US Markets - Wall Street spent another week repairing the damage inflicted by the late February sell-off. Investors are looking ahead to next week’s start of the first quarter earnings season.

According to Thomson Financial, the average rise in profits for the first three months of the year compared with 2006, is forecast at 3.6%. That is down from 8.7% estimated at the start of January and would mark a break from 14 consecutive quarters of double-digit earnings growth.

Thomson said the reduction in expectations reflected “a lack of positive guidance from companies. No one wants to over-promise and under-deliver on earnings.”

Although companies may ultimately beat reduced expectations, investors are likely to focus on the outlook for the second quarter and beyond.

Earnings will likely beat sharply reduced expectations, but guidance will dominate and that will be downbeat.

Recent data on the economy has revealed a combination of slower growth and elevated inflation that could erode revenues and raise costs for companies.

That trend was countered by the unexpectedly strong March employment report released yesterday. The data suggested US economic growth is not slowing as much as some had feared.

While the cash equity market was closed, S&P 500 futures rose after the payrolls data was released, suggesting upward pressure on stock prices on Monday.

For the Easter-shortened week, the S&P 500 gained 1.6% to 1,443.76 and the Nasdaq Composite rose 2.05% to 2,471.34. The Dow Jones Industrial Average rallied 1.65% to 12,560.20 and is back in positive territory for the year to date.

Among companies in the spotlight this week, was Altria, which in its first week of trading after spinning off Kraft Foods, rose 7.35% to $70.75. Analysts believe Altria could announce shedding its international business when it releases earnings later this month.

One of the week’s poor performers was Monster, whose price slumped 13.8% to $40.85 after the job placement website cut its first-quarter sales outlook below analyst expectations.

Poor earnings pressured Micron and it fell 4.7% to $11.51 this week after the maker of flash memory posted a loss for the second quarter.

Boosting sentiment for technology was Research In Motion , up 6.8% to $145.77. Goldman raised its earnings estimates for the maker of the BlackBerry hand held personal organiser and maintained a price target of $185 a share.

Hewlett-Packard gained 4.1% to $41.80 this week, while another tech heavy-weight, Microsoft, rose 2.4% to $28.55 after Citigroup raised its fiscal third-quarter earnings estimate for the software giant.

Financial stocks remained in the spotlight, and the sector is the only major industry group within the S&P that is negative for the year, down 2.9%.

This reflects concern over the sector’s exposure to US mortgages, particularly those issued to borrowers with high loan-to-value ratios and sketchy documentation.

M&T Bank slid 8.5% to $105.99, after the New York based regional bank said its exposure to risky Alt-A mortgages would reduce first-quarter net income.

But, there was a sliver of good news as Accredited Home Lenders closed the week up 4% at $9.64. The big subprime mortgage lender said it had secured a $1.1bn line of credit from two banks.

The S&P homebuilders index finally snapped a run of eight days of losses and closed 0.7% higher for the week.

Deal activity was led by a $29bn purchase of First Data, the credit card and payment company, by Kohlberg Kravis Roberts. The private equity firm will pay First Data shareholders $34 a share, a premium that sent the shares 20% higher to $32.29.

Xerox said it would purchase Global Imaging Systems for around $1.5bn and sharesits jumped 48% to $28.83.

In its first week trading as a combined entity, NYSE Euronext rose 3.2% to $96.74.

European Markets - Merger and takeover activity and rumour drove European equity markets this week as the region’s main stock indices inched back near six-year highs.

The FTSE Eurofirst 300 gained 1.6% over the four sessions to Thursday, ending the holiday-shortened week up 0.8% at 1,540.13.

The pan-European index remained just shy of its six-year high of 1,552.59, hit late in February before a two-week spell of turbulence drove global equity markets sharply lower.

Frankfurt’s Xetra Dax however, reclaimed its lost ground rallying as high as 7,103.73 before ending Thursday at 7,099.91, up 2.6% on the week. The CAC 40 in Paris rallied 1.9% over the week to 5,741.38, remaining 30 points shy of its six-year high.

