August 26, 2008

About S&P/Case-Shiller

Housing crisis never recover very fat. This one will also take some months in order to get a full revoery, but prices are probably approaching their bottom.

One cannot forget that even if prices get steady, inflation will make this prices lower in real terms. So after the free fall that we attend during last year, i expect that prices now start to consolidate.

If unemployment rises or interest rates go higher we may see further declines, otherwise, for the housing sector, the worst is over. I'm not saying that the problem is solved, but it will not get worst!


TOP 40: Bloomberg news selected by professor1x2 26 august 2008 16:00 GMT

"Wheat Falls on Dollar Gain, Production Outlook; Soybeans Tumble "

By Jae Hur

"Aug. 26 (Bloomberg) -- Wheat declined for a third day as the dollar strengthened, making U.S. grain less attractive to buyers overseas, and on speculation favorable weather in major producing countries will help increase harvests. Soybeans dropped."

Prices lost 6.2 percent in the previous two days as rain in the southern U.S. Great Plains helped build soil moisture for plants that will be seeded starting next month. Wheat has fallen 36 percent from a record $13.495 a bushel on Feb. 27 on forecasts for higher global output after prices climbed 77 percent in 2007.

"``Wheat supplies will rise as production increases in the Northern and Southern hemisphere on good weather,'' Hiroyuki Kikukawa, general manager of research at IDO Securities Co., said from Tokyo. Wheat-growing areas in Australia and Argentina may get rain later this week, he said."

"Wheat for December delivery fell as much as 14.25 cents, 1.7 percent, to $8.505 a bushel in after-hours electronic trading on the Chicago Board of Trade and was at $8.53 at 4:22 p.m. Singapore time."

"The dollar rose for a third day against the euro, making the U.S. grain more expensive for importers holding other currencies. The euro fell as much as 0.6 percent to $1.4669. It reached $1.4631 on Aug. 19, the lowest since Feb. 20."

"Farmers around the world will harvest a record 670.8 million metric tons in the year that started June 1, up 9.9 percent from the previous year, the U.S. Department of Agriculture said on Aug. 12. Reserves may jump 18 percent to 136.2 million tons by May 31."

Western Australia

"Australia, forecast to be the world's third-largest exporter of wheat, may get rain this week in its two biggest grain-growing states, the National Climate Center said."

"Western Australia may receive between 10 millimeters and 25 millimeters of rainfall this week, with totals higher in northern regions, Shoni Dawkins, climatologist with the center said today by phone from Melbourne. Cropping regions in New South Wales may get 10 millimeters, with falls above 25 millimeters in some areas, later in the week, he said."

"Corn for December delivery declined as much as 7 cents, or 1.2 percent, to $5.93 a bushel and traded at $5.955 as of 4:29 p.m. in Singapore. The price has fallen 25 percent from a record $7.9925 on June 27."

"Soybeans for November delivery fell as much as 29.25 cents, or 2.2 percent, to $13.1775 a bushel and traded at $13.18 as of 4:30 p.m. in Singapore as vegetable oil prices tumbled. Futures lost 19 percent from a record $16.3675 on July 3."

Vegetable Oil

"Palm oil in Kuala Lumpur plunged as much as 6.3 percent as supplies exceed demand for cooking oil and biofuel. Soybean oil in Dalian fell as much as its 5 percent daily limit, while Chicago soybean oil for December delivery fell as much as 2.9 percent to 53.65 cents a pound before trading at 53.98 cents."

"Palm oil must decline to 2,200 ringgit ($648) a ton in the next few weeks for demand to rebound, Dorab Mistry, director at Godrej International Ltd., said yesterday."

"Soybean oil is traded at an ``unsustainable premium'' to palm oil. The commodity, palm oil's main competitor, needs to decline substantially from current levels, Mistry said. Soybean oil was 46 percent more expensive than palm oil on July 28, the most in two years."

To contact the reporter on this story: Jae Hur in Singapore at

"Last Updated: August 26, 2008 04:49 EDT"

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"French Stocks; Air France, Eramet, STMicro, Vallourec, Valeo "

By Sarah Thompson

"Aug. 26 (Bloomberg) -- France's CAC 40 Index slipped 31.06, or 0.7 percent, to 4,324.81 at 12:48 p.m. in Paris. The SBF 120 Index fell 0.6 percent."

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

"Air France-KLM Group (AF FP), Europe's largest airline, added 54 cents, or 3.4 percent, to 16.61 euros. Oil fell as the dollar strengthened to a six-month high against the euro, limiting the appeal of commodities as a hedge, and shipments of Caspian crude resumed after a pipeline fire."

"Boizel Chanoine Champagne SA (BOZ FP) added 1.19 euros, or 1.8 percent, to 68.25 euros. France's second-largest champagne producer said first-half revenue fell 23 percent to 108 million euros ($158 million) and that it sees stable full-year sales and higher operating profit."

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

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

"Eramet (ERA FP), a mining company that refines nickel, and manganese, lost 3.26 euros, or 0.9 percent, to 343.48 euros, declining for a third day. Copper and nickel declined in London as increases in stockpiles stoked speculation that supplies are adequate to meet demand."

"STMicroelectronics NV (STM FP), Europe's largest chipmaker, added 17.8 cents, or 2.1 percent, to 8.755 euros. The euro fell to the lowest level in more than six months against the dollar after a report showed German business confidence worsened more than forecast in August. The company generates most of its revenue in dollars."

"Valeo SA (FR FP) lost 67 cents, or 2.7 percent, to 23.96 euros after France's second-largest auto-parts maker was cut to `` sell'' from ``reduce'' at Natixis."

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

"Vallourec SA (VK FP) decreased 6.78 euros, or 3.7 percent, to 178.33 euros. Goldman Sachs Group Inc. downgraded the world's second-largest supplier of seamless pipes for energy extraction to ``sell'' from ``neutral'' because the shares offer ``minimal potential'' for growth."

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

"Last Updated: August 26, 2008 07:01 EDT"

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Rupee Pares Losses on Speculation Central Bank Bought Currency

By Anoop Agrawal

"Aug. 26 (Bloomberg) -- India's rupee rebounded from a 17- month low, paring losses, on speculation the central bank bought the currency to prevent declines from adding to inflation."

"The rupee touched 44.15 against the dollar, the lowest level since March 16, 2007, before erasing almost all of the day's losses. The Reserve Bank of India may not allow a rapid drop in the currency as policy makers are still grappling with 16-year- high inflation and a weaker rupee will increase the cost of imports including crude oil, said Amit Garg, a currency trader at Allahabad Bank."

"``The way the rupee has weakened recently has implications for inflation,'' Mumbai-based Garg said. ``The central bank would want to bring some stability to the market.''"

"The currency ended 0.1 percent lower at 43.845 against the dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg."

"India's foreign-exchange reserves fell for a fifth week through Aug. 15, the longest stretch of declines since November 2000, indicating the central bank sold dollars to support the rupee. Central banks intervene in currency markets by arranging sales or purchase of foreign exchange."

"The Reserve Bank of India doesn't comment on daily rupee movements and operations, its Mumbai-based spokeswoman Alpana Killawala said."

"India's foreign-currency reserves dropped to $286 billion in the week ended Aug. 15 from a record $306.2 billion in May, according to data provided by the central bank."

"Oil, Inflation"

"A 60 percent surge in crude oil prices in the past 12 months pushed up the inflation rate to the highest since June 1992. Wholesale prices jumped 12.63 percent in the week ended Aug. 9 from a year earlier, government data show."

"India's average monthly oil import costs rose to $8 billion this year, from $5.5 billion in 2007, trade ministry data show."

"The local currency still ended the day weaker, extending yesterday's losses, on speculation refiners purchased dollars to settle month-end import bills. The currency has slumped more than 10 percent this year as global funds turned net sellers of Indian shares."

"``Dollar demand is strengthening at a time when we are seeing strong capital outflows,'' said V. Rajagopal, chief currency trader at Kotak Mahindra Bank Ltd. in Mumbai. ``I expect the rupee to weaken further as the fundamentals are against it.''"

"Global funds were net sellers of local equities for a seventh straight day, the longest stretch in three months, data provided by the Securities & Exchange Board of India show. They have sold a net $7.2 billion of Indian shares this year, compared with a record $17.2 billion in net purchases in 2007."

To contact the reporter on this story: Anoop Agrawal in Mumbai at

"Last Updated: August 26, 2008 08:53 EDT"

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Gilts Gain as Mortgage Approvals Fall to Lowest Level in Decade

By Lukanyo Mnyanda and Andrew MacAskill

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

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

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

"The yield on the 10-year gilt dropped as much as 12 basis points to 4.48 percent, the lowest level since April 16, and was at 4.5 percent by 2:44 p.m. in London. The 5 percent security due March 2018 rose 0.75, or 7.5 pounds per 1,000-pound ($1,834) face amount, to 103.85. The yield on the two-year gilt, which is more sensitive to interest-rate expectations, fell as much as 13 basis points, the most since Aug. 18, to 4.49 percent. Bond yields move inversely to prices."

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

Home Loans

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

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

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

"The pound dropped 0.7 percent to $1.8400, near the lowest level since July 2006, from $1.8532 yesterday in New York. Against the single European currency, the pound was at 79.62 pence, from 79.60."

Rate Outlook

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

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

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

`Painful Adjustment'

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

"The implied yield on the March short-sterling futures contract dropped 10 basis points today to 5.17 percent, indicating investors are paring wagers on lower interest rates. It was at 5.44 percent at the end of July."

"The difference in yield, or spread, between 10-year gilts and their German counterparts narrowed 8 basis points to 39 basis points today. The spread has narrowed from 69 basis points on Feb. 25, the widest this year, as traders bet the end of a decade-long rally in the nation's housing market will prompt a reduction in borrowing costs."

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

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

"Last Updated: August 26, 2008 10:31 EDT"

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"Citigroup Raises Mexico 2008 Inflation Forecast on Food, Energy "

By Valerie Rota

Aug. 26 (Bloomberg) -- Citigroup Inc. raised its forecast for Mexico's inflation rate this year because of higher-than- expected prices for food and fuel.

"Mexico's inflation will be 5.5 percent in 2008, according to Arturo Vieyra, an economist with Citigroup's Banamex unit in Mexico City. Core inflation, which excludes fresh food and energy, will be 5 percent, he wrote in a report."

Vieyra had previously forecast inflation of 5.3 percent and core inflation of 4.9 percent.

To contact the reporter on this story: Valerie Rota in Mexico City at

"Last Updated: August 26, 2008 09:09 EDT"

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"Freddie, Fannie Mortgage Portfolio Growth Rate Slows (Update1) "

By Jody Shenn and Dawn Kopecki

Aug. 26 (Bloomberg) -- Freddie Mac and Fannie Mae bought home loans and mortgage securities at a slower pace last month as a combined $14.9 billion in net losses in the past four quarters depleted their capital.

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

"Freddie and Washington-based Fannie said this month they will limit growth after their losses sparked concerns they may need a government bailout. The declining demand from the federally chartered companies, the biggest buyers of home loan securities, is sending mortgage prices lower and causing home loan rates to increase."

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

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

Capital Issue

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

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

"The difference between yields on so-called agency mortgage securities and 10-year Treasuries was at 2.07 percentage points at 9:45 a.m. today, compared with as low as 1.52 percentage points in May. The average rate on a typical 30-year, fixed-rate mortgage has risen to 6.33 percent, from as low as 5.69 percent in May, according to data."

Delinquencies Rise

"Freddie is coming off a buying spree enabled by its regulator, which in March relieved restrictions on purchases to help prop up the mortgage market. Freddie boosted its portfolio by more than 11 percent from March through June to a record high last month. Fannie increased its holdings by almost 4 percent."

The credit quality of the companies' assets also continued to decline.

