GLOBAL MARKETS-Stocks rise, gold falls, Facebook compensation blasted(update)


NEW YORK: Global stocks rose on Thursday after China unexpectedly cut interest rates to shore up growth, but optimism was tempered by Federal Reserve Chairman Ben Bernanke, who disappointed investors looking for further stimulus for the U.S. economy.

Gold tumbled nearly 2 percent as investors unwound bullish bets built on expectations of Fed easing. Bullion was hit particularly hard compared with equities and other commodities, as it has been heavily used by institutional investors to hedge against economic uncertainties.

Bernanke, in testimony to Congress, said the Fed was ready to shield the U.S. economy if financial troubles mount, but offered few hints that further monetary stimulus was imminent.

He said the central bank was closely monitoring "significant risks" to the U.S. recovery from Europe's debt and banking crisis, but struck a decidedly different tone from the central bank's No. 2 official, who argued in favor of monetary support on W edn esday.

"Bernanke threw traders a curve ball. After his vice chair made it seem like (quantitative easing) was a foregone conclusion, he really messed people up. We tried to shake that off but there was a lack of follow-through and we lost momentum," said Phil Flynn, senior market analyst with PFG Best in Chicago.

The MSCI world equity index rose 0.7 percent to 301.16 points, after hitting its highest level in more than a week.

Hopes that central banks in the United States and Europe would act to bolster the global economy had driven world shares up more than 3 percent this week after steep losses in May.

U.S. stocks closed mixed. The Dow Jones industrial average ended up 46.17 points, or 0.37 percent, at 12,460.96. The Standard & Poor's 500 Index was down 0.14 point, or 0.01 percent, at 1,314.99. The Nasdaq Composite Index was down 13.70 points, or 0.48 percent, at 2,831.02.

European shares closed higher, but well off an earlier peak. The FTSEurofirst 300 closed up 1.1 percent at 984.62, its highest close since May 29.

The euro slipped 0.1 percent to $1.2562 in volatile trade. It briefly extended losses after Fitch slashed Spain's credit rating by three notches and signaled it could make further cuts as the cost of restructuring the country's troubled banking system spiraled and Greece's crisis deepened.

Against the yen, the dollar rose 0.4 percent to 79.56 .

CHINA'S SURPRISE CUT

China delivered twin surprises on interest rates on T hursday, cutting borrowing costs to combat faltering growth while giving banks additional flexibility to set competitive lending and deposit rates in a step along the path of liberalization.

China's first rate cut since the global financial crisis underlined heightened concern among policymakers worldwide that the euro area's deepening debt problems are threatening economic growth.

The news had earlier boosted oil prices on expectations that faster growth in the world's largest energy consumer could boost demand. But gains faded after Bernanke's comments dimmed hopes of more U.S. stimulus.

Brent crude slipped 71 cents to settle at $99.93 a barrel, after rising as high as $102.45 a barrel. U.S. crude fell 20 cents to settle at $84.82, after reaching $87.03.

Spot gold was down 1.7 percent at $1,589.30 an ounce, off a high of $1,628.80 an ounce.

U.S. Treasuries prices erased losses after Bernanke's comments. The benchmark 10-year U.S. Treasury note was up 4/32, the yield at 1.6473 percent.

The better tone in the markets allowed Spain to sell 2.1 billion euros of fresh debt o n T hursday, just days after the country's treasury minister warned that access to the credit markets was under threat.

Yields initially fell 10 basis points on Spain's existing 10-year bonds after the auction, to 6.2 percent.

"The fact is, Europe is still laying in the background. China cutting rates is seemingly a positive and Bernanke was neutral to slightly negative, but you have to put it all in the context of the negative we are still dealing, which is Europe," said Tom Porcelli, chief U.S. economist, RBC Capital Markets in New York. - Reuters

Reuters also reported from New York that US stocks ended flat

NEW YORK: The S&P 500 ended barely changed on Thursday as optimism about China's interest-rate cut was offset by Federal Reserve Chairman Ben Bernanke's comments that dimmed hopes for more U.S. stimulus.

Both the Dow industrials and the Nasdaq ended off session highs, with the Dow rising modestly for the day and the Nasdaq slipping.

Stocks lost ground following Bernanke's comments a day after experiencing the best one-day rally so far this year. Over the previous three days, the S&P 500 gained 2.9 percent, recovering some of May's losses.

The surprising move by China's central bank to cut its benchmark interest rate by 25 basis points helped ease worries about faltering global demand.

