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NEW YORK (Reuters) – U.S. equities are the cheapest major asset class and the benchmark Standard & Poor's 500 stock index will rise 20 percent in 2011, veteran money manager Martin Sass said on Tuesday.

"I remain very positive about the market. Our target is 1,470 through year-end 2011," Sass, the founder of M.D. Sass, said at the Reuters 2011 Investment Outlook Summit.

"We think investor skepticism has kept people rather conservative in their expectations for the economy and we think overly so. So we think there will be positive surprises in terms of earnings growth, which is what happened this year and we think will happen again next year for the overall market," Sass said.

Sass's firm manages approximate $7.5 billion across equity and fixed income asset classes. The total equity portfolio at the firm is up 14.2 percent year-to-date versus 10.2 percent on the S&P 500 (.SPX).

The growth in equities will come even if U.S. economic growth is sluggish, Sass contends. That is because corporations are sitting on piles of cash and will start spending it on plants, equipment or mergers and acquisitions. They are also using the money to buy back shares.

"People are obviously looking at slow growth in GDP ... and they say slow growth, subpar recovery, ugly for equities. What I look at as the more important driver for equities is corporate profits and cash flow and balance sheet strength. So when you look at the corporate profit recovery, we are in a v-shaped recovery. We are not in a sluggish recovery," he said.

On U.S. equities, where the S&P 500 forward price to earnings ratio is around 13.3 percent, Sass believes they are "the cheapest major asset class out there."

A year ago, Sass forecast the S&P 500 closing 2010 at 1,250. On Tuesday the index was up 0.45 percent at 1,228.59.

SECTOR STRENGTH

Sass remains bullish on many of the areas he identified last year.

Energy services, in particular oil drilling companies, remain a top pick for Sass, as are generic drug makers and gambling machine manufactures.

Among his top picks in energy are Halliburton (HAL.N), Devon Energy Corp (DVN.N), Cameron International Corp (CAM.N) and Baker Hughes Inc (BHI.N).

"China's demand is soaring. The emerging countries alone over the next five years will account for about 90 percent of the increase in demand for energy. Regulation is less onerous overseas," Sass said.

He called Devon Energy "extremely undervalued" at its current price. It was trading at $74.02 on Tuesday.

Generic drug makers remains another area of growth, he said, citing the "patent cliff" many companies face. One blockbuster drug, Pfizer's Lipitor cholesterol fighter, comes off patent in November of next year.

Watson Pharmaceuticals Inc. (WPI.N), McKesson Corp (MCK.N) and Mylan (MYL.O) will benefit from the patent expiration.

Sass, however, is steering clear of the banking sector for the time being, and said he has sold shares in the sector.

"We're concerned about issues in the banking industry...liabilities they face may exceed expectations," he said.

One pick though that remains and has been increased is insurer MetLife Inc (MET.N).

AVOID

Investors who poured cash into government bonds seeking a safe haven are going to find their portfolios are shrinking as a result of higher bond yields.

Sass said he expects benchmark 10-year U.S. Treasury yields to rise to 4 percent by the end of next year, saying: "The bull market in bonds is over, in U.S. Treasuries especially.

The 10-year yield rose to 3.07 percent in midday trade on Tuesday. In October it hit a low yield of 2.38 percent.

In addition, he expects the price of oil to rise to $100 a barrel by the end of next year.

Crude oil was off 72 cents at $88.66.

(Reporting by Daniel Bases; Editing by Leslie Adler and Andrew Hay)

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LONDON (AFP) – Shares fell in opening deals on Tuesday, with the benchmark FTSE 100 index dropping 0.52 percent at 5,651.58 points.

A rally on equities markets fizzled out on Monday as optimism over prospects for Ireland's EU/IMF bailout gave way to fears the move might fail to ease pressure on other eurozone states.

Markets also fell on the back of political tensions in Dublin, as Irish Prime Minister Brian Cowen's governing coalition fell apart.

