Thursday, July 31, 2008

East European Currencies: Turkish Lira Advances Against Dollar

By Yon Pulkrabek

July 31 (Bloomberg) -- Turkey's lira extending its biggest monthly gain against the dollar in almost a year after a court rejected a case to ban the ruling Justice and Development Party. Romania's leu advanced 3.8 percent this month

The lira rose for a fourth day as the Constitutional Court fell one vote short yesterday of seven needed to uphold the ban. Under Prime Minister Recep Tayyip Erdogan, Turkey has posted 23 consecutive quarters of economic expansion and attracted a record $40 billion in foreign direct investment in the past two years.

The court's decision is ``obviously good news from a market perspective,'' said Lars Christensen, chief analyst at Danske Bank A/S in Copenhagen. ``We will move in a significantly more positive direction in our forecast.''

The lira climbed as much as 2.4 percent to 1.1555 per dollar, its highest level since Jan. 15, and was at 1.1582 by 5:55 p.m. in Istanbul, from 1.1835 yesterday. The lira has gained 5.6 percent against the U.S. currency this month, the most since September 2007, making it the third-best performer among the 26 emerging-market currencies tracked by Bloomberg.

``For the lira, this opens room for a big initial appreciation step and a prolonged appreciation trend,'' analysts including Ulrich Leuchtmann and Antje Praefcke at Commerzbank AG, Germany's second-biggest bank, wrote in a client note.

The court ruled to lower state funding for the ruling party as a punishment for violating a constitutional ban on basing government policies on religious edicts.

Losing Streak

In other trading, the Romanian leu advanced 0.5 percent to 3.5154 per euro after the central bank unexpectedly increased interest rates by 25 basis points today. The currency has appreciated 3.8 percent this month.

The bank boosted its key rate to 10.25 percent, the highest in the European Union. Five of the 13 economists surveyed by Bloomberg predicted the decision.

The Czech koruna dropped for a third day, its longest losing streak in two months, declining 0.4 percent to 23.941 per euro, from 23.840 yesterday. The central bank may cut rates as early as Aug. 7, policy makers Pavel Rezabek and Eva Zamrazilova signaled yesterday, echoing comments by Governor Zdenek Tuma last week.

The koruna has declined 0.3 percent versus the euro this past month, its first monthly drop since April.

The Slovak koruna was little changed at 30.380 per euro, losing 0.5 percent this month. European Union finance ministers on July 8 gave final approval for the country to switch to the region's common currency in early 2009 at a rate of 30.126.

The Polish zloty slid 0.1 percent to 3.2105 per euro, taking its gain in July to 4.4 percent, and the Hungarian forint slipped 0.6 percent to 232.24, paring a monthly advance to 1.4 percent.

To contact the reporter on this story: Yon Pulkrabek at ypulkrabek@bloomberg.net

Chile's Peso Falls to Four-Week Low on Interest-Rate Outlook

By Andrea Jaramillo

July 31 (Bloomberg) -- Chile's peso fell to a four-week low as investors pared bets for higher interest rates amid declining oil prices and economic slowing.

The currency weakened for a fourth day after the national statistics agency said in a report today that industrial output shrank 0.9 percent in June from a year earlier, as rising energy prices drove up costs. That was less than the median estimate of a 2.3 percent expansion in a Bloomberg survey of 14 economists.

Chile's peso dropped 0.3 percent to 509.3 per dollar at 10:51 a.m. in New York, from 507.62 yesterday. The currency touched 512.05, the weakest level since July 3.

The currency has appreciated 2.5 percent in the past 12 months on the widening difference between Chile's 7.25 percent target lending rate and the 2 percent U.S. benchmark and gains in copper, the nation's biggest export. The metal is up 8 percent in trading on the New York Mercantile Exchange in the past year, while oil has advanced 60 percent.

Banco de Chile raised its target lending rate this month by a half-percentage point to 7.25 percent, a nine-year high, in a bid to stem inflation. Policy makers next meet Aug. 14.

Annual inflation accelerated to 9.5 percent in June, the fastest since 1994 and more than double the upper end of the central bank's preferred range of 2 percent to 4 percent.

The yield for a basket of Chile's five-year peso bonds in inflation-linked currency units, known as unidades de fomento, fell 1 basis point, or 0.01 percentage point, to 2.88 percent, according to Bloomberg composite prices.

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

Dollar Falls as GDP Trails Forecast, Jobless Claims Increase

By Ye Xie and Kim-Mai Cutler

July 31 (Bloomberg) -- The dollar fell for the first time in three days against the euro as reports showed the U.S. economy grew less than forecast in the second quarter and initial jobless claims rose last week to a five-year high.

The euro advanced earlier against the dollar as European inflation accelerated to the fastest pace in 16 years. The pound dropped against the euro after reports showed British consumer confidence declined this month to a record low and house prices fell the most in almost two decades.

``The economic backdrop is far less robust than people thought,'' said Tom Fitzpatrick, global head of currency strategy at Citigroup Global Markets Inc. in New York. ``Today's numbers provide a platform to send the euro-dollar to new highs.''

The dollar dropped 0.4 percent to $1.5641 per euro at 10:33 a.m. in New York, from $1.5576 yesterday. The U.S. currency declined to the record low of $1.6038 on July 15. The euro increased 0.2 percent to 168.71 yen, from 168.41. The U.S. currency dropped 0.3 percent to 107.85 yen, from 108.13.

Today's decline pared the greenback's gain versus the euro this month to 0.8 percent. The dollar has advanced 1.6 percent against the yen, while the euro has gained 0.9 percent versus Japan's currency.

Sterling declined 0.2 pence to 78.73 pence per euro today after the London-based market-research firm GfK NOP said its index of consumer confidence fell to the lowest since the data began in 1974. The average value of a home dropped 8.1 percent from a year earlier, the biggest decline since at least 1991, said Nationwide Building Society, Britain's fourth-biggest mortgage lender.

Fed Rate Outlook

Futures contracts on the Chicago Board of Trade showed a 32 percent chance of the Fed raising its 2 percent target rate for overnight loans between banks by at least a quarter-percentage point by Sept. 16, down from 38 percent odds yesterday. Most traders expect policy makers to keep borrowing costs unchanged when they next meet Aug. 5.

U.S. gross domestic product increased at an annual rate of 1.9 percent in the second quarter after revised 0.9 percent growth in the first three months of the year, the Commerce Department reported today. The median forecast of 79 economists surveyed by Bloomberg News was for an advance of 2.3 percent.

Initial jobless claims rose to 448,000 in the week ended July 26, from a revised 404,000 the prior week, the Labor Department said. Economists in a Bloomberg survey had forecast a drop in claims. The total number of initial filings last week was the highest since April 2003.

Company Hiring

The U.S. currency touched a one-month high against the euro yesterday after a private report showed companies unexpectedly added jobs this month.

``The dollar's rally was built on a shaky foundation,'' said Stephen Malyon, co-head of currency strategy at Scotia Capital Inc. in Toronto. ``Today's numbers just highlighted there's more downside risk to growth. The jump in jobless claims puts a brake on the dollar's rally.''

Non-farm payrolls dropped by 75,000 this month following a decline of 62,000 in June, according to the median forecast 0f 79 economists surveyed by Bloomberg News. The Labor Department's report, which includes government hiring, is due tomorrow.

The euro strengthened versus the dollar as the European Union statistics office reported that the euro zone's inflation rate rose to 4.1 percent this month, the biggest increase since April 1992. The European Central Bank raised its main refinancing rate to 4.25 percent on July 3, the highest level since 2001.

