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Sun May 18, 2008

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Sydney, May 10, 2008 (RWE via COMTEX) -- (RWE Aust Business News) Wall Street investors took fright after another financial company plunged after reporting a massive loss and write off.

Investor pessimism was exacerbated by record high oil prices. US equities tumbled after AIG's steep loss and capital-raising efforts suggested to investors that there may be more damage to come from the credit crisis.

Oil surged above $126 a barrel, creating another drag on equities and exacerbated by an OPEC report that oil could reach $299 barrel.

For the week, oil futures rose $9.64, or 8.3%, the largest ever weekly dollar increase on the New York Mercantile Exchange and the biggest percentage gain for more than two years.

In other commodities, corn production is expected to fall 7% this year to 12 billion bushels, the USDA said, as wet weather has slowed plantings.

The ethanol industry will consume four billion bushels, up from three billion in 2007.

At the bell, the Dow finished almost 1 per cent lower, - down 121 points and the broader industrial, S&P 500 off 9.

Technologies were more resilient with the Nasdaq losing a modest 6 and 100 index off 7.

It's been a bad week for the market, with the Dow losing 312 or 2pc, the S&P 500 down 26 or 1.8pc, the Nasdaq 31 or 1.2pc and the 100 index ending 22 lower or 1pc.

Treasuries edged up as the credit worries re-emerged and sparked demand for safe-haven bonds and notes.

The 10-year notes had to their best week in nearly two months.

Bonds gained following news late Thursday that American International Group, the world's largest insurer, posted a record $7.8 billion quarterly loss.

AIG's earnings were miserable and that affected the financials," said Joe Keetle, senior wealth manager at Dawson Wealth Management in Cleveland, Ohio.

The dismal AIG results fanned doubts about a recovery in credit markets.

Other financial companies including Swiss bank UBS and US home-finance company Fannie Mae have recently announced asset write-downs and credit losses stemming from subprime mortgages.

Credit fears have dragged equity markets from their recent peaks, and benchmark 10-year Treasury yields from their four-month highs reached earlier this week.

Treasuries were also influenced by some reassuring comments from Citigroup's new chief executive, Vikram Pandit, after the largest U.S. bank unveiled a plan to sell $400 billion of assets in a bid to become more efficient and profitable.

Citi has suffered hefty losses from the subprime mortgage debt crisis and its fallout.

It plans to wind down more than $400 billion in assets over the next two to three years as the financial-services giant, long criticised for its bloated cost structure, moves to shed some of its bulk under CEO Vikram Pandit.

The trade deficit narrowed 5.7% to $58.21 billion in March, more than expected, as imports of cars and crude oil dropped amid record-high oil prices and a weak economy. Exports fell 1.7%.

A record drop in U.S. imports because of slowing domestic demand took a big bite out of the US trade deficit in March despite record high oil prices.

The decline reflected another strong month of US exports and a record $6.1 billion drop in imports to $206.7 billion, which showed the US slowdown has taken a toll on consumer and business demand for foreign goods.

"Trade continues to be a huge support for the U.S. economy. Export demand is holding up well," said Nigel Gault, chief US economist at Global Insight.

"Meanwhile, much of the slowdown in US domestic spending is being passed on to the rest of the world through lower imports," he added.

The narrowing trade gap means the US economic growth was somewhat stronger than first estimated.

Based on the trade data, a stronger first-quarter GDP reading will support the view that the US economy would avoid a recession and alleviate pressure on the Federal Reserve to trim short-term interest rates further, analysts said.

On the economic data scene, falling U.S. consumer sentiment suggests the world's largest economy will grow by less than 1 percent this year, according to research just released by the Reuters/University of Michigan Surveys of Consumers.

The rapid diversification of the US economy in recent years of globalization has also made it vulnerable to micro recessions that present new challenges to policy makers, Richard Curtin, director of the Surveys of Consumers, said.

"When GDP growth is barely above zero, as it is now, the economic landscape becomes potholed by micro-economic downturns," Curtin said in a research note.

On the oil front, China will ship in 20 percent more diesel and jet fuel while staying a net importer of gasoline in May, as a new rule to fatten stockpiles kicks in and a tax break on fuel imports encourages inflows.

