While you were sleeping: GM files for bankruptcy, Wall St gains after data

Tuesday 2nd June 2009

General Motors filed for bankruptcy protection, as expected, under a proposal that will see the US government convert US$50 billion of debt into a 60% stake in a slimmed down automaker that will shed unprofitable brands including Hummer.

“The economic crisis has caused enormous disruption in the auto industry,” chief executive Fritz Henderson said. “Today marks a defining moment in the reinvention of GM.”

The automaker, once the world’s largest, identified some 100,000 creditors, including bond holders and auto-related labour unions owed almost US$50 billion.

GM enters fast-track bankruptcy, the largest ever for a US manufacturer, gaining US$30 billion of additional federal aid to restructure. GM was removed from the Dow Jones Industrial Average, having last been quoted up 13% to 85 cents.

Separately, a bankruptcy judge approved the sale of most of Chrysler’s assets to a group led by Fiat SpA, leaving Ford Motor Co. as the surviving member of America’s big three automakers. Ford’s shares rose 6.8% to US$6.14 and have soared 188% in the past three months.

US stocks advanced as the GM bankruptcy took an uncertainty out of the market and after reports showed an improvement in consumer confidence and a first-quarter economic contraction that was smaller than initial estimates.

The Dow climbed 2.6% to 8721.44 and the Standard & Poor’s 500 rose 2.6% to 942.87. The Nasdaq Composite rose 3.1% to 1828.68.

Home improvement chain Home Depot climbed 4.3% to US$24.16, retailer Macy’s Inc. gained 15% to US$13.44 and J.C. Penney Co. jumped 15% to US$30.00. Heavy equipment maker Caterpillar rose 5.9% to US$37.55.

Aluminium producer Alcoa Inc. rose 6.6% to US$9.83 as prices of metals climbed.

US consumer confidence rose to the highest level in eight months. The Reuters/University of Michigan final index of consumer sentiment rose to 68.7 in May from 65.1 in April.

A gauge of current conditions, which shows whether Americans deem it a good time to buy big-ticket items, fell to 67.7 from 68.3, while a measure of consumer expectations for six months hence rose to 69.4 from 63.1.

The US economy contracted at a 5.7% pace in the first quarter, following a 6.3% slump in the fourth quarter of 2008, according to the Commerce Department.

Meantime, the Institute for Supply Management-Chicago reported its business barometer fell to 34.9 in May from 40.1 in April, showing the sector sinking into a deeper contraction.

Exxon Mobil rose 3.5% to US$71.76 as crude oil gained.

Crude oil advanced after figures showed manufacturing expanded in China while US dollar weakened.

China’s Purchasing Manager’s Index showed manufacturing grew for a third month in May.

Crude oil for July delivery rose 3.2% to US$68.42 a barrel on the New York Mercantile Exchange.

Copper rose to the highest price in about seven months after the report on manufacturing in China, the biggest consumer of the metal.

Copper futures for July delivery rose 5.3% to US$2.314 a pound on the New York Mercantile Exchange.

Gold rose to a three-month high as the greenback weakened, stoking demand for the precious metal as an alternative investment. Gold was recently at US$976.7 an ounce.

The US dollar and the yen weakened as the better-than-expected economic data spurred demand for higher yielding assets. The dollar slipped 0.3% to $1.4155 per euro and climbed 1.5% to 96.74 yen. The euro climbed 1.7% to 136.94 yen.

US government bonds dropped, pushing 10-year Treasury bond yields up by the most in eight months after the better-than-expected economic indicators stoked optimism the recession in the world’s biggest economy is abating.

Ten-year Treasuries soared 25 basis points to 3.72% while the yield on 30-year Treasuries jumped 21 basis points to 4.56%.

The London Interbank Offered rate, or Libor, for three-month loans in dollars, edged down 1 basis point to 0.65%.

European stocks gained, with the Dow Jones Stoxx 600 recording its biggest advance in more than two months. The Stoxx 600 advanced 2.9% to 214.31, with markets in Austria, Denmark, Iceland, Ireland, Luxembourg, Norway and Switzerland closed for public holidays.

BHP Billiton climbed 5.3% while Rio Tinto rose 6.5% as metal prices climbed.

Royal Dutch Shell Plc, Europe’s biggest oil producer, rose 1.7% as crude oil gained.

The UK’s FTSE 100 rose 2% to 4506.19, Germany’s DAX 30 gained 4.1% to 5142.56 and France’s CAC 40 rose 3% to 3379.49.

Businesswire.co.nz

Comments from our readers

No comments yet