Sensex drops 4% in six days on earnings growth worries

Weak global stocks dragged Indian shares to 5-1/2-week closing lows. The BSE Sensex was down 204.44 points or 1.12%, up close to 70 points from the day's low and off close to 175 points from the day's high. Index heavyweight Reliance Industries came off the 52-week low. The market sentiment remains edgy, with investors worried that higher interest rates will crimp corporate profit growth. A number of commercial banks have raised lending rates recently after the central bank raised its key lending rate by 50 basis points at a policy review early last week.

The Sensex has tumbled 761.40 points or 4.03% in six trading sessions from a recent high of 18,871.29 on 25 July 2011, hit by the Reserve Bank of India's (RBI) aggressive rate hike at a policy review on 26 July 2011.



The market breadth was weak. Metal stocks fell as metal prices declined on the London Metal Exchange on Monday, 1 August 2011. JSW Steel and Sail hit 52-week lows. Realty stocks fell on worries that higher interest rates could dent demand for residential and commercial property. Bank shares dropped on worries that higher lending rates will crimp loan growth. IT stocks fell on weak economic data in the US. US is the key market for Indian IT firms. Bharti Airtel fell ahead of Q1 results tomorrow, 3 August 2011.

World stocks dropped on Tuesday, 2 August 2011, on euro-zone debt worries and on fresh indications US manufacturing is slowing. Concerns have also surfaced over the adverse implications of the large spending cuts in the US, the world's biggest economy.

The market edged lower in early trade on weak Asian shares. The market extended initial losses to hit fresh intraday low in morning trade. The market trimmed losses in mid-morning trade. The market weakened once again in early afternoon trade. The market hit 5-1/2-week low in afternoon trade as European stocks fell in early trade. The market was hovering near the day's low in mid-afternoon trade. The market trimmed losses in late trade.

The BSE Sensex was down 204.44 points or 1.12% to 18,109.89, its lowest closing level since 23 June 2011. The index dropped 276.46 points at the day's low of 18,037.87 in afternoon trade. The Sensex fell 30.28 points at the day's high of 18,283.55 in early trade.

The S&P CNX Nifty was down 60.25 points or 1.09% to 5,456.55, its lowest closing level since 23 June 2011. The Nifty hit low of 5,433.65 in intraday trade.

The BSE Mid-Cap index fell 1.53% and the BSE Small-Cap index declined 1.45%. Both these indices underperformed the Sensex.

BSE clocked turnover of Rs 2403 crore, lower than Rs 2444.17 crore on Monday, 1 August 2011.

The market breadth, indicating the overall health of the market, was weak. On BSE, 2,013 shares fell and 857 shares rose. A total of 93 shares remained unchanged.

From the 30 share Sensex pack, 23 stocks fell and the rest rose. NTPC, Cipla and ONGC rose by between 0.88% to 2.23%.

Index heavyweight Reliance Industries (RIL) rose 0.51% to Rs 835.10, recovering from a 52-week of Rs 818.15 hit in intraday trade today. The prized KG-D6 fields of RIL produced 31% less than previously projected natural gas output in the April-June 2011 quarter, the Oil Ministry said. The average gas production during April-June 2011 from KG-DWN-98/3 (KG-D6) block was 48.60 million metric standard cubic meters per day (mmscmd), less than the approved Field Development Plan (FDP) rate of 70.39 mmscmd, the ministry said.

RIL's operating profit margin (OPM) declined sharply to 12.25% in Q1 June 2011 from 16.04% in Q1 June 2010 as weak performance from the oil & gas and petrochemicals businesses offset strong performance from the refining segment. RIL's net profit rose 16.69% to Rs 5661 crore on 39.1% increase in net sales to Rs 81018 crore in Q1 June 2011 over Q1 June 2010. The result was announced on 25 July 2011.

