US stocks retreated on Tuesday as relief from a sharp drop in crude prices gave way to renewed fears about global economic fragility. Financial firms defied the broader sell off on bid interest for Lehman Brothers and easing concerns about Fannie Mae and Freddie Mac.
NYMEX light crude for October delivery fell US$5.75 to $109.71, hitting a five month low. Crude futures had dropped as much as US$10 after Gustav was downgraded from a hurricane to a tropical depression.
However, investors expressed renewed concerns that the slide in crude prices was also symptomatic of a slowdown in global growth. These fears were also fuelled by a drop in metals prices.
COMEX gold for December delivery dove US$24.70 to US$810.50 an ounce. Copper, lead, nickel and zinc all lost ground overnight.
Adding to economic gloom, the Institute for Supply Management's manufacturing index eased to 49.9 in August from 50 in July. Economists had expected the index to remain at 50.
A reading below 50 indicates weakness and one above 50 suggests expansion.
Looking to the equity markets, the Dow fell 23.63, or 0.23 per cent to 11516.92, while the broader S&P 500 lost 5.25, or 0.41 per cent to 1277.58. The NASDAQ shed 18.28, or 0.77 per cent to 2349.24.
Among the Dow’s energy plays, Exxon Mobil slumped 3.3 per cent, while Chevron was down 3.5 per cent. Schlumberger and ConocoPhillips dropped 4 per cent and 4.3 per cent respectively.
Material heavyweight Alcoa took a 5.2 per cent hit, while Freeport-McMoRan Copper & Gold lost 6.3 per cent. US Steel tumbled 10.9 per cent and Monsanto shed 4.3 per cent.
ADR’s for BHP Billiton, Rio Tinto and Vale lost 8.7 per cent, 10.5 per cent and 5 per cent respectively.
Technology stocks were also on the back foot. Intel shed 0.3 per cent, Apple lost 2 per cent and Microsoft fell 0.7 per cent.
Google bucked the trend to add 0.4 per cent. The company launched its own web browser, intended as a rival to Microsoft's Internet Explorer.
Elsewhere, Merck and Schering-Plough both fell on concerns about the cancer risks of their cholesterol drug Vytorin. Merck shares were off 2.4 per cent, while Schering-Plough lost 1.6 per cent.
Looking to the financial sector, Korea Development Bank confirmed that it was looking to buy a stake in embattled investment firm Lehman Brothers.
Lehman is expected to announce up to US$4 billion in losses when it reports third quarter results later this month, but confirmation of bid interest from Korea Development Bank helped its shares edged 0.3 per cent higher.
Freddie Mac jumped 14.9 per cent after demand for the mortgage financier’s latest debt auction reduced fears that it would have to be taken over by the government. Fannie Mae also benefited, rising 8.6 per cent.
Among the sector’s Dow components, Bank of America added 4.7 per cent, JPMorgan was up 1.3 per cent and Citigroup edged 0.6 per cent higher. American Express and American International Group were up 2.4 per cent and 2.2 per cent respectively.
UK markets
British stocks made slight gains on Tuesday after a large fall in crude prices helped oil sensitive stocks but saw high profile commodity plays trade lower. A plan by the UK government to bolster the slumping housing market lifted banks.
UK Prime Minister Gordon Brown axed stamp duty on properties valued at less than 175,000 pounds as part of a package to boost the country's housing market.
Mr Brown also brought forward 1 billion pounds of spending in an effort to revive the worst UK economic slump in almost two decades.
The FTSE 100 was up 17.90 points, or 0.32 per cent at 5620.70.
Banks rose on the news of the new government housing plan. Barclays added 2.8 per cent, Royal Bank of Scotland was up 2.4 per cent and HSBC rose 2.2 per cent. Lloyds made a gain of 1.1 per cent and Standard Chartered edged 0.5 per cent higher. However, HBOS bucked the trend, losing 2.2 per cent.
