"Corporate Bond Risk Rises in Europe, Credit-Default Swaps Show "
"Sept. 9 (Bloomberg) -- The cost of protecting European corporate bonds from default rose, according to traders of credit-default swaps."
"Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings increased 4 basis points to 545, according to JPMorgan Chase & Co. prices at 7:18 a.m. in London. The index is a benchmark for the cost of protecting bonds against default and a rise indicates deterioration in the perception of credit quality; a decline signals the opposite."
"The Markit iTraxx Europe index of 125 companies with investment-grade ratings climbed 1.25 basis points to 99.75, JPMorgan prices show."
"A basis point on a credit-default swap contract protecting 10 million euros ($14.1 million) of debt from default for five years is equivalent to 1,000 euros a year."
"Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements."
"The CDX North America Investment Grade Index fell 10 basis points to 132 at the close of trading in New York, according to Lehman Brothers Holdings Inc."
To contact the reporter on this story: Abigail Moses in London Amoses5@bloomberg.net
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"U.K. Stocks Update: FTSE 100 Falls 10.30 to 5,436.00 "
By Daniel Hauck
"Sep. 9 (Bloomberg) -- The U.K.'s benchmark stock index, the FTSE 100, fell 0.19 percent at 8:05 a.m."
"The index of 102 stocks traded on the London Stock Exchange fell 10.30 to 5,436.00. Among the stocks in the index, 40 rose, 60 fell and 2 were unchanged."
"Declines in the FTSE 100 were led by Bhp Billiton Plc (Blt Ln), Rio Tinto Plc (Rio Ln) and Anglo American Plc (Aal Ln). About 30.90 million shares traded in the FTSE 100."
"Last Updated: September 9, 2008 03:05 EDT"
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"Copper Drops as Dollar, Oil Reduce Demand for Inflation Hedge "
By Glenys Sim
"Sept. 9 (Bloomberg) -- Copper slipped in Asia after rising from a seven-month low yesterday, as the U.S. government's seizure of lenders Fannie Mae and Freddie Mac boosted the dollar, eroding demand for raw materials as a hedge against inflation."
Futures fell as crude oil also declined and after the dollar strengthened to the highest since October 2007 yesterday as the bailout boosted confidence in the world's largest economy. Copper has fallen 6.5 percent in the past month as the dollar gained 4.9 percent against a weighted basket of six currencies.
"``The U.S. government's decision on the weekend to take control of Fannie Mae and Freddie Mac was seen as supportive for the U.S. economic outlook, and so was a positive factor for base metals prices,'' David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney, said today in a report. ``However, the firmer tone of the U.S. dollar against the euro worked in the opposite direction.''"
"Copper for delivery in three months declined 0.5 percent to $6,918 a metric ton on the London Metal Exchange, after rising yesterday from $6,852 a ton, the lowest since Jan. 23."
"November-delivery copper fell as much as 0.9 percent to 54,650 yuan ($7,991) per ton, before trading unchanged at 55,160 a ton on the Shanghai Futures Exchange at 11:23 a.m. Singapore time."
"The dollar traded at $1.4109 per euro, firmer than $1.4128 in New York yesterday, when it rose 1.5 percent to touch $1.4054, the strongest since Oct. 9. The stronger dollar also weighed on oil with the contract for October delivery falling as much as $1.24, or 1.2 percent, to $105.10 a barrel and traded at $105.23 at 11:29 a.m. Singapore time on the New York Mercantile Exchange."
Gains Ahead
"``In the short-term we believe recent extreme volatility is likely to continue, we also believe prices could re-challenge previous highs before year end, particularly if further supply problems materialize,'' Morgan Stanley analysts led by Hussein Allidina wrote in report e-mailed yesterday."
"Copper prices are expected to rise again in this year as Chinese buying accelerates and warehouse stocks become very tight again as Chinese consumers restock over the next six to nine months, ``with the expected stimulus/reflationary package resulting in a re-acceleration in growth,'' Allidina wrote."
"Among other LME-traded metals, aluminum was down 0.3 percent at $2,642 a ton and zinc fell 1.7 percent to $1,740. Lead, nickel and tin had not traded as of 11:23 a.m. in Singapore."
To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net
"Last Updated: September 9, 2008 00:21 EDT"
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Bulgari Drops in Milan After Citigroup Cuts Rating to `Sell'
By Sara Gay Forden and Sarah Thompson
"Sept. 9 (Bloomberg) -- Bulgari SpA, the world's third- largest jeweler, fell as much as 3.9 percent in Milan trading after Citigroup Inc. lowered its rating on the stock to ``sell,'' citing ``muted growth prospects.''"
Citigroup analyst Thomas Chauvet cut Bulgari from ``hold'' in a note published before stock market trading began today.
"``One-third of Bulgari's revenues are generated in Italy and Japan versus about 15 to 18 percent for the broader luxury sector,'' Chauvet wrote in the note. ``These markets have limited growth prospects in 2008/09 and significant downside risks to GDP and private consumption.''"
"Bulgari declined as much as 29 cents to 7.05 euros in Milan today and was down 19 cents, or 2.6 percent, to 7.15 euros as of 9:24 a.m. local time. Citigroup cut its price estimate for the shares to 6.4 euros from 7.8 euros."
To contact the reporters on this story: Sara Gay Forden in Milan at sforden@bloomberg.net; Sarah Thompson in London at sthompson17@bloomberg.net.
"Last Updated: September 9, 2008 03:29 EDT"
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"French Stocks: ArcelorMittal, Carbone Lorraine, GL, Itesoft "
By Adria Cimino
"Sept. 9 (Bloomberg) -- France's CAC 40 Index slipped 5.16, or 0.1 percent, to 4,335.02 at 9:12 a.m. in Paris after rallying 3.4 percent yesterday. The SBF 120 Index lost 0.2 percent."
The following stocks rose or fell in Paris. Stock symbols are in parentheses.
"ArcelorMittal (MTP FP), the world's biggest steelmaker, slid 61 cents, or 1.4 percent, to 44.01 euros, falling for the first time this week. Cia. Vale do Rio Doce, the world's biggest iron-ore producer, asked Nippon Steel Corp. and its Japanese rivals to pay 12 percent more for the material on top of a 65 percent increase agreed to in February, two people familiar with the negotiations said."
"Carbone Lorraine SA (CRL FP) advanced 59 cents, or 1.7 percent, to 36.36, gaining for a second day. The maker of electric motor parts won two contracts worth a total $85 million from the solar energy industry."
"GL Events SA (GLO FP) lost 19 cents, or 1.1 percent, to 17.01 euros, dropping for a fifth day. The exhibition and events organizer said first-half net income fell 16 percent to 14.4 million euros ($20 million)."
"Itesoft SA (ITE FP) surged 43 cents, or 20 percent, to 2.53 euros gaining the most since 2004. The software developer won a 1.8 million-euro contract from French social security agency CNAM."
"Michelin & Cie. (ML FP), the world's second-largest tiremaker, climbed 44 cents, or 0.9 percent, to 48.66 euros, gaining for a second day. Crude oil fell in New York as the dollar rose against the euro and Saudi Arabia's oil minister said supplies are sufficient to meet demand. The contract for October delivery dropped as much as 1.5 percent to $104.77 on the New York Mercantile Exchange."
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
"Last Updated: September 9, 2008 03:24 EDT"
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Deutsche Says Korea's Currency Swap Rates to Increase (Update1)
By Kim Kyoungwha
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"Sept. 9 (Bloomberg) -- South Korean won currency swap rates will rise, ending a four-week decline, on speculation foreign investors will roll over 7 trillion won ($6.7 billion) in local government debt due this week, according to Deutsche Bank AG."
"One-year swap rates may rise about 30 basis points to 4 percent this week, the highest since Aug. 18, as investors buy Korean bonds and use currency swaps to hedge, paying the won fixed swap rate to receive payments based on the dollar London interbank offered rate, said Choi Kyung Jin, a fund manager with Deutsche Bank, Germany's largest bank. Swap rates increase when demand to pay fixed rates outweighs orders to receive."
"Overseas demand for $1 billion in Korean global bonds for sale this week will allay concerns that the country is heading for a repeat of the 1997 financial crisis, Choi said."
"``With maturities zeroing in on this week, demand for currency swaps is rising,'' Seoul-based Choi said. ``The risk appetite is reviving after funding woes eased.''"
"The one-year currency swap rate rose to 3.66 percent as of 1:53 p.m. in Seoul, compared with 3.5 percent last week, according to a data compiled by Bloomberg News. It ended a four- week decline on Sept. 5. A basis point is 0.01 percentage point."
A slump in the won to the weakest since 2004 last week sparked speculation South Korea might be headed for a crisis similar to the 1997 financial meltdown that almost halved the value of the currency and led the nation to the brink of default.
A currency swap is a foreign exchange agreement in which investors pay or receive a variable interest rate in a foreign currency in exchange for a fixed Korean won swap rate to hedge or bet on interest rate movements in two different countries.
Crisis Averted?
"Deputy Finance Minister Shin Je Yoon said on Sept. 2 the government has enough money to repay debt due this month. External borrowings that mature in a year almost tripled to $175.65 billion as of June 30, official figures show."
"Korea's $1 billion global debt sale will pave the way for companies and banks to raise a combined $10 billion later in the year, easing concern about a shortage of dollars, according to Deutsche Bank's Choi."
"``Speculation of a crisis was overdone,'' Choi said. ``There's more room to tighten the swap basis as the government's debt sale improves an overall funding situation.''"
"Credit-default swaps tied to the debt of the South Korean government fell 11 basis points to 124 yesterday, Bloomberg data show. A basis point is worth $1,000 on a swap that protects $10 million of debt from default."
"Credit-default swaps pay the buyer face value in exchange for the underlying securities, or cash equivalent, if a company used as the reference in a contract fails to adhere to its debt agreements."
"Fannie, Freddie"
"The U.S. government's takeover of Fannie Mae and Freddie Mac is also helping to reduce concern that a global credit- market slump will make it harder for Korean banks to secure funding, said Jason Rogers, a credit analyst with Barclays Bank."
"``As the market is taking the bailout as positive, tighter credit spreads would be positive from a funding perspective,'' Singapore-based Rogers said."
"South Korea will hold investor presentations on the foreign-currency debt offer in Singapore, Hong Kong, London, Boston and New York from Sept. 8 to Sept. 11, Deputy Finance Minister Shin Je Yoon told reporters in Gwacheon on Sept. 4."
To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net;
"Last Updated: September 9, 2008 01:11 EDT"
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"Soybeans, Corn Rise as U.S. Mortgage Aid Boosts Commodity Use "
By Jeff Wilson
Sept. 8 (Bloomberg) -- Soybeans and corn rose on speculation that the U.S. government's takeover of mortgage lenders Fannie Mae and Freddie Mac will bolster economic growth and demand for commodities.
"The MSCI World Index of global stocks rose the most since Aug. 5 on speculation the bailout will stem a credit crisis that led to more than $500 billion in losses and writedowns. Crude oil rose from a five-month low as Hurricane Ike threatened U.S. oil output. Before today, corn fell 31 percent from the highest price ever in June and soybeans sank 28 percent from a record in July."
"``The grain markets will be supported by hopes the worst may be over in the credit crisis,'' said Dale Schultz, a commodity specialist for Gottsch Enterprises, a cattle- and hog- feedlot operator based in Hastings, Nebraska. ``I don't think the markets are ready for a big rally until we know more about the size of the U.S. crops.''"
"Soybean futures for November delivery rose 15 cents, or 1.3 percent, to $11.92 a bushel on the Chicago Board of Trade, after last week falling 11 percent, the most in a month. After reaching a record $16.3675 on July 3, most-active futures dropped 11 percent in July and 5.7 percent in August, the first two-month decline since April 2007."
"Corn futures for December delivery rose 0.5 cent, or 0.1 percent, to $5.49 a bushel in Chicago, after dropping 6.2 percent last week, the most in a month. Most-active futures fell 3.7 percent in August, the second straight drop since reaching a record $7.9925 on June 27."
Crop Forecast
"The government is scheduled to release its second survey- based production forecasts for corn and soybeans on Sept. 12, after polling farmers and making yield tests in fields across the Midwest."
"Prices also rose on speculation a weekly government report today will show a drop in U.S. crop conditions, said Greg Wagner, senior commodity analyst for AgResource Co. in Chicago. Cold Midwest weather slowed crop maturity west of the Mississippi River, increasing the threat of damage from a freeze in the next three weeks, Wagner said."
"The USDA said Sept. 2 that 61 percent of the corn crop was in good or excellent condition as of Aug. 31, compared with 64 percent a week earlier. An estimated 57 percent of the soybeans got the top ratings, down from 61 percent a week earlier while up from 56 percent a year earlier, the USDA said."
Weather Outlook
"A National Weather Service report at midday indicated near- or below-freezing temperatures are possible from South Dakota to Michigan on Sept. 18 or Sept. 19, according to Mike Tannura, a meteorologist for T-Storm Weather in Chicago. The trajectory of Hurricane Ike into the Gulf of Mexico this week will likely determine the extent of the cold air moving south out of Canada next week, Tannura said."