European Inflation

``We're going to see inflation moving further to the upside,'' said Jeremy Stretch, a senior strategist in London at Rabobank International, the third-largest Dutch bank. ``That might just lead the market to think that even with the downturn in economic data, the ECB might turn toward tighter monetary policy. That's providing a little support for the euro.''

South Africa's rand rose as much as 0.9 percent to 7.3291 versus the dollar, the strongest since Feb. 4, after a report showed the country's trade deficit unexpectedly narrowed in June. The rand has increased 6.2 percent this month for the best performance among the world's major currencies.

Turkey's lira advanced to a six-month high after the Constitutional Court rejected yesterday a call by prosecutors to ban the party of Prime Minister Recep Tayyip Erdogan, which is seeking to introduce Islamic law in secular Turkey. The lira climbed as much as 2.4 percent to 1.1555 per dollar, its strongest since Jan. 15. It has gained 5.4 percent versus the dollar this month.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net.

Canadian Dollar Falls as Economy Unexpectedly Contracted in May

By Cordell Eddings

July 31 (Bloomberg) -- Canada's dollar fell after the economy unexpectedly shrank in May, as natural gas extraction and car production dropped.

The dollar fell 0.1 percent to C$1.025 per U.S. dollar at 8:48 a.m. in Toronto, from $1.0234 yesterday. One Canadian dollar buys 97.55 U.S. cents. The currency has dropped 2.6 percent so far this year versus its U.S. counterpart.

Gross domestic product fell 0.1 percent, the fourth decline in six months, to C$1.23 trillion ($1.2 trillion), Statistics Canada said today in Ottawa. Economists in a Bloomberg survey predicted a 0.2 percent gain, the median of 24 estimates.

``It may reinforce concerns about the economy and further cut the legs out from the Canadian dollar, stoking some feeling that the bank might be cut rates,'' said Doug Porter, deputy chief economist with BMO Capital Markets in Toronto, before the report.

The currency has traded near parity with its U.S. counterpart since September. It touched a 2008 low of C$1.0379 on Jan.22, and a high of 97.12 cents per U.S. dollar on Feb. 28.

The Canadian dollar will weaken to C$1.07 in the first quarter of 2009, according to the median estimate of 29 economists surveyed by Bloomberg News.

To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net

Mexico's Peso Weakens on Lower-Than-Expected U.S. Growth Data

By Drew Benson

July 31 (Bloomberg) -- The Mexican peso fell for the first time in four days after reports showed the U.S. economy expanded less than forecast during the second quarter.

The U.S. Commerce Department said today the economy of Mexico's northern neighbor and top trading partner grew at a 1.9 percent annualized rate during the second quarter, below the 2.3 percent gain forecast in a Bloomberg News survey of 79 economists.

The Mexican peso slid 0.21 percent to 10.0391 per dollar at 9:59 a.m. in New York, from 10.0199 yesterday. It touched 10.003 per dollar last week, the strongest since October 2002.

Yields on Mexico's 10 percent bond due December 2024 rose five basis points, or 0.05 percentage point, to 9.01 percent. The price slid 0.42 percent to 108.42 centavos per peso, according to Banco Santander SA.

To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net

South Africa Rand World's Second-Best Currency in July on Yield

By Garth Theunissen

July 31 (Bloomberg) -- South Africa's rand surged this month, the second-best performing currency in the world against the dollar and euro, on speculation accelerating inflation will spur the central bank to lift interest rates.

The rand jumped 5.9 percent against the U.S. currency and 6.9 percent versus the euro, the first monthly gains in three against both, as interest rates at the highest level in more than five years encouraged so-called carry trades. Producer-price inflation rose at the fastest pace in 19 years last month, suggesting the central bank may need to keep boosting borrowing costs.

``The broad theme for the rand is the return toward the carry trade across the emerging-market universe,'' said Shahin Vallee, an emerging-market currency strategist in London at BNP Paribas SA, France's largest bank.

The rand rose 0.1 percent to 7.3823 per dollar at 12:31 p.m. in Johannesburg, from 7.8194 at the end of June. The currency climbed to near a six-month high of 7.3516 per dollar yesterday. Against the euro, the rand gained 0.1 percent to 11.5285, from 12.3190 at the end of last month.

Inflation quickened to an annual 11.6 percent rate in June, the 15th consecutive month it has exceeded the central bank's 3 percent-to-6 percent target, Statistics South Africa said yesterday. Producer-price inflation accelerated to 16.8 percent from 16.4 percent in May, the government agency said today.

Carry Trades

South Africa's currency has gained 10 percent against the dollar since June 12, when the central bank raised interest rates a half-point to 12 percent. It has offered the best carry-trade return against the U.S. currency, euro and yen over that time, according to data compiled by Bloomberg.

In carry trades, investors borrow lower-yielding currencies such as the Swiss franc to buy higher-yielding assets, such as those denominated in rand, typically sending the target higher and earning the spread between the two. Traders take the risk currency moves will erase the profit. When carry trades diminish, investors would sell the rand to repurchase so-called safe-haven assets.

The Colombian peso was the world's top-performer in July, gaining 6.5 percent against the dollar and 7.5 percent versus the shared European currency.

To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net

Platinum, Palladium Rise in N.Y. as Dollar Falls Against Euro

By Halia Pavliva

July 31 (Bloomberg) -- Platinum and palladium rose in New York as the dollar fell against the euro, fueling demand for metals as an alternative investment.

The dollar fell as much as 0.8 percent, ending a two-day rally against the European currency. Some investors sell metals priced in dollars, including platinum and palladium, when the greenback gains. The dollar fell 6.8 percent against the euro this year before today, while platinum rose 14 percent. The metal gained 33 percent in 2007.

``The weaker dollar helps support the metals prices,'' Miguel Perez-Santalla, a sales vice president at Heraeus Precious Metals Management in New York, said today in a note. ``However, from my point of view, the precious metals continue to look weak.''

Platinum futures for October delivery jumped $24, or 1.4 percent, to $1,762.10 an ounce at 9:59 a.m. on the New York Mercantile Exchange.

Palladium futures for September delivery rose $7.20, or 1.9 percent, to $382.90 an ounce. The price fell 19 percent this month through yesterday. Most-active futures sank 22 percent in March.

``Despite the recent moves higher, we would still be wary about chasing this latest bounce in metals,'' Edward Meir, an MF Global Ltd. analyst in Stamford, Connecticut, said in a report.

Platinum, which gained 36 percent this year through June, tumbled 16 percent this month before today, partly because of slumping car sales, and is headed for the worst one-month plunge in 21 years. U.S. auto sales fell to the lowest annual rate in 15 years last month. Most platinum consumption is for auto emissions-control parts.

Damaging Sentiment

``The U.S. auto-sales horror story, together with some negative news out of the European car companies, was sure to damage platinum sentiment,'' John Reade, the head of UBS AG metals strategy in London, said today in a report. ``We believe that platinum is now attractively priced and that investors looking to buy good amounts should scale into platinum at current levels.''

The dollar fell against the euro as reports showed the U.S. economy grew less than forecast in the second quarter and that initial jobless claims rose last week.

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net.

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Gold Rallies as Dollar Decline Boosts Investor Demand for Metal

By Millie Munshi

July 31 (Bloomberg) -- Gold gained the most in three weeks after a report showed weaker-than-expected U.S. growth during the second quarter, sending the dollar tumbling and boosting the appeal of the metal as an alternative investment. Silver rose.

