While you were sleeping: BusinessWire overnight wrap

Tuesday 16th December 2008

US manufacturing fell for the third month in four in November while confidence among builders held at a record low, as a worldwide economic slump sapped demand for American goods.

Industrial production declined 0.6% last month, according to the Federal Reserve. Automakers, seeking federal aid to avoid collapse, chalked up the weakest assembly rate in 18 years.

The prospects of a prolonged slump in the US fanned expectations the Fed will cut interest rates to a record low, weakening the US dollar and help Treasuries advance.

The dollar weakened to more than $1.37 per euro and was recently at 1.3678, from $1.3369 on Friday in New York. The greenback neared a 13-year low against the yen and declined against the British pound. It reached 90.60 yen from 91.21 on Friday, when it slipped to as low as 88.53.

The yield on benchmark 10-year Treasuries fell 4 basis points to 2.53%. The yield on the 2-year notes fell 1 basis point to 0.75%.

Fed Chairman Ben Bernanke has said the central bank may buy Treasuries as it considers new measure to free up credit, with limited room to cut its target rate more.

The Fed began a two-day meeting of policymakers which is expected to conclude that the target rate should be cut 50 basis points to 0.5%, according to a Reuters survey. Some economists are tipping the rate to be cut to just 0.25%.

Stocks on Wall Street fell after the manufacturing figures and after Merrill Lynch & Co. predicted JPMorgan Chase, the biggest US bank by assets, would report a quarterly loss.

JPMorgan Chase led a decline in financial stocks on the Dow Jones Industrial Average lower, falling 7.2% to US$28.73. The Dow slipped 1.7% to 8478.51. The Standard & Poor's 500 Index fell 2.4% to 858.78 and the Nasdaq Composite shed 3% to 1494.06.

Bank of America dropped 5.5% to US$14.10, Citigroup fell 4.6% to US$7.34 and American Express declined 3.9% to US$19.54. General Motors, seeking aid to prevent its collapse, gained 3.6% to US$4.08. Apple Inc. fell almost 5% after the stock was cut to 'neutral' at Goldman Sachs Group.

Investors in about US$10.5 billion of GMAC bonds agreed to a revised debt swap that speeds the Detroit-based auto and home lender toward becoming a bank and securing federal aid.

Transforming into a bank would make GMAC eligible to tap the US$700 billion TARP fund and sell government-guaranteed bonds. It also would allow GMAC to avoid default on its debt.

Meantime, Federal investigators found evidence that investment adviser Bernard Madoff ran an unregistered money-management business alongside his firm's brokerage and advisory units, Bloomberg reported, citing people with knowledge of the inquiry.

Madoff is alleged to have operated a US$50 billion Ponzi scheme, according to the report.

Stocks in Europe fell for a third straight session on concern more banks will announce losses and as evidence mounted that the world's economy is headed for a prolonged slump. The Dow Jones Stoxx 600 index fell 0.4% to 197.51

BNP Paribas declined 10% after its plan to buy assets of Fortis was thwarted by a Belgian court and the bank said its exposure to Madoff was as much as 350 million euros. Germany's DAX 30 declined 0.2% to 4654.82 and France's CAC 40 dropped 0.9% to 3185.66.

In London, the FTSE 100 Index edged down 0.1% to 4277.56 as Lloyds TSB Group slipped 4.5%.
Crude oil fell on speculation production cuts planned by OPEC won't be enough to stimulate demand and underpin prices in a global economic slump. Crude oil for January delivery fell 3.8% to US$44.52 a barrel on the New York Mercantile Exchange.

Copper fell after the US industrial production report stoked concern demand for the metal will wane. Copper for delivery in three months slid 0.8% to US$3,150 a metric ton on the London Metal Exchange.

Gold prices rose to a two-month high as the weakening US dollar stoked demand for the precious metal as an alternative investment. Gold futures for February delivery rose 2.2% to US$838.50 an ounce in New York.

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