While you were sleeping: Wall St falls as valuations questioned, greenback gains

Tuesday 11th August 2009

Stocks on Wall Street fell, snapping a four-week rally, amid concern prices had risen beyond levels justified by earnings. European shares also declined.

The Dow Jones Industrial Average fell 0.3% to 9337.95 and the Standard & Poor’s 500 Index dropped 0.3% from a 10-month high to 1007.10. The S&P 500 slipped back closer to the 1,000 mark it surpassed for the first time since November last week. The Nasdaq Composite fell 0.4% to 1992.24.

The S&P 500 reached 18.6 times earnings of its constituent companies, the highest since December 2004. The VIX Index, a measure of volatility on the S&P 500, rose 2.2% to 25.30. Traders are betting the VIX will climb 13% in the next five weeks, according to futures prices compiled by Bloomberg.

3M Co. fell 2.7% to US$70.91, leading the Dow lower. Aluminium producer Alcoa Inc. dropped 2.4% to US$12.69 and Cisco Systems declined 2.4% to US$21.64.

State Street Corp. fell 2.4% to US$52.57 after saying the US$625 million it set aside in 2007 to settle claims from sub-prime mortgage losses had dwindled to US$193 million by the end of June and may not be enough to cover costs of lawsuits and federal investigations.

Freddie Mac, the mortgage finance company, soared 128% to US$1.69 after posting its first profit in two years. The firm posted second-quarter profit of US$768 million and didn’t seek additional federal aid on top of the US$200 billion already pledged.

McDonald’s Corp. rose 1.9% to US$56.27 after the world’s biggest fast food chain posted a higher-than-expected 4.3% gain in global sales last month.

Eli Lilly fell 3% to US$33.83 after Goldman Sachs lowered the drugmaker to 'sell' from 'neutral'.

Nucor, the second-largest steel maker in the US, fell 4.1% to US$47.10 as producers of raw materials tumbled.

Freeport-McMoRan Copper & Gold, the world’s biggest gold miner, fell 1.6% to US$62.38 as the price of gold slipped.

Lowe’s Cos., America’s second-largest home-improvement chain, dropped 2.2% to US$23.33 amid concern consumers don’t have the spending power or inclination to stoke retail sales.

Consumer bankruptcies in the US climbed more than 33% so far this year and may reach 1.4 million in the full year as unemployment rises and credit availability remains tight, according to the American Bankruptcy Institute. Some 126,000 Americans filed for bankruptcy in July.

Stocks in Europe also snapped a four-week rally on speculation prices had climbed too far, too fast. The Dow Jones Stoxx 600 Index fell 0.5% to 229.56. The regional benchmark was at 40 times earnings of its constituent companies, the highest since September 2003, according to Bloomberg.

The UK’s FTSE 100 fell 0.2% to 4722.20 and France’s CAC 40 declined 0.5% to 3504.54. Germany’s DAX 30 slipped 0.8% to 5418.12.

Lloyds Banking Group shed 4% after the Times reported that it may raise as much as 15 billion pounds selling shares.

Access to credit is improving for UK companies, according to the Confederation of British Industry. A net 18% in a survey of 73 firms said credit availability improved in the past three months, a turnaround from the net 20% that thought access to credit was getting worse in May.

The yen and the US dollar gained against the euro as sinking equity markets stoked demand for the world’s largest currencies as a refuge from risk and as traders await the Federal Reserve’s policy statement this week.

The yen strengthened to 137.41 per euro from 138.41 and appreciated to 97.09 per dollar from 97.04 last week. The dollar rose to $1.4142 from $1.4183.

A survey of private economists showed most are betting on an end to the US recession this quarter. The Blue Chip Economic Indicators survey of private economists showed 90% of those polled said the economic slump will probably have abated by the end of the third quarter.

Crude oil fell for a third day as equities weakened and the dollar gained.

Crude for September delivery fell 0.5% to US$70.61 a barrel on the New York Mercantile Exchange.

Gold futures for December delivery fell 1.3% to US$946.90 an ounce in New York.

US Treasuries rallied as traders bought notes at the highest yields in two months ahead of the sale of US$75 billion of notes and bonds this week.

The yield on the benchmark 10-year Treasury notes fell 9 basis points to 3.77% while the yield on 30-year Treasuries dropped nine basis points to 4.52%.

Businesswire.co.nz

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