"Gold Futures Drop as Equities Surge on U.S. Bank, Credit Plans "
By Pham-Duy Nguyen
Sept. 19 (Bloomberg) -- Gold futures dropped the most in a week as equities worldwide surged on the U.S. government's plan to ease the credit crunch and curb bets against financial stocks.
"The metal still had the biggest weekly gain in almost nine years on turmoil in the banking, mortgage and insurance industries. The Treasury and the Federal Reserve have proposed moving troubled assets from the balance sheets of American financial companies into a new institution."
"``The safety bid is leaving really quickly,'' said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. ``The market has regained total confidence in the ability of the Fed and the economy to weather this crisis. You're seeing a movement out of safe harbors into more traditional investments.''"
"Gold futures for December delivery fell $32.30, or 3.6 percent, to $864.70 an ounce on the Comex division of the New York Mercantile Exchange. The percentage decline was the biggest for a most-active contract since Sept. 10."
"This week, the metal jumped 13 percent, or $100.20, the most since early October 1999."
"Silver futures for December delivery dropped 22.5 cents, or 1.8 percent, to $12.475 an ounce. This week, the metal still soared 16 percent, the most since April 1987."
"Gold has climbed 3.2 percent this year, while silver has dropped 16 percent."
Wide Price Swings
Gold futures slid after the close of floor trading yesterday as speculation heightened that the government would announce a plan to shore up financial markets.
"Gold for immediate delivery rose $18.26, or 2.2 percent, to $869.23 at 3:12 p.m. New York time. The price dropped 1.5 percent late yesterday on initial reports of the U.S. plan."
"Wide price fluctuations may discourage investors from buying, analysts say. The historical volatility of gold, or the rate at which a price moves up and down, was 68 percent in the past 10 days, compared with 8.7 percent a year earlier."
"``You have a lot to lose by rushing to conclusions,'' said Jon Nadler, a senior analyst at Kitco Minerals & Metals Inc. in Montreal."
"U.S. stocks extended the biggest two-day global rally since 1970 as Treasury Secretary Henry Paulson assured investors the government is working on a ``comprehensive approach'' to solving the credit squeeze. The U.S. took over American International Group Inc., Fannie Mae and Freddie Mac on the heels of the bankruptcy filing by Lehman Brothers Holdings Inc."
`People Worried'
"``Even though the stock market is rallying today, I don't know how much confidence they can instill,'' said Tom Hartmann, a commodity analyst at Altavest Worldwide Trading in Mission Viejo, California. ``People are buying gold on dips. There are still a lot of people worried about the stability of the U.S. economy.''"
"The government plan may spur inflation, analysts said. The Treasury has pledged to buy as much as $200 billion of Fannie and Freddie stock to keep them solvent, while the Fed agreed on Sept. 16 to an $85 billion bridge loan to AIG. The Treasury also plans to buy $5 billion of mortgage-backed debt this month under an emergency program."
"``The U.S. government in printing dollars again,'' said Chris Wang, a portfolio manager at SYW Capital Management LLC in New York. ``The government is speeding up the printing presses, so gold is seen as a flight from the dollar.''"
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
"Last Updated: September 19, 2008 15:13 EDT"
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N.Z. Current Account Deficit Widens as Exports Fall (Update2)
By Tracy Withers
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Sept. 19 (Bloomberg) -- New Zealand's annual current account deficit widened to a record in the year ended June as a drought led to a slump in dairy exports and rising oil and food prices fanned imports.
"The gap expanded to NZ$14.97 billion ($10.1 billion) in the 12 months ended June 30 from a revised NZ$14.21 billion in the year to March, Statistics New Zealand said in Wellington today."
"A drought forced dairy farmers to reduce milk production, leading to a 17 percent slump in dairy exports in the second quarter. The current account gap, the broadest measure of trade because it includes tourism, other services and investment income, may widen further as slowing global economic growth curbs commodity prices."
"``The problems are a lot more fundamental and it will take a lot to get the deficit into a safe zone,'' said Craig Ebert, senior markets economist at Bank of New Zealand Ltd. in Wellington. ``We have this massive deficit even though the terms of trade are peaking. The way out of this will be a bumpy road.''"
New Zealand's dollar bought 67.41 U.S. cents at 11:55 a.m. in Wellington from 67.48 cents immediately before the report.
"The annual deficit was probably 8.3 percent of gross domestic product, according to the median estimate of five economists surveyed by Bloomberg News today after the report was released. The statistics agency will publish the official figures on Sept. 25."
"The gap widened from a revised 8 percent in the year through March. By comparison, neighboring Australia's current account deficit was 6.2 percent of GDP at June 30."
Quarterly Deficit
"Economists prefer to watch a rolling annual current account balance than the quarterly deficit, which can be volatile. The median estimate of 11 economists surveyed by Bloomberg was for a NZ$14.21 billion annual shortfall."
"In the three months ended June 30, the current account deficit widened to NZ$3.91 billion from NZ$3.15 billion a year earlier. Economists forecast a NZ$3.42 billion quarterly gap."
"A deficit represents money New Zealand has to borrow overseas to pay for the goods and services it imports, and to finance investment not covered by local savings. A wider deficit makes New Zealand more dependent on foreign funding, which could cause the nation's currency to fall."
"The trade deficit widened to NZ$1.83 billion in the 12 months ended June 30 from NZ$1.75 billion in the year through March, today's report showed."
"Exports fell in the second quarter led by a drop in butter, cheese and milk powder volumes, the statistics agency said."
Dry Weather
"A drought that began in October extended until March. Some parts of the country received the least rain in a century in January, according to the National Climate Center."
"Farmers produced less milk, prompting Fonterra Cooperative Group Ltd., the world's largest dairy exporter, to announce in February it may restrict new export orders."
Imports gained as soaring crude oil prices increased the value of fuel purchases.
"The deficit on investment income, which makes up most of the current account, widened and the services balance, which includes spending by overseas visitors, was in deficit for the first time in seven years."
"The deficit on investment income grew amid increased payments to foreign owners of assets such as the Tui oil field, which is 42 percent owned by Sydney-based Australian Worldwide Exploration Ltd. and 35 percent owned by Japan's Mitsui & Co."
The annual deficit on investment income widened to a record NZ$13.93 billion from NZ$13.39 billion in the year through March.
"Foreign investors earned more from their local subsidiaries and their holdings of stocks and bonds, outpacing income earned by New Zealanders investing offshore."
"Interest payments to overseas parent companies increased because of higher levels of borrowing, the agency said. New Zealanders earned less from their overseas subsidiaries offsetting gains by locally based fund managers, it said."
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
"Last Updated: September 18, 2008 20:07 EDT"
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"China's Stocks Surge, Led by Banks, on Government Support Plan "
By Chua Kong Ho and Luo Jun
Sept. 19 (Bloomberg) -- China's benchmark stock index rallied the most since the gauge was created in April 2005 after the government said it will buy shares in three of the largest state-owned banks and scrapped the tax on equity purchases to halt a slide that erased $2.64 trillion of market value.
"Industrial & Commercial Bank of China Ltd., Bank of China Ltd. and China Construction Bank Corp. jumped by the 10 percent limit after the official Xinhua News Agency said the state-owned controlling shareholder will increase its stakes in them. Stocks also gained as a U.S. proposal to shore up financial companies eased concern the global credit crisis will deepen."
"``The stimulus package had an immediate impact on restoring investor confidence, which has been crushed by expectations of economic slowdown,'' said Hu Xiaodong, a Shanghai-based fund manager at Martin Currie Investment Management Ltd., which oversees $4 billion in Greater China. ``The government may come up with more loosening measures to boost the economy.''"
"The CSI 300, a measure of yuan-denominated stocks traded in Shanghai and Shenzhen, gained 177.12, or 9.3 percent, to 2,073.11 at the close, the most since April 7, 2005, and snapping a three-day, 8.8 percent loss. More than two thirds of the stocks on the gauge rose by the 10 percent limit. The stock index had risen almost sevenfold between July 2005 and its peak on Oct. 16 last year, before the equity bubble deflated."
"China's central bank cut interest rates on Sept. 15 for the first time in six years and allowed most banks to set aside smaller reserves. The CSI 300 Index has slumped 64 percent this year as of yesterday, erasing $2.64 trillion in stock market value."
Short-Lived Rally?
"Earlier measures to stem the market slide have failed. The government cut the stamp duty in April, has restricted share sales and required major company shareholders to sell stock emerging from lockups in block trades."
"Investors should reduce their holdings because the boost to the market may be ``short-term,'' Morgan Stanley said."
"Investors should sell into the rally as the economic slowdown hurts earnings and ``global financial market turmoil and de-risking are still ongoing,'' said Morgan Stanley's Hong Kong-based Jerry Lou and Allen Gui in a note dated yesterday."
"``Both the A-share and H-share markets are having a more fundamental problem than just poor sentiment'' with an ``earnings recession'' coming, the note said."
Bank Shares Bought
"Central Huijin Investment Co., a unit of China Investment Corp. and the controlling shareholder of the nation's largest banks, will begin buying shares in ICBC, Bank of China and China Construction in the secondary market immediately, Xinhua said, without giving further details."
"ICBC, the nation's largest bank, climbed 9.9 percent to 3.78 yuan, Bank of China surged 10 percent to 3.36 yuan and China Construction also rose by the maximum to 4.19 yuan."
"Inner Mongolia Yili Industrial Group Co. and Bright Dairy & Food Co., whose products have been found to be tainted with the industrial chemical melamine, had trading in their shares suspended by the exchange."
To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Luo Jun in Shanghai at jluo6@bloomberg.net
"Last Updated: September 19, 2008 03:33 EDT"
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India's Bonds End Four-Week Advance on Costlier Overnight Funds
By Anil Varma
Sept. 19 (Bloomberg) -- India's 10-year bonds snapped a four-week advance on speculation higher interest rates in local money markets will deter investors from buying debt.
Yields on benchmark notes rose to the highest in almost two weeks as quarterly tax payments by companies drained cash from the banking system and pushed overnight borrowing costs to the highest since March 2007. Central banks in the world's major economies injected $180 billion to ease a credit squeeze that has roiled financial markets. Local bonds also fell on concern increased rupee volatility will diminish the appeal of debt.
"``There are still a few uncertainties to be dealt with as far as the bond market is concerned,'' said S. Srikumar, chief debt trader at state-owned Corporation Bank in Mumbai. ``The first is about how the current liquidity crunch will be resolved. And then, the market is worried about the impact of the rupee's volatility on the financial market.''"
"The yield on the benchmark 8.24 percent note due April 2018 rose 3 basis points this week to 8.39 percent as of the 5:30 p.m. close in Mumbai, according to the central bank's trading system. The price fell 0.22, or 22 paise per 100 rupee face amount, to 99. A basis point is 0.01 percentage point."
"Ten-year yields may rise to 8.5 percent in the coming days, Srikumar said."
"Domestic companies may have paid as much as 400 billion rupees ($8.72 billion) by Sept. 15 in their third installment of taxes for the financial year that began April 1, according to Anoop Verma, a debt trader at Mumbai-based Development Credit Bank Ltd."
Cash Injection
"The rate at which banks lend to each other overnight climbed to as high as 15.63 percent today, data compiled by Bloomberg show. It averaged 11.5 percent this week, compared with 8.5 percent last week."
"Lenders have borrowed money from the central bank on every trading day in the past three weeks, indicating they are short of cash. The central bank injected a record 823.1 billion rupees today, up from 753.15 billion rupees yesterday, via its daily repurchase auction."
"The rupee is headed for the biggest annual loss in 17 years, with a 15 percent decline. It is the second-worst performer this year among Asia's 10 most-active currencies after the South Korean won. The rupee rallied 12.2 percent in 2007."
"The cost of benchmark Indian interest-rate swaps, or derivative contracts used to guard against rate fluctuations, rose for a second day. The five-year swap rate, a fixed payment made to receive floating rates, climbed to 8.28 percent from 8.09 percent yesterday."
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.
"Last Updated: September 19, 2008 08:13 EDT"
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Asian Stocks Rise the Most in 10 Years; Chinese Banks Surge
By Kyung Bok Cho and Ian C. Sayson
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"Sept. 19 (Bloomberg) -- Asian stocks surged, giving the benchmark index its biggest gain in 10 years, as central banks pumped cash into money markets and worked on plans to shore up banks and insurers."
"Macquarie Group Ltd., Australia's largest investment bank, soared 38 percent. Morgan Stanley jumped 11 percent in after- hours trading as Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke pledged to work through the weekend on measures to ease the credit crisis. China's CSI 300 Index surged by a record 9.3 percent, led by Bank of China Ltd., after the government scrapped a stock-trading tax and said it will buy more shares in three of the largest banks."
"``No one can say if we have finally seen the end,'' said Marvin Yap, who helps manage the equivalent of $6.7 billion at BPI Asset Management Inc in Manila. ``What's certain is investors got a temporary reprieve. We could have seen more selling losses if these steps weren't taken.''"
"The MSCI Asia Pacific Index added 4.9 percent to 113.15 as of 8:03 p.m. in Tokyo, the biggest advance since Oct. 7, 1998, with 85 of its 991 members climbing 10 percent or more. Financial companies accounted for 44 percent of the increase."
"The measure, which rebounded from its lowest close in three years, is still down 2.3 percent this week. Today's rally was spurred on as central banks poured $220 billion into the world financial system to encourage lending, while U.S. and U.K. regulators considered restricting investors from betting on declines. Paulson and Bernanke are considering a plan to move troubled assets from financial companies into a new institution."
Lower Valuations
"Japan's Nikkei 225 Stock Average added 3.8 percent to 11,920.86. Hong Kong's Hang Seng Index jumped 9.6 percent, the most since Jan. 23. All markets in the region advanced. U.S. Treasuries and Japanese bonds fell on speculation Paulson and Bernanke's plan will increase demand for stocks over bonds. The dollar rose 1.4 percent against the yen, the most since Aug. 22."
"Standard & Poor's 500 Index futures gained 3.6 percent in after-hours trading. The S&P 500 climbed 4.3 percent yesterday, the most in six years, after Senator Charles Schumer proposed an agency to pump capital into financial companies."
"Bank lending seized up this week following Lehman Brothers Holdings Inc.'s bankruptcy filing and the U.S. government's takeover of American International Group Inc. Since the start of 2007, global financial companies have reported more than $510 billion in credit losses and writedowns linked to the slump in the U.S. housing market and slowing economic growth."
"The MSCI Asia Pacific Index's drop in the week left it valued at 11.9 times estimated profit yesterday, the lowest in at least 15 years. The S&P 500 Index is cheaper at 14.2 times, while the Dow Jones Stoxx Index is at 9.7 times."
Easing The Squeeze
"Macquarie, whose shares have lost half their value this year, jumped a record 38 percent to A$35.90. Sumitomo Mitsui Financial Group Inc., Japan's second-largest bank by market value, rose 13 percent to 659,000 yen. Kookmin Bank, South Korea's biggest, advanced 7.1 percent to 55,900 won."
"The Bank of Japan yesterday agreed to offer up to $60 billion to local and overseas financial institutions to ease the credit squeeze. The U.S. Securities and Exchange Commission said it may require hedge funds to disclose short-sale positions, while the Financial Services Authority in the U.K. prohibited short selling financial shares for the rest of the year."
"National Australia Bank, the nation's biggest by assets, gained 17 percent to A$23, the most since January 1975. Nomura Holdings Inc., Japan's largest brokerage, advanced 10 percent to 1,305 yen."
"Bank of China, the nation's second-biggest bank, jumped 10 percent to 3.36 yuan. A 24 percent slump in the month through yesterday left it valued at a record low of 10.5 times profit. Industrial & Commercial Bank of China Ltd., the country's largest, surged 9.9 percent to 3.78 yuan. China Construction Bank Corp. added 10 percent to 4.19 yuan."
`Immediate Impact'
"The companies' state-owned controlling shareholder will buy shares on the open market to shore up investor confidence, the official Xinhua News Agency reported."
"``The stimulus package had an immediate impact on restoring investor confidence, which has been crushed by expectations of economic slowdown,'' said Hu Xiaodong, a Shanghai-based fund manager at Martin Currie Investment Management Ltd., which oversees $4 billion in Greater China. ``The government may come up with more loosening measures to boost the economy, which will also ease investors' concerns.''"
"Shipping companies rose after cargo rates increased by the most in a month. Hanjin Shipping Co., South Korea's biggest, added 11 percent to 29,000 won. Kawasaki Kisen Kaisha Ltd., Japan's third-biggest, jumped 11 percent to 755 yen."
"The Baltic Dry Index, a measure of commodity-shipping rates, gained 2.1 percent yesterday in London, the most since Aug. 14."
"Korea Exchange Bank, controlled by U.S. buyout firm Lone Star Funds, fell 10 percent to 11,350 won, the biggest plunge since May 10, 2004. HSBC Holdings Plc, Europe's largest bank, said it scrapped its planned $6 billion purchase of the Korean bank after the global credit crisis slashed asset values."
To contact the reporters for this story: Kyung Bok Cho in Seoul at kcho7@bloomberg.net; Ian C. Sayson in Manila at isayson@bloomberg.net.
"Last Updated: September 19, 2008 07:08 EDT"
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Gold Futures Decline Most Since 1980 on Plan to Avert Crisis
By Marianne Stigset
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Sept. 19 (Bloomberg) -- Gold futures in New York fell the most in almost 28 years as central banks eased investor concern by pumping cash into global credit markets and U.S. officials said they were developing a plan to stop banks from failing.
"Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed moving troubled assets from the balance sheets of American financial companies into a new institution. U.K. and U.S. regulators cracked down on short sellers, sending stocks in Asia and Europe soaring and reducing the appeal of bullion as an alternative investment."
"``It's a wild, wild ride; we're seeing unprecedented volatility,'' said Mark O'Byrne, managing director of brokerage Gold and Silver Investments Ltd. in Dublin. ``There's increasing risk appetite among investors who are seeing stocks surge and are hoping the latest injections from the central banks will alleviate the problems of the financial system.''"
"Gold futures for December delivery on the Comex division of the New York Mercantile Exchange were 6 percent lower at $843.20 an ounce in electronic trading as of 10:56 a.m. London time. Earlier they fell as much as $68.50, or 7.6 percent, to $828.50, the biggest percentage decline since Nov. 7, 1980. The metal rose 15 percent on Sept. 17-18, the most since U.S. futures debuted in 1975."
"``The gold price has been extremely volatile in recent weeks, being pushed from pillar to post by the dramatic movements in foreign exchange, financial and equity markets,'' David Moore, commodity strategist at Commonwealth Bank of Australia, said in a weekly report today."
Fed Move
Europe's main central banks offered $90 billion for a second day to help ease a credit squeeze. The Federal Reserve yesterday almost quadrupled the amount of dollars central banks can auction around the world.
"Gold for immediate delivery in London fell as much as $25.72, or 3 percent, to $825.12 an ounce, and stood at $838.36 as of 10:37 a.m. local time."
"The dollar's first increase against the euro in three days also reduced gold's attraction as an alternative investment to the U.S. currency. Gold has had a correlation of 0.68 to the euro-dollar exchange rate this year, up from 0.58 last year, Bloomberg data show. A figure of 1 would mean they move in lockstep."
"The gold ``movement is primarily led by currency,'' Suki Cooper, an analyst at Barclays Capital in London, said by phone. ``We've seen the dollar strengthen, which is weighing on gold.''"
"Bullion remains headed for its biggest weekly gain in nine years after the U.S. took over American International Group Inc., the country's largest insurer, and Lehman Brothers Holdings Inc. filed for bankruptcy, triggering the worst market crisis since the 1920s."
`Fund Demand'
"``By the end of the year, I think we'll be looking at $1,000 an ounce, because of the extent of the physical demand,'' O'Byrne said. ``We can't keep up with the funds ringing. We've never had demand like it.''"
Comex raised margin payments on gold and silver futures by as much as 47 percent after price swings accelerated.
"The margin rate for Comex members advances to $5,500 a gold contract today from $3,750, the exchange said in an e-mailed statement late yesterday. The new rate for non-members is $7,425, compared with $5,063. One contract represents 100 ounces."
"For silver futures, members will pay a margin rate of $6,000, compared with $5,000 previously. Non-members will pay $8,100, up from $6,750. One silver contract represents 5,000 ounces."
"Among other metals for immediate delivery, silver rose 63 cents, or 0.1 percent, to $11.975 an ounce. Platinum dropped $24.85, or 2.3 percent, to $1,078.15 an ounce and palladium slipped $6.25, or 2.7 percent, to $229.75 an ounce."
"Platinum fell to $1,083 an ounce in the morning ''fixing'' in London from $1,132 at the previous afternoon fixing. Palladium declined to $229.00 an ounce, from $237.00."
To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net
"Last Updated: September 19, 2008 06:19 EDT"
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Michael R. Sesit
Dollar Ready for Second Wind When Dust Clears: Michael R. Sesit
Commentary by Michael R. Sesit
Sept. 19 (Bloomberg) -- Missed the recent dollar rally? Too bad; it was a whopper.
"But don't sulk; you'll get another chance to gamble on a rising greenback in a few months. Until then, though, the most rewarding strategy will be to bet against the U.S. currency."
"Three reasons: The dollar rally that began in mid-July was too explosive in too short a time. Two, it reflected more bad news about the rest of the world's economic fate than good news about the U.S. economy. Three, it was largely a short-covering rally in which speculators who had bet on a weaker dollar were forced to buy back the currency to cover losses or take their profits -- and there's a limit to how far shorts can be squeezed."
"From its record low of $1.6038 to the euro on July 15, the U.S. currency soared 16 percent to $1.3882 by Sept. 11, before retreating to $1.44 yesterday. Over the same period, the trade- weighted dollar rallied 10 percent to its highest level since October 2007. The Bloomberg JP Morgan Asia Dollar Index, a trade- and liquidity-weighted measure of 10 Asian currencies against the U.S. dollar, fell to its lowest level since August 2007."
