Nordic Currencies: Norway's Krone Gains Before Jobless Report
By Bo Nielsen
Aug. 25 (Bloomberg) -- Norway's krone rose against the euro before a report this week that will probably show the June unemployment rate held near the lowest level in two decades.
"The jobless rate stayed at 2.5 percent, according to the median estimate of 15 economists in a Bloomberg News survey. The data will be released by Statistics Norway on Aug. 27. The mainland economy, which excludes oil activities, grew 1 percent after shrinking 0.1 percent in the first quarter, a government report last week showed."
"``A steady number suggests that the previously existing inflation pressure is going to be maintained,'' said Geoffrey Yu, a currency strategist in London at UBS AG, the second-biggest foreign-exchange trading bank. ``Norges Bank is almost certainly going to hike rates next month.''"
"The Norwegian krone was at 7.9288 per euro by 4 p.m. in Oslo, from 7.9411 on Aug. 22, and gained 0.1 percent to 5.3618 per dollar. The Swedish krona slipped to 6.3278 per dollar, after falling to 6.3639 earlier, from 6.3246."
Sweden's krona pared declines against the dollar after a government report showed the country's trade surplus widened in July as demand for its exports increased.
"The unadjusted trade balance reached 9.4 billion kronor ($1.48 billion), from a revised 9 billion kronor in June, Statistics Sweden said on its Web site today. Danske Bank, Scandinavia's second-biggest bank, forecast the surplus would narrow to 6 billion kronor."
"The country's main trading partner is the European Union, whose economy contracted in the second quarter for the first time since the launch of the euro almost a decade ago."
Fiscal Changes
Finance Minister Anders Borg said last week the Swedish government will slash taxes and raise spending by a total of 30 billion kronor next year to counter slowing economic growth and rising unemployment.
"Norges Bank, which next sets rates on Sept. 24, raised its key rate to 5.75 percent in June and indicated it may lift it to 6 percent to prevent inflation from accelerating. Consumer-price growth reached a 7 1/2-year high of 2.9 percent in July."
"Iceland's krona snapped a two-day gain, falling 0.9 percent to 82.13 per dollar."
"Nordic government bonds declined, with the yield on Sweden's 5.25 percent note due March 2011 falling 3 basis points, or 0.03 percentage point, to 4.37 percent. The yield on Norway's 6 percent government note maturing May 2011 fell 2 basis points to 5.05 percent. Yields move inversely to bond prices."
To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
"Last Updated: August 25, 2008 10:09 EDT"
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Brazil's 2008 Inflation Rate to End 2008 at 6.34% (Update2)
By Katia Cortes
Aug. 25 (Bloomberg) -- Brazilian inflation forecasts for 2008 and the next 12 months fell for a fourth straight week in a central bank survey of economists.
"The benchmark IPCA consumer price index will end 2008 at 6.34 percent, less than the 6.44 percent forecast made a week earlier, according to the Aug. 22 survey of about 100 economists published today on the bank's Web site. The central banktargets inflation of 4.5 percent, plus or minus 2 percentage points."
"Analysts covering Latin America's biggest economy forecast that inflation will slow to within the central bank's target range in 2008 because of interest rate increases and falling commodity prices, said Flavio Serrano, senior economist at Banco Espirito Santo de Investimento SA, in Sao Paulo."
"``There are clear signs that inflation in the short-term is cooling,'' said Serrano in a phone interview. ``But we need to see more solid indicators, such as slower economic activity and industrial output, to cut the 2009 inflation estimate.''"
"The annual inflation rate 12 months from now will be 5.25 percent, down from a forecast of 5.31 percent a week earlier, the survey showed."
"The economy will expand 3.65 percent next year, compared to a forecast of 3.70 percent made a week earlier, representing a third consecutive decline, the survey showed. The industrial output forecast for 2009 was unchanged at 4.23 percent."
"The real strengthened 0.3 percent to 1.6222 per dollar at 9:21 a.m. New York time from 1.6270 late Aug. 22, paring its decline this month to 3.5 percent. The real is up 9.7 percent this year, the best performance against the dollar among the 16 most-traded currencies worldwide."
To contact the reporter on this story: Katia Cortes in Brasilia at at kcortes@bloomberg.net
"Last Updated: August 25, 2008 09:31 EDT"
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"French Stocks: Alstom, Bouygues Fall, Peugeot Citroen Gains "
By Daniela Silberstein
"Aug. 25 (Bloomberg) -- France's CAC 40 Index dropped 20.51, or 0.5 percent, to 4,379 at 1:13 p.m. in Paris. The SBF 120 Index retreated 0.5 percent to 3,166."
The following shares climbed or fell in the local market. Stock symbols are in parentheses.
"Bouygues SA (EN FP), the world's second-largest builder, fell 79 cents, or 1.9 percent, to 41.41 euros. Companies whose earnings are sensitive to the pace of economic expansion retreated as Morgan Stanley cut its year-end forecast for the S&P 500 by 7.1 percent on expectation that the slowing global economy will curb profits at technology and industrial companies and that banks will post more writedowns."
"Alstom SA (ALO FP), the world's third-largest power plant maker, declined 1.01 euros, or 1.5 percent, to 66.55."
"Companies that are sensitive to the price of oil decreased as crude oil rose for the fourth time in five days. Michelin & Cie. (ML FP), the world's second-largest tiremaker, tumbled 44 cents, or 1 percent, to 44.39 euros. Air France-KLM Group (AF FP) sank 25 cents, or 1.5 percent, to 16.18 euros."
"European Aeronautic Defence & Space Co. (EAD FP) declined 21 cents, or 1.4 percent, to 14.76 euros. Airbus SAS, which is owned by EADS, is facing U.S. order cancellations, Le Figaro reported, without saying where it obtained the information."
"PSA Peugeot Citroen (UG FP) increased 35 cents, or 1 percent, to 34.15 euros, climbing for a second day. Naza Group, a Malaysian automaker, is in talks with France's largest carmaker to make Malaysia its Southeast Asian manufacturing hub for Peugeot cars, the Malaysian Reserve reported, citing people it didn't name."
To contact the reporter on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net.
"Last Updated: August 25, 2008 07:14 EDT"
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"Canadian Stocks Fall, Led by Finance Shares; Scotiabank Drops "
By John Kipphoff
"Aug. 25 (Bloomberg) -- Canadian stocks fell a second day, led by financial shares, on speculation the nation's lenders will post a drop in quarterly profits when they begin reporting results tomorrow."
Losses were limited as fertilizer maker Potash Corp. of Saskatchewan Inc. rose along with prices of corn and soybeans.
"The Standard & Poor's/TSX Composite Index declined 0.2 percent to 13,422.35 at 9:50 a.m. in Toronto."
"Bank of Nova Scotia, which kicks of Canadian banks' fiscal third-quarter earnings reports tomorrow, fell 1.1 percent to C$48.06. Royal Bank of Canada, the nation's biggest lender by assets, slipped 1.4 percent to C$45.35. Toronto-Dominion Bank, the second-largest, dropped 1.4 percent to C$58.60."
"Royal Bank, Toronto-Dominion, and the four other lenders that make up Canada's six biggest banks may say profit before one-time items fell by a median 9 percent in the quarter, as revenue from equity markets slows and costs rise for bad loans, according to estimates by Andre-Philippe Hardy at RBC Capital Markets."
"Potash Corp., the world's biggest maker of crop nutrients by market value, rose 1.5 percent to C$191.67. Rival Agrium Inc. added 1.6 percent to C$89.90."
"Corn and soybeans gained in Chicago after Professional Farmers of America said harvests in the U.S. will be smaller than forecast by the government, as dry weather in August hurt Midwest crops already stunted by flooding in June. Wheat also advanced."
To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.
"Last Updated: August 25, 2008 09:59 EDT"
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Brazil Bank Lending Rose 1.7% in July to 1.09 Trillion Reais
By Telma Marotto and Katia Cortes
Aug. 25 (Bloomberg) -- Brazilian bank lending expanded 1.7 percent in July from the previous month on higher consumer demand for cars and home appliances.
"State and non-state bank lending climbed to 1.086 trillion reais ($669.5 billion) from a revised 1.068 trillion reais in June, the central bank said in a statement distributed today in Brasilia. Lending rose 32.7 percent from the year-earlier month."
"The average annual interest rate Brazilian banks charge customers rose to 39.4 percent from 38 percent in June, the report said."
To contact the reporters on this story: Telma Marotto in Sao Paulo at tmarotto1@bloomberg.net; Katia Cortes in Brasilia at at kcortes@bloomberg.net
"Last Updated: August 25, 2008 09:39 EDT"
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Dollar Rises on Speculation Oil Decline to Bolster U.S. Economy
By Anchalee Worrachate and Stanley White
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Aug. 25 (Bloomberg) -- The dollar rose for a second day against the euro and the pound on speculation a drop in oil prices will support economic growth in the world's largest energy consumer.
The currency also traded near a seven-month high versus the yen following the biggest decline in crude costs in more than three years. Federal Reserve Chairman Ben. S. Bernanke said Aug. 22 the central bank will act should inflation not moderate ``in the medium term.'' The euro fell against the yen before a survey tomorrow that may show business confidence in Germany deteriorated to the lowest level since 2005.
"``The decline in oil prices has contributed to a quasi rebound in the dollar,'' said Geoffrey Yu, a currency strategist in London at UBS AG. ``Also, what Bernanke said was less dovish than many people had expected. He's still hawkish on inflation.''"
"The dollar climbed to as high as $1.4697 before trading at $1.4774 per euro by 7 a.m. in New York, from $1.4793 on Aug. 22, when crude oil tumbled 5.6 percent, the most since December 2004. UBS initiated a new short euro/dollar position on Friday, Yu said. A euro/dollar short position is a bet that the euro will fall and the dollar will rise."
"The U.S. currency traded at 109.77 yen, from 110.07 at the end of last week. It rose to 110.66 yen on Aug. 15, the highest since Jan. 2. The euro declined to 162.18 yen from 162.83."
"Against the pound, the dollar rose to $1.8508 from $1.8527. Trading volumes may be lighter than usual as financial markets in London are closed for a holiday."
Asian Currencies
"The greenback also rallied against other Asian currencies. The South Korean won fell to 1,078.75 per dollar from 1,062.20 on speculation overseas investors will cut holdings of local shares. The Malaysian ringgit slumped to an eight-month low of 3.3740 versus the dollar on speculation the country's central bank will refrain from raising interest rates today."
"Crude oil for October delivery was at $115.37 a barrel in New York after earlier falling to $114.03, the lowest since Aug. 20. The euro-dollar exchange rate and oil had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep."
The euro weakened against the dollar and the yen on speculation declines in German business confidence will discourage the European Central Bank from raising interest rates.
"The Ifo institute's confidence index probably fell to 97.2 in August, the lowest since September 2005, according to the median estimate of economists surveyed by Bloomberg News before the release of the report tomorrow."
`Downside Risks'
"``The euro has downside risks before the Ifo data,'' said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital Inc., a unit of the U.K.'s third-biggest bank. ``European growth isn't looking that good, so people are likely to react more to data that support that view.''"
"Futures traders increased bets the euro will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 20,364 on Aug. 19, compared with 19,427 a week earlier."
"``We put up a recommendation to go short the euro at $1.4858 and targeting $1.4350,'' Nizam Idris, a currency strategist for UBS AG in Singapore, wrote in a research note today. ``Going forward, we expect a trend of deteriorating growth conditions to remain intact, and this will most likely keep the euro in a broad downtrend.''"
"UBS forecasts the ECB will cut its 4.25 percent benchmark rate by 75 basis points, or 0.75 percentage point, over the next one to two months, Nizam wrote."
"Housing, Spending"
Gains in the dollar may be limited by speculation that data this week will show U.S. home sales were near the lowest in a decade and consumer spending growth slowed as the economy grappled with rising credit losses after the subprime mortgage collapse.
"Resales of existing homes, reported by the National Association of Realtors today, gained 1 percent to a 4.91 million annual rate, staying near June's 10-year low, according to a Bloomberg News survey of economists. U.S. personal spending grew 0.3 percent in July, compared with 0.6 percent the previous month, according to a separate survey before the Commerce Department report on Aug. 29."
"``Weak economic data are likely to pull the dollar lower,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``We can't be optimistic about the outlook for growth. The subprime problem will also weigh on dollar sentiment well into the future.''"
"The U.S. currency may fall to 109.50 yen and $1.4820 per euro today, he said."
Pound Weakens
"The pound slid to as low as $1.8406, the weakest level in more than two years, before data tomorrow that may show U.K. home prices fell 9.6 percent in August from a year earlier, according to a Bloomberg survey."
"The currency may extend declines to $1.8300 in the next two weeks after closing below so-called support at $1.8620 on Aug. 22, said Pak Lai Ng, a technical analyst at Forecast Pte. in Singapore."
"Support at $1.8620 was a 61.8 percent retracement of the pound's rise from the November 2005 low of $1.7049 to the November 2007 high of $2.1161, based on a series of numbers known as the Fibonacci sequence. Support is where buy orders may be clustered."
Pakistan Rupee
"The ouster of Pakistan President Pervez Musharraf was hailed by the government as a chance to turn around a crumbling economy that has left half of the 168 million population short on food. Investors aren't convinced, and that means a weaker rupee."
"A rally in the Pakistani rupee from its Aug. 15 record low of 76.50 per dollar last week faltered after two days, leaving the currency down 19 percent this year. The rupee is the world's fourth-worst performer, behind the Zimbabwean dollar, Turkmenistan manat and Icelandic krona."
"Templeton Asset Management Ltd. and Aberdeen Asset Management Plc said they doubt Pakistan's new leaders have the resolve to slash outlays or raise borrowing costs to help curb the fastest inflation in 30 years at a time when the economy is slowing. The risk of failure has prompted investors, stung by a global slump in stocks and debt markets, to shun developing economies from India to Chile that face similar dilemmas."
"-- With reporting by Ron Harui in Singapore. Editors: Ralph Johnston, Neil Maclucas"
To contact the reporters on this story: Anchalee Worrachate in London at Aworrachate@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net
"Last Updated: August 25, 2008 07:00 EDT"
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"Corn, Soybeans May Rise as Rain Misses Parts of Midwest, Plains "
By Tony C. Dreibus
"Aug. 25 (Bloomberg) -- Corn and soybeans may rise after weekend rains missed parts of the U.S. Great Plains and eastern Midwest, heightening supply concerns."
"Parts of Iowa, the largest state producer of both commodities, and Nebraska and an area from Illinois to Ohio received no rain in the past week, National Weather Service data show. Other growing areas got only trace amounts, data show. Corn rose 10 percent last week and soybeans were up 8.9 percent on speculation that dry weather may hurt plants."
"``The forecasters were looking for more rain than that,'' said Larry Glenn, the owner of Glenn Commodities in Quinter, Kansas. ``They need some moisture in the northern Corn Belt.''"
"Corn futures for December delivery rose 13.75 cents, or 2.3 percent, to $6.2025 a bushel overnight on the Chicago Board of Trade. The price has climbed 36 percent this year, reaching a record $7.9925 a bushel on June 27, partly because floods in parts of the Midwest delayed planting or forced growers to reseed crops."
"Soybeans futures for November delivery gained 38.75 cents, or 2.9 percent, to $13.6575 a bushel. The price has jumped 61 percent in the past year, reaching a record $16.3675 on July 3, partly on speculation that global demand for the oilseed will outpace production."
"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: August 25, 2008 09:38 EDT"
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Mexico May Say Retail Sales Growth Slowed in June: Week Ahead
By Hugh Collins
Aug. 25 (Bloomberg) -- Mexico may report retail sales growth slowed in June as record-low consumer confidence and the highest inflation in six years sapped demand for durable goods.
"Retail sales may have climbed 2.7 percent in June, slower than May's 3.4 percent increase, according to the median estimate of 15 economists surveyed by Bloomberg. The national statistics agency will report the data today."
"Slowing consumer demand contributed to second-quarter economic growth that trailed economists' estimates on a slump in the services sector, which includes retailers. Families are shunning large purchases as they struggle to cope with higher costs for food and other basics, said Luis Flores, an economist at IXE Casa de Bolsa SA in Mexico City."
"``The focus is on necessities,'' Flores said. ``People are worried about the economy's short-term prospects.''"
