Earnings weigh on shares, despite better U.S. GDP

NEW YORK Fri Oct 26, 2012 5:45pm EDT

1 of 3. A visitor looks at market indices displayed at the Tokyo Stock Exchange in Tokyo September 26, 2012.

Credit: Reuters/Yuriko Nakao

NEW YORK (Reuters) - Shares on major markets ended little changed on Friday as weak corporate earnings offset better U.S. economic data, though investors remained concerned about slowing global growth.

Poor earnings outlooks from major companies such as Apple (AAPL.O) and Amazon (AMZN.O), South Korea's Samsung, and Renault (RENA.PA) and Ericsson (ERICb.ST) in Europe contrasted with better U.S. third-quarter economic growth and signs of improvement in China's economy.

Apple's (AAPL.O) stock was volatile but ended down 0.9 percent at $604 in New York. The world's largest publicly traded company surprised analysts late Thursday with its weak profit margin outlook, as well as with quarterly earnings and iPad sales that fell short of expectations.

The Dow Jones industrial average .DJI edged up 3.53 points, or 0.03 percent, to 13,107.21 at the close. The Standard & Poor's 500 Index .SPX was off 0.07 percent at 1,411.94. The Nasdaq Composite Index .IXIC gained 0.06 percent to 2,987.95.

For the week, the Dow was down 1.8 percent, the S&P 500 was down 1.5 percent and the Nasdaq was down 0.6 percent.

Lower revenues have been a concern this U.S. corporate earnings season. Just 36.9 percent of S&P 500 companies so far have reported revenue that beat forecasts, compared with the 62 percent that typically exceed expectations, according to Thomson Reuters data.

Earnings have fared better, with 62.5 percent above expectations, almost even with the 62 percent seen historically.

"There's not a lot of chest-beating coming out of these (company) earnings calls. You still have caution ruling the day," said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia.

However, investor confidence was supported by news that U.S. economic growth increased to a 2.0 percent annual rate in the third quarter, up from 1.3 percent.

A spurt in consumer and government spending offset the first cutback in business investment in more than a year to boost gross domestic product growth. Even so, the stronger pace of expansion fell short of what is needed to make much of a dent in unemployment, and it offered little cheer for the White House ahead of the closely contested November 6 presidential election.

In Europe, shares eked out small gains on Friday, with the FTSEurofirst 300 .FTEU3 closing up 0.1 percent at 1,097.35. The MSCI world equity index .MIWD00000PUS was down 0.3 percent at 328.63.

TREASURIES AND BUNDS UP ON SAFE-HAVEN BUYING

Prices of U.S. Treasuries rose on Friday as disappointing corporate earnings stoked safe-haven buying, with investors looking ahead to the official U.S. payrolls and unemployment data next Friday, which could affect the presidential election.

Benchmark 10-year Treasury notes were trading 17/32 higher in price to yield 1.704 percent, down from 1.81 percent late Thursday and just below the 200-day moving average. Benchmark yields were little changed on the week after finishing last Friday at 1.77 percent.

German bond prices also rose as weak corporate earnings and news of record high Spanish unemployment prompted demand for safe-haven assets. Data showed one in four Spanish workers was without a job in the third quarter of this year, highlighting the problems the euro zone's fourth-largest economy faces as it battles recession.

"Risk aversion has risen over the last week, driven by disappointing earnings in the U.S. and poor economic data in Europe, particularly in Spain and investors have switched into core government bonds," said RIA Capital Markets strategist Nick Stamenkovic.

"Next week's U.S. non-farm payrolls and manufacturing data is crucial. If we see signs the U.S. economy is holding up well and evidence that Spain is slowly but surely moving to an external bailout, then perhaps peripheral bonds will stabilize to the detriment of Bunds."

The euro was little changed against the U.S. dollar after three days of losses, though concerns whether Spain will ask for a bailout and worries about Greece continue to weigh on the currency. The euro ended little changed around $1.2933 and was down 0.7 percent for the week. But it was lower against the yen at 102.92 yen, down 0.9 percent on the day.

In commodity markets, both benchmark North Sea Brent and West Texas Intermediate crude oil prices rose after news of better U.S. economic growth, while U.S. gasoline and heating oil futures rose on concerns Hurricane Sandy will disrupt American East Coast refinery operations.

Brent December crude rose $1.06 to settle at $109.55 a barrel in light volume. For the week, Brent dipped 59 cents, a second straight weekly loss.

U.S. December crude edged up 23 cents to settle at $86.28 a barrel, having recovered after falling to $85 and, like Brent, also up a second consecutive session.

(Additional reporting by Caroline Valetkevitch; Editing by Dan Grebler)

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