US stocks staged a recovery after reassuring comments from Federal Reserve chairman Ben Bernanke restored some confidence in the financial sector. Meanwhile, a decline in crude prices gave the markets enough breathing space to keep the bears at bay.
Speaking at a mortgage lending forum, Mr Bernanke said the Fed would ensure that investment banks had more time to tap the central bank for emergency funds.
“We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end," he said.
In an effort to find a longer term fix, the Mr Bernanke said the Fed would enact rules to crack down on predatory lending that burnt subprime borrowers.
The speech helped dull the pain of economic data that showed the number of homes under contract to be sold in May had fallen 4.7 per cent. The National Association of Realtors Index is seen as a leading indicator of housing activity.
By the end of trade, the Dow had gained 152.25, or 1.36 per cent to 11384.21, while the broader S&P 500 picked up 21.39, or 1.71 per cent to 1273.70. Meanwhile, the NASDAQ added 51.1, or 2.28 per cent to 2294.42.
Mr Bernanke’s comments gave investors a reason to snap up bargains in the financial sector.
After plunging to 14-year lows on Monday, Fannie Mae and Freddie Mac led Tuesday’s rally with gains of 11.9 per cent and 13 per cent respectively.
Elsewhere in the sector, Bank of America was up 9.3 per cent, Citigroup added 6 per cent and JPMorgan gained 5.1 per cent.
Bond insurer Ambac Financial jumped 52.5 per cent after saying it had enough liquidity to meet commitments going forward.
Bucking the trend, IndyMac Bancorp plunged 44 per cent after saying that it had stopped taking new loan submissions in its main lending business. The company also announced plans to cut 3,800 jobs to conserve capital.
Wall Street also responded to a decline in oil prices. NYMEX light crude for August delivery fell US$5.33 to settle at US$136.04 a barrel.
The news saw Delta Air Lines jump 19.7 per cent, while Boeing gained 2.5 per cent. Looking to carmakers, General Motors and Ford were up 5.3 per cent and 9.6 per cent respectively.
However, the slump in crude was a double-edged sword, with energy plays weighing on the broader market. Exxon Mobil slipped 1.2 per cent, Chevron gave up 1.1 per cent and oil services company Schlumberger dropped 3.3 per cent.
Meanwhile, US corporates kicked off the second quarter reporting season. Alcoa, which was the first Dow component out of the gates, reported earnings that came in ahead of expectations.
After market close, the aluminium producer said net income had fallen 23.6 per cent to US$546 million, or US66c per share, from US$715 million in the second quarter of last year. But earnings topped consensus estimates of US64c.
While Aloca shares fell 3.2 per cent during the session as investors readied themselves for a generally downbeat reporting season, stocks rallied after bell, booking an early 4 per cent rise.
General Electric disappointed investors with its first quarter result in April and many market watchers now fear a repeat performance when the bellwether reports on Friday. However, the company managed to close 3.5 per cent higher.
Meanwhile, Office Depot slumped 31.6 per cent after the retailer released a preliminary forecast, flagging a 10 per cent drop in North American same-store sales.
COMEX gold for August delivery fell US$5.50 to settle at US$923.30 an ounce.
UKmarkets
Any gains made in Britain on Monday were wiped off the board after a sharp fall in commodity stocks due to a decline in crude and metal prices. Banks also let the market down, as concerns over profits again resurfaced.
The FTSE 100 slipped 72.20, or 1.31 per cent to 5440.50.
An almost 4 per cent decline in crude prices saw BP lose 3.4 per cent, Royal Dutch Shell drop 2.3 per cent and gas producer BG Group slip 4.4 per cent.
However, transport stocks cheered the weakening oil price. British Airways jumped 5.5 per cent, cruise ship operator Carnival advanced 2.7 per cent and EasyJet gained 7.3 per cent.
Mining stocks were the biggest drag on the index, with investors rattled by the inherent risks associated with operating in emerging economies.
Ferrexpo declined 6.9 per cent, Eurasian Natural Resources dropped 6.8 per cent, while Aussies BHP Billiton gave up 6.1 per cent and Rio Tinto lost 5.7 per cent.
