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While you were sleeping: Stocks, oil hit pause

Wednesday 6th January 2010

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Investors in Europe and on Wall Street hit the pause button after the initial strong advance into the new year as they await further signs that the global economic recovery was strengthening.

The Dow Jones Stoxx 600 Index was little changed at 257.55 in London, having swung between gains and losses at least 14 times.

Across Europe, individual benchmarks advanced in 12 of the 18 western markets. The U.K.’s FTSE 100 rose 0.4%, while Germany’s DAX declined 0.3%. France’s CAC 40 was little changed.

Among the movers was Cadbury which shed 3.4% in London after Nestle, the world’s largest food company, said it won’t join an offer for the chocolate maker. Kraft, which is attempting to buy the U.K. company, extended its bid deadline to February 2 and offered more cash in place of stock.

Cadbury stock then extended declines after Warren Buffett’s company, Kraft’s top shareholder, voted against Kraft’s proposal to issue as many as 370 million shares to help acquire the candy maker.

Glaxo slid 2.5%, Sanofi lost 1.3% and Novartis dropped 1.8% In contrast, Allied Irish surged 11%, extending the 13% advance the day before after the Irish government said it would provide capital to banks as required.

Banks led the Stoxx 600 industry groups today, helped by the naming of Barclays Plc as the top pick for this year Deutsche Bank AG and MF Global.

In early afternoon trading on Wall Street, the three major benchmarks were little changed.

The Dow Jones Industrial Average fell 0.26%, the Standard & Poor’s 500 Index rose 0.05% and the Nasdaq Composite Index was down 0.06%.

The S&P 500 is trading at about 24 times its companies’ earnings, the most expensive level since 2002, according to Bloomberg.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ fell 2.15% to 19.61.

Ford today reported a 33% jump in U.S. sales in December and Nissan reported an 18% gain in its U.S. sales,both results exceeded expectations. While Toyota and Honda are forecast to report increases too, GM is expected to report a decline.

While investors await Friday’s U.S. jobs report to help assess when the Federal Reserve may be likely to start to increase interest rates, a key U.S. investment adviser said everyone should relax.

Richard Clarida of Pacific Investment Management Co told Bloomberg Television that he doesn’t anticipate any change in rates until late 2010 or 2011. “The Fed has never hiked until they have seen a sustained decline in unemployment,” Clarida said. “By the Fed’s own forecast, that is at least one year away.”

On the economic front, there were two reports in the U.S. overnight, showing that measuring the recovery remained a challenge. While pending homes sales dipped more than expected as a key federal tax credit expired, factory orders advanced at a faster than forecast rate. The focus though is clearly on Friday’s jobs report.

In midday New York trading, the euro was down 0.1% at US$1.4392, having climbed to around US$1.4483 earlier in the day to hit its strongest since December 17.

The dollar fell 1.1% to 91.58 yen, on track for its biggest one-day percentage loss in nearly a month. It fell to 91.26 yen, its lowest in about two weeks.

The latest CFTC data showed that large speculators have flipped to long dollars versus the yen last week for the first time since June, leaving the currency pair vulnerable to a modest correction, according to Bloomberg.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.07% to 77.53.

U.S. Treasury debt prices rose amid bargain hunting, traders said. The benchmark 10-year notes up 10/32 in price, yielding 3.78%. Last week, 10-year yields rose as high as 3.918%.

The London Interbank Offered Rate, or Libor, for three month loans in dollars fell 0.002 to 0.25.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.21% to 289.96.

Oil also hit the pause button amid signs the cold snap that had driven expectations for higher demand was easing.

Crude oil for February delivery fell 4 cents to US$81.47 a barrel on New York Mercantile Exchange. Futures reached US$81.99.

Spot gold was bid at US$1124.95 an ounce after earlier rising to US$1127.70.

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