US stocks gained on Friday as investors welcomed a 4 per cent drop in crude prices. The fallout from Fannie Mae’s quarterly loss was limited to a slump in its shares, while the financial sector and broader market appeared unscathed.
The Dow rallied 302.89, or 2.65 per cent to 11734.32, while the broader S&P 500 was up 30.25, or 2.39 per cent at 1296.32. The NASDAQ added 58.37, or 2.48 per cent at 2414.10.
NYMEX light crude for September delivery fell US$4.82 to settle at a three-month low of US$115.20. Crude prices have fallen more than 20 per cent since topping US$147 per barrel in early July.
Transportation stocks were among the main beneficiaries from the sharp slump in energy prices.
US Airways jumped 17.9 per cent and Continental Airlines gained 11.7 per cent. United Airlines parent UAL Corporation rose 15.8 per cent.
FedEx and United Parcel Service, whose bottom lines are also exposed to fuel prices, rallied 5.9 per cent and 3.9 per cent respectively.
Retail counters rallied on hopes that a decline in consumers’ petrol bills would leave more room for discretionary spending. Home Depot added 7.7 per cent, Lowe’s was up 8.8 per cent and Best Buy tacked on 5.8 per cent.
McDonald’s gained 6.2 per cent after the fast-food company said same-store sales jumped 8 per cent.
In earnings news, Fannie Mae reported a larger than expected US$2.3 billion quarterly loss amid ongoing deterioration in the housing market. The government backed lender also said it would slash its dividend from US35c per share to US5c per share.
However, the fallout from the announcement was largely limited to Fannie Mae’s shares, which dropped 9.1 per cent.
Fellow government backed mortgage financier Freddie Mac managed to edge 0.2 per cent higher.
Bank of America, Citigroup and JPMorgan were up 2.3 per cent, 5 per cent and 3.2 per cent respectively.
On Thursday, Citigroup said it would buy back over US$7 billion in auction rate securities that it had sold to unwitting clients. The New York attorney general accused the banking giant of making misrepresentations to investors.
Similarly, Merrill Lynch said it would purchase more than US$12 billion in auction-rate securities over a 12-month period starting January 2009.
Merrill Lynch shares were up nearly 3 per cent, while Goldman Sachs picked up 2.1 per cent.
Bond insurer MBIA rallied 3.5 per cent after reporting a second quarter profit of US$1.7 billion, up from US$211.8 million a year ago.
Looking to technology stocks, Intel added 2.4 per cent, Apple was up 3.6 per cent, Microsoft gained 2.7 per cent and Google was 3.3 per cent dearer.
On the downside, Material plays retreated after metals futures fell in tandem with crude prices.
COMEX gold for December delivery fell US$13.10 to settle at US$864.80 an ounce. Silver, platinum and aluminium also declined.
Freeport-McMoRan Copper & Gold lost nearly 2 per cent, United States Steel shed 4.1 per cent and Alcoa slipped 0.1 per cent.
Coer d’Alene Mines tumbled 15 per cent after the company reported a quarterly loss of US$5.38 million, compared to a US$11.92 million profit a year ago.
BHP Billiton and Rio Tinto ADRs were down 2.6 per cent and 3 per cent respectively.
UK markets
British shares made moderate gains on Friday after a sharp drop in crude prices lifted consumer confidence. Investors put inflation concerns behind them, boosting banks and retailers, while falling metal prices hurt mining stocks.
The FTSE 100 added 11.70, or 0.21 per cent to 5489.20.
Better than expected results from Royal Bank of Scotland saw its shares lift 3.2 per cent. The bank reported a 5.9 billion pound write down on risky assets, which saw a first-half loss of 691 million pounds.
HSBC gained 1.9 per cent and Standard Chartered added 1.7 per cent. On the other hand, Barclays slipped 2.3 per cent and HBOS shed 1 per cent.
In other earnings related news, UK fund firm Schroders rose 6.4 per cent despite reporting a 27 per cent fall in profits.
Falling oil prices saw British Airways advance 8 per cent. The airline also benefited from an upgrade from Citibank.