Telecom Italia was the best performing stock over the week on the Eurofirst 300 after AT&T, the US telecoms group, and América Móvil, the Mexican mobile operator, jointly bid for a third each in TI’s holding company Olimpia.

Pirelli, which owns 80% of Olimpia, said it was in talks with the two bidders and it was believed an indicative offer of €2.82 a share had been made. Meanwhile, rumours that a number of Italian banks, with whom Pirelli had previously been in discussions, might also bid for the company helped underpin the gains throughout the week. TI made gains of 13.1% over the week to €2.42, while Pirelli added 7.2% to €0.89.

Eon’s 18-month takeover battle for Spanish utility Endesa ended on Tuesday with the German power generator withdrawing its €41bn cash offer. Eon said that as the regulatory and competitive hurdles mounted it had become less optimistic about its chances of acquiring the 50% needed to take full control.

Enel, the Italian utility, and Acciona, the Spanish construction group, had between them built a large blocking stake in Endesa. After Eon’s withdrawal, the pair announced that they would bid for Endesa in a deal that would involve Eon taking a portfolio of assets in Spain, Italy and France worth €10bn.

Eon’s shares gained 6.6% to €108.49 over the week, while Enel added 3.4% to €8.28 and Acciona climbed 5.8% to €171.50. Endesa shares fell 0.8% to €40.16.

DaimlerChrysler, the German carmaker, confirmed on Wednesday that it was in talks with potential buyers of its US Chrysler division. Shares fell after the announcement when Dieter Zetsche, chief executive, maintained that ”all options were still open”. Over the week, the shares were 2% weaker at €60.19.

French retailer Carrefour gained 4.4% to €57.17 after a major shareholder suggested that the company should unlock some of the cash tied up its property portfolio and return it to shareholders.

Colony Capital, which along with Group Arnault, owns 9.8% of Carrefour estimated the value of the French company’s property at about €30bn.

UK Market - Old Mutual was among the biggest risers as the FTSE 100 closed at its highest level in almost six weeks.

Shares in the UK and South African insurer rose 2.4% to 170.5p on Thursday after Citigroup upgraded to “buy”, citing valuation.

Old Mutual has performed poorly in the year to date, falling 2% and underperforming the wider market. The company warned in February that exchange rates and continued investment in its businesses in Europe and South Africa would limit earnings growth this year.

However, Citigroup told clients that all the bad news was now in the price and that at current levels, the risk/reward profile was starting to look attractive.

Old Mutual was not the only South African-focused stock in demand. Platinum miner Lonmin advanced 3.2% to a record high of £34.76, with traders attributing the rise to an institution switching out of another FTSE 100 mining company into Lonmin.

In the wider market, the FTSE 100 closed 32.6 points, or 0.5%, at 6,397.3 on relief that the Bank of England had decided to keep interest rates on hold, for now. The blue-chip index was also boosted by strength in the heavyweight oil sector and a strong performance from HSBC.

Shares in the UK’s biggest bank rose 1.3% to 904p on news chief executive Michael Geoghegan had bought almost $8m (£4m) worth of stock.

The FTSE 250 rose 26.7 points, or 0.2%, to a record high of 11,915.9. Over the week, the FTSE 100 rose 1.4% and FTSE 250 1.9%.

BP, up 1.2% to 554½p, drew support from a research note published by ABN Amro that claimed a merger with rival Royal Dutch Shell, 1% stronger at £16.91, could generate synergies of $10.3bn (£5.2bn) a year before tax.

InterContinental Hotels Group provided the session’s speculative feature, rising 0.5% to £12.84 amid further talk of predatory interest from the Barclays Brothers, who have amassed a 7% holding in the hotel operator. There was also talk that financier Guy Hands was running the rule over the company.

Separately, JPMorgan raised its target price on InterContinental to £14.20. The broker believes the 25 trophy hotels InterContinental has put up for sale are worth £1.8bn – or 40% of its current market value.