RIL's gross refining margin (GRM) surged to $10.3 a barrel from $7.3 a barrel in Q1 June 2010. Gas production from RIL's KG-D6 field off the east coast declined 18% to 156.2 BCF in Q1 June 2011 over Q1 June 2010. Production of gas condensate from the filed jumped 81.6% to 0.21 million barrels in Q1 June 2011 over Q1 June 2010. The company said gas sales have been prioritized as per government's directive with effect from 9 May 2011.

Cement stocks were mostly lower as top cement firms such as UltraTech Cement and Ambuja Cements issued weak outlook on cement prices and profit margins at the time of announcing quarterly results recently. Ambuja Cements fell 0.97%. The company's cement sales rose 14.09% to 1.7 million tonnes in July 2011 over July 2010. UltraTech Cement rose 0.32% as shipments rose 7.4% to 3.13 million tonnes in July 2011 over July 2010. Production rose 7.3% to 3.09 million tonnes.

Jaiprakash Associates shed 5.08% and was the top loser from the Sensex pack. The company's cement sales rose 18.85% to 1.45 million tonnes in July 2011 over July 2010.

Bank shares dropped on worries that higher lending rates will crimp loan growth. A number of commercial banks have raised lending rates recently after the central bank raised its key lending rate by 50 basis points at a policy review early last week. India's largest commercial bank by branch network State Bank of India (SBI) fell 2.88%.

India's largest private sector bank by market capitalisation ICICI Bank slipped 2.08%, snapping two-day gains triggered by strong Q1 results. Consolidated net profit jumped 53% to Rs 1667 crore on 8.9% growth in total income to Rs 14749.79 crore in Q1 June 2011 over Q1 June 2010. Standalone net profit increased 30% to Rs 1332 crore in Q1 June 2011 over Q1 June 2010. Net interest income increased 21% to Rs 2411 crore and fee income increased 12% to Rs 1578 crore in Q1 June 2011 over Q1 June 2010. The result hit the market during trading hours on Friday, 29 July 2011.

The bank's ratio of net non-performing assets (NPAs) as on 30 June 2011 was 0.91%, lower than 0.94% as on 31 March 2011. The bank's provisions declined 43% to Rs 454 crore in Q1 June 2011 over Q1 June 2010. The bank's provisioning coverage ratio computed in accordance with RBI guidelines was 76.9% as at 30 June 2011, higher than 76% as at 31 March 2011.

The bank's advances increased by 20% year-on-year to Rs 220693 crore at 30 June 2011 from Rs 184378 crore at 30 June 2010. The bank's savings deposits increased by 18% year-on-year to Rs 66858 crore at 30 June 2011 from Rs 56546 crore at 30 June 2010. The CASA ratio at 30 June 2011 was 41.9%, despite the systemic decline in demand deposits, ICICI Bank said in a statement.

The CASA (current and savings account) ratio is the ratio of deposits in the current and savings accounts of a bank to its total deposits. A high CASA ratio indicates that a higher portion of the banks' deposits come from current and savings accounts. This means that the bank is getting money at low cost, since no interest is paid on the current accounts and the interest paid on savings account is usually low.

As at 30 June 2011, ICICI Bank had 2,533 branches and 6,245 ATMs, the largest branch network among private sector banks in the country.

India's second largest private sector bank by net profit HDFC Bank skidded 0.86%.

Kotak Mahindra Bank rose 0.52%, reversing initial losses. The bank said after market hours on Monday said that it has revised base rate upwards by 25 basis points from 9.5% per annum (p.a.) to 9.75% p.a. with effect from 2 August 2011. It also revised its benchmark prime lending rate upwards by 25 basis points and its deposits across tenor buckets by 10 to 50 basis points.

Corporation Bank fell 0.68%. The bank announced after market hours today that the bank has revised its benchmark prime lending rate (COBAR) from 14.50% per annum (p.a.) to 15.00% p.a. and the base rate for lending from 10.25% p.a. to 10.65% p.a. with effect from 1 August 2011.

IT stocks fell on weak economic data in the US. US is the key market for Indian IT firms, Wipro, TCS, HCL Tech, and iGate Patni fell by between 0.26% to 2.37%.