The turmoil intensified on Tuesday after Cowen promised to call a general election in the New Year once parliament passes a budget at the centre of the international bailout.

On Sunday, Cowen said his administration had applied for aid from the European Union and the International Monetary Fund, adding that it would be less than 100 billion euros (85.2 billion pounds).

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LONDON (AFP) – London's stocks climbed at the start of trade on Thursday, with the benchmark FTSE 100 index up 0.59 percent at 5,725.98 points.

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MUMBAI (AFP) – Shares in state-run Coal India soared nearly 40 percent on their first day of trading on the Mumbai stock market Thursday as investors scrambled to invest in the world's biggest coal miner.

The sale of a 10-percent stake in Kolkata-based Coal India last month was the biggest share sale in Indian history and banked the government 3.4 billion dollars.

The shares jumped to 340 rupees (7.7 dollars) in morning trade, up 38.7 percent from the issue price of 245 rupees, handing those able to buy in the initial public offering (IPO) a handsome profit on paper.

The strong debut bodes well for other part-privatisations in India, where the government has an ambitious divestment programme entailing sales of chunks of strategic state-owned firms.

"This beats our expectations. A 40-percent premium is a strong performance," said Paresh Jain, metals and mining analyst with Mumbai-based Angel Broking.

The group is the world's largest coal miner, producing over 80 percent of India's coal at 471 mines across eight states.

It also holds the largest extractable coal reserves in the world with over 22 billion tonnes, ahead of rivals China Shenhua Energy and the world's largest private miner, Peabody Energy in the United States.

Coal currently accounts for more than half of India's energy use and consumption is set to increase as the country's economic development accelerates in energy-intensive sectors such as steel and cement manufacturing.

India's demand for coal has outstripped domestic supply, resulting in a 20-percent rise in imports each year since 2005.

"Coal India is well placed to benefit from its dominant position in the Indian coal mining sector," investment house Motilal Oswal said in a note to clients.

But the brokerage added that the company faced many challenges, including delivery bottlenecks caused by India's ramshackle infrastructure and a left-wing insurgency in many areas where its reserves are located.

"This is the culmination of a landmark deal and the birth of Coal India at the stock market," Partha Bhattacharya, chairman of the firm, said at a ceremony marking the first day of trading.

Demand for the first shares issued by the company last month was strong, with financial institutions bidding for 24.7 times the shares on offer to them. Small investors bid for more than twice the shares allocated to them.

V.K. Bansal, investment banking head of Morgan Stanley India, which co-managed the IPO, said the sale had generated interest from new investors from Canada and Australia who had stayed away from previous offerings.

The Kolkata-based company has said it expects net profit to jump 25 percent in the fiscal year to March 31, 2011.

Analysts say the low-cost coal producer is likely to raise prices, which are at a 63-percent discount to global prices.

India aims to raise 400 billion rupees by next March from state sector sales, with the proceeds to be used for social programmes and reducing the budget deficit.

State-owned Power Grid Corp of India plans to launch an offer on November 9.

Others, such as state-run firms including Steel Authority of India, Hindustan Copper, Manganese Ore and Power Grid, have also lined up sales.

"Public sector firms could see a good response if pricing and fundamentals are right," said Pramod Gubbi, a director at global investment bank Execution Noble. "But the sales may not be as exceptional as Coal India."

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NEW YORK – Exchange operator Nasdaq OMX Group Inc. said Friday its third-quarter profit surged 68 percent as it slashed rebates and fees.

The share of U.S. stock trades it handles edged up from a year ago but was slightly lower than in the second quarter. Older exchanges like Nasdaq OMX Group and NYSE Euronext have seen the share of trades they execute diminish in recent years because of newer competitors entering the market.

Nasdaq OMX Group's share of U.S. stock trades rose to 22.3 percent during the most recent quarter from 22.1 percent a year earlier. It handled 22.8 percent of trades during the second quarter.