The British pound's 8.2 percent slump in August was its worst monthly decline against the dollar since the U.K. was forced to exit the European Exchange Rate Mechanism in 1992.
"Still, the dollar rally was overdone. ``Dollar strength and euro weakness have proceeded too far, too fast,'' says David Abramson, head of foreign-exchange strategy at BCA Research Ltd. in Montreal. ``The U.S. economy is still adjusting to a deflationary shock led by the credit and housing crises and thus cannot withstand a rapid and lasting appreciation in its currency.''"
Asia Concerns
"Rather than signaling an improvement in U.S. economic fortunes, the dollar's stunning advance is the product of revelations that Europe's economy is weaker than anticipated, and concerns about slowing Asian growth. The dollar was also buoyed by equity outflows from emerging markets and oil funds -- especially repatriations by Americans who had increased their overseas investments to 20 percent of total assets from 8.7 percent in March 2003, according to Credit Suisse Group AG."
"``I don't have any confidence that at least half of the knock-your-socks-off dollar rally is anything more than a massive deleveraging and risk-aversion trade,'' says David Gilmore, partner at Foreign Exchange Analytics in Essex, Connecticut."
"More evidence that the greenback is overstretched: It has fallen 3.6 percent against the euro since Sept. 11, while the price of oil has dropped 3.8 percent to about $97."
Shorter Rallies
"Meanwhile, investors are increasingly unimpressed with U.S. government-orchestrated bailouts. Following the Federal Reserve- supported acquisition of Bear Stearns Cos. in mid-March, U.S. stocks enjoyed a two-month rally. The mid-July decision to extend credit to Fannie Mae and Freddie Mac resulted in a one-month advance, while the government's takeover of the two mortgage- finance companies on Sept. 7 produced a rally lasting just one day. The rally that followed this week's nationalization of American International Group Inc. lasted just minutes."
"``How does the U.S. economy hold up in a global slowdown with a broken banking system, falling home prices, elevated consumer indebtedness and declining corporate earnings?'' Gilmore asks."
The answer is: It doesn't. Particularly with the prospect that the American economy will slow in the second half of 2008 and that the unemployment rate may reach 8 percent.
Limited Potential
"What's more, speculators are long on dollar-futures contracts and short on euros, pounds, Swiss francs and Canadian dollars, signaling that they have shifted from being extremely pessimistic on the greenback late last year to being overly optimistic. That's often a counterintuitive sign that the dollar's upside potential is limited."
How far the dollar might retreat is anyone's guess. Yet a decline to a range of $1.45 to $1.50 to the euro is easily plausible. So a short-term strategy of purchasing euros and selling dollars at current exchange rates may reward an investor with some nice pocket change.
"Once the U.S. currency approaches the $1.50 level, it will be time to load up on dollars again in preparation for the second leg of the rally, which could see it strengthen to $1.25 to the euro. Here's why:"
"-- Dollar-bear markets historically tend to last seven to nine years, according to Credit Suisse. The current one is almost seven years old, suggesting that we have probably seen the bottom of the dollar."
Undervalued Dollar
"-- Even after its stunning recent rally, the dollar is undervalued. Based on purchasing power parity, fair value is $1.15 to the euro, according to UBS AG and Credit Suisse. The two banks also put sterling's fair value at $1.60 and $1.53, respectively, versus a current exchange rate of $1.82."
-- The U.S. economy should recover before those of Europe and the U.K.
-- The Fed will begin raising interest rates while the European Central Bank and Bank of England lower them. The narrowing differential will increase the dollar's allure to international investors.
"-- The U.S. current-account deficit, long a thorn in the dollar's side, has narrowed to 5 percent of gross domestic product from a peak of 7 percent in 2005. The weak dollar and falling oil prices will shrink it further. A stronger dollar will eventually hurt U.S. export growth, but that will take many months."
"Until then, enjoy the mighty buck."
(Michael R. Sesit is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: Michael R. Sesit in Paris at at msesit@bloomberg.net
"Last Updated: September 18, 2008 19:01 EDT"
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"Asian Currencies: Won, Peso Gain on U.S. Plans to Calm Markets "
By Lilian Karunungan and Kim Kyoungwha
"Sept. 19 (Bloomberg) -- South Korea's won and the Philippine peso were among Asian currencies to advance today after the U.S. government stepped up efforts to stem losses in the credit markets, helping revive demand for regional stocks."
Taiwan's dollar and the Indonesian rupiah also rose as Asian shares climbed from a three-year low following the biggest rally in U.S. equities in six years. U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke sought legislation to remove troubled assets from banks and alleviate a credit squeeze.
"``It's predominantly a confidence issue and what we are seeing is probably a temporary reprieve in the market,'' said Wan Murezani Mohamad, a senior analyst at Malaysian Rating Corp. in Kuala Lumpur. ``There may be value in Asian stocks and currencies'' after the recent sell-off, he said."
"Korea's currency rose 1.2 percent to 1,139.70 against the dollar as of the 3 p.m. close in Seoul, according to Seoul Money Brokerage Services Ltd. The won fell 2.7 percent on the week. The Philippine peso gained 0.9 percent to 46.552 in Manila, according to Tullett Prebon Plc. The peso gained 0.7 percent from a week ago."
"``The won got an early boost from the good news from the U.S.,'' said Sam Hong, a currency dealer with Shinhan Bank in Seoul. ``Whether the gains can be sustained is still in doubt.''"
"The won's advance reduced this year's loss to 18 percent, the worst among the 10 most-active Asian currencies. The currency will trade between 1,100 and 1,160 next week, according to 10 strategists and traders surveyed by Bloomberg News."
Blow to Won
"Gains in the won may be curbed after HSBC Holdings Plc, Europe's largest bank, abandoned the $6 billion purchase of Korea Exchange Bank from Lone Star Funds."
"``The withdrawal of the deal is a blow to a market that was expecting some inflows of dollar supplies from the sale of the bank to foreign investors,'' Hong said."
"The Bank of Korea is ready to take action when necessary to calm concerns about the global turmoil, including adding liquidity to the financial system, Governor Lee Seong Tae said today."
"Central banks in Japan and Australia pumped $113 billion into money markets this week, pushing down borrowing costs to revive confidence among banks."
`Risk Aversion'
The Philippine peso snapped a seven-week slide as central banks in the world's biggest economies made $180 billion available to the global financial system.
"``The joint effort of central banks to pump liquidity into the market lessened risk aversion and is positive for Asian currencies including the peso,'' said Rafael Algarra, treasurer at Security Bank Corp. in Manila."
India's rupee climbed from more than a two-year low on speculation gains in Asian stocks will help stem capital outflows.
"``The rupee fell victim to panic reaction, and now, like other assets, is recovering lost ground,'' said Jayant Chiney, treasurer at state-owned Bank of India in Mumbai. ``The rupee should be at levels much higher than at present.''"
"The local currency rose 0.4 percent to 46.31, according to data compiled by Bloomberg. The rupee, which dropped 1.3 percent this week, may strengthen to 46 in coming days, Chiney said."
"Overseas funds have sold $8.9 billion more Indian equities than they bought this year, driving the benchmark Bombay Stock Exchange Sensitive Index, or Sensex, to its first annual loss since 2001. The gauge has slumped 32 percent this year."
Indonesia Intervention
Indonesia's rupiah rose for a fourth day as Deputy Governor Hartadi Sarwono said Sept. 17 that Bank Indonesia has been intervening to boost the currency.
"There is ``some respite from the risk-aversion sentiment because overnight there was some positive developments on Wall Street,'' said Joanna Tan, a regional economist and market analyst at Forecast Singapore Pte Ltd. ``Bank Indonesia is always in the market to support the rupiah.''"
"The rupiah traded at 9,370 in Jakarta, from 9,400 late yesterday, according to data compiled by Bloomberg. The currency rose 0.7 percent this week."
"Elsewhere, the Singapore dollar fell 0.4 percent to S$1.4358 against the U.S. currency. Malaysia's ringgit rose 0.1 percent to 3.4636. Taiwan's dollar gained 0.2 percent to NTS32.158. The Thai baht traded at 34.15 compared with 34.14 yesterday. Vietnam's dong dropped 0.5 percent to 16,715."
To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net
"Last Updated: September 19, 2008 04:23 EDT"
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"Gasoline Supply May Fall `Substantially,' Energy Official Says "
By Barbara Powell
"Sept. 19 (Bloomberg) -- The Energy Department's Sept. 24 inventory report may show that U.S. gasoline supplies fell 8.5 million barrels from a four-decade low as Texas refineries assess damage from Hurricane Ike, a department official said."
"``Probably the max is an 8.5 million draw in gasoline because demand is down, and it could be as low as 6.5 million'' barrels, John Duff, survey manager for the Energy Department's weekly petroleum status report, said in an interview. The report will show ``the real impact of the hurricane on the refining sector,'' he said. Supplies will fall ``substantially.''"
"Gasoline stockpiles dropped 3.31 million barrels to 184.6 million in the week ended Sept. 12 as the storm forced refineries with about 20 percent of the nation's fuel-processing capacity to shut, the department's weekly inventory report on Sept. 17 showed. Supplies were the lowest since November 1967, according to Jonathan Cogan, a department spokesman."
"``That reporting period closed before Hurricane Ike hit and shortly after the refineries starting shutting down, so refineries only lost one-seventh of their operations during the week of Sept. 12,'' Duff said."
"A decline of 8.5 million barrels of gasoline in next week's report, covering the week ended today, would be 4.6 percent of the total."
"Inventories fell 6.5 million barrels in the week ended Sept. 5, and four of those seven days were affected by refinery shutdowns from Hurricane Gustav, which made landfall on the Louisiana coast on Sept. 1."
Reduced Demand
"Demand for gasoline in the U.S. dropped 2 percent to 8.91 million barrels a day last week, the lowest since January 2006, the Sept. 17 report showed. Duff expects next week's report to show demand of about 8.8 million to 9 million barrels a day."
"``How much inventories fall will depend on the demand and on imports,'' Duff said. ``This is going to be temporary and fortunately it's happening when the demand is temporarily low, both because it's seasonal and because of the weakness in the economy.''"
"U.S. crude-oil stockpiles fell 6.33 million barrels to 291.7 million barrels last week, according to the Energy Department. It was the fourth-straight inventory decline."
"Crude oil inventories may be little changed in next week's report because refineries were shut and not using their crude, Duff said."
"``I suspect the following week you'll see things slowly returning to normal,'' he said."
"The Energy Department said yesterday that 12 Gulf Coast refineries with a total operable capacity of 3 million barrels of crude oil daily were shut in Louisiana and Texas, four plants were restarting and eight were running at reduced rates."
To contact the reporter on this story: Barbara Powell in Dallas at Bpowell4@bloomberg.net.
"Last Updated: September 19, 2008 09:35 EDT"
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Oil Gains for a Third Day as Bank-Bailout Plan Boosts Markets
By Margot Habiby
Sept. 19 (Bloomberg) -- Crude oil climbed for a third day on speculation government measures to resolve the bank crisis may bolster demand for petroleum.
Oil rose as much as 5.9 percent and stock markets surged after U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke said they're making plans to halt the credit-market seizure. Output disruptions from hurricanes in the U.S. and attacks in Nigeria have constrained supplies.
"``There's a bullish lean to the market, and that will remain until the imports and inventories start to pick up,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts."
"Crude for October delivery gained $1.35, or 1.4 percent, $99.23 a barrel at 11:16 a.m. on the New York Mercantile Exchange. Futures rose $5.76 to $103.64 a barrel in earlier trading. Oil is up 21 percent from a year ago."
"``There seems to be a feeling that maybe some of the problems have been rectified by actions taken in the past 24 hours, and that's giving the bulls an opportunity to buy, at least for the time being,'' said Peter Beutel, president of Cameron Hanover Inc. in Stanford, Connecticut."
"Oil may rise next week amid low U.S. inventories in the wake of hurricanes Ike and Gustav, according to a survey of 30 analysts by Bloomberg News. Fourteen, or 47 percent, said prices will increase through Sept. 26. Ten, or 33 percent, said crude will fall and six said prices would be little changed."
Production Shut
"U.S. energy companies have idled about 1.2 million barrels a day, or 93 percent of oil production, in the Gulf of Mexico and 5.7 billion cubic feet a day of natural gas, or 78 percent, after hurricanes Gustav and Ike, the U.S. Minerals Management Service, said yesterday on its Web site."
The International Energy Agency's Executive Director Nobuo Tanaka said today the agency will decide soon whether to release emergency stockpiles because of hurricane damage.
"``Oil has gotten support from the supply-side issues,'' said David Moore, a commodity strategist with Commonwealth Bank of Australia Ltd. in Sydney. ``There is the obvious impact of the hurricane activity on U.S. production and inventories. Nigeria remains an area of potential risk.''"
"In Nigeria, Royal Dutch Shell Plc warned that this week's escalation in militant attacks would hurt earnings. The country has lost about 280,000 barrels a day from the violence on top of production already shut-in, an official with the state-owned oil company said Sept. 17."
"The latest raids ``will ultimately add up to increased equipment downtime, repair and remediation cost and deferred earnings,'' Shell spokesman Rainer Winzenried said in an e-mailed statement today."
Basra Terminal
"While the supply disruption in Nigeria intensified, Iraq restored normal crude pumping to its Basra Oil terminal after an unspecified malfunction cut loadings in half, two people involved in shipping the crude said. The facility on the Persian Gulf handles most of the nation's exports."
"Oil, which fell more than $10 a barrel earlier this week as Lehman Brothers Holdings Inc. filed for bankruptcy, has since recouped its losses and is heading for its first weekly increase since August. It's down 33 percent from a record $147.27 a barrel reached on July 11."
"Brent crude oil for November settlement rose $1.36, or 1.4 percent, to $96.55 a barrel on London's ICE Futures Europe exchange. It touched $100.50 a barrel earlier."
"The Dow Jones Industrial Average rose 3.2 percent to 11,372 at 11:04 a.m. U.S. stocks rallied the most in six years yesterday on the prospects for the government plan to shore up financial markets, while regulators and pension funds took steps to curb bets against banks and brokerages."
`Drawing Strength'
"``Oil has been drawing strength from other markets like stocks, where central banks have helped restore confidence,'' said Christopher Bellew, a senior broker at Bache Commodities Ltd. in London. ``This level of violence in Nigeria would be sending prices even higher if demand fundamentals weren't so bearish.''"
Gasoline for October delivery rose 0.6 cent to $2.4884 a gallon on the Nymex.
"Regular gasoline, averaged nationwide, rose 2.8 cents to $3.807 a gallon, AAA, the nation's largest motorist organization, said today on its Web site."
To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.
"Last Updated: September 19, 2008 11:43 EDT"
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Russian Ruble Drops for Fourth Week Versus Dollar-Euro Basket
By Ewa Krukowska
Sept. 19 (Bloomberg) -- Russia's ruble fell for a fourth week against the central bank's dollar-euro basket as Standard & Poor's cut the country's credit outlook to ``stable'' from ``positive.''
"A withdrawal of capital from Russia and worsening investor confidence will put added pressure on it to spend its oil funds, undermining the nation's credit strength, S&P analysts including Frank Gill in London wrote in a report today. Investors have pulled about $35 billion from Russia since it invaded Georgia in August, BNP Paribas SA said last week."
"``The outlook revision is based on growing uncertainty regarding Russia's economic policy response as the liquidity crisis in its financial markets has deepened,'' the ratings company said in a statement today. ``The situation is exacerbated by rising downside risk to Russia's terms of trade as the world economy flirts with recession.''"
"The ruble was at 30.4044 versus the basket by 5:24 p.m. in Moscow, from 30.3868 yesterday and 30.3751 a week ago. It earlier rose to 30.2927, the strongest since Sept 8."
"The Russian currency was at 25.4465 per dollar, from 25.4148 yesterday and 25.5285 a week ago. It slipped to 36.4349 against the euro, from 36.2986 on Sept. 12."
The ruble also fell as the benchmark Micex Index of stocks slipped for a fifth week. Russian equities pared declines today after President Dmitry Medvedev pledged $20 billion to end the nation's worst financial crisis since the 1998 default.
"The ruble has fallen 10 percent against the dollar in the past two months as foreign investors sold the nation's assets after the five-day war in Georgia, and the collapse of Lehman Brothers Holdings Inc. raised concern more bankruptcies may follow, curbing demand for emerging-market assets."
Central Bank Relief
The Federal Reserve this week almost quadrupled the amount of dollars central banks can auction around the world to ease the global financial crisis. U.S. Treasury Secretary Henry Paulson and Fed Chairman Ben S. Bernanke said yesterday they plan to move troubled assets from the nation's banks into a new institution.
Russia's Finance Ministry this week pumped $44 billion into the nation's three largest banks and Medvedev yesterday ordered the government to ``immediately'' consider committing as much as 500 billion rubles to ensure ``the stability of the stock market.''
"Prime Minister Vladimir Putin blamed the U.S. financial crisis for causing market turmoil in Russia's economy, which he said remains fundamentally sound."
`Healthy' Fundamentals
"``The fundamental indicators of the Russian economy are healthy,'' Putin told foreign business leaders in the Black Sea town of Sochi, in comments posted on the government's Web site. ``The difficulties are mainly caused by the U.S. and European markets.''"
"The ruble is ``absolutely'' immune to large fluctuations against major currencies because of the reserves built up by the government, Deputy Prime Minister Alexander Zhukov said today. Russia's holdings of foreign currencies have risen almost 50-fold in the last decade to more than $560 billion, the most in the world after China and Japan."
Bank Rossii keeps the ruble within a trading band against a basket of dollars and euros to limit the effect of its fluctuations on the competitiveness of Russian exports. The basket comprises about 55 percent dollars and 45 percent euros.
To contact the reporter on this story: Ewa Krukowska in Warsaw at ekrukowska@bloomberg.net
"Last Updated: September 19, 2008 09:49 EDT"
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Central Banks Add $71 Billion to Ease Credit Squeeze (Update3)
By Gabi Thesing
Sept. 19 (Bloomberg) -- Europe's main central banks lent $71 billion as part of a coordinated effort with the U.S. Federal Reserve to ease a credit squeeze.
The European Central Bank poured $40 billion dollars into the markets while the Bank of England allotted $20.8 billion out of $40 billion offered and the Swiss National Bank added $10 billion. The ECB's and the SNB's auctions were oversubscribed. The Fed yesterday almost quadrupled to $247 billion the amount of dollars central banks can auction around the world.
Stocks from London to Shanghai recouped some of the losses from four straight days of declines after the U.S. government started planning new laws to halt the credit-market meltdown and financial regulators cracked down on short sellers.
"The U.S. government's ``proposals finally address the root cause of the problem,'' said James Nixon, an economist at Societe Generale SA in London. ``The economic impact at this stage is difficult to gauge, but the boost in sentiment, as seen by the stocks rallies this morning, cannot be overstated.''"
"ECB President Jean-Claude Trichet told reporters in Oestrich-Winkel, Germany, today that the U.S. measures are ``certainly welcome from our standpoint.'' He reiterated that ``we're all very, very alert, of course,'' on further developments of the crisis."
Stocks Surge
Europe's Dow Jones Stoxx 600 Index rose the most since data for the index began in 1987. Russia's RTS Index jumped 16 percent after a two-day suspension and President Dmitry Medvedev's pledge of $20 billion to prop up the market. The MSCI Asia-Pacific Index rebounded from a three-year low.
The ECB today also called for bids on a 28-day auction over $25 billion.
"Money-market rates tumbled today on the coordinated efforts between central banks and lawmakers. The London interbank offered rate, or Libor, for overnight dollar loans fell 59 basis points to 3.25 percent today, after sliding 119 basis points yesterday, according to British Bankers' Association data."
When Lehman Brothers Holdings Inc. filed for bankruptcy this week it was the latest casualty in the yearlong credit crisis sparked by record loan defaults on mortgages to U.S. households with a poor credit history. More than $19 trillion was wiped off global stock-market value since Oct. 31 as more than $500 billion in credit losses and writedowns at banks pushed the world economy toward a recession.
Against Short Selling
U.S. Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke yesterday proposed moving troubled assets from the balance sheets of American financial companies into a new institution. The initiative is aimed at removing the devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression. The Treasury said today it will use as much as $50 billion to insure money-market mutual holdings.
"Financial regulators in the U.S. and U.K., attorneys general in New York, Texas and Connecticut, and the three largest U.S. pension funds began cracking down on short sellers this week."
"Short sellers try to profit by betting stock prices will fall. In a short sale, traders borrow shares from their broker that they then sell. If the price drops, they buy back the stock, return it to their broker and pocket the difference."
The ECB offered commercial banks extra euro funding overnight three times this week after the cost of borrowing in euros rose. The Bank of England and the SNB also held additional liquidity rounds in their own currencies this week. Central banks in Japan and Australia have pumped some $113 billion into money markets this week.
"Dollar swap lines between the Fed and other central banks were first established in December when officials joined forces to boost dollar liquidity around the world after interest-rate reductions in the U.S., the U.K. and Canada failed to ease concerns about bank lending. The Fed increased its link with the ECB in July."
To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net
"Last Updated: September 19, 2008 10:20 EDT"
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Mexican Stocks Rise as U.S. Bailout Plan Eases Credit Concerns
By William Freebairn
"Sept. 19 (Bloomberg) -- Mexican stocks rallied, sending the Bolsa index to its biggest two-day gain in eight months, after the U.S. government announced measures to bolster financial institutions and the nation's central bank snapped a streak of three straight interest-rate increases."
"Desarrolladora Homex SAB gained more than 9 percent, helping an index of homebuilders rise the most since it was created three years ago. Grupo Elektra SAB, an electronics store chain with a financing unit, led advances in retailers on the prospect that borrowing costs have peaked. Grupo Financiero Banorte SAB, the biggest publicly traded bank, rose the most in eight years."