The economy grew at a 1.9 percent annualized rate, the Commerce Department said today, sending the dollar down as much as 0.8 percent against the euro. Gold, sometimes used as a safe- haven investment, rose to a record in March as the U.S. currency headed for record lows and the economic outlook dimmed.

The rise in the precious metal is ``certainly coming off the dollar after the GDP report,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``Gold looks very strong right now.''

Gold futures for December delivery rose $13.70, or 1.5 percent, to $926 an ounce at 10:48 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would be the biggest gain for a most-active contract since July 11.

Economists were expecting the U.S. to grow at a 2.3 percent rate, according to the median of 79 estimates in a Bloomberg News survey. The dollar dropped to as low as $1.5688 per euro.

Gold, priced in dollars, generally moves in the opposite direction of the U.S. currency. The metal reached a record $1,033.90 an ounce in March as the dollar headed to an all-time low of $1.6038 per euro on July 15.

Haven Asset

The precious metal may be insulated from a slowing global economy as investors turn to gold as an alternative to the dollar and as a haven asset, Evan Smith, who helps manage $1.5 billion at U.S. Global Investors Inc. in San Antonio, said yesterday.

Prices may rally later this year, according to Barrick Gold Corp., the world's largest gold producer.

``Inflationary pressures'' will continue to drive gold higher, Barrick Chief Financial Officer Jamie Sokalsky said today on a conference call with investors. ``The outlook for gold continues to be very positive.''

Prices will be boosted by rising geopolitical tensions, continued concerns about the financial and credit crisis, and constraints on gold supply, Barrick said.

The surging cost of gold, which has more than doubled since 2003, has boosted profit for mining companies. Barrick said today second-quarter profit increased 22 percent amid soaring prices for bullion.

Silver Gains

Silver also advanced after China said it will remove an export rebate on the precious metal.

``It is likely that the abolition of the rebate will depress exports'' from the Asian country, analysts at Barclays said in a report today.

Silver futures for September delivery added 29.5 cents, or 1.7 percent, to $17.76 an ounce on the Comex. Silver has gained 17 percent this year before today.

China is the worlds' third-largest silver producer, according to Barclays. The country also removed an export rebate on zinc. The move comes as China steps up efforts to cut a record trade surplus.

To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net

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Sugar Rises a 3rd Day on Dry India Weather, Brazil Output Drop

By Ron Day

July 31 (Bloomberg) -- Sugar rose for a third straight day in New York, reaching a two-week high as dry weather may damage the cane crop in India and as output declined in Brazil.

Dry conditions are expected in Maharashtra, India's top- producing state. India's cane harvest, the world's second- biggest after Brazil's, is already expected to drop 18 percent next season. Output in Brazil's biggest-producing region dropped 11 percent this year through July 16, as yields slid, according to an industry group.

``Brazil is showing sugar production falling behind last year and the potential for production and exports in India is fading as well,'' said Michael McDougall, a senior vice president for Newedge USA LLC in New York. The weaker dollar is also helping the price, he said.

Sugar futures for October delivery rose 0.24 cent, or 1.8 percent, to 13.64 cents a pound at 8:50 a.m. on ICE Futures U.S., the former New York Board of Trade. Earlier, the price reached 13.71, the highest since July 17.

The price has gained 9.6 percent this week, after declining in the previous two weeks.

To contact the reporter on this story: Ron Day in New York at rday1@bloomberg.net.

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Brazil Stocks Drop as Central Bank Minutes Raise Rate Concern

By Alexander Ragir

July 31 (Bloomberg) -- Brazilian stocks fell for the first time in three days, led by homebuilders and banks, after the minutes from the central bank's last meeting fueled speculation that interest rates may keep rising into next year.

Rossi Residencial SA and Uniao de Bancos Brasileiros SA paced declines for interest-rate sensitive stocks on concern higher borrowing costs would stifle consumer and lending growth. Lojas Renner SA, the biggest clothing retailer, led declines on the Bovespa index. JBS SA, the world's biggest beef producer, slid for the first time in four days after posting a loss.

``Until there is a perception that the interest rate hikes are going to come to an end, companies focused on internal demand will keep getting hurt,'' said Valmir Celestino, who oversees the equivalent of $2.5 billion as head of equities for Banco Safra de Investimentos in Sao Paulo.

The Bovespa index declined 441.03, or 0.7 percent, to 59,556.61 at 9:59 a.m. New York time. Mexico's Bolsa declined 0.1 percent. The MSCI EM Latin America Index slid 0.9 percent.

Rossi, the country's third-largest homebuilder, dropped 2.2 percent to 12.21 reais. Gafisa SA, Brazil's second-biggest builder, fell 3 percent to 27.35 reais.

Unibanco, as Brazil's third-biggest non-state bank is known, fell 1.4 percent to 20.92 reais. Lojas Renner declined 3 percent to 29.50 reais

Brazilian policy makers said they're ready to act ``vigorously'' for as long as necessary to bring inflation back to their 4.5 percent target by 2009, according to the minutes of their July 22-23 meeting.

More Rate Rises

The central bank will probably raise the benchmark lending rate by another 2 percentage points by yearend after the minutes of the last policy meeting, according to Goldman Sachs Group Inc.

``The minutes are clearly more hawkish that the preceding ones,'' Alberto Ramos, a senior Latin America economist at Goldman Sachs Group Inc. in New York, wrote in a note to clients.

JBS slid 2.1 percent to 8.37 reais after it posted its fourth straight quarterly net loss on expenses related to U.S. acquisitions and currency losses.

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net.

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Most U.S. Stocks Slide After Economic Growth Trails Forecasts

By Eric Martin

July 31 (Bloomberg) -- Most U.S. stocks fell after economic growth trailed forecasts, jobless claims rose to a five-year high and Exxon Mobil Corp.'s profit missed estimates.

``The data put the market on notice that the economy is slowing,'' said Quincy Krosby, who helps manage $380 billion as chief investment strategist at the Hartford in Hartford, Connecticut. ``It's not equity friendly.''

Caterpillar Inc., Boeing Co. and Walt Disney Co. led the retreat after the Commerce Department said the economy grew at a 1.9 percent rate last quarter and contracted at the end of 2007. Exxon Mobil fell the most in two weeks after declining production slowed earnings growth. ImClone Systems Inc. posted its best gain in 13 years on Bristol-Myers Squibb Co.'s offer to take over the maker of the colon-cancer drug Erbitux, while an unexpected profit sent Motorola Inc. to its steepest rally in four years.

The S&P 500 added 0.67 point, or less than 0.1 percent, to 1,284.93 at 11 a.m. in New York, leaving the benchmark index up 0.4 percent in July. The Dow Jones Industrial Average lost 24.02, or 0.2 percent, to 11,559.67. The Nasdaq Composite Index added 20.42, or 0.9 percent, to 2,350.14. Twenty stocks retreated for every 19 that rose on the New York Stock Exchange.

The 448,000 increase in jobless claims weighed on stocks as investors await tomorrow's government report that is forecast to show the economy lost 75,000 jobs in July. Even though the majority of companies have beaten estimates, S&P 500 profit growth has slumped 21 percent on average from a year earlier, according to data compiled by Bloomberg.

Drop Limited

The market's losses were limited after the government reports spurred a drop in oil prices and caused traders to boost bets that the Federal Reserve will leave its benchmark lending rate unchanged in coming months.