Speculation has been rising that central banks will take more action to combat escalating debt problems in Europe and slower global growth. Bernanke, in testimony Thursday, said the Fed was ready to take action but gave no hint of imminent steps.

His remarks were seen as offsetting more supportive comments from other Fed members in the last 24 hours, but still leaving the door open for more action at the Fed's next meeting on June 19-20.

"Bernanke threw traders a curveball. After his vice chair made it seem like QE was a foregone conclusion, he really messed people up. We tried to shake that off, but there was a lack of follow-through and we lost momentum," said Phil Flynn, senior market analyst with PFG Best in Chicago.

The rate cut in China, the world's No. 2 economy, helped lift the stocks of U.S. companies linked to China's commodity-hungry industrial complex.

An S&P index of industrial shares gained 0.6 percent and an S&P materials index rose 0.2 percent.

U.S. stocks jumped more than 2 percent on Wednesday, a third day of gains for the S&P 500. The index has rebounded since hitting its 200-day moving average, a key technical support level, last Friday.

The S&P 500 is still well off its highs for the year.

While Europe was still very much in the spotlight, stocks showed little reaction to a downgrade by Fitch in Spain's credit rating to 'BBB' with a negative outlook, just two notches away from junk status.

Among the day's decliners, shares of Navistar International Corp dropped 14.3 percent to $24.11 after it posted a second-quarter loss, due to a big charge for warranty costs to repair engines built in 2010 and 2011. The truck maker also cut its full-year earnings outlook.

Health insurer Molina Healthcare Inc recalled its 2012 earnings guidance, citing uncertainties regarding medical costs in Texas, pushing its stock down 31 percent to $17.77.

On the Nasdaq, shares of Nvidia fell 4 percent to $11.89 after FBR cut its price target on the company.

Volume was above average. About 7.16 billion shares changed hands on the New York Stock Exchange, the Nasdaq and Amex, compared with the year-to-date daily average of 6.85 billion shares.

Decliners beat advancers on the NYSE by about 16 to 14. On the Nasdaq, about three stocks fell for every two that rose.

Meanwhile Nasdaq rivals blast its Facebook compensation plan

A day after Nasdaq rolled out its plan, which would mostly consist of trading discounts for clients, rival exchanges questioned the legitimacy of the proposal, and one of Nasdaq's biggest customers said the sum offered was not nearly enough.

"I think that the scheme that was announced yesterday is illegal," Bill O'Brien, CEO of the No. 4 U.S. equities exchange, Direct Edge, said at Sandler O'Neill's brokerage and exchange conference in New York. "It is also a shameless attempt to basically turn a big investor-confidence-eroding event into a competitive advantage."

Direct Edge, NYSE, and BATS Global Markets - which in March had to pull its own IPO due to technical problems - all denounced the plan as a grab for market share.

"Confusing compensation with a pricing promotion - that's a bad way to do it," said Mark Hemsley, chief executive of BATS Chi-X Europe.

Nasdaq's proposed $40 million compensation figure - $13.7 million in cash and the rest in trading discounts - was a big topic at the conference.

GREIFELD HOLDS HIS GROUND

Robert Greifeld, CEO of Nasdaq, made 30-minute presentation at the conference that did not touch on the Facebook problems until the very end when he reiterated that Nasdaq's board approved the plan and that it covered all of the losses that resulted from the exchange's errors.

"We don't really have any legal requirements," Greifeld said. "We have an accommodation policy approved by the SEC of up to $3 million, so we are going to go to the SEC to ask them to approve us to pay a lot more than that."

Nasdaq has been widely criticized for poor communications during and after the Facebook IPO, the most highly anticipated market debut in recent memory, and for failing to apologize for the technical problems in the first hours of trading of Facebook shares.

"It's hard to envision it having been handled more badly," said Jamie Selway, managing director of broker-dealer ITG.

The top four U.S. retail market makers - which facilitate trades for brokers and are crucial to the smooth operation of stock trading - say they lost upward of $115 million in the Facebook IPO because of trading glitches and a severe communications breakdown on Nasdaq's part.

The problems on Nasdaq's exchange led to a 30-minute delay of the IPO on May 18, after which market makers did not receive confirmations of their opening orders for two hours. Some orders were placed well after the opening cross, around 1:50 p.m. that day.

Facebook shares have fallen 31 percent from their offering price of $38, to $26.31 on Thursday. The steep drop has triggered questions over its IPO pricing.