"Mexico's Bolsa index climbed 848.89, or 3.5 percent, to 25,426.79 as of 11:49 a.m. in New York. The index rose to the highest in a week, erasing almost all of its losses for the week."
Global stock markets surged after the U.S. proposed removing troubled assets from bank balance sheets and the Securities and Exchange Commission banned short sales of financial stocks.
"``Everything is rebounding, it seems the U.S. measures are good ones,'' said Jose Antonio Tobias, head of research at Bulltick Capital in Mexico City. ``Homebuilders had been hit hard on concerns over credit markets.''"
"The Habita index of six Mexican homebuilders rose 9.1 percent, the most since it was created in 2005. Homex, the country's largest homebuilder, gained 9.6 percent to 88.16 pesos. Urbi Desarrollos Urbanos SAB, the third-largest homebuilder by sales, surged 13 percent to 26.49 pesos."
"Banorte surged the most in the Bolsa index, gaining 17 percent to 37.70 pesos."
"The Banco de Mexico left the benchmark rate at 8.25 percent, breaking a string of three consecutive increases, as inflation eased and economic growth slowed. Elektra rose 9.7 percent to 385 pesos, the first increase in five sessions."
"Organizacion Soriana SAB, Mexico's second-largest retailer, climbed 5.7 percent to 31.25 pesos."
To contact the reporter on this story: William Freebairn in Mexico City wfreebairn@bloomberg.net
"Last Updated: September 19, 2008 11:50 EDT"
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"Stocks Soar Worldwide on Bank Bailout, Curb on Short Sales "
By Sarah Jones and Elizabeth Stanton
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"Sept. 19 (Bloomberg) -- U.S. stocks surged, extending the biggest two-day global rally on record, as the government moved to purge banks of bad assets and regulators cracked down on investors seeking to drive down shares of financial companies."
"The Standard & Poor's 500 Index rose 4.6 percent, while benchmark indexes from the U.K. to China advanced the most ever. Washington Mutual Inc. and Wachovia Corp. jumped more than 27 percent after U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed removing troubled assets from banks' balance sheets and the Securities and Exchange Commission banned short sales of financial firms."
"``What the government and its regulatory agencies have tried to do here is restore some confidence and remove some fear,'' Robert Doll, chief investment officer of global equities at New York-based BlackRock Inc., which manages $436 billion in stocks, told Bloomberg Television. ``That's why we're having this massive rally.''"
"The S&P 500 advanced 55.51 points to 1,262.02 at 12:30 p.m. in New York, sending it to the biggest two-day rally since the aftermath of the 1987 crash. The Dow Jones Industrial Average surged 431.28, or 3.9 percent, to 11,450.97. The MSCI World Index of 23 developed nations increased 70.42, or 5.8 percent, to 1,287.19, as Europe's benchmark index climbed 8.3 percent, the most since data for the index began in 1987, and Asia's added 5.5 percent. Six stocks rose for each that fell on the New York Stock Exchange."
Declines Erased
"The S&P 500 erased all of its decline for the week. The benchmark index for U.S. equities tumbled 4.7 percent twice in the past five days after Lehman Brothers Holdings Inc. filed for bankruptcy, the U.S. government seized control of American International Group Inc. and Merrill Lynch & Co. was forced to sell itself to Bank of America Corp."
"About 1.6 billion shares traded on the NYSE, almost three times more than at the same time a week ago. Goldman Sachs Group Inc. and Morgan Stanley, the last remaining major independent investment banks on Wall Street, rose more than 20 percent two days after falling the most ever."
"``For sentiment the worst could be over for financials,'' said Neil Dwane, chief investment officer for Europe at Allianz Global Investors' RCM unit, where he helps oversee $65 billion."
All 10 industry groups in the S&P 500 advanced as a better- than-estimated earnings forecast at Oracle Corp. helped boost technology companies and higher oil prices sent Exxon Mobil Corp. and Chevron Corp. up more than 3 percent.
Out of Bonds
U.S. Treasuries and European government bonds fell today on speculation Paulson and Bernanke's plan will increase demand for stocks over bonds. The Treasury also announced a $50 billion program to insure the holdings of money-market mutual funds for a year.
"The dollar rose the most since April against the yen, while the cost of default protection on corporate bonds dropped by the most since the bailout of Bear Stearns Cos. in March."
"John Bogle, who created the $106 billion Vanguard 500 Index Fund in 1976, said the U.S. government is ``punch drunk'' with proposals to rescue the financial system."
"``We're playing a game of casino capitalism, interfering with the way the market is working,'' Bogle, 79, said in a telephone interview today from Valley Forge, Pennsylvania. ``The government seems punch drunk. It doesn't seem systematic.''"
Financials Rally
"The S&P 500 Financials Index climbed 10 percent after a 12 percent gain yesterday on word the government was formulating a new plan to shore up banks. JPMorgan Chase & Co. rose 14 percent, Citigroup Inc. rallied 26 percent and Bank of America Corp. added more than 19 percent."
The proposal from Paulson and Bernanke is aimed at isolating devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression. Congressional leaders said they aim to pass legislation soon.
Morgan Stanley advanced $6.88 to $29.43 as the SEC temporarily banned short-selling in shares of 799 financial companies to curtail the market rout.
"Morgan Stanley's Chief Executive Officer John Mack told employees this week investors betting on a decline in the firm's shares are ``driving our stock down.'' The company yesterday snapped seven days of losses, rising 3.7 percent after the three largest public pension funds stopped loaning shares of the company and Goldman Sachs Group Inc. to short sellers."
"Goldman gained $26.10 to $134.10. Goldman, the biggest U.S. securities firm, and Morgan Stanley are seeking to avoid the type of run on their shares that helped trigger emergency sales of Merrill and Bear Stearns, and the Sept. 15 bankruptcy by Lehman, once the fourth-biggest."
`Breaking the Buck'
Bank of New York Mellon Corp. and State Street Corp. rose on speculation a Treasury Department plan to protect investors from losses on money-market mutual funds for a year will halt a surge of redemptions. A money-market fund run by Reserve Management Corp. this week became the first in 14 years to fail to maintain a share price of $1 after writing off investments in Lehman debt.
"Asset management companies in the S&P 500 fell as much as 24 percent yesterday after investors pulled a record $89.2 billion from money-market funds on Sept. 17, according to data compiled by the Money Fund Report, a newsletter based in Westborough, Massachusetts."
"Bank of New York, the world's largest custodian of financial assets, rose $2.83 to $34.40, rebounding from its lowest closing price since October 2005. State Street, the world's biggest money manager for institutions, jumped 6.4 percent after sliding as much as 55 percent yesterday."
Oracle's Forecast
"Oracle advanced $1.82, or 9.7 percent, to $20.57. The second-largest software maker posted earnings that topped analysts' projections by 4.9 percent as clients bought more database programs and renewed contracts for upgrades."
"Oil rose for a third day, following equities higher as government measures to resolve the bank crisis drew investors back to financial markets. Crude for October delivery gained 2.7 percent to $100.52 a barrel on the New York Mercantile Exchange."
"Exxon Mobil Corp., the biggest U.S. oil company, added 3.8 percent to $80.69. Chevron Corp. climbed 5.4 percent to $87.37. Halliburton Co., the world's second-largest oilfield services provider, increased 6.7 percent to $36.97."
"UBS AG, the European bank hit hardest by the subprime market's collapse, added 32 percent. Deutsche Bank AG, Germany's largest bank, jumped 14 percent and Credit Suisse Group AG, Switzerland's second-biggest bank, climbed 19 percent"
"In the U.K., HBOS Plc and Barclays Plc rose 29 percent. Lloyd's TSB Group Plc, the U.K.'s biggest provider of checking accounts, advanced 20 percent."
"The U.K. Financial Services Authority said it will ban short selling of financial shares for 29 companies including HBOS and Barclays. Ireland's financial regulator also banned short selling of the country's banking stocks. Bank of China, the nation's second-biggest bank, jumped 17 percent to 3.36 yuan. A 24 percent slump in the month through yesterday left it valued at a record low of 10.5 times profit."
China's government said it will buy shares in three of the largest state-owned banks and scrapped the tax on share purchases.
To contact the reporters on this story: Sarah Jones in London at sjones35@bloomberg.net; Elizabeth Stanton in New York at estanton@bloomberg.net.
"Last Updated: September 19, 2008 12:33 EDT"
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Treasuries Plunge as U.S. Government Seeks Solution to Crisis
By Dakin Campbell and Agnes Lovasz
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"Sept. 19 (Bloomberg) -- Treasuries tumbled, sending two- year notes yields up the most in 23 years, after Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke announced plans to help stem a collapse in financial- market confidence."
"The decline pushed the two-year note yield up from the lowest level since mid-March, as investors abandoned the relative safety of government debt for stocks and higher returning assets. The plan, which would include taking on troubled assets of financial companies and insuring money-market mutual funds against losses, may result in $1.2 trillion in new debt, according to two people briefed by congressional staff."
"``We have stepped back from the abyss,'' said Jerry Webman, head of fixed income at Oppenheimer Funds Inc. in New York, which manages about $220 billion. ``We're backing off from the really extreme trade that went into Treasuries.''"
"Two-year note yields climbed 47 basis points, or 0.47 percentage point, the most since February 1985, to 2.19 percent at 11:59 a.m. in New York, according to BGCantor Market Data. It had dropped to 1.36 percent yesterday. The 2.375 percent security due August 2010 dropped 28/32, or $8.75 per $1,000 face amount, to 100 11/32."
"Yields on 10-year notes increased 24 basis points to 3.78 percent, while climbing 17 basis points to 4.36 percent on 30- year bonds."
"U.S. stocks surged, extending the biggest two-day global rally since 1970, with the Standard & Poor's 500 Index increasing 4 percent."
`Real Difference'
"Congressional leaders who met with Paulson and Bernanke late yesterday in Washington said they aim to pass legislation soon to shore up banks. The Fed said it will lend to banks to meet demands for redemptions from money-market mutual funds and will buy debt of the largest mortgage-finance firms, Fannie and Freddie, from primary dealers to spur liquidity."
"``We're talking hundreds of billions,'' Treasury Secretary Henry Paulson said in a press conference. ``This needs to be big enough to make a real difference and get to the heart of the problem.''"
"Options U.S. officials are considering include establishing an $800 billion fund to purchase so-called failed assets and a separate $400 billion pool at the Federal Deposit Insurance Corp. to insure investors in money-market funds, said two people briefed by congressional staff."
`No Treasuries Shortage'
"``I hesitate to call this crisis finished,'' said Axel Blase, a fund manager in Frankfurt at Invesco Asset Management, which manages about $160 billion in fixed-income products. ``In the medium-term, we will see lower yields. This is an opportunity to buy the market.''"
"The deficit will climb to a record $565 billion in the fiscal year that starts Oct. 1, Goldman Sachs Group Inc. economists Ed McKelvey and Alec Phillips wrote to clients on Sept. 10. The world's biggest securities company increased its estimate by more than $100 billion."
The Congressional Budget Office had projected the figure will be $438 billion next year versus $407 billion in 2008.
"``Obviously the government is taking this stuff onto its balance sheet so there won't be a shortage of Treasuries over the next few years,'' said Michael Atkin, head of sovereign research at Putnam Investments in Boston. ``The fact that we have stepped back from the edge of the cliff doesn't mean everything is wonderful.''"
Three-Month Bills
Global finance firms have reported more than $515 billion in credit losses and writedowns since that start of 2007 linked to the slump in the U.S. housing market and slowing economic growth.
"Rates on three-month bills remained below 1 percent as many investors still sought the safest assets after the bankruptcy of Lehman Brothers Holdings Inc. and the U.S. government takeover of insurer American International Group Inc. and Fannie and Freddie. Three-month bills rose 65 basis points to 0.72 percent. They touched 0.02 percent on Sept. 17, the lowest since World War II."
"``How does the government get the message to Mr. and Mrs. America, `don't panic?''' said Michael Cheah, who manages $2 billion in bonds at AIG SunAmerica Asset Management in Jersey City, New Jersey. ``Watch the dollar and watch bills, because these will tell us whether people believe that this is going to help.''"
Flight to Safety
"Corporate short-term borrowing had slumped the most since December this week as investors flocked to the safety of government debt. The U.S. commercial paper market fell $52.1 billion, or 2.9 percent, to a seasonally adjusted $1.76 trillion for the week ended Sept. 17, the Fed said yesterday. Investors pulled a record $89.2 billion from funds on Sept. 17, according to data compiled by the Money Fund Report, a newsletter based in Westborough, Massachusetts."
"The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, rose to 3.13 percent yesterday, up more than 2.00 percentage points from a low of 1.04 percent Sept. 5."
"The pace of U.S. economic expansion will slow to 0.55 percent in the fourth quarter, a Bloomberg survey of banks and securities companies shows. The growth rate was 3.3 percent in the second quarter, according to the most recent figures available from the Commerce Department."
Futures contracts on the Chicago Board of Trade show 44 percent odds the Fed will cut its 2 percent target rate for overnight bank lending a quarter-percentage point at its meeting on Oct. 29. The odds were zero percent a month ago.
To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Dakin Campbell in New York at dcampbell27@bloomberg.net
"Last Updated: September 19, 2008 12:02 EDT"
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"Sakakibara Sees Yen at 100, `No Quick Fix' for U.S. (Update1) "
By Stanley White and Catherine Yang
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"Sept. 19 (Bloomberg) -- Japan's yen may strengthen past 100 to the dollar this year because there is ``no quick fix'' for U.S. credit-market turmoil, said Eisuke Sakakibara, formerly Japan's top currency official."
"The yen may also rise to 130 per euro, Sakaibara forecast, as traders pare carry trades, in which higher-yielding assets overseas are funded with Japan's currency. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke's plans for an agency to buy bad debt from U.S. banks won't calm financial markets for another two years, he said."
"``We could see more unwinding of yen carry trades because there is no quick fix,'' Sakakibara said in an interview with Bloomberg Television in Tokyo. ``There could be appreciation of the yen, particularly against currencies like the Australian dollar and the euro. A stronger yen could be beneficial for Japan.''"
The yen fell to 106.72 per dollar at 11:16 a.m. in Tokyo from 105.44 late yesterday in New York. It was quoted at 151.86 per euro from 151.28.
"Against the Australian dollar, the yen declined to 86.31 from 84.59 late yesterday in Asia. It also fell to 71.79 versus the New Zealand dollar from 70.95."
Carry Trades
"In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is that currency market moves can erase those profits. The Bank of Japan's benchmark rate of 0.5 percent compares with 2 percent in the U.S., 4.25 percent in Europe, 7 percent in Australia and 7.5 percent in New Zealand."
"Banks and insurers worldwide have booked more than $510 billion in losses and writedowns since the global credit crisis began about 13 months ago. Lehman Brothers Holdings Inc. filed for bankruptcy this week and the Federal Reserve stepped in with emergency funding for American International Group Inc., the biggest U.S. insurer by assets."
"Sakakibara, 67, currently a professor at Tokyo's Waseda University, was dubbed ``Mr. Yen'' because of his ability to influence the foreign-exchange market during his 1997-1999 tenure at the Finance Ministry. He is a member of the Asia- Pacific advisory board of Bloomberg LP, the parent of Bloomberg News."
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
"Last Updated: September 18, 2008 22:54 EDT"
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"German Stocks Rally; Deutsche Bank, Commerzbank Lead Advance "
By Stefanie Haxel
Sept. 19 (Bloomberg) -- German stocks jumped the most since January after U.S. lawmakers said they plan new rules to halt the credit-market meltdown and the Securities and Exchange Commission temporarily banned short-selling in financial stocks.
"Deutsche Bank AG, Germany's largest bank, rallied 22 percent and Commerzbank AG surged 23 percent. Congressional leaders said they aim to pass legislation soon. The initiative, which may also insure money-market funds, is aimed at removing the devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression."
"The DAX Index climbed 331.88, or 5.7 percent, to 6,195.3 at 3:02 p.m. in Frankfurt, limiting its weekly drop to 0.6 percent. DAX futures expiring in December rose 5.9 percent. The HDAX Index of the country's 110 biggest companies gained 5.7 percent."
"``It's a recovery rally as investors hope further tightening can be avoided,'' said Michael Koehler, an equity strategist at Landesbank Baden-Wuerttemberg in Mainz. ``However, actions are still vague and more writedowns are to come in the third quarter and no one knows yet at which firms and in which size.''"
"The prohibition, which affects the shares of 799 companies, takes effect immediately and will last through Oct. 2, the SEC said in a statement today. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke met with lawmakers yesterday to discus ways to alleviate the financial crisis."
"Deutsche Bank, Commerzbank"
"Deutsche Bank advanced 10.95 euros to 61.23. The lender is among banks to which hedge funds transferred money pulled from Morgan Stanley and Goldman Sachs Group Inc., the New York Post reported, citing hedge-fund managers and financial industry officials."
"Commerzbank, Germany's second-largest bank, rallied 2.99 euros to 16.21. Deutsche Boerse AG, Europe's largest exchange by market value, rose 7.85 euros, or 12 percent, to 71.34."
"Hochtief AG, Germany's largest builder, climbed 5.32 euros, or 14 percent, to 44 after falling 24 percent in the past four days. The move mirrored a 7.8 percent gain in Leighton Holdings Ltd., Australia's largest construction company in which Hochtief owns a 55 percent stake."
The Australian Securities Exchange also said it will abolish so-called ``naked'' short selling from the start of next week.
The following stocks also rose or fell in German markets. Symbols are in parentheses.
"Aixtron AG (AIX GY) increased 32 cents, or 6.5 percent, to 5.24 euros, biggest gain in a more than a month. Goldman Sachs Group Inc. raised its recommendation for the maker of machines to coat semiconductors to ``neutral'' from ``sell.''"
"Fielmann AG (FIE GY) gained for the first time in five days, rising 2.25 euros, or 4.8 percent, to 49.45. Merrill Lynch & Co. raised its recommendation for Europe's largest chain of optical stores to ``buy'' from ``neutral.''"
"``Recent weakness provides an entry point into Fielmann,'' analysts including Flavio Cereda wrote in a note to clients today. ``Short interest on the stock is, in our view, limited.''"
"IKB Deutsche Industriebank AG (IKB GY) surged 29 cents, or 17 percent, to 1.95 euros. German state-owned development bank KfW Group said it officially approved the sale of the first German casualty of the subprime-mortgage market collapse to Lone Star Funds."
"ProSiebenSat.1 Media AG (PSM GY) advanced 1.15 euros, or 24 percent, to 5.90, the steepest increase in more than six years. Germany's biggest private broadcaster rallied as concern that the financial market turmoil may affect its financing eased."
"Triumph-Adler AG (TWN GY) plunged 30 cents, or 28 percent, to 79 cents, the steepest slump since May 1999. The maker of copiers and video projectors cut its full-year profit forecast and said some employees attempted to set up a rival company ``in an illegal manner'' to take away ``a large number'' of clients."
"Volkswagen AG (VOW GY) dropped for the first time in four days, falling 45.25 euros, or 15 percent, to 258.75. Investors decided recent gains in Europe's largest carmaker were overdone following a 47 percent surge in the past three days."
To contact the reporter on this story: Stefanie Haxel in Frankfurt at shaxel@bloomberg.net.
"Last Updated: September 19, 2008 09:04 EDT"
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Sinopec to Cut Planned Crude Oil Imports by About 8% (Update1)
By Wang Ying
"Sept. 19 (Bloomberg) -- China Petroleum & Chemical Corp., Asia's biggest oil refiner, will cut planned crude oil imports by about 8 percent for the rest of the year because of ``ample'' domestic supplies, a company official said today."
"The Beijing-based company, known as Sinopec, will import at least 1 million metric tons less crude a month than planned and also reduce refinery run rates until the end of 2008, said the official, who declined to be identified because of internal rules."
"The government raised fuel prices by as much as 18 percent on June 20, encouraging refiners to produce more fuels and draw down inventories. China's fuel shortage has receded, Zhang Guobao, who heads the National Energy Administration, the top energy regulator, said last month."
"Sinopec processes between 13 million tons and 15 million tons of crude a month, most of which is purchased overseas, the official said. The company's refinery operating rates are ``much lower'' than the June-July levels, he said."
"Sinopec has plans to cut crude imports as demand growth may slow for the rest of the year, Spokesman Huang Wensheng said today, without elaborating."
"China cut its diesel and gasoline imports in August from a record as higher domestic prices spurred oil refiners to boost fuel supplies, the Customs General Administration of China said on Sept. 16."
"With improved domestic supplies, China International United Petroleum & Chemical Corp., the country's biggest oil trader, would halt diesel purchases in August and September, a trader said on Aug. 7. China National United Oil Corp. would have reduced August imports by a ``big margin'' from July after boosting purchases for two months, a second trader said."
To contact the reporter on this story: Wang Ying in Hong Kong at wang30@bloomberg.net;
"Last Updated: September 19, 2008 03:37 EDT"
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"Japan Says Economy `Weakening,' Keeps View Unchanged (Update1) "
By Toru Fujioka
"Sept. 19 (Bloomberg) -- Japan's government said the world's second-largest economy is ``weakening,'' language it introduced last month for the first time since the country was in a recession seven years ago."
"``The economy has been weakening recently,'' the Cabinet Office said in a statement in Tokyo today. The government cut its assessment of capital spending and imports and said it's watching how global financial-market turmoil might affect Japan."
The economy's longest postwar expansion may be over as rising commodity costs discourage spending at home and the world slowdown reduces demand for exports. The Bank of Japan and central banks in North America and Europe yesterday agreed to pump $180 billion into the global financial system to revive confidence in markets battered by the U.S. banking crisis.
"``This uncertainty in financial markets will naturally have an impact on the Japanese economy, which depends on foreign demand,'' Economic and Fiscal Policy Minister Kaoru Yosano told reporters in Tokyo. ``The economy will remain weak for a while.''"
