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Dollar Optimism Dissipates as Confidence in Fed Ebbs (Update1)

By Ye Xie and Stanley White

"July 16 (Bloomberg) -- The U.S. dollar will weaken against the euro, yen, Brazilian real and Swiss franc in the next six months as confidence in Federal Reserve and Treasury efforts to keep the economy out of a recession fades, a survey of Bloomberg users showed."

"U.S. investors turned bearish on the dollar for the first time in three months, according to respondents in the monthly Bloomberg Professional Global Confidence Index, which questioned 5,450 users from Los Angles to Paris to Tokyo. Participants became bullish on the franc for the first time since March and less pessimistic about the British pound."

"The results are consistent with expectations of futures traders, who are placing less of a chance that the Fed will raise its benchmark interest rate from 2 percent this year. The Dollar Index, which tracks the currency against six of U.S. major trading partners, fell to a three-month low yesterday on concern that losses at Fannie Mae and Freddie Mac, the two largest U.S. mortgage firms, will slow economic growth."

"``The markets were naïve to think that the Fed's efforts to restore stability would be enough to prompt an immediate recovery,'' said Paresh Upadhyaya, who helps oversee about $50 billion in currency assets as a senior vice president at Putnam Investments in Boston and participated in the survey. ``It takes time to resolve the issues in the housing and financial sectors, and these problems will prevent any sustained recovery of the dollar.''"

"The index of expectations on the dollar for U.S. users fell to 45.44 in July from 58.49 in June. A reading above 50 indicates participants expect the currency to appreciate. Users in Switzerland registered 59.37, up from 42.24 last month. The index rose to 42.41 in U.K., the most since March."

Treasury Initiative

"Currency strategists are more bullish on the greenback than the survey respondents. By the end of the year, the dollar will strengthen to $1.50 versus the euro, according to the median of 38 analysts in a Bloomberg survey."

"The dollar declined to $1.6038 per euro yesterday, the lowest since the introduction of the shared European currency in 1999, and was at $1.5844 at 11:38 a.m. in New York. The dollar weakened the most against the yen yesterday since the March collapse of Bear Stearns Cos. It traded at 104.69 yen today. It traded at 1.5980 against the real and 1.015 versus the Swiss franc."

"Treasury Secretary Henry Paulson said July 13 that he would seek authority from Congress to buy stakes in Fannie and Freddie and their credit lines. The Fed authorized the companies to borrow directly from the central bank. The dollar may extend its declines below $1.60 because of the potential costs of the rescue, UBS AG and Barclays Plc said in reports yesterday."

`Downside Risks'

"Users in the U.S. became less certain that the Fed will raise borrowing costs. The index measuring the outlook for the federal funds rate fell to 57.35, from 60.35 in June. Their views on the U.S. economy turned more negative, pushing the index to 8.77, the lowest since March."

"Treasuries rose after Bernanke told Congress yesterday that there are ``significant downside risks'' to growth, abandoning the message of the Fed's June policy statement that said the risks had ``diminished somewhat,'' while repeating warnings on inflation. The shift reflects renewed turmoil in markets that forced the Treasury and Fed to mount the rescue of Fannie Mae and Freddie Mac."

"Users are not as sure 10-year Treasury yields will rise. The sentiment index on yields fell to 66.72, from 70.76 in June."

European Pessimism

"UBS, the second-biggest currency trader, is keeping its forecast for the euro to fall to $1.53 by end of the third quarter and to $1.40 by the end of 2008 as Europe's economy slows, said Geoffrey Yu, a London-based strategist. The European Central Bank lifted its main refinancing rate by half a percentage point to a seven-year high of 4.25 percent on July 3."

Participants in Switzerland continued to forecast the Swiss National Bank will raise its benchmark rate from 2.75 percent. The index that measures expectations for borrowing costs rose to 65.11 in July from 61.21 the previous month.

"Users in Japan are more optimistic about the outlook for the yen, with a reading of 55.08, up from 43.08 in the previous month. The yen rose 15.4 percent against the dollar in the past year as the collapse of the U.S. subprime mortgage market prompted investors to pare carry trades funded in the Japanese currency."

In carry trades investors borrow in countries with low interest rates and invest in higher-yielding assets elsewhere. The risk is that currency moves erase profits. Japan's 0.5 percent central bank rate is the lowest among major economies.

"``We've been bullish on the yen since earlier this month,'' said Kimihiko Tomita, head of foreign exchange in Tokyo at State Street Bank & Trust Co., a unit of the world's largest money manager. ``It's clear that it will take a lot of time to solve problems in the financial system. We expect risk aversion to boost the yen.''"

To contact the reporter on this story: Ye Xie in New York at Yxie6@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net

"Last Updated: July 16, 2008 11:42 EDT"





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"European Stocks Rise on Lower Oil; Daimler, Ryanair Advance "

By Adam Haigh

July 16 (Bloomberg) -- European stocks rebounded from a three-year low after a drop in oil prices boosted earnings prospects for carmakers and airlines.

"Daimler AG, the world's second-biggest luxury automaker, and Ryanair Holdings Plc, Europe's largest discount airline, gained after crude fell. Cie. Financiere Richemont SA rallied after sales at the world's biggest jewelry maker topped analysts' estimates. Vivendi SA led media companies higher after Activision Blizzard Inc., which completed its merger with Paris-based Vivendi's games unit last week, reported profit that beat the publisher's own forecast."

"Europe's Dow Jones Stoxx 600 Index added 0.8 percent to 268.50, trimming its decline this year to 26 percent. Richemont's sales, a forecast from Intel Corp. and better-than-expected profit from Wells Fargo & Co. also helped bolster confidence in the outlook for earnings."

"``The drop in oil prices together with the good results we have seen in the U.S. is lifting investors' sentiment,'' said Sergi Martin, who oversees $9 billion as chief executive officer at Credit Andorra's Credit Invest asset management unit in Andorra LaVella, Andorra. ``The market begins to realize that earnings might not be as bad as feared.''"

"Profit for companies in the Stoxx 600 will decline by 2.3 percent in 2008, according to analysts' estimates compiled by Bloomberg. That's down from 11 percent growth predicted at the start of the year."

More than $14 trillion has been wiped off the value of global equities since October as $417 billion in credit-related losses prolong the global economy's slump and rising commodity prices stoke inflation.

"The rout has left the Stoxx 600 valued at 10.7 times the profit of its companies, the cheapest since at least 2002, based on weekly data compiled by Bloomberg."

Bear Markets

"Among the 23 industrialized nations in the MSCI World Index, a global stock benchmark, only Canada has averted a bear-market decline of 20 percent. Financial institutions and consumer companies dependent on discretionary spending have led the world index's retreat in 2008."

"National benchmark indexes increased in 13 of the 18 western European markets. The U.K.'s FTSE 100 retreated 0.4 percent. France's CAC 40 climbed 1.3 percent, and Germany's DAX rose 1.2 percent."

"Daimler added 3.1 percent to 37.51 euros. Volkswagen AG, Europe's largest carmaker, climbed 7.9 percent to 187.9 euros."

Ryanair advanced 6.6 percent to 2.93 euros.

Oil Drop

Crude futures dropped after a U.S. government report showed an unexpected increase in inventories.

"The contract for August delivery lost $4.36, or 3.1 percent, to $134.38 on the New York Mercantile Exchange. It dropped $6.44, or 4.4 percent, yesterday as Federal Reserve Chairman Ben S. Bernanke said risks to U.S. expansion and inflation have risen."

"Richemont advanced 4.5 percent to 55.8 francs. First-quarter sales rose to 1.43 billion euros ($2.3 billion), more than the 1.38 billion-euro median estimate of 14 analysts surveyed by Bloomberg."

"Vivendi climbed 3.6 percent to 25.40 euros. Activision Blizzard, the world's largest video-game publisher, reported sales and profit that topped its own forecasts."

"STMicroelectronics, Alstom"

"STMicroelectronics NV, Europe's biggest semiconductor maker, rose 3.1 percent to 6.645 euros. Infineon Technologies AG, the region's second-largest maker of semiconductors, added 2.6 percent to 4.48 euros."

"Intel signaled that demand for electronics is holding up better than analysts predicted. Third-quarter sales will be $10 billion to $10.6 billion, the company said yesterday. That compares with an average prediction of $10 billion in a Bloomberg survey of analysts."

"Alstom SA, the world's third-largest power plant builder, climbed 8.5 percent to 71.71 euros after reporting first-quarter revenue. Sales through June increased to 4.5 billion euros from 4.05 billion euros a year earlier, the company said."

"``The outlook remains strong and we estimate announced orders for the second quarter are likely to be even higher,'' London-based Merrill Lynch & Co. analyst Mark Troman wrote in a note to clients today. ``This is one of the few reliable growth stories in the sector.''"

"Suez, Wolseley"

"Suez SA increased 2.9 percent to 41.36 euros. Shareholders of Belgium's biggest power company approved a merger with Gaz de France SA, paving the way for the creation of the world's second- largest utility almost 2 1/2 years after the plan was announced."

Wolseley Plc fell 6.2 percent to 272.25 pence. The world's largest distributor of plumbing and heating equipment said 11- month pretax profit dropped 35 percent as housing slowdowns in the U.K and U.S. hurt demand.

Natixis SA tumbled 5.2 percent to 4.79 euros after Les Echos said France's fourth-biggest bank may raise capital. The newspaper said the bank is considering raising capital after having more than 1 billion euros ($1.6 billion) in additional writedowns in the second quarter. The report cited unidentified people familiar with the matter.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

"Last Updated: July 16, 2008 12:37 EDT"





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Market Data
"European Two-Year Bonds Decline as Oil Drops, Wells Fargo Jumps "

By Kim-Mai Cutler

July 16 (Bloomberg) -- European two-year government bonds fell as sliding oil prices boosted stocks and concern about banking losses eased after second-quarter profit at Wells Fargo & Co. topped analysts' estimates.

