GLOBAL MARKETS - Stocks rebound on rate cut hopes; bonds up

LONDON (Reuters) - European and Asian shares managed to rise and oil rose towards $50 on Friday as expectations of further interest rate cuts helped to cushion deepening gloom about the financial and auto sectors as well as the broader economy.

On Wall Street, the benchmark S&P 500 index fell to its lowest level since 1997 as signs of distress in the economy mounted, led by troubles at Citigroup and U.S. automakers.

However, Citigroup, which fell more than 26 percent on Thursday, rose 6 percent in Frankfurt trading. U.S. lawmakers kept alive prospects for a $25 billion bailout plan for carmakers, although no agreement was reached on Thursday.

Furthermore, hopes that the world's central banks would cut interest rates further -- with talk that China might lower borrowing costs later on Friday -- helped world stocks off an earlier 5-1/2 year low.

"Rumours are only rumours, but investors are always interested in talk that there will be more official steps that could help the market rebound further," said Wu Nan, analyst at Xiangcai Securities.

MSCI world equity index was up 0.8 percent after hitting its lowest level since April 2003. The FTSEurofirst 300 index also rose 0.8 percent. Emerging stocks gained 1.8 percent.

U.S. crude oil increased 0.3 percent to $49.55 a barrel, having hit a 3-1/2 year low below $49 earlier.

Investors sought safer government securities even though stocks rebounded. The December bund future rose 43 ticks while the two-year U.S. Treasury yield touched a fresh record low of 0.9586 percent.

The 10-year Treasury note dropped a full point in price to yield 3.112 percent , after hitting 2.990 percent on Thursday -- its lowest level since the 1950s. The 10-year yield was trading at above 4 percent only in June.

"The main risk is the recession and that we are probably ahead of the worst year over the last century in terms of economic growth and that this will take its toll on many industries," said Kornelius Purps, fixed income strategist at UniCredit.

"We are probably only at the beginning of this poor performance in terms of economic growth and other factors will follow. This is quite worrisome and will keep a bid in the bond market."

The yen fell 1.5 percent to 95.11 per dollar after hitting a three-week high beyond 94 earlier. The dollar fell 0.5 percent against a basket of major currencies.

LICENCE TO CUT?

Talk of Chinese interest rate cuts complemented a rumour that authorities might soon announce the creation of a 300 billion yuan fund to support the stock market.

Euro zone interest rates are also expected to fall next month, and possibly earlier. A PMI survey on Friday showed that output of euro zone services and manufacturing business sank much further and faster than expected in November to record lows.

JP Morgan also said that bigger-than-expected declines in Canadian inflation also allow the central bank to cut interest rates more aggressively in December by as much as half a percentage point.

The Bank of Japan, however, kept its key policy rate unchanged at 0.30 percent on Friday. Governor Masaaki Shirakawa said more rate cuts could disrupt markets as they might cause various problems in ensuring smooth fund supply in money markets.

Textile cos may cut 500,000 more jobs - secy

NEW DELHI (Reuters) - The textile sector could shed 500,000 jobs in the next five months, Trade Secretary G.K. Pillai said on Friday, quoting textile ministry estimates.

BSE Sensex snaps 7-day slide, rises 5.5 pct

MUMBAI (Reuters) – The BSE Sensex snapped a seven-day slide and climbed 5.5 percent on Friday, after large domestic funds bought in late trade triggering short covering ahead of the weekend.

Expectations the Reserve Bank will cut interest rates to support slowing growth underpinned the market that had tumbled a fifth over the previous seven days.

Traders said the fund buying came in during the last 90 minutes after the main index slipped into negative. Index heavyweight Reliance Industries Ltd, financials and outsourcers led the bounce.

"People have been expecting a rate cut in the next couple of days and that is visible in the gains made by SBI and HDFC. If it doesn't come, there may be renewed selling in banking stocks," said Neeraj Dewan, director at Quantum Securities.

State Bank of India, the country's largest lender, rose 8.3 percent to 1,183.15 rupees, while rival ICICI Bank gained 4.7 percent to 335.55 rupees. Mortgage lender Housing Development Finance Corp rose 8.5 percent to 1,399.30 rupees.

The bank sector index rose 4.6 percent.

