Corporate deals help lift stocks; Australian shares flat despite uncertain election

By Pan Pylas, AP
Monday, August 23, 2010

Corporate dealmaking helps to lift stocks

LONDON — European and U.S. stock markets rose Monday as the recent pickup in corporate dealmaking helped offset the gloom from disappointing economic news out of the U.S.

Australian shares traded flat despite an uncertain general election result, as mining companies rallied on hopes that a government tax proposal will be scrapped.

In Europe, the FTSE 100 index of leading British shares was up 42.67 points, or 0.8 percent, at 5,237.95 while Germany’s DAX rose 29.66 points, or 0.5 percent, at 6,034.82. The CAC-40 in France was 29.62 points, or 0.8 percent, higher at 3,555.74.

In the U.S., the Dow Jones industrial average was up 60.85 points, or 0.6 percent, at 10,274.47 soon after the open while the broader Standard & Poor’s 500 futures rose 6.9 points, or 0.6 percent, to 1,078.59.

Though disappointing economic data over the last couple of weeks has contributed to a retreat in equity markets around the world, a pickup in the volume and value of mergers and acquisitions has helped limit the losses — the most high-profile bid last week was BHP Billiton’s $38.5 billion hostile bid for Canadian fertilizer producer Potash Corp.

M&A talk is at the heart of the new trading week too, helping to sustain interest in the markets in what is usually a quiet time of year, particularly in Europe and the U.S. Trading volumes usually don’t pick up from the summer lull until after the Labor Day holiday in the U.S., which this year falls on September 6.

British bank HSBC Holdings PLC said Monday it is in talks with financial group Old Mutual PLC to buy a controlling stake in South Africa’s fourth largest bank Nedbank Group Ltd. in a deal worth as much as $6.8 billion.

Shares in Australia’s Foster’s Group Ltd ended 6.5 percent higher on news media reports that SABMiller PLC was preparing a 7 billion pound bid for Foster’s beer business.

“With a very quiet day on the economic calendar, it is corporate news driving sentiment,” said David Jones, chief market strategist at IG Index.

Even though investors are on the lookout for continued deals, overall sentiment in the markets remains fragile at best. The scale of the negative reaction to some worse than expected second-tier U.S. economic data last week provides clear evidence of where investors’ main worries lie.

“Concerns over the U.S. economy are dominating positive factors like rising M&A volume and good earnings data,” said Neil MacKinnon, global macro strategist at VTB Capital.

Foreign exchange markets are among the most affected by the worries over the U.S. economy.

Even though the news out of the U.S. has been broadly disappointing over the last couple of weeks, the dollar does not seem to be suffering, particularly against the euro, because the main fear is that the slowdown in the U.S. will bring growth down everywhere else. A risk-averse trading environment also usually helps the dollar, due to its reputation as a safe-haven currency.

By mid afternoon London time, the euro was flat at $1.27, way down on the four-month high of $1.333 it was trading at just over two weeks ago.

Figures showing that the economic recovery in the eurozone was losing momentum did little to help the euro’s fortunes.

The monthly eurozone purchasing managers index — a gauge of business activity — dropped to 56.1 in August from 56.7 in July. The drop was bigger than anticipated in the markets and shows that growth, though relatively healthy, is slowing — anything above 50 indicates expansion.

One of the main points of interest in the markets is Australia after national elections on Saturday gave neither of the major political parties an outright majority in parliament.

The ruling Labour Party and the opposition Liberal Party are now lobbying for the support of independent lawmakers to try to stitch together the nation’s first minority government since World War II.

The S&P/ASX 200 index fell 1.9, or less than 0.1 percent, to 4,429.00 — the retreat was negligible as commodity stocks advanced on hopes that a proposed mining profits tax would be dropped if the opposition Liberal Party forms the new government. Mining giant BHP Billiton Ltd. added 0.6 percent, while rival Rio Tinto Ltd. rose 0.9 percent.

Elsewhere in Asia, Japan’s Nikkei 225 stock average shed 0.7 percent to 9,116.69 as a strong yen — which can reduce the profits of Japanese exporters — continued to drag sentiment. As expected, Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa discussed on the telephone recent foreign exchange developments, according to Kyodo news agency.

Hong Kong’s Hang Seng lost 0.6 percent to 20,863.92 and Seoul’s Kospi fell 0.4 percent to 1,767.71.

The Shanghai Composite index eased 0.1 percent to 2,639.27 while markets in Taiwan, Malaysia, Indonesia and Thailand rose.

Benchmark crude for October delivery was up 7 cents at $73.89 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost 97 cents to settle at $73.82 a barrel on Friday.

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