"``The beneficial impact of last week's rains in the Midwest are probably overstated'' because of continued dry soils east of Illinois and crop damage from too much rain from remnants of Hurricane Gustav last week, Wagner said. ``The crop maturity is an issue'' from any freezing temperatures the next two weeks, Wagner said."
"Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007, with soybeans in second place at $26.8 billion, government figures show."
To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net
"Last Updated: September 8, 2008 15:16 EDT"
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"Japan Stocks Fall as Shipping Fees, Oil Decline; Banks Retreat "
By Masaki Kondo
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Sept. 9 (Bloomberg) -- Japan's stocks fell after slumping commodities demand dented the earnings prospects for shipping and resource companies and as banks retreated from yesterday's surge.
"Mitsui O.S.K. Lines Ltd., the nation's largest iron-ore ship operator, lost 6.9 percent after falling Chinese demand dragged commodity cargo rates to the lowest in a year. Mitsui & Co., which has stakes in Gulf of Mexico and Australia oil fields, fell 8.1 percent as crude traded near a five-month low. Sumitomo Trust & Banking Co., which jumped by its daily limit yesterday, lost 4.8 percent as the U.S. government's takeover of the nation's biggest mortgage lenders failed to quell financial market concern."
"The Nikkei 225 Stock Average declined 223.81, or 1.8 percent, to close at 12,400.65 in Tokyo. The broader Topix index fell 24.82, or 2 percent, to 1,191.59. All but three of 33 Topix industry groups on the Topix retreated."
"``With increasing food and energy prices gnawing at emerging economies, investors expect demand for shipping services to slow,'' said Masaru Hamasaki, a senior strategist at Toyota Asset Management Co., which manages the equivalent of $3.3 billion."
"Today's drop more than halved the Nikkei's gain yesterday, the sharpest in five months. The index has retreated 19 percent this year as inflation at a decade high damped consumer spending and slowing exports to the U.S. and Europe cut corporate profits."
"The Baltic Dry Index, a measure of shipping costs for commodities, extended its drop to a 14th trading session yesterday to the lowest since June 20, 2007, on weaker Chinese demand for iron ore."
"Mitsui O.S.K. dropped 6.9 percent to 1,079 yen, while Kawasaki Kisen Kaisha Ltd., Japan's third-biggest shipping line, lost 5.9 percent to 659 yen. Market leader Nippon Yusen K.K. declined 4.5 percent to 780 yen. A gauge of 10 shippers fell to the lowest since November 2006 and was the biggest loser among 33 industry groups on the Topix, followed by trading companies."
Falling Oil
"Crude oil for October delivery, which fell to the lowest since April 4 yesterday, retreated to as low as $104.77 a barrel on the New York Mercantile Exchange. Oil has dropped 28 percent from its July 11 record of $147.27."
"Mitsui, Japan's second-biggest trading company by value, plummeted 8.1 percent to 1,561 yen, extending its drop to 27 percent since July 11. Sumitomo Corp., the third largest, dropped 5.3 percent to 1,236 yen, while Mitsubishi Corp., the biggest, lost 5.7 percent to 2,590 yen."
"``Shares in trading companies have risen in step with prices for natural resources,'' said Toyota Asset's Hamasaki. ``When commodities fall, so do these stocks.''"
"A $1 change in the price of a barrel of crude alters Mitsui's annual net income by 1.8 billion yen ($17 million), making it the most sensitive to oil among Japan's biggest trading companies, according to estimates by Mitsubishi UFJ Securities Co."
Banks Retreat
"Sumitomo Trust, Japan's fifth-largest listed bank by value, fell 4.8 percent to 654 yen after having leapt 17 percent yesterday. Chuo Mitsui Trust Holdings Inc. lost 4.7 percent to 584 yen. Yesterday, the Topix Banks Index surged the most in 16 years after the U.S. government took over Fannie Mae and Freddie Mac, which control almost half the U.S. mortgage market."
"``The takeover is not the kind of radical move that can turn around the weak global economy,'' said Hiroshi Chano, who helps manage about $7.3 billion at Yasuda Asset Management Co. in Tokyo."
"Chemical maker Toagosei Co. plunged 12 percent, the most since February 2006, to 354 yen, making it the biggest loser on the Nikkei 225 gauge, while builder Kumagai Gumi Co. slumped 7.3 percent to 51 yen. The stocks will be replaced in the benchmark by Hitachi Construction Machinery Co. and Pacific Metals Co. on Oct. 1, Nikkei Inc. said yesterday."
Index Funds
"Hitachi Construction, the world's biggest maker of giant excavators, climbed 3 percent to 2,395 yen, while Pacific Metals added 2.5 percent to 670 yen. So-called index funds tracking the movement of the benchmark will add the newly included stocks to their holdings."
"Acom Co., Japan's largest consumer lender by value, leapt 14 percent to 3,580 yen, posting the biggest gain on the MSCI World Index. Mitsubishi UFJ Financial Group Inc., the nation's largest listed bank, yesterday said it will more than double its stake in the company. Mitsubishi UFJ dipped 1.2 percent to 840 yen."
"Nikkei futures expiring in September retreated 2.1 percent to 12,390 in Osaka and slumped 1.3 percent to 12,430 in Singapore."
To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
"Last Updated: September 9, 2008 03:44 EDT"
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"U.S. Stocks Rise, Joining Global Rally, on Fannie, Freddie Plan "
By Elizabeth Stanton
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"Sept. 8 (Bloomberg) -- U.S. stocks climbed, adding to a rally across Europe and Asia, on speculation the government takeover of Fannie Mae and Freddie Mac will stabilize the global financial system battered by $507 billion in credit losses."
"Citigroup Inc., Wachovia Corp. and Bank of America Corp. added at least 6.6 percent after Treasury Secretary Henry Paulson said the government will provide short-term funding to mortgage lenders Fannie and Freddie. KB Home and D.R. Horton Inc. jumped more than 12 percent, sending a gauge of homebuilders to a four- month high. An advance in banks from Germany to Japan sent the MSCI World Index up 2.1 percent, the most since April."
"The Standard & Poor's 500 Indexsurged 25.48 points, or 2.1 percent, to 1,267.79, its steepest gain since Aug. 8. The Dow Jones Industrial Average rose 289.78, or 2.6 percent, to 11,510.74. The Nasdaq Composite Index increased 13.88, or 0.6 percent, to 2,269.76. Almost three stocks climbed for each that fell on the New York Stock Exchange."
"``This is significantly positive for the market,'' said Walter ``Bucky'' Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Alabama, and doesn't own Fannie or Freddie shares. ``Investors were looking for some kind of resolution to the problem and this eliminates a lot of uncertainty.''"
All but one of the 30 companies in the Dow advanced. About 1.7 billion shares changed hands on the NYSE in the busiest trading session since July 23. Treasury 10-year notes gained amid speculation the seizure of Fannie and Freddie won't reverse a U.S. economic slowdown. The dollar increased to the highest in almost a year against the euro.
Financials Rally
The rally pared the S&P 500's decline this year to less than 14 percent as the index heads for its first annual loss since 2002. Financial companies led the drop this year as the first nationwide decline in home prices since the 1930s saddled banks and investors with nonperforming loans to homeowners and builders.
"Most financial companies gained as debt guaranteed by Fannie Mae and Freddie Mac, held by most banks and securities firms, rose in value, and other types of debt securities rallied in sympathy. Fannie Mae current-coupon 30-year fixed rate securities yielded 1.59 percentage point more than 10-year Treasury debt, the smallest margin since May. U.S. fixed mortgage rates dropped about a quarter of a percentage point this morning."
"``Market lending rates have been lowered by a quarter point on the announcement, without a lot of details,'' said Kevin Cronin, head of investments at Putnam Investments in Boston, which manages $163 billion. ``That's going to be reflected in the valuation of the stocks of companies that hold such assets.''"
"Citigroup, Bank of America"
"Citigroup climbed $1.25 to $20.32, while Bank of America added $2.50 to $34.73 and Wachovia jumped $2.24, or 13 percent, to $18.99. JPMorgan Chase & Co., the third-biggest U.S. bank, increased 4.9 percent to $41.55. Goldman Sachs Group Inc. climbed 4 percent to $169.73 after Merrill analyst Guy Moszkowski raised his recommendation on the shares to ``buy'' from ``underperform.''"
"The S&P 500 Financials Index rallied 4.7 percent, posting its best gain since Aug. 5 and reaching its highest level since June 19. The rally in banks came even as Oppenheimer & Co. analyst Meredith Whitney slashed her third-quarter earnings estimates for Goldman, Lehman Brothers Holdings Inc., and Merrill, citing a decline in trading volume and share sales."
"Financial stocks surpassed technology stocks to become the largest of the S&P 500's 10 main industry groups. Banks ceded the position to computer, semiconductor and software makers in May after six years at the top. Financials increased to 16.2 percent of the benchmark index from 15.8 percent, while technology companies slid to 15.7 percent from 16 percent."
`No. 1 Negative'
"KB Home, the fifth-largest U.S. homebuilder by revenue, rose 14 percent to $23.54 for the biggest gain in the S&P 500. D.R. Horton, the largest, advanced 12 percent to $14.11. An index of homebuilders in the S&P 500 rose 12 percent to the highest since May 20."
"The takeover of Fannie and Freddie ``goes a long way toward addressing the No. 1 negative, the downward spiral in housing prices,'' said Henry Herrmann, president and chief executive officer of Waddell & Reed Financial Inc., which manages $70 billion."
"The Federal Housing Finance Agency will put Fannie and Freddie under conservatorship, replace their chief executives and eliminate their dividends. Under the plan, the Treasury will receive $1 billion of senior preferred stock in coming days, with warrants representing ownership stakes of 79.9 percent of Fannie and Freddie."
Estimates Cut
"Freddie lost 83 percent to 88 cents, while Fannie Mae dropped 90 percent to 73 cents. Citigroup and Lehman Brothers Holdings Inc. lowered their recommendations on the shares. Merrill Lynch & Co. cut its share-price forecast for Fannie Mae to 50 cents and its estimate for Freddie Mac to 25 cents."
Financial stocks in the S&P 500 had fallen 26 percent this year before today as banks from Merrill Lynch to Citigroup were forced to raise capital to cover losses stemming from the collapse of the subprime mortgage market. Fannie and Freddie had slumped more than 82 percent in 2008.
Banks with large holdings of Fannie Mae and Freddie Mac preferred shares failed to join in the advance as the takeover eliminated the two companies' dividends.
"Sovereign Bancorp Inc., the second-largest U.S. savings and loan, had stakes in Fannie and Freddie valued at $623 million as of June 30. Sovereign slid 6.6 percent to $9.02. Gateway Financial Holdings Inc., based in Virginia Beach, Virginia, fell 25 percent to $5.35. Midwest Banc Holdings Inc., based in Melrose Park, Illinois, tumbled 25 percent to $4.48. Gateway and Midwest aren't in the S&P 500."
`Profound Effect'
"``The dilution of common equity as well as preferred shares is going to have a pretty profound effect on other financial institutions that carried the preferred and convertible preferred shares as part of their capital base,'' Michael Mullaney, a Boston-based portfolio manager at Fiduciary Trust Co., which oversees $10 billion."
"Companies with the largest concentration of hedge fund ownership posted some of the market's biggest declines today, according to data compiled by Goldman Sachs and Bloomberg. The Goldman Sachs VIP Basket of favorite hedge-fund stocks dropped for the fifth time in six days, bringing its loss for the month to 6.7 percent."
"Google Inc., owner of the most used Internet search engine, fell 5.5 percent and Research-in-Motion Inc., maker of the BlackBerry, lost 4 percent for the fourth- and sixth-biggest retreats in the 49-stock Goldman index."
"``If a hedge fund was short financials and covered this morning after the rally, wouldn't it make sense they'd take money off the table in some of their other positions?'' said Fred Froewiss, vice president of institutional sales at RF Lafferty & Co. in New York. ``That's what we're seeing today.''"
"Washington Mutual, Lehman"
"Washington Mutual decreased 3.5 percent to $4.12, after gaining as much as 20 percent in the first five minutes after the market opened. The biggest U.S. savings and loan removed Kerry Killinger as chief executive officer after he failed to halt losses tied to home mortgages that already total $6.3 billion. Regulators will be monitoring WaMu after the bank agreed to reduce risks and tighten its procedures, it also said today."
"Lehman Brothers Holdings Inc. slid 13 percent to $14.15, its biggest drop since Aug. 19. Merrill's Moszkowski increased his third-quarter loss estimate by 65 percent to $6.50 a share and forecast a ``large write-off'' for the fourth-biggest U.S. securities firm."
"SanDisk Corp. dropped $1.04, or 5.9 percent, to $16.60. The world's largest maker of memory cards used in digital cameras had its earnings estimates cut at UBS AG, which cited ``weak fundamentals'' and said an oversupply of flash memory makes it unlikely prices will recover until the second half of 2009."
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.
"Last Updated: September 8, 2008 16:33 EDT"
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Ten-Year Treasuries Gain on Concern Takeover Won't Halt Slide
By Sandra Hernandez
Sept. 8 (Bloomberg) -- Treasury 10-year notes gained amid speculation that the government's seizure of Fannie Mae and Freddie Mac won't reverse the U.S. economic slowdown as more than $500 billion in credit-market losses worldwide make banks less willing to lend.
