Market Outlook 2nd Sep 2009

INTRADAY CALLS for 2nd SEP 2009

BUY Indiaglyco-100 arround 97-95 for 104-106+ with sl 93
BUY DELTACorp-54 arround 52-51 for 60-62+ with sl 49

BUY Bajajautofin-222 arround 218-215 for 235-244+ with sl 210
SHORT BHEL-2263 for 2235-2224+ with sl 2280

 

SEBI unearths Rs 1,000 crore scam at Austral Coke
SEBI Says
-IT Department found bogus transactions worth Rs 1,000 crore
-Have found prima facie evidence of corporate fraud
-Alert: IT Dept raided Austral Coke premises on June 23
-Rs 142 crore IPO funds diverted via bogus transactions
-Bars Austral Coke from raising fresh capital
-Alert: Company's September 3 board meet planned to discuss Rs 970 crore QIP (qualified institutional placement)
Austral Coke says IT Dept yet to revert to company's response; to present its case before SEBI on September 9

stocks that are in news today:
Bharti-MTN deal gets approval of South Africa Labour Unions
Maytas Infra open offer at Rs 112.80/share ((CMP Rs 118.40)); opens on October 24, closes November 12
Ambuja Cements August cement sales at 1.43 million tonnes versus 1.42 million tonnes: NW18
Ranbaxy says company gets government order for supplying Tamiflu generic: NW18
Farm Official says June-August monsoon rain 23% below normal
Jet-Sahara case unlikely to be heard at Bombay HC today: Sources
Asian Paints to divest entire stake in subsidiary Berger Paints (China)
Garware Offshore takes delivery of anchor handling vehicle in Singapore
Carborundum Universal restructures China JV, to split into diamonds & abrasives business

ketan lakhani: Rasoi sells property at Kolkata for Rs 85 crore
1.07 crore PSL shares to hit the market today ((QIP issue))
Ex-bonus: Tilaknagar Industries @ 2:1

Globus Spirits IPO closes today, subscribed 0.23 times till now

Jindal Cotex IPO subscribed 2.2 times ((closed yesterday))

 

 

NIFTY FUTURES LEVELS

SUPPORT

4603

4586

4546

4528

4471

RESISTANCE

4633

4644

4702

4759

4778

4834

Buy DHANALAKSHMI BANK;TRANSPORT CORPN OF INDIA

 

 

Strong & Weak  futures 
This is list of 10 strong futures:

Aban Off shore, India Bulls Retail, Bhushan Steel, Tata Motors, DCHL, ICSA, Unitech Ltd, Ansal Infra, Tech Mahindra & Shree Renuka.

And this is list of 10 Weak futures:

Tata Steel, Sesa Goa Ltd, Sail Ltd, ACC Ltd, JSW Steel, India Cements, Power Grid, BEL, MTNL & HCC.
 Nifty is in Up trend

 

NIFTY FUTURES (F & O):  
Below 4603-4605 zone, selling may continue up to 4586 level and thereafter slide may continue up to 4546-4548 zone by non-stop.

Hurdles at 4633 & 4644 levels. Above these levels, expect short covering up to 4700-4702 zone and thereafter expect a jump up to 4757-4759 zone by non-stop.

Sell if touches 4776-4778 zone. Stop Loss at 4832-4834 zone.

On Negative Side, break below 4528-4530 zone can create panic up to 4471-4473 zone. If breaks and sustains this zone then downtrend may continue.
 
Short-Term Investors:
Bearish Trend. 3 closes below 4623.80 level, it can tumble up to 4092.20 level by non-stop.
SL triggered. 3 closes above 4623.80 level, expect short covering up to 4889.60 level by non-stop.
 
BSE SENSEX:  
Lower opening expected. Recovery should start. 
Short-Term Investors:
 
Short-Term trend is Bearish and target at around 14235 level on down side.
Maintain a Stop Loss at 15973 level for your short positions too.

 

POSITIONAL BUY:
Buy DHANALAKSHMI BANK (NSE Cash) 
Uptrend may continue.

Mild sell-off up to 129 level can be used to buy. If uptrend continues, then it may continue up to 136 level for time being. 

If crosses & sustains at above 142 level then uptrend may continue.

Keep a Stop Loss at 123 level for your long positions too.
 
Buy TRANSPORT CORPN OF INDIA (NSE Cash) 
Uptrend may continue.
 
Mild sell-off up to 80 level can be used to buy. If uptrend continues, then it may continue up to 86 level for time being. 

If crosses & sustains at above 89 level then uptrend may continue.

Keep a Stop Loss at 77 level for your long positions too.
  
FUNDS DATA

FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
FII	01-Sep-2009	2444.21	3080.15	-635.94

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	01-Sep-2009	1759.07	1392.18	366.89

Global Cues & Rupee 
 The Dow Jones Industrial Average closed at 9,310.60. Down by 185.68 points.
The Broader S&P 500 closed at 998.04. Down by 22.58 points.

The Nasdaq Composite Index closed at 1,968.89. Down by 40.17 points.

The partially convertible rupee INR=IN closed at 49.05/06 per dollar on yesterday, weaker than Monday's close of 48.83/84.
 
 Interesting findings on web:
Stocks plunge on worries that the market gains have raced ahead of any economic recovery.

Markets tumbled Tuesday, as investors retreated at the start of what is typically a rough month, betting that the six-month stock advance has raced ahead of the economic recovery.

After the best August in nine years, traders on the New York Stock Exchange are wondering whether the Dow Jones index has leapt too far ahead of the real US economy.

Sell-offs in the banking sector pulled down the Dow Jones Industrial Average and the Standard & Poor's 500 on Tuesday, the third day of decline for the two stock indices.

Leading decliners Bank of America, American Express and JPMorgan Chase cut 185.68 points, or 1.96%, from the Dow, which closed at 9,310.60 points.Its worst drop in two weeks. The S&P 500 went below the 1,000 level falling 22.58, or 2.21%, to 998.04. Its steepest fall since August 17 and the first close under 1000 since August 19. 1.8%.

The Nasdaq Composite also shed 40.17 or 2 percent to close at 1,969. It's first close under 2000 in two weeks.

In other trading, the Russell 2000 index of smaller companies fell 14.01, or 2.5 percent, to 558.06.

Even some bullish analysts had long been calling for a pause or a correction after stocks' summer surge. They pointed to an economy that is still weak, the longest win streak since 2007 for the Dow and the 3,000-point climb off the March lows.

Seasonal factors are also dragging on the markets. While the blue chips climbed 3.5% last month -- their best August since 2000 -- the S&P 500 has made headway in September just 43% of the time since 1950, according to Miller Tabak's Dan Greenhaus.

"There is clearly something to the seasonal weakness and with a 50% rally in the books for equities, September is clearly worrying some," Greenhaus wrote in a note.

"It's not that the market is going back to the March lows but there's no question it got ahead of itself," NYSE trader Ted Weisberg of Seaport Securities told FOX Business.

So it wasn't surprising that, after the Dow was up 60 points in response to a seemingly better-than-expected reading on manufacturing, something like a rumor about a possible bank failure could take the market down.

"Some time midmorning, rumors came out that a large bank could be in trouble," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "That's all it takes to spook this market."

The rumors were never substantiated.

A plunge in Chinese shares continued to weigh on Wall Street a day after the Shanghai Composite capped off its worst monthly decline in 15 years.

"As the China market has come unglued a little bit, that's placed a concern about our market valuations -- justified or not," said James.

Dan Deming, a trader with Strutland Equities in Chicago, said it didn't appear much had changed in the market since then, but investors have grown more nervous as stocks have pushed higher and that was enough to tip off heavy selling.

"It's really more psychological right now than anything. The first day of September — the market shows some weakness and then it just kind of starts to feed on itself," he said. "Everybody is kind of looking over their shoulder."

Deming referred to the fact that many investors had some fear of what might happen in September, which historically has been the worst month for stocks. Many analysts said the change in calendar was one of many factors that created a critical mass of sorts for the market and fueled Tuesday's drop.

Banks and insurance companies were among the most notable losers amid the fears of bank failures, but they also had been pumped up the most in the rally that lifted the market more than 50 percent since hitting 12-year lows in March. With the government reporting last week that 400 banks were in trouble during the second quarter, investors' anxiety about the health of the financial industry was heightened and so rumors that investors might shrug off in less fractious times became powerful enough to cause sustained losses.

Many of the summer's big bank sector winners led the declines Tuesday.

Dow component Bank of America (BAC, Fortune 500) slipped 6.4% in active NYSE trading. BofA was the biggest Dow gainer in the June through August period, rising 56%.

Dow component American Express (AXP, Fortune 500) lost 5.4% Tuesday. Over the last three months, AmEx has gained 36% and was the second-best Dow performer.

Dow component JPMorgan Chase (JPM, Fortune 500) lost 4.1% after rising 17% this summer.

Wells Fargo, the San Francisco-based bank that received $US25 billion in government bailout funds, slid the most in two weeks.

Suntrust Bank [STI  21.73    -1.64  (-7.02%)   ] off 7 percent and Regions Financial [RF  5.54    -0.32  (-5.46%)   ] down 5.5 percent as well.

Among other movers, Citigroup (C, Fortune 500) lost 9% after rising 34% in the summer. Regional bank Fifth Third Bancorp (FITB, Fortune 500) lost 6.2% after rising 59% this summer.

The KBW Bank (BKX) index fell 5.8% after rising 20% over the summer.

Eighty-four banks have failed already this year and today's Wall Street Journal reported the Federal Deposit Insurance Corporation (FDIC), which guarantees deposits, has 416 banks on its problem list. That is an increase of 109 troubled banks from three months earlier.

The newspaper also wrote in its editorial that the FDIC has a mere $10.5 billion in reserves to guarantee $4.5 trillion in bank deposits.

The paper says American taxpayers had better get ready for another bailout - this time for deposit insurance.

Some of the sector's weakest performers were the ones that have run up the most over the past few months, including bailed-out insurer American International Group (AIG: 36.05, -9.008, -19.99%), and commercial lender CIT Group (CIT: 1.45, -0.23, -13.69%).