"Mexico's economy expanded 2.8 percent last quarter, the government reported last week, less than the 3.1 percent analysts had forecast. Inflation accelerated to the fastest in almost four years last month on higher costs for food and housing. Meanwhile, July's consumer confidence fell to its lowest since the country began measuring the data in 2001."
"``People are worried about their jobs and the labor market, so they're more cautious in their spending,'' Flores said."
The government also may say copper production fell for a sixth consecutive month when it reports June mining output on Aug. 28. The mining industry's contribution to gross domestic product fell 9.1 percent in the second quarter.
"Output is slumping because of labor disputes at Grupo Mexico SAB's Cananea, Mexico's largest copper mine. Workers went on strike in July 2007 seeking safer working conditions. Mexico's copper output fell 47 percent in May."
"Peso, Bonds, Stocks"
"Last week, the peso rose 0.4 percent as investors bet that the U.S. Federal Reserve will hold off from raising interest rates, maintaining the spread in the countries' lending rates. The currency strengthened to 10.145 pesos per dollar, from 10.1866 pesos on Aug. 15."
"Yields on Mexico's 10 percent bond due December 2024 dropped 4 basis points, or 0.04 percentage point, to 8.56 percent last week, according to Banco Santander Mexico. The price rose 0.35 centavos to 112.57."
"Mexico's benchmark Bolsa stock index fell 1.7 percent to 26,875.45. Axtel SAB, the country's second-largest fixed-line telephone company, fell 7.8 percent to 12.90 pesos as Banco Santander SA reduced its recommendation to ``hold'' from ``buy'' and Merrill Lynch & Co. lowered earnings estimates."
The following is a list of events in Mexico next week:
"Event Date Forecast Second-Quarter Current Account Aug. 25 -$750 million Retail Sales for June Aug. 25 +2.7% Second-Quarter GDP, Current Prices Aug. 27 +2.8% Public Balance for July Aug. 29 -11.4 mln pesos Global Economic Indicator for June Aug. 29 +1.2%"
To contact the reporter on this story: Hugh Collins in Mexico City at Hcollins8@bloomberg.net
"Last Updated: August 25, 2008 01:01 EDT"
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European Bonds Advance as Credit Losses Spark Demand for Safety
By Lukanyo Mnyanda
"Aug. 25 (Bloomberg) -- European government bonds advanced, snapping a three-day drop, on speculation widening credit-market losses will spur demand for the safest assets and on bets data this week will show economic growth is slowing."
The gains pushed the yield on two-year notes down from the highest level since Aug. 7 as Bank of Israel Governor Stanley Fischer said Aug 23. top central-banking officials judge the credit crisis has yet to run its course. Futures traders scaled back bets the European Central Bank will raise interest rates before an industry report tomorrow that will show business confidence in Germany fell this month.
"``The flight-to-quality trades are still there,'' said Wilson Chin, a fixed-income strategist in Amsterdam at ING Bank NV. ``The ECB won't hike rates any further, that's for sure.''"
"The two-year note yield fell as much as 13 basis points, the most since Aug. 7, to 4 percent and was at 4.04 percent by 2:03 p.m. in London. The price of the 4.75 percent note climbed 0.15, or 1.5 euros per 1,000-euro ($1,479) face amount, to 101.18."
"The yield on the 10-year German bund, Europe's benchmark government security, slipped 9 basis points to 4.13 percent. The two-year note may yield 4.2 percent in a month, while the yield on the 10-year bund may be at 4.25 percent, Chin said. Yields move inversely to bond prices."
"``It was clear that most people here don't believe the financial crisis is necessarily over or close to being over,'' Fischer said in the closing speech at the Federal Reserve's annual symposium for central bankers in Jackson Hole, Wyoming."
Danish Buy-Out
"The Danish Central Bank and a group of financial companies will buy Roskilde Bank A/S after no buyers were found for the regional operator, which last month became the first bank in the country to be bailed out for 15 years. The central bank and the group will inject 4.5 billion kroner ($890 million) into Roskilde, the Copenhagen-based lender of last resort said Aug. 24."
"The Ifo institute's German business confidence index probably dropped to 97.2, from 97.5 in July, when it plunged the most since the Sept. 11 terrorist attacks, according to economists in a Bloomberg News survey."
"The yield on the two-year German note, the most sensitive to interest rate changes, has fallen 20 basis points since Aug. 6, the day before the ECB kept its benchmark lending rate at 4.25 percent and its president Jean-Claude Trichet said economic expansion will be ``particularly weak''."
The implied yield on the December Euribor futures contract has dropped 8 basis points in the past month to 5.05 percent.
"European government bonds returned 2.8 percent in the past two months, while U.S. debt earned 2.4 percent, according to Merrill Lynch & Co.'s EMU Direct Government and U.S. Treasury Masters indexes."
To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
"Last Updated: August 25, 2008 09:12 EDT"
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Treasuries Climb; Report May Show Home Sales Near 10-Year Low
By Dakin Campbell and Kim-Mai Cutler
"Aug. 25 (Bloomberg) -- Treasuries rose, snapping a two-day decline, on speculation credit-market turmoil may be widening and before an industry report that may show U.S. home sales were near a 10-year low last month."
"U.S. notes headed for a third straight monthly gain, according to Merrill Lynch & Co.'s U.S. Treasury Master index, as forecasts for slowing economic growth and credit-market losses fueled demand for the relative safety of government debt. Interest-rate derivatives imply banks are becoming more hesitant to lend."
"``This is the longest running horror movie that any of us has ever had to deal with, and I think it will continue to run on,'' said T.J. Marta, a fixed-income strategist at RBC Capital Markets in New York, the investment-banking arm of Canada's biggest lender."
"The two-year note yield declined 9 basis points, or 0.09 percentage point, to 2.33 percent at 8:55 a.m. in New York, according to BGCantor Market Data. The 2.75 percent security due July 2010 rose 5/32, or $1.56 per $1,000 face amount, to 100 25/32."
Ten-year yields dropped 10 basis points to 3.77 percent.
"``Credit jitters have resurfaced throughout the markets, which is creating an underlying bid for Treasuries,'' said David Schnautz, a fixed-income strategist in Frankfurt at Commerzbank AG, Germany's second-biggest lender. ``Weak existing home sales should also keep a bid in place.''"
Schnautz said he is ``optimistic'' for Treasuries and that 10-year yields may fall to 3.25 percent by the end of the quarter.
Housing Slump
"Existing homes sold at an annual pace of 4.91 million units in July, versus 4.86 million the previous month, which was the lowest level in a decade, according to a Bloomberg News survey of economists. The National Association of Realtors will release the figure at 10 a.m. in Washington."
"``The housing data are going to be bad,'' said Adam Carr, senior economist in Sydney at ICAP Australia Ltd., part of the world's largest inter-bank broker. ``That should support Treasuries in the early part of the week.''"
"Treasuries returned 0.9 percent in August, the Merrill index shows. They gained 0.8 percent in June and 0.4 percent in July."
Banks are charging each other a premium of 77 basis points over what traders predict the Federal Reserve's daily effective federal funds rate will average in the next three months to lend cash. The spread has widened from about 24 basis points in January.
"``It was clear that most people here don't believe the financial crisis is necessarily over or close to being over,'' Bank of Israel Governor Stanley Fischer said Aug. 23 in the closing speech at the Federal Reserve's annual symposium for central bankers in Jackson Hole, Wyoming."
Financial Losses
"Losses and writedowns on securities related to home loans to people with poor credit now exceed $500 billion at financial institutions worldwide, according to data compiled by Bloomberg."
"Yields will rise as investors prepare to purchase Treasury two-year notes at an auction on Aug. 27 and five-year securities on Aug. 28, said Hidehiko Maejima, international bond strategist in Tokyo at BNP Paribas Securities Japan Ltd., one of the 19 primary dealers that trade directly with the Fed. Stock gains will help push two-year yields toward 2.50 percent, he said."
"``The supply is a negative factor'' for Treasuries, Maejima said. ``Overall stock prices are relatively firm.''"
"The U.S. will probably sell a record $32 billion in two- year notes and $22 billion in five-year debt, according to Stone & McCarthy Research Associates, an economic analysis company in Princeton, New Jersey. The five-year sale would be the most since February 2003. The Treasury Department is scheduled to announce the sizes today."
Oil Rebounds
A rebound in oil to above $115 a barrel and speculation the worst of the credit crisis isn't over pushed U.S. stock-index futures lower. The Standard & Poor's 500 futures expiring in September dropped 0.6 percent.
"Ried, Thunberg & Co.'s sentiment index for the end of December rose to 49 for the seven days ended Aug. 22 from 48 the week before. A reading below 50 means investors anticipate lower prices. The 31 fund managers surveyed by the company, another ICAP unit, manage a combined $1.40 trillion."
Increased turmoil in the money markets may again serve as a catalyst for a surprise year-end rally in Treasuries like the one in 2007.
"``The trade to do in December will be to get back into the most liquid thing you can find,'' such as Treasury bills or notes, said David Keeble, head of fixed-income strategy in London at Calyon, a unit of Credit Agricole SA, France's second- largest bank by assets. ``We are having a period now of a second round of pressures on banks. It's weak economic growth which is now piling the pain onto the banks.''"
Rate Bets
"Futures contracts on the Chicago Board of Trade show the Fed will probably refrain from raising U.S. interest rates this year. The world's largest economy probably grew 2.7 percent in the second quarter, faster than the 1.9 percent pace first reported, according to a Bloomberg survey of economists before the Commerce Department revises the figure on Aug. 28. Growth will slow to 0.45 percent in the fourth quarter, a separate survey showed."
"``Rate hikes are unlikely for the time being,'' Jan Hatzius, the chief U.S. economist at Goldman, Sachs & Co., another primary dealer, wrote in a report that he distributed by e-mail in early Asian trading. ``An end to the financial crisis is not yet in sight.''"
To contact the reporters on this story Dakin Campbell in New York at dcampbell27@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net
"Last Updated: August 25, 2008 08:56 EDT"
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Spain Producer Prices Rise Most in Two Decades (Update1)
By Emma Ross-Thomas
Aug. 25 (Bloomberg) -- Producer prices in Spain rose at the fastest pace in almost 24 years in July as record oil prices increased costs for manufacturers.
"The price of goods leaving Spain's factories, refineries and mines increased 10.2 percent from a year earlier after advancing 9 percent in June, the National Statistics Institute in Madrid said in an e-mailed statement today. Producer prices gained 1.4 percent from June, the biggest monthly increase in more than two years."
"Crude oil prices have risen by 60 percent in the last year and touched a record $147.27 a barrel in New York in July. That helped push euro-zone consumer price inflation to more than a 16-year high, making it harder for European Central Bank to cut interest rates, even as the region's economy slows."
"The price of intermediate goods in Spain rose 7.3 percent from a year earlier, compared with 6.3 percent in June, signaling further rises in consumer prices."
"``This warns us about the performance of other prices further ahead and that is why it worries us,'' said Diego Fernandez, an economist at Fortis Bank in Madrid. He estimates that rises in the price of intermediate goods take about a year to pass through to final prices."
"Still, oil has eased 22 percent from its July record and economists said Spain's producer price inflation probably peaked in July. An economic slowdown in Spain would make it difficult for companies to pass on higher production costs to consumers, they said."
"Spain's consumer prices gained 5.3 percent from a year earlier in July, the fastest in more than a decade and above the average for the euro region, previous data showed."
"The increase in Spanish producer prices was led by energy as the cost of products from oil refineries rose 52 percent from a year earlier. Food and drink products added 10 percent, the institute said."
To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net
"Last Updated: August 25, 2008 04:48 EDT"
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"Asian Currencies Drop, Led by Korean Won, as Funds Sell Shares "
By Aaron Pan and Judy Chen
"Aug. 25 (Bloomberg) -- Asian currencies declined, led by South Korea's won, on speculation overseas investors will cut holdings of local shares, adding to demand for dollars."
The won fell the most in almost three months to reach its lowest since November 2004 after Finance Minister Kang Man Soo said Aug. 22 that South Korea's inflation rate is likely to remain high even after oil's decline. The benchmark Kospi stock index has dropped 18 percent in the past three months. Nine of the 10 most-active Asian currencies outside Japan dropped today. There was no trading in the Philippine peso because of a national holiday.
"``The Kospi is not good and foreign investors are selling shares,'' said Lee Yoon Jin, a currency dealer at state-run Korea Development Bank in Seoul. ``That's the main reason for the won's weakness.''"
"Korea's currency dropped 1.5 percent, the most since May 8, to 1,078.9 against the dollar as of the 3 p.m. close in Seoul, according to Seoul Money Brokerage Services Ltd."
"Global fund managers have sold 1.33 trillion won ($1.23 billion) more local shares than they bought since Aug. 18, stock exchange data shows. The country's Kospi index of 754 stocks tumbled Aug. 22 to its lowest since April 2007."
"Elsewhere, the Singapore dollar lost 0.8 percent to S$1.4189 against the U.S. currency, Thailand's baht dropped 0.5 percent to 34.10 and Vietnam's dong declined 0.2 percent to 16,630."
"Malaysia's ringgit fell by the most in three months on speculation the central bank will refrain from raising interest rates today, choosing to support economic growth rather than tackle the fastest inflation in 26 years."
Malaysian Inflation
"Consumer prices jumped 8.5 percent from a year earlier in July, the government reported after local markets closed on Aug. 22. That exceeded the estimate of 21 economists surveyed by Bloomberg News before the announcement."
"``The inflation number underlines some chain effects from higher fuel and electricity prices,'' said Ameer Ali Mohamed, head of research at JF Apex Securities Bhd. in Petaling Jaya outside Kuala Lumpur. ``This puts policy makers in a predicament and markets could suffer'' from any inaction, he said."
"The ringgit slumped 1 percent to 3.3745 per dollar, according to data compiled by Bloomberg."
"The central bank will keep its overnight policy rate at 3.5 percent today for a 19th straight meeting since April 2006, according to 12 of 20 economists in a Bloomberg survey. Eight predicted an increase to 3.75 percent. The decision is due at about 6 p.m. in Kuala Lumpur."
Taiwan Growth
Taiwan's dollar declined after the government reported the slowest economic growth in more than a year on falling overseas sales of electronics.
"Gross domestic product rose 4.3 percent in the second quarter from a year ago, the weakest since the first three months of 2007. The statistics bureau, which released GDP after the market closed on Aug. 22, today cut its 2008 growth forecast to 4.3 percent from 4.8 percent three months ago."
"``The story is now growth slowing, while inflation is going to stay elevated in the near term,'' said Tony Phoo, an economist at Standard Chartered Bank in Taipei. ``So that puts Asian currencies under pressure in favor of the U.S. dollar.''"
"The Taiwan dollar dropped 0.2 percent to NT$31.43 against the U.S. currency, near a six-month low."
"Growth in Taiwan's export orders slowed to 7.6 percent in July from 9.3 percent, the weakest since December 2006, according to a Bloomberg News survey of economists. A separate survey indicated July industrial production grew 2.8 percent in July, compared with 5.1 percent in June. Both figures will be released after local markets close today."
Rupiah Declines
Indonesia's rupiah fell the most in two weeks on speculation local companies will purchase dollars to meet month- end payments for loans and imports.
The local currency extended its decline against the dollar this month to 0.7 percent. Deputy Governor Hartadi Sarwono said on Aug. 8 the central bank will prevent the rupiah from depreciating too fast after inflation reached a 22-month high of 11.9 percent in July.
"``Usually, when we're approaching the month-end, there's a lot of corporate demand'' for dollars, said Lindawati Susanto, head of currency trading at Bank Resona Perdania PT in Jakarta. The rupiah ``will approach 9,200 this week but since Bank Indonesia is still controlling the market, its weakness will be limited to 9,160.''"
"The currency weakened 0.2 percent to 9,162 a dollar, the biggest drop since Aug. 11, Bloomberg data show."
To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Judy Chen in Shanghai at xchen45@bloomberg.net.
"Last Updated: August 25, 2008 04:55 EDT"
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Indian Bonds Gain on Speculation Drop in Oil Will Cap Inflation
By Anoop Agrawal
"Aug. 25 (Bloomberg) -- India's 10-year bonds advanced, pushing yields to the lowest level in two weeks, on speculation a decline in crude oil prices will help temper inflation."
