A PUSH on the banks helped the Straits Times Index yesterday rise 14.22 points to 2,707.6 in a tepid session that saw the broad market record 163 rises against 218 falls excluding derivatives.

The softness was not overly surprising given that the index had already risen sharply on Monday ahead of the US rally which meant that it made sense for investors to sell into strength yesterday. Providing added incentive to do so was a rapid drop in Hong Kong where investors also quickly sold into strength, plus an indifferent opening Europe-wide that suggested a weak-to-indifferent Tuesday for the US market.

All these meant that the STI finished off its morning high of 2,726, a surrender of 19 points.

According to news reports from the US, Monday's rally was driven by renewed weakness in the US dollar, which the market apparently took to be a positive development in helping the country recover from its recession.

Notwithstanding all the action in STI components, the rest of the market was relatively lifeless, particularly the speculative penny segment. Here, liquidity continued to drain away as retail investors, caught holding stock at higher levels, continue to wait for their turn to sell into strength.

Turnover excluding foreign currency issues was worth 1.4 billion worth $1.45 billion, or an average of just over $1 per unit, which when compared to the 60-80 cents last month, illustrates how much penny stocks have fallen out of the spotlight.

As for banks, their gains added 12 points to the STI yesterday and ensured that the STI rose above 2,700 despite there being 14 falls versus 11 rises within the index.

The three banks have completed their Q3 reporting and the common view among brokers has been broadly positive. Daiwa for example, has upgraded its view from negative to positive. 'In our view, investors should maintain an overweight stance toward the Singapore banks and buy OCBC, our top pick, or UOB aggressively on any share-price weakness, because we believe the worst of the asset-quality problem is over and that they offer solid defensiveness if the Singapore and other Asian economies slip back into recession. The only factor holding back a more bullish view is subdued Singapore system loan growth for 2010,' said Daiwa.

In calling a 'neutral weight' on banks however, DMG & Partners in a Nov 9 report said that while it expects loan growth to remain mild and core earnings to be unexciting over the nest few quarters, liquidity is a positive. 'We believe investor interest would be focused on banks with higher asset quality, as there remains the risk that the economic recovery may be mild and stress on loan quality could resurface,' said DMG. It rated DBS and OCBC as 'neutral' and upgraded UOB to 'buy'.

In its Nov 9 US Economics report, Morgan Stanley noted last week's bad US jobs report as indicating a jobless recovery but said that it still sees the recovery as sustainable, if moderate, and added that it believes the labour market recession will soon be over.

'We still expect the Fed to begin raising rates in Q3 2010. But we now expect officials to pause early in 2011 instead of continuing to raise rates. Among the reasons: improved productivity growth, correspondingly more slack in labour markets, and a lower 2010 inflation trajectory,' said MS.