"I think we've had a nice run and it's time for a bit of a pullback," said Tom Schrader, managing director at Stifel Nicolaus. "I wouldn't be surprised if we moved back to the 880 level (on the S&P 500) before moving back up."

A drop to the 880 level would constitute a slide of about 12% from the current levels.

Investors nitpicked through the morning's better-than-expected reports on housing and manufacturing but found little reason to jump back into the fray.

"I think the 'whisper number' for [the manufacturing report] was higher and once people digested that, the market swung in the other direction," said Schrader.

Schrader said that investors were also reacting to the "calendar influence," amid a variety of reports about the tendency for September to be a weak month on Wall Street. September is typically the biggest percentage loser of the month for the Dow, S&P 500 and Nasdaq composite, according to the "Stock Trader's Almanac."

"The reports this morning were positive, but investors are basically saying that stocks have had a good run up and now it's time to take some profits," chimed in Phil Orlando, chief equity market strategist at Federated Investors.

Stocks have essentially been on the rise since March, as investors have welcomed extraordinary fiscal and monetary stimulus and signs that corporate profits and the economy have stabilized. The major gauges ended last week at the highest levels in 9 to 10 months. Financial shares took a beating Tuesday after enjoying a nice ride through the late summer, fueled largely by speculation and momentum.

But with the S&P up 52% from the March 9 lows, market participants are now looking for concrete evidence that the economy is recovering. The morning's reports were positive, but perhaps not as positive as the most optimistic forecasts.

The Institute for Supply Management's manufacturing index for August showed growth in the sector for the first time since January 2008. The index rose to 52.9 from 48.9 previously. Economists surveyed by Briefing.com thought it would rise to 50.5.

The Institute of Supply Management reported its highest manufacturing index since June 2007, to above 50 points. This indicates expansion in the sector and new orders jumped to their highest level since December 2004.

It was a sign, according to President Barack Obama who was not going to let the positive news go unremarked, that economic recovery is underway.

"For the first time in 18 months our manufacturing sector has expanded and it means these companies are starting to invest more and produce more and it is a sign that we're on the path to economic recovery," he said.

But many stock analysts fear that investors have been way too optimistic in factoring an economic recovery into share prices.

So while the administration is grabbing at any positive economic figure, the stock market is the opposite, turning its back on good news as traders grow nervous about a September sell off.

Investment manager Doug Kass says the market will go into a decline.

"I think the market now is clearly exhibiting a new pattern," he said.

"We're experiencing selling or non plus reactions to the good news. Most investors should now consider reducing overall invested positions as the reward-versus-risk is less than exceptional."

But a decline is no surprise to Bill Greiner of Scout Investment advisers.

He says there were only two rallies in the past century that were bigger than the one we've just been through. One came in 1932 and the other in 1933. Both ended in price plunges.

"If you look back in history, first of all over the past 100-year period of time, there's only been two six-month periods that have been stronger than the six months we just finished from March until the end of August," he said.

"Those last two didn't end particularly peacefully and I don't think this one will either."

Pending home sales rose for the sixth straight month, jumping 3.2% in July, to the highest point in nearly two years, according to a report from the National Association of Realtors released Tuesday morning. The index rose 3.6% in June. Economists surveyed by Briefing.com thought sales would rise 1.5% in July.

The news initially buoyed home builder stocks like Lennar (LEN: 14.4, -0.7, -4.64%) and Pulte Homes (PHM: 12.29, -0.48, -3.76%) but those gains proved fleeting.

Construction spending fell 0.2% in July versus forecasts for an unchanged reading. Spending rose a revised 0.1% in June.

Analysts said both the manufacturing and housing reports got a boost from government stimulus efforts, including the Cash for Clunkers program that has since expired, which means the recovery in those industries may not continue at the same pace.

"In both cases it seems headlines overstate details by a touch," said Tom di Galoma, head of U.S. rates trading at Guggenheim Capital Markets LLC. "People reviewed the numbers and said this type of demand is just not sustainable."

"While there is nothing negative about the data, I think it's more market sentiment driving stocks' direction," said Michael James, senior equities trader at Wedbush Morgan Securities. "There are far more people looking to sell stocks than buy stocks, which is a change in sentiment from the last several weeks."

Investors were also uneasy ahead of Friday's employment report from the government, which could reveal more bad news about the job market, one of the worst remaining problem areas in the U.S. economy.

The decline in oil prices dragged on heavily-weighted energy stocks including Dow components Chevron (CVX, Fortune 500) and Exxon Mobil (XOM, Fortune 500).

Conglomerates like 3M (MMM: 70.33, -1.71, -2.37%) and General Electric (GE: 13.33, -0.56, -4.03%) initially rallied on the news but ended sharply lower.

The government's popular Cash for Clunkers program gave a boost to sales in August, major automakers said. Although a plunge in sales in the last week of the month, following the program's end, suggests the impact will not be far reaching.

In August, Ford Motor (F, Fortune 500) reported that sales jumped 17% versus a year ago, its best monthly gain in 4 years. However, the advance was short of expectations for a rise of 22%, according to analysts surveyed by Edmunds.com.

Ford Motor (F: 7.21, -0.4, -5.26%) saw its shares tumble nearly 5% despite reporting a 17% jump in August sales.

Toyota, which had the most Clunker sales of any automaker, said August sales rose 6%, its first year-over-year gain in 16 months.

General Motors (GM, Fortune 500) and Chrysler Group both reported year-over-year declines in August on sales that improved from July.

Online auctioneer eBay (EBAY, Fortune 500) said it will sell a large stake in its Skype Internet phone business to a group of investors for $2.75 billion.

Of the 30 stocks that make up the Dow industrials, only Wal-Mart Stores Inc. rose. Wal-Mart Stores Inc. rose 10 cents to $50.97.

Five stocks fell for every one that rose on the New York Stock Exchange, where consolidated volume came to 7 billion shares compared with a light 5.3 billion Monday.

The Chicago Board Options Exchange's Volatility Index, known as the market's fear index, surged 12.1 percent, its biggest jump since Aug. 17. The VIX stands at 29.2 and is down 27 percent in 2009 and its historical average is 18-20. It hit a record 89.5 in October at the height of the financial crisis.

While the pullback in stocks Tuesday was significant, even with the drop, stocks have risen so much that only one of the roughly 3,100 stocks traded on the NYSE hit a new annual low. And, 53 carved new highs.

Bank of America (BAC: 16.45, -1.16, -6.59%) is in negotiations with the U.S. to repay about $20 billion in exceptional aid the bank received when it nearly backed away from buying Merrill Lynch, The Wall Street Journal reported. The bank is also reportedly in talks to pay up to $500 million to escape a loss-sharing agreement on $118 billion of assets. The talks could result in BofA no longer being subject to oversight from the White House's "pay czar."

EBay (EBAY: 21.68, -0.46, -2.08%) inked a $1.9 billion deal to sell a 65% stake in online calling service Skype to a group of private investors, led by private equity firm Silver Lake Partners, venture capital firm Andreessen Horowitz and British venture capital firm Index Ventures. The deal, which values Skype at $2.75 billion, is expected to close in the fourth quarter of 2009 and comes after Google (GOOG: 456.1, -5.57, -1.21%) reportedly passed on buying the service.

CIT Group (CIT: 1.45, -0.23, -13.69%) fell sharply after the struggling commercial lender said in a regulatory filing it won't be able to make a Sept. 15 interest payment on its debt due in 2067. CIT said that it must "use commercially reasonable efforts" to execute an alternative way of paying the bond payment, and if the company cannot handle the alternative, it must "mandatorily defer interest on the notes."

Acadia (ACAD: 2, -3.84, -65.75%) lost two-thirds of its market value after the drug maker and its partner Biovail (BVF: 12.33, -0.4, -3.14%) said their Parkinson's psychosis drug failed to meet its primary goal. The drug, pimavanserin, missed the primary endpoint of antipsychotic efficacy during a Phase III trial but met the key secondary goal of motoric tolerability.

News Corp. (NWS: 12.28, -0.36, -2.85%) is considering making its first major investment in the Middle East by taking a 20% stake in Rotana Media from Saudi Prince Alwaleed bin Talal, Dow Jones Newswires reported. News Corp. is the parent of both FOX Business and Dow Jones.

American International Group (AIG: 36.05, -9.008, -19.99%) lost another 21% of its quickly-eroding market cap. The bailed-out insurer was downgraded to "underperform" from "market perform" by Sanford Bernstein, which put a $10 price target on AIG. "AIG's current stock price gives virtually no weight to the possibility that the common equity is worth zero," an analyst wrote.

Metabasis Therapeutics (MBRX: 0.42, -0.0501, -10.66%) said its CEO Mark Erion is leaving the small biotech company at the end of next month to join drug giant Merck (MRK: 31.762, -0.658, -2.03%). Metabasis, which recently terminated R&D efforts, said Chairman David Hale has been appointed executive chairman.

Gander Mountain (GMTN: 4.49, -1.13, -20.11%) saw its shares plummet 26% after the outdoor-gear provider disclosed a wider-than-expected quarterly loss of 30 cents per share and warned of a challenging retail environment for the rest of the year. Gander, which sells hunting, fishing, camping and other outdoor gear, said is sales slipped 1.8% to $248.4 million.

MetLife plummeted 5.5% after analysts said the insurers' shares had risen too far, too fast.

Yahoo [YHOO  14.16    -0.45  (-3.08%)   ] shares lost 2.9 percent following news that investor Carl Icahn cuts his stake in the company to 4.48 percent from 5.45 percent.

Research In Motion [RIMM  73.55    0.49  (+0.67%)   ] eked out a gain, climbing 0.7 percent.

Oil,Gold & Currencies:

U.S. light crude oil for October delivery fell $1.91 to settle at $68.05 a barrel on the New York Mercantile Exchange. Oil prices have been slipping since hitting a ten-month high just below $75 a barrel late last month.

COMEX gold for December delivery rose $3.50 to settle at $957 an ounce.

In currency trading, the dollar gained versus the euro and the Japanese yen.

The yen traded near a seven-week high against the euro as concern U.S. financial institutions will incur more losses spurred a sell-off in stocks and renewed demand for the relative safety of Japan's currency.