"The serious delinquency rate among single-family loans that Freddie either owns or guarantees within bonds rose to 1.01 percent in July, the company said. The rate is up from the 0.44 percent reported for July 2007 and 0.93 percent in June."

"Delinquencies for Fannie's mortgages rose to 1.36 percent on June, the latest data released. That was up from 0.64 percent reported for June 2007 and 1.30 percent in May."

"Freddie made future commitments to sell $324 million more mortgage assets than it agreed to buy during July, the first time since November that expected sales exceeded purchases. Fannie committed to buy a net $16.6 billion of assets in the future, the lowest since March."

"``The portfolios are probably going to stay flat going forward,'' said Ajay Rajadhyaksha, the head of fixed-income strategy at Barclays Capital in New York."

Stock Declines

"While Fannie raised $7.4 billion in capital in May, Freddie failed to fulfill an agreement made that month to sell $5.5 billion in equity. Fannie had $47 billion of capital as of June 30, $9.5 billion above the amount required by its regulator. Freddie had $37.1 billion in capital, $2.6 billion more than required."

"Freddie, down 90 percent this year, climbed 83 cents, or 25 percent, to $4.12 at 10:07 a.m. in New York Stock Exchange composite trading. Fannie rose 93 cents, or 18 percent, to $6.12. The stock declined 87 percent this year before today."

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

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

"Last Updated: August 26, 2008 10:29 EDT"

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German Recession Looms as Business Confidence Slumps (Update2)

By Simone Meier

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"Aug. 26 (Bloomberg) -- German business and consumer confidence fell more than economists forecast, heightening concern that Europe's largest economy may be slipping into a recession."

"The Munich-based Ifo institute's business climate index, based on a survey of 7,000 executives, dropped to a three-year low of 94.8 from 97.5 in July. Consumer sentiment slumped to the lowest level in five years, according to Nuremberg-based market research company GfK AG."

"The euro and bond yields fell. Germany's economy contracted in the second quarter and may fail to grow in the third. While oil prices have receded from a record $147.27 a barrel, they're still up 60 percent over the past year, crimping companies' spending power just as the euro's appreciation and the U.S. housing slump weigh on exports."

"``With today's data, the risk of a recession has increased,'' said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt. ``Germany is no longer in a position to resist the downward spiral. I can't even see the end of it.''"

"Ifo's gauge of business expectations dropped to 87, the lowest since February 1993, when Germany was experiencing the worst recession of the past two decades. A measure of current conditions eased to 103.2 from 105.7."

"The economy contracted 0.5 percent in the three months through June as construction slumped and companies and households reduced spending, the Federal Statistics Office confirmed today. Exports also fell."

ECB Rates

The euro dropped more than a cent after the Ifo report to $1.4597 and yields on 10-year German bonds fell 5 basis points.

"``A serious German downturn would not bode well for the euro zone as a whole, to put it mildly,'' said Holger Schmieding, chief European economist at Bank of America Corp. in London."

"The chances of the European Central Bank cutting interest rates are growing, Ifo economist Gernot Nerb said. The ECB last month raised its key rate by 25 basis points to 4.25 percent to fight inflation."

"The rate increase ``was certainly not helpful,'' Nerb said in an interview with Bloomberg Television. ``In the current environment, it would be better if they'' lowered borrowing costs. ``It's difficult to say whether the worst is behind us.''"

"Investors raised bets that the ECB's next move will be a rate reduction, Eonia forward contracts show. The yield on the March contract fell to 4.13 percent today from 4.61 percent on July 21."

`Gradual Weakening'

"While the German government has maintained its forecast for growth of 1.7 percent this year after 2.5 percent in 2007, the Berlin-based BDB banking association said on Aug. 20 the economy may barely expand in the second half of the year."

"Arcandor AG, Germany's largest department-store operator, on Aug. 13 reported a loss for the quarter through June and reduced its 2009 earnings forecast. Daimler AG, the world's second-largest luxury carmaker, said Aug. 6 it plans to cut production by 45,000 vehicles by the end of the year."

"In the economy of the 15 euro nations, manufacturing and service industries contracted for a third straight month in August and confidence in the economic outlook last month dropped the most since the Sept. 11 terrorist attacks in 2001."

"``I see a gradual weakening of the German economy but not a collapse,'' said Peter Loescher, chief executive officer of Siemens AG, Europe's largest engineering company."

The price of crude has dropped 9 percent over the past month to around $114 a barrel and the euro has retreated from an all- time high of $1.6038 on July 15. Some companies are also benefiting from demand in faster-growing economies in Asia and eastern Europe.

"Hochtief AG, Germany's largest builder, on Aug. 14 raised its full-year earnings forecasts on increasing demand for construction and mining work. SAP AG, the world's largest maker of business- management software, last month raised its full-year earnings forecast on increasing orders."

"Still, ``the airbag effect of lower oil prices and a weaker exchange rate hasn't kicked in,'' said Andreas Rees, chief German economist at UniCredit Markets & Investment Banking in Munich. ``We see a recession risk of 70 percent this year.''"

To contact the reporter on this story: Simone Meier in Frankfurt at

"Last Updated: August 26, 2008 08:43 EDT"

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"Asian Stocks Fall on Credit Concerns, Earnings; Banks Decline "

By Chen Shiyin and Shani Raja

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"Aug. 26 (Bloomberg) -- Asian stocks fell the most in a week, led by financial companies, as speculation of increased credit- market losses weighed on regional growth and earnings."

"Mitsubishi UFJ Financial Group Inc. declined 1.3 percent in Tokyo after Credit Suisse Group said American International Group Inc. may lose $2.41 billion this quarter on mortgage-related writedowns. Suncorp-Metway Ltd. dropped 3.4 percent as Australia's third-largest general insurer said bad debts may rise. Sumitomo Realty & Development Co., Japan's No. 3 developer, fell 1.1 percent after rival Sebon Corp. filed for bankruptcy."

"``There's been an impairment of capital in the global banking system,'' said Sean Fenton, who manages the equivalent of $563 million, including banking shares, at Tribeca Investment Partners in Sydney. ``It's the continuance of concerns not just over mortgage losses, but the process of credit destruction that has been set off all around the world.''"

"The MSCI Asia Pacific Index lost 1.1 percent to 122.30 as of 7:13 p.m. in Tokyo, its largest drop in a week and almost erasing yesterday's 1.7 percent advance. Financial companies accounted for more than a quarter of the measure's retreat today."

"The Asian index has declined 22 percent this year, led by banks, securities firms and developers, as the world's largest financial companies posted writedowns and credit losses of more than $500 billion and inflation soared."

"Japan's Nikkei 225 Stock Average slipped 0.8 percent to 12,778.71. China's CSI 300 Index dropped 2.9 percent after the daily trading value fell yesterday to the lowest since November 2006. Pakistan's Karachi Stock Exchange 100 Index posted the region's largest loss, tumbling 3.9 percent. Indexes retreated in all other Asian markets apart from Vietnam and India."

`Bad News'

"Mirvac Group, an Australian property trust, declined after posting a 69 percent decline in full-year profit. IHI Corp., the nation's No. 3 maker of heavy machinery, fell after saying it won't pay a dividend in the first half because of a loss."

"U.S. stocks dropped yesterday, sending the Standard & Poor's 500 Index to its largest loss in a month. AIG tumbled to a 13- year low, while other financial companies dropped after Columbian Bank & Trust Co. became the ninth U.S. bank to collapse this year. S&P 500 index futures added 0.2 percent today."

"``With more bad news emerging on U.S. financial shares, it's natural to see the market here take a hit as well,'' Mamoru Shimode, Tokyo-based chief equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television."

"Mitsubishi UFJ, Japan's biggest bank by market value, retreated 11 yen to 820. Macquarie Group Ltd., Australia's No. 1 securities firm, fell 3.2 percent to A$46.05."

"A gauge of financial companies on MSCI's Asian index has dropped 27 percent this year, the worst performance among the broader measure's 10 industry groups."

AIG Plunges

"AIG tumbled in New York trading after Credit Suisse analyst Thomas Gallagher predicted AIG will lose 86 cents a share in the third quarter, compared with an earlier forecast of a 13-cent profit. ``Recent deterioration'' in debt holdings may cause losses in the firm's credit-default swaps, Gallagher wrote yesterday in a research note."

"Temasek Holdings Pte, a $130 billion Singapore sovereign wealth fund, expects the fallout of the credit crisis to ``continue to dampen the global economy over the next 24 months'' and limit investment opportunities, Chairman S. Dhanabalan said."

Suncorp-Metway slumped 44 cents to A$12.36 after saying net income tumbled 68 percent in the six months ended June 30 as storms increased and falling financial markets cut investment income. Chief Executive Officer John Mulcahy said bad debts may increase as the economy loses momentum.

Regional Banks Drop

"Fukuoka Financial Group Inc., Japan's second-largest regional bank by assets, fell 4 percent to 405 yen after HSBC Holdings Plc downgraded the stock to ``underweight'' from ``neutral,'' citing rising property defaults nationwide. The brokerage also lowered its rating on Bank of Yokohama Ltd., the nation's largest regional lender, whose shares slipped 2.6 percent to 612 yen."

"``Real estate-related bankruptcies have spiked,'' Kentaro Kogi, a Tokyo-based analyst at HSBC, said in a report today. ``Real estate firm bankruptcies remain our biggest concern for regional bank credit costs.''"

"Sebon, a Tokyo-based real-estate developer, filed for bankruptcy protection yesterday with 62 billion yen ($568 million) in liabilities. Construction and real estate companies accounted for almost a third of all bankruptcies in Japan in July as banks cut lending and the country's economy shrank."

Developers Retreat

"Sumitomo Realty fell 25 yen to 2,245. Asahi Homes Co., which counts Sebon as its biggest shareholder, retreated 28 percent to 42 yen, its sharpest drop in six years."

"In China, the benchmark CSI 300 has slumped 56 percent this year, the world's worst-performing market, as measures to cool inflation spurred concern economic and profit growth will slow. Shares worth 39.7 billion yuan ($5.8 billion) were traded on the Shanghai and Shenzhen stock markets yesterday, the lowest since Nov. 14, 2006, according to data compiled by Bloomberg."

"Haitong Securities Co., China's largest listed brokerage by market value, dropped 7.8 percent to 15.50 yuan. Citic Securities Co., the brokerage unit of the country's No. 1 investment company, retreated 4.3 percent to 17.93 yuan."

"In Japan, IHI retreated 3.1 percent to 191 yen after the company said it won't pay a dividend for the first half. SBI Holdings Inc., a venture capital company, plunged 8.8 percent to 19,620 yen, the second-biggest retreat on MSCI's Asian index, after it also decided to forgo dividends for the six months to Sept. 30."

"The MSCI Asia-Pacific Consumer Staples Index, which includes agricultural producers, dropped 2.2 percent today, the biggest retreat among the broader gauge's 10 industry groups."

"IOI Corp., Malaysia's second-biggest palm-oil producer, fell 3.6 percent to 4.82 ringgit. Wilmar International Ltd., the world's largest palm-oil trader, declined 3.2 percent to S$3.62 in Singapore."

"Palm oil futures in Malaysia slumped 4.4 percent to 2,485 ringgit ($732) a metric ton at 12:30 p.m. in Kuala Lumpur, extending yesterday's 4.2 percent drop."

To contact the reporter for this story: Chen Shiyin in Singapore at; Shani Raja in Sydney at

"Last Updated: August 26, 2008 06:20 EDT"

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"Asian Currencies Fall, Led by Korean Won, as Funds Sell Shares "

By Aaron Pan and Judy Chen

"Aug. 26 (Bloomberg) -- Asian currencies declined, led by South Korea's won, on speculation global fund managers are taking their money out of the region after selling local stocks."

