August 27, 2008

TOP40 Bloomberg 27th August 20:00GMT

Fed Policy Makers Agree Next Move on Rates Will Be an Increase

By Craig Torres

"Aug. 26 (Bloomberg) -- Federal Reserve policy makers agreed this month that their next change in interest rates will be to raise them, while reaching no conclusion on the timing of such a decision."

"``A number of participants worried about the possibility that core inflation might fail to moderate next year unless the stance of monetary policy was tightened sooner than currently anticipated by financial markets,'' according to minutes of the Federal Open Market Committee meeting released today. At the same time, officials agreed that the timing of any move will depend on economic and financial developments."

"The minutes show a debate between Fed officials concerned about inflation, which accelerated last month to the fastest 12- month pace in 17 years, and those who say price gains will ease in response to the economic slowdown and drop in commodities."

The Fed left the benchmark lending rate unchanged at 2 percent on Aug. 5 and signaled that weak employment and financial instability will delay an increase in short-term borrowing costs.

"``Many participants noted that the financial system remained fragile, with some expressing continued concern about the possibility of an adverse feedback loop'' where tighter credit conditions push the housing market even lower, the minutes of the meeting said."

"``In contrast, several other participants suggested that the risks to the financial system had receded' and said that credit conditions were ``broadly consistent'' with periods of weak growth or recession,'' the minutes said."

Plosser Dissent

"Philadelphia Federal Reserve Bank President Charles Plosser dissented against an options program on the Term Securities Lending Facility, which the Fed announced July 30."

"Chairman Ben S. Bernanke said the Fed ``is committed to achieving medium-term price stability and will act as necessary to obtain that objective'' in his remarks opening the Jackson Hole, Wyoming, monetary conference on Aug. 29."

"``Although members generally anticipated that the next policy move would likely be a tightening, the timing and extent of any change in policy stance would depend on evolving economic and financial developments,'' the minutes said."

"With the economy faltering, U.S. central bankers are trying to reconcile both aspects of their dual mandate to limit inflation while sustaining economic growth that maximizes employment."

Job Losses

"Some 463,000 Americans have lost jobs since January as the worst housing recession in a quarter century has curtailed spending and bank lending. Economists expect annualized rates of growth of just 1.2 percent in the third quarter and 0.45 percent in the fourth quarter, according to the median estimate in a Bloomberg Survey."

"The consumer price index rose 5.6 percent for the 12 months ending in July. The Fed's preferred benchmark, the 12-month change in the personal consumption expenditures price index, minus food and energy, has been at 2 percent or higher since March 2004. Adjusted for the core PCE rate, the real federal funds rate is slightly below zero, the lowest since November 2004."

"The U.S. Treasury now has authority to provide any necessary financial support for the firms, making access to Fed loans less urgent. Still, shares of the mortgage finance companies are lower as investors conclude that government involvement would come at a cost to equity investors."

"Shares of Washington-based Fannie Mae have fallen 48 percent during the last month, while McLean, Virginia-based Freddie Mac has declined 51 percent."

"``Heightened investor apprehension about the viability of Fannie Mae and Freddie Mac had eased following legislative action, but pressures on these firms continued,'' the minutes said."

"Housing markets remain weak. Some 4.67 million houses and condos were on sale in July, according to the National Association of Realtors. The 11.2 months supply, measured by the current sales pace, matches a prior record."

"A five- to six-month supply usually marks a stable market, according to the association. The glut of unsold homes pushed the median sales price down 7.1 percent last month compared with July 2007."

"Dallas Federal Reserve Bank President Richard Fisher dissented at the August meeting, preferring an increase in rates."

"Fisher ``dissented because he favored an increase in the target federal funds rate to help restrain inflation,'' the minutes said."

"Futures markets show a 92 percent probability of no change in interest rates when the FOMC next meets Sept. 16., and an 83 percent chance of no change at the October 28-29 meeting."

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

"Last Updated: August 26, 2008 14:00 EDT"

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Copper Users Must `Pay Up' as Market Bottoms: Chart of the Day

By Millie Munshi

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"Aug. 26 (Bloomberg) -- Copper's 14 percent slump from a record on July 2 may be nearing a bottom as metal consumers pay a bigger premium for immediate delivery than for three months from now, indicating supplies have tightened."

"The CHART OF THE DAY shows the spread between current and future supplies soared 33 percent to $105 a metric ton last week on the London Metal Exchange, halting four straight weeks of declines. That's the biggest gain since the week ended June 13 and comes after the premium dipped to a six-month low of $12.25 on Aug. 11."

"``The widening spreads are a real sign that supplies have tightened,'' said Donald Selkin, the chief market strategist at National Securities Corp. in New York. ``Users are having to pay up to get the product they need. It's a sign that the collapse in copper may be over.''"

"The copper-price gains will be ``aggressive'' in the next two years as supplies are limited and demand remains strong in China, Citigroup Inc. said last week. Miners will continue to face ``serious challenges on the supply side,'' BHP Billiton Ltd., the world's biggest mining company, said on Aug. 18."

Rising demand may erode inventories in LME-monitored warehouses that climbed 48 percent since the end of April and last week reached the highest level since Feb. 11.

"On the LME, copper for delivery in three months reached a record $8,940 on July 2, as the spread with prompt deliveries was headed toward a three-year high of $240. The contract fell 1.1 percent to $7,576 at 5:11 p.m. London time as metal inventories climbed. The cash-to-three-month spread fell $20 to $85 a ton today."

To contact the reporter on this story: Millie Munshi in New York at

"Last Updated: August 26, 2008 12:14 EDT"

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"U.K. Stocks Drop, Led by Commodity Producers on Growth Concerns "

By Sarah Jones

Aug. 26 (Bloomberg) -- U.K. stocks tumbled the most in a week on concern falling commodity prices and a slowing economy will crimp earnings prospects for raw material producers.

"BHP Billiton Ltd. and Anglo American Plc declined as base metals fell, Societe Generale SA lowered its U.K. growth forecast and a report yesterday said the International Monetary Fund cut its prediction for euro-area economic growth. HBOS Plc fell as U.K. mortgage approvals held close to the lowest in a decade."

"``Mining stocks were the underperformers' today,'' said David Jones, chief market strategist at IG Index in London. ``Continued worries about global demand are still weighing on the price of commodities.''"

"The FTSE 100 Index lost 34.9, or 0.6 percent, to 5,470.7 as 69 stocks retreated. The FTSE All-Share Index also slid 0.6 percent and Ireland's ISEQ Index added 0.6 percent."

"The U.K. market, which was closed yesterday for a public holiday, tracked declines in European equities on Aug. 25 on concern credit losses, which have topped $500 billion globally, will spread and the economic slowdown will deepen."

"Societe Generale cut its forecast for U.K. gross domestic product in 2009 to 0.5 percent from 1.2 percent, saying the economy is ``weakening rapidly and inflation is likely to peak in October, before collapsing in 2009.''"

"The IMF lowered the euro-region's growth outlook this year to 1.4 percent from 1.7 percent, Reuters reported yesterday, citing a note prepared for a meeting of officials from the Group of 20 nations."

"BHP, the world's largest mining company, lost 1.3 percent to 1,676 pence, as base metals retreated. Anglo American, the second-biggest, lost 2.6 percent to 2,799 pence. Xstrata Plc, the world's fourth-largest copper producer, dropped 2.5 percent to 3,023 pence."

Metals Prices Fall

"Base metals including copper, lead and nickel declined on the London Metal Exchange as increases in stockpiles stoked speculation that supplies are adequate to meet demand."

"Cairn Energy Plc dropped 3 percent to 2,780 pence. The U.K. oil and gas explorer reported a 75 percent drop in first-half profit to $375 million after earnings last year were boosted by the sale of shares in its Indian unit."

"HBOS Plc, Britain's largest mortgage lender, slid 1.3 percent to 285.25 pence. Royal Bank of Scotland Group Plc, the U.K.'s second-biggest bank, fell 1.4 percent to 217.75 pence. Lloyds TSB Group Plc, the U.K.'s largest provider of checking accounts, declined 2.5 percent to 292 pence."

"Banks granted 22,448 loans for house purchases in July, down 65 percent from a year earlier, as property values slumped, a report by the British Bankers' Association showed."

"The reading is up from 22,369 in June, the lowest in a decade. The value of mortgages fell to 3.2 billion pounds, the least since 1998."

The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.

"Axon Group Plc (AXO LN) jumped 103.5 pence, or 21 percent, to 606, the steepest gain since 2000 after Infosys Technologies Ltd.'s 407 million-pound ($750 million) takeover offer."

"Infosys, India's second-largest computer-services provided, said yesterday it offered to buy Axon for 600 pence a share. Axon's board has recommended the offer."

"Liberty International Plc (LII LN), the largest owner of U.K. shopping centers, jumped 50.5 pence, or 5.3 percent, to 995.5 after Westfield Group disclosed a stake of about 3 percent."

"Westfield, the world's biggest mall owner by market value, acquired 10.7 million Liberty shares ``for investment purposes,'' according to a filing by the Sydney-based company today."

"Taylor Wimpey Plc (TW/ LN) jumped 6.5 pence, or 14 percent, to 52 after Building magazine reported lenders have agreed to relax loan conditions without requiring the company to raise new capital first."

"The builder will announce the banking deal along with its first half results tomorrow ``barring any last-minute hitches,'' Building said, citing people familiar with the talks."

Irish companies:

"Elan Corp. (ELN ID), Ireland's biggest drugmaker, jumped 98 cents, or 11 percent, to 10.22 euros on speculation a new warning on the Tysabri multiple sclerosis medicine won't alter doctors' prescribing habits significantly."

To contact the reporter on this story: Sarah Jones in London at

"Last Updated: August 26, 2008 12:08 EDT"

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"U.S. Economy: Confidence Increases, House-Price Decline Slows "

By Timothy R. Homan and Courtney Schlisserman

Aug. 26 (Bloomberg) -- Confidence among American consumers improved in August for a second month as the surge in gasoline prices and the slide in home values abated.

"The Conference Board's confidence index rose to 56.9, higher than economists had forecast. House prices in 20 major cities declined at a slower pace for the fourth straight month in June, the S&P/Case-Shiller index showed. The Commerce Department said new-home sales reached a three-month high in July."

"``A little bit of the gloom is lifting,'' said Peter Kretzmer, a senior economist at Bank of America Corp. in New York who previously worked at both the Federal Reserve Bank of New York and the Fed Board in Washington."

"Today's housing figures add evidence that the drag on the economy from the industry's slump is lessening, while officials and analysts predict that a rebound remains at least a year away. The improvement in confidence from June, when it reached a 16- year low, eases concern that spending will collapse."

"By contrast with the U.S. report, figures today from Germany showed that business and consumer confidence in Europe's largest economy fell more than forecast. The dollar climbed to its highest level since February."

"Treasuries, which had fallen earlier in the day, stayed lower after the reports, pushing benchmark 10-year note yields up to 3.81 percent at 11:15 a.m. in New York, from 3.79 percent late yesterday. The Standard & Poor's 500 Stock Index gained 0.5 percent to 1,272.71. The S&P Supercomposite Homebuilding Index was up 1.6 percent at 283.85."

Regional Pattern

"The S&P/Case-Shiller's measure of prices in 20 metropolitan areas fell 0.5 percent from the previous month, with nine areas reporting a gain compared with seven in May. Prices were down 15.9 percent from the previous year, less than economists had projected."

"``We have cities that have been up three months in a row, including Boston,'' Karl Case, co-founder of the index and a professor at Wellesley College, said in a Bloomberg Television interview. ``The last three months are encouraging to me.''"

The median of 26 forecasts in a Bloomberg News survey was for a 16.2 percent drop in the 20-city index from a year earlier.

"S&P/Case-Shiller also released quarterly figures for nationwide home prices. That measure showed a 2.3 percent drop in the three months through June from the previous three months, compared with a 6.8 percent decline in the first quarter."

"Government figures showed that house prices were unchanged in June from the previous month, after a 0.4 percent decline. For the second quarter, values depreciated 1.4 percent after falling 1.7 percent."

Plans to Buy

Past declines in house prices may be spurring higher demand. The Conference Board said more consumers plan to purchase a house in the next six months than any time since March.

"``While there is no national turnaround in residential real estate prices, it is possible that we are a seeing some regions struggling to come back, which has resulted in some moderation of price declines at the national level,'' David Blitzer, chairman of the index committee at S&P, said in a statement."

"Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Case created the home-price index based on research from the 1980s."

"Other reports show price declines continue. The National Association of Realtors said yesterday that the median price of an existing home fell 7.1 percent in July from a year earlier, compared with a 6.1 percent drop in June."

Resales Rise

"The Realtors group also said that resales increased from a 10-year low and the supply of unsold homes rose. There was a record 4.67 million unsold houses and condos on the market in July, representing 11.2 months' supply at the current sales pace, matching the highest rate ever."

"The Commerce Department said sales of new homes rose to an annual pace of 515,000 in July, from 503,000 in June."

The price gauges from Commerce and the Realtors group can be influenced by changes in the regional composition or types of homes sold. Purchases in areas with more expensive homes relative to cheaper properties will bias the figures up.

"In contrast, the S&P/Case-Shiller index, and another by the Office of Federal Housing Enterprise Oversight, track the same house over time and more accurately reflect price trends, economists said."

Some companies are already seeing a pickup in interest because of lower prices.

"``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.''"

"Even so, tight credit conditions and ongoing declines in residential construction will weigh on economic growth in coming months, Fed 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."

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

"Last Updated: August 26, 2008 11:44 EDT"

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"Italy Stocks Update: Italease, Gemina, IFI, Igd, Luxottica, STM "

By Francesca Cinelli

"Aug. 26 (Bloomberg) -- Italy's S&P/MIB Index added 77, or 0.3 percent, to 27,977. Futures expiring in September increased 37, or 0.1 percent, to 28,025."

The following were among the most active stocks on the Italian market today. Share symbols are in parentheses.

"Banca Italease SpA (BIL IM), an Italian leasing company, advanced 18 cents, or 3.2 percent, to 5.82 euros. Cassa Lombarda initiated coverage of the stock with a ``buy'' recommendation. ``It is more likely than not that Italease will be able to implement a value-accretive deal with DZ Bank's VR Leasing unit,'' Cassa Lombarda analysts wrote in a note."

Italease said July 22 it had no plans to sell a stake to DZ Bank and that talks with DZ Bank's VR Leasing unit were ongoing and a decision would be made in September.