The yen was close to its strongest level versus the dollar in more than a month after Asian shares slumped and CIT Group Inc. deferred interest payments on subordinated bonds because efforts to cover the payments have been unsuccessful. The Australian dollar climbed from near a one-week low against the greenback after a government report showed economic growth unexpectedly accelerated in the second quarter.

"There are lingering worries about the health of the U.S. banking sector," said Toshihiko Sakai, head of trading for foreign exchange and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. "The bias is for the yen and the dollar to be bought."

The yen traded at 132.20 per euro as of 10:55 a.m. in Tokyo from 132.19 in New York yesterday, after earlier reaching 131.46, the highest level since July 15. Japan's currency was at 92.97 per dollar from 92.92.

The euro bought $1.4217 from $1.4224 in New York yesterday, when it touched $1.4178, the weakest level since Aug. 19. The Australian dollar climbed to 83.16 U.S. cents after earlier falling to 82.41 cents, the lowest level since Aug. 27.

Asian Stocks Decline

The Nikkei 225 Stock Average slid 2.6 percent and the MSCI Asia Pacific Index fell 1.7 percent, the most since Aug. 17. The Standard & Poor's 500 Index sank 2.2 percent yesterday. MSCI's Asian index has rallied 59 percent from a more than five-year low on March 9.

"Markets worry that they may have run up too much too fast," Philip Wee, senior currency economist in Singapore at DBS Group Holdings Ltd., wrote in a research note today. "Risk aversion returned. Expect the dollar to head higher on lower Asian stocks."

CIT said in a regulatory filing it was forced to delay payments on subordinated bonds due 2067 because efforts to execute a so-called alternative payment mechanism have been unsuccessful. The U.S. lender got $3 billion in financing from creditors in July to avoid collapse.

U.S. banks on the West Coast still face credit deterioration and higher loan losses, said analysts at RBC Capital Markets.

Capital Concerns

"Many of these banks may still not have enough capital and reserves" to cushion against writedowns from worsening real estate market, analysts Joe Morford and David King wrote in a research report.

The yen tends to gain in financial turmoil as Japan's trade surplus reduces reliance on foreign capital, while the dollar benefits from its status as the world's main reserve currency.

Australia's dollar rose and the yen curbed its gains after the Bureau of Statistics said today in Sydney the nation's gross domestic product expanded 0.6 percent in the second quarter from the previous three months, when it grew 0.4 percent.

The median estimate of 20 economists surveyed by Bloomberg News was for a 0.2 percent expansion.

Australia's economy has been "stronger than expected" amid resilient consumer spending, exports and business investment, central bank Governor Glenn Stevens said yesterday after keeping the benchmark interest rate at 3 percent for a fifth month. GDP may expand further in coming quarters as the government spends A$22 billion ($18 billion) on roads, railways and schools.

The euro traded near a two-week low versus the dollar after German Finance Minister Peer Steinbrueck said yesterday financing conditions may deteriorate.

Steinbrueck also said insolvencies in Europe's biggest economy may rise in the fourth quarter of this year into the first quarter of 2010.

Bonds:

Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.37% from 3.40% late Monday. Treasury prices and yields move in opposite directions.

What to expect:

WEDNESDAY: Weekly mortgage applications; Challenger and ADP jobs reports; factory orders; weekly crude inventories; Fed minutes

THURSDAY: Chain-store sales; weekly jobless claims; ISM services index

FRIDAY: August jobs report

Two readings on the labor market are due Wednesday in the lead up to Friday's big August jobs report.

Payroll services firm ADP is expected to report that employers in the private-sector cut 246,000 jobs from their payrolls in August after cutting 371,000 in July.

Additionally, Challenger, Gray & Christmas, an outplacement firm, will report on the number of announced job cuts in August.

A July reading on factory orders is also due in the morning from the Commerce Department. Other reports include the minutes from the last Federal Reserve policy meeting, the weekly crude oil inventories report and the July reading on factory orders.

More turbulence could be in store for the markets later this week as traders brace for retailers' same-store sales reports on Thursday and the crucial monthly jobs report on Friday.

Asia:

Asian stocks fell, giving the MSCI Asia Pacific Index its biggest drop in two weeks, as Seven & I Holdings Co. cut its full-year profit forecast and commodity prices declined.

Seven & I, Japan's largest retailer, dropped 3.8 percent in Tokyo. BHP Billiton Ltd., the world's largest mining company, lost 2 percent in Sydney after oil and copper prices slumped in New York. Elpida Memory Inc., Japan's biggest memory-chip maker, tumbled 17 percent on plans to sell shares.

The MSCI Asia Pacific Index dropped 1.6 percent to 112.10 as of 11:39 a.m. in Tokyo, the most since Aug. 17. The gauge has risen 59 percent from a more than five-year low on March 9 on speculation the global economy is recovering. That's taken the average price of stocks on the index to 1.5 times book value, close to an 11-month high.

"We remain cautious on the market," said Pearlyn Wong, Singapore-based investment analyst at Bank Julius Baer Co., which manages $350 billion. "Much of the recovery story has been priced in. Investors are probably wondering what is going to happen once the stimulus measures end."

Japan's Nikkei 225 Stock Average declined 2.6 percent. Mitsubishi UFJ Financial Group Inc. slipped 2.9 percent as concern lenders will report more losses dragged U.S. financial shares lower yesterday.

Hong Kong's Hang Seng Index lost 1.6 percent. Australia's S&P/ASX 200 Index sank 1.9 percent even as a government report showed the country's economy grew faster in the second quarter.

Banks Decline

All major stock indexes in the region declined except in China and Taiwan. The Shanghai Composite Index added 0.4 percent. PetroChina Co. and China Petroleum & Chemical Corp. added more than 1 percent after the government raised fuel prices.

Futures on the S&P 500 Index added 0.1 percent. The gauge slid 2.2 percent yesterday, the most since Aug. 17. The KBW Bank Index of 24 U.S. financial companies fell 5.8 percent as analysts at RBC Capital Markets said U.S. banks on the West Coast still face credit deterioration and higher loan losses.

Mitsubishi UFJ, Japan's largest publicly traded bank, dropped 2.9 percent to 578 yen. Westpac Banking Corp., Australia's largest bank by market value, sank 2.9 percent to A$24.14.

The drops in U.S. equities and commodities "will prompt investors to sell related stocks," said Hiroichi Nishi, an equities manager at Tokyo-based Nikko Cordial Securities Inc. "As the global economy recovers, there are many investors who want to buy on dips."

Lower Forecast

Seven & I declined 3.8 percent to 2,145 yen after cutting its full-year net income target by 11 percent. Aeon Co., Japan's second-largest retailer, slumped 5.5 percent to 920 yen. Uny Co., which runs department stores, slid 5.6 percent to 748 yen.

"There are signs of recovery in certain sectors of the domestic economy, but an overall recovery seems unlikely," Seven & I said in a filing with the Tokyo stock exchange. "Consumer sentiment remains weak."

Maruzen Co. tumbled 7.2 percent to 103 yen. The bookstore operator posted a 340 million yen ($3.7 million) loss for the six months ended July 31, missing its forecast of a 10 million yen profit because of weak sales, according to a preliminary earnings statement.

BHP Billiton lost 2 percent to A$36.53. Rio Tinto Group Ltd., the world's third-largest mining company, fell 2.4 percent to A$55.96. Inpex Corp., Japan's largest oil explorer, slumped 4.1 percent to 732,000 yen.

Commodity Prices Decline

Crude oil fell 2.7 percent to $68.05 a barrel in New York yesterday, the lowest settlement since Aug. 17. A gauge of six metals in London dropped 3.6 percent, the most since July 8.

In Tokyo, Elpida slumped 17 percent to 1,282 yen after saying the company will sell as much as 78.5 billion yen ($841 million) of new shares at a 7.2 percent discount to yesterday's closing price.

In Shanghai, PetroChina, the nation's biggest oil producer, advanced 2.1 percent to 13.17 yuan. China Petroleum & Chemical, Asia's biggest refiner, added 1.1 percent to 11.43 yuan.

China will raise fuel prices by 300 yuan ($44) a ton, or as much as 6.3 percent, today to reflect gains in crude oil and offset higher raw material costs, the National Development and Reform Commission said on its website. 

Nikkei 225 10,253.18     -276.88 ( - 2.63%).(08.19 AM IST).

Japan's Nikkei average slid 2.6 percent on Wednesday, dragged down by exporters such as Canon Inc (7751.T) on a stronger yen and after uncertainty over the health of the U.S. financial sector hit Wall Street.

The benchmark Nikkei .N225 shed 276.88 points to 10,253.18. It inched up 0.4 percent the previous day, bringing its gains from its March lows to nearly 50 percent.

The broader Topix declined 2.2 percent to 947.13.

Tokyo stocks tumbled over 2 percent Wednesday morning after concern about the U.S. financial sector's health sent Wall Street plummeting overnight and a stronger yen weighed on Japanese exporters.

Elpida Memory Inc. (6665) shares opened Wednesday ask-only, before trading limit-down at 1,237 yen, down 300 yen from Tuesday.

Rohm Co. (6963) shares fell back Wednesday morning along with other high-tech stocks, which are being dumped in reaction to an overnight retreat in the Nasdaq Composite Index. 

HSI 19521.14 -351.16 -1.77%.(08.21 AM IST).

Hong Kong stocks dropped sharply Wednesday in the wake of an overnight fall on Wall Street and in spite of gains in Shanghai, with market heavyweights HSBC Holdings Plc. and China Mobile Ltd. pacing the fall. The Hang Seng Index dropped 1.9% to 19,490.67 in early trades, and the Hang Seng China Enterprises Index slid 1.5% to 11,169.99. HSBC /quotes/comstock/22h!e:5 (HK:5 81.05, -2.35, -2.82%) /quotes/comstock/13*!hbc/quotes/nls/hbc (HBC 52.34, -1.58, -2.93%) lost 3.1%, and China Mobile /quotes/comstock/13*!chl/quotes/nls/chl (CHL 48.10, -0.11, -0.23%) /quotes/comstock/22h!e:941 (HK:941 75.10, -1.10, -1.44%) dropped 1.8%. Shares of China Petroleum & Chemical Corp. /quotes/comstock/22h!e:386 (HK:386 6.61, +0.07, +1.07%) /quotes/comstock/13*!snp/quotes/nls/snp (SNP 84.32, +0.71, +0.85%) rose 0.3% after China announced an increase in fuel prices, though PetroChina /quotes/comstock/22h!e:857 (HK:857 8.57, -0.09, -1.04%) /quotes/comstock/13*!ptr/quotes/nls/ptr (PTR 108.01, -1.14, -1.04%) dropped 1.3%. China's Shanghai Composite added 1% to 2,709.97 in early morning action.  