Caterpillar, the largest maker of bulldozers, slumped $1.51 to $70.56. Boeing, the world's second-biggest commercial airplane maker, lost 1.9 percent to $62.59.

Disney, the biggest theme-park operator, dropped $1.05, or 3.3 percent, to $30.62 even after posting a 9 percent gain in third-quarter profit and beating analysts' estimates.

The Commerce Department report on gross domestic product showed the drag from the worst housing slump since the Great Depression and rising unemployment blunted the impact of federal tax rebates. Economists surveyed by Bloomberg had forecast growth of 2.3 percent in the second quarter. The report also contained annual revisions that lowered the growth rate back to 2005.

``The markets don't like it,'' said Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York. ``You listen to a market of optimists who think the worst is over and that it's gonna be OK, but this data is showing you it's not.''

Exxon, MasterCard

Exxon slid $2.84, or 3.4 percent, to $81.54. Production tumbled 7.8 percent after assets were seized in Venezuela, Nigerian workers went on strike and record prices triggered contract clauses that give oil-rich governments a bigger share of output.

MasterCard Inc. dropped $17.54, or 6.5 percent, to $253.190. The world's second-biggest credit-card company posted a $746.7 million loss on costs to settle an antitrust lawsuit with American Express Co.

Motorola Inc., Tyco International Ltd. and Symantec Corp. gained after reporting earnings that topped analysts' estimates.

ImClone Takeover

ImClone Systems soared on Bristol-Myers' offer to buy the portion of the company it doesn't already own, seeking to return to prominence as a maker of cancer drugs. The $4.33 billion deal offers a 29 percent premium over yesterday's closing share price. ImClone rose $18.01, or 39 percent, to $64.45.

Motorola rose 97 cents, or 13 percent, to $8.65. The largest U.S. mobile-phone maker posted an unexpected second-quarter profit after the company cut jobs and sales beat estimates.

Tyco gained 96 cents, or 2.3 percent, to $43.47. The world's biggest maker of security and fire systems beat analysts' estimates with a third-quarter profit of $199 million, led by higher sales of industrial valves and metal tubing. The company said profit this year will exceed its previous forecast.

Symantec gained $1.31, or 6.7 percent, to $21. The world's biggest maker of security software gave a better-than-anticipated forecast, saying the U.S. economic slowdown isn't curbing growth.

Akamai Technologies Inc. fell the most in the S&P 500, losing $6.14, or 20 percent, to $25.11. The largest supplier of software to speed up Web services lowered its profit forecast.

Bear Markets

All of the 23 developed nations in the MSCI World Index except for Canada have experienced bear-market plunges of 20 percent or more since September as credit losses surged and record commodity prices stoked inflation. Brazil last week became the 23rd out of 25 developing countries in the MSCI Emerging Markets Index to enter a bear market. Only Jordan and Morocco avoided such slumps.

Stocks have declined since October as financial institutions worldwide suffered $480.4 billion in writedowns and credit losses stemming from the collapse of the subprime mortgage market. That prompted economists to forecast 1.5 percent growth in the U.S. economy in 2008, the slowest since 2001. Equities also suffered as inflation increased, giving the U.S. consumer price index the steepest gain since 1991.

Profit forecasts for the third quarter have improved this week. The 73 companies that gave outlooks say profit will rise an average of 1.8 percent, according to data compiled by Bloomberg. That's up from 0.9 percent at the end of last week though below the 7.3 percent growth projected by analysts.

To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.

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Consol, Exxon, Hologic, ImClone, Symantec: U.S. Equity Movers

By Jeff Kearns

July 31 (Bloomberg) -- The following companies are having unusual price changes in U.S. trading. Stock symbols are in parentheses, and share prices are as of 9:40 a.m. in New York.

Akamai Technologies Inc. (AKAM US) fell 19 percent to $25.21, the biggest decline since April 2003. The largest supplier of software and services to speed up the delivery of Web pages said on a conference call that it anticipates annual adjusted net income in a range of $1.63 to $1.69 a share, down from an earlier forecast of $1.68 to $1.71.

Cadence Pharmaceuticals Inc. (CADX US) rose 67 percent to $10.75, the steepest gain since its initial public offering in October 2006. The maker of drugs for hospitals said it successfully completed two clinical trials for its Acetavance drug, an intravenous acetaminophen treatment for pain, according to a statement distributed by PR Newswire. The U.S. Food and Drug Administration said the trials were sufficient for the company to apply for a new drug application, Cadence said.

Consol Energy Inc. (CNX US) lost 12 percent to $77.61, the lowest price since April 11. The second-biggest U.S. coal producer by market value said second-quarter profit fell 34 percent on rising fuel and labor costs.

Exxon Mobil Corp. (XOM US) fell 2.9 percent, the most in more than two weeks, to $81.95. The world's biggest energy company said per-share profit excluding costs related to a legal ruling was 26 cents lower than the average of 12 analyst estimates compiled by Bloomberg.

Hologic Inc. (HOLX US) had its biggest decline since May 1, falling 15 percent to $19.45. The medical equipment maker that acquired Third-Wave Technologies last week had its ratings lowered to ``hold'' from ``buy'' at Jefferies Group Inc. and to ``neutral'' from ``buy'' at Merrill Lynch & Co.

ImClone Systems Inc. (IMCL US) surged 38 percent, the most since May 1995, to $64.08. Bristol-Myers Squibb. Co. offered to buy the portion of ImClone it doesn't already own for $60 a share. Bristol-Myers delivered the offer to ImClone Chairman Carl C. Icahn today, ImClone said in a regulatory filing.

MasterCard Inc. (MA US) lost 11 percent to $241.38, the steepest decline since it went public in May 2006. The world's second-biggest credit-card company posted a $746.7 million loss on costs to settle an antitrust lawsuit with American Express Co.

Motorola Inc. (MOT US) rose the most since Feb. 1, advancing 7.8 percent to $8.28. The largest U.S. mobile-phone maker posted an unexpected second-quarter profit on job cuts and sales that beat estimates.

Schering-Plough Corp. (SGP US) advanced for a third day, jumping 4.8 percent to $21.01. The drugmaker was upgraded to ``buy'' from ``neutral'' by analysts at Merrill Lynch & Co., who said ``we expect two potential blockbusters to be approved over the next year.'' This ``suggests a better near-term pipeline outlook for Schering-Plough than any other U.S. major pharma,'' Merrill said.

Shire Plc American depositary receipts (SHPGY US) climbed the most since April 23, gaining 6.1 percent to $49.165. The U.K.'s third-largest drugmaker reported a narrower second- quarter loss as sales of the Adderall XR hyperactivity treatment beat analysts' estimates.

Symantec Corp. (SYMC US) rose the most since May 1, advancing 7.6 percent to $21.18. The world's biggest maker of security software said first-quarter profit almost doubled and gave a forecast that beat analysts' estimates as international customers added programs to store and protect data.

Wyndham Worldwide Corp. (WYN US) advanced for the second time this week, gaining 2.2 percent to $17.87. The franchiser of Ramada and Super 8 hotels said second-quarter profit rose on international hotel earnings. Net income advanced to 55 cents a share from 52 cents a year earlier, the company said in a PR Newswire statement.

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.

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Brazil Stocks Drop as Central Bank Minutes Raise Rate Concern

By Henrietta Rumberger and Stefanie Haxel

July 31 (Bloomberg) -- Germany's DAX Index recovered earlier losses as Siemens AG, Deutsche Telekom AG and Bayer AG increased.