China will import 600,000 tonnes of diesel in May, from 500,000 tonnes last month and up from just 20,000 tonnes in May last year, as a rule for wholesalers to maintain inventories equivalent to at least 15 days of sales previously 10 days came into force on May 1.

Robust Chinese demand, which saw imports of the distillate hitting a record of 842,000 tonnes in January, has been adding to a supply strain worldwide, with Europe also competing fiercely in the global diesel pool.

China flipped into a net gasoline importer in April for the first time on record and has remained that way this month.

Bankrupt US auto parts maker Delphi Corp said on Friday its first-quarter net loss widened under production cuts at major customer and former parent General Motors Corp.

Delphi also said it expected to continue to have adequate access to liquidity for the rest of 2008 as it works on its reorganization plan.

The net loss widened to $589 million, or $1.04 per share, from $533 million, or 95 cents per share, a year earlier.

Revenue fell to $5.3 billion from $5.7 billion. In the market, Microsoft is appealing the nearly $1.4 billion fine imposed on the tech giant by the European Commission for failing to comply with a landmark antitrust ruling.

Circuit City is allowing Blockbuster and shareholder Carl Icahn to review its books, a sign the struggling electronics retailer is effectively putting itself up for sale. Shares rallied.

Global market turmoil is directly affecting corporate Europe, results from a new ECB survey of bank lending in the euro zone suggest. Shiite opposition gunmen seized control of large areas of Beirut's Muslim sector from Sunni foes loyal to the U.S.-backed government and forced a pro-government TV station off the air. The showdown is tipping the country toward sectarian war

The UN World Food Program continued to encounter resistance from Myanmar's government (Burma) as the agency tried to ship in food and equipment to assist cyclone victims.

One US cargo aircraft will be allowed to deliver supplies. The regime is forging ahead with a controversial referendum despite the wide devastation.

COMEX gold continued to improve, adding $3.70 to $885 oz and about $30 on the week.

The AUD has gained about 15 pts to US94.32c in overnight New York trading.

WALL STREET'S Dow Jones Industrial Average fell 120.9 to 12745.88.

Range on the Dow for the session was a high of 12,861.41 and low 12,715.02.

Dow components were 6 rises and 24 falls.

Among the few Dow improvers were J.P. Morgan chase 52c or 1.13pc to 46.57 , American Express 11c or 0.23pc to 48.96, Home Depot 62c or 0.21pc 27.98 and Microsoft 12c or 0.41pc to 29.39.

Dow falls included AIG 3.87 or 8.77pc to 40.28, Citigroup 67c or 2.76pc to 23.63, United Technologies 93c or 1.26pc to 73.13 and Exxon 1.11 or 1.23pc to 88.82.

Standard and Poors 500 index fell 9.4 to 1388.28

The Nasdaq Composite index eased 5.72 to 2445.52 the Nasdaq 100 index dipped 6.57 to 1960.29

Business volume was 3.5 billion trades on the NYSE and 1.7 billion sales registered on the NASDAQ.

AIG lost most on the Dow Jones Industrial Average, plunging 3.87, or 8.77pc, to 40.28 after the insurance giant said it would raise $12.5 billion in capital after taking billions of dollars in losses on credit derivatives linked to mortgages. Shares of AIG sold off steadily all week, falling 18% in all, as traders apparently saw the writing on the wall.

Citigroup was off 67c, or 2.76%, to 23.63. The largest US bank by assets is seeking to sell $400 billion of holdings that aren't central to its long-term plan. The bank is rumored to be shopping around its insurance unit, Primerica, for starters.

Countrywide Financial fell 28c or 5.6pc to 4.76 as the market continued to price in a renegotiated deal, at best, for the mortgage lender.

Sprint Nextel rose 40c or 4.4%, to 9.38, on a happier note, bringing its gain for the week to 19%. The company has also been mentioned as possibly tieing -up with German telephone company Deutsche Telekom's T-Mobile unit. Sprint Nextel struck a deal with network company Clearwire on a high-speed wireless Internet project. Deutsche Telekom Chief Executive Rene Obermann said he still sees growth potential in the US but would not comment on the company's possible interest in Sprint

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