"Banco Popolare SC (BP IM), the bank created by Popolare di Verona's purchase of Banca Popolare Italiana, declined 25.7 cents, or 2 percent, to 12.57 euros. JPMorgan Chase & Co. cut its price estimate on the stock to 14.55 euros from 16.6 euros, while Banca Imi downgraded the stock to ``add'' from ``buy.''"

"Bulgari SpA (BUL IM), the world's third-largest jeweler, added 6.9 cents, or 1 percent, to 6.79 euros. The shares benefited from the dollar's rise against the euro."

"Luxottica SpA (LUX IM), the world's biggest maker of eyeglasses, surged 45 cents, or 2.8 percent, to 16.73 euros."

"STMicroelectronics NV (STM IM), Europe's largest semiconductor maker, rose 29.6 cents, or 3.5 percent, to 8.88 euros. Nomura reiterated a ``buy'' recommendation on STMicro."

"Separately, Infineon Technologies AG, Europe's second-largest chipmaker, confirmed its fourth-quarter forecast."

"Gemina SpA (GEM IM), which owns the manager of Rome's airports, climbed 2.86 cents, or 3.5 percent, to 84.02 cents. Alitalia SpA's potential investors pledged to pump more than 1 billion euros ($1.47 billion) into Italy's state-owned airline as part of a plan to break up the carrier and save it from insolvency, Il Sole 24 Ore reported, without saying where it got the information. A successful rescue for Alitalia would smooth over uncertainty on traffic trends for 2008-09, Euromobiliare analysts wrote. The brokerage rates Gemina a ``buy.''"

"IFI SpA (IFP IM), a holding company of Italy's Agnelli family, gained 66.1 cents, or 4.9 percent, to 14.23 euros. The family may merge IFI and Ifil Investments SpA (IFL IM), la Repubblica reported, without saying where it got the information. Ifil was little changed, adding less than 0.1 percent to 4.28 euros. Fiat SpA (F IM) declined 0.5 percent to 10.49 euros."

"Immobiliare Grande Distribuzione SpA (IGD IM), the Italian owner of shopping centers, rose the most in more than a month, adding 14.8 cents, or 7.9 percent, to 2.03 euros."

"Risanamento SpA (RN IM), Italy's third-largest real estate company, surged 6.6 cents, or 5.7 percent, to 1.24 euros."

"U.S. house prices declined at a slower pace for the fourth straight month in June, signaling that the worst housing slump in more than 25 years may be starting to stabilize, the S&P/Case- Shiller index showed."

"Separately, the Commerce Department said new-home sales in the U.S. improved in July from a 17-year low and that construction cutbacks by builders reduced the glut of properties on the market by the most in almost five decades."

"Irce SpA (IRC IM) a maker of winding wire and cables, dropped 8 cents, or 3.2 percent, to 2.42 euros. Dresdner Kleinwort downgraded the stock to ``hold'' from ``buy'' before first-half results, due Aug. 29. ``The slowdown in volumes and losses on hedging contracts should hit profitability,'' analyst Luigi Monica, wrote in a research report."

"Iride SpA (IRD IM), the Italian utility serving Turin and Genoa, gained 7.5 cents, or 4.4 percent, to 1.77 euros. The merger with Hera SpA (HER IM), Italy's second-largest municipal utility, and Enia SpA (EN IM), the Parma, Italy-based utility, should be signed by year-end, the Mayor of Piacenza, Roberto Reggi, told Libero in an interview. ``Among the three, we continue to prefer Iride thanks to its strength in the electricity upstream business,'' Claudia Introvigne, an analyst at Gruppo Banca Leonardo, wrote in a note."

To contact the reporters on this story: Francesca Cinelli in Milan at

"Last Updated: August 26, 2008 12:04 EDT"

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German Stocks Gain on U.S. Consumer Confidence; Allianz Rises

By Stefanie Haxel

Aug. 26 (Bloomberg) -- German stocks gained after a report showed U.S. consumer confidence rose more than forecast in August and home prices in the country dropped at a slower pace in the second quarter.

"Henkel AG & Co. KGaA, the maker of Loctite glue and Persil detergent, and Bayer AG led rising shares. Allianz SE climbed to a two-week high after Manager Magazin reported Europe's largest insurer and Commerzbank AG will decide this weekend on the sale of Dresdner Bank and Frankfurter Allgemeine Zeitung said Allianz may sell the division to China Development Bank."

"The benchmark DAX Index advanced 43.57, or 0.7 percent, to 6,340.52. DAX futures expiring in September rose 0.7 percent as of 5:47 p.m. in Frankfurt. The HDAX Index of the country's 110 biggest companies increased 0.7 percent."

"``That's not a change of the overall downside trend,'' said Ansgar Krekeler, a trader at WGZ Bank in Dusseldorf. ``So much bad news is already priced in that investors are currently more sensitive to positive news. Trading volume is so low at the moment that even small purchases push the index up.''"

"The DAX Index is down 21 percent in 2008, even after a 4.3 percent advance since reaching a low in mid-July, on concern more than $500 billion in credit-related losses and asset writedowns worldwide and accelerating inflation will slow economic expansion and curb profit growth."

"The Conference Board's confidence index gained to 56.9 from 51.9 in July as cheaper gasoline improved Americans' mood. House prices fell at a slower pace for the fourth straight month in June, signaling the worst housing slump in more than 25 year may be starting to stabilize."

"Henkel, Bayer"

"Henkel gained 43 cents, or 1.6 percent, to 26.67 euros. The consumer-goods maker had about 20 percent of its sales in North America last year, Bloomberg data shows. Bayer added 84 cents, or 1.6 percent, to 53.18 euros, the steepest gain in a month. The country's biggest drugmaker generated about a quarter of its revenue in the region in 2007."

"Allianz climbed 2.29 euros, or 2.1 percent, to 110.29, the highest since Aug. 12. The supervisory boards of the insurer and Commerzbank are meeting this weekend, Manager Magazin reported, without saying were it got the information. Germany's second- largest may buy Dresdner in two steps because it can't afford to make the acquisition all at once, the magazine said."

"Separately, Allianz is mulling a disposal of the unit to China Development Bank as the Chinese lender is willing to pay a ``clearly higher'' price, Frankfurter Allgemeine Zeitung said, citing unidentified people from the financial industry."

"Commerzbank, Germany's second-largest bank, lost 21 cents, or 1 percent, to 19.95 euros."

The following stocks also rose or fell in German markets. Symbols are in parentheses.

"Air Berlin Plc (AB1 GY) advanced 24 cents, or 6.5 percent, to 3.95 euros, the steepest gain in two weeks. UniCredit Markets & Investment Banking raised its recommendation for Europe's third-biggest discount airline to ``hold'' from ``sell.''"

"Arques Industries AG (AQU GY) rallied 41 cents, or 4.7 percent, to 9.27 euros, the highest in more than three months. Investment company Aurelius AG may plan to acquire a majority stake in the company, Handelsblatt reported, citing unidentified people in the industry. WestLB AG lifted its recommendation on the shares to ``buy'' from ``sell.''"

"EM.Sport Media AG (EV4 GY) climbed for a third day, adding 3 cents, or 1.2 percent, to 2.48 euros. The company partly owned by media entrepreneur Leo Kirch is in negotiations with the Union of European Football Associations about buying Switzerland's Highlight Communications AG."

"EM.Sport earlier said second-quarter profit jumped to 5.2 million euros ($7.6 million) from 300,000 euros a year earlier."

"Solarworld AG (SWV GY) retreated for a second day, falling 46 cents, or 1.3 percent, to 34.30 euros. Equinet AG downgraded shares in Germany's third-largest solar power company to ``hold'' from ``buy.''"

"Stada Arzneimittel AG (SAZ GY) climbed 1.63 euros, or 4.6 percent, to 37.03 euros, the highest in a month. Germany's third-largest generic-drug maker gained the most in three years on Aug. 15 after Israel's Globes newspaper reported Teva Pharmaceutical Industries Ltd. is in talks to buy Stada."

"``The company is currently on a roadshow with investors and there is still some takeover speculation in the market that may boost the stock,'' said Stefan de Schutter, a portfolio manager at Alpha Wertpapierhandels AG in Frankfurt."

To contact the reporters on this story: Stefanie Haxel in Frankfurt at

"Last Updated: August 26, 2008 11:58 EDT"

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"Barclays Says Buy Euro Stoxx 50 Puts, Sell Options on S&P 500 "

By Alexis Xydias

"Aug. 26 (Bloomberg) -- Investors should buy options to insure themselves against a drop in European stocks by June, and sell similar contracts on U.S. shares as profits in Europe are more at risk, according to Barclays Capital."

"Barclays Plc's investment-banking unit advised clients today to buy June 2009 puts on Europe's Dow Jones Euro Stoxx 50 Index, funding the purchase by creating and selling puts on the Standard & Poor's 500 Index in the U.S. A put gives the holder the right but not the obligation to sell an underlying security at a specific price and on or by a given date."

"The opposing interest-rate policies by the Federal Reserve in the U.S. and the European Central Bank will have consequences on profit growth in the two markets, Colin Bennett, London-based equity derivatives analyst at Barclays, wrote in a report obtained by Bloomberg."

"``As the Fed has drastically cut interest rates, while the ECB has remained firm, U.S. earnings are likely to rebound while Europe's start to sag,'' Bennett said. He added that the Euro Stoxx 50 is likely to be more volatile, ``and hence more likely to suffer severe declines'' than the U.S. index."

"Earnings in Europe are forecast to grow at about half the pace of those in the U.S. in 2009, according to analysts polled by Bloomberg."

"Bennett advised buying Euro Stoxx 50 3,250 puts, quoted at 247.80 euros apiece as of yesterday according to Eurex prices published on Bloomberg. Investors should sell S&P 500 1,250 puts, quoted at $85.50 each yesterday according to prices on the Chicago Board Options Exchange. The benchmarks yesterday closed at 3,280.41 and 1,266.84 respectively. Both contracts can only be exercised at the end of the third week of June next year."

More Expensive

"The strategy is a bet that the Euro Stoxx 50 may fall below 3,250, in which case the options on that index would act as an insurance, and that the S&P 500 won't fall below 1,250, meaning the seller of the puts keeps the premium without having to provide stock at a fixed price."

"The June expiry was chosen because it would approximately coincide with the two-year anniversary of the ``current downturn,'' Bennett wrote. About $12 trillion in equity value worldwide has been wiped off since mid-July 2007, according to Bloomberg data. Bear markets tend to last two years on average, Bennett added."

"Options on European stocks may become more expensive than those in the U.S. as price swings have historically been more pronounced in the benchmark with the fewest members, Barclays Capital said."

Earnings Forecast

"The VStoxx, which measures the cost of using options as insurance against declines in the Euro Stoxx 50, closed at 22.90 yesterday. The Chicago Board Options Exchange Volatility Index, or VIX, which measures prices paid on S&P 500 options, closed at 20.97."

"While the ECB has raised the euro zone's key interest rate to 4.25 percent from 2 percent in November 2005 to ward off inflation, the Fed has lowered its benchmark rate to 2 percent from 5.25 percent a year ago."

"Companies in the Stoxx 600, a broader European index, will likely boost earnings by 13 percent in 2009, according to the latest survey of analysts by Bloomberg. The forecast for companies in the S&P 500 is 24 percent, the poll showed."

"Investors may buy or sell options to bet on changes in the prices of securities, or on the degree by which those prices will fluctuate."

"Bennett declined to comment on the report. Barclays, based in London, is Britain's third-biggest bank."

To contact the reporter on this story: Alexis Xydias in London at

"Last Updated: August 26, 2008 11:13 EDT"

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Sugar Rises to Two-Year High in London on Brazil Crop Concerns

By Rachel Graham

Aug. 26 (Bloomberg) -- White sugar rose to its highest in almost two years in London on speculation an industry report this week will show Brazil's harvest is being hampered by rain. Cocoa and robusta coffee also advanced.

"Unica, a Brazilian industry group, will update its crop outlook this week, said Nick Hungate, a Rabobank International trader. In its last report, Unica said output in the main producing region fell on excess rain, which can pare yields and slow harvesting. Brazil is the world's largest sugar producer."

"``The view seems to be there will be cane left in the fields, they are looking at a lower crush and lower yields,'' Hungate said by phone from London. Sugar rose ``in anticipation that the Unica numbers will be supportive,'' he said."

"White, or refined, sugar for October rose $7.50, or 1.9 percent, to $412.50 a metric ton on the Liffe exchange in London, the highest since Nov. 15, 2006."

"Rising crude-oil prices also buoyed sugar, Hungate said."

"Cocoa climbed on concern a supply shortfall this year will be wider than expected. Cocoa demand will outpace supply by 88,000 tons in the year to September, double the previous forecast, the International Cocoa Organization said Aug. 21. That would be a second consecutive annual deficit."

"``The reason why cocoa prices have recovered is the ICCO's revision of its deficit,'' said Sudakshina Unnikrishnan, a commodities analyst at Barclays Capital in London."

"Cocoa futures for September delivery rose 55 pounds, or 3.5 percent, to 1,612 pounds ($2,960) a ton. The contract traded as high as 1,616 pounds, the highest since Aug. 4."

"Cocoa for December gained $27, or 0.9 percent, to $2,895 a ton on ICE Futures U.S., the former New York Board of Trade. The contract rose 2 percent yesterday, while Liffe was closed for a public holiday in the U.K."

"Robusta coffee for November delivery rose $60, or 2.6 percent, to $2,358 a ton."

To contact the reporter on this story: Rachel Graham in London at

"Last Updated: August 26, 2008 13:01 EDT"

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"Bank of Montreal, Scotiabank Profits Decline on Loan Losses "

By Doug Alexander and Sean B. Pasternak

"Aug. 26 (Bloomberg) -- Bank of Montreal and Bank of Nova Scotia, the first Canadian banks to report third- quarter earnings, said profits declined more than analysts forecast on rising loan losses."

"Bank of Montreal, Canada's fourth-biggest bank, said net income for the period ended July 31 fell 21 percent to C$521 million ($497 million), or 98 cents a share, its fifth straight profit decline. Scotiabank, the No. 3 lender, said profit dropped 1.9 percent to C$1.01 billion, or 98 cents a share."

"Canada's six biggest banks will probably set aside twice as much money for bad loans this quarter amid a U.S. housing slump and the slowest economic growth in Canada since 1992. Bank of Montreal set aside C$484 million for bad loans, five times more than a year earlier, while Scotiabank's provisions rose 73 percent to C$159 million."

