US shares rose in morning trade on Tuesday, however the final hour saw a massive sell off amid more bad news about the housing market. Recession fears saw safe-haven buying, which sent gold to a fresh record high above US$880 an ounce.
Adding to the late session selloff was the release of a report showing consumer credit card debt spiked to the highest level in six months in November. Consumer credit surged to US$15.4 billion in the month versus forecasts for a rise to US$8 billion.
The Dow dropped 238.42, or 1.86 per cent to 12589.07, while the broader S&P 500 lost 26 even, or 1.84 per cent to 1390.18. The Nasdaq slipped 58.95, or 2.36 per cent to 2440.51.
Shares of Countrywide Financial were down 25.5 per cent even after the largest US mortgage lender said there was "no substance" to rumours it was facing bankruptcy.
Phone company AT&T dipped 4.2 per cent on softness in its consumer business and fears about a recession.
Other big decliners were mortgage bond insurers. MBIA was down 20.7 per cent and AMBAC Financial Group shed 16.7 per cent.
Blue-chip financials weighed on the index with American Express down 2.9 per cent, Citigroup off 4 per cent and JP Morgan Chase falling 4 per cent.
In corporate news, Bear Stearns confirmed its chief executive is stepping down due to investment bank's big subprime losses, to be replaced by the bank's current president. Shares dropped 6.7 per cent despite a gain in early morning trade on talk of the change of guard.
Meanwhile Starbucks added 8 per cent after it said it was replacing its CEO with its chairman and former chief executive, as well as closing under-performing stores.
Yesterday McDonald's reported the fast-food chain would compete with Starbucks by opening coffee bars offering cappuccinos and lattes at its nearly 14,000 US locations. Shares of McDonald's dropped 1.6 per cent.
On the plus side drug maker Merck & Co continued its rally up 4 per cent. Rival Pfizer was up 1.9 per cent.
Power generator Exelon Corp rose 1.6 per cent and beverage producer PepsiCo climbed 1.6 per cent before closing at 0.8 per cent.
The National Association of Realtors said contracts to sell existing homes fell in November by a steeper than expected margin. The group also pushed back its forecast for a price rebound to 2009.
Builder KB Home reported fourth-quarter losses of about US$773 million, sending their shares 9.2 per cent lower.
NYMEX light crude oil for February rose US$1.24 to settle at US$96.33
COMEX gold for February delivery rallied US$18.30 to a record US$880.30 an ounce.
Shares in the UK edged higher despite concerns about the housing slump and economic outlook in the US. Investors rallied behind defensive plays like pharmaceutical stocks, while rising metal prices buoyed the miners.
London’s benchmark FTSE 100 added a modest 20.8, or 0.33 per cent to 6356.5. The market lacked clear direction in anticipation of Thursday’s Bank of England meeting.
Miners provided much of the upward momentum, as base metals were dearer and gold prices set a record high. Rio Tinto gained 2 per cent, while rival BHP Billiton picked up 3.2 per cent. Meanwhile, Anglo American, Lonmin and Kazakhmys added 1.6 per cent, 3.7 per cent and 3.4 per cent respectively.
Pharmaceutical companies also enjoyed a rally as investors flocked to defensive sectors amid concerns about the global and US growth outlook.
GlaxoSmithKline and AstraZeneca both jumped 3 per cent, while Shire added 2.6 per cent. Smith & Nephew, a medical equipment maker, shot 7.3 per cent higher.
Elsewhere, heavily indexed Vodafone added 1.9 per cent after Morgan Stanley lifted the company's price target and upgraded its full-year 2008 and 2009 earnings per share forecasts on the company.
Homebuilders capped the day’s gains after ABN AMRO cut its rating on both Persimmon and Taylor Wimpey from hold to sell. Persimmon shares fell 4.9 per cent while Taylor Wimpey surrendered 4.8 per cent.
Oil stocks also slipped despite dearer crude. BP edged 0.6 per cent lower, while Royal Dutch Shell fell 2.2 per cent.
European stocks rose on the back of defensive stocks. In their flight to safety, investors bought into pharmaceuticals, a sector thought to be relatively immune to an economic slowdown.
However, the continent’s major indices surrendered much of their gains late in trade after Wall Street stocks retreated on persistent concerns about the US economic outlook.
By day’s end, Germany’s DAX 30 gained 32.82, or 0.42 per cent to 7849.99, while France’s CAC 40 added 42.84, or 0.79 per cent to 5495.67.
Among pharmaceutical plays Switzerland’s Roche jumped 6 per cent, while compatriot Novartis picked up a more modest 3.6 per cent. France’s Sanofi-aventis and Germany’s Bayer gained 4.1 per cent and 2.5 per cent respectively.
Financial stocks continued to weigh on the continent’s bourses. In France, AXA and BNP Paribas both shed about 0.8 per cent. Germany’s Deutsche Bank was also about 0.8 per cent lower.
Japan’s Nikkei hit an 18-month low in intraday trade but managed to pull itself up into the green as bargain hunters bought into battered equity plays. This was the index’s first positive close for 2008.
The benchmark Nikkei 225 ended 28.12, or 0.19 per cent higher at 14528.67.
Chipmakers featured in the morning bull run and stayed below the gain line by day’s end. Kyocera Corp slipped 1.5 per cent, Nikon Corp lost 3.1 per cent and Tokyo Electron shed 1.5 per cent.
A late rally among banks helped the markets finish in the green. Sumitomo Mitsui Financial Group was up 6.7 per cent, Mizuho Financial Group jumped 5.17 per cent and Mitsubishi UFJ Financial Group added 3 per cent
The sector had been sold off recently amid persistent concerns about the global credit crunch.
Shippers also contributed to the late rally. Kawasaki Kisen, Japan's third-largest shipping firm, gained 5.5 per cent after Deutsche bank initiated coverage with a buy rating. Elsewhere in the sector, Mitsui O.S.K Lines rose 3.8 per cent and Nippon Yusen added 3.3 per cent.
Investors also bought into railways, as the sector is perceived as able to withstand an economic slowdown. East Japan Railway Co jumped 4.8 per cent.
Shares in Hong Kong lost ground despite a strong showing by mainland lenders. Recently hyped property developers retreated and exporters fell on concerns about the US economic outlook.
The Hang Seng Index dropped 66.59, or 0.24 per cent to 27122.90.
Investors sold off property developers a day after they rallied on expectations of a rate cut in the United States. Among property stocks, MTR Corp fell 2.4 per cent and Cheung Kong Holdings shed 3 per cent.
Exporter Li & Fung fell 3.5 per cent on worries that the US may be headed into a recession.
Mainland lenders limited the day’s losses. The sector got a boost after China Merchants Bank issued a strong forecast for its 2007 earnings. Its shares added nearly 3 per cent, while China Construction Bank gained 3.5 per cent and Industrial & Commercial Bank of China edged 0.6 per cent higher.
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