"The German note snapped two days of gains as oil sank more than $6 a barrel in New York, extending yesterday's $6.44 drop. Wells Fargo, the biggest bank on the U.S. West Coast, jumped the most in more than 25 years as it also lifted its dividend. Equities rallied, while a government report showed euro-area inflation rose last month to the highest in 16 years."

"``We started the day with a negative tone but since then, we've seen bond-bearish economic data, Wells Fargo coming in above expectations and now a drop in the oil prices,'' said Kornelius Purps, a fixed-income strategist in Munich at Unicredit Markets and Investment Banking, a unit of Italy's largest lender. ``All this is driving yields up.''"

"The yield on the two-year German note rose 2 basis points to 4.32 percent as of 4:23 p.m. in London. The price of the 4.75 percent security due June 2010 slipped 0.04, or 40 euro cents per 1,000-euro ($1,584) face amount, to 100.73."

"The yield on the 10-year German bund, Europe's benchmark government security, was little changed at 4.38 percent. Bond yields move inversely to prices."

"Crude oil supplies unexpectedly rose 2.95 million barrels to 296.9 million barrels last week, a U.S. Energy Department report showed. Inventories were forecast to drop 2.2 million barrels, according to the median of analyst estimates in a Bloomberg News survey. Prices tumbled yesterday on signs that the slowing U.S. economy is cutting fuel use."

Stocks Recover

Wells Fargo said net income dropped 23 percent to 53 cents a share from 67 cents a year earlier. That beat the 50-cent average estimate of analysts surveyed by Bloomberg.

"European stocks rebounded, with the benchmark Dow Jones Stoxx 600 Index gaining as much as 1 percent after falling 1.5 percent. The Standard & Poor's 500 Index increased 0.5 percent, recovering from as much as a 0.3 percent decline."

"The Labor Department said prices paid by U.S. consumers jumped in June by the most since 2005. The cost of living soared 1.1 percent, more than forecast, after a 0.6 percent gain in May, the report said today."

"The inflation rate in the euro area climbed to 4 percent in June, the highest since 1992, the European Union statistics office in Luxembourg said today. That matched an estimate published on June 30."

Inflation Accelerates

"Consumer price-growth in Germany, Europe's biggest economy, accelerated to 3.4 percent last month after gaining 3.1 percent in May, the Federal Statistics Office said today. That's the fastest pace since the country began calculating inflation using a harmonized EU method in 1996."

"Belgian bonds will underperform after the country's government collapsed yesterday because it was unable to heal a rift between French- and Dutch-speaking voters, according to ING Bank NV and Commerzbank AG."

"The difference in yield between the Belgian 10-year bond and its German equivalent was near the widest in three months today, at 37 basis points. Prime Minister Yves Leterme submitted his resignation two days ago amid the nation's worst political crisis in its 177-year history."

"``If Belgium were to split, there would be a huge debate about who owns the debt, with associated risks for coupon and redemption payments,'' Padhraic Garvey, the head of investment- grade strategy in Amsterdam at ING, wrote in a research note yesterday. ``The big issue here is the risk for a breakup of Belgium.''"

To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net

"Last Updated: July 16, 2008 12:07 EDT"





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Market Data
"U.S. Economy: Consumer Prices Up 5%, 17-Year High (Update1) "

By Shobhana Chandra and Timothy R. Homan

"July 16 (Bloomberg) -- U.S. consumer prices surged 5 percent in the past year, the biggest jump since 1991, just as households struggled with falling home values and the credit crunch."

"Spiraling expenses for food and fuel spurred the increase in June, the Labor Department said today in Washington. The cost of living rose 1.1 percent from May, more than forecast and the second-largest rise since 1982. Separate figures showed industrial production rose more than estimated because of the end of a strike at American Axle & Manufacturing Holdings Inc. and increased electricity output."

"Price gains accelerated last month even after stripping out energy and food, underscoring the challenge for Federal Reserve Chairman Ben S. Bernanke as he attempts to steer the economy through the slowdown and credit crisis. Treasuries fell."

"``This is a problem for the economy; it's even worse for the Fed,'' said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania. ``Inflation numbers are high enough that under different circumstances the Fed would be hiking rates.''"

"Excluding food and energy, so-called core costs climbed 0.3 percent in June from the previous month and 2.4 percent from a year before."

Yields Jump

"Benchmark 10-year note yields rose to 3.92 percent at 1:28 p.m. in New York, from 3.82 percent late yesterday. The Standard & Poor's 500 Stock Index advanced 1.4 percent to 1,232.2, after earnings from Wells Fargo & Co. topped analysts' estimates."

"Consumer prices were forecast to rise 0.7 percent, according to the median estimate of 79 economists in a Bloomberg News survey. Projections ranged from gains of 0.2 percent to 1.1 percent. Costs excluding food and energy were forecast to rise 0.2 percent, the survey showed."

"Bernanke told lawmakers in semiannual testimony on the economy yesterday and today that inflation risks have ``intensified.'' At the same time, he dropped his June assessment that risks to the economic expansion had diminished, indicating policy makers aren't ready to raise interest rates to contain expenses."

"``We don't think they're going to raise rates now -- until June next year now is our forecast -- until basically the economy starts to get some footing,'' Beth Ann Bovino, senior economist at Standard & Poor's in New York, said in an interview with Bloomberg Radio. ``Right now the beast is what's going to happen with the economy.''"

Exceeding Forecasts

"Prices were forecast to climb 4.5 percent in June from a year earlier, according to the survey median."

"A separate report today said confidence among U.S. homebuilders dropped to 16 this month, a record low. Readings for current sales, expected sales and buyer traffic in the National Association of Homebuilders/Wells Fargo sentiment index also were at all-time lows."

"``The magnitude of the housing bubble was unprecedented, and the corrective process promises to be a long and painful one,'' Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, said in a note to clients."

"The Fed said today that production at factories, mines and utilities increased 0.5 percent last month after dropping 0.2 percent in May. Capacity utilization, which measures the proportion of plants in use, rose to 79.9 percent from 79.6 percent."

Strike's Resolution

"The resolution of a three-month strike by General Motors Corp.'s largest axle supplier, American Axle, probably helped lift auto output. Excluding autos, factory output fell 0.1 percent for a second month."

"Wholesale costs rose 1.8 percent in June, the most in seven months, the Labor Department reported yesterday. From a year ago, prices climbed 9.2 percent, the biggest surge since 1981."

"Companies, unable to fully recover ballooning raw-material costs by raising prices, have cut staff and reduced equipment purchases as profits shrink."

"Kimberly-Clark Corp., the maker of Huggies diapers and Scott paper towels, said earnings for this year will trail its previous forecast as expenses rise more than twice as fast as predicted,"

"``Inflation has outpaced our ability to offset higher costs in the near term through price increases, cost reductions and other measures,'' Thomas Falk, the Dallas-based company's chief executive officer, said this week in a statement."

Price Increase

"Procter & Gamble Co., the maker of Tide detergent and Head & Shoulders shampoo, last week said it'll raise prices as much as 16 percent due to higher costs for plastic, energy and paper. The increases start in September and are the Cincinnati-based company's steepest in at least 18 months."

"Energy expenses jumped 6.6 percent, the biggest gain since November. Gasoline soared 10.1 percent and fuel oil jumped 10.4 percent."

"The cost of fuel will continue stoking price pressures. Crude oil futures reached a record $147.27 a barrel on July 11 and have risen almost 90 percent in the past year. Regular gasoline, which topped $4 a gallon for the first time in June, kept rising this month, AAA figures show."

The consumer price index is Labor's broadest gauge of costs. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.

Food Expenses

"Food prices, which account for about a fifth of the CPI, increased 0.8 percent, driven by the biggest gain in the cost of vegetables in almost four years."

"The report showed that food and fuel weren't the only items on the rise. Costs for airline fares jumped 4.5 percent, the most since 2001."

"Rents which, make up almost 40 percent of the core CPI, also accelerated. A category designed to track rental prices rose 0.3 percent after a 0.1 percent gain in May."

"Today's figures also showed wages decreased 0.9 percent in June after adjusting for inflation, the biggest drop since September 2005, and were down 2.4 percent over the last 12 months. The decline in buying power is one reason economists forecast consumer spending will slow."

"Americans trimmed purchases of automobiles, furniture and restaurant meals last month as the cost of gasoline soared, a Commerce Department report showed yesterday. Retail sales rose 0.1 percent, less than forecast, a sign the boost from the tax rebate checks is already fading."

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.netTimothy R. Homan in Washington at thoman1@bloomberg.net

"Last Updated: July 16, 2008 13:35 EDT"





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Market Data
Swiss Trades Near 3-Month High Against Euro on Risk Aversion

By Lukanyo Mnyanda

July 16 (Bloomberg) -- The Swiss franc traded near the highest level in almost three months against the euro on speculation widening losses at U.S. banks will trim demand for higher-yielding assets funded in Switzerland.

"The franc was supported by a government report showing retail sales rose more than economists expected in May, making it less likely the Swiss National Bank will cut interest rates. Federal Reserve Chairman Ben S. Bernanke yesterday abandoned his view that economic risks had diminished, helping to push the Standard & Poor's 500 Index to the lowest since 2005."

"``The Swiss franc is benefiting from rising uncertainty and sour stock markets,'' said John Hydeskov, a strategist in Copenhagen at Danske Bank A/S, Scandinavia's largest lender by assets. ``It seems like Switzerland's economy is behaving quite well.''"

"Against the euro, the franc rose as much as 0.4 percent to 1.5991, its highest level since April 21, and was at 1.6054 as of 4:09 p.m. in Zurich, from 1.6060 yesterday. It was at 1.0110 per dollar, from 1.0092 yesterday, when it traded as high as 1.0012, the highest level since April 22."

"The franc may rise to 1.57 per euro and reach parity with the dollar in the next three months, Hydeskov said."