"Government debt pared earlier losses as bond investors remained uncertain about the outcome of the Treasury's takeover, which aims at keeping Fannie and Freddie going into 2009 while leaving the next president and Congress to decide their long- term structure. The difference between what the U.S. government and banks pay to borrow for three months, known as the TED spread, widened by the most in more than two weeks."
"``Before we get too concerned that Treasuries are going to run away from us, we have to remember this is not going to be an overnight heal for the economy,'' said Robert Millikan, who manages $5 billion as director of fixed income at BB&T Asset Management in Raleigh, North Carolina. ``Plenty of people will remember we were talking about recession last week and we still might not be out of the woods yet so I don't think rates will get too high.''"
"The 10-year note's yield fell 4 basis points to 3.67 percent at 2:14 p.m. in New York, according to bond broker BGCantor Market Data. The yield earlier rose as much as 15 basis points to 3.85 percent. The price of the 4 percent security due in August 2018 rose 10/32, or $3.13 per $100 face amount, to 102 22/32. The two-year note's yield fell 3 basis points to 2.30 percent, after touching 2.52 percent, the highest since Aug. 12."
`Huge Uncertainty'
"``The economy is still a huge uncertainty,'' said Theodore Ake, the head of U.S. Treasury trading at Mizuho Securities USA Inc. in New York. The firm is one of the 19 primary dealers of U.S. government securities that trade with the Federal Reserve. ``And though this alleviates the uncertainty of the two GSEs, the rest of the economy is still a question mark.''"
"Pending sales of previously owned U.S. homes probably fell 1.5 percent in July after climbing 5.3 percent in June, according to the median forecast of economists surveyed by Bloomberg News before the National Association of Realtors reports the number tomorrow."
"The difference between what the U.S. government and banks pay to borrow for three months, known as the TED spread, widened 5 basis points to 1.10 percentage points."
"Treasury Secretary Henry Paulson yesterday placed Fannie and Freddie in a government-operated conservatorship. The Treasury said it will provide secured short-term funding to Fannie, Freddie and 12 federal home-loan banks, and purchase mortgage-backed debt in the open market."
`Point of Confusion'
"Yesterday's action leaves open the option favored by former Fed Chairman Alan Greenspan, to split up and sell off the companies, or a full nationalization that would cement the government's role in mortgage markets."
"``We're at a point of confusion right here and that's why the sell-off in Treasuries is sort of reversing course,'' said William Larkin, who helps oversee about $500 million as a portfolio manager at Cabot Money Management in Salem, Massachusetts."
"Larkin said he may reduce his holdings of so-called agency debt, which includes Fannie and Freddie bonds."
"Traders earlier drove up Treasury yields as the takeover of Fannie and Freddie, which account for almost half the country's $12 trillion home-loan market, boosted stocks and spurred speculation the Treasury will have to increase debt sales."
Spreads Narrow
The administration of George W. Bush had forecast a record $482 billion budget deficit for next year prior to the bailout. The Treasury anticipates investing as much as $200 billion in the agencies. The government said today it will sell $12 billion of 10-year notes at its next auction on Sept. 11.
"Debt issued by Fannie Mae and Freddie Mac outperformed Treasuries. The difference between yields on Fannie Mae's five- year debt and five-year Treasuries fell 31.2 basis points to 62.7 basis points, the lowest in four months, according to data complied by Bloomberg."
"U.S. gross domestic product will probably slow to 0.45 percent by the end of the year, after growing by 3.3 percent in the second quarter, according to a Bloomberg survey of economists."
"``The macro picture has to be respected,'' said Francis Mustaro, who heads a group managing about $500 million at J&W Seligman & Co. in New York. ``Rates in the form of Treasuries can't go back that far, or else they're going to be a screaming buy.''"
To contact the reporters on this story: Sandra Hernandez in New York at shernandez4@bloomberg.net.
"Last Updated: September 8, 2008 14:24 EDT"
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Citigroup Sells Record Yen Corporate Bond in Japan (Update3)
By Takashi Ueno
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"Sept. 9 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank by assets, sold a record amount of yen-denominated corporate bonds to retail investors in Japan, taking advantage of strong demand for high yields."
"Citigroup sold 315 billion yen ($2.92 billion) in three- year samurai bonds with a coupon of 3.22 percent. Previously the biggest corporate bond ever sold in Japan was issued by Osaka- based Matsushita Electric Industrial Co., which sold 300 billion yen in corporate bonds on January 31, 2002, according to Bloomberg data."
"``Considering its high yield, this bond will likely have considerable appeal as an investment target,'' Hiroshi Harada, who manages corporate bonds at Dai-Ichi Mutual Life Insurance Co., said in a telephone interview."
The coupon on the Citigroup samurai issue was higher than the 2.66 percent Citigroup paid when it sold 186.5 billion yen in bonds to Japanese investors on June 12. Samurai bonds are yen-denominated instruments sold by non-Japanese companies or institutions to investors in Japan.
"Low interest rates in Japan have spurred demand for samurai bonds this year. Sales of the instruments may exceed 3 trillion yen in 2008 for the first time since 1996, according to Merrill Lynch & Co."
"Yields on Japan's benchmark 10-year notes fell to 1.4 percent on Aug. 29, the lowest in four months, as traders cut bets that the nation's central bank will raise interest rates. The yield has fallen 39 basis points to 1.505 percent since reaching an 11-month high of 1.895 percent on June 16."
"Fitch Ratings and Standard and Poor's each assigned a credit rating of AA- to the bonds, while Moody's Investors Service rated them Aa3."
"Mizuho Securities Co. and Nikko Citigroup Ltd. underwrote the deal, which was lead managed by Nikko Citigroup."
"``In an environment where there aren't a lot of attractive products from the yield perspective, there's a surplus of funds domestically, so we expect there will be strong demand for an issue with a high return like the Citigroup samurai,'' said Tetsuo Ishihara, senior credit analyst at Mizuho Securities."
To contact the reporters for this story: Takashi Ueno in Tokyo at tueno@bloomberg.net;
"Last Updated: September 9, 2008 04:55 EDT"
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"Germany Stocks Update: DAX Index Falls 13.72 to 6,250.02 "
By Daniel Hauck
"Sep. 9 (Bloomberg) -- Germany's benchmark stock index, the DAX Index, fell 0.22 percent at 9:05 a.m."
"The index of 30 companies traded on the Frankfurt Stock Exchange fell 13.72 to 6,250.02. Among the stocks in the index, 7 rose, 21 fell and 2 were unchanged."
"Declines in the DAX were led by Siemens Ag, E.on Ag and Basf Se. About 2.21 million shares traded in the DAX."
"Last Updated: September 9, 2008 03:05 EDT"
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Australian Business Confidence Holds Near 7-Year Low (Update1)
By Jacob Greber
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"Sept. 9 (Bloomberg) -- Australian business confidence held at the lowest level in seven years last month, adding to signs the economy is slowing."
"The sentiment index rose 2 points in August to minus 7, according to a National Australia Bank Ltd. survey of more than 400 companies between July 23 and July 30. That was close to the weakest result since the 2001 terrorist attacks in the U.S."
Subdued business confidence supports the central bank's view the A$1 trillion economy ($820 billion) will slow further after growing at the weakest pace in more than three years in the second quarter as consumers cut spending. Governor Glenn Stevens said yesterday policy makers will ``act accordingly'' to cut borrowing costs if weaker growth helps cool inflation.
"``There has been little improvement in fundamental business conditions and confidence in August,'' said Alan Oster, chief economist at National Australia Bank in Melbourne."
"``The survey readings imply another significant step down from the growth rates reported'' for the second quarter, when the economy expanded 0.3 percent from the previous three months, Oster said."
"The sentiment index posted an eighth straight reading of less than zero, which indicates companies expecting their industry to deteriorate outnumber those seeing an improvement."
"The Australian dollar traded at 80.87 U.S. cents at 11:49 a.m. in Sydney from 80.89 cents before the report was released. The two-year government bond yield rose 3 basis points, or 0.03 percentage point, to 5.59 percent."
Interest Rates
Stevens yesterday said the Reserve Bank of Australia is seeking a ``gradual fall'' in the inflation rate and will cut borrowing costs again when there's scope to move.
"``We are probably six months away from seeing clear evidence that inflation has begun to fall, and even then, it has to fall quite some distance,'' Stevens told parliament's economics committee in Melbourne."
Stevens also said he sees no sign the economy is headed for a ``hard landing'' and noted the nation's companies are in better shape that counterparts in the U.S. and Europe.
"The central bank reduced the benchmark interest rate by a quarter point to 7 percent on Sept. 2, reversing a March increase that took the benchmark to a 12-year high."
"Slower economic growth is forcing come companies to shed staff. Qantas Airways Ltd., Australia's largest carrier, is firing 1,500 workers, and Fairfax Media Ltd. last month announced plans to cut 550 jobs."
"The survey's business conditions gauge, a measure of hiring sales and profits, rose in August to minus 3 from minus 5."
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
"Last Updated: September 8, 2008 21:53 EDT"
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Australia's Home-Loan Approvals Drop as Economy Slows (Update2)
By Jacob Greber
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"Sept. 9 (Bloomberg) -- Australian home-loan approvals declined for a sixth month, supporting the central bank's assessment the economy is slowing."
"The number of loans granted to build or buy homes and apartments fell 0.2 percent from June, when they slid a revised 3.7 percent, the statistics bureau said in Sydney today. The median estimate of 21 economists surveyed by Bloomberg News was for no change. The July drop was the smallest in seven months."
Demand for new homes may rebound in coming months after Reserve Bank of Australia Governor Glenn Stevens cut the overnight cash rate target from a 12-year high by a quarter point to 7 percent on Sept. 2. Stevens said yesterday ``the question will be do we hold here or go down a bit more.''
"``Any improvement that emerges from here in demand for home loans probably will stem from expectations the Reserve Bank will cut the cash rate further,'' said Helen Kevans, an economist a JPMorgan Chase & Co. in Sydney."
"The Australian dollar traded at 80.88 U.S. cents at 12:29 p.m. in Sydney from 80.89 cents before the report was released. The two-year government bond yield rose 2 basis points, or 0.02 percentage point, to 5.58 percent."
"House prices declined for the first time in almost three years in the second quarter, the government said on Aug. 4, after banks raised mortgage rates and rationed lending because they faced higher funding costs amid the global credit squeeze."
`Restrictive'
"Interest rates are ``still well on the restrictive side,'' Stevens said at his half-yearly testimony before parliament in Melbourne yesterday."
"Investors see an 82 percent chance Stevens will lower the benchmark rate again on Oct. 7, according to a Credit Suisse Group index based on trading in interest-rate swaps at noon in Sydney."
"``We are probably at the top of the interest-cycle at this point,'' Commonwealth Bank of Australia Chief Executive Officer Ralph Norris said on Sept. 3. ``There is no doubt the economy is slowing.''"
"The economy, in its 17th year of growth, expanded at the slowest quarterly pace in more than three years in the three months through June 30 as consumers cut spending for the first time since 1993."
Business Confidence
"Australian business confidence held at the lowest level in seven years last month, according to a report published today by National Australia Bank Ltd. The bank's sentiment index rose 2 points in August to minus 7."
"Households spent almost 40 percent of their incomes on mortgage payments in the June quarter, the most in the 22 years that the Real Estate Institute has measured affordability."
"The total value of lending rose 0.6 percent to A$18.2 billion ($14.7 billion) in July, today's report showed. Lending to owner occupiers declined 0.1 percent, while the value of lending to investors who plan to rent or resell homes gained 2.3 percent."
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
"Last Updated: September 8, 2008 22:48 EDT"
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Posco to Cut Stainless-Steel Output for Third Month (Update3)
By Sungwoo Park
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"Sept. 9 (Bloomberg) -- Posco, Asia's largest maker of stainless steel, plans to extend an output cut this month on weak demand following similar reductions in July and August."
"The mill will reduce production by 20 percent, or 25,000 metric tons, from a normal monthly level as it did in the two previous months, Suh Young Sea, senior vice president in charge of the stainless-steel business, said today in a phone interview."
"Chinese makers said last month demand in China, the world's largest producer, will remain weak in September amid concerns that economic growth is faltering. The slowdown may deter stainless producers from buying more nickel, used to make the rust-resistant metal, and hurt prices that have dropped 28 percent this year."
"``Stainless-steel makers are trying to stabilize prices through production cuts because demand is not good, and prices are weak as a result,'' Kim Gyung Jung, an analyst with Samsung Securities Co., said in Seoul. ``Demand is likely to remain weak for the time being.''"
"Posco declined 3.8 percent to close at 433,000 won in Seoul trading, worse than the 1.5 percent loss in the Kospi Index. The Pohang, South Korea-based steelmaker's shares have slumped 23 percent over the past year."
"The company cut stainless-steel prices by as much as 10 percent in August, the first reduction this year, as customers deferred orders on expectations that falling nickel costs will result in even lower stainless prices."
Property Slump
"Global stainless-steel demand probably won't recover until early next year as soaring energy prices and a property slump in major economies curb consumption, MEPS (International) Ltd. said on July 31."
