Oct 23 - 29, 2000

West begins to open to North Korea

As North Korea prepares for Monday's historic visit by the U.S. Secretary of State, Britain and Germany announced Thursday they will open diplomatic relations with North Korea.

British Foreign Secretary Robin Cook revealed his plans as he and Prime Minister Tony Blair were en route to Seoul for an Asia-Europe summit. German Chancellor Gerhard Schroeder made his announcement in the South Korean capital, where he was to attend the ASEM (Asia-Europe Meeting) summit.

"It will happen," Schroeder told the German television network ARD. "The basics have been decided. It could go very quickly but there's no definitive timetable."

Cook said Britain would establish relations with Pyongyang for the first time since the communist state was set up more than 50 years ago.

"The opening of diplomatic relations is not in any way an approval of the conduct of the regime," Cook said. "But it may well be helpful in resolving ... the strong tension between it and South Korea."

The U.S. State Department said it expects to follow suit as it sees progress in talks on missiles and nuclear weapons.

U.S. State Department spokesman Richard Boucher, speaking three days before Secretary of State Madeleine Albright leaves Washington for Pyongyang, said the United States encouraged openings toward the secretive communist state.

"We think it's good that North Korea is establishing these relationships," he told a daily briefing.

Albright will be the first U.S. cabinet member ever to visit North Korea, which fought U.S. troops in the Korean War of 1950-53. But the two countries have not established relations and North Korea remains on the State Department's list of "state sponsors of terrorism."

Asked when Washington would establish relations, Boucher said it was part of a step-by-step process.

U.S. trade deficit narrows

The United States trade deficit narrowed substantially to a six-month low in August as a surge in exports of goods ranging from computer chips to airplane engines offset record imports, government figures released Thursday showed.

The trade deficit, which measures the amount of money spent on imports coming into the U.S. versus the amount received from exports leaving the country, narrowed in August to $29.44 billion. That was $2.26 billion below July's revised $31.7 billion deficit and the $31.8 billion gap expected by analysts polled by Briefing.com.

All told, the shrinking trade deficit was welcome news to analysts, investors and policymakers — a hopeful sign that U.S. companies are still exporting their goods and services abroad, even with the strong U.S. dollar. A strong dollar makes it more expensive for people and companies in other countries to purchase U.S. products and services.

Even so, analysts, economists and even Federal Reserve Chairman Alan Greenspan cautioned that higher oil prices could impact the trade deficit specifically and the economy in general as the effects of oil prices at 10-year highs begin to appear in later months' numbers.

"For the moment, this appears extremely favourable for the economy," said Pierre Ellis, an economist with Primark Decision. "This is the second month out of three where exports have increased substantially, which means that foreign economies are perhaps strengthening enough to buy our stuff. Still, the risk is for further oil price shock, which could push the deficit back up."

Record trade imbalances have been a concern for analysts and investors because they reflect, in part, the U.S. consumers' uninhibited desire to buy, despite the fact that the Fed has tried repeatedly to deter consumer spending by raising the cost of borrowing by almost 2 per cent since May 1999.

Asia roars up after Nasdaq

Asia's top markets blasted higher Friday, with key indexes across the region climbing after a bounce on Wall Street a day earlier. Tech stocks led the way, driving Tokyo's Nikkei index up 2.6 per cent while leading benchmarks in Korea and Taiwan jumped 6 per cent or more.

Tokyo's Nikkei index closed up 387.65 points at 15,198.73, with rallies for blue-chip technology companies ending a three-day string of losses for the index.

In Hong Kong, the Hang Seng index rose 587.97 points, or 4.1 per cent, to reach 15,101 in the afternoon session.

In Singapore, the Straits Times index climbed 44.79 points, or 2.4 per cent, to 1,928.84, with Chartered Semiconductor jumping nearly 12 per cent. In Sydney, the S&P/ASX index rose 43.1 points, or 1.35 per cent, to 3,235.8.

Other tech-rich indexes in Asia also rose. Korea's KOSPI index rose 6 per cent and the Taiwan Weighted index in Taipei tacked on 6.4 per cent.

Europe gets Nasdaq lift

European stock markets all opened in positive vein Friday, boosted by a near-8 per cent revival in the Nasdaq composite, bellwether U.S. technology index on Thursday.

In London the FTSE 100 index added 38 points, or 0.6 per cent, to reach 6,257.4, with software and computer services firms leading the way higher.