"Benchmark notes rallied for a second day after crude prices in New York slumped 5.4 percent on Aug. 22, the biggest decline since Dec. 27, 2004. The commodity's 60 percent surge in the past year propelled India's inflation rate to the highest level in more than 16 years and prompted the central bank to increase borrowing costs three times starting June."
"``Oil's fall is a relief as it was an important factor in pushing up inflation,'' said Prasanna Patankar, chief bond trader at Securities Trading Corp. of India Ltd. in Mumbai. ``That may help bond yields in sustaining their decline.''"
"The yield on the benchmark 8.24 percent note due April 2018 fell 9 basis points to 8.98 percent at the 5:30 p.m. close in Mumbai, according to the central bank's trading system. The price rose 0.55, or 55 paise per 100 rupee face amount, to 95.30. A basis point is 0.01 percentage point."
"Wholesale prices jumped 12.63 percent in the week ended Aug. 9 from a year earlier, the most since June 1992, a government report showed Aug. 21."
"Central bank Governor Yaga Venugopal Reddy last raised the benchmark overnight lending rate, known as the repurchase rate, on July 29 to a seven-year high of 9 percent. He also increased the cash reserve ratio to 9 percent to prevent money supply from stoking inflation."
"Crude oil prices on the New York Mercantile Exchange have declined 21 percent from an all-time high of $147.27 a barrel reached on July 11, Bloomberg data show."
"The cost of benchmark interest-rate swaps, or derivative contracts used to guard against rate fluctuations, fell. The five-year swap rate, a fixed payment made to receive floating rates, declined to 9.38 percent from 9.50 percent on Aug. 22, according to data compiled by Bloomberg."
To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.
"Last Updated: August 25, 2008 08:13 EDT"
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"Asian Stocks Rise on Crude Decline; Honda, Cathay Pacific Gain "
By Chen Shiyin and Shani Raja
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"Aug. 25 (Bloomberg) -- Asian stocks rallied the most in more than two weeks, led by carmakers and airlines, as oil's biggest plunge in four years eased concern that rising energy costs and faster inflation will erode earnings."
"Honda Motor Co., Japan's second-largest automaker, added 4.4 percent after crude fell more than $6 a barrel on Aug. 22 and Federal Reserve Chairman Ben S. Bernanke said inflation should slow. Cathay Pacific Airways Ltd., Hong Kong's biggest carrier, jumped 5.2 percent. Westpac Banking Corp. led banks higher as Korea Development Bank said it's considering investing in Lehman Brothers Holdings Inc., easing concern financial institutions won't be able to raise enough capital to offset credit losses."
"``The lower oil price will help Asian industry as well as consumers; it also takes the pressure off inflation,'' said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which manages about $108 billion. ``The interest shown by the Korean Development Bank demonstrates that there's still lots of capital around the world looking for a home.''"
"The MSCI Asia Pacific Index gained 1.5 percent to 123.48 as of 7:03 p.m. in Tokyo, rebounding from a four-week, 8.5 percent retreat that sent the gauge to the lowest since July 24, 2006. The index advanced the most since Aug. 6."
The regional measure has dropped 22 percent this year as soaring inflation assailed global economies and the world's largest financial companies posted writedowns and credit losses of more than $500 billion.
"Japan's Nikkei 225 Stock Average rose 1.7 percent to 12,878.66. Hong Kong's Hang Seng Index, which was closed Aug. 22 because of a typhoon, jumped 3.5 percent, posting the region's biggest gain. Indexes also climbed in most markets open for trading. The Philippines is shut for a holiday today."
"Honda, Nissan"
"U.S. stocks advanced on Aug. 22, lifting the Standard & Poor's 500 Index by 1.1 percent. Financial companies on the S&P 500 index rose the most in two weeks, led by a rally in Lehman. Futures on the S&P 500 dropped 0.4 percent."
"Honda, which gets about half its sales from North America, jumped 150 yen to 3,590, halting a five-day, 8.3 percent slump. Nissan Motor Co., Japan's third-largest automaker, climbed 3.1 percent to 856 yen. Hyundai Motor Co., South Korea's biggest, rose 3.6 percent to 71,800 won."
"Crude oil for October delivery plunged 5.4 percent to $114.59 a barrel, the biggest drop since Dec. 27, 2004, after BP Plc resumed flows through a Caspian pipeline. Futures were at $115.02 today."
Consumer Prices
"The drop in energy prices coincided with comments by Bernanke, who said inflation should ease later this year and in 2009, thanks to a recovery in the dollar and declines in commodity prices. The Fed is ``committed to achieving medium-term price stability,'' Bernanke said in a speech in Jackson Hole, Wyoming."
"The decline in oil ``will help alleviate pessimism among investors about the earnings outlook for exporters,'' said Yoji Takeda, who helps manage the equivalent of $1.1 billion at RBC Investment (Asia) Ltd. in Hong Kong. ``A drop in oil shows investors are shifting their money from commodities. Inflation will recede and interest rates will fall.''"
"Airlines climbed on speculation lower oil prices will ease fuel costs. Cathay Pacific advanced 74 cents to HK$14.88, the most two weeks. Qantas Airways Ltd., Australia's largest carrier, jumped 4.9 percent to A$3.66."
"Inpex Holdings Inc., Japan's No. 1 explorer, lost 4.5 percent to 1.137 million yen, its largest retreat since Aug. 1. PTT Pcl, Thailand's biggest oil company, fell 1.5 percent to 260 baht."
Banks Advance
"Westpac, Australia's No. 2 bank by value, rose 4.5 percent to A$22.98. National Australia Bank Ltd., the country's largest by assets, rose 2.3 percent to A$24.09. Mitsubishi UFJ Financial Group Inc., Japan's biggest bank by market value, jumped 4.8 percent to 831 yen, its largest rally since May 30."
"A gauge of financial companies on MSCI's Asian index has dropped 27 percent this year, the worst performance among the broader measure's 10 industry groups."
Bank stocks rose today after a Korea Development Bank spokesman said on Aug. 22 the company is considering investments including Lehman. Chief Executive Officer Min Euoo Sung and Lehman spokesman Mark Lane declined to comment. The Maeil Business newspaper reported today Korea Development may resume talks on buying a stake in Lehman if the U.S. company offers a lower stock price.
"A possible investment in Lehman by Korea Development helped drive credit-default swap indexes in Australia, Japan and the rest of Asia to the lowest in about a week."
Bank Earnings
"China Construction Bank Corp., the country's second-largest bank, jumped 3.7 percent to HK$6.19 in Hong Kong after saying first-half profit soared 71 percent from a year earlier on more lucrative lending and increased fee-based services."
"Babcock & Brown Ltd., the worst-performing stock on MSCI's Asian index this year, added 2.8 percent to A$2.55, trimming its 2008 loss to 91 percent. The Australian manager of infrastructure assets may seek a buyer for Irish phone company Eircom Group Plc, the Irish Times reported, citing unidentified people."
"Limiting gains, Maanshan Iron & Steel Co. plunged 7.8 percent to HK$3.18 in Hong Kong, the biggest drop on MSCI's regional index. Goldman Sachs Group Inc. downgraded shares of China's fourth-largest listed steelmaker to ``sell'' from ``buy,'' citing accelerating declines in steel prices and weaker demand amid a property slowdown."
"The brokerage also lowered its share-price estimate for Realtek Semiconductor Corp., a Taiwan chip designer, to NT$60 from NT$67, saying that weakening demand will hurt earnings growth in the third quarter. The shares tumbled 6.9 percent to NT$63.20."
"Goodman Fielder Ltd., Australia's largest baker, plunged 4 percent to A$1.45 as it turned to a second-half loss after taking an A$170 million ($148 million) writedown on its New Zealand dairy unit."
To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.
"Last Updated: August 25, 2008 06:05 EDT"
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Shirakawa Says Low Rates to Stave Off `Deep' Slump (Update2)
By Mayumi Otsuma
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Aug. 25 (Bloomberg) -- Bank of Japan Governor Masaaki Shirakawa said the country's low interest rates will help the economy avoid slipping into a ``deep'' slump.
"``Japan's economy is unlikely to experience a deep adjustment phase,'' Shirakawa said at a speech in Osaka today. The country's ``accommodative environment for corporate finance is expected to continue to support business activity.''"
"The central bank last week described growth as ``sluggish'' for the first time in a decade, indicating it's unlikely to raise the benchmark interest rate from 0.5 percent anytime soon. The world's second-largest economy is slowing because higher prices of oil and raw materials are eroding incomes and the global slowdown is weakening exports, Shirakawa said today."
"``The economy may emerge from a recession phase early next fiscal year, but the central bank won't be able to raise rates before mid-2009,'' said Hideo Kumano, chief economist at Dai- Ichi Life Research Institute, who used to work for the central bank. Kumano predicts a rate increase ``in the third quarter of next year at the earliest.''"
"Japan is more resilient than in previous slowdowns because companies have shed excess workers, capacity and debt, Shirakawa said. The country's financial institutions incurred ``limited'' losses from the U.S. subprime loan problem compared with their U.S. and European peers, he added."
Weak Wages
The governor said he's seen little sign of inflation spreading from fuel and food products because wage growth has been ``relatively weak.'' He said he's watching consumers' inflation expectations and how companies set prices to determine whether ``second-round effects'' of inflation will emerge.
"Consumer-price inflation will accelerate ``slightly'' in coming months because companies will continue passing on higher energy and material costs, he said. As commodity prices ease, so will Japan's inflation, he added."
"Toyota Motor Corp., Japan's largest automaker, said today that it will raise prices on some domestic models for the first time in 16 years to pass on higher costs, paving the way for smaller rivals to do the same. Prices businesses pay for fuel and raw materials surged 7.1 percent in July, the most since the wake of the second oil crisis 27 years ago."
"Consumer prices excluding fresh food probably climbed 2.3 percent in July from a year earlier, economists estimate an Aug. 29 report will show. That would be the fastest in a decade, breaching the zero to 2 percent range the bank considers represents stable prices. Core prices rose 1.9 percent in June."
"Upside, Downside Risks"
"``The current situation requires the Bank of Japan to carefully monitor both downside risks to economic growth and upside risks to inflation,'' Shirakawa, 58, said."
"Shirakawa reiterated that his policy board is watching the risk that keeping rates low for a long time may overstimulate the economy should it pick up. Japan's key rate, the lowest among major economies, was last raised in February 2007."
"``If the downside risks to the economy turn out to decrease, there is a risk that prolonging the period of accommodative financial conditions will lead to swings in economic activity and prices,'' he said."
The governor pointed to Japan's period of inflated asset prices in the late 1980s as an example of how low interest rates can derail an economy. The bursting of the bubble led to a decade of economic stagnation and deflation.
Bubble Caution
"``Looking back at previous bubbles in financial activities and asset prices, including Japan's asset bubble, we can see that many of them occurred following a period of price stability and continued low interest rates,'' Shirakawa said."
"The bank shelved its two-year policy of calling for rate increases in April, the month Shirakawa assumed the bank's top position. Borrowing costs will stay unchanged through next June at least, according to 21 of 26 economists surveyed by Bloomberg this month. Four estimated higher rates and one predicted a cut."
"``The chance for a rate cut is very slim,'' said Kyohei Morita, chief economist at Barclays Capital in Tokyo. ``The central bank has emphasized that the current monetary conditions are accommodative.''"
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
"Last Updated: August 25, 2008 06:58 EDT"
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"European Stocks Drop on Credit, Economy Concerns; Banks Fall "
By Alexis Xydias
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"Aug. 25 (Bloomberg) -- European stocks fell, led by banks and builders, as concern grew that credit losses will spread and the economic slowdown will deepen."
"Natixis SA, the French bank planning a 3.7 billion-euro ($5.5 billion) rights offer to replenish capital, dropped 3.1 percent, and KBC Group NV, Belgium's second-biggest financial- services firm, lost 1.8 percent. Vinci SA, the world's largest builder, slid 1.5 percent on reports the International Monetary Fund lowered its forecast for euro-area economic growth."
"Europe's Dow Jones Euro Stoxx 50 Index, the benchmark gauge for the nations sharing the euro, decreased 0.6 percent to 3,291.42 at 3:01 p.m. in London. The index is down 25 percent this year even after a 4.8 percent jump since mid-July, as credit losses at banks topped $500 billion, inflation accelerated and oil rose to a record."
"``We still have severe writedowns and as markets undergo a squeeze, banks will face even bigger problems in trying to sell assets,'' said Madrid-based Cesar Martinez, a fund manager at Gesmadrid, which has about $18 billion. ``We still see much volatility, a very complicated macroeconomic picture and further downgrades to earnings estimates.''"
"The IMF cut the region's growth outlook this year to 1.4 percent from 1.7 percent, Reuters reported, citing a note prepared for a meeting of officials from the Group of 20 nations. Next year's estimate was reduced to 0.9 percent from 1.2 percent, according to the article."
Bank Collapse
"The Danish Central Bank said yesterday it will lead a buyout of Roskilde Bank A/S after a slumping property market drove the lender into insolvency and a private purchaser couldn't be found. U.S. regulators closed Columbian Bank and Trust Co. of Topeka, Kansas, the nation's ninth bank to collapse this year, according to a statement late on Aug. 22."
Stocks pared some of their losses after a report showed sales of previously owned homes in the U.S. rose more than economists forecast in July.
"National benchmark indexes declined in 14 of the 17 western European markets that were open. Trading will probably be slower than average today with the U.K. market closed for a holiday. France's CAC 40 fell 0.6 percent, while Germany's DAX slipped 0.3 percent."
"The yearlong credit crisis has yet to run its course, with continued turmoil likely in housing and banking, Bank of Israel Governor Stanley Fischer said Aug. 23 at the Federal Reserve's annual symposium for central bankers in Jackson Hole, Wyoming."
"Natixis lost 3.1 percent to 5.88 euros, while KBC fell 1.8 percent to 61.55 euros."
`Unprecedented Deterioration'
"``The market focus will soon shift from writedowns to unprecedented credit-cycle deterioration,'' Cheuvreux analysts wrote in a note to investors today. Lower asset quality ``coincides with capital, funding and liquidity constraints, making the downturn more severe,'' said the brokerage, which forecast earnings for European banks will drop 23 percent next year."
"Vinci slipped 1.5 percent to 36.50 euros. Vestas Wind Systems A/S, the world's biggest wind-turbine maker, declined 2.2 percent to 656 kroner."
Analysts have slashed earnings estimates this year as writedowns increase and the global economy slows.
"Profit for companies in the pan-European Stoxx 600 will drop 2 percent in 2008, according to analysts' estimates compiled by Bloomberg. That's down from growth of 11 percent forecast at the start of the year."
"Morgan Stanley cut its year-end forecast for Standard & Poor's 500 Index, the benchmark index for U.S. equities, by 7.1 percent, saying the slowdown may curb profits at technology and industrial companies, according to a note dated yesterday."
Profit Falls
"Metall Zug AG slumped 6.1 percent to 2,160 francs, the most in almost seven years, after the Swiss maker of dishwashers reported lower first-half profit."
"Allianz SE added 1.5 percent to 109.07 euros. The insurer may be close to an agreement to sell its Dresdner Bank unit to Commerzbank AG, Germany's second-largest bank by assets, for 9 billion euros ($13 billion), Welt am Sonntag and the Sunday Times reported."
NicOx SA tumbled 7.1 percent to 7.50 euros. The French drugmaker developing treatments with Pfizer Inc. said the U.S. pharmaceutical company won't develop an experimental glaucoma medicine after a study in Japan failed to reach its goal.
"VMetro ASA, the Norwegian computer-technology provider, jumped the most in six years in Oslo trading after Curtiss- Wright Corp. offered to buy the company. The shares rallied 16 percent to 11.35 kroner, the steepest gain since March 2003."
To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.
"Last Updated: August 25, 2008 10:09 EDT"
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U.S. Existing Home Sales Rose 3.1 Percent in July (Update1)
By Shobhana Chandra
"Aug. 25 (Bloomberg) -- Sales of previously owned homes in the U.S. rose in July from a 10-year low, while the gain wasn't enough to reduce the supply of properties on the market."