"The won fell to the lowest level since November 2004 against the dollar and extended its decline to 7.3 percent since Finance Minister Kang Man Soo told lawmakers on July 28 that the country faces difficult times. Nine of the 10 most-traded Asian currencies outside Japan declined today, according to data compiled by Bloomberg."

"``The trend will continue due to offshore players' heavy buying of the dollar,'' said Sam Hong, a currency trader in Seoul at Shinhan Bank, a unit of South Korea's second-biggest financial group. ``The government's selling of the dollar this month isn't enough to support the currency.''"

"The won weakened 1 percent to 1,089.4 versus the dollar as of the 3 p.m. local close, according to Seoul Money Brokerage Services Ltd. The local currency has dropped every day this month except two."

Fund managers outside Korea sold more local shares than they bought for a sixth straight day as the benchmark Kospi stock index extended its slump this year to 21 percent.

"Malaysia's ringgit fell for a second day on speculation losses linked to the U.S. mortgage market will aggravate a global economic slowdown, curbing the nation's exports."

"The currency weakened to a nine-month low after Bank Negara Malaysia said exports will moderate as the economy suffers from the effects of a global credit crunch. Opposition leader Anwar Ibrahim, a former deputy prime minister, may return to parliament by winning a by-election today."

`Slowdown Concerns'

"``The focus has shifted to slowdown concerns and the bias is for a weaker ringgit,'' said Suresh Kumar Ramanathan, a rates and currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur. ``Investors are also keeping an eye on the risks associated with the by-election.''"

"The ringgit fell 0.5 percent to 3.3910 per dollar, according to data compiled by Bloomberg. The currency earlier reached 3.3930, the lowest level since Nov. 22."

"Malaysia's central bank yesterday kept its overnight policy rate at 3.5 percent, unchanged in 19 straight meetings since April 2006, citing risks of a slowdown. The announcement came after local financial markets closed."

"Growth in Southeast Asia's third-largest economy slowed to 6 percent in the second quarter, versus 7.1 percent in the previous three months, according to the median forecast of 11 economists in a Bloomberg News survey. The central bank will release the report on Aug. 29."

Peso Declines

The Philippine peso fell to the lowest in more than 11 months on concern a deepening global economic slump will spur investors to reduce holdings of emerging-market assets.

"The local currency dropped for a second day as regional and U.S. stocks declined on speculation American International Group Inc. will post a loss. Philippine import growth accelerated for the first time in five months in June, the National Statistics Office said today in Manila."

"``Investors are pulling out of their risky investments,'' said Vishnu Varathan, regional economist at Forecast Singapore Pte. The imports figure ``adds to sentiment that the peso should weaken.''"

"The Philippine currency dropped 0.8 percent to 45.995 per dollar, according to Tullett Prebon Plc. Local financial markets were closed yesterday for a public holiday. The currency touched 46 against the dollar, the weakest since September 2007."

Taiwan Dollar

The Taiwan dollar weakened to the lowest in six months after export orders increased by the least in five years as cooling sales in China added to the slowdown in global demand.

"The currency fell for a second day after the Ministry of Economic Affairs said yesterday that orders, an indicator of actual shipments over the next one to three months, rose 5.52 percent from a year ago. That was the smallest increase since May 2003. Orders from China gained 1.73 percent last month, the least since February 2005."

"``The export orders are very much in line with the slowdown in external demand,'' said Irene Cheung, a strategist at ABN Amro Bank NV in Singapore. ``It'll continue to play out and we'll see further depreciation in the Taiwan dollar.''"

The currency fell 0.2 percent to NT$31.489.

"Elsewhere, Singapore's dollar lost 0.6 percent to S$1.4253 against the U.S. currency, Indonesia's rupiah declined 0.2 percent to 9,176, Thailand's baht dropped 0.3 percent to 34.21 and Vietnam's dong was unchanged at 16,630."

To contact the reporters on this story: Aaron Pan in Hong Kong at; Judy Chen in Shanghai at

"Last Updated: August 26, 2008 05:11 EDT"

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"SocGen Lowers Oil Forecast on Lower Demand, End of Maintenance "

By Maren Naess Olsen

Aug. 26 (Bloomberg) -- Societe Generale SA lowered its third-quarter price forecast for crude oil futures 24 percent to $118.50 a barrel because of seasonally lower crude demand and the end of North Sea field maintenance.

"Oil will bottom out at $105 a barrel in September before recovering to average $115 in the fourth quarter, the bank said in a research note published Aug. 22."

"``We believe that oil prices are nearing a bottom, but that the correction is not over, due to the significant near-term bearish factors,'' the bank said."

"The bank lowered its 2009 forecast to $120 a barrel from $128, it said in the note."

To contact the reporter on this story: Maren Naess Olsen in London

"Last Updated: August 26, 2008 06:44 EDT"

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

By Sarah Jones

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

Royal Dutch Shell Plc and BHP Billiton Ltd. declined as Societe Generale SA lowered its U.K. growth forecast and a report yesterday said the International Monetary Fund cut its prediction for euro-area economic growth. Barclays Plc fell as U.K. mortgage approvals held close to the lowest in a decade.

"The FTSE 100 Index sank 106.4, or 1.9 percent, to 5,399.2 at 10:51 a.m. in London as all but 11 stocks fell. The FTSE All- Share Index slid 1.8 percent and Ireland's ISEQ Index was little changed."

"The U.K. market, which was closed yesterday for a public holiday, followed European shares lower on concern credit losses, which have topped $500 billion globally, will spread and the economic slowdown will deepen."

"``Investors are all in denial that the credit crisis and the banking crisis are on the road to recovery,'' said David Buik, a London-based market analyst at BGC Partners."

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

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

"Shell, Europe's largest energy company, declined 3.4 percent to 1,826 pence. BP Plc, the second-largest, fell 2.3 percent to 507.5 pence. Crude oil for October delivery fell as much as 0.5 percent to $114.57 a barrel in New York. The contract last week tumbled 5.4 percent, the steepest drop in four years."

BHP Falls

"BHP, the world's largest mining company, lost 3.8 percent to 1,633 pence, as base metals retreated. Anglo American Plc, the second-biggest, lost 4.1 percent to 2,757 pence. Rio Tinto Group, the third-largest, lost 3.2 percent to 5,014 pence."

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

"Barclays, the U.K.'s third-largest bank, fell 2.2 percent to 319.5 pence. Royal Bank of Scotland Group Plc, the U.K.'s second- biggest bank, fell 3.1 percent to 214 pence. HBOS Plc, Britain's largest mortgage lender, slid 1.4 percent to 285 pence."

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

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

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

"Liberty International Plc (LII LN), the largest owner of U.K. shopping centers, jumped 42 pence, or 4.4 percent, to 987 after Westfield Group disclosed a stake of about 3 percent."

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

"Taylor Wimpey Plc (TW/ LN) jumped 3.75 pence, or 8.2 percent, to 49.25 after Building magazine reported lenders have agreed to relax loan conditions without requiring the company to raise new capital first."

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

Irish companies:

"CRH Plc (CRH ID) lost 26 cents, or 1.6 percent, to 16.45 euros. The world's second-biggest building materials maker reported an 8.5 percent fall in first-half profit to 461 million euros ($677 million) and said frozen financial markets and slumping economies will end 15 years of growth. Revenue was little changed at 9.7 billion euros."

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

"Last Updated: August 26, 2008 05:58 EDT"

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New-Home Sales in U.S. Increase From 17-Year Low (Update1)

By Shobhana Chandra

Aug. 26 (Bloomberg) -- New-home sales in the U.S. improved in July from a 17-year low and construction cutbacks by builders reduced the glut of properties on the market by the most in almost five decades.

"Sales increased 2.4 percent to a 515,000 annual pace that was lower than anticipated after a downwardly revised 503,000 rate in June, the Commerce Department said today in Washington. The number of unsold homes on the market fell 5.2 percent, the most since November 1963, to a 416,000 pace."

"Lower prices have made homes more affordable for Americans still able to obtain a mortgage, stemming the slide in demand and making it more likely the property glut will clear. A more stable housing market would eliminate one of the biggest risks to the economy even as the credit crisis and job losses threaten growth."

"``We're hopefully getting in the vicinity of a bottom,'' David Resler, chief U.S. economist at Nomura Securities International Inc. in New York, said before the report. Still, ``we're a long way from a recovery. We'll see activity at low levels for a while.''"

"Economists forecast new-home sales would drop to a 525,000 annual pace from an originally reported 530,000 rate the prior month, according to the median estimate in a Bloomberg survey of 76 economists. Forecasts ranged from 493,000 to 570,000."

"The median price of a new home decreased 6.3 percent to $230,700, from $246,200 a year earlier."

Cheaper Gasoline

"Consumer confidence in August increased more than forecast in August as cheaper gasoline improved Americans' moods, a private report showed. The Conference Board's confidence index rose to 56.9 from 51.9 in July."

"Another report today showed home prices fell at a slower pace in the second quarter, signaling the slump may be starting to stabilize. Home values declined 2.3 percent from the previous three months, compared with a 6.8 percent drop in the first quarter, according to the S&P/Case-Shiller index."

"Sales of new homes were down 35 percent from July 2007, the Commerce report showed."

"The supply of homes at the current sales rate fell to 10.1 months' worth from 10.7 months in June. Still, real-estate industry groups have said a five to six months' supply signal a balanced market."

"While accounting for only about 15 percent of the housing market, new-home purchases are considered a timelier indicator because they are based on contract signings. Sales of previously owned homes, which make up the remainder, are compiled from closings and reflect contracts signed weeks or months earlier."

Weakness Masked

"Resales increased 3.1 percent in July, the National Association of Realtors said yesterday. The gain masked further weakness as inventories surged to a record high level of 4.67 million unsold houses and condos."

"Inventories of new properties are likely to keep shrinking as builders pull back. Ground was broken on the fewest new houses in 17 years in July, and permits, a sign of future construction, also fell, Commerce Department figures showed."

Government officials remain pessimistic.

"``We have a ways to go before we start seeing a turnaround,'' Housing and Urban Development Secretary Steve Preston said yesterday in an interview. ``We'll be well into 2009 before we see some real energy in this market.''"

"New home sales increased in two of four regions from the prior month, led by a 39 percent jump in the Northeast. Purchases declined 8.2 percent in the Midwest and 2.5 percent in the South, today's report showed."

"Company results reflect the distress. Home Depot Inc. and Lowe's Cos., the world's two largest home-improvement retailers, posted declines in second quarter profit."

"``We continue to see pressure on our market and the consumer,'' Home Depot Chief Executive Officer Frank Blake said in a statement last week."

To contact the reporter on this story: Shobhana Chandra in Washington

"Last Updated: August 26, 2008 10:39 EDT"

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"Petrobras' Drop on Regulation Concern `Overdone,' Deutsche Says "

By Alexander Ragir

"Aug. 26 (Bloomberg) -- The decline in shares of Petroleo Brasileiro SA shares has been ``overdone'' and investors should focus on the company's exploration potential instead, Deutsche Bank AG said."

"Petrobras, Brazil's state-controlled oil company, fell 4.2 percent yesterday after some analysts said the government is likely to raise taxes on existing oil concessions in the so- called pre-salt fields once production begins."

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

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

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

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

"Last Updated: August 26, 2008 08:00 EDT"

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Copper Drops on Speculation Sagging Global Growth to Cut Demand

By Millie Munshi

"Aug. 26 (Bloomberg) -- Copper dropped on signs that slumping economic growth is spreading globally, spurring concern demand will decline for the metal used in pipes and wires."

"Business and consumer confidence in Germany, Europe's biggest economy, dropped in July, separate reports showed today. U.K. mortgage approvals last month held close to the lowest in at least 11 years, the British Bankers' Association said. Before today, copper dropped 19 percent from a record in May."