SSE Composite  2713.43  + 1.11.(08.23 AM IST).

Chinese stocks advanced in early trading Wednesday, shrugging off weakness in regional markets and on Wall Street overnight, with refiners rising after the National Development and Reform Commission announced an increase in motor fuel prices. The Shanghai Composite rose 0.2% to 2,689.52. Shares of China Petroleum & Chemical Corp., or Sinopec /quotes/comstock/13*!snp/quotes/nls/snp (SNP 84.32, +0.71, +0.85%) , rose 1.4% and PetroChina /quotes/comstock/13*!ptr/quotes/nls/ptr (PTR 108.01, -1.14, -1.04%) gained 2.3% after the NDRC announced an increase of 4.6% in gasoline prices and a 5.2% hike in diesel prices.

Chinese equities opened lower on Wednesday morning with the benchmark Shanghai Composite Index sliding 0.09 percent, or 2.39 points, to open at 2,681.33.

The Shenzhen Component Index lost 1.04 percent, or 110.89 points, to open at 10,503.39.

Sinopec, China's leading oil refiner, gained 2.39 percent to 11.58 yuan (1.7 U.S. dollars) per share at the opening, with PetroChina edging up 1.56 percent to 13.06 yuan per share, as the country raised the prices of gasoline and diesel by 300 yuan a tonne, or about 4 percent, starting from Sept. 2.

Chinese stocks open nearly flat on Wed

Chinese stocks opened nearly flat on Wednesday morning.

The benchmark Shanghai Composite Index, which covers both A shares and B shares on the Shanghai Stock Exchange, opened at 2,681.33 points, down 0.09% or 2.39 points from the previous closing.

The Shenzhen Component Index on the smaller Shenzhen Stock Exchange opened 1.04% or 110.89 points lower at 10,503.39 points.

China Railway units win contracts worth RMB 13.92 bln.

China Unicom, Chunghwa Telecom to set up mainland JV.

Silicon Valley Bank opens representative office in Shanghai.

CNTA relaxes requirements for foreign-invested travel agencies.

BBMG allocates RMB 2 bln to buy land in H2.

CNOOC inks deal with Qatar Petroleum.

Sinopharm to kick off Hong Kong roadshow on Fri.

PetroChina to buy US$1.7-bln oil sands stake from Athabasca.

China to Hike Fuel Prices 4-5%, 4th Time in '09

China will raise retail fuel prices by about 4-5 percent from Wednesday to a near-record high to track a basket of global crude prices that moved up nearly 10 percent since Beijing's last price change just over a month ago.

The increase in retail prices for gasoline and diesel by 300 yuan a tonne was announced by an official from the National Development and Reform Commission on state television and marks the fourth hike this year.

The announcement confirmed an earlier Reuters report.

The rise, a surprise to many in the markets who had been expecting Beijing to hold off until after the National Day holiday on Oct 1, shows that the government is serious about sticking to its market-based fuel pricing system that closely tracks global crude costs.

The increase was at the lower end of an earlier forecast for a hike of 6-8percent, as global crude [US@CL.1  68.61    0.56  (+0.82%)   ] fell almost 4 percent on Monday before climbing back to near $70.40 a barrel on Tuesday.

The share price of top state refiner Sinopec fell by the daily limit of 10 percent in Shanghai on Monday after a media report that China might reduce the frequency of oil price changes.

"I suspect more increases are needed in October given the higher cost of crude oil to be shipped in by then," said Qiu Xiaofeng, an analyst with China Merchants Securities.

After the rise, China's average retail price for 90-octane gasoline stood at about $3.12 a gallon, some 19.5 percent above average pump prices for U.S. regular unleaded motor fuel.

Xu Kunlin, a senior official in charge of oil pricing at the NDRC, a powerful central planning agency, told state television that China had already postponed the rise by one week because it must look at more than just global oil prices.

"The domestic economy, market demand and supply and some other factors also require consideration," he said.

China also raised jet fuel prices by 300 yuan per tonne.

High Production, High Stocks to Persist

Analysts say that the rise, the first since July 29, will further shore up profit margins for state refiners and prompt them to produce at high rates despite increasing stocks.

Refined fuel stocks held by China's top two oil firms rose 7.5 percent in July, the third monthly rise in a row, as sales declined for the first time since at least February while refiners increased their output to a record high of 7.8 million barrels per day in the month.

"Oil firms' enthusiasm is not dampened by the weak domestic sales. Instead, they are encouraged to produce at a robust rate thanks to the price rise and they can export their extra production," a state refining official said.

Sinopec last week reported record first-half earnings that were more than four-times higher than year-ago levels alongside a hefty $8.6 per barrel margin.

"High production will also keep China's apparent oil demand at a high level," the official added.

Stripping out changes in stocks, China's implied oil demand rose 3.5 percent in July from a year earlier, the fourth consecutive rise.

Under a price system since Jan. 2009, the Chinese government has said it may adjust gasoline and diesel prices when the moving average of global crude sways more than 4 percent.

The government has said that the prices it sets operate only as guidance and that oil firms can set their own prices, provided that they do not exceed the government's ceiling.

Roubini: China Won't Drive World Out Of Recession

In a Fast Money exclusive, widely followed market maven Nouriel Roubini reveals his latest market musings.

As you may know Roubini, who is a professor of economics at NYU, is considered a sage by some investors after he accurately predicted the housing crisis, deep recession and more. His gloomy prognostications have also earned him the nickname Dr. Doom.

Find out what Roubini says could drag us into a double dip recession -– and why China is too small to be the main engine of global growth.

Fast Money: What is the biggest threat to the recovery?

Roubini: The debt ratios of banks and (individuals) are very high; (Individuals) have barely started saving. So what we've done is socialize these private losses and now we have a massive releveraging of the public sector with large and unsustainable budget deficits.

(The deficits) are leading to accumulation of public debt -  over $10 trillion over next 10 years. (That massive amount) of debt may lead to another crisis. 

Fast Money Insisghts

I agree that we see bank failures going forward, says Guy Adami. And if that happens I expect it could spook the market. I also think the market has seen its high for a while.

Roubini: China Is Not Big Enough To Drive Worldwide Economic Recovery

Fast Money: Can China lead the world out of recession?

Roubini: I don't believe China can be the main locomotive of global growth – China GDP is only $3 trillion – the US is $15 trillion. Chinese total consumption is $1 trillion – the US is $10 trillion.

So China is too small to be the main locomotive of engine of global growth, and there are excesses right now in China – like froth in the real estate and the stock market. And there is now the beginning of a correction. And if there was a sharp slowdown in China, that's going to be again negative for the global economy.

Fast Money Insights

I agree with what Roubini is saying, reveals Tim Seymour. China alone can not do it. But also, I would not underestimate the strength of emerging markets.

I don't think we're looking for China to be the locomotive, adds Pete Najarian. We're just looking for a little push.

V Defies Economic Pessimists Seeing L, U, W: Brendan Moynihan

What shape will the U.S. economic recovery take: L, U, V, W, square root or maybe even Riemann's zeta function?

Many economists and pundits, trying to explain why "it's different this time," are groping for new metaphors to explain their forecast for how the U.S. economy will emerge from recession.

Economists long ago gave us descriptions of L-shape recoveries (never happened), U-shape (also never happened) and the W-shape (happened once, for reasons explained below). The triple-U recently made it into the lexicon. And Societe Generale's Albert Edwards served up the Armenian letter K in a June 4 report.

Commentators unwilling to be constrained by the letters of the Roman alphabet turned to symbols, in May giving us the character for "bank" (it resembles a sickle) used in the Pitman shorthand system for taking dictation. In an interview on Bloomberg Scarlet Fu on July 7, Hans-Guenter Redeker, global head of foreign-exchange strategy at BNP Paribas SA, said the recovery will look like a "square root." Bank of America Merrill Lynch, in an Aug. 17 report titled "The Shape of Things to Come" also used that symbol.

At the rate they are going, they'll soon be using Riemann's zeta function shape (a sort of spiral). Meanwhile, key economic indicators are defying them all with a V-shaped trajectory that typifies economic recoveries in the U.S.

Defying History

The new metaphors project stagnant growth for the next several years, breaking with all precedent in post-World War II recoveries. Business cycles differ in nuance, but all of them are cycles. And history shows that the deeper the decline, the stronger the V-shaped rebound.

The last time the gross domestic product contracted more than the 6.4 percent registered in the first quarter of 2009 was the 10.4 percent contraction in the second quarter of 1980, when President Jimmy Carter told Americans to cut up their credit cards. They did, en masse, and many mailed the clippings to the White House as evidence of their support.

The famous "double dip," or W-shape recovery of 1980 and 1981 happened because the Federal Reserve, under the leadership of Paul Volcker, raised interest rates, lowered them, then raised them again. Soaring interest rates (mortgage rates rose as high as 18 percent) sapped demand for homes, and homebuilders mailed two-by-fours to the White House to show their disapproval of the Fed's handling of the economy.

'Different This Time?'

The Fed at the time was still trying to figure out how to conduct monetary policy, having just removed regulated interest- rate ceilings and deciding to target the money supply instead of interest rates.

The median forecast for third-quarter U.S. GDP is 2.2 percent, according to Bloomberg surveys. By comparison, since 1945 the average annualized real U.S. growth in the first two quarters of a recovery is 7.1 percent. Again, the pessimists say "it's different this time."

They cite unemployment and the housing market as the principal reasons for anemic growth in coming quarters and years.

Unemployment is a lagging indicator of economic activity and is making its own V-shape rebound right now, reinforced by continuing jobless claims, which already have that trajectory. The housing market is showing signs of life. The S&P/Case- Shiller home-price index, which tracks 20 metropolitan areas, rose in 18 cities during June, and new single-family home sales are flashing the typical V-shape recovery.