As recently as two years ago, Nasdaq OMX Group's market share for U.S. stock trading was around 30 percent.

Because of the dip in U.S. volume, Nasdaq OMX has been aggressive expanding its operations in recent years to generate new revenue. The company handled the largest share of U.S. stock options trading during the third quarter, with its two options exchanges handling a combined 28.8 percent of all trades. Its European stock trading volume jumped 39 percent during the third quarter.

Nasdaq OMX Group reported net income of $101 million, or 50 cents per share, for the three months ended Sept. 30, up from $60 million, or 28 cents per share, a year ago.

Analysts polled by Thomson Reuters forecast Nasdaq OMX Group would earn 46 cents per share on revenue of $369.9 million.

Nasdaq OMX Group's revenue, which excludes rebates, brokerage, clearance and exchange fees, rose to $372 million from $349 million a year earlier.

Market service revenues fell 9 percent as overall trading volume slowed because investors were more cautious about the health of the economy. Nasdaq OMX Group was more than able to make up for that drop in revenue by slashing rebate and fee costs by 18 percent.

Its shares rose 42 cents, or 2 percent, to $21.32 in morning trading.

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NEW YORK – Stock wavered Friday after a report on economic growth did little to reassure investors about the health of the economy.

The Dow Jones industrial average fell about 20 points in midday trading.

Gross domestic product, the broadest measure of the nation's economy, grew at a 2 percent annual pace in the third quarter. That was in line with economists' expectations and only slightly better than the 1.7 percent growth rate during the second quarter.

Signs of meager growth come as investors grow more cautious heading into next week's midterm elections and are uncertain about the size of economic stimulus measures the Federal Reserve is expected to announce next week.

Normally such slow GDP growth would have driven stocks much lower. But signs of weak economic expansion provide further support for the Fed's anticipated stimulus plan.

"Because GDP was so lackluster, we don't see the Fed pumping the brakes" on its plan, said Tony Zabiegala, a partner at Strategic Wealth Partners.

Stocks rose sharply during the first half of October as expectations mounted that the Fed would start buying Treasury bonds to drive interest rates lower. That, in turn, is supposed to spark spending and lending. In recent days, however, the size of the bond-buying program has been questioned, putting a market rally on hold.

John Apruzzese, a partner and portfolio manager at Evercore Wealth Management, said reaction in anticipation in the program is typical of the market.

"This is a classic situation where all the market movement is done in anticipation," Apruzzese said.

The market could be stuck in a holding pattern until the Fed wraps up its meeting Wednesday where it is expected to announce details about the bond-buying program.

A day before the Fed completes its meeting, voters will head to the polls for the midterm elections. Traders have been betting that Republicans will at least take control of the House of Representatives, which could slow government action.

Analysts say uncertainty over tax issues and potential costs from health care and financial regulation reform bills have been major reasons employers have been hesitant to start hiring new workers. The results of the election should provide more clarity about those questions.

With so many people unsure about their jobs, they have cut back on their spending, which accounts for the biggest piece of the nation's economy. While the latest GDP report showed a rise in consumer spending, its still well below pre-recession levels.

The Dow rose fell 19.19, or 0.2 percent, to 11,094.61 in midday trading.

The Standard & Poor's 500 index fell 1.99, or 0.2 percent, to 1,181.79, while the Nasdaq composite index rose 2.38, or 0.1 percent, to 2,509.75.

Bond prices rose slightly following the GDP report. The yield on the benchmark 10-year Treasury note fell to 2.62 percent from 2.66 percent late Thursday.

Another batch of earnings news came in mixed. Microsoft Corp. rose after reporting higher income late Thursday, while Merck & Co. and Chevron Corp. fell following disappointing results. Merck was hurt by disappointing revenue figures, while Chevron fell short of earnings forecast after charges tied to foreign exchange.

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