"The Bank of Japan agreed to swap currencies with the Federal Reserve, supplying dollars for the first time after the cost of borrowing in the currency soared to a seven-year high following Lehman Brothers Holdings Inc.'s bankruptcy and the U.S. government's takeover of American International Group Inc."
"Central bank Governor Masaaki Shirakawa today said there's no end in sight to the market tumult, even as global shares rallied after the U.S. government said it's planning new laws to halt the credit-market meltdown. Shirakawa this week said risks for Japan's economy have intensified since the crisis deepened."
"``Attention should be given to further downside risks that stem from growing financial uncertainty in the U.S. and movement of the stock and foreign-exchange markets,'' the government said in today's report."
The Cabinet Office removed the word ``recovery'' from its evaluation of the global economy for the first time since June 2002 and downgraded its view of Europe.
Last month was the first time since May 2001 that the government described Japan's economy as weakening.
To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net
"Last Updated: September 19, 2008 05:12 EDT"
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S&P 500 Plunge Erases 50% of Gains From Bull Market (Update3)
By Elizabeth Stanton
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Sept. 18 (Bloomberg) -- The Standard & Poor's 500 Index's 26 percent drop since its October peak erased half of the gains from the five-year bull market and may signal more declines.
"The benchmark index for American equities, which doubled to 1,565.15 on Oct. 9, 2007, from 776.76 five years earlier, plunged 4.7 percent yesterday after the collapse of Lehman Brothers Holdings Inc. and the government takeover of American International Group Inc. pushed credit costs higher."
"The drop to yesterday's close of 1,156.39 may point to more losses, because so-called retracements of more than 50 percent typically precede further declines, according to some traders who look at historical prices and charts to make decisions."
"``You could get some rally, but I don't think you've made a low,'' said John Roque, a managing director in technical analysis at Natixis Bleichroeder Inc., a New York-based investment bank. ``The whole way down we've consistently seen lower highs and lower lows, and that pattern has yet to be broken.''"
"Some investors say the market has fallen far enough. The S&P 500 surged 4.3 percent to 1,206.51 today, staging the biggest advance since October 2002, on prospects the government will formulate a ``permanent'' plan to shore up financial markets, while regulators and pension funds took steps to curb bets against banks and brokerages."
`Dry Powder'
"``We're closer to the end than the beginning,'' said Jim Paulsen, who helps oversee about $220 billion as chief investment strategist at Wells Capital Management in Minneapolis. ``The reason fear is so good is that what idiot is left that hasn't sold? It means there are a lot of people on the sidelines with dry powder.''"
"The S&P 500 tumbled 7.6 percent this week after the government seized AIG and Lehman sought protection from creditors. Writedowns and losses at the biggest banks and financial institutions from the collapse of subprime mortgages and the first nationwide decline in U.S. home prices since the 1930s exceed $500 billion, fueling the almost yearlong retreat by the stock market. Financial companies led the tumble, losing 49 percent as a group in the S&P 500."
"The S&P 500 surged almost sevenfold from 223.92 to 1,527.46 between Dec. 4, 1987, and March 24, 2000. Once the index posted a 50 percent retracement by falling below the midpoint of 875.69 in July 2002, it took less than three months to reach a low."
Fed Rates
"Once the gains began, they proved short-lived. After the S&P 500 jumped 21 percent between Oct. 9 and Nov. 27, 2002, it plunged 15 percent through March 11, 2003."
"Demand from emerging markets and the lowest Federal Reserve interest-rate target in half a century boosted the S&P 500 to an all-time high in October 2007, with fuel producers leading the surge. The market's retreat accelerated after the S&P 500 Energy Index peaked in May and then plunged 27 percent."
"The S&P 500 Financials Index has tumbled 52 percent since its February 2007 record. That's the biggest slump for the industry since at least 1962, according to data compiled by Birinyi Associates Inc., a Westport, Connecticut-based research and money management firm."
"Borrowing costs jumped yesterday as banks hoarded cash. The difference between what banks and the Treasury pay to borrow, the so-called TED spread, widened to 3.02 percentage points. That's higher than the 3 percentage-point difference reached Oct. 20, 1987, a day after the global stock market plunge known as Black Monday."
"``I've been doing this for the last 30 years, and this ranks right up there with the crash of 1987 with regard to how my stomach feels,'' said Bernard McSherry, a senior vice president at Cuttone & Co., one of the largest floor brokerages at the New York Stock Exchange."
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.
"Last Updated: September 18, 2008 16:32 EDT"
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"France's CAC 40 Has Record Surge on U.S., U.K. Regulations "
By Adria Cimino and Adam Haigh
"Sept. 19 (Bloomberg) -- France's CAC 40 Index soared by a record amount, led by banks and insurers, after the U.S. government began planning laws to halt troubles in the credit market and U.K. regulators cracked down on short selling."
Dexia SA surged 23 percent and Credit Agricole SA jumped 26 percent. U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed removing troubled assets from the balance sheets of financial companies and the U.K.'s Financial Services Authority banned speculators from betting against financial shares until Jan. 16.
"``There is some relief there that we will see some stabilization in financial markets,'' said Christian Gattiker, Zurich-based head of equity research at Bank Julius Baer & Co., in a Bloomberg Television interview. ``Right now there is a sense of emergency among the regulators. There is a stabilization around the corner,'' he added."
"The benchmark CAC 40 soared 367.01, or 9.3 percent, to 4,324.87, the steepest one-day rally ever. The SBF 120 Index climbed 9 percent."
"Dexia, the world's biggest lender to local governments, surged 1.93 euros, or 23 percent, to 10.51, the biggest gain since 1999. Credit Agricole, France's second-largest bank by assets, jumped 3 euros, or 26 percent, to 14.40 euros."
"Societe Generale SA, the third largest, rallied 11.14 euros, or 20 percent, to 67. Natixis SA, France's fourth-largest bank, rallied 62 cents, or 25 percent, to 3.07 euros, rebounding after four days of losses."
Paulson and Bernanke proposed moving troubled assets from the balance sheets of financial companies into a new institution. The U.S. Securities and Exchange Commission also tightened regulations aimed at curbing manipulative trading and halted short selling of financial companies.
"France's stock market regulator said its rules on short selling are already ``strict enough,'' and that there will be no need to crack down on the practice."
The following shares rose or fell in Paris. Stock symbols are in parentheses.
"Cap Gemini SA (CAP FP) surged 3.25 euros, or 10 percent, to 35.20 euros, the biggest gain since March. Europe's largest computer-services company is maintaining its outlook for full- year sales growth and profitability, Chief Financial Officer Nicolas Dufourcq said. While Cap Gemini gets about 18 percent of sales from the finance industry, Dufourcq said most of that is from retail banking and insurance and hasn't been affected by the current credit crisis."
"MGI Digital Graphic Technology (ALMDG FP) added 59 cents, or 9.2 percent, to 7 euros, gaining for the first time this week. The printer manufacturer said first-half net income rose 30 percent to 1.4 million euros and forecast full-year revenue growth of more than 20 percent."
"Orco Property Group SA (ORC FP), a central and eastern European developer whose shares had fallen 50 percent in the previous four days, rebounded 4.97 cents, or 35 percent, to 19 euros. The company has been hurt by the kind of short selling that has engulfed the world's banks, Chief Executive Officer Jean-Francois Ott said. As many as 7 million of the company's 10.77 million shares have been used for short selling in recent weeks, Ott said, describing the decline as a ``panic sale.''"
"Risc Group (RSC FP) advanced 7 cents, or 7.3 percent, to 1.03 euros, gaining for the first time this week. The distributor of information technology products forecast full fiscal year sales of as much as 108 million euros, up 42 percent, and an operating margin of between 9 percent and 11 percent of sales."
"Rubis SA (RUI FP) jumped 2.81 euros, or 5.6 percent, to 52.81, rising for a third time this week. The company said it doesn't risk any financial penalties from the toxic waste investigation in northern France involving steelmaker ArcelorMittal. Rubis, which distributes liquefied petroleum gas and stores bulk liquids, allowed the waste to be loaded onto barges from tankers at its Rubis Terminal facilities, it said."
"Weborama (ALWEB FP) added 22 cents, or 3.3 percent, to 6.90 euros, rising the most in a week. The provider of Web- advertising software said first-half net income rose 32 percent to 598,000 euros."
To contact the reporters on this story: Adria Cimino in Paris at acimino1@bloomberg.net; Adam Haigh in London at ahaigh1@bloomberg.net.
"Last Updated: September 19, 2008 12:24 EDT"
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"Treasury, Fed Start Aid, Preceding Broad Crisis Plan (Update1) "
By Scott Lanman
Sept. 19 (Bloomberg) -- The Federal Reserve and Treasury began a series of emergency measures to prop up the mortgage and money markets ahead of congressional action on a broader lifeline for the U.S. financial system.
"The Treasury plans to double its purchases of mortgage- backed debt to $10 billion and use a $50 billion fund to insure against losses on money-market funds. The Fed plans to extend emergency loans to banks to purchase asset-backed commercial paper from money funds, and to buy short-term debt from Fannie Mae, Freddie Mac and other agencies."
"Today's announcements are aimed at combating a record exodus of investors from money-market funds, long considered to be among the safest investments. The actions come before an expected congressional passage of a new entity that would remove illiquid mortgage securities from companies' balance sheets."
"``This is a situation where they could not be reactive because a run on money markets would have material consequences for investor sentiment,'' said Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co. LLC."
"The U.S. Treasury said it will use funds from the government's Exchange Stabilization Fund to insure for a year holdings of publicly offered money-market funds that pay a fee to participate in the program. Retail and institutional funds are eligible, the department said today in a statement."
Government Takeover
"Treasury Secretary Henry Paulson said Fannie Mae and Freddie Mac, the mortgage-finance firms that government took over last week, will increase their purchases of mortgage-backed securities and the Treasury will ``expand'' its own mortgage buying program."
"Treasury spokeswoman Brookly McLaughlin said the department will buy $10 billion of mortgage securities, up from an initial $5 billion plan for the first month of the program. Any purchases after that remain to be determined, she said."
"Mortgage assets that aren't trading and difficult to value are ``choking off'' credit that the economy needs, Paulson said today."
"The Fed will extend loans to banks to purchase ``high- quality'' asset-backed commercial paper from money market funds, the central bank said. The Fed will also buy short-term discount notes issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks from Wall Street dealers. Neither program has a set limit."
"``The market for agency discount notes has been disrupted particularly by the shift of some investors to Treasury-only money market mutual funds, which do not invest in agency discount notes,'' New York Fed spokesman Andrew Williams said in an e-mail message. ``As a result of this shift, other money market mutual funds have apparently attempted to sell large volumes of agency discount notes, further reducing liquidity in this market.''"
Yields Tumbled
"Yields on the debt relative to U.S. Treasury bills tumbled the most in at least 10 years today. The spread for 90-day agency notes dropped 91 basis points to 127.7 basis points at 9:30 a.m. in New York, according to data compiled by Bloomberg. The spread had jumped from 78 basis points at the end of last week."
"The actions came a day after Paulson and Fed Chairman Ben S. Bernanke met with congressional leaders to urge moving troubled assets from the balance sheets of U.S. financial companies into a new institution, the most sweeping action aimed at ending the crisis."
"Investors pulled a record $89.2 billion from money-market funds on Sept. 17, according to data compiled by the Money Fund Report, a newsletter based in Westborough, Massachusetts."
"Federal insurance may distort the market if left in place for a long period, Crescenzi said. ``It will be very hard for the Treasury to strip the guarantee if investors get used to it.''"
"The Fed loans, with terms up to 270 days, will be at the discount rate, the Fed said. The rate is currently 2.25 percent."
`Competitive Auctions'
"The New York Fed will conduct the purchases of debt through ``competitive auctions'' over the ``next several weeks,'' the Fed district bank said in a statement."
"Prime money-market funds hold about $230 billion in asset- backed commercial paper that banks can buy with Fed funds and $69 billion of the agency debt, senior Fed staff officials told reporters on a conference call. The staffers spoke on condition of anonymity."
"The loan program will run through Jan. 30, the officials said. There is no end date for the agency debt purchases, they said."
"The Fed officials said they believe the central bank and taxpayers are protected because the commercial paper is backed by assets. The loans are non-recourse, meaning the Fed doesn't have additional rights to banks' assets should the collateral's value decline, the officials said."
"The Fed invoked emergency lending authority to aid the mutual funds through banks, the officials said."
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net
"Last Updated: September 19, 2008 15:12 EDT"
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"Japan Stocks Rally on Capital Boost Plan, Higher Shipping Fees "
By Masaki Kondo
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"Sept. 19 (Bloomberg) -- Japan stocks surged the most in eight months, cutting by more than half a slump this week, after central banks and regulators announced plans to boost capital and liquidity in crippled financial markets."
"Resona Holdings Inc., Japan's fourth-biggest listed bank, surged 18 percent while financial services provider Orix Corp. jumped the most in more than two decades. Mitsui O.S.K. Lines Ltd. led shipping companies to the biggest gain in eight years after cargo fees for commodities climbed. Isuzu Motors Ltd. rose the most in two years after the Nikkei English News said it's in talks to buy General Motors Corp.'s commercial truck business."
"``The U.S. financial industry is at the heart of global money flows, and its demise could have brought everything down,'' said Kiyoshi Ishigane, a senior strategist at Mitsubishi UFJ Asset Management Co., which oversees about $61 billion in Tokyo. ``Investors can consider shifting some funds from government bonds back into healthy companies with high dividends.''"
"The Nikkei 225 Stock Average climbed 431.56, or 3.8 percent, to close at 11,920.86 in Tokyo. The broader Topix index jumped 51.44, or 4.7 percent, to 1,149.12, the steepest gain since Jan. 25. More than two stocks rose for each that slumped."
The Topix fell to a near four-year low yesterday and lost 2.4 percent this week after the failure of Lehman Brothers Holdings Inc. and the U.S. government's rescue of American International Group Inc. shook investor confidence.
"Yesterday, U.S. stocks rallied the most in six years on a government plan to buy bad debt and steps by regulators to curb bets against banks and brokerages. The Bank of Japan pumped more money into the financial system this week than it has in at least six years, and it joined with Federal Reserve to offer financial institutions as much as $60 billion to ease a dollar shortage."
Bank Rally
"The bankruptcy of Lehman, once the fourth-largest U.S. investment bank, and the takeover of AIG, the biggest U.S. insurer, had prompted financial companies to hoard dollars on concern more failures would follow."
"Resona added 18 percent to 134,300 yen, making it the biggest winner on the Nikkei. Mitsubishi UFJ Financial Group Inc., Japan's largest listed bank, gained 12 percent to 862 yen, while Orix, the nation's biggest non-bank financial company, leapt 16 percent to 13,730 yen, the steepest advance since June 1984."
"Mitsui O.S.K. climbed 10 percent, the most since April 2001, to 1,091 yen. Kawasaki Kisen Kaisha Ltd., the nation's third- biggest shipping line, jumped 11 percent to 755 yen and market leader Nippon Yusen K.K. rose 9.9 percent to 802 yen. The Topix Marine Transportation Index soared the most since April 2000."
"The Baltic Dry Index, a measure of shipping costs for commodities, advanced 2.1 percent yesterday, the most since Aug. 14 and extending its increase to a third day."
`Oversold' Shares
"Nippon Steel Corp., the world's second-biggest maker of the alloy, soared 11 percent to 442 yen, the biggest jump in nine years. Smaller rival JFE Holdings Inc. gained 6.9 percent to 3,890 yen. Steelmakers as a group surged the most since July 2003."
"``Investors are snapping up shares that have been oversold,'' Hideyuki Ookoshi, who helps oversee the equivalent of $365 million at Chiba-Gin Asset Management Co. in Tokyo, said in an interview with Bloomberg Television."
"Nine of the 10 biggest winners among 33 industry groups on the Topix today, including steelmakers, were the biggest losers in the past three months. Steelmakers traded at 8.2 times trailing earnings yesterday, the lowest in three months, according to data compiled by Bloomberg."
"Isuzu, the nation's biggest maker of light-duty trucks, rose 11 percent to 336 yen, the biggest gain since November 2006. GM contacted Isuzu to sound out the possible acquisition and the deal is estimated to be worth tens of billions of yen, the Nikkei said, citing unidentified people close to the matter. Isuzu denied the report."
"Nikkei futures expiring in December added 4.1 percent to 11,880 in Osaka and gained 3.9 percent to 11,875 in Singapore."
To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
"Last Updated: September 19, 2008 03:55 EDT"
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N.Z. Central Bank Takes Steps to Ease Liquidity (Update1)
By Tracy Withers
Sept. 19 (Bloomberg) -- The Reserve Bank of New Zealand will now accept bank bills in its daily market operations to ease pressure on liquidity in the financial system.
"Local banks' borrowing costs rose to the highest since March, according to a gauge that measures the availability of funds in the market. The central bank will also offer longer terms of up to six months in its operations ``in order to help ease pressure at the short end of the market,'' according to a statement released in Wellington today."
Policy makers globally are trying to revive confidence in markets as investors stockpiled money on concern more financial institutions would fail after the bankruptcy of Lehman Brothers Holdings Inc. and the U.S. government bailout of American International Group Inc this week. The world's biggest central banks joined forces to pump $180 billion into money markets yesterday to ease the credit squeeze.
"New Zealand ``will inevitably feel the effects of major financial shocks such as this,'' Reserve Bank Governor Alan Bollard said in the statement. ``There are indirect adverse effects on liquidity in New Zealand's financial markets.''"
"The difference between the rate banks charge each other for three-month loans and the overnight indexed swap rate widened to at 62.5 basis points, or 0.625 percentage point, at 1:31 p.m. in Wellington, from 60.5 points yesterday, Bloomberg data show. The median spread was 40 points over the past 12 months."
"``There is no immediate problem,'' Bollard said. ``The Reserve Bank always stands ready to support the liquidity of the New Zealand financial system.''"
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
"Last Updated: September 18, 2008 21:54 EDT"
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"China's Stock Rally Is a Chance to Exit, Morgan Stanley Says "
By Chua Kong Ho
"Sept. 19 (Bloomberg) -- China's stock support measures and the ensuing rally offer an opportunity to exit the world's third-worst performing market of 2008 before an ``earnings recession'' sets in, Morgan Stanley said."
"Investors should sell while shares are rising as an economic slowdown will hurt profits and ``global financial market turmoil and de-risking are still ongoing,'' Morgan's Hong Kong-based Jerry Lou and Allen Gui wrote in a note dated yesterday. China Galaxy Securities Co., the country's second- biggest brokerage by revenues, disagreed, recommending stocks of state-controlled companies."
"China's CSI 300 Index surged the most in more than three years today, with more than two-thirds of the index's stocks soaring by the 10 percent daily limit. The government said it will buy more shares in the nation's three biggest banks and scrapped a tax on stock purchases, after a 64 percent slide erased $2.64 trillion of stock market value this year."
"The measures are a ``defense'' and don't mark a ``bottom for recovery'' for China's stock market, the Morgan note said. ``The A-share and H-share markets are having a more fundamental problem than just poor sentiment.''"
"China will remove a stamp duty on stock purchases and the government-run fund Central Huijin Investment Co. will increase its stakes in the nation's biggest banks, the official Xinhua News Agency reported yesterday. The State Asset Supervisory and Administration Commission separately said it supported stock buybacks by state enterprises in their publicly traded units."
`Buy China'
"Beijing-based China Galaxy, in contrast, advised investors to purchase shares of state-controlled companies with low price- to-book valuations, with a focus on financial, resources, energy and infrastructure stocks, according to a note today."
"The Shanghai Composite has found its medium-term trough at the 1,802-point level and will trade between 1,800 and 2,400 points in the near future, the note said. The gauge has slumped 61 percent this year to close at 2,075.09 today."
"``The measures demonstrate the government's intent to maintain market stability and shows the authorities view stocks as presenting value,'' China Galaxy's report said."
"The brokerage recommended 30 companies, including PetroChina Co. and China Petroleum & Chemical Corp., the nation's two largest oil companies."
To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net
"Last Updated: September 19, 2008 03:32 EDT"
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"Australia, New Zealand Dollars Rise Versus Yen on Risk Appetite "
By Candice Zachariahs
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Sept. 19 (Bloomberg) -- The Australian and New Zealand dollars rose for a third day against the yen as the U.S. sought legislation to help financial institutions clear their balance sheets of illiquid assets and ease credit-market losses.
The currencies gained after U.S. and Asian stocks rallied as the rescue plan boosted demand for higher-yielding assets funded with loans in Japan. U.S. Senator Charles Schumer proposed forming an agency to inject funds into financial companies in exchange for equity stakes.
"``There was a big rally in the U.S. stock market on the back of proposals which have been aired,'' said Greg Gibbs, a currency strategist at ABN Amro Holding NV in Sydney. ``It has helped relatively those currencies which tend to benefit from risk appetite, such as the Australian dollar.''"
"The Australian dollar rose 2.7 percent to 86.71 yen at 4:35 p.m. in Sydney from 84.41 yen in late Asian trading yesterday. That's down 2.4 percent from the 88.88 yen it ended last week at in New York. The Aussie, as the currency is known, bought 81.11 U.S. cents from 80.66 cents in Asia yesterday and 82.36 cents on Sept. 12 in New York."
New Zealand's dollar gained 1.7 percent to 72.18 yen from 70.96 yen late in Asia yesterday. It traded at 72.12 yen in New York last Friday. It bought 67.52 U.S. cents from 67.80 cents yesterday and 66.82 cents on Sept 12 in New York.
"The currencies climbed today against the yen as the VIX volatility index, a Chicago Board Options Exchange gauge used as a barometer of risk aversion, fell from 36.22 on Sept. 17, the highest in almost six years, to 33.10 yesterday."
Bonds Fall
Australia's currency fell against the U.S. dollar and Japan's yen this week after the collapse of Lehman Brothers Holdings Inc. and concerns surrounding other financial institutions reduced investor appetite for Australian assets.