"Resales rose 3.1 percent, more than forecast, to an annual rate of 5 million from 4.85 million in June, the National Association of Realtors said today in Washington. The median price dropped 7.1 percent from July 2007, and the number of homes for sale jumped to a record."
"Record foreclosures have pushed property values down even more, luring some bargain hunters into the market. Still, stricter lending rules, rising unemployment and a glut of unsold houses signal the outlook for residential real estate remains grim."
"``It'll be a while before we get a real recovery in housing,'' Stephen Gallagher, chief U.S. economist at Societe Generale in New York, said before the report. ``These things take time to work through. Prices have come off, so that's helping home sales a little.''"
"Treasuries, which had rallied earlier in the day, remained higher after the report. Benchmark 10-year notes yielded 3.79 percent at 10:14 a.m. in New York, from 3.87 percent at last week's close. The Standard & Poor's Supercomposite Homebuilding Index of stocks was down 1.3 percent at 285.21."
Economists' Forecasts
"Resales were forecast to rise to a 4.91 million annual rate, according to the median estimate of 75 economists in a Bloomberg News survey. Projections ranged from 4.69 million to 5 million. July's sale rate was the highest since February."
Sales were down 13 percent compared with a year earlier. Resales totaled 5.65 million in 2007.
"The increase in sales wasn't enough to keep up with the surge in properties coming into the market as foreclosures mount. There were a record 4.67 million unsold houses and condos on the market in July, representing 11.2 month's supply at the current sales pace, matching the highest ever. The group has said a 5 to six month's supply is consistent with a stable market."
"The jump in inventory was driven by an increase in the supply of condos as projects started one or 2 years ago came on the market, the Realtors group said."
Prices Drop
"The median price of an existing home fell to $212,400 from $228,600 in July 2007."
"``We are in a very tight credit-availability condition,'' Lawrence Yun, NAR's chief economist, said in a press conference. ``Inventories continue to remain very high.''"
"Resales account for about 85 percent of the market, while purchases of new homes make up the rest. Sales of existing homes are compiled from contract closings and may reflect contracts signed one or two months earlier."
"For that reason, economists consider new-home sales, which are recorded when a contract is signed, a more timely barometer of the market. A report tomorrow from the Commerce Department may show new home sales fell in July for the third consecutive month, according to the Bloomberg survey median."
"Today's report showed resales of single-family homes increased 3.1 percent to a 4.39 million annual pace. Sales of condos and co-ops climbed 3.4 percent to an 610,000 rate, the most since November."
"Purchases increased in three of four regions, led by a 9.7 percent jump in the West. Sales fell 0.5 percent in the South."
"Tight credit conditions and ongoing declines in residential construction will weigh on economic growth in coming months, Federal Reserve policy makers said at their Aug. 5 meeting. The Fed's quarterly survey of bank loan officers showed 75 percent had made it tougher for prime borrowers to get a mortgage, more than in the April survey."
`Worry a Lot'
"``I worry a lot about what's happening in housing,'' Martin Feldstein, a member of the committee that charts American business cycles, said in an interview on Bloomberg Television last week. ``The number of negative-equity homes is exploding. Housing prices will continue to go down, driven by the large oversupply of houses and the increasing number of foreclosures.''"
The number of unsold previously owned homes has piled up as some owners resist lowering prices and banks repossess more properties.
"For their part, builders are working to pare the inventory of new homes. Ground was broken on the fewest new houses in 17 years in July, and permits, a sign of future construction, also fell, a report from the Commerce Department last week showed."
"The S&P/Case-Shiller index of home prices in 20 metropolitan areas dropped in May, extending a string of declines that started in August 2006. June figures are due tomorrow."
"``Buyers are coming back into the market,'' Tom McCormick, president of Astoria Homes, said in a Bloomberg Television interview last week. ``Remarkably low'' prices do ``seem to be bringing people in off the sidelines.''"
"While lower home values may be reviving interest among some homebuyers, the declines also reduce household wealth, just as job losses and borrowing costs are rising. That's contributing to a slowdown in consumer spending, the biggest part of the economy."
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
"Last Updated: August 25, 2008 10:22 EDT"
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"U.S. Stock Futures Fall, Led by Banks; JPMorgan, Lehman Retreat "
By Henrietta Rumberger and Elizabeth Stanton
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Aug. 25 (Bloomberg) -- U.S. stock-index futures fell as the nation's ninth bank failure of the year renewed concern that subprime losses will keep rattling the financial system.
"Bank of America Corp. and JPMorgan Chase & Co. dropped more than 1 percent each after Columbian Bank and Trust Co. of Topeka, Kansas, collapsed amid bad real-estate loans. Lehman Brothers Holdings Inc. declined more than 3 percent on concern a Korean bank will reconsider a potential investment in the fourth-biggest U.S. securities firm."
"``The market's going to struggle until we get a clear indication that we know what the bottom is in the financials, and that may be a while,'' Peter Sorrentino, senior portfolio manager at Cincinnati-based Huntington Asset Advisors, which manages about $17 billion, told Bloomberg Television."
"S&P 500 futures expiring in September dropped 6.5, or 0.5 percent, to 1,285.7 as of 9:14 a.m. in New York. Dow Jones Industrial Average futures retreated 49 to 11,568 and Nasdaq-100 Index futures decreased 8.75 to 1,920.75."
Futures indicated the S&P 500 will extend its first weekly decline since July. The benchmark for American equities slipped 0.5 percent last week as energy prices climbed and concern grew that the government may need to bail out Fannie Mae and Freddie Mac.
Morgan Stanley cut its year-end forecast for the index on concern banks will report more credit-related writedowns and the global economic slowdown will curb profits at technology and industrial companies.
`Long Tail'
"``Our biggest concern for 2009 earnings estimates is that a combination of global growth slowdown, declining operating leverage, a stronger U.S. dollar, less share count reduction and a long tail to dysfunctional credit markets will create powerful headwinds for what appear to very optimistic consensus expectations,'' Abhijit Chakrabortti wrote in a note to clients dated yesterday."
"Oil's rebound today from a 5.4 percent drop on Aug. 22 reignited concern that higher fuel costs will curb profits at retailers and automakers. Crude rose as much as 1 percent to $115.80 on the New York Mercantile Exchange as Russian lawmakers voted to recognize the independence of two breakaway Georgian regions, raising fears of new tensions in the area."
"UAL Corp., parent of United Airlines, retreated 28 cents to $12.44. AMR Corp., parent of American Airlines, lost 31 cents to $10.21."
Stocks and Bonds
"Consumer stocks in the S&P 500 have climbed 7.6 percent in August, the biggest monthly rally in five years. As the shares advanced, the extra yield bond investors demanded to own the industry's debt rose to 2.5 percentage points over U.S. Treasuries."
"Every time bondholders sought that much compensation to guard against default, shares of retailers, restaurants, and hotels slumped an average 16 percent, according to data compiled by Bloomberg."
JPMorgan dropped 40 cents to $37.27. Bank of America retreated 36 cents to $29.85.
"Columbian Bank, with $752 million in assets and $622 million in total deposits, was shuttered by the Kansas state bank commissioner's office and the Federal Deposit Insurance Corp., on Aug. 22."
"The pace of bank closings is accelerating as global financial firms have reported more than $500 billion in writedowns and credit losses since 2007. The FDIC's ``problem'' bank list grew by 18 percent in the first quarter to 90 banks with combined assets of $26.3 billion. Prior to yesterday, the FDIC had closed 36 banks since October 2000, according to a list at fdic.gov. The U.S. shut 12 banks in 2002, the highest in the period, and 2005 and 2006 had no closures."
`Bad Memories'
"``The closure of Columbian Bank awakened investors' bad memories and shows that we are not through with the topic yet,'' said Monika Rosen, head of research at BA-CA Asset Management in Vienna, which manages the equivalent of $41 billion."
Lehman slipped 46 cents to $13.95. Shares of the securities firm rose 5 percent in New York trading on Aug. 22 after Korea Development Bank said it's ``considering'' an investment in the company.
Lehman Talks
"The Korean bank ended talks on a possible investment after Lehman demanded a price 50 percent higher than its book value, the Maeil Business newspaper said, citing an unnamed official in the banking industry. South Korea's financial regulator said today that state-controlled banks including Korea Development Bank should consider the risks of buying overseas rivals amid the global credit crisis."
"New York-based Lehman has dropped 78 percent this year, the worst performance in the 11-company Amex Securities Broker/Dealer Index."
"Lehman Chief Executive Officer Richard Fuld may face an ``internal coup'' to strip him of his executive duties, the Observer reported, citing bank ``sources.'' Mark Lane, a spokesman for Lehman Brothers, was not immediately available when contacted by Bloomberg News via telephone and e-mail."
"Freddie Mac lost 11 cents to $2.70 and Fannie Mae declined 35 cents to $4.65. The cost to the largest U.S. mortgage finance companies of raising capital is getting more prohibitive by the day, making it likely that the government will have to inject cash into the two firms."
Bailout Concern
"Declines in the common stocks of Freddie Mac and Fannie Mae accelerated last week to more than 90 percent for the year and yields on their preferred shares more than doubled on speculation Treasury Secretary Henry Paulson may need to bail them out, reducing or wiping out the value of the securities."
"Financials shares last week fell the most in six weeks for the biggest drop among 10 S&P 500 industries. The group has retreated 29 percent this year as losses from the subprime mortgage collapse exceeded $500 billion. One year into the financial crisis, central bankers and scholars at the Federal Reserve's annual retreat this weekend couldn't agree on how to prevent a repeat."
"Fed Chairman Ben S. Bernanke, European Central Bank President Jean-Claude Trichet, former officials and economists meeting in Jackson Hole, Wyoming, split over whether policy makers should be made responsible for financial stability and how closely to heed the concerns of Wall Street."
"The yearlong credit crisis has yet to run its course, with continued turmoil likely in housing and banking, Bank of Israel Governor Stanley Fischer said Aug. 23 at the Fed's symposium."
Oilfield Acquisition
"Energy producers climbed as oil rose and Precision Drilling Trust, Canada's largest oilfield-services provider, agreed to buy Grey Wolf Inc. for about $2 billion to add drilling in the U.S. market. Stockholders of Grey Wolf, based in Houston, will get $5 and 0.1883 trust unit per each share, the companies said today in a statement. The agreement comes two months after a previous bid was rejected."
"Acquisitions of oilfield-services providers and drillers accelerated this year as record prices raised demand for rigs and support equipment. Grey Wolf rejected three previous bids from Calgary-based Precision in favor of its April agreement to acquire Basic Energy, a Midland, Texas-based oilfield contractor. Shareholders voted that deal down in July."
"XTO Energy Inc., the oil and gas driller that's made more than two dozen acquisitions since 2000, advanced 51 cents to $48.85. Chesapeake Energy Corp., the second-biggest independent U.S. natural-gas producer, climbed 30 cents to $47.95."
"Sales of existing houses in the U.S. probably rose in July from a 10-year low as declining prices helped stabilize demand, economists said before a report from the National Association of Realtors due at 10 a.m. in Washington today."
"Dell Inc., Sears Holdings Corp. and Big Lots Inc. are among the companies scheduled to report earnings this week. Second- quarter profits for S&P 500 companies slumped 22 percent on average, based on Bloomberg data. Fewer than 50 companies in the U.S. stock benchmark have yet to release results."
To contact the reporters on this story: Henrietta Rumberger in Frankfurt at hrumberger@bloomberg.net; Elizabeth Stanton in New York at estanton@bloomberg.net.
"Last Updated: August 25, 2008 09:23 EDT"
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Consumer Stock Rally Doesn't Signal Economic Recovery (Update2)
By Fabio Alves and Michael Tsang
Aug. 25 (Bloomberg) -- Just because consumer stocks are staging the biggest rally in five years doesn't mean the economy is about to recover.
"As Lowe's Cos., Wendy's International Inc. and Starwood Hotels & Resorts Worldwide Inc. led a 7.6 percent advance in consumer stocks this month, the extra yield bond investors demanded to own the industry's debt rose to 2.5 percentage points over U.S. Treasuries. Every time bondholders sought that much compensation to guard against default, shares of retailers, restaurants, and hotels slumped an average 16 percent, according to data compiled by Bloomberg."
"Standard Life Investments, Harvard University's endowment and hedge fund Appaloosa Management LP, which manage almost $300 billion, are avoiding the shares as Americans rein in spending to cope with the highest unemployment rate in four years and faster inflation. Profits at consumer discretionary companies are forecast to be the worst since 2001, Bloomberg data show."
"``It's a rally that we think will inevitably roll over,'' said Andrew Milligan, the Edinburgh-based head of global strategy at Standard Life Investments, which oversees about $242 billion. ``Investor confidence has started to ease back and earnings numbers have generally been negative. The credit side just reinforces our downbeat views.''"
Stocks Versus Bonds
"Consumer shares have risen almost four times as fast as the Standard & Poor's 500 Index in August, sending the S&P 500 Consumer Discretionary Index toward its biggest monthly advance since an 8.9 percent increase in October 2003. A 22 percent drop in oil since its July peak and speculation the Federal Reserve will hold off raising interest rates after seven cuts in the past year improved prospects Americans will spend more. Consumer stocks in the MSCI World Index are up 1.8 percent this month."
"Today, the consumer discretionary stocks in the S&P 500 fell 1.5 percent as of 10:06 a.m. in New York, as 77 of 82 companies declined. The broader index slid 0.8 percent."
"This month's gains in consumer stocks coincided with an increase in the difference between yields of U.S. retailers' bonds and those of government debt to 2.47 percentage points as investors demanded more protection against the likelihood of default, data from New York-based Merrill Lynch & Co. show"
"When the gap exceeded 245 basis points in 2000, 2002, 2005 and March of this year, the consumer discretionary gauge lost an average of 16 percent over the same span, the data show. A basis point is equal to 0.01 percentage point."
"Shares of Mooresville, North Carolina-based Lowe's, the world's second-largest home-improvement retailer, surged 22 percent this month as the extra yield investors demanded to own the company's 5.6 percent bond due in 2012 widened 23 basis points over U.S. Treasuries."
`Voting With Bondholders'
"That's more than three times the average increase of A- rated corporate bonds over the same period, Merrill's data show."
"The premium on Wendy's 7 percent bond due in 2025 climbed as much as 33 basis points above U.S. government debt this month, almost triple the gain in spreads of similar BB-rated debt. The Dublin, Ohio-based hamburger chain's stock added 16 percent."
"The disparity between the stock and bond markets comes as analysts are forecasting the industry's biggest full-year profit decline since the last recession in 2001. Earnings at S&P 500 consumer-discretionary companies will drop 22.9 percent this year, data compiled by Bloomberg show."
"``I would be inclined to vote with the bondholders,'' said Jack Ablin, who oversees $65 billion as chief investment officer at Harris Private Bank in Chicago. ``They're sensing there's still credit deterioration going on in the group.''"
Earnings Plummet
"Lowe's, Wendy's and Starwood, the White Plains, New York- based company that runs the Westin, St. Regis and W hotels, all reported lower earnings for the second quarter. Industry profits have dropped 54 percent on average, the highest on record for Bloomberg data that started in 2001."
"LPL Financial's Jeffrey Kleintop expects consumer stocks will continue to do well as profits decline less than analysts estimate. More than 91 percent of the S&P 500 retailers that have reported second-quarter results so far topped Wall Street's consensus forecast, data compiled by Bloomberg show."
"``The outlook isn't rosy, but certainly better than what had been priced into those stocks,'' Kleintop, the Boston-based chief market strategist at LPL, which oversees $273 billion, said in a Bloomberg Television interview."
Fed Rate Cuts
"Consumer stocks in the U.S., where the Federal Reserve cut its benchmark interest rate to 2 percent from 5.25 percent in the past year, are outperforming the rest of the world. The MSCI Brazil Consumer Discretionary Index lost 9.8 percent in August, while retailers, automakers and electronics makers in the MSCI Asia Pacific Index fell 2.3 percent."
"To maintain the advantage, U.S. retailers will have to defy an unemployment rate that rose to 5.7 percent last month and the fastest inflation in 17 years. The economy, buffeted by the biggest U.S. housing slump since the Great Depression and more than $500 billion in bank losses, may grow 0.45 percent next quarter, or about a third the annual rate of 1.2 percent forecast this quarter, according to data compiled by Bloomberg."
