WEAKNESS in Hong Kong and expectations of a possibly soft session for Wall Street meant that the local market underwent an indifferent session yesterday in which rotational punting of penny stocks was the main focus. The Straits Times Index, in the meantime, didn't show much conviction throughout the day, spending most of the session moving in tandem with Hong Kong's Hang Seng Index. With the latter ending 1.2 per cent down, the STI finished with a final reading of 2,798.7, a nett loss of 0.84 of a point.

Penny stocks around and under the 20-cent price point were in vogue, led by Teledata at 7.5 cents, Novena Holdings at 19.5 cents and Transcu at 14 cents. Blue chips that were actively traded included CapitaLand and CapitaMalls Asia. Banks were mixed, as were property stocks. Excluding derivatives, there were 190 rises versus 205 falls and excluding foreign currency issues, there were 1.2 billion units worth $1 billion traded.

Brokers almost unanimously described the day as boring and featureless. News that the Dubai debt crisis may be over, thanks to guarantees from Abu Dhabi, failed to lift sentiment, while today's US Federal Open Market Committee meeting is not expected to yield much encouragement either.

CMC Markets' chief strategist Ashraf Laidi said in a note yesterday that the US dollar can be expected to sustain a short-term retreat amid news that Abu Dhabi is providing emergency funds to bail out the financially-strapped Dubai World.

'(We also expect) a dovish FOMC statement later this week, in which case the Japanese yen could regain the upper hand relative to the greenback vis-à-vis the risk currencies (EUR, GBP, AUD, CAD, NZD). FX traders were reminded two weeks ago that each and every Fed-related appearance has proven to be US dollar-negative as the central bank reiterates its mantra of 'low rates of resource utilisation, subdued inflation trends, and stable inflation expectations'.

'The stronger than expected November jobs report is unlikely to prompt a change in the Fed's dovish language, especially less than two weeks after Bernanke's 'formidable headwinds' statement. And with 10-year bond yields hitting two-month highs on Friday, the Fed is reluctant to drive up yields back above 4 per cent during a plus-10 per cent unemployment rate,' said Mr Laidi.

Henderson Global Investors said in its Dec 14 Weekly Market & Economic Update that spare capacity in the global economy continues to push down on core prices (excluding energy and food).

'We believe global resource utilisation has found a cyclical low point, but is not expected to exert upward pressure on prices for some time. This means current forward earnings estimates may be challenged in the coming months. Any downgrade of profit expectations would lead to a setback for equity markets as it would make valuations look stretched,' said Henderson.

In its latest chart view, DMG & Partners said that the depressed trading volumes of late continue to suggest a muted outlook in the near term.

'We therefore advocate investors to instead look to the smaller caps to place their bets, given that trading opportunities seem to be more prevalent over at that space . . . While the various resistance points remain unchanged at the 2,829 and 2,900 levels respectively, the initial support barrier is now situated at the 2,770 line.

'Should this support level give way, however, firmer support at the 2,729 mark is expected to hold the fort,' said DMG.