"``The air continues to seep out of commodities, as participants come to realize that the U.S. slowdown is no longer `ring-fenced,' but spreading around the globe with alarming speed,'' Edward Meir, an analyst at MF Global Ltd. in Darien, Connecticut, said in a report."

"Copper futures for December delivery declined 3.2 cents, or 0.9 percent, to $3.4325 a pound at 9:43 a.m. on the Comex division of the New York Mercantile Exchange. The price reached the all-time high of $4.2605 on May 5."

"The metal also dropped as the dollar's rally eroded the appeal of commodities as an alternative investment. The U.S. currency reached $1.4571 against the euro, the highest since Feb. 14."

"On the London Metal Exchange, copper for delivery in three months dropped $71, or 0.9 percent, to $7,589 a metric ton ($3.44 a pound). Before today, the price gained 7.1 percent in the past 12 months."

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

"Last Updated: August 26, 2008 09:44 EDT"

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"Italy Stocks Update: Anima, Eni, Gemina, IFI, Iride, STMicro "

By Francesca Cinelli

"Aug. 26 (Bloomberg) -- Italy's S&P/MIB Index declined for a second day, losing 268, or 1 percent, to 27,632. Futures expiring in September dropped 263, or 0.9 percent, to 27,725."

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

"Anima SGRpA (ANM IM), an Italian money manager, retreated 3.2 cents, or 2.7 percent, to 1.17 euros. Mediobanca Securities cut its price estimate to 1.1 euros, citing first-half results. Gruppo Banca Leonardo upgraded the stock to ``hold'' from ``sell'' and lowered its price estimate to 1.1 euros from 1.2 euros."

"Banca Popolare di Milano SpA (BPM IM), an Italian regional bank, fell 9 cents, or 1.4 percent, to 6.48 euros. The lender is due to report earnings. ``Second-quarter results might have a neutral impact on the stock,'' Cassa Lombarda analysts wrote in a report."

"Separately, JPMorgan Chase & Co. cut its price estimate on the stock to 8.06 euros from 9.67 euros. The brokerage also lowered its price estimates on Italy's other major banks and removed UniCredit SpA (UCG IM) from its Analyst Focus List. UniCredit slid 3.05 cents, or 0.9 percent, to 3.53 euros."

"Eni SpA (ENI IM), Italy's largest oil company, sank 44 cents, or 2 percent, to 21.22 euros. Oil stocks retreated in Europe as oil traded below $113 a barrel."

"Gemina SpA (GEM IM), which owns the manager of Rome's airports, added 2.09 cents, or 2.6 percent, to 83.25 cents. Alitalia SpA's potential investors pledged to pump more than 1 billion euros ($1.47 billion) into Italy's state-owned airline as part of a plan to break up the carrier and save it from insolvency, Il Sole 24 Ore reported, without saying where it got the information. A successful rescue for Alitalia would smooth over uncertainty on traffic trends for 2008-09, Euromobiliare analysts wrote. The brokerage rates Gemina a ``buy.''"

"IFI SpA (IFP IM), a holding company of Italy's Agnelli family, gained 34 cents, or 2.5 percent, to 13.91 euros. The Agnellis said yesterday they bought 6.1 percent of IFI-Istituto Finanziario Industriale SpA."

"The family may merge IFI and Ifil Investments SpA (IFL IM), la Repubblica reported, without saying where it got the information. Ifil was little changed, adding less than 0.1 percent to 4.28 euros. Fiat SpA (F IM) declined 2 percent to 10.33 euros."

"Impregilo SpA (IPG IM), Italy's biggest builder, pared losses, adding 3.7 cents, or 1.1 percent, to 3.54 euros. ``Impregilo is free to focus again on its core business and we believe it could present an industrial plan soon,'' Luca Todesco, an analyst at Citigroup, wrote in a note. The brokerage kept a ``buy'' recommendation on the stock."

"Irce SpA (IRC IM) a maker of winding wire and cables, dropped 7 cents, or 2.8 percent, to 2.43 euros. Dresdner Kleinwort downgraded the stock to ``hold'' from ``buy'' before first-half results, due Aug. 29. ``The slowdown in volumes and losses on hedging contracts should hit profitability,'' analyst Luigi Monica, wrote in a research report."

"Iride SpA (IRD IM), the Italian utility serving Turin and Genoa, gained 3.5 cents, or 2.1 percent, to 1.73 euros. The merger with Hera SpA (HER IM), Italy's second-largest municipal utility, and Enia SpA (EN IM), the Parma, Italy-based utility, should be signed by year-end, the Mayor of Piacenza, Roberto Reggi, told Libero in an interview. ``Among the three, we continue to prefer Iride thanks to its strength in the electricity upstream business,'' Claudia Introvigne, an analyst at Gruppo Banca Leonardo, wrote in a note."

"Luxottica SpA (LUX IM), the world's biggest maker of eyeglasses, pared losses, increasing 19 cents, or 1.2 percent, to 16.47 euros because of dollar's rise against the euro."

"STMicroelectronics NV (STM IM), Europe's largest semiconductor maker, rose 17.8 cents, or 2.1 percent, to 8.76 euros. Broadcom Corp., the chipmaker for flat-panel TVs, agreed yesterday to buy a unit of Advanced Micro Devices Inc. for $192.8 million to gain semiconductors used in lower-priced models likely to be in demand for digital broadcasting. ``With the TV market continuing its transition to full HD with LCD TV incorporating 120 hertz processing, we expect this to be an area of strong growth for STMicro,'' Gunnar Plagge, an analyst at Nomura who rates STMicro a ``buy,'' wrote in a note."

"Telecom Italia SpA (TIT IM), Italy's biggest phone company, declined 0.7 percent to 1.07 euros. Chairman Gabriele Galateri will replace Giorgio Della Seta as chairman of the Brazilian unit, Tim Participacoes SA. ``We regard the news as a signal that Brazilian activities will be more strongly monitored by top management,'' Alberto Francese, an analyst at Banca Imi, wrote in a note."

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

"Last Updated: August 26, 2008 06:37 EDT"

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East European Currencies: Zloty Drops as Risk Appetite Wanes

By Ewa Krukowska

Aug. 26 (Bloomberg) -- Poland's zloty fell against the euro as a deterioration in German business confidence this month dented investors' sentiment toward higher-yielding emerging- market currencies. Hungary's forint dropped to a one-week low.

"The zloty declined for a third day as the Munich-based Ifo institute's business climate index, based on a survey of 7,000 executives, slipped to a three-year low of 94.8, from 97.5 in July. Economists expected a drop to 97.2, the median of 35 forecasts in a Bloomberg News survey shows. The euro fell to the weakest level against the dollar since February after the report."

"``The Ifo data showed weak economic growth prospects for Europe,'' said Maja Goettig, a Warsaw-based senior economist at Bank BPH, part of General Electric Co. ``This prompted some investors to sell the zloty and other regional currencies.''"

"Against the euro, the zloty dropped as much as 1 percent, the biggest daily decline in two weeks, to 3.3323, and was at 3.3262 by 3:50 p.m. in Warsaw, from 3.2997 yesterday."

"The zloty is the worst-performing emerging-market currency in the region this month, falling 3.5 percent on rising risk aversion and as traders bet the central bank's rate-increase cycle is nearing an end amid slowing economic growth."

"Policy makers will probably leave borrowing costs at 6 percent at their two-day policy meeting that started today, a Bloomberg survey of economists showed. The decision is due to be announced after 11:30 a.m. tomorrow."

"Poland's retail sales rose an annual 14.3 percent in July, compared with 14.2 percent a month earlier, the statistics office said today. That was more than the 14 percent median estimate of economists in a Bloomberg survey."

Forint Weakens

"In other trading, the Hungarian forint declined 0.9 percent to 236.22 per euro, dropping for a third day."

"The Magyar Nemzeti Bank in Budapest yesterday kept the two- week deposit rate at 8.5 percent, the second-highest in the European Union after Romania. The bank also changed its forecasts for core inflation and economic growth, reinforcing speculation it may begin cutting rates in coming months."

The Romanian leu dropped 1.1 percent to 3.5617 versus the euro and the Turkish lira lost 0.4 percent to 1.1932 per dollar.

"Turkey's central bank forecast a ``gradual decline'' in inflation after oil prices fell, and said it would focus more on economic data when deciding whether to change interest rates."

"A probable slowdown in demand for Turkish goods in the European Union and falling sales of cars at home will also support a decline in the inflation rate, the Ankara-based bank said in an e-mailed statement today outlining its decision to keep rates steady at 16.75 percent on Aug. 14."

"The Czech koruna declined 0.3 percent to 24.524 versus the euro, while the Slovak koruna was little changed at 30.320 against Europe's common currency after policy makers kept the country's main rate at 4.25 percent today. Slovakia will join the euro area at the start of next year."

To contact the reporter on this story: Ewa Krukowska at

"Last Updated: August 26, 2008 10:17 EDT"

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Slovak Central Bank Keeps Key Rate on Par With ECB (Update1)

By Andrea Dudikova and Radoslav Tomek

Aug. 26 (Bloomberg) -- The Slovak central bank left its key interest rate unchanged at 4.25 percent for a 16th consecutive month to keep borrowing costs level with the euro region four months before the country adopts Europe's common currency.

"No proposal to change rates was made at a meeting of the Narodna Banka Slovenska's board as there is no need for a move since the economy is developing in line with the central bank's forecast and inflation driven mainly by cost factors such as energy and food prices, Governor Ivan Sramko said today."

"The post-communist nation will switch to the euro in January and the two-week rate matches the European Central Bank's benchmark after policy makers in the 15-nation euro region raised it by a quarter point on July 3. The Slovak central bank will keep rates in line with those in the euro zone as it prepares to merge its monetary policy with the ECB, economists said."

"``The key factor influencing the Slovak decision is the ECB, and we expect it to keep euro-region's rates on hold,'' said Juraj Valachy, an economist at Tatra Banka AS in Bratislava. ``Moreover, inflation in Slovakia remains quite high and that would rule out a rate cut regardless of euro adoption.''"

Decision Expected

"The ECB will keep its benchmark at 4.25 percent at least until the end of the first quarter, according to a median forecast of 22 economists surveyed by Bloomberg. The Slovak decision was predicted by all 13 economists polled by Bloomberg."

Slovakia has convinced the European Union that price growth will remain in check even after it adopts the euro. The pickup in inflation this year hasn't prompted an increase in interest rates as the central bank expects it to slow in 2009 after the effect of oil and food costs wanes.

Rising food and energy prices pushed inflation to a 22-month high of 4.4 percent in July. The central bank last month lowered its forecast for end-2009 annual rate to 2.8 percent from 3.1 percent predicted three months earlier.

"Economic growth of 7.6 percent in the second quarter was in line with the central bank's prediction and isn't adding to inflation pressures, Sramko said. Recent retail sales data suggest domestic-demand growth isn't accelerating, he added."

Wage Growth

"The central bank will wait for detailed data on second-quarter growth due Sept. 3 to fully assess inflation risks, Sramko said. Wage growth remains a risk to inflation as it may outpace productivity gains, he said."

"Investors and analysts predicted that central and eastern European inflation rates would decline or hold steady in coming months, according to an Aug. 22 poll by the ZEW Center for European Economic Research and Erste Bank AG. 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, the survey added."

To contact the reporters on this story: Andrea Dudikova in Prague at; Radoslav Tomek in Bratislava at

"Last Updated: August 26, 2008 07:43 EDT"

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Polish July Retail Sales Rise Faster Than Expected (Update1)

By Dorota Bartyzel

"Aug. 26 (Bloomberg) -- Polish retail sales rose faster than expected in July and the unemployment rate dropped to the lowest in 17 years, handing the central bank more reason to boost interest rates again."

