Stock markets falter despite good news from IBM, plan to buy up bank equity

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(The Canadian Press)

By Malcolm Morrison, The Canadian Press

TORONTO - It was another day of big swings on stock markets Thursday as good news from IBM Corp. failed to keep investor hands off the sell button.

A report that the U.S. government is considering a plan to stabilize hobbled U.S. banks also provided only a brief burst of optimism.

"It's a classic sign of a bear market where investors sell down the market even in the face of good news," said Patricia Croft, chief economist at Phillips, Hager and North

"Within bull markets, you buy on the dips but in a bear market you sell on the rallies and that's what we're seeing. So the bear market mentality is still very firmly entrenched and still gripping the markets."

Toronto's S&P/TSX composite index had surged almost 300 points in the early going but at late-morning it was up a slight 5.36 points to 10,061.67 in large part because of weak financials.

The TSX Venture Exchange moved up 2.49 points to 1,075.13.

The Canadian dollar declined 1.77 cents to 87.29 cents US. The loonie was down nearly seven cents since the end of September, when it closed at 93.97 cents US.

Exactly a year after hitting its record high, New York's Dow Jones industrials was down 90.4 points to 9,167.7 leaving the blue-chip average down more than 35 per cent from its peak.

General Motors Corp. was the biggest decliner in the Dow, falling $1.24, or 18 per cent, to US$5.67.

The Nasdaq composite index added 2.67 points to 1,743 while the S&P 500 index dipped 11.1 points to 973.84 after IBM's confirmation of its full-year profit guidance.

That was good news from a company whose shares have tumbled more than 30 per cent since July on concerns about IBM's exposure to the crippled financial services industry, which provides 30 per cent of its sales.

IBM said it earned US$2.8 billion in the July-September period, up 20 per cent from a year earlier, and per-share profit of $2.05 was four cents higher than analyst estimates. IBM stock started off strong but later moved down 82 to US$89.73.

Investors had also been optimistic over a report that the government is considering taking ownership stakes in certain U.S. banks as an option for dealing with a severe global credit crisis.

"I think that's one of the key critical components to allow people to get more confident that the credit crisis, which is gripping the global financial system, may be beginning to alleviate," Croft said.

"But overnight we saw three-month LIBOR rates, which is an indication of exactly how confident the banking system is, those are continuing to rise."

The London Interbank Offered Rate, or LIBOR, is a global benchmark for what it costs banks to borrow from each other.

Britain has already announced a plan to buy stakes in troubled banks, though no U.K. bank has received any investments. In Iceland, the government now has control of all three of the country's major banks as it struggles to contain panic.

The governments of France, Belgium and Luxembourg announced Thursday they will give struggling lender Dexia SA a year-long guarantee on its new loans and deposits.

The expiry of the three-week-old ban on short-selling of financial-industry stocks and other issues in the United States and Canada also pushed the U.S. financial sector into the red.

In New York, Citigroup fell 40 cents to $14 while Morgan Stanley plunged $3.06 to US$13.74.

The TSX financial group slipped into negative territory, down 1.34 per cent as Royal Bank (TSX: RY.TO) gave back 87 cents to $44.63 while Bank of Montreal (TSX: BMO.TO) gained 44 cents to $39.48.

The much-battered energy sector was ahead 0.5 per cent as members of the OPEC cartel call for a special meeting in November to discuss cutting production.

The November crude contract on the New York Mercantile Exchange was down $2.12 at US$86.83 a barrel.

Canadian Natural Resources (TSX: CNQ.TO) improved 62 cents to $57.62.

The TSX gold sector was down 1.5 per cent after surging almost 20 per cent Wednesday as investors looked for safety. The December bullion contract on the Nymex moved down $20.70 to US$885.80 an ounce.

Barrick Gold declined 28 cents to $39.77 after surging 19 per cent Wednesday.

But two of the biggest stocks on the TSX provided a boost. Research In Motion Ltd. (TSX: RIM.TO) gained $4.61 to $68.80 and Potash Corp. (TSX: POT.TO) advanced $5 to $115.50.

Market players continue to assess the impact of the co-ordinated half-point interest rate cuts by the U.S. Federal Reserve, the Bank of Canada and other central banks.

Canadian banks are reducing their prime rate by only a quarter-point, citing ongoing high costs in debt markets as the reason for passing along only some of their savings to customers.

Finance Minister Jim Flaherty warned that the global financial crisis has more trouble in store for the Canadian economy, as the deterioration of credit markets squeezes the ability of financial institutions to raise funds.

In Canadian business news, two U.S. private equity firms are standing down in their effort to take over Calgary-based power generator TransAlta Corp. (TSX: TA.TO).

LS Power Equity Partners and Global Infrastructure Partners proposed in July to acquire TransAlta for $39 per share, valuing the company at $7.8 billion. TransAlta shares were down $1.05 or 4.4 per cent to $22.88 near midday

Maple Leaf Foods Inc. (TSX: MFI.TO) disclosed that its Toronto meat-processing plant at the centre of a listeriosis outbreak that killed 20 people has produced more contaminated samples. None of the products produced at the plant since it reopened Sept. 17 have been sold. Maple Leaf shares lost 42 cents to $7.32.

In the oilpatch, legendary resource investor Seymour Schulich is buying low, raising his stake in Birchcliff Energy Ltd. (TSX: BIR.TO) to 19 per cent. Schulich bought one million shares on the open market Tuesday to increase his holding to 21 million. Birchcliff shares, which were down 62 per cent from their July peak, ran up 22 cents to $6.32.

European bourses also lost early gains as London's FTSE 100 index inched 2.21 points lower to 4,364.48.

Germany's DAX was down 0.7 per cent, while France's CAC-40 slipped 2.12 per cent.

In Asia, markets were generally positive as South Korea, Hong Kong and Taiwan joined in lowering interest rates.

But lower central bank rates alone are unlikely to cure the crisis in confidence, analysts said.

"Short-term selling pressure is still strong," said Lorraine Tan, director at Standard & Poor's equity research in Singapore. "I don't think interest rate cuts alone are going to help improve confidence all that much."

The Nikkei 225 slipped 0.5 per cent Thursday while Hong Kong's Hang Seng added 3.3 per cent.