"It's another one of those things that destroys confidence," said Fred Tomczyk, CEO of TD Ameritrade, the top U.S. retail brokerage by trading volume. - Reuters

In early trade Friday Shares fall on unclear U.S. policy stimulus, Europe

TOKYO: Commodities from oil to copper and Asian shares tumbled on Friday, while risk aversion lifted the dollar and the yen, after Federal Reserve Chairman Ben Bernanke disappointed investors looking for a clear signal of further U.S. monetary stimulus.

The reaction to Bernanke's congressional testimony, which left uncertainty over the Fed's policy decision at its June 19-20 meeting, overshadowed an initial positive reaction in global markets to a Chinese interest rate cut on Thursday.

"The weaker sentiment today reflects primarily concerns about the U.S. and Europe, because people had hoped for more quantitative easing or some form of suggestion from Bernanke to stimulate the U.S. economy yesterday but that didn't happen," said Dariusz Kowalczyk, senior economist and strategist, Asia ex-Japan at Credit Agricole CIB.

He added that troubles in Spain's banking sector and uncertainty over the June 17 Greek election also helped overshadow the positive news from China.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 1 percent, after hitting a one-week high and posting its biggest one-day gain since mid-January in the previous session. The index was set to manage a 0.7 percent gain for the week, after falling for four weeks in a row.

European shares were set to fall, with spreadbetters predicting major European markets to open down as much as 1 percent. U.S. stock futures were down 0.6 percent.

Japan's Nikkei average fell 2 percent.

China's move to combat faltering growth in the world's second-largest economy, the first such cut since the global financial crisis in late 2008, underlined heightened concerns about the threat to worldwide economic growth from the euro zone's escalating debt problems.

It precedes a deluge of Chinese economic data for May due this weekend, including fixed asset investment and industrial production numbers - two of China's most crucial indicators of activity and job creation - fuelling some worries that the move signalled some grim figures.

"The rate cut should have been a positive but it comes at suspicious timing," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley. "It makes people think that really bad news is going to be unleashed this weekend."

COMMODITIES SLIDE

Dimmed hopes for U.S. stimulus sent oil prices down more than $1, with U.S. crude futures touching a low of $82.59 a barrel and Brent crude hitting a low of $98.26. Copper slipped 1.8 percent to $7,364 a tonne.

As investors trimmed risk exposure and sought safety, the dollar index measured against key currencies advanced 0.5 percent. The yen, which is also perceived as a safer currency, rose 0.5 percent versus the dollar at 79.28 yen and jumped 0.8 percent against the euro at 99.27.

Some analysts said the U.S. currency was likely to remain strong on euro weakness even if prospects of further monetary accommodation by the Fed increase.

"We believe that the closing of short USD positions by the private sector, driven either by a rise in risk aversion or by a shift in investment sentiment in favour of U.S. assets, will push the USD higher," said Morgan Stanley in a research note.

The euro eased 0.3 percent to $1.2521, retreating from a two-week high of $1.2626 hit on Thursday.

The cost of insuring against corporate and sovereign defaults in Asia inched up, widening the spread on the iTraxx Asia ex-Japan investment-grade index by 4 basis points.

RATE CUTS IN VOGUE

China's monetary easing followed a rate cut by the Reserve Bank of Australia on Tuesday.

Major emerging economies Brazil and India have also lowered interest rates over the past month to fend off downward risks from the euro zone's crisis, fuelling expectations central banks in developed countries would also follow suit.

But the European Central Bank kept rates steady on Wednesday and Bernanke merely said the Fed was ready to act if financial troubles mounted.

Some market players said the global trend of monetary easing to counter downside risks to growth would eventually soothe investor fears and underpin markets.

"I think the Fed is likely to act this month and is currently in the midst of making some political adjustments, while the effect of China's easing aimed at supporting its growth will gradually sink in and help resources-related assets and currencies," said Tetsuro Ii, president of Commons Asset Management.

Chancellor Angela Merkel said Europe was ready to act to ensure stability in the euro zone as Fitch on Thursday cut Spain's credit rating by three notches to BBB and hinted at more downgrades in coming months amid expectations it may soon seek EU help for banks beset by bad debts.

Spot gold extended its slide to fall 1.3 percent to $1,568.64 an ounce, after tumbling nearly 2 percent on Thursday as investors unwound bets on Fed easing expectations.

"The expectations were so high for Bernanke's testimony that a lack of clear easing signal triggered programmed selling, which accelerated further when prices fell through key technical levels at $1,600 and $1,580," said Koichiro Kamei, managing director at financial research firm Market Strategy Institute. - Reuters

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