"Sales rose an annual 14.3 percent, compared with an advance of 14.2 percent in June, the Warsaw-based Central Statistical Office reported today. That topped the 14 percent median forecast of 14 economists in a Bloomberg survey. On the month, sales were up 1.8 percent. The jobless rate fell to 9.4 percent from 9.6 percent in June, the lowest since July 1991, the office also said."

Rate setters have indicated inflationary pressure may persist as Poles are buying more goods after their salaries grew an average 10 percent in two years. The central bank-led Monetary Policy Council has lifted borrowing costs 2 percentage points since April 2007 as the inflation rate more than doubled.

"``Retail sales have remained strong, suggesting that consumer demand will remain the lynchpin of the stability of our economic growth,'' said Marcin Mrowiec, an economist at Bank Pekao in Warsaw. ``The declining unemployment rate will keep a lot of pressure on wages.''"

"After the last meeting on rates, policy makers also said they want to see more information to assess the impact of the global economic slowdown on local growth, which the government estimates will slow to 5.5 percent this year from 6.6 percent in 2007."

GDP Report

A report on second-quarter gross domestic product growth is due to be released on Aug. 29. The economy expanded 6.1 percent in the first quarter.

"``The growth will be little lower in the second quarter than in the first one,'' said Halina Dmochowska, the vice chairwoman of the Central Statistical Office, at a press conference in Warsaw, according to PAP newswire."

"Monetary policy makers, who start their two-day meeting today, will probably keep the key rate unchanged at 6 percent, according to all 17 economists in the Bloomberg survey. A rate decision will be announced tomorrow."

"The zloty traded at 3.311 per euro at 10:55, little changed from earlier in the morning and down from 3.302 yesterday."

To contact the reporter on this story: Dorota Bartyzel in Warsaw at dbartyzel@bloomberg.netMaciej Martewicz in Warsaw at

"Last Updated: August 26, 2008 05:29 EDT"

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"U.S. House-Price Slide Eases, S&P/Case-Shiller Shows (Correct) "

By Courtney Schlisserman

(Corrects second paragraph to show 15.9 percent drop was from a year before.)

"Aug. 26 (Bloomberg) -- U.S. house prices declined at a slower pace for the fourth straight month in June, signaling that the worst housing slump in more than 25 years may be starting to stabilize."

"Home prices in 20 U.S. metropolitan areas fell 0.5 percent from the previous month, with nine areas reporting a gain compared with seven in May, the S&P/Case-Shiller index showed. Prices were down 15.9 percent from the previous year, less than economists had forecast."

"The figures add evidence that the drag on the economy from the housing slump is lessening, while officials and analysts predict that a rebound remains at least a year away. A private report yesterday showed that sales of existing homes in the past three months averaged the same rate as the previous period."

"``We're seeing a slowing in the pace of home-price depreciation,'' said Guy Lebas, chief economist at Janney Montgomery Scott LLC in Philadelphia. ``The middle of next year is when we would expect to see some improvement.''"

"Treasuries, which had fallen earlier in the day, stayed lower after the report, pushing benchmark 10-year note yields up to 3.80 percent at 9:38 a.m. in New York, from 3.79 percent late yesterday."

Quarterly Drop

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

"Economists forecast the 20-city index would fall 16.2 percent from a year earlier, according to the median of 26 forecasts in a Bloomberg News survey. Estimates ranged from declines of 17.3 percent to 15.9 percent."

"Compared with a year earlier, all 20 areas showed a decrease in prices in June, led by a 29 percent drop in Las Vegas and a 28 percent decline in Miami."

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

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

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

Resales Rise

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

The Commerce Department is scheduled to release its report on July new home sales later today. The figures will include information on prices and inventory.

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

"In contrast, the S&P/Case-Shiller index, and another by the Office of Federal Housing Enterprise Oversight, track the same houses over time and more accurately reflect price trends, economists said. The Ofheo figures are due at 10:00 a.m."

Bargain Hunting

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

"``Buyers are coming back into the market,'' Tom McCormick, president of Astoria Homes, said in a Bloomberg Television interview last week. ``Remarkably low'' prices do ``seem to be bringing people in off the sidelines.''"

"Even so, tight credit conditions and ongoing declines in residential construction will weigh on economic growth in coming months, Federal Reserve policy makers said at their Aug. 5 meeting. The Fed's quarterly survey of bank loan officers showed 75 percent had made it tougher for prime borrowers to get a mortgage, more than in the April survey."

To contact the reporter on this story: Courtney Schlisserman in Washington

"Last Updated: August 26, 2008 10:01 EDT"

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"Rio First-Half Profit Doubles on Iron Ore, Aluminum (Update3) "

By Brett Foley and Rebecca Keenan

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

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

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

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

"Rio dropped 139 pence, or 2.7 percent, to 5,040 pence as of 9:39 a.m. on the London Stock Exchange. BHP fell 3.4 percent and other miners declined as stocks slid in Europe on concern the economic slowdown and credit-market losses will stifle profit growth. Rio was trading 12.5 percent below the value of BHP's offer of 3.4 of its shares for each Rio share."

Record Output

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

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

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

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

Coal Price

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

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

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

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

Underlying earnings exclude items such as asset divestments and impairments.

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

"Last Updated: August 26, 2008 05:09 EDT"

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Cocoa Advances in London on Concern Supply Shortfall Will Widen

By Rachel Graham

Aug. 26 (Bloomberg) -- Cocoa rose for a sixth session in London on concern that a supply shortfall this year will be wider than expected. White sugar advanced to its highest since November 2006.

"Cocoa demand will outpace supply by 88,000 metric tons in the year to September, double the previous forecast, the International Cocoa Organization said Aug. 21. That would be a second consecutive annual deficit."

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

"Cocoa futures for September delivery rose 51 pounds, or 3.3 percent, to 1,608 pounds ($2,958) a ton as of 2:46 p.m. on the Liffe exchange in London. The contract traded as high as 1,616 pounds, the highest intraday price since Aug. 4."

"Cocoa for December gained $7, or 0.2 percent, to $2,875 a metric ton in electronic trading on ICE Futures U.S., the former New York Board of Trade. The contract rose 2 percent yesterday, while Liffe was closed for a public holiday in the U.K."

"White, or refined, sugar for October climbed as much as $9.90, or 2.4 percent, to $414.90 a ton on Liffe, the highest compared with intraday prices since Nov. 15, 2006."

"Robusta coffee for November rose $9, or 0.4 percent, to $2,307 a ton."

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

"Last Updated: August 26, 2008 09:51 EDT"

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"Denmark Lowers Growth Forecasts for This Year, 2009 (Update2) "

By Tasneem Brogger

Aug. 26 (Bloomberg) -- Denmark's government cut its forecast for expansion this year and next after its economy became the first in Europe to slip into a recession since the credit crisis started.

"The economy will grow 1.1 percent on average this year and 0.5 percent in 2009, the Finance Ministry in Copenhagen said in a statement published on its Web site today. That compares with a May estimate for 2008 growth of 1.2 percent and 0.7 percent in 2009. The economy grew 1.7 percent in 2007."

"Denmark fell into a recession in the first quarter after house-price declines and soaring food and energy costs undermined consumer demand. Since then, consumer confidence has slumped to an 18-year low, inflation is at an 18-year high and the central bank has had to bail out a commercial lender for the first time in 15 years after its loans to the property market failed."

"``The government's painting a picture of an economy that's really stepping on the brakes,'' Steen Bocian, head of global economic research at Danske Bank A/S, said in a note to clients. ``It's not exactly an uplifting picture for the coming years.''"

"Growth is slowing as inflation accelerates. The government raised its estimate for inflation this year to 3.5 percent from previously 3.3 percent. Inflation will be 2.7 percent in 2009, compared with a May forecast for 2.6 percent."

"The central bank can't use policy to stabilize prices or demand as its sole mandate is to keep the krone in a 2.25 percent band against the euro. The bank last raised the key lending rate on July 3, tracking the European Central Bank and bringing the rate to a seven-year high of 4.6 percent."

The government also raised its estimate for expenditure this year to 1.6 percent compared with previously 1.3 percent. It cut its estimate for spending next year to 1.1 percent from 1.2 percent earlier.

"``The fiscal policy will help prod the economy forward a little,'' Niels Roenholt, an economist at Jyske Bank A/S, said in a note to clients."

The government plans to borrow 30.1 billion kroner ($5.9 billion) in 2009. That compares with no borrowing requirement this year and a financing need of 3.1 billion kroner in 2007.

"The government's budget surplus will narrow to 3.6 percent of the economy this year from 4.8 percent in 2007. The surplus will shrink to 3 percent in 2009, the government estimates."

To contact the reporters on this story: Tasneem Brogger in Copenhagen at;

"Last Updated: August 26, 2008 05:44 EDT"

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"GE Capital's European Unit Plans to Sell 3-, 10-Year Notes "

By Shelley Smith

"Aug. 26 (Bloomberg) -- GE Capital European Funding, a unit of General Electric Co., plans to sell three-year floating-rate notes and 10-year bonds in euros, according to Deutsche Bank AG, one of the banks managing the issues."

"BNP Paribas SA, Citigroup Inc. and JPMorgan Chase & Co. will also manage the sale of the notes, Deutsche Bank said in an e-mailed statement today. The bonds are guaranteed by GE's General Electric Capital Corp. unit."

"Moody's Investors Service will rank the notes at Aaa, its top investment-grade rating. Standard & Poor's will grade the debt an equivalent AAA, the statement said."

To contact the reporter on this story: Shelley Smith in London at

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

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"Merrill, Wachovia Hit With Record Refinancing Bill (Update1) "

By Pierre Paulden

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"Aug. 26 (Bloomberg) -- Merrill Lynch & Co., Wachovia Corp., Lehman Brothers Holdings Inc. and the rest of the U.S. finance industry are about to find out how expensive credit has become."

"Banks, securities firms and lenders have a record $871 billion of bonds maturing through 2009, according to JPMorgan Chase & Co., just as yields are at their most punitive compared with Treasuries. The increase in yields may cost them as much as $23 billion more in annual interest versus a year ago based on Merrill Lynch index data."

"Higher refinancing expenses will restrict the ability of banks to borrow in the capital markets and lend, further cutting off credit to consumers and businesses and curbing what is already the slowest growing economy since 2001. Standard & Poor's said last week that it had a ``negative'' outlook on almost half of the 50 highest-rated financial institutions in the U.S. as of June 30, the highest proportion in 15 years."

"``The gears of capitalism are grinding to a halt,'' said Mirko Mikelic, senior bond fund manager at Grand Rapids, Michigan-based Fifth Third Asset Management, which oversees $21 billion in assets. ``There is a tremendous concern over the banking sector and a scramble right now for capital.''"

"The Federal Reserve's quarterly lending survey released Aug. 11 said that more banks tightened credit for consumers and business borrowers. About 65 percent indicated they tightened standards on credit card loans over the previous three months, up ``notably'' from about 30 percent in the April survey."

Rising Rates

"Investors on average demand yields of 4.14 percentage points more than what they can get on Treasuries to purchase bank bonds, up from the low last year of 0.76 percentage point in January, according to Merrill Lynch index data. Spreads on investment- grade rated bonds overall average about 3.14 percentage points."

"``The credit crunch is only now beginning because bank capital is so constricted by losses to date, that they will have to begin shutting off credit to households and corporations and that's when we get the defaults,'' David Goldman, the former head of fixed-income research at Bank of America Corp.'s securities unit in New York, said in a Bloomberg Radio interview."

"Goldman, who is now an investor, said he shut down a fund he ran because the markets are likely to become ``brutal.''"

Interest-rate derivatives imply that banks are even becoming hesitant to lend to each other amid the flood of maturing debt.

Charging Premium

"They are charging each other a premium of 78 basis points over what traders predict the Fed's daily effective federal funds rate will average over the next three months. That's up from 24 basis points in January, and may widen to 85 basis points, or 0.85 percentage point, by mid-December, approaching the record levels set last year, prices in the forwards market show."

