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Monday, November 17, 2014

S&P 500 ends at record high; mergers offset Japan recession

The S&P 500 edged up to close at a record high today as deal activity worth $100 billion offset concerns about overseas growth after Japan's economy slipped into recession.

Shares of Baker Hughes, up 8.9 percent, and Allergan , up 5.3 percent, gave the S&P 500 its biggest boost after Halliburton said it would buy Baker Hughes and Allergan agreed to be bought by Actavis.

The Nasdaq closed lower, weighed down by Google, which fell 1.5 percent to $546.64, and Gilead, down 1.6 percent at $100.44.

The Dow Jones industrial average rose 13.01 points, or 0.07 percent, to 17,647.75, the S&P 500 gained 1.5 points, or 0.07 percent, to 2,041.32, a record closing high.

Nasdaq Composite dropped 17.54 points, or 0.37 percent, to 4,671.00, while the small-cap Russell 2000 index ended down 0.8 percent.

Shares of LinkedIn dropped 4.5 percent to $223.28. Facebook's professional version of its social network will launch in the next few months that would compete with services such as LinkedIn, a person familiar with the matter told Reuters. Facebook shares were down 0.9 percent at $74.24.

Across the Atlantic, European shares turned solidly positive after ECB President Mario Draghi reasserted that he was ready to do more to fight deflation.

Shrugging off worries that Japan's economy has unexpectedly slipped into recession, the market also drew confidence from earnings reports, merger and acquisition news and appetite for more volatile stocks.

The FTSEurofirst 300 index of top European shares closed 0.5 percent higher at 1,352.01 points, extending gains after the European Central Bank President said unconventional measures could include the purchase of sovereign bonds.

Euro zone banks extended gains after Draghi's comments, up 1.6 percent, with Unicredit and Banca Monte dei Paschi di Siena both up over 3 percent.

While Monte Paschi said at the weekend no bids had come in for the troubled lender, traders said that appetite for more volatile, or "high beta" stocks was building.

Pharmaceutical firm Merck rose 3.2 percent after agreeing a deal with Pfizer for sharing rights to develop its experimental immunotherapy drug with the US drugmaker.

Veolia also rose strongly, up 2.6 percent, with traders citing a discussion on CNBC today of new evidence that the earth's groundwater is being pumped out much faster than it can be replenished.

Traders said that this could increase the interest in companies with expertise in water management such as Veolia.

The moves helped to counteract sentiment dented by Japan's drop into recession, with the economy shrinking an annualised 1.6 percent in July-September following a 7.3 percent drop in the second quarter.

Analysts had expected 2.1 percent growth in the third quarter.

Meanwhile, Tokyo stocks suffered their biggest one-day slump since August today after Japan's economy unexpectedly slipped into recession, prompting investors to book profits from recent gains.

Japan's economy unexpectedly shrank an annualised 1.6 percent in the third quarter, following a sharp contraction between April and June caused by a hike in the national sales tax. Economists had seen the world's third-biggest economy rebounding by 2.1 percent.

Baulking at the data, investors booked profits from the outsized gains of the last two weeks.

The Nikkei benchmark closed down 3.0 percent at 16,973.80, its lowest since November 10. Even with today's losses, the Nikkei has risen 8.4 percent since October 30, as investors cheered the Bank of Japan's additional easing, a reallocation to Japanese shares by the government pension fund, and speculation on the likely postponement of second sales tax hike.

The shock GDP figures set the stage for Prime Minister Shinzo Abe to call a snap election and postpone the tax increase, slated for October 2015. Japanese media have said that Abe could announce his decision as early as tomorrow.

With private consumption rising only 0.4 percent compared to the second quarter - only half that expected - retail shares were badly hit. Owner of the Uniqlo clothes brand Fast Retailing Co Ltd shedding 3.6 percent, accounting for over a third of the Nikkei's losses.

Department stores Takashimaya, Marui Group Co Ltd , and J.Front Retailing Co were also sold, sagging 5.6 percent, 5.3 percent and 3.0 percent respectively. Also suffering was market heavyweight Softbank Corp , which shed 2.3 percent.

The broader Topix slipped 2.5 percent to 1,366.13. The JPX-Nikkei Index 400 also declined 2.5 percent, closing at 12,466.69.

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Tags:  Stocks  shares  FTSEurofirst  Nikkei  US  Dow Jones  





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