The benchmark DAX Index increased 9.39, or 0.2 percent, to 6,469.51 as of 4:09 p.m. in Frankfurt after losing as much as 0.5 percent earlier. DAX futures expiring in September climbed 0.1 percent to 6,511. The HDAX Index of the country's 110 biggest companies added 0.4 percent.

Deutsche Telekom, Europe's largest phone company, increased 18.5 cents, or 1.7 percent, to 11.075 euros.

Siemens AG, Europe's largest engineering company, gained 1.16 euros, or 1.5 percent, to 78.61.

Bayer, Germany's biggest drugmaker, added 1.09 euros, or 2 percent, to 55.71.

To contact the reporter on this story: Henrietta Rumberger in Frankfurt at hrumberger@bloomberg.net; Stefanie Haxel in Frankfurt at shaxel@bloomberg.net

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Canada Stocks Fall as U.S. Slows; EnCana Drops, RIM Gains

By John Kipphoff

July 31 (Bloomberg) -- Canadian stocks fell as resource companies led the main stock index toward a second-straight monthly drop, after the U.S., Canada's top trade partner, said its economy grew less than forecast and oil prices slid.

Energy companies including EnCana Corp. and Canadian Natural Resources Ltd. paced declines. Losses in the market were limited as Research in Motion Ltd. gained after being recommended by CNBC ``Mad Money'' host Jim Cramer.

The Standard & Poor's/TSX Composite Index fell 0.5 percent to 13,614.46 at 10:08 a.m. in Toronto. Canada's main stock benchmark is poised for a 5.9 percent monthly drop, the steepest since November.

The U.S. Commerce Department said the economy grew at a 1.9 percent rate from April through June, and revised the figure for the fourth quarter of 2007 to show that gross domestic product receded.

EnCana, the country's largest energy company by market value, fell 2.6 percent to C$73.97. Canadian Natural Resources dropped 3.2 percent to $79.94. Suncor Energy Inc., the second- biggest oil-sands miner, slid 3.1 percent to C$56.60.

Crude oil fell on signs that high prices and slowing economic growth will curb fuel use in the U.S., the world's biggest energy-consuming country.

Research In Motion Ltd., the maker of the BlackBerry e-mail phone, gained for a third day, adding 2.9 percent to C$125.71.

Barrick Gold Corp., the world's largest bullion miner, rose 2.4 percent to C$44.42, after it reported a 22 jump in quarterly profit and the price of the precious metal climbed.

To contact the reporter on this story: John Kipphoff in Montreal at jkipphoff@bloomberg.net.

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Most European Stocks Fall on Economy Concern; Unilever Declines

By Michael Patterson

July 31 (Bloomberg) -- Most European stocks fell, sending the Dow Jones Stoxx 600 Index to its third straight monthly drop, after reports showed the U.S. economy expanded at a slower pace than economists estimated last quarter and jobless claims surged.

The Stoxx 600 erased a 0.7 percent gain as the Commerce Department also said the world's largest economy contracted in the last three months of 2007. Sanofi-Aventis SA, France's biggest drugmaker, tumbled the most since May after a decline in sales dragged profit below projections. Unilever, the world's second-largest consumer-products company, had its steepest slump since June 2003 as earnings slipped 20 percent.

Europe's Stoxx 600 was little changed at 284.04 at 3:28 p.m. in London as retailers and technology companies also fell. Today's data signals the world's largest economy may have tipped into a recession last year as consumer spending slowed and the housing slump worsened.

``This is the latest in a string of bad news for economic growth,'' said Tony Dolphin, director of strategy and economics at Henderson Global Investors in London, which manages about $125 billion. ``This has got to be bad for earnings and for equity markets.''

Crude oil fell more than $1 a barrel on signs that high prices and slowing economic growth will curb fuel use in the U.S., the biggest energy-consuming country.

The Stoxx 600 has fallen 2 percent in July, bringing its retreat this year to 22 percent. Energy and raw-materials shares including Outokumpu Oyj and SBM Offshore NV led the drop in July as tumbling prices for oil and nickel sent the Reuters/Jefferies CRB Commodity Index to its steepest monthly slump in 28 years.

National Indexes

National benchmark indexes dropped in eight of the 18 western European markets. The U.K.'s FTSE 100 lost 0.3 percent. Germany's DAX gained 0.3 percent and France's CAC slipped 0.1 percent.

Outokumpu has tumbled 31 percent this month after the world's fourth-biggest stainless-steel maker reported profit below analysts' estimates. SBM Offshore, the largest producer of floating oil production platforms, is down 38 percent for the steepest decline in the Europe Stoxx Oil & Gas Index as crude prices retreated more than 14 percent from a July 11 record.

Sanofi-Aventis sank 4.3 percent to 45.27 euros today. The drugmaker reported second-quarter earnings that missed analysts' estimates as savings from job cuts failed to offset a decline in sales. Sanofi raised its earnings guidance for the year.

Unilever dropped 8.3 percent to 17.76 euros. Net income slipped to 909 million euros ($1.4 billion) from 1.14 billion euros a year earlier, the company said, below the 914.5 million- euro median estimate of 14 analysts surveyed by Bloomberg News.

Deutsche Bank Earnings

Deutsche Bank AG, Germany's largest bank, said second- quarter profit fell 64 percent as 2.3 billion euros in writedowns led to a second straight loss at its securities unit. Earnings beat the 491 million-euro median estimate of 19 analysts surveyed by Bloomberg after a year-earlier tax charge wasn't repeated. The shares slipped 0.1 percent to 58.77 euros.

The U.S. economy grew at a 1.9 percent annualized rate in the second quarter after expanding 0.9 percent in the previous quarter, the Commerce Department said. The report also showed the economy contracted at a 0.2 percent pace in the fourth quarter of last year, compared with a previously reported 0.6 percent gain.

Initial jobless claims increased by 44,000 to 448,000 in the week ended July 26, from a revised 404,000 the prior week, the Labor Department said. Economists in a Bloomberg survey had forecast a drop in claims. The total number of people on benefit rolls rose to the most since December 2003.

European stocks had advanced earlier as earnings from AstraZeneca Plc and HBOS Plc topped analysts' estimates.

AstraZeneca, HBOS

AstraZeneca climbed 2.8 percent to 2,457 pence after the drugmaker reported second-quarter profit of $1.62 billion, topping the $1.45 billion median estimate of seven analysts surveyed by Bloomberg.

HBOS added 5.4 percent to 286 pence, paring the decline this year to 63 percent. The lender said net income dropped to 931 million pounds ($1.84 billion) from 2.1 billion pounds a year earlier. That beat the 792 million-pound average estimate of seven analysts surveyed by Bloomberg.

The MSCI World Index of 23 developed markets has declined 2.1 percent this month, extending its loss for the year to 14 percent.

Peru's IGBVL Index is the world's worst-performing equity benchmark in local currency terms since June among 88 indexes tracked by Bloomberg. The gauge has tumbled 18 percent, extending its retreat this year to 24 percent.

Turkey's ISE National 100 Index is the best performer this month. The index has jumped 19 percent in July as concern eased that Prime Minister Recep Tayyip Erdogan's government may be ousted. The ISE-100 rose 1.2 percent today after Turkey's Constitutional Court rejected yesterday a call by prosecutors to shut down Erdogan's party, which has presided over record economic growth and foreign investment.

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.