"Merrill Lynch, the third-biggest U.S. securities firm, has $26.5 billion of bonds maturing this year and $35.5 billion in 2009, according to data compiled by Bloomberg, the most of any broker. The New York-based company paid 2.25 percentage points more than the three-month London interbank offered rate to sell $1.2 billion of two-year floating-rate bonds in May. A year earlier, it paid a spread of 5 basis points."

"Wachovia, which reported an $8.9 billion loss in the second quarter, the widest in its history, has $34.5 billion of debt maturing in 2008 and 2009. New York-based Lehman, the securities firm that had more than $8 billion in credit losses in the past 12 months, has about $30.4 billion coming due by the end of 2009."

"Spokeswoman for Charlotte, North Carolina-based Wachovia Christy Phillips-Brown said the company has enough cash to meet more than three years of long-term debt maturities."

Earnings Erosion

"``We have taken several actions to enhance liquidity, such as reducing the dividend expense reductions and a reduction in our balance-sheet growth,'' Phillips-Brown said."

"Danielle Robinson, a Merrill Lynch spokeswoman, said the firm doesn't comment on its funding strategy. Lehman spokesman Mark Lane declined to comment."

"Ian Lowitt, Lehman's chief financial officer, told investors on June 16 that the firm doesn't expect to return to the bond market this year and has ``completed our funding plan for 2008.''"

"Because banks make money on the difference between their borrowing costs and the rates they charge on loans, any added debt expense is likely to eat into earnings, according to Diane Vazza, head of global fixed income research at S&P in New York."

"In response to a slump in demand for their bonds, financial firms, which have incurred $504 billion of writedowns and credit losses since the start of 2007, are selling assets such as mortgage securities and collateralized debt obligations at fire- sale prices to pay down looming maturities. Merrill Lynch in July agreed to sell $30.6 billion of CDOs at a fifth of their face value. Lehman is also exploring the sale of all or part of its asset-management business, Neuberger Berman LLC."

Escaping Pressure

"Banks are also raising rates on certificate of deposits to attract cash from new customers, said Alex Roever, a short-term debt analyst at JPMorgan in New York."

"Wachovia, which has more than 55 percent of its balance sheet funded by core deposits, is offering the highest CD rates in the industry, said Richard Bove, an analyst at Ladenburg Thalmann & Co. in Lutz, Florida. ``They want to escape the pressure of the funding markets,'' he said."

"Deposits at Merrill Lynch's bank subsidiaries and brokerage accounts rose by 21 percent to $100.5 billion in the year ended June 2008, company filings show."

The flood of maturing debt is a byproduct of a boom in short-term bond issuance between 2005 and the first half of 2007 by financial institutions taking advantage of demand from money funds and some of the lowest borrowing costs on record.


"Banks sold $960.8 billion of so-called floaters between 2005 and 2007, according to JPMorgan. About $260 billion, or about 30 percent, of the debt coming due in the remainder of this year is floating-rate notes."

"``They wanted to borrow the money at the cheapest levels possible and floating-rate notes helped them achieve that,'' said JPMorgan's Roever."

"Merrill Lynch has $13 billion of floating-rate notes due this year, while Wachovia has $7.5 billion, the most of any commercial bank, according to Bloomberg data. Goldman Sachs Group Inc. and Morgan Stanley, the two biggest securities firms and both based in New York, have at least $5 billion maturing."

"The trouble now is demand from specialized money funds that readily bought the debt, swelling their assets under management to $200 billion in August last year, has evaporated amid their own losses. The funds, referred to as enhanced cash funds and run by firms such as Bank of America, now hold about $50 billion, according to Peter Crane, president of Crane Data LLC, a Westborough, Massachusetts firm that tracks money-market funds."

Commercial Paper

"Banks may be able to raise at most $110 billion in floating- rate notes, less than half the amount coming due, Roever said."

"Firms that can't raise enough funds by selling assets or attracting deposits will be forced to rely more on selling commercial paper and related money-market securities that typically mature in nine months or less, said Christopher Whalen, co-founder of independent research firm Institutional Risk Analytics in Torrance, California. That may reduce their ability to offer long-term loans, according to Whalen."

"``You can't build a banking business on short-term funding,'' he said. ``Lending long and borrowing short is the classic mistake that led to all the big bank failures in the past.''"

To contact the reporter on this story: Pierre Paulden in New York at

"Last Updated: August 26, 2008 08:54 EDT"

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French Unsold New Homes Reach a Record as Economy Contracts

By Sandrine Rastello

"Aug. 26 (Bloomberg) -- France's stock of new, unsold homes reached a record in the second quarter, when the euro region's second-largest economy shrank."

"The difference between the number of new homes put on the market and those purchased reached 110,500 in the three months through June, the Environment Ministry said in an e-mailed statement sent late yesterday. Sales dropped 34 percent in the quarter from a year earlier, it said."

"Higher interest rates in the euro region and banks' reluctance to lend in the wake of the U.S. subprime mortgage market collapse have driven up the cost of credit, just when the fastest inflation in more than 12 years erodes consumer spending power. The French economy shrank 0.3 percent in the second quarter, the first contraction since the end of 2002."

"``We're in a situation where there's no reasons to see these factors reverse,'' said Laurence Boone, an economist at Barclays Capital in Paris. ``The real estate market's strength of the past three years has seriously eroded.''"

"Other figures released today add to signs that the slowdown is deepening. Housing starts dropped 12 percent in the three months through July from a year earlier and home permits fell 17 percent in the period, the ministry said today."

"The real-estate slump is affecting the rest of Europe as well. Sagging construction contributed to the German economy's 0.5 percent contraction in the three months through June. Over the same period in Spain, where the housing industry accounts for about 10 percent of the economy, the expansion was the slowest in 15 years."

"Jobs, Prices"

"The slowdown is reflected in French employment figures, too. The number of jobs in the construction sector grew 0.6 percent in the second quarter, the smallest increase since the first three months of 2005, Insee reported this month. Jobs in temporary employment services, which home builders often tap, dropped 6.8 percent."

French Finance Minister Christine Lagarde said in an interview last week that the government is going to revise down next month its growth forecast for the year as she expects the third quarter ``won't be good.''

"The lower demand has also started to show in prices of existing homes, which fell 0.8 percent in the first quarter from the previous three months, according to Insee."

"In the Paris region, prices of such apartments fell up to 1.4 percent in some suburbs for the three months ended in May from the same period last year, the Paris Chamber of Notaries said yesterday in a statement. Overall, prices rose 4.8 percent in May from a year earlier, the smallest gain in nine years."

"In Paris itself, apartment prices rose 1.5 percent, according to the chamber."

To contact the reporters on this story: Sandrine Rastello in Paris;

"Last Updated: August 26, 2008 08:11 EDT"

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Bank Bond Risk Jumps on Concern Lehman's Korea Deal May Stumble

By Abigail Moses

Aug. 26 (Bloomberg) -- The cost of protecting bank debt from default rose in Europe on investor concern Korea Development Bank may abandon talks to acquire a stake in Lehman Brothers Holdings Inc.

"Credit-default swaps on the Markit iTraxx Financial index of 25 banks and insurance companies increased 6 basis points to 93, according to JPMorgan Chase & Co. prices at 11:15 a.m. in London. Contracts on UBS AG, Switzerland's biggest bank, jumped 9 basis points to 127 and Edinburgh-based lender HBOS Plc rose 5 to 196, CMA Datavision prices show."

"South Korea's financial regulator said yesterday state- controlled banks including KDB should consider the risks of buying overseas rivals and be more conservative in making acquisitions. KDB said last week it was ``open to'' the possibility of buying Lehman, which posted $8.2 billion in writedowns since the beginning of 2007 and may report a third- quarter loss of as much as $4 billion next month, according to JPMorgan analysts."

"``Lehman has to fix something before it reports and time is running out,'' said Tim Brunne, a Munich-based credit strategist at UniCredit SpA, Italy's biggest bank. ``After the statement from the South Korean supervisor it's obvious that KDB is not a serious option.''"

"Korea Development Bank ended negotiations on a possible investment after Lehman demanded a price 50 percent higher than its book value, the Maeil Business newspaper in Seoul reported yesterday. The lender may resume talks if the U.S. investment bank offers a lower price, the paper said."

Default Protection

"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."

"The cost of protecting corporate bonds from default also rose today with the benchmark Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings increasing 15 basis points to 568, according to JPMorgan. The Markit iTraxx Europe index of 125 companies with investment- grade ratings rose 4.25 basis points to 100.25."

"A basis point on a credit-default swap contract protecting 10 million euros ($14.7 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 3 basis points to 143 at the close of trading in New York, according to CMA Datavision."

To contact the reporter on this story: Abigail Moses in London

"Last Updated: August 26, 2008 06:18 EDT"

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Bank of Montreal Profit Declines on Bad Loans (Update2)

By Doug Alexander

"Aug. 26 (Bloomberg) -- Bank of Montreal, the first Canadian bank to report third-quarter earnings, said profit fell for a fifth straight period, missing analysts' estimates, on rising loan losses."

"Net income for the quarter ended July 31 fell 21 percent to C$521 million ($494.4 million), or 98 cents a share, from C$660 million, or C$1.28 a share, a year earlier, the Toronto-based bank said today in a statement. Revenue rose 7.5 percent to C$2.75 billion."

"Bank of Montreal set aside C$484 million for bad loans, five times more than a year ago. Canada's six biggest banks will probably report the steepest profit decline in more than five years on rising costs to cover potential loan losses and a slowdown in investment-banking revenue."

"``BMO is going to be one of the worst,'' said Jim Hall of Mawer Investment Management in Calgary, which oversees C$5.4 billion in assets including Bank of Montreal. ``It was worse than expected, but it's not out of control.''"

"Excluding one-time items, profit was C$1 a share, Bank of Montreal said. That missed the median estimate of C$1.20 a share from 12 analysts in a Bloomberg survey. National Bank Financial analyst Robert Sedran said the bank earned C$1.11 a share, missing his C$1.23 a share estimate."

"Bank of Montreal fell C$1.48, or 3.4 percent, to C$42.58 at 9:31 a.m. trading on the Toronto Stock Exchange. The stock has fallen 24 percent this year, compared with a 13 percent decline for the 9-member S&P/TSX Banks Index."

U.S. Real Estate

"Provisions for loan losses included C$247 million for two corporate loans linked to the U.S. housing market, the bank said. The bank also recorded writedowns of C$96 million for debt investments, offset by a C$95 million tax recovery."

"``Credit woes have befallen BMO for several quarters in a row now, and we believe it no longer wears the crown of `low provision' bank,'' Dundee Securities Corp. analyst John Aiken said today in a note. Aiken cut his rating to ``sell'' from ``neutral.''"

Canadian consumer-banking profit fell 3.7 percent to C$343 million on higher taxes and costs for adding branches and hiring mortgage specialists and financial planners. Profit from its Chicago-based Harris consumer bank rose 12 percent to C$28 million.

"Investment-banking profit rose 34 percent to C$259 million from a year earlier. Earnings were pared by C$19 million in costs for job cuts, and pretax writedowns of C$134 million for the declining value of debt investments, preferred shares and Canadian asset-backed commercial paper."

Dividend Unchanged

"Profit from the private-client group, which includes brokerage, investing services and mutual funds, rose 7.8 percent to C$110 million. The bank kept its dividend unchanged for the fifth straight quarter, at 70 cents a share."

"Bank of Nova Scotia, the country's third-biggest bank, is scheduled to report results later today. Canadian Imperial Bank of Commerce, the No. 5 bank, reports tomorrow. Royal Bank of Canada, the country's largest bank, and Toronto-Dominion Bank, the second biggest, report on Aug. 28."

