dollar and nearly 2% higher against the yen.

Clarity on European bank stress tests helped financial stocks as investors saw criteria for the checks were no worse than markets expected.

"Global stocks are in broadly positive territory and commodities are pushing higher, so you would expect the euro to run up further against the US dollar in that environment," Omer Esiner, a chief market analyst at Commonwealth Foreign Exchange in Washington DC, told Reuters.

The euro rose as high as  US$1.2700, its highest since mid-May, according to Reuters data. It was last up 0.3% at US$1.2669.

The US dollar rose 0.9% to 88.53 yen, while the euro rose 1.3% against the Japanese currency to 112.32.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.49% to 259.51.

Oil rose as a report showed a fall in crude inventories in the United States, the world's biggest consumer.

Crude stocks fell by 4.96 million barrels last week, the Energy Information Administration report said, more than analysts expected, but less than the decline reported by the American Petroleum Institute (API) on Tuesday.

US crude oil futures for August rose as much as US$1.83 to US$75.90 a barrel, the highest intraday price since June 30, and were up US$1.08 at US$75.15 by 1520 GMT.
ICE Brent crude for August rose US$1.04 to US$74.55.

The EIA report released at 1500 GMT also showed gasoline inventories unexpectedly rose by 1.32 million barrels, while distillate stocks rose a less-than-expected 321,000 barrels.

Gold fell. Spot gold stood at US$1,191.35 an ounce by 1514 GMT, compared with US$1,201.85 late in New York on Wednesday, when it hit a low of US$1,185.05, its lowest since May 25 and around 6% below late June's record high.

US gold futures for August delivery dipped US$8.90 to US$1,190 an ounce.

Across the rest of the precious metals complex, silver was bid at US$17.75 an ounce, compared with US$18.00 on Wednesday, while platinum was at US$1,504 an ounce, versus US$1,523.50 and palladium was at US$434.08, compared with US$446.00.

US copper futures edged higher. Copper for September delivery  rose 0.05 cent to end at US$3.0155 per pound on the COMEX metals division of the New York Mercantile Exchange.

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