Archive for October, 2008

Wall Street rallies on rate cuts, bargain hunting (Reuters)

Thursday, October 30th, 2008 | Finance News

NEW YORK (Reuters) –
Stocks climbed on Thursday as investors snapped up shares trading near their lowest levels in five years on optimism that aggressive rate cuts by global central banks, including the Federal Reserve, will help cushion a worldwide economic downturn.

Investors also found support in signs that efforts to loosen up clogged credit markets were taking hold as the rate that banks charge to lend dollars to each other fell, freeing up cash needed to avert a sharp slowdown.

With just a day left in October, stocks are on course to post their biggest one-month loss since the 1987 crash.

In the latest batch of earnings results, Colgate-Palmolive Co (CL.N) rose 7.1 percent to $64.23 on the New York Stock Exchange after the consumer products maker posted quarterly profit that beat estimates.

Although data showed the U.S. economy experienced its sharpest contraction in seven years in the third quarter, the reading on gross domestic product was slightly better than expected.

"Is it going to be perhaps shallower than we were all fearing or is it something that's going to build like a snowball?" said Matt Kaufler, portfolio manager and equity analyst at Clover Capital Management in Rochester, New York.

"There's perhaps more room for optimism today that we can get through this than there was perhaps two weeks ago."

The Dow Jones industrial average (.DJI) rose 189.73 points, or 2.11 percent, to 9,180.69. The Standard & Poor's 500 Index (.SPX) gained 24.00 points, or 2.58 percent, to 954.09. The Nasdaq Composite Index (.IXIC) was up 41.31 points, or 2.49 percent, at 1,698.52.

On Nasdaq, shares of Apple Inc (AAPL.O), maker of the iPhone and the iPod, rose 6.2 percent to $111.04, while Intel (INTC.O) shot up 8.2 percent to $16.17.

Technology is among the sectors that analysts see poised to be the biggest beneficiaries of an economic revival.

Office Depot Inc (ODP.N) leaped 48.6 percent to $3.12 and ranked near the top of the NYSE's biggest percentage gainers on the day after it said it would delay opening new stores in a weak economy.

Rival Staples Inc (SPLS.O) ran up 15.6 percent to $18.42 after the world's largest office products retailer said its third-quarter adjusted profit would beat estimates.

The market's gains came a day after the Fed cut its benchmark fed funds rate for overnight bank loans by 50 basis points, or a half-percentage point, to 1 percent. The move was followed by rate cuts in Taiwan, Hong Kong and China.

Japan is expected to cut rates on Friday, while the European Central Bank, the central bank of Australia and the Bank of England are expected to cut rates next week.

But investors remain concerned that the efforts to shore up the economy might take longer to yield sustainable results and brighten the profit picture.

The price of oil fell more that 2 percent to settle under $66 a barrel as the U.S. economic data prompted worries that demand could be further dampened.

Airlines' shares jumped on the sharp drop in U.S. crude futures prices. The Airline Index (.XAL) surged 10.7 percent.

Exxon Mobil (XOM.N) reversed course in afternoon trading and edged up 0.5 percent to $75.05 after the major oil company's profit exceeded expectations. Exxon, however, said its quarterly oil output fell.

Shares of Hartford Financial Services Group Inc (HIG.N) sank 51.6 percent to $9.62 after the property and life insurer reported a surprisingly large quarterly loss, raising concern that it may need to raise more capital. The insurer's stock was the biggest percentage loser on the Big Board.

Prudential Financial Inc (PRU.N) shed 18.1 percent to $28.87 the day after it swung to a quarterly loss that marginally missed the Street's expectations.

Trading was moderate on the New York Stock Exchange, with about 1.38 billion shares changing hands, below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.54 billion shares traded, above last year's daily average of 2.17 billion.

Advancing stocks outnumbered declining ones on the NYSE by about 4 to 1, while on the Nasdaq, about three stocks rose for every one that fell.

(Editing by Jan Paschal)

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Exxon, Shell profits soar, but oil dip hits shares (Reuters)

Thursday, October 30th, 2008 | Finance News

NEW YORK (Reuters) –
Exxon Mobil Corp (XOM.N) topped its own record for the biggest U.S. quarterly operating profit and Royal Dutch Shell Plc (RDSa.L) earnings beat market forecasts on Thursday, helped by high oil prices and fatter refinery margins.