"``We will continue to cut output this month because demand is yet to recover amid a lot of uncertainties,'' Posco's Suh said. The ``local construction industry is still not in good shape and there remains concern over the overall economy.''"
"The South Korean government is considering measures, including lower taxes, to boost the domestic property market, which is struggling with the highest number of unsold homes in more than 10 years. Prospective buyers' concerns that interest rates may rise are also driving people away from the property market."
"South Korea's economy grew 4.8 percent in the second quarter from a year earlier, the weakest pace in more than a year, the central Bank of Korea said on Sept. 5."
"``Hopefully, we expect the stainless-steel demand to recover after October when a peak-demand season begins,'' Suh said."
"Nippon Steel Corp., Japan's second-biggest maker of girders, said today it was cutting production of H-beams by 10 percent from August levels because of weaker construction demand."
To contact the reporter on this story: Sungwoo Park in Seoul at spark47@bloomberg.net
"Last Updated: September 9, 2008 03:48 EDT"
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"Russia's Micex Index Falls to 2-Year Low, Led by Energy Shares "
By William Mauldin
"Sept. 9 (Bloomberg) -- Russia's Micex Index fell to the lowest in more than two years, led by energy producers after oil declined and investors avoided stocks in emerging markets."
"OAO Lukoil, Russia's second-biggest oil producer, dropped to the lowest in seven months as crude dropped to the lowest in five months."
"The ruble-denominated Micex sank 3.4 percent to 1,230.66 at 11:02 a.m. in Moscow, the lowest since June 2006. The dollar- denominated RTS Index declined 2.5 percent to 1,471.33."
Crude fell in New York as the dollar rose against the euro and as Saudi Arabia Oil Minister Ali Al-Naimi said oil supplies are sufficient to meet demand.
"``The oil price looks set for further weakness over the coming week and investors remain wary of emerging-market assets,'' Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow, wrote in a note to investors. Yesterday's advance in Russian stocks may have been merely the ``eye of the market's hurricane.''"
"Lukoil dropped 68.63 rubles, or 3.9 percent, to 1,688.11 rubles on the Micex Stock Exchange, the lowest since February. OAO Rosneft, Russia's biggest oil producer, dropped 5.1 rubles, or 2.5 percent, to 204.10 rubles. OAO Gazprom, the stock with the biggest weighting in the MSCI Emerging Markets Index, dropped 3.9 percent to 217.05 rubles."
"Russian financial shares dropped after Moscow-based Troika Dialog cut its price estimates for banking stocks. VTB Group, Russia's second-biggest bank, dropped 0.22 kopeks, or 3.5 percent, to 6.11 kopeks."
"Troika lowered its price estimate for VTB's global depositary receipts 23 percent to $7.86, citing risks involving geopolitics, funding availability and interest rates. It kept its ``buy'' recommendation."
To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net.
"Last Updated: September 9, 2008 03:40 EDT"
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"Italy Stocks Update: Bulgari, Finmeccanica, IFI, Telecom Italia "
By Sarah Jones
"Sept. 9 (Bloomberg) -- Italy's S&P/MIB Index rose for a second day, gaining 82, or 0.3 percent, to 28,511. Futures expiring in September gained 97, or 0.3 percent, to 28,555."
The following were among the most active stocks on the Italian market today. Share symbols are in parentheses.
"Bulgari SpA (BUL IM) declined 11.4 cents, or 1.6 percent, to 7.22 euros after the world's third-largest jeweler was downgraded to ``sell'' from ``hold'' at Citigroup Inc., which cited ``muted growth prospects.''"
"Finmeccanica SpA (FNC IM) lost 49 cents, or 3.8 percent, to 16.75 euros after the Italian defense company said it will raise as much as 1.4 billion euros ($1.97 billion) by selling new stock in a rights offering. Shares will be offered at a nominal value of 4.40 euros with full dividend rights."
"Ifil SpA (IFL IM) advanced 39.4 cents, or 9.8 percent, to 4.41 euros. IFI SpA (IFP IM) dropped 1.89 euros, or 13 percent, to 12.61 after the Agnelli family, the main investors in Fiat SpA (F IM), said they are planning to merge the two holding companies they use to control the Italian carmaker. Fiat shares rose 2.1 percent to 10.92 euros."
"Marcolin SpA (MCL IM) added 2.1 cents, or 1.3 percent, to 1.65 euros after the eyewear maker signed a five-year agreement to make eyeglasses for the Tod's and Hogan brands."
"Telecom Italia SpA (TIT IM) advanced 1.3 cents, or 1.3 percent, to 1.06 euros. Telefonica SA may seek a direct stake of about 10 percent in Telecom Italia to gain influence at Italy's biggest phone company, Il Sole 24 Ore reported, without saying where it got the information."
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net
"Last Updated: September 9, 2008 04:04 EDT"
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Monster's Europe Online Job Index Drops to Lowest Since January
By Simon Kennedy
Sept. 9 (Bloomberg) -- Monster Worldwide Inc.'s index of online job advertisements in seven European Union countries dropped to its lowest since January as demand for workers in all sectors fell.
"The Monster Employment Index Europe, which surveys online job postings in Germany, the U.K., France, the Netherlands, Belgium, Italy and Sweden, fell to 159, according to a report published today. That was the lowest since 139 in January and the first decline since April."
"``The growth trend seems to be coming to a close,'' said Hugo Sellert, head of economic research at Monster Worldwide. ``Given the state of the economy, employers will no doubt be returning from their summer holidays to re-evaluate their recruitment needs.''"
"The 15-nation euro area economy contracted in the second quarter for the first time since the single currency began in 1999, and unemployment has climbed from a 15-year low of 7.2 percent in May."
"Online hiring declined in Germany, the Netherlands, Sweden and the U.K., Italy, France and Belgium. Demand for hospitality and agricultural workers fell the most."
To contact the reporter on this story: Simon Kennedy in Brussels at skennedy4@bloomberg.net
"Last Updated: September 9, 2008 00:00 EDT"
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Australia's Retail Sales Trend Series Rises in July (Update1)
By Jacob Greber
"Sept. 9 (Bloomberg) -- Australian retail sales rose in July, according to new monthly trend series released by the government."
"Sales gained 0.1 percent, matching the gain in June, the Bureau of Statistics said in Sydney today."
"The monthly trend series replaces seasonally adjusted numbers for retail sales after the bureau cut its sample size for the figures by two thirds in July because of budget cutbacks. Economists have criticized the changes for diminishing the reliability of the most important gauge of Australian consumer spending, which accounts for about 60 percent of the economy."
"``It's an absolute disgrace that this survey has been cut, the timing couldn't be worse,'' Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney, said today. ``You would think policy makers would want as much information as possible as to the health of the economy.''"
"Retail spending tumbled the most in six years in June, the last month that was measured using the old survey sample, prompting central bank Governor Glenn Stevens to cut borrowing costs last week for the first time in seven years."
"The bureau after the release of the trend series, reported a seasonally adjusted figure on its Web site showing retail sales rose 1.4 percent in July, after slumping 0.9 percent in June."
Increased Volatility
"The ``domestic economy is not, after all, on its knees,'' said Stephen Walters, chief economist at JPMorgan Chase & Co. in Sydney. The increase in retail sales makes ``a rate cut by the Reserve Bank in October even less likely,'' he said."
Walters added that today's figures ``should be interpreted more carefully than usual.'' The bureau has said that the new figures are subject to increased volatility because of the reduced sample size.
"Stevens, who reduced the overnight cash rate by a quarter point to 7 percent, yesterday said policy makers are seeking a ``gradual fall'' in the inflation rate, which rose to 4.5 percent in the second quarter. The bank aims to keep consumer price gains between 2 percent and 3 percent on average."
"``The question will be do we hold here or go down a bit more'' on interest rates,'' Stevens told a parliamentary committee in Melbourne yesterday."
Economy Slowing
"Consumers cut spending this year after Stevens increased borrowing costs in March to a 12 year high, and gasoline prices surged to a record in July."
"Households may curb spending further in coming months amid evidence the nation's 17-year economic expansion is slowing. Gross domestic product rose 0.3 percent in the second quarter, the least in more than three years, a report showed last week."
"Companies including Qantas Airways Ltd., the nation's biggest carrier, have also announced job cuts, helping drive up the unemployment rate to 4.4 percent in August, according to a Bloomberg New Survey. Figures for the jobless rate, which was 3.9 percent in February, will be published on Sept. 11."
"Australian home-loan approvals declined for a sixth month, and business confidence held at the lowest level in seven years,"
The bureau's changes to its retail sales figures are part of a plan to cut A$22 million ($18 million) from its budget.
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
"Last Updated: September 8, 2008 22:53 EDT"
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"Fannie, Freddie Seizure Triggers Credit-Default Swaps (Update1) "
By Shannon D. Harrington and Oliver Biggadike
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Sept. 8 (Bloomberg) -- The government seizure of Fannie Mae and Freddie Mac triggered what may be the biggest settlement of credit-default swaps in the market's decade-long history.
"The International Swaps and Derivatives Association will set rules by which parties to credit-default swap trades can demand payment on the net amount covered by the contracts, according to a statement today. According to an ISDA memo yesterday obtained by Bloomberg News, 13 Wall Street firms agreed unanimously that the government takeover of the biggest U.S. mortgage-finance companies qualified as a so-called credit event on contracts covering more than $1.4 trillion in Fannie and Freddie debt."
"``The market is not experienced at settling a credit event for a name of this size, so it is a bit of an unknown,'' said Sarah Percy-Dove, the head of credit research at Colonial First State Global Asset Management in Sydney."
"Because the government stands behind the companies' debt, which rallied on the news, the actual money exchanged between sellers and buyers of protection may be limited, analysts at CreditSights Inc. said. Buyers of the contracts are paid face value in exchange for the underlying securities or the cash equivalent."
"``If bonds rally and trade close to par, recovery could be close to 100 percent, with protection sellers having little to pay out despite a technical default,'' CreditSights analysts Richard Hofmann and Adam Steer wrote in a note to clients."
`Potential Significant Losses'
"The settlement, however, may wipe out any market-value gains that investors or Wall Street firms were counting on, Bank of America Corp. strategists led by Jeffrey Rosenberg wrote in a note to clients yesterday."
"That may spell ``potential significant losses at dealers from this event,'' the strategists wrote, though they said it will be relatively small compared with the more than $500 billion in credit losses and asset writedowns reported by the world's largest banks and securities firms since the start of last year."
"Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart yesterday placed Freddie and Fannie in conservatorship, ousting their chief executives and eliminating their dividends. The Treasury may purchase up to $200 billion of preferred stock in the firms to keep them solvent."
"Credit-default swaps on Fannie and Freddie debt have been among the most actively traded individual contracts the past few months, according to reports from broker GFI Group Inc. Dealers don't disclose the amount outstanding."
"Fannie and Freddie also are among 125 companies in the benchmark Markit CDX North America Investment Grade Index, the most actively traded contract in credit markets."
Money Exchange
"Dealers today were quoting the CDX index contracts both with and without Fannie and Freddie. Contracts with the companies dropped 7 basis points to 138 basis points as of 3:45 p.m. in New York, according to broker Phoenix Partners Group. Contracts without the companies were trading 1.5 basis points to 2 basis points tighter, according to Credit Derivatives Research LLC."
"That would imply the market has priced in a recovery rate, as a percentage of total value, ``in the mid-to-high 90s,'' said Tim Backshall, chief strategist at Credit Derivatives Research in Walnut Creek, California, meaning investors who bought protection would get five cents on the dollar or less to settle."
"Five-year contracts on the senior debt of Fannie and Freddie had been trading at about 38 basis points on Sept. 5, according to CMA Datavision. That's down from 81 basis points on July 10. Contracts on Fannie subordinated debt fell from a record high of 364 basis points on Aug. 20 and closed on Sept. 5 at 233 basis points, CMA prices show. The cost is equivalent to $233,000 annually to protect $10 million in notes from default."
A `Unique Situation'
"Under the process being created by ISDA, investors will have the option to settle without an actual exchange of the underlying bonds. Wall Street firms including JPMorgan Chase & Co., Goldman Sachs Group Inc. and other market makers will hold an auction to determine a recovery value for the securities. Investors who agree to a cash settlement would exchange the difference between the recovery value set at auction and the face value on a contract."
"Because investors have the option to settle contracts using the cheapest qualifying bond, and because bonds with longer maturities can continue to trade at a discount because of interest rate risks, it's too early to assume that the recovery level will be at or almost at par value, said Morgan Stanley strategist Sivan Mahadevan."
"``It is a unique situation,'' Mahadevan said on a conference call with clients today."
To contact the reporters on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net; Oliver Biggadike in Sydney at obiggadike@bloomberg.net;
"Last Updated: September 8, 2008 16:53 EDT"
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"Deutsche Bank May Bid for Monte Paschi Branches, Sole Reports "
By Armorel Kenna
"Sept. 9 (Bloomberg) -- Deutsche Bank AG is interested in buying 150 branches that Banca Monte dei Paschi di Siena SpA is selling to meet antitrust requirements, daily Il Sole 24 Ore reported without saying where it got the information."
