Wall Street stumbled on Monday after a joint venture between Kuwait and Dow Chemical fell through, threatening one of the larger merger deals of the year and adding to fears about a faltering global economy.

Dow shares tumbled to their lowest since 1991 after Kuwait decided to end a $17.4 billion petrochemical joint venture amid slumping petrochemical sales and the global financial crisis.

The news ignited worries that the largest U.S. chemical company would not be able to buy rival Rohm & Haas , which Dow agreed to acquire for about $15.3 billion in July. Rohm & Haas (ROH) shares fell as much as 25 percent.

These declines were also exacerbated by light volume, analysts said. Trading is expected to be light throughout the week, abbreviated by the New Year’s holiday on Thursday.

The increasingly anemic economic data and company news has prevented a hoped-for year-end rally.

What investors “are grappling with is how long and how deep of a recession this is going to be and when the sun is going to go up again,” said Kevin Kruszenski, head of listed trading at KeyBanc Capital Markets in Cleveland.

The Dow Jones industrial average was down 129.99 points, or 1.53 percent, at 8,385.56. The Standard & Poor’s 500 Index was down 14.10 points, or 1.62 percent, at 858.70. The Nasdaq Composite Index was down 34.94 points, or 2.28 percent, at 1,495.30.

The Nasdaq outpaced the other major indexes, dragged by large-cap tech companies including Research In Motion , which fell 4.7 percent to $38.94 and Microsoft Corp , which shed 1.8 percent to $18.79.

Dow Chemicals and Rohm & Haas were among the biggest losers by percent on the New York Stock Exchange. Dow was down nearly 20 percent to $15.18, while Rohm & Haas was off about 15 percent to $54.03.

The collapsed joint venture added to concerns about the chemicals industry, which has been struggling because of recessions in most developed countries and a sharp slowdown in emerging economies.

Economic worries overshadowed gains in the energy sector as oil climbed on concerns that crude supplies could be threatened by tensions between Israel and the Hamas-ruled Gaza Strip.

Oil prices rose to more than $38 a barrel as Israeli warplanes hit the Gaza Strip for a third day and Israel prepared to launch a possible invasion. The offensive has killed more than 300 Palestinians in the deadliest violence in the territory in decades.

Chevron and Exxon Mobil topped the Dow, while the S&P 500 index of energy stocks rose more than 1 percent. Chevron rose 1.3 percent to $71.28 and Exxon Mobil edged up 0.5 percent to $77.62.

Analysts noted the rise in energy prices did not bode well for cash-strapped consumers.

As 2008 winds to a close, investors are looking to the incoming White House administration to offer another stimulus package and help usher the country out of a year-long recession. The broad S&P 500 is down about 40 percent for the year, putting it behind 1931’s 47.1 percent record drop.

President-elect Barack Obama has said signing a major economic stimulus package will be his priority when he takes over the presidency on Jan. 20.

Over the weekend, one of Obama’s top economic advisors said financial policy should address both immediate job creation and longer-term investment needs.

Lawrence Summers, Obama’s pick to head the White House National Economic Council, said spending government money solely to stimulate consumer spending would be a short-sighted mistake.

Deepa Seetharaman  NEW YORK, Dec 29 (Reuters)

Goldman Sachs Group Inc. (GS) already is on record for $200-a-barrel oil. As you all know, our own Keith Fitz-Gerald – Money Morning’s investment director – has projected a crude-oil price of $225 a barrel. Do I hear $250? What about $5 a gallon gasoline by July 4th?

Sometimes, these daily price gyrations take on lives of their own, but at the end of the day, the basic laws of supply and demand always work themselves out.

The upcoming week’s hectic economic calendar could go a long way to clarifying the “Are we in a recession, yet?” discussion. Crucial news from manufacturing and labor highlight the week and any renewed strength in these sectors could put an end to the “R” talk for the time being (or until next week). In fact, the National Association of Business Economic forecast 0.4% economic growth for the 2nd quarter and a much stronger 2.2% gross domestic product (GDP) pickup in the 3rd quarter as the U.S. Federal Reserve and those tax rebates begin to work their ways through the system. Suddenly, economists are projecting a rebound and cries of recession have become somewhat muted (and replaced by cries of inflation).

Market Matters

Now that Memorial day has come and gone, investors seem to be monitoring the daily energy trades even more closely than usual (if that is possible) for signs that prices have peaked and Americans will be able to afford summer travel again. Well, in the aftermath of the holiday, gas prices actually continued their trek toward that dreaded $4/gallon level and hit a new national average of $3.96 late in the week. In fact, 11 states and the District of Columbia already are reporting average prices at the pump in excess of that psychological barrier.

While crude prices fell from last week’s record highs of $135/barrel, the ongoing “supply/demand vs. speculation” debate rages on. In one corner…The Department of Energy said that exports from the top oil producers dropped by 2.5% in 2007 and are on pace for a similar showing this year. While much of the increased demand focus has been on China, oil consumption throughout the Middle East (and Saudi Arabia, in particular) has skyrocketed in recent years, thus, leaving less to export and meet the growing demand abroad.

On the flipside, conspiracy theorists cry wolf that prices have been running without any regard to true supply/demand issues. They point to escalating trades in commodity (petro) futures indexes and make Internet bubble comparisons (remember those fun days?) as explanations for the wild price swings. This week, the regulators got involved (typically a day late and a dollar short) as the Commodity Futures Trading Commission initiated a probe into potential market manipulations by energy insiders.

