Tuesday, September 05, 2006

GLOBAL MARKETS-Yen extends gains, Asian markets await US return

By Jeremy Laurence

SINGAPORE, Sept 5 (Reuters) - The yen extended gains on Tuesday, riding to a two-week high against the dollar on economic optimism, while trading in Asian shares was mostly listless after the Labor Day holiday in the United States.

Britain's FTSE 100 index (.FTSE: Quote, Profile, Research), which had climbed to a 3- month high on Monday, opened little changed while France's CAC 40 <.FCHI> and Germany's DAX <.GDAXI> dipped slightly.

Oil prices steadied after their recent fall, which came as fears eased over OPEC producer Iran's nuclear ambitions.

The Tokyo and Seoul share markets closed slightly higher.

The Japanese currency rallied after Monday's strong data on capital spending prompted a market which was heavily short of the yen to buy it back. Data showed short positions in the yen were at a record high last week.

"The spending data was strong ... so the market is testing the upper and lower limits of recent ranges," said Nobuo Ibaraki, forex manager at Nomura Securities, referring to the 114-118 yen range the dollar/yen has traded in for much of the summer.

The dollar traded around 115.85 yen at 0610 GMT, while the euro was trading at 148.73 yen .

Japan's Nikkei average ended up 0.17 percent as investors sought bargains in stocks such as Internet group Softbank Corp (9984.T: Quote, Profile, Research) while a stronger yen prompted some profit-taking on exporters such as Honda Motor Co. Ltd. (7267.T: Quote, Profile, Research).

Sharp Corp (6753.T: Quote, Profile, Research) declined after the Daiwa Institute of Research downgraded the stock while Fast Retailing Co. (9983.T: Quote, Profile, Research) managed to end flat despite announcing it would not make a bid for Hong Kong-listed clothing retailer Giordano International Ltd. (0709.HK: Quote, Profile, Research).

The Nikkei <.N225> eked out a 27.89-point gain to close at 16,385.96 after hitting a three-month high on Monday.

MSCI's broadest index of shares elsewhere in Asia <.MSCIAPJ> was up 0.1 percent at 0618 GMT.


Seoul's benchmark index <.KS11> edged 0.16 percent higher, hitting a three-month closing high. State-run power provider Korea Electric Power Corp. (KEPCO) (015760.KS: Quote, Profile, Research) rose 0.68 percent, while Hynix fell 2.25 percent.

Lee Woo-hyun, an analyst at Kyobo Securities, said he expected the KOSPI index to post more gains this month amid expectations the U.S. economy will avoid a hard landing.

"U.S. markets and global markets have risen to due to easing worries about a slowdown in the (U.S.) economy," he said. "Those factors could continue to drive up the markets in September."

Taiwan's main index <.TWII> dipped 0.24 percent, while Hong Kong's benchmark index <.HSI> was slightly down by midafternoon.

China forex reserves hit 954.5 bln dlrs, must not rise further: VP

[05 Sep 2006]

Vice President Zeng Qinghong

China's forex reserves rose further to hit 954.5 billion dollars at end-July but they must not be allowed to grow much more because of the upward pressure they put on the yuan, Vice President Zeng Qinghong said in an article.

The latest figure translates into 30.3 percent growth from 732.7 billion dollars at the end of July 2005 and places China well on track to hold an unprecedented one trillion dollars in forex reserves by the end of the year.

China's foreign reserve holdings, already the biggest in the world, hit 941.1 billion dollars at the end of June, a 32.4 percent increase from a year earlier, the central bank reported in July.

Zeng, writing in an article published on the website of the official Study Times, said China will take measures to ensure that there is no further significant rise in the reserves.

"The foreign exchange reserves have reflected China's growing economic power but on the other hand they have increased exchange rate risks and added upward pressure on the yuan," he said in the article.

"We will take comprehensive measures to avoid further significant growth in the foreign exchange reserves," he added.

Dollar sidelined as yen powers on

By Carrie LaFrenz
September 05, 2006 06:24pm

THE dollar took a breather today, but the Japanese yen powered ahead on the back of strong capital expenditure figures (CAPEX).

At 5pm (AEST) the local currency was trading at 76.93 US cents, down from yesterday's close of 77.11.

Macquarie Bank divisional director Geoff Bowmer said the local unit took a breather today, lacking direction due to the US Labour Day holiday.

He said the real story on the day was the Japanese yen.

“As some of those yen crosses are unwound, due to the strong CAPEX figures in Japan, the yen has strengthened a bit today again,” he said.

“That has translated to some US dollar weakness.”

Mr Bowmer said over the past year, moves that have been typically yen-related had “morphed” into a general US dollar story.

“The US dollar weakness has acted to support the Australian dollar at about 77 US cents,” he said.

Mr Bowmer said ahead of the Reserve Bank of Australia's announcement on interest rates tomorrow and the release of the national accounts data, US dollar weakness alone is not enough to sustain the local currency's move higher.

Meanwhile, economists made last minute adjustments to their gross domestic product growth (GDP) estimates as they prepare for national accounts.

Estimates of today's government spending data imply a positive contribution to growth in GDP of about one third of one percentage point in the June quarter, AAP economist Garry Shilson-Josling said.

Government final consumption expenditure rose by 1.1 per cent in the quarter, while public sector gross fixed capital formation was up by 3.4 per cent, the Australian Bureau of Statistics said.

Total public sector spending, which makes up about 22 per cent of GDP, was up by 1.5 per cent.

The new market median for GDP growth in the June quarter is 0.7 per cent and 2.6 annually.

