Commodities rally overnight on China demand

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Stocks on Wall Street were mixed as investors awaited a fresh reason to extend the rally, while commodities including oil, gold and copper were boosted on hopes that Chinese demand for raw materials would remain strong.

Weighing on the Dow Jones Industrial Average was Wal-Mart Stores after JPMorgan downgraded the stock, expecting weak traffic and lower market share for the world's biggest retailer this year.

In early afternoon trading, the Dow Jones Industrial Average fell 0.14 per cent. The S&P 500 Index edged 0.07 per cent higher and the Nasdaq Composite Index rose 0.22 per cent.

The S&P 500 has advanced more than 12 per cent since the start of December, leaving investors reluctant to commit fresh funds at relatively high valuations.

"We've been setting new highs on low volume, which suggests the rally is on thin ice," Tom Mangan, a portfolio manager who helps oversee US$2.4 billion at James Investment Research Inc in Xenia, Ohio, told Reuters. He said a correction was likely.

Meanwhile, US President Barack Obama proposed a federal budget that would cut the country's deficit by US$1.1 trillion over the next 10 years.

Congress must approve the plan, and Republicans, who are in the majority in the House, said it did not curb spending enough. The negotiations begin now.

Europe's Stoxx 600 advanced 0.4 per cent to 289.11 at the 4.30pm close in London.

The euro dropped to the lowest level in three weeks against the US dollar on concern about German bank WestLB and debt in the euro zone.

Aid for WestLB hangs in the balance, a source told Reuters on Monday, as the bank struggles to come up with a rescue deal ahead of presenting a restructuring plan to the European Commission.

"Failure to find a find a solution for West LB would result a winding down of the bank's assets," Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, told Reuters.

"The story revived concerns about Europe's banking sector and highlighted the still unresolved issues plaguing the bloc's indebted peripheral nations."

The euro shed 0.7 per cent to US$1.3452. The greenback was steady at 83.40 yen.

China's trade surplus fell to its lowest level in nine months in January as imports surged. China reported a smaller-than-forecast trade surplus of about US$6.5 billion in January. Exports climbed 38 per cent from a year earlier, the customs bureau said today.

"The import data reaffirms the growth story in China and helps to give confidence in mining companies that interest rate hikes are not going to suppress metal demand in the medium term," Joshua Raymond, market strategist at City Index, told Reuters.

Copper rose on a surprise jump in Chinese copper imports, bolstering expectations that demand from the world's top consumer would remain strong.

Preliminary Chinese trade data showed copper imports climbed 5.7 per cent in January.

Three-month copper on the London Metal Exchange advanced 1.1 per cent to US$10,075 a tonne by 0747 GMT.

The data also indicated rising crude imports from China, the world's second-largest oil consumer. That, and the lingering concern about unrest in the Middle East after last week's ouster of President Hosni Mubarak, supported oil prices.

"We're staying up because of the continued risk of further unrest in the Middle East," Christopher Bellew, a broker at Bache Commodities in London, told Reuters. The Chinese data was also supportive, he said.

Brent crude, the benchmark in Europe, Africa and the Middle East, for April delivery was up US$1.86 to US$102.80 at 1453 GMT.

Gold prices rose, too. Spot gold was bid at US$1,363.15 an ounce at 1608 GMT, against US$1,356.12 late in New York on Friday.