Best Investment

Updated from 2:28 p.m. EST

Weekend statements that suggested Saudi Arabia wasn’t overly concerned with the decline in oil prices put modest pressure on crude futures Monday.

Benchmark contracts for light, sweet crude closed down $1.41 at $54.01 a barrel on the New York Mercantile Exchange. The drop in oil led other energy contracts lower, as well.

Natural gas futures shed 26 cents to $6.92 per million British thermal units. Heating oil lost 4 cents at $1.55 a gallon, as did gasoline to $1.44 a gallon.

“Saudi oil minister Ali al-Naimi seems to be implying that $50 a barrel oil prices are fine with OPEC,” says Jason Schenker, an economist at Wachovia in Charlotte, N.C. Press accounts of al-Naimi’s statements indicated that Saudi Arabia would be comfortable with “moderate” oil prices.

Although Saudi Arabia is only one member of the OPEC oil cartel, it wields a disproportionate influence on the market because it’s the biggest exporter and it sits on huge reserves.

“Ali al-Naimi is the Ben Bernanke of OPEC,” says Schenker, meaning that when he speaks people listen.

One factor that could boost prices over the next few sessions is the impact of an OPEC-mandated output reduction of 500,000 barrels a day that’s due to start in February. How successful it will ultimately be remains to be seen, as previous cut plans have been at least partially ignored by OPEC member countries.

Milton Ezrati, a senior economist at Lord Abbett, says the recent drop in prices from more than $70 a barrel last summer may be due to the influence of speculators, and he warns of a possible overshoot to the downside.

“Looking forward from this most recent adjustment, there is, of course, a good chance that today’s speculative flight from oil could bring prices down even further,” he says.

Turning to the oil patch, RBC Capital Markets slashed its target price on oil-field services company Halliburton (HAL) to $36 a share from $50. Traders marked down prices 1.3%.

Goldman Sachs dinged shares of electricity stock Energy East (EAS) down to a sell rating from neutral, sending shares 0.4% lower. Wachovia downgraded Berry Petroleum (BRY) to a market perform rating from outperform. The shares shed 1.8%.

AG Edwards trimmed back its stock price target on Occidental Petroleum (OXY) to $55 a share from $59. The shares were 0.8% lower.

The U.S. Oil (USO) exchange-traded fund and the iPath Goldman Sachs Crude Oil Index (OIL) ETF each lost more than 2.5%.

Major producers Exxon Mobil (XOM) and BP (BP) fell, while Chevron (CVX) edged higher.

WASHINGTON (AFX) - Overall construction spending fell twice as fast as expected in January as home building fell for the tenth straight month to its lowest level in two and a half years, the Commerce Department said today.

Construction spending fell by 0.8 pct in January to 1.18 trln usd, the lowest level since October 2005. Economists had expected overall construction spending to fall 0.4 pct in the month.

The decline was led by a 1.8 pct plunge in private residential construction, which fell for the tenth consecutive month to a seasonally adjusted annual rate of 575.4 bln usd. That’s the longest streak of declines on record and the lowest level of private home building since July 2004.

The overall drop was tempered by spending on public construction, which rose by 0.6 pct in January to 286.0 bln usd.

Meanwhile, total spending on private non-residential construction was 318.9 bln usd in January, essentially unchanged from December.

The department said total construction spending rose a revised 0.6 pct in December, compared with the earlier estimate that construction spending fell by 0.4 pct in the month. In the past nine months, December is the only month overall construction spending has posted a gain.

newsdesk@afxnews.com

tfn-was-cbd/wash/jkm

COPYRIGHT

Copyright AFX News Limited 2007. All rights reserved.

The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News.

AFX News and AFX Financial News Logo are registered trademarks of AFX News Limited

For more information and to contact AFX: www.afxnews.com and www.afxpress.com

LONDON (Thomson Financial) - UK high street lenders have begun pulling their cheapest fixed-rate mortgages from the market after Tuesday’s surprise jump in inflation figures, which boosted speculation that interest rates might have to rise more than one more time this year, newspapers reported.

The Guardian said Britain’s biggest lender, the Halifax, is withdrawing most of its two- and three-year fixed-rate deals today, while Alliance & Leicester and various building societies including Portman have already pulled deals.

The Financial Times said Alliance & Leicester yesterday replaced its fixed-rate mortgages with new products that are typically 0.3 percentage points more expensive.

Tuesday’s data showed key CPI inflation grew to 3.1 pct, more than 1 point above the 2 pct target the Bank of England is charged to keep and therefore triggering an open letter of explanation from governor Mervyn King.

The news cemented expectations of a rise in interest rates to 5.50 pct in May, and boosted speculation that further rises to 5.75 pct or even 6 pct might be needed.

alex.brittain@thomson.com

abr/ro

COPYRIGHT

Copyright AFX News Limited 2007. All rights reserved.

The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News.

In market corrections, defensive stocks become popular choices. It’s only natural. Defensive stocks lose less than the overall market.

At least that’s the way it’s supposed to be.

But in recent years, the old playbook on so-called defensive plays has changed.

Utilities, for instance, don’t act much like utilities anymore.

Since late October 2002, when the bear market bottomed, IBD’s Utility-Electric Power industry group and Utility-Gas Distribution group have outperformed the Nasdaq.