"``You only have so many dollars or francs or euros in your pocket,'' said Robert Weissenstein, who helps oversee $1.3 trillion as chief investment officer at Credit Suisse Private Bank. It's difficult to turn bullish ``as long as you get mixed to negatively biased jobs data,'' he said from Tucson, Arizona."
Harvard Endowment
"Harvard's $34.9 billion endowment, the biggest of any university, sold its holdings in 79 of 92 consumer companies including Lowe's, Wendy's and Starwood, during the second quarter, the Boston-based college fund's filing with the U.S. Securities and Exchange Commission compiled by Bloomberg show."
"Appaloosa, the Chatham, New Jersey-based hedge-fund firm run by former Goldman Sachs Group Inc. bond trader David Tepper, held 10.4 percent less in consumer stocks at the end of the second quarter, partly after selling its 175,000 share stake in Starwood, filings compiled by Bloomberg show. Appaloosa, which owned equities valued at $3.1 billion as of June 30 and also invests in bonds, has posted average annual returns of about 25 percent in its Palomino Fund since the beginning of 1995."
"``The corporate bond market has sold off first, fastest, and then equities follow after,'' said Standard Life's Milligan. ``What the credit markets are telling us is that we need to still be cautious.''"
To contact the reporters on this story: Fabio Alves in New York at falves3@bloomberg.net; Michael Tsang in New York at mtsang1@bloomberg.net.
"Last Updated: August 25, 2008 10:27 EDT"
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"Sinopec Shares Rise as Net Beats Estimates, Oil Falls (Update3) "
By Wang Ying and Winnie Zhu
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"Aug. 25 (Bloomberg) -- China Petroleum & Chemical Corp., Asia's largest oil refiner, rose in Hong Kong trading after it posted earnings that beat analysts' estimates and crude oil prices dropped the most in more than three years."
"Sinopec, as China Petroleum is known, gained 3 percent to HK$7.82. First-half net income fell 77 percent to 8.26 billion yuan ($1.21 billion), the refiner said yesterday, beating the median estimate of 7 billion yuan in a Bloomberg analyst survey. The price of oil, Sinopec's biggest cost, fell 5.4 percent in New York on Aug. 22."
"The refiner's shares have retreated 34 percent this year, compared with a 24 percent decline in the city's benchmark Hang Seng Index, as government curbs on fuel prices prevented the company from passing on record crude oil costs to consumers. China controls fuel prices to limit their impact on inflation in the world's fastest-growing major economy."
"The earnings ``came in marginally ahead of our expectation, we think that the market will likely view them positively,'' Cheng Khoo and Gordon Wai, Hong Kong-based analysts at Lehman Brothers Holdings Inc, said in a report today. ``The worst is likely over for Sinopec as crude oil prices have declined from a peak of $147 a barrel. We think that crude prices are likely to continue easing through early 2009.''"
"Oil's $6.59 decline to $114.59 in New York on Aug. 22 was the biggest in percentage terms since Dec. 27, 2004, and in dollar terms since Jan. 17, 1991, when U.S.-led forces expelled Iraq from Kuwait. The October contract traded at $115.11 at 4:23 p.m. Hong Kong time, up 66 percent from a year ago."
Refining Loss
"In the second quarter, Sinopec's profit slumped 87 percent to 2.19 billion yuan, according to Bloomberg calculations made from the first-half figures."
"Sinopec's refining business lost 46 billion yuan in the first half, compared with a profit of 5.73 billion yuan a year earlier, it said in a separate statement to the Shanghai stock exchange yesterday. Refining costs reached 460 billion yuan, 63 percent of all expenses."
"The company lost 752 yuan to process each metric ton of crude oil in the first six months, compared with a profit of 265 yuan a ton during the same period of 2007, it said."
"``The second-half should look a little better, as crude should ease and the government may further increase fuel prices,'' Yin Xiaodong, an analyst with Citic Securities Co., said by phone from Beijing yesterday."
Spending Plan
"First-half total capital expenditure was 36.5 billion yuan, of which exploration and development spending stood at 21 billion yuan, it said. The company said it will speed up explorations in ``key regions'' such as Tahe and northeastern Sichuan in the second half."
"Profit in the first three quarters may fall by more than 50 percent because of crude oil costs and state price controls on fuels, Sinopec said."
"``We see significant value in Sinopec's asset in the longer term, realizing however, that this could take a while,'' Morgan Stanley analyst Sara Chan said in a report today. ``Until then, the stock price could see significant volatility, driven by oil price movement and news flow related to domestic product price reform. Going into the second half, we do not expect significant improvement in its earnings trends.''"
To contact the reporter on this story: Wang Ying in Beijing at wang30@bloomberg.net; Winnie Zhu in Shanghai at wzhu4@bloomberg.net
"Last Updated: August 25, 2008 04:47 EDT"
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"Italian Stocks Update: Banca Italease, Chl, IFI, Seat, Snai "
By Francesca Cinelli
"Aug. 25 (Bloomberg) -- Italy's S&P/MIB Index declined 54, or 0.2 percent, to 28,036. Futures expiring in September dropped 28, or 0.1 percent, to 28,145."
The following were among the most active stocks on the Italian market today. Share symbols are in parentheses.
Trading is likely to be below average today as the U.K. is closed for a bank holiday.
"Apulia Prontoprestito SpA (APP IM), the consumer-finance arm of BancApulia SpA, added 0.63 cents, or 1.3 percent, to 48.55 cents. The company is due to release second-quarter results today."
"Banca Italease SpA (BIL IM), an unprofitable Italian leasing company, was suspended from trading after climbing 50.1 cents, or 9.5 percent, to 5.8 euros. The shares are benefiting from market expectations for a deal with DZ Bank, said Patrizio Pazzaglia, a money manager at Bank Insinger de Beaufort NV in Rome. The company said July 22 it had no plans to sell a stake to Germany's DZ Bank and that talks with DZ Bank's VR Leasing unit were ongoing and a decision on the deal would be made in September."
"Banco Popolare SC (BP IM), Italease's main shareholder, added 31.6 cents, or 2.5 percent, to 12.83 euros."
"Centro HL Distribuzione SpA (CHL IM), an Italian e-commerce company, surged 1.97 cents, or 6.8 percent, to 31 cents. The company signed a download access agreement with France's Nexway."
"Fiat SpA (F IM), Italy's largest manufacturer, rose 3.6 cents, or 0.3 percent, to 10.78. Car stocks were the sixth-best performers among the 18 industry groups in the Dow Jones Stoxx 60 Index today."
"Separately, Nomura reiterated an ``underweight'' stance on the European industry. ``Despite a fall in forecast earnings, European auto stocks outperformed last month,'' analyst Michael Tyndall wrote in a report. ``We don't think this signals a turning point, but rather a modest relief rally.''"
"IFI SpA (IFP IM), a holding company of Italy's Agnelli family, gained 55.7 cents, or 4.12 percent, to 14.07 euros. The Agnellis bought 6.1 percent of investment unit IFI-Istituto Finanziario Industriale SpA. The deal shows ``confidence in the main asset, Fiat,'' Euromobiliare analysts wrote in a note. The brokerage rates the unit a ``buy.''"
"Separately, Ifil SpA (IFL IM) suspended a buyback program as a ``precautionary measure,'' a spokesman said, pending the outcome of a valuation by Agnelli & C. Ifil shed 1.6 cents, or 0.4 percent, to 4.29 euros."
"Seat Pagine Gialle SpA (PG IM), Italy's largest publisher of phone directories, surged 0.54 cents, or 5.2 percent, to 10.91 cents. ``Reiterating full-year guidance has been a good signal,'' Massimiliano Romano, head of research for Concentric Italy in Milan, told Bloomberg Aug. 22. ``We prefer a wait-and-see approach to verify Seat's capacity to deliver on targets.''"
"Snai SpA (SNA IM), Italy's biggest racetrack manager, advanced 9.8 cents, or 2.8 percent, to 3.65 euros. Lottomatica SpA (LTO IM) and its partners are qualified to bid for a sports-betting concession in Turkey, an official for the Italian gaming company said Aug. 22, denying a report that Turkish authorities had blocked the bid. Lottomatica added 0.6 percent to 20.69 euros."
"STMicroelectronics NV (STM IM), Europe's largest semiconductor maker, rose for a fourth session, adding 12 cents, or 1.4 percent, to 8.6 cents. Technology stocks were the second-best performers among the 18 industry groups in Europe's Dow Jones Stoxx 60 Index."
To contact the reporters on this story: Francesca Cinelli in Milan at fcinelli@bloomberg.net
"Last Updated: August 25, 2008 08:38 EDT"
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"U.S. Must Avert Fannie-Freddie Failure, Survey Shows (Update1) "
By Christopher Anstey
"Aug. 25 (Bloomberg) -- The U.S. government must avert any failure of Fannie Mae or Freddie Mac, the two largest sources of American mortgage financing, business economists said in a survey."
"``Fully 75 percent agreed that these institutions are `too important to fail,''' the National Association for Business Economics, based in Washington, said in its semiannual economic policy poll. Just 20 percent of the panel of 278 NABE members said that any public aid for Fannie Mae and Freddie Mac ``would necessarily amount to nationalization.''"
"Fannie Mae Chief Economist Douglas Duncan was one of four analysts who ``conducted the analysis for this report,'' NABE said."
"Legislation that President George W. Bush signed into law July 30 that provides as much as $300 billion refinance distressed mortgages won't hasten a recovery in the housing market, two-thirds of the respondents said in the survey. Subprime defaults were cited as the biggest short-term risk to the economy, followed by energy prices, the survey showed."
"Fifty-five percent of the survey participants said the Federal Reserve's policy response to the slowdown is ``about right,'' up from 48 percent polled in March. The economists were evenly divided among those who forecast an increase in interest rates in the next six months and those anticipating no change, according to the survey."
To contact the reporter on this story: Chris Anstey at canstey@bloomberg.net
"Last Updated: August 25, 2008 08:31 EDT"
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Estonian Finance Ministry Cuts 2009 GDP Growth Forecast to 2.6%
By Ott Ummelas
"Aug. 25 (Bloomberg) -- Estonia's Finance Ministry said it expects 2009 gross domestic product growth of 2.6 percent, down from a previous estimate of 6.4 percent, on lower consumption and investments."
"Average inflation in 2009 is seen at 6 percent, the ministry added in an e-mail in Tallinn today. The ministry in April had expected average price growth for next year of 5.3 percent. It is expected to release 2008 economic growth and inflation forecasts later in the afternoon."
"Estonia's economy contracted the most in almost 14 years in the second quarter as accelerating inflation and falling property prices eroded consumption and investment. It was the second European Union economy to enter a recession since the start of the global credit crunch, following Denmark. Standard & Poor's, along with the top Nordic lender Nordea Bank AB and Copenhagen-based Danske Bank A/S have forecast in past weeks a full-year contraction for the Baltic country this year."
To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net
"Last Updated: August 25, 2008 07:58 EDT"
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Hong Kong Stocks Jump Most in Five Months; Cathay Pacific Gains
By Hanny Wan
"Aug. 25 (Bloomberg) -- Hong Kong stocks rose, lifting the benchmark index to its biggest advance in five months, after crude oil prices tumbled and China Construction Bank Corp. reported higher profit."
"Cathay Pacific Airways Ltd., which posted this month a first-half loss on higher jet-fuel costs, advanced 5.2 percent after oil prices dropped more than $6 on Aug. 22. Construction Bank, the nation's second-biggest bank, climbed 3.7 percent after saying first-half profit surged 71 percent."
"``I like Chinese banks,'' said Winson Fong, a fund manager at SG Asset Management Hong Kong Ltd., which oversees $3 billion in Asia outside Japan. ``They are the driving force of the Chinese economy. If we're talking about fundamentals, I don't think we need to worry too much'' about the banks, he said. Fong said his fund holds Construction Bank's shares."
"The Hang Seng Index added 712.73, or 3.5 percent, to close at 21,104.79, its sharpest advance since March 25. The gauge closed on Aug. 21 at its lowest since Aug. 17, 2007. It has dropped 24 percent this year as soaring inflation assailed global economies and the world's largest financial companies posted writedowns and credit losses of more than $500 billion."
"The Hang Seng China Enterprises Index, which tracks so- called H shares of Chinese companies, climbed 3.7 percent to 11,324.25, its highest close since Aug. 12."
The city's markets were closed on Aug. 22 due to a storm.
"Cathay Pacific advanced 5.2 percent to HK$14.88. Fuel accounts for about half of Cathay Pacific's operating costs. Air China Ltd., the nation's largest international carrier, added 2.2 percent to HK$3.75."
Oil Tumbles
China Petroleum & Chemical Corp. climbed 3 percent to HK$7.82. Asia's biggest oil refiner said yesterday first-half net income fell 77 percent to 8.26 billion yuan ($1.21 billion). That beat the median estimate of 7 billion yuan in a Bloomberg analyst survey.
"Crude oil futures tumbled 5.4 percent to $114.59 a barrel in New York on Aug. 22, the biggest drop since Dec. 27, 2004. The contract was at $115.07 in after-hours trading as of 4:21 a.m. New York time. The price of jet fuel, a product of crude oil, has dropped 11 percent this month through Aug. 22."
Construction Bank climbed 3.7 percent to HK$6.19. The bank said on Aug. 22 its first-half profit surged 71 percent to 58.7 billion yuan as it boosted lending revenue and increased fee- based services. The median estimate of five analysts surveyed by Bloomberg News was for a profit of 59 billion yuan.
Industrial & Commercial Bank
"Industrial & Commercial Bank of China Ltd., the world's most profitable bank, rose 4.3 percent to HK$5.34, its largest advance since July 9. CLSA Asia-Pacific Markets initiated coverage on the stock with a ``buy'' rating and share-price estimate of HK$6.25, according to an Aug. 22 research note."
Shares on the Hang Seng Finance Index accounted for 44 percent of the broader Hang Seng Index's advance.
"All stocks on the 43-member Hang Seng Index climbed, except for Yue Yuen Industrial (Holdings) Ltd., the world's largest maker of sports shoes, which was unchanged. August futures added 4 percent to 21,190."
The following stocks rose or fell. Stock symbols are in brackets after company names.
"Aluminum Corp. of China Ltd. (2600 HK), the nation's biggest producer of the metal and known as Chalco, advanced 13 cents, or 2 percent, to HK$6.71. Its parent Aluminum Corp. of China, or Chinalco, got Australian approval to raise to 11 percent its stake in Rio Tinto Group, the world's third-largest mining company. Chinalco, in partnership with Alcoa Inc., bought 9 percent of Rio in February."
"China Netcom Group Corp. (906 HK) rose 85 cents, or 4.2 percent, to HK$21, its biggest jump since July 9. The fixed-line phone company being acquired by China Unicom Ltd. (762 HK) said first-half profit rose 12 percent to 5.88 billion yuan as stronger sales of high-speed Internet services compensated for lower phone revenue. The profit, which excluded gains from connection fees, beat the 5.3 billion yuan median estimate of five analysts in a Bloomberg survey."
"Cosco Pacific Ltd. (1199 HK) climbed 46 cents, or 4.5 percent, to HK$10.64. Asia's No. 3 container-terminal operator boosted first-half profit by 11 percent as China's surging exports of toys, furniture and clothes fueled sea-cargo traffic. Net income climbed to $153.2 million, the company said during the lunchtime trading break."
"Ping An Insurance (Group) Co. (2318 HK), China's second- biggest insurer, rose HK$2.50, or 4.9 percent, to HK$53.90. The company is in talks to acquire Guangzhou Commercial Bank, the Economic Observer reported, citing people it didn't identify."
"Tingyi (Cayman Islands) Holding Corp. (322 HK) climbed 16 cents, or 1.9 percent, to HK$8.80. The company's first-half profit climbed 33 percent after China's biggest maker of packaged food boosted sales of instant noodles and cold drinks. Net income rose to $127.6 million, the company said during the trading break."
"Yanzhou Coal Mining Co. (1171 HK) climbed 66 cents, or 5.7 percent, to HK$12.34, its largest advance since July 9. The company, a unit of China's fourth-biggest producer of the fuel, said yesterday first-half profit more than doubled to 3.91 billion yuan because of rising energy demand and record prices. Yanzhou Coal also said profit may increase more than 260 percent in the first three quarters from a year earlier."
