U.S. Stocks

U.S. stocks rose to session highs as hopes for the beleaguered labor market and clarification about France's credit rating buoyed investor sentiment. Trading was choppy as investors earlier Thursday fretted about France's credit rating.

Standard & Poor's Ratings Services said reports of a downgrade were due to a technical glitch. The confusion prompted the ratings firm to issue a clarification, in the form of a statement, saying that the nation's triple-A rating remains unchanged. Stocks got an early boost after a reading on unemployment claims offered hints of progress.

The number of people filing applications for jobless claims dropped last week to the lowest level in seven months. Also on the economic calendar, U.S. import prices fell last month as fuel and food prices dipped, suggesting inflation is being held in check. And the U.S. trade deficit shrank unexpectedly in September, fueled by record-level exports and a sharp drop in trade from the debt-beleaguered euro area. In corporate news, Cisco ran up 7.2% after the blue-chip networking company reported fiscal first-quarter earnings and revenue that exceeded expectations.

An upbeat outlook also offered early evidence that the networking equipment company's turnaround effort may be working. Fellow Dow component Merck increased its quarterly dividend for the first time in seven years, which the drug maker said demonstrates its confidence in the business.

The stock rose 3.6%. Green Mountain Coffee Roasters slumped 38% after the coffee, tea and hot chocolate producer's fiscal fourth-quarter revenue missed its own forecasts and Wall Street's targets. Kohl's rose 2.3%.

The department-store's fiscal second-quarter profit rose 20% on continued sales growth and as its focus on private and exclusive brands helped boost margins. Advance Auto Parts gained 3.5% after the auto parts retailer's fiscal third-quarter profit rose 20%. The company also boosted its full-year earnings outlook. Viacom's fiscal fourth-quarter results beat forecasts, and the entertainment company said it was expanding its stock repurchase program to $10 billion from $4 billion. The stock rose 5%.

European Stock Markets

European stock markets closed narrowly mixed Thursday after heavy losses driven by fears the eurozone debt crisis could snare Italy as its next victim and plunge the bloc into recession. Dealers said the announcement of a new Greek prime minister after days of political squabbling may have helped but the epicentre of the crisis is now in Italy which had to pay sharply higher rates again to raise fresh funds.

They said Italy, the eurozone's third largest economy, is too big too fail and too big to be bailed out, unlike Greece, Ireland or Portugal, and its problems must be resolved if the eurozone is to survive.

Reports, later denied, that Germany and France were discussing a reformed and by implication, a smaller eurozone added to the growing tensions over the bloc's future and caused very sharp falls on Asian markets earlier Thursday. In London, the FTSE-100 index of top companies closed down 0.29 percent to 5,444.82 points.

In Paris, the CAC-40 fell 0.34 percent to 3,064.84 points but in Frankfurt the DAX 30 gained 0.66 percent to 5,867.81 points. Milan shares rebounded more than 2.0 percent at one stage but finished with a gain of 0.97 percent while Madrid dropped 0.36. Italy had to pay record rates of 6.087 percent to sell 5.0 billion euros ($6.8 billion) in 12-month Treasury bills in a closely-watched auction which at least attracted substantial interest.

This was the highest rate since the introduction of the euro and a key test for Italy on the bond markets after Prime Minister Silvio Berlusconi vowed to resign once economic reforms are in place by the end of the month.

The stakes for the euro and the country could not be higher. Traders speculated that the European Central Bank had intervened to help prop up the Italian bond market but the ECB never comments on such action. Italian borrowing rates on the secondary bond market at above 7.0 percent Wednesday are too high for Rome to be able to fund its public deficit over the longer-term but they eased on Thursday to offer some relief.

Reflecting the tensions in the eurozone, the spread between German and French 10-year government bond rates touched a historic high of 170 basis points on amid fears the eurozone debt crisis is spreading fast. The wide gap in the cost of borrowing between the single currency bloc's two biggest economies reflects worries that France may join Italy and Greece in struggling to fund its debt, while German bonds are highly sought after as a safer bet for nervous investors.

Asian Stock Markets

Asian stock markets ended sharply lower Thursday, with financial and resources stocks dropping, as the region extended a global market rout spurred by a surge in Italy's borrowing costs to record highs, deepening Europe's debt crisis.

