U.K. Pound Falls to One-Week Low Against Euro on Slower Growth
By Lukanyo Mnyanda
"Aug. 22 (Bloomberg) -- The U.K. pound fell to the lowest level in a week against the euro after a government report showed economic growth stagnated in the second-quarter, strengthening the case for lower interest rates."
"The pound also headed for a fifth week of losses against the dollar, the longest losing streak since February 2006, as the Office for National Statistics said U.K. gross domestic product was unchanged from the previous three months. Inflation risks ``have probably eased a little,'' the minutes of the Bank of England's August rate meeting showed this week."
"``This is a pretty toxic environment for the pound,'' said Lee Hardman, a currency strategist in London at the Bank of Tokyo-Mitsubishi Ltd. ``There's a risk of a rate cut in November if the data continue to deteriorate.''"
"The U.K. currency dropped as much as 0.7 percent to 79.89 pence per euro, the lowest level since Aug. 14, and was at 79.70 by 3:12 p.m. in London, from 79.32 yesterday and 78.70 a week ago. It was at $1.8589, from $1.8782 yesterday. The pound may drop below $1.80 in 12 months, Hardman forecast. The pound has declined 6.8 percent this month, headed for the biggest monthly decline since October 1992, when it lost 12 percent."
"Gross domestic product was unchanged from the first quarter, the Office for National Statistics said, compared with a previous estimate for growth of 0.2 percent. Economists had expected a 0.1 percent expansion, according to the median estimate of 34 economists in a Bloomberg News survey. Growth was 1.4 percent from a year earlier, the weakest since 1992."
"The report adds to pressure on the Bank of England to set aside concerns about inflation and cut its benchmark interest rate, currently at 5 percent."
`Support the Market'
"Deutsche Bank AG changed its U.K. interest-rate forecast yesterday and said the central bank will lower borrowing costs by 1 percentage point next year. The benchmark rate will be cut to 4 percent in the first three quarters of 2009, George Buckley, the bank's chief U.K. economist, wrote in an e-mailed note."
"``The prime focus remains how soon does inflation come off,'' said Simon Derrick, a currency strategist in London at Bank of New York Mellon Corp. ``And how soon can the Bank of England move to get monetary policy down to a level that will help support the market.''"
"Gilts dropped, with the yield on the 10-year bond rising 6 basis points to 4.63 percent. The 5 percent security due March 2018 fell 0.46, or 4.6 pounds per 1,000-pound face amount, to 102.85. The yield on the two-year gilt, which is more sensitive to interest rate changes, rose 5 basis points to 4.62 percent. Bond yields move inversely to prices."
"The U.K. economy faltered after banks choked off credit following the collapse of the U.S. subprime-mortgage market. Still, an inflation rate at more than twice its 2 percent target has prevented the Bank of England's from lowering interest rates to revive the economy."
"``It's a disappointing outturn,'' Ross Walker, an economist at Royal Bank of Scotland Group Plc, the U.K.'s second largest lender, said in a Bloomberg Television interview. ``It raises the risk of an earlier cut in interest rates.''"
Morgan Stanley recommended yesterday investors put on trades that benefit from a drop in the pound against the Australian dollar and Swiss franc on speculation the economic slowdown in the U.K. will deepen.
"Investors should enter the so-called short positions at 2.1360 Australian dollars per pound and target a decline in the British currency to 2.0400, Sophia Drossos, a New York-based strategist, wrote in a client note. They should also hold on to so-called short positions on the pound versus the franc, with a target of 1.95, she wrote. A short position is a bet the value of a currency or security will fall."
U.K. bonds have outperformed their European counterparts in the past three months as evidence the economic slowdown is deepening persuaded investors to remove wagers on rate increases. The implied yield on the March short-sterling futures contract was at 5.27 percent. It has declined from 5.44 percent at the end of July.
"The spread between U.K. government bonds and their German counterparts has narrowed. The 10-year gilt yielded 38 basis points more than the German bund, the smallest amount since July 22. It was at 69 basis points on Feb. 25, the widest this year."
"U.K. bonds have returned 4.3 percent in the past two months, compared with 2.9 percent for their European counterparts, according to Merrill Lynch & Co.'s EMU Direct Government and U.K. Gilts Master indexes."
To contact the reporters on this story: Lukanyo Mnyanda in London at email@example.com
"Last Updated: August 22, 2008 10:22 EDT"
Asian Stocks Drop for Fourth Week; Sumitomo Mitsui Falls
By Chen Shiyin and Ian C. Sayson
"Aug. 22 (Bloomberg) -- Asian stocks fell, driving the region's benchmark index to the lowest since July 2006, after renewed credit-market concerns weighed on financial companies and higher crude prices sent refiners and airlines lower."
"Sumitomo Mitsui Financial Group Inc. slumped 3.6 percent, leading declines among financial shares as Li Ka-shing, Asia's richest man, predicted the credit crunch will worsen. GS Holdings Corp., operator of South Korea's No. 2 refiner, dropped 3.6 percent as Goldman Sachs Group Inc. cut the stock's rating. Korean Air Lines Co., the country's largest carrier, retreated 1.6 percent following the biggest gain in oil in two months."
"``Consumer spending is shrinking from rising oil prices and higher inflation is increasing the costs of companies,'' said Choi Min Jai, who helps manage about $5 billion at KTB Asset Management Co. in Seoul. ``It doesn't help that this is happening while the subprime problem in the U.S. seems to be getting worse.''"
The MSCI Asia Pacific Index lost 0.8 percent to 121.97 as of 7:25 p.m. in Tokyo. Hong Kong was shut as Typhoon Nuri swept over the city.
"The Asian benchmark index has dropped 2.3 percent this week, its fourth-straight retreat. That has taken the gauge's 2008 slump to 23 percent as soaring inflation assailed global economies and the world's largest financial companies posted writedowns and credit losses of more than $500 billion."
"Japan's Nikkei 225 Stock Average fell 0.7 percent to 12,666.04. China's CSI 300 Index lost 1.5 percent, the region's largest retreat. Australia's S&P/ASX 200 Index added 1.2 percent as higher raw-material prices lifted shares of BHP Billiton Ltd."
U.S. stocks rose yesterday after the biggest three-day advance by energy companies since 2002 overshadowed speculation credit writedowns at financial firms will increase. Standard & Poor's 500 Index futures fell 0.2 percent today.
"A measure of financial shares on the S&P 500 index dropped 1.1 percent yesterday, after Citigroup analyst Prashant Bhatia said Goldman Sachs, Morgan Stanley and Lehman Brothers Holdings Inc. will write down a combined $6.4 billion in the third quarter."
"Sumitomo Mitsui, Japan's second-largest publicly traded bank by market value, retreated 23,000 yen to 637,000, its lowest close since September 2004. Kookmin Bank, South Korea's No. 1 bank, dropped 6.1 percent to 55,900 won."
"The ``worst is yet to come'' from the global credit crisis, Hong Kong-based Li said yesterday, adding that he has turned ``very conservative about acquisitions.'' His comments echoed those by Nobel Prize-winning economists Myron Scholes and Joseph Stiglitz, who said yesterday the credit squeeze will inflict more pain on global growth."
"Woori Investment & Securities Co., South Korea's fourth-largest brokerage by market value, slipped 2.7 percent to 19,750 won after saying yesterday its July profit tumbled 92 percent from a year earlier."
Worst Is Over?
"``Though the worst period of the financial crisis is probably over, we will still see global financial companies report more losses on asset writedowns,'' said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which manages about $94 billion. ``Given increasing demand in emerging countries, I don't think crude will tumble by a large degree.''"
"Korean Air dropped 650 won to 41,150. Singapore Airlines Ltd., Southeast Asia's biggest carrier, lost 2.5 percent to S$14.88."
"Crude oil for October delivery surged 4.9 percent to $121.18 in New York, the biggest increase since June 6, after a slump in the dollar prompted investors to buy commodities. Oil also rose on increased concern that Russia will disrupt supplies following the signing of a missile-shield agreement between the U.S. and Poland."
"The Reuters/Jeffries CRB Index of 19 commodities soared 3.7 percent, heading towards its biggest weekly gain in 33 years."
"BHP Gains, GS Drops"
"BHP, the world's largest mining company, jumped 3.1 percent to A$40.15, while Rio Tinto Group, the third-biggest, added 1.8 percent to A$121. Woodside Petroleum Ltd., Australia's No. 2 oil and gas explorer, rallied 3.4 percent to A$57."
"GS Holdings fell 1,150 won to 31,250 in Seoul, the lowest close since March 6, 2007. Goldman Sachs cut the stock's recommendation to ``sell'' from ``neutral,'' citing weaker gasoline demand in the U.S. and the prospects of lower diesel imports by China and India. It lowered its rating on the industry to ``cautious'' from ``neutral.''"
"Goldman Sachs also downgraded Macquarie Infrastructure Group, Australia's largest developer of toll roads, to ``sell'' from ``hold,'' after the company said yesterday profit for the year to June 30 fell 55 percent. The shares plunged 10 percent to A$2.23, the largest decline on MSCI's Asian index."
To contact the reporter for this story: Chen Shiyin in Jakarta at firstname.lastname@example.org; Ian C. Sayson in Manila at email@example.com
"Last Updated: August 22, 2008 06:31 EDT"
Yuan Posts Biggest Weekly Gain Since May on Surplus; Bonds Rise
By Judy Chen and Belinda Cao
Aug. 22 (Bloomberg) -- China's yuan completed the biggest weekly gain in three months on speculation officials will seek a stronger currency to curb the trade surplus and deter the U.S. from imposing penalties. Bonds rose.
"China needs ``more flexibility'' in the exchange rate to manage its economy amid a global slowdown, John Lipsky, the International Monetary Fund's first deputy managing director, said yesterday in Jackson Hole, Wyoming. This week's advance ends a run of four straight losses and extends the currency's gain this year to 7 percent, more than it rose for all of 2007."
"``The yuan will probably regain appreciation after the Olympics,'' said Li Huiyong, an economist at Shenyin Wanguo Research & Consulting Co., part of China's third-largest brokerage firm, in Shanghai. ``The huge trade surplus is the biggest reason for the medium and long-term appreciation.''"
"The yuan rose 0.5 percent this week to 6.8333 a dollar as of 5:30 p.m. in Shanghai, from 6.8700 late last week, according to the China Foreign Exchange Trade System. That's the biggest weekly advance since May 23. It climbed 0.16 percent today."
"China's central bank has managed the yuan's exchange rate against a basket of currencies, including the yen and the euro, since a peg to the dollar was scrapped in 2005. Both currencies rallied more than 1 percent against the dollar yesterday."
"The People's Bank of China set a stronger reference rate for yuan trading for a fourth straight day. The yuan is allowed to trade by up to 0.5 percent against the dollar either side of the daily rate, which was fixed at 6.8357 today."
"China's trade surplus expanded 4 percent from a year earlier to $25.3 billion in July, the first increase in four months, according to customs bureau figures released last week. U.S. Treasury Secretary Henry Paulson said this week that U.S. proposals to punish China for depressing the value of the currency might spark an unproductive ``trade war.''"
The local currency touched a two-month low of 6.8808 a dollar on Aug. 18 on speculation policy makers would prefer to bolster growth rather than fight inflation on signs a global slowdown crimped demand for the nation's exports. The yuan has declined about 0.2 percent in the past month.
"China's economy expanded 10.1 percent in the second quarter from a year earlier, the slowest pace since 2005. Export growth cooled to 17.2 percent in June from a 28.1 percent gain in May, government data show. It accelerated to a 26.9 percent pace last month."
"``A post-Olympics growth scare in China is now more probable than we had thought six months ago,'' Stephen Jen, London-based head of research at Morgan Stanley, wrote in a research report yesterday. ``Such a regional growth scare will provide further support to our call'' for Asian currencies to weaken versus the dollar."
"Traders in the forward market have pared bets on how far the yuan will advance. Forward contracts show the yuan will rise 3.1 percent to 6.6250 in a year, compared with around 11 percent appreciation predicted earlier this year."
"Standard Bank in London recommended buying the Chinese currency, playing down chances policy makers will shift focus to supporting the economy and citing global calls for appreciation."
"``We are skeptical that they will see slower appreciation, or even depreciation, as a way to stimulate growth,'' Steve Barrow, a currency strategist with Standard Bank in London, wrote in a report yesterday. ``The renminbi is a buy.''"
Corrected Too Far
"Even as the dollar strengthens against major currencies, like the euro, the U.S. Treasury will ``want to keep pressure on China for renminbi appreciation,'' Barrow said. ``It seems so clear to us it has corrected too far in the other direction.''"
Barrow said the yuan's annual appreciation of 5 to 10 percent is ``much more appropriate.'' The U.S. is the biggest buyer of China's exports and its trade deficit with the Asian nation ballooned to a record $256 billion last year.
"Government bonds gained for a second week after China said inflation slowed in July, spurring speculation consumer prices increases will continue to slow and the central bank won't raise interest rates later this year."
"Consumer price increases slowed to 6.3 percent in July, from 7.1 percent a month earlier, the statistics bureau said Aug. 12. The yield on benchmark 10-year bonds dropped 4.4 basis points this week, according to data compiled by the country's biggest debt clearing house. A basis point is 0.01 percentage point."
"``The inflation rate may continue to fall later this year,'' said Dong Dezhi, a bond analyst with Bank of China Trading Center in Shanghai. ``Market sentiment is still optimistic.''"
"The yield on the 4.41 percent bond due June 2018 dropped 3.5 basis points to 4.325 percent in Shanghai, according to the China Interbank Bond Market. The price of the security rose 0.28 per 100 yuan face amount to 100.67."
To contact the reporters on this story: Judy Chen in Shanghai at firstname.lastname@example.org; Belinda Cao in Beijing at email@example.com.
"Last Updated: August 22, 2008 06:30 EDT"
"JPMorgan Recommends `Overweight' Global Banks, Consumer Stocks "
By Fabio Alves
Aug. 22 (Bloomberg) -- JPMorgan Chase & Co. strategists recommended that investors increase their holdings of global financial stocks and U.S. companies that rely on discretionary spending by consumers and sell energy and raw material producers.
"``Weakness in the dollar over the past year should support U.S. earnings in 2008,'' JPMorgan strategists led by Adrian Mowat wrote in a note to clients today."
They advised investors to ``overweight'' global banks and U.S. consumer discretionary stocks and ``underweight'' commodity shares.