Frankfurt's benchmark Xetra Dax climbed 28 points, or 0.4 per cent, to 6,647.90, while in Paris the CAC 40 rose 1.1 per cent to 6,135.16, and Zurich's SMI increased 0.6 per cent to 7,809.6.

Markets in southern Europe also rose, with Madrid advancing 1.5 per cent.

The FTSE Eurotop 300, a broader measure of the region's blue chips, rose 0.7 per cent, led by information technology firms and telecom operators.

Nasdaq bounces back

The Nasdaq composite index rallied to its third biggest gain on record Thursday after surprisingly strong earnings from several technology firms eased some of the profit fears that plagued Wall Street since Labor Day.

The Nasdaq Thursday surged 247.04 points, or 7.79 per cent, to 3,418.60 and its third largest gain. The advance is outdone only by Friday's 7.87 per cent jump and May 30's record 7.94 per cent rally. Thursday's rise put the Nasdaq higher for the week, an advance that — if its holds — would mark the indexes' first positive week since August.

The Dow gained 167.96, or 1.7 per cent, to 10,142.98, narrowing its annual loss to 12 per cent. The S&P 500 leapt 46.63, or 3.5 per cent, to 1,388.76 but it is 6 per cent lower in 2000.

More stocks rose than fell in heavy trading. Advancing issues on the New York Stock Exchange beat declining ones 1,962 to 916, on volume of 1.2 billion shares. Nasdaq winners topped losers 2,837 to 1,158, as more than 2.3 billion shares changed hands.

Mergers & Acquisitions

Time—Times-Mirror: The Time Inc. division of Time Warner Inc. has agreed to buy Times Mirror Magazines for $475 million, according to a published report Friday.

Allianz AG—Nicholas-Applegate: Germany insurer Allianz AG bought U.S. equity fund manager Nicholas-Applegate, a privately owned San Diego-based investment management firm, in a deal that could cost up to $2.2 billion in up-front payments and later, performance-related bonuses.

ABN Amro NV—Alleghany Asset Management: Dutch bank ABN Amro NV agreed to buy Alleghany Asset Management, a unit of U.S.-based Alleghany Corp., for $825 million in cash.

Marvell—Galileo: Looking to strengthen its position in the fast-growing market for communications chips, Marvell Technology Group Ltd. agreed Tuesday to buy Israel's Galileo Technology for $1.88 billion in stock — but Wall Street clearly had trouble digesting the merger.

Honeywell—United Tech: Dow components United Technologies Inc. and Honeywell International Inc. are discussing a possible merger that would create an international manufacturing titan producing everything from jet engines to elevators, the companies confirmed Thursday.

Results

Microsoft: Software giant Microsoft Corp. reported that its first-quarter net income, before an accounting change, rose to 18 per cent to $2.58 billion, or 46 cents per share, from $2.19 billion, or 40 cents per share, in the same quarter last year.

Union Pacific: Union Pacific Corp., the largest U.S. railroad, reported a 17 per cent increase in third-quarter profit Thursday. Income from continuing operations in the third quarter was $256 million, or $1.00 per diluted share.

Exodus: Exodus Communications Inc. said it earned $60.6 million, or 14 cents per share.

R.J. Reynolds: R.J. Reynolds Tobacco Holdings Inc., parent of No. 2 U.S. cigarette maker R.J. Reynolds Tobacco Co., reported a 6 per cent rise in third-quarter profits Thursday. The Winston-Salem, N.C.-based maker of Camel, Doral, Winston and Salem cigarettes said quarterly profits rose to $117 million, or $1.16 per diluted share, from $110 million, or $1.01, in the year-ago period.

McDonald: McDonald's Corp. Thursday reported third-quarter profit rose 1 per cent. The world's largest restaurant chain said net income rose to $548.5 million, or 41 cents a share, from $540.9 million, or 39 cents, a year earlier.

USX-U.S.: USX-U.S. Steel Group, the largest U.S. steel maker, said Thursday its third-quarter operating profits tripled, topping analysts' expectations, as income from steel operations rose to $23 million from $3 million a year earlier.

E*Trade: Online discount broker E*Trade Group Inc. posted an unexpected profit for a rocky quarter in the markets. The company earned $7.2 million, or 2 cents a share, from ongoing operations in its fiscal fourth quarter.

eBay: Internet auctioneer eBay Inc. topped third-quarter estimates by three cents and said online revenue rose 108 per cent. The San Jose, Calif.-based company posted net income, excluding charges, of $19.1 million or 7 cents a diluted share, compared to $3 million, or 1 cent a diluted share in the year ago period.