"``The trend is still down,'' said Jim Hall of Mawer Investment Management in Calgary, which oversees C$5.4 billion in assets including banks. ``This quarter's bad, next quarter's probably not going to be much prettier.''"

"Bank of Montreal fell 39 cents to C$43.67 at 1:42 p.m. trading on the Toronto Stock Exchange. Scotiabank fell C$1.17, or 2.5 percent, to C$46.47."

Missed Estimates

"Bank of Montreal's profit excluding one-time items was C$1 a share, the Toronto-based bank said, missing the median estimate of C$1.20 a share from 12 analysts in a Bloomberg survey. Scotiabank, also based in Toronto, earned 99 cents a share on that measure, according to National Bank Financial analyst Robert Sedran, missing his C$1.04 estimate."

"Profit at Bank of Montreal's BMO Capital Markets investment bank increased 34 percent to C$259 million from a year earlier, as trading revenue surged more than fivefold to C$220 million. Results in the unit were pared by C$19 million in costs for job cuts, and pretax writedowns of C$134 million for the declining value of debt investments, preferred shares and Canadian asset-backed commercial paper."

"Bank of Montreal has taken C$898 million in debt- related writedowns in the past four quarters, joining other banks amid a global credit crunch that has spread from the U.S. as defaults on subprime mortgage loans surge."

"Bank of Montreal's provisions for loan losses included C$247 million for two corporate loans linked to the U.S. housing market, the company said."

Debt Writedowns

"The world's biggest financial companies have disclosed more than $500 billion in losses and writedowns from investments tied to U.S. subprime mortgages since 2007. Canada's banks have collectively taken more than C$10.1 billion in debt writedowns in the past year, with more expected in the third quarter from Royal Bank of Canada and Canadian Imperial Bank of Commerce."

"Bank of Montreal's Canadian consumer-banking profit fell 3.7 percent to C$343 million on higher taxes and costs for adding branches and hiring mortgage specialists and financial planners. Profit from its Chicago-based Harris consumer bank rose 12 percent to C$28 million, while profit from its private-client group, which includes brokerage, investing services and mutual funds, rose 7.8 percent to C$110 million."


"Scotiabank's earnings from Canadian banking jumped 17 percent to a record C$463 million on increases in deposits and mortgages. International banking profit, from about 50 countries including Chile and Jamaica, climbed 21 percent before preferred dividends to C$335 million."

"Profit at Scotia Capital rose 6 percent to C$297 million in the period, as revenue from its oil-advisory unit Scotia Waterous and fixed-income fees offset a decline in derivatives trading."

"Slower economic growth globally means Scotiabank is ``unlikely'' to meet its earnings per share growth target for the year, the bank said."

"Scotiabank's revenue rose 5.3 percent to C$3.48 billion, while Bank of Montreal's climbed 7.5 percent to C$2.75 billion."

"CIBC, the No. 5 bank, reports results tomorrow. Royal Bank of Canada, the country's largest bank, Toronto- Dominion Bank, the second biggest, and No. 6 National Bank of Canada report on Aug. 28."

"(Bank of Nova Scotia will hold a conference call at 2 p.m. Toronto time to discuss results. To listen, dial +1-800- 733-7571 five minutes before the call begins, or visit on the Internet.)"

"(To listen to Bank of Montreal's analyst call at 3:30 p.m. Toronto time, dial +1-888-789-0089 or +1-416-695-9753 or visit the Internet at"

To contact the reporter on this story: Doug Alexander in Toronto at

"Last Updated: August 26, 2008 14:01 EDT"

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"Rio First-Half Profit Doubles on Iron Ore, Aluminum (Update4) "

By Brett Foley and Rebecca Keenan

"Aug. 26 (Bloomberg) -- Rio Tinto Group, fighting a $142 billion hostile offer from BHP Billiton Ltd., posted first-half profit that beat analyst estimates on increased aluminum sales and record iron ore prices."

"Net income rose to $6.91 billion, from $3.25 billion a year earlier, London-based Rio said today in a statement. Underlying earnings climbed to $5.47 billion, exceeding the $5.15 billion median estimate of six analysts surveyed by Bloomberg News. The interim dividend was increased 31 percent to 68 cents a share."

"Chief Executive Officer Tom Albanese, who in February rejected BHP's sweetened bid as too low, says Rio is better able to expand its output of commodities independently. BHP, based in Melbourne, last week posted a 30 percent gain in fiscal second- half profit after producing record quantities of crude oil, iron ore and coal."

"``It might appear that Rio, with its results slightly ahead of market estimates, has done better than BHP,'' Rob Craigie, a senior analyst at FW Holst & Co. in Melbourne, said by phone today. ``That position could easily change in the December half.''"

"Rio closed 29 pence, or 0.6 percent, lower at 5,150 pence on the London Stock Exchange. BHP fell 1.3 percent and other miners declined as stocks slid in Europe on concern the economic slowdown and credit-market losses will stifle profit growth. Rio was trading 12 percent below the value of BHP's offer of 3.4 of its shares for each Rio share."

Record Output

"Albanese, 51, plans to spend $6 billion this year to boost output of commodities. BHP made its initial proposal in November, the same month Rio paid $38.1 billion for Canada's Alcan Inc. That deal made Rio the second-largest aluminum producer, boosting its second-quarter output of the lightweight metal almost fivefold."

"Rio is also the world's second-largest iron ore producer, and it said last month that second-quarter output of the steelmaking raw material rose 13 percent to a record 41.9 million metric tons."

"``Although we have seen some moderation in growth rates in developed countries, the impact on our markets has been modest due to continued strong growth in developing countries,'' Chairman Paul Skinner said today on a conference call from London. ``Prices for our products remain high by historic standards.''"

Chinese Growth

"Both Rio and BHP agreed to contract-price increases for iron ore of as much as 97 percent from April 1. Prices have risen fivefold since 2001, driven by expanding demand in China and other emerging economies."

"Demand growth for aluminum in China is expected to be 18 percent this year while steel consumption will gain about 16 percent, Albanese told reporters at a presentation in London."

"Copper demand in China, the largest user, was ``soft'' in the first half as consumers used stockpiles and scrap, Albanese said. ``We expect that to recover in the second half to around 9 percent or 10 percent growth,'' he added."

"Iron ore accounted for 30 percent of Rio's sales last year, the biggest portion, followed by aluminum with 24 percent. Coal has surged to records this year."

Aluminum for immediate delivery on the London Metal Exchange averaged 2.3 percent higher in the first half compared with a year earlier. Copper was 20 percent higher.

Russia's United Co. Rusal is the largest aluminum producer and Brazil's Cia. Vale do Rio Doce is the biggest iron ore company.

Rio's sales climbed to $27.2 billion from $12.1 billion.

Underlying earnings exclude items such as asset divestments and impairments.

To contact the reporters on this story: Brett Foley in London at; Rebecca Keenan in Melbourne at

"Last Updated: August 26, 2008 12:16 EDT"

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"Fannie, Freddie Sub Debt Payment Deferral May Not Trigger Swaps "

By Shannon D. Harrington

"Aug. 26 (Bloomberg) -- Buyers of credit-default swap contracts that protect against losses on Fannie Mae or Freddie Mac subordinated debt may not get paid immediately if the mortgage-finance companies were to defer interest payments as part of a government bailout, according to Bank of America Corp."

"While a failure to make the payments permits credit-default swap buyers to cash in on their protection, Freddie and Fannie subordinated bond indentures allow interest to be deferred for as long as five years, or until maturity, if capital cushions breach certain thresholds, Bank of America strategist Glen Taksler in New York wrote in a note to clients yesterday."

"Assuming Fannie Mae meets a maturity on $1 billion in subordinated notes next week, Taksler wrote, it would be 2011 before credit-default swaps would be triggered by deferred interest payments."

"Credit-default swaps, used to speculate on corporate creditworthiness or to hedge against losses, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements."

"Subordinated debt sold by Fannie or Freddie allows for interest to be deferred if capital cushions fall below minimum levels required by regulators and the Treasury buys the company's debt at the company's request, according to bond indentures. Payments also could be deferred by one of the companies if its capital fell below 125 percent of so-called critical capital, defined as half of minimum capital."

Paulson Plan

"U.S. Treasury Secretary Henry Paulson last month won approval to pump unlimited amounts of capital into Washington- based Fannie and Freddie of McLean, Virginia, which guarantee or own about $5 trillion of the $12 trillion in U.S. home loans. The companies would have to agree to capital injections."

"Fannie had $47 billion of capital as of June 30, according to company filings. Its minimum requirement was $32.6 billion, rising to $37.5 billion with a surcharge required by its regulator, the company said. Freddie's capital stood at $37.1 billion, compared with a minimum requirement of $28.7 billion, rising to $34.5 billion with the surcharge, according to filings."

"A failure to pay interest beyond what's allowed in the indentures could trigger credit-default swaps on both subordinated and senior debt, Taksler wrote. The companies combined had $15.6 billion in subordinated debt at the end of June and $1.6 trillion in senior debt."

"A capital injection by the government, on its own, isn't likely to trigger credit-default swaps, he wrote."

`Gray Area'

"``Such an injection would effectively make the government an owner of the agencies, without taking control of day-to-day operations,'' Taksler wrote. ``But, to be clear, an actual opinion would depend on all the information available at the time of a potential event.''"

"Such situations are a ``gray area,'' he said, ``and it may be possible to obtain different -- or even opposite -- interpretations from different sources.''"

"Credit-default swaps could be triggered under other scenarios, such as coming under the control of a conservator, the Bank of America report noted, citing the International Swaps and Derivatives Association's 2003 definitions for the contracts. The government could put the companies into conservatorship if the companies fell below critical capital levels."

To contact the reporter on this story: Shannon D. Harrington in New York at

"Last Updated: August 26, 2008 10:52 EDT"

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Newmont's O'Brien Says Gold May Reach New Records in a Year

By Stewart Bailey

Aug. 26 (Bloomberg) -- Newmont Mining Corp. Chief Executive Officer Richard T. O'Brien said gold prices ``probably'' will reach records in the next year as investors seek a buffer against accelerating inflation.

"Gold has declined 20 percent since credit market losses and a weak dollar drove the price to an all-time high of $1,033.90 an ounce in March. Investor interest in the metal may be revived as inflation reduces the value of other assets, O'Brien said yesterday in an interview from Denver, where the company is based. Newmont is the largest U.S. gold producer."

"O'Brien's view that inflation will accelerate contradicts that of Federal Reserve Chairman Ben S. Bernanke, who said last week that price increases may slow later this year as oil declines and the dollar strengthens. Higher energy and food costs pushed consumer prices to the steepest gain in 17 years in the 12 months through July, government figures show."

"``People are starting to get a whiff that inflation will not be as bad as they thought a month or two ago -- that is not what I believe,'' said O'Brien, 54. ``We continue to see the potential for worldwide inflation, and gold continues to offer a place for investors that is uniquely positioned.''"

"Gold futures for December delivery rose $2.30, or 0.3 percent, to $828 an ounce at 1:03 p.m. on the Comex division of the New York Mercantile Exchange. The metal has gained for seven straight years."

"Reduced production and increasing jewelry purchases outside the U.S. also may boost prices later this year, O'Brien said."

"Gold production fell 0.4 percent last year to an 11-year low after output from Africa and the Americas declined, London-based market researcher GFMS Ltd. said April 9."

Newmont rose 41 cents to $44.12 in New York Stock Exchange composite trading. The shares dropped 10 percent this year through yesterday.

To contact the reporter on this story: Stewart Bailey in New York at

"Last Updated: August 26, 2008 13:08 EDT"

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South Africa Rand Falls to One-Week Low Before Inflation Report

By Garth Theunissen

Aug. 26 (Bloomberg) -- South Africa's rand fell for a third day against the dollar before a government report that may show inflation in the continent's biggest economy exceeded the central bank's ceiling for a 15th month.

"The rand slipped to its weakest level in a week before Statistics South Africa releases its consumer-price data tomorrow. CPIX inflation, which excludes mortgage costs, quickened to 12.9 percent in July, from 11.6 percent a month earlier, according to the median estimate of 20 economists surveyed by Bloomberg News. That would be the fastest rate of price growth since CPIX records began in 1998."

"``In a stronger dollar environment the rand is trading weaker against the U.S. currency, particularly ahead of the inflation data tomorrow,'' said Kay Muller, a currency researcher at Rand Merchant Bank in Johannesburg. ``Traders are waiting to see if there's a big move in inflation before taking a clear position in the currency.''"

"The rand dropped as much as 1 percent to 7.8428 per dollar, its lowest level since Aug. 19, and was at 7.7969 by 4:32 p.m. in Johannesburg, from 7.7635 yesterday."

"``Inflation is expected to have catapulted to fresh record highs last month,'' Michael Keenan, a currency strategist at Standard Bank Group Ltd. in Johannesburg, wrote in a client note today. There is a ``risk of another surprise figure,'' he said."

"South Africa's currency rose against the euro, adding 0.3 percent to 11.4182. It also climbed versus seven of the 16 major currencies monitored by Bloomberg, rising most against the New Zealand dollar."

Inflation Risk

"``The risk of a really high inflation number tomorrow increases concerns of further interest-rate hikes,'' said Muller. ``That could help the rand in the short term, but fundamental weakness in the South African economy suggests there will be a tendency for the rand to weaken in the long term.''"

"Rand Merchant Bank predicts the rand will fall to 8.50 per dollar by year-end, more bearish than all but two of the 20 currency forecasts in a Bloomberg survey."

"The South African Reserve Bank has raised its key interest rate 10 times since June 2006 in a bid to quell inflation, which has exceeded its 6 percent ceiling since April 2007. The bank's monetary policy committee kept interest rates on hold at its meeting Aug. 14."

"The country's 12 percent main rate, the highest in more than five years, makes the rand a favorite in so-called carry trades. In such transactions, investors borrow a currency at a low interest rate and invest the proceeds in markets where returns on assets are higher. Investors earn the spread between the cost of borrowing and the returns on their investment, taking the risk currency moves will erase their profit."

"South Africa's main interest rate is 1,150 basis points above Japan's and 925 basis points higher than Switzerland's."

"Government bonds fell, with the yield on the 13 percent note maturing in August 2010, which is more sensitive to interest-rate expectations, climbing 4 basis points to 9.91 percent. The yield on the 13.5 percent security due September 2015 gained 3 basis points to 9.29 percent. Yields move inversely to bond prices."