But both Exxon and Shell said their quarterly oil output fell, in part from damage caused by Hurricanes Gustav and Ike, which swept through the Gulf of Mexico during the quarter.

U.S. oil prices averaged about $118 a barrel in the third quarter, more than $40 higher than the year-ago period. They had peaked above a record $147 in early July before turning and falling by nearly 60 percent over the next three months.

That decline, coupled with knock-on effects of the credit crunch on oil and gas producers, prompted a few more U.S. oil services companies to cut 2009 spending forecasts on Thursday.

Exxon and Shell posted strong performances in refining, which benefited as the falling crude oil price trimmed costs, even as demand for gasoline shrank, analysts said.

Gene Pisasale, senior energy analyst at PNC Capital Advisors, called Exxon's U.S. refining profits a positive, but said it needed to focus on boosting oil and gas output.

"They need to be more aggressive with the drill bit. ... That's going to be the focus going forward," he said.

The global economic slump has prompted energy experts to pare back oil demand forecasts in recent months, and the oil price declines have forced many companies, such as Hess (HES.N) and Suncor Energy (SU.TO), to rein in spending on projects.

Yet Irving, Texas-based Exxon said it planned to stick to its spending plans of $25 billion this year as it maintained its strong financial position despite the economic turmoil.

Smaller rival Marathon Oil Corp (MRO.N) said rising production and improved refinery margins helped it more than double profit in the quarter, but it cut planned 2009 spending by more than 15 percent because of the current business environment.

Exxon's earnings jumped 58 percent from a year ago to $14.8 billion, and operating profit climbed 42 percent to $13.4 billion, easily topping the previous U.S. record it set in the second quarter at $11.7 billion.

Exxon's majority-owned Imperial Oil Ltd (IMO.TO), Canada's top oil company, also had a strong quarter.

Shell's profit rose 71 percent to $10.9 billion, topping analyst forecasts, but its shares slipped as investors focused on the Anglo-Dutch major's 7 percent drop in oil and gas production.

Shell also said Chief Financial Officer Peter Voser would take over from Jeroen van der Veer as CEO next July.

A decline in oil futures prices that cut into a rally early this week pushed Exxon shares down 2.5 percent, after early gains, and Shell fell 4.1 percent. Marathon jumped 6.3 percent.

SERVICE SECTOR SEES SLOWDOWN

U.S. oil services company BJ Services Co (BJS.N), while posting a rise in profit on Thursday, foresaw weaker activity by oil and gas producers weighing on its future earnings. It cut fiscal 2009 capital spending plans to a range of $550 million to $575 million, down from $600 million in 2008.

Rival Cameron International Corp (CAM.N), alongside a solid third-quarter performance, also said its 2009 capital expenditure would fall.

"When you look at the kind of capex we spent the last couple of years, if you make the assumption that we're pretty much where we need to be on capacity given the outlook, you'll probably see capex come down a little bit," Chief Financial Officer Charles Sledge told analysts on a conference call.

That dimmer outlook was echoed by driller Patterson-UTI Energy (PTEN.O), which said the number of rigs hired by energy companies to search for oil and gas was likely to shrink through the end of the year.

Patterson-UTI posted a rise quarterly profits of more than 10 percent, while contract driller Pride International Inc (PDE.N) saw its profits surge.

Pride shares jumped 13 percent, Patterson-UTI shares rose 9 percent and Cameron was up 8.8 percent, while BJ Services fell less than 1 percent.

India's Oil and Natural Gas Corp (ONGC.BO) reported a 5.7 percent drop in quarterly profit on Thursday, missing market expectations as its subsidy burden grew.

ONGC, accounting for 78 percent of India's oil and gas production, must sell oil from its domestic output at mandated discounts to state-run refiners to keep retail prices low.

(Reporting by Matt Daily, Euan Rocha and Michael Erman in New York, Anna Driver in Houston, Braden Reddall in San Francisco, Tom Bergin in London and Devidutta Tripathy in New Delhi; Editing by Dave Zimmerman and Brian Moss)

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Economy contracts as consumers retreat (Reuters)

Thursday, October 30th, 2008 | Finance News

WASHINGTON (Reuters) –
The U.S. economy suffered its sharpest contraction in seven years in the third quarter as consumers cut spending and businesses reduced investment at the onset of what may be a severe and long-lasting recession.