"The Aussie is 18 percent lower than its 25-year high of 98.49 U.S. cents reached on July 16. The kiwi, as New Zealand's currency is called, has fallen 13 percent in that period."
"``They are trading underneath fundamental values and are due for retracement,'' said Peter Pontikis, a treasury strategist at Suncorp-Metway Ltd. in Brisbane. ``The reality is that the currency markets have basically been sidelined in favor of the leadership of what the equity markets are doing.''"
"Interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 2 percent in the U.S., making the nations' assets favorites with investors seeking higher returns."
"Australian government bonds fell. The yield on the 10-year note rose 4 basis points, or 0.04 percentage point, to 5.568 percent. The price of the 5.25 percent security maturing in March 2019 fell 0.288, or A$2.88 per A$1,000 face amount, to 97.499. Bond yields move inversely to prices."
"New Zealand's two-year swap rate, a fixed payment made to receive floating rates, rose to 6.925 percent, from 6.865 percent yesterday."
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
"Last Updated: September 19, 2008 03:12 EDT"
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Brazil's Real Rallies Most Since August 2007 on U.S. Bailout
By Adriana Brasileiro
Sept. 19 (Bloomberg) -- Brazil's real gained the most in 13 months and local bond yields dropped as global stocks surged on U.S. plans to remove troubled assets from the balance sheets of financial institutions.
"The real climbed for the first time in three days, rising 3.1 percent to 1.8375 per dollar at 9:18 a.m. New York time, from 1.8965 yesterday. It was the biggest gain since August 2007, when the real increased 3.3 percent after the Federal Reserve cut the discount rate as credit market losses mounted."
Brazil's currency sank to a one-year low of 1.9606 against the dollar yesterday in the wake of the U.S. takeover of insurer American International Group Inc. and the collapse of Lehman Brothers Holdings Inc.
"The real has fallen 3.8 percent this week and 19 percent from a nine-year high of 1.5545 per dollar reached Aug. 1. The real is the worst performer against the dollar this month among the 16 most-traded currencies tracked by Bloomberg, having lost 12 percent."
The initiative by the U.S. Treasury and the Fed is aimed at removing the devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression.
"The yield on Brazil's zero-coupon bonds due in January 2010 dropped 57 basis points, or 0.57 percentage points, to 14.82 percent, after increasing 67 basis points in the past two days."
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net
"Last Updated: September 19, 2008 09:22 EDT"
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Brazil Stocks Rally for Biggest Gain Since 2001; Bolsa Rises
By Alexander Ragir and William Freebairn
Sept. 19 (Bloomberg) -- Brazilian stocks rallied the most since 2001 as the U.S. Treasury and Federal Reserve's plans to rid banks of troubled assets sent global markets surging and eased concern the credit-market seizure will restrain growth.
"BM&FBovespa SA jumped as much as 27 percent, leading gains in financial shares after U.S. authorities proposed steps to bolster the banking system. Usinas Siderurgicas de Minas Gerais SA and Petroleo Brasileiro SA paced gains for commodity producers as metal and oil prices rallied on the prospect global economies may revive as the credit crisis eases."
"``The world is a better place today than it was yesterday,'' said Edward Hocknell, who helps manage about $15 billion in emerging market equities at Baillie Gifford Overseas Ltd. in Edinburgh. ``Putting bad assets into a different pocket is quite key to sorting it out. Once the acute fear is gone, people will start look at emerging markets and say, `they're pretty cheap'.''"
"The Bovespa index jumped 3,625.16, or 7.5 percent to 52,047.91 at 2:08 p.m. New York time, the biggest gain since January 2001. The BM&FBOVESPA MidLarge Cap index rose 7.1 percent. The BM&FBOVESPA Small Cap index gained 6.9 percent. The MSCI Emerging Markets Index jumped 9.4 percent for the biggest gain in almost 10 years. Mexico's Bolsa rose 4.3 percent. U.S. stocks extended their biggest two-day global rally since 1970."
"An index of financial stocks in the MSCI Brazil index jumped 12 percent. BM&FBovespa, which before today dropped 33 percent since Latin America's largest securities exchange began trading in August, surged 14 percent to 8.98 reais. Banco Bradesco SA climbed 6.2 percent to 30.05 reais. Banks rallied across Latin America. In Mexico, Grupo Financiero Inbursa SAB, the largest publicly traded bank, surged 21 percent."
U.S. Congressional leaders said they aim to pass legislation on eliminating troubled assets soon. The initiative is aimed at removing devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression.
Global Rally
"Markets from Russia to China rebounded as the government measures added to $220 billion poured into the world financial system this week to encourage lending, while U.S. and U.K. regulators restricted investors from betting on stock declines."
"Usiminas, as Brazil's second-biggest steelmaker is known, jumped 15 percent to 45.58 reais. Goldman Sachs Group Inc. said Usiminas is its top steel pick and that the steel demand and supply outlook remained tight. The UBS Bloomberg Constant Maturity Commodity Index rose for the second time in three days, gaining 1.8 percent."
"Cia. Vale do Rio Doce, the world's largest iron ore supplier, gained 5.3 percent to 36.43 reais."
Petrobras Gains
"Petrobras, as the oil company is known, advanced 6.7 percent to 34.35 reais. Crude oil climbed to more than $100 a barrel in New York, its third daily gain."
Brazilian retailers rallied the most on the MSCI Brazil Index after Itau Corretora analysts recommended investors buy consumer stocks.
"``Now is the time to buy,'' Itau analysts Ricardo Fernandez and Marcelo Ferri wrote in a note to clients. Consumer companies offer ``some tantalizing valuations and upside.''"
"Lojas Renner SA, the biggest publicly traded clothing retailer, gained 8.9 percent to 25.25 reais. Lojas Americanas, the largest discount retailer, surged 15 percent to 9.07 reais."
"Even with today's advance for the Bovespa, the index is poised for a weekly decline."
"Mexico's Bolsa index was poised to erase weekly losses, led by Banorte and homebuilders."
"Urbi Desarrollos Urbanos SAB, paced gains in homebuilders on the potential for credit expansion and cheaper financing. Grupo Elektra SAB, an electronics store chain with a financing unit, led retailers higher after the central bank kept interest rates unchanged, ending a streak of three straight increases."
"Urbi, the third-largest Mexican homebuilder by sales, rose 20 percent to 28.02 pesos, the biggest gain since it started trading in 2004. Elektra, the electronics retailer with a financing unit, climbed 9.35 pesos."
"Elsewhere in Latin America, Argentina's Merval gained 8.1 percent, Colombia's IGBC rose 3.6 percent and Peru's Lima General index advanced 8 percent. Markets in Chile were closed for a holiday."
To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net; William Freebairn in Mexico City wfreebairn@bloomberg.net
"Last Updated: September 19, 2008 14:19 EDT"
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"Russia, Brazil Lead Record Emerging Market Gain; Bonds Rally "
By Denis Maternovsky and Fabio Alves
"Sept. 19 (Bloomberg) -- Emerging-market stocks surged the most in 20 years and currencies and bonds soared after central banks pumped cash into credit-markets, shoring up confidence and luring investors back to riskier assets."
"Russia, China and Brazil led the rally as every emerging stock market but Pakistan gained. Russia's Micex Index rose the most ever as President Dmitry Medvedev pledged $20 billion to end the nation's worst financial crisis since the 1998 default. China's CSI 300 Index rose a record 9.3 percent. Latin American currencies surged, led by a 6.3 percent jump in the Colombian peso. Emerging-market bonds rallied the most since 2001."
"Markets rebounded as government measures added to the $220 billion poured into the world financial system this week to spur lending, while U.S. and U.K. regulators considered restricting investors bets on stock declines. U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed moving illiquid assets to a new institution yesterday."
"``Emerging market stocks were vastly oversold and they are still cheap even after today's rally,'' said Greg Lesko, who oversees $900 million in emerging market stocks at Deltec Asset Management Corp., a New York-based hedge fund. ``The U.S. and other central banks around the world are working hard to stabilize financial markets, and I think they will be successful.''"
"The MSCI Emerging Markets Index of stocks jumped 9.6 percent to 841.28 at 11:32 a.m. New York time, the biggest gain since it was set up in December 1987. Turkey's ISE National 100 Index jumped 12.9 percent, the most in more than seven years, to 36,370.16."
Record Gain
"Russia's Micex index increased 29 percent to 1,098.95 the steepest gain since its creation in May 2001. Bank of China Ltd. led a rally in China's CSI 300 Index after Beijing scrapped a stock-trading tax and said it will buy bank shares."
"``Stocks and fixed income are on fire,'' said Luis Costa, emerging-market debt strategist at Commerzbank AG in London. ``The fear premium on most of the credits is just too appealing.''"
"The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries narrowed 54 basis points to 3.65 percentage points, the biggest drop in more than six years, according to JPMorgan Chase & Co.'s EMBI+ index. The yield premium on Argentine bonds fell 95 basis points to 7.96 percentage points, while the spreads over Treasuries of Ukraine's bonds dropped 80 basis points."
Latin Currencies
"Currencies in Latin America strengthened against the dollar after global central banks acted to increase short-term funding to the markets, easing concerns the financial meltdown would worsen. Mexico's peso climbed 1.2 percent to 10.622 per dollar."
"Brazil's real gained for the first time in three days, rising 3.1 percent to 1.838 per dollar at 10:25 a.m. in New York, after sinking to a one-year low yesterday. The yield on Brazil's zero-coupon bonds due in January 2010 dropped 47 basis points to 14.92 percent."
"Among the biggest gainers in the MSCI Emerging Market index were VTB Group, OAO Surgutneftegaz and OAO Rosneft. Sberbank, Russia's biggest lender, soared 57 percent in Moscow before trading was suspended. VTB Group, the country's second biggest bank, jumped a record 60 percent. Surgutneftgaz, Russia's third- largest independent crude producer, rose 58 percent. Rosneft, Russia's largest oil company, surged 58 percent."
"India's benchmark Sensitive Index, or Sensex, climbed 5.4 percent, its biggest gain since July. ICICI Bank Ltd., India's second-largest lender, rose 8.7 percent. South Korea's Kospi index increased 4.6 percent, Indonesia's Jakarta Composite index added 5.8 percent and Thailand's SET Index climbed 4.1 percent."
"Bolsa, Bovespa Jump"
"In Latin America, Mexico's Bolsa rose 3.2 percent, while Argentina's Merval added 6.8 percent. Brazil's Bovespa rose the most in the region, adding 7 percent to 51,819.39, after gaining as much as 9.80 percent earlier, the most in nine years."
"Usinas Siderurgicas de Minas Gerais SA and Petroleo Brasileiro SA paced gains for commodity producers in the Bovespa index, as metal and oil prices rallied on the prospect of a global economic revival as the credit crisis eases. Usiminas, as Brazil's second-biggest steelmaker is known, surged 14 percent, the most since February 1999, to 45.40 reais. Petrobras, Brazil's state-controlled oil company, rose 4.9 percent to 33.79 reais."
"``Russia and Brazil are among the biggest gainers in emerging markets because they were the most sold off for reasons that weren't domestic driven,'' Deltec's Lesko said."
To contact the reporters on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net; Fabio Alves in New York at falves3@bloomberg.net.
"Last Updated: September 19, 2008 12:09 EDT"
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Latin American Currencies Soar on U.S. Market Bailout Plans
By Drew Benson and Andrea Jaramillo
Sept. 19 (Bloomberg) -- Latin American currencies soared after the U.S. proposed to take troubled assets off the balance sheets of financial institutions in a bid to end the worst credit crisis since the Great Depression.
"Brazil's real jumped 4 percent to 1.8206 per dollar, its biggest gain in six years, while Mexico's peso climbed 1.2 percent to 10.6156 per dollar at 12:17 p.m. New York time. Colombia's peso soared 5.8 percent to 2,061.5 per dollar."
"``Financial Armageddon will be avoided,'' said Nick Chamie, head of emerging-market research for RBC Capital Markets in Toronto. ``Emerging markets are seeing a relief rally as people put their money back to work.''"
"Latin American bonds also rallied. The yield on Mexico's 10 percent bond due in December 2024 dropped 28 basis points, or 0.28 percentage point, to 8.59 percent. The bonds' price rose 2.60 centavos to 112.27 centavos per peso, according to Banco Santander. The yield on Argentina's 5.83 percent peso bonds due in 2033 dropped 92 basis points to 10.46 percent."
"U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke met with legislators late yesterday to discuss plans for legislation that would allow the government to remove illiquid mortgage securities from financial companies. The Treasury also insured money-market mutual fund holdings in an effort to stem a run. Stocks surged across the world today and gold, a safe haven amid the crisis, sank."
`Calm Things Down'
"``These measures are helping calm things down a bit, bringing a little order to the chaos,'' said Jorge Dib, portfolio manager at Sao Paulo-based BRZ Investimentos. ``The market was working in the dark for the past few days, not being able to see the full extent off the crisis.''"
The rally pares losses this week that were sparked by the collapse of Lehman Brothers Holdings Inc. and the U.S. bailout of insurer American International Group Inc. Brazil's real tumbled 6 percent in the first four days of the week as concern the crisis would spread to other financial institutions throttled demand for riskier assets.
"The real's advance today makes it the biggest gainer among the 16 most-traded currencies against the dollar. It remains down 10.4 percent this month, more than any other of the major currencies. Brazil's central bank sold $200 million in the foreign exchange market today, part of an effort announced yesterday to shore up the currency."
To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net. Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net
"Last Updated: September 19, 2008 12:28 EDT"
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European Bonds Slide on U.S. Plan to Ease Credit-Market Crisis
By Anchalee Worrachate
"Sept. 19 (Bloomberg) -- European bonds fell, driving two- year yields up by the most in at least 18 years, as the U.S. government proposed measures to move tainted assets from bank balance sheets to calm credit markets, eroding demand for the safest securities."
The drop pushed the yield on the German 10-year bund to the highest in a week as Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke said the plan would remove devalued mortgage-linked assets at the heart of the worst banking crisis since the Great Depression. Bonds and Treasuries extended declines and stocks soared worldwide as the government announced a $50 billion program to insure money- market mutual-fund holdings.
"``Bonds are falling because the government actions gave a psychological boost to stocks,'' said Charles Berry, a trader in Stuttgart at Landesbank Baden-Wurttemberg. ``Whoever the Superman or Batman of the financial world is who'll manage these bad assets, he will still need a lot of money to deal with the problem. Things aren't looking much better.''"
"The yield on the German two-year note rose 35 basis points, the biggest one-day gain in yield since at least 1990, before the euro's debut, at 4.02 percent as of 5:05 p.m. in London. The 4 percent note maturing in September 2010 dropped 0.65, or 6.5 euros per 1,000-euro ($1,437) face amount, to 99.96."
"The yield on the 10-year bund, Europe's benchmark government-debt security, jumped 18 basis points to 4.21 percent. Yields move inversely to bond prices."
"Equity markets in Europe surged after four days of declines. The Dow Jones Stoxx 600 Index jumped 7.8 percent, the most ever. Germany's DAX Index advanced 5.6 percent and the Standard & Poor's 500 Index increased 4.8 percent."
Financial Woes
"The yield gap, or spread, between two- and 10-year bonds narrowed 16 basis points to 20 basis points after increasing to the widest in four months earlier this week. The so-called flatter yield curve suggests investors have become less pessimistic about the outlook for economic growth. The spread has widened from 2 basis points at the end of June."
"``Bullish steepeners will be hurting, and tactical bearish flatteners will perform today,'' said Padhraic Garvey, head of investment-grade debt strategy in Amsterdam at ING Bank NV."
"Two-year yields have risen 6 basis points since Sept. 12, snapping three consecutive weeks of decline in yields. Yields fell earlier this week as investors sought the relative safety of government debt after the bankruptcy of Lehman Brothers Holdings Inc. and the U.S. government's takeover of insurer American International Group Inc. this week."
Borrowing Costs
"A measure of stock-market volatility was at 31.2 yesterday, near the highest level in almost six years, signaling investors remain cautious about riskier assets such as equities. The VIX, as the Chicago Board Options Exchange Volatility Index is known, is considered by some to be the market's ``fear gauge.'' It measures the cost of using options as insurance against declines in the S&P 500 and typically rises as stocks fall."
"The overnight dollar rate fell 59 basis points to 3.25 percent today, after dropping 119 basis points yesterday, according to British Bankers' Association data. Still, the three-month rate rose to the highest level since January, signaling lenders remain wary of more failures among financial institutions."
Money-market rates slid after yesterday's U.S. asset proposal and after the Fed almost quadrupled the amount of dollars central banks could auction around the world to $247 billion in an effort to ease the crisis.
"The cost of protecting European corporate debt from default fell. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings declined 51 basis points to 568, according to JPMorgan Chase & Co."
The index is a benchmark for the cost of protecting bonds against default and a decline indicates an improvement in the perception of credit quality.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net
"Last Updated: September 19, 2008 12:40 EDT"
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"Corn, Soybeans Rebound as Bank Bailout Boosts Stocks, Optimism "
By Jeff Wilson
"Sept. 19 (Bloomberg) -- Corn gained and soybeans rose the most in a week, following crude oil and global equities higher, as government measures to resolve the banking crisis revived prospects for improved global demand."
"Soybeans rebounded from a nine-month low, reached yesterday, and corn climbed as world stock markets surged after U.S. Treasury Secretary Henry Paulson outlined a plan to resolve the credit crisis and revive the housing market. Crude oil rose as much as 4.7 percent. The Standard & Poor's GSCI index of 24 raw materials jumped as much as 4.2 percent."
"``There is some optimism the government intervention averted a global economic meltdown,'' said Dale Schultz, a commodity specialist for Gottsch Enterprises in Hastings, Nebraska. ``No one is looking for a steep rally because the intervention may be only a temporary solution to the worst liquidity crisis since the 1930s.''"
"Corn futures for December delivery advanced 15.75 cents, or 3 percent, to $5.43 a bushel at 10:49 a.m. on the Chicago Board of Trade after yesterday falling to $5.24, the lowest since Aug. 12. Before today, the most-active futures had fallen 34 percent from a record $7.9925 on June 27."
"Soybean futures for November delivery rose 18.5 cents, or 1.7 percent, to $11.345 a bushel in Chicago. Before today, most- active futures dropped 32 percent from a record $16.3675 on July 3."
"Still, both markets are heading for their third losing week in the past four."
"The S&P GSCI index, which jumped 41 percent in the first half of the year, is still down 27 percent since June 30."
Government Intervention
"The plan outlined by Paulson, backed by President George W. Bush and U.S. Federal Reserve Chairman Ben S. Bernanke, followed the government's $85 billion takeover this week of American International Group Inc., the biggest U.S. insurer by assets, and its bailout of Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, two weeks ago."
"On Sept. 16 and 17, AIG was allowed to negotiate block trades of commodities futures products, including corn and soybeans, outside the marketplace, according to the Chicago Board of Trade. While CME Group Inc. said on Sept. 17 that the action was designed to let AIG liquidate positions without distorting markets, traders said it may have caused some prices to decline."
"``The selling from AIG is over and prices are bouncing back,'' said Mark Engler, a vice president and director of risk management for Amarillo, Texas-based Cactus Feeders Inc., the largest U.S. feedlot operator. ``People are going to be nervous to get back into the commodity markets until the dust settles.''"
"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 19, 2008 11:54 EDT"
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Money-Market Rates Tumble on Plan to Shore Up Banks (Update2)
By Gavin Finch and Kim-Mai Cutler
Sept. 19 (Bloomberg) -- Money-market rates tumbled after the U.S. Treasury and Federal Reserve proposed measures to cleanse bank balance sheets of tainted assets in an attempt to restore confidence in the financial system.
"The London interbank offered rate, or Libor, for overnight dollar loans fell 59 basis points to 3.25 percent today, after sliding 119 basis points yesterday, according to British Bankers' Association data. The rate is 125 basis points higher than the Fed's target rate for overnight loans, compared with an average 10 basis points in the past seven years. The one-week rate fell 51 basis points to 3.83 percent today."
"``The possibility of a government plan has triggered a big change of psychology in the market,'' said Guillaume Baron, a strategist who specializes in money markets at Societe Generale SA in Paris. ``There appears to be less stress in dollar funding.''"
Treasury Secretary Henry Paulson and Fed Chairman Ben S. Bernanke plan to move troubled assets from the balance sheets of American financial companies and put them in a new institution. The initiative is aimed at removing the devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression.
"U.S. government bonds plunged, with the yield on the two- year note rising 47 basis points, the most since February 1985, to 2.19 percent. The cost of insuring European and U.S. corporate bonds from default also slid."
The Treasury announced today a $50 billion program to insure the holdings of money-market mutual funds for a year.
Coordinated Action
"The Fed, the European Central Bank and the Bank of Japan joined with counterparts in Switzerland, the U.K. and Canada yesterday to inject $180 billion into the financial system. The ECB, Bank of England and Swiss National Bank today lent $71 billion. Borrowing between banks seized up this week after Lehman Brothers Holdings Inc. collapsed and the U.S. government took over American International Group Inc., deepening concern other financial institutions will fail."
"Some measures pointed to continued strains in money markets as banks remained wary of lending money to one another. The three-month rate for borrowing in dollars rose 1 basis point to 3.21 percent, the highest level since January, taking its increase this past week to 39 basis points."
TED Spread
"The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, narrowed 91 basis points to 224 basis points It had widened for nine straight days, exceeding the 300 basis-point spread reached Oct. 20, 1987, when stocks collapsed around the world on what became known as Black Monday."
"``It's a good idea but there are a lot of questions regarding the Fed's proposal and until those uncertainties are resolved it isn't likely to improve liquidity much,'' said Patrick Jacq, a fixed-income strategist at BNP Paribas SA in Paris. ``There is still a lot of stress in the money markets.''"
