Hussein rally fades into drop

Impact: The stock, currency and oil markets celebrate the capture of Saddam Hussein and then resume moving as if little or nothing had occurred.

December 16, 2003|By Bill Atkinson | Bill Atkinson,SUN STAFF

Stocks surged, the dollar climbed and oil prices fell, but only for a while yesterday, as markets celebrated news that Saddam Hussein, Iraq's former dictator, had been captured over the weekend.

Not even the incarceration of one of the U.S. military's most sought-after targets could keep the rally going, however. Within hours, most of the gains had ebbed away amid worries that the war in Iraq will drag on, terrorist bombings will continue, oil prices will remain high and the deficit will soar higher.

Investors' worries were confirmed when two car bombings at police stations near Baghdad killed nine people and injured 17.

"There is really no dramatic impact," said James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. "It is more of a symbolic deal. In reality, is there anything really different today than there was Saturday?"

"At least around here, nobody is talking about it today," said Mickey Misera, head of equity capital markets at Wachovia Securities in Baltimore. "I thought there would be a lot of conversation about it. I think the market, more than anything, is still more economic-focused than Saddam focused."

Hussein's capture sparked rallies in Asian and European markets where trading begins hours before U.S. markets open. Gains were trimmed by day's end, but Tokyo's Nikkei shot up more than 3 percent.

In early U.S. trading yesterday, it appeared that markets would get a boost that they could ride throughout the day.

The Dow Jones industrial average jumped 93.1 points at the opening bell. Oil prices fell, and the dollar, which has been trading at all-time lows against the euro, rose.

President Bush held a year-end news conference and heralded Hussein's capture, saying Iraqi citizens "have lost a source of fear." He praised the U.S. economy, saying it is growing at a "robust pace and beginning to generate new jobs for American workers."

But the market's gains proceeded to evaporate, with the Dow ending the session down 19.34 points at 10,022.82. The dollar sank back to its low levels against the euro at $1.2316, down 0.004 cent in late afternoon trading compared with Friday.

January crude oil prices rose by 14 cents to a four-week high of $33.18 a barrel. Gasoline for January delivery was up 0.24 cent to 90.28 cents a gallon on the New York Mercantile Exchange.

"When we got the news this morning that there were some suicide bombings, that was a very stark reminder to all of us that, `Hey, this is not over yet,'" said Richard O'Brien, senior vice president and director of Folger Nolan Fleming Douglas Inc., a Washington-based investment house. "The bond market basically said the geopolitical risk is still there."

Experts said they expect no reduction in oil prices in the near future or a surge in production from Iraq because of Hussein's capture.

"It is not like this has broken oil's spirit by any stretch," said Timothy E. Parker, an energy analyst at T. Rowe Price Associates Inc., a Baltimore-based mutual fund company. "I think there is a marginal impact. Just considering the nature of how they captured him, cowering in a hole. He was not directing any" of the terrorist attacks.

Douglas G. Ober, chairman and chief executive of Petroleum & Resources Corp., a Baltimore-based closed-end investment company, said benefits could appear down the road.

"In the reasonably near future, we might expect to see less sabotage activity, less suicide bombing and less damage to Iraqi oil and gas facilities," Ober said. In the longer term, it will enable Iraq to increase their exports and production a bit more quickly than they might have otherwise."

Ober said Hussein's capture will have little impact on natural gas prices.

"Weather is going to drive natural gas prices," he said. "Right now, everybody's eye is on the temperature gauge."

Some experts said the capture could bring the conflict in Iraq to a quicker conclusion. If that happens, the spiraling U.S. deficit, which is projected to hit $500 billion next year, might be reduced faster.

President Bush said yesterday that the administration has a plan to trim the deficit by half over five years. The nation's recent recession, the war, heavy defense and homeland security spending have contributed to its rise, he said.

Alex Beuzelin, senior market analyst at Ruesch International, a Washington-based corporate foreign exchange firm, said Hussein's capture will have little impact on the dollar. He expects it to continue to slide against the euro under the weight of the deficit, low interest rates and concerns about the U.S. job market, which continues to struggle.

A weak dollar helps U.S. manufacturers, but the high deficit, coupled with low interest rates, is frightening away foreign investors who buy bonds, he said.

"Investors are going to worry that the U.S. can't attract foreign investors to finance the deficit," Beuzelin said. The capture of Saddam Hussein does not alter the negative economic factors currently weighing on the U.S. currency, he said.

Bloomberg News contributed to this story.

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