The 10-year Italian bond yield spiked to above the financially-charged barrier of 7%, to levels experienced in Ireland, Portugal and Greece before their bailouts. The simultaneous reversals of fortune in Greece and Italy reignited investor fears of a repeat of the 2008 global financial crisis. Japan's Nikkei Stock Average dropped 2.9%, Australia's S&P/ASX lost 2.4% and South Korea's Kospi tumbled 4.9%.

Hong Kong's Hang Seng Index dived 5.3%, while China's Shanghai Composite lost 1.8%. India's market was closed for a holiday. But Indonesian shares came off lows, ending down 1.9%, after trading down as much as 2.8%, recovering following the central bank's surprise decision to cut policy rates by an aggressive 50 basis points to 6.0%, in a move highlighting concerns over the external economic environment.

Financial shares were among the hardest hit. Westpac Banking fell 3.3% in Sydney, Woori Finance tumbled 7.3% in Seoul, Chinatrust Financial shed 5.4% in Taipei and United Overseas Bank lost 2.0% in Singapore. In Indonesia, Bank Mandiri ended down 3.4% after trading down as much as 4.7%. In Hong Kong, HSBC plunged 9.1%, hit by a double whammy from its European exposure and after it reported its third-quarter underlying pretax profit fell to US$2.96 billion from US$4.6 billion a year earlier, hurt by sharply higher bad loan provisions at its U.S. unit.

ICBC's Hong Kong and Shanghai shares fell 8.7% and 2.8% respectively after Goldman Sachs completed its third sell-down of the company's shares since the Wall Street firm bought a stake in China's biggest lender by assets before its 2006 initial public offering. In Tokyo, Nomura Holdings lost 3.1% after Moody's warned Wednesday it may cut Nomura's credit rating to one notch above junk grade, citing ongoing losses at its international capital market activities. Nomura rival Daiwa Securities Group fell 3.4%.

The fresh concerns about economic growth hurting demand were bolstered after the intraday release of China's October trade data showed a slowdown in exports growth, underlining recent fears of a sharp downturn for the world's second biggest economy. Growth-sensitive resources plays around the region fell sharply. Australian heavyweight BHP Billiton fell 2.2%, Sumitomo Metal Mining lost 3.2% in Tokyo and Posco shed 5.4% in Seoul. Jiangxi Copper's Hong Kong and Shanghai shares dropped 7.3% and 3.1% respectively. Exporters also took a tumble, with Sony down 4.7% in Tokyo, Samsung Electronics losing 5.1% in Seoul and Hong Kong-listed Li & Fung and Lenovo Group dropping 5.7% and 3.5% respectively.

Base metals closed mostly lower on the London Metal Exchange Thursday as market players remained transfixed by events in Europe. At the close, flagship three-month copper was 2.0% lower at $7,475 a metric ton, having earlier traded at a two-and-a-half week low at $7,357/ton. Early losses were being pared late Thursday as investors gained confidence after Standard & Poor's affirmed France's AAA credit rating, a London-based trader said.

Commodities

Zinc fell the heaviest, shedding 2.5% on the day at $1,885/ton. Thursday was a busy session in terms of macro news and data, with economic data from China and the U.S. providing the backdrop for unfolding events in the euro zone. Oil prices rose Thursday in line with equities on euro-zone hopes, as Nymex crude settled up $2.04 at $97.78 a barrel, while Brent futures rose $1.64 to $113.95. Futures advanced after reports that Greece named former European Central Bank Vice President Lucas Papademos as its next prime minister.

That paves the way for the country to accept a bailout that European leaders hope will avoid a messy default that could trigger fallout among other members of the euro zone. In Italy, meanwhile, political forces were coalescing around the possibility of an emergency government led by Mario Monti, Europe's former top antitrust regulator.The country was racing to restore political stability and curb its soaring rise in borrowing costs.

Gold futures fell Thursday as investors viewed the ongoing tension in Europe's financial system as an opportunity to cash out from the metal's recent march higher. The most actively traded contract, for December delivery, fell $32, or 1.8%, to settle at $1,759.60 a troy ounce on the Comex division of the New York Mercantile Exchange. Gold's decline Thursday came despite the cautious optimism that lifted some other commodities and equities markets, as traders bet the still-tight credit situation in Europe could force investors there to liquidate their holding of the metal.