"The world's biggest financial institutions posted $516 billion in subprime-related losses and writedowns since the start of last year. Eleven U.S. banks collapsed since January. Corporate bond sales in Europe dropped to the lowest weekly level in almost six years while spreads soared to a record over benchmark rates, according to data compiled by Bloomberg."
"The cost of borrowing in euros for one week rose today to the highest level since December, according to the European Banking Federation. The euro interbank offered rate, or Euribor, climbed 2 basis points to 4.55 percent. The three-month rate also added 2 basis points, to 5.01 percent, the highest level since December 2000."
To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net
"Last Updated: September 19, 2008 12:42 EDT"
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Natural Gas Declines as Supplies May Be Ample Before Winter
By Reg Curren
Sept. 19 (Bloomberg) -- Natural gas futures fell in New York amid speculation that U.S. production will be strong enough between now and Nov. 1 to ensure ample supplies to meet cold- weather demand.
"Inventories advanced 67 billion cubic feet in the week ended Sept. 12 to 2.972 trillion cubic feet, putting supplies 2.1 percent above the five-year average, according to the U.S. Energy Department."
"``You've got production coming back on in the Gulf of Mexico and supplies are above the five-year average,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago."
"Natural gas for October delivery fell 7.9 cents, or 1 percent, to $7.542 per million British thermal units at 11:26 a.m. on the New York Mercantile Exchange."
"Gas supplies last week were 2.1 percent above the five-year average, the department said yesterday. The surplus narrowed from 2.9 percent in last week's report. The five-year average for gas in storage at the start of the cold-weather-demand period on Nov. 1 is 3.327 trillion cubic feet."
"Speculators and consumers of the heating and industrial fuel are banking on increased onshore production to bolster output and keep prices from running higher. Domestic gas output is expected to increase by 7.8 percent this year, particularly from fields in Texas and Wyoming, the Energy Department said in its monthly Short-Term Energy Outlook on Sept. 9."
"About 78 percent of Gulf of Mexico gas output is offline because of hurricanes Gustav and Ike, government data show. The region accounts for about one-seventh of U.S. gas production."
"``You're now in the shoulder period, where you have hurricane season behind us for the most part, and you don't have much demand from the weather,'' said Carl Neill, an energy analyst at Risk Management Inc. in Chicago. ``Near-term, we don't have a lot to move us higher.''"
To contact the reporters on this story: Reg Curren in Calgary at rcurren@bloomberg.net.
"Last Updated: September 19, 2008 11:36 EDT"
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"Korea Won to Trade in 1,100-1,160 Range Next Week, Survey Shows "
By Kim Kyoungwha and Judy Chen
"Sept. 19 (Bloomberg) -- South Korea's won, Asia's worst performer this year, will trade between 1,100 and 1,160 next week as the U.S. seeks legislation to calm markets, according to 10 strategists and traders surveyed by Bloomberg News."
"Korea's currency rose 1.2 percent to 1,139.7 against the dollar as of the 3 p.m. close, paring this week's loss to 2.7 percent, according to Seoul Money Brokerage Services Ltd. The won is down 18 percent in 2008."
Forecasts
"BNP Paribas 1,120-1,150"
"Citigroup Inc. 1,110-1,150"
"CFC Seymour Ltd. 1,103-1,140"
"Industrial Bank of Korea 1,120-1,160"
"Korea Exchange Bank 1,100-1,160"
"Kookmin Bank 1,100-1,160"
"Shinhan Bank 1,100-1,160"
"Societe Generale 1,110-1,160"
"State Street 1,103-1,160"
"Westpac Banking 1,100-1,150"
To contact the reporters on this story:
Kim Kyoungwha in Beijing at
kkim19@bloomberg.net;
Judy Chen in Shanghai at
xchen45@bloomberg.net
"Last Updated: September 19, 2008 03:36 EDT"
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Dollar Rises Most Against Yen Since April on U.S. Bailout Plan
By Ye Xie and Bo Nielsen
Sept. 19 (Bloomberg) -- The dollar rose the most against the yen since April after the U.S. government announced a plan to rescue banks and revive financial markets.
"The yen was headed for a weekly drop against the euro on speculation investors will resume carry trades after the U.S. Treasury and the Federal Reserve proposed cleaning up financial firms' balance sheets. Japan's currency dropped today the most against the Australian dollar since August 1993, while Brazil's real rallied on renewed demand for emerging-market assets."
"``There's a good chance that these extraordinary measures the authorities are taking will gradually bring confidence back,'' said Jens Nordvig, a senior currency strategist in New York at Goldman Sachs Group Inc. ``That makes it possible for risky currencies, such as the Australian dollar and some emerging-market currencies, to recover after a large setback.''"
"The dollar rose 1.6 percent to 107.17 yen at 1:50 p.m. in New York, from 105.44 yesterday. It was the biggest increase since April 1. The U.S. currency dropped 0.6 percent to $1.4433 per euro, from $1.4348 yesterday. The euro advanced 2.1 percent to 154.54 yen, from 151.28, after touching 155.34, the highest level since Sept. 8."
Treasury Secretary Henry Paulson told reporters today that the U.S. government will spend ``hundreds of billions of dollars'' to cleanse banks of troubled assets and halt an exodus of investors from money markets. Congressional leaders said they intend to pass legislation within days.
Covering Bets
"Investors sold the U.S. dollar and bought back high- yielding currencies including the euro to cover their bets against them, said Scott Ainsbury, a portfolio manager who helps manage about $12 billion in currencies at New York-based currency trader FX Concepts Inc."
"Brazil's real strengthened, increasing 3.8 percent to 1.8227 per dollar, after touching a one-year low of 1.9606 yesterday. Mexico's peso advanced 1.4 percent to 10.5998. Colombia's peso gained 6 percent to 2084.45 per dollar, the most since the currency started trading freely in 1992."
"The ICE's Dollar Index, a gauge measuring the greenback against the currencies of six U.S. trading partners, fell 1.4 percent this week to 77.825."
"The yield on the two-year U.S. Treasury note rose 44 basis points, or 0.44 percentage point, to 2.14 percent, the biggest increase since February 1985. The Standard & Poor's 500 Index climbed 4.5 percent, while Europe's Dow Jones Stoxx 600 Index surged 8.1 percent, the most since it was inaugurated in 1987."
Weaker Yen
The yen dropped 4.8 percent to 88.90 versus Australia's dollar and 3.1 percent to 73.55 against New Zealand's dollar on revived demand for trades in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 7 percent in Australia and 7.5 percent in New Zealand.
Japan's currency has decreased 0.8 percent against the euro and advanced 0.8 percent versus the dollar this week. The U.S. currency has slid 1.5 percent against the euro.
"Eisuke Sakakibara, 67, a professor at Tokyo's Waseda University who was dubbed ``Mr. Yen'' because of his ability to influence the foreign-exchange market during his 1997-1999 tenure at Japan's Finance Ministry, said in an interview on Bloomberg Television that there's ``no quick fix'' for credit turmoil. He said the yen may gain to 100 per dollar this year."
"Foreign central banks may reduce dollar reserves as the U.S. bailout causes the budget deficit to swell, according to John Brynjolfsson, chief investment officer of Armored Wolf LLC, a hedge fund in Aliso Viejo, California."
"``I can't imagine they wouldn't be having high-level discussions about the appropriateness of dollar-concentrated reserve strategies going forward,'' said Brynjolfsson, who formerly managed $80 billion at Newport Beach, California based Pacific Investment Management Co."
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
"Last Updated: September 19, 2008 13:52 EDT"
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"Morgan Stanley, Goldman Lead Drop in Bond Risk on Fed Debt Plan "
By Shannon D. Harrington and Abigail Moses
Sept. 19 (Bloomberg) -- Morgan Stanley and Goldman Sachs Group Inc. led a drop in the cost of default protection on corporate bonds as a plan by U.S. lawmakers to shore up financial company balance sheets eased turmoil in credit markets.
"A benchmark gauge of credit risk in North America plunged to the lowest since Sept. 12, before Lehman Brothers Holdings Inc. was forced to file for bankruptcy protection amid a crisis of confidence for Wall Street firms. Contracts on Morgan Stanley and Goldman Sachs, which soared this week as traders sought to hedge themselves against more failures, plunged the most ever."
The plan to move troubled assets from the balance sheets of financial companies extended the biggest rally in U.S. stock markets in six years as investors rushed to pare hedges or bearish bets and optimism surfaced that the credit crisis finally may be overcome through the biggest expansion of federal power over markets since the Great Depression.
"``It stabilizes the situation for now,'' Jack Malvey, chief global fixed-income strategist at Lehman, said in an interview on Bloomberg Radio."
"Credit-default swaps on Morgan Stanley tumbled 303 basis points to 563 basis points, according to London-based CMA Datavision. Contracts on Goldman dropped 147 basis points to 345, and Wachovia Corp., the fourth-largest U.S. bank, fell 171 basis points to 475, CMA data show. The contracts, used to hedge against losses or speculate on creditworthiness, decline as investor confidence improves."
"Contracts on the Markit CDX North America Investment Grade Index, linked to the bonds of 125 companies in the U.S. and Canada, dropped 22 basis points to 153 basis points as of 12:32 p.m. in New York, according to broker Phoenix Partners Group."
"A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year."
Government Plan
"The proposal by U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke seeks to remove devalued mortgage-related assets that have helped spark more than $500 billion of writedowns and losses since the start of last year. The Treasury also announced a $50 billion program to insure the holdings of money-market mutual funds after the first money fund in 14 years fell below $1 a share, triggering a wave of investor redemptions."
"During the course of two weeks, the government seized the two largest U.S. mortgage-finance companies, Fannie Mae and Freddie Mac; Lehman was forced to file for bankruptcy; Merrill Lynch & Co. agreed to sell itself to Bank of America Corp.; and American International Group Inc., the nation's biggest insurer, was taken over by the Treasury."
"``The sudden panic in the market has pushed rule makers beyond their ad-hoc, `whack-a-mole' intervention towards a comprehensive, coordinated policy response,'' UBS AG credit strategists led by George Bory wrote in a note to clients today."
`Spill Over' Effects
"``It's certainly a big start, but it does not necessarily mark the end of the adjustment process,'' Malvey said. ``We still have the risk that these types of turbulent times will spill over into non-financial institutions.''"
"Credit-default swaps on Citigroup Inc., the biggest U.S. bank by assets, dropped 103 basis points to 203 basis points. Contracts on GE Capital, the finance arm of General Electric Co. fell 122 basis points to 315."
"``The only thing that will reassure the market is if the bad assets are carved out of bank balance sheets,'' said Andrea Cicione, a credit strategist at BNP Paribas SA in London. ``It is the only way out of the crisis.''"
"The cost to protect U.S. high-yield, high-risk loans from default also fell. The Markit LCDX index, which rises as protection costs drop, rose 1.55 percentage point to a mid-price of about 96.1, according to Goldman."
European iTraxx
"In Europe, contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings dropped 50 basis points to 563 basis points, JPMorgan Chase & Co. prices show. The Markit iTraxx Europe index of 125 companies with investment-grade ratings declined 20 basis points to 112."
Credit-default swaps 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.
"Plans by U.K. and American regulators to crack down on short sellers helped cut the cost of default protection on European banks. HBOS Plc, Britain's biggest mortgage lender, was taken over by Lloyds TSB Group Plc this week after it lost 37 percent of its market value over three days."
"Credit-default swaps on London-based HSBC Holdings Plc, Europe's largest bank, dropped 21 basis points to 95, CMA Datavision prices show. Barclays Plc fell 45 to 167, Deutsche Bank AG in Frankfurt fell 28 to 122 and Zurich-based UBS AG declined 60 to 229."
"Short sellers try to profit by betting stock prices will fall. In a short sale, traders borrow shares from their broker that they then sell. If the price drops, they buy back the stock, return it to their broker and pocket the difference."
To contact the reporters on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net; Abigail Moses in London Amoses5@bloomberg.net
"Last Updated: September 19, 2008 13:08 EDT"
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Rabobank Cuts Year-End Forecast on Euro Versus Dollar (Update1)
By Andrew MacAskill
"Sept. 19 (Bloomberg) -- Rabobank International, the third- biggest Dutch bank, cut its year-end forecast for the euro against the dollar on expectations of weaker European economic growth."
"The euro will end 2008 at $1.41, Jeremy Stretch, a senior currency strategist in London at Rabobank, said in an interview. The bank earlier predicted the common European currency would end the year at $1.43. The euro advanced to $1.4386 as of 3:49 p.m. in London, from $1.4348 yesterday."
The European Commission said Sept. 10 the 15-nation euro economy will stagnate this quarter and lowered its full-year growth forecast to 1.3 percent from 1.7 percent. The commission signaled the 2009 outlook may also be cut.
"``The issues of weak growth in the euro zone will increasingly come into play over the next few months and that will see euro-dollar trading down,'' Stretch said. This will occur ``even though we have a lot of uncertainty regarding the U.S. financial sector.''"
"U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed yesterday moving troubled assets from the balance sheets of American financial companies into a new institution. The initiative, which may also insure money-market funds, is aimed at removing the devalued mortgage- linked assets at the root of the worst credit crisis since the Great Depression."
The Fed almost quadrupled the amount of dollars central banks can auction around the world yesterday to $247 billion in a coordinated bid to ease the crisis facing financial markets.
"The euro will finish the year at $1.44, according to the median of 41 analyst estimates compiled by Bloomberg News. The forecasts range from $1.35 by Commonwealth Bank of Australia to $1.57 at Barclays Plc."
"Against the pound, the euro will probably weaken to 78.5 pence by year-end, Stretch said. That compares with an earlier Rabobank forecast of 80 pence and a median prediction of 81 pence from 32 analysts, according to a Bloomberg survey."
"The euro today was little changed against the pound, trading at 78.97 pence, from 78.92 yesterday."
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net
"Last Updated: September 19, 2008 10:59 EDT"
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Canadian 10-Year Bond Falls the Most Since 2004 on U.S. Plan
By Daniel Kruger and Michael J. Moore
Sept. 19 (Bloomberg) -- The Canadian 10-year bond yield rose the most since 2004 after U.S. government officials said they were working toward a plan to stem the credit crisis and restore confidence in financial markets.
The Canadian government's two-year note yield rose faster than the 10-year yield as global stock markets soared. Yields reached their highest levels in a month.
"``People were staring over the abyss, and you couldn't have enough government debt,'' said James Dutkiewicz, lead portfolio manager of C$5 billion ($4.75 billion) in fixed-income assets at CI Mutual Funds in Toronto. ``Now, the whole world doesn't seem to be ending.''"
"The 10-year government note's yield rose 15 basis points, or 0.15 percentage point, to 3.66 percent at 2:24 p.m. in Toronto, the biggest gain since May 7, 2004. It earlier reached 3.72 percent, the highest since Aug. 6. The price of the 4.25 percent note maturing in June 2018 fell C$1.25 to C$104.79. The yield touched 3.34 percent on Sept. 16, the lowest since at least 1989, when Bloomberg began collecting the data."
"The yield on the two-year note increased 25 basis points to 2.85 percent, the biggest gain since June 10. It has risen 37 basis points since Sept. 15 after the U.S. Treasury and Federal Reserve declined to participate in a bailout for Lehman Brothers Holdings Inc. The price of the 2.75 percent security maturing in December 2010 fell 53 cents to C$99.81."
"The 10-year bond yielded 81 basis points more than the two- year security, down from 92 basis points yesterday."
Yield Advantage
"The yield advantage of the 10-year U.S. Treasury note compared with similar-maturity Canadian government bonds was 9 basis points, up from 3 basis points yesterday. The Canadian 10-year bond yielded 36 basis points more than its U.S. counterpart on Jan. 22."
"Canadian government bonds have returned 5.5 percent in 2008, according to Merrill Lynch & Co. index statistics. U.S. Treasuries have returned 6.5 percent this year."
Treasury Secretary Henry Paulson and Fed Chairman Ben S. Bernanke proposed eliminating troubled assets from the balance sheets of American financial companies.
"Congressional leaders who met with Paulson and Bernanke late yesterday in Washington said they aim to pass legislation soon. The initiative is aimed at removing the devalued mortgage- linked assets at the root of the worst credit crisis since the Great Depression. Today, the Treasury announced a $50 billion program to insure the holdings of money-market mutual funds for a year."
"The effort is a recognition that Paulson's and Bernanke's earlier efforts failed to revive financial and housing markets. The government took over American International Group Inc., Fannie Mae and Freddie Mac in the past 12 days, a period when Lehman filed for bankruptcy and Americans pulled a record $89 billion from money-market funds."
`Doom and Gloom'
"``I think it's providing some counter to all the doom and gloom,'' said Craig Wright, chief economist at Toronto-based Royal Bank of Canada, the country's largest lender by assets. ``It's still early to declare that we're through the worst point of this crisis. We've seen some false bottoms in the past and this may prove to be another one. I'm still cautious. I'm hopeful, but still very cautious.''"
"Gold futures for December delivery fell $30.70, or 3.4 percent, to $862.50 an ounce."
"The Standard & Poor's/TSX Composite Index jumped 5.3 percent to 12,699.72. The S&P 500 rose 3.4 percent."
Bank of Canada
"The Bank of Canada left its benchmark interest rate unchanged at 3 percent on Sept. 3. The rate is ``appropriately accommodative,'' while inflationary pressures ``remain elevated,'' the central bank said. It didn't hint that slow economic growth may lead to a rate reduction."
"The Bank of Canada has ``not indicated any sense of panic'' and has managed monetary policy based on the fundamentals of Canada's economy, Dutkiewicz said."
"The two-year bond's yield will increase to 3.15 percent by year-end, while the 10-year bond's yield will gain to 3.83 percent, according to the median forecasts of economists surveyed by Bloomberg."
"Canada's dollar, dubbed the loonie because of the aquatic bird on the one-dollar coin, advanced 0.7 percent to C$1.0532 per U.S. dollar, from C$1.0606 yesterday. It earlier touched C$1.0431, the strongest since Aug. 27. One Canadian dollar buys 94.94 U.S. cents."
"``What we see is the U.S. government's debt increase,'' said Clement Gignac, chief economist at National Bank Financial in Montreal. ``It's a mammoth rescue operation for Wall Street. That move just increased the debt-to-GDP ratio in the U.S. If you intervene and reduce the risk of a prolonged depression in the U.S., that improves the outlook for the global economy's growth, and that's not bad for commodities.''"
Crude oil rose 3.6 percent to $101.45 per barrel.
"The Canadian currency will slip to C$1.12 against the U.S. dollar by the end of 2009, according to the median forecast of 36 economists surveyed by Bloomberg News."
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.netMichael J. Moore in New York at Mmoore55@bloomberg.net.
"Last Updated: September 19, 2008 14:29 EDT"
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"Crude Oil May Rise Amid Low U.S. Inventories, Survey Shows "
By Margot Habiby
Sept. 19 (Bloomberg) -- Crude oil may rise next week amid low U.S. inventories in the wake of Hurricanes Ike and Gustav.
"Fourteen of 30 analysts surveyed by Bloomberg News, or 47 percent, said prices will increase through Sept. 26. Ten of the respondents, or 33 percent, said oil will fall and six said prices will be little changed. Last week 48 percent expected futures to decrease."
"U.S. crude-oil stockpiles fell 6.33 million barrels to 291.7 million barrels in the week ended Sept. 12, the fourth- straight decline, the U.S. Energy Department reported Sept. 17. Gasoline inventories fell 3.31 million barrels, or 1.8 percent, to 184.6 million barrels, the lowest in at least 18 years."
"``Inventories have tightened significantly, and the financial market turmoil, which has kept the energy market distracted, has likely seen its worst moments,'' said Chuck Hackett, commodity broker at Access Futures & Options Trading in Woodlake, California. ``A weaker dollar as the Fed injects more liquidity into the financial system is also supportive.''"
Oil reached a seven-month low on Sept. 16 as Lehman Brothers Holdings Inc. filed for bankruptcy and Merrill Lynch & Co. was sold to Bank of America Corp.
"U.S. energy producers have about 93 percent of oil production and 78 percent of natural-gas output idled in the Gulf of Mexico after hurricanes Gustav and Ike, the U.S. Minerals Management Service, an arm of the Interior Department, said in a statement yesterday on its Web site."
"Crude oil for October delivery has dropped $3.30, or 3.3 percent, to $97.88 a barrel so far this week on the New York Mercantile Exchange. Futures have fallen 34 percent since touching $147.27 a barrel on July 11, the highest since trading began in 1983."
The oil survey has correctly predicted the direction of futures 49 percent of the time since its start in April 2004.
" Bloomberg's survey of oil analysts and traders, conducted"
"each Thursday, asks for an assessment of whether crude oil"
"futures are likely to rise, fall or remain neutral in the coming"
week. The results were:
RISE NEUTRAL FALL
14 6 10
To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.
"Last Updated: September 19, 2008 00:22 EDT"
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Corporate Bonds Sales Plunge to 6-Year Low as Markets Seize Up
By Shelley Smith
Sept. 19 (Bloomberg) -- Corporate bond sales in Europe dropped to the lowest weekly level in almost six years after Lehman Brothers Holdings Inc.'s bankruptcy crippled credit markets.
"Sales totaled 281 million euros ($399 million) compared to 14.7 billion euros last week, according to data compiled by Bloomberg. Corporate borrowing costs in Europe soared to a record over benchmark rates on concern that bank losses triggered by the collapse of the U.S. mortgage market will stifle lending."
"``There is certainly a lot of panic out there, a lot of significant writedowns on assets and a lot of uncertainty following Lehman's bankruptcy,'' said Dominic White, who helps manage $45 billion of bonds at Morley Fund Management in London. ``During the panic you have rumors spreading and people believing the worst.''"
"The U.S. government's rescue of American International Group Inc., following the bailouts of Fannie Mae and Freddie Mac, failed to stem a crisis of confidence in markets around the globe. U.S. Treasury Secretary Henry Paulson sought to ease the worst turmoil since the Great Depression by proposing to take on troubled assets from the balance sheets of U.S. financial companies."
