Global Market Report 25 July 2012

The Dow slid to its third straight triple-digit point decline as poor corporate-earnings underscored growth worries and concerns mounted about Greece's ability to pay its debts.

The Dow Jones Industrial Average fell 104.14 points, or 0.82%, to 12,617.32 points, though the blue-chip benchmark trimmed its losses in final minutes of trading after The Wall Street Journal reported the Federal Reserve is moving closer to taking additional action to boost the economy.

For the Dow, the drop extends to three its streak of consecutive sessions with declines of greater than 100 points, the longest since September.

The Standard & Poor's 500-stock index fell 12.21 points, or 0.90%, to 1,338.31, and the Nasdaq Composite Index dropped 27.16 points, or 0.94%, to 2,862.99.

Telecommunications stocks lagged most as all 10 of the S&P 500's sectors retreated. AT&T declined 2.1% after reporting second-quarter earnings that were above consensus analyst estimates, though revenue missed Wall Street's view.

Bellwether United Parcel Service fell 4.6% after the package-delivery company's second-quarter earnings and revenue missed estimates, and it lowered its full-year earnings outlook, citing increasing economic uncertainty in the US and continued weakness in Asia.

Dow component DuPont stumbled 2% after the chemical company's second-quarter earnings also topped estimates but revenue fell short of expectations. In addition, the company said full-year earnings would be at the low end of its previously provided range.

Texas Instruments slipped 0.9% after the microchip maker reported second-quarter earnings that beat forecasts, but revenue fell short and it indicated third-quarter revenue would be below current projections.

Major benchmarks extended declines minutes after the opening bell after the Federal Reserve Bank of Richmond offered a reading on Central-Atlantic manufacturing in July that showed a sharp contraction. Earlier, Markit Economics' preliminary July reading on the US factory sector showed it barely expanded.

Losses widened around midday after a Reuters report that Greece will need to restructure its debt again, citing European Union officials. The report compounded anxieties stirred in recent days about Greece's future membership in the euro zone and Spain's rising borrowing costs.

The Dow had fallen nearly 200 points late in the session, but stocks came back from session lows after The Wall Street Journal reported that Fed officials "appear increasingly inclined" to shore up the economy.

The reports on Greece accelerated declines across European markets, which were already lower after the Continent's own discouraging manufacturing data.

Investors rushed into US Treasury debt for safety, sending bond yields to record lows for a second straight session. At 7:45 AEST, the 10 Year Treasury note was 1.39%, and the 5 Year note was 0.54%.

European stocks ended a volatile trading session in the red, after Moody's cut its outlook on Germany, the largest economy in Europe, while investors continued to sell Spanish stocks and bonds.

The Stoxx Europe 600 index dropped 0.5% to close at 250.57, marking a third day of losses.

Software AG surged 11% as it reported a 32% growth in license revenue for the second quarter.

Elan Corp. plunged the most in Europe, off 12%, after Pfizer Inc. said a potential treatment for Alzheimer's disease failed to meet its clinical endpoint in a trial conducted with Janssen Al. Elan acquired 49.9% of Janssen Al in 2009.

Pressure remained on Spanish stocks for a third day, amid worries that more of the country's regions will seek financial aid from the government.

AFP reported that Catalonia, Spain's largest region by economic size, would ask the government for funds, but a government spokesperson said later in the day that such a decision hadn't been made.

Moody's lowered its outlook on Germany, further exposing the euro zone's fragility.

Meanwhile, German and Spanish finance ministers are set to meet for talks in Berlin as their economies diverge.

Spain's borrowing costs continued to rise, as the yield on 10-year government bonds added a further 12 basis points to 7.57%, a new euro-era high.

Spain's IBEX 35 stock index slumped 3.6% to 5,956.30, the lowest level since the beginning of April.

Banco Santander SA dropped 4.5% and BBVA SA gave up 4.2%.

Italian stocks were also under pressure, with the FTSE MIB index losing 2.7% to 12,362.51, its lowest closing level on record.

German stocks were lower after Moody's Investors Service late Monday lowered the outlook on the country's triple-A rating to negative from stable, citing mounting uncertainties arising from the euro-zone debt crisis.

