Bin Laden Wall St rally peters out

The New York Stock Exchange Building. Photo / Thinkstock

An initial relief rally on Wall Street following the news that US forces killed al Qaeda leader Osama bin Laden was followed by a more cautious stance as investors looked toward economic fundamentals.

The market opened higher after news of bin Laden's death by US forces.

"Initial market reaction to the news was positive... Gains were trimmed, however, as market participants began to focus upon the prospects for a potential surge in terror attacks against Western targets in retaliation for the killing," Mike Ryan, chief investment strategist at UBS in New York, told Reuters.

By early afternoon, the Dow Jones Industrial Average was up 0.17 per cent, the Standard & Poor's 500 Index was up 0.09 per cent and the Nasdaq Composite Index had edged 0.04 per cent higher.

The CBOE Volatility Index, Wall Street's so-called fear gauge, jumped more than 6 per cent, though it remained near historical lows.

Merger and acquisition news propelled some shares. Israel-based Teva Pharmaceuticals Industries will buy Cephalon for US$6.8 billion, and Arch Coal will acquire International Coal Group for US$3.4 billion.

Also, Community Health Systems raised its bid for Tenet Healthcare by US$1.75 per share to US$7.25.

The greenback dropped to a three-year low against major currencies. Analysts expect the US currency to remain under pressure as investors prefer higher yields offered abroad with the Federal Reserve having made clear monetary policy is set to remain loose.

Meanwhile, other policy makers such as the European Central Bank have lifted interest rates or may do so soon. Both Australia and Canada are expected to boost rates in the coming months.

The euro last up 0.5 per cent to US$1.4876, after earlier rising as high as US$1.4902, according to Reuters data.

The US dollar index, which measures the greenback versus a basket of currencies, dropped to 72.722, the lowest level in three years. It last traded 0.1 per cent lower on the day at 72.96.

"The [US] dollar's deteriorating yield appeal relative to its major counterparts is likely to keep it vulnerable as long as the Fed remains comfortable with its very low borrowing costs," Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, told Reuters.

In Europe, the benchmark Stoxx 600 Index advanced 0.1 per cent to 283.93 at the 4.30pm close in London, the highest level in two months.

Oil fell. Brokers and analysts told Reuters that news of bin Laden's death did not end the turmoil in Africa and the Middle East that has supported oil prices.

"It will increase the volatility because of unknowns, the prospect of retaliation, and uncertainty," Richard Ilczyszyn, senior market strategist at Lind-Waldock in Chicago, told Reuters.

Brent crude for June declined 66 cents to US$125.23 a barrel at 1746 GMT.

US crude for June lost 33 cents to US$113.60, having earlier hitting US$114.83, the highest intraday price since reading US$130 on September 22, 2008.

Spot gold was 0.3 per cent stronger at US$1,569.09 an ounce by 1538 GMT. Earlier in the day it rose to a record US$1,575.79. US June gold futures were 0.9 per cent higher at US$1,569.50.