Infosys Technologies fell 2%. The company announced during market hours today that Nigerian bank Wema Bank has selected Finacle from Infosys to drive customer centric innovation aimed at strengthening its retail banking services.

Realty stocks fell on worries that higher interest rates could dent demand for residential and commercial property. Purchases of both residential and commercial property are largely driven by finance. Phoenix Mills, Indiabulls Real Estate, Unitech, and HDIL shed by 0.05% to 4.75%. Realty giant DLF declined 1.26% ahead of Q1 result today.

Metal & mining stocks declined as LMEX, a gauge of six metals traded on the London Metal Exchange dropped 1.64% on Monday, 1 August 2011. NMDC, Hindustan Zinc, Hindalco Industries, Jindal Saw, Sterlite Industries, and Nalco shed by between 0.18% to 2.59%.

JSW Steel slumped 2.95% to Rs 674.30, extending recent sharp losses. The stock hit 52-week low of Rs 668 today. The stock has witnessed selling pressure recently even as the company said its iron-ore purchasing and other transactions in Karnataka were done legally, refuting allegations made by an anti-corruption ombudsman. "We would like to clarify that all the transactions have been done in a legally compliant manner," JSW Steel said in a statement issued after trading hours on Friday, 29 July 2011.

"The company will suitably respond at an appropriate time to the authorities concerned as may be required after examining the said Lokayukta report in detail." A report by the anti-corruption ombudsman--called the Karnataka Lokayukta--alleged widespread corruption in the mineral-rich districts of Karnataka state that had resulted in the government losing billions in revenue. The ombudsman said that JSW Steel illegally received 1.29 million metric tonnes of iron-ore from April 2009 to July 2010 for which it didn't pay royalties to the state government. It said a penalty of Rs 324 crore ($73.5 million) should be levied on the company, equivalent to the market price of the ore on which it evaded taxes, since minerals are by definition the property of the government.

There is also the possibility of a donation of Rs 10 crore paid by JSW Steel through a unit to a charity called Prerana Educational Trust to speed up a mining grant, the report said.

Jindal Steel & Power (JSPL) lost 0.96% to Rs 567.60, extending a recent slide triggered by weak Q1 results. The stock hit a 52-week low of Rs 557 on Monday, 1 August 2011. Consolidated net profit after tax fell 2.5% to Rs 933.03 crore on 31.4% increase turnover to Rs 3944.10 crore in Q1 June 2011 over Q1 June 2010. The Q1 result was announced after market hours on Thursday, 28 July 2011.

Steel Authority of India (Sail) fell 1.75% to Rs 117.85, extending Monday's 5.07% decline triggered by weak Q1 results. The stock hit 52-week low of Rs 116.10 today. The company announced after market hours on Friday, 29 July 2011, that the net profit fell 28.77% to Rs 838.06 crore on 19.63% rise in total income to Rs 11389.04 crore in Q1 June 2011 over Q1 June 2010.

Sesa Goa fell 2.66%. The company said all its transactions are legally compliant. The company's clarification followed the Karnataka Lokayukta report on illegal mining in the state.

ABB rose 0.92%. The company clarified during market hours today that some reports has erroneously informed that ABB had won an order worth $1 billion from Tennet for transmission lines. The company said this order has been won by ABB Germany and not by ABB India and that press release to this effect was made by ABB, Zurich and not by ABB India.

Telecom stocks fell across the board on concerns over reports of policy changes announced by Telecom Commission. Tata Teleservices (Maharashtra) (down 6.28%), Idea Cellular (down 3.51%), Reliance Communications (down 3.46%) and MTNL (down 3.25%), edged lower.

According to reports, Telecom Commission, the apex decision-making body of the Department of Telecom, has given its nod to imposing a uniform licence fee of 8.5% on all telecom operators. Operators currently pay between 6% and 10% of their annual revenues as licence fee. The Telecom Commission has also approved limiting the maximum amount of airwaves a company can hold and delinking spectrum from licences in the future when the renewed licence will be valid only for 10 years instead of 20 years now.