Among the mid-caps, Taylor Woodrow rose 3.2% to 518p as rumours of a counterbid from FTSE 100 rival Persimmon, up 1.2% to £14.65, refused to die down.

That theory was thrown into doubt after Persimmon’s chairman, chief executive and finance director declared the sale of 190,000 shares, however, traders were quick to point out that the stock had been sold to settle tax liabilities.

Ladbrokes added 2.9% to 418p as the CVC Capital buy-out rumour was dusted down and given a fresh airing.

Buy-out rumours were also swirling around Davis Services Group, 2% stronger at 609p.

Elsewhere, the recent strong run of Southern Cross Healthcare continued. Its shares, 310p at the start of the year, advanced a further 3.7% to 498p after Morgan Stanley increased its target price to a punchy 570p.

“The UK care home market remains enormously fragmented and over the last month the company has more than proven its ability to acquire medium-sized operators,” the broker said.

Lower down the market, Secure Design, the Japanese biometric finger-printing specialist, rose 7.7% to 48½p after Fuji revealed it had acquired a 15.85% stake.

Aricom, the mining company spun out of Peter Hambro Mining, advanced 25% to 81½p on news that its main iron ore project in Siberia had been independently valued at $1.67bn.

Aricom, which has a current market capitalisation of more than £250m, also confirmed that it would exercise an option to buy the 50% of the project it does not currently own.

Japan & Asia Pacific - With most of the global markets being closed for Easter holidays, the limited Asian markets trading on Friday ended mixed. Tokyo markets ended with razor thin losses, as investors remained in the sidelines waiting for the rest of the world markets to open after holidays. Chinese central bank's move to raise bank reserve ratio had no harmful effects on the Shanghai market.

Tokyo shares ended bordering on the red, after investors took to the sidelines, as most of the global markets remained closed for a holiday. A late bargain hunting acted damage control for the Tokyo market, which saw early losses on profit taking. The market seemed awaiting the release of US jobs data due Friday and Japanese machinery order data on Tuesday.

The benchmark Nikkei 225 share index eased 6.64 points or 0.04% to close at 17,484.78. Among properties, Mitsubishi Estate declined 2.2%. Mitsui Fudosan lost 1.5%. Sumitomo Realty fell 2.1%. In the financial space,

Nikko Cordial improved 0.9%, after reports of a group of Japanese banks' offer to fund Citigroup's bid for Nikko Cordial.

Retailer Seven & I fell 2.4%, on reports that group operating profit for the year might fall 6% from the company's previous forecast. Among others in the sector, Aeon slumped 3.7%, following the company's announcement on April 4 that its operating profit might increase to around 210 billion Yen for fiscal year 2008, yet short of market expectations. Yamada Denki declined 2.8%.

In the technology sector, Advantest climbed 2.9%. Kyocera Corp. increased 1.3%. Nintendo rose 2.2%. The company reportedly raked in pre-tax profit from operation of 260 billion Yen for the year ended March, an enormous 62% rise from last year. Oki Electric Industry leaped 4.6% and Sanyo Electric increased 2.3%, while Toshiba advanced 1.1%. Toyota gave up 0.5%. Hitachi shed 0.6%. Matsushita Electric lost 1%.

Shanghai shares survived the central bank's announcement yesterday raising bank reserve ratio. The market registered razor thin gains to reach a new high on fresh fund inflows directed towards metals and properties.

The benchmark Shanghai Composite Index edged up 4.45 points or 0.1% to close at 3,323.58. A stronger yuan benefited properties, as Shanghai Lujiazui Finance & Trade Zone Development jumped 7.5%. Poly Real Estate Group increased 2.6%. Finance Street Holding climbed by its 10% daily limit.

Hopes of higher earnings for metal companies out of increased metal prices jacked up shares related to the portfolio. Yunnan Chihong Zinc & Germanium climbed by its 10% daily limit. Sino-Platinum Metals jumped 5.7%. Jilin Jien Nickel Industry shot up its 10% daily limit. Xinjiang Bayi Iron & Steel leaped 6.9%, after the company forecast a turnaround in the first quarter.