"BNP Paribas SA, Barclays Plc and General Electric Capital Corp. may also bid for the branches, according to the Italian newspaper."
"Banca Popolare di Milano Scarl, Banca Popolare dell'Emilia Romagna Scrl, Banca Carige SpA and Banca Popolare dell'Etruria e del Lazio Scrl may join forces to buy the branches, Sole reported. Unione di Banche Italiane ScpA is also considering making a bid, the daily said."
To contact the reporter on this story: Armorel Kenna in Milan at akenna@bloomberg.net
"Last Updated: September 9, 2008 01:49 EDT"
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"German Stocks Recover Losses; Allianz, Postbank, Lufthansa Gain "
By Henrietta Rumberger
"Sept. 9 (Bloomberg) -- Germany's DAX Index rebounded as shares of Allianz SE, Deutsche Postbank AG and Deutsche Lufthansa AG increased."
"The benchmark DAX Index rose 4.43, or 0.1 percent, to 6,268.17 as of 9:38 a.m. in Frankfurt after losing as much as 0.3 percent earlier. DAX futures expiring in September added 0.2 percent, to 6,277.5. The HDAX Index of the country's 110 biggest companies advanced 0.1 percent."
"Allianz, Europe's largest insurer, climbed 2.47 euros, or 2.2 percent, to 114.60. Postbank, Germany's biggest consumer bank by clients, gained 70 cents, or 1.6 percent, to 44.47 euros."
"Lufthansa, Europe's second-largest airline, added 9.5 cents, or 0.6 percent, to 15.125 euros. Oil fell in New York as the dollar rose against the euro and Saudi Arabia's oil minister said supplies are sufficient to meet demand. Crude for October delivery sank as much as 1.5 percent to $104.77 a barrel."
To contact the reporter on this story: Henrietta Rumberger in Frankfurt at hrumberger@bloomberg.net.
"Last Updated: September 9, 2008 03:45 EDT"
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Goldman Cuts China Bank Earnings Estimates on Economic Concerns
By Luo Jun
"Sept. 9 (Bloomberg) -- China's 14 publicly-traded banks, which almost doubled profit in the first half, had their price targets and earnings estimates cut by Goldman Sachs Group Inc. on concerns about an economic slowdown and rising non-performing loan risks."
"Goldman downgraded its sector rating on China banks to ``neutral'' from ``attractive'' and lowered its 2009 and 2010 earnings estimates by 6 to 7 percent on average, analysts led by Ma Ning wrote in a research note today."
"Target prices of Hong Kong-listed Chinese banks, including Industrial & Commercial Bank of China Ltd., China Construction Bank Corp, Bank of China Ltd., Bank of Communications Ltd., China Merchants Bank Ltd, and China Citic Bank Ltd., were cut by 26 percent on average. Banks traded on the domestic A-share market have their target prices lowered by an average 41 percent."
"China's 14 publicly traded banks doubled profit on average in the six months to June 30, according to data compiled by Bloomberg. They mostly avoided the more than $500 billion of writedowns and credit losses that pushed global financial companies including Citigroup Inc. and UBS AG to post losses, fire workers and raise capital."
"``We believe the prospects for further upside earnings surprises and a sector re-rating hinge on more stable global and local macro conditions, and significant government policy easing, which we believe may not materialize near-term,'' Goldman analysts wrote in today's report."
"Bank shares have dropped an average 50 percent this year on China's stock exchanges, dragged down by the collapse of the nation's equity-market bubble."
To contact the reporters on this story: Luo Jun in Shanghai at at jluo6@bloomberg.net;
"Last Updated: September 8, 2008 21:11 EDT"
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"Brazil Stocks Fall, Led by Commodities, Utilities; Bolsa Gains "
By William Freebairn and Alexander Ragir
Sept. 8 (Bloomberg) -- Brazilian stocks resumed a week-long slump as the dollar's rally sent commodity producers lower and investors sold utility shares on concern about their growth prospects.
State-controlled utility Cia. Energetica de Sao Paulo fell the most in the Bovespa index after the government said utilities may have to cut power rates in order to renew contracts. Cia. Siderurgica Nacional SA led declines for steelmakers after analysts said it may get much less than it expects for some assets. Banks and homebuilders rose after the U.S. Treasury took over Fannie Mae and Freddie Mac and Brazil's inflation eased.
"``There's general pessimism about Brazil as the dollar rises because that hurts commodities,'' said Januario Hostin Junior, who helps manage the equivalent of about $35 million at Leme Investimentos in Florianopolis, Brazil. ``The risk in buying utilities has risen, so people are becoming reluctant because they look less attractive.''"
"The Bovespa index dropped 1,221.63, or 2.4 percent, to 50,717.97. The MidLarge Cap index slid 2.3 percent, while the Small Cap index lost less than 0.1 percent. Mexico's Bolsa rose 1.3 percent and Chile's Ipsa index slipped 0.1 percent. The MSCI Latin America index dropped 1 percent."
"Commodity producers declined as the dollar climbed to the highest since October against the euro, reducing the appeal of metals as a hedge against inflation. Energy and raw material producers had the biggest declines in the MSCI Brazil index, falling 4.1 percent and 2.5 percent, respectively."
"Cia. Vale do Rio Doce, the world's biggest iron ore miner, slid 3.5 percent to 34.85 reais. A train derailed on Vale's Carajas railroad in Brazil, interrupting shipments of iron ore, Reuters reported."
Steelmakers Drop
"CSN, the third-biggest Brazilian steelmaker, dropped 3.8 percent to 46.56 reais. The company may receive about $2.6 billion for its sale of iron-ore and logistics assets, lower than some estimates of as high as $10 billion, HSBC said."
"Nacional Minerios SA, or Namisa, as the iron-ore unit is known, produces less ore than reported in the media, analyst Fabiano Santos wrote in a note today. The sale of transportation and logistics units negotiated along with Namisa likely won't increase the value of the sale by much, he wrote."
"Gerdau SA, Latin America's biggest steelmaker, fell 4 percent to 25.08 reais. A fourth steel price increase this year is ``unlikely'' and some export prices may ``see some downward pressure,'' Deutsche Bank AG analyst David Martin wrote in a note today, citing a presentation by the company."
Petrobras Falls
"Petrobras, as the Rio de Janeiro-based company is known, fell 5 percent to 30.26 reais. ``We believe the stock price recovery might be capped until the government reaches a decision regarding the regulatory framework that will be applicable for the pre-salt cluster,'' Raymond James & Associates said."
"Cia. Energetica Sao Paulo, known as Cesp, slid 8.8 percent to 20.69 reais. Eletropaulo Metropolitana SA, a utility controlled by AES Corp., dropped 3.4 percent to 26.90 reais."
"Utilities may have to cut power rates as a condition of renewing contracts to operate hydroelectric dams starting in 2015, the government's energy research agency chief said. Deputy Energy Minister Marcio Pereira Zimmerman declined to confirm a news report that the federal and state governments reached agreement that could lead to the sale of a minority stake in the company."
"Banks, Builders Gain"
Brazilian banks and homebuilders gained on rising optimism over the U.S. financial system and easing inflation.
"The U.S. Federal Housing Finance Agency will take over Fannie Mae and Freddie Mac to help banks recover from more than $500 billion in subprime mortgage losses, the U.S. government said yesterday. The government will also help home-loan banks and purchase mortgage-backed debt in the open market."
"Brazil's inflation rate will end 2008 at 6.27 percent, less than forecast last week, the central bank survey of economists showed. Brazil's economic expansion isn't stoking inflation, Finance Minister Guido Mantega said in Brasilia today."
"Uniao de Bancos Brasileiros SA, Brazil's third-largest non- state bank by assets, climbed 1.2 percent to 18.92 reais. Cyrela Brazil Realty SA Emprendimentos e Participacoes, the country's biggest property developer, had the biggest gain in the Bovespa, rising 5 percent to 19.05 reais."
"Mexico's Bolsa rose, as builders and cement maker Cemex SAB gained on speculation the takeover of Fannie Mae and Freddie Mac will stabilize the financial system."
"Brazil's Bovespa may benefit less from the bailout than Mexico's Bolsa because of the the greater weight of commodities in the South American country's benchmark, Citigroup Inc. said in a report to clients today. The government takeover is likely to push up the dollar, curbing demand for commodities, Citigroup said."
"Cemex, the world's third-biggest cement company, rose 5.6 percent to 22.43 pesos. Desarrolladora Homex SAB, the country's largest homebuilder, gained 1.8 percent to 87.61 pesos."
"In other Latin American markets, Argentina's Merval declined 0.6 percent, while Colombia's IGBC added 1.2 percent. Peru's IGBVL index dropped 1.4 percent."
To contact the reporter on this story: William Freebairn in Mexico City at wfreebairn@bloomberg.net; Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net.
"Last Updated: September 8, 2008 17:18 EDT"
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India's Bonds Gain as Commodity Declines Ease Inflation Concern
By Anil Varma
"Sept. 9 (Bloomberg) -- India's 10-year bonds gained, pushing yields to the lowest in 12 weeks, as falling commodity prices tempered concern inflation will quicken."
Benchmark notes ended two days of losses after crude oil in New York fell to a five-month low and as gold and copper led declines in metals. Bonds also advanced as banks may have bought the securities to cover an increase in deposits. Local lenders are required by law to invest at least 25 percent of their deposits in government debt or other low-risk securities approved by the central bank.
"``Extended losses in commodity prices, from oil to metals to farm products, are easing inflationary expectations,'' said Vineet Malik, head of interest-rate trading at HSBC Holdings Plc's unit in Mumbai. ``There's relief across markets as far as the inflation outlook is concerned, helping demand for bonds.''"
"The yield on the benchmark 8.24 percent note due April 2018 fell 5 basis points to 8.45 percent as of 11:29 a.m. in Mumbai, according to the central bank's trading system. The price rose 0.3, or 30 paise per 100-rupee face amount, to 98.62. A basis point is 0.01 percentage point."
"Ten-year bond yields will fall to 8.34 percent by the end of the month, according to the median estimate of seven economists surveyed by Bloomberg."
"Crude oil fell as low as $104.7 per barrel on the New York Mercantile Exchange yesterday, the lowest since April 4. The commodity has slumped more than 28 percent from a record $147.27 reached in July. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials has declined 21 percent from a July peak."
"The rate of inflation in India, which imports almost three- quarters of the oil it uses, tripled this year to 12.34 percent in the week ended Aug. 23, according to the government."
"The cost of benchmark interest-rate swaps, or derivative contracts used to guard against rate fluctuations, declined. The five-year swap rate, a fixed payment made to receive floating rates, fell 3 basis points to 8.74 percent."
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.
"Last Updated: September 9, 2008 02:23 EDT"
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Gold Declines Below $800 an Ounce as Rising Dollar Cuts Appeal
By Feiwen Rong
Sept. 9 (Bloomberg) -- Gold fell below $800 an ounce and silver slumped to the lowest in more than a year as the U.S. government's seizure of mortgage lenders Fannie Mae and Freddie Mac boosted the value of the dollar and reduced the appeal of bullion as an alternative asset.
"The U.S. currency traded near the highest level since October against the euro while gold fell to within 3 percent above its low this year. The dollar index, which tracks the greenback against currencies of six major U.S. trading partners, rose to a one-year high yesterday."
"``It appears that the market is torn between those investing in gold ahead of the Indian wedding season and those selling gold as a result of the strength of the U.S. dollar and weak economic conditions,'' Jonathan Barratt, managing director of Commodity Broking Services, said in a report yesterday."
"Bullion for immediate delivery fell 0.7 percent to $796.15 an ounce at 1:42 p.m. in Singapore. Silver for immediate delivery fell to as low as $11.84 an ounce, the lowest since Aug. 31, 2007, before trading at $11.8475."
"The U.S. currency rose for the ninth day, adding 0.4 percent to $1.4075 against the euro at 1:39 p.m. in Singapore. It touched $1.4047 yesterday, the highest since Oct. 9, 2007."
"``At the moment we feel that gold is trading in a wide range between $840 and $775 and we feel it represents good pickings at either end of the spectrum,'' Barratt added."
Crude oil in New York fell 1.1 percent to $105.16 a barrel at 1:40 p.m. in Singapore. Crude oil often gives direction to gold as investors buy bullion to hedge against rising inflation.
Forecasts
"Morgan Stanley, the second-biggest U.S. securities firm, cut its price forecasts for gold and silver as pared inflation expectations and a stronger dollar trimmed investor demand."
"Gold may average $900 an ounce in 2008 and $950 an ounce next year, down from previous forecasts of $950 and $1,000 respectively, the bank's analysts led by Hussein Allidina wrote in an e-mailed report yesterday."
"``We retain a positive profile owing to gold's long-run fundamentals,'' Allidina wrote. ``Despite recent weakness and near-term headwinds, income growth is inevitable and will lead to an acceleration in demand.''"
December-delivery gold fell 0.3 percent to $800.40 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange at 1:34 p.m. in Singapore.
Gold for December delivery traded in Shanghai fell 1.9 percent to 178 yuan a gram ($809 an ounce) at the same time.
"In Japan, gold for August delivery on the Tokyo Commodity Exchange fell 2.7 percent to 2,766 yen a gram ($801 an ounce)."