"Among emerging stock markets, the strategists said they are bullish on China and ``less constructive'' on Latin America, eastern Europe and Africa, except Mexico and Turkey."
To contact the reporterS on this story: Fabio Alves in New York at firstname.lastname@example.org;
"Last Updated: August 22, 2008 09:53 EDT"
"European Industrial Orders Fall, Led by Transport (Update1) "
By Fergal O'Brien
"Aug. 22 (Bloomberg) -- European industrial orders fell the most in more than six years in June, led by a drop in transport equipment such as planes and rail cars."
"Industrial orders in the 15-nation euro area declined 7.4 percent from a year earlier, the most since December 2001, the European Union statistics office in Luxembourg said today. Excluding transport, orders fell an annual 1.5 percent. Economists expected a 6.3 percent drop in total orders, according to the median of 10 estimates in a Bloomberg survey."
"Orders for transport equipment plunged 29.8 percent in June. Such orders ``tend to be very volatile, with a limited immediate impact on production,'' the statistics office said in the report."
"European industrial production stagnated in June after falling the most in almost 16 years in May, according to data released Aug. 13. A survey of purchasing managers published yesterday showed the region's manufacturing industry contracted in August as new orders declined for a fifth month."
"``One of the key engines of growth for the manufacturing sector in the euro zone -- and in particular Germany -- has been demand for capital goods,'' Kenneth Wattret, an economist at BNP Paribas in London, said in a note to clients. ``Both the orders and output data in recent months have shown a marked loss of momentum in this sector.''"
"Orders in Germany, Europe's largest economy, unexpectedly fell in June from May, the seventh straight decline, the Economy Ministry in Berlin said Aug. 6. Tognum AG, the Friedrichshafen, Germany-based diesel-engine maker, last week scaled back 2008 sales and margin forecasts after a declining dollar and slowing economic growth led to a drop in second-quarter orders."
"Euro-area orders fell 0.3 percent in June from the previous month, according to today's report. Excluding transport, which declined 3.7 percent, industrial orders rose 0.6 percent."
To contact the reporter on this story: Fergal O'Brien in Dublin at email@example.com.
"Last Updated: August 22, 2008 06:54 EDT"
Mexico's First-Half August Inflation Exceeds Forecast (Update1)
By Thomas Black
"Aug. 22 (Bloomberg) -- Mexico's consumer prices rose more than economists forecast in the first half of August on higher costs for electricity, eggs, university tuition and gasoline."
"Inflation was 0.31 percent in the first 15 days of the month, the central bank said. That exceeded a forecast of 0.26 percent, the median estimate of 18 analysts surveyed by Bloomberg."
"Core inflation, which adjusts for fresh food and other more volatile prices, was 0.23 percent, higher than a forecast of 0.21 percent."
"Mexico's central bank raised its benchmark interest rate last week for a third straight month, pushing up rates to 8.25 percent from 7.50 percent in May in an attempt to quell inflation."
"With the consumer-price increases in the first half of August, the annual inflation rate accelerated to 5.53 percent, according to data compiled by Bloomberg, from 5.39 percent in July, the highest level since November 2004."
"To contact the reporter on this story: Thomas Black in Monterrey, Mexico, at firstname.lastname@example.org."
"Last Updated: August 22, 2008 10:21 EDT"
U.S. Stocks Gain on Speculation Lehman Brothers May Be Acquired
By Eric Martin
"Aug. 22 (Bloomberg) -- U.S. stocks advanced, limiting the first weekly drop in the Standard & Poor's 500 Index in a month, on speculation a purchase of Lehman Brothers Holdings Inc. would end the worst slump by financial shares since at least 1962."
"Lehman, the brokerage that lost almost 80 percent of its value this year, surged 15 percent after Reuters reported Korea Development Bank said it's open to purchasing the firm. Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. gained more than 3 percent. United Airlines parent UAL Corp. rose 11 percent and General Motors Corp. climbed 3.4 percent as crude slipped more than $2 a barrel."
"The S&P 500 added 11.81 points, or 0.9 percent, to 1,289.53 at 10:11 a.m. in New York, reducing its retreat since Aug. 15 to 0.7 percent. The Dow average advanced 143.30, or 1.3 percent, to 11,573.51, and the Nasdaq Composite Index increased 24.72, or 1 percent, to 2,405.10. Almost four stocks rallied for each that declined on the New York Stock Exchange."
"``The U.S. financial system is not going down the tubes,'' James Gaul, a money manager at Boston Advisors LLC in Boston, which oversees about $2 billion, told Bloomberg Radio. The Lehman development ``assuages investor fears.''"
"The 54 percent plunge in the S&P 500 Financials Index from its February 2007 record through July 15 of this year was the steepest drop in at least 46 years, according to data compiled by Birinyi Associates Inc., the Westport, Connecticut-based research and money management firm founded by Laszlo Birinyi."
Bear Stearns Collapse
"Financial companies in the S&P 500 had dropped 31 percent this year before today after the market for subprime mortgages collapsed. Bear Stearns Cos., once the second-largest underwriter of mortgage bonds after Lehman, was rescued by JPMorgan Chase & Co. in a March takeover brokered by the Federal Reserve."
Lehman jumped $2.03 to $15.75 for the biggest advance since July 17. Korea Development Bank Chief Executive Officer Min Euoo Sung and Lehman spokesman Mark Lane declined to comment when contacted by Bloomberg.
"``Lehman Brothers was the next firm likely to fail,'' said Jeffrey Kleintop, who helps oversee $273 billion as chief market strategist at LPL Financial in Boston. ``The market looks at this as a positive in that there have been expectations Lehman would survive in some form. The question was where was the money going to come from.''"
"Citigroup added 62 cents to $18.09, Bank of America rose $1.29 to $30.33 and JPMorgan increased $1.72 to $37.98. The S&P 500 Financials Index jumped 2.8 percent, the most since Aug. 8."
`Game Is Over'
Stocks have fallen this week as concern grew shareholder value would be wiped out at Fannie Mae and Freddie Mac if they are bailed out by government and commodities headed for their biggest weekly gain in 33 years. The S&P 500 has dropped 18 percent from an October record as credit-related losses at banks worldwide topped $500 billion and record oil curbed growth.
"UAL added $1.23 to $12.56 today, while GM climbed 34 cents to $10.26. Oil fell for the first time in four days as the U.S. dollar strengthened and Turkey restored flows through a Caspian Sea pipeline. Crude for October delivery slipped 2.2 percent to $118.52 a barrel in New York."
US Airways Group Inc. gained 71 cents to $7.51. Continental Airlines Inc. climbed $1.11 to $15.45. Ford Motor Co. increased 8 cents to $4.50.
"Gap Inc. climbed to the highest price since April and led gains by retailers, rising $1, or 5.3 percent, to $20.01. The largest U.S. clothing chain said second-quarter profit rose 51 percent, beating estimates, after discounting fewer jeans and T- shirts."
Buy Consumer Stocks
JPMorgan Chase & Co. strategists said investors should buy more financial stocks and U.S. companies that rely on discretionary spending by consumers and sell energy and raw- material producers.
"``Weakness in the dollar over the past year should support U.S. earnings in 2008,'' JPMorgan strategists led by Adrian Mowat wrote in a note to clients today."
"The S&P 500 Consumer Discretionary Index added 1.7 percent. Department-store operator Dillard's Inc. had the biggest gain behind Gap, rising 58 cents, or 5.3 percent, to $11.66."
"Alpharma Inc. gained the most since 2005, surging $10.94, or 46 percent, to $34.98. King Pharmaceuticals Inc., the maker of pain drugs, offered $1.38 billion for its competitor in a bid that's already been rejected by Alpharma's directors."
To contact the reporter on this story: Eric Martin in New York at email@example.com.
"Last Updated: August 22, 2008 10:30 EDT"
"Bematech, CSN, Paranapanema, Telemar: Brazilian Equity Movers "
By Paulo Winterstein
"Aug. 22 (Bloomberg) -- The following companies are having unusual price changes in Brazil trading. Stock symbols are in parentheses, and share prices are as of 9:28 a.m. New York time. Preferred shares are usually the most-traded class of stock."
"The Bovespa index rose 0.9 percent to 56,415.94."
"Bematech Industria & Comercios de Equipamentos Eletronicos SA (BEMA3 BS) jumped the most this month, adding 4.6 percent to 7.80 reais. The Brazilian maker of business software and hardware plans to repurchase up to 2.7 million voting shares, or 8.6 percent of outstanding stock, during the next year, Sao Jose dos Pinhais-based Bematech said in a regulatory filing yesterday."
"Cia. Siderurgica Nacional SA (CSNA3 BS) gained to the highest in three weeks, rising 2.7 percent to 56.50 reais. Nippon Steel Corp., JFE Holdings Inc. and a Japanese trading company are bidding for the Namisa iron ore unit of CSN, Reuters reported, citing unidentified people in the industry. The transaction may be worth $10 billion, the report said."
"Duratex SA (DURA4 BS) gained to the highest in almost two weeks, adding 3.1 percent to 24.64 reais. The maker of bathroom fixtures and wood products for the construction industry should see ``attractive'' profit growth through 2010, UBS AG said in a note to investors."
"Paranapanema SA (PMAM3 BS) gained to the highest in two weeks, advancing 1.8 percent to 5.11 reais. The Brazilian copper and tin producer said Banco UBS Pactual SA and Banco Santander SA each acquired a 12 percent stake. The banks bought 22.2 million voting shares each, following a June 2007 agreement between the companies, Paranapanema said in a statement yesterday."
"Telemar Norte Leste SA (TMAR5 BS) rose for a third day, capping its longest rally in a month after rising 1.7 percent to 87.71 reais. The operating unit of Brazil's biggest fixed-line phone company will pay stockholders 3.9 billion reais ($2.42 billion) in extraordinary dividends by Sept. 19. The dividend payment will be discussed in a board meeting on Aug. 28, the Rio de Janeiro-based company said in a filing posted yesterday on the Web site of Brazil's securities agency."
To contact the reporter on this story: Paulo Winterstein in Sao Paulo at firstname.lastname@example.org.
"Last Updated: August 22, 2008 09:38 EDT"
India's Rupee Falls a Second Week as Stock Losses Spur Outflows
By Anoop Agrawal
Aug. 22 (Bloomberg) -- India's rupee fell for a second week as declines in the nation's stocks spurred fund outflows.
The currency fell to the lowest in 17 months this week as a rebound in crude oil prices from a 15-week low spurred demand for dollars needed to pay for imports. Overseas funds sold more equities than they bought on eight of the twelve trading days in August. The benchmark stock index fell for a second week on concern the fastest inflation in more than 16 years will erode the value of returns from investments.
"``Weaker equity markets are eroding confidence of overseas investors, which is why we are seeing capital outflows,'' said Ravindra Babu, a currency trader at state-owned Andhra Bank in Mumbai. ``The outflows are coming at a time when dollar demand from refiners is also persistent. So the rupee will be under pressure to decline further.''"
"The rupee dropped 0.9 percent this week to 43.425 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg."
"Funds based abroad have sold $7.1 billion more of Indian shares this year than they bought, according to the Securities and Exchange Board of India. They bought a net $17.2 billion last year, a record, helping the rupee complete its best year since at least 1974."
"Crude oil for October delivery was set for its biggest weekly advance in more than two months on the New York Mercantile Exchange. Yesterday, the contract surged 5.4 percent to $121.18 a barrel, the biggest increase since June 6."
"Wholesale prices jumped 12.63 percent in the week to Aug. 9, after increasing 12.44 percent in the previous week, the government said yesterday. That is the fastest pace in more than 16 years."
"``Inflation is a matter of concern,'' the finance ministry said in an e-mailed statement in New Delhi."
To contact the reporter on this story: Anoop Agrawal in Mumbai at email@example.com;
"Last Updated: August 22, 2008 07:40 EDT"
"Petrobras Energia Rating, Profit Forecasts Raised at Citigroup "
By James Attwood
"Aug. 22 (Bloomberg) -- Petrobras Energia Participaciones SA, an Argentine unit of Brazil's state-controlled oil company, was raised to ``hold'' from ``sell'' at Citigroup Inc. after second- quarter earnings beat estimates."
"The company's American depositary receipts may rise to $13, compared with the previous $12 estimate, analyst Tereza Mello wrote in note to clients. The ADRs have fallen 26 percent this year to $10.35."
"Citigroup boosted Petrobras Energia's earnings estimates for 2008 and 2009 after second-quarter results exceeded expectations on higher fuel prices, Mello wrote. Profit rose fourfold to 397 million pesos ($130 million) from 101 million pesos in the year- earlier quarter, the company said in an Aug. 6 statement."
"``While we remain cautious on PZE, we would advise investors to maintain current positions as the 32 percent decline in the past two months, seems slightly overdone,'' Mello wrote. ``We highlight the potential of a dividend payment from Venezuela as a possible short term catalyst.''"
To contact the reporters on this story: James Attwood in Santiago at firstname.lastname@example.org
"Last Updated: August 22, 2008 08:46 EDT"
Taiwan's Economy Expands at Slowest Pace in a Year (Update1)
By Janet Ong and Chinmei Sung
"Aug. 22 (Bloomberg) -- Taiwan's economy grew at the slowest pace in more than a year last quarter as consumer spending cooled and U.S. customers bought fewer laptops, flat-screen televisions and mobile phones."
"Gross domestic product rose 4.32 percent from a year ago, down from the first quarter's 6.25 percent gain and less than the median estimate of 4.54 percent in a Bloomberg survey of 14 economists. The statistics bureau today cut its 2008 growth forecast to 4.3 percent from 4.78 percent three months ago."
"The report adds to signs that Asia's economies are being hurt by the global economic slowdown, and by soaring fuel and food prices. Easing U.S. demand has cooled sales for Acer Inc. and Taiwan Semiconductor Manufacturing Co., while Marks & Spencer Group Plc said it will close three Taiwan stores as rising living costs damp spending by the island's consumers."
"``Downside risks have intensified, and the economy will likely continue decelerating in the second half,'' said Cheng Cheng-mount, chief economist in Taipei for Citigroup Inc. ``We expect policy makers to shift focus from upside inflation risk to downside growth risk in the second half.''"
"Providing fresh evidence of faltering global growth, the U.K. economy unexpectedly stagnated in the second quarter and European industrial orders fell the most in more than six years in June, reports today showed."