"Swiss sales per day, adjusted for inflation, increased 7.4 percent from a year earlier after dropping 9.4 percent the previous month, the Federal Statistics Office in Neuchatel said today. Economists surveyed by Bloomberg News had forecast a gain of 3.8 percent."

SNB Warning

"SNB Governing Board member Thomas Jordan said policy makers will raise borrowing costs if they see the risk of a wage-price spiral developing, NZZ am Sonntag reported July 6, citing an interview."

"Falling stock markets encouraged investors to reduce carry trades, in which investors borrow in a currency at a low interest rate and convert the proceeds into one they can lend out for a higher return. They run the risk that currency swings may erode their profit."

"The Swiss Market Index dropped 0.8 percent, while the Dow Jones Euro Stoxx 600 Index, a European benchmark, dropped 0.5 percent to the lowest level since May 2005."

Switzerland's 2.75 percent interest rate is the third-lowest among industrial countries after Japan and the U.S.

"Swiss government bonds were little changed, with the yield on the 3 percent note due in January 2018 holding at 3.09 percent."

To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

"Last Updated: July 16, 2008 10:18 EDT"





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Market Data
"Some Fed Officials Favored Rate Rise `Very Soon,' Minutes Say "

By Craig Torres

"July 16 (Bloomberg) -- Some Federal Reserve policy makers in June said an increase in the benchmark U.S. lending rate ``would be appropriate very soon,'' minutes released in Washington today showed."

"The economic outlook made the ``timing and magnitude of future policy actions'' unclear to the full committee, the minutes said. Still, ``with increased upside risks to inflation and inflation expectations, members believed that the next change in the stance of policy could well be an increase in the funds rate,'' minutes of the June 24-25 Federal Open Market Committee meeting said without specifying when."

The June inflation alarm came before renewed bouts of financial turbulence in July shaped Federal Reserve Chairman Ben S. Bernanke's views about growth risks. The chairman abandoned the FOMC's June assessment that the threat of an economic downturn had diminished in his testimony this week.

"There are ``significant downside risks to the outlook for growth,'' and ``upside risks to the inflation outlook have intensified,'' Bernanke said in semiannual testimony before the House Financial Services Committee today."

"The FOMC on June 25 left the benchmark interest rate unchanged at 2 percent, pausing after seven cuts that totaled 3.25 percentage points since September. Futures traders have priced in a 93 percent probability of no change in policy at the Aug. 5 meeting."

Markets Decline

"Risks to the economic outlook have risen after the Standard & Poor's Financials Index dropped 21 percent between June 25 and July 15. Shares of Fannie Mae and Freddie Mac, the largest sources of U.S. home financing, have slumped, prompting the Treasury and the Fed to announce a financial backstop plan Sunday."

"``Chairman Bernanke's testimony moved back to a more balanced message compared to the hawkish rhetoric that we have heard from the FOMC over the past month or two,'' former Fed governor Laurence Meyer, now a vice chairman of Macroeconomic Advisers LLC, said before the release of the minutes. ``The testimony emphasized that the risks to the outlook are still two-sided'' with downside risks to growth counterbalancing ``concerns about inflation.''"

"The minutes show committee members wrestling with the inflation risks associated with record-setting oil prices which have unseated consumers' outlook for near-term inflation, and whether demand could be hampered by tighter credit resulting from financial market turmoil."

"Some members noted that the federal funds rate at 2 percent was negative after adjustments for inflation, a policy which ``could well lead to higher trend inflation.''"

Risks `Diminished'

"``With downside risks having diminished somewhat, some firming in policy would be appropriate very soon, if not at this meeting,'' some members argued. ``Other participants observed that the high level of risk spreads and the restricted availability of credit suggested that overall financial conditions were not especially accommodative.''"

"Prices paid by U.S. consumers jumped in June by the most since 2005 on soaring costs for fuel and food, the Labor Department said earlier today. The cost of living jumped 1.1 percent for the month, after a 0.6 percent gain the prior month. Prices increased 5 percent in the 12 months to June, the most since 1991."

"Forecasts in the minutes were identical to what Bernanke presented to Congress today and yesterday. Fed officials raised their projections for economic growth and inflation for this year, while reiterating their outlook for faster growth in 2009."

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net

"Last Updated: July 16, 2008 14:01 EDT"





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`Misery Index' in U.S. Climbs to 15-Year High on Inflation Rise

By Timothy R. Homan

July 16 (Bloomberg) -- Misery hasn't had this much company in more than 15 years.

"The jump in consumer prices reported today by the Labor Department means the so-called Misery Index, the sum of the unemployment and inflation rates, is the highest since President Bill Clinton took office in January 1993. The measure, created by Arthur Okun, an economics adviser to President Lyndon Johnson, rose to 10.5 in June from 9.7 in the prior month."

"Surging costs and falling payrolls will cause consumers to slow spending growth to the weakest pace since 1991 by the fourth quarter, according to a monthly survey of economists by Bloomberg News. The figures underscore Federal Reserve Chairman Ben S. Bernanke's comment to lawmakers yesterday that U.S. households are under ``tremendous pressure.''"

"``You add that to what's going on with home prices and that's just a huge stress on consumers,'' said Robert Dye, senior economist at PNC Financial Services Group Inc. in Pittsburgh."

"The year-over-year inflation rate accelerated to 5 percent, the fastest since May 1991, the Labor Department said. A separate report July 3 showed a 5.5 percent unemployment rate for June."

"Today's consumer price index data also showed wages fell 2.4 percent over the last 12 months, after adjusting for inflation."

The June unemployment rate held at 5.5 percent after soaring the most in two decades in May from April's 5 percent.

"The Misery Index peaked in June 1980, when the jobless rate reached 7.6 percent and consumer prices rose 14.4 percent."

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net.

"Last Updated: July 16, 2008 14:29 EDT"





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"Brazil Stocks Gain, led by Homebuilders; Mexico Bolsa Rises "

By Alexander Ragir

"July 16 (Bloomberg) -- Brazilian stocks gained for a third day, led by homebuilders, after agreements to buy houses jumped and a slide in oil prices sent airlines higher."

"Tecnisa SA led gains among homebuilders after it said presales contracts rose more than fourfold in the second quarter. Cyrela Brazil Realty SA Empreendimentos e Participacoes, which also said this week contracts jumped fourfold, advanced for a second day. Tam SA, Brazil's biggest airline, gained the most on the Bovespa index after crude dropped $5 a barrel."

"``People worrying that real estate sales would slow, and now the market is seeing that they are growing as fast as the companies said they would,'' said Eduardo Favrin, who oversees $3 billion as head of equities at HSBC Investments Brasil in Sao Paulo. ``The market clearly is going to more domestic sectors and leaving commodities a bit.''"

"The Bovespa index of the most-traded stocks on the Sao Paulo stock exchange rose 415.15, or 0.7 percent, to 61,430.24 at 11:06 a.m. New York time, as more than five stocks rose for every one that fell. Mexico's Bolsa index gained 0.6 percent."

"Brasil Telecom Participacoes SA gained 5 percent, the most in more than three months, to 7.72 reais. Brazil's third-biggest fixed-line telephone company reported second-quarter net income rose to 254.4 million reais ($160.2 million), beating the 197 million reais average of 5 estimates compiled by Bloomberg."

"Tecnisa climbed 2.5 percent to 7.72 reais. Presales contracts rose to 331 million reais ($208 million) from 73 million reais a year earlier, Sao Paulo-based Tecnisa said in a filing on the Brazilian regulator's Web site."

"Rossi Residencial SA gained 2.7 percent to 12.43 reais. Brazil's third-biggest homebuilder said its second-quarter presales contracts more than doubled to 533 million reais ($336 million). Cyrela, Brazil's biggest homebuilder, jumped 3.6 percent to 21.24 reais."

"Tam jumped 8.5 percent to 31.10 reais, while Gol Linhas Aereas Inteligentes SA rose 8 percent to 14.52 reais. Crude oil futures fell more than $5 a barrel in New York after a U.S. Energy Department report showed an unexpected increase in inventories. Fuel makes up about 40 percent of airlines costs."

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net.

"Last Updated: July 16, 2008 11:36 EDT"





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"Canada's 10-Year Bond Falls on Factory, U.S. Inflation Reports "

By Jamie McGee

July 16 (Bloomberg) -- Canada's 10-year government bond fell for the first time this week after manufacturing shipments in the world's eighth-largest economy exceeded forecasts and U.S. consumer prices rose the most since 2005.

The yield advantage of the 10-year security compared with the two-year bond reached the highest in more than five weeks.

"``The yields are up a bit on both the U.S. inflation numbers and a stronger-than-expected report on Canada's manufacturing shipments,'' said Avery Shenfeld, senior economist at CIBC World Markets in Toronto, a unit of Canada's fifth- largest bank. ``The inflation in the U.S. raises the prospect of seeing similar increases, but not quite as dramatic, in Canada.''"

"The 10-year bond's yield increased 3 basis points, or 0.03 percentage point, to 3.71 percent at 1:01 p.m. in Toronto. The price of the 4.25 percent security due in June 2018 fell 25 cents to C$104.43."

"Shipments increased 2.7 percent in May, after a revised 2.1 percent during April. The median forecast of 19 economists surveyed by Bloomberg News was for a gain of 0.5 percent. Consumer prices in the U.S. increased 1.1 percent in June, the fastest since September 2005."

"``Yields are still quite tame, even where inflation is headed, and don't leave a lot of room for the likelihood of the Bank of Canada to raise rates in 2009,'' Shenfeld said. ``Bonds may see some further selling pressure ahead.''"

Bank of Canada

The Bank of Canada lowered its overnight lending rate four times between December and April. The central bank kept borrowing costs unchanged at 3 percent during its last two meetings.

The yield on the two-year government bond was little changed at 3.07 percent.

"The 10-year bond yielded 64 basis points more than the two- year security, the widest since June 9."