To contact the reporter on this story: Feiwen Rong in Singapore at frong2@bloomberg.net
"Last Updated: September 9, 2008 02:08 EDT"
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Mantega Says Brazil Currency May Weaken More on Lower Surplus
By Andre Soliani and Heloiza Canassa
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"Sept. 9 (Bloomberg) -- Brazil's real, the worst performing Latin American currency in the past two months, will weaken further because of reduced investment flows and a narrowing trade surplus, Finance Minister Guido Mantega said."
"The real has weakened 8 percent against the U.S. dollar since July 1, compared with a 7.7 percent drop for the Colombian peso and a 1.2 percent decline for the Mexican peso. Chile's peso has been little changed during the same period."
"``The exchange rate will continue in this trajectory,'' Mantega said during an event in Brasilia to celebrate the 200th anniversary of the finance ministry."
"Brazil's annual current account deficit widened to $19.5 billion in the 12 months through June. It was the biggest gap in six years as companies stepped up profit remittances and increased imports, the central bank said last month. Turbulence in global financial markets has increased risk aversion and is limiting inflows into Brazil, Mantega said."
"``The drop in the trade surplus, the increase in the current account deficit and the scarcity of capital in international markets has decreased the inflows of capital to Brazil,'' Mantega said."
"The real declined 1.2 percent to 1.736 per dollar yesterday, after most trading in Brazil had ended, from 1.716 on Sept. 5. The decline took the Brazilian currency to the lowest level against the dollar since April 1. The real peaked at 1.56 to the dollar on Aug. 1."
Weekly Decline
"The real last week had its biggest weekly decline in 5 1/2 years as a tumble in commodities and a global economic slump reduced demand for emerging-market securities. The real sank 5.2 percent, the most since January 2003."
"Demand has eroded among investors seeking to take advantage of Brazil's 13 percent benchmark lending rate, which compares with the Federal Reserve's 2 percent target."
"The yield on Brazil's zero-coupon bonds due in January 2010 rose 5 basis points, or 0.05 percentage point, to 14.88 percent yesterday, according to Banco Votorantim. The yield on the overnight futures contract for January delivery increased 2 basis points to 13.94 percent."
"To be sure, the weakening of the real will make Brazilian exports relatively cheaper for foreigners to buy and eventually help bolster the trade surplus, Mantega said."
To contact the reporters on this story: Heloiza Canassa in Sao Paulo at hcanassa@bloomberg.netAndre Soliani in Brasilia at asoliani@bloomberg.net
"Last Updated: September 8, 2008 23:16 EDT"
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Treasuries Little Changed; Report May Show Home Sales Declined
By Anchalee Worrachate and Wes Goodman
Sept. 9 (Bloomberg) -- Treasuries were little changed before an industry report that economists estimate will show fewer Americans signed contracts to purchase previously owned homes.
"The notes extended gains into a fourth month on speculation the government's seizure of Fannie Mae and Freddie Mac won't reverse the U.S. economic slowdown. The takeover of the two largest providers of mortgage financing ``will not be enough to bring a housing-market bottom,'' David Rosenberg, Merrill Lynch & Co.'s North American economist in New York, wrote to clients yesterday."
"``There's still a structural problem in the U.S. economy, and I'm talking specifically about the housing market,'' said Peter Mueller, a fixed-income strategist in Frankfurt at Commerzbank AG, the country's second-biggest lender. ``Although some data showed sign of an improvement, the economy remains generally weak. There may be scope for yields to fall further.''"
"The yield on the benchmark 10-year note was 3.69 percent as of 9:09 a.m. in London, according to bond broker BGCantor Market Data. The yield rose as much as 15 basis points yesterday, the most since July 11. The 4 percent security due August 2018 was at 102 17/32."
The yield on two-year notes gained 1 basis point to 2.33 percent.
"In Japan, 10-year yields dropped 2 basis points to 1.505 percent as Asian stocks fell. The MSCI Asia Pacific Index of regional shares slipped 2 percent."
Treasuries have gained for three straight months as writedowns and credit-market losses since the collapse of the market for U.S. subprime- mortgage debt surpassed $500 billion. Yields on 10-year debt have fallen a quarter of a percentage point in the past month on signs a housing market slump is deepening.
Housing Report
Pending sales of U.S. homes probably fell for a fourth time this year as tighter credit conditions keep would-be buyers from taking advantage of lower prices.
"The index fell 1.5 percent in July, after a gain of 5.3 percent in June, according to the median forecast in a Bloomberg News survey of 39 economists. The National Association of Realtors releases the figures at 10 a.m. in Washington today."
Futures on the Chicago Board of Trade show 89 percent odds on the Federal Reserve will probably keep its target for overnight bank loans at 2 percent at least through the end of 2008.
"Government securities returned 0.8 percent so far in September, according to Merrill's U.S. Treasury Master index. They are up 4.7 percent this year, versus 9.06 percent for all of 2007."
"Any gains may be limited after oil prices fell, fuelling speculation that the U.S. economy will soon recover. Crude oil for October delivery fell as much as 1.5 percent to $104.77 a barrel. Oil has dropped 27 percent from a record $147.27 reached on July 11."
Rescue Plan
"Mitsubishi UFJ Trust & Banking Corp., part of Japan's biggest bank, forecast the Fannie and Freddie rescue plan will send yields higher as it helps financial markets."
"Fed Chairman Ben S. Bernanke's announcement on Sept. 7 that he supports the plan indicates he may change the bank's next policy statement on Sept. 16, said Hiroyuki Bando chief manager for fixed income, equities and currencies in Tokyo at Mitsubishi UFJ."
The central bank warned that ``financial markets remain under considerable stress'' in its policy statement published Aug. 5.
"``Some of the anxiety in the market was resolved by the rescue,'' Bando said. ``Yields will be higher.''"
"The 10-year rate will rise to 4 percent by month-end, he said. It will climb to 3.99 percent by Dec. 31, according to a Bloomberg survey of economists, with the most recent forecasts given the heaviest weightings."
Investor anxiety showed up in widening spreads as they demanded more yield to hold non-government debt.
"An index of emerging-market bonds compiled by JPMorgan Chase & Co. yielded 3.25 percentage points more than Treasuries on Sept. 5, approaching the most since 2005. The spread narrowed to 3.15 percentage points yesterday following Treasury Secretary Henry Paulson's announcement of the rescue plan."
Agency Yields
"Yields on Fannie and Freddie debt tumbled by the most on record yesterday. The difference between yields on Washington-based Fannie's five-year debt and five-year Treasuries fell 30.6 basis points to 63.3 basis points, according to data complied by Bloomberg."
"Pacific Investment Management Co. may start buying Fannie and Freddie corporate and mortgage-backed debt later this week, said Bill Gross, who manages the world's largest bond fund at Pimco, speaking yesterday on Bloomberg Television."
"The average U.S. rate for a 30-year fixed mortgage fell to 6.08 percent yesterday from 6.26 percent last week, according to Bankrate Inc., a research firm in North Palm Beach, Florida."
"Potential declines in mortgage costs are helping buoy Treasuries, Adam Carr, senior economist in Sydney at ICAP Australia Ltd., part of the world's largest inter-bank broker, wrote in a client note today."
"Homeowners tend to refinance their mortgages when rates fall. The result is that bonds backed by those loans can mature early, and investors use Treasuries to replace the holdings in their portfolios."
To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
"Last Updated: September 9, 2008 04:11 EDT"
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Treasuries Fall; Stock-Market Gains Sap Demand for Safe Assets
By Anchalee Worrachate and Wes Goodman
Sept. 9 (Bloomberg) -- Treasuries fell after gains in European shares and U.S. stock-index futures sapped demand for the relative safety of government securities.
"The declines were led by two-year notes as a drop in oil prices boosted speculation the U.S. economy may soon recover, and after the government seized control of Fannie Mae and Freddie Mac over the weekend. Any further losses may be limited before a report later today that will probably show fewer Americans signed contracts to purchased previously owned home."
"``There's a bit of a relief rally in stock markets after the Treasury's move over the weekend, and that may have affected demand for government bonds,'' said Orlando Green, a fixed-income strategist at Calyon in London, the investment-banking arm of Credit Agricole SA. ``But my view is that it's too early for optimism. There's still a structural problem in the U.S. economy.''"
"The yield on the benchmark 10-year note was 3.71 percent as of 10:45 a.m. in London, according to bond broker BGCantor Market Data. The yield rose as much as 15 basis points yesterday, the most since July 11. The 4 percent security due August 2018 fell 1/8, or $1.25 per $1,000 face amount, to 102 14/32."
The yield on two-year notes climbed 4 basis points to 2.35 percent. Yields move inversely to bond prices.
Treasuries have gained for three straight months as writedowns and credit-market losses since the collapse of the market for U.S. subprime- mortgage debt surpassed $500 billion. Yields on 10-year debt have fallen a quarter of a percentage point in the past month on signs a housing- market slump is deepening.
Standard & Poor's 500 stock-index futures expiring in September gained 0.3 percent. The Dow Jones Stoxx 600 Index of European equities advanced 0.9 percent.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net
"Last Updated: September 9, 2008 05:55 EDT"
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Brazil May Raise Benchmark Rate to Two-Year High (Update1)
By Andre Soliani
"Sept. 8 (Bloomberg) -- Brazil's central bank may raise the benchmark interest rate this week to the highest in two years, seeking to cool domestic demand and rein in inflation."
"Policy makers led by President Henrique Meirelles will lift the overnight rate to 13.75 percent from 13 percent, the fourth increase since April, according to 28 of 29 economists surveyed by Bloomberg. One forecast the bank will raise the so-called Selic rate to 13.50 percent."
"While consumer prices rose at the slowest pace in 11 months in August on declining food and beverage costs, the relief may be temporary. The fastest economic expansion since 1995 may stoke inflation as demand outpaces supply."
"``Policy makers will only end the tightening cycle in January, when we get clearer signs economic activity is slowing,'' Mauricio Oreng, senior economist at Itau Corretora in Sao Paulo, said in a telephone interview. ``The central bank needs to make sure slower inflation isn't due to just a temporary ease of commodity prices.''"
"Gross domestic product grew 5.76 percent in the 12 months ended March 31, the most in 12 1/2 years, according to the latest official data. Second-quarter GDP will be released Sept. 10."
"The Brazilian economy is in ``transition'' to a slower pace of growth that may ease inflation concerns, Flavio Serrano, senior economist at Banco Espirito Santo de Investimento SA in Sao Paulo, said."
"Vehicle sales grew 4 percent in August from a year ago, the slowest pace in almost two years, as the central bank rate increases pushed car-loan costs higher, the carmakers' association said Sept. 4."
GDP
"Economic growth may have slowed in the second quarter to 5.5 percent from 5.8 percent in the first, according to the median estimate in a Bloomberg survey of 23 economists."
Finance Minister Guido Mantega said today in Brasilia economic expansion isn't stoking inflation.
"``Brazil's supply is growing in line with demand, so there isn't any inflation pressure being generated,'' Mantega said."
"Consumer prices as measured by the benchmark IPCA index rose 0.28 percent in August after food and beverage costs declined for the first time in two years, the government said Sept. 5. Annual inflation slowed to 6.17 percent from a three-year high of 6.37 percent."
"The central bank targets inflation of 4.5 percent, plus or minus two percentage points."
"Some industries remain heated. Manufacturers operated at 83.5 percent capacity in July, a record, the National Industrial Confederation said Sept. 3. Industrial output grew 8.5 percent that month, more than economists expected, according to a Sept. 2 government report."
"The central bank will raise the benchmark interest rate further to 14.75 percent by year end, before pausing in January, said Itau's Oreng."
Markets
"Last week, the real fell 4.9 percent to 1.716 per dollar, the biggest decline in 5 1/2 years. The yield on the government's zero-coupon bond due January 2010 rose 12 basis points, or 0.12 percentage point, to 14.85 percent."
"The benchmark Bovespa index dropped 6.7 percent, the most in two weeks, to 51939.6 points. Tam SA, Brazil's largest airline, gained the most, advancing 8.4 percent. JBS SA, the world's largest beef producer, dropped 19 percent."
Event FGV Inflation IGP-DI 09/08 Weekly Trade Balance 09/08 Date Second Quarter GDP 09/10 Copom Rate Decision 09/10 FGV Inflation IGP-M 09/10
"-- With reporting by Katia Cortes in Brasilia. Editor: Adriana Arai, Joe Winski"
To contact the reporters on this story: Andre Soliani in Brasilia at at soliani@bloomberg.net
"Last Updated: September 8, 2008 13:02 EDT"
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Canadian Banks Rally on Paulson's Fannie-Freddie Move (Update1)
By Doug Alexander
Sept. 8 (Bloomberg) -- Canadian Imperial Bank of Commerce led Canada's banks higher as financial shares rose worldwide on optimism that lenders may be able to stem $507 billion of losses tied to bad mortgages.
"Canadian Imperial, Canada's fifth-biggest bank, rose C$2.11, or 3.4 percent, to C$64.42 at 4:32 p.m. on the Toronto Stock Exchange, leading the surge of Canada's five biggest banks. Toronto-Dominion Bank, Canada's second-biggest bank, advanced C$1.43, or 2.4 percent, to C$62.37, and Bank of Montreal, which owns the Chicago-based Harris retail bank, added 91 cents, or 1.9 percent, to C$48.50."