Metaphoric Blunder

For a group that collectively failed to predict the financial crisis or the depth of the economic contraction, economists' recovery metaphors for why "it's different this time" are suspect. As for the handful who may have predicted the events of the past two years, they are unable to envision a recovery. Winston Churchill once said a fanatic is someone who can't change his mind and won't change the subject.

Let's hope the metaphor-hunting economists don't stumble upon Wallace Stevens's poem "Motive of Metaphor," which ends with the letter X. 
 
 

INVESTMENT VIEW
Pidilite-Waterproofing Solutions 
If we all agree that India is a infrastructure play, then Pidilite is the biggest play on the segment with it's dominant role in the Bonding and Waterproofing segment
 

Pidilite is the market leader in adhesives and sealants, construction chemicals, hobby colours and polymer emulsions in India. Its brand name Fevicol has become synonymous with adhesives to millions in India and is ranked amongst the most trusted brands in India.

 

The Company's product range includes Adhesives and Sealants, Construction and Paint Chemicals, Automotive Chemicals, Art Materials, Industrial Adhesives, Industrial

and Textile Resins and Organic Pigments and Preparations.

 

Since its inception in 1959, Pidilite Industries Limited has been a pioneer and two-third of the company's sales come from products and segments it has pioneered in India.

 

Operates in 3 Business Segments – Consumer & Bazaar Products (73% of sales), Specialty Industrial Chemicals (27% of sales) and Others (Vinyl acetate monomer- 5% of sales).

 

Consumer & Bazaar Products include Adhesives & Sealants, Construction/Paint Chemicals and Art Materials; Specialty Industrial Chemicals include Industrial Resins, Industrial Adhesives, Organic Pigments & Preparations and Others (VAM).

 

In FY09, Consumer & Bazaar Products segment contributed to 73% of total sales and grew by 13.6%. Of this Adhesives and Sealants grew by 10.8% and contributed 50% to the total sales of the company. Specialty Industrial Chemicals segment contributed 22% to the total sales and grew by 13.8%.

 

Management attributed slowdown in growth in FY09 due to economic slowdown and huge destocking by dealers due to liquidity crunch.

 

Market leader: It is the leader in most of the segments it operates with a 70% market share in flagship brand, Fevicol (which constitutes about 27% of total revenues of the group).

 

Strong brands: It has popular brands like Fevicol, M-seal, Dr Fixit, and Fevicryl. Fevicol is synonymous with adhesives in India and serves an extensive range of consumer, craftsmen, engineering and industrial consumers. M-Seal is India's leading sealant brand for sealing, joining & repairing applications for both consumer & craftsmen market.

 

Pidilite offers a wide range of constructions chemicals under the Dr. Fixit brand name. The extensive product range is used for waterproofing and repair for both new & old constructions. Dr. Fixit is market leader in retail market of construction chemicals and the products are available in all leading cement, hardware, tile and paint shops.

 

Strong distribution network: Company has a reach to 0.45 mn retailers (up from 0.3 mn 10 years back) and over 25000 wholesale stockist which gives it a very strong distribution.

 

Key Growth drivers:

 

Construction Chemicals to pick up significantly as construction activity picks up. Management expects Dr. Fixit to be as large as Fevicol in the future.

 

Q2FY10 is expected to be good on the back of advance sales due to Diwali (3rd week of October). Management expects sales to pick up at least a month before festival season.

(Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.)

--
Arvind Parekh
+ 91 98432 32381

Market Outlook 1st Sep 2009

NIFTY FUTURES LEVELS

SUPPORT

4659

4630

4601

RESISTANCE

4683

4700

4731

4759
4788

4817

Buy VALECHA ENGINEERING;HYDERABAD INDS

 

Strong & Weak  futures 
This is list of 10 strong futures:

Aban Off shore, India Bulls Retail, Ansal Infra, DCHL, Unitech Ltd, Bhushan Steel, ICSA, Praj Industry, Recltd & GSPL.

And this is list of 10 Weak futures:

Sesa Goa Ltd, Tata Steel, Colpal, Hind Uni Lvr, Federal Bank, Dabur India, Power Grid, Dr Reddy, Sail Ltd & GTL.
Nifty is in Up trend
 

NIFTY FUTURES (F & O): 
Selling may continue up to 4659-4661 zone for time being.

Hurdles at 4683 & 4700 levels. Above these levels, expect short covering up to 4729-4731 zone and thereafter expect a jump up to 4757-4759 zone by non-stop.

Sell if touches 4786-4788 zone. Stop Loss at 4815-4817 zone.

On Negative Side, break below 4630-4632 zone can create panic up to 4601-4603 zone. If breaks and sustains this zone then downtrend may continue.
 
Short-Term Investors:
Bearish Trend. 3 closes below 4623.80 level, it can tumble up to 4092.20 level by non-stop.
SL triggered. 3 closes above 4623.80 level, expect short covering up to 4889.60 level by non-stop.
 
BSE SENSEX:
Lower opening expected. Selling should continue. 

Short-Term Investors:  
Short-Term trend is Bearish and target at around 14235 level on down side.
Maintain a Stop Loss at 15973 level for your short positions too.

 

POSITIONAL BUY:
Buy VALECHA ENGINEERING (NSE Cash) 
Recovery should start.

Mild sell-off up to 89 level can be used to buy. If recovery starts, then it may continue up to 92 level for time being. 

If crosses & sustains at above 95 level then uptrend may continue.

Keep a Stop Loss at 86 level for your long positions too.
 
Buy HYDERABAD INDS (NSE Cash) 

Uptrend may continue.

Mild sell-off up to 403 level can be used to buy. If uptrend continues, then it may continue up to 419 level for time being. 

If crosses & sustains at above 433 level then

uptrend may continue.

Keep a Stop Loss at 389 level for your long positions too.
 
Global Cues & Rupee 
The Dow Jones Industrial Average closed at 9,496.28. Down by 47.92 points.
The Broader S&P 500 closed at 1,020.62. Down by 8.31 points.

The Nasdaq Composite Index closed at 2,009.06. Down by 19.71 points.

The partially convertible rupee INR=IN closed at 48.83/84 per dollar on yesterday, weaker than its previous close of 48.65/66.

 

FUNDS DATA

FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
FII	31-Aug-2009	2573.76	2844.61	-270.85

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	31-Aug-2009	1370.83	1352.18	18.65

 

 Interesting findings on web:
A sharp sell-off in Chinese stocks raised fears about China's ability to lead an economic recovery, dragging down equity prices around the world on Monday and knocking crude prices down more than 4 percent on demand worries.

Risk aversion helped drive the yen to a seven-week high against the dollar and to rise against other currencies. The yen was also buoyed by a decisive opposition victory in Japan, which sparked hopes that new policies will help support consumer spending and fuel the economy.

The Shanghai Composite Index .SSEC> fell 6.7 percent to a three-month closing low, adding to August losses that marked the second-biggest monthly loss in 15 years on worries that corporate earnings do not justify stock valuations.

Selling in Asian markets was widespread, hitting consumer discretionary, energy, telecommunications and materials sectors.

"Investors in the United States felt it was important for China to help lead the path to economic recovery," said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville. "If their markets are going to misbehave, it opens the question of whether they are going to see a recovery."

After giving the stock market a big gain during August, investors still worried about the economy backtracked on the last day of the month.

Stocks fell in light trading Monday after a 6.7% plunge in China's main stock market unleashed a wave of selling around the world and added to concerns that stocks had rocketed too high, too fast since hitting 12-year lows in March.

China's Shanghai composite index had skyrocketed more than 90 percent from January through early August, which led some investors to wonder whether the country would help lead the world out of a recession. But much of that growth seems to have been propelled by massive government lending programs that officials have begun to rein in. Chinese markets have been sliding since early August, and the index plummeted 6.7 percent on Monday. It is down 23 percent since Aug. 4, sending China into bear-market territory.

On Monday, U.S. stocks fell along with other world markets after shares in Shanghai slid on continued uneasiness about China's economy.

The Shanghai market is down more than 20% from its peak in early August, putting it in bear market territory.

On Wall Street, September -- the worst month on average for the stock market over the last 80 years -- begins today with an expected report on manufacturing that, along with job data due Friday, could upend the market's 6-month-old rally or help push it forward.

The drop in stocks Monday was broad, with all but one of the 10 major industry groups in the Standard & Poor's 500 index falling. Energy and material stocks posted some of the biggest losses as prices for commodities including crude oil and copper slid on concerns that demand from China would fall.

The Dow fell 47.92 points, or 0.5%, to 9,496.28. The S&P 500 index slid 8.31 points, or 0.8%, to 1,020.62, while the Nasdaq composite dropped 19.71 points, or 1%, to 2,009.06.

The Russell 2000 index of smaller companies lost 1.3%.

But all three major indexes gained for the month of August: The Dow rose 3.5 percent, the Nasdaq advanced 1.5 percent and the S&P 3.4 percent. For the Nasdaq and S&P, it was their sixth straight monthly gain. The Dow is up five of the past six months, but this is only the second consecutive monthly gain.

The Standard & Poor's 500 index, which is the basis for many mutual funds, ended August higher to post its sixth straight monthly gain. It is up 50.9 percent since early March, the best run since 1938.

The Standard & Poor's 500 index rose 3.4% in August for its sixth straight monthly gain. It is up 51% since early March, the best six-month run since 1938.

Three stocks fell for every one that rose on the New York Stock Exchange, where volume was light.

The retreat in U.S. stocks shaved some gains from the market's best August since 2000. For the month, the Dow rose 3.5% and the Nasdaq composite index rose 1.5%.

Since its low in March, the Dow is up 45% and the Nasdaq is up 58%.

Shares of commodity producers fell. Aluminum maker Alcoa slumped 3.6%. Freeport-McMoRan Copper & Gold slid 3.8%.

September has been the worst month for the stock market over the past 80 years, and it begins with many analysts already worried that investors have bet too soon on a recovery. Data due Tuesday on manufacturing and employment on Friday could upend the market's six-month-old rally or help push it forward.