"The Federal Reserve almost quadrupled the amount of dollars central banks, including the European Central Bank and the Bank of England, can auction around the world to $247 billion from $67 billion ``to address the continued elevated pressures in U.S. dollar short-term funding markets.''"
EIB Borrows
"The extra yield investors demand to hold European investment-grade company debt over government bonds climbed 63 basis points this week to 272, the highest level since Merrill started compiling daily data in 1999. European financial debt spread widened 88 basis points to 330, Bloomberg data show."
"``The capital markets are as good as closed,'' said Jeroen van den Broek, head of investment-grade credit strategy at ING Bank NV in Amsterdam."
"Among sellers of European bonds this week, the European Investment Bank, the financing arm of the European Union, sold 100 million pounds ($179.5 million) more of 4.5 percent bonds originally sold in 2003 and due in 2013. The EIB has the highest rating available from both Moody's Investors Service and Standard & Poor's, appealing to investors averse to risk."
Risk
Financial institutions have posted more than $516 billion in losses and writedowns since the beginning of 2007 as the credit squeeze worsened.
"``Everyone is busy trying to manage their counterparty risk right now,'' said Puneet Sharma, the head of investment-grade credit strategy at Barclays Capital in London. ``They are not focusing on doing new trades.''"
"The average spread on European non-financial corporate bonds rose 29 basis points to 188, the most on record, according to Merrill's debt indexes. High-yield bond spreads also advanced 139 basis points to 983, the widest difference versus government debt since 2003, Merrill data show. A basis point is 0.01 percentage point."
Credit-default swaps on the Markit iTraxx Europe index of 125 companies Index with investment-grade ratings rose 13 basis points to 115 this week. The index climbed to 145 basis points on Sept. 17.
"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. An increase indicates deterioration in the perception of credit quality."
To contact the reporter on this story: Shelley Smith in London at ssmith118@bloomberg.net
"Last Updated: September 19, 2008 06:09 EDT"
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Dollar Gains on U.S. Government Plan to Revive Credit Markets
By Bo Nielsen
Enlarge Image/Details
Sept. 19 (Bloomberg) -- The dollar rose the most in more than five months against the yen after U.S. officials said they are working on a plan to stop financial institutions from failing.
The currency also gained for the first time in three days versus the euro as Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed moving troubled assets from the balance sheets of American financial companies into a new institution. The yen tumbled for a second day against the Australian and New Zealand dollars as investors bought high- yielding assets funded in the Japanese currency.
"``This will put an end to the banking crisis,'' said David Woo, London-based head of foreign-exchange strategy at Barclays Capital, the third-biggest currency trader. ``But people underestimate how long it will take to get this thing through Congress.''"
"The dollar rose 2.3 percent versus the Japanese currency, the largest gain since April 1, to 107 as of 7:38 a.m. in New York, paring this week's drop to 0.3 percent. The U.S. currency climbed 1.1 percent to $1.4196 per euro. The euro advanced 1.1 percent to 152.91 yen from 151.28 yen, following a 0.9 percent gain yesterday."
U.S. regulators met with lawmakers late yesterday to discuss a plan to clean up the devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression. Congressional leaders said they intend to pass legislation within days.
The U.S. currency extended its gains after the Treasury today announced plans to use as much as $50 billion from the country's Exchange Stabilization Fund to insure money-market mutual fund holdings against a collapse in financial markets.
"Stocks, Bonds"
"Stocks rose and bonds fell. Europe's Dow Jones Stoxx 600 Index surged 7 percent, the most since it was inaugurated in 1987. Futures on the Standard & Poor's 500 Index climbed 3.8 percent, and the MSCI Asia Pacific Index rebounded 4.9 percent from a three-year low. The yield on the two-year U.S. Treasury note rose 33 basis points to 2.05 percent."
Investors are gaining confidence after the Fed agreed with global central banks yesterday to almost quadruple the amount of dollars they can provide to money markets to $247 billion. The cost of borrowing in dollars overnight surged the most in its history on Sept. 16 after Lehman Brothers Holdings Inc. filed the biggest bankruptcy in history and the U.S. government took control of American International Group Inc. It fell for a second day today to 3.25 percent. That's still 125 basis points above the Fed's target rate.
Forecasts Changed
"``I fear this issue is not going to be resolved within the timetable that the market is looking for,'' London-based David Simmonds, head of currency research at Royal Bank of Scotland Group Plc, wrote in a note to clients today. It's only ``conceivable'' a plan could be enacted before the inauguration of the new U.S. president in January, he added."
Banks have raised their forecasts for the dollar. The median estimate in a Bloomberg News survey of 41 analysts is for the U.S. currency to end the year at $1.44 against the euro. It was $1.50 per euro a month ago.
The dollar still headed for a weekly decline versus the Japanese currency.
"``I wouldn't have too much confidence in U.S. assets yet, because we don't know how the situation is going to play out,'' said Naomi Fink, a Tokyo-based strategist at Bank of Tokyo- Mitsubishi UFJ Ltd., in a Bloomberg television interview."
"As of June 30, Citigroup Inc., JPMorgan Chase Co., Bank of America Corp., Goldman Sachs Group Inc., Merrill Lynch & Co. and Lehman had more than $500 billion of so-called Level 3 assets, or ones whose values they say can only be determined through internal models because of illiquid markets, according to New York-based bond research firm CreditSights Inc."
Carry Trades
"The yen dropped against higher-yielding currencies today as appetite for carry trades rebounded. It fell 2.7 percent to 87.14 versus Australia's dollar, the most since March 11, and 2.1 percent to 72.78 against New Zealand's dollar."
"The South Korean won and the Indian rupee were the biggest gainers among Asian currencies today as the U.S. government proposals helped revive demand for the region's stocks. The won rose 1.3 percent to 1,139.40 per dollar and the rupee increased 1.4 percent to 45.830."
"The yen may strengthen to 100 per dollar this year as traders cut holdings of higher-yielding overseas assets funded with Japan's currency, known as carry trades, Eisuke Sakakibara, a former currency-policy official in Japan, said in a Bloomberg television interview. There is ``no quick fix'' for the credit- market turmoil, he said."
`Mr. Yen'
"Sakakibara, 67, currently a professor at Tokyo's Waseda University, was dubbed ``Mr. Yen'' because of his ability to influence the foreign-exchange market during his 1997-1999 tenure at the Finance Ministry."
"The benchmark interest rate is 0.5 percent in Japan, compared with 7 percent in Australia and 7.5 percent in New Zealand. The risk in carry trades is that currency-market moves erase profits."
"``The last 12 to 18 hours have been an unambiguous good for the financial world and the global economy,'' said Peter Pontikis, a treasury strategist at Suncorp-Metway Ltd. in Brisbane, Australia. ``The first response is the yen isn't an attractive asset now.''"
To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net;
"Last Updated: September 19, 2008 08:05 EDT"
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"Agency Mortgage-Bond Spreads Fall, Subprime Gains as U.S. Acts "
By Jody Shenn
"Sept. 19 (Bloomberg) -- Yields on Fannie Mae, Freddie Mac and Ginnie Mae mortgage bonds fell relative to government notes for a third day and benchmark credit-default swap indexes signaled a jump in subprime-bond prices, after the U.S. moved to halt a credit-market seizure."
"The difference between yields on Fannie's current-coupon 30- year fixed-rate securities and 10-year Treasuries narrowed 11 basis point to 154 basis points as of 11:00 a.m. in New York, data compiled by Bloomberg show. The ABX-HE-PENAAA 07-2 index of swaps tied to subprime bonds rated AAA when created in the first half of 2007 rose about 7 percent to a mid-price of 55, according to a 10:35 a.m. note to clients from Goldman Sachs Group Inc."
"The U.S. today took steps representing the biggest expansion of federal power over markets since the Great Depression. U.S. Treasury Secretary Henry Paulson proposed the creation of a program in which the government would buy ``illiquid assets clogging our financial system,'' and said Fannie, Freddie and his department would step up their own mortgage-bond purchases."
"``Investors now have reason for optimism as the federal government comes together to address the deep-seated problems that have devastated the capital markets,'' Kenneth Hackel, head of fixed-income strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut, wrote in a note to clients today."
"So-called agency mortgage-bond spreads fell by record amounts on Sept. 8, after the U.S. government seized control of Fannie and Freddie, and Paulson pledged to buy their mortgage securities in a bid to lower loan rates. Spreads reversed that tightening earlier this week amid the collapse of Lehman Brothers Holdings Inc. and American International Group Inc."
Short-Selling Ban
"Agency mortgage bonds, representing a $4.7 trillion market, are guaranteed by Fannie or Freddie or Ginnie Mae, the federal agency. The spread on Fannie's securities fell 12 basis points yesterday, tumbling late in the day after rising as high as 193 basis points, amid reports about the U.S. plans."
"Also today, the U.S. temporarily banned short-selling of 799 financial companies, set aside as much as $50 billion to protect investors from losses in money-market mutual funds and began buying Fannie and Freddie's short-term debt, among other moves."
"ABX indexes indicate prices for credit-default swaps linked to 20 bonds. The credit-default swaps offer protection if the securities aren't repaid as expected, in return for regular insurance-like premiums. The indexes tumbled last year from at or near 100 as investors bet defaults on home loans would surge and property prices would tumble."
Treasury Yields Climb
"Rallies in ABX indexes tied to initially AAA rated securities between mid-July and early September weren't matched by the prices of the bonds they track, as investors buying actual securities faced difficulty borrowing money to make purchases, Jay A. Gladieux, a principal at Smith Breeden Associates Inc., said in an interview earlier this month."
"``Except for agencies, most bonds are not that financeable anymore,'' said Gladieux, whose Chapel Hill, North Carolina-based firm oversees about $27 billion."
"The yield on Fannie's current-coupon mortgage bonds climbed to 5.27 percent today from 5.19 percent yesterday as the government plan drove investors away from the safety of Treasuries, boosting their benchmark yields. The increase in mortgage-bond yields suggests mortgage rates are rising. The yield is still down from 5.63 percent on Sept. 5. A basis point is 0.01 percentage point."
"Bloomberg current-coupon indexes represent the average of yields for the two groups of mortgage bonds with prices just above and below face value, the ones lenders typically package new loans into. The spread helps determine the rates offered to homeowners on new prime mortgages of $417,000 or less in most areas, and up to $729,500 in high-cost counties."
To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net.
"Last Updated: September 19, 2008 11:37 EDT"
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Germany August Producer Prices: Statistical Summary (Table)
By Kristian Siedenburg
Sept. 19 (Bloomberg) -- Following is a summary of the August producer prices report from the German Federal Statistics Office in Wiesbaden:
================================================================================
Aug. July June May April March Feb. Jan. Dec. Nov.
2008 2008 2008 2008 2008 2008 2008 2008 2007 2007
================================================================================
Index 128.8 129.6 127.1 126.0 124.7 123.4 122.6 121.7 120.7 120.8
MoM % -0.6% 2.0% 0.9% 1.0% 1.1% 0.7% 0.7% 0.8% -0.1% 0.8%
YoY % 8.1% 8.9% 6.7% 6.0% 5.2% 4.2% 3.8% 3.3% 2.5% 2.5%
3-mo. % 3.0% 3.2% 2.7% 2.5% 2.1% 1.8% 1.4% 1.4% 1.1% 0.8%
================================================================================
NOTE: 2000=100. Figures are unadjusted for seasonal
influences. The Bundesbank releases seasonally
adjusted data shortly after this release.
The three month change is calculated as the average
index level of the latest three months divided by the
average index level of the previous three months.
SOURCE: Statistisches Bundesamt - (Federal Statistics Office)
To contact the reporter on this story: Kristian Siedenburg in Budapest at ksiedenburg@bloomberg.net
"Last Updated: September 19, 2008 02:00 EDT"
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"Swiss Franc Drops Versus Euro, Dollar on Plan to Revive Markets "
By Lukanyo Mnyanda
"Sept. 19 (Bloomberg) -- The Swiss franc dropped the most in five months against the dollar after the U.S. government proposed measures to move tainted assets from bank balance sheets, encouraging investors to buy higher-yielding assets."
"The franc also fell versus the euro, pushing its losses the past two days to 1 percent, as the Treasury announced today a $50 billion program to insure the holdings of money-market mutual funds for a year. The Swiss National Bank, led by Jean- Pierre Roth, kept its benchmark rate on hold yesterday and joined other central banks in pumping money into financial markets to restore confidence."
"``It's all the developments lately about a potential rescue for the market,'' said Elisabeth Andreew, chief currency strategist in Copenhagen at Nordea AB, Scandinavia's biggest bank. ``Safe-haven currencies like the franc have been hit today.''"
"Against the dollar, the franc fell as much as 2.1 percent, the biggest loss since April 24, and was at 1.1222 as of 2:28 p.m. in Zurich, cutting its gain this week to 0.8 percent. It dropped a second day versus the euro to 1.5983, from 1.5847 yesterday."
"Stocks rose and bonds fell around the world as investor demand for the safest assets waned. Europe's Dow Jones Stoxx 600 Index surged 7 percent, the most since it was inaugurated in 1987. Futures on the Standard & Poor's 500 Index climbed 4 percent, and the MSCI Asia Pacific Index rebounded 5 percent from a three-year low. The Swiss Market Index rose 5.6 percent."
Interest Rates
U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke made their proposal after earlier efforts failed to revive financial and housing markets. Congressional leaders who met with Paulson and Bernanke late yesterday in Washington said they aim to pass legislation soon. The initiative is aimed at removing the devalued mortgage linked assets at the root of the worst credit crisis since the Great Depression.
"Swiss policy makers have left the three-month repo rate at 2.75 percent since September 2007 after record defaults on U.S. home mortgages led to losses at the country's two biggest banks, UBS AG and Credit Suisse Group, and threatened economic expansion. The Swiss financial industry makes up about 15 percent of the economy."
"Improving financial-market confidence encouraged investors to resume carry trades, in which they borrow in a currency at a low interest rate and convert the proceeds into an asset they can lend out for a higher return. They take the risk currency fluctuations will erode their profits. Switzerland's benchmark rate of 2.75 percent is the industrialized world's third- lowest."
"Swiss government bonds fell, with the yield on the 3 percent note due January 2018 rising 9 basis points to 2.75 percent. Yields move inversely to bond prices."
To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
"Last Updated: September 19, 2008 08:31 EDT"
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U.K.'S FTSE 100 Surges By a Record on Short-Selling Regulations
By Adam Haigh
"Sept. 19 (Bloomberg) -- The U.K.'s FTSE 100 Index surged the most ever after regulators banned short selling of financial companies' shares, bucking a slump that has wiped out almost a quarter of its value this year. Barclays Plc soared 33 percent, Royal Bank of Scotland Group Plc rallied 39 percent, and Lloyds TSB Bank Plc climbed 35 percent. The Financial Services Authority in the U.K. yesterday banned short sales on stocks of financial firms until January 2009, where traders borrow shares from their broker that they then sell. If the price drops, they buy back the stock, return it to their broker and pocket the difference."
"``It's been an extraordinary move,'' said Henk Potts, a London-based fund manager at Barclays Stockbrokers, which has about $45 billion. ``Clearly the market is hoping that the central banks' coordinated efforts have proved that they are using every weapon in their arsenal to calm the turmoil. The market is thinking that it's enough to see us sailing on calmer waters over the next few weeks,'' he added."
"The benchmark FTSE 100 Index added 416.7, or 8.5 percent, to 5,296.7 at 2:57 p.m. in London. This was the steepest one-day rally the index has had since the benchmark was introduced on Jan. 3, 1984."
"Prior to this, only the surge on October 21, 1987 was bigger, when the index rallied 7.9 percent and closed at 1,943.8, according to FTSE Group. This followed the previous day of stock market collapses in what became known as Black Monday."
"More than $1.2 trillion worth of investments had been wiped off the value of U.K. shares in 2008 before today with FTSE 100 tumbling 24 percent. Banks including Barclays and Royal Bank have been forced to raise capital as losses at financial companies of more than $229 billion across Europe eroded profits. The index slid below 5,000 for the first time since 2005 this week."
Barclays Jumps
"The U.K. regulator now requires daily reporting of existing short positions in financial companies of more than 0.25 percent, it said in a statement yesterday after markets closed. The rules will remain in force until January 16, 2009."
"Barclays, the U.K.'s third-biggest bank which had tumbled 39 percent this year before today, gained 33 percent to 401.5 pence. Royal Bank, the second-largest, rallied 39 percent to 224.25 pence, clawing back some of its 56 percent plunge in 2008. Lloyds TSB Group Plc, the bank that yesterday acquired British mortgage lender HBOS Plc, gained 35 percent to 320.5 pence. HSBC Holdings Plc, Europe's largest lender, rose 16 percent to 921.25."
`Shore up the Market'
"``They are doing anything they possibly can to shore up the market,'' said Omer Bhatti, head sales trader at WorldSpreads Group Plc in London. ``These steps have never been taken before like this.'' he added."
Ireland's financial shares also rallied as its financial regulator also banned short selling of the country's banking stocks to ``ensure the orderly conduct of the market.''
"Anglo Irish Banks Plc, the country's third-largest bank, rallied 33 percent to 5.786 euros, leading gains on the ISEQ index."
"Bank of Ireland Plc gained 26 percent to 4.75 euros. The lender earlier said it has not received an offer from Banco Santander SA, Spain's biggest bank, following a Newstalk radio report citing the Spanish bank as a possible buyer of Ireland's second-biggest lender."
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net.
"Last Updated: September 19, 2008 10:01 EDT"
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"Japan, Australia Add $113 Billion to Boost Confidence (Update1) "
By Shamim Adam and Nate Hosoda
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"Sept. 19 (Bloomberg) -- Central banks in Japan and Australia pumped some $113 billion into money markets this week, holding down borrowing costs to revive confidence among banks."
"The Bank of Japan pumped 2 trillion yen ($19 billion) today, for a total of 10 trillion yen this week, the biggest since at least the start of 2007. The Reserve Bank of Australia added A$1 billion ($824 million) and has injected more than A$12 billion this week, the most in almost 13 months."
"``Funding pressures globally have intensified following the turmoil and fear that we could be in for another bout of asset price depreciations,'' said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., part of the world's largest inter-bank broker. ``Financial institutions are hoarding cash and shoring up their balance sheets.''"
Central banks injected more than $220 billion globally this week as credit markets seized up after the failure of Lehman Brothers Holdings Inc. and the U.S. government takeover of American International Group. The cost to protect against defaults on Asia-Pacific bonds fell by the most in more than five months and Japanese and Australian funding costs were unchanged.
U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke said they are working on a plan requiring legislation aimed at alleviating market turmoil.
The two regulators are seeking support for a plan to help financial institutions remove from their balance sheets illiquid mortgage-related assets at the root of the credit crisis.
Borrowing Costs Drop
Hong Kong's interbank loan rates declined from the highest in 11 months after the Hong Kong Monetary Authority injected HK$1.556 billion ($200 million) yesterday. The one-month Hong Kong interbank offered rate fell to 3.69 percent from 4.83 percent yesterday when it more than doubled.
"The Fed yesterday agreed swap facilities with five other central banks that will increase the amount of U.S. currency available overseas by $180 billion to $247 billion. It doubled the limit of dollars it will provide the European Central Bank and Swiss National Bank to $137 billion, and authorized $110 billion of swap facilities with Japan, the U.K. and Canada."
"The cost of borrowing in dollars overnight tumbled after the coordinated action was announced. The London interbank offered rate, or Libor, for overnight loans fell 1.19 percentage points to 3.84 percent yesterday."
Swap Dollars
The Bank of Japan said it will use its $60 billion swap arrangement to supply dollars to local and foreign financial institutions as required by market conditions. It will choose participants tomorrow.
"``They will keep liquidity in the system because their goal is to revive the short-term liquidity in the dollar, which is the oil in the global financial system,'' said Sebastien Barbe, a Hong Kong-based strategist at Calyon, the investment banking unit of France's Credit Agricole SA."
Japan's overnight loan rate fell to 0.4 percent after the BOJ's second injection today at 12:50 p.m. in Tokyo added another 1 trillion yen. The rate was as high as 0.585 percent before today's first injection of 2 trillion yen. The central bank's target overnight lending rate is 0.5 percent.
"BOJ Governor Masaaki Shirakawa yesterday said the agreement with the Fed is aimed at providing dollars to foreign banks and brokerages. The Bank of Japan ``doesn't have any particular concern'' about Japanese financial institutions' borrowing of dollars, Shirakawa said."
"Foreign banks are paying more than Japanese banks to borrow cash because counterparties are less willing to lend to them. Japanese banks borrowed overnight funds at interest rates between 0.4 percent and 0.5 percent today, while foreign banks had to pay between 0.6 percent and 0.7 percent, according to Tokyo Tanshi, a Japanese money market brokerage."
Australia Banks
"Australian banks' borrowing costs were stable today, according to a gauge that measures the availability of funds in the market. The difference between the rate banks charge each other for one-month loans and the overnight indexed swap rate was unchanged at 50.5 basis points at 2:12 p.m. in Sydney, after widening 13.5 points yesterday in the biggest jump since July 24, Bloomberg data show. The average spread for the past year was 23 basis points."
New Zealand's central bank will accept bank bills in its daily market operations to ease pressure on liquidity in the financial system.
"The difference between the rate New Zealand banks charge each other for one-month loans and the overnight indexed swap rate widened to 59 basis points at 4:21 p.m. in Wellington, from 53.5 points yesterday, Bloomberg data show."
"Default protection costs for bonds from Australia and Asia outside Japan declined, according to traders of credit-default swaps."
"The Markit iTraxx Australia index fell 34 basis points to 171 as of 1:11 p.m. in Sydney, Citigroup Inc. prices show. The benchmark, tied to the debt of 25 companies including Qantas Airways Ltd. and BHP Billiton Ltd., declines as perceptions of credit quality improve. Japan's benchmark of credit risk stood at 150, down from 175, according to Credit Suisse Group data."