And suddenly those increased water cooler discussions about the dreaded “I” word are starting to move from speculation to reality. Dow Chemical announced a 20% across the board price increase to “mitigate the effects of raw material costs.” German-based DHL soon will be “outsourcing” its North American delivery biz to competitor UPS as its seeks to reduce costs. Discounter airline JetBlue will not be adding to its fleet as expected because it too suffered the ill-effects of rising fuel prices that have prompted major changes throughout its industry (can you say consolidation?). Likewise, automakers continued to struggle from consumer activity (rather inactivity) as both Ford Motor Co. (F) and General Motors announced major reductions to their respective workforces. Apparently, the “rich and famous” have been impacted far less than others as Polo Ralph Lauren and Tiffany both reported better than expected quarterly earnings. Even Dell Inc. (DELL) surprised many analysts with a solid quarter on strong sales in Asia. Turning to financials, shareholders finally approved the JP Morgan Chase & Co. (JPM) acquisition of The Bear Stearns Cos. (BSC) (like they had much of a choice), though $10 a share is a far cry from the $170 the stock traded at in early 2007.

Investors took their clues from declining crude prices this week and again looked for value in the equity markets. The major indexes traded higher (often at the expense of fixed income). In fact, the yield of the benchmark 10-year drifted back above 4.0% for the first time in about five months as talks of inflation seemed to overshadow prior recessionary fears (see below). Still investor sentiment can change on a dime these days and next week brings significant economic releases that are sure to be over-analyzed. Until then, happy motoring (at $4/gallon).

Platinum was off sharply in Europe, falling well below the $2000 mark, but clawed its way back in New York to almost retake the level, ending at $1999/oz., down $70. Overnight, platinum has edged lower.

Silver got whacked from London straight through the NYMEX, only leveling off in Globex trading into a close at $16.60/oz., down 81 cents. Overnight, silver has edged higher.
(Click here for charts)

It was a third straight down day for the precious metals, and it was a bad one as gold tumbled to a two-week low.

That it would be a down day was no shocker, considering that falling oil prices and a firming dollar aligned the stars against gold and its sisters. But the extent of the damage may have caught some by surprise.

There was also strength in the equities markets to deal with, as well as an avalanche of selling across the board in commodities.

But analysts were mostly abandoning talk that gold will follow oil, and focusing instead on the role of the dollar, which has been buoyed of late by suggestions that an interest rate hike might come before the end of the year.

“With the dollar stabilizing, gold could fall quite a bit,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “There’s a lot of talk about inflation, which works both ways for gold. If the Fed does start tightening, that will strengthen the dollar and could really pop the commodity bubble.”

It’s an interesting equation, for sure. Inflation is dead certain to pick up as the effects of record-high oil and gasoline prices work their way through the economy. One sign of things to come arrived on Wednesday, with the announcement by Dow Chemical that it was raising prices of its products by 20%. Everyone uses Dow products.

So, will gold emerge in its traditional role as a hedge when inflation really starts to pick up? Or will the Fed’s response, which has to be tightening interest rates, hurt gold by propping up the dollar? Stay tuned.

Source: Precious metals slammed once again – Strong dollar, weaker oil cited

• Global chemical producer Dow Chemical Co. (DOW) announced yesterday (Wednesday) that it would raise prices on all 3,200 of its products – some by as much as 20% – beginning at the start of the third quarter. Bloomberg News said it’s the single-biggest price increase in the Michigan-based company’s 111-year history. But Dow Chief Executive Officer Andrew Liveris said the price hike was made necessary by “unparalleled” increases in the costs of energy, transportation and raw materials, which together boosted Dow’s expenses 42% in the first quarter, Reuters reported.

• A day after South Africa posted its slowest quarterly growth in six years (2.1%), the country’s April inflation rate rose to 10.4%, the highest in more than five years. Analysts say this increases the chances that the country’s central bank will raise interest rates at least more than twice this year, Bloomberg reported.

• Conglomerate General Electric Co. (GE) said it plans to cut its water consumption by 20% by 2012. To do so, the company will use its own treatment and filtration products, Bloomberg reported. “Water is the next big environmental issue we need to get our heads around,” Lorraine Bolsinger, leader of GE’s environmental initiatives, told Bloomberg.

• Discount retailer Dollar Tree Inc. (DLTR) said its first-quarter net income rose 14% to $43.6 million, or 48 cents a share. Sales were up 7.8% to $1.05 billion as rising food and gas prices forced shoppers to look for better deals.

• U.S. Federal Reserve Governor Frederic Mishkin submitted his written resignation, effective Aug. 31, to President Bush yesterday (Wednesday). The Fed’s Aug. 5 meeting will be Mishkin’s last, MarketWatch reported. He is leaving to return to Columbia University’s Graduate School of Business.

• A proposal backed by descendents of legendary oil great John D. Rockefeller to split chief executive officer and chairman duties at Exxon Mobil Corp. (XOM) has been defeated by shareholders. Rex W. Tillerson currently serves as both chairman of the board and CEO. The proposal also included provisions to make the oil major more environmentally friendly, CNNMoney.com reported.

• Yesterday (Wednesday), United Parcel Service Inc. (UPS) announced a partnership deal with German-based Deutsche Post AG’s U.S. subsidiary DHL Express Inc. UPS will deliver some freight for DHL in the United States, Canada and Mexico. The deal is expected to generate an additional $1 billion in annual revenue for UPS, Forbes reported.

• Dell Inc. (DELL) and Dell Financial Services LP were found guilty of fraud in advertising in a New York Supreme Court yesterday (Wednesday). “Dell has engaged in repeated misleading, deceptive and unlawful business conduct, including false and deceptive advertising of financing promotions and the terms of warranties, fraudulent, misleading and deceptive practices in credit financing and failure to provide warranty service and rebates,” Justice Joseph C. Teresi said in his decision, Forbes reported.

Source: Global Investing Roundups: Thursday, May 29th, 2008