Markets News Tuesday: Citi bad news awaited; Markets fall in Asia-Pacific and Europe; Dollar up from near record low against Euro; Gold price over $900

BP oil drilling rig in the Gulf of Mexico

US stock rallied Monday following a positive fourth quarter earnings report from computer services giant IBM - a Dow component - and the prospect of rate cuts.

IBM on Monday announced fourth-quarter 2007 diluted earnings of $2.80 per share from continuing operations, an increase of 24 percent, compared with diluted earnings of $2.26 per share in the fourth quarter of 2006. The company also reported fourth-quarter revenue of $28.9 billion, an increase of 10 percent as reported, including 6 points of currency benefit, compared with the fourth quarter of 2006.

The US dollar fell following last week's signal by Fed Chairman Ben Bernanke favoring "substantive," which is seen by traders that the Fed's rate-setting Federal Open Market Committee, which is due to meet on Jan 30/31 will cut the federal funds rate to 3.75%. The euro moved close to the record November 2007 level versus the greenback above $1.49.

The Wall Street Journal says today that Citigroup Inc./Citi is expected to announce a sizable dividend cut, cash infusion of at least $10 billion and write-down of as much as $20 billion in mortgage-related investments as part of its fourth-quarter earnings report, people familiar with the plans said.

Vikram Pandit, Citigroup's chief executive, also is expected to unveil a cost-cutting plan that is likely to include substantial job cuts. The moves are part of his push to shore up the company's finances, including replenishing its depleted capital.

Asia-Pacific stocks fell Tuesday following a rise of the yen against the US dollar.

In Tokyo, Toyota Motor fell to its lowest since June 2006.

The MSCI Asia Pacific Index, which tracks more than 1,050 regional companies, fell 1% and in Tokyo, the Nikkei 225 Stock Average dropped 1% to 13,972.63, its first time below 14,000 since November 2005.

All regional benchmarks retreated, except Taiwan, where the Taiex index rose again after the weekend electoral victory of the Opposition party in legislative elections. The party that was ejected by the Chinese Communists in 1949, is now an advocate of developing good relations with the Mainland.

Asia-Pacific - Key Benchmarks

Gold has again risen in Asia and early European trading and the London AM Fix was at a new record high of $911.50 (up from $887.85). The psychological level of $900 has now been attained and a correction and consolidation is likely. However, given the deteriorating economic situation in the U.S. and many economies internationally the safe haven flight to gold we have witnessed in recent weeks could continue and accelerate. Analysts and traders are already looking to the next even bigger psychological level of $1,000 per ounce as a likely price target. This new price target could be reached earlier in 2008 than most have anticipated. Traders and analysts like big round numbers (witness $100 a barrel oil) and thus $1,000 could prove a similar magnet to traders.

Gold surged to new records in other major currencies. At the London AM Fix gold was trading at £464.32 (up from £457.56 Friday) and €612.16 (up from €604.74 Friday). The notion that gold is being bought because it is 'cheaper' to holders of other currencies is a missapprehension and is wrong. Gold is surging in all currencies and this shows that gold's strength is not primarily a function of dollar weakness. All major currencies are weakening against gold.

In the last 5 years, the euro is only up some 40% against the dollar whereas gold is up by more than 150% against the dollar. Or to put it more accurately the dollar is down by 40% against the euro but the dollar is down by some 150% against gold. Since 1999, gold has risen by some 140% in euro terms - from €250 to over €600 today. Since 2001, gold has risen some 170% in british pound terms - from £170 to £464 today.

Expectations that the Federal Reserve will aggressively cut interest rates despite inflationary pressures will likely support gold and result in any correction being short and shallow.