"Canada's two-year bond yield will rise to 3.16 percent by the end of this year, with the 10-year yield increasing to 3.87 percent, according to the median forecast in a Bloomberg survey."

"The U.S. 10-year Treasury note yielded 21 basis points more than the comparable-maturity Canadian bond, narrowing from 39 basis points on June 25."

"Canadian government bonds have returned 3.6 percent this year. U.S. Treasuries have returned 3.1 percent in 2008, according to Merrill Lynch & Co. index statistics."

"Canada's dollar was little changed at C$1.0014 per U.S. dollar, from C$1.0018 yesterday. One Canadian dollar buys 99.87 U.S. cents."

To contact the reporter on this story: Jamie McGee in New York at jmcgee8@bloomberg.net.

"Last Updated: July 16, 2008 13:05 EDT"





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"Mexican Peso Surges, Government Bonds Gain as U.S. Stocks Rally "

By Valerie Rota

July 16 (Bloomberg) -- Mexico's peso strengthened to a five-year high as a gain in U.S. stocks fueled demand for higher-yielding developing-nation assets.

"The Mexican government's local-currency bonds rose for a second day. The Standard & Poor's 500 Index rebounded from its lowest level since 2005 after Wells Fargo & Co., the biggest bank on the U.S. West Coast, said profit exceeded analysts' estimates and a drop in oil prices eased concern inflation will quicken."

"``We're seeing a decrease in risk aversion,'' said Alberto Bernal, head of emerging-market fixed-income research at Bulltick Capital Markets in Miami."

"Mexico's peso strengthened 0.3 percent to 10.2627 per dollar at 11:48 a.m. New York time, from 10.2962 yesterday. Earlier, it touched 10.2526, its strongest since June 2003."

"Yields on the 10 percent bond due December 2024, the country's most-traded security, fell 7 basis points, or 0.07 percentage point, to 9.22 percent. The price rose 0.59 centavo to 106.56 centavos per peso, according to Banco Santander SA."

The yield on the benchmark bond has fallen 21 basis points in the past week from a two-year high of 9.43 percent. Yields on Mexican fixed-income securities surged over the past three months as increasing costs for food and housing pushed the inflation rate to its highest in 3 1/2 years.

Quickening inflation has boosted speculation central bankers will raise interest rates for a second consecutive month when they next meet July 18.

"Banco de Mexico will likely increase its benchmark lending rate by a quarter-percentage point to 8 percent this week, according to 17 of 22 economists surveyed by Bloomberg. The five other analysts surveyed expect the central bank to hold its key lending rate at 7.75 percent."

Strengthening Peso

"Mexico's peso will further strengthen should central bankers continue to increase lending rates, Bernal said."

"The peso has gained 6.2 percent so far this year as two interest-rate increases by Banco de Mexico since October have swelled the gap between Mexican and U.S. benchmark lending rates to 5.75 percentage points, the biggest since September 2005."

Bernal said the peso could strengthen to 9.95 per dollar by the end of 2008 as the central bank raises its key lending rate to 8.5 percent. The U.S. Federal Reserve's target lending rate for overnight loans between banks is 2 percent.

To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net

"Last Updated: July 16, 2008 11:49 EDT"





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Gold Falls as Drop in Energy Costs Cuts Inflation Hedge Demand

By Pham-Duy Nguyen

July 16 (Bloomberg) -- Gold tumbled the most in three weeks in New York after a drop in energy costs reduced demand for the precious metal as a hedge against inflation. Silver also fell.

"Crude-oil futures dropped as much as 4.9 percent to $132 a barrel in New York after a U.S. government report showed an unexpected increase in inventories. Crude is down more than $12 from the July 11 record of $147.27. Before today, gold gained 47 percent in the past year as oil prices climbed 87 percent."

"``The fall in crude takes gold down with it,'' said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. ``If you're buying gold as an inflation hedge, this removes that impetus.''"

"Gold futures for August delivery fell $16, or 1.6 percent, to $962.70 an ounce on the Comex division of the New York Mercantile Exchange, the biggest drop since June 23. The price still climbed 3.7 percent in the past five sessions."

"Silver futures for September delivery dropped 20.8 cents, or 1.1 percent, to $18.805 an ounce. Still, silver has gained 26 percent this year, while gold has climbed 15 percent."

"Gold also fell as some investors sold after the metal yesterday rallied to a four-month high. The seven-day relative strength index for gold futures topped 80 yesterday as the contract reached $989.60 an ounce, the highest since March 19. A reading above 70 is regarded as a signal prices may decline."

"``Gold has had an impressive run, so it's going to take a breather anyway,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. At a relative strength of 70, he said, that is ``overbought status'' and ``a pullback is expected.''"

"Still, a decline in prices may be an opportunity to buy before prices trend higher, analysts said. Slowing growth, a loss of purchasing power, and continued uncertainty over the financial system may boost demand for the precious metal, said Stephen Platt, commodity analyst at Archer Financial Services Inc. in Chicago."

Gold's Allure

"``There's a general attraction to gold, given the uncertainty with other financial instruments,'' Platt said. ``Real interest rates are negative and the Fed is walking a fine line between growth and trying to restrain inflation.''"

"The dollar reached a record low of $1.6038 per euro yesterday. Today, the Labor Department said consumer costs rose 5 percent in the past year, the biggest jump since 1991."

The Standard & Poor's 500 Index of equities yesterday fell to the lowest level since 2005.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

"Last Updated: July 16, 2008 14:08 EDT"





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Dollar Rises Against Euro as Oil Decline Pushes Stocks Higher

By Bo Nielsen and Ye Xie

July 16 (Bloomberg) -- The dollar increased the most against the euro in almost two weeks as declining crude oil prices and better-than-estimated earnings at Wells Fargo & Co. pushed U.S. equities higher.

An index gauging the greenback versus the currencies of six U.S. trading partners rose a day after the dollar plunged to the all-time low against the euro. The Australian dollar fell from near a 25-year high as Reserve Bank of Australia Governor Glenn Stevens said slowing demand will ease inflationary pressure.

"``If equities can hang in, the dollar can certainly hang in,'' said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``We had attempts to trash the dollar yesterday and ended up unwinding a lot of that. We could see that continue today.''"

"The dollar rose 0.6 percent to $1.5816 per euro at 2:30 p.m. in New York, from $1.5911 yesterday, when it declined to a record low of $1.6038. The dollar was little changed at 104.78 yen, compared with 104.73. The euro declined 0.6 percent to 165.71 yen, from 166.65."

"The Australian dollar decreased 0.5 percent to 97.44 U.S. cents as Stevens said the chances of ``keeping inflation low over the medium term are good,'' indicating the Reserve Bank may be done raising its target lending rate, now 7.25 percent. The Aussie, as the currency is known, touched 98.50 U.S. cents yesterday, the highest level since 1983."

"The Dollar Index on the ICE market increased for the first time in six days, rising 0.1 percent to 71.965. It touched 71.508, the lowest level since April."

Oil Decrease

"The U.S. currency and stocks gained as the Energy Department reported crude oil inventories unexpectedly rose, driving down the price of a barrel of crude for August delivery by as much as $6.74 to $132. Traders buy the dollar to get out of bets on rising oil prices. The Standard & Poor's 500 Index rose for the first time in four days, increasing 1.6 percent."

"Net income at San Francisco-based Wells Fargo, the second- biggest U.S. mortgage lender, dropped 23 percent to $1.75 billion. Profit was 53 cents a share, beating the 50 cent average estimate of 21 analysts surveyed by Bloomberg."

"``The Wells Fargo news took some pressure off of the systemic risk facing financial markets,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto."

Federal Reserve Chairman Ben S. Bernanke reiterated in testimony before the House Financial Services Committee in Washington today that growth and inflation risks are increasing.

Fed Minutes

"Some Fed policy makers said at the June 24-25 rate-setting meeting that an increase in the target lending rate ``would be appropriate very soon,'' minutes released today showed. Kansas City Fed President Thomas Hoenig said in the text of a speech today in Durango, Colorado, that policy makers are walking a ``fine line'' between supporting growth and curbing inflation."

"Fed funds futures on the Chicago Board of Trade show a 10 percent chance the central bank will increase its 2 percent target lending rate by a quarter-percentage point at its Aug. 5 meeting, compared with 7 percent odds yesterday and an 83 percent likelihood a month ago."

"U.S. consumer prices advanced 1.1 percent in June after rising 0.6 percent the prior month, the Labor Department reported today in Washington. It was the biggest increase since 2005. The median forecast of 79 economists surveyed by Bloomberg News was for a boost of 0.7 percent last month."

ECB's `No Bias'

"The U.S. currency has given up gains made versus the euro since July 3, when European Central Bank President Jean-Claude Trichet said he had ``no bias'' on future interest-rate moves after increasing the main refinancing rate to 4.25 percent. The dollar strengthened 0.6 percent to $1.5706 per euro that week. It has since slumped 0.8 percent on concern losses will deepen at Fannie Mae and Freddie Mac, the two largest buyers of U.S. mortgages."

"``The bad news in the U.S. is very much priced in already,'' said Adam Fazio, a currency strategist at CIBC World Markets Inc. in New York. ``The market is becoming punch-drunk to negative news out of the U.S., while the bad news out of Europe is just starting to come out. The euro is at such lofty levels.''"

"German investor and analyst confidence declined this month to the lowest level since data began in 1991, the ZEW Center for European Economic Research in Mannheim said yesterday."

"U.S. investors turned bearish on the dollar for the first time in three months, according to respondents in the monthly Bloomberg Professional Global Confidence Index, which questioned 5,450 users from Los Angles to Paris to Tokyo."

"The dollar will weaken against the euro, yen, Brazilian real and Swiss franc in the next six months as confidence in Fed and Treasury efforts to keep the economy out of a recession fades, the survey of Bloomberg users showed."

"``It's clear that we're not out of the woods in terms of the credit crisis,'' said Todd Elmer, currency strategist at Citigroup Global Markets in New York. ``The pressure remains on the dollar.''"

