Tuesday, Aug 07, 2012

--Standard Chartered slumps nearly 16% following Iran accusations

--FTSE 100 flat while other equity markets rise

--Comfort from Merkel remarks regarding ECB bond-buying plans

--Focus on Italy GDP data 


 
   By Andrea Tryphonides

Positive sentiment continued in financial markets early Tuesday, with European stocks refusing to give up strong gains and the euro rising against the dollar. Decent earnings helped, along with German Chancellor Angela Merkel's backing of the European Central Bank's bond-buying plan.

However, shares in banking group Standard Chartered slumped in Asia and London after New York's financial regulator called a unit of the London-based bank a "rogue institution" and accused the bank of scheming with the Iranian government to hide more than $250 billion in illegal transactions. Standard Chartered strongly rejects the accusations.

Shares in Standard Chartered were down 15.7% on the FTSE 100, having fallen by 14.9% in Hong Kong.

BofA-Merill Lynch and Nomura have downgraded their equity ratings on the stock. BofA-Merrill Lynch, which has downgraded Standard Chartered to underperform from buy, said: "While the underlying fundamentals and earnings growth of the group's businesses remain intact, we believe the allegations leveled at Standard Chartered by the New York State Department of Financial Services will weigh on the share price for the near term." Nomura has cut Standard Chartered to neutral from buy.

As a result of the fall in Standard Chartered shares, the Stoxx 600 banks index was down 0.9%. The UK's FTSE 100 was flat at 5810.25, underperforming versus its European peers following the fall in Standard Chartered, which was the biggest decliner on the blue-chip index.

However, the overall picture for equities was buoyant in Europe. At 0815 GMT, the benchmark Stoxx 600 index was up 0.2% at 267.36. Spreadbettors had expected stocks to fall Tuesday following strong recent gains. Last week, Spanish Prime Minister Mariano Rajoy suggested that the debt-laden country may ask for aid from Europe's temporary bailout fund. This followed comments from ECB President Mario Draghi that the central bank could focus on the purchase of short-term debt, resulting in two consecutive sessions of strong gains.

Germany's DAX was up 0.6% at 6959.83 and France's CAC 40 was 0.6% higher at 3420.46.

Elsewhere, Italy's FTSE Mib was up 1.0% at 14,488.04, nudging down by just a few points despite a larger fall than expected in Italy's industrial output for June.

Industrial production fell 1.4% in June from May in seasonally-adjusted terms. A survey of 10 economists by Dow Jones Newswires found the average forecast was for a 1.2% drop in output on the month.

Amongst other equity markets, Spain's IBEX 35 was up 1.1% at 7135.30 and Greece's ASE index increased 1.1% to 615.24.

Spain's 10-year government bond yield was up 12 basis points at 6.69% and its two-year yield was down three at 3.20%. For Italy, the 10-year yielded 5.95%, down two basis points, and the two-year was at 3.18%, up 15 basis points. All eyes are on Italian gross domestic product data, expected at 0900 GMT.

In corporate news, Munich Re gained 0.8% after it said it was on track to beat earnings forecasts this year, and after profit rose in the three months to June.

InterContinental Hotels Group shares increased 3.8% after it said it will return $1 billion to shareholders as it recorded a rise in profit in the first half of the year. The world's largest hotel operator by number of rooms saw solid demand in the U.S., its largest and most lucrative market.

In foreign exchanges, the euro was at $1.2411, up from $1.2402 in late New York Monday. The dollar was at Y78.34 from Y78.23.

Nymex crude oil for September delivery was up $0.14 at $92.34 per barrel while the equivalent contract for Brent was $0.53 higher at $110.08. Spot gold was up $1.70 at $1,613.70 per ounce. The September bund contract was down 0.33 at 142.87.

Write to Andrea Tryphonides at andrea.tryphonides@dowjones.com or Twitter: @ATryphonides

(END) Dow Jones Newswires

August 07, 2012 04:41 ET (08:41 GMT)