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net Nate Hosoda in Tokyo at nhosoda@bloomberg.net
"Last Updated: September 19, 2008 00:52 EDT"
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"Italian Stocks Update: Fiat, Intesa, Pirelli, Seat, UniCredit "
By Francesca Cinelli
"Sept. 19 (Bloomberg) -- Italy's S&P/MIB Index gained the most in almost six years, increasing 1,471, or 5.7 percent, to 27,135. Futures expiring in December surged 1,325, or 5.1 percent, to 27,215."
The following were among the most active stocks on the Italian market today. Share symbols are in parentheses.
"Assicurazioni Generali SpA (G IM), Italy's biggest insurer, rose for the first time in seven sessions, adding 1 euro, or 4.8 percent, to 21.89 euros."
"``Despite recent asset falls, we believe insurers can avoid forced capital raisings even on a further 20 percent fall in equity markets,'' Deutsche Bank AG analysts wrote in a research report on the European industry."
"Autogrill SpA (AGL IM), the world's biggest manager of airport restaurants, rose the most in six weeks, increasing 43.6 cents, or 5.1 percent, to 8.98 euros."
"Luxottica Group SpA (LUX IM), the world's biggest maker of eyeglasses, jumped 97 cents, or 5.6 percent, to 18.43 euros. Companies with sales in the U.S. were boosted by the dollar's rise against the euro."
"Eni SpA (ENI IM), Italy's largest energy company, advanced the most in almost eight months, adding 81.7 cents, or 4.5 percent, to 19.08 euros. The company plans to produce the first oil from the Kashagan field in Kazakhstan in 2012."
"Investors are attributing too much importance to Kashagan, Sergio Molisani and Roberto Larotonda, analysts at UniCredit Markets & Investment Banking, wrote, ``while forgetting the strong undervaluation.''"
"Fiat SpA (F IM), Italy's largest manufacturer, gained the most in almost two months, adding 75.2 cents, or 7.5 percent, to 10.77 euros. The company will simplify its structure by taking direct control of its main shareholdings by the end of the year."
"``This transaction might facilitate a possible Fiat Automobile spinoff in the future,'' Gabriele Gambarova, an analyst at Banca Akros, wrote in a research report."
"``The announcement could turn out to be positive over the mid term,'' Sal Oppenheim Jr & Cie. analysts wrote in a report. The brokerage cut its price estimate on the stock to 11.2 euros from 11.8 euros, citing worsening news from the western European car and truck market."
"Fondiaria-Sai SpA (FSA IM), Italy's second-largest insurer, surged the most in 5 1/2 months, adding 1.2 euros, or 7.3 percent, to 17.65 euros. Businessman Roberto Colaninno's investor group, known as CAI, yesterday withdrew its bid for Alitalia SpA (AZA IM), Italy's largest airline."
"``We consider the news positively as it implies a lower commitment to industrial holdings, in favor of a more profit- oriented approach in investment management,'' Banca Leonardo analyst Gianantonio Villani wrote. Fondiaria-Sai would have contributed 50 million euros to CAI's purchase of Alitalia."
"Gemina SpA (GEM IM), owner of Italy's largest airport manager, fell for a sixth consecutive day, losing 0.28 cents, or 0.4 percent, to 62.7 cents."
"Cheuvreux cut its price estimate on the stock to 0.63 euros from 0.77 euros while Citigroup Inc. downgraded the stock to ``hold'' from ``buy.'' Alitalia is the largest client of Gemina, which owns Italy's biggest airport manager."
"Landi Renzo SpA (LR IM), the Italian maker of injection systems for alternative fuels, rose for the first time this week, adding 19.1 cents, or 5.2 percent, to 3.86 euros. Berenberg Bank upgraded the stock to ``buy'' from ``hold.''"
"Mediobanca SpA (MB IM), Italy's biggest publicly traded investment bank, rose the most in about six months, adding 52.5 cents, or 5.7 percent, to 9.82 euros."
"Mediobanca yesterday said fiscal-year profit rose 6.4 percent, beating analysts' estimates, on higher income from lending. ``Mediobanca reported very strong full-year results,'' Merrill Lynch Antonio Guglielmi wrote in a note. ``We feel like we are finally at the cornerstone of this investment case.''"
"Pirelli & C SpA (PC IM), Europe's third-largest tiremaker, surged the most in about 1 1/2 months, adding 3.34 cents, or 7.7 percent, to 46.85 cents. A spokesman for the company confirmed that a so-called road show took place yesterday in Germany."
"Seat Pagine Gialle SpA (PG IM), Italy's largest publisher of phone directories, advanced 0.57 cents, or 7.6 percent, to 8.1 cents, rebounding from a seven-week low. The company is repaying 30 million euros ($42.6 million) of debt early, it said in a statement."
"``The move aims at restoring market confidence, especially from the debt market, that is penalizing highly indebted companies as a consequence of the overall gloomy scenario,'' Marco Greco, an analyst at Mediobanca Securities, wrote in a report."
"Telecom Italia SpA (TIT IM), Italy's biggest telephone company, surged 2.8 cents, or 2.7 percent, to 1.07 cents. The company hired JPMorgan Chase & Co. and Rothschild as advisers on the spinoff of its fixed-line network, Il Messaggero reported, without saying where it got the information."
"``The spinoff of Telecom Italia's fixed-line network could act as a positive catalyst for the shares,'' Euromobiliare Sim analysts wrote in a research report."
"UniCredit SpA (UCG IM), Intesa Sanpaolo SpA (ISP IM), and Banca Monte dei Paschi di Siena SpA (BMPS IM), Italy's largest banks, gained 35.1 cents, or 11 percent, to 3.51 euros; 35.35 cents, or 10 percent, to 3.9 euros; and 10.9 cents, or 6.3 percent, to 1.85 euros respectively, after being suspended for excessive gains."
"Financial stocks climbed in Europe after U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke said they're putting together plans to halt the credit- market seizure, while U.K. and American regulators cracked down on short sellers."
"``We recognize that the new short selling rules and U.S. intervention can help reduce tail risk,'' Morgan Stanley analysts wrote in a report on the European industry."
"Unipol Gruppo Finanziario SpA (UNI IM), Italy's fourth- biggest insurer, rose for the first time in seven sessions, adding 10.4 cents, or 7 percent, to 1.6 euros. The company said clients holding its index-linked policies will be protected from risks related to the collapse of Lehman Brothers Holdings Inc."
"``We consider the move as positive,'' Centrosim analyst Enrico Esposti wrote in a note. ``The insurer chose to protect its clients and prevent its reputation from being damaged.''"
To contact the reporter on this story: Francesca Cinelli in Milan at fcinelli@bloomberg.net
"Last Updated: September 19, 2008 07:55 EDT"
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Japan 2-Year Notes Complete Weekly Drop as Crisis Concerns Ease
By Theresa Barraclough
Sept. 19 (Bloomberg) -- Japan's two-year notes completed a fourth weekly decline after the U.S. government proposed moving troubled assets from the balance sheets of American financial companies into a new institution.
"The yields climbed to the highest in 2 1/2 months after the Nikkei 225 Stock Average advanced, reducing demand for debt. The Bank of Japan yesterday said it agreed with the U.S. Federal Reserve to supply dollars in Japan for the first time as part of a joint action by central banks worldwide to ease tensions in financial markets."
"The measures ``might support financial markets and they may save some institutions,'' said Guthrie Williamson, portfolio manager in Sydney at Principal Global Investors, which manages $244.9 billion in assets globally. ``We could see bond yields rising for a few days.''"
"The yield on the 0.7 percent note due September 2010 rose 4.5 basis points this week to 0.785 percent as of 4:34 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price fell 0.087 yen to 99.834 yen."
"On the day, two-year yields fell half a basis point to 0.785 percent after reaching 0.85 percent, the highest since July 9. A basis point is 0.01 percentage point."
Ten-year bond futures for December delivery dropped 1.32 to 137.02 as of the afternoon close at the Tokyo Stock Exchange. Japan's Nikkei 225 advanced 3.8 percent and the broader Topix index gained 4.7 percent.
"The nation's bonds often move in the opposite direction to stocks. Benchmark 10-year yields had a correlation of 0.87 with the Nikkei 225 this month, according to Bloomberg data. A value of 1 means the two moved in lockstep."
Rescue Measures
"Congressional leaders who met with Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson late yesterday in Washington said they aim to pass legislation soon. The initiative, which may also insure money-market funds, is aimed at removing the devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression."
"``The news of the U.S. government plan and the central bank's efforts to supply dollars have halted the deterioration of the credit crisis,'' reducing demand for bonds, said Akihiko Inoue, an analyst at Mizuho Investors Securities Co. in Tokyo."
"The difference in yields between Japanese and U.S. five-year debt fell to 1.42 percentage points on Sept. 15, the narrowest since at least 1999, according to data compiled by Bloomberg. The spread is currently at 1.66 percentage points and averaged about 3.19 percentage points last year."
"``Banks are still short of capital,'' PGI's Williamson said. ``This will restrict credit growth and weigh on growth of the real economy for some time to come.''"
Money Market Rate
"The Fed yesterday increased the amount of dollars that the European Central Bank, the BOJ and other counterparts can offer from $67 billion ``to address the continued elevated pressures in U.S. dollar short-term funding markets.''"
"``The ongoing financial market turmoil resulting from U.S. financial-sector concerns has crested some upward pressure on domestic money-market rates,'' Tomoko Fujii, head of Japan economics and strategy at Bank of America Corp. wrote in a research report yesterday."
"The BOJ added 2 trillion yen to the financial system in its fourth day of fund injections to help ease a global credit crisis. Japan's overnight call loan rate was at 0.45 percent after the BOJ's operation at 9:05 a.m. in Tokyo, falling from as high as 0.585 percent, according to Tokyo Tanshi Co."
"The decline in bonds may be limited by speculation the worst of the financial crisis may not be over yet, boosting demand for the safe haven of government securities. Five-year yields fell 1.5 basis points today to 1.11 percent."
`Like Aspirin'
"``Bonds are the best buy,'' said Yuuki Sakurai, general manager of financial and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $54 billion in assets. The recent rescue plans and money injections are ``like an aspirin for the market -- it takes away the headache, but it doesn't cure the problem.''"
"Benchmark bonds have handed investors a return of about 0.8 percent so far this quarter through yesterday, according to indexes compiled by Merrill Lynch & Co., which sold itself to Bank of America Corp. this week."
"Demand for bonds also declined on speculation the suspension of Lehman Brothers Holdings Inc., which declared bankruptcy on Sept. 15, as a primary dealer of Japanese notes, reduced the appeal of the nation's sovereign debt."
"Japan is considering ``various ways'' to cover Lehman's failure to pay for 128.7 billion yen of government debt sold to the company last month, according to the Ministry of Finance."
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
"Last Updated: September 19, 2008 03:52 EDT"
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Mexico Bank Leaves Rate at 8.25% on Growth Concerns (Update2)
By Hugh Collins and Jens Erik Gould
"Sept. 19 (Bloomberg) -- Mexico's central bank left its benchmark interest rate unchanged, breaking a streak of three consecutive increases, as policy makers said economic growth may slow and inflation will probably remain within forecasts."
"The bank's five-member board, led by Governor Guillermo Ortiz, left the key lending rate at 8.25 percent."
"While inflation may continue to accelerate, the bank's statement that price increases will probably remain within its forecasts signal policy makers will leave rates unchanged for the rest of the year, said Gabriel Casillas, an economist at Banco UBS Pactual. The bank raised rates three quarters of a point since June in a bid to tame the fastest inflation in five years."
"``It's a less hawkish statement,'' said Casillas, who is based in Mexico City. ``Saying inflation will be within the forecasts confirms that the hiking cycle is finished.''"
"The bank said in a statement that the economy was more likely to weaken because the global economic slump has intensified, and that consumption and job creation have been reduced in Mexico."
"``The risks of slower economic activity have increased,'' the statement said."
The bank's decision to leave rates on hold matched the forecast of 22 of 23 economists surveyed by Bloomberg. One economist forecast a quarter point increase.
Consumer Prices
"Higher food and energy costs helped push consumer prices up 5.57 percent in August from a year earlier. Still, inflation remains within policy makers' third-quarter forecast of 5.25 percent to 5.75 percent."
"In July, the bank increased its inflation forecasts through 2010 because of higher-than-expected commodity costs. Since then, the prices of crude oil, wheat, soy and corn have dropped at least 30 percent since their record highs."
"Policy makers may also have been hesitant to increase rates because of the turmoil caused by the world's worst credit crisis since the Great Depression, said Alberto Bernal, an economist with Bulltick Securities Corp. in Miami."
"``It's better just to stay pat,'' Bernal said in a telephone interview. ``The uncertainty is just too much.''"
"Finance Minister Agustin Carstens said earlier this week that economic growth will be reduced by the financial crisis in the U.S. and the fall in global oil prices may have a ``serious'' effect on Mexico, which gets 40 percent of its federal budget from crude."
Gross Domestic Product
"Gross domestic product would have expanded 4 percent this year without the problems in the U.S. housing and credit markets, compared with the government's forecast of 2.4 percent growth, Carstens said in an interview on the Televisa network."
"Mexico's monetary policy in coming months will depend in part on the U.S.'s ability to resolve its financial crisis, said Rafael de la Fuente, a senior economist at BNP Paribas SA in New York."
"``Worse-than-expected headline numbers won't push the central bank to hike if there are problems in the U.S.,'' said de la Fuente, who forecasts an increase in the fourth quarter. The Mexican bank won't raise rates so long as the U.S. credit crisis puts a drag on the Mexican economy, he said."
The central bank forecasts that inflation will peak at 6 percent in the final quarter of this year then subside in 2009. It isn't expected to reach the central bank's goal of 3 percent until at least 2010.
"Economists surveyed by Citigroup Inc.'s Banamex unit predict the bank will leave its benchmark interest rate unchanged for the remainder of the year, according to a survey released yesterday."
"Economists forecast that Banco de Mexico will reduce the key lending rate next year, the survey said."
"Mexico's weakening economy makes the central bank wary of tightening consumption more with a rate increase, said Vitoria Saddi, an economist with RGE Monitor in New York."
"``They don't have any interest in forcing the slowdown even further,'' Saddi said."
To contact the reporter on this story: Hugh Collins in Mexico City at Hcollins8@bloomberg.net; Jens Erik Gould in Mexico City at jgould9@bloomberg.net.
"Last Updated: September 19, 2008 12:03 EDT"
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Canada Stocks Rise Most Since Crash of `87 on Bank Rescue Plan
By John Kipphoff
"Sept. 19 (Bloomberg) -- Canadian stocks had their biggest rally since the ``Black Monday'' crash of 1987, led by Research In Motion Ltd., after the U.S. unveiled plans to shore up banks and ease the credit contraction hurting markets and the economy."
"Stocks worldwide rebounded after U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed ridding financial institutions of illiquid assets and while American and U.K. regulators banned short sales of financial firms, including some dual-listed Canadian banks and insurers. Similar plans are under consideration in Canada."
"Canadian Oil Sands Trust, Potash Corp. of Saskatchewan Inc. and Manulife Financial Corp. helped pace gains as all 10 groups in Canada's main index advanced on speculation that the U.S. rescue plan will boost demand for the country's exports. Energy shares climbed the most in two decades after crude oil climbed back above $100 a barrel."
"``Everything's in place to make it hard for stock prices to go down,'' said RBC Capital Markets strategist Myles Zyblock. ``This is the sort of stuff that does mark bottoms.''"
"The Standard & Poor's/TSX Composite Index jumped 6.2 percent to 12,815.87 at 2:59 p.m. in Toronto, wiping out the week's losses. A close at this level would be the benchmark's biggest gain since Oct. 21, 1987, two days after the ``Black Monday'' crash, when it rallied 9 percent."
"The S&P/TSX fell into a bear market on Wednesday, down more than 20 percent from a June record, after prices of oil and metals slumped and more than $500 billion in bank losses worldwide tied to the U.S. mortgage crisis stoked concern that global demand will slow."
Bear Market
"Research In Motion gained the most in 14 months, climbing 12 percent to C$108.24. The stock was boosted by prospects that job losses among bankers on Wall Street, who favor its BlackBerry e-mail phones, will abate. The U.S. government's move to ease the credit crunch may also mean that businesses and consumers may not scale back technology spending."
"The Waterloo, Ontario-based company, Canada's second- biggest by market value, makes about 60 percent of its sales in the U.S."
"Canadian Oil Sands, lead partner in the largest oil-sands producer in the world, had its steepest gain since it began trading in November 1995. The stock rose 14 percent to C$43.72. Rival tarsands producer Suncor Energy Inc. climbed 10 percent, the most in a decade. Canadian Natural Resources Ltd. increased 9.6 percent to C$86.77."
Oil Rises
"Crude-oil prices climbed 6.6 percent to $104.33 a barrel in New York on speculation that the measures to resolve the bank crisis will bolster demand for petroleum. Copper and wheat soared, while gold tumbled, as concern eased that the economy will stall."
"Potash Corp., the world's largest maker of crop nutrients by market value, advanced the most in a decade, adding 9.8 percent to C$187.35. Smaller rival Agrium Inc. gained 12 percent to C$88.24. First Quantum Minerals Ltd., a miner of copper in Africa, rose 17 percent to C$51. Barrick Gold Corp., the largest bullion producer, gained 7.8 percent to C$35.64 even as gold prices fell."
"Manulife, Canada's biggest insurance company, climbed the most in almost eight years, rising 7 percent to C$37.81. Toronto-Dominion, the country's second-largest lender by assets, gained 6.2 percent to C$63.93. Canadian Imperial Bank of Commerce, the fifth-largest, rose 4.3 percent to C$62.24. Sun Life Financial Inc., the country's third-biggest insurance company, added 3.2 percent to C$38.45."
"Gauges of financial, energy and raw-materials shares added a respective 4.9 percent, 6.6 percent and 8.2 percent today. The three account for three-quarters of the S&P/TSX's value."
"BCE Inc. gained 8.2 percent to C$37.48, the most in more than two months. Shares of Canada's biggest phone company are still down 5.4 percent this week on speculation banks will balk at financing the C$52 billion leveraged buyout, the biggest ever, as they seek to preserve capital."
To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.
"Last Updated: September 19, 2008 15:14 EDT"
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Record Surge on US UK Regulations .txt>>
<<2.610_20080919205124Treasury Fed Start Aid Preceding Broad Crisis Plan
(Update1) .txt>> <<2.610_20080919202720Japan Stocks Rally on Capital
Boost Plan Higher Shipping Fees .txt>> <<2.610_20080919193608NZ
Central Bank Takes Steps to Ease Liquidity (Update1) .txt>>
<<2.609_20080919202812China's Stock Rally Is a Chance to Exit Morgan
Stanley Says .txt>> <<2.609_20080919193303Australia New Zealand
Dollars Rise Versus Yen on Risk Appetite .txt>>
<<2.645_20080919194956Brazil's Real Rallies Most Since August 2007 on US
Bailout .txt>> <<2.643_20080919202532Brazil Stocks Rally for Biggest
Gain Since 2001 Bolsa Rises .txt>> <<2.642_20080919205928Russia Brazil
Lead Record Emerging Market Gain Bonds Rally .txt>>
<<2.638_20080919194804Latin American Currencies Soar on US Market
Bailout Plans .txt>> <<2.637_20080919202402European Bonds Slide on US
Plan to Ease CreditMarket Crisis .txt>> <<2.635_20080919193916Corn
Soybeans Rebound as Bank Bailout Boosts Stocks Optimism .txt>>
<<2.632_20080919210140MoneyMarket Rates Tumble on Plan to Shore Up Banks
(Update2) .txt>> <<2.632_20080919173625Natural Gas Declines as
Supplies May Be Ample Before Winter .txt>> <<2.631_20080919195206Korea
Won to Trade in 11001160 Range Next Week Survey Shows .txt>>
<<2.631_20080919194934Dollar Rises Most Against Yen Since April on US
Bailout Plan .txt>> <<2.630_20080919202511Morgan Stanley Goldman Lead
Drop in Bond Risk on Fed Debt Plan .txt>>
<<2.630_20080919195101Rabobank Cuts YearEnd Forecast on Euro Versus
Dollar (Update1) .txt>> <<2.630_20080919193112Canadian 10Year Bond
Falls the Most Since 2004 on US Plan .txt>>
<<2.629_20080919194557Crude Oil May Rise Amid Low US Inventories Survey
Shows .txt>> <<2.629_20080919173921Corporate Bonds Sales Plunge to
6Year Low as Markets Seize Up .txt>> <<2.626_20080919210513Dollar
Gains on US Government Plan to Revive Credit Markets .txt>>
<<2.626_20080919205145Agency MortgageBond Spreads Fall Subprime Gains as
US Acts .txt>> <<2.626_20080919204502Germany August Producer Prices
Statistical Summary (Table) .txt>> <<2.626_20080919195039Swiss Franc
Drops Versus Euro Dollar on Plan to Revive Markets .txt>>
<<2.625_20080919202637UK'S FTSE 100 Surges By a Record on ShortSelling
Regulations .txt>> <<2.625_20080919202425Japan Australia Add $113
Billion to Boost Confidence (Update1) .txt>>
<<2.625_20080919174705Italian Stocks Update Fiat Intesa Pirelli Seat
UniCredit .txt>> <<2.624_20080919202448Japan 2Year Notes Complete
Weekly Drop as Crisis Concerns Ease .txt>>
<<2.623_20080919174307Mexico Bank Leaves Rate at 825% on Growth Concerns
(Update2) .txt>> <<2.622_20080919202554Canada Stocks Rise Most Since
Crash of `87 on Bank Rescue Plan .txt>>
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A blog for global investors, with information about most of the world financial markets. Updated frequently, every day, with my views on these markets. Bear or Bull? Read to discover!
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