To contact the reporters on this story: Bo Nielsen in New York at bnielsen4@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net.

"Last Updated: July 16, 2008 14:35 EDT"





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U.S. Treasuries Decline as Inflation Rises More Than Forecast

By Daniel Kruger and Cordell Eddings

"July 16 (Bloomberg) -- Treasuries fell, with yields on 30- year bonds rising to the highest in almost three weeks, after a government report showed inflation accelerated more than economists forecast, eroding returns on fixed-income assets."

Bonds declined for a second day as Federal Reserve Chairman Ben S. Bernanke reiterated before Congress that ``upside risks to the inflation outlook have intensified'' even as growth risks rise. Demand for Treasuries as a haven eased as U.S. stocks rose after profit at Wells Fargo & Co. topped analysts' estimates.

"``Bernanke, without being explicit, was telling you his hands are tied,'' said Kevin Flanagan, a Purchase, New York- based fixed-income strategist for Morgan Stanley's individual- investor clients. ``The front-end will be anchored by this notion the Fed can't raise rates. It's the back end that will suffer,'' he said, referring to longer-term Treasuries."

"The yield on the 30-year bond advanced 12 basis points, or 0.12 percentage point, to 4.58 percent, the highest since June 27, at 12:38 p.m. in New York, according to BGCantor Market Data. The price of the 4.375 percent security due in February 2038 fell 1 31/32, or $16.25 per $1,000 face amount, to 99 5/8."

"The yield on the 10-year note gained 10 basis points to 3.92 percent, and the two-year note's yield rose 3 basis points to 2.40 percent."

"The gap between two-year and 10-year Treasury yields widened to 1.52 percentage points, the most since June 6, as traders saw diminishing chances the Fed will raise borrowing costs by the end of the year."

The Standard & Poor's 500 Index advanced 1.1 percent.

`Plenty of Nervousness'

"U.S. consumer prices increased 1.1 percent in June, from 0.6 percent the previous month, the Labor Department said in Washington. The median forecast of 79 economists surveyed by Bloomberg News was for a gain of 0.7 percent."

Bernanke's statements were a shift away from the Fed's June assessment that growth risks have diminished. They reflected renewed turmoil in markets that forced the Treasury and Fed to mount a rescue of mortgage finance companies Fannie Mae and Freddie Mac this week. He told lawmakers that stabilizing financial markets remains ``a top priority.''

"``There's plenty of nervousness out there keeping the front-end well bid, but the rates on 10-year notes and the rates on long bonds are unsustainable given the inflation number,'' said Brian Edmonds, head of interest rates at Cantor Fitzgerald LP in New York, one of the 19 primary dealers that trade with the central bank."

Futures contracts on the Chicago Board of Trade showed traders saw a 47 percent chance policy makers will leave the benchmark interest rate unchanged at 2 percent through December. The odds were 32 percent a week ago.

Negative Real Yield

"The so-called real yield on 10-year Treasuries, or the difference between their yield and the headline inflation rate, is now negative 1.07 percentage point. It the first time since 1980 the figure is below negative 1 percentage point."

"``To the extent this is driven by commodity prices, it can be somewhat short-lived,'' said Clayton Albright, director of taxable fixed income at Wilmington Trust Corp. in Wilmington, Delaware, which manages $14 billion of bonds. Until ``price increases one place beget price increases somewhere else,'' headline inflation won't push Treasury yields much higher."

Crude oil futures fell more than 3 percent in New York after a U.S. Energy Department report showed an unexpected increase in inventories. Prices tumbled 4.4 percent yesterday on signs the slowing U.S. economy is cutting fuel use. Crude for August delivery fell $4.54 to $134.20 a barrel on the New York Mercantile Exchange. Prices are heading for the biggest two-day drop since January 2007.

Rate Forecasts

"JPMorgan Chase & Co. and Barclays Capital Inc. pushed their predictions for a rate jump into next year. JPMorgan dropped its forecast for an increase in September, saying developments over the past month have raised concern about the stability of the U.S. financial system. It said in a research note late yesterday the Fed will begin raising rates in 2009 as the economy shows improvement."

Barclays said it doesn't expect a rate rise until March because of the Fed chief's testimony.

"Concern that bank losses will widen reignited before second-quarter earnings reports this week from financial companies that include Citigroup Inc., JPMorgan Chase and Merrill Lynch & Co."

"Banks became less confident about lending over the past week, money market rates indicated. The difference between three-month Treasury-bill yields and the three-month London interbank offered rate, the so-called TED spread, widened to 141 basis points, from 94 basis points on July 8."

Foreign Buyers

International buying of U.S. financial assets fell in May as central banks abroad sold Treasury bonds and notes.

"Total net purchases of equities, notes and bonds dropped to $67 billion, from a revised $111.9 billion the previous month, the Treasury Department said today in Washington."

"Treasuries of all maturities have gained 0.9 percent this month after losing 2.1 percent in the period from April through June, the worst quarterly performance for U.S. government debt since the second quarter of 2004, according to Merrill Lynch & Co. bond indexes."

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Cordell Eddings in New York at Ceddings@bloomberg.net

"Last Updated: July 16, 2008 12:54 EDT"





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"French Stocks: Air France, Alstom, Cap Gemini, Peugeot, Renault "

By Adria Cimino

"July 16 (Bloomberg) -- France's CAC 40 Index advanced 51.30, or 1.3 percent, to 4,112.45 in Paris, rebounding after yesterday reaching its lowest level since 2005. The SBF 120 Index also gained 1.3 percent."

The following stocks rose or fell in Paris. Symbols are in parentheses.

"Transport shares climbed as crude oil futures slid more than $6 a barrel after a U.S. government report showed an unexpected increase in inventories. Crude oil for August delivery lost as much as $6.74, or 4.9 percent, to $132 on the New York Mercantile Exchange."

"Air France-KLM Group (AF FP), Europe's biggest airline, surged 1.05 euros, or 7.8 percent, to 14.52. PSA Peugeot Citroen SA (UG FP), the region's second-largest carmaker, added 1.35 euros, or 4.6 percent, to 30.52. Renault SA (RNO FP), France's No. 2 automaker, gained 3.71 euros, or 7.4 percent, to 53.86."

"Total SA (FP FP), Europe's biggest oil refiner, slid 1.39 euros, or 2.9 percent, to 47.25."

"Alstom SA (ALO FP) jumped 5.61 euros, or 8.5 percent, to 71.71, its biggest gain since 2004. The world's third-largest power-plant builder said first-quarter sales advanced 11 percent to 4.5 billion euros ($7.13 billion), fueled by orders for trains and turbines. Analysts had expected revenue of 4.57 billion euros, according to the median estimate of seven surveyed by Bloomberg."

"Auplata SA (ALAUP FP) plunged 19 cents, or 5.4 percent, to 3.30 euros, the biggest drop in three weeks. The gold mining company said first-half revenue dropped 47 percent to 4.2 million euros, as output fell to 226 kilograms from 502 kilograms a year earlier. The company plans to save 4 million euros a year by cutting jobs."

"Cap Gemini SA (CAP FP) advanced the most since March, gaining 2.38 euros, or 6.8 percent, to 37.41. UBS AG raised its recommendation on shares of Europe's largest computer-services company to ``buy'' from ``neutral,'' saying the company may be ``emboldened'' to increase its earnings forecast."

"Lafuma SA (LAF FP) lost 96 cents, or 3.5 percent, to a record low of 26.20 euros. The owner of the Millet mountaineering clothing brand reported nine-month revenue of 170.3 million euros, unchanged from year-earlier levels. The company said it expects to report a ``small increase'' in full- year sales."

"Natixis SA (KN FP) retreated 26 cents, or 5.2 percent, to 4.79 euros, falling for a seventh day. France's fourth-biggest bank is considering raising capital after more than 1 billion euros ($1.59 billion) in additional writedowns in the second quarter, the Les Echos reported, citing unidentified people familiar with the matter. Natixis didn't immediately return calls seeking comment."

"Ubisoft Entertainment SA (UBI FP), Europe's second-largest video-game maker, jumped 3.76 euros, or 6.7 percent, to 60.12, its biggest gain since March. Activision Blizzard Inc., the world's largest video-game publisher, reported sales and profit that topped company forecasts."

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.

"Last Updated: July 16, 2008 13:09 EDT"





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Oil Falls More Than $4 on Report of Unexpected Supply Increase

By Mark Shenk

July 16 (Bloomberg) -- Crude oil futures fell more than $4 a barrel in New York after a surprise increase in U.S. inventories and as a slowing U.S. economy sapped demand for energy.

"Supplies rose 2.95 million barrels to 296.9 million barrels last week, an Energy Department report showed. Stockpiles were forecast to drop 2.2 million barrels, according a Bloomberg News survey. Fuel demand averaged 20.3 million barrels a day in the past four weeks, down 2 percent from 2007, the department said."

"``The inventory numbers are starting to reflect the bad macro-economic news,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Not only did we get a surprise build in crude-oil stocks, the products were also up nicely.''"

"Crude oil for August delivery fell $4.16, or 3 percent, to $134.58 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Prices are heading for the biggest two-day drop since January 2007."

"Oil today fell as low as $132 a barrel, more than 10 percent below the record of $147.27 reached on July 11. A drop of that magnitude is commonly referred to as a correction."

"``Between the bearish DOE numbers and the price drop of the last two days it may be time to back up and re-evaluate whether the market is still bullish or now bearish,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York. ``It's still unclear whether the funds will use this drop to buy futures or bail out.''"

Gasoline Supplies

"Gasoline stockpiles rose 2.47 million barrels to 214.2 million barrels, the report showed. An 800,000 barrel decline was forecast. Inventories of distillate fuel, including heating oil and diesel, gained 3.19 million barrels to 125.7 million, the department said. A 2 million barrel increase was forecast."

"Gasoline for August delivery fell 10.68 cents, or 3.2 percent, to $3.278 a gallon in New York. Futures reached $3.631 a gallon on July 11, an all-time high."

