While you were sleeping: BofA repayment, ECB holds

While you were sleeping: BofA repayment, ECB holds steady

Dec. 3 (BusinessWire) – In an unexpected move, the Bank of America said it was poised to repay the US$45 billion it received in U.S. government help earlier this year.

The repayment should make it far easier for the bank to find a successor to chief executive Ken Lewis, who is set to retire shortly. Candidates approached for the job have baulked at the level of federal oversight required because of the strings attached to the financial aid, in particular the setting of the CEO’s pay.

Bank of America’s move could be the trigger for a number of U.S. banks repaying money they received from the government to weather the storm on financial markets these past 12 months, analysts said.

The repayment notice came on the same day as Federal Reserve chairman Ben Bernanke was testifying before the U.S. Senate Banking Committee in a bid to secure another four-year term at the central bank.

Bernanke said the Fed remained committed to maintaining price stability as the economy recovered. “We must be prepared to withdraw the extraordinary policy support in a smooth and timely way,’’ he said. The chairman’s current term expires at the end of January.

While the improving outlook for the financial sector bodes well for the U.S. economy, a report today showed that the services sector in the world’s biggest economy is still hurting.

The U.S. services sector index fell to 48.7 in November from 50.6 a month earlier, according to the Institute of Supply Management. A reading higher than 50 is seen as a sign the economy is expanding.

Wall Street stocks sank on the services index report given that the sector represents about 80% of economic activity. In midday trading, the Dow Jones Industrial Average fell 0.13% to 10,439.46 and the Standard & Poor’s 500 declined 0.06% to 1108.54. The Nasdaq Composite rose 0.27% to 2190.94.

BofA rose 1.6% to US$15.90. Retailers Abercrombie & Fitch and Target dropped, losing 6% and 3.3% respectively amid lingering concerns about holiday sales.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s “fear gauge” rose 1.75% to 21.49.

The directionless activity on Wall Street mirrored trading in Europe overnight. The Dow Jones Stoxx 600 Index dipped 0.2% to 246.4 with six stocks rising for each five that fell.

Among national benchmarks, the U.K.’s FTSE 100 fell 0.27% to 5313.00, Germany’s DAX 30 fell 0.20% to 5770.35 and France’s CAC 40 gained 0.8% to 3799.11.

Heineken climbed 3.3% to 33.04 euros after Cheuvreux lifted its recommendation on the stock to “outperform” from “underperform.”

Siemens sank 5.2% to 64.08 euros after reporting a quarterly loss on writedowns at the telephone network venture with Nokia Oyj.

Trading in Europe reflected a focus on the European Central Bank which today opted to hold its key interest rate steady at 1% as expected.

The euro rose 0.3% to US$1.5085 and 1.1% to 132.94 yen.The dollar was up 0.8% at 88.15 yen, off a 14-year low of 84.82 yen plumbed last week. Sterling fell 0.3% to US$1.6575 while the dollar fell 0.3% to 0.9989 Swiss francs.

ECB President Jean-Claude Trichet said the bank would start to rein in some of the cash it had been providing to bank in the region. “The improved conditions in finanacial markets have indicated that not all our liquidity measures are needed to the same extent as in the past,’’ he told reporters in Frankfurt.

Analysts described the move by the ECB as a “gentle” exit. The ECB will begin by linking the rate on the December 15 tender of 12-month funds to the average of the bank’s benchmark over the year, Bloomberg News reported.

Both gold and oil declined as the US dollar recovered. The Dollar Index fell as much as 0.5% before rebounding to little changed at 74.632.

Spot gold fell as low as US$1203.90 an ounce after the remarks, and was at US$1213.40 at 1603 GMT, versus US$1215.90 late on Wednesday. Earlier it hit a record high of US$1226.10.

NYMEX crude for January delivery fell 45 cents to US$76.15 a barrel by 1530 GMT, after rising as high at US$78.95 earlier in the session.

Copper for March delivery fell 0.65 cent to US$3.252 a pound on the New York Mercantile Exchange’s Comex unit. On the LME, copper for delivery in three months was little changed at US$7120 a metric ton.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.04% to 276.91.

Goldman Sachs maintained on Thursday its previous US$90-a-barrel 2010 price forecast for West Texas Intermediate crude futures. It predicted the NYMEX crude futures would rise to US$110 a barrel in 2011.

The U.S. broker also revised up its forecasts for copper for 2010 because of a tighter supply picture and that it expects low U.S. interest rates to support gold this year and next. Goldman sees gold at an average US$1265 an ounce in 2010 and US$1425 an ounce in 2011.

"Specifically, given the anticipated strong pick-up in the global economy in the first half of 2010 and correspondingly more buoyant investor sentiment, we expect base metals to make new highs by the middle of next year," it said in a note reported by Reuters.

(BusinessWire)06:41:44

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