"Median profit before one-time items including writedowns at the six biggest banks may fall 9 percent, according to RBC Capital Markets analyst Andre-Philippe Hardy."

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

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

"Last Updated: August 26, 2008 09:34 EDT"

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"CSN, Gerdau, Gol, Petrobras, Usiminas: Brazilian Equity Movers "

By Fabio Alves

"Aug. 26 (Bloomberg) -- The following companies are having unusual price changes in Brazil trading. Stock symbols are in parentheses, and share prices are as of 9:40 a.m. New York time. Preferred shares are usually the most-traded class of stock."

"The Bovespa index rose 0.1 percent to 54,525.31."

"Brazilian steelmakers gained after Citigroup Inc. said steel demand is exceeding expectations and that Brazil is the best steel market in the world. Citigroup analysts also said they expect no decline in steel prices in the country in 2009. Gerdau SA (GGBR4 BS), Latin America's largest steelmaker, advanced 1.3 percent to 29.16 reais. Usinas Siderurgicas de Minas Gerais (USIM5 BS) rose 0.2 percent to 55.11 reais. Cia. Siderurgica Nacional SA (CSNA3 BS) climbed 0.2 percent to 53.50 reais. Usiminas and CSN, as Brazil's second- and third-largest steelmakers, respectively, are known, were upgraded to ``buy'' at UBS AG after a three-month slump in the shares. Carlos Vasques and Edmo Chagas, analysts at UBS, upgraded both companies from ``neutral'' in a report today."

"Gol Linhas Aereas Inteligentes SA (GOLL4 BS) extended its rally after an analyst upgrade and a 4.1 percent decline in crude oil in the past three days. Gol, Brazil's second-biggest airline, climbed 2.7 percent to 14.69 reais. UBS AG yesterday upgraded the stock to ``neutral'' from ``sell.'' Gol has gained 6.3 percent in the past three days."

"Petroleo Brasileiro SA (PETR4 BS) rose 1.1 percent to 34.19 reais, its biggest gain in almost a week. The Petroleo Brasileiro SA shares has been ``overdone'' and investors should focus on the company's exploration potential instead, Deutsche Bank AG said in a note to clients today."

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

"Last Updated: August 26, 2008 09:46 EDT"

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"Brazil's Real Weakens for Third Day on Farm, Metals Price Slump "

By Adriana Brasileiro

Aug. 26 (Bloomberg) -- Brazil's real fell for a third day as a slump in agricultural and metals prices raised concern that inflows from exports will continue falling.

"The real fell 0.4 percent to 1.6372 per U.S. dollar at 9:55 a.m. New York time, from 1.6312 yesterday. Brazil's currency has weakened 4.4 percent this month."

"``The real is moving on commodities and also on the U.S. dollar today,'' said Thiago Guimaraes, a trader with BES Investimento do Brazil SA in Sao Paulo."

"Brazil posted a trade deficit of $840 million in the week ended Aug. 24, compared with a surplus of $1.7 billion in the previous week, as prices of top exports such as iron ore fell."

"Prices of iron ore exported to China fell about $10 per dry metric ton to $170 earlier in the month, according to Itau's Sao Paulo-based analyst Marcelo Brisac."

Basic material prices fell today as a rise in the U.S. dollar made commodities less attractive as a hedging instrument. The Bloomberg Forward Global Commodity Index is down almost 14 percent from its July 2 high. Most metals declined today and crude oil traded 20 percent below its July 11 record of $147.27 a barrel on the New York Mercantile Exchange.

"The yield on Brazil's zero-coupon bonds due in January 2010 fell 3 basis points, or 0.03 percentage point, to 14.81 percent, according to Banco Votorantim."

To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at

"Last Updated: August 26, 2008 09:57 EDT"

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European Bonds Advance as German Business Confidence Declines

By Agnes Lovasz

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

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

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

"The two-year note yield fell 8 basis points to 3.96 percent by 2:38 p.m. in London, after dropping to 3.93 percent, the lowest level since May 15. The 4.75 percent note rose 0.13, or 1.3 euros per 1,000-euro ($1,461) face amount, to 101.32."

"The yield on the 10-year German bund, Europe's benchmark government security, slipped 2 basis points to 4.10 percent. Yields move inversely to bond prices."

"The difference in yield, or spread, between two- and 10-year notes widened to 14 basis points, the most in a week, from 8 basis points yesterday, as rate-sensitive short-maturity debt outperformed."

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

Risk Aversion

"Bonds were also buoyed as stock-market losses around the world and increased corporate bond risk in Europe fueled demand for the safest assets. The MSCI World stock index fell 0.6 percent to a two-year low today on concern credit-related losses will widen, reducing corporate profits."

"The cost of protecting corporate bonds from default also rose with the benchmark Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings increasing 15 basis points to 568, according to JPMorgan."

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

German Confidence

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

"Traders have increased bets the European Central Bank will lower interest rates this year to spur economic expansion. The implied yield on the December Euribor futures contract fell 1 basis point to 5.04 percent, extending the decline in the past month to 9 basis points."

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

"European government bonds returned 2.8 percent this year, while U.S. debt earned 4 percent, according to Merrill Lynch data."

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

"Last Updated: August 26, 2008 09:39 EDT"

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Nordic Currencies: Sweden's Krona Falls After German Ifo Drops

By Bo Nielsen

"Aug. 26 (Bloomberg) -- Sweden's krona fell to the lowest level since February against the dollar after a report showed business confidence in Germany, its biggest export market, dropped to a three-year low."

"The krona weakened for a third day after the Ifo institute's German investor sentiment index slipped to 94.8 in August, the lowest level since August 2005, compared with 97.5 the previous month and the 97.2 estimate in a Bloomberg survey. A Swedish government report showed producer prices rose an annual 3.3 percent in July, up from 3 percent in the prior period."

"``The slowdown in Europe will feed through fairly quickly to the Swedish economy,'' said Ian Stannard, a senior currency strategist in London at BNP Paribas SA, France's biggest bank. ``That leaves the krona vulnerable.''"

"The Swedish krona slipped to 6.4326 per dollar, the lowest level since February, and was at 6.4029 by 3:37 p.m. in Stockholm from 6.3501 yesterday. It was little changed at 9.3730 per euro."

A separate government report showed the economy of Germany contracted in the second quarter for the first time in almost four years as companies cut investments and consumers reduced spending.

"In other trading, Norway's krone rose versus the euro before a report tomorrow forecast by economists to show the June unemployment rate held near the lowest level in two decades."

"The Norwegian krone climbed to 7.9141 per euro, from 7.9239. It fell 0.6 percent to 5.4017 per dollar as the price of crude oil, the country's biggest source of exports, slipped to as low as $112.36 a barrel, from $115.11 yesterday."

"Iceland's krona dropped for a second day versus the dollar, dropping to 83.24, the weakest level since June 23, from 82.53."

"Nordic government bonds gained, with the yield on Sweden's 5.25 percent note due March 2011 falling 7 basis points, or 0.07 percentage point, to 4.28 percent. The yield on Norway's 6 percent government note maturing May 2011 slipped 1 basis point to 5.01 percent. Yields move inversely to bond prices."

To contact the reporter on this story: Bo Nielsen in Copenhagen at

"Last Updated: August 26, 2008 10:17 EDT"

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Treasuries Decline After Unexpected Gain in Consumer Confidence

By Greg Storey

Aug. 26 (Bloomberg) -- Treasuries fell after a private report showed consumer confidence increased more than forecast in August as cheaper gasoline improved Americans' moods.

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

"The yield on the two-year Treasury note gained 4 basis points, or 0.04 percentage point, to 2.36 percent at 10:17 a.m. in New York, according to BGCantor Market Data. The price of the 2.75 percent note due in July 2010 declined 2/32, or 63 cents per $1,000 face amount, to 100 23/32. The 10-year note yield rose 2 basis points to 3.81 percent. Earlier it touched 3.77 percent, within 1 basis point of the lowest since May 13."

To contact the reporter on this story: Greg Storey at

"Last Updated: August 26, 2008 10:22 EDT"

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Canadian Dollar Strengthens as Price of Crude Oil Rebounds

By Chris Fournier

Aug. 26 (Bloomberg) -- Canada's currency climbed for the first time in three days as the price of crude oil erased an earlier loss and increased.

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

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

"The Canadian dollar appreciated 0.3 percent to C$1.0481 per U.S. dollar at 9:21 a.m. in Toronto, from C$1.0513 yesterday. One Canadian dollar buys 95.43 U.S. cents."

"Crude oil rose 0.6 percent to $115.83 a barrel, after earlier dropping as much as 2.4 percent."

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

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

"Last Updated: August 26, 2008 09:22 EDT"

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

By Stefanie Haxel

"Aug. 26 (Bloomberg) -- German stocks gained after a report showed U.S. consumer confidence increased more than forecast in August. Infineon Technologies AG, Deutsche Lufthansa AG and Bayer AG paced the advance."

"The benchmark DAX climbed 24.02, or 0.4 percent, to 6,320.97 as of 4:17 p.m. in Frankfurt after falling as much as 0.9 percent earlier. The HDAX Index of the country's 110 biggest companies rose 0.4 percent to 3,238.24."

"The Conference Board's confidence index gained to 56.9 from 51.9 in July, as cheaper gasoline improved Americans' moods. A separate report showed home prices dropped at a slower pace in the second quarter."

"Infineon, Europe's second-largest maker of semiconductors, added 13.5 cents, or 2.2 percent, to 6.18 euros. Bayer, Germany's biggest drugmaker, climbed 86 cents, or 1.6 percent, to 53.20 euros. Lufthansa, Europe's second-largest airline, increased 25 cents, or 1.7 percent, to 14.635 euros."

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

"Last Updated: August 26, 2008 10:20 EDT"

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

By Ye Xie and Gavin Finch

Enlarge Image/Details

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

The U.S. currency increased to the highest level versus the Australian dollar in almost a year and gained versus the New Zealand dollar. Sterling declined to the weakest level versus the dollar in two years as an industry report showed mortgage approvals held last month near a decade low.

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

"The dollar increased 0.7 percent to $1.4650 per euro at 10:30 a.m. in New York, from $1.4754 yesterday. It touched $1.4571, the strongest level since Feb. 14. The dollar rose 0.3 percent to 109.64 yen, from 109.30. The euro fell 0.4 percent to 160.63 yen, from 161.26 yesterday, after reaching 159.99, the lowest level since May 12."

The greenback has risen against all of the other major currencies this month. Its gains range from a 10.4 percent advance against the Australian dollar to a 1.4 percent increase versus the Mexican peso.

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

"The Aussie dropped 0.7 percent to 85.68 U.S. cents after reaching 84.94 cents, the weakest since September. The New Zealand dollar lost 1.2 percent to 69.54 cents."

Weaker Pound

"The pound dropped 0.7 percent to $1.8403 after touching $1.8331, the lowest level since July 2006. Banks granted 22,448 loans for house purchases in July, down 65 percent from a year earlier, the British Bankers' Association said. The reading is up from 22,369 in June, the lowest since 1996."

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

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

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

Crude Oil

"The euro dropped for a second day versus the yen and declined 0.4 percent to 2.3978 Brazilian reais as traders added to bets that the European Central Bank will cut interest rates next year. The implied yield on Euribor futures contract expiring in September 2009 fell 9 basis points, or 0.09 percentage point, to 4.29 percent. The yield averaged 18 basis points above the ECB's benchmark, currently 4.25 percent, from 1999 to August 2007."

"Europe's currency pared losses today after crude oil for October deliver rose 2 percent to $117.47 a barrel. The euro- dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep."

U.S. Confidence

The dollar rose against the yen as a private report showed consumer confidence increased in August more than forecast on cheaper gasoline prices. The New York-based Conference Board's confidence index rose to 56.9 from 51.9 in July.