"Consumption of gasoline averaged 9.3 million barrels a day over the past four weeks, down 2.1 percent from the same period last year, the Energy Department supply report showed."

"``I don't see anything bullish is this report,'' said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``There were higher inventories across the board in the face of weak product demand.''"

Imports Climb

"Imports rose 13 percent to 10.8 million barrels a day in the week ended July 11, the highest since August, the report showed."

"``We will have to see if this is a one-week blip or a sustained gain in supplies and imports,'' Mueller said. ``The strong import number may be a sign that the Saudis are both producing more and pricing it to move so refiners will take additional volumes.''"

"Saudi Arabia increased oil output by 280,000 barrels a day in June to 9.53 million barrels, the highest since March 2006, according to a Bloomberg News survey. In response to calls from consuming nations, the kingdom said it would produce an extra 300,000 barrels a day in June and another 200,000 barrels a day in July to curb prices."

"Crude oil also fell because of the dollar's rise against the euro today, which reduced the appeal of commodities as an inflation hedge. The U.S. currency increased 0.6 percent to $1.5816 per euro at 2:33 p.m. in New York, from $1.5911 yesterday, when it declined to a record low of $1.6038."

"Yesterday's 4.4 percent decline in New York crude oil futures was the largest since March, as Federal Reserve Chairman Ben S. Bernanke said that risks to U.S. economic expansion and inflation have risen."

`Enormous Jumps'

"``The enormous jumps in oil prices and other commodity prices are, to some extent, due to real factors out of the control of the Federal Reserve,'' Bernanke said before the House Financial Services Committee today. ``The Federal Reserve cannot create another barrel of oil, it's the global supply and demand.''"

"Prices paid by U.S. consumers jumped 1.1 percent in June after a 0.6 percent gain the prior month, the Labor Department said today in Washington."

Plans by a high-ranking American diplomat to take part in nuclear negotiations with Iran have tempered speculation that the U.S. or Israel may attack OPEC's second biggest oil producer in a dispute over its nuclear plans. Concern about a possible strike helped push oil prices to a record last week.

"Undersecretary of State William Burns will participate in the European Union-Iran talks this weekend in Geneva, State Department spokesman Sean McCormack said today without giving details. This is a shift in the U.S. position on talks with a government it has shunned since 1980."

Chevron Corp. resumed contracted deliveries of crude oil produced onshore Nigeria which were stopped following a militant attack on a pipeline last month.

"Brent crude oil for August settlement declined $2.58, or 1.9 percent, to $136.17 a barrel on London's ICE Futures Europe exchange. Prices climbed to a record $147.50 on July 11."

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

"Last Updated: July 16, 2008 14:52 EDT"





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U.S. Stocks Gain; Wells Fargo Leads Financials to Record Rally

By Lynn Thomasson

"July 16 (Bloomberg) -- U.S. stocks rallied, sending financial shares to their biggest gain ever, after profit at Wells Fargo & Co. topped analysts' estimates and oil dropped for a second day."

"Wells Fargo, which avoided the worst of the fallout from the subprime mortgage market's collapse, jumped the most since at least 1980, leading Washington Mutual Inc., JPMorgan Chase & Co. and Bank of America Corp. higher. The Standard & Poor's 500 Financials Index surged a record 9.5 percent. United Parcel Service Inc. and Dillard's Inc. climbed as the two-day retreat in crude prices overshadowed a government report showing the biggest gain in consumer prices since 2005."

"The S&P 500 added 21.14 points, or 1.7 percent, to 1,236.05 at 3:12 p.m. in New York, rebounding from its lowest level since 2005. The Dow Jones Industrial Average climbed 200.21, or 1.8 percent, to 11,162.75, while the Nasdaq Composite Index increased 59.55, or 2.7 percent, to 2,275.26. More than three stocks rose for each that fell on the New York Stock Exchange."

"``The fact that Wells is a huge mortgage underwriter and servicer and their numbers came out better than expected really helps the market calm down,'' said Malcolm Polley, who helps oversee about $1 billion as president and chief investment officer at Stewart Capital Advisors in Pittsburgh. ``Not all mortgage companies are in dire straits.''"

"Profits have slipped only 0.8 percent on average for the 26 companies in the S&P 500 that have reported second-quarter results so far, according to data compiled by Bloomberg. Earnings for all companies in the index are forecast to drop 14 percent on average, according to an analyst survey July 11. The quarter is expected to cap a full year of declining earnings, the longest profit slump since 2002."

"Wells Fargo, UPS"

"Wells Fargo rallied $6.31, or 31 percent, to $26.82 for the steepest advance in the S&P 500. Gains in credit card fees and insurance revenue softened the blow from bad home loans. Net income slumped 23 percent to $1.75 billion, or 53 cents a share. That beat the 50-cent average estimate of 21 analysts surveyed by Bloomberg. Revenue rose 16 percent to a record $11.5 billion and the bank boosted its dividend by 10 percent."

"Chief Executive Officer John Stumpf has kept Wells Fargo profitable by avoiding the riskiest mortgages that led to losses at Citigroup Inc., Wachovia Corp. and Washington Mutual."

"UPS, the largest package delivery company, climbed $2.21 to $58.65, helping the S&P 500 Transportation Index rise 4.2 percent as all 10 companies in the group advanced."

"Dillard's, the Arkansas-based department-store chain, rallied $1.02, or 12 percent, to $9.27. Retailers in the S&P 500 climbed 5.3 percent as a group."

Crude Tumbles

"Crude oil for August delivery declined $4.16, or 3 percent, to $134.58 a barrel in New York after retreating $6.44 yesterday."

"The decline in energy prices offset a government report that showed consumer inflation quickened faster than analysts estimated in June. The cost of living soared 1.1 percent last month, the Labor Department said. Excluding food and energy, so- called core prices climbed 0.3 percent, also more than anticipated."

"Wells Fargo led the S&P 500 Financials Index to its first gain in six days, as 87 of its 89 companies increased."

Financial stocks with the biggest losses in the past week were among the shares with the steepest gains today following Wells Fargo's profit report.

"Washington Mutual, the largest U.S. savings and loan, surged 19 percent to $4.28. The advance pared the stock's drop over the past five days to 27 percent."

Banks Rebound

"JPMorgan, the third-largest U.S. bank by assets, climbed $3.70 to $34.72. Bank of America added $2.91 to $21.43."

Fannie Mae rose 27 percent to $9.03 and Freddie Mac surged 28 percent to $6.74. Fannie Mae tumbled 27 percent yesterday for its steepest slump since at least July 1980 and Freddie Mac plunged 26 percent as investors lost confidence in the government's plan to rescue the largest U.S. mortgage-finance company.

"Charles Schwab Corp. had the biggest gain since 2002, climbing 13 percent to $21.69. The largest U.S. online brokerage reported quarterly profit from continuing operations above the average analyst estimate as an influx of customer assets helped buoy revenue amid a decline in equity markets."

"Intel Corp. rose 28 cents to $20.99. Third-quarter sales will be $10 billion to $10.6 billion, the company said yesterday. That compares with an average prediction of $10 billion in a Bloomberg survey of analysts. Computer-processor sales remain strong worldwide, with no signs of the U.S. economy sapping demand, according to Chief Financial Officer Stacy Smith."

Ackman's Target Bet

"Target Corp. gained for the first time in six days, climbing 4.8 percent to $45.78. Investor William Ackman put more cash into the $2 billion hedge fund he started to invest in Target as shares of the second-largest U.S. discount retailer declined 38 percent in the past year, according to two people with knowledge of the matter."

"Energy stocks had the steepest decline among industry groups, dropping 2.1 percent as a group, after a surprise increase in oil inventories signaled the slowing U.S. economy diminished energy demand."

"Exxon Mobil Corp., the world's largest oil company, fell 2.1 percent to $80.45. Chesapeake Energy Corp., the second-biggest U.S. independent natural-gas producer, slumped 5.1 percent to $56.46."

"About $14 trillion has been wiped off the value of global equities since October, with the S&P 500 falling into a bear market last week, as $417 billion in credit-related losses prolong the global economy's slump and rising commodity prices stoke inflation."

Bearish Sentiment

"Among the 23 industrialized nations in the MSCI World Index, only Canada averted a bear-market decline of 20 percent. Financial institutions and consumer companies dependent on discretionary spending led the world's retreat in 2008, losing 30 percent and 21 percent."

"The global bear market in equities will deepen from New York to London to Tokyo in the next six months as credit losses prolong the economy's slump and inflation erodes profits, a survey of Bloomberg users showed."

"The S&P 500, the U.K.'s FTSE 100 Index, Japan's Nikkei 225 Stock Average, Spain's IBEX 35 Index, the Swiss Market Index, France's CAC 40 Index, Italy's S&P/MIB Index and Germany's DAX Index will decline, according to the Bloomberg Professional Global Confidence Survey of 4,232 users taken July 7 to 11. In Brazil, the only market where investors predict gains, optimism dropped to a five-month low, the survey showed."

"The S&P 500 has slumped 20 percent since its Oct. 9 record. Financial shares in the measure capped the steepest-ever five-day decline yesterday, with Citigroup Inc., the biggest U.S. bank, plunging to the lowest level since it was created through a merger in October 1998."

"The S&P 500 now trades for about 20.4 times the reported earnings of companies in the index, while the MSCI World Index, excluding the U.S., is valued at 11.8 times profit. When the gap between their price-to-earnings ratios widened to 9.89 in May, the rest of the world hadn't been that much cheaper than the U.S. since 2002."

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

"Last Updated: July 16, 2008 15:13 EDT"





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Soybeans Gain on Shrinking U.S. Inventories; Corn Futures Rise

By Tony C. Dreibus

"July 16 (Bloomberg) -- Soybeans rose, erasing earlier losses, on signs that inventories in the U.S., the world's largest oilseed producer, will tumble. Corn also gained."