During the day the Australian dollar reached a low of 75.94 US cents and a high of 77.19, a level not reached since mid May.

It finished at 89.08 yen from yesterday's close of 89.80 yen and at 59.92 euro cents from 59.98.

The euro was at 1.2838 US dollars from 1.2854 and was at 148.65 yen from 149.69 yen.

The US dollar was at 115.81 yen from 116.47.

Meanwhile, Australian bonds ended the day weaker amid thin trading.

At 4.30pm (AEST) the yield on the Commonwealth Government April 2015 bond was 5.645 per cent compared to yesterday's close of 5.640 per cent, while the yield on the August 2008 bond was 5.895 per cent from 5.855 per cent.

On the Sydney Futures Exchange, the September 10-year bond futures contract price was at 94.360 from yesterday's close of 94.365, while the September three-year bond contract price was at 94.160 compared to 94.190.

Westpac senior market strategist Damien McColough said local bonds struggled in absence of offshore leads.

“There has been very low volume, obviously awaiting the US to come back to see what kind of reaction they have after the long weekend,” he said.

The 90-day bank bill rate was at 6.205 per cent today from yesterday's close of 6.195 per cent, while the 180-day rate was at 6.315 per cent from 6.305 per cent.

At 4pm the dollar on the Reserve Bank of Australia's trade weighted index (TWI) was unchanged from yesterday's close of 64.1 points.

Nikkei gains, Softbank up but stronger yen weighs

By Eriko Amaha

TOKYO (Reuters) - The Nikkei average ended up 0.17 percent on Tuesday as investors sought bargains in stocks such as Internet group Softbank Corp. while a stronger yen saw profits taken on exporters such as Honda Motor Co. Ltd.

Sharp Corp. declined after Daiwa Institute of Research downgraded it while Fast Retailing Co. managed to end flat despite announcing it would not make a bid for a fellow clothing retailer Giordano International Ltd., which is listed in Hong Kong.

"Softbank and Rakuten are rebounding and that shows a healthy appetite among retail investors," said Toru Otsuka, deputy general manager of Mizuho Investors Securities Co. Ltd.'s investment information department, referring to Rakuten Inc. which fell 16 percent last week.

The Nikkei eked out a 27.89-point gain to close at 16,385.96 after hitting a three-month high on Monday. The broader TOPIX index inched up 0.12 percent to 1,651.35.

Investors appear to be split over the outlook for the Japanese economy, keeping the market in check. Pessimists include Takahiko Murai, general manager of equities at Nozomi Securities, who said weak consumer price and industrial production data, among others, had led institutional investors to reallocate money into bonds from stocks.

"The Japanese economy is slowing down. Corporate earnings look strong right now and money is coming into the stock market," he said. "It looks like we might see a limit to profit growth going forward."

But Masaru Hamasaki, a senior strategist at Toyota Asset Management, said his firm projects 7 to 8 percent growth in recurring profit for the year to next March at major non-financial companies on the Tokyo Stock Exchange's first section.

That compares with an average 2 percent rise projected by those firms, according to data compiled by Shinko Research Institute, which raises the possibility that many of them could upgrade their forecasts.

"A slowdown in the economy probably cannot be avoided. But we expect corporate earnings to remain strong with factors such as cost-cutting," he said.


Telecoms and Internet firm Softbank soared 5.7 percent to 2,310 yen, taking its gains to more than 15 percent since it set a one-month low of 1,995 yen on Aug. 28, hit by a bearish report by Lehman Brothers which lowered its target price to 900 yen.

All Nippon Airways Co. Ltd. climbed 2.4 percent to 473 yen after Credit Suisse raised its price target for Japan's No.2 airline to 450 yen from 390 yen on a stronger-than-expected business performance during the peak summer travelling season.

Other gainers included Nippon Steel Corp., which rose 2.0 percent to 509 yen after business daily Nihon Keizai reported that Japan's biggest steel maker and South Korea's POSCO are in talks to jointly develop mines, supply each other with semi-finished products and lift their cross-shareholdings.

Meanwhile, auto stocks slid as the yen rose to a two-week high against the dollar with Honda falling 0.8 percent to 3,950 yen. The stock also hit a three-month high last week, making it susceptible to profit-taking.

In the technology sector, Sharp fell 1.9 percent to 2,080 yen after Daiwa cut its rating on the stock to a "3" from a "2".

Other tech shares lost ground. Shares in Olympus Corp., which hit a five-month high on Monday, dipped 0.6 percent to 3,520 yen while copier maker Fuji Photo Film Co. fell 1.1 percent to 4,330 yen after hitting a four-year high.

Fast Retailing, the operator of the Uniqlo casual-wear chain whose shares had gained some 16 percent since news broke that it was eyeing Giordano, ended unchanged at 11,120 yen.

Among notable stocks, ceramic construction materials maker Nichias Corp. tumbled 5 percent to 824 yen while A&A Material Corp. declined 3 percent to 192 yen after the Fair Trade Commission said it had raided the firms' offices on suspicion of price-fixing.

Separately, mixi Inc, Japan's largest Web operator of social networking systems, has set its initial public offering price at 1.55 million yen ($13,360). The company plans to go public on Sept. 14.

Real estate developer Tokyu Land Corp. and movie producer Toho Co. Ltd. will likely draw buyers on Wednesday as these two issues will join the Nikkei 225 share average when the benchmark is reshuffled next month, the compiler Nihon Keizai Shimbun Inc. said after the market closed.

Trade volume edged up with 1.77 billion shares changing hands, up from 1.66 billion shares on Monday. Advancers outpaced decliners 928 to 646.