The Reserve Bank has cut its main lending rate by 150 basis points to 7.5 percent and banks' cash reserve requirement by 350 basis points to 5.5 percent in the past two months and the authorities have said more steps were on the anvil.

The 30-share BSE index rose 5.49 percent, or 464.20 points, to 8,915.21, its first gain in eight sessions.

It lost 5 percent over the week, falling for a second week in a row, and is down 56 percent this year.

All but three of the index components were higher, but in the broader market losers edged out gainers 1,299 to 1,185. Volume was a moderate 276 million shares after being light in the past

two days.

The 50-share NSE index gained 5.5 percent to 2,693.45.

The outlook for the market remains downbeat with the global economic gloom and a slowing domestic growth hastening foreign fund withdrawals from emerging markets such as India, traders

said.

Foreigners have pulled out a net $13.45 billion from Indian shares this year, with the outflow so far in November at $624.9 million.

Export-led software firms gained on hopes a sliding rupee would help their earnings. The rupee hit a record low of 50.60 per dollar on Thursday, losing more than a fifth this year.

Tata Consultancy Services rose 7.9 percent to 506.55 rupees, Infosys Technologies gained 5.1 percent to 1,184.75 and Wipro was up 4.6 percent to 229.80 rupees.

European and Asian shares rebounded from lows on hopes central banks from across the world would cut interest rates further to cushion the deepening economic gloom. [ID:nLL345383]

Energy giant Reliance Industries, which has the heaviest weight in the BSE index, rose 6.5 percent to 1,127.35 rupees on the fund buying after it had fallen 7.8 percent over the past four trading sessions.

STOCKS THAT MOVED

* Ansal Properties & Infrastructure fell 3.4 percent to 30.10 rupees after Fitch Ratings downgraded the firm's long-term rating and revised outlook to negative from stable. The

stock earlier hit a multi-year low of 29 rupees.

* Truck and bus maker Eicher Motors Ltd rose 2.74 percent to 221.55 rupees after its board approved a buyback of 1.4 million shares at up to 691.68 rupees a share, more than three times its currently traded price.

MAIN TOP THREE BY VOLUME

* Unitech on 20.5 million shares

* GVK Power & Infrastructure on 17.1 million shares

* Suzlon Energy on 15.2 million shares

Sensex to bottom out by March - Macquarie

MUMBAI (Reuters) - Indian stocks will likely bottom out by March when foreign fund selling eases and corporate confidence returns but investors should not expect any fireworks in 2009, a senior official at Macquarie Securities said.

The benchmark index should sit between 7,500 to 10,500 points from now until February, and the year 2009 would be flat with a 10 percent upside, Stuart Smythe, senior managing director and head of equity India, told Reuters.

The index had touched a peak of 21,206.77 points in early January 2008.

"I think the slowdown will persist through February," he said in a interview.

"You have got to understand you have got concerns over widespread redemptions, many have literally closed their books and said 2008 is a write-off. They are saying let's come back to see in 2009," he added.

Indian shares have fallen 56 percent so far in 2008, making it one of the worst performing Asian markets, hurt by massive foreign fund outflows amid the deepest global financial crisis in 80 years that has savaged equity markets across the world.

Foreign funds have sold a net $13.3 billion in Indian shares so far in 2008 compared with record inflows of $17.4 billion in 2007 bolstered by a five-year bull run.

"People are reassessing whether they need to be in India at all given you have developed markets and world class companies that are cheaper than Indian stocks," Smythe said.

India was a one-way bet up to January this year. Now, with all that is going on, it has become imperative for good companies to come out and differentiate themselves, he said.

There is still a strong level of interest for Indian companies that are regional or global leaders and endowed with strong balance sheets, good earnings growth, low gearing and defensible market positions, he added.

"But global liquidity and the velocity of the same, which has really driven markets, have diminished massively," Smythe said.

"We have had now four quarters of EPS (earnings per share) and margin deterioration," he said. "Margin rebound will probably be the strongest positive indicator and that will be a quarter if not two quarters away."

U.S. automakers must change course to get bailout

WASHINGTON (Reuters) - U.S. auto executives pitched doom to Congress to win a bailout and left town empty handed. Now they will have to make a U-turn and convince lawmakers their industry has a prosperous future.