"In the year ending Aug. 31, U.S. soybean stockpiles, including those in warehouses, will decline 78 percent to 3.4 million tons from a year earlier, according to the U.S. Department of Agriculture. Growers had 226.6 million bushels (6.2 million metric tons) in bins on June 1, down from 500 million a year earlier, agency data show."

"``Farm storage is extremely low,'' said Jason Britt, the president of Central States Commodities Inc. in Kansas City, Missouri. ``For the beans, they have enough bullish fundamentals to walk on their own.''"

"Soybean futures for November delivery rose 21.5 cents, or 1.4 percent, to $15.375 a bushel at 12:36 p.m. on the Chicago Board of Trade. Earlier, the most-active contract dropped as much as 1.8 percent. Before today, the price jumped 66 percent in the past 12 months, reaching a record $16.3675 on July 3."

"From July 3 to yesterday, futures dropped 7.1 percent after warm weather dried out flooded fields. Rivers in Iowa, the biggest producer of the oilseed, had overflowed."

"Corn also climbed on speculation that the dollar will resume a slump, boosting demand for U.S. grain exports."

"The dollar has dropped 11 percent in the past year against a weighted basket of the euro, yen and four other major currencies."

`Solid' Exports

"``Corn exports are all solid, and the dollar plays into it,'' Britt said."

"Corn futures for December delivery rose 8 cents, or 1.2 percent, to $6.7475 a bushel. Before today, the price surged 81 percent in the past year on demand for livestock feed and grain- based ethanol, reaching a record $7.9925 on June 27."

"Earlier today, corn dropped as much as 1.4 percent."

"Advance sales from Sept. 1 to July 3 gained 12 percent from a year earlier, the USDA said last week. Soybean sales climbed 2 percent."

"Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007, followed by soybeans at $26.8 billion, government figures show."

To contact the reporter on this story: Tony C. Dreibus in Chicago at tdreibus@bloomberg.net.

"Last Updated: July 16, 2008 13:40 EDT"





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"U.S. Stocks Gain After Wells Fargo Beats Estimates, Oil Drops "

By Lynn Thomasson

"July 16 (Bloomberg) -- U.S. stocks rose, helping the Standard & Poor's 500 Index rebound from the lowest level since 2005, after profit at Wells Fargo & Co. topped analysts' estimates and oil dropped for a second day."

"Wells Fargo, which avoided the worst of the subprime mortgage rout, rallied the most since at least 1980, leading Washington Mutual Inc., JPMorgan Chase & Co. and Bank of America Corp. higher. United Parcel Service Inc. and Dillard's Inc. climbed as the two-day retreat in crude prices overshadowed a government report showing the biggest gain in consumer prices since 2005."

"The S&P 500 added 7.28 points, or 0.6 percent, to 1,222.19 at 11:50 a.m. in New York. The Dow Jones Industrial Average climbed 78.24, or 0.7 percent, to 11,040.78, while the Nasdaq Composite Index increased 24.12, or 1.1 percent, to 2,239.83. About two stocks rose for each that fell on the New York Stock Exchange."

"``The fact that Wells is a huge mortgage underwriter and servicer and their numbers came out better than expected really helps the market calm down,'' said Malcolm Polley, who helps oversee about $1 billion as president and chief investment officer at Stewart Capital Advisors in Pittsburgh. ``Not all mortgage companies are in dire straits.''"

"Profits have slipped only 0.8 percent on average for the 26 companies in the S&P 500 that have reported second-quarter results so far, according to data compiled by Bloomberg. Earnings for all companies in the index are forecast to drop 14 percent on average, according to an analyst survey published July 11. The quarter is expected to cap a full year of declining earnings, the longest profit slump since 2002."

"Wells Fargo, UPS"

"Wells Fargo rallied $4.90, or 24 percent, to $25.41 for the steepest advance in the S&P 500. Gains in credit card fees and insurance revenue softened the blow from bad home loans. Net income slumped 23 percent to $1.75 billion, or 53 cents a share. That beat the 50-cent average estimate of 21 analysts surveyed by Bloomberg. Revenue rose 16 percent to a record $11.5 billion and the bank boosted its dividend by 10 percent."

"UPS, the largest package delivery company, climbed $1.59 to $58.03, helping the S&P 500 Transportation Index rise 3.5 percent as all 10 companies in the group advanced."

"Dillard's, the Arkansas-based department-store chain, rallied 67 cents, or 8.1 percent, to $8.92. Retailers in the S&P 500 climbed 3.1 percent as a group."

"Crude oil for August delivery declined $5.60, or 4 percent, to $133.14 a barrel in New York after retreating $6.44 yesterday."

"The decline in energy prices offset a government report that showed consumer inflation quickened faster than analysts estimated in June. The cost of living soared 1.1 percent last month, the Labor Department said. Excluding food and energy, so- called core prices climbed 0.3 percent, also more than anticipated."

Financials Rebound

"Wells Fargo led the S&P 500 Financials Index to a 5.7 percent advance, its first gain in six days, as 83 of its 89 companies increased."

Financial stocks with the biggest losses in the past week were among the shares with the steepest gains today following Wells Fargo's profit report.

"Washington Mutual, the largest U.S. savings and loan, surged 23 percent to $4.43 for the third-biggest gain in the S&P 500. The advance pared the stock's drop over the past five days to 26 percent."

"JPMorgan, the third-largest U.S. bank by assets, climbed $2.45 to $33.47. Bank of America added $1.35 to $19.87."

Fannie Mae rose 13 percent to $7.99 and Freddie Mac surged 15 percent to $6.05. Fannie Mae tumbled 27 percent yesterday for its steepest slump since at least July 1980 and Freddie Mac plunged 26 percent as investors lost confidence in the government's plan to rescue the largest U.S. mortgage-finance company.

Schwab Rallies

"Charles Schwab Corp. had the biggest gain in three months, climbing 8.8 percent to $20.91. The largest U.S. online brokerage reported quarterly profit from continuing operations above the average analyst estimate as an influx of customer assets helped buoy revenue amid a decline in equity markets."

"Intel Corp. rose 43 cents to $21.14. Third-quarter sales will be $10 billion to $10.6 billion, the company said yesterday. That compares with an average prediction of $10 billion in a Bloomberg survey of analysts. Computer-processor sales remain strong worldwide, with no signs of the U.S. economy sapping demand, according to Chief Financial Officer Stacy Smith."

Ackman's Target Bet

"Target Corp. gained for the first time in six days, climbing 2.8 percent to $44.88. Investor William Ackman put more cash into the $2 billion hedge fund he started to invest in Target as shares of the second-largest U.S. discount retailer declined 38 percent in the past year, according to two people with knowledge of the matter."

"About $14 trillion has been wiped off the value of global equities since October, with the S&P 500 falling into a bear market last week, as $417 billion in credit-related losses prolong the global economy's slump and rising commodity prices stoke inflation."

"Among the 23 industrialized nations in the MSCI World Index, only Canada averted a bear-market decline of 20 percent. Financial institutions and consumer companies dependent on discretionary spending led the world's retreat in 2008, losing 31 percent and 22 percent."

"The global bear market in equities will deepen from New York to London to Tokyo in the next six months as credit losses prolong the economy's slump and inflation erodes profits, a survey of Bloomberg users showed."

Bearish Sentiment

"The S&P 500, the U.K.'s FTSE 100 Index, Japan's Nikkei 225 Stock Average, Spain's IBEX 35 Index, the Swiss Market Index, France's CAC 40 Index, Italy's S&P/MIB Index and Germany's DAX Index will decline, according to the Bloomberg Professional Global Confidence Survey of 4,232 users taken July 7 to 11. In Brazil, the only market where investors predict gains, optimism dropped to a five-month low, the survey showed."

"The S&P 500 has slumped 22 percent since its Oct. 9 record. Financial shares in the measure capped the steepest-ever five-day decline yesterday, with Citigroup Inc., the biggest U.S. bank, plunging to the lowest level since it was created through a merger in October 1998."

"The S&P 500 now trades for 20.2 times the reported earnings of companies in the index, while the MSCI World Index, excluding the U.S., is valued at 11.8 times profit. When the gap between their price-to-earnings ratios widened to 9.89 in May, the rest of the world hadn't been that much cheaper than the U.S. since 2002."

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

"Last Updated: July 16, 2008 11:55 EDT"





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"Canadian Stocks Rise, Led by Financials, Encana, Potash Fall "

By Fabio Alves

"July 16 (Bloomberg) -- Canadian stocks rose, as Toronto- Dominion Bank led a group of financial stocks to its biggest gain in more than five years, after U.S. lender Wells Fargo & Co reported earnings that were better than analysts estimated."

Energy producers including EnCana Corp. declined as crude oil and natural gas fell on concern a slowing global economy will curtail demand for fuel. Fertilizer maker Potash Corp. of Saskatchewan Inc. sank as commodities prices fell to the lowest in a month.

"Wells Fargo & Co., the second-biggest U.S. mortgage lender, rose the most since at least 1980 after reporting net income of 53 cents a share, beating the average estimate of analysts in a Bloomberg survey, and raising its dividend."

"``Wells Fargo earnings made people less pessimistic about financial institutions,'' said Ian Nakamoto, research director at MacDougall, McDougall and MacTier Inc. in Toronto, which manages about $4.8 billion. ``We're closer to the bottom for financial stocks, but who knows if we've reached the bottom.''"

"The Standard & Poor's/TSX Composite Index rose 1 percent to 13,497.32 as of 2:29 p.m. in Toronto. A gauge of financial stocks advanced 4.3 percent, the biggest gain since October 2002. The group has still fallen more than 18 percent this year, the second worst performance of 10 industry indexes, on writedowns stemming from the slump in U.S. subprime mortgage market."

"Toronto-Dominion rose 7 percent to C$57.23. National Bank of Canada, The country's sixth-largest lender jumped 6.7 percent to C$48.82, for its biggest gain since March 20. EnCana slid 3.1 percent to C$80.67. Suncor retreated 3.3 percent to C$56."