Announcement from the People's Bank of China to raise reserve ratio by 0.5% from April 16, came a jolt to bank shares. Industrial and Commercial Bank of China declined 1.8%. Industrial Bank slumped 3.3%. Shanghai Pudong Development Bank sank 2.9%. China Merchants Bank lost 1.8%.

Seoul market ended with marginal gains, as investors cherry picked shares with prospects for providing better earnings results in the upcoming season. The South Korean won rose against the US Dollar.

The main Korea Composite Stock Price Index inched up 2.11 points or 0.1% to close at 1,484.15. Top shipbuilder Hyundai Heavy Industries shot up 5.6%. Samsung Heavy Industries vaulted 5.7%. Global investment bank JP Morgan forecast robust orders for large-sized ships in coming years.

Korean Air climbed 4.2%. Asiana Airlines jumped 2.8%. But the auto sector suffered, with Hyundai Motor losing 0.9%. Kia Motors trailed 0.4%. In the financial sector, Kookmin Bank fell 0.5%. Shinhan Financial Group declined more than 1%.

Commodities - Metal prices rose strongly this week as concerns about supplies of copper, lead, nickel and tin combined with firm demand from China pushed some metals to record levels this week.

The mood in metals markets has changed significantly since the start of the year, when traders were then more worried about slowing consumption and rising mine output.

Copper reached a five-month high when it touched $7,510 a tonne on the London Metal Exchange on Thursday, up $90 on the previous close. The three-month copper price rose more than 9% last week. The price rise has been driven by stronger-than-expected demand from China with copper imports up 17% in the first two months of this year, compared with last year.

Nickel prices were again hitting new highs. The three-month LME nickel price moved within a whisker of touching the $50,000 level for the first time ever, when it reached a peak of $49,875, up $475 on the day and up 9% for the week, and 50% so far this year.

Lead, often seen as a laggard in the five-year metal price rally, moved to new peaks last week when it hit $2,028 a tonne on Thursday, up $18 on the day and more than 5% on the week.

Brent crude futures last week reached their highest level for the year ahead of the release of the British sailors.

ICE Brent futures for May delivery eased 33 cents to $68.07 a barrel in late afternoon trade on Thursday. This?was steady?on the week, but down from a seven-month high of $68.87 reached on Monday.

One of the more notable developments in the oil markets over the past couple of months is not only the rise in the price from $50 to close to $70, but the widening gap between the European and US benchmark prices. Europe’s Brent normally trades at a discount to West Texas Intermediate, the US counterpart, but this week it reached its largest premium, $4.30, to the WTI price.

May WTI dropped 41 cents to $63.97 a barrel in early afternoon trade, down three% on the week.

Sugar futures on the New York Board of Trade reached their lowest level since August 2005 when the May contract touched 9.66 cents a Pound as large increases in Brazilian and Indian production outpace demand. Sugar demand continues to rise, and ethanol consumption of sugar cane has also boosted demand. The supply responses followed the rise in sugar prices last year to near 30 year highs of 19.73 cents.

Nybot sugar futures fell more than one% last week. The International Sugar Organisation said Friday that the global sugar surplus for this year will be revised up to between 8.5m and 9m tonnes, from the 7.2m tonnes forecast in February.

The ISO originally forecasts a surplus of 2.17m tonnes last August.

Wheat futures rose on Thursday on fears that impending cold weather could hit the US wheat crop. May wheat closed 13.75 cents higher at $4.45 a bushel on the Chicago Board of Trade.

Gold prices could exceed last year’s 26 year high of $730 an ounce within the next 12 months due to a weaker Dollar, rising geopolitical tensions and an investment led rally, according to the annual survey by GFMS, the metals consultancy.

GFMS said given the general favourable backdrop and the still low level of participation form institutional and private inventors in most countries, there remains considerable upside potential for gold even as the current rally enters its seventh year.