The chief executives of General Motors Corp, Chrysler LLC and Ford Motor Co never recovered politically after landing in Washington on their corporate jets with hats in hand.

A horrible week for the chiefs ended with their hopes for an immediate bailout dashed and Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi chastising them for sending mixed signals and not owning up to industry's problems.

"We want them to get their act together," Reid said.

Uncomfortable talking about business prospects and financial details in public, Rick Wagoner of GM, Alan Mulally of Ford and Bob Nardelli of Chrysler spent two days doing just that in congressional hearings.

GM said it would need between $10 billion to $12 billion in bailout money while Ford and Chrysler sought $7 billion each.

Their message centered on a belief that the industry's outlook was so bleak that a collapse was possible. And because they employ nearly 250,000 people and impact 1-in-10 jobs nationally, insolvency of one or more of their companies would send shockwaves through the broader economy, they said.

Wagoner told the House Finance Committee that he did not like asking for money, but it was "reasonably probable" that some part of the U.S. auto industry "will not survive" if their request was rejected.

But Reid said at a news conference that GM, Ford and Chrysler were unable to "convince the Congress or the American people" that this "government bailout will be its last."

Pelosi was upset Detroit initially asked for congressional support for a merger. But when "they came to see us," she said, the message had changed to: "We need an infusion of cash."

The Democratic leadership, which supported a $25 billion bailout proposal that was derailed by Republican objections on Wednesday, wants Detroit now to demonstrate how the companies plan to overcome problems and compete with leaner foreign rivals.

"Until they show us the plan, we cannot show them the money," Pelosi said.

All three companies responded with statements. GM promised to "deliver a plan" that "shows them a viable General Motors." Ford plans to change course as well. "We have a great plan," the company said. Chrysler said it was "prepared to meet the "accountability and viability" requirements.

"One plan is what we're looking for," House Majority Leader Steny Hoyer said of congressional expectations for the industry in coming weeks.

The automakers pledged during their testimony to spend bailout money on operations and invest in new fuel efficiency technology - like better-performing gasoline engines, hybrids, and new electric cars.

They also promised to keep any investments using government cash in the United States.

GM, Ford and Chrysler had set broad restructuring plans earlier in 2008 and have added to them in recent weeks in response to the deepening downturn in sales.

The plans include paring capital spending and increasing targets for salaried employment cost cuts in North America. They also plan to delay some vehicle programs and scale back production at several plants.

"With the agreement that we've made with the (United Auto Workers) and our other productivity improvements, we can make cars, trucks, and utilities in the United States. We can do it profitably now," Mulally said this week.

Lawmakers gave few signs of what they want to see.

Senate Banking Committee Chairman Christopher Dodd said some in Congress were interested in prepackaged bankruptcy -- where contracts with labor and suppliers and terms with lenders are renegotiated up front.

But Pelosi rejected bankruptcy as an option for Detroit.

Indian property to fall further before funds bite

HONG KONG (Reuters) - Indian property prices are likely to fall by a quarter in the coming year as the global economic crisis saps homebuyer confidence, adding to the problems of capital-strapped developers.

A property market boom has been waning for a year, with land prices already falling about 15 percent from a mid-2007 peak, although forced sales have been rare. But consultants and investors at the MIPIM Asia conference in Hong Kong this week predicted tougher times ahead.

"We're expecting a horrible 2009," said Anshul Jain, chief executive for property services firm DTZ in India.

"Prices have already shown signs of coming off, and chinks in the armour are surfacing."

Indian property prices doubled in the two years after the country eased rules in early 2005 on inward investment in the construction industry, sparking interest in home-building among foreign funds.

Developers, sometimes in league with funds run by the likes of Morgan Stanley, Citigroup and Merrill Lynch, snapped up land.

The bigger firms, such as DLF Ltd and Parsvnath Developers Ltd, launched huge initial public offerings to fund new townships in a country where little housing had been built for 50 years.

But the sharp rise in prices, coupled with interest rate hikes designed to calm inflation in the booming economy, slowed home sales. And the global crisis has added to the gloom, with residential transactions down by half from a year ago.