Reports indicate that the potential telecom policy changes by the Telecom Commission would have negative implications for operators. The capex requirement would increase significantly and total outlay would increase by 30-40%, media reports suggest.

Telecom shares had surged recently after Idea Cellular and Vodafone-Essar, last week, raised call rates on some prepaid plans in some circles, taking a cue from a similar move by Bharti Airtel recently.

India's largest listed telecom oeprator by sales Bharti Airtel fell 1.86% to Rs 432.05. The stock had hit 52-week high of Rs 444.70 on Monday, 1 August 2011. Bharti's consolidated net profit as per International Financial Reporting Standards (IFRS) is seen rising 8.21% to Rs 1515.81 crore on 3.83% growth in sales to Rs 16888.87 crore in Q1 June 2011 over Q4 March 2011 according to average estimate of 12 brokerages. Revenue growth will be driven by volume growth in both India and Africa operations. Bottom line growth will be driven by expansion in operating profit margin at both India and Africa operations, analysts reckon. Bharti unveils Q1 results tomorrow, 3 August 2011.

Bharti Airtel's chairman and managing director Sunil Mittal said that consolidation in India's telecommunications industry is imminent even as competition eases and call tariffs stabilize. Hyper competition in the market with 12-13 players, many of whom happened to be new entrants, is clearly abating, Mittal said in Bharti's annual report for the year ended March 2011, which was released on Monday, 1 August 2011.

Bharti, the country's largest mobile-phone operator by users, expects stable tariffs to help in "the return of reasonable growth," Mittal said. He, however, cautioned that regulatory uncertainty continues over the allocation and pricing of second-generation radio bandwidth.

Auto stocks were mostly lower after mixed vehicle sales data for July 2011. India's largest truck maker by sales Tata Motors fell 0.41% after the latest data showed that the company's total sales fell 6% to 63,761 units in July 2011 over July 2010. Tata Motors' domestic sales of Tata commercial and passenger vehicles fell 9% to 57,990 in July 2011 over July 2010. The company's commercial vehicle sales increased 14% to 40,798 units. LCV sales were 24,962 units, a growth of 22% over July last year. M&HCV sales stood at 15,836 units, a growth of 4% over July last year. The monthly sales data was released during trading hours on Monday, 1 August 2011.

Tata Motors' domestic car and sport-utility vehicle sales plunged 38% to 17,192 units in July 2011 over July 2010.

Tata Motors plans to restructure its local dealership network for its passenger vehicles this year in a bid to boost sales. The company plans to set up 300 dealerships specifically for its Nano minicar as well as 100 for its utility vehicles such as the Aria and Safari by the end of March 2012. The company had 250 full-range dealerships as of April 2011. Tata Motors today, 2 August 2011, launched a new version of the Aria, which will be sold in three variants priced between Rs 11.6 lakh and Rs 14.3 lakh.

Utility vehicles and tractors major Mahindra & Mahindra (M&M) fell 0.86% reversing initial gains. The company's total automobile sales jumped 41% to 39,633 units in July 2011 over July 2010. Domestic sales increased 42% to 37,323 units and exports rose 32.30% to 2310 units in July 2011 over July 2010. The Verito sedan registered a strong growth of 117% having clocked 1630 units in July 2011, as against 752 units in July 2010, maintaining its upward growth trend since Mahindra took over the brand.

The Passenger Vehicles segment (which includes utility vehicles and Verito) registered a growth of 35%, having sold 17312 units in July 2011, as against 12825 units during July 2010. The 4 wheeler commercial segment which includes the passenger and load categories has registered a phenomenal growth of 91%. Speaking on the monthly sales data, Rajesh Jejurikar, Chief Executive, Automotive Division, Mahindra & Mahindra said, "We are delighted with the 41% growth in our Automotive Business in July 2011 and the record for highest ever sales. All our brands have been doing very well and Verito continues its very strong demand momentum." The monthly sales data was released during trading hours on Monday, 1 August 2011.

