Stocks Rebound on Citi News

(page 2 of 2)

0, while the current conditions series moderated only to 115.4 from 118.0.

On Wednesday, the durable goods orders and existing home sales will be closely watched. But economic data are taking a back seat to questions about the credit crisis, said Reynolds at M.S. Howells & Co.

With the Fed funds rate at 4.5%, higher than the 10-year Treasury notes, some market observers believe it's inevitable that the Federal Reserve will further ease rates at or before its final policy committee meeting of 2007, on Dec. 11, in order to better manage the slowing U.S. economy.

The Fed funds futures markets are now more than fully pricing in a quarter-point rate cut on Dec. 11, Bear Stearns' chief U.S. economist John Ryding said in a research note on Tuesday. Recent conditions in financial markets seem to be fulfilling the major downside risk to economic growth identified in the Fed policy committee's Oct. 31 minutes. Bear Stearns has changed its forecast from no change to a quarter-point cut in the funds rate target, to 4.25% and said a half-point cut can't be ruled out.

Goldman Sachs now predicts the Fed funds rate will fall to 3.0% within the next six to nine months from the current 4.5% and that unemployment will climb to 5.5% from the current 4.7% due to the worsening housing downturn and a greater threat of recession.

Federal Reserve Bank of Philadelphia President Charles I. Plosser said Tuesday he expects the economy to grow more slowly in the months ahead, despite the Fed's rate cuts, which have also raised the risk of heightened inflation and inflation expectations. Gains in oil and commodities prices still suggest significant inflation risk and oil prices could dampen growth, while lower interest rates could "prolong the process of price discovery" by the markets relating to the financial problems. He predicted a bottom for the housing sector by the end of the second quarter of 2008 and expects the jobless rate to rise to 5.0% next year.

January NYMEX crude oil futures continued to fall on Tuesday, down $3.39 to $94.31 per barrel on fears of the demand impact of an economic slowdown, as well as concerns about production hikes likely to result from next week's OPEC meeting.

Saudi Arabia is already believed to have raised its output to over 9 million barrels per day, while Indonesia's oil minister said he favors a 500,000-barrel-a-day increase and Iran is considering a hike. Qatar's oil minister said he sees no need to raise production. A stronger dollar on warnings of a global economic slowdown was also putting pressure on oil prices.

Among stocks in the news Tuesday, Barclays plc (BCS) shares rose 8.6% after it reassured investors that problems stemming from the subprime-mortgage crisis were being offset by booming business in other parts of the company. Britain’s third largest bank said it expects 2007 profits to be "broadly in line with current market consensus," which estimates earnings $5.43 a share on $47.16 billion in revenue.

Aspenbio Pharma (APPY) shares surged 18.3% after it said it will pursue the more expedient of two paths to securing regulatory clearance from the U.S. Food and Drug Administration for AppyScore, the first blood-based screening/triage test for human appendicitis.

Bidz.com (BIDZ) said that sales over the Thanksgiving holiday weekend jumped 78% from last year. The online jewelry retailer reaffirmed its fourth-quarter outlook for $56 million to $58 million in revenue and $5.6 million to $6.0 million in pre-tax income. Bidz.com expects to earn 47 to 51 cents a share on a fully-taxed GAAP basis in fiscal 2008, but shares fell 28.2% as the company's guidance came in at the low end of expectations.

Signet Group PLC (SIG) shares dropped 22.3% after it reported a third-quarter profit of $1.6 million, vs. $5.2 million in the prior-year period, despite a 10% increase in sales. The specialty jewelry retailer cited a more challenging retail marketplace in the U.S.

Tesoro's (TSO) shares fell 7.1% after Tracinda Corp. announced the withdrawal of its offer for a minority stake in Tesoro, citing the oil refiner's plan for a "poison pill" meant to discourage hostile takeovers. Tracinda, owned by billionaire Kirk Kerkorian, had previously offered to buy up to a 20% stake in Tesoro for $64 a share.

Activision (ATVI) shares rose 13.8% on the video game publisher's quarterly and 2008 earnings forecasts, which it's basing on better-than-expected consumer response to its holiday slate worldwide. The company expects to earn 66 cents a share for the third quarter on $1.23 billion in revenue, and 75 cents a share for fiscal 2008 on $2.3 billion in revenue. Standard & Poor's upgraded the stock to a buy from a hold rating, and Broadpoint Capital raised its estimates and reaffirmed its buy rating.

European equity indexes were trading lower on Tuesday. In London, the FTSE 100 index slid 0.64% to 6,140.70. Germany's DAX index was down 0.48% at 7,531.35. In Paris, the CAC 40 fell 0.44% to 5,434.17.

Asian markets ended mostly lower on Tuesday. In Japan, the Nikkei 225 index climbed 0.58% to 15,222.85. In Hong Kong, the Hang Seng index slipped 1.51% to 27,210.21. The Shanghai composite fell 1.97% to 4,861.11.

Treasury Market

Treasury prices retreated as equities staged a modest comeback on Tuesday. The two-year notes were off 11/32 at 101-00/32 for a yield of 3.07%; 10-year notes fell 29/32 to 102-14/32 for a yield of 3.95%; and the 30-year bond dropped 1-10/32 to 110-15/32 for a yield of 4.37%.

Bogoslaw is a reporter for BusinessWeek's Investing channel .