"Taiwan's GDP data were released after the close of trading on the stock exchange. The Taiex Index fell 0.1 percent to 6,911.64, its lowest since Aug. 5. The benchmark index slumped 12 percent in the second quarter, the biggest decline in almost six years. The island's dollar dropped for a fifth straight week."
"Taiwan's economy will expand 3.04 percent in the third quarter from a year earlier, which would be the weakest pace since the first three months of 2005, the statistics bureau forecast today. Growth will be 3.75 percent in the fourth quarter, it said."
"``The economy is facing growing headwinds and will slow sharply over the rest of this year,'' Rob Subbaraman, chief Asia economist at Lehman Brothers Holdings Inc. in Hong Kong, wrote in a report. ``There are growing signs of weakness in the tech sector, the linchpin of the economy. Consumption is weakening.''"
"Taiwan follows South Korea, Singapore and Japan in reporting a deteriorating economy because of faltering demand in the U.S., the region's largest overseas market."
"Japan's economy, Asia's largest, shrank in the second quarter by the most since 2001. Singapore posted the weakest growth in five years and South Korea's economy expanded at the slowest rate in more than a year."
"Global, Local Demand"
"Taiwan Semiconductor, the world's largest custom-chip maker, and computer maker Acer both reported slower sales in the U.S. in the second quarter. Exports are equivalent to about 50 percent of the island's GDP."
"As global demand eases, rising living costs and declining share prices have damped confidence and discouraged Taiwanese consumers from spending. Retail sales fell 0.4 percent in June from a year earlier, the first decline since January 2007."
The Taiwan government in July announced subsidies for low- income families to alleviate the impact of rising prices and help bolster domestic demand.
"Marks & Spencer last month said it will shut three Taiwan stores it runs with President Chain Store Corp., less than 18 months after the U.K.'s largest clothing retailer entered the market."
"``Consumers were spending less in the second quarter as incomes couldn't keep up with the cost of living,'' Fang Wenyen, an economist at KGI Securities Co. in Taipei, said before the announcement. ``People cut back on consumption as the stock market declined and inflation pushed up prices.''"
"Inflation accelerated to 4.97 percent in June, the fastest pace in eight months, as fuel and food costs climbed."
Taiwan's statistics bureau raised its forecast for consumer-price inflation over 2008 to 3.74 percent from 3.29 percent. It estimates inflation will be 1.91 percent next year.
The island's central bank raised its benchmark interest rate to a seven-year high of 3.625 percent on June 26 to help damp inflation. That marked the 16th consecutive quarterly increase in borrowing costs.
Citibank's Cheng forecasts the central bank will raise its rate by 12.5 basis points in September and that will be the last increase for the year as policy makers shift their attention to the slowing economy.
To contact the reporters on this story: Janet Ong in Taipei at email@example.com; Chinmei Sung in Taipei at firstname.lastname@example.org.
"Last Updated: August 22, 2008 05:20 EDT"
Heidelberger Druck Gains After Dollar Rises Against the Euro
By Stefanie Haxel
"Aug. 22 (Bloomberg) -- Heidelberger Druckmaschinen AG, the world's largest printing-press maker, rose in Frankfurt trading as the stronger dollar helps its earnings outlook."
"Heidelberger Druck shares increased as much as 69 cents, or 5.2 percent, to 14.03 euros, the steepest gain since Aug. 11. The stock traded up 2.9 percent at 13.73 euros as of 12:23 p.m. for a market value of 1.07 billion euros ($1.6 billion)."
"``Investors may speculate the company's earnings will be burdened less than feared as the dollar stabilizes against the euro,'' said Eerik Budarz, an analyst at Bankhaus Metzler in Frankfurt who rates the stock a `sell.''"
"The dollar has gained 6.9 percent against the euro in the past five weeks to about $1.48 a euro, bolstering profit when orders billed in U.S. dollars are converted into Europe's single currency. The German company had about 16 percent of its revenue in North America last year, according to Bloomberg data."
"Full-year profit will decline ``significantly'' this year on slowing demand and costs to introduce new products and exhibit at the Drupa trade fair, the Heidelberg-based company forecast in June. Chief Executive Officer Bernhard Schreier warned that a stronger euro against the dollar would burden earnings."
"Separately, Goldman Sachs Group Inc. yesterday raised its share-price estimate 9.1 percent to 12 euros."
To contact the reporter on this story: Stefanie Haxel in Frankfurt at email@example.com.
"Last Updated: August 22, 2008 06:29 EDT"
Eastern European Investor Confidence Rises on Inflation Outlook
By Adam Brown
"Aug. 22 (Bloomberg) -- Investor confidence in central and eastern Europe increased slightly in August with economists and investors expecting interest and inflation rates to fall and stock markets to rise, a survey showed."
"An index of investors' and analysts' expectations for the region over the next six months rose to minus 31.3 in August from minus 31.4 in July, according to the poll by the ZEW Center for European Economic Research and Erste Bank AG."
"Inflation is set to slow and interest rates will probably decline over the next six months as eastern Europe avoids the worst of an expected economic slowdown in western Europe, the ZEW survey showed."
"``The balance of sentiment for central and eastern Europe improved,'' ZEW analyst Mariela Borell said in an e-mail today. ``Analysts forecast a lower inflation risk'' and ``an upward trend for the coming six months of stock market indexes.''"
"Investors and analysts predicted that central and eastern European inflation rates would decline or hold steady in coming months, with the index dropping 62.3 points to a negative 52.1 points, ZEW said."
"The ZEW and Erste Bank AG survey for central and eastern Europe included 71 analysts and investors in Croatia, Austria, the Czech Republic, Hungary, Poland, Romania, Slovakia, Slovenia and Serbia and was taken between Aug. 1 and Aug. 18."
The indicators reflect the difference between the percentage of analysts who have positive outlooks and those who have negative outlooks. Ratings run from a maximum possible 100 points to a minimum of minus 100 points. A negative number for inflation indicates expectations of a slowing rate.
"The outlook for central and eastern European economies was worst in Austria, although it rose 6.2 points to minus 28.6, according to the survey. Hungary had the best outlook at 10.3 points, the same as in July."
"Investors said long term interest rates were most likely to drop in Hungary and the Czech Republic and most likely to rise in Romania, Slovakia and Croatia."
"All of the region's main stock indexes were expected to rise and all currencies, with the exception of the Czech koruna, were forecast to weaken over the next six months against the euro, the survey showed."
To contact the reporter on this story: Adam Brown in Bucharest at firstname.lastname@example.org
"Last Updated: August 22, 2008 06:55 EDT"
Bernanke Says U.S. Inflation Should Slow Into 2009 (Update1)
By Craig Torres and Scott Lanman
"Aug. 22 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said inflation should ease later this year and in 2009, while warning that policy makers will act if price increases don't slow over the ``medium term.''"
"A recovery in the dollar and declines in commodity prices ``should lead inflation to moderate,'' Bernanke said in a speech to the annual Fed conference in Jackson Hole, Wyoming today. The Fed ``is committed to achieving medium-term price stability and will act as necessary to obtain that objective,'' he said."
"The Fed chief said the benchmark interest rate is ``relatively low'' given an increase in price pressures. Financial turmoil has ``not yet subsided,'' and is contributing to weaker economic growth and higher unemployment, he said."
"Bernanke said as the central bank deals with the current turmoil, officials must also consider how to overhaul regulations to minimize the risk of future crises. He reiterated his endorsement of the Treasury getting power to resolve failing investment banks, and signaled a need for a new, comprehensive supervision of systemic risk."
"Policy makers will ``continue to review'' the Fed's measures to ensure liquidity to determine ``if they are having their intended effects,'' Bernanke said. The central bank has introduced several tools since December to provide liquidity to commercial and investment banks."
"In his speech to the Kansas City Fed Bank's two-day conference on financial stability, Bernanke again defended the Fed's role in keeping Bear Stearns Cos. from collapse, and said ``the economy could hardly have remained immune from such severe financial disruptions.''"
"The Fed chairman has tried for the past year to curb a global credit crisis that has led to a higher U.S. jobless rate, slower economic growth and some $505 billion in credit losses at financial firms. Inflation has accelerated, with food and energy costs pushing up consumer prices in the 12 months to July by the most in 17 years."
"Bernanke asked Congress to give the Fed more authority over the U.S. payments system, and to consider devising a way to resolve failing investment banks. He also said regulators must shift their focus and consider how individual banks and brokers may together present large risks to the financial system."
"``Making the systemic risk rationale for guidances and reviews'' of financial firms ``more explicit is certainly feasible and would be a useful step toward a more systemic orientation for financial regulation and supervision,'' Bernanke, 54, said to the conference of scholars and central bankers."
"Bernanke also called for ``stress tests, not at the firm level as occurs now, but for a range of firms and markets simultaneously.'' Such exams might ``reveal important interactions that are missed by stress tests at the level of the individual firm.'' He said the technical and information requirements regulators need to conduct such tests ``could be daunting.''"
"The Fed has opened up lending to nonbanks for the first time since the Great Depression, accepted mortgage debt as collateral for loans and cut the interest rate on its discount window lending. The measures have broadened the Fed's oversight and lender-of-last resort role."
"Bernanke opened the discount window to investment banks in March after rescuing Bear Stearns Cos. from bankruptcy. The Fed facilitated the firm's merger with JPMorgan Chase & Co. by loaning against $29 billion of Bear securities. It opened the discount window in July to Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies."
"``They are in a lot of new lines of business now in terms of lending to entities they didn't use to, in terms of taking credit risk that central banks don't usually have,'' Vincent Reinhart, a resident scholar at the American Enterprise Institute and former director of the Board's Division of Monetary Affairs said before the speech. ``The Federal Reserve is over-extended.''"
"Central bankers have also reduced the benchmark lending rate 3.25 percentage points since September to 2 percent. They have kept the rate at that level since April even as the consumer price index rose to 5.6 percent in July, the fastest increase on an annual basis in 17 years."
"While the Fed has expanded its lending, markets instability has continued and credit has remained scarce. Investors are concerned mortgages delinquencies will increase, leading to greater losses at banks and other financial institutions."
"Shares of Fannie Mae have fallen 58 percent this month, while shares of Freddie Mac have fallen 61 percent."
"Nearly a quarter of all adjustable rate mortgages to borrowers with weak or limited credit history were delinquent in the first quarter, according to the Mortgage Bankers Association."
"Meanwhile, some 463,000 Americans have lost jobs since January, and economists expect annualized rates of growth of just 1.2 percent in the third quarter and 0.45 percent in the fourth quarter, according to the median estimate in a Bloomberg Survey."
To contact the reporter on this story: Craig Torres in Washington at email@example.comScott Lanman in Washington at firstname.lastname@example.org
"Last Updated: August 22, 2008 10:32 EDT"
"Italian Stocks Update: Pop. Milano, Fiat, Lottomatica, Shares "
By Francesca Cinelli
"Aug. 22 (Bloomberg) -- Italy's S&P/MIB Index was little changed, adding 0.01 percent to 27,761. Futures expiring in September slid 0.01 percent, to 27,840."
The following were among the most active stocks on the Italian market today. Share symbols are in parentheses.
"Banca Popolare di Milano Scrl (BPM IM), an Italian regional lender, increased 13 cents, or 2 percent, to 6.52 euros. Banking stocks were the fourth-best performers among the 18 industry groups in Europe's Dow Jones Stoxx 60 Index today."
"``Ahead of second-quarter results disclosure from the Italian banks, we have a relatively more positive stance toward the popolari subsector over the larger banks,'' Lehman Brothers analysts Paola Biraschi and Antonio Rizzo wrote in a research report. They lowered their price estimate on Pop. Milano to 8 euros from 11 euros because of more conservative earnings assumptions and maintained their ``equal weight'' recommendation."
"Banco Popolare SC (BP IM), the bank created by Popolare di Verona's purchase of Banca Popolare Italiana, pared gains, losing 7.7 cents, or 0.6 percent, to 12.56 euros. ``The consolidation theme is still current, above all for cooperative banks that may offer some buying opportunities,'' Massimiliano Romano, head of research for Concentric Italy in Milan, told Bloomberg Television. ``Nevertheless, the uncertain scenario for the industry as a whole may prevent big rebounds. Banco Popolare could extend gains toward the 15 euro threshold in case of a breach of the 13.5 euro level.''"
"Italcementi SpA (IT IM), Italy's biggest cement maker, increased 2.7 percent to 9.16 euros. Construction stocks were the best performers among the 18 industry groups in Europe's Dow Jones Stoxx 60 Index today."
"Buzzi Unicem SpA (BZU IM), Italy's second-biggest cement maker, added 0.4 percent to 13.18 euros. UniCredit Markets & Investment Banking cut its price estimate on Buzzi Unicem to 18.2 euros from 18.7 euros and maintained its ``buy.''"
"Fiat SpA (F IM), Italy's biggest manufacturer, climbed 26.4 cents, or 2.6 percent, to 10.41 euros. Citigroup analyst John Lawson, who rates the stock a ``buy,'' wrote in a report that ``nothing in recent data post-second quarter relevant to Fiat's progress concerns us at this stage,'' suggesting that the shares are underperforming."
"Commerzbank initiated coverage of the stock with a ``reduce'' rating and a price estimate of 9.7 euros, citing increased risk due to exposure to Brazil and Italy and the potential impact of higher raw material prices."
"Lottomatica SpA (LTO IM), the manager of Italy's national lottery, declined 21 cents, or 1 percent, to 20.26 euros. Lottomatica and its partners are qualified to bid for a sports- betting concession in Turkey, an official for the Italian gaming company said, denying a newspaper report that Turkish authorities had blocked the bid."
"Pirelli & C SpA (PC IM) increased 1 percent to 43.8 cents. Pirelli Tyre SpA, the company's tire unit, announced the acquisition of stakes in two local subsidiaries in Turkey, Pirelli Turk Lastikleri and Celikord, for a total 43 million euros. The company bought a further 1 percent stake in Celikord from other shareholders. ``The operation should slightly reduce the weight of minority interests,'' Marco Cristofori, an analyst at Cheuvreux who rates the stock an ``underperform,'' wrote in a report. Euromobiliare Sim reiterated a ``buy'' rating on the stock."
"Saipem SpA (SPM IM), Europe's largest oil-field services contractor by market value, fell for the first time this week, losing 26 cents, or 1 percent, to 25.87 euros."
"Tenaris SA (TEN IM), the world's biggest maker of seamless steel tubes for pipelines, declined 66.3 cents, or 3.6 percent, to 17.74 euros. Energy stocks retreated in Europe as oil prices fell for the first time in four days."