India's largest car maker by sales Maruti Suzuki India rose 0.28%. reversing initial losses. The company announced during market hours on Monday, 1 August 2011, that total sales fell 25.3% to 73,500 units in July 2011 over July 2010. The company said sales was negatively impacted to the extent of about 17,000 units due to discontinuation of old Swift and due shifting of Swift Dzire from Manesar plant to Gurgaon plant. The company said new Swift being manufactured at the Manesar plant will be launched nationally in mid-August 2011.

Hero MotoCorp rose 0.43%, reversing initial losses after company's total motorcycle sales rose 14.82% to 4.91 lakh units in July 2011 over July 2010. Anil Dua, Sr. Vice-President (Marketing & Sales), Hero MotoCorp said the good numbers of July 2011 have come about despite constraints on supply from the company's Haridwar plant due to 'Kawar' movement in the region during the month. The company had to keep the Haridwar plant closed for a few days in July 2011 due to this reason. Dua said the company is looking to ride the current buoyancy in sales into the festive season by launching the company's new identity, innovative products and engaging campaigns.

Hero MotoCorp came into being last week after the company received the necessary statutory approval from the Registrar of Companies (RoC) for the changeover to the new name. As a next step, Hero MotoCorp will unveil its new global brand identity in London on 9 August 2011. Wolff Olins, a part of the Omnicom group, had been engaged to work on the new brand identity, including the brand architecture, brand name, brand logo and brand positioning. The company has also roped in Law & Kenneth (L&K) as a creative partner to give shape to the communication for launching and establishing the new brand.

Bajaj Auto fell 0.18% on profit taking. The company announced during market hours today that total sales rose 14% to 3.63 lakh units in July 2011 over July 2010. Motorcycle sales rose 14% to 3.18 lakh units and commercial vehicles sales rose 18% to 45,617 units. The company said it clocked record 3-wheeler sales in July 2011. The company's exports jumped 35% to 1.43 lakh units in July 2011 over July 2010.

TVS Motor Company skidded 2.34% on profit taking. The stock had surged 8.31% on Monday, 1 August 2011, boosted by strong Q1 results. Net profit surged 45.7% to Rs 58.80 crore on 24.7% rise in net sales to Rs 1707.27 crore in Q1 June 2011 over Q1 June 2010. The company on Monday, 1 August 2011, reported a 14% growth in total sales to 1.89 lakh units in July 2011 over July 2010. Scooter sales grew 22% to 49,333 units, while motorcycle sales increased 15% to 70,170 units.

Some FMCG stocks fell on profit taking. ITC, United Spirits, Marico and shed by between 1.43% to 2.07%.

Fertiliser shares rose across the board reports the Committee of Secretaries will meet the Finance Minister on Friday, 5 August 2011, to discuss urea price decontrol. National Fertilizer, GSFC, Rashtriya Chemicals & Fertilisers and Chambal Fertiliser & Chemicals rose by between 2,44% to 8.51%. The government has already freed potassic and phosphoric fertilisers with the introduction of NBS (nutrient-based Subsidy Scheme) with effect from April 2010. However, it kept price and movement of urea under control, which consists of nearly half of India's total fertilizer consumption.

Ranbaxy Laboratories rose 0.32%. Ranbaxy and its Japanese parent Daiichi Sankyo today announced the expansion of business in Mexico to maximize their hybrid business model, encompassing both innovative and affordable, high quality generic medicines.

Sugar stocks witnessed sharp losses in a weak market. Bajaj Hindusthan, Balrampur Chini Mills and Shree Renuka Sugars slumped by between 4.46% to 5.27%.

State-run power equipment maker Bharat Heavy Electricals (Bhel) fell 0.58% to Rs 1814.45. The scrip extended recent sharp losses triggered by disappointing Q1 results. The stock had hit 52-week low of Rs 1802 in intraday trade on 28 July 2011. The company's net profit rose 22.15% to Rs 815.51 crore on 9.97% increase in net sales to Rs 7125.68 crore in Q1 June 2011 over Q1 June 2010. The net profit was boosted by a steep 52.12% jump in non-operational income to Rs 248.65 crore in Q1 June 2011 over Q1 June 2010. The result was announced during trading hours on 26 July 2011.