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U.K. Stocks Erase Gains, Led Lower by HSBC, BT, Unilever Shares

By Sarah Jones

July 31 (Bloomberg) -- U.K. stocks fell, led by HSBC Holdings Plc, BT Group Plc and Unilever.

The FTSE 100 Index decreased 19.5, or 0.4 percent, to 5,401.2 at 1:43 p.m. in London. The FTSE All-Share Index also retreated 0.4 percent, while Ireland's ISEQ Index lost 2 percent.

Stocks in Europe fell after revised government figures showed the U.S. economy may have tipped into a recession in the last three months of 2007 as consumer spending slowed more than previously estimated and the housing slump worsened.

HSBC, Europe's biggest bank, slid 1.8 percent to 832 pence. Lloyds TSB Group Plc, the biggest bank that depends almost entirely on fees from lending in the U.K., decreased 4.4 percent to 292.5.

BT, the U.K.'s largest phone company, dropped as much as 15 percent to 168 pence, the biggest drop in more than eight years, after reporting a fourth straight quarterly profit decline and saying margins at the global services unit may drop.

Unilever slipped 7.8 percent to 1,392. The world's second- largest consumer-products company fell the most in five years after price increases for products ranging from Magnum ice cream to Omo detergents hampered sales.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.

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Turkish Bonds, Stocks Surge on Erdogan Court Victory

By Seda Sezer and Ayla Jean Yackley

July 31 (Bloomberg) -- Turkish bonds gained the most since 2006 and stocks and the lira rose after Prime Minister Recep Tayyip Erdogan's party escaped a ban for seeking to introduce Islamic law in secular Turkey.

The Constitutional Court yesterday rejected a call by prosecutors to shut down the Justice and Development Party and ban Erdogan, sending the lira near a six-month high. The tribunal voted instead to cut state funding to the party, which has presided over record economic growth and foreign investment. Concern Erdogan would be ousted by the court helped send the ISE National 100 Index down as much as 40 percent this year.

``It's a milestone decision,'' said Vassilis Karatzas, who manages about $100 million of Turkish assets at Levant Partners Greece SA in Athens. ``In the next year or two, this decision will provide political stability in Turkey, which is important for markets.''

Yields on lira bonds fell 66 basis points, the most since November 2006, to 18.92 percent according to ABN Amro benchmark prices. The ISE-100 index added 2.1 percent. Trading in bonds and stocks had ended before last night's verdict. The currency extended gains today, rising to 1.162 per dollar.

Erdogan said last night that he'll press ahead with measures to win European Union membership for Turkey, which started entry talks with the bloc in 2005. His party's closure would have jeopardized that agenda and threatened growth in the $660 billion economy, which has expanded at an annual average pace of almost 7 percent since Erdogan came to power in 2002.

Volatility

A verdict to shut down the Justice party would have brought ``significant volatility in Turkish asset prices,'' Tolga Ediz, an economist at Lehman Brothers Holdings Inc. in London, said in a July 25 report. ``We would expect growth to suffer too.''

Citigroup Inc. upgraded Turkish equities to ``neutral'' after the ruling, saying it removed ``one of the major uncertainties hanging over the outlook.''

EU Enlargement Commissioner Olli Rehn last night urged Turkey ``now to resume with full energy its reforms to modernize the country.''

Erdogan may reshuffle his Cabinet after the ruling and start work on a new constitution that would ease the concerns of his secular opponents, Milliyet newspaper reported today, citing unidentified members of his party.

The government may also seek to sign a new accord with the International Monetary Fund within the next month and accelerate sale of assets such as power grids, the national lottery and state-run lender Turkiye Halk Bankasi AS, said Ozgur Altug, an economist at Raymond James Securities in Turkey.

Stocks and bonds slumped after prosecutors filed the lawsuit against Erdogan in March. They've rallied this month as investors bet the court wouldn't ban Erdogan's party.

Biggest Gainer

Since falling to a two-year low on July 1, the ISE-100 stock index has surged 27 percent, including a 5.6 percent jump yesterday that was the biggest in six months. The benchmark's gain in July is the largest among 88 global indexes tracked by Bloomberg News.

Eregli Demir & Celik Fabrikalari TAS, the biggest steelmaker, led today's advance, rising 6 percent. State-owned lender Turkiye Vakiflar Bankasi TAO jumped 6.3 percent, bringing its gain this week to 35 percent.

Before this month's rebound, Turkey was the cheapest market in Europe, with the ISE-100 valued at 6.5 times the average earnings of its companies, data compiled by Bloomberg show. National benchmark indexes in Ireland, the Netherlands, Belgium, and Luxembourg now trade at a lower price-to-earnings ratio than Turkey's 8.3, Bloomberg data show.

Still, there's room for the rally to continue, said Hakan Kalkan, who helps manage about $2 billion in emerging market assets at Autonomy Capital in London.

``In the next two or three months it's logical to expect that Turkey will outperform other emerging markets,'' Kalkan said.

To contact the reporters on this story: Ayla Jean Yackley in Istanbul at ayackley@bloomberg.net; Seda Sezer in Istanbul at ssezer2@bloomberg.net

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Buy Philippine Stocks on Oil Drop, Credit Suisse Says

By Ian C. Sayson

July 31 (Bloomberg) -- Investors should buy more Philippine shares because a drop in oil and commodities prices will benefit the nation the most in Southeast Asia, Credit Suisse Group said.

``The Philippines is the most exposed to falling oil and food prices,'' Sakthi Siva, a Singapore-based strategist at Credit Suisse, wrote in a report today. She raised her rating on the country's equities to ``overweight'' from ``underweight and recommends banks such as Metropolitan Bank & Trust Co.

The Philippine Stock Exchange Index has slumped 29 percent this year on speculation a U.S. recession and record oil prices will hurt earnings and economic growth. The country's inflation rate in June accelerated to 11.4 percent, a 14-year high. A drop in oil has helped the benchmark stock measure rebound 10 percent since July 3 when it closed at its lowest since September 2006.

Crude oil in New York has fallen 13 percent in that time. Food and energy account for 53 percent of Philippine inflation, the highest in the region according to Siva, who was ranked Asia's No. 2 equity strategist in Asiamoney's 2007 broker poll.

Inflation will peak next month and this should be a signal to buy Philippine stocks, she said. The Philippines is the third- cheapest market in Southeast Asia based on indicators such as price-to-book value and return on equity, Siva wrote.

Metropolitan Bank, the nation's largest lender by asset, may post a 15 percent increase in 2009 earnings per share, Gilbert Lopez, Credit Suisse's research head in Manila, wrote in a separate note. Profit at Banco de Oro Unibank Inc., the country's No. 2 bank and another of Credit Suisse's recommended stocks, may climb 17 percent, the report said.

``Over the medium term, bank earnings should benefit from lower interest rates as profitability of treasury operations should finally show an improvement,'' Lopez wrote.

To contact the reporter on this story: Ian C. Sayson in Manila at isayson@bloomberg.net

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Oil Drops on Speculation U.S. Fuel Demand Will Weaken Further

By Grant Smith

July 31 (Bloomberg) -- Crude oil declined on speculation that high prices and slowing economic growth will further reduce demand in the U.S., the world's biggest energy user.

U.S. fuel consumption averaged 20.2 million barrels a day in the past four weeks, down 2.4 percent from a year earlier, according to a weekly report by the Energy Department yesterday. Nigeria, the U.S.'s fourth-largest supplier, said production remains close to 2 million barrels a day even after recent pipeline attacks.