"Seat Pagine Gialle SpA (PG IM), Italy's largest publisher of phone directories, surged 0.47 cents, or 4.8 percent, to 10.24 cents. ``Reiterating full-year guidance has been a good signal'' to the market, Concentric Italy's Romano said. ``We prefer a wait-and-see approach to verify Seat's capacity to deliver on targets.''"
To contact the reporters on this story: Francesca Cinelli in Milan at email@example.com
"Last Updated: August 22, 2008 07:30 EDT"
Petrobras Has Spent $1 Billion to Drill 20 Pre-Salt Wells
By Jeb Blount and Laura Price
"Aug. 22 (Bloomberg) -- Petroleo Brasileiro SA, Brazil's state-controlled oil company, has spent $1 billion since 2005 to drill 20 wells in so-called pre-salt offshore fields."
"The cost of drilling wells to a depth of 7,000 meters (23,000 feet) below the ocean service and seabed has fallen from $240 million to $60 million and the time to drill the wells has dropped from a year to an average of 60 days, the Rio de Janeiro-based company said today in a statement."
"Petrobras, as the company is known, said oil found in the pre-salt fields is primarily light crude at a grade of 28 degrees on the American Petroleum Institute scale."
To contact the reporters on this story: Jeb Blount in Rio de Janeiro at firstname.lastname@example.org; Laura Price in Sao Paulo at email@example.com.
"Last Updated: August 22, 2008 08:27 EDT"
"OPEC Supply to Rise in August, PetroLogistics Says (Update1) "
By Grant Smith
"Aug. 22 (Bloomberg) -- OPEC's oil supply will probably increase in August by 400,000 barrels a day, or 1.2 percent, as Iran releases crude held in storage, according to preliminary estimates from PetroLogistics Ltd."
"The 13 members of the Organization of Petroleum Exporting Countries will provide 32.9 million barrels daily this month, compared with 32.5 million a day in July, PetroLogistics founder Conrad Gerber said by telephone from Geneva. OPEC contributes more than 40 percent of the world's oil."
"The increase is ``largely or entirely due to Iranian exports going up in August, as in July they were really down,'' Gerber said. Angola contributed to the increase in August shipments, he added."
"Iran, the group's second-largest member, raised supplies to 4 million barrels a day in August from 3.65 million in the previous month, according to PetroLogistics. Angola provided markets with 2.07 million barrels a day in August."
"Saudi Arabia, the largest exporter, supplied 9.45 million barrels a day this month compared with 9.47 million last month, after completing its pledge to boost production in a bid to cool prices, Gerber said. Iraqi supplies slipped to 2.32 million barrels a day this month from 2.345 million a day in July."
"The 13 members of OPEC, 12 of which are subject to its quota system, will next meet to review production targets in Vienna on Sept. 9 and then in Algeria on Dec. 17. The group has maintained an official output limit of 29.67 million barrels a day this year."
To contact the reporter on this story: Grant Smith in London at firstname.lastname@example.org
"Last Updated: August 22, 2008 06:21 EDT"
"Bond Risk to Fall Up to 25% on Fannie, Freddie Rescue, BNP Says "
By Abigail Moses
"Aug. 22 (Bloomberg) -- The cost of protecting corporate bonds from default in Europe may fall almost 25 percent in a U.S. government rescue of mortgage lenders Fannie Mae and Freddie Mac, according to BNP Paribas SA analysts."
"Credit-default swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings may drop to 75 basis points from about 98 today, according to Vivek Tawadey, head of credit strategy at BNP Paribas in London. The index, which declines as perceptions of credit quality improve, last dropped as low as 75 on May 21."
"Treasury Secretary Henry Paulson will have to use the authority he was granted last month to take equity stakes in Fannie and Freddie and extend more credit to the government- sponsored enterprises within the next six weeks, according to Tawadey. The decision will affect bondholders of $5.2 trillion of agency and mortgage-backed debt and scores of large banks, insurers and pension funds that own the firms' common and preferred shares."
"``When the support package comes, and it shouldn't take too long, it will remove the systemic risk hanging over the market,'', Tawadey said in a phone interview today. ``In the short term, spreads will rally.''"
"Holders of senior and subordinated bonds will be ``made whole'' in a bailout which will be a nationalization of Fannie and Freddie ``essentially wiping out existing equity and preferred share holders,'' Tawadey said in a note to investors today."
$150 Billion Injection
"The government will have to inject as much as $150 billion into the beleaguered mortgage-finance companies to cover their losses on home loans, he wrote."
"Paulson telephoned Senate Banking Committee members this week to tell them the Treasury is closely monitoring the situation and, for now, doesn't plan to inject taxpayer funds, according to a Senate aide who spoke to Bloomberg on condition of anonymity."
"Freddie Mac stock, which has lost 90 percent of its market value this year, rose in European trading today after the Wall Street Journal reported the second-largest mortgage-finance company is seeking to raise money from private-equity investors. Shares in the McLean, Virginia-based company rose 17 cents, or 5 percent, to $3.34 at 12:47 a.m. in Frankfurt."
"A rescue will increase the cost of protecting high-risk, high-yield debt from default as ``stresses get transmitted out of the financial market and into the real economy,'' Tawadey wrote."
"The benchmark Markit iTraxx Crossover Index of 50 companies with mostly junk credit ratings fell 6 basis points to 560 today, according to JPMorgan. The Crossover index reached a record 653 basis points March 17, before the Federal Reserve- backed bailout of New York-based broker Bear Stearns Cos."
"Securities rated below Baa3 by Moody's and BBB- by Standard & Poor's are regarded high-risk, high-yield, or junk."
"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. A rise indicates a deterioration in the perception of credit quality; a decline signals the opposite."
"A basis point on a credit-default swap contract protecting 10 million euros ($14.8 million) of debt from default for five years is equivalent to 1,000 euros a year."
"Credit-default swaps on the Markit CDX North America Investment Grade index, a benchmark gauge of credit risk linked to the bonds of 125 companies in the U.S. and Canada, increased 0.75 basis point to 144.75 at the close of trading in New York, according to Lehman Brothers Holdings Inc."
To contact the reporter on this story: Abigail Moses in London Amoses5@bloomberg.net
"Last Updated: August 22, 2008 06:50 EDT"
"Vietnam's Stock Market Attractive for Investors, Mobius Says "
By Van Nguyen
"Aug. 22 (Bloomberg) -- Vietnam's stock market offers investment opportunities after a 45 percent slump this year, said Mark Mobius, executive chairman of Templeton Asset Management Ltd."
"``Vietnam's stock market now is down, so there are more opportunities,'' Mobius said in an interview in Ho Chi Minh City, where Templeton opened its Vietnam representative office today. ``The market will go up and will be much more valuable in about three years.''"
"Mobius, who oversees about $40 billion in emerging-market equities, is increasing Templeton's investments in Vietnam after it bought a 49 percent stake in the fund management unit of Joint-Stock Commercial Bank for Foreign Trade of Vietnam, known as Vietcombank Fund Management, earlier this year."
Templeton is turning to emerging markets as it said earlier this month stocks tumbled more than justified because demand for raw materials continues to boost economic growth in those nations. The MSCI Emerging Markets Index has plunged 29 percent since reaching a record in October.
"In Vietnam, Templeton will invest in retail banking, manufacturing and agriculture companies on Ho Chi Minh City's stock exchange, Mobuis said. He expects the country's economy to expand about 6 percent this year."
"The VN Index has fallen 45 percent this year, the world's fourth-worst performing benchmark index tracked by Bloomberg, on investor concern that the fastest inflation in 16 years dimmed Vietnam's growth prospects. The country also reduced its economic growth forecast to 7 percent from 9 percent in April."
Vietnam's central bank has raised interest rates three times this year to ease inflation.
"``Inflation is high, but we are happy to see the government is acting rapidly and very strongly to beat inflation,'' Mobius said. ``But that's also why the stock market looks attractive.''"
To contact the reporter on this story: Van Nguyen in Ho Chi Minh City at email@example.com
"Last Updated: August 22, 2008 06:39 EDT"
China Construction Bank 1st-Half Net Soars 71 Percent (Update1)
By Chia-Peck Wong and Luo Jun
"Aug. 22 (Bloomberg) -- China Construction Bank Corp., the nation's second-biggest, said first-half profit surged 71 percent on more lucrative lending and increased fee-based services."
"Net income soared to 58.7 billion yuan ($8.59 billion), or 0.25 yuan a share, from 34.2 billion yuan, or 0.15 yuan a year earlier, the Beijing-based bank said in a statement to Hong Kong's stock exchange today. The median estimate of five analysts surveyed by Bloomberg News was for a profit of 59 billion yuan."
"CCB is the nation's largest mortgage provider and increased lending even as the government implemented economic tightening measures to cool credit growth. While Chinese banks are unlikely to repeat the pace of growth for the rest of this year and 2009, they are still attractive investments because asset quality hasn't deteriorated, said an analyst at JPMorgan Chase & Co."
"``If the economy goes for a soft landing, profit growth for Chinese banks should be 17 percent to 18 percent next year,'' JPMorgan analyst Samuel Chen said before the results. ``This is slower but the de-rating of Chinese banks has already happened and so they are reasonably priced now'' compared with U.S. rivals."
"Construction Bank, established in 1954 to fund roads, bridges, dams and other infrastructure, is now China's largest mortgage and real-estate lender. It provides 23.1 percent of the nation's mortgages and about 12 percent of overall loans."
"CCB's shares have fallen 9.7 percent this year, making it the fifth-best performer on the local benchmark Hang Seng Index, which has dropped 27 percent. The stock fell 2.3 percent to close at HK$5.97 yesterday. Hong Kong's bourse was shut today because of a typhoon."
"Chinese banks are trading at an average price-to-book value of 3.2 times with a return on equity of 19.2 percent, while their U.S. counterparts generate an average return of 8.8 percent and trade at 1.3 times, according to data compiled by Bloomberg."
"Net interest income rose 25 percent to 111.1 billion yuan and the net interest margin widened to 3.29 percent from 3.11 percent a year earlier, China Construction Bank said in today's statement."
"Chinese banks extended 2.45 trillion yuan of local-currency loans in the first half, taking the total to 28.6 trillion yuan, an increase of 14 percent from a year ago, even as the economy slowed in the second quarter to 10.1 percent."
"Net fees and commissions from services such as credit cards, custodian services and mutual fund sales, surged 59 percent to 20.2 billion yuan, China Construction Bank said."
Chen has an ``overweight'' rating on China Construction Bank and a six-month price target of HK$7.80 for its shares traded in Hong Kong.
China's government clamped down on loan growth after Premier Wen Jiabao identified overheating and inflation as the two major problems facing the economy. The central bank raised interest rates six times last year and has boosted the proportion of deposits lenders must hold as reserves to a record 17.5 percent.
"China's benchmark CSI 300 Index fell 54 percent this year, making it the world's worst-performing primary index."
"Its non-performing loan ratio stood at 2.21 percent at the end of June, compared with 2.60 percent on Dec. 31."
"It had $3.25 billion of investments at Fannie Mae and Freddie Mac, the two largest U.S. home loans providers. Yields on bonds guaranteed by Fannie and Freddie this week rose to the highest since 1986 relative to Treasuries."
To contact the reporters on this story: Luo Jun in Shanghai firstname.lastname@example.orgChia-Peck Wong in Hong Kong at email@example.com
"Last Updated: August 22, 2008 09:50 EDT"
East European Currencies: Polish Zloty Declines Against Euro
By Ewa Krukowska
"Aug. 22 (Bloomberg) -- Poland's zloty declined against the euro on concern Europe's economic slowdown will deepen, curbing investor appetite for the region's currencies. The Czech koruna fell."
"The zloty pared its weekly advance versus Europe's single currency to 1 percent, making it the third-best performer among emerging-market currencies. Industrial orders in the euro area fell the most in more than six years in June, the European Union's statistics office in Luxembourg said today. The data pushed the euro lower against the dollar."
"``The fall of the euro and concerns that Europe's growth prospects may worsen caused a decline in the zloty, prompting investors to take profit on earlier gains,'' said Grzegorz Maliszewski, economist at Bank Millennium in Warsaw."
"The Polish zloty traded at 3.3014 per euro at 3:32 p.m. in Warsaw, compared with 3.2950 late yesterday and 3.3339 a week ago. It may ``strengthen toward 3.20 at the end of this year,'' Maliszewski said."
"Poland's Monetary Policy Council rejected a quarter-point increase in the benchmark interest rate last month because a majority of rate setters said a strong zloty and an expected economic slowdown should help curb inflation, according to the minutes of the meeting released yesterday."
"Policy makers will probably leave the main rate unchanged at 6 percent on Aug. 27, according to a Bloomberg survey of 15 economists."
"The Czech koruna traded at 24.395 per euro, compared with 24.325 late yesterday and 24.536 on Aug. 15. The Romanian leu rose 0.1 percent to 3.5229 against the euro, extending its weekly gain to 0.8 percent."
"The Hungarian forint posted the biggest weekly advance in two months, strengthening 2.3 percent to 233.89 per euro."
"The forint is supported by bets that its interest-rate advantage over the euro area will continue to attract carry trades, where investors borrow cheaply in currencies with lower rates and invest in higher-yielding assets elsewhere."
"It may advance to 225 per euro by the end of the year because the central bank will probably keep rates unchanged at 8.5 percent as the European Central Bank signals lower borrowing costs to stimulate growth, said Ulrich Leuchtmann, an analyst at Commerzbank AG in Frankfurt."
"The Turkish lira headed for a second weekly gain, strengthening to 1.1866 per dollar, from 1.1873 on Aug 15."
"The lira is the best emerging-market performer this quarter as policy makers raised the key interest rate to 16.75 percent, the highest among major developing economies."
The Slovak koruna was little changed at 30.316 versus the euro.
To contact the reporter on this story: Ewa Krukowska in Warsaw at firstname.lastname@example.org;
"Last Updated: August 22, 2008 10:12 EDT"
South Africa's Rand Posts Weekly Advance as Commodities Rally
By Garth Theunissen
Aug. 22 (Bloomberg) -- South Africa's rand snapped two weeks of losses against the dollar as gains in gold and platinum boosted revenue prospects for the world's biggest producer of precious metals.
