While you were sleeping: Wall St extends slide, British Airways Loss

Monday 25th May 2009

Shares on Wall Street extended their slide for a fourth day on Friday in New York as bank shares dipped, earth-moving equipment maker Caterpillar fell and General Motors tumbled.

The Chicago Board Options Exchange Volatility Index, or VIX, rose 4.1% to 32.63 on Friday, keeping what’s regarded as Wall Street’s fear gauge above a key psychological level of 30.

GM slumped 26% to US$1.43, the biggest decline on the Dow Jones Industrial Average, as the automaker edges closer to the June 1 deadline for probable bankruptcy. The company tapped a further loan from the US Treasury, a bigger-than-expected US$4 billion, bringing total aid received to US$19.1 billion.

GM has concluded agreements with the Canadian Auto Workers union and the United Auto Workers union that will allow it to slash costs and pare back its obligations to retirement benefit funds. Bond holders remain an unknown quantity for the automaker, having been given until May 26 to respond to a GM offer to convert US$27 billion of debt into equity.

Caterpillar dropped 3.5% to US$34.31. American Express fell 3.1% to US$23.40 and Bank of America fell 3% to US$11.07.

The Dow fell 0.2% to 8277.32 and the Standard & Poor’s 500 slipped 0.2% to 887 and the Nasdaq Composite shed 0.2% to 1692.01, as Apple Inc. slipped 1.4% to US$122.50 and Qualcomm Inc. dropped 0.9% to US$41.31.

For the week, the three benchmark indexes managed modest gains of less than 1%.

McDonald's climbed 2.5% to US$57.08, the biggest advance on the Dow on Friday.

Exxon Mobil rose 0.6% to US$68.83 as crude oil held above US$61 a barrel. The nearest U.S. crude oil futures contract rose 0.8% to US$61.55 on the New York Mercantile Exchange.

Gold miner Newmont Mining edged up 0.9% percent to US$47.04 as the price of gold climbed above US$960 an ounce for the first time since March.

Weighing on investors’ minds last week was Standard & Poor’s decision to lower the outlook on the U.K.’s AAA credit rating as public debt soared. The US is seeking to fund a record budget deficit and the U.K. move stoked concern the world’s largest economy may not be able to hang onto its top rating.

Bill Gross, who manages the world’s biggest bond fund at Pacific Investment Management Co, or Pimco, said such a move may “eventually” happen to the U.S. White House spokesman Robert Gibbs said the US doesn’t believe the rating is under threat.

Moody’s Investors Service last week said it was comfortable with keeping the U.S. rating at Aaa though the rating couldn’t be guaranteed.

Federal Reserve Chairman Ben Bernanke said in a speech to law graduates that the U.S. economy “has too many fundamental strengths to be kept down for long."

Angel Gurria, head of the Organisation for Economic Cooperation and Development, said the world is “no longer in free fall.”

Gurria said it is “absolutely inexplicable that they want to cut the rating of England and that there is talk they are going to cut the rating of the United States.”

US markets are closed this Monday for the long Memorial Day holiday weekend.

The dollar index, which tracks the U.S. dollar against major currencies, fell more than 3.5% last week.

The euro rose 0.7% to $1.3991 on Friday, and earlier reached $1.4009, the highest since January. The euro advanced 1.2% to 132.62 yen. The dollar strengthened 0.5% to 94.77 yen.

Demand for US dollars will be tested this week as the US Treasury prepares to sell US$101 billion of Treasury notes in maturities of two, five a seven years.

The U.K. economy shrank 1.9% in the first three months of the year, the biggest quarterly slump since 1979.

Shares of British Airways fell 3.8% after posting a record loss and cancelling its dividend. Chief Executive Willie Walsh said the airline is in “the harshest trading environment we have ever faced and, with no immediate improvement visible, market conditions remain challenging.”

BA reported an annual operating loss of 220 million pounds, a turnaround from the previous year’s record profit of 875 million pounds.

The Dow Jones Stoxx 600 slipped 0.3% to 207.01 HSBC Holdings fell 0.7% after saying the remainder of 2009 and probably much of 2010 “will be challenging.”

The FTSE 100 rose 0.5% to 4365.29 in London, Germany’s DAX Index climbed 0.4% to 4918.75 and France’s CAC 40 gained 0.3% to 3227.97.

The Europe’s Stoxx Index slipped 5.7% to 32.53.

The London interbank offered rate, or Libor, for borrowing in dollars for three months rounded out its biggest weekly decline this year, ending the week at 0.66%, a sign that optimism is growing that the worst of the global slump is in the past.

Copper rose as stockpiles monitored by the London Metal Exchange fell for the 12th straight day and figures showed China, the world’s biggest consumer of the metal used to make wires and pipes, rose by 7% last month.

Copper futures for July delivery rose 2.3% to US$2.0975 a pound on the New York Mercantile Exchange.

Businesswire.co.nz

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