The drop in U.S. stocks Monday was broad and a 48-point drop in the Dow Jones industrial average was the biggest in two weeks. Energy and materials stocks fell the most as prices for commodities like crude and copper plummeted.

"The markets have been looking like they've been somewhat reluctant to hold their gains over the last couple of sessions," said Blaze Tankersley, chief market strategist at Bay Crest Partners, adding that the news out of China provided investors with a good excuse to sell.

Two big acquisitions totaling close to $10 billion did little to excite investors. The Walt Disney Co. said it plans to buy Marvel Entertainment Inc. for $4 billion in cash and stock, while oilfield services company Baker Hughes Inc. said it will buy BJ Services Co. in a cash-and-stock deal valued at $5.5 billion.

Investors also looked past a report showing an improvement in Midwest business conditions. The Chicago Purchasing Managers index, which measures business activity in Illinois, Michigan and Indiana, jumped to 50.0 in August from 43.4 in July, ending 10 consecutive months of drops.

The index is considered a precursor to the Institute for Supply Management's manufacturing index, which is due Tuesday. A reading above 50 indicates growth in manufacturing, something that hasn't happened since January 2008.

Trading is expected to be light this week but there are still several important reports on the economy that could sway the market one way or the other.

The most closely watched data will come from the government's monthly jobs report on Friday. Economists are expecting another 220,000 jobs were lost, down from 247,000 in July.

Last month's report showed an unexpected dip in the unemployment rate and investors are anxious to see whether the rate continues to fall. If fewer jobs are being lost, consumers might start to feel comfortable spending again and help get the economy back on its feet.

Analyst reports on Monday perhaps fanned investors' jitters about September, bringing reminders that the month often brings trouble for stocks. It was nearly a year ago that the market slide turned into a plunge with the mid-September collapse of Lehman Brothers and the freeze in credit markets that made the recession tighten.

Sam Stovall, chief investment strategist, U.S. equity research at Standard & Poor's, noted that since 1929 the S&P 500 index has lost an average 1.3 percent for the month. But in the 14 Septembers that followed the end of down markets, the index has gained about 2 percent.

Oil dropped nearly $3, settling below $70 a barrel [US@CL.1  70.17    0.21  (+0.3%)   ] as the selloff in China raised doubts about the recovery here in the U.S. Shares of Dow energy components Chevron [CVX  69.94    -0.74  (-1.05%)   ] and ExxonMobil [XOM  69.28    -0.84  (-1.2%)   ] each lost more than 1 percent.

Financial stocks retreated after their strong rally last week. Rochdale Securities analyst Richard Bove wrote that, in the short term, "a reaction to the recent move up in the stocks may develop." And Barron's recommended profit-taking in Citigroup [C  5.00    -0.23  (-4.4%)   ] and said AIG [AIG  45.33    -4.90  (-9.76%)   ] shares were overpriced after gaining more than 50 percent last week. Citi shares lost 4.4 percent and AIG fell nearly 10 percent.

Morgan Stanley [MS  28.96    -0.55  (-1.86%)   ] shares dropped 1.9 percent after Bank of America-Merrill Lynch downgraded its rating on the stock, in part due to a belief that more investors are turning retail rather and institutional brokerages. BofA-Merrill also said Morgan's shares are no longer undervalued.

Financials have been on such a tear that they locked four of the five top spots on the Dow for August: American Express and Bank of America jumped 19 percent, while Travelers shot up 17 percent, and JPMorgan Chase gained 13 percent.

The nonfinancial in the Dow's top five for August was Boeing, which gained 16 percent.

The bottom five were Verizon, P&G, Coca-Cola, Cisco and ExxonMobil.

The curious rise in government-sponsored entities Fannie Mae [FNM  1.93    -0.11  (-5.39%)   ] and Freddie Mac [FRE  2.29    -0.11  (-4.58%)   ] may be running out as well: FBR Capital said the August surge of the two stocks was based on speculation of a reverse stock split.

Ford [F  7.60    -0.13  (-1.68%)   ] is ramping up production as  new models have been well received, stirring speculation that it may eclipse Toyota for the No. 2 spot.

Still to come this week, we'll get readings on auto sales on Tuesday and the August jobs report on Friday.

Small-cap pharmaceutical Delcath Systems [DCTH  3.60    0.56  (+18.42%)   ] saw its shares soar more than 18 percent Friday after health regulators granted an orphan drug status to doxorubicin, a chemotherapy agent, for the treatment of primary liver cancer.

As the first anniversary approaches of the Lehman Brothers collapse, PriceWaterhouseCoopers says claims against Lehman could reach as much as $100 billion.

Oil, Gold & Currencies:

Oil futures tumbled $2.78 to settle at $69.96 a barrel on the New York Mercantile Exchange.

Gold also fell as the dollar moved higher against other major currencies.

The yen traded near a seven-week high against the dollar amid speculation asset prices are overblown, boosting demand for the relative safety of the Japanese currency.

The yen may extend a two-day advance versus the Singapore dollar after a technical chart signaled the 61 percent rally in Asian stocks since the March low was excessive. The Australian dollar was close to the highest level this year against the greenback on optimism the nation's central bank will shift its bias toward lifting interest rates at today's meeting.

"Investors are turning risk averse amid worries over the sustainability of the economic rebound," said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. "The bias is for the yen to strengthen."

The yen traded at 93.14 per dollar as of 11:05 a.m. in Tokyo from 93.13 in New York yesterday, when it rose to 92.55, the highest level since July 13. The currency was at 133.51 per euro from 133.48. The euro bought $1.4335 from $1.4334.

The Australian dollar fetched 84.39 U.S. cents from 84.39 cents. It reached 84.78 cents on Aug. 14, the highest level since Sept. 22, 2008. It was at 78.60 yen from 78.57 yen.

Japan's currency traded at 64.66 versus Singapore's dollar from 64.61 yesterday, when it advanced to 64.17, the strongest level since July 15. The MSCI Asia Pacific Index of regional shares advanced 0.4 percent today, having rallied 61 percent from a more than five-year low on March 9.

Technical Charts

The index's 14-day stochastic oscillator climbed to 78.8 today from 69.5 yesterday, approaching the 80 threshold that indicates an asset price may have risen too fast and is poised to decline. In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in an asset's value.

Benchmark interest rates are 0.1 percent in Japan and as low as zero in the U.S., compared with 3 percent in Australia, making the South Pacific nation's assets attractive to investors seeking higher returns. The risk in such trades is that currency market moves may erase any profits.

Yen strength was limited after a Chinese government report showed the nation's manufacturing expanded at the fastest pace in 16 months in August, allaying concern that the economic recovery may falter.

The official Purchasing Managers' Index rose to a seasonally adjusted 54 from 53.3 in July, the Federation of Logistics and Purchasing said today in Beijing in an e-mailed statement. A reading above 50 indicates an expansion.

The yen posted a monthly gain in August versus all of the 16 most-traded currencies tracked by Bloomberg except for the New Zealand dollar, rising 1.8 percent against the greenback and 1.1 percent versus the euro. The U.S. dollar declined 0.5 percent against the euro in August.

RBA Meeting

Australia's dollar may gain for a fourth day against its U.S. counterpart on speculation the Reserve Bank of Australia will signal possible increases in its benchmark interest rate, increasing demand for the nation's assets.

RBA Governor Glenn Stevens said Aug. 14 the benchmark rate would rise from its "emergency" setting at a half-century low of 3 percent. Economists in a Bloomberg News survey don't expect a rate change when the bank gives its decision later today.

"The big risk about the RBA today is whether they move to an explicit tightening bias, which would be a big policy turnaround," said Amber Rabinov, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne. "We could see the Aussie dollar head toward 85 U.S. cents."

Bonds:

Demand for the safety of government debt rose, pushing down yields while underscoring investors' uneasiness. The yield on the benchmark 10-year Treasury note fell to 3.4% from 3.45% late Friday.

What to expect:

All those clunkers that were littering car dealers' lots are now temporarily clunking up economic data.

That will be apparent in Tuesday's monthly auto sales, when automakers show temporary outsized gains in August from sales related to the clunkers program. It will also be somewhat apparent as a blip in the Institute of Supply Management manufacturing survey, released at 10 am New York time.

Economists expect the ISM to rise above 50 for the first time in 19 months. A reading over 50 indicates the economy is growing.

Other data Tuesday includes pending home sales and construction spending, also released at 10 am, but the big focus is on ISM. 

A small amount of the improvement in ISM is expected to come from the activity around the spike in auto sales, related to the government's "cash for clunkers" program. Under that program, consumers received a cash incentive to turn in old cars when they purchased some 690,000 new, more fuel-efficient models.

The seasonally adjusted annual rate of auto sales for August is expected to be about 14.3 million, the best rate since April 2008.

Economists had forecast a pickup in auto manufacturing, even without the clunkers program. They also have been watching the early stirrings of a manufacturing recovery to see if it can help lift the rest of the economy.

"The ISM is about good old-fashioned inventory restocking," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. "The clunkers is maybe worth half a point. This is really about inventory restocking."

LaVorgna expects ISM to come in at 52, revised form his earlier forecast of 51. Last month, the reading was 48.9.

"The clunkers aren't going to impact whether you're bullish or bearish," he said.

ISM hit a low of 32.9 in December, 2008. LaVorgna said a primary driver behind the improvement is the increased activity, following the restructuring of GM and Chrysler earlier in the year.

Asia:

Asian shares were mostly higher Tuesday, but gains were limited after Wall Street fell, and investors awaited China's open after Monday's slump. Shipping and steel stocks were early decliners in Tokyo.

Japan's Nikkei 225 was up 0.2% while South Korea's Kospi nudged up 0.4% and Australia's S&P/ASX 200 added 0.3%. New Zealand's NZX-50 though was 1% lower. Dow Jones Industrial Average futures were recently 13 points higher in screen trade.

The Shanghai Composite Index slumped 6.7% Monday amid concerns about share supply and a slowdown in lending growth. They were also awaiting the release later Tuesday of CLSA's Purchasing Managers Index for China.

"China will be the biggest concern today," said Mizuho Securities market analyst Yukio Takahashi. "Should the PMI be horrible, we could have a breakdown in equities and risk (appetite)," added Westpac Bank markets strategist Imre Speizer.