Materials producers followed commodity prices lower, Kazakhmys was down 6.5 per cent and Tullow lost 4.7 per cent. Aussies BHP Billiton and Rio Tinto were down 2.5 per cent and 2.6 per cent respectively.
Retailers gained on the back of falling resources, with Marks & Spencer rising 1.4 per cent, Kingfisher up 3.9 per cent and Next adding 5 per cent. Grocer Tesco rose 1.9 per cent and J Sainsbury added 5.6 per cent.
BT Group advanced 1.4 per cent, on speculation Deutsche Telekom could be mulling a bid for the company.
European markets
European shares tumbled just after the halfway mark on Friday but managed to pull themselves back into the black before the end of trade. A solid drop in crude lifted the market and the dollar touched a five-month high against the euro, boosting companies that export to the US.
Germany’s DAX rose 18.16, or 0.28 per cent to 6561.65, while France’s CAC 40 added 34.42, or 0.77 per cent to 4491.85.
Automotive and defence stocks as well as luxury goods makers were among the beneficiaries of the stronger dollar.
Among car makers, Daimler added 3.9 per cent, BMW was up 6.5 per cent, while Peugeot and Renault added 4.3 per cent and 4.6 per cent respectively.
Pharmaceuticals added most points to the index, with Sanofi-Aventis rallying 4 per cent on the back of news that its experimental heart drug Multaq is to get a priority review from the US FDA. Peers Novartis and Roche gained 1.3 per cent and 1.7 per cent respectively.
Luxottica, the Italian maker of luxury sunglasses, rose 11.7 per cent. French rival Essilor International added 8.2 per cent.
The strengthening dollar and the slide in the oil price was bad news for commodities stocks. French miner Eramet lost 13.3 per cent, Norway’s Yara International slid 10.8 per cent and oil company StatoilHydro fell 2.6 per cent.
In the banking sector UBS was up 1.2 per cent and Deustche Bank rose 1 per cent, but Societe General lost 0.4 per cent.
Japanese markets
Japanese stocks rose marginally on Friday with exporters gaining as the dollar edged up against the yen to hold near a seven-month high. However, investors were wary given the overall economic outlook, as raw material costs and a global slowdown, push the world's number two economy towards a recession.
The Nikkei 225 gained 43.42 points, or 0.31 per cent to 13168.41. The benchmark was up 0.6 per cent for the week.
Toyota rose 5.5 per cent, extending gains after the world's biggest automaker kept its forecasts unchanged despite posting a 28 per cent drop in quarterly net profit.
Advantest Corp jumped 7.1 per cent after Mitsubishi UFJ Securities raised its rating, saying it expects demand for testers for next-generation dynamic random-access memory chips to grow in 2009.
Canon edged up 0.8 per cent and Honda grew 0.9 per cent.
Banks, which suffered during morning trade on economic worries, pared losses. Top lender Mitsubishi UFJ Financial Group sank 2.8 per cent and Mizuho Financial Group was down 1.7 per cent.
Hong Kong markets
Hong Kong shares fell on Friday, following Chinese stocks which nosedived to a 19-month low on worries about economic deceleration after the Olympics. The index has fallen over 19 per cent in an uninterrupted slide which began on 11 July as a global slowdown threatens to dampen demand for resources.
The Hang Seng Index ended 218.99 points lower, or 0.99 per cent, at 21885.21.
China's largest shipping company, China Cosco plunged 10.1 per cent and China Shipping Development tumbled 10.2 per cent.
China Construction Bank shed 2.2 per cent, HSBC Holdings fell 1.2 per cent and top insurer China Life dropped 2.4 per cent.
Gold miner Zijin Mining lost 5.7 per cent as the price of the precious metal dropped further in Asian trade. Angang Steel fell 6.4 per cent and Jiangxi Copper lost 4.5 per cent.
Cement manufacturer Anhui Conch lost 4.8 per cent and China Eastern Airlines plunged 7 per cent.
Among gainers, Asia's largest refiner Sinopec Corp advanced 1.8 per cent. Hongkong Electric gained 2 per cent while Hong Kong & China Gas rose 2.3 per cent.
Lenovo Group increased 3.2 per cent after it posted a 65 per cent rise in quarterly earnings.
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