“GFMS’s view is that an investor led rally into at least the mid-$700s is indeed probable over the next year or so,” it said.

“The strength of the gold price in 2007-to date, the continued moving up of the floor at which physical buying kicks in to support the metal and a further, albeit smaller, decline in gold supply is also expected to boost investor confidence in the yellow metal,” it said.

Although, GFMS predicts further price growth, underlying physical demand for the metal continues to wane as higher prices deter jewellery buyers.

GFMS said global jewellery demand fell to 2,280 tonnes last year in more than 15 years, and 16% below last year and 30% down from its peak in 1997. This decline was partly offset by a small increase in demand from the electronics sector.

While physical consumption of the metal has weakened, investment demand increased to a record 640 tonnes, up almost eight% on the year and almost double the amount seen in 2003.

But a further fall in mine production combined with reduction selling from central banks of their gold reserves led to a decline in gold supply last year by five%. GFMS said global mine output fell three% to 2,471 tonnes, a 10 year low. The biggest declines were seen in the traditional gold mining producers South Africa, United States, Australia and Canada.

Despite the increase in gold selling prices, mine production costs continued to rise to an average of $317 an ounce last year, up $45 from 2005. Higher energy and labour charges were behind the rise.

However, gold scrap supply gained 25% to 1,108 tonnes last year, driven by higher gold prices. Scrap gold accounted for 28% of total gold supplies last year.

The gold price averaged $603.77 a troy ounce last year, up 36% on the previous year, and the second-largest annual average after 1980’s record of $614.50. Gold prices hit a peak of $730 in May, the highest level since the record of $850 in January 1980.

Gold also appreciated in other currencies too, with a 34% gain in South African Rand prices, a 21% rise in the Yen gold price and a 8.7% advance in the Euro gold price.

While the gold price’s gain was a strong in a historical context, it was relatively mild compared with other metal price moves last year. The average annual silver price gained 60%, palladium was up 59%, zinc rose 137%, copper 83% and nickel 65%.

Gold prices firmed this week again with bullion quoted at $674.70 in late London trade on Thursday, up 70 cents on the day and almost 2% on the week.  

Currencies - The Dollar rallied marginally at the close on Friday as much stronger-than-forecast US employment data damped expectations of interest rate cuts.

The data showed US employers increased their payrolls by 180,000 in March, the largest increase since December. On the surface, the report seemed to thwart any expectations of a rate cut in the first-half.

The employment data helped the Dollar recover marginally from a fall earlier in the week when it dropped to a two-year low against the Euro on softer-than-forecast surveys on the US manufacturing and services. That data had encouraged investors to view the next move in US interest rates as a cut. This was in spite of warnings from the Federal Reserve on the possible build-up of inflationary pressure in the US economy.

By midday in New York on Friday, the Euro was down 0.4% against the Dollar to $1.3371. Against the Yen, the Dollar rose as high as Y119.38, its highest since February 27, before trading back down at Y119.33. The Dollar was up 0.5% against the Swiss franc at SFr1.2215 while Sterling slipped 0.3% to $1.9645. But after-market currency trading overnight Friday saw the Dollar dip again to $1.98525 against Sterling and 1.34 flat against the Euro.

The Yen was on the back foot this week, falling to a five-week low against the Dollar and Euro as global equity markets put in a solid performance.

Analysts said the resulting fall in risk aversion saw continued investor appetite for carry trades, in which the purchase of riskier high yielding assets is funded by selling low-yielding currencies such as the Yen and Swiss franc.

Over the week, the Yen fell 1.4% against the Dollar, lost 1.5% against the Euro and dropped 1.3% against Sterling.

Meanwhile, against the higher-yielding Australian and New Zealand Dollars, the Yen fell 2% to Y97.28 and Y85.95 respectively.

The Swiss franc also suffered, falling 0.6% to SFr1.2215 against the Dollar and 0.5% to SFr1.6336 against the Euro.