To contact the reporter on this story: Garth Theunissen in Johannesburg

"Last Updated: August 26, 2008 10:40 EDT"

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Scotiabank Third-Quarter Profit Falls on Loan Losses (Update1)

By [bn:PRSN=1] Sean B. Pasternak []

"Aug. 26 (Bloomberg) -- Bank of Nova Scotia, Canada's third- largest bank, reported a third straight decline in quarterly profit, missing analysts' estimates, because of higher provisions for bad loans. The bank also said it won't meet its profit target for the year."

"Net income in the fiscal third-quarter fell 1.9 percent to C$1.01 billion ($967.2 million), or 98 cents a share, from C$1.03 billion, or C$1.02 a share, a year earlier, the Toronto- based bank said today in a statement sent by Canada NewsWire."

"The bank set aside C$159 million for bad loans in the quarter, a 73 percent increase from the year-earlier period. Canada's six main banks are expected to increase provisions by about two-thirds this quarter, according to BMO Capital Markets analyst Ian de Verteuil."

"Scotiabank said that because of slower economic growth globally, it's ``unlikely'' to meet its earnings per share growth target for the year."

"Excluding one-time items, profit was 99 cents a share, according to National Bank Financial analyst Robert Sedran, missing his C$1.04-a-share estimate."

"Scotiabank fell 72 cents, or 1.5 percent, to C$46.92 in 11:44 a.m. trading on the Toronto Stock Exchange. The stock has dropped 6.5 percent this year, the second-best performer among the nine-member S&P/TSX Banks Index."

"(Bank of Nova Scotia will hold a conference call at 2 p.m. Toronto time to discuss results. To listen, dial +1-800-733-7571 five minutes before the call begins, or visit on the Internet.)"

To contact the reporter on this story: Sean B. Pasternak in Toronto at

"Last Updated: August 26, 2008 11:56 EDT"

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Topdanmark Net Drops 37% on Investments; Forecast Cut (Update3)

By Niklas Magnusson

"Aug. 26 (Bloomberg) -- Topdanmark A/S, Denmark's second- largest non-life insurer, reported a 37 percent drop in second- quarter profit and cut its full-year earnings forecast after the value of its Danish and foreign shareholdings declined."

"Net income fell to 243 million kroner ($47.5 million) from 385 million kroner a year earlier, the Ballerup, Denmark-based lender said in a statement today. The insurer cut its 2008 profit forecast to between 450 million and 550 million kroner because of the turbulence in financial markets. It had earlier forecast profit of between 750 million and 850 million kroner."

"Topdanmark follows rival Nordic insurers in reporting a slump in profit for the quarter as equity holdings lost value. Denmark's TrygVesta A/S, the region's second-largest non-life insurer, said profit fell 58 percent, while Storebrand ASA, Norway's largest publicly traded insurer, reported an 86 percent decline."

"``The forecast for the full year is lowered quite significantly and is bigger than we had expected, but since it is based on weakening returns on equities it doesn't give us reason for significant concern,'' Jyske Bank analyst Christian Hede said in a note to clients. ``Earnings for the quarter were better than expected in terms of the insurance operations.''"

"Topdanmark rose 30 kroner, or 4.3 percent, to 718 kroner in Copenhagen trading, valuing the company at 12 billion kroner. It has fallen 2.2 percent this year, compared with a 25 percent drop in the 31-member Bloomberg Europe 500 Insurance Index."

Premium Growth

"The company will probably win market share in Denmark in coming years as rivals are forced to raise their acceptance levels for clients and increase prices, Chief Executive Officer Poul Almlund said in an interview today. Topdanmark is forecasting annual premium growth of 5 percent, while the total insurance market is seen expanding 3.5 percent, the CEO added."

"``Some of our competitors have seen rising combined ratios and are facing increasing claims frequencies and claims inflation,'' Almlund said. ``They are now also talking about price increases on certain products and are looking at their acceptance criteria. That is something we have not seen.''"

"Topdanmark, which has more than 35 offices and 2,300 employees, controls about 19 percent of the Danish non-life market and is the sixth-largest life insurer in the Nordic country. While there are some companies Topdanmark would like to buy, purchases are unlikely in the near future and the company won't rely on takeovers for future growth, Almlund said."

To contact the reporter on this story: Niklas Magnusson in Stockholm at

"Last Updated: August 26, 2008 11:11 EDT"

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Pop. Milano Second-Quarter Profit Falls 47% on Fees (Update1)

By Alessandra Migliaccio

"Aug. 26 (Bloomberg) -- Banca Popolare di Milano Scrl, an Italian regional bank that has been looking for a partner for more than a year, said second-quarter profit fell 47 percent as the slowing economy reduced income from fees."

"Net income declined to 65 million euros ($95 million) from 122 million euros a year earlier, the Milan-based bank said today in a stock-exchange statement. Fees and commissions declined 4.6 percent to 142.1 million euros."

Italian banks' earnings are suffering as the country's economy slows amid record oil prices and the global market turbulence following the U.S. subprime-mortgage crisis.

"The drop in commissions was ``mainly due'' to lower income from ``management, trading, and advisory services, which were heavily impacted by the continuing downturn in the mutual-fund industry and tension on financial markets,'' Popolare Milano said in the statement."

"Losses from trading totaled 76 million euros, and the bank had an impairment of 34 million euros related to its holding in fund manager Anima SGRpA. Net interest income rose 0.2 percent to 266.7 million euros."

"The company also reiterated its operating-profit goals for 2008, ``albeit with a different mix'' of earnings coming from the commercial banking, corporate banking, and wealth-management businesses."

To contact the reporter on this story: Alessandra Migliaccio at

"Last Updated: August 26, 2008 13:02 EDT"

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Marvell Technology Declines After Jefferies Downgrades Rating

By Lisa Wolfson

"Aug. 26 (Bloomberg) -- Marvell Technology Group Ltd., the maker of chips for the BlackBerry e-mail device, fell the most in seven weeks after Jefferies & Co. downgraded the shares, citing concern that growth is slowing in the hard-disk drive market."

Analyst Adam Benjamin advised clients to ``hold'' Marvell shares after previously recommending they buy them. He lowered his earnings-per-share estimate to 91 cents from 97 cents for 2008 and to 97 cents from $1.10 for 2009.

"Customer Western Digital Corp., the second-largest maker of computer hard-disk drives, won't gain as much market share in 2009 and that may lead to an inventory buildup, Benjamin wrote today in a note. Marvell Chief Financial Officer George de Urioste said earlier this year the ``uncertain'' U.S. economy may affect demand for products made by Marvell clients."

"``Marvell will no longer be able to drive top-line growth at `premium' growth rates'' because of sluggish demand for hard-disk drives and possibly fewer orders from mobile-phone customers such as Research In Motion Ltd., maker of the BlackBerry, Benjamin wrote today in a note."

"Marvell fell $1.16, or 7.4 percent, to $14.51 at 12:29 p.m. New York time in Nasdaq Stock Market trading, the biggest drop since July 9. The shares had gained 12 percent this year before today."

"Marvell likely lost the design for Research In Motion's Javelin device to Freescale Semiconductor Inc., said Benjamin, who also reduced his 12-month price target for Marvell to $15 from $22."

To contact the reporter on this story: Lisa Wolfson in San Francisco at

"Last Updated: August 26, 2008 12:31 EDT"

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Taylor Wimpey Rises on Report Banks Will Relax Terms (Update2)

By Scott Hamilton

"Aug. 26 (Bloomberg) -- Taylor Wimpey Plc, the U.K.'s biggest homebuilder, rose in London trading after Building magazine reported lenders have agreed to relax loan conditions without requiring the company to raise new capital first."

"Taylor Wimpey gained 14 percent, the most in a month, to close at 52 pence. The builder will announce the banking deal along with its first-half results tomorrow ``barring any last- minute hitches,'' Building said, citing people familiar with the talks."

"U.K homebuilder stocks have slumped this year on investor concerns that some may be forced to write down land values, carry out rights offerings or swap debt for equity to cope with a deepening housing-market slump. Taylor Wimpey said last month it had failed to raise 500 million pounds ($918 million) from investors as required by lenders in exchange for easing the terms on its 1.7 billion-pounds of debt."

"An improvement in house builders' share prices has allowed the banking agreement to be reached, the magazine said in the story dated Aug. 22. The new terms will focus more on cash flow than profitability, Building reported."

"External spokesman for Taylor Wimpey, Gordon Simpson, said the company wouldn't comment on market speculation."

"Rival Barratt Developments Plc said on July 10 it negotiated new loan terms with its banks without having to raise fresh cash after orders halved, pushing the homebuilder toward breaching banking covenants."

"Taylor Wimpey arranged a 1.65 billion-pound credit facility with Barclays Group Plc, HSBC Holdings Plc, Lloyds TSB Group Plc and Royal Bank of Scotland Group Plc last year, Bloomberg data show."

RBS spokeswoman Aoife Reynolds and Lloyds TSB's Eleanor Ross declined to comment. HSBC spokesman Charles Clark and Barclays spokesman Will Bowen were unable to comment when contacted by Bloomberg.

To contact the reporter on this story: Scott Hamilton in London at

"Last Updated: August 26, 2008 12:24 EDT"

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"Boeing Put Spreads Should Be Purchased, Goldman Says (Update1) "

By Nick Baker

"Aug. 26 (Bloomberg) -- Investors should buy put-option spreads on Boeing Co. to profit from declines in the stock as the company faces a machinist strike and further delays in its new 787 Dreamliner aircraft, according to Goldman Sachs Group Inc."

"John Marshall, part of Institutional Investor magazine's second-ranked equity derivatives strategy team for 2007, recommended the purchase of January $60 puts and simultaneous sale of January $55 puts on Boeing. The company, which fell to a three-year low of $61.11 on July 31, dropped 1.5 percent to $63.10 at 10:17 a.m. in New York for the biggest decline in the Dow Jones Industrial Average."

"Boeing, the world's second-largest commercial planemaker, and its 27,000 machinists are still ``miles apart'' in negotiations for a three-year contract to replace the deal that expires Sept. 3, a lead union negotiator said Aug. 24. A strike would cause an additional delay in Chicago-based Boeing's 787 program, which had originally planned to start deliveries in May of this year. Goldman Sachs analyst Richard Safran reiterated his ``sell'' rating today."

"Three-month at-the-money implied volatility, a key gauge of options prices, for Boeing reached 39 in July, the highest since at least August 2004, according to data compiled by Bloomberg. Goldman said a machinist strike and added 787 delay would probably push implied volatility, which was 33.8 yesterday, higher."

"``We think those events are also catalysts for implied volatility and like being moderately long options,'' Marshall wrote in a report today."

Boeing's January $60 puts surged 8.3 percent to $3.90. The January $55 puts added 1.9 percent to $2.20.

"Puts convey the right to sell. Calls give the right to buy a security for a certain amount, the strike price, by a given date. Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will increase or decrease."

To contact the reporter on this story: Nick Baker in New York at

"Last Updated: August 26, 2008 10:34 EDT"

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Chico's Rises as Second-Quarter Profit Tops Estimate (Update1)

By Meg Tirrell

"Aug. 26 (Bloomberg) -- Chico's FAS Inc., the women's clothing retailer with more than 1,000 stores, climbed as much as 13 percent in New York trading after second-quarter profit topped the average of analysts' estimates by the biggest margin in more than three years."

"Profit for the 13 weeks ended Aug. 2 was $6.68 million, or 4 cents a share, down from $38.7 million, or 22 cents, in the same period a year earlier, Chico's said today in a statement. That topped the average 3-cent estimate of 16 analysts surveyed by Bloomberg, by the biggest margin since at least 2005."

"Revenue shrank 7.1 percent to $405.2 million, while comparable-store sales declined 16 percent. Fort Myers, Florida- based Chico's also owns the White House/Black Market and Soma Intimates stores."

"``Customers remain increasingly cautious in their spending across the entire retail sector, especially in the missy category,'' Chief Executive Officer Scott Edmonds said in the statement. The company will be profitable in the second half, even as comparable-store sales will shrink, he said."

Gross margin as a percentage of sales for the quarter decreased to 52.7 percent from 57.7 percent as the company discounted items to clear its inventory. Expenses climbed 5.9 percent to $205.5 million because of higher occupancy costs and marketing spending.

"Capital expenditures for the year will be ``slightly below'' or on the low end of the company's forecast of $120 million to $125 million, Chief Financial Officer Kent Kleeberger said today on a conference call with investors."

"Chico's gained 63 cents, or 13 percent, to $5.61 at 10:39 a.m. in New York Stock Exchange composite trading, after earlier reaching $5.65 for the biggest intraday advance since May 28. The shares were down 45 percent this year before today."

To contact the reporter on this story: Meg Tirrell in New York at

"Last Updated: August 26, 2008 10:51 EDT"

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Latin America Currencies: Chile Peso Declines as Copper Slides

By Andrea Jaramillo

"Aug. 26 (Bloomberg) -- Chile's peso declined to an almost two-month low as lower prices for copper, the country's biggest export, threatened dollar inflows."

The peso also fell today as the U.S. dollar rallied against most major currencies.

"``Emerging markets have lost ground against the dollar in the past month,'' said Ricardo Gomez, head of fixed-income trading at Larrain Vial SA in Santiago. ``Lower copper prices have also hurt the peso amid expectations external accounts will deteriorate.''"

"Chile's currency weakened 0.1 percent to 522.52 per dollar at 11:27 a.m. New York time, from 522 yesterday. Earlier it touched 524.8, the lowest since July 1. The peso is down 6.1 percent in the past month."

"Copper futures for December delivery declined 3.75 cents, or 1.1 percent, to $3.423 a pound on the Comex division of the New York Mercantile Exchange. Copper reached the all-time high of $4.2605 on May 5."

"Speculation the central bank will raise its overnight lending rate is helping pare peso losses, Gomez said."

"The currency touched its highest in more than a decade in March, buoyed by the widening difference between Chile's target lending rate and the 2 percent U.S. benchmark rate and gains in copper. The 5.75 percentage-point difference between Chilean and U.S. U.S. benchmark rates is the biggest since at least November 1998."

"Policy makers lifted interest rates by a half-percentage point at the last two monthly meetings, and will probably carry out a quarter-point increase on the Sept. 4 meeting, according to the median estimate of six analysts in a Bloomberg survey."

Peso Decline

"The Chilean peso has dropped 16 percent since April 14, when Banco Central de Chile began buying $50 million daily in the currency market in an effort to weaken the peso and bolster exports. The central bank has said it will purchase as much as $8 billion this year."