The Commerce Department said on Thursday that U.S. gross domestic product shrank at a 0.3 percent annual rate as the sharpest pullback by consumers since 1980 overwhelmed an increase in government spending.

"This is just the beginning of contraction," said Sung Won Sohn, an economics professor at California State University, who said the fourth quarter will certainly show another decline, which would meet the traditional definition of recession, or back-to-back quarters of falling activity.

A drop in GDP had been widely expected and the decline was not as great as feared, easing the angst of investors who bid U.S. stocks up on hopes interest-rate cuts by central banks around the globe can ward off a deep downturn.

U.S. voters go to the polls on Tuesday to elect the next president, and a run of gloomy economic news has given Democratic candidate Sen. Barack Obama an edge over Republican rival Sen. John McCain in the polls.

While the White House conceded the economy had "weakened substantially," it insisted measures it has initiated, like a plan to buy troubled mortgage assets from banks, should help ease credit-market woes, which have cast a cloud worldwide.

Paul Ashworth, senior U.S. economist for London-based Capital Economics Ltd, said he now expects the U.S. economy to shrink 1.5 percent next year, with no growth in 2010.

"Overall, we expect the level of GDP to shrink by a total of 2.5 percent, which would make this one of the worst recessions since the Great Depression," Ashworth said.

CONSUMER FALTERS

Speaking in Florida, Obama said McCain would continue the policies of President George W. Bush, which had landed the economy in trouble. "George Bush has dug a deep hole for us and he wants to hand the shovel to John McCain," he said.

McCain adviser Carly Fiorina said the data was no surprise and the Republican candidate had the right economic prescription. "I think that people have been expecting it now that we would be going into a recession for some time," she told reporters in Ohio, adding that lower capital gains taxes and investment incentives were needed to spur job creation.

The third-quarter contraction was a striking turnaround from the second quarter's relatively brisk growth rate of 2.8 percent, a pace supported by a shot of government stimulus.

Consumer spending, which fuels two-thirds of U.S. economic activity, fell at a 3.1 percent rate in the third quarter -- the first drop since the closing quarter of 1991. Spending on nondurable goods -- items like food and paper products -- shrank at the sharpest rate since late 1950.

Heavy government spending, still-strong export growth and a slower pace of inventory liquidation helped mask the extent of deterioration in other sectors.

"The bad news is the private sector was doing really badly," said Nigel Gault, chief U.S. economist at Global Insight in Lexington, Massachusetts. "Consumer spending, equipment and software, residential -- the whole private side was very weak."

STRESS MOUNTS

Continuing job losses, coupled with declines in the value of stocks and homes, have put consumers under severe stress.

The report showed that disposable personal income dropped at an 8.7 percent rate in the third quarter -- the steepest on records dating to 1947 -- after economic stimulus payments helped push it ahead at an 11.9 percent clip in the second quarter.

Separately, the Labor Department said weekly claims for new unemployment benefits were unchanged at a lofty 479,000 last week, a level that signals weak hiring prospects.

The U.S. economy has shed jobs in each of the last nine months, with about 750,000 lost so far. On Thursday, American Express (AXP.N) said it would cut 7,000 jobs, while Motorola Inc (MOT.N) said it would let 3,000 workers go.

Mass layoffs -- involving 50 or more people -- hit their highest level since September 2001 last month.

In the third quarter, spending on durable goods like cars and furniture fell at a 14.1 percent annual rate, the steepest drop since the beginning of 1987, while businesses cut investment spending for the first time since the end of 2006.

In contrast, federal government spending shot up at a 13.8 percent annual rate, the strongest gain since the second quarter of 2003 when the war in Iraq began.

Prices rose strongly in the third quarter, with a gauge of prices on items consumers bought up at a 5.4 percent annual rate, the sharpest since early 1990. But oil prices peaked in July and many other commodity prices have also begun to ease, signaling a big shift in the inflation outlook.

(Editing by Neil Stempleman and Leslie Adler)

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