The price ``is not sustainable,'' said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt. ``We've seen some demand destruction already. Prices will go back to $120, and $110 before the end of the year.''

Crude oil for September delivery fell as much as $1.21, or 1 percent, to $125.56 a barrel. The contract traded for $125.79 at 1:24 p.m. London time. Prices are 62 percent higher than a year ago.

Futures gained $4.58, or 3.8 percent to settle at $126.77 yesterday, the highest close since July 22, after the Energy Department report showed gasoline inventories fell for the first week in five.

Gasoline supplies dropped 3.53 million barrels to 213.6 million barrels last week, compared with a gain of 350,000 barrels estimated in a Bloomberg News survey.

``On closer examination the gasoline data should not be regarded as that supportive,'' said Gareth Lewis-Davies, research analyst at Dresdner Kleinwort Group Ltd. ``Deliveries from refineries and terminals into the wholesale market were very large indeed, while other data has shown continuing weak retail gasoline sales.''

Even with the inventory drop, gasoline stockpiles remain 3 percent higher than the five-year average for the period.

``Do not be fooled,'' said Robert Laughlin, senior broker at MF Global Ltd. in London. ``Yes, the draw was impressive, but demand still weakens across the U.S. on a weekly basis in the midst of the driving season.''

Brent Crude

Brent crude oil for September settlement traded at $125.85 a barrel, down $1.25, at 1:18 p.m. London time on London's ICE Futures Europe exchange. The contract rose $4.39, or 3.6 percent, yesterday to settle at $127.10.

Prices are likely to slide toward $110 before the end of the year unless supply risks intensify in Iran or Nigeria, Commerzbank's Weinberg said.

Nigerian Petroleum Minister of State H. Odein Ajumogobia denied newspaper reports that militant sabotage, such as an assault this week on a Royal Dutch Shell Plc pipeline, had reduced national output to less than a million barrels a day.

Iranian Supreme Leader Ayatollah Ali Khamenei said his country will push forward with its uranium enrichament program. Speculation that Israeli will use force to stop Middle East's second-largest exporter from acquiring nuclear technology has supported prices since 2006.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

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U.S.: Q2 2008 GDP Weaker than Expected

Daily Forex Fundamentals | Written by TD Bank Financial Group | Jul 31 08 14:35 GMT |

U.S. GDP rose by 1.9% Q/Q ann., which was worse than the market consensus for a 2.3% Q/Q ann. gain.
Personal consumption rose by a strong 1.5% Q/Q ann., but was also lower than the 1.7% Q/Q ann. gain expected by the markets.
Net exports were the key contributor to economic activity during the quarter, adding a whopping 2.42 percentage points.
There were some downward revisions to GDP over the past year, with Q4 GDP revised significantly downwards, from 0.6% Q/Q ann. to -0.2% Q/Q ann.

The U.S economy grew by 1.9% Q/Q ann. in Q2, following the downwardly revised 0.9% Q/Q ann. increase in Q1 (previously reported as +1.0% Q/Q ann.). The growth in Q2 GDP was much lower than the 2.3% Q/Q ann. expected by the markets. Consumer spending, which was boosted by the federal fiscal stimulus package, was one of the key drivers of the resurgence in economic activity, rising by 1.5% Q/Q ann., up from the 0.9% Q/Q ann. pace of growth in Q1. On the whole, personal spending contributed a massive 1.08 percentage point to GDP during the quarter, which is significantly higher than the 0.61 percentage points contributed in Q1.

Exports were another strong driver of growth, as they rose by a strong 9.2% Q/Q ann., while imports dropped for the third straight quarter, falling by 6.6% Q/Q ann., following the 0.8% decline in Q1. As a result, net trade added a whopping 2.42 percentage points to GDP, which was the biggest contribution of this component since 1980. The rest of the details of the report, however, were quite mixed. Residential construction fell for the tenth consecutive quarter, falling by 15.6% Q/Q ann., but was better than the 25.0% Q/Q ann. drop in Q1, suggesting that the pace of decline may be slowing.

In terms of revisions, there were significant downward revisions to some of the previously reported GDP numbers. In addition to the modest drop in Q1 2008 GDP from 1.0% Q/Q ann. to 0.9% Q/Q ann., Q4 2007 GDP was revised lower, from +0.6% Q/Q ann. to -0.2% Q/Q ann., which is the first negative print on U.S GDP since Q3 2001.

Despite the weaker than expected print on U.S. GDP in Q2, the report is unlikely to sway the Fed's interest rate decision next week in either direction, since output growth in 2008 is likely to remain in line with the Fed's central tendency of 1% to 1.6%. U.S. consumers continue to be buffeted by the headwinds of a deteriorating labour market, high energy prices, wealth reduction from the prolonged correction in the housing market and tighter credit conditions. As such, consumer spending (which accounts for over 70% of U.S. economic activity) is likely to be subdued in the coming months, adversely affecting economic activity in the second half of 2008.

TD Bank Financial Group

The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.

U.S.: Q2 2008 GDP Weaker than Expected

Daily Forex Fundamentals | Written by TD Bank Financial Group | Jul 31 08 14:35 GMT |

U.S. GDP rose by 1.9% Q/Q ann., which was worse than the market consensus for a 2.3% Q/Q ann. gain.
Personal consumption rose by a strong 1.5% Q/Q ann., but was also lower than the 1.7% Q/Q ann. gain expected by the markets.
Net exports were the key contributor to economic activity during the quarter, adding a whopping 2.42 percentage points.
There were some downward revisions to GDP over the past year, with Q4 GDP revised significantly downwards, from 0.6% Q/Q ann. to -0.2% Q/Q ann.

TD Bank Financial Group

Canadian GDP Disappoints in May Following April's Jump

Daily Forex Fundamentals | Written by RBC Financial Group | Jul 31 08 14:05 GMT |

May GDP unexpectedly weakened, dropping 0.1% in the month following a strong 0.4% jump in April. Market expectations had been for GDP to rise 0.2%.

The weakness May GDP was largely concentrated in the goods-producing sector where activity fell 0.5%. The weakness was relatively broadly based and led by a 1.2% drop in mining and oil and gas extraction. High commodity prices may be affecting demand, sending volumes lower, although Statistics Canada also mentioned that wet weather in the month impaired drilling activity.

Manufacturing activity eked out a 0.1% gain despite motor vehicle and parts production dropping a sizeable 3.6%, with gains in a number of non-durable components along with production of machinery and equipment providing an offset. The ending of a strike in a key U.S. auto parts producer late in May could contribute to a rebound in the auto sector in June. Output in the service-producing sectors was unchanged.

The drop in May GDP only partially retraced April's solid increase of 0.4%. This earlier gain should prove sufficient to move growth back into the positive column after the modest 0.3% annualized decline in the first quarter. However, the growth will likely be minimal and close to the Bank of Canada's estimated increase in the second quarter of 0.8% assuming that there is some recovery in both drilling activity and motor vehicle production.

This modest pace of growth will keep the Bank of Canada wary about the downside risks to activity, particularly given ongoing concerns about U.S. growth once the boost from fiscal policy dissipates by the fourth quarter. Today's report reinforces out expectation that the overnight rate will remain unchanged at 3.00% through early 2009.

RBC Financial Group
http://www.rbc.com

The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.

