28.10.2008 11:30

Stock market: Monday summary [M]

Japan's stocks sank to the lowest in more than two decades on concern banks will need government help to restore their financial health and as the strengthening yen damped profit prospects for companies dependent on overseas sales.
Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. dropped by records on media reports they may sell new shares to replenish capital. Aiful Corp., the nation's No. 4 consumer lender by value, slid 14 percent, and Aioi Insurance Co. declined 20 percent. Isuzu Motors Ltd. and Fuji Heavy Industries Ltd. both plunged the most on record as the yen rose a fifth day, diminishing the value of overseas sales.
The Nikkei 225 Stock Average lost 486.18, or 6.4 percent, to 7,162.90 in Tokyo, the lowest close since October 1982 and capping a four-day plunge of 23 percent, the most since at least 1970 based on Bloomberg data. The Topix index fell 59.65, or 7.4 percent, to 746.46, the lowest since January 1984. The gauges widened drops in the afternoon as comments by the Group of Seven industrialized nations failed to halt the yen's advance.

European stocks fell for the fifth day, extending the Dow Jones Stoxx 600 Index's worst month on record, as concern grew that government efforts to stabilize financial markets won't avert a global recession.
Deutsche Bank AG, Germany's biggest, and Societe Generale SA of France retreated more than 10 percent. Deutsche Postbank AG slid 24 percent after the consumer bank reported a third-quarter loss related to the collapse of Lehman Brothers Holdings Inc. Royal DSM NV sank 15 percent and Lonza Group AG slumped 18 percent after the chemical companies said the global economic crisis will cut profit growth.
The Stoxx 600 declined 1.9 percent to 195.04. Reports showed German business confidence decreased more than forecast this month and U.K. house prices fell by the most in at least seven years in October and may keep declining as the economy deteriorates.
National benchmark indexes declined in all of the 18 western European markets except Greece. France's CAC 40 slumped 4 percent, and the U.K.'s FTSE 100 lost 0.8 percent. Germany's DAX slid 0.2 percent. Volkswagen AG shares surged 147 percent today, helping to limit the German benchmark's drop.
Stocks pared some losses after a report showed sales of new houses in the U.S. unexpectedly rose and European Central Bank President Jean-Claude Trichet signaled he may cut borrowing costs as early as next week.

Stocks may have closed with substantial losses Friday, but the extent of the downturn was far better than many initially feared.
Index future

s were limit down ahead of the session's opening bell, which occurs when trading is halted in order to pace losses amid frantic selling efforts. That had participants spooked and anticipating a large scale sell-off.
Stocks fell to their session low early on. At that point, the Dow was down 5.8%, the S&P 500 was down 6.1%, and the Nasdaq fell 6.9% to a new five-year low. Choppy trading gave way to a late session rally that helped stocks finish off their lows, but still deep in the red.
The bleak mood in early trading stemmed from continued fear of a global recession as England's economy contracted by a worse-than-expected 0.5%. That prompted London's FTSE 100 to close with a 5.0% loss. Other major European markets also saw losses, but none matched the 9.6% drop in Japan and the 8.3% fall in China.
The argument that slower global growth will undercut demand for oil has crude prices down 56% from their July high. That prompted OPEC to schedule an emergency meeting in which it decided to cut daily production by 1.5 million barrels, effective immediately. Oil prices fell further, though. Crude futures were down 7.7% at one point, but ended around 4.5% lower at less than $65 per barrel. Oil last traded there in mid-2007.
A dour outlook from global tech company Microsoft (MSFT 21.96, -0.36) only reaffirmed the fear that earnings prospects are clouded by macro concerns. The company posted better-than-expected revenue and earnings per share results for its latest quarter, but guided profits below the consensus estimate for both the fourth quarter and fiscal 2009.
With economic concerns abounding, markets believe the FOMC is certain to cut the fed funds target rate. Currently, there is a 78% probability it will be taken to 1.00%, and a 22% chance it will be taken to 0.75%, down from the current 1.50%.
The move by the Fed would complement other government efforts to restore financial and credit markets. For instance, sources indicated the U.S. Treasury is looking to further extend the use of funds in its TARP emergency plan to begin helping regional banks and possibly even insurers. PNC Financial Services (PNC 58.88, +2.00) plans to issue to the U.S. Treasury $7.7 billion of preferred stock and related warrants under the TARP program, which will help in its acquisition of National City (NCC 2.07, -0.68).
Lower interest rates would also aim to help restore the housing market by making loans more affordable. The latest data indicated existing home sales actually increased 5.5% in September from the prior month to an annualized rate of 5.18 million units.
Despite the likelihood of an interest rate cut and persistent volatility in major stock indices, the dollar continues to appreciate against foreign currencies. The dollar index, which measures the greenback's value against a basket of six major currencies, jumped 1.3% to a two-year high.