Archive for March, 2009

World markets surge ahead of US bank assets plan (AP)

Monday, March 23rd, 2009 | Finance News

LONDON – World stock markets soared Monday ahead of a U.S. announcement to purge as much as $1 trillion in bad bank assets and as Japan signaled more stimulus measures to resuscitate the world's second-largest economy.

By noon in mainland Europe, Britain's FTSE 100 climbed 1.4 percent to 3,898.17, Germany's DAX jumped 1.8 percent to 4,143.15, and France's CAC 40 advanced 1.5 percent to 2,833.61.

Investors were largely cheered by the Obama administration's latest effort to heal the hard-hit financial sector and restore bank and consumer lending. The program, to be unveiled later Monday, involves creating a new government entity to clear from bank balance sheets up to $1 trillion in souring securities and loans at the root of the crisis.

The initiative seeks to enlist private investors by offering billions of dollars in low-interest loans and sharing certain risks, and is just the latest in an unprecedented effort by major governments to stem the worst global downturn in decades.

"Simply hoping for banks to work these assets off over time risks prolonging the crisis," U.S. Treasury Secretary Timothy Geithner wrote in an opinion piece in Monday's Wall Street Journal.

U.S. futures were boosted by the pending announcement. Dow industrials futures jumped 2.4 percent to 7,425, Standard & Poor's 500 index futures rose 2.7 percent to 787.90, and Nasdaq 100 index futures added 2.7 percent to 1,219.50. On Friday, Wall Street lost ground without any significant news to reinforce its recent rally.

"Markets are certainly reasonably buoyant this morning after a difficult session in the States — pretty much all around anticipation for Mr. Geithner's plans to try and move toxic assets from the banking sector," said Keith Bowman, an analyst at Hargreaves Lansdown Stockbrokers in London. "There's hope that this second announcement will prove more fruitful than the first one we heard in February, when investors felt there was not enough detail."

In Asia, markets resumed their two-week advance after ending mixed Friday. Tokyo shares helped lead the region's gains, with the country's benchmark hitting a two-month high, after Japan's finance minister said aggressive public spending to the tune of 20 trillion yen ($208 billion) might be needed to end the country's painful recession.

The market's mood was shadowed by questions about whether enough private investors would participate and how the banks' highly illiquid assets would be priced. But for now, news of the bailout helped re-energize a global rally that started two weeks ago on signs of improvement in the financial system.

"It's becoming difficult to remain bearish," said Desmond Tjiang, chief investment officer, who helps manage $3 billion in Asian equities at Fortis Investment Management in Hong Kong. "The governments have definitely helped ... and people are still hoping for a second-half recovery."

In Europe, shares of Daimler AG were up 2.5 percent, after earlier rising 8.2 percent, following an announcement that Abu Dhabi-based Aabar Investments PJSC will buy a stake in the German automaker and become its biggest shareholder. Aabar's biggest shareholder is the International Petroleum Investment Co., owned by the Abu Dhabi government.

Tokyo's Nikkei 225 stock average surged 269.57 points, or 3.4 percent, to 8,215.53 as a weaker yen also boosted sentiment. Hong Kong's Hang Seng jumped 613.91, or 4.8 percent, 13,447.42, and South Korea's Kospi climbed 2.4 percent to 1,199.50.

Elsewhere in Asia, Shanghai's key index added 2 percent to 2,325.48 on higher commodity prices. Australia's benchmark gained 2.4 percent, while India's Sensex climbed 5.1 percent to 9,424.02.

Banks were especially strong across the region, with Japan's Sumitomo Mitsui Financial Group Inc. jumping 7.3 percent and Mizuho Financial Group Inc. up 5.3 percent. China Construction Bank surged 7 percent in Hong Kong.

Higher oil and commodity prices lifted Australian mining giant BHP Billiton Ltd, which rose 3.5 percent. Benchmark crude for May delivery gained 10 cents at $52.17 a barrel in European trade.

On Friday in New York, the Dow Jones industrial average had fallen 122.42, or 1.7 percent, to 7,278.38. Broader stock indicators also lost ground, with the Standard & Poor's 500 off 15.50, or 2 percent, to 768.54.

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AP business writer Jeremiah Marquez in Hong Kong contributed to this report.

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Asia stocks hit 2-month high on U.S. debt plan (Reuters)

Monday, March 23rd, 2009 | Finance News

HONG KONG (Reuters) –
Asian stocks rose to a two-month high on Monday and high-yielding currencies advanced on the yen after details of a U.S. plan to rid banks of up to $1 trillion in toxic assets bolstered confidence in risk taking.