"Separately, the company said prices of its coal sold under contracts rose 38 percent this year."
To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net
"Last Updated: August 25, 2008 05:18 EDT"
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"Commodities Hint of Bottom on Mine Closings, Supplies (Update2) "
By Madelene Pearson
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Aug. 25 (Bloomberg) -- Corn and soybeans have rebounded as reduced crop yields push U.S. stockpiles to near five-year lows. Oil has reversed on U.S.-Russian tensions. Nickel has turned after Xstrata Plc closed a Dominican Republic plant.
"The worst rout in the history of commodities may be ending, signaling a replay of the 2006 tumble that preceded a doubling of prices in the next 17 months as measured by the Standard & Poor's GSCI index. Only this time, the driver is supply cuts rather than increasing demand."
"Supply constraints are ``coming more and more to the fore'' and that ``will separate the performance of individual commodities,'' said Alan Heap, global commodity analyst at Citigroup Inc. in Sydney. ``We're still looking for higher prices next year and in some cases the year after.''"
"Commodities are in their seventh year of gains, fueled by demand led by China and India and disruptions to mine and farm supplies. A rebound in raw materials from four-month lows may boost profits at BHP Billiton Ltd., raise costs at Nestle SA and stoke inflation, limiting the ability of central bankers Ben S. Bernanke and Jean-Claude Trichet to cut interest rates and revive growth in the U.S. and Europe."
"Oil is up 3 percent from a more-than-three month low after gaining 10 percent on concern supply may be disrupted by tension between Russia and the U.S. over Georgia and Poland's missile shield. OPEC may consider output cuts at its Sept. 9 meeting, Venezuela Energy and Oil Minister Rafael Ramirez has said, and U.S. gasoline stockpiles are dropping. Oil ended at $114.59 a barrel Aug. 22, down 22 percent from its record $147.27 July 11, and traded up 0.5 percent at $115.20 today."
Rogers on Oil
"Investor Jim Rogers, who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce, said Aug. 23 that crude oil prices will climb."
"``Over the course of time, it's a bull market,'' Rogers, 65, chairman of Rogers Holdings, said after an investor conference in Kuala Lumpur. While oil could fall to $75 or rise to $175, prices will appreciate during the next 10 years, he said."
"Copper, after plunging as much as 20 percent from its $8,940 a ton record on July 2, has rebounded from a six-month low as output fell at BHP Billiton, the world's biggest mining company, and Chile's Codelco, the largest producer. Aluminum may gain as power shortages force producers in China to curtail output, said Barclays Capital, the securities unit of London- based Barclays Plc."
"Xstrata, the fourth-largest nickel refiner, said Aug. 19 the suspension of its Falcondo operations in the Dominican Republic may last four months. The operations produce 29,000 tons of nickel a year, or about 2 percent of world primary nickel production."
`Still Intact'
"Corn and soybeans, down as much as 37 percent from their peaks, gained the past two weeks as delayed plantings threaten to reduce U.S. yields and on concern export tax protests may disrupt supplies from Argentina, the second-largest exporter of corn and third-largest of soybeans. That would strain world cereal stockpiles that the United Nations' Food and Agriculture Organization says are near a 30-year low."
"``I don't think the commodity boom has ended at all,'' Malcolm Southwood, a Melbourne-based commodities analyst with Goldman Sachs JBWere Pty, said Aug. 21. ``We've got a little bit of a cyclical downturn in a longer-term bull market, and the structural fundamentals are very much intact.''"
"Commodities, as measured by the Standard & Poor's GSCI index of 24 raw materials, had their fastest 30-day decline to Aug. 15, slumping 21 percent, after peaking July 3."
"The California Public Employees' Retirement System, the largest U.S. pension fund, remains committed. Calpers, which oversees $239 billion, said in February it may raise commodity investments 16-fold to $7.2 billion through 2010."
Calpers Not Concerned
"``We're in for the long term,'' Clark McKinley, a spokesman for Sacramento, California-based Calpers, said this month. ``Short-term market moves are not of great importance to us.''"
"Supply constraints come at a time of sustained demand in China and India, home to a third of the world's population."
"China may spend as much as 400 billion yuan ($58 billion) to stimulate the economy and ease monetary policy, said Frank Gong, head of China research at JPMorgan Chase & Co."
"The nation's factory and property spending accelerated through July, fueled by rebuilding after the Sichuan earthquake, the statistics bureau said Aug. 15. Exports surged and retail- sales growth was the most since 1999. Chinese demand may also increase as factories shuttered for the Olympics reopen. The economy expanded 10.1 percent in the three months through June."
"India, which could emulate China in demand for raw materials, will grow 7.7 percent in the year to March, a government panel said Aug. 13."
Some Skeptical
Not all investors are so optimistic.
"``The whole cycle that began around the turn of this century ended,'' said Michael Aronstein, chief investment strategist at Oscar Gruss & Son Inc. in New York, who returned 15 percent a year in the 1990s managing commodity investments. ``Human ingenuity creates productivity, and the real price of almost everything that's extracted or manufactured goes down over time. That's the nature of human progress.''"
"Federal Reserve Chairman Bernanke signaled last week that the central bank expects the commodity rally to ease. The Fed is keeping its target for interest rates ``relatively low'' because of ``our expectation that the prices of oil and other commodities would ultimately stabilize, in part as a result of slowing global growth,'' Bernanke said Aug. 22 at the Kansas City Fed annual conference in Jackson Hole, Wyoming."
`Weakening Economy'
"``We've seen the end to the upward trend'' for commodities, Nicholas Sargen, chief investment officer of Fort Washington Investment Advisors Inc. in Cincinnati, said in a Bloomberg Radio interview Aug. 22. ``The global economy is weakening, not just the U.S. economy. All the evidence coming out of Europe is that the economy now is stagnating. Japan and parts of Asia are weakening as well. That's just too powerful to be overcome.''"
"Countries that make up half the world's economy face a recession, Goldman Sachs Group Inc. said Aug. 21. The U.S., Japan, the 15-nation euro area and the U.K. are ``either in recession or face significant recession risks in the months ahead,'' Goldman's London-based international economist Binit Patel said in a report."
"A year since the U.S. housing slump sparked about $500 billion in credit market losses for banks globally, the world's largest economies are now stumbling as rising borrowing costs combine with high commodity prices."
To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net
"Last Updated: August 25, 2008 06:42 EDT"
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"Freddie, Fannie Drop Dims Prospects of New Investors (Update1) "
By Dawn Kopecki and Shannon D. Harrington
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"Aug. 25 (Bloomberg) -- The cost to Freddie Mac and Fannie Mae of raising capital is getting more prohibitive by the day, making it likely that the government will have to inject cash into the largest U.S. mortgage finance companies."
"Declines in the common stocks of the government-chartered companies accelerated last week to more than 90 percent for the year and yields on their preferred shares more than doubled on speculation Treasury Secretary Henry Paulson may need to bail them out, reducing or wiping out the value of the securities."
"As long as a rescue is likely, investors will be reluctant to take part in any offering, said Richard Hofmann, an analyst at CreditSights Inc., a bond research firm in New York."
"``The stocks' freefall becomes sort of a self-fulfilling prophecy if it goes far enough, and we're getting pretty close to far enough,'' Hofmann said."
"McLean, Virginia-based Freddie fell 52 percent last week and rose 12 cents, or 4.3 percent, to $2.93 as of 9:59 a.m. in New York Stock Exchange composite trading. Fannie of Washington declined 1 cent to $4.99, after dropping 37 percent last week. Their preferred shares are trading as low as 19 cents on the dollar on speculation their dividends may be suspended."
The companies were created by Congress to boost homeownership and profit by holding mortgages and mortgage bonds as investments and by charging a fee to guarantee and package loans as securities.
Losses Grow
"The two companies, which own or guarantee at least 42 percent of the $12 trillion in U.S. residential-mortgage debt outstanding, posted combined losses of $14.9 billion in the past four quarters as delinquencies rose to record levels. The losses depleted their capital and sparked concern they may not be able to weather the biggest housing slump since the Great Depression."
"Freddie agreed in May to raise $5.5 billion of capital to appease regulators, though has yet to complete the financing. Fannie raised $7.4 billion that month in a similar agreement."
"Fannie had $47 billion of capital as of June 30, according to company filings. The company is required by its regulator to hold $37.5 billion. Freddie's capital stood at $37.1 billion, compared with a requirement of $34.5 billion, filings show."
"The companies may need to raise at least $15 billion to convince investors they have enough capital, said Paul Miller, an analyst with Friedman Billings Ramsey & Co. in Arlington, Virginia. Bill Gross, who manages the world's biggest bond fund at Pacific Investment Management Co. in Newport Beach, California, estimates the Treasury will probably be forced to buy a combined $60 billion of preferred shares by October."
`Propitious Time'?
"Freddie Chief Executive Officer Richard Syron told investors earlier this year he was waiting for the ``propitious time'' before raising money. That time may not come, Hofmann said."
"Freddie has reached out to potential investors, spokeswoman Sharon McHale said last week. Private-equity firms TPG Inc., Kohlberg Kravis Roberts & Co., the Carlyle Group and the Blackstone Group LP told the company they are unwilling to invest in the company until it's clear what steps Paulson may take, The New York Times reported on Aug. 23."
"Carlyle spokeswoman Ellen Gonda, Blackstone spokesman John Ford and TPG spokesman Owen Blicksilver all declined to comment."
Fannie spokesman Brian Faith declined to comment.
"Moody's Investors Service on Aug. 22 cut Fannie and Freddie's $36 billion in preferred stock five levels to Baa3, the lowest investment-grade, saying a bailout that causes dividend payments to be halted is increasingly likely."
Holders `Panicking'
"``Any additional capital raises by Fannie and Freddie were going to have trouble being absorbed in the financial system without some intervention by the government,'' Peoples Bancorp Inc. Chief Financial Officer Edward Sloane said in an interview."
"Marietta, Ohio-based Peoples sold its $12.1 million of preferred shares in Freddie and Fannie, recording a pretax loss of about $1.04 million."
"While Paulson said he was trying to ``add stability and buy some time'' by seeking authority to pump unlimited amounts of capital into the companies through a credit line or equity investment, the opposite is happening because ``the holders at the bottom of the capital structure are panicking,'' Hofmann said."
"``They've got themselves in this negative loop where the only way they can raise capital is for the Treasury to put something in'' first, said Friedman Billings' Miller."
`Lack of Clarity'
The yields Freddie would have to offer to attract investors are two to three times what Fannie paid in its $7.4 billion preferred offering in May. Fannie gave investors a yield of 8.75 percent on 51.8 million shares of preferred stock that can be converted into common shares.
"Freddie's $1.1 billion of 5.57 percent preferred stock dropped 36 percent last week to $7.40, pushing the yield to 19.5 percent. Fannie's $7 billion of 8.25 percent perpetual preferred stock fell 26 percent to $11.29 as the yield rose to 18.9 percent. Freddie has paid an average yield of 6.3 percent on its $14.1 billion in outstanding preferreds, according to Friedman Billings. Fannie's average yield is 6.5 percent on its $21.7 billion preferred shares."
"``It is the lack of clarity of what exactly the government is going to do,'' said Axel Merk, president of Merk Investments LLC in Palo Alto, California. ``To make this politically viable, why would the government even think about coming in junior to somebody else?''"
To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net; Shannon D. Harrington in New York at sharrington6@bloomberg.net.
"Last Updated: August 25, 2008 10:18 EDT"
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"U.S. Stocks Drop, Led by Financial Shares, AIG, Banks Retreat "
By Elizabeth Stanton
Aug. 25 (Bloomberg) -- U.S. stocks fell for the first time in four days as a Kansas bank's failure and speculation American International Group Inc. will post a loss heightened concern that credit writedowns will keep rattling the financial system.
"AIG, the world's largest insurer, tumbled 5 percent after Credit Suisse Group said the company may lose $2.41 billion this quarter on mortgage-related writedowns. Huntington Bancshares Inc. and KeyCorp each dropped more than 3 percent after Columbian Bank & Trust Co. became the ninth U.S. bank to collapse this year. Coach Inc. and Dillard's Inc. led 81 of 82 shares in the Standard & Poor's 500 Consumer Discretionary Index lower as crude rose above $115 a barrel."
"``The market's going to struggle until we get a clear indication that we know what the bottom is in the financials, and that may be a while,'' Peter Sorrentino, senior portfolio manager at Cincinnati-based Huntington Asset Advisors, which manages about $17 billion, told Bloomberg Television."
"The S&P 500 dropped 8.8, or 0.7 percent, to 1,283.4 as of 10:24 a.m. in New York. The Dow Jones Industrial Average slid 87.12, or 0.8 percent, to 11,540.94. The Nasdaq Composite Index decreased 18.98 to 2,395.73. Four stocks retreated for each that rose on the New York Stock Exchange."
All 10 industry groups in the S&P 500 except for energy producers retreated as the index extended its first weekly decline since July. The benchmark for American equities slipped 0.5 percent last week as energy prices climbed and concern grew that the government may need to bail out Fannie Mae and Freddie Mac.
Stocks fell even as a report showed sales of previously owned homes in the U.S. rose in July from a 10-year low as declining prices helped stabilize demand.
`Long Tail'
Morgan Stanley cut its year-end forecast for the S&P 500 on concern banks will report more credit-related writedowns and the global economic slowdown will curb profits at technology and industrial companies.
"``Our biggest concern for 2009 earnings estimates is that a combination of global growth slowdown, declining operating leverage, a stronger U.S. dollar, less share count reduction and a long tail to dysfunctional credit markets will create powerful headwinds for what appear to very optimistic consensus expectations,'' Abhijit Chakrabortti wrote in a note to clients dated yesterday."
"AIG fell 93 cents to $18.94 for the biggest drop in the Dow average. Credit Suisse Group analyst Thomas Gallagher predicted AIG will lose 86 cents a share in the third quarter. Previously he forecast a 13-cent gain. ``Recent deterioration'' in debt holdings may cause losses in the firm's credit-default swaps, Gallagher wrote today in a research note. He rates New York-based AIG ``neutral.''"
Banks Retreat
The KBW Bank Index retreated 1.6 percent. Huntington Bancshares retreated 27 cents to $7.24. KeyCorp fell 37 cents to $11.10.
"Columbian Bank, with $752 million in assets and $622 million in total deposits, was shuttered by the Kansas state bank commissioner's office and the Federal Deposit Insurance Corp., on Aug. 22."
"The pace of bank closings is accelerating as global financial firms have reported more than $500 billion in writedowns and credit losses since 2007. The FDIC's ``problem'' bank list grew by 18 percent in the first quarter to 90 banks with combined assets of $26.3 billion. Prior to yesterday, the FDIC had closed 36 banks since October 2000, according to a list at fdic.gov. The U.S. shut 12 banks in 2002, the highest in the period, and 2005 and 2006 had no closures."
`Bad Memories'
"``The closure of Columbian Bank awakened investors' bad memories and shows that we are not through with the topic yet,'' said Monika Rosen, head of research at BA-CA Asset Management in Vienna, which manages the equivalent of $41 billion."
Lehman slipped 63 cents to $13.78. Shares of the securities firm rose 5 percent in New York trading on Aug. 22 after Korea Development Bank said it's ``considering'' an investment in the company.
"The Korean bank ended talks on a possible investment after Lehman demanded a price 50 percent higher than its book value, the Maeil Business newspaper said, citing an unnamed official in the banking industry. South Korea's financial regulator said today that state-controlled banks including Korea Development Bank should consider the risks of buying overseas rivals amid the global credit crisis."
"New York-based Lehman has dropped 79 percent this year, the worst performance in the 11-company Amex Securities Broker/Dealer Index."
`Internal Coup'
"Lehman Chief Executive Officer Richard Fuld may face an ``internal coup'' to strip him of his executive duties, the Observer reported, citing bank ``sources.'' Mark Lane, a spokesman for Lehman Brothers, was not immediately available when contacted by Bloomberg News via telephone and e-mail."
"Financial shares last week fell the most in six weeks for the biggest drop among 10 S&P 500 industries. The group has retreated 29 percent this year as losses from the subprime mortgage collapse exceeded $500 billion. One year into the financial crisis, central bankers and scholars at the Federal Reserve's annual retreat this weekend couldn't agree on how to prevent a repeat."