The banking sector also continued its decline, with HBOS off 1.6 per cent to 271p, slightly below its rights-issue price of 275p. Royal Bank of Scotland lost 3 per cent.
Meanwhile, Bradford & Bingley was down another 19.1 per cent to 34p, well below its rights issue price of 55p.
Alliance & Leicester slumped to a record low on Tuesday after a conservative trading house advised clients to keep on selling. The company slid 13.6 per cent.
In other news, Marks &Spencer shares bounced from a 2001 low on speculation the British retailer might become a bid target. Shares closed up 6.7 per cent.
European markets
European stocks sank to a three year closing low on the back of concerns over further write downs in the financial sector. On a positive note, a fall in crude prices lifted embattled airlines.
France’s CAC 40 dropped 66.98, or 1.54 per cent to 4275.61, while Germany’s DAX was 91.34, or 1.43 per cent lower at 6304.41.
The banking sector reached levels last seen in 2003. Credit Suisse fell 3.2 per cent, Deutsche Bank lost 2.6 per cent and UBS limited losses to 0.1 per cent.
Bank of Ireland slid 10.6 per cent after warning of slowing market growth and an increased risk of loan defaults in Ireland. Other local banks were hurt by the news, with Allied Irish down 9.7 per cent and Anglo Irish 6.8 per cent lower.
Rumours that had pushed Spanish utility group Iberdrola forward faded, leaving the stock down 9.2 per cent, while the speculated suitor, French rival EDF, was down almost 5 per cent.
A fall in crude prices hurt oil produces, with France’s Total falling 2 per cent and Portugal’s Galp Energia down 4.7 per cent, while oilfield service providers Saipem and Technip slid 5.5 per cent and 4.9 per cent respectively.
It was a different story for airlines, which cheered the falling oil price. Lufthansa gained 2.9 per cent, Air France-KLM climbed 2.8 per cent and budget Irish carrier Ryanair advanced 11.2 per cent.
Japanese markets
The Japanese market booked its lowest close in nearly three months, dragged down by financials amid renewed credit fears. The slide came just a day after the benchmark snapped a 12-day losing streak, in which it had lost 8.4 per cent and marked its longest losing run in over 50 years.
The benchmark Nikkei 225 fell 326.94 points or 2.45 per cent to 13033.10.
Investors sold out of banks, anticipating disappointing earnings from their US counterparts. Mitsubishi UFJ lost 3.4 per cent and Mizuho Financial Group slid 3.7 per cent.
Nomura Holdings, Japan's largest brokerage, tumbled 4.6 per cent.
Top retailer Aeon Co gave up 5.4 per cent after reporting its first-quarter earnings fell on poor performance in its main merchandising stores.
Oil and gas field developer Inpex Holdings Inc lost 5.2 per cent after Monday’s drop in crude oil prices.
A rare positive was Mazda Motor Corp, which jumped 3 per cent, one of the biggest upward contributors to the index.
Hong Kongmarkets
Hong Kong shares hit a 15-week low on Tuesday amid concerns of ongoing losses at US financials. Monday’s optimism in mainland banking and property stocks seemed a distant memory and there was market speculation that the main index would fall below the crucial 21000 barrier.
The Hang Seng Index closed down 692.25 points, or 3.16 per cent, at 21220.81.
Shares in HSBC Holdings fell 2.4 per cent after Lehman Brothers warned of further capital raising at the top two mortgage providers in the United States, reigniting doubts about the state of the credit market.
Hong Kong Exchanges & Clearing shed 5.9 per cent after analysts slashed their target price on the stock amid dwindling turnover.
Foxconn International Holdings continued its horror run, sliding 10.3 per cent to a three-year low after CLSA downgraded it to sell from underperform as it faces weakening handset demand.
Chinese banks lost ground a day after they posted strong gains amid positive profit estimates from three major lenders. ICBC fell 3.2 per cent, China Construction Bank lost 2.6 per cent and Bank of Communications was 3.3 per cent lighter.
Aluminium Corp of China plunged 5.6 per cent after announcing supply concerns at two aluminium smelters.
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