The rand was the best performer of the 16 major currencies monitored by Bloomberg in the past five days as gold headed for its biggest weekly rally in more than two years and platinum ended a five-week losing run. The metals rose with other commodities as a weaker dollar and higher oil prices spurred demand for alternative investments and hedges against inflation.
"``Commodities are a strong theme for the rand at the moment,'' said Kay Muller, a currency researcher at Rand Merchant Bank in Johannesburg. ``Strong gains in oil and a weaker dollar are fueling gold and platinum, which is positive for the rand.''"
"The rand climbed 2.6 percent in the week to 7.6692 per dollar by 3:36 p.m. in Johannesburg, from 7.8707 on Aug. 15. It advanced 1.7 percent from Aug. 15 to 11.3752 per euro."
"``Positive momentum has returned to commodities, which along with a dollar correction, is keeping the rand buoyant,'' said Tolga Ediz an emerging-markets currency strategist in London at Lehman Brothers Holdings Inc. ``There's still enough risk appetite to help high-yielding currencies.''"
Commodities are poised to advance in the week as the dollar traded near the lowest level in more than two weeks against the yen and was set to drop in the week versus the euro.
"Gold climbed 5 percent to $826.60 an ounce, the biggest weekly advance since July 2006. Platinum rose 2.5 percent from Aug. 15 to $1,417.70 an ounce. South Africa produces almost 80 percent of the world's platinum and about 10 percent of its gold, typically causing the rand to move in tandem with the metals' prices."
"Crude oil rose 5.3 percent this week to $119.80 a barrel, set for its biggest weekly increase in almost three months."
"Government bonds fell this week, with the yield on South Africa's benchmark 13.5 percent security due September 2015 adding 13 basis points to 9.27 percent. Yields move inversely to bond prices."
To contact the reporter on this story: Garth Theunissen in Johannesburg email@example.com
"Last Updated: August 22, 2008 09:52 EDT"
"French Stocks: Air France, Alcatel, Eramet, EADS, Total "
By Adria Cimino
"Aug. 22 (Bloomberg) -- France's CAC 40 Index added 27.88, or 0.7 percent, to 4,332.49 at 12:27 p.m. in Paris, paring this week's decline to 2.7 percent. The SBF 120 Index gained 0.6 percent."
"Air France-KLM Group and Alcatel-Lucent SA, among this week's 10 worst performing stocks in the CAC 40, rebounded today. Air France, Europe's largest airline, added 47 cents, or 3 percent, to 16.08 euros. It's down 7.6 percent this week. Alcatel, the world's largest supplier of fixed-line telecommunications networks, increased 10 cents, or 2.8 percent to 3.88 euros, cutting its weekly decline to 7.3 percent."
"``This is a technical rebound after a difficult week,'' said Clemence Bounaix, an analyst at Richelieu Finance in Paris, which oversees $6.2 billion. ``Today, we expect a very mixed trading session. There are still worries about the oil price.''"
The following shares rose or fell in Paris. Stock symbols are in parentheses.
"Eramet (ERA FP), a mining company that refines nickel, manganese, and special steels, added 4.80 euros, or 1.3 percent, to 370, rising for a third day. Nickel prices are heading for an 11 percent gain this week."
"European Aeronautic Defence & Space Co. (EAD FP), which owns planemaker Airbus SAS, increased 32 cents, or 2.3 percent, to 14.50 euros, gaining for the first day this week. Boeing Co., seeking to win the reopened $35 billion U.S. Air Force tanker competition, said it may consider dropping out of the race unless the Pentagon allows the company up to six months to prepare its proposal."
"In the last round of competition that began in January 2007, Northrop Grumman Corp. and its partner EADS won the 179- plane contract."
"Scor SE (SCR FP) climbed 40 cents, or 2.7 percent, to 15.14 euros, rising the most in more than two weeks. France's biggest reinsurer had its financial strength and issuer default ratings raised one level to ``A'' by Fitch Ratings, citing its successful integration of Swiss rival Converium Holding AG last year."
"Total SA (FP FP), Europe's biggest oil refiner, lost 49 cents, or 1 percent, to 48.64 euros, falling for the second time this week. Crude oil fell for the first time in four days, after gaining nearly 5 percent yesterday, as the U.S. dollar stabilized and Turkey restored flows through a Caspian Sea pipeline closed by fire. The contract for October delivery fell as much as 98 cents, or 0.8 percent, to $120.20 a barrel on the New York Mercantile Exchange."
To contact the reporter on this story: Adria Cimino in Paris at firstname.lastname@example.org.
"Last Updated: August 22, 2008 06:36 EDT"
Bond Sales Slow to $2.82 Billion as Spreads Surpass March Highs
By Gabrielle Coppola
Aug. 22 (Bloomberg) -- U.S. corporate bond sales slowed to the lowest level in seven weeks as the extra yield investors demand to own investment-grade bonds rather than government debt reached record highs.
"Borrowers raised $2.82 billion, compared with $16 billion last week and $28 billion in the same time last year. 3M Co., the maker of 50,000 products from Scotch-brand tape to rubber squeegees, sold $850 million of notes after boosting its sale. Moline, Illinois-based tractor maker Deere & Co. sold $350 million of floating-rate notes through a finance unit."
"Sales dropped amid concern that Fannie Mae and Freddie Mac, the two largest U.S. mortgage-finance companies, may need a government bailout, causing banks to rein in lending and boosting costs for corporate borrowers. The average spread on investment- grade debt rose this week to 312 basis points, surpassing the record set three days after the Federal Reserve backed a rescue of Bear Stearns Cos. by JPMorgan Chase & Co. in March."
"``Fannie and Freddie are a bigger problem than Bear Stearns,'' said Matthew Eagan, a vice president at Loomis Sayles & Co. in Boston, which oversees $8 billion of high-yield debt. ``We need to get beyond this to have any order return to the marketplace, and to have a tightening of investment-grade spreads.''"
"Treasury Secretary Henry Paulson last month was granted the authority he sought to take equity stakes in Washington-based Fannie and Freddie of McLean, Virginia, and extend more credit to the government-sponsored enterprises should their financial conditions deteriorate and their ability to raise capital falter. Freddie paid its highest yields over Treasuries on record in a debt sale Aug. 19 on concern that credit losses are depleting the companies' capital."
"Corporate bond sales were the lowest since borrowers raised $2.49 billion during the holiday week ended July 4, the slowest period of the year."
"Spreads on investment-grade bonds reached record highs on four straight days this week, jumping 7 basis points from last week and 64 basis points since May 31, according to Merrill Lynch & Co.'s U.S. Corporate Master index. A basis point is 0.01 percentage point."
"St. Paul, Minnesota-based 3M, which last month posted quarterly earnings that beat analysts' estimates, sold five-year, 4.375 percent notes priced to yield 135 basis points more than Treasuries of similar maturity, according to data compiled by Bloomberg."
"That's the lowest spread a U.S. company has paid to issue five-year dollar-denominated debt since May 7, Bloomberg data show. 3M earlier had marketed $500 million of the notes. The debt is rated Aa1, the second-highest level of investment grade, by Moody's Investors Service, and one step lower at AA by Standard & Poor's."
"Deere, the world's largest maker of farm equipment, sold $350 million of two-year floating-rate notes that pay 50 basis points more than the three-month London interbank offered rate. Libor, a borrowing benchmark, is currently set at 2.81 percent. John Deere Capital Corp., a unit of John Deere, issued the debt, which is rated A2 by Moody's, the sixth level of investment grade, and an equivalent A by S&P."
"The eclipse of the March record in investment-grade spreads is making some corporate bonds more attractive to investors, said Brian Gevry, the chief executive officer of Boyd Watterson Asset Management in Cleveland, which oversees $3 billion of fixed- income assets."
`Crashed Through It'
"``We didn't just break it, we crashed through it,'' Gevry said. ``I think it's a great opportunity, not an opportunity to barrel in like an elephant, but an opportunity to selectively identify bonds that you like.''"
"There were no sales of high-yield, high-risk bonds as the average spread on junk-rated debt climbed 18 basis points to 830 basis points, the highest level since March 20, before dropping 1 basis point yesterday, according to Merrill's U.S. High Yield Master II index. High-yield, or junk, bonds are rated below Baa3 by Moody's and BBB- by S&P."
"High-yield issuance ``has dropped off tremendously,'' Martin Fridson, chief executive officer of New York-based research and investment firm Fridson Investment Advisors, said today in an interview on Bloomberg Television. ``There is just not the comfort with the credit. Demand for high-yield is a little bit shaky right now.''"
"Mississippi Power Co., a subsidiary of Southern Co., the biggest U.S. electricity generator, and Chet Morrison Contractors Inc., an oilfield services provider, are among companies seeking to raise at least $20 billion of bonds in the U.S., Bloomberg data show."
To contact the reporter on this story: Gabrielle Coppola in New York at email@example.com
"Last Updated: August 22, 2008 08:51 EDT"
"Fannie, Freddie Preferreds Batter Sovereign, Midwest (Update1) "
By Mark Pittman and Shannon D. Harrington
Aug. 22 (Bloomberg) -- Midwest Bank Holdings Inc. Chief Investment Officer Don Wiest is wagering U.S. Treasury Secretary Henry Paulson will rescue him from a failing $67 million stake in Fannie Mae and Freddie Mac.
"Melrose Park, Illinois-based Midwest and banks from Philadelphia-based Sovereign Bancorp to Frontier Financial Corp. in Everett, Washington, own preferred shares in the beleaguered mortgage-finance companies that have lost more than half their $35 billion value since June 30. Concern that Paulson may step in with a rescue plan that would wipe them out along with common stock investors has sent the securities tumbling."
"``I guess we are betting on Paulson,'' Wiest, 54, said. ``We have to believe that his plan carries the day somehow.''"
"Midwest, an owner of banks in Illinois, has $67.5 million, or as much as 23 percent of its risk-weighted assets tied up in Washington-based Fannie and Freddie of McLean, Virginia."
"Small, regional banks may have the most to lose from the stumbles in Fannie and Freddie, and Paulson may risk bank failures unless he protects preferred stockholders, said Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York. The impact on the preferred holders ``may be an important driver'' in Paulson's decisions, Jersey said."
"``Any wipeout of the preferreds could have implications for the capital of the greater financial system and these regional banks that might have reasonably precarious capital situations,'' Jersey said. ``You don't want to make that worse if you're the government.''"
"Paulson, who won approval from Congress last month to pump unlimited amounts of capital into Fannie and Freddie, hasn't said how any rescue may work. While the common and preferred shares initially rose after he announced his plan, that optimism has vanished on speculation that the deteriorating housing market is depleting the companies' capital, forcing Paulson to step in."
"Paulson, 62, has provided ``zero clarity on the issue and until the market knows where Hank is going to be in the capitalization structure, then it gets worse and not better,'' said Paul McCulley, a money manager at Newport Beach, California- based Pacific Investment Management Co., which oversees the world's largest bond fund."
"Treasury probably will get preferred shares as part of any bailout, eliminating the value of the common shares and causing ``a lot of pain'' for preferred shareholders, who will rank behind the government in payments and may have their dividend cut, according to Friedman Billings Ramsey & Co. analyst Paul Miller in Arlington, Virginia. CreditSights Inc. analyst Richard Hofmann in New York said holders should ``brace'' for a deferral of dividends."
"The Treasury may wait until Fannie and Freddie's capital is so eroded that regulators can put them into a receivership, said Andrew Laperriere, managing director at International Strategy & Investment Group, a money management and research firm in Washington."
"Treasury spokeswoman Jennifer Zuccarelli referred to Paulson's July 22 speech, in which he said Fannie and Freddie's ``stability is critical to financial market stability,'' because their debt is held by banks around the world. She declined further comment."
"Fannie Mae's $7 billion of 8.25 percent perpetual preferred shares have declined 51 percent to $11.32 since June 30. They fell 26 percent this week, with the yield rising to 18.9 percent from 13.9 percent."
"Freddie Mac's $1.1 billion of 5.57 percent preferred stock has plunged 58 percent to $7.60 since June 30 and 34 percent this week, pushing the yield to 19 percent from 12.3 percent."
`Viewed as Safe'
"``We bought them when they were viewed as safe,'' said Heng Chen, chief financial officer of Cathay General Bancorp in Los Angeles, which has $30 million of Fannie and Freddie securities. ``It's hard to tell now.''"
"Cathay, whose Web Site says it has been offering financial services to the Chinese-American community since 1962, has fallen 31 percent in Nasdaq Stock Market trading this year. The company wrote down the value of its Fannie and Freddie securities by $3.4 million last quarter. The shares rose 82 cents to $18.92 at 10:10 a.m. in New York."
"Preferred shares rank one level above common stock in the capital structure, which is used to determine the priority of payment in the event of a bankruptcy. Senior debt holders rank first, then the companies' subordinated bondholders followed by preferreds then equity."
"Fannie was created by Congress as part of Franklin D. Roosevelt's New Deal in the 1930s and became a publicly owned company in 1968. Freddie was started in 1970, when the economy was strained by the Vietnam War."
`Every Bank Has Them'
"The companies, which own or guarantee about $5 trillion of the $12 trillion of outstanding U.S. home loans, were developed to expand financing to homebuyers by purchasing mortgages from lenders and packaging other loans into securities that they then guarantee. Their charters imply that the government will stand behind the debt. The equity doesn't get the same backing."
"Banks bought Freddie and Fannie preferred stock because they can be used as capital that regulators require to cushion against losses on loans. Banks also get a tax break on 70 percent of the securities, making them attractive to own, said Midwest's Wiest."
"``These are the only two companies that the regulators have allowed banks to hold in their portfolios,' Wiest said. ``Everybody knows we have them. It seems like every bank has them.''"
Sovereign tumbled for a fifth day today on concern its $632 million stake may be worthless in a bailout. The savings and loan said in July it may take ``significant'' charges on its holdings. Chief Financial Officer Kirk Walters said yesterday the company would have enough capital ``in a worst-case scenario.'' The stock dropped 8 cents to $8.19 in New York Stock Exchange composite trading and is down 22 percent this week.
"Frontier owns $5 million of Fannie and Freddie securities. The bank cut its dividend by two-thirds in June, saying the deterioration in the housing market was affecting borrowers. Its shares are down 51 percent this year. Frontier rose 36 cents to $9.48 in Nasdaq trading."
"``It's just a hard one to figure right now and second guess what they're going to do,'' Frontier Chief Financial Officer Carol Wheeler said in a telephone interview. ``The ramifications are so big. I think every bank across the country has got some preferreds across their portfolio.''"
