January 28, 2008

Wall Street extends rebound

US stocks were trading higher for the third consecutive session on Friday, repairing more of the damage inflicted in January, and were on course for their first weekly rise this year.

A bullish outlook from Microsoft and other upbeat earnings from Caterpillar (NYSE:CAT) and Honeywell (NYSE:HON) helped sentiment.

Investors were also digesting a proposed stimulus plan from Washington and expecting more rate cuts next week when the Federal Reserve meets.

Less than an hour after the opening bell, the S&P 500 was up 0.75 per cent at 1,362.20 and had traded between a high of 1,368.56 (up 1.2 per cent) and a low of 1,357.32 (up 0.4 per cent on the day). For the week, the S&P is up 2.8 per cent, clipping its overall loss this month to 7.2 per cent.

The Nasdaq Composite was up 0.9 per cent at 2,383.22, a gain of 1.8 per cent this week and trimming its loss this month to 10 per cent.

The mood in technology was boosted late on Thursday, when Microsoft beat fiscal second quarter earnings estimates and raised guidance. The stock was up 2.6 per cent at $34.12, after a rise of 4.1 per cent to $33.25 in regular trade on Thursday.

The Dow Jones Industrial Average was 0.5 per cent higher at 12,445.35. The Dow has risen 2.9 per cent this week, paring its loss since the start of the year to a fall of 6.2 per cent.

In earnings news, Caterpillar said fourth-quarter net income rose 11 per cent, buoyed by international growth. However, the heavy equipment maker said it expects "recessionary conditions" in parts of the US will persist. The stock was up 1.6 per cent at $66.32 as Caterpillar reiterated its 2008 outlook.

Meanwhile, Honeywell reported 18 per cent growth quarterly net income, boosted by its aerospace division. The industrial blue chip, however warned that the global economy would soften in 2008, and the stock was up 3.7 per cent at $58.30.

Shares in Harley-Davidson (NYSE:HDI) has slipped 0.2 per cent to $40.06, after its fourth quarter profit fell 26.3 per cent amid weakening US motorcycle sales.

Also making news was the debut of RiskMetrics Group. The provider of risk management and corporate governance products priced at $17.50 and was trading at $20.23, having risen as high as $23.10.

As stocks have extended their recovery this week, the mood in government bonds has also sharply reversed.

The yield on the two-year note was trading at 2.32 per cent early on Friday, up from 1.84 per cent on Wednesday.

"The recent rise in yields and flattening of the curve has merely partially undone the panic price action early in the week and does not change our fundamental view of the situation that economic slowing and mounting financial market losses will allow yields to test lower and the curve steeper," said TJ Marta, fixed income strategist at RBC Capital Markets.

Interest rate futures priced in a Federal funds rate of 3.12 per cent by the end of the month, after being below 2.90 per cent earlier this week.

The dollar was firmer against major currencies in New York, up 0.4 per cent at Y107.64 versus the Japanese yen and higher by 0.4 per cent at $1.47 against the euro.

In commodities, gold jumped on Friday to a new all-time high above $920 a troy ounce as mining companies in South Africa, the world's second largest producer, halted their operations because acute power shortages.

Wall Street's bets of further US interest rates cut, the weakness of the US dollar and rising oil prices above $90 a barrel also are contributing to the precious metal rally, traders in London said.

Spot bullion in London rose to a record of $921.30 an ounce, well above the peak of $914 an ounce set earlier this month.

US crude oil was trading up $1.45 cents at $90.66 a barrel.

Over in Europe, stocks were firmer after the open on Wall Street, but down from their earlier highs. The FTSE Eurofirst 300 index was 1.5 per cent higher. In London the FTSE 100 was trading up 0.8 per cent, the Cac-40 was higher by 1 per cent, while in Germany the Dax was up 2 per cent.

In overnight trading, Asian equity markets closed sharply higher, led by a 6.7 per cent rally in Hong Kong. Australia's bourse rallied 5 per cent and Japan's Nikkei 225 index jumped 4.1 per cent.

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