"The yield on the nation's peso bond due March 2013 rose 9 basis points, or 0.09 percentage point, to 9.05 percent, according to Chile's Commerce Exchange."

To contact the reporter on this story: Andrea Jaramillo in Bogota at

"Last Updated: August 26, 2008 11:47 EDT"

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European Bonds Advance as German Business Confidence Declines

By Agnes Lovasz

"Aug. 26 (Bloomberg) -- European government bonds advanced after an industry survey showed German business confidence declined to a three-year low in August, increasing the likelihood the region's central bank will lower interest rates."

"The gains pushed the two-year note yield to within 2 basis points of the lowest level in more than three months after the Ifo institute said its business climate index fell to 94.8, from 97.5 in July. The German economy, Europe's largest, contracted in the second quarter, a separate government report showed."

"``We don't see where a swift recovery in economic activity might come from,'' Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt said in a Bloomberg Television interview. ``We see further downside in coming months. The bigger picture is conducive toward more gains in bond markets.''"

"The two-year note yield fell 6 basis points to 3.97 percent by 4:36 p.m. in London, after dropping to 3.93 percent, the lowest level since May 15. The 4.75 percent note rose 0.1, or 1 euro per 1,000-euro ($1,461) face amount, to 101.29."

"The yield on the 10-year German bund, Europe's benchmark government security, slipped 1 basis point to 4.11 percent. Yields move inversely to bond prices."

"The difference in yield, or spread, between two- and 10-year notes widened to 13 basis points, the most in a week, from 8 basis points yesterday, as rate-sensitive short-maturity debt outperformed."

"European government bonds returned 3.6 percent this quarter, compared with a 1.8 percent gain by U.S. Treasuries, according to Merrill Lynch & Co.'s EMU Direct Government and U.S. Treasury Master indexes."

Risk Aversion

"Bonds were also buoyed as corporate bond risk increased in Europe, fueling demand for the safest assets. The cost of protecting corporate bonds from default rose, with the benchmark Markit iTraxx Crossover Index of 50 companies with mostly high- risk, high-yield credit ratings increasing 15 basis points to 568, according to JPMorgan."

"Gross domestic product in Germany fell an adjusted 0.5 percent from the first quarter, when it rose 1.3 percent, the Federal Statistics Office said, confirming a first estimate from Aug. 14. That's the weakest since the second quarter of 1998."

"Sentiment among Germany's consumers slipped to the lowest level in more than five years, according to GfK AG's index for September, released today. The gauge, based on a survey of about 2,000 people, fell to 1.5, the lowest since June 2003, from a revised 1.9 in August, the Nuremberg-based market-research company said in a statement."

"Traders have increased bets the European Central Bank will lower interest rates next year to spur economic expansion. The implied yield on the March Euribor futures contract fell 4 basis point to 4.69 percent, extending the decline in the past month to 36 basis points."

The central bank left its main interest rate at 4.25 percent on Aug. 7 while ECB President Jean-Claude Trichet said that growth will be ``particularly weak.''

To contact the reporter on this story: Agnes Lovasz in London at

"Last Updated: August 26, 2008 11:40 EDT"

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Dollar Rises to Six-Month High on Bets Global Economy Slowing

By Ye Xie and Gavin Finch

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Aug. 26 (Bloomberg) -- The dollar rose to a six-month high against the euro on speculation the greenback will be the main beneficiary of a global economic slowdown as German business confidence dropped in August more than forecast.

"The U.S. currency was headed for the biggest monthly gain since the 15-nation euro debuted in 1999, increasing to an 11- month high versus the Australian dollar and gaining versus the New Zealand dollar and the Swedish krona. British sterling declined to the weakest level versus the dollar in two years as mortgage approvals held last month near a decade low."

"``The dollar is leaning heavily on bad news elsewhere,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``The market is coming around to the view that the extremely high level in the euro-dollar is not justified.''"

"Against the euro, the dollar increased 0.8 percent to $1.4630 at 2:16 p.m. in New York, from $1.4754 yesterday. It touched $1.4571, the strongest level since Feb. 14. The dollar rose 0.4 percent to 109.73 yen, from 109.30. The euro fell 0.5 percent to 160.54 yen, from 161.26 yesterday, after reaching 159.99, the lowest level since May 12."

"The greenback has risen against all of the other major currencies this month, with gains ranging from a 10.1 percent advance against the Australian dollar to a 1.4 percent increase versus the Mexican peso. The dollar has climbed 6.4 percent against the euro, the biggest monthly gain since the European currency began trading."

Dollar's Index

"The ICE futures exchange's Dollar Index, which compares the greenback against the currencies of six U.S. trading partners, rose to 77.619 today, its highest level since Dec. 26."

"Deutsche Bank AG, the world's largest currency trader, predicts the dollar will appreciate to $1.45 by year-end, a call it has maintained since April."

"UBS AG, the second largest, raised its forecast this month, predicting the greenback will trade at $1.47 in three months, compared with a previous forecast of $1.53. Lehman Brothers Holdings Inc. expects the currency will rise to $1.43 per euro by year-end and $1.40 by the end of the first quarter, compared with previous forecasts of $1.50 and $1.48."

"Speculation that central banks will lower interest rates to support growth pushed most of the major currencies down against the dollar. The Australian dollar fell 1 percent to 85.45 U.S. cents after it reached 84.94, the weakest level since September. The New Zealand dollar lost 1.1 percent to 69.57 U.S. cents, while Sweden's krona decreased 1 percent to 6.4110 versus the U.S. dollar."

Weaker Pound

"The pound dropped 0.9 percent to $1.8366 after touching $1.8331, the lowest level since July 2006. British banks granted 22,448 loans for house purchases in July, down 65 percent from a year earlier, the British Bankers' Association said. The reading fell to 22,369 in June, the lowest since 1996."

The euro has lost more than 8 percent versus the dollar since touching an all-time high of $1.6038 on July 15. It depreciated as the European economy contracted in the second quarter and crude oil dropped more than 20 percent from a record $147.27 a barrel set last month.

"The Ifo institute's German business confidence index declined this month to 94.8, the lowest level in three years, from 97.5 in July. The median forecast of 35 economists surveyed by Bloomberg News was for a decrease to 97.2."

"``The combination of incremental weakness in the European economy and moderating oil prices should keep the pressure on the euro,'' said Manuel Oliveri, a currency strategist at UBS in Zurich."

ECB Rate Outlook

"The euro dropped for a second day versus the yen and declined 0.3 percent to 2.3989 Brazilian reais as traders added to bets that the European Central Bank will cut interest rates next year. The implied yield on Euribor futures contract expiring in September 2009 fell 6 basis points, or 0.06 percentage point, to 4.32 percent. The yield averaged 18 basis points above the ECB's benchmark, currently 4.25 percent, from 1999 to August 2007."

"Europe's currency pared losses today as crude oil for October delivery rose 0.9 percent to $116.09 a barrel. The euro- dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep."

"Canada's dollar was the only major currency to gain against the dollar today, rising as much as 1 percent to a three-week high of C$1.0412 per dollar. Commodities such as gold and oil account for half of Canada's exports."

Fed Minutes

"Federal Reserve policy makers agreed this month that their next change in interest rates will be to raise them, while reaching no conclusion on the timing of such a decision, minutes of their Aug. 5 meeting released today."

"The Fed left the benchmark lending rate unchanged at 2 percent, signaling weak employment and financial instability will delay an increase in short-term borrowing costs."

"``The U.S. economy hasn't bottomed yet,'' said Stephen Malyon, co-head of currency strategy at Scotia Capital Inc. in Toronto. ``As the market refocuses on that, the dollar will come back under pressure, even though it has turned around.''"

To contact the reporters on this story: Ye Xie in New York at; Gavin Finch in London at

"Last Updated: August 26, 2008 14:18 EDT"

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Brazil's Steelmakers Gain on Prospects for Demand (Update1)

By Fabio Alves

Aug. 26 (Bloomberg) -- Gerdau SA led a rally of Brazilian steelmakers on the Sao Paulo stock exchange after Citigroup Inc. and Goldman Sachs Group recommended the companies on prospects that demand for the metal will continue to increase.

"Gerdau, Latin America's largest steelmaker, climbed for the first time in three days, adding 1 percent to 29.10 at 12:35 p.m. New York time. Cia. Siderurgica Nacional SA, Brazil's third-largest producer rose 0.8 percent to 53.85 reais."

"``Brazil is the single best steel market in the world right now,'' Citigroup analyst Alexander Hacking wrote in a note to clients today. He said he expects no decline in steel prices in Brazil in 2009 as ``domestic demand is exceeding expectations.''"

"Goldman Sachs analysts led by Marcelo Aguiar reiterated their ``attractive'' rating on the Brazilian steel sector, saying ``fundamentals'' remain strong."

"``The supply-demand balance should tighten further, sustaining local steel prices at a high level even in a scenario where international steel prices fall,'' the Goldman Sachs analysts wrote in a note to clients."

"Separately, Usinas Siderurgicas de Minas Gerais, Brazil's second largest steelmaker, and CSN were upgraded to ``buy'' at UBS AG after a three-month slump in the shares. Carlos Vasques and Edmo Chagas, analysts at UBS, upgraded both companies from ``neutral'' in a report today."

"Current share prices imply an ``unlikely'' 35 percent drop in steel prices, the analyst said, citing ``scarcity of new steel capacity, and tight raw material supply.''"

"Usiminas fell 0.7 percent to 54.64 reais, after rising as much as 1.4 percent earlier. The shares have dropped 42 percent from their 2008 high on May 19."

"CSN has slumped 36 percent in the same period, while Gerdau has fallen 31 percent since reaching its peak for the year May 20."

To contact the reporter on this story: Fabio Alves in New York at

"Last Updated: August 26, 2008 12:51 EDT"

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Canadian Dollar Strengthens to a Three-Week High as Oil Rises

By Chris Fournier

Aug. 26 (Bloomberg) -- Canada's currency climbed to the highest in almost three weeks as the price of crude oil erased an earlier loss and increased on forecasts showing Hurricane Gustav may enter the Gulf of Mexico.

The Canadian dollar strengthened versus the 16 most- actively traded currencies. Commodities account for more than half of the nation's export revenue. The U.S. is Canada's largest trading partner.

"``The Canadian dollar is benefiting from the bounce in crude, on potential Gustav-influenced supply concerns,'' said Jack Spitz, managing director of foreign-exchange trading at National Bank of Canada in Toronto, who predicts Canada's currency will weaken to C$1.08 against its U.S. counterpart by year-end."

"The Canadian dollar appreciated 0.4 percent to C$1.0476 per U.S. dollar at 12:14 p.m. in Toronto, from C$1.0513 yesterday. The currency touched C$1.0412, the strongest since Aug. 6. It earlier fell to as low as C$1.0562. One Canadian dollar buys 95.41 U.S. cents."

"``You can't ignore the fact that oil is back at $118,'' said David Watt, a senior currency strategist in Toronto at RBC Capital Markets Inc. ``We were looking at C$1.0566 as a key level to re-establish an uptrend, and that failed.''"

Currency Surges

Canada's currency surged 17 percent in 2007 as commodity prices soared. The rally stalled this year as the economy of the U.S. cooled and as oil fell from the record high of $147.27 a barrel set July 11. The Canadian currency touched a year-low C$1.0728 on Aug. 12.

"The Gulf of Mexico is home to more than a fifth of U.S. oil production. Crude oil rose 0.4 percent to $115.59 a barrel, after earlier rising as much as 2.4 percent to $117.89. Crude had touched as low as $112.36."

"``Oil prices dipped overnight but have recovered,'' said Shane Enright, currency strategist at CIBC World Markets Inc. in Toronto."

"The currency will slip to C$1.10 against the U.S. dollar by the end of 2009, according to the median forecast of economists surveyed by Bloomberg News."

"The yield on the two-year Canadian government bond declined 3 basis points, or 0.03 percentage point, to 2.86 percent. The price of the 2.75 percent security due in December 2010 rose 6 cents to C$99.78. The 10-year bond's yield slipped 1 basis point to 3.56 percent."

"The two-year bond's yield will rise to 3.09 percent by the end of this year, while the 10-year bond's yield will increase to 3.86 percent, according to the median forecasts of economists surveyed by Bloomberg News."

"The yield advantage of the 10-year U.S. Treasury note compared with similar-maturity Canadian government bonds was 23 basis points, down from 36 basis points on Aug. 11. The Canadian 10-year bond yielded 36 basis points more than its U.S. counterpart on Jan. 22."

"Canadian government bonds have returned 4.5 percent in 2008, according to Merrill Lynch & Co. index statistics. U.S. Treasuries have returned 4 percent this year."

To contact the reporter on this story: Chris Fournier in Montreal at

"Last Updated: August 26, 2008 12:17 EDT"

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"U.S. Stocks Fall on Rate-Hike Concern, Oil Prices; Banks Drop "

By Elizabeth Stanton

"Aug. 26 (Bloomberg) -- U.S. stocks fell, erasing an earlier advance, after minutes from the Federal Reserve's August meeting signaled that policy makers may raise interest rates."

Washington Mutual Inc. and Merrill Lynch & Co. each dropped more than 2 percent after Fed officials said they were concerned about faster inflation and the central bank's next move may be to increase borrowing costs. Boeing Co. declined 1.8 percent and led the Dow Jones Industrial Average to a second straight drop as crude oil rose.

"The Standard & Poor's 500 Index slipped 0.27 point to 1,266.57 at 2:40 p.m. in New York. The Dow Jones Industrial Average decreased 12.79 points to 11,373.46 and the Nasdaq Composite Index slipped 12.12 to 2,353.47. About 20 stocks fell for every 19 that rose on the New York Stock Exchange."

The S&P 500 is down 14 percent this year on concern more than $500 billion in losses and writedowns related to the collapse of the subprime-mortgage market and accelerating inflation will slow economic expansion and curb profit growth.

"Analysts estimate earnings among companies in the S&P 500 will decline 1.2 percent on average in 2008, according to weekly Bloomberg data. That compares with 15 percent growth forecast at the beginning of the year."

Housing Slump

"New home-sales increased 2.4 percent to a 515,000 annual pace in July after a downwardly revised 503,000 rate in June, the Commerce Department said. The number of unsold homes on the market fell 5.2 percent, the most since November 1963, to a 416,000 pace."

"Home prices in the U.S. fell at a slower pace in the second quarter, signaling the worst housing slump in more than 25 years may be starting to stabilize, a private survey showed today."