The top line growth fell short of market expectations. Analysts were expecting a much stronger revenue growth in Q1 June 2011 from Bhel on expectations of a strong execution of the large order book of the power equipment major. The company's outstanding order book was Rs 159600 crore as on 30 June 2011.

Engineering & construction bellwether Larsen & Toubro fell 1.66%. The company's unit L&T Finance Holdings has priced its recently concluded initial public offer (IPO) at Rs 52 a share, near the lower end of the Rs 51-59 price band. The issue closed on Friday, 29 July 2011. The IPO was subscribed 5.34 times. The IPO is an important part of Larsen & Toubro's plan to spin off some of its non-core businesses into self-sustaining units with independent access to capital markets.

Tata Power Company dropped 1.35% as the stock turned ex-dividend today, 2 August 2011, for dividend of Rs 12.50 per share for the year ended March 2011.

Cals Refineries clocked highest volume of 10.75 crore shares on BSE. Rushil Decor (51.29 lakh shares), Birla Cotsyn (46.65 lakh shares), SpiceJet (35.84 lakh shares) and K Sera Sera (31.78 lakh shares) were the other volume toppers in that order.

Amrutanjan HealthCare clocked highest turnover of Rs 121.98 crore on BSE. JSW Steel (Rs 93.34 crore), Adani Enterprises (Rs 77.22 crore), State Bank of India (Rs 77.05 crore) and Rushil Decor (Rs 72.24 crore) were the other turnover toppers in that order.

Investors' focus continues on Q1 corporate earnings. Investors are focusing on the post-Q1 June 2011 result management commentary to gauge the future earnings outlook at a time when Indian firms are witnessing cost pressures amid rising interest rates and staff costs.

DLF and Power Grid Corporation unveil Q1 results today, 2 August 2011. Bharti Airtel and United Spirits unveil Q1 results tomorrow, 3 August 2011. Adani Power, Mundra Port And Special Economic Zone and Indian Hotels announce Q1 results on Thursday, 4 August 2011. Cipla and IL&FS Transportation Networks are set to announce Q1 results on Friday, 5 August 2011.

M&M announces Q1 results on 8 August 2011. ABB, Tata Communications, Mahindra Satyam, GMR Infrastructure and VIP Industries announce quarterly results on 9 August 2011. Tata Power and Rural Electrification Corporation unveil Q1 results on 10 August 2011. Tata Motors, Castrol India and Shipping Corporation of India unveil quarterly results on 11 August 2011. Tata Steel, Hindalco, Coal India, National Aluminium Company and HPCL unveil Q1 results on 12 August 2011. Aditya Birla Nuvo unveils Q1 results on 13 August 2011.

Finance Minister Pranab Mukherjee today, 2 August 2011, said that the government does not require additional borrowing for the current fiscal year. Mukherjee has sought parliamentary approval to spend a gross additional Rs 34724 crore, on top of the budget target of around $284 billion, in the current fiscal year ending March 2012 (FY 2012). He has sought parliamentary approval to spend a net additional Rs 9016 crore in FY 2012. Mukherjee said the government's additional spending will not affect the fiscal deficit target of 4.6% of GDP for FY 2012, if revenue buoyancy remains.

The economy will grow at 8.2% in the year to March 2012, but it faces a challenge in achieving the fiscal targets set in the annual budget, a top economic advisory panel said in a report released on Monday. Headline inflation would remain close to 9% till October, before beginning to ease, and would be at 6.5% in March, the prime minister's Economic Advisory Council said.