"The U.S. seized control of Fannie Mae and Freddie Mac yesterday, putting the two mortgage companies in a government- operated conservatorship. Treasury Secretary Henry Paulson stepped in to prevent a collapse of the government-chartered companies and the $12 trillion residential mortgage market, where Fannie and Freddie account for almost half the value of debt and mortgage-backed securities."
"``U.S. housing-related issues triggered the beginning of the current period of credit and capital markets turmoil,'' RBC Capital Markets analyst Andre-Philippe Hardy said today in a note. ``Signs of improvement in the housing market are positive for bank shares, in our view, especially those with exposure to the U.S.''"
"Royal Bank of Canada, the country's biggest lender and owner of a U.S. retail banking business, gained 16 cents to C$48.60 while Bank of Nova Scotia, the third-biggest bank, rose 18 cents to C$47.10."
"Canadian lenders have taken about C$11.6 billion ($10.9 billion) in pretax writedowns on debt investments since the start of the U.S. subprime crisis in 2007, with Canadian Imperial accounting for about two-thirds of those costs."
"Toronto-Dominion Bank said in April it had C$7.8 billion of mortgage-backed securities tied to these agencies, Hardy said in his note. Royal Bank said it had C$77 million in investments in agency preferred shares, he said."
To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net
"Last Updated: September 8, 2008 17:58 EDT"
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"Canadian Stocks Fall, Led by Suncor, Potash; TD Bank Advances "
By John Kipphoff
"Sept. 8 (Bloomberg) -- Canada's main stock index fell to the lowest in almost eight months, led by material and energy producers, on concern the U.S. bailout of the biggest mortgage companies won't spur growth enough to boost commodity demand."
Suncor Energy Inc. and Potash Corp. of Saskatchewan Inc. paced the decline after oil fell below $105 a barrel. Research In Motion Ltd. slid on a report that smartphone sales slowed. Toronto-Dominion Bank led bank shares higher as the U.S. takeover of Fannie Mae and Freddie Mac spurred optimism lenders can recover from more than $500 billion in mortgage losses.
"``The banks are up today because the Fannie and Freddie action supposedly improves the credit situation,'' said Doug Davis, president of Davis-Rea Ltd., which manages C$475 million in Toronto. ``But the contraction continues. That's a very bad environment for commodities. Today was a great selling opportunity.''"
"The Standard & Poor's/TSX Composite Index slid 1.4 percent to 12,634.83 in Toronto, the lowest since Jan. 21, after rising as much as 2.7 percent earlier. The Canadian equity benchmark declined 6.9 percent last week, the most in eight years. The S&P/TSX, which derives more than three-quarters of its value from energy, materials and energy shares, has dropped 16 percent from its June 18 record."
"Suncor Energy, the second-biggest producer of crude from the oil sands, declined 6.7 percent to C$49.16, the lowest since March 24. Larger rival Canadian Oil Sands Trust fell 4 percent to C$44.75. Canadian Natural Resources Ltd., the country's second-biggest natural gas producer, retreated 4 percent to C$80."
"Oil fell below $105 a barrel in New York for the first time since April before closing little changed, up 11 cents at $106.34 a barrel in New York."
Wheat Slumps
"Wheat fell, extending a slump to a three-month low, on speculation that record global production will outpace demand, boosting grain inventories. Gold and copper dropped, erasing earlier gains, as the U.S. dollar rose against the euro, curbing the appeal of commodities as an inflation hedge."
"Potash Corp., the biggest maker of crop nutrients by market value, fell 5.7 percent to C$162.50. Agrium Inc., North America's third-largest crop-nutrient maker by market value, retreated 6.5 percent to C$77.57."
"Goldcorp Inc., the world's second-biggest bullion mining company by market value, dropped 5.4 percent to C$29.30."
"A measure of raw-materials shares fell 4.9 percent to the lowest since Aug. 30. Indexes of energy and technology stocks dropped 2.9 percent and 3.3 percent, respectively."
"Research In Motion, maker of the BlackBerry e-mail phone, slid 3.3 percent to C$109.50. Smartphone shipments rose to 32.2 million units in the second quarter from 27.9 million units a year earlier, Stamford, Connecticut-based research firm Gartner said today in an e-mailed release. In the first quarter, growth was 29 percent."
A gauge of financial stocks climbed 1.5 percent.
"Toronto-Dominion Bank, Canada's second-biggest lender by assets, gained 2.4 percent to C$62.37. Smaller rival Canadian Imperial Bank of Commerce rose 3.4 percent to C$64.42. National Bank of Canada, the country's sixth-largest bank, advanced 4.4 percent to C$52.51."
To contact the reporter on this story: John Kipphoff in Montreal at jkipphoff@bloomberg.net.
"Last Updated: September 8, 2008 16:53 EDT"
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Chile August Trade Surplus Narrows Less Than Forecast (Update2)
By Sebastian Boyd
Sept. 8 (Bloomberg) -- Chile's trade surplus narrowed less than economists expected last month as export growth accelerated.
"The surplus narrowed to $780 million in August from $1.7 billion in July, the central bank said. Exports rose 22 percent to from a year earlier to $6.3 billion, the fastest annual pace since last October, while imports rose 33 percent from a year ago to $5.5 billion, the slowest annual pace since March."
"Faster export growth ``especially as the price of copper hasn't risen, probably implies that copper output rose in August, which is good news and means that projections of GDP for August will improve,'' said Miguel Cardoso, an economist at Banco Bilbao Vizcaya Argentaria SA in Santiago."
"The August surplus, which was the lowest since the $633 million recorded in October 2005, compares to the median estimate of a $652 million surplus in a Bloomberg survey of 10 economists in a Bloomberg survey."
"The peso rose for the first time in three days, strengthening 0.2 percent to 523.46 per dollar at 11:50 a.m. New York time from 524.58 late Sept. 5."
To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net
"Last Updated: September 8, 2008 11:51 EDT"
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Pound Near 2 1/2-Year Low Versus Dollar as House Prices Slide
By Lukanyo Mnyanda
"Sept. 9 (Bloomberg) -- The U.K. pound traded near the lowest level in 2 1/2 years against the dollar after an industry report showed house prices fell in August, boosting the case for the Bank of England to lower interest rates."
"The pound fell earlier as the Royal Institution of Chartered Surveyors reported the number of real-estate agents and surveyors saying prices dropped exceeded those reporting gains by 81 percentage points, from 83 percentage points in July. The currency slipped to its weakest since early April yesterday after a government report showed producer prices declined last month by the most since 1986."
"``In the medium term, sterling is extremely vulnerable, it's still very over-valued on a long-term basis,'' Ian Stannard, a currency strategist in London at BNP Paribas SA, said in a Bloomberg Television interview. ``There's quite a lot more downside to come.''"
"The pound was at $1.7555 by 8:10 a.m. in London, from $1.7581 yesterday, when it dropped below $1.75 for the first time since early April 2006. It was also at 80.36 pence per euro, from 80.37."
"Government bonds rose, with the 10-year yield falling 1 basis point to 4.48 percent. The price of the 5 percent security due March 2018 climbed 0.06, or 60 pence per 1,000-pound face amount, to 104.02. The yield on the two-year note was at 4.47 percent."
Property Slump
"Property prices have slumped as growth in Europe's second- largest economy has stalled, persuading Prime Minister Gordon Brown's government to propose measures last week to encourage house-buying. Brown suspended stamp duty tax on homes bought for less than 175,000 pounds and vowed to bring forward spending to help spur the market."
"Bank of England policy makers kept the nation's main interest rate at 5 percent for a fifth month on Sept. 4, as inflation risks prevented them from cutting borrowing costs to bolster growth."
"The pound's trade-weighted index, a gauge of the currency's performance against Britain's major trade partners, has slumped almost 10 percent this year and was at 85.67, according to Deutsche Bank AG. The measure slumped last week to the lowest level since at least 2000."
To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
"Last Updated: September 9, 2008 03:18 EDT"
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"Australian, New Zealand Dollars Slump Versus U.S. Currency, Yen "
By Candice Zachariahs
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Sept. 9 (Bloomberg) -- The Australian and New Zealand dollars slumped as stock losses encouraged investors to pare holdings of higher-yielding assets.
"The local dollars, favorites of so-called carry trades, were near two-year lows against the yen on concerns a U.S. takeover of Fannie Mae and Freddie Mac won't end losses at banks or avert a global slowdown. The Australian dollar also dropped to its lowest in 13 months against the U.S. currency as a government report showed home loans dropped for a sixth month."
"The Australian and New Zealand dollars ``tend to be driven by risk appetite,'' said Greg Gibbs, a currency strategist at ABN Amro Holding NV in Sydney. ``If equities are falling in this region it's unlikely to be helpful.''"
"The Australian dollar fell 0.9 percent to 81.13 U.S. cents at 4:48 p.m. in Sydney, from 81.82 in late Asia yesterday. It earlier touched 80.23 cents, the lowest since August 2007. It slid 2 percent to 87.29 yen, near a two-year low touched Sept. 5."
"The New Zealand dollar fell 0.3 percent to 67.08 U.S. cents from 67.30 cents yesterday, near the lowest since November 2006 reached last week. It slumped 1.6 percent to 72.11 yen."
"Australia's dollar will drop to between 75 and 78 cents in the next few months, Gibbs forecast."
"Stocks, Carry Trades"
"The local dollars were the weakest among the 16 most-traded currencies as the MSCI Asia-Pacific Index of regional shares lost more than 2 percent, led by banks. Wells Fargo & Co., the biggest bank on the U.S. West Coast, said yesterday it may have to write down most of its $480 million stakes in Fannie Mae and Freddie Mac."
"``This package is unlikely to perfectly solve the current financial problems in the U.S.,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital, the world's third-largest foreign-exchange trader. ``There remains risk aversion. The yen is appreciating against most currencies,'' including the Australian and New Zealand dollars, he said."
"In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates. The risk is that currency market moves erase those profits. Borrowing costs 7 percent in Australia and 8 percent in New Zealand, compared with 0.5 percent in Japan."
"The Australian dollar extended losses after a government report showed home loans fell for a sixth month in July and an industry report showed business confidence held close to the lowest level in seven years, stoking speculation economic growth will slow."
"Australian government bonds gained. The yield on the 10- year note fell 15 basis points, or 0.15 percentage point, to 5.61 percent. The price of the 5.25 percent bond maturing in March 2019 rose 1.169, or A$11.69 per A$1,000 face amount to 97.071. Bond yields move inversely to prices."
"New Zealand government debt rose. The yield on the 10-year benchmark bond fell 3 basis points to 5.97 percent. The price of the 6 percent security due in December 2017 increased 0.206, or NZ$2.06 per NZ$1,000 face amount, to 100.214."
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.netTracy Withers in Wellington at twithers@bloomberg.net
"Last Updated: September 9, 2008 02:50 EDT"
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"European Stocks Surge on Fannie, Freddie Takeover; Banks Climb "
By Michael Patterson
"Sept. 8 (Bloomberg) -- European stocks climbed the most since March, led by financial and construction companies, on speculation the U.S. government's takeover of Fannie Mae and Freddie Mac will shore up the mortgage market."
"UBS AG, the European bank hardest hit by subprime-related losses, jumped 8.3 percent and Germany's Deutsche Bank AG surged 6.5 percent after Treasury Secretary Henry Paulson said the government will provide short-term funding to the biggest U.S. mortgage-finance companies and purchase debt backed by home loans. Vinci SA, the world's biggest builder, rose 4.4 percent."
"The takeover of Fannie Mae and Freddie Mac ``is the beginning of the end of the problem,'' Lucy MacDonald, the London-based chief investment officer of global equities at RCM Ltd., which has $100 billion under management, said in an interview on Bloomberg Television. ``We'll see a floor put under financial shares.''"
"Europe's Dow Jones Stoxx 600 Index climbed 3.3 percent to 281.30, the steepest gain since March 18. Trading resumed on the London Stock Exchange after a computer failure caused the longest halt in more than eight years."
The Stoxx 600 has tumbled 23 percent this year as the biggest surge in mortgage defaults in at least three decades sparked more than $500 billion of writedowns and losses at banks from UBS to Deutsche Bank to HSBC Holdings Plc. All 18 industries in the Stoxx 600 retreated in 2008 as a drop in lending pushed the euro-region economy to the brink of a recession.
Global Rout
"Concern that failures by Fannie Mae and Freddie Mac, which make up almost half the U.S. home-loan market, would spark further losses at financial institutions around the world helped fuel share declines that wiped out $17 trillion of global market value since October."
"National benchmark indexes advanced in all 18 western European markets today. France's CAC 40 gained 3.4 percent, and Germany's DAX added 2.2 percent."
"The U.K.'s FTSE 100 rose 3.9 percent. A computer fault, which started at about 9 a.m. today, left some traders without prices and unable to buy or sell shares for more than six hours."
Paulson and Federal Housing Finance Agency Director James Lockhart yesterday placed Fannie Mae and Freddie Mac in a government-operated conservatorship. The Treasury may purchase up to $200 billion of stock in the firms to keep them solvent.