"Home values declined 2.3 percent in the three months through June from the previous three months, compared with a 6.8 percent drop in the first quarter. Compared with a year earlier, values dropped 15.4 percent, the most since record keeping started 20 years ago, yet less than the 16.2 percent tumble forecast by economists in a survey."

"The Conference Board's consumer confidence index rose to 56.9 in August from 51.9 in July as cheaper gasoline improved Americans' moods. June's reading of 51 was the lowest since February 1992. The median forecast was for a smaller increase to 53, the median estimate of 70 economists surveyed by Bloomberg News."

"The S&P 500 is little changed in August even after rebounding more than 4 percent from its low of the year on July 15. All 10 of the main industry groups in the index have declined this year, led by a 31 percent tumble in financial shares."

"Morgan Stanley cut its year-end forecast for the S&P 500 by 7.1 percent to 1,300 yesterday on concern banks will report more credit-related writedowns and the global economic slowdown will curb profits at technology and industrial companies."

"The average estimate of nine other Wall Street strategists who provide year-end forecasts to Bloomberg News is 1,446, implying a 14 percent rally from yesterday's close."

U.S. stocks dropped the most in a month yesterday 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.

To contact the reporter on this story: Elizabeth Stanton in New York at

"Last Updated: August 26, 2008 14:22 EDT"

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"Brazilian Stocks Fall, Led by Banks, Sabesp; Bolsa Declines "

By Alexander Ragir and William Freebairn

"Aug. 26 (Bloomberg) -- Brazilian stocks fell for a third day, erasing earlier gains, as financial companies declined after Goldman Sachs Group Inc. said loan growth for the nation's biggest banks will slow in the second half of the year."

"Banco Bradesco SA and Banco Nossa Caixa SA led a drop in banks on concern the increase in interest rates over the past year will hurt demand for credit. Cia. de Saneamento Basico do Estado de Sao Paulo dropped after UBS AG said the utility may be better off giving dividends than buying Empresa Metropolitana de Aguas e Energia SA. Cia. Siderurgica Nacional SA rose, leading gains for steelmakers and limiting the Bovespa's decline, after UBS AG analysts upgraded the stock to ``buy.''"

"The Bovespa index dropped 210.61, or 0.4 percent, to 54,266.64 at 1:34 p.m. New York time. Three stocks fell for every one that rose. Mexico's Bolsa index declined 1 percent. Chile's Ipsa climbed 0.6 percent."

Bradesco fell 1.5 percent to 29.24 reais. Nossa Caixa dropped 2.9 percent to 37.40 reais. Banco do Brasil SA slid 2.6 percent to 22.189 reais. Uniao de Bancos Brasileiros SA lost 0.4 percent to 18.72 reais.

"``We project a deceleration of loan growth in the second half of 2008, and we would need to see more of a slowdown to meet our forecast,'' Goldman analysts said. They forecast 2008 loan growth of 26 percent in 2008 for Banco do Brasil, Bradesco, Itau and Unibanco, down from 35 percent in June 2008 year-on-year."

A central bank report showed yesterday that Brazilian bank lending expanded last month at the slowest pace since February as rising interest rates made borrowing more expensive and damped the consumer spending that has driven growth to record levels.

Sabesp Falls

"Sabesp, as the water and electricity utility owned by Sao Paulo state is known, fell 5.8 percent to 35.80 reais. Sabesp said in June it had entered a confidentiality agreement with the utility known as EMAE and was ``aiming at an eventual acquisition of assets.''"

"``Potential value destruction is limited but the deal raises concern on the use of cash and increases company's risk perception,'' wrote UBS analysts Rafael Espirito Santo, Pedro Batista and Eduardo Haiama in a note to clients."

"CSN rose 1.5 percent to 54.20 reais. Gerdau SA, Latin America's biggest steelmaker, gained 1.6 percent to 29.25 reais."

"Current share prices ``imply steel prices as much as 35 percent lower than current, which we view as unlikely due to scarcity of new steel capacity, and tight raw material supply,'' the UBS analysts wrote."

Bolsa Slides

"Mexico's Bolsa index slid for a second day, led by retailers on concern the slowing economy is hurting consumer spending."

"Organizacion Soriana SAB, Mexico's second-largest retailer, fell to the lowest in a month as analysts said the integration of a purchased supermarket chain may reduce profit margins. HSBC Holdings Plc analyst Francisco Chevez gave an ``underweight'' rating to Soriana in new coverage."

"Grupo Famsa SAB, a retailer with stores in Mexico and the southern U.S., dropped the most in three weeks. Mexican retail sales rose less in June than economists forecast, signaling consumer spending may be slowing with the economy."

Soriana declined 1.8 percent to 34.55 pesos. Famsa fell 2.3 percent to 26.70 pesos.

To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at; William Freebairn in Mexico City at

"Last Updated: August 26, 2008 13:44 EDT"

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Gold Climbs on Demand for Inflation Hedge as Energy Costs Rise

By Pham-Duy Nguyen

Aug. 26 (Bloomberg) -- Gold rose as a gain in energy costs revived demand for the precious metal as a hedge against inflation. Silver also climbed.

Crude-oil prices rallied as much as 2.4 percent to $117.89 a barrel on concern that Hurricane Gustav may enter the Gulf of Mexico and disrupt U.S. petroleum production. Gold reached a record in March as oil headed to an all-time high in July.

"``Oil is the key to the turnaround in gold,'' said Marty McNeill, a trader at R.F. Lafferty Inc. in New York. ``Inflation is there. It's just a matter of people focusing on it.''"

"Gold futures for December delivery rose $2.40, or 0.3 percent, to $828.10 an ounce on the Comex division of the New York Mercantile Exchange. Earlier, the price touched $812 as the euro fell as much as 1.2 percent against the dollar."

"Silver futures for December delivery rose 19.9 cents, or 1.5 percent, to $13.678 an ounce. The metal has fallen 8.3 percent this year, while gold dropped 1.2 percent."

"Some investors buy gold when energy costs climb to preserve purchasing power. Consumer prices rose at a 5.6 percent annual pace in July, the fastest in 17 years. Prices paid to U.S. producers soared 9.8 percent last month, the biggest increase since 1981. Oil reached a record $147.27 on July 11."

"Still, gold's gains were limited after the dollar rose to a six-month high against the euro. A report showed German business confidence dropped more than forecast in August, pushing the euro as low as $1.4571. The currency reached a record $1.6038 on July 15."

`Physical' Demand

"``Over the past three trading days, the dollar has regained pretty much all the ground that it lost over the preceding week,'' said John Reade, a metals strategist at UBS AG in London. ``But gold has held above $800 despite this strength, supported by extremely strong demand for physical gold.''"

"Gold rallied 5.2 percent last week following an 18 percent decline in the previous five weeks. Jewelers, the world's biggest users of the metal, accounted for 68 percent of purchases last year, according to the producer-funded World Gold Council."

"``Gold is positioned for a sharp move higher, although for this to happen, the dollar and probably crude will have to cooperate,'' Reade said. Earlier in August, UBS said gold will trade around $850 within a month and $900 in the next three months."

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at

"Last Updated: August 26, 2008 14:03 EDT"

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"French Stocks; Renault, STMicroelectronics, Vallourec, Valeo "

By Sarah Thompson and Daniela Silberstein

"Aug. 26 (Bloomberg) -- France's CAC 40 Index increased 12.68, or 0.3 percent, to 4,368.55. The SBF 120 Index also rose 0.3 percent."

The following shares climbed or fell in the local market. Stock symbols are in parentheses.

"Boizel Chanoine Champagne SA (BOZ FP) added 90 cents, or 1.3 percent, to 67.96 euros. France's second-largest champagne producer said first-half revenue fell 23 percent to 108 million euros ($158 million) and forecast stable full-year sales and higher operating profit."

"Operating profit for the period rose to near 14.1 million euros from 10.5 million euros a year earlier, according to unaudited figures."

"DL Software (ALSDL FP) jumped 46 cents, or 7.3 percent, to 6.76 euros, its biggest advance since January. The software developer said its first-half gross margin rose 39 percent to 14.07 million euros. The company confirmed its forecast for full-year operating profit to grow more than 30 percent."

"Renault SA (RNO FP), France's second-biggest carmaker, slipped 1.25 euros, or 2.1 percent, to 57.71. PSA Peugeot Citroen (UG FP), the largest French automaker, declined 58 cents, or 1.7 percent, to 33.3 euros. Carmakers decreased as crude oil rose more than $2 a barrel on forecasts showing that Hurricane Gustav may enter the Gulf of Mexico, home to more than a fifth of U.S. oil production."

"STMicroelectronics NV (STM FP), Europe's largest chipmaker, added 29 cents, or 3.4 percent, to 8.87 euros, rising for a fifth day. The euro fell to the lowest level in more than six months against the dollar after a report showed German business confidence worsened more than forecast in August. The company generates most of its revenue in dollars."

"Valeo SA (FR FP) lost 70 cents, or 2.8 percent, to 23.93 euros after France's second-largest auto-parts maker was cut to `` sell'' from ``reduce'' at Natixis."

"``Valeo's business conditions should come under considerable strain over second-half 2008 and 2009,'' the analysts, including Alexis Albert, wrote in a research note dated today. ``Organic growth, still the group's Achilles heel, will become increasingly difficult to generate.''"

"Vallourec SA (VK FP) decreased 7.11 euros, or 3.8 percent, to 178, the biggest drop in three weeks. Goldman Sachs Group Inc. downgraded the world's second-largest supplier of seamless pipes for energy extraction to ``sell'' from ``neutral'' because the shares offer ``minimal potential'' for growth."

To contact the reporters on this story: Sarah Thompson in London at; Daniela Silberstein in Zurich at

"Last Updated: August 26, 2008 12:24 EDT"

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"Fannie, Freddie Find No Slack in Demand for Debt: Chart of Day "

By Jody Shenn

"Aug. 26 (Bloomberg) -- Fannie Mae and Freddie Mac, the two largest U.S. mortgage-finance companies, paid record high yields this month relative to Treasuries to sell debt. Comparing their spreads against banks and different benchmarks shows investors aren't so wary of the government-chartered companies."

"``Nothing in the spread data hints at difficulty in finding buyers or the need to pay relatively higher funding costs,'' Howard Shapiro, an analyst with Fox-Pitt Kelton Cochran Caronia Waller in New York, wrote in an Aug. 22 report."

"The CHART OF THE DAY shows the difference between the cost of protection against defaults on the senior bonds of Fannie, Freddie, Bank of America Corp., Citigroup Inc., Wachovia Corp. and JPMorgan Chase & Co. using credit-default swaps and measured in basis points. A basis point on a contract protecting $10 million of debt for five years is equivalent to $1,000 a year."

"Investors demand an extra 85 basis points in yield to buy five-year debt of Fannie rather than Treasuries, up from the average of 35 basis points between 2001 and the end of 2007. While that spread has widened, yields have held steady relative to interest-rate swaps. Fannie's five-year notes pay 15 basis points less than swaps, versus 13 basis points below on average in the same period, data complied by Bloomberg shows."

A swap rate is the fixed yield paid in return for floating payments linked to short-term interest rates. Fannie and Freddie use interest-rate swaps to hedge their $1.5 trillion mortgage portfolios. A basis point equals 0.01 percentage point.

"``It is true that spreads have widened, but this is in the context of overall spread widening in the market place,'' Shapiro wrote in his report."

To contact the reporter on this story: Jody Shenn in New York at

"Last Updated: August 26, 2008 11:59 EDT"

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"Most Canadian Stocks Advance, Led by EnCana; Scotiabank Falls "

By John Kipphoff

Aug. 26 (Bloomberg) -- Most Canadian stocks rose as energy and raw-materials companies climbed on surging natural-gas and oil prices.

EnCana Corp. paced gains among commodity-related shares as natural-gas futures advanced the most in 10 months. Potash Corp. of Saskatchewan Inc. advanced on a report of a positive note on the stock from Standard & Poor's Equity Research. Bank of Nova Scotia and Bank of Montreal led financial stocks lower after both reported earnings that fell short of analyst estimates.

"The Standard & Poor's/TSX Composite Index slipped less than 0.1 percent to 13,284.40 at 12:47 p.m. in Toronto, as 134 stocks advanced and 113 declined. Canada's equity benchmark, which derives three-quarters of its value from energy, financial and materials shares, has slid 12 percent from its June 18 peak after commodity prices slumped on concern lenders' credit losses will slow global growth and demand for resources."

"``Commodities are having a rebound from oversold levels,'' said Andrew Cook, portfolio manager at Marquest Investment Counsel in Toronto, which manages the equivalent of about $286 million. ``There's been a growth scare that's hit them. We think growth will pick up again in 2009. The consensus seems to be that the banks are still a terrible place to be.''"

"EnCana, North America's biggest publicly traded gas producer, rose 2.5 percent to C$77.04. Imperial Oil Ltd., Canada's biggest oil and gas producer by output, gained 1.5 percent to C$53.58. Nexen Inc., another oil and gas producer, added 1.1 percent to C$32.93."

Hurricane Speculation

"Natural gas in New York rose 5.7 percent to $8.27 per million British thermal units, the most since Oct. 30, on speculation Hurricane Gustav will slash through the Gulf of Mexico and pare output from production platforms. Crude oil was little changed, up 1 cent a barrel, rallying from a drop."

"Potash Corp. rose 0.8 percent to C$187.65 after Business Week reported that S&P rates the stock ``strong buy.'' S&P says the crop nutrient maker has an ``extremely strong'' per-share earnings outlook and ``compelling valuation,'' Business Week said on its Web site."

"Measures of energy and raw-materials companies in the S&P/TSX rose 0.6 percent and 0.3 percent, respectively, while a gauge of financial shares dropped 0.9 percent."

"Scotiabank fell 1.8 percent to C$46.80, the lowest in six weeks. Canada's third-biggest lender reported that fiscal third- quarter net income fell 1.9 percent to C$1.01 billion ($967.2 million) after it set aside C$159 million for bad loans in the quarter, a 73 percent increase from the year-earlier period."

Estimate Missed

"Excluding one-time items, profit was 99 cents a share, according to National Bank Financial analyst Robert Sedran, missing his C$1.04-a-share estimate. Scotiabank said that because of slower economic growth globally, it's ``unlikely'' to meet its earnings-per-share growth target for the year."

Bank of Montreal fell 1.3 percent to C$43.47. Canada's fourth-largest bank posted a 21 percent drop in third-quarter profit and missed analysts' median estimate of per-share earnings before one-time items by 20 cents.

