JEDDAH: US stocks lost ground in volatile trade yesterday as investors turned cautious ahead of the weekend and erased early gains helped by strong results from Google.
The Dow Jones Industrial Average shed 127.04 points (1.41 percent) to 8,852.22 just after the close, capping a tumultuous week that saw the blue-chip index gain more than four percent.
The Nasdaq composite lost 6.42 points (0.37 percent) to 1,711.29 and the broad Standard & Poor’s 500 dropped 5.99 points (0.63 percent) to a preliminary close of 940.44.
For the week, the Dow average unofficially gained 4.75 percent, while the S&P 500 unofficially rose 4.6 percent. It was the S&P’s best week since February. The Nasdaq unofficially advanced 4.1 percent for the week — its best week since early August.
After a strong rally Thursday, the market saw more wild swings, with the Dow index rising as much as 300 points and trading as much as 260 points lower during the session. Analysts said traders were still cautious about the impact of a global credit crunch even after governments around the world agreed to pour vast amounts of cash into banks to help ease the crisis.
However, European stocks rose sharply yesterday, as energy shares climbed on higher oil prices and expectations that OPEC could cut output next week.
But fears of recession still gripped some markets as reports showed US consumer sentiment suffered its steepest monthly drop on record in October and housing construction starts fell to a 17-1/2-year low last month, driving the dollar down against the yen in choppy trade. US President George W. Bush said he would continue “close consultations” with Europe at a meeting today with French President Nicolas Sarkozy and European Commission President Jose Manuel Barroso.
“Our European partners are taking bold steps. They show the world that we’re determined to overcome this challenge together. And they have the full support of the United States,” Bush said in a speech at the US Chamber of Commerce.
Crude prices jumped 5 percent, drawing support from rising expectations of a supply cut by the Organization of Petroleum Exporting Countries after the group brought an emergency meeting forward to next week.
US crude rose $4.00 to $73.85 a barrel at 12:59 p.m. EDT (1659 GMT), while London Brent crude gained $3.62 to $71.49.
Bargain hunters were encouraged by famed investor Warren Buffett who wrote in The New York Times that with fear high in the minds of many investors, it was time to buy US stocks.
“The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher,” the head of Berkshire Hathaway Inc. conglomerate wrote in the New York Times. “In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary,” Buffett added.
“So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.”
Arab stock markets fluctuated violently last week, reflecting turmoil on the world markets and lack of confidence that measures taken by the world’s largest economies could succeed in handling the global financial crisis, financial analysts said yesterday.
“We believe that the psychological impact of developments on world markets will continue to be felt in the Middle East bourses for some time to come,” Wajdi Makhamreh, chief operating officer at the Amman-based Sanabel International Holding said.
“Fears of retreating results of listed firms in the third and fourth quarters due to recession fears are also expected to have negative impact on investors,” he said.
Regional analysts also cited the rapidly falling oil prices and the consequent decline of surplus petrodollars in the region as an additional factor that was due to leave its toll on regional markets.
Saudi shares, which suffered heavy losses in the previous week, rebounded last week, apparently taking advantage of assurances about the strength of the Saudi economy and the good performance of leading stocks, mainly the Saudi Basic Industries Corp. (SABIC) as well as the banking and telecommunication sectors.
The Tadawul All-Share Index (TASI) climbed 11.4 percent last week, closing at 6,863.15 points from 6,160.52 points in the previous week.
TASI is currently 37.8 percent lower than the year’s start. The stock market turnover was SR43.87 billion last week.
Commenting on the Saudi stock market fall in the previous week, Osama Felali, a financial analyst and professor of economics at King Abdulaziz University in Jeddah, said there was no convincing domestic reason for the decline of Saudi stock prices in the previous week. “We don’t have any financial problem to cause the breakdown of Saudi stock market,” he said. However, he pointed out that developments in global markets had their impact on the Saudi bourse.
The Saudi Arabian Monetary Agency (SAMA) said Thursday that it would guarantee the flow of liquidity to banks as well as bank deposits. It was the latest step by the world’s largest oil exporter to dissipate investor fears about the implications of an impending world recession.
Kuwaiti shares also moved side ways last week, but the Kuwaiti market was deemed by analysts as the most stable in the region. The KSE all-share index shed 3.1 percent to close at 11,544 points from 11,906 points previous week.
Egypt’s CASE-30 index, which measures the performance of the market’s 30 most active shares, gained 2.2 percent.
The United Arab Emirates stock exchange of Dubai witnessed the widest fluctuations in the area. The market’s benchmark price closed at 3,204 points marginally up from 3,197 points the previous week.
In Europe shares gained 4.2 percent, ending a volatile week on a strong note thanks to energy stocks that tracked a recovery in crude, while drug-makers rose ahead of key company reports next week.
The FTSEurofirst 300 index of top European shares closed up 4.2 percent at 894.77 points. The index has lost 39.9 percent this year on recession worries and the effects of banking failures.
The dollar rose against a basket of major currencies, with the US Dollar Index up 0.06 percent at 82.336.
The euro fell 0.24 percent at $1.3452. Against the yen, the dollar fell 0.01 percent at 101.59.
With signs of economic trouble now emerging in Eastern Europe and Asia, investors have reversed risky trades financed with low-yielding yen, helping lift the Japanese currency at the expense of its higher-yielding rivals, such as the euro. Spot gold prices fell $14.50 to $790 an ounce. Gold fell more than 3 percent, extending the previous session’s losses, as the dollar firmed against the euro, and investors sold bullion to cover losses on other markets.
The Indian rupee fell to its lowest close in more than six years yesterday, after the main stock index tumbled below 10,000 points intensifying worries of capital outflows.
The partially convertible rupee dropped to 48.88/89 per dollar, its lowest close since June 25, 2002 and a shade weaker than Thursday’s close of 48.82/83.
The BSE share index collapsed in the afternoon as fears of a looming sharp global economic slowdown kept investors wary of risky assets, losing 5.73 percent to their lowest close since June 2006. The index closed at 9,975.35.
Foreigners have dumped stocks worth $11.8 billion this year, including net sales of $2.5 billion in October. The outflow has hurt the rupee, which has fallen for 10 weeks in a row. The rupee has lost 19.4 percent this year, after gaining more than 12 percent in 2007 when foreign flows into stocks hit a record $17.4 billion.
Data showed heavy central bank intervention in the currency market had failed to stem the rupee’s fall. Foreign exchange reserves fell by $17 billion in the two weeks to Oct. 10 and stood at $274 billion, its lowest level since early January.
— With input from Abdul Jalil Mustafa and agencies