Fannie Mae and Freddie Mac slumped in U.S. trading after the Treasury's plan eliminated their dividends and left common stockholders last in line for any claims.
`Big Step'
"``This is a big step to improving the value of assets and liquidity in the financial system,'' said Brian Barish, who helps oversee about $8 billion as president of Denver-based Cambiar Investors LLC. ``But I don't think an explosive rally would be justified. A lot of the problems are still out there and this isn't going to change that.''"
"UBS climbed 8.3 percent to 24.26 francs. Deutsche Bank, Germany's largest, advanced 6.2 percent to 60.18 euros. Barclays Plc, the U.K.'s third-biggest bank, jumped 12 percent to 355 pence. Banks and insurers accounted for the 10 steepest gains in the Dow Jones Stoxx 50 Index, a gauge of the largest European companies."
"``There's only one story that means anything as the new trading week gets under way and that's the nationalization of Fannie Mae and Freddie Mac,'' said Matt Buckland, a trader at CMC Markets in London. The takeover ``should take a lot of uncertainty out of the market in one quick move.''"
"Vinci rose 4.4 percent to 37.32 euros. Royal BAM Groep NV, the biggest Dutch construction company, advanced 2.2 percent to 11.49 euros."
Commodities
"Raw-materials producers in the Stoxx 600 climbed 3.7 percent as a group after copper jumped 1 percent in New York. Gold, tin and zinc also increased."
"Boliden AB, Europe's second-largest zinc producer, gained 6.4 percent to 38.2 Swedish kronor. BHP Billiton, the world's largest mining company, rose 3.3 percent to 1,485 pence."
"Air France-KLM Group, Europe's biggest airline, said passenger traffic grew 2.8 percent last month, led by travel to the Americas. The shares added 2.3 percent to 17.045 euros."
"Bayerische Motoren Werke AG, the world's largest luxury automaker, climbed 4.1 percent to 28.72 euros. UBS AG rated the shares ``buy'' in new coverage, saying the company ``has the potential to double margins'' on a three-year view."
"GlaxoSmithKline Plc, the second-biggest drugmaker, declined 1.6 percent to 1,249.5 pence after Goldman Sachs Group Inc. added the stock to its ``conviction sell'' list, saying ``the shares are at risk in any market rally.''"
To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.
"Last Updated: September 8, 2008 12:25 EDT"
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European Bonds Decline a Second Day as Regional Stocks Advance
"Sept. 9 (Bloomberg) -- European government bonds fell as stock markets in the region climbed, eroding appetite for the safest assets."
"Ten-year German bunds declined for a second session following the U.S. Treasury's takeover of Fannie Mae and Freddie Mac, which fueled purchases of higher-yielding assets such as equities. Exports from Germany, Europe's largest economy, slipped more than economists forecast in July as faltering expansion curbed demand, a government report today showed."
"``The focus is still on the aftermath of the bailout and on the healthy reaction from equities,'' said Daniel Pfaendler, head of interest-rate strategy in Frankfurt at Dresdner Bank AG, the lender recently sold to Commerzbank AG, the nation's second-biggest lender. ``Although toward the end of the year we propose long positions in the European market, in the short- term we don't see good risk-reward.''"
"The yield on the 10-year bund, Europe's benchmark government security, was at 4.07 percent by 10 a.m. in London. The 4.25 percent note due July 2018 declined 0.03, or 30 euro cents per 1,000-euro ($1,416) face amount, to 101.44. The yield on the two-year note rose 2 basis points to 4.05 percent. Yields move inversely to bond prices."
Bunds slipped as the Dow Jones 600 Stoxx Index of European shares advanced 0.7 percent.
"Ten-year yields may rise to 4.25 percent before the end of September and end the year at 4.20 percent, according to the median forecast of 14 strategists surveyed by Bloomberg."
Bunds `Overbought'
"``The bund market is overbought. There isn't too much upside for prices with the European Central Bank on hold,'' said Peter Mueller, a fixed-income strategist in Frankfurt at Commerzbank."
"The ECB kept its main refinancing rate at 4.25 percent on Sept. 4. The bank may not lower interest rates until the first quarter of next year, according to the median forecast of 27 economists surveyed by Bloomberg."
"German sales abroad, adjusted for working days and seasonal changes, fell 1.7 percent from June, the Federal Statistics Office in Wiesbaden said. Economists expected a drop of 1.1 percent, the median of 10 forecasts in a Bloomberg News survey showed."
"European bonds have outperformed Treasuries in the second half of the year on speculation the region is entering a recession. German bonds have handed investors a 3.8 percent return since the end of June, compared with 2.5 percent for U.S. debt, according to Merrill Lynch & Co.'s German Federal Governments and U.S. Treasury Master indexes."
Economic and Monetary Affairs Commissioner Joaquin Almunia told the French newspaper Le Figaro that economic growth forecasts for the 15-nation economy will be lowered.
"``Growth figures will be revised downwards and those for inflation upwards,'' Le Figaro quoted Almunia as saying. There has been ``a significant fall'' in confidence indicators, he said. He didn't give figures, according to the newspaper."
The Netherlands plans to sell as much as 2.5 billion euros of 10-year bonds today. The government will announce the results of the sale at 11:30 a.m. local time.
To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net
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Indian Rupee Weakens to 21-Month Low as Importers Buy Dollars
By Anoop Agrawal
Sept. 9 (Bloomberg) -- India's rupee weakened to the lowest level in almost 21 months on speculation oil importers were buying dollars as crude fell toward $100 a barrel.
"The currency extended September's loss to 2 percent on concern that overseas investors will add to sales of Indian shares as regional stock indexes declined. Asia's third-largest economy brings in more than 70 percent of its annual energy needs, with oil price increases raising the cost of imports and helping push the current account into a deficit."
"``The underlying dollar demand is strong at a time when supply is far less,'' said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai. ``The rupee will face more pressure in the near term.''"
"The rupee fell as much as 0.6 percent to 44.88 a dollar, the lowest level since December 2006, before trading at 44.8450 as of 9:48 a.m. in Mumbai, according to data compiled by Bloomberg. It may decline to 45 this week, Bhatt said."
"Crude oil for October delivery was at $105.04, approaching $100 for the first time since April. It has dropped 28 percent from its record $147.27 reached on July 11."
"India's average oil import costs increased to $8.2 billion a month this year, from $5.5 billion in 2007, trade ministry data show."
To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal@bloomberg.net.
"Last Updated: September 9, 2008 00:26 EDT"
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"Romanian Trade Gap Widens as Lending, Investments Boost Imports "
By Adam Brown
Sept. 9 (Bloomberg) -- Romania's trade deficit widened in July from a year ago as soaring wages and lending spurred citizens to buy more imports and companies bought more foreign production equipment.
"The shortfall widened to 1.89 billion euros ($2.7 billion) in July from 1.80 billion euros in the same month of last year, the Bucharest-based National Statistics Institute said in an e-mail today. The gap narrowed on the month from 2 billion euros in June."
"Rising wages and a lending boom since Romania joined the European Union last year have boosted imports, while increased investment has forced local manufacturers to import more machinery and other capital goods."
"Net wages jumped an annual 25.8 percent in July as private debt soared an annual 55.8 percent, giving Romanians more purchasing power. Business investment in the second quarter also jumped 30 percent. Machinery imports in July accounted for 36 percent of the total."
"Exports in July increased an annual 20.8 percent to 3.19 billion euros while imports rose 14.2 percent to 5.08 billion euros, the institute said. The trade gap has been widening at a slower pace this year as the leu has weakened an annual 8 percent against the euro, making Romania's exports cheaper abroad."
"In the first seven months of the year, the trade deficit widened to 12.7 billion euros, from 11.5 billion euros in the same period of last year, the institute said."
"The trade deficit is the major component of the country's current-account gap, which widened in the first half to 7.98 billion euros from 7.36 billion euros a year earlier, according to data from the Banca Nationala a Romaniei. Fitch Ratings and Standard & Poor's have lowered their outlooks on Romania's credit rating, citing the gaps."
The trade data reported today includes the cost of freight and insurance for imports. The institute doesn't report figures that subtract those costs.
To contact the reporter on this story: Adam Brown in Bucharest at abrown23@bloomberg.net
"Last Updated: September 9, 2008 03:00 EDT"
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Japan's Bonds Advance After 5-Year Auction Demand Increases
Sept. 9 (Bloomberg) -- Japan's five-year notes advanced after demand increased at today's auction of 1.9 trillion yen ($17.6 billion) in the securities with a 1.1 percent coupon.
"The sale attracted bids worth 3.16 times the amount offered, compared with a so-called bid-to-cover ratio of 2.71 times at the previous sale in August. Five-year yields fell from an almost five-week high as stock indexes slumped."
"Auction demand ``confirms the market is still bullish,'' said Takashi Nishimura, an analyst at Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by assets, in Tokyo. ``Banks have a lot of cash to invest in safety assets such as JGBs.''"
"The yield on the 1 percent bond due June 2013 fell 2.5 basis points to 1.075 percent as of 4:20 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price rose 0.113 yen to 99.659 yen. Ten-year yields dropped 3 basis points, or 0.03 percentage point, to 1.495 percent."
"The lowest price at the auction of five-year debt was 0.02 yen below the average price, the same spread as the previous sale in August. The so-called tail is the difference between the lowest and the average price. The longer the tail, the fewer bids are clustered around the average price."
"Investors also bought bonds as the Nikkei 225 Stock Average lost 1.8 percent and the Topix index fell 2 percent, said Susumu Kato, chief economist in Tokyo at Calyon Securities, one of the 26 primary dealers required to bid at government debt sales."
"Fannie, Freddie"
"``It's become easier to buy the five-year securities'' following the sell-off yesterday, said Makoto Yamashita, chief debt strategist in Tokyo at Lehman Brothers Japan Inc., a unit of the fourth-largest U.S. securities firm."
"Five-year yields yesterday added 7.5 basis points to 1.1 percent, the highest since Aug. 6, after the U.S. government seized control of Fannie Mae and Freddie Mac."
"Treasury Secretary Henry Paulson on Sept. 7 placed Fannie and Freddie in a government-operated conservatorship. The Treasury said it will provide secured short-term funding to Fannie, Freddie and 12 federal home-loan banks, and purchase mortgage-backed debt in the open market."
"``We had a major event, where uncertainty about'' Fannie and Freddie was swept away, said Alessio Caldarera, a bond strategist at BNP Paribas Securities Japan Ltd. in Tokyo. ``This is bond market unfriendly in the sense it eliminates crisis.''"
Debt Supply
"Gains in bonds were limited on concern the Japanese government will issue more bonds to finance supplementary budgets tailored to aid economic growth, Caldarera said."
"The government may issue as much as 500 billion yen of so- called construction bonds to fund some of the extra spending for an economic stimulus package, two Finance Ministry officials told Bloomberg News on Sept. 5 on the condition of anonymity."
"``Domestically, I think investors are more in favor of bear-steepening because of the fiscal premium,'' Caldarera said, referring to when yields on longer-dated bonds rise."
"The difference in yields between five- and 20-year debt widened to 1.02 percentage points, compared with 1.01 percentage points yesterday, according to data compiled by Bloomberg"
Ten-year bond futures for September delivery fell 0.45 to 136.87 as of the afternoon close at the Tokyo Stock Exchange.
"Investors ``are selling September contracts and buying December'' in preparation for the contract rollover tomorrow, said Satoshi Yamada, a senior strategist in Tokyo at Nikko Citigroup Ltd., a Japanese unit of the world's biggest bank."
Economic Slowdown
"Bonds ended the day higher on speculation a report on Sept. 11 will show machinery orders, which signal capital spending in the next three to six months, fell for a second month in July. Equipment orders slid 3.6 percent from June, when it slumped 2.6 percent, according to 35 economists surveyed by Bloomberg News."
"``Nothing will change the direction of the Japanese economy,'' said Keiko Onogi, a debt strategist at Daiwa Securities SMBC Co., another dealer. ``The economy is slowing.''"
"A separate government report yesterday showed sentiment among merchants in August fell to the lowest level in seven years. The Economy Watchers index, a survey of barbers, taxi drivers and others who deal with consumers, dropped to 28.3, the lowest since October 2001, from 29.3 in July, the Cabinet Office said yesterday in Tokyo."
"Benchmark bonds have handed investors a return of about 0.9 percent so far this quarter through yesterday, the least among Group of Seven nations, according to indexes compiled by Merrill Lynch & Co. The Nikkei lost 6.4 percent in the same period."
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
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<<2.631_20080909104851French Stocks ArcelorMittal Carbone Lorraine GL
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Corn Rise as US Mortgage Aid Boosts Commodity Use .txt>>
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<<2.628_20080909093834TenYear Treasuries Gain on Concern Takeover Won't
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<<2.643_20080909103936Mantega Says Brazil Currency May Weaken More on
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government bonds fell as stock markets in the region cli.txt>>
<<2.636_20080909104601Indian Rupee Weakens to 21Month Low as Importers
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Lending Investments Boost Imports .txt>> <<2.635_20080909104320Sept 9
(Bloomberg) Japan's fiveyear notes advanced after demand increased at
today's.txt>>
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