Eli Lilly: Eli Lilly and Co. said Thursday profits from operations rose 15 per cent in the third quarter. The Indianapolis-based drug maker said net income rose to $778.8 million, or 71 cents a diluted share.

Chinese PM in South Korea

Chinese Premier Zhu Rongji arrived in South Korea on Tuesday to pursue an Asian tour after leaving Japan, where his six-day stay got mixed reviews.

Zhu's first visit to South Korea will include talks with President Kim Dae-Jung and the third Asia-Europe Meeting summit in Seoul later this week, officials said.

The talks and the summit of 25 Asian and European leaders will be dominated by North Korea and the reconciliation between the two Koreas.

Treasurys slightly higher

U.S. Treasurys were flat to higher on Thursday as resurgent Middle East violence and signs of further weakness in U.S. manufacturing kept investors in the shelter of low-risk government debt. 10-year Treasury notes gained 7/32 to 100-20/32, yielding 5.67 per cent. The 30-year long bond rose 4/32 to 107 even, yielding 5.75 per cent. Two-year notes gained 1/32 to 100-8/32, yielding 5.86 per cent. Five-year notes dipped 1/32 to 104-9/32, yielding 5.67 per cent.

Fixed mortgage rates dip

Long-term mortgage rates stayed below 8 per cent for the 10th consecutive week as the housing market remained stable, a newly released survey by Freddie Mac shows.

The benchmark 30-year fixed-rate mortgage (FRM) averaged 7.83 per cent for the week ending Oct. 20.

The average this week for a 15-year fixed-rate mortgage was 7.5 per cent.

One-year adjustable-rate mortgages (ARMs) this week averaged 7.25 per cent.

German confidence slides

A closely watched indicator of German business confidence sounded warning bells Thursday, when it declined for the fourth straight month, and more than analysts had anticipated.

The IFO Institute's monthly survey of business confidence The IFO Institute's monthly survey showed the western German economic index edged down to 98.0 from a revised 98.9 reading in August, the lowest since October 1999. The index reached a nine-year high of 102.0 in May.

Economists had anticipated a figure of around 98.6, as lofty oil prices caused concern in sectors such as transport and chemicals.

ECB holds key rate steady

The European Central Bank left its key interest rate unchanged at 4.75 per cent Thursday, as expected, deciding the weakness of the euro and high oil prices didn't pose enough of an inflationary threat to the economy of the euro zone to justify another rate increase yet.

Many economists expected the bank to leave its short-term rate target untouched, just two weeks after the ECB unexpectedly lifted rates by a quarter per centage point.

Jobless claims drop

The number of Americans filing new claims for unemployment benefits were reported at 307,000 for the week ended Oct. 14, up from a revised 314,000 the week before, the government reported Thursday.

Economists polled by Briefing.com had forecast U.S. jobless claims of 303,000 for the period.

Senate votes to lift Cuba trade sanctions

The Senate has approved a compromise spending bill for agriculture that eases trade sanctions on Cuba for the first time in 40 years.

Reflecting changing U.S. attitudes toward the Caribbean island, the legislation, which was approved 86-8, allows the sale of food and medicine to Cuba but prohibits U.S. public or private financial institutions from financing those sales.

Havana will be allowed to purchase food and medicine from the U.S. with the help of third-party financiers. Under certain humanitarian circumstances, the U.S. president may waive the ban and allow direct U.S. financing.

The bill also codifies a ban on U.S. travel to Cuba, which takes away a presidential prerogative to determine the travel restrictions.

Euro hits record low

The euro plunged 2.5 per cent to record lows against the dollar Wednesday, less than a month after Group of Seven central banks stepped into foreign exchange markets to support the ailing European currency.

Increasingly bearish market sentiment has loomed over the euro this week since European Central Bank President Wim Duisenberg appeared to downplay the likelihood that central banks are ready to step in with another bout of buying.

Its losses initially were limited by the markets' steep declines but, as stocks pared their sharp losses, the euro's buttress disappeared and the currency spiraled lower. It hit a low of 83.28 cents, more than a cent below the previous record low, set last month.

The euro had recovered slightly to 83.82 cents but still was below Tuesday's close of 85.4 cents. The dollar was at 107.64 yen, down from Tuesday's close of 107.99 yen.

Qualcomm gets China deal

In a major boost for Qualcomm Inc., China Unicom Group confirmed Thursday it plans to build a current generation wireless network using the San Diego-based company's technology.

China's No. 2 telecom company said it had not yet decided the scale of the network or when construction would begin.