Wall St lower as investors lock in profits

US stocks had a lacklustre start on Monday, as equity investors looked to lock in profits after the best week for equities in almost five years.

Less than an hour after the opening bell, the S&P 500 was down 0.5 per cent at 1,388.31. The Nasdaq Composite fell 0.5 per cent to 2,401.36 and the Dow Jones Industrial Average also shed 0.5 per cent to 12,683.20.

Equities rebounded strongly last week after a rotten start to the New Year. Stocks chalked up their best weekly performance since March 2003, as another 50 basis point interest rate cut, a plan to rescue troubled bond insurers and Microsoft's $44.6bn bid for Yahoo helped boost beaten-down sentiment on Wall Street.

The potential tech mega-merger may come in for close scrutiny after Google said on Sunday the takeover could open the way for Microsoft to extend its PC monopoly to the internet.

Separately, the FT reported that Yahoo insiders see an alliance with Google as one of its best options for fighting off a Microsoft takevover. Yahoo rose 1.8 per cen to $28.88 while Microsoft was unchanged at $30.48.

Google has problems of its own after Goldman Sachs on Monday removed the online search giant from a conviction buy list. Google's quarterly earnings last week failed to exceed Wall Street's expectations. The shares fell 1.2 per cent to $509.68 on Monday, extending a decline of more than 25 per cent this year.

A rescue plan to prevent bond insurers losing their triple-A credit ratings is unlikely to receive help from private equity firms, the Financial Times reported, as they believe the risks are too great.

US and European banks are joining forces to help recapitalise Ambac Financial, a leading monoline insurer, in order to avoid a potentially damaging downgrade from one of the big credit agencies. Separate teams are working with other bond insurers. Ambac fell 1.4 per cent to $13.02 and MBIA was down 3.9 per cent at $15.72.

Financial companies have rallied well in recent days as investors have looked to buy into weakness. Concerns about further credit losses and writedowns remain, however, and the sector led equities lower on Monday.

UBS told investors to sell shares in credit card issuers American Express (NYSE:AXP), Capital One Financial (NYSE:COF) and Discover Financial Services citing expectations of rising credit losses in the consumer finance industry.

The firm cut its price target on AmEx from $67 to $45, causing the stock to fall 2.9 per cent to $48.14. Capital One fell 4.8 per cent to $54.23.

Wall Street analysts fear a significant weakening in the employment market could lead to rising delinquencies as losses spread beyond the subprime mortgage market. Economists were shocked on Friday after the US economy lost jobs for the first time in four and a half years.

In earnings news Archer Daniels Midland (NYSE:ADM), the food producer, increased quarterly profits to $473m from $441m, narrowly missing some analysts' estimates, while sales jumped 50 per cent to $16.5bn. The shares fell 2.3 per cent to $44.46.

Humana (NYSE:HUM), the health insurer, increased fourth quarter profits by 57 per cent to $243.2m , beating Wall Street estimates, while revenues rose 12 per cent to $6.34bn. However, the stock fell 3.8 per cent to $78.76.

Wendy's, the fastfood chain, said fourth quarter earnings rose 42 per cent, helped by improved margins but sales fell slightly and the shares slipped 2.8 per cent to $24.47.

Earnings updates from News International and Yum Brands are due later on Monday.

European stocks pared earlier gains as Wall Street opened. The FTSE Eurofirst 300 index was up 0.4 per cent, the FTSE 100 put on 0.1 per cent but the Cac-40 was trading 0.2 per cent lower in France. Asian equity markets had a strong day, led by a 3.8 per cent rally on the Hang Seng and a 2.7 per cent jump on the Nikkei.

Short-dated Treasury prices rose a fraction, erasing earlier losses, as equities opened to the downside. The yield on the two-year Treasury note eased 1bp to 2.06 per cent while the 10-year Treasury yield was up 4bp at 3.63.

The 153bp yield curve - the spread between short and long-dated Treasuries - was just shy of its steepest since 2004, as traders continue to bet on further interest rate cuts in coming months. The futures market priced in a 58 per cent chance of another 50bp cut when the Fed next meets in March, with at least one further round of easing seen likely.

The dollar was mixed against major currencies early in New York. In overnight trade the dollar gave up 0.1 per cent to $1.4817 against the euro and 0.6 per cent against the pound at $1.9768. Against the yen the US currency rose 0.3 per cent to Y106.95.

The gold spot price fell 0.7 per cent to $907 continuing last week's sell off while crude oil prices back above the $89 mark.

Monday's economic data was led by a 2.3 per cent increase in US factory orders, in line with economists expectations and the biggest increase since July.

The reading provided support to the argument that US manufacturing is holding up well, buoyed by the weaker dollar which has made US exports more attractive. Last week US durable goods orders rose more than expected and the ISM manufacturing index expanded.

The ISM services index is due on Tuesday with initial jobless claims and pending home sales on Thursday and wholesale inventories on Friday.