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Investors to Look to Economic Data When New Year Trading Opens

cnbc.com
Tuesday, 2 Jan 2007 | 5:18 PM ET

U.S. investors will focus on economic and sales reports after pausing Tuesday in honor of the late former President Gerald R. Ford.

While U.S. stock markets were closed Tuesday, Europe's major indexes kicked off 2007 by rising to their highest levels in nearly six years.

The FTSE 100 in London was up, as was the Frankfurt DAX . Shares trading on the CAC-40 in Paris closed sharply higher.

Investors will get data on U.S. employment, the manufacturing and service sectors along with sales data from retailers and automakers in this shortened week.

The first trading day of 2007 in the U.S. will see a December report from the Insitute for Supply Management on the manufacturing sector--an area of the economy that cooled in 2006 due to a slowing housing market and struggling automakers.

Investors will also be reading the Federal Open Market Committee's minutes from its meeting on Dec. 12, when the policy makers decided to keep interest rates unchanged. The markets widely believe the Fed will leave the benchmark rate steady again at 5.25%, as it's done since August, when it meets Jan. 18. But expectations of a hike later in the year could rise if the minutes express heightened optimism about growth and concern about inflation.

Watching the Retailers

Retail will also be in focus when trading resumes on Wednesday.

Over the weekend, Wal-Mart reported a better-than-expected gain of 1.6% in December sales at its established stores. The increase represents the company's best monthly gain since August, but it comes after reports that retail sales overall for this holiday season may fall below forecast. In November, Wal-Mart warned of its first sales decline in 10 years.

Wednesday will also bring November data on construction spending and factory orders, as well as December auto sales figures. The market expects 2007 to be the year that Toyota Motor usurps General Motors as the world's largest automaker.

On Thursday, the country's largest retailers announce their sales figures for December--the biggest shopping month of the year, and a bellwether for consumer spending.

The ISM will also release its December report on the service sector on Thursday. The index is expected to come in at 57.0, slightly below November's reading of 58.9. The service sector stayed strong relative to the manufacturing sector in 2006, suggesting that economic weakness is fairly isolated to the housing- and auto-related industries.

Unemployment Report Friday

The Labor Department caps the week with its reports on December nonfarm payrolls and the unemployment rate. The market expects the data Friday to show payrolls rose by 110,000 and unemployment held at 4.5%. The U.S. jobs picture has remained fairly stable in the face of an economic slowdown, which has helped buoy the stock market's confidence in Americans' spending power.

Europe Rallies on Mining and M&A Talk

Volume was light with the U.S. markets closed, however the major indexes in Europe rallied throughout Tuesday, helped by strength in mining shares and merger news from steelmakers, telecoms and the French utility sector.

Shares of Vodafone rose in European trading on market talk that the cell phone company may be less likely to acquire India's Hutchison Essar. Traders have been concerned that the acquisition would not improve earnings, according to Reuters.

Stocks were higher in France with utility Suez the biggest gainer. Investing holding company Artemis, controlled by French billionaire Francois Pinault, said it is keeping options open on a bid for Suez.

Frankfurt's DAX finished higher led by shares of German retailer Metro, which saw an increase in Christmas season shopping. The company has also been the subject of takeover talk. Blue chips like DaimlerChrysler and Siemens were stronger and investors still consider German stocks to be relatively inexpensive, CNBC Europe's Michael Mross reported.

In London, Anglo-Dutch steelmaker Corus Group gained 1% on a report from the Economic Times of India that Tata Steel may raise its current takeover offer by 7% to 10%.

"We think European equity markets will rise again over the course of 2007," Ian Scott, a strategist for Lehman Brothers, told Reuters. "Our forecast suggests a total return of 14%."

The dollar was down against the euro, which was supported by expectations for more rate increases from the European Central Bank.

Asia Up; Tokyo Closed

Asian stock markets were higher, with Australia reaching an all-time intraday high before pulling back and Taiwan closing at a six-year peak.

But many major markets, including Japan, Singapore and Thailand were closed for a holiday.

The Australian market closed a touch higher after late profit-taking on some of last week's top performers countered morning gains. South Korea's Kospi Index also closed almost flat, with some foreign buying lifting tech stocks.

And Hong Kong stocks closed sharply higher, lifted by demand for property shares and Chinese companies with A-share listing prospects. Blue chips were also stronger.

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