That little fact could win some bar bets.

While the Nasdaq gained about 74% in that period, the electric utilities gained 90% and the gas utilities advanced 82%. Only the Utility-Water Supply group’s 48% gain trailed the Nasdaq.

On that basis, it might be said that utilities are no longer primarily defensive plays. Those holdings can drive a portfolio up the field and score solid gains.

Yet utilities still can play some pretty good defense, too.

Since the Nasdaq’s recent peak on Halloween, the tech-heavy index has turned in a scary minus-19% performance.

Meanwhile, gas utilities corrected just 4%. And electric utilities shaved off 9%.

The gas sector’s 4% dip is a classic defensive-play performance. (Though it should be noted that defensive plays generally can’t beat cash.)

The changed scene for utilities doesn’t mean the best of both worlds for income investors. Stocks in the group can differ radically.

Among the seven electric utility stocks with an EPS Rank of 85 or better, one offers no dividend, a second pays a stingy 0.9% yield, and a third’s 8.1% payout exceeds its current and projected annual earnings.

Stocks slumped at the opening. Earnings disappointments, rethinking expectations for a Fed rate cut and soft economic data gave markets little incentive to take risks ahead of Wednesday’s Fed decision.

The NYSE composite was down 0.6% at 10:19 a.m. ET. The Nasdaq was down 0.2%, the Dow 0.4% and the S&P 500. Initial volume appeared higher than in Monday’s opening.

The Fed funds futures bias toward a potential rate cut Wednesday shifted lower, with 86% of participants banking on a short-term rate trim to 4.5%. That’s down from a 98% bias at Monday’s close.

But those odds might be turning higher after a much weaker-than-expected decline in consumer confidence.

Stocks had been paring losses ahead of the 10 a.m. ET release, but edged back down on the gloomy sentiment.

Earlier, a survey of 20 major cities by Standard & Poor’s Case-Schiller Index showed home prices were down 4.4% in the year through August. Ten of those cities showed 12-month price declines above 5%, the fastest decline since 1991. Tampa led the train wreck, with a 10%+ price decline. Index authors said “The fall in home prices is showing no real signs of a slowdown or turnaround.”

Energizer Holdings () tumbled 7.72 to 102.94. The company reported a 54% increase in fiscal Q4 earnings. That topped analyst estimates. Energizer reported flat sales in its namesake batteries business, as the company raised prices to offset lower volume sales. It also said it expects earnings contribution from the $1.6 billion Playtex Products acquisition to roll up slowly through 2008 and 2009. The move dropped the stock below its 10-week moving average.

Corn Products Int’l () dropped 6.28 to 42.01. The maker of corn syrup sweetener reported a 38% rise in Q3 earnings, just below expectations.

US Steel () fell 6% and Commercial Metals () sank 13% after the metals firms missed views. Other steel and metals firms retreated, including Mittal () and Schnitzer Steel ().

China-based Internet portal Sina () jumped up for a third straight session, adding 98 cents to 57.93. The stock broke out of an eight-week cup-with-handle in September. It is 28% above the base’s 45.02 buy point.

Sina rallied on strong results late Mon. by rival Sohu.com (), which climbed 6% to a new high.

9:15 a.m. ET Update: Stocks To Open Lower As Fed Meeting Starts

By Vincent Mao

Stock futures pointed to a weaker open Tuesday. Nasdaq futures dropped 12 points, S&P 500 futures lost 6 points and Dow futures 54 points.

Today marks the start of the Federal Reserve’s two-day meeting. To help relieve the pressure from the subprime turmoil, a rate cut of a 25 basis points in widely expected. The decision will be announced Wednesday.

But published speculation that maybe, just maybe, the Fed won’t cut rates Wed. may be making investors a little nervous.

Consumer confidence for Oct. will be out at 10:00 a.m. ET. Economists expect a dip to 99.5 from 99.8 in September.

Crude oil futures pulled back from record highs. The December contract lost $1.11 to $92.42 in electronic trading.

Meanwhile, the dollar rebounded from all-time lows against the euro.

Smith & Wesson () shot down 24% in pre-market trading. The gun maker pegged second-quarter earnings between 5 cents and 7 cents a share vs. views of 12 cents. Sales are expected from $69 million to $71 million. Analysts expected $82 million. Smith & Wesson also cut its full-year profit and revenue outlook.

Atheros Communications () jumped 8% in the preopen. Late Monday, the chipmaker reported a 47% rise in earnings and a 34% increase in revenue. both were above views. The company cited strong sales of its networking products.

CF Industries () grew 9% in the premarket. Late Monday, the fertilizer maker trounced views as its Q3 income surged 436% to $1.50 a share. Sales jumped 46% to $582.9 million, the best growth in many quarters.

Under Armour () reported third-quarter earnings of 40 cents a share, up 25% from a year ago and 6 cents ahead of views. Sales also came in above estimates. But the stock dropped 8% in pre-open trading.

Volcom () plunged 23% in the preopen. After the bell Monday, the apparel maker delivered third-quarter earnings above views, but gave a weak outlook. It sees Q4 income between 30 cents and 32 cents on sales of about $70 million to $73 million. Analysts expected 47 cents on sales of $82.3 million. Full-year profit is expected at $1.37 to $1.39 a share vs. estimates of $1.50.