The White House said it would put as much as $100 billion into a bailout fund and give attractive financing to private investors to buy highly illiquid assets from banks, prompting dealers to dive back into equities and trim their holdings of safe haven assets like U.S. Treasuries.

Major European stock market futures rose more than 1 percent, indicating higher openings, while U.S. stock market futures were up 2 percent as a wave of optimism spread.

Still, doubts lingered, with the U.S. housing market showing few signs of bottoming yet, uncertainty over how the bad debts will be priced and concerns whether more borrowing by over indebted households is the solution to a credit crisis.

"If the U.S. authorities actually succeed in buying up to $1 trillion of 'toxic assets', it would be considered a significant step by the financial markets. However, the markets will be disappointed if the programs did not move forward due to problems regarding how the assets' value is measured," said Mamoru Yamazaki, chief economist with RBS Securities in Tokyo.

The Nikkei share average (.N225) ended 3.4 percent higher, closing at the highest level since late January, getting the biggest boost from technology shares.

Shares in Japan's big banks outperformed. Mizuho Financial Group (8411.T) rose 5.3 percent and Mitsubishi UFJ Financial Group (8306.T), the country's biggest bank, gained 4.7 percent. MUFG said earlier it would cut 1,000 jobs.

The MSCI index (.MIAPJ0000PUS) of Asia Pacific stocks outside Japan was up 4 percent, hitting a two-month high, supported mostly by the energy, financial and materials sectors.

Hong Kong's Hang Seng index (.HSI) rose 3.4 percent, led by a 5.3 percent gain in China Construction Bank (0939.HK). Index heavyweight HSBC (0005.HK) slipped 2.5 percent as its deeply discounted rights shares begin trading on Monday.

Details of the U.S. toxic debt plan, which slowly emerged through newspaper reports over the weekend, extended a global stock market rally that has lasted nearly two weeks on hopes the financial system was stabilizing after some of the largest U.S. banks said they had solid results in the first two months of the year.

BlackRock Inc (BLK.N), the largest U.S. publicly traded asset manager, said it would take part in the plan as an investment manager on the program, relieving some uncertainty as to how much private participation there would be.

MORE DETAILS, MORE QUESTIONS

Removing bad loans from the balance sheets of U.S. banks, which have kept financial institutions from lending more, has been viewed by economists as essential before a recovery could begin.

The details on Monday took away some of the mystique as to how the U.S. Treasury Department would get that done.

However, questions lingered as to whether this plan was the antidote to the monstrous problem that has ultimately sucked the global economy into recession.

"The key to the success of all these initiatives is the ability and willingness of corporations and U.S. households to borrow. Households, especially, are still over-leveraged. The solution to that is to save more out of current income and use the savings to repay debt. But, lower interest rates incentivize borrowings and not savings," said V. Ananthan-Nageswaren, chief investment officer, Asia Pacific with Julius Baer in Hong Kong.

For now at least, investors were given the green light to venture back into riskier assets.

Currencies that were sold off heavily during the most violent periods of market volatility performed well. The Australian dollar rose more than 1 percent to around $0.6980, a two-month high, and sterling strengthened by 1 percent to $1.4565.

The euro hit a five-month high against the yen, near 132 yen, following remarks by European Central Bank President Jean-Claude Trichet underscoring that rates were already at low levels and that the central bank may turn to unconventional measures to shore up the banking system.

U.S. Treasuries were under pressure as stock markets picked up momentum. The yield on the benchmark 10-year Treasury note ticked up to 2.67 percent, up from around 2.65 percent late on Friday in New York.

The 10-year yield has retraced about a quarter of the decline suffered after the Federal Reserve last week stunned markets by saying it would buy about $1 trillion of long-term securities from the market, including $300 billion of Treasuries.

U.S. crude futures rose over 1 percent toward $53 a barrel on Monday, bolstered by expectations that the U.S. Treasury's efforts to stabilize the ailing financial system would speed up a recovery in the U.S. economy.

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Investors banking on toxic plan (Reuters)

Sunday, March 22nd, 2009 | Finance News

NEW YORK (Reuters) –
Wall Street's attempt to recover further from 12-year lows faces its biggest test yet this week in the Treasury's long-delayed bank rescue plan.

But skeptics abound after reports this weekend revealed a plan coupling old approaches with several new twists.