"Bank of Montreal set aside C$484 million for bad loans, five times more than a year ago. The stock was downgraded to ``sell'' by Dundee Securities Corp. analyst John Aiken in Toronto, who called the results ``disappointing.''"

"Royal Bank of Canada, scheduled to report its quarterly earnings on Aug. 28, slipped 1.4 percent to C$44.49."

To contact the reporter on this story: John Kipphoff in Toronto at

"Last Updated: August 26, 2008 13:14 EDT"

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"Freddie, Fannie Rise; Citi Says Capital Is Enough, Growth Slows "

By Jody Shenn and Dawn Kopecki

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Aug. 26 (Bloomberg) -- Freddie Mac and Fannie Mae rose after Citigroup Inc. analysts said they have enough capital to last through the year and the pace of mortgage-related purchases slowed.

"Fannie advanced for a fourth day, climbing 8.7 percent on the New York Stock Exchange. Freddie gained 19 percent, surpassing yesterday's gain. The companies declined to near 20- year lows last week on concern they need more capital to weather the worst housing slump since the Great Depression."

"Freddie of McLean, Virginia, and Washington-based Fannie bought home loans and mortgage securities at a slower pace last month helping preserve their capital. The government-chartered companies can withstand losses through the end of the year and still keep a cushion above their minimum requirements, according to slides prepared by Citigroup analysts for a conference call today."

"``They have enough capital at the moment,'' Ira Jersey, an interest-rate strategist at Credit Suisse Holdings USA Inc. in New York, said in a Bloomberg Radio interview. The issue is ``how bad can their credit losses get and how much of that capital do they wind up having to use to absorb additional credit losses?''"

Fannie and Freddie jumped after the call began at 10 a.m. Fannie rose 45 cents to $5.64 as of 1:17 p.m. in New York Stock Exchange composite trading after rising as high as $6.25. Freddie was up 63 cents to $3.92 after climbing to $4.28. Both companies were down about 90 percent in the past year before today on concern they didn't have enough capital to weather the housing slump.

"The plunge in the companies' shares led U.S. Treasury Secretary Henry Paulson to obtain the authority to pump an unlimited amount of credit or stock into the companies. The decision announced on July 13 failed to shore up confidence, sparking concern a rescue may be imminent."

Above Requirements

"Freddie will have $12.7 billion of capital above the minimum requirement, according to the Citigroup slides presented to investors. Fannie will have $20.3 billion. Fannie will generate $7.5 billion of revenue in the second half, compared with $1.5 billion of expenses. Freddie will have $5.5 billion of revenue and expenses of $1.2 billion."

"While Fannie raised $7.4 billion in capital in May, Freddie failed to fulfill an agreement made that month to sell $5.5 billion in equity."

Fannie and Freddie make money by financing purchases of mortgage assets with cheaper debt. They also guarantee bonds they create by pooling home loans. The companies were chartered by Congress to expand homeownership and provide market stability by buying mortgage debt.

Declining Demand

"Freddie's portfolio expanded at a 9.8 percent annualized rate to $798.2 billion in July, the slowest since March. The holdings may shrink this month based on forward commitments, according to the company's monthly volume summary today. Fannie expanded to $758 billion, an annual rate of 14.4 percent, the smallest increase since April."

"The declining demand from the federally chartered companies, the biggest buyers of home loan securities, is sending mortgage prices lower and causing home loan rates to increase."

"``It's become pretty obvious that they're not going to be able to grow going forward,'' said Walt Schmidt, a mortgage-bond strategist at FTN Financial Capital Markets in Chicago. ``Without a capital raise, you're not going to see a major recovery in'' mortgage securities."

"Relying on Fannie, Freddie"

"The government had been relying on Fannie and Freddie to prop up the mortgage market as the credit crisis that began last year with losses on subprime mortgages sapped demand from banks, brokers and hedge funds."

"``The issue really is capital across the system, because if you were to go back two years and Fannie and Freddie were to have capital problems, five other people would step in and buy the mortgages,'' Brett Rose, an analyst at Citigroup Inc., in New York, said. Now there are few buyers, he said."

"The difference between yields on so-called agency mortgage securities and 10-year Treasuries was at 2.05 percentage points at 1:15 p.m., compared with as low as 1.52 percentage points in May. The average rate on a typical 30-year, fixed-rate mortgage has risen to 6.33 percent, from as low as 5.69 percent in May, according to data."

To contact the reporters on this story: Jody Shenn in New York at; Dawn Kopecki in Washington at

"Last Updated: August 26, 2008 13:21 EDT"

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"Fannie, Freddie Can Absorb Losses Through Year End, Citi Says "

By Dawn Kopecki and Jody Shenn

"Aug. 26 (Bloomberg) -- Fannie Mae and Freddie Mac can withstand losses through the end of the year and still keep a cushion above their minimum capital requirements, according to Citigroup Inc. analysts."

"Freddie of McLean, Virginia, will have $12.7 billion of capital above the minimum requirement, according to slides provided by Citigroup for a conference call with investors. Washington-based Fannie will have $20.3 billion."

"Fannie will generate $7.5 billion of revenue in the second half, compared with $1.5 billion of expenses. Freddie will have $5.5 billion of revenue and expenses of $1.2 billion."

"The companies may reap about $1 billion each per quarter from mortgage paydowns and their regulator may reduce minimum capital requirements, returning $4.9 billion of capital to Fannie and $5.7 billion to Freddie, the slides show."

Citigroup analysts are holding a conference call to discuss Fannie and Freddie. The bank's interest rate strategists led by Scott Peng in New York said last week that the beleaguered mortgage-finance companies don't need to be nationalized and the U.S. should resist being ``stampeded'' into a bailout.

"Treasury Secretary Henry Paulson last month won approval to pump unlimited amounts of capital into Fannie and Freddie, which guarantee or own about $5 trillion of the $12 trillion in U.S. home loans."

"``From a capital and financing perspective, there is no pressing need for such a drastic intervention,'' Peng said in a note to clients."

Reasonable Costs

"Financing costs for the government-chartered companies, while rising, remain ``quite reasonable'' and are still at a historically low level when compared to the yields from the mortgage bonds they buy."

"``Any purchases they do make are providing historically high spreads relative to their funding,'' the analysts wrote."

"Fannie and Freddie jumped after the call began at 10 a.m. Fannie rose $1.03, or 20 percent, to $6.22 at 11 a.m. in New York Stock Exchange composite trading while Freddie was up 89 cents, or 27 percent, to $4.18."

To contact the reporter on this story: Dawn Kopecki in Washington at; Jody Shenn in New York at

"Last Updated: August 26, 2008 11:13 EDT"

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"Corn, Soybeans, Wheat Fall as Stronger Dollar Weakens Demand "

By Tony C. Dreibus

"Aug. 26 (Bloomberg) -- Corn, soybeans and wheat fell as the dollar headed for a second straight monthly gain, eroding the appeal of U.S. supplies to importers."

"The dollar has jumped 5.4 percent in August against a basket of the euro, yen and four other major currencies, and rose 1.1 percent in July. The Reuters/Jefferies CRB Index of 19 raw materials has declined 4.5 percent this month. As the value of the dollar increases, overseas buyers have less purchasing power."

"``The big deal in the markets is the strength in the dollar, plain and simple,'' said Roy Huckabay, an executive vice president at the Linn Group in Chicago."

"Corn futures for December delivery fell 7.25 cents, or 1.2 percent, to $5.9275 a bushel at 10:45 a.m. on the Chicago Board of Trade. The price has declined 26 percent from a record $7.9925 on June 27 as crop conditions improved in July after floods in parts of the U.S. Midwest in June."

"Soybean futures for November delivery slumped 4.75 cents, or 0.4 percent, to $13.4225 a bushel in Chicago. The price has dropped 18 percent from a record $16.3675 on July 3."

"Wheat futures for December delivery tumbled 14.5 cents, or 1.7 percent, to $8.5025 a bushel in Chicago. The price has plunged 37 percent from the all-time high of $13.495 on Feb. 27."

"Farm Futures said in a report today that U.S. farmers may shift acres out of corn to more-profitable soybeans, citing a survey of 701 growers. The publication said farmers will seed 87 million acres with corn and 78.5 million acres with soybeans."

"The U.S. Department of Agriculture forecast corn acreage of 87 million and soybeans acreage of 74.8 million in the marketing year that starts on Sept. 1. Growers a year earlier planted 93.6 million acres of corn and 63.6 million acres with soybeans, USDA data show."

Corn Prices

Corn futures were up 32 percent this year through yesterday while soybean prices gained 11 percent.

"Winter-wheat acres may also decrease as growers seed more soybeans. Seeding begins for winter wheat starting next month. Some growers may instead leave fields fallow, or uncultivated, to allow the ground to build moisture and nutrients, then plant soybeans next spring."

"Soybean prices also may be falling on speculation that China will switch some purchases to palm oil from soybean oil, Huckabay said."

"``Palm oil is at a discount to bean oil, so China may be shutting off bean oil and buying palm oil,'' Huckabay said."

"Palm oil, a substitute for soybean oil, is down 5.9 percent in the past two weeks in Kuala Lumpur. Soybean oil has risen 7.3 percent in the same period, making palm oil more attractive to overseas buyers."

"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. Wheat is the fourth-largest at $13.7 billion behind hay."

The dollar rose as much as 1.1 percent today against the basket of currencies.

To contact the reporter on this story: Tony C. Dreibus in Chicago at

"Last Updated: August 26, 2008 11:58 EDT"

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Gilts Gain as Mortgage Approvals Fall to Lowest Level in Decade

By Lukanyo Mnyanda and Andrew MacAskill

"Aug. 26 (Bloomberg) -- U.K. government notes rose, pushing the 10-year yield to the lowest level in more than four months, as an industry report showed mortgage approvals held near the weakest level in a decade."

"The gains pushed two-year yields down by the most in almost two weeks as the data added to evidence the credit crunch has starved the housing market of loans, threatening to push the economy into a recession. The number of mortgages approved last month slumped 65 percent in the year and their value fell to the least since 1998, the British Bankers' Association said today."

"``Gilts look fairly well underpinned at the moment, supported by weaker equities and ongoing concerns about the U.K. economy,'' said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets in Edinburgh. ``The overall story is one where the U.K. economy is already in recession.''"

"The yield on the 10-year gilt dropped as much as 12 basis points to 4.48 percent, the lowest level since April 16, and was at 4.5 percent by 4:17 p.m. in London. The 5 percent security due March 2018 rose 0.77, or 7.7 pounds per 1,000-pound ($1,839) face amount, to 103.87. The yield on the two-year gilt, which is more sensitive to interest-rate expectations, fell as much as 13 basis points, the most since Aug. 18, to 4.49 percent. Bond yields move inversely to prices."

Gilts also advanced with their counterparts in the euro area as stock-market losses around the world fueled demand for the safest assets. The MSCI World stock index fell as much as 1 percent to the lowest level in more than two years.

Home Loans

"Banks granted 22,448 loans for house purchase, said the London-based BBA, which represents the U.K.'s biggest lenders. The reading is up from 22,369 in June, the lowest in a decade. The value of mortgages approved fell to 3.2 billion pounds ($5.8 billion), the least since 1998, from 3.3 billion pounds."

"The U.K. pound fell to a two-year low against the dollar, extending its decline this year to more than 7.5 percent, and was near its weakest level in almost six weeks versus the euro."

"``The market is starting to price in a rate cut before year- end and I think that is likely to put sterling under significant pressure,'' said Lee Hardman, a currency strategist in London at the Bank of Tokyo-Mitsubishi Ltd. ``We have seen a sharp cutback in the number of loans offered to buyers and that's likely to weigh on U.K. house prices.'' The currency may end the year at $1.82, Hardman predicted."

"The pound dropped 0.8 percent to $1.8392, near the lowest level since July 2006, from $1.8532 yesterday in New York. Against the single European currency, the pound was at 79.74 pence, from 79.60."

Rate Outlook

"The pound has dropped against the dollar in each of the past five weeks, the longest losing run of declines since February 2006. It slipped last week after a government report showed economic growth stagnated in the second quarter, adding to pressure on the central bank to cut interest rates to revive the economy, the second largest in Europe."

"Half of the economists in a Bloomberg News survey on Aug. 22 forecast the Bank of England will reduce rates before the end of 2008, up from a quarter polled on Aug. 8. Policy makers have held the benchmark rate at 5 percent since April as inflation accelerated to 4.4 percent in July."

"Societe Generale SA cut its forecast for U.K. gross domestic product to 0.5 percent in 2009 from 1.2 percent, saying the economy is ``weakening rapidly and inflation is likely to peak in October, before collapsing in 2009.'' The benchmark rate may drop to 3.5 percent ``by the late summer of 2009,'' economists Brian Hilliard and Bijal Shah wrote in a report."

`Painful Adjustment'

"Governor Mervyn King, who said the U.K. faces a ``painful adjustment,'' is also struggling with an inflation rate running at more than twice its 2 percent target."

"The implied yield on the March short-sterling futures contract dropped 9 basis points today to 5.18 percent, indicating investors are paring wagers on lower interest rates. It was at 5.44 percent at the end of July."

"The difference in yield, or spread, between 10-year gilts and their German counterparts narrowed 9 basis points to 38 basis points today. The spread has narrowed from 69 basis points on Feb. 25, the widest this year, as traders bet the end of a decade-long rally in the nation's housing market will prompt a reduction in borrowing costs."

"The U.K.'s bonds have returned 3.7 percent in the past two months, compared with 3.3 percent on their European counterparts, according to Merrill Lynch & Co.'s EMU Direct Government and U.K. Gilts Master indexes."

"The U.K. will sell 2.25 billion pounds of 4.25 percent gilts maturing in 2049 next week, the Debt Management Office, which conducts bond sales for the government, said today."

To contact the reporters on this story: Lukanyo Mnyanda in London at; Andrew MacAskill in London at

"Last Updated: August 26, 2008 11:45 EDT"

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U.S. Treasuries Decline After Consumer Confidence Increases

By Dakin Campbell

"Aug. 26 (Bloomberg) -- Treasuries fell after a private report showed consumer confidence gained more than forecast, and before the government auctions $54 billion in notes later this week."

Yields on two-year notes increased for the first time this week as the Conference Board's confidence index rose in August to 56.9 from 51.9 and other reports showed new-home sales advanced and house prices fell less rapidly. The Federal Reserve is scheduled to release minutes today of its Aug. 5 meeting.