Shifting the Problem
"Paulson must also weigh whether hurting preferred shareholders would cripple the $350 billion market that banks across the country also rely on for financing, said CreditSights' Hoffman. Banks sold $76 billion of preferreds this year to bolster capital after more than $500 billion of credit losses and writedowns."
"``My fear is that if the Treasury allows the preferreds to fall to zero, all they're going to do is shift the problem from two entities, Fannie and Freddie, to the 8,000 banks that hold this in their portfolios,'' Wiest at Midwest said. Shares of Midwest, with 539 employees at the end of 2007, are down 63 percent this year."
"Wiest said he'd be willing to sell the preferred securities at 70 cents on the dollar. ``I'd take it,'' Wiest said. ``Take it and move on and not look back.''"
To contact the reporters on this story: Mark Pittman in New York at firstname.lastname@example.org; Shannon D. Harrington in New York at email@example.com
"Last Updated: August 22, 2008 10:18 EDT"
U.K. Economic Growth Stagnated in Second Quarter (Update3)
By Jennifer Ryan
"Aug. 22 (Bloomberg) -- The U.K. economy stagnated unexpectedly in the second quarter, ending the nation's longest stretch of economic growth in more than a century."
"Gross domestic product was unchanged from the previous quarter, the Office for National Statistics said, compared with a previous estimate for growth of 0.2 percent. Economists had expected a 0.1 percent expansion, according to the median estimate of 34 economists. Growth was 1.4 percent from a year earlier, the weakest since 1992."
The report adds pressure on the Bank of England to set aside inflation concerns and cut interest rates. It also worsens Prime Minister Gordon Brown's struggle to salvage his reputation for economic competence. The pound fell more than 1 percent against the dollar and weakened against the euro.
"``There is still worse to come,'' Ross Walker, an economist at Royal Bank of Scotland Group Plc in London, said in a Bloomberg Television interview. ``We may have to wait until early 2009 before we get the first rate cut because the inflation situation still looks pretty forbidding.''"
"Business investment fell 5.3 percent, the most in 23 years. Household spending declined for the first time since 2005, falling 0.1 percent."
Breakdown of Weakness
"Industrial production, which includes manufacturing as well as utilities and oil and gas extraction, has now contracted for two consecutive quarters. Construction also shrank. Service industries, which range from banks to airlines, grew at the slowest rate since 1995."
"The U.K. currency declined as much as 1.1 percent to $1.8550 against its U.S. counterpart. It has already posted its longest run of declines in at least 37 years against the dollar this month. Against the euro, the pound weakened as much as 0.7 percent to 79.86 pence from 79.32 yesterday."
"The implied rate on the December futures contract fell 2 basis points to 5.72 percent. The contract settles to the three- month London interbank offered rate for the pound, which was set at 5.76 percent today."
"Europe's second-largest economy emerged from its last recession in 1991 and then shrank for a single quarter in the three months ending in June 1992. Britain's pace of expansion from a year ago compares with 1 percent in Japan, 1.8 percent in the U.S., and 1.5 percent in the nations using the euro."
"Today's report is a blow to Brown, who is battling to revive his government's popularity with voters and quell talk of challenges to his authority from within the ruling Labour Party. Opposition lawmaker held up the figures as evidence that Brown's ability to manage the economy has collapsed."
"``Brown's bubble has burst,'' said George Osborne, a Conservative member of Parliament who speaks on finance. ``Millions of people are paying an unfair price for Labour's economic incompetence and the fact the prime minister didn't put money aside during the good times to prepare for a rainy day.''"
"Vince Cable, a Liberal Democrat lawmaker who speaks on economic policy, said the figures show ``the full extent of the self-delusion which led ministers to believe that everything was well with the British economy.''"
Brown said on Aug. 20 that the government will announce measures to revive the economy next month. He is attending the Olympic Games in Beijing today.
"``The U.K., like other economies, is seeing the consequences of globally high commodity prices, as well as the uncertainty in the credit markets,'' a Treasury spokesman said in an e-mailed statement. ``The government's priority is to guide Britain through these challenging times.''"
The economy faltered after banks choked off credit following the collapse of the subprime mortgage market in the U.S. Goldman Sachs Group Inc. economists said yesterday tighter credit markets will push half of the world economy into a recession.
"``The bank needs to prevent a fairly shallow recession from getting worse,'' said Stewart Robertson, an economist at Morley Fund Management in London, said before the report was published. ``They need to cut rates this year.''"
"Banks worldwide have shed more than 100,000 jobs and suffered more than $500 billion in writedowns and credit losses after the collapse of the subprime mortgage market in the U.S. last year. A report yesterday by recruitment firm Morgan McKinley showed London job openings in the financial-services industry fell 16 percent in July from a year earlier."
"While living costs are rising in Britain, the value of homes is plummeting as banks withhold funding for mortgages. Residential property prices fell 8.8 percent in July from a year earlier, the most in at least a quarter century, mortgage lender HBOS Plc said on Aug. 7."
"The bank's inflation forecasts show the consumer price index will fall below the 2 percent target in two years if interest rates remain unchanged. The nine members of the central bank's Monetary Policy Committee split three ways on how to steer interest rates this month, minutes of the meeting showed."
David Blanchflower voted for a quarter point cut while Timothy Besley wanted an increase of the same amount. The majority of the committee including King opted for no change.
"The simultaneous risks to inflation and growth mean that the bank is preparing to cut rates but will wait to do so until next year, said George Buckley, an economist at Deutsche Bank AG in London."
"Yesterday, he said he now expects four quarter-point rate reductions next year, starting in February. Previously he was counting on two."
"``The bank signaled that inflation is going to stay high for quite some time,'' he said. ``They might want to see evidence that it has come down or is peaking before they opt for a rate cut.''"
To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net
"Last Updated: August 22, 2008 08:37 EDT"
European Stocks Gain on Takeover Speculation; Hochtief Rises
By Sarah Thompson
Aug. 22 (Bloomberg) -- European stocks rose the most in almost two weeks as investors speculated takeovers may increase and a drop in oil boosted airlines and carmakers.
"HBOS Plc led banks higher, jumping 6.1 percent, after Reuters reported that Korea Development Bank is open to acquiring Lehman Brothers Holdings Inc. Hochtief AG rallied 9.8 percent after Manager Magazin said Germany's biggest builder may be broken up. Benfield Group Ltd. jumped 30 percent after Aon Corp., the world's biggest insurance broker, offered $1.6 billion for the U.K. company."
"`You've got to believe it is a positive sign for the market if companies think it is calm enough to resume activity,'' said Henk Potts, a London-based fund manager at Barclays Stockbrokers, which has $45 billion. ``Merger-and-acquisition activity should be a supportive factor for stocks.''"
"Europe's Dow Jones Stoxx 600 Index added 1.6 percent to 282.99 at 2:51 p.m. in London, trimming this week's decline to 1.5 percent. Stocks are set for their worst week in more than a month as oil gained and reports signaled faster-than-forecast inflation in the U.S. and Germany, Europe's biggest economy."
"The decline has left the Stoxx 600 trading at 11.71 times its members' current earnings, according to weekly Bloomberg data. That's near the lowest valuation since at least 2002."
`In the Sand'
Aon's bid for Benfield follows Xstrata Plc's unsolicited $10 billion takeover offer for Lonmin Plc and General Dynamics Corp.'s purchase of Jet Aviation Management AG this month.
"European takeovers have drawn a ``line in the sand'' for asset valuations and represent a turning point for the market, Goldman Sachs Group Inc. said in report."
"``Either the market is pricing in a 1970s period of low growth and high inflation, or it has become relatively more attractive,'' Goldman Managing Director Anthony Ling and a team of analysts wrote in the report dated yesterday."
SSL International Plc climbed 5.7 percent after Goldman Sachs Group Inc. recommended buying shares in the maker of Durex condoms and Scholl shoes on speculation it may be a takeover target. TNT NV surged 7.7 percent after the U.K.'s Times newspaper said United Parcel Service Inc. may bid for the Dutch company as soon as this weekend.
Stoxx 600 Valuations
National benchmark indexes rose in all 17 western European markets that were open except Norway. Germany's DAX and France's CAC 40 climbed 1.7 percent. The U.K.'s FTSE 100 gained 1.8 percent.
PSA Peugeot Citroen and Deutsche Lufthansa AG rallied more than 2 percent as oil retreated.
"HBOS, the U.K.'s biggest home-loan provider, added 6.1 percent to 285.5. UBS AG, the European bank hardest hit by the subprime contagion, climbed 4.6 percent to 22.82 Swiss francs."
"Reuters, citing an unidentified Korea Development Bank spokesman, said Korea Development is studying a number of options, including buying Lehman."
"Korean Development Bank is studying a number of options and is open to all possibilities, which could include buying Lehman, an unidentified spokesman for the state-run bank said, according to the Reuters report."
Korea Development Bank's Chief Executive Officer Min Euoo Sung and Lehman spokesman Mark Lane declined to comment on the report.
More than $13 trillion has been erased from global equity markets in 2008 as $505 billion in writedowns and credit-related losses by banks worldwide threatens economic growth.
"Hochtief climbed 9.8 percent to 55.03 euros. Germany's biggest builder may be broken up by its main investors, Manager Magazin reported, without saying where it got the information. Spanish builder Actividades de Construccion & Servicios SA, which holds more than 25 percent of Hochtief, may buy out other shareholders, the magazine said."
"ACS doesn't seek a breakup of Hochtief, spokesman Lorenzo Cooklin said in a telephone interview today."
"Benfield surged 30 percent to 353 pence. Aon agreed to buy London-based Benfield for 844 million pounds ($1.6 billion), including new shares."
SSL International gained 6.3 percent to 465.5 pence after Goldman Sachs added the stock to its ``conviction buy'' list.
"``The group could prove an attractive bolt-on deal for a larger group seeking to increase exposure to branded consumer health products,'' London-based analyst Robert Waldschmidt wrote in a note dated yesterday. In addition, a trading update scheduled for Oct. 16 ``could lead to upward revisions to consensus estimates.''"
"TNT gained 7.5 percent to 26.61 euros. UPS and Europe's second-biggest express-delivery service may meet to work out a deal over the weekend, with the U.S. company offering 34 euros to 38 euros a share, the Times reported today, without citing anyone."
TNT spokesman Cyrille Gibot didn't immediately return a phone call seeking comment.
"Peugeot, Europe's second-biggest carmaker, increased 3.4 percent to 33.48 euros. Nokian Renkaat Oyj, the Nordic region's biggest tiremaker, added 3.9 percent to 25.98 euros."
"Lufthansa, Europe's second-largest airline, climbed 2.6 percent to 14.39 euros."
"Crude for October delivery declined $1.72, or 1.4 percent, to $119.46 a barrel today. Oil jumped 4.9 percent yesterday and is headed for a weekly gain as the dollar slumped and a missile- shield agreement between the U.S. and Poland heightened concern Russia may disrupt supplies."
Dragon Oil Plc jumped 8.9 percent to 339.75 pence after the Dubai-based petroleum producer with operations in Turkmenistan said first-half profit gained 34 percent as crude prices rose to a record.
"Arriva Plc added 4.2 percent to 743 pence. The operator of the U.K.'s longest train route said first-half profit jumped 32 percent as the company added buses, won a rail-route franchise and attracted travelers switching to public transit as gasoline prices rose."
Rentokil Initial Plc tumbled 5.4 percent to 69.75 pence. The world's biggest pest-control provider reported a 68 percent plunge in second-quarter profit and said it will take up to five years to turn around sliding earnings.
To contact the reporter on this story: Sarah Thompson in London at firstname.lastname@example.org.
"Last Updated: August 22, 2008 09:54 EDT"
Korea Development CEO Declines Comment on Reuters Lehman Report
By Sangim Han and Steve Dickson
Aug. 22 (Bloomberg) -- Korea Development Bank's Chief Executive Officer Min Euoo Sung declined to comment on a Reuters report that the state-run lender is ``open to'' a potential acquisition of Lehman Brothers Holdings Inc.
"Reuters, citing an unidentified Korea Development Bank spokesman, said Korea Development is studying a number of options, including buying Lehman."
"The government is aiming to privatize the bank by 2012, and acquisitions of domestic and foreign companies may help the company expand ahead of that target."
"Lehman spokesman Mark Lane declined to comment when contacted today by Bloomberg. Lehman, based in New York, is the fourth- largest U.S. securities firm."
To contact the reporter on this story: Steve Dickson in New York at email@example.com.
"Last Updated: August 22, 2008 08:16 EDT"
"Freddie, Fannie Failure Could Be World `Catastrophe,' Yu Says "
By Kevin Hamlin
"Aug. 22 (Bloomberg) -- A failure of U.S. mortgage finance companies Fannie Mae and Freddie Mac could be a catastrophe for the global financial system, said Yu Yongding, a former adviser to China's central bank."
"``If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,'' Yu said in e-mailed answers to questions yesterday. ``If it is not the end of the world, it is the end of the current international financial system.''"
Freddie and Fannie shares touched 20-year lows yesterday on speculation that a government bailout will leave the stocks worthless. Treasury Secretary Henry Paulson won approval from the U.S. Congress last month to pump unlimited amounts of capital into the companies in an emergency.
"China's $376 billion of long-term U.S. agency debt is mostly in Fannie and Freddie assets, according to James McCormack, head of Asian sovereign ratings at Fitch Ratings Ltd. in Hong Kong. The Chinese government probably holds the bulk of that amount, according to McCormack."
"Industrial & Commercial Bank of China yesterday reported a $2.7 billion holding. Bank of China Ltd. may have $20 billion, according to CLSA Ltd., the Hong Kong-based investment banking arm of France's Credit Agricole SA. CLSA puts the exposure of the six biggest Chinese banks at $30 billion."
"``The seriousness of such failures could be beyond the stretch of people's imagination,'' said Yu, a professor at the Institute of World Economics & Politics at the Chinese Academy of Social Sciences in Beijing. He didn't explain why he held that view."
China's government hasn't commented on Fannie and Freddie.
"Yu is ``influential'' among government officials and investors and has discussed economic issues with Premier Wen Jiabao this year, said Shen Minggao, a former Citigroup Inc. economist in Beijing, now an economist at business magazine Caijing."
"Investor confidence in Fannie and Freddie has dwindled on speculation that government intervention is inevitable. Washington-based Fannie has fallen 88 percent this year, while Freddie of McLean, Virginia, has slumped 91 percent."
