Wall St mixed as Japan shrinks, ECB ready

Wall Street was mixed overnight, though trading did near record highs, as a report showing Japan unexpectedly fell into a recession kept a lid on gains.

Japan's economy shrank an annualised 1.6 per cent in the three months through September, after a revised drop of 7.3 per cent in the previous quarter. The report came days before the Bank of Japan holds its monetary policy meeting.

A further dent in the global economy helped oil extend its decline.

Also sliding was the euro after European Central Bank President Mario Draghi stressed to EU lawmakers that QE remained firmly on the table. The euro fell 0.6 per cent to US$1.2450.

"The Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate" Draghi told the European Union's Parliament, adding that "other unconventional measures might entail the purchase of a variety of assets, one of which is sovereign bonds."

Equity markets liked Draghi's message. In Europe, the Stoxx 600 finished the day with a 0.5 per cent increase from the previous close. The UK's FTSE 100 Index rose 0.3 per cent, while Germany's DAX and France's CAC 40 each climbed 0.6 per cent.

"It's a further step towards full-scale QE," Alessandro Bee, a strategist at Bank J Safra Sarasin AG, told Bloomberg News. "Markets want this kind of stimulus and hearing Draghi mention even just the possibility of buying government bonds reduces uncertainty. The question now is when will it come through. We think the ECB will start doing this in the first quarter of 2015."

In afternoon trading in New York, the Dow Jones Industrial Average rose 0.11 per cent, while the Standard & Poor's 500 Index added 0.06 per cent. The Nasdaq Composite Index fell 0.26 per cent.

The Dow rose as gains in shares of UnitedHealth and those of Merck, up 1.4 per cent and 0.9 per cent respectively, outweighed declines in shares of American Express and those of Chevron, down 0.7 per cent and 0.5 per cent respectively.

Two major corporate deals were announced: Halliburton will pay about US$35 billion in cash and stock for Baker Hughes; and Actavis will acquire Allergan in a US$66 billion transaction.

In the US, factory production increased 0.2 per cent in October, while the gain was downwardly revised to 0.2 per cent from 0.5 per cent for September, according to a Federal Reserve report.

"While the solid outlook for the US economy remains, there are, however, mounting downside risks to growth this quarter," Harm Bandholz, chief US economist at UniCredit Research in New York, told Reuters.

JPMorgan downgraded its view of the US stock market to underweight from overweight, while upgrading the euro zone to overweight from underweight. Even so, it expects US equities will continue to set fresh record highs.

In contrast, Stephen Einborn, vice chairman at hedge fund Omega Advisors, has forecast that the S&P 500 will rise another 7 to 9 per cent next year.

"October portends nothing negative for 2015," Einhorn told a Reuters investment meeting.