Exports grew by an impressive 46% to $29 billion in June 2011, despite uncertainty in the US and European markets. Merchandise exports had aggregated to $20 billion in June 2010. During the April-June quarter, overseas shipments grew by 46% to $79 billion, according to Commerce Ministry data released on Monday, 1 August 2011. Though imports grew by 42% to $37 billion in June, the trade deficit of $7.6 billion was almost half the level of $15 billion seen in May, lessening concerns over the country's balance of payments situation.

Growth in manufacturing sector fell for the third month in a row in July as a long series of interest rate hikes and faltering global demand weighed on new orders and output growth, a survey showed on Monday, 1 August 2011. The HSBC Markit Business Activity Index, based on a survey of around 500 companies, fell to a 20-month low of 53.6 in July from 55.3 in June, though it remained above the 50 mark that separates growth from contraction for the 28th consecutive month.

The Reserve Bank of India (RBI) raised its key lending rates by 50 basis points at a policy review on 26 July 2011, to tame high inflation. The RBI has raised its end March 2012 inflation target to 7% as against the previous estimate of 6%, saying inflation has been higher than its expectations. It kept its economic growth forecast of 8% for this fiscal year. The RBI revised downwards non-food bank credit growth projection to 18% for the year ending March 2012 (FY 2012) from 19% earlier.

Although the impact of past monetary policy actions is still getting transmitted, considering the overall growth and inflation scenario, there is a need to persevere with the anti-inflationary stance, the RBI said. Going forward, the monetary policy stance will depend on the evolving inflation trajectory, which, in turn, will be determined by trends in domestic growth and global commodity prices, the RBI said. A change in stance will be motivated by signs of a sustainable downturn in inflation, it added.

The uncertain global macro-economic environment poses a challenge for the domestic economy from the perspective of financing the current account deficit, RBI said. In this context, the composition of capital flows remains a concern. In recent months, some shift in composition of capital flows towards foreign direct investment (FDI) has been observed. This trend needs to be reinforced through policy actions to improve the quality of financing of the current account deficit, RBI said.

European stocks dropped on Tuesday, 2 August 2011, on renewed fears over the euro-zone debt crisis. Key benchmark indices in UK, France and Germany were down by 0.56% to 0.9%. The cost of insuring Italian and Spanish bonds against default via credit default swaps, or CDS, today hit a record.

Asian stocks dropped on Tuesday, 2 August 2011, with exporters broadly pressured after fresh indications that US manufacturing is slowing, and with Japanese companies straining under the weight of a strong yen. The key benchmark indices in China, South Korea, Indonesia, Singapore, Hong Kong, Japan, and Taiwan rose by between 0.37% to 2.35%.

HSBC reported Monday, 1 August 2011, that its China manufacturing purchasing managers' index fell to 49.3 during the month from 50.1 in June. A separate, official survey by the China Federation of Logistics and Purchasing showed the nation's PMI slipped to 50.7 in July from 50.9 in June, but remained above the expansion/contraction boundary of 50

Trading in US index futures indicated that the Dow could fall 68 points at the opening bell on Thursday, 2 August 2011. US stocks fell for the sixth day in a row on Monday after the Institute for Supply Management said the US manufacturing sector grew at the slowest pace in two years in July 2011. The new-orders component of the Institute for Supply Management's manufacturing report fell to its lowest level for 25 months.

Concerns have also surfaced over the adverse implications of the large spending cuts in the US. The House of Representatives on Monday, 1 August 2011, approved a last-gasp deal to raise the US borrowing limit in a decisive step toward averting a catastrophic debt default by the world's largest economy. The bill now heads to the US Senate, which is expected to vote in favor of the bill on Tuesday, 2 August 2011.

Australia's Treasurer Wayne Swan today, 2 August 2011, said that the US and Europe face a "very painful period of adjustment" getting their budgets in order. "Certainly we've seen a very important first step in the US today," Swan said, referring to a US House of Representatives vote approving a rise in the debt ceiling. "But I think the US has still got a long way to go before they get their budget in order."

The Reserve Bank of Australia today, 2 August 2011, left its cash rate unchanged at 4.75% for a 10th successive month.