Paulson got the power to make purchases of the two companies' debt or equity in legislation enacted July 30 that was aimed at shoring up confidence in the businesses. He has said the Treasury doesn't expect to use that authority.
The two companies combined account for more than half of the $12 trillion U.S. mortgage market.
To contact the reporter on this story: Kevin Hamlin in Beijing on firstname.lastname@example.org;
"Last Updated: August 22, 2008 06:09 EDT"
"Alpharma, Lehman, Nordson, Pacific Sunwear: U.S. Equity Movers "
By Jeff Kearns
"Aug. 22 (Bloomberg) -- The following companies are having unusual price changes in U.S. markets. Stock symbols are in parentheses, and prices are as of 9:40 a.m. in New York."
"Alpharma Inc. (ALO US) surged 41 percent, the biggest gain in three years, to $34. King Pharmaceuticals Inc. (KG US) said it offered to buy the drugmaker for $33 a share. Alpharma's board already rejected the $1.38 billion bid, King said."
"King, a maker of pain drugs, advanced 1.3 percent to $11.39."
"Avanex Corp. (AVNXD US) lost 30 percent, the most since going public eight years ago, to $7.30. The maker of fiber-optic parts said first-quarter sales may be as low as $44 million. Analysts projected $54.8 million, the average of four estimates in a Bloomberg survey."
"Gap Inc. (GPS US) increased 4.8 percent to $19.92, the highest since Aug. 2. The largest U.S. clothing retailer said second-quarter profit rose 51 percent after it discounted fewer jeans and T-shirts. The company's profit of 32 cents a share exceeded the average analyst estimate by 6 percent, according to Bloomberg data."
"Lehman Brothers Holdings Inc. (LEH US) rose 11 percent, the most since Aug. 5, to $15.17. Korea Development Bank is ``open to'' an acquisition of the fourth-largest U.S. securities firm, Reuters reported, citing a spokesman for the state-run lender."
"Nordson Corp. (NDSN US) fell the most in at least 24 years, losing 22 percent to $55.76. The maker of equipment to apply adhesive said fourth-quarter profit excluding some items may be as low as 84 cents a share, trailing analysts' estimate of $1.04."
"Pacific Sunwear of California Inc. (PSUN US) slid 30 percent, the most since November 1998, to $5.41. The clothing retailer said its continuing operations may break even in the third quarter. Analysts polled by Bloomberg estimated profit of 23 cents a share."
To contact the reporter on this story: Jeff Kearns in New York at email@example.com.
"Last Updated: August 22, 2008 09:52 EDT"
U.K. Second Quarter GDP Levels: Summary (Table)
By Mark Evans
Aug. 22 (Bloomberg) -- Following is the summary of second quarter U.K. GDP from the Office for National Statistics in London:
2Q 1Q 4Q 3Q 2Q
2008 2008 2007 2007 2007
------------- Quarterly % changes ------------
Chained Volume Indices
GDP market prices 0.0% 0.3% 0.6% 0.6% 0.9%
Gross value added* 0.0% 0.3% 0.6% 0.5% 0.8%
Gross domestic expenditure 0.8% 1.1% 0.5% 0.6% 1.0%
GDP market prices 0.6% 0.8% 0.5% 0.6% 1.0%
Gross value added* 0.8% 0.7% 0.7% 0.8% 1.2%
Value Indices at Current Prices
GDP market prices 0.6% 1.1% 1.0% 1.2% 1.9%
Gross value added* 0.8% 1.0% 1.2% 1.3% 2.0%
2Q 1Q 4Q 3Q 2Q
2008 2008 2007 2007 2007
Final Consumption Expenditure
Households -0.1% 1.1% 0.4% 0.9% 0.7%
General Government 0.4% 0.9% 0.2% 0.3% 0.5%
Gross fixed capital formation -5.3% -1.5% 2.2% 2.7% -1.9%
Exports -0.5% 0.6% -1.3% 1.3% 1.0%
Imports -1.4% -1.2% -0.7% 4.5% -0.9%
-------------- Annual % changes --------------
Chained Volume Indices
GDP market prices 1.4% 2.3% 2.8% 3.1% 3.3%
Gross value added* 1.4% 2.2% 2.7% 3.1% 3.2%
Total domestic Expenditure 2.9% 3.2% 2.3% 2.3% 2.9%
GDP market prices 2.6% 3.0% 2.7% 2.6% 3.4%
Gross value added* 3.0% 3.4% 3.1% 2.7% 3.4%
Value Indices at Current Prices
GDP market prices 4.0% 5.3% 5.6% 5.8% 6.7%
Gross value added* 4.4% 5.7% 5.9% 5.9% 6.7%
2Q 1Q 4Q 3Q 2Q
2008 2008 2007 2007 2007
Final Consumption Expenditure
Households 2.3% 3.0% 2.7% 3.6% 2.8%
General Government 1.9% 2.0% 1.7% 2.0% 2.3%
Gross fixed capital formation -2.1% 1.4% 4.4% 4.9% 5.7%
Exports 0.2% 1.6% 0.2% 2.1% -11.3%
Imports 1.0% 1.6% 4.0% 4.6% -10.0%
---------------- Index Level -----------------
Chained Volume Indices
GDP market prices 112.9 112.9 112.6 111.9 111.3
Gross value added* 112.9 112.9 112.6 112.0 111.4
Total domestic Expenditure 113.9 113.0 111.8 111.3 110.7
GDP market prices 113.4 112.7 111.8 111.3 110.6
Gross value added* 113.8 113.0 112.1 111.4 110.5
Value Indices at Current Prices
GDP market prices 128.0 127.2 125.8 124.5 123.1
Gross value added* 128.5 127.5 126.3 124.7 123.1
2Q 1Q 4Q 3Q 2Q
2008 2008 2007 2007 2007
---- Chained Volume Measure (GBP/Million) ----
"GDP market prices 315,629 315,510 314,662 312,926 311,170"
"Gross value added* 280,425 280,419 279,663 278,129 276,635"
Final Consumption Expenditure
" Households 195,910 196,034 193,960 193,224 191,590"
" General Government 64,981 64,722 64,141 63,990 63,775"
" Gross fixed capital formation 54,751 57,813 58,669 57,417 55,901"
" Exports 85,101 85,495 84,945 86,075 84,972"
" Imports 95,195 96,581 97,767 98,462 94,221"
NOTE: Gross Domestic Product (GDP) and its main components incorporate
annual chain linking.
*: At basic prices
SOURCE: National Statistics
To contact the reporter on this story: Mark Evans in London at firstname.lastname@example.org
"Last Updated: August 22, 2008 04:30 EDT"
Canada's Dollar Drops for First Time in Four Days as Oil Falls
By Chris Fournier
Aug. 22 (Bloomberg) -- Canada's dollar fell for the first time in four days as crude oil and other commodities retreated and the U.S. dollar rallied against most major currencies.
"The Canadian dollar weakened 0.4 percent to C$1.0468 per U.S. dollar at 8:12 a.m. in Toronto, from C$1.0430 yesterday. One Canadian dollar buys 95.53 U.S. cents."
"Crude oil for October delivery slipped 1.1 percent to $119.90 a barrel, after gaining 5 percent yesterday. Gold futures for December dropped 0.1 percent to $838.40 an ounce. Silver, copper and platinum also declined."
The U.S. currency rose against all but two of the 16 other most actively traded currencies. It increased versus the euro after the biggest daily loss since June as a drop in European industrial orders raised speculation that the U.S. economic slowdown is spreading.
"The loonie, named after the aquatic bird on the Canadian one-dollar coin, has risen 1.1 percent since Aug. 15 in its second straight weekly advance as oil prices increased. Commodities account for about half of Canada's export revenue."
To contact the reporter on this story: Chris Fournier in Montreal at email@example.com
"Last Updated: August 22, 2008 08:18 EDT"
"Copper May Advance Next Week as Dollar Weakens, Survey Says "
By Chanyaporn Chanjaroen
"Aug. 22 (Bloomberg) -- Copper may advance next week after the dollar declined, boosting the metal's appeal as an alternative investment to stocks and bonds."
Nine of 20 analysts and traders surveyed yesterday and Aug. 20 forecast copper will rise next week. Six expected a decline and five were neutral. Copper for delivery in three months on the London Metal Exchange advanced 6.7 percent this week.
"The dollar has lost 1.3 percent against the euro this week, making commodities cheaper for holders of other currencies."
This week's survey results:
Bullish: 9 Bearish: 6 neutral: 5
To contact the reporter on this story: Chanyaporn Chanjaroen in London at firstname.lastname@example.org
"Last Updated: August 22, 2008 01:33 EDT"
Gold Falls as Dollar Strengthens Against Euro; Silver Declines
By Pham-Duy Nguyen
"Aug. 22 (Bloomberg) -- Gold fell after the dollar rebounded against the euro, eroding the appeal of the precious metal as an alternative investment. Silver also declined."
The dollar gained as much as 0.7 percent against the euro after dropping 1 percent yesterday. Gold generally moves in tandem with the euro as an alternative to the U.S. currency. The metal and the euro are still headed for the first weekly gains in six.
"``It doesn't help gold when the dollar bounces back,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``People will look to sell gold on rallies.''"
"Gold futures for December delivery fell $9.30, or 1.1 percent, to $829.70 an ounce at 9:31 a.m. on the Comex division of the New York Mercantile Exchange. The metal is up 4.7 percent this week after dropping 18 percent in the previous five weeks."
"Silver futures for December delivery slipped 43.5 cents, or 3.1 percent, to $13.465 an ounce on the Comex. Before today, silver had fallen 6.8 percent this year while gold had gained 0.1 percent."
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at email@example.com.
"Last Updated: August 22, 2008 09:34 EDT"
European Notes Head for Weekly Loss on Bets ECB Won't Cut Rates
By Agnes Lovasz
Aug. 22 (Bloomberg) -- European government notes are poised to snap a four-week advance on speculation the region's central bank will delay interest-rate cuts to focus on curbing inflation rather than boosting growth.
"The drop pushed the yield on two-year German notes, securities most sensitive to interest-rate changes, to the highest level in two weeks as futures traders scaled back expectations the European Central Bank will cut its benchmark rate. Oil headed for its biggest weekly gain in more than two months after rising almost 5 percent yesterday."
"``The rise in oil prices weighs on the bond market,'' said Allan von Mehren, a fixed-income strategist in Copenhagen at Danske Bank AS, the biggest lender in Denmark. ``It puts inflation concerns back on the agenda.''"
"The two-year note yield rose 4 basis points to 4.11 percent by 12:56 p.m. in London, leaving it 13 basis points higher on the week. The price of the 4.75 percent note fell 0.06, or 60 euro cents per 1,000-euro ($1,481) face amount, to 101.05."
"The yield on the 10-year German bund, Europe's benchmark government security, rose 3 basis points 4.20 percent, extending gains to 6 basis points since Aug. 15. Yields move inversely to bond prices."
"The difference in yields, or spread, between two- and 10- year notes was the narrowest in almost three weeks as rate- sensitive short-maturity debt underperformed. The spread was at 8 basis points, from 16 basis points a week ago."
Slump in Orders
"Bonds fell even as a report showed European industrial orders dropped the most in more than six years in June, led by a decline in transport equipment such as planes and rail cars."
"Orders at factories in the 15-nation euro area fell an annual 7.4 percent, the most since December 2001, the European Union's statistics office in Luxembourg said today. Excluding transport, orders slipped 1.5 percent. Economists expected a 6.3 percent drop in total orders, according to the median of 10 estimates in a Bloomberg News survey."
"Outgoing ECB council member Klaus Liebscher said the euro- area's economy is unlikely to slide into a recession, Reuters reported yesterday, citing an interview."
"While growth is slowing and will come in at the ``lower end'' of the ECB's 1.5 percent to 2.1 percent projection this year, ``I am far from saying the euro area is in a recession or going into a recession,'' Liebscher told the news agency."
"Liebscher, who retires as head of Austrian central bank at the end of the month, said July's 4 percent inflation rate is ``worrisome.''"
Bunds had their biggest decline in more than a month yesterday after an index of manufacturing in the euro-region unexpectedly increased in August.
"Royal Bank of Scotland Group Plc's composite index was at 48, from 47.8 in July, as the manufacturing component rose. Economists in a Bloomberg survey forecast a drop to 47.7. The manufacturing index climbed to 47.5 from 47.4, while the services index slipped to 48.2 from 48.3."
Traders have reduced bets the ECB will lower interest rates this year to stimulate economic expansion. The implied yield on the December Euribor futures contract has gained 2 basis points this week to 5.06 percent.
The EU said Aug. 14 gross domestic product fell 0.2 percent in the second quarter. Separate data last week showed the German and French economies shrank.
"The central bank left its main interest rate at 4.25 percent on Aug. 7, when ECB President Jean-Claude Trichet said that growth will be ``particularly weak'' through the second and third quarters."
To contact the reporter on this story: Agnes Lovasz in London at firstname.lastname@example.org
"Last Updated: August 22, 2008 08:07 EDT"
"Natural Gas Declines on Outlook Economy to Weaken, Crude Slumps "
By Reg Curren
Aug. 22 (Bloomberg) -- Natural gas in New York fell amid speculation demand will decline as the U.S. economy slows and as crude oil slumped.
"Turmoil in world credit markets will continue to hamper the global economy and there's little central banks can do to correct it, analysts said. Crude slipped as the U.S. dollar strengthened and the flow of oil was restored through a Caspian Sea pipeline in Turkey. A rising dollar prompts investors using commodities as an inflation hedge to exit the market."
"Gas is ``taking a cue from crude,'' said Tom Orr, director of research at Weeden & Co. in Greenwich, Connecticut. ``There's nothing'' to lift gas today."
"Natural gas for September delivery fell 6.9 cents, or 0.8 percent, to $8.184 per million British thermal units at 9:55 a.m. on the New York Mercantile Exchange. Futures have tumbled 40 percent since closing at $13.577 on July 3, a 30-month high. Gas is selling below its 200-day moving average of $9.593."
"Crude oil for October delivery fell $2.48, or 2.1 percent, to $118.70 a barrel in New York. Futures reached a record $147.27 on July 11."
"In the U.S., borrowing premiums for banks and corporations are at their highest in months, prolonging the drag on growth."
Reports in the last week showing a surge in inflation reinforce expectations that Federal Reserve Chairman Ben S. Bernanke will have to keep U.S. interest rates on hold.