Moody's also cut the outlook on the Netherlands and Luxembourg but affirmed Finland's triple-A rating.

On the data front in Germany, a preliminary purchasing managers' index reading showed that the composite output gauge for the country fell for a sixth month, with the July data signalling the fastest pace of private-sector contraction since June 2009.

For the euro zone, the composite PMI reading remained at 46.4 in July, indicating a sixth month of shrinking activity in the private sector.

Against this backdrop, the German DAX 30 index lost 0.5% to 6,390.41, weighed by a 2.6% drop for BMW AG.

Software firm SAP AG supported the index, advancing 3.5%, as it confirmed its full-year outlook after second-quarter profit rose 12%.

UK stocks closed a choppy session lower, as banks and oil firms declined, overshadowing strength from Chinese manufacturing activity, which came in at a five-month high in July, according to a survey released by HSBC.

HSBC Holdings PLC slid 0.8% and Standard Chartered PLC gave up 2%.

Among oil firms, BP PLC shed 0.6% even as OAO Rosneft said it had entered talks on acquiring the U.K. oil firm's stake in Russia's No. 3 oil producer, TNK-BP. Oil prices were, however, higher.

In France, oil major Total SA slipped 1.6% and added pressure on the CAC 40 index, which fell 0.9% to 3,074.68.

Financials also weighed on the index.

AXA SA slumped 3.1%, while Credit Agricole SA lost 3.2%.

Among other notable movers, Swatch Group AG added 2.3% after the watchmaker reported a solid rise in first-half profit and sales and said the back half of the year looks promising.

The euro sold off sharply, touching a new two-year low of US$1.2042 earlier, as concerns mounted that Spain may need a full-blown bailout and that Greece may miss a debt-reduction target. The common currency has already depreciated 2% against the dollar over the past week.

Asian stocks ended little changed as a pickup in Chinese manufacturing helped offset continued concerns over Europe, while declines on the Hang Seng Index were led by Cnooc on concern it overpaid for its acquisition of Nexen.

Markets were helped by a pickup in preliminary Chinese manufacturing data for July. The score came out at 49.5 in July, compared with a final reading of 48.2 in June. Although the figure still indicates a contraction in manufacturing activity, it is significantly higher than in the previous month.

Still, concerns about Europe capped the upside, and the gains were mild compared to the heavy selling on Monday.

Some analysts say that the yen might not strengthen much more, as investors are getting cautious about intervention from the authorities to stem the gains which hurt local exporters.

Japan's Nikkei dropped 0.2% at 8,488.09 to finish at a six-week low, as the focus on European bad news trumped Chinese manufacturing data.

In Hong Kong, the morning session was cancelled as heavy rain and wind from Typhoon Vicente hit the city. When it opened, it made up for lost time, falling 0.8% to 18,903.20 as a broad decline in energy companies led the falls.

At the forefront was Cnooc, the index's worst performer, which fell 4% as investors sold on news that the oil company will pay $15.1 billion for Canada's Nexen Inc.; which if successful, would be China's largest overseas acquisition.

In company news, Sharp fell 1.7% in Tokyo following a Nikkei report that the firm is expected to report a net loss of around Y100 billion in the April-June quarter, due to the deterioration of its LCD- and solar-panel businesses.

Also in Japan, Toshiba fell 5.4% after it announced that it would cut the production of NAND flash memory chips by 30% at its Yokkaichi plant in response to market oversupply and low prices.

On the deal front, both Fraser & Neave and Asia Pacific Breweries extended their gains, climbing 0.9% and 0.6% respectively late in the session as the battle for the control of the maker of Tiger beer heated up.

New Zealand shares fell as cloud-based accounting firm Xero extended its drop from a record and fishing company Sanford declined on reports the United States wants to make orange roughie an endangered species. The sharemarket closed 0.1 percent lower with the benchmark NZX-50 index falling 4.65 points at 3,460.70.

Base metals closed mostly flat on the London Metal Exchange, tracking financial broader markets as investors weighed further bad news from the euro zone against supportive Chinese manufacturing data. Crude oil futures settled modestly higher, after suffering heavy losses a day earlier on renewed worries of economic weakness in the euro zone.