"Fed Chairman Ben S. Bernanke, European Central Bank President Jean-Claude Trichet, former officials and economists meeting in Jackson Hole, Wyoming, split over whether policy makers should be made responsible for financial stability and how closely to heed the concerns of Wall Street."
"The yearlong credit crisis has yet to run its course, with continued turmoil likely in housing and banking, Bank of Israel Governor Stanley Fischer said Aug. 23 at the Fed's symposium. Oil's rebound today from a 5.4 percent drop on Aug. 22 reignited concern that higher fuel costs will curb profits at retailers and automakers. Crude rose as much as 1 percent to $115.80 on the New York Mercantile Exchange as Russian lawmakers voted to recognize the independence of two breakaway Georgian regions, raising fears of new tensions in the area."
Consumer Shares Decline
"Shares of retailers and hotel operators dropped 1.1 percent for the second-biggest decline in the S&P 500. Spreads on their bonds, the extra yield investors demand to own the industry's debt, rose to 2.5 percentage points over U.S. Treasuries last week. Every time spreads have widened that much this decade, the S&P 500 Consumer Discretionary Index slumped 16 percent."
"Coach, the largest U.S. maker of luxury handbags, fell $1.04 to $27.30. Darden Restaurants Inc., the owner of the Olive Garden and Red Lobster chains, retreated $1.04 to $32.52. Wyndham Worldwide Corp., the franchiser of Ramada and Super 8 hotels, lost 55 cents to $18.10."
"The consumer index rose 7.6 percent in August through the end of last week, putting it on track for the biggest monthly rally in five years. The gain, helped by a 2.2 percent rally after earnings at Gap Inc., the biggest U.S. clothing retailer, topped analyst forecast, was almost four times that of the S&P 500."
Airlines Drop
"UAL Corp., parent of United Airlines, retreated 62 cents to $12.10. AMR Corp., parent of American Airlines, the world's largest carrier, lost 37 cents to $10.15."
"AMR may sell as much as $300 million worth of newly issued shares, diluting existing stockholders' stake, and use the proceeds to repay debt or help purchase aircraft, according to a government regulatory filing."
"Energy producers climbed as oil rose and Precision Drilling Trust, Canada's largest oilfield-services provider, agreed to buy Grey Wolf Inc. for about $2 billion to add drilling in the U.S. market. Stockholders of Grey Wolf, based in Houston, will get $5 and 0.1883 trust unit per each share, the companies said today in a statement. The agreement comes two months after a previous bid was rejected."
Energy Acquisitions
"Acquisitions of oilfield-services providers and drillers accelerated this year as record prices raised demand for rigs and support equipment. Grey Wolf rejected three previous bids from Calgary-based Precision in favor of its April agreement to acquire Basic Energy, a Midland, Texas-based oilfield contractor. Shareholders voted that deal down in July."
"XTO Energy Inc., the oil and gas driller that's made more than two dozen acquisitions since 2000, advanced 72 cents to $49.06. Chesapeake Energy Corp., the second-biggest independent U.S. natural-gas producer, climbed $1.01 to $48.66."
"Dell Inc., Sears Holdings Corp. and Big Lots Inc. are among the companies scheduled to report earnings this week. Second- quarter profits for S&P 500 companies slumped 22 percent on average, based on Bloomberg data. Fewer than 50 companies in the U.S. stock benchmark have yet to release results."
"-- Editors: Michael Regan, Chris Nagi"
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.
"Last Updated: August 25, 2008 10:25 EDT"
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"AIG May Post Third-Quarter Loss, Credit Suisse Says (Update1) "
By Hugh Son
"Aug. 25 (Bloomberg) -- American International Group Inc., the largest U.S. insurer, fell 5.1 percent in New York trading after Credit Suisse Group said the company may post a third- quarter loss of $2.41 billion on mortgage-related writedowns."
"AIG's estimate was trimmed to an 86 cents-a-share loss from a gain of 13 cents after ``recent deterioration'' in debt holdings that may cause credit-default swap losses, analyst Thomas Gallagher wrote today in a research note. The average estimate of 15 analysts surveyed by Bloomberg is for profit of 65 cents a share."
"The insurer may post the fourth straight quarter of net losses because of writedowns tied to the swaps, which AIG sold to protect fixed-income investors. The firm has slumped 67 percent this year in New York trading, making it the worst performer on the Dow Jones Industrial Average. Chief Executive Officer Robert Willumstad has said he will announce the results of a strategic review on Sept. 25."
"AIG has ``uncertainty regarding ratings, the size of a potential capital raise and the ultimate cost of'' Willumstad's turnaround plan, Gallagher said."
The company declined $1.02 to $18.85 at 9:53 a.m. in New York Stock Exchange composite trading.
Gallagher rates New York-based AIG ``neutral'' and cut the company's target price to $22 from $30.
To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net
"Last Updated: August 25, 2008 10:14 EDT"
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Chile's Economy Expanded 4.3% in Second Quarter (Update1)
By Sebastian Boyd
"Aug. 25 (Bloomberg) -- Chile's economy expanded 4.3 percent in the second quarter from the same period a year earlier, more than the 3.96 percent median estimate of 12 economists in a Bloomberg survey."
"The central bank reported second-quarter gross domestic product today in Santiago. The economy grew a revised 3.3 percent in the first three months of the year, the bank said."
"Internal demand rose 11 percent in the second quarter from the same period a year earlier. Fixed capital, or assets, expanded 23 percent from a year earlier, led by investment in machinery and equipment, the bank said."
To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net
"Last Updated: August 25, 2008 08:49 EDT"
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"Yen, Swiss Franc Advance on Reduced Demand for Higher Yields "
By Ye Xie and Anchalee Worrachate
"Aug. 25 (Bloomberg) -- The yen and Swiss franc rose against most of the other major currencies on bets credit market losses will widen, prompting investors to sell holdings of higher- yielding assets and pay back loans in Japan and Switzerland."
The dollar briefly pared its loss against the yen as an industry report showed U.S. home resales rose last month more than economists forecast. South Korea's won fell to the lowest level against the dollar in almost four years as overseas investors stepped up sales of the nation's shares.
"``Credit markets may be the prominent concern this week,'' said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. ``That points to outperformance of the yen and the Swiss franc.''"
"The yen gained 0.3 percent to 109.70 per dollar at 10:06 a.m. in New York, from 110.07 on Aug. 22. The euro declined 0.4 percent to 162.26 yen, from 162.83. The dollar traded at $1.4792 per euro, compared with $1.4793. The Swiss franc rose 0.3 percent to 1.6197 per euro and 0.4 percent to 1.0945 per dollar."
"Japan's currency climbed 0.5 percent to 77.63 per New Zealand dollar and the franc increased 0.6 percent to 7.03 South African rand on reduced demand for carry trades, in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's target lending rate of 0.5 percent and Switzerland's 2.75 percent benchmark compare with 8 percent in New Zealand and 12 percent in South Africa."
"Bank of America Corp. and JPMorgan Chase & Co. dropped more than 1 percent after Columbian Bank and Trust Co. of Topeka, Kansas, was shuttered by the state bank commissioner's office and the Federal Deposit Insurance Corp. on Aug. 22. U.S. Treasuries rose, snapping a two-day decline."
South Korea's Won
"South Korea's won dropped as much as 1.6 percent to 1,079.85, the weakest level since November 2004. Global fund managers have sold 1.33 trillion won ($1.23 billion) more local shares than they bought since Aug. 18, stock exchange data show."
"The Pakistani rupee fell 0.3 percent to 76.63 versus the dollar as Nawaz Sharif, head of Pakistan's second-largest party, quit the six-month-old ruling alliance, setting up a clash with Pakistan Peoples Party leader Asif Ali Zardari over who will replace Pervez Musharraf as president. The rupee is the world's fourth-worst performer, behind the Zimbabwean dollar, Turkmenistan manat and Icelandic krona."
"Resales of homes in the U.S. rose to a 5 million annual rate in July, the National Association of Realtors reported. The median forecast of 75 economists surveyed by Bloomberg News was for an increase to 4.91 million."
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net
"Last Updated: August 25, 2008 10:09 EDT"
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"German Stocks Decline, Led by Linde, Deutsche Bank, Commerzbank "
By Stefanie Haxel
Aug. 25 (Bloomberg) -- German stocks declined as concern deepened that credit-related losses may increase. Linde Group fell on speculation Commerzbank AG may sell its stake to fund a possible acquisition of Allianz SE's Dresdner Bank AG.
"Deutsche Bank AG, Germany's largest, and Commerzbank AG slipped as U.S. regulators closed Columbian Bank and Trust Co. amid bad real-estate loans and writedowns stemming from a drop in home prices. Linde, Germany's largest industrial gas maker, dropped 2.1 percent."
"The benchmark DAX Index lost 31.35, or 0.5 percent, to 6,311.07 as of 2:58 p.m. in Frankfurt. DAX futures expiring in September declined 0.5 percent. The HDAX Index of the country's 110 biggest companies also retreated 0.5 percent."
"``There's uncertainty in the market about how Americans themselves will react to the latest news from the U.S. banking sector,'' Michael Scholz, an equity strategist at WestLB AG in Dusseldorf, said in a Bloomberg Television interview."
"Columbian Bank of Topeka, Kansas, is the ninth U.S. bank to collapse this year. Citizens Bank and Trust will assume the failed bank's insured deposits, the Federal Deposit Insurance Corp. said Aug. 22 in a statement."
"Deutsche Bank declined 51 cents, or 0.9 percent, to 57.095 euros. Commerzbank, Germany's second-largest, sank 30.5 cents, or 1.5 percent, to 20.205 euros."
"Linde dropped 1.76 euros, or 2.1 percent, to 83.25 euros. Commerzbank, Germany's second-biggest bank, wants to sell its 10 percent holding in Linde to help finance a possible takeover of Dresdner Bank, Manager Magazin reported on Aug. 20 without saying where it got the information."
"``Linde's stock has been weak in the past days as investors are speculating Commerzbank may sell its stake which would weigh on the shares,'' said Norberth Barth, an analyst at WestLB AG in Frankfurt who has a ``buy'' recommendation on Linde."
"Allianz climbed 1.93 euros, or 1.8 percent, to 109.39, the highest in a week. Commerzbank is close to making a 9 billion- euro ($13.3 billion) takeover offer for Allianz's Dresdner Bank unit, the Sunday Times reported yesterday, citing unidentified people."
"Separately, Allianz may delay or abandon plans to break up its Dresdner Bank, indicating a deal may be near to sell it as a whole, the Financial Times said, citing unidentified people close to the insurer."
The following stocks also rose or fell in German markets. Symbols are in parentheses.
"Arcandor AG (ARO GY) climbed 17 cents, or 3.1 percent, to 5.74 euros, the steepest gain in two weeks. Deutsche Lufthansa AG's Eurowings unit had joined merger talks with Arcandor's vacation airline Condor, German magazine Der Spiegel reported."
"Centrotherm Photovoltaics AG (CTN GY) gained 81 cents, or 1.9 percent, to 42.82 euros, the biggest advance in more than one week. The maker of solar-cell machinery said it acquired solar silicon specialist SolMic GmbH."
"MLP AG (MLP GY) sank 45 cents, or 3.3 percent, to 13.32 euros, snapping a two-day advance. Chief Executive Officer Uwe Schroeder-Wildberg told Handelsblatt that Swiss Life Holding AG's takeover attempt had failed and the financial-services broker intends to remain independent."
"Separately, Swiss Life won't sell its stake in MLP, Frankfurter Allgemeine Zeitung said, citing an unidentified spokesman of Switzerland's largest life insurer."
To contact the reporters on this story: Stefanie Haxel in Frankfurt at shaxel@bloomberg.net.
"Last Updated: August 25, 2008 09:12 EDT"
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Argentine Construction Probably Rebounded in July: Week Ahead
By Drew Benson
"Aug. 25 (Bloomberg) -- Argentine construction activity probably rebounded in July after sliding in June, following the end of a four-month farm protest that had blocked major highways."
The national statistics agency is slated to release July construction figures on Aug. 29 at 4 p.m. local time (3 p.m. in New York).
"``The main factor here is the rebound in cement sales -- in June they were down 11 percent, and in July they went up 7.2 percent,'' said Bertrand Delgado, an economist with IDEAglobal in New York. ``That's a very strong indicator that there was a construction rebound in July.''"
"After the farm protest ended in mid-July, the transportation of construction materials and equipment returned to normal, enabling building activity to bounce back, Delgado said. He estimated the government's construction index will show an increase of 6.2 percent in July from a year earlier."
"In June, the index declined a seasonally adjusted 8.8 percent from May, the biggest contraction in four years, and fell 6.4 percent from a year earlier."
"The likely recovery of construction is in line with an overall rebound of the economy that followed the end of the protest against increased oilseed export taxes, Delgado said."
"On Aug. 19, the government reported that industrial production rose 9.2 percent in the 12 months to the end of July, the biggest year-on-year increase in six months."
Markets Last Week
"Last week, the yield on Argentina's benchmark 5.83 percent peso bonds due in 2033 rose 19 basis points, or 0.19 percentage point, to 10.078 percent, according to Bloomberg data. The bond's price slid 1.85 centavos on the peso to 105.25 centavos."
"The Buenos Aires benchmark Merval stock index rose 1.57 percent to 1760.98. Paper maker Celulosa Argentina SA (CELU AR) rose 9.32 percent, while Grupo Clarin SA (GCLA AR), the nation's top media company, fell 12.5 percent."
The following is a list of events in Argentina this week:
Event Date
Trade surplus Aug. 25
Shopping Center Sales Aug. 26
Supermarket Sales Aug. 27
Construction Activity Aug. 29
To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net.
"Last Updated: August 24, 2008 23:01 EDT"
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Hungarian Central Bank Holds Rates on Forint Strength (Update3)
By Zoltan Simon
Aug. 25 (Bloomberg) -- Hungary's central bank kept interest rates at a three-year high for a third month as the forint helps curb prices and the bank agreed with government to extend their 3 percent inflation goal for three years.
"The Magyar Nemzeti Bank in Budapest left the two-week deposit rate at 8.5 percent. The decision matched the forecast of all 23 analysts in a Bloomberg survey. The bank expects to reach its inflation goal in the second quarter of 2010, according to its updated economic forecasts."
"The forint was the best-performing European currency in the second quarter, gaining 11 percent against the euro. The currency's strength allowed policy makers to avoid further rate increases in their bid to curb inflation, which has exceeded their target for two years."
"``The tightening cycle has reached its peak, the next move will most probably be down, but the timing is still uncertain,'' analysts at Intesa Sanpaolo SpA's unit in Budapest, including Mariann Trippon, said in a note to clients."
"The forint traded at 233.85 per euro at 3:24 p.m. in Budapest, compared with 233.83 late on Aug. 22. The yield on the benchmark three-year bond rose to 8.61 percent from 8.54 percent."
Inflation Forecast
"The central bank kept this year's inflation estimate at 6.3 percent, with the 2009 forecast cut to 4.1 percent from 4.2 percent. The 2010 prediction is for 3 percent inflation. The economic growth forecast was kept at 2.4 percent for this year and reduced to 2.4 percent from 3 percent for 2009 and to 3.4 percent from 3.7 percent for 2010."
The surge in energy and food prices has led to record inflation around the globe. Consumer price growth was at a 12- year high in France in July and a 30-year high in Pakistan.
"Hungarian central bankers are increasingly moving away from potential rate increases, voting 10-1 for no move last month after a 6-4 tally in June, minutes from the rate-setting meetings showed. Today's decision was ``convincing,'' President Andras Simor said during a press conference in Budapest today."
Last month was also the first time since December that central bankers didn't consider raising the rate. The rate- setting council discussed cutting rates today and the statement following dropped a previous pledge that the bank is ``ready'' to take the necessary steps to reach its inflation goal.
"``The monetary council doesn't wish to give any kind of an answer to future interest rate changes,'' Simor said in the press conference. ``We want to keep this door open.''"
"The six-month forward rate dipped to 8.35 percent at 2:17 p.m. today, nearly a full percentage point below the 9.33 percent level on June 11, a sign of increasing rate-cut expectations."
