The Malaysian stock market on Tuesday saw an end to the five-day winning streak in which it had collected nearly 45 points or 4.1 percent. The Kuala Lumpur Composite Index remained above support at 1,000 points, although investors are bracing for another day of modest declines on Wednesday.
The global forecast for the Asian markets is fairly pessimistic, with many of the markets expected to consolidate after solid winning streaks. The financials are particularly likely to fall under pressure ahead of the results of the stress tests for U.S. banks, due out on Thursday. The European markets ended mixed, while the U.S. markets finished with modest losses - and the Asian markets are also expected to track lower.
The KLCI finished barely lower on Tuesday, handing back sharp gains from the morning session as profit taking took hold after the recent winning streak. Financial shares finished modestly lower, while plantation stocks also ended in the red and industrials wound up barely below the unchanged line.
For the day, the index eased 0.49 points or 0.05 percent to close at 1,008.87 after trading between 1,001.37 and 1,021.55. Volume was 1.90 billion shares worth 1.81 billion ringgit. There were 335 gainers and 303 decliners, with 252 stocks finishing unchanged.
Among the decliners, Sime Darby fell 0.75 percent and IOI Corp lost 2 percent, while Poh Kong and Bumiputra-Commerce also ended higher.
Wall Street puts forth a negative lead as stocks saw some weakness during trading on Tuesday, as traders cashed in on the standout gains that were posted in the previous session. Nonetheless, the major averages ended the session well off their worst levels of the day. While profit taking contributed to the lower close, the major averages managed to hold onto the bulk of Monday's gains, which is likely to be seen as a positive sign for the markets. Some upbeat remarks from Federal Reserve Chairman Ben Bernanke may have helped to limit the downside.
Earlier in the day, Bernanke testified before the Joint Economic Committee of Congress, noting that recent data has suggested that the pace of contraction in the U.S. economy may be slowing. While the Fed chairman also said that recent data shows some signs that the beleaguered housing market may be bottoming, he noted that the available indicators of business investment remain extremely weak.
Looking forward, Bernanke said economic activity is expected to bottom out then turn up later this year. Nonetheless, he noted that the rate of growth of real economic activity is likely to remain below its longer-run potential for a while. Minneapolis Fed President Gary Stern made similar remarks, predicting that an improvement in the economic is not too far off. While Stern said the pace of expansion is likely to be subdued for a time, he forecast a resumption of healthy growth by the middle of 2010.
Backing up the assertions from the Fed officials, the Institute for Supply Management released a report showing a bigger than expected slowdown in the pace of contraction in service sector activity in the month of April. The report showed that the ISM's index of activity in the service sector rose to 43.7 in April from 40.8 in March, with a reading below 50 indicating a contraction in the sector. Economists had been expecting a more modest increase to a reading of 42.2. The ISM released a similar report last Friday showing a bigger than expected slowdown in the pace of contraction in manufacturing activity.
The major averages staged a notable recovery attempt in late-day trading but still ended the session modestly lower. The Dow closed down 16.09 points or 0.2 percent at 8,410.65, the NASDAQ closed down 9.44 points or 0.5 percent at 1,754.12 and the S&P 500 closed down 3.44 points or 0.4 percent at 903.80.
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