"The Commerce Department reported that U.S. new home sales rose to an annual rate of 515,000 in July from a revised 503,000 in the previous month. The median forecast of 76 economists surveyed by Bloomberg News was for a decrease to 525,000 from a previously reported 530,000."

"U.S. economic growth may stall in the second half of 2008 as financial strains continue to tighten credit, said Dallas Federal Reserve Bank President Richard Fisher in an Aug. 25 interview with Dow Jones."

"``Growth will taper down,'' Fisher said. ``I could see us approaching, certainly broaching zero.''"

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

"Last Updated: August 26, 2008 10:33 EDT"

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Gold Climbs on Demand for Inflation Hedge as Energy Costs Rise

By Pham-Duy Nguyen

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

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

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

"Gold futures for December delivery rose $7.70, or 0.9 percent, to $833.40 an ounce at 10:22 a.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price touched $812 as the euro fell as much as 1.2 percent against the dollar."

"Silver futures for December delivery rose 28.1 cents, or 2.1 percent, to $13.76 an ounce."

"Before today, silver fell 9.7 percent this year, while gold dropped 1.5 percent."

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

"Last Updated: August 26, 2008 10:24 EDT"

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"U.S. Stocks Rise, Led by Energy Producers; Bank Shares Climb "

By Elizabeth Stanton

Aug. 26 (Bloomberg) -- U.S. stocks rose as a gain in oil prices boosted energy producers and reports on home sales and consumer confidence topped economists' forecasts.

"EOG Resources Inc. rallied 6 percent, leading gains in all 39 energy companies in the Standard & Poor's 500 Index, as crude climbed. Freddie Mac and Fannie Mae, the largest U.S. mortgage- finance companies, jumped more than 10 percent each after a Commerce Department report showed new-home sales improved from a 17-year low. Higher energy prices pushed down shares of Boeing Co. and McDonald's Corp. by more than 1 percent."

"The Standard & Poor's 500 Index gained 6.63 points, or 0.5 percent, to 1,273.47 at 10:31 a.m. in New York. The Dow Jones Industrial Average increased 10.01, or 0.1 percent, 11,396.26 and the Nasdaq Composite Index climbed 3.67 to 2,369.26. About three stocks rose for every two that fell on the New York Stock Exchange."

"``We're still very favorable towards energy,'' said Julie Van Cleave, who manages $4 billion as head of large U.S. growth stocks at Deutsche Asset Management in Milwaukee. ``The earnings estimates are still very reasonable. The market's not expecting a lot out of energy companies, so we find that interesting.''"

"The S&P 500 Energy Index climbed for the first time in three days and contributed the most to the market's advance on a forecast showing that Hurricane Gustav may enter the Gulf of Mexico, home to a fifth of U.S. oil production."

"About 166 million shares changed hands on the NYSE, 9.6 percent more than at the same time yesterday, which was the slowest trading day of the year."

Energy Rally

"EOG, a Houston-based oil and gas producer, climbed $6.29 to $108.50 as oil rallied more than $2 to $117.38 a barrel."

Fannie Mae jumped 70 cents to $5.98 and Freddie Mac advanced 78 cents to $4.07 for the top gains in the S&P 500. The two companies slowed the pace of purchases of home loans and mortgage bonds last month as losses sparked concern the mortgage-finance providers may not weather the housing slump.

The S&P 500 Financials Index added 0.5 percent after a 3.1 percent tumble yesterday.

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

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

Home Sales

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

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

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

"The S&P 500 is poised to retreat for a third straight month even after rebounding more than 4 percent from its low of the year on July 15. All 10 of the main industry groups in the index have declined this year, led by a 32 percent tumble in financial shares."

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

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

U.S. stocks dropped the most in a month yesterday as a Kansas bank's failure and speculation American International Group Inc. will post a loss heightened concern that credit writedowns will keep rattling the financial system.

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

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

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U.S. Consumer Confidence Index Rises on Cheaper Gas (Update1)

By Timothy R. Homan

"Aug. 26 (Bloomberg) -- Consumer confidence in August increased more than forecast in August as cheaper gasoline improved Americans' moods, a private report showed."

The Conference Board's confidence index rose to 56.9 from 51.9 in July. Separate reports showed new-home sales increased in July and home prices dropped at a slower pace in the second quarter.

"A weakening labor market, falling home prices and higher inflation may curb consumer spending for the remainder of the year even as gasoline prices have fallen during the last six weeks. The confidence report does little to ease concern that economic expansion will slow after the effects of the federal tax rebates fade."

"``It's very much a reflection of what's been going on in the energy markets,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland. ``Confidence remains quite low, principally because of concerns about employment prospects.''"

"The New York-based Conference Board's confidence index was forecast to climb to 53, according to the median estimate of 70 economists surveyed by Bloomberg News. Projections ranged from 50 to 56.1. June's reading of 51 was the lowest since February 1992."

New-Home Sales

"A report from the Commerce Department showed new-home sales in the U.S. increased 2.4 percent to a 515,000 annual pace, and the number of unsold homes on the market fell 5.2 percent, the biggest drop since November 1963, to 416,000."

"The S&P/Case-Shiller home-price index showed home values declined 2.3 percent in the three months through June from the previous three months, compared with a 6.8 percent drop in the first quarter."

"The Reuters/University of Michigan preliminary index of consumer sentiment for August increased less than forecast to 61.7 from 61.2, according to a report earlier this month. The measure averaged 85.6 last year."

"Labor markets have a greater weight in the Conference Board's report than they do in the University of Michigan's, economists said."

Jobs Outlook

"The share of people telling the Conference Board that jobs are hard to get increased to 32 percent, the highest since October 2003, from 30.2 percent in July. Those saying jobs were plentiful declined to 13.1 percent this month from 13.6 percent."

The share of respondents expecting fewer jobs in six months decreased to 30.6 percent from 37.3 percent.

"The outlook for incomes was little changed. The proportion of people who expect their incomes to rise over the next six months increased to 14.7 percent from 14.3 percent last month, according to today's report. The gauge fell to a record-low 13.1 percent in June. Records began in 1967."

Economists forecast the Labor Department will report on Sept. 5 that the U.S. lost jobs in August for an eighth straight month.

"The Conference Board's measure of present conditions decreased to 63.2 in August from 65.8 in July. A gauge of expectations for the next six months rose to 52.8 from 42.7 the prior month, the report showed."

Buying plans over the next six months increased for automobiles and major appliances. More Americans said they would consider buying a home than in July.

Gasoline Price

"The average cost of a gallon of regular gasoline peaked at $4.11 on July 16, according to AAA. Prices yesterday were $3.67 a gallon."

"Consumer spending probably will slow as the effects of the rebate checks diminish. Economists surveyed by Bloomberg earlier this month projected spending, which has grown every quarter since 1992, will stall in the last three months of the year."

"Commerce Department figures released this month show retail sales in July fell for the first time in five months, signaling the boost from the tax rebates may already be fading."

"Some companies are feeling the combined effects of the worst housing slump in a quarter century and a drop-off in consumer spending. Home Depot Inc., the world's largest home- improvement retailer, last week forecast a 24 percent earnings decline for the year."

"Chief Executive Officer Frank Blake said in a statement that the Atlanta-based company sees ``pressure on our market and the consumer.'' Second-quarter sales fell 5.4 percent, the seventh decline in the past eight quarters."

To contact the reporter on this story: Timothy R. Homan in Washington at

"Last Updated: August 26, 2008 10:22 EDT"

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"European Stocks Decline on Recession Concerns; BHP, BMW Retreat "

By Adam Haigh

Aug. 26 (Bloomberg) -- European stocks dropped for a second day as declining metals prices sent mining shares lower and concern deepened the region's two largest economies are slipping toward recession.

"BHP Billiton Ltd., the world's biggest mining company, sank 2.5 percent and Boliden AB lost 1.5 percent. Bayerische Motoren Werke AG, the largest maker of luxury cars, decreased 1.3 percent and Commerzbank AG retreated 2.1 percent after business confidence in Germany declined more than forecast to a three- year low. OC Oerlikon Corp. slipped 1.2 percent after the biggest maker of spinning machines said sales will fall as Chinese investment in textile equipment wanes."

"The Dow Jones Stoxx 600 Index declined 0.3 percent to 281.47 at 3:03 p.m. in London, with 13 of the 18 industry groups decreasing. The index has dropped 23 percent this year as credit-related losses surpassed $500 billion and inflation accelerated, threatening economic and profit growth."

"``The economic outlook is very negative,'' said Gregor Smith, a London-based fund manager at Daiwa Asset Management, who helps oversee $1 billion. ``If we continue to see economic weakness, then corporates will continue to cut spending.''"

"Stocks pared losses after U.S. reports showed consumer confidence rose more than forecast in August, while home prices dropped at a slower pace in the second quarter."

"National benchmark indexes fell in 12 of the 18 western European markets. France's CAC 40 declined 0.3 percent, while the U.K. market, which was closed yesterday for a holiday, sank 1.2 percent. Germany's DAX added 0.3 percent."

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

The Munich-based Ifo institute's business climate index declined to 94.8 in August from 97.5 the previous month. Economists had predicted a drop to 97.2.

Five-Year Low

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

"BHP Billiton lost 2.5 percent today to 1,655 pence in London. Anglo American Plc, the fourth-largest diversified mining company, retreated 3.3 percent to 2,781 pence."

"Boliden, Europe's second-largest zinc producer, dropped 1.5 percent to 40.1 Swedish kronor."

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

"BMW sank 1.3 percent to 27.77 euros. Renault SA, France's second-largest carmaker, slid 2.9 percent to 57.27 euros."

Cutting Estimates

"Analysts have slashed earnings estimates this year as the economy cools. Profit for companies in Europe's Stoxx 600 will fall 2 percent in 2008, according to projections compiled by Bloomberg. That's down from the 11 percent average growth forecast at the start of the year. Analysts predict earnings for S&P 500 companies will slip 1.2 percent this year."

"Commerzbank, Germany's second-biggest bank, fell 2.1 percent to 19.73 euros. Royal Bank of Scotland Group Plc lost 2.7 percent to 214.75 pence."

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

Oerlikon slipped 1.2 percent to 260 francs after reporting a loss in the first half.

The company forecast annual revenue to be ``slightly lower'' and Chief Executive Officer Uwe Krueger said Oerlikon may struggle to post a profit this year.

Taylor Wimpey

"Taylor Wimpey Plc, the U.K.'s biggest homebuilder, climbed 9.3 percent to 49.75 pence. Building magazine reported lenders have agreed to relax loan conditions without requiring the company to raise new capital first. Gordon Simpson, external spokesman for Taylor Wimpey, said the company wouldn't comment on market speculation."

"Axon Group Plc, a U.K. business adviser for companies that run SAP AG software, climbed 20 percent to 605 pence. Infosys Technologies Ltd., India's second-largest computer-services provider, offered to buy Axon for 600 pence a share."

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

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

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"Brazil's Usiminas, CSN Upgraded to `Buy' at UBS After Slump "

By Alexis Xydias

"Aug. 26 (Bloomberg) -- Usinas Siderurgicas de Minas Gerais and Cia. Siderurgica Nacional SA, Brazil's second- and third- largest steelmakers, were upgraded to ``buy'' at UBS AG after the stocks slumped in the past three months."

"Carlos Vasques and Edmo Chagas, analysts at UBS, upgraded both stocks from ``neutral,'' they wrote in a report today. The upgrade puts the stocks in line with Gerdau SA, the country' biggest steelmaker, which has a ``buy'' rating from the analysts."

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

"Usiminas, as Usinas Siderurgicas is known, has dropped 42 percent since its 2008 high on May 19. CSN has slumped 37 percent in the period. Gerdau has fallen 32 percent since reaching its peak for the year a day later."

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

"Last Updated: August 26, 2008 04:00 EDT"

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