Homebuilders welcomed the news with Taylor Wimpey gaining 8.5 per cent. Persimmon climbed 10.1 per cent, while Redrow and Barratt Developments were both up around 4.9 per cent.
The fall in oil boosted travel stocks. British Airways rose 4.4 per cent, budget carrier easyJet was up 10.7 per cent, cruise operator Carnival climbed 7.4 per cent, while tour operator Thomas Cook Group jumped 7.3 per cent.
However, falling crude prices saw energy stocks lose ground. BP slipped 1.8 per cent, Royal Dutch Shell shed 1.3 per cent and Cairn Energy lost 4 per cent.
Miners were pressured by lower metal prices with shares of Rio Tinto down 3.6 per cent, while suitor BHP Billiton lost 4.1 per cent.
Xstrata slipped 4 per cent, Antofagasta was 3.1 per cent lower, Vedanta Resources lost 2.8 per cent and Eurasian Natural Resources was down 4.3 per cent.
European markets
European stocks rallied on Tuesday, despite falling commodity stocks. A decline in crude helped airlines, banks and other consumer stocks.
Germany’s DAX added 96.67, or 1.51 per cent to 6518.47, while France’s CAC 40 gained 66.94, or 1.50 per cent to 4539.07.
French insurer AXA and Swiss Re added 7.2 per cent and 2.8 per cent respectively on relief that Hurricane Gustav was weaker than feared.
Interest-rate sensitive banks moved higher ahead of the European Central Bank meeting on Thursday. The bank is expected to leave rates on hold.
Credit Suisse was up 1.9 per cent, and Saint Gobain, up 5.5 per cent. BNP Paribas, Credit Agricole and Fortis added between 3.6 per cent and 4.3 per cent
Elsewhere in the financial sector, shares of Deutsche Boerse rose 6 per cent as US hedge fund Atticus and activist investor The Children's Investment Fund teamed up to demand changes at the exchange operator.
ArcelorMittal sank 4.9 per cent after saying it would cut South African prices for the first time in a year.
StatoilHydro, Norway's largest oil and gas producer, dropped 4.5 per cent on a fall in crude prices.
However, the slip in oil acted to boost airlines including Deutsche Lufthansa, which was up 4.2 per cent.
Japanese markets
Japanese shares ended sharply lower Tuesday, despite spending much of the day in the black. A fall in crude prices saw an afternoon sell off among commodity plays, while political uncertainty also hurt the market.
The benchmark Nikkei 225 lost 224.71 points, or 1.75 per cent to 12609.47.
Oil and gas field developer Inpex Holdings was the biggest percentage loser on the Nikkei, falling 6.7 per cent.
Trading houses, which have stakes in oil fields, were also hit with Mitsubishi Corp dropping 4.1 per cent and Mitsui & Co dragging 5.4 per cent.
Aso Foam Crete ended up 29.6 per cent on speculation that Liberal Democratic Party Secretary-General Taro Aso would become prime minister following Fukuda's resignation.
Animation and comic-related shares also attracted investors as Aso is known as a comic buff. Mandarake, a second-hand comic store chain, soared 16.5 per cent and trading card retailer Broccoli jumped 20.7 per cent.
Hong Kong markets
Hong Kong shares rose on Tuesday, lifted by gains in airline stocks. The falling oil price had a negative effect on oil plays and a rising US dollar hurt gold miners.
The benchmark Hang Seng Index closed 136.15 points or 0.65 per cent higher at 21042.46.
Sinopec Corp, Asia's biggest refiner, advanced 3.2 per cent as lower crude oil prices eased pressure on its refining margins.
Air China was also supported by the falling oil price. Its shares gained 8.7 per cent to a near one-month high. China Southern Airlines rallied 9.5 per cent, while Asia's third largest airline Cathay Pacific rose 3.5 per cent.
However, CNOOC slipped 5.2 per cent on the falling oil price.
Retreating oil prices drove up the US dollar, reducing the safe haven appeal of bullion. Gold miner Zijin Mining fell 6.2 per cent, while Lingbao Gold dropped 4.2 per cent.
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