There was already one reading out Tuesday morning on China PMI for August, with the China Federation of Logistics & Purchasing's index hitting 54.0, from 53.3 in July, offering some comfort on the economic outlook.

Shipping and steel stocks were lower in Tokyo, with Mitsui O.S.K. Lines down 2.0% and JFE Holdings 1.9%.

Technology stocks were higher in Korea after recent encouraging results from U.S. technology companies, with Samsung Electronics up 0.4% and Samsung Electro-Mechanics up 1.1%.

In Australia, ANZ was up 0.8% as brokers upgraded their target prices for the stock, though materials and energy stocks were mostly lower on falling commodity prices, with BHP down 0.4% and Woodside Petroleum 1.5% lower.

Investors were awaiting the outcome of the Reserve Bank of Australia's policy meeting Tuesday, with most expecting no change in interest rates.

Shares in New Zealand were lower with Telecom off 1.8% and Contact Energy down 1.0%. PGG Wrightson fell another 2.9%, amid concerns it may raise fresh capital.

Nikkei 225 10,540.61     +48.08 ( +0.46%) (08.25 AM IST)

Japan's Nikkei average danced in and out of positive territory on Tuesday with market players saying that moves in dollar/yen were largely driving the market, along with moves in Chinese stocks.

The benchmark Nikkei .N225 was up 0.5 percent or 48.08 points at 10,540.61.

Fast Retailing Co. (9983) shares traded lower for the fourth straight day Tuesday morning, in advance of the firm's Wednesday announcement of same-store sales data for August.

TCM Corp. (6374) shares rose for the first time in four trading days Tuesday morning, surging 34% from Monday at one point to 188 yen.

Nippon Sheet Glass Co. (5202) shares gained ground for the first time in five trading days Tuesday morning. 

HSI 19823.78 +99.59 +0.5% (08.29 AM IST)

Hong Kong stocks rebounded Tuesday after falling in the previous three sessions as investors looked for bargains in China Petroleum & Chemical Corp., or Sinopec, and China Southern Airlines after recent sharp losses. The Hang Seng Index rose 0.9% to 19,899.48 in early action, while the Hang Seng China Enterprises Index gained 1% to 11,383.75, aided by an advance in a volatile Shanghai market. Shares of China Southern /quotes/comstock/22h!e:1055 (HK:1055 2.41, -0.03, -1.23%) /quotes/comstock/13*!znh/quotes/nls/znh (ZNH 15.51, -0.73, -4.50%) rose 1.6% and Sinopec /quotes/comstock/22h!e:386 (HK:386 6.47, 0.00, 0.00%) /quotes/comstock/13*!snp/quotes/nls/snp (SNP 83.95, -2.46, -2.85%) added 1.4% in Hong Kong. But in Shanghai, Sinopec dropped 0.7% after sliding in the previous three sessions on continued disappointment that Beijing hasn't allowed fuel price increases as expected and may limit future price hikes. The Shanghai Composite rose 0.4% in early morning trade after moving in both directions. The benchmark plunged 6.7% in the previous session.

Hang Seng Index opens 237 points higher on Tue

Hong Kong stocks rose on Tuesday morning, with the benchmark Hang Seng Index opening 237 points higher at 19,961.

The Hang Seng China Enterprise Index, which tracks the overall performance of 43 mainland Chinese state-owned enterprises on the Hong Kong Stock Exchange, opened 164 points higher at 11,442.

Sinopec<600028><0386><SNP> rose 2.01% and opened at HK$6.6. PetroChina<601857><0857><PTR> increased 1.64% from the previous closing to HK$8.7.   

SSE Composite  2673.73  + 0.22 (08.31 AM IST)

Chinese stocks open 0.7% lower on Tue

Chinese stocks opened lower on Tuesday morning, tracking losses from the previous closing.

The benchmark Shanghai Composite Index, which covers both A shares and B shares on the Shanghai Stock Exchange, opened at 2,649.17 points, down 0.7% or 18.58 points from the previous closing.

The Shenzhen Component Index on the smaller Shenzhen Stock Exchange opened 1.15% or 122.04 points lower at 10,463.04 points.

China's key stock index opened down 0.7 percent on Tuesday, led by Yangtze Power (600900.SS), as negative factors including weak investor sentiment and the stock regulator's continued reviews of initial public offerings offset a positive purchasing managers' index.

The Shanghai Composite Index .SSEC opened at 2,649.168 points, after diving 6.74 percent on Monday and posting its second-biggest monthly loss in 15 years in August, hit by new share supplies and high share valuations that got ahead of earnings improvements.

Yangtze Power, the most active stock in early trade, tumbled 4.29 percent to 12.72 yuan after it said its shareholders had approved a plan for a private share placement.

China's stock regulator said late on Monday it would review on Friday an application by China National Chemical Engineering Co (CNCEC) for a stock IPO worth around $428 million.

State media reported on Tuesday that China's four biggest state-owned banks issued only 135 billion yuan in new loans in the first 30 days of August, with all banks lending less than 300 billion yuan in the month, down sharply from July's already small 356 billion yuan.

The small lending figures were in line with an earlier Reuters report on August lending.

"Reviewing an IPO after a steep market fall, plus shrinking bank lending -- all this negative news is leading the index to fall and fill a gap on the charts from late May around 2,635 points," said Wen Lijun, analyst from Nanjing Securities.

She added, however, that the steep fall in the Chinese stock market did not necessarily reflect expectations or developments regarding China's economic recovery.

Indeed, China's official purchasing managers' index (PMI) for August inched up to 54.0 from July's 53.3.

It was the sixth straight month that the official PMI stood above 50, indicating an expansion of activity in the manufacturing sector. A reading below 50 suggests contraction. A record low of 38.8 was plumbed in November.

China's stock regulator said late on Monday it would on Friday review an application by China National Chemical Engineering Co (CNCEC) for a stock initial public offering (IPO) worth around $428 million.

The China Securities Regulatory Commission (CSRC) has been continuously reviewing and pushing new offers into the market since it resumed IPOs in June after a 10-month suspension.

Worries, however, over too many new share supplies helped push China's key stock index down 22 percent in August to record its second-biggest monthly loss in 15 years.

China Chemical, a construction and engineering company focused on the domestic chemical industry, needs around 2.92 billion yuan ($428 million yuan) to buy equipment and supplement working capital for key projects, it said in a draft prospectus.

It plans to issue up to 1.23 billion A-shares denominated in yuan, or 25 percent of its expanded capital after the IPO, for a listing on the Shanghai Stock Exchange, it said in the prospectus published on the CSRC's website, www.csrc.gov.cn.

($1=6.83 Yuan) 

Home Inns mulls Taiwan expansion plan: report.

FIL raises shareholding in ZTE to 5.4%.

Yanchang Petroleum to issue RMB 2 bln in financing bills.

BoCom eyes 60% rise in assets under management.

Sina Q2 net profit hits US$13.30 mln.

China Railway sees steady growth in H2.

China Mobile launches Ophones.

PetroChina to buy RMB 21.99 bln in assets from CNPC.

China's NDRC to subsidize loans for raw material imports.

Financial Street to issue RMB 5.6 bln in corporate bonds.

Shareholders back China Pacific HK share offer

Shareholders of China Pacific Insurance have approved the firm's plan to float shares in Hong Kong, the company said on Tuesday, in an offer that analysts have estimated to be worth around 24 billion yuan.

China Manufacturing Grows at Fastest Pace Since 2008

China's manufacturing expanded at the fastest pace in 16 months in August as the economy maintained momentum after record lending in the first half of the year.

The official Purchasing Managers' Index rose to a seasonally adjusted 54 from 53.3 in July, the Federation of Logistics and Purchasing said today in Beijing in an e-mailed statement. A reading above 50 indicates an expansion.

Investors and economists are split on the outlook for the world's third-biggest economy as banks rein in credit growth to counter the risk of asset bubbles and bad loans. The plunge by the Shanghai Composite Index into a bear market yesterday contrasted with a Bloomberg News survey showing economists expect the government to top its 8 percent economic growth target this year.

"The recovery is still on track," said Paul Cavey, an economist with Macquarie Securities in Hong Kong.

The benchmark stock index tumbled 6.7 percent yesterday, capping its biggest monthly loss since October.

New loans plunged to 355.9 billion yuan ($52 billion) in July, less than a quarter of June's level, and may slump to 200 billion yuan in August, the Beijing-based business magazine Caijing reported yesterday without citing anyone.

Domestic Demand

Subsidies for purchases from cars to home appliances are aiding manufacturers by stoking domestic demand as the global recession cuts exports. Shenzhen-based BYD Co., a Warren Buffett-backed maker of cars and rechargeable batteries, said first-half profit almost doubled as stimulus measures boosted sales.

The State Council, China's cabinet, said last month that it saw signs of a recovery in manufacturing and also announced plans to curb overcapacity in the steel and cement industries.

China's economic growth accelerated to 7.9 percent in the second quarter from a year earlier on the nation's $585 billion stimulus package and more than $1 trillion of new loans in the first half. The 6.1 percent expansion in the first three months of the year was the weakest in almost a decade.

Growth will continue to quicken in the third and fourth quarters, reaching 8.3 percent for the year, according to the Bloomberg survey of 21 economists.

In contrast, former Morgan Stanley Asia economist Andy Xie predicts the Shanghai Composite Index may fall a further 25 percent because China's recovery "isn't sustainable."

Government efforts to control lending have included requiring lenders to raise reserves to 150 percent of non- performing loans by the end of this year. Bank of China Ltd., which advanced the most new credit in the first half, said Aug. 27 that it will slow loan growth in the second half and improve loan quality.

China official PMI rises for sixth straight month

One of two competing indexes measuring manufacturing activity in China indicated expansion in August, marking the sixth consecutive month activity has held above the boom-or-bust level, suggesting industrial activity will continue to pick up speed in coming months.

The Purchasing Managers Index rose to rose to 54.0 in August from 53.3 in July, the China Federation of Logistics and Purchasing said Tuesday. The index came in below 50 from October to February.

August's 0.7 percentage-point rise outpaced 0.1 percentage point gains in both June and July. The index came in below 50 from October to February.

