GM dies, investors cheer

GM dies, investors cheer
David Berman
RTGAM






The United States racked up its third largest corporate failure on Monday, when General Motors Corp.  filed for bankruptcy protection - but investors were in a partying mood.

 U.S. stock index futures were up sharply with about 30 minutes before markets open, suggesting that stocks will blast off at the start of trading. Futures for the Dow Jones industrial average rose 112 points. Futures for the broader S&P 500 rose 16 points.

 In Europe, the U.K.'s FTSE 100 was up 1.4 per cent and Germany's DAX index was up 3 per cent in afternoon trading. In Asia, Japan's Nikkei 225 rose 1.6 per cent in overnight trading.

 The GM bankruptcy filing came as a relief to markets, since it appears to be unfolding in an orderly fashion. The U.S. government will end up with about a 60 per cent stake in the auto manufacturer, which claimed $82.3-billion (U.S.) in assets but $172.8-billion in liabilities. The only larger failures have been Lehman Brothers Holdings Inc. and WorldCom Inc.

 Meanwhile, investors were also treated to some good economic news. China's manufacturing sector - a decent barometer for global economic activity - expanded for the third straight month in May.

 As well, U.S. consumer spending fell just 0.1 per cent in April, better than the expected 0.2 per cent dip and a far shallower drop that the 0.3 per cent contraction in March.

 In Canada, the economy contracted by 5.4 per cent in the first quarter - a nasty number and the worst since 1991. However, it is considerably better than the 6.5 per cent contraction that economists had been expecting. The economy contracted by a revised 3.7 per cent in the fourth quarter.

 If that's not enough to kick-start the benchmark index on Monday, rising commodity prices should do it. In particular, crude oil rose above $68 a barrel, nearly $2 higher.

Copyright 2001 The Globe and Mail