"Materials, Energy"

Potash contributed the most to a 1.8 percent drop by a group of raw-material producers. The fertilizer maker fell 1.5 percent to C$221.67.

"``With the global economy slowing, the sentiment is that there's just one way for energy and material stocks to go and that's down,'' Nakamoto said. ``Investors are rotating out of energy and material producers and buying financial and consumer stocks, such as Research in Motion.''"

"RIM, as the maker of the Blackberry e-mail phone is also known, climbed 3.1 percent to C$109.45."

"EnCana fell 2.3 percent to C$81.29. Birchcliff Energy, whose biggest shareholder is Canadian billionaire Seymour Schulich, dropped the most since July 3, falling 4.8 percent to C$13.96."

Oil Slides

"Oil prices slid 3 percent to $134.67 a barrel at 1:15 p.m. New York time, after dropping to as low as $132, more than 10 percent below the record of $147.27 reached on July 11."

"The 19 commodities in the Reuters/Jefferies CRB Index gained 29 percent in the first half of the year, the most since 1973, according to Bloomberg data. The index has fallen 6 percent since reaching a high for the year on July 2. Copper prices have lost 9.6 percent from their peak this year, while zinc has plunged 35 percent from this year high."

"Westport Innovations Inc. the Canadian designer of low- pollution engine parts, rose 2.3 percent to C$4.88. The Vancouver-based company said it created a joint venture with Weichai Power Co. Ltd., China's fourth-largest diesel-engine maker, to manufacture alternative fuel engines and parts for cars, trucks and power plants."

To contact the reporter on this story: Fabio Alves in New York falves3@bloomberg.net.

"Last Updated: July 16, 2008 14:46 EDT"





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Colombia's Peso Bonds Gain Most in 3 Weeks on U.S. Rate Outlook

By Andrea Jaramillo

"July 16 (Bloomberg) -- Colombia's government peso bonds gained the most in three weeks on speculation the U.S. Federal Reserve won't raise its benchmark lending rate next month, boosting the appeal of higher-yielding, emerging-market assets."

"Futures show traders see a 93 percent chance the Federal Reserve will keep the key rate at 2 percent through its August meeting amid concern losses at financial firms and the U.S. housing slump will prolong the slowdown in the world's largest economy. The Fed's seven rate reductions since September widened the difference with Colombia's benchmark rate to 7.75 percentage points, helping fuel a 14 percent rally in the peso this year."

"``In order to salvage the financial system, Bernanke will need to hold off raising rates even as inflation quickens,'' said Alexander Cardenas, chief analyst at Acciones y Valores, a Bogota-based brokerage."

"The yield on Colombia's benchmark 11 percent bonds due July 2020 fell 15 basis points, or 0.15 percentage point, to 12.84 percent at 11:59 a.m. in New York, according to Colombia's stock exchange. The bonds' price rose 0.813 centavo to 89.009 centavos per peso."

"Fed Chairman Ben S. Bernanke told the Senate Banking Committee yesterday that growth and inflation risks are increasing. A U.S. Labor Department said today consumer prices jumped 1.1 percent in June, more than the 0.7 percent median forecast in a Bloomberg News survey."

"A Finance Ministry report yesterday that showed the central government had a balanced budget in the first quarter also boosted appetite for the local securities. That compares to a deficit of 0.7 percent of gross domestic product in the year- earlier period, the ministry said."

"Colombia's peso was little changed at 1,772 per dollar, from 1,771.05 yesterday, according to the Colombian foreign- exchange electronic transactions system, known as SET-FX."

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

"Last Updated: July 16, 2008 12:01 EDT"





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Brazil's Real Trades Near Nine-Year High After Inflation Report

By Adriana Brasileiro

"July 16 (Bloomberg) -- Brazil's real held near a nine-year high after an inflation measure accelerated more than expected, buoying speculation the central bank will raise interest rates this month."

"The Getulio Vargas Foundation's IGP-10 index of wholesale, construction and consumer prices rose 2 percent in the month through July 10, more than the 1.86 percent median estimate in a Bloomberg survey of 23 economists."

"``The central bank may decide to increase rates more than people expect now, so the yield differential on local assets will continue to support inflows,'' said Luiz Carlos Barroso Simao, who helps manage 110 million reais ($69 million) in assets as chief strategist at Mandarim Investimentos in Rio de Janeiro."

"The real was little changed, slipping 0.2 percent to 1.5964 per dollar at 12:31 p.m. New York time. Yesterday it touched 1.5860 per dollar, the strongest since January 1999. The real has gained 11.5 percent this year, the second-biggest advance among the 16 most-traded currencies against the U.S. dollar, after the Swiss franc."

Central bank President Henrique Meirelles said yesterday the bank will act for as long as it takes to ensure that inflation next year is in line with the government's 4.5 percent target.

"``The central bank is committed to doing what it takes for as long as it takes to ensure inflation converges to the midpoint of the target in 2009,'' Meirelles said during testimony in the Senate."

Meeting Next Week

The central bank has raised the benchmark rate 1 percentage point this year to 12.25 percent in a bid to cool growth and slow inflation. Policy makers are scheduled to next meet on July 22- 23.

"The yield on Brazil's interest-rate futures contract for January 2009 delivery fell 1.5 basis points, or 0.015 percentage point, to 13.39 percent, leaving it more than 1 percentage point above the central bank's benchmark rate."

"The yield on the government's zero-coupon bonds due in January 2010 fell 4 basis points to 15.02 percent, according to Banco Votorantim."

To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net

"Last Updated: July 16, 2008 12:41 EDT"





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"Global Economic Confidence Drops on Market Turmoil, Oil Surge "

By Simon Kennedy

"July 17 (Bloomberg) -- Confidence in the global economy deteriorated this month from Asia to the U.S. as the oil price rose to a record and the financial crisis deepened, a survey of Bloomberg users on six continents showed."

"The Bloomberg Professional Global Confidence Index fell to 10.3 from 21 in June as sentiment toward the U.S., German, Japanese, French and U.K. economies weakened. That was the lowest reading since the survey began in November. Participants in Asia replaced those in Western Europe as the least optimistic."

"``We're starting to approach that tipping point when the oil price is really going to impact economies,'' said Nick Kounis, an economist at Fortis Bank NV in Amsterdam who participated in the survey. ``We're much more pessimistic about the global economy.''"

"The oil price has almost doubled over the past year, reaching a record above $147 a barrel last week. That's hurting consumers and companies and fanning inflation enough to force central banks to raise interest rates. With the U.S. housing recession eroding confidence in financial institutions such as Fannie Mae and Freddie Mac, global stocks have tumbled into a bear market."

"The survey was conducted between July 7 and July 11 and collated the responses of 5,450 Bloomberg users from Tokyo to New York. The index of Asian confidence in the world economy fell to 7 from 19.4. Respondents in Japan reported that the world's second- largest economy was in worse shape than a month ago and predicted the country's stocks to fall during the rest of this year."

"U.S. participants predicted that the dollar will continue its slide below $1.60 per euro. Respondents in Spain were the most pessimistic about their own economy, while participants in Brazil were alone in expressing optimism."

"The survey also included questions about bonds, currencies, stocks and interest rates over the next six months."

Global Economy

"The U.S. housing slump last year sparked a credit market rout that's still rippling through the global economy. Higher borrowing costs are causing housing-led expansions to crumble in the U.S. and Europe, and banks have recorded more than $415 billion in losses and writedowns."

The market crisis worsened over the past week amid concern Fannie Mae and Freddie Mac don't have enough capital to survive the housing downturn. That forced Treasury Secretary Henry Paulson on July 13 to seek authority to buy unlimited stakes in the companies and lend to them.

The MSCI World Index of stocks has dropped more than 20 percent since its October record and yesterday fell to a two-year low.

Policy makers are also combating inflation just as global growth slows. Federal Reserve Chairman Ben S. Bernanke said July 15 that inflation risks have ``intensified.''

Challenging Year

"``The world economy is facing a challenging second half of the year,'' said Kenneth Broux, an economist at Lloyds TSB Group Plc in London who participated in the survey. ``The big question is whether the U.S. economy slows from here on the back of higher oil prices and the crisis at the mortgage lenders.''"

"Investors, analysts and traders in the U.S. were less optimistic about growth than in June. A measure of confidence in the economy fell to 8.8, the lowest since March, from 16.1. An index of dollar sentiment dropped to 45.4 after two months above 50. The measure for equities fell to 28.4 from 35.4."

"The dollar has lost 14 percent of its value against the euro in the past year, declining to a record $1.6038 on July 15."

"U.S. respondents trimmed expectations that the Fed will raise interest rates by the end of the year, with the relevant index slipping to 57.4 from 60.4. Bernanke this week signaled policy makers are unclear about the direction of rates because the risks to both growth and inflation have increased."

ECB Split

Those surveyed in Europe were the most worried about the outlook for their economy since the survey began and the regional index dropped to 15.5 from 22.3. The 15-nation euro area may have contracted last quarter for the first time since the single currency began trading in 1999 and investor confidence in Germany fell to a record low in July.

Respondents split over the direction of the euro. Those in Germany and France predicted it will continue to rise and participants in Italy and Spain say it will decline.

"Bloomberg users in Spain, where a decade-long housing boom has collapsed, were the most downbeat about their own country. Most European respondents say the European Central Bank, which raised its key rate to a seven-year high of 4.25 percent this month, won't cut interest rates."

"In the U.K., faith in growth and stocks waned and respondents reversed their forecast for rate cuts. Participants in South America were more confident in their region than in the global economy and the index for the continent was at 29.8."

To contact the reporter on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net

"Last Updated: July 16, 2008 12:21 EDT"





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<<2.642_20080716201735Dollar Optimism Dissipates as Confidence in Fed
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Stocks Rise Led by Financials Encana Potash Fall .txt>>
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