The dollar traded at $1.4815 at 9:56 a.m. in New York from $1.4899 yesterday. The U.S. currency has climbed versus the euro since touching an all-time low of $1.6038 on July 15.
"Mild weather and higher gas inventory growth are also weighing on gas, Orr said. Moderate weather limits the demand for gas-fired power generation to run air conditioners."
"The U.S. Energy Department reported supplies increased for the week ended Aug. 15. Inventories rose 88 billion cubic feet to 2.655 trillion, the department said. Stockpiles are 1 percent above the five-year average of 2.629 billion, according to department data."
Analysts expected supplies to gain 84 billion cubic feet. The average change for this time of year over the past five is an increase of 56 billion.
To contact the reporters on this story: Reg Curren in Calgary at email@example.com.
"Last Updated: August 22, 2008 09:56 EDT"
Treasuries Drop as Bernanke Says Slow Growth to Cut Inflation
By Dakin Campbell and Sandra Hernandez
Aug. 22 (Bloomberg) -- Treasuries declined after Federal Reserve Chairman Ben S. Bernanke suggested that the central bank is relying on slowing growth and a strengthening dollar to contain inflation.
"The decline pushed yields on two-year notes up the most in a month. Government debt had slumped earlier after the Korea Development Bank said it's ``considering'' an investment in Lehman Brothers Holdings Inc., easing concern about the fallout from credit market losses."
"``Bernanke remains highly concerned about inflation but has little willingness to do anything about it,'' said Mark MacQueen, a money manager in Austin, Texas, at Sage Advisory Services, which oversees $6.5 billion. ``If he is only going to jawbone his inflation worries, then we're going to have an inflation problem for a longer time than he's willing to admit.''"
"The yield on the 10-year note rose 6 basis points to 3.89 percent as of 10:36 a.m. in New York, according to BGCantor Market Data. The price of the 4 percent security maturing in August 2018 declined 16/32, or $5 per $1,000 face amount, to 100 28/32. Two-year yields rose 11 basis points to 2.42 percent."
"Bernanke called dollar stability and price declines in oil and other commodities ``encouraging.'' Still, the inflation outlook remains ``highly uncertain'' and the Fed ``is committed to achieving medium-term price stability and will act as necessary to obtain that objective,'' he said at the Fed Bank of Kansas City's annual symposium in Jackson Hole, Wyoming."
"``It's status quo as far as the Fed's concerned,'' said Kevin Flanagan, a Purchase, New York-based fixed-income strategist for Morgan Stanley's individual-investor clients. ``He's still trying to walk that tightrope between economic and market risk.''"
"Ten-year yields will climb to 4.03 percent by year-end, according to a Bloomberg News survey of economists, with the most recent forecasts given the heaviest weightings. They are little changed from seven days ago."
"Korea Development Bank's Chief Executive Officer Min Euoo Sung declined to comment on a Reuters report that the state-run lender is ``open to'' a potential acquisition of Lehman Brothers Holdings Inc. Reuters, citing an unidentified Korea Development Bank spokesman, said Korea Development is studying a number of options, including buying Lehman."
"Lehman, the largest underwriter of mortgage bonds before the subprime market collapsed, had slumped 77 percent over the past year as it struggled to pare its debt holdings. The bank has reported writedowns and credit losses of $8.2 billion in the past 12 months, according to data compiled by Bloomberg."
"Treasury notes also declined as gains in European and U.S. stocks tempered demand for the safest of assets. The Standard & Poor's 500 Index rose 0.9 percent, while the Dow Jones Stoxx 600 Index rose 1.6 percent."
"``There's some possibility that there will be an unwinding of the flight to quality,'' said Yasutoshi Nagai, chief economist in Tokyo at Daiwa Securities SMBC Co., part of Japan's second-largest brokerage. ``This level of yields is too low to buy.''"
"The difference between yields on 10-year Treasury Inflation Protected Securities, or TIPS, and conventional notes widened to 2.23 percentage points from 2.16 percentage points on Aug. 18. The figure reflects the inflation rate that traders expect for the next decade."
"Crude oil rallied 6.8 percent this week, the most since the period ended June 6."
Credit Market Losses
Yields on two-year notes had dropped near the lowest since May as speculation rose that the government will take over mortgage-finance providers Fannie Mae and Freddie Mac.
"``Two-year yields can break below 2 percent again,'' said Padhraic Garvey, head of investment-grade strategy at ING Bank NV in Amsterdam. ``We don't think this banking crisis is over. There are still skeletons in the closet that are liable to come out as the economy gets weaker. Inflation will also come off its highs.''"
"Futures contracts on the Chicago Board of Trade show odds of 56 percent the Fed will raise its 2 percent target for overnight bank lending in January. A month ago, traders predicted a rate increase in December."
Banks and securities companies have reported more than $500 billion of writedowns and credit-related losses linked to the collapse of the subprime mortgage market since the start of 2007.
"The difference in yield between U.S. two- and 10-year notes widened this week to 1.52 percentage points as investors favored shorter maturities, those more sensitive to Fed interest-rate policy. The spread increased from 1.17 percentage points in June."
"U.S. consumer prices rose 5.6 percent in July from a year before, the fastest pace in 17 years. The increase means that 10-year Treasury notes yield about 1.77 percentage points less than the pace of inflation."
"The notes have yielded about 2 percentage points more than the inflation rate on average over the past decade, according to data compiled by Bloomberg."
To contact the reporters on this story: Dakin Campbell in New York at firstname.lastname@example.org; Kim-Mai Cutler in London at email@example.com
"Last Updated: August 22, 2008 10:40 EDT"
Belgium's Business Confidence Unexpectedly Rises on Lower Oil
By Jurjen van de Pol
"Aug. 22 (Bloomberg) -- Belgian business confidence unexpectedly increased in August, led by a rebound in sentiment in the manufacturing industry after the cost of oil and other commodities retreated from record levels."
"The business-sentiment index, considered a leading indicator for Europe, rose to minus 5.9 this month from minus 7.6 in July, the Brussels-based National Bank of Belgium said today in an e-mailed statement. Economists expected a drop to minus 8 in August, according to the median of 16 forecasts in a Bloomberg News survey."
"Crude-oil prices have dropped 17 percent since reaching an all-time high above $147 a barrel on July 11, easing raw- material costs for companies across the 15 nations that use the euro. At the same time, a decline in the euro against the dollar from record levels is making European goods more competitive abroad."
"``The weakening of the euro, which is very important for the Belgium economy as it's largely dependent on exports, and the lower oil price are positive developments,'' said Bart Van Craeynest, an economist at KBC Bank NV in Brussels. Still, ``the general trend in the European and Belgian economy is clearly downward.''"
"The Belgian economy outpaced the contracting euro region in the second quarter, expanding 0.3 percent from the previous three months. Even as the U.S., the world's biggest economy, skirts a recession, demand from emerging markets in Asia and Latin America has helped to support European export sales."
"The central bank's gauge of confidence in the manufacturing industry increased to minus 5.6 this month from minus 8.1 in July, today's report showed. Construction sentiment rose for a fourth month, with that indicator increasing to 1.3 from minus 0.6 in the previous month."
"Business sentiment in Germany, Europe's largest economy, probably declined further this month after plunging in July by the most since the Sept. 11 terrorist attacks. The Munich-based Ifo institute's business climate index fell to 97.2 from 97.5 last month, according to the median estimate of 11 economists in a Bloomberg News survey. The index, which is based on a survey of 7,000 executives, will be released Aug. 26."
"Belgian consumer confidence improved for the first time in six months in August as households worried less about economic growth and personal finances, the central bank said two days ago."
To contact the reporter on this story: Jurjen van de Pol in Amsterdam firstname.lastname@example.org
"Last Updated: August 22, 2008 09:06 EDT"
Dollar Rises Against Euro on Speculation Decline Is Overdone
By Ye Xie and Gavin Finch
Aug. 22 (Bloomberg) -- The dollar rose against the euro on speculation the biggest drop since June yesterday was overdone and as a decline in European industrial orders added to evidence of a deepening economic slowdown.
"The greenback climbed from a two-week low against the yen after Reuters reported that Korea Development Bank is ``open to'' a purchase of Lehman Brothers Holdings Inc. Federal Reserve Chairman Ben S. Bernanke said falling commodity prices, a stable dollar and slowing growth should limit inflation."
"``The recovery of the euro is uninspiring,'' said Alan Ruskin, head of currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``The dollar bottoming is in place.''"
"The dollar climbed 0.6 percent to $1.4815 per euro at 10:20 a.m. in New York, from $1.4899 yesterday, when it fell 1 percent. The U.S. currency rose 1.4 percent to 109.96 yen, from 108.43. It touched 108.14 yesterday, the lowest since Aug. 5. The yen fell 0.8 percent to 162.90 per euro, from 161.57."
"The U.S. currency has decreased 0.9 percent against the euro this week, the first drop in six weeks, on concern deepening credit-market losses and a surge in crude oil prices will prolong the U.S. economic slowdown. The dollar has dropped 0.6 percent versus Japan's currency, while the euro has increased 0.4 percent against the yen."
"The ICE futures exchange's Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, rose 0.5 percent today to 76.601. It fell 1 percent yesterday, the biggest drop in almost five months."
"The pound fell 1 percent to $1.8588 and 0.6 percent to 79.79 pence per euro after a report showed U.K. economic growth stagnated in the second quarter. Sterling dropped for a fifth week against the dollar, declining 0.4 percent, its longest losing streak since February 2006. The pound decreased 1.3 percent versus the euro this week."
"Industrial orders in the 15-nation euro area fell 7.4 percent from a year earlier, the most since December 2001, the European Union statistics office said today in Luxembourg. The German economy, Europe's largest, shrank 0.5 percent in the second quarter, the first contraction in four years."
The dollar rose against the yen after Reuters reported that Korea Development Bank may buy stakes in Lehman.
"``We are studying a number of options and are open to all possibilities, which could include (buying) Lehman,'' a Korea Development Bank spokesman said, according to Reuters."
Lehman on Report
Lehman spokesman Mark Lane declined to comment on the Reuters report. Korea Development Chief Executive Officer MinEuoo-Sung also declined to comment.
The U.S. currency dropped against the yen yesterday as the Financial Times reported that the South Korean bank and China's Citic Securities Co. abandoned talks to buy a stake in Lehman this month.
"Bernanke said in a speech at the Kansas City Fed's two-day conference on financial stability in Jackson, Hole, Wyoming, that dollar stability and price declines in oil and other commodities are ``encouraging.'' Still, the inflation outlook remains ``highly uncertain'' and the Fed ``is committed to achieving medium-term price stability and will act as necessary to obtain that objective,'' he said."
"Crude oil for October delivery fell 1.4 percent to $119.49 a barrel. It surged 5.4 percent yesterday, the biggest increase since June 6, and has increased 4.9 percent this week. The euro- dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations based on value changes. A reading of 1 would mean they move in lockstep."
Yen vs. Rand
"The yen fell 1.1 percent to 14.32 versus the South African rand and 1.1. percent to 68.08 against Brazil's real today as the possibility of a South Korean acquisition of Lehman Brothers encouraged a resumption of the carry trade, in which investors get funds in a country with low borrowing costs and buy assets where returns are higher."
"``Japanese investors are once again buying abroad trying to increase returns, and this is contributing to a downward move in the yen,'' said Ian Stannard, a senior currency strategist in London at BNP Paribas SA, the largest French bank. ``The yen is going to remain weak as the outlook for the Japanese economy is deteriorating badly.''"
"Japanese investors were net buyers of 769.8 billion yen ($7 billion) in foreign assets in the week ended Aug. 16, the Ministry of Finance said yesterday. The BOJ held its target lending rate at 0.5 percent this week, compared with a 4.25 percent benchmark rate in Europe, 13 percent in Brazil and 12 percent in South Africa."
"The New Zealand and Australian currencies headed for weekly gains versus the U.S. dollar on bets the biggest jump in commodity prices in 33 years will boost exports. The Reuters/Jefferies CRB Index of 19 commodities has surged 6.3 percent since Aug. 15, the biggest weekly gain since July 1975."
"The kiwi increased 1 percent to 71.33 U.S. cents this week and touched 72.17 today, the highest level since Aug. 7. The Aussie rose 0.4 percent to 86.94 U.S. cents this week."
To contact the reporter on this story: Ye Xie in New York at email@example.com; Gavin Finch in London at firstname.lastname@example.org
"Last Updated: August 22, 2008 10:20 EDT"
Brazil's Mid-August Inflation Slows for Second Month (Update1)
By Joshua Goodman and Camila Fontana
"Aug. 22 (Bloomberg) -- Brazil's inflation through mid- August slowed from the second consecutive month, bolstering confidence that the central bank will bring consumer prices back to target next year."
"The inflation rate as measured by the benchmark IPCA-15 index decreased to 0.35 percent from 0.63 percent through mid- July as food prices eased, the national statistics agency said in a release today on its Web site. It was less than 0.38 percent median estimate in a Bloomberg survey of 35 economists."
"``Food prices are coming off the highs seen the past few months and this is helping take pressure off inflation,'' Marcela Prada, an economist with Tendencia Consultoria Integrada, said in an interview with Bloomberg TV. ``Inflation expectations should continue to fall the rest of the year.''"
"The central bank has raised interest rates three times since April, to 13 percent from a record low 11.25 percent, in a bid to cool domestic demand and inflation running near the 6.5 percent upper limit of the government's target range. Policy makers are expected to raise the benchmark rate to 14.75 percent by the end of the year, according to an Aug. 15 central bank survey of 100 economists."
Brazil's economy is showing signs of slowing in the face of a tightening monetary cycle and worsening outlook for its commodity exports.
"Today's report showed that the annual inflation rate for the 12 months through mid-August slowed to 6.23 percent from 6.30 percent in mid-July. Month-on-Month food prices rose 0.25 percent, compared to 1.75 percent at the mid-July reading."
"Unemployment in July rose for the first time in five months, the national statistics agency said yesterday. Retail sales in June grew a less-than-expected 8.2 percent compared to the same period a year ago, slowing from a 11.1 percent in May."
The real fell 0.3 percent to 1.6139 per dollar at 8:32 a.m. New York time from 1.6090 late yesterday.
To contact the reporter on this story: Joshua Goodman in Rio de Janeiro email@example.com or
"Last Updated: August 22, 2008 08:34 EDT"
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August 22, 2008
Posted by PROFESSOR 1X2 at 3:30 PM