`Hawkish to Dovish'
"``Today's Inflation Report sets a balanced inflation outlook around the 3 percent target,'' Gyorgy Barcza, an economist at KBC Groep NV in Budapest, wrote in an e-mail. ``The assessment sounds also neutral as it says that a disinflation path has been established, but adds that risks still exist.''"
"The Czech central bank this month lowered its key interest rate for the first time in more than three years, to 3.5 percent from 3.75 percent, as the strengthening koruna and a slowing economy threatened to push inflation below its target."
"In Hungary, the inflation rate was 6.7 percent in July, unchanged from the previous month at more than twice the central bank's 3 percent target."
Food prices dropped in July for a second month while the forint helped reduce the price of durable goods and limited growth in household energy costs. Analysts expect the 20 percent drop in crude prices in the past month to begin slowing inflation in August or September.
To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net
"Last Updated: August 25, 2008 10:01 EDT"
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Malaysia Refrains From Rate Increase to Buoy Growth (Update1)
By Stephanie Phang
"Aug. 25 (Bloomberg) -- Malaysia's central bank kept its benchmark interest rate unchanged to avoid exacerbating an economic slowdown, breaking with its neighbors in betting inflation won't spread beyond food and fuel."
"Bank Negara Malaysia maintained its overnight policy rate at 3.5 percent for a 19th straight meeting today, it said in a statement in Kuala Lumpur. The decision was predicted by 12 of the 20 economists surveyed by Bloomberg News. The other eight expected an increase to 3.75 percent."
"Malaysia has avoided following Thailand, Indonesia, India, Vietnam and the Philippines in raising borrowing costs this year as a deepening global slowdown threatens Asian growth. Central Bank Governor Zeti Akhtar Aziz has said she expects commodity prices, which drove inflation to a 26-year high last month, to ease next year as expansion cools around the world."
"``Inflation in June and July showed no strong secondary effect beyond food and fuel,'' said Suhaimi Ilias, an economist at Aseambankers Malaysia Bhd. ``The risk of secondary inflation is also being kept in check by the risks of a slowing economy and a softening job market, with extra relief from the retreat in commodity prices.''"
"Malaysia's economic expansion probably slowed in the second quarter, a Bloomberg survey of economists shows ahead of an Aug. 29 central bank release. The U.S., Malaysia's largest export market, is close to a recession and Japan's economy contracted in the second quarter."
`Avoid' Downturn
"Crude oil in New York has fallen by more than a fifth since reaching a record $147.27 a barrel on July 11, allowing Malaysia's government last week to reverse some of the fuel price increases it announced in June."
"``With the expected moderation in inflation in the medium term, the greater priority is to avoid a fundamental downturn in economic activity,'' the central bank said in today's statement."
Malaysia's inflation accelerated to 8.5 percent in July after the government increased retail gasoline prices 41 percent and diesel rates 63 percent in June to prevent subsidies that keep pump costs artificially low from spiraling amid soaring oil prices. Electricity rates also rose in July.
"Prime Minister Abdullah Ahmad Badawi, who is trying to prevent opposition leader Anwar Ibrahim from winning a by- election tomorrow, announced a 5.6 percent cut in gasoline prices and a 3.1 percent reduction in diesel costs last week, saying he wants to ease the burden of consumers and reduce inflationary pressure."
`Tricky' Decision
"Today's decision may reduce the chances of rate increases in the remaining months of 2008, said Wan Suhaimi Saidi, an economist at Kenanga Investment Bank Bhd. in Kuala Lumpur, who had expected the central bank to raise the benchmark today to prevent inflation from further outpacing savings rates."
"``They might raise rates but the propensity to do so is less as growth concerns could overtake inflationary risk,'' he said. ``The decision was tricky because the negative real rates have widened a lot. It is made trickier by the fact that the Permatang Pauh by-election is tomorrow. The powers that be don't want to be seen to be making unpopular policy decisions.''"
"Voter anger over rising prices contributed to opposition gains in March elections that deprived Prime Minister Abdullah's ruling coalition of its two-thirds majority in parliament. Anwar, a former deputy premier, would return to the legislature for the first time in a decade should he win tomorrow's vote."
By-Election
"Anwar, 61, is now the leader of an alliance of opposition parties and has said he plans to lure enough lawmakers from the ruling coalition to form a new government next month. He has promised to reduce fuel prices should he seize power."
"Bank Negara, which hasn't raised borrowing costs since April 2006, last month increased this year's inflation forecast to between 5.5 percent and 6 percent. Slowing growth will cause inflation to ease in the second half of 2009, the central bank said today."
"``The weaker economic conditions will reduce the likelihood of second-round effects that will generate persistent inflationary trends,'' today's statement said."
"Still, failure to increase interest rates may add downward pressure on the ringgit, after other Asian central banks raised their benchmarks, said Kenanga's Wan Suhaimi."
"``The currency will have a weakening bias after this decision,'' he said. A weaker currency would cause import costs to rise and hurt consumer demand, he added."
To contact the reporter on this story: Stephanie Phang in Singapore at sphang@bloomberg.net
"Last Updated: August 25, 2008 06:14 EDT"
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Danish Central Bank to Take Control of Roskilde Bank (Update2)
By Christian Wienberg and Tasneem Brogger
Aug. 25 (Bloomberg) -- The Danish Central Bank will take control of Roskilde Bank A/S to avert a financial ``contagion'' after a slumping property market drove the lender into insolvency and a private purchaser couldn't be found.
"The central bank and a group of Danish financial companies will provide Roskilde 4.5 billion kroner ($890 million) in cash and assume 37.3 billion kroner of debt, Roskilde said in a statement yesterday. The bank was suspended in Copenhagen trading today, after falling 88 percent from a peak in April 2007."
"``We wanted to secure financial stability in Denmark,'' central bank Governor Nils Bernstein said at a press conference in Copenhagen today. ``The alternative would have been that Roskilde went bankrupt and that would have resulted in a considerable contagion throughout the financial sector.''"
"Writedowns on real estate loans led to a pretax loss of at least 1 billion kroner in the first half, double an estimate the bank published on July 14, Roskilde said yesterday. Denmark entered a recession in the first quarter, the first European economy to do so since the global credit crisis began last year. The bailout is the first by the Danish central bank in 15 years."
"Shareholders in Roskilde have lost about 1 billion kroner, while holders of hybrid capital, which ranks between debt and equity for repayment in the event of bankruptcy, have lost about 2.5 billion kroner, Bernstein said."
`Poorly' Run
"``This bank has been run incredibly poorly, there's been no control on the credit risks,'' Per H. Hansen, a professor at Copenhagen Business School, told TV2 News."
"Danish financial companies fell in Copenhagen trading, led by Amagerbanken A/S, which dropped as much as 6.8 percent. Forstaedernes Bank A/S, which cut its profit outlook the day after Roskilde first announced it was being bailed out by the central bank, shed 6 percent."
Roskilde's market value has fallen to 1.02 billion kroner from 7.6 billion kroner at the end June 2007.
"Roskilde's failure was ``unique'' and linked to a ``very large exposure to the real-estate market,'' Bernstein said. ``In general, Danish banks are well prepared'' to cope with declines in the property market and a contracting economy, he said."
More Losses Possible
"Michael Dithmer, an economy ministry spokesman, said the government is prepared for an additional 3.5 billion kroner in writedowns at Roskilde. The government ``does expect that further losses will be revealed,'' he said at the press conference."
"Roskilde, based in the Danish city of the same name, received ``unlimited liquidity'' from the central bank on July 10 and the Danish Bankers Association agreed to cover as much as 750 million kroner of losses. The central bank said at the time the backing was conditional on Roskilde finding a buyer within six months."
"``Potential buyers have expressed severe uncertainty as to the general credit culture of the bank,'' and therefore didn't submit bids for the bank in whole or in part, Roskilde said in the statement."
"The central bank is acting with more than 100 of the country's private lenders, which last year pledged to cooperate in case of a bank failure. The central bank will put up 3.75 billion kroner, and the private financial institutions 750 million kroner."
"Roskilde Chief Executive Officer Soeren Kaare-Andersen said last month the bank hadn't been able to reduce the size of its real-estate loan portfolio fast enough. Kaare-Andersen, who took over in January 2007, will remain as CEO, the company said."
Failure `Disheartening'
"Roskilde's failure is ``absolutely, deeply disheartening,'' he said at a press conference at the central bank today. The bank will remain in operation until it's been sold on by the central bank."
"``The government backs the solution found for Roskilde Bank,'' Economy Minister Bendt Bendtsen said in a statement on the ministry's Web site. ``We had preferred that a private buyer had been found, but in the current serious situation, this solution is necessary.''"
"Roskilde said on July 14 it would write down as much as 900 million kroner for the first six months of the year. Since the July announcement, ``a large number of clients'' have pulled their assets out of the bank, it said yesterday."
"Danish housing prices will drop as much as 10 percent this year and next year following a boom and rising interest rates, Svenska Handelsbanken estimates. Homeowner foreclosures rose in July to the highest since 2003, Statistics Denmark said."
Bailouts
Roskilde asked the Copenhagen OMX Stock Exchange to suspend the trading of its shares and the Oslo ABM and Irish Stock Exchange to suspend the trading of its issued bonds.
"The central bank last bailed out a commercial lender in 1993, when, together with Sydbank A/S, it was forced to dismantle the assets of Varde Bank."
"Scandinavia's last financial crisis occurred in the early 1990s following the real-estate boom of the 1980s. Nordbanken and Gota Bank went bankrupt and were merged in 1993 in a state- engineered restructuring. Nordbanken, Finland's Merita Bank, Denmark's Unidanmark and Norway's K-Bank were then merged from 1998 to 2000 to create Nordea Bank."
To contact the reporter on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net
"Last Updated: August 25, 2008 10:23 EDT"
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Mexico's Peso Rises Most in 2 Weeks on Bet Yield Spread to Grow
By Valerie Rota
Aug. 25 (Bloomberg) -- Mexico's peso rose the most in almost two weeks on speculation the yield difference between Mexican and U.S. benchmark lending rates will grow.
"The peso led gains among Latin American currencies today. It has risen 7.8 percent this year, touching a six-year high on Aug. 4, as three interest-rate increases by Mexico's central bank have widened the gap between Mexican and U.S. borrowing costs to 6.25 percentage points, the biggest since 2005."
"Investors ``are expecting another quarter-percentage-point rate increase,'' said Omar Martin del Campo, head currency trader at Casa de Bolsa Arka SA in Mexico City. This doesn't signal ``a change in trend for the peso.''"
"The peso rose 0.4 percent to 10.1089 per dollar at 10:06 a.m. New York time, compared with 10.145 on Aug. 22. It earlier rose as much as 0.6 percent, its biggest gain since Aug. 12."
"Banco de Mexico raised its benchmark lending rate by a quarter-point to 8.25 percent on Aug. 15. It was the third increase since June, pushing borrowing costs to the highest since January 2006. Central bankers next meet on Sept. 19."
Interest-rate futures show traders see a 81 percent chance the U.S. Federal Reserve will keep the 2 percent target rate for overnight lending between banks unchanged through December.
"Speculation that Banco de Mexico's interest-rate increases will keep inflation in check has buoyed demand for Mexican fixed-income securities, Martin del Campo said."
"Yields on Mexico's 10 percent bond due in December 2024, the country's most-traded security, fell 2 basis points, or 0.02 percentage point, to 8.54 percent. The yield fell to the lowest since June 6. The bond's price rose 0.2 centavo to 112.77 centavos per peso, according to Banco Santander SA."
To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net
"Last Updated: August 25, 2008 10:07 EDT"
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Canada's Dollar Is Little Changed After Crude Oil Pares Gain
By Chris Fournier
"Aug. 25 (Bloomberg) -- Canada's dollar was little changed, erasing an earlier gain, as crude oil pared its advance."
"The Canadian currency traded at C$1.0471 per U.S. dollar at 9:54 a.m. in Toronto, from C$1.0470 on Aug. 22. One Canadian dollar buys 95.51 U.S. cents."
Canada's dollar has dropped 3.6 percent since July 11 when oil reached its record high of $147.27 per barrel.
"Crude oil for October delivery rose 0.3 percent to $114.95, after increasing as much as 1.3 percent to $116.06."
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
"Last Updated: August 25, 2008 09:56 EDT"
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Gold Falls on Speculation Rally Was Overdone; Silver Climbs
By Pham-Duy Nguyen
Aug. 25 (Bloomberg) -- Gold fell on speculation the 5.2 percent rally last week was overdone. Silver climbed.
"Last week's gain, the most since July 2006, followed a five-week slide. The metal has dropped 20 percent from a record $1,033.90 an ounce in March, partly because the dollar has rebounded from an all-time low against the euro."
"``Gold is a short-term trade,'' said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. ``We've had bottom feeders come in below $800, so now we've got some longs taking money out to start off the week.''"
"Gold futures for December delivery fell $4.70, or 0.6 percent, to $828.80 an ounce at 9:10 a.m. on the Comex division of the New York Mercantile Exchange. The metal fell 18 percent from July 11 to Aug. 15."
"Silver futures for December delivery rose 3 cents, or 0.2 percent, to $13.62 an ounce."
"Before today, silver dropped 8.9 percent this year while gold fell 0.5 percent."
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
"Last Updated: August 25, 2008 09:12 EDT"
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"Banco do Brasil, Embraer, Petrobras: Brazilian Equity Movers "
By Fabio Alves
"Aug. 25 (Bloomberg) -- The following companies are having unusual price changes in Brazil trading. Stock symbols are in parentheses, and share prices are as of 9:30 a.m. New York time. Preferred shares are usually the most-traded class of stock."
"The Bovespa index slid 0.5 percent to 55,595.73."
"Banco do Brasil SA (BBAS3 BS) fell 2 percent, the most in almost two weeks, to 23.05 reais. Latin America's biggest bank and Banco Nossa Caixa SA (BNCA3 BS), Brazil's largest regional lender in government hands, disagree about the amount Banco do Brasil should pay for assets of the bank it's in talks to acquire, Valor Economico reported without saying where it obtained the information. Nossa Caixa was unchanged at 39.70 reais."
"Empresa Brasileira de Aeronautica SA (EMBR3 BS) rose 0.5 percent to 13.59 reais, the highest since June 6. The world's fourth-largest aircraft maker may sell planes to Argentina's government for Aerolineas Argentinas SA and may open a plant in the South American country, Telam reported on Aug 23, citing Argentine Planning Minister Julio de Vido."
"Petroleo Brasileiro SA (PETR4 BS) slid 1.5 percent to 34.76 reais, the most in a week. Brazil's Mines and Energy Minister Edison Lobao said the government is studying how to manage so- called pre-salt oil fields and ``has no interest in breaking contracts,'' O Globo newspaper reported on Aug. 24. Petrobras is Brazil's state-controlled oil company."
To contact the reporter on this story: Fabio Alves in New York at falves3@bloomberg.net.
"Last Updated: August 25, 2008 09:46 EDT"
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"European Government Notes Advance, Snapping Three-Day Decline "
"Aug. 25 (Bloomberg) -- European two-year government notes advanced, snapping a three-day drop, as signs credit-market losses are widening spur demand for the safest assets."
"The declines last week pushed the yield on German notes to the highest level since Aug. 7 as futures traders scaled back bets the European Central Bank will cut its benchmark interest rate. Roskilde Bank A/S will be bought by the Danish Central Bank and a group of financial companies after no buyers were found for the regional operator, which last month became the first bank in the country to be bailed out for 15 years."
"The two-year note yield fell 6 basis points to 4.06 percent by 7:10 a.m. in London, after rising 13 basis points last week to 4.13 percent. The price of the 4.75 percent note climbed 0.11, or 1.1 euros per 1,000-euro ($1,472) face amount, to 101.15."
"The yield on the 10-year German bund, Europe's benchmark government security, slipped 3 basis points to 4.18 percent. Yields move inversely to bond prices."
"The central bank and the group will inject 4.5 billion kroner ($890 million) into Roskilde after no single private bank, domestic or foreign, was willing to buy it, the Copenhagen-based lender of last resort said yesterday."
Gains for bonds may be limited after Asian stock markets rallied the most in four weeks as oil's biggest plunge in four years eased concern higher energy costs and quicker inflation will erode earnings. The MSCI Asia Pacific Index rose 1.6 percent to 123.51 in Tokyo.
To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net
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