"``The numbers came out, and economically they were a little better,'' said Paul Horrmann, a strategist in Jersey City, New Jersey, at ICAP Plc, the world's largest inter-dealer broker. ``We are starting to yield to some selling.''"

"The yield on the two-year Treasury note gained 4 basis points, or 0.04 percentage point, to 2.36 percent at 12:49 p.m. in New York, according to BGCantor Market Data. The price of the 2.75 percent note due in July 2010 declined 2/32, or 63 cents per $1,000 face amount, to 100 23/32."

"The 10-year note's yield rose 2 basis points to 3.80 percent. Earlier it touched 3.77 percent, within 1 basis point of the lowest since May 13."

"A report from the Commerce Department showed new-home sales in the U.S. increased 2.4 percent in July to a 515,000 annual pace, and the number of unsold homes on the market fell 5.2 percent, the biggest drop since November 1963. Home prices in 20 major cities decreased at a slower pace for the fourth straight month in June, according to the S&P/Case-Shiller index."

Debt Auctions

"The Fed will release the minutes today from the meeting this month where policy makers agreed to keep the 2 percent target rate for overnight bank lending steady. Traders see 81 percent odds the central bank will leave the rate unchanged through the end of December, up from a 25 percent possibility a month ago, futures contracts traded on the Chicago Board of Trade show."

"The Treasury Department is scheduled to auction $32 billion of two-year notes tomorrow and $22 billion of five-year securities on Aug. 28. The size of the two-year sale is a record, and the five-year auction will be the biggest since February 2003."

"``How much of this is going to wind up on dealers' shelves?'' said George Adell, a fixed-income strategist at Philadelphia-based Commerce Capital Markets. ``The Street is starting to build in a concession to sell these offerings.''"

"A concession occurs when traders sell government securities prior to an auction, driving yields higher and making the soon- to-be-sold issues more attractive."

More Bullish

"Treasury investors were more bullish on government debt this week, according to a weekly poll of clients by JPMorgan Chase & Co. The percentage betting on an increase in note prices rose to a one-month high of 17 percent, from 11 percent last week. The majority of respondents expected no change."

Ten-year yields fell almost half a percentage point from the middle of June through yesterday as forecasts for slowing economic growth spurred demand for the relative safety of government debt.

"The difference in yield between two-year notes and 10-year securities was 1.46 percentage points, down from a three-and-a- half month high reached Aug. 20. The so-called yield curve may become flatter as investors look to keep pace with the month-end changes in the Lehman Brothers Holdings Inc. bond index. Lehman said the duration of its index, used as a benchmark by many investors, will increase by 0.21 percent at the end of the month."

"``People are more likely to go long rather than short on the market,'' said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas Securities Corp., one of 19 primary dealers that trade with the Fed."

Lengthening Duration

"On the last business day of each month, new bonds sold during the month are added to bond market indexes, with the effect typically the biggest at the end of February, May, August and November, when the Treasury holds its quarterly auctions of notes and bonds. Duration, a gauge of price sensitivity to changes in yield, is partly a function of maturity, so the addition of long-maturity debt to an index lengthens its duration, all else being equal."

"The U.S. economy may have grown at an annualized rate of 2.7 percent in the second quarter, faster than the 1.9 percent pace first reported, according to a Bloomberg News survey of economists before the Commerce Department releases the revised figure on Aug. 28. Growth will slow to 0.45 percent in the fourth quarter, a separate Bloomberg survey showed."

TAF Results

"U.S. government securities returned 2.6 percent in the past two months, according to Merrill Lynch & Co.'s U.S. Treasury Master Index. The gain was 3.2 percent for German bonds and 1.5 percent in Japan, Merrill's indexes showed. Treasuries have underperformed amid speculation a contraction in the euro-area economy will prompt the regional central bank to cut rates as the Fed prepares to raise them."

"The U.S. central bank said it loaned $75 billion in 28-day funds at a rate of 2.380 percent yesterday at its Term Auction Facility. Sixty six bidders requested $1.12 per every $1 offered, lower than the 1.51 bid-to-cover ratio Aug. 12 at the last auction."

To contact the reporter on this story: Dakin Campbell in New York at

"Last Updated: August 26, 2008 13:06 EDT"

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"Coffee Rises as Commodities Rally, Producers Hold Back Sales "

By Shruti Date Singh

Aug. 26 (Bloomberg) -- Coffee rose to a seven-week high on speculation that a rally in energy will spark investment in other commodities and as growers held back bean sales until prices rise.

"The Reuters/Jefferies CRB Commodity Price Index, which includes 19 raw materials, rose as much as 1.1 percent today led mainly by natural gas, gasoline and heating oil. Coffee sales have been slow from Brazil, the biggest grower, and Central America, said Rodrigo Costa, a vice president for Newedge USA LLC in New York."

"``All commodities went up in tandem,'' Costa said. ``It's funds buying and lack of selling. Origins still don't have a good flow of coffee.''"

"Coffee futures for December delivery rose 3.7 cents, or 2.6 percent, to $1.47 a pound at 12:08 p.m. on ICE Futures U.S., the former New York Board of Trade. The price earlier reached $1.475, the highest for a most-active contract since July 7."

"Futures also were supported because buy orders were triggered after coffee rose above $1.44, Costa said."

To contact the reporter on this story: Shruti Date Singh in Chicago at

"Last Updated: August 26, 2008 12:43 EDT"

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"Petrobras Rises on Oil Gain, Deutsche Recommendation (Update1) "

By Alexander Ragir

"Aug. 26 (Bloomberg) -- Petroleo Brasileiro SA, Brazil's state-controlled oil company, rose for the first time in three days in Sao Paulo after oil prices jumped and Deutsche Bank AG said a recent decline on higher tax concerns was unjustified."

Petrobras gained 2.3 percent to 34.57 reais at 11:03 a.m. New York time. The stock fell 4.2 percent yesterday after Itau Corretora said the government is likely to raise taxes on existing oil concessions in the so-called pre-salt fields once production begins.

"``Fears of a Brazilian oil curse are overdone,'' wrote Deutsche analyst Marcus Sequeira in a note to clients today. ``As politics plays a big role on the future of Brazil's pre-salt reserves, uncertainties regarding the industry regulatory framework are pressuring the sector's performance.''"

The government removed all unsold exploration concessions in the region from an oil rights auction in November to reassess the potential of the area after Petrobras found the five billion to eight-billion barrel Tupi field in the region. O Globo newspaper reported Aug. 23 that the government may take back pre-salt oil fields that have been licensed to companies such as Petrobras.

"Sequeira reiterated his `buy' rating on the stock, citing ``attractive valuation, exploration potential, and above average production growth.''"

"Crude oil rose more than $2 a barrel on forecasts showing that Hurricane Gustav may enter the Gulf of Mexico, home to more than a fifth of U.S. oil production."

To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at;

"Last Updated: August 26, 2008 11:07 EDT"

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"European Stocks Rebound After U.S. Confidence, Housing Data "

By Adam Haigh

Aug. 26 (Bloomberg) -- European stocks rose as U.S. reports that showed consumer confidence climbed more than forecast and home sales rebounded overshadowed concern that the U.K. and German economies are slowing.

"UBS AG, the European bank hardest hit by the subprime contagion, gained 1.5 percent, and Nokia Oyj, the world's biggest mobile-phone maker, climbed 2.9 percent. Alcatel-Lucent SA, the world's largest supplier of fixed-line phone networks, advanced 4.7 percent as the euro's drop to a six-month low against the dollar boosted the value of European companies' overseas sales."

"The Dow Jones Stoxx 600 Index rose 0.2 percent to 282.74, as 12 of 18 industry groups increased. The measure fell as much as 1.4 percent earlier as concern deepened the U.K. and Germany may be slipping into recession."

"``The better-than-expected data from the U.S. helps to compensate the bad news we saw today in Germany and the U.K.,'' said Peter Braendle, a Zurich-based fund manager at Swisscanto Asset Management AG, which has $58 billion under management."

"The Conference Board's confidence index rose to 56.9 from 51.9 in July in the U.S. Separate reports showed new-home sales increased in July from a 17-year low, while home prices dropped at a slower pace in the second quarter."

"National benchmark indexes rose in 12 of the 18 western European markets today. France's CAC 40 gained 0.3 percent, while Germany's DAX added 0.7 percent. The U.K. market, which was closed yesterday for a holiday, slipped 0.6 percent."

"UBS, Nokia"

"UBS, the biggest Swiss bank, gained 1.5 percent to 23.14 francs. Nokia rallied 2.9 percent to 17.82 euros."

"The Stoxx 600 has dropped 22 percent this year as losses related to the collapse of the U.S. subprime mortgage market surpassed $500 billion and inflation accelerated, threatening economic and profit growth."

"Earlier today, the Munich-based Ifo institute said its business climate index declined to 94.8 in August from 97.5 the previous month. Economists had predicted a drop to 97.2."

"German consumer confidence sank to the lowest in more than five years as soaring energy prices sapped purchasing power and the economic outlook deteriorated, another report showed today."

"The U.K. economy, Europe's largest after Germany, is likely to enter a ``mild recession'' this quarter, Societe Generale SA wrote in a note to clients. The French brokerage cut its 2009 growth forecast to 0.5 percent from 1.2 percent."

Technology Stocks

Technology companies posted the biggest rally among 18 industries in the Stoxx 600 as the euro fell against the dollar and dropped for a second day versus the Japanese yen.

"Alcatel-Lucent added 4.7 percent to 4.10 euros. The Paris- based company depends on the U.S. and Asia for almost half of its revenue, according to Bloomberg data."

"Separately, Le Canard Enchaine reported the company's nomination committee wants to name former chief science officer Mike Quigley as chief executive officer. Stephane Lapeyrade, a spokesman for the Paris-based company, declined to comment on the report or the names of nominees for the CEO job."

"BHP Billiton Ltd., the biggest mining company, sank 1.3 percent to 1,676 pence, following metal prices lower in London. Anglo American Plc, the fourth-largest diversified mining company, retreated 2.6 percent to 2,799 pence."

Gold Drops

"Gold declined after the euro fell against the dollar, diminishing demand for the metal as an alternative investment. Copper, zinc and nickel also retreated."

"Analysts have slashed earnings estimates this year as the economy cools. Profit for companies in Europe's Stoxx 600 will fall 2 percent in 2008, according to projections compiled by Bloomberg. That's down from the 11 percent average growth forecast at the start of the year."

"Commerzbank AG, Germany's second-biggest bank, fell 1 percent to 19.95 euros. Royal Bank of Scotland Group Plc lost 1.4 percent to 217.75 pence."

"BankUnited Financial Corp., Florida's largest bank, may lose its ``well-capitalized'' status under federal rules for financial strength unless it attracts at least $400 million of new capital, the company said late yesterday. Columbian Bank & Trust Co. was closed by U.S. regulators, becoming the ninth U.S. bank to collapse this year, the Federal Deposit Insurance Corp. said on Aug. 22."

"Taylor Wimpey Plc, the U.K.'s biggest homebuilder, climbed 14 percent to 52 pence. Building magazine reported lenders have agreed to relax loan conditions without requiring the company to raise new capital first. Gordon Simpson, external spokesman for Taylor Wimpey, said the company wouldn't comment on market speculation."

"Axon Group Plc, a U.K. business adviser for companies that run SAP AG software, climbed 21 percent to 606 pence. Infosys Technologies Ltd., India's second-largest computer-services provider, offered to buy Axon for 600 pence a share."

To contact the reporter on this story: Adam Haigh in London at

"Last Updated: August 26, 2008 13:03 EDT"

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"Longworth Says Canadian Inflation, Growth May Slow (Update1) "

By Greg Quinn and Alexandre Deslongchamps

"Aug. 26 (Bloomberg) -- Bank of Canada Deputy Governor David Longworth said inflation and economic growth may be slower than policy makers projected in July, signaling the central bank might tilt closer to cutting rates."

"``The recent decline in the spot and futures prices of energy means that the temporary spike in total CPI inflation between now and the first quarter of 2009 should be lower than projected,'' Longworth, 56, said in the text of a speech he's giving today in Kingston, Ontario. The central bank will continue ``to set monetary policy consistent with achieving the inflation target over the medium term,'' he said."

"The bank will probably keep its benchmark rate at 3 percent next week, according to economists surveyed by Bloomberg. Governor Mark Carney must balance inflation that accelerated to 3.4 percent in July from a year earlier against projections for the slowest economic growth since 1992."

"``It was very slightly more dovish'' than earlier statements, said Robert Kavcic, an economist with BMO Capital Markets in Toronto. ``The balance of risks would maybe be slightly toward the side of rate cuts, but it will take a little more bad news for them to actually move.''"

"Annual inflation will peak at 4.3 percent between January and March of next year and then slow to 2.9 percent in the next quarter, the central bank said in a July forecast."

Longworth also said recent economic data ``suggest that Canadian GDP growth in the second quarter was likely somewhat weaker than expected.''

Growth Forecasts

"Central bankers said in July that the economy would expand 0.8 percent in the second quarter from the January-to-March period. Gross domestic product will rise 1 percent this year, the slowest since 1992, and 2.3 percent in 2009, the bank said."

"Statistics Canada will likely say on Aug. 29 that the economy grew at a 0.7 percent annualized pace in the second quarter after shrinking between January and March, according to economists in a Bloomberg survey."

Longworth's remarks are the last scheduled by a bank policy maker before the next interest-rate decision on Sept. 3.

"To contact the reporter on this story: Greg Quinn in Kingston, Ontario, at; Alexandre Deslongchamps in Ottawa at"

"Last Updated: August 26, 2008 13:30 EDT"

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Gasoil's 50-Day Average Meets 100-Day for First Time Since 2007

By Nidaa Bakhsh

"Aug. 26 (Bloomberg) -- Gasoil futures prices averaged over 50 days fell to the 100-day average for the first time since March last year, a convergence that some analysts view as signaling further declines in price."

"Gasoil futures prices on the London-based ICE Futures Europe exchange have fallen 23 percent since reaching a record $1,339.25 a metric ton on July 11. Still, they have risen 23 percent over the course of the year so far. Gasoil is the European term for heating oil."

"The so-called 50-day moving average indicator and 100-day indicator both converged at about $1,158 a metric ton today, according to data compiled by Bloomberg."

"Moving averages are used to determine the direction a market is moving. Futures traders consider selling opportunities when a short-term average moves below a longer-term one, such as if the nine-day average dropped under the 14-day, or the 50 below the 100."

To contact the reporter on this story: Nidaa Bakhsh in London at

"Last Updated: August 26, 2008 13:01 EDT"

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