Oil Down, Dollar Up As Wall St Re-opens

There were renewed signs of confidence in the American economy yesterday as oil prices fell, the dollar rose and Wall Street traders returned to work hoping the momentum from a strong comeback at the end of 2004 would continue.

Oil prices slid more than $1 as unseasonably warm weather in the US raised expectations that demand for heating will be weak. Mild temperatures across the American north-east, the world's biggest heating oil market, dragged the price of US light crude about 3% lower to $42.12 a barrel. Prices touched $55.67 just over two months ago.

Lower oil prices are viewed as positive for consumer spending, the engine of American economic growth.

The dollar rose for a second day against the euro after a heavy sell-off last week. In late trading in New York, the euro was down about 0.7% to $1.3457; the pound weakened from $1.9181 to $1.9040. Last Thursday, the dollar skidded to a record low against the euro of $1.3667.

The London and Tokyo currency and stock exchanges were closed yesterday for the bank holiday.

The drop in oil gave an early surge to the Dow Jones industrial average, which had rebounded strongly since the end of October. However, it eventually closed down 53 points at 10729 on the back of a mixed report on the manufacturing industry. The Nasdaq was 23 points down at 2152.

The report, from the Institute of Supply Management, said manufacturing in the US grew during December for the second consecutive month, although employment figures were not as good as had been hoped for.

A separate report had shown an unexpected drop in November construction spending.

The early momentum on Wall Street had also been propelled by some optimistic data from Wal-Mart which indicated that holiday sales in the sector may have been better than expected. The company said sales in December were 3% higher than a year ago.

Figures published yesterday showed that the initial public offering market last year enjoyed its best 12 months since 2000. According to data from Thomson Financial there were 249 IPOs in the US during 2004, raising $48.1bn (£25bn). In 2003, just 85 companies joined the stock market, raising $15.8bn.

A surge of mergers and takeovers towards the end of the year also pushed the value of corporate activity to its highest since the peak of 2000, according to Thomson. The figures, published in the Wall Street Journal, put the value of deals worldwide last year at $1.95 trillion, up 41% on 2003.

One of Wall Street's leading takeover lawyers said in an annually published letter at the weekend that he expected a big increase this year. Mark Lipton, known for his usually hawkish views, said it appeared there would be "an M&A boom in 2005".

The Dow ended 2004 with a 3.15% gain, the second straight annual increase. The index is now 48% higher than its post-boom low in October 2002.

Some individual stocks contributed to yesterday's slide. Energy groups were marked down due to the drop in oil. Also a report suggesting that up to 139,000 Americans have died or been seriously injured as a result of taking the Merck painkiller Vioxx pushed the firm more than 2% lower at $31.26.

The estimate from the scientist at the centre of a row at US regulator the food and drug administration is to be published in the British medical journal, the Lancet. Merck had no comment to make.