U.S. stocks fall on spending concerns

(The Economic Times, 28th March 2008)Wall Street stocks fell on Thursday amid concerns that sluggish Oracle revenue suggests slower business spending, but the dollar gained on hopes that results of a Federal Reserve asset swap indicate a stronger-than-expected banking sector. The Fed swapped $75 billion of U.S. Treasury securities for mortgage-backed assets that have sparked a debilitating credit crisis in an auction aimed at bolstering bank balance sheets. European shares had gained earlier on renewed central bank efforts to buoy investor sentiment and ease the credit crunch. Oil rose sharply after a bomb attack on a major Iraqi crude pipeline slashed exports from the country's southern oil port for the first time in years. U.S. Treasuries prices fell, driven by a perception credit strains might lessen and dull the lure of safe-haven government debt. Treasuries extended losses after tepid demand for the Fed's auction, called a Term Securities Lending Facility. "That the auction drew less than intense interest may be the good news. It may be that dealers might not be in as dire financial straits as had been perceived," said Ward McCarthy, managing director at Stone & McCarthy Research Associates in Princeton, New Jersey. U.S. stocks fell in volatile trade as the news from Oracle Corp, a bellwether for the software industry, fueled a sell-off in the technology sector. Investors fear a widening impact of the housing slump on corporate spending. Oracle was the biggest drag on both the Nasdaq and the Standard & Poor's 500 Index with a slide of more than 6 percent. The Dow Jones industrial average was down 120.40 points, or 0.97 percent, at 12,302.46. The Nasdaq Composite Index was down 43.53 points, or 1.87 percent, at 2,280.83. The benchmark 10-year U.S. Treasury note was down 21/32, with the yield at 3.5412 percent. European shares rose to their highest close in two weeks after the region's three biggest central banks agreed to pump extra liquidity into money markets, lifting financial stocks. HSBC gained 1.1 percent, while Banco Santander rose 1.7 percent and HBOS and Natixis gained around 3 percent. Gains were tempered by the technology sector as Oracle's missing Wall Street expectations on Wednesday hit shares in German software group SAP. The FTSEurofirst 300 index of top European shares was up 1 percent at 1,271.59 points, a level last seen on March 14. Oil rose. U.S. crude settled up $1.68 to $107.58 a barrel, boosting this week's gains to more than 6 percent. London Brent crude rose $1.01 to $105.00. "Today's action was driven up by the explosion and catching fire of a pipeline in Iraq," said Nauman Barakat, oil trader and senior vice president at Macquarie Futures USA. "The market is still very, very jittery but I think it wants to believe that the central banks can solve the problem," said Andrew Lynch, a portfolio manager at Schroders. Asian stocks fell as financials slipped on concerns over bank earnings, but gains in commodities helped cushion the fall. Tokyo's Nikkei closed 0.8 percent lower and MSCI's index of other Asian shares fell 0.03 percent. A report on U.S. gross domestic product released early in the New York session did not change expectations of further U.S. interest rate cuts to boost a weakening economy, but a surprisingly strong profit component in the report eased concerns about a much sharper slowdown. "The numbers this morning had an impact on the dollar. We'll take any upside surprise we can get at this point," said Rhonda Power, corporate trading manager at Travelex Global Business Payments in Toronto. "But there are still some significant concerns about the economy. With this subprime situation unresolved, we think there is still negativity in the market," she added. Gold ended near a one-week peak as a late rally of energy prices offset a stronger dollar. Analysts said sentiment was positive as gold, viewed as a hedge against oil-led inflation, may retest the $1,000-mark soon on support from strong oil prices that jumped after an oil pipeline explosion in Iraq. Spot gold hit a high of $954.50 an ounce before ending at $951.80/952.60 by New York's last quote at 2:15 p.m. EDT (1815 GMT), down from $949.00/949.80 in New York on Wednesday. It hit a lifetime high of $1,030.80 an ounce on