Concerns about the lack of investor interest last week in the government's new fund aimed at reviving consumer and small- business lending, called the Term Asset-Backed Securities Loan Facility (TALF), rippled through the U.S. stock market, sending major indexes down about 2 percent on Friday.

"I don't think the market will jump up and down on this (new plan)," Chip Hanlon, president of Delta Global Advisors Inc, in Huntington Beach, California, said on Sunday.

"This is an alphabet soup of brilliant new ideas" that come on the heals of several failed efforts, he added.

The plan incorporates a three-pronged approach that includes the Federal Deposit Insurance Corp offering low-interest loans to private investors for buying up banks' soured assets, a source familiar with the plan said on Saturday.

The Treasury Department will also revive a recent idea to hire fund managers to run a public-private fund that invests for potential profit in troubled mortgages, with government capital matching private capital contributions and the Federal Reserve will expand the $1 trillion TALF to buy old assets weighing on bank balance sheets.

Analysts herald the toxic-asset plan as integral to jolting the recession-hit economy at a time when unemployment and jobless claims notch multiyear highs.

The weakness of the economy will likely be highlighted by reams of economic data, including sales of new and existing homes, a final reading on fourth-quarter gross domestic product and weekly jobless claims.

Indications on the consumer's state of mind may come from quarterly results from closely watched names such as electronics retailer Best Buy Co (BBY.N) and an expected wave of pre-announcements about earnings, as well as a final reading on March consumer sentiment and a report on February personal income and consumption.

Still, the bank plan more than any other factor probably will be in the forefront of investors' minds.

"Pretty much everything else is going to be background noise to the core issue: confidence in banks," said Eric Kuby, chief investment officer for North Star Investment Management Corp, in Chicago.

ALL ABOUT BANKS

Stocks rose last week, emboldened by news that the Federal Reserve would take bold steps to expand its balance sheet and purchase mortgage-backed securities. Still the Fed move underscored the extent of the economy's weakness and worries over unintended consequences of the central bank's decision, which spurred a sell-off late in the week.

For the week, the Dow gained 0.75 percent and the S&P 500 added 1.58 percent, while the Nasdaq climbed 1.80 percent.

Before news of the new three-pronged effort, investors had been anticipating details on the closely related Public Private Investment Fund, or PPIF -- first proposed last month in only very broad terms by U.S. Treasury Secretary Timothy Geithner.

Some government officials have said the plan could be modeled on the Fed's $200-billion Term Asset-Backed Securities Loan Facility, known as TALF.

But the lackluster reception of the first TALF auction on Thursday suggests there will be challenges for the bank recovery plan. Additionally, lobbyists said the drama over bonuses for workers at American International Group (AIG.N) was prompting private investors to hesitate about participating in the program.

Funding for the bank plan and the pricing of those bad assets are key issues that investors will be keen to get more details on, Praveen said.

A disappointing plan could set the stage for a sharp, swift slide in the stock market, but a well-designed one could serve as a catalyst for further gains.

"Two things have really roiled the market place throughout the cycle -- the lack of clarity at the policy-maker level and the pattern of the rules changing in the middle of the game," said Craig Peckham, equity trading strategist at Jefferies & Company in New York.

"If we can assuage those concerns with the 'bad bank-good bank' plan, that will help."

CHECKING THE CONSUMER'S PULSE

Friday's reports on March consumer sentiment and February personal income, as well as earnings from companies like Walgreen (WAG.N) and Tiffany & Co (TIF.N), may provide further clues on consumer psychology. Existing home sales for February are due on Monday, while new home sales for that month will be released on Wednesday.

"By and large, things are getting less bad overall," Peckham said. "Dare I say it? We're starting to scratch the bottom of consumer spending."

But obstacles could come from Wednesday's data on February durable goods orders and the final reading on fourth-quarter gross domestic product on Thursday.

Last month's preliminary reading showed the economy contracted at an annual rate of 6.2 percent in the final three months of 2008.

Economists polled by Reuters on average expect the final reading on fourth-quarter GDP to show a drop of 6.5 percent, but some estimates call for a decline of 6.9 percent.

A downward revision "might give some negative sentiment that things are even much worse than what we were looking for," Praveen said.

But "a positive revision might give a little bit of a relief."

(Wall St Week Ahead runs weekly. Questions or comments on this one can be e-mailed to: deepa.seetharaman(at)thomsonreuters.com)

(Additional reporting by Chris Sanders, Edward Krudy and Leah Schnurr; Editing by Jan Paschal and Maureen Bavdek)

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