"Industrial activity should continue to grow in the coming months, driven by strength in domestic demand and a rebound in exports," wrote J.P. Morgan's Jing Ulrich, managing director and chairman of China equities in Hong Kong.

The CFLP conducts its PMI survey on behalf of China's National Bureau of Statistics. A competing PMI, previously issued by financial firm CLSA and this month being taken over by banking giant HSBC, is due out later Tuesday. 

HSBC China PMI at 55.1 in August from 52.8 in July.

China funds cut stock weightings on liquidity fears

Chinese fund managers reduced their recommended allocation to equities for the first time in six months, on concerns that a possible liquidity tightening may sap demand for stocks, the latest monthly Reuters poll of fund managers shows.

Average weighings for stocks within a balanced portfolio over the next three months dipped to 83.9 percent from a high of 84.4 percent last month, the first drop since February. A boom in initial public offerings was also cited by some fund managers as a risk to the stock market, which rallied 60 percent in the first six months of this year on ample liquidity and an improving economy.

The fund managers also raised their suggested bond allocation to 4.8 percent, from 4.4 percent last month, while increasing their recommended cash holdings to 11.3 percent, from 11.1 percent. China's IPO resumption in June is also weighing on the market with an influx of equity supplies. Metallurgical Corp of China, which plans to raise about 16.85 billion yuan ($2.47 billion) via a Shanghai IPO, said on Monday it would take subscriptions from investors next week. Energy stocks were the second most heavily favoured, with a suggested weighting of 12 percent. reuters

Shanghai Index May Drop 25% on Economy, Xie Says

The Shanghai Composite Index, the world's worst performer in August, may fall another 25 percent as China's economic recovery isn't "sustainable," former Morgan Stanley Asian economist Andy Xie said.

The measure plunged 6.7 percent to 2,667.75 yesterday, the most since June 2008, and entered a bear market on concern a slower lending growth may derail a rebound in the world's third- largest economy. Xie said the index "should be 2000 or less."

"The market is in deep bubble territory," Xie, 49, who correctly predicted in April 2007 that China's equities would tumble, said in an interview with Bloomberg Television.

China's retreat sent the MSCI World Index of 23 developed nations down 0.8 percent, while MSCI's emerging-market index lost 1.5 percent, the biggest drop in two weeks. The Bank of New York Mellon China ADR Index, tracking American depositary receipts of Chinese shares, lost 2.3 percent, led by commodity producers.

The Shanghai gauge slumped 22 percent in August, the biggest decline among 89 benchmark indexes tracked by Bloomberg, as banks reined in lending to avert asset bubbles and policy makers advised industries such as steel and cement to curb overcapacity. The decline stopped a rally that had sent the measure up 103 percent from a November low on prospects the government's 4 trillion yuan ($586 billion) stimulus program and a record amount of new credit would ensure the economy grows at least 8 percent this year.

Strong Numbers

"The local market bears are convinced that tightening is already underway," said Howard Wang, head of the Greater China team at JF Asset Management, which oversees $50 billion. Only "a very strong set of macro numbers in August" or "stronger statements from central authorities" would change this trend, Wang said.

Still, Chinese stocks are trading at the steepest discount in the world compared with analysts' price targets after the month-long slump. The gap of 13 percent below analysts' combined price targets is the largest among the world's 10 largest markets, data compiled by Bloomberg show.

Equities in China remain "a bright spot" among global stocks because of the nation's strong growth potential, Goldman Sachs Group Inc. said yesterday.

'Exit Strategy'

"We think the market concerns about a near-term 'exit strategy' appear premature as the government remains pro- growth," Thomas Deng and Kinger Lau, analysts at Goldman Sachs, wrote in a research note.

Goldman Sachs has boosted its growth forecasts for China's economy to 9.4 percent this year from an earlier estimate of 8.3 percent, it said in the note. Gross domestic product may increase 11.9 percent in 2010, higher than an earlier estimate of 10.9 percent, it added.

The People's Bank of China will also have "very limited room" to raise interest rates by the end of this year, Deng and Lau wrote.

"The A share market is undergoing a correction rather than a bursting of the bubble," said Richard Gao, who helps manage $2.8 billion at Matthews International Capital Management LCC in San Francisco. "Short term trading will be very volatile but we believe a strong economic recovery is underway in China and remain quite positive on the long-term growth potential."

The government will maintain its fiscal and monetary policies because the economy faces many "uncertainties," Premier Wen Jiabao said this month. Economic growth will slow in the fourth quarter as exports remain mired in a slump, Xie said.

"The recovery is not sustainable," Xie, who resigned as Morgan Stanley's chief economist in Asia in 2006 and now works as an independent economist, said in the interview yesterday from Shanghai.

Expectations

"This is a short-term negative," said E. William Stone, who oversees $101 billion as chief investment strategist at PNC Wealth Management in Philadelphia. "Expectations have been too high that China would be a driver of everything. Much has to come out of the expectations balloon."

At least 150 stocks on the 898-member Shanghai index dropped by the daily 10 percent limit. Industrial Bank Co. and Aluminum Corp. of China Ltd. tumbled by the permitted cap after Caijing magazine reported new loan growth this month may be almost half that of July. Lower profits dragged Baoshan Iron & Steel Co., the nation's biggest steelmaker, and China Southern Airlines Co. down at least 7 percent.

The Shanghai index trades at 29.39 times reported earnings, according to Bloomberg data. The MSCI Emerging Markets Index, a 22-country benchmark, trades for 18.9 times profit.

New Loans Drop

China may have 200 billion yuan of new loans in August, the Beijing-based Caijing reported today on its Web site. That compares with 7.4 trillion yuan for the first half of 2009 and 355.9 billion yuan in July alone. The government plans to tighten capital requirements for financial institutions, three people familiar with the matter said this month.

An estimated 1.16 trillion yuan of loans were invested in stocks in the first five months of this year, China Business News reported June 29, citing Wei Jianing, a deputy director at the Development and Research Center under the State Council.

"The government is now pulling the plug on liquidity," said Xie, who is a guest columnist for Caijing. "Hopefully, it's not too late."

Treasuries Little Changed, Snapping Gain, Before Factory Report

Treasuries were little changed, following two months of gains, on speculation a private report today will show U.S. manufacturing expanded for the first time in 19 months.

A revival in the U.S. economy from the steepest economic recession since the 1930s is fueling speculation investors will seek higher yields outside of government bonds. The Institute for Supply Management's factory gauge increased to 50.5 in August from 48.9 in July, according to the median estimate in a Bloomberg News survey before the report today. Fifty is the dividing line between expansion and contraction.

"Yields should go up," said Kei Katayama, who oversees $1.6 billion of non-yen debt in Tokyo as leader of the foreign fixed-income group at Daiwa SB Investments Ltd., part of Japan's second-biggest investment bank. "The economic figures have been better."

The yield on the 10-year note rose two basis points to 3.41 percent as of 11:31 a.m. in Tokyo, according to BGCantor Market Data. The 3.625 percent security maturing in August 2019 fell 1/8, or $1.25 per $1,000 face amount, to 101 25/32.

MSCI's Asia Pacific Index of regional shares advanced 0.2 percent, recouping losses from yesterday and helping curtail demand for debt.

Ten-year yields will climb to 3.76 percent by year-end, according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings. Katayama said he is avoiding the longest maturities, those that will fall most if yields rise.

Fed Buying

The Federal Reserve is scheduled to buy Treasuries due from May 2012 to November 2013 today as part of its plan to cap borrowing costs, according to its Web site.

Another industry report today will show pending home sales grew for a sixth month, according to a separate Bloomberg survey.

"Housing appears to be bottoming," said Michael Pond, an interest-rate strategist at Barclays Capital Inc., one of the 18 primary dealers that are required to bid at government bond sales. "We expect the data to continue to come in strong. Bond yields will move much higher."

Ten-year rates will climb to 4.2 percent, Pond said yesterday on Bloomberg Radio.

The financial crisis started with the collapse of the U.S. property market in 2007 and has triggered $1.61 trillion of writedowns and credit losses at banks and other financial institutions.

Stock Rally

Treasuries rose yesterday on speculation a six-month stock rally outpaced prospects for economic growth.

Demand also advanced on the last day of the month as investors bought U.S. debt to match changes in the indexes they use to gauge their portfolios' performance.

Yields on two- and 10-year notes touched the lowest level since Aug. 21 yesterday as stocks dropped worldwide.

"It's not a matter of whether or not we're going to come out of recession or see a significant number of defaults in corporates; it's really how quickly growth is going to come back," Ira Jersey, head of U.S. interest-rate strategy in New York at RBC Capital Markets Corp., said in a Bloomberg Radio interview. The company is also a primary dealer. "The question is, have risky assets gotten ahead of themselves?"

Treasuries returned 0.9 percent in August, adding to a 0.4 percent gain in July, according to Merrill Lynch & Co.'s U.S. Treasury Master index. The gain is the first two-month advance since November and December. 
 
INVESTMENT VIEW
Jai Balaji Industries-BUY
 
Focus shifting from capacity addition to profitability: Jai Balaji Industries (JBIL) has built capacities aggressively in the last 2-3 years at a capex of Rs16b. This has enabled it to reach a critical size of 1mtpa - the largest among listed secondary steel producers, and seek large allocation of coal blocks. Now, its focus is shifting towards reducing costs and developing coal blocks to fuel earnings growth.
 

Expect strong earnings growth, going forward: Over FY09-12, volume growth of 20-22% from existing assets, contribution from value-added products like DI pipe, and cost reduction through captive coal mine and captive power plants will drive strong earnings growth.

 

Consequently earnings will quadruple over FY10-12. JBIL intends to deploy its cash flows during the period towards the development of various coal assets. Its 2mtpa sponge iron capacity and 400MW captive power plant at the Greenfield site of Purulia would drive earnings growth from FY13.

 

Valuations attractive; upgrading to Buy: JBIL's earnings were adversely impacted in the last 2-3 quarters due to high volatility of steel prices and high cost inventories. Pressure on margins has eased due to improvement of steel prices and depletion of high cost inventories. The stock trades at 1.3x FY11E BV, with FY11E RoE of over 20%.

 

Buy.

(Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.)
 
--
Arvind Parekh
+ 91 98432 32381