"We could see a 20 or 25 percent price correction," said Anurag Mathur, joint India managing director at consultants Cushman and Wakefield. "There's a lot of pressure. Whether we reach distressed sales, only time will tell."

SHARES SLIDE

Faced with overheated markets, India followed the lead of China in clamping down on loans to the property sector -- a policy that will probably force some small and medium-size developers out of business in both countries.

The global credit crunch and a stock market slump cut off the supply of funds from capital markets. And now a drop in home sales is shrinking cash flow.

A barometer of the troubles is DLF's share price, which has tumbled more than 80 percent this year, compared to a 58 percent drop in BSE index.

Foreign investors, with their own economic worries at home and bargains popping up elsewhere, are unlikely now to jump into a market muddied by red-tape, land disputes and unclear titles.

But the funds already raised, somewhere between 75 and 100 of them, are waiting for developers to drop their pricing for joint ventures, so they can get the 30 percent internal rates of return they hanker for, even in a bad market.

"Right now our focus is on making sure we're buying good assets in the better locations, working with better developers and getting better terms," said Chetan Dave, chief executive at Sun-Appollo Real Esate Advisors, which manages a $630 million fund.

However, developers are still hoping that as inflation softens, falling mortgage rates will make homes affordable again, especially if they start building $60,000 apartments for the middle class rather than $1 million homes.

But financing deals, to perk the market up again, will not happen until developers get a better grasp on how far the market will fall, DTZ's Jain said.

"Private equity players think prices will fall more and developers are in the semi-denial stage," Jain said. "They were in complete denial a few weeks ago."

Germany wants greater Indian role to tackle recession

In his first-ever visit to India, German foreign minister Frank-Walter Steinmeier has a full agenda. In his conversations with counterpart Pranab Mukherjee on Thursday, Steinmeier will focus on the raging financial crisis , particularly as Germany slides into recession.

But closer home, it will be the instability in Afghanistan that will consume a lot of conversation with the Indian leadership . In an exclusive interview with TOI, Steinmeier said, “We would like to discuss the available options for increasing our support for the stabilization of South Asia and its trouble spots. There is also much we would like to accomplish bilaterally . Germany is deliberately building up its presence in India , for example in the areas of business and science.”

There has been a lot of talk that European nations want to get out of Afghanistan, using the “reconciliation” talks with the Taliban. It has, say sources, led to a kind of dissonance with the Americans whose presidentelect Barack Obama is determined to make Afghanistan a top foreign policy priority.

Steinmeier said there was some focus on getting Afghans in the frontlines, so the foreign troops could get out of direct combat. “It is crucial that our Afghan partners gradually take on more responsibility. As the Afghan government becomes more capable of providing security and stability, the presence of international troops can gradually be reduced and eventually ended,” he said. But he tried to dispel the notion that reconciliation talks were on with the Taliban. “Reconciliation will only be possible on the basis of the existing constitution and that the Taliban must renounce all use of violence as a precondition for serious negotiations . That’s why I caution not to misunderstand the willingness to engage in talks as a sign of weakness,” he said.

Germany has been hit by the financial crisis harder than most, and reports say it has officially slid into recession. During the recent ASEM and G-20 summits, one of the ideas that was discussed was the ceding of voting rights in the IMF to important emerging economies like India and China as well as opening up the Financial Stability Forum for these countries.

“The crisis underlines the need to improve the conditions for stable and transparent financial markets... the IMF along with the Financial Stability Forum should be given considerable influence when it comes to risk analysis, monitoring the stability of the system and the development of an early warning system,” the German minister said. While endorsing the results of last week’s G-20 summit , Steinmeier said the future lay in a permanent expansion of the G-8 . “It will be important to go beyond crisis management to discuss new conditions for the world economy as a whole with all the relevant global actors ... the format of the future will have to be a permanent expansion of the G-8 ,” he said.

But Germany will join the global cacophony to ask India to help break the deadlock in the Doha round of WTO talks. For everybody, it was India’s stonewalling that kept the world short of getting a deal on Doha.

“Bringing the WTO Doha Round to an end would be a significant impetus for the global economy. We should press ahead to reach agreement on the core arrangements in agriculture and industry. I am confident that India, with its growing influence , will also take on more responsibility ,” Steinmeier said.

Source: EconomicTimes