South Africa's Rand was little changed against the Dollar on Thursday in quiet pre-Easter holiday trade, and traders saw the local unit becalmed until next week's interest rate call. The Rand traded at 7.1415 versus the Dollar Thursday, not far off its New York close of 7.1450/Dollar on Wednesday.

Rounding off currencies this week closer to home, the RMB finished at a record high of 7.7213 to the Dollar on the over-the-counter (OTC) market, compared with a close of 7.7243 Thursday. On the exchange-traded market, the RMB also finished at a record high level at 7.7220, up from 7.7245.

China - China has made progress in changing the structure of its foreign exchange reserves in recent years but should continue reforms on a cautious and gradual basis, a senior central bank official said in remarks published on the official government website.

But People's Bank of China assistant governor Yi Gang also said that the reform will continue as Beijing seeks to improve the returns on its $1 trln usd-plus holdings.

'We need to follow the operational principles of caution and gradualism in actively and steadily expanding the investment channels of our foreign exchange reserves,' he said.

'We will expand the investment scope, add investment products and improve investment returns.'

Yi was responding to questions invited by the bank for an interview conducted in mid-February.

It is unclear whether his latest responses to those questions were made before or after the government on Mar 9 confirmed plans to establish a new vehicle to manage foreign exchange reserves.

Yi said that continual reforms have been made to management of China's foreign exchange reserves.

'We have made improvements to the denominations, tools, maturities and country structures. In investing our reserves, we need to prevent and try to limit possible losses and risks while we need to improve our investment returns,' he said.

China's foreign exchange reserves have ballooned since the country acceded to the World Trade Organization in 2001, rising from just over $165  billion usd at the end of 2000 to $1.066 trln usd at the end of last year.

Yi said that, while there is no established, correct level for a country's foreign exchange reserves, China now has an appropriate amount to meet external payments and handle any crises that may occur.

But he also said that the size of China's reserves has opened it to market risk.

'The exchange rates of the majors, interest rates -- particularly fluctuations in the US Dollar -- as well as changes in inflationary levels in the international markets, can all affect the value and return on reserve assets and increase the risk of valuation losses,' he said.

Yi noted the yuan had appreciated 3.3% against the US Dollar last year and said that 'market demand and supply will play a bigger role in setting the exchange rate value.'

He said that the 'small fluctuation pace of the yuan exchange rate in this period is appropriate,' but did not specify whether he was referring to the 2006 rise or more recent moves.

The yuan rose by an annualized 3.84% against the Dollar in the first quarter of this year.

Finance Minister Jin Renqing announced at a press conference on the sidelines of the National People's Congress on Mar 9 that the government will set up a new vehicle to handle some of the foreign exchange reserves.

Between two-thirds and three-quarters of China's reserves are believed to be held in US Dollars, with the bulk of those invested in low-yielding but highly-liquid US government, or quasi-government, paper.

Yi said that China is not deliberately seeking to increase its foreign exchange reserve holdings and suggested that they are now bringing more trouble than they are worth.

'The central bank is highly concerned about the increasing difficulty in controlling the macroeconomy, stemming from the fast growth of foreign exchange reserves,' he said.

'They increase the complexity of macroeconomic controls, continuous inflows add liquidity and stimulate excess investment and asset price inflation and make monetary policy (operations) difficult,' he said.

The central bank announced yesterday the sixth hike in the commercial bank reserve requirement since the middle of last year. Those adjustments have been in response to inflows of liquidity in the banking system stemming from China's growing trade surplus.

The reserve hike marks the latest move by Beijing to head off the threat of a massive reacceleration in loan and investment activity which it fears could lead to a hard economic landing.

Yi suggested that the government has yet to win the battle.

'In 2007, the domestic and international environment is favorable to our economic development but we should note that the foundation of slowing investment and money and credit growth is not solid,' he said.

'Inflationary pressures still exist.'

Yi said that the government will continue with interest rate reform and that the Shanghai Interbank Offered Rate (SHIBOR) which was launched in January is to be pushed as the market benchmark.