Mid-Day Report: Dollar Tumbles on GDP & Jobless Claims, But Supported by Chicago PMI

Market Overview | Written by ActionForex.com | Jul 31 08 13:52 GMT |

Mid-Day Report: Dollar Tumbles on GDP & Jobless Claims, But Supported by Chicago PMI

Dollar retreats further against most major currencies in early US session Q2 GDP missed expectation and grew at 1.9% annualized rate. GDP price index was rose much less than expected at 1.1%. Personal consumption grew 1.5% while PCE core was also below expecting, growing 2.1%. Jobless claims released today surged sharply to 448k, adding more pressure to the greenback. Though, better than expected Chicago PMI is providing some support to the greenback.

Nevertheless, the retreat in dollar is somewhat expected from a technical point of view on overbought condition. With near term support still holding, the overall short term dollar bullish outlook doesn't change but will probably need a solid NFP number tomorrow to trigger another rally.

Canadian dollar remains in tight range against the greenback after data showed the economy unexpectedly contracted by -0.1% mom in May. Aussie continued to be weighed down by disappointing retail sales released overnight and recovers relatively much weaker than other majors. Retail sales miss expectation and dropped -1.0% mom in Jun. Australia trade balance unexpectedly showed 411M surplus in Jun.

Eurozone Jul HICP flash released earlier today showed inflation climbed to 16 years high of 4.1% yoy. Unemployment rate also climbed from 7.2% to 7.3% in Jun. Data from UK saw Gfk consumer confidence tumbled to record low of -39 in Jul. Nationwide house price dropped more than expected by -1.7% mom, -8.1% yoy in Jul. Swiss CPI dropped -0.4% mom, rose 3.1% yoy in Jul, above expectation of -0.5% mom, 3.0% yoy. Some volatility is seen in EUR/GBP but after all the cross is still staying in tight range. Weakness is more apparent in the Swissy as seen in strength in both EUR/CHF and GBP/CHF crosses.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 1.0441; (P) 1.0481; (R1) 1.0522; More

USD/CHF's retreat from 1.0520 continues as expected. As discussed before, mild bearish divergence conditions in 4 hours MACD suggests that USD/CHF could now be in consolidation to whole rise fro 1.0010. More choppy sideway trading could be seen with risk of pull back to 4 hours 55 EMA (now at 1.0357). But still, downside is expected to be contained by 1.0314 support and bring another rise. On the upside, though, break of 1.0520 will indicate rise from 1.0010 has resumed for 1.0623 resistance.

In the bigger picture, recent development indicates that correction from 1.0623 should have completed at 1.0010 after meeting 61.8% retracement of 0.9634 to 1.0623 at 1.0012. Also, with 0.9995 structural support still holding, medium term rebound from 0.9634 is still in progress. Break of 1.0539 will argue that such medium term rebound has resumed for next cluster resistance (100% projection of 0.9634 to 1.0623 from 1.0010 at 1.0999, 38.2% retracement of 1.3283 to 0.9634 at 1.1028 for completion. On the downside, break of 0.9995/1.0010 support zone is needed to indicate that rise from 0.9634 has completed. Otherwise, further rally is still in favor even in case of a deep short term pull back.

USD/CHF 4 Hours Chart - Learn Forex, Trade Forex, Forex News, Forex Headlines

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
23:01	GBP	U.K. Gfk Consumer confidence Jul	-39	-37	-34
23:15	JPY	Japan Manufacturing PMI Jul	47	N/A	46.5
01:30	AUD	Australia Trade balance (aud) Jun	411M	-100M	-965M
01:30	AUD	Australia Retail sales M/M Jun	-1.00%	0.00%	0.70%
05:00	JPY	Japan Housing starts Y/Y Jun	-16.70%	-18.10%	-6.50%
05:00	JPY	Japan Construction orders Jun	-11.70%	N/A	-25.20%
05:45	CHF	Swiss CPI M/M Jul	-0.40%	-0.50%	0.20%
05:45	CHF	Swiss CPI Y/Y Jul	3.10%	3.00%	2.90%
06:00	GBP	U.K. Nationwide hse price M/M Jul	-1.70%	-1.20%	-0.9	-0.8
06:00	GBP	U.K. Nationwide hse price Y/Y Jul	-8.10%	-7.20%	-6.30%
08:00	EUR	Germany Unemployment rate Jul	7.80%	7.80%	7.80%
08:00	EUR	Germany Unemployment change Jul	-20.0K	-20.0K	-38.0K	-36.0K
09:00	EUR	Eurozone HICP flash Y/Y Jul	4.10%	4.10%	4.00%
09:00	EUR	Eurozone Euro zone CPI est. Y/Y Jul	4.10%	4.10%	4.00%
09:00	EUR	Eurozone Unemployment rate Jun	7.30%	7.20%	7.20%	7.30%
12:30	CAD	Canada GDP M/M May	-0.10%	0.20%	0.40%
12:30	USD	U.S. GDP annualised A Q2	1.90%	2.20%	1.00%	0.90%
12:30	USD	U.S. GDP Price Index Q/Q A Q2	1.10%	2.40%	2.70%	2.60%
12:30	USD	U.S. Personal consumption Q2	1.50%	1.40%	1.10%	0.90%
12:30	USD	U.S. PCE core Q/Q A Q2	2.10%	2.20%	2.30%
12:30	USD	U.S. Jobless claims	448K	390K	406K	404K
13:45	USD	U.S. Chicago PMI Jul	50.8	49	49.6

U.S. Economy Grew at a 1.9% Annualized Pace in the Second Quarter

Daily Forex Fundamentals | Written by RBC Financial Group | Jul 31 08 14:04 GMT |

The U.S. economy pumped out a modestly weaker-than-expected growth rate in the second quarter, with real GDP growth of 1.9% at an annualized rate, slower than the consensus forecast for a 2.3% increase.

The benchmark revisions showed that 2007 growth in the U.S. economy was 2%, slower than the prior estimate of 2.2%, and that economic activity contracted at a 0.2% annualized pace in the fourth quarter of 2007, much slower than the prior estimate of a 0.6% rise. Growth in the first quarter 2008 was revised marginally lower as well to 0.9% from 1%.

The acceleration in economic growth in the second quarter of 2008 reflected a pick-up in personal consumption, which increased at a 1.5% annual pace, up from 0.9% in the first quarter. Spending was concentrated in non-durable goods, which rose 4% in the quarter, with spending on services rising 1.1% and purchases of durable goods falling at a 3% annualized pace. The receipt of tax rebate cheques from the U.S. government's fiscal stimulus package boosted disposable personal incomes in the quarter and supported the stronger consumer spending.

Investment continued to contract on the back of a 15.6% annualized drop in residential fixed investment with spending on equipment and software slipping by 3.4% but investment in non-residential structures rising at a 14.4% annual rate. The trade sector gave a strong boost to the economy, contributing 2.4 percentage points to the quarterly growth rate as exports grew at a 9.2% pace and imports (which are subtracted from the GDP calculation) contracted at a 6.6% rate. Partially offsetting the trade sector's contribution was a significant paring of inventories, which trimmed 1.9 percentage points from the economy's growth rate in the quarter.

On the inflation front, the PCE deflator increased at a 4.2% annual rate in the second quarter, faster than the first quarter's 3.6% pace. Excluding food and energy prices, the deflator rose at a 2.1% pace, slower than the first quarter’s 2.3% pace.

Strengthening consumer expenditures and falling inventories are generally a favourable mix for growth in subsequent quarters. However, much of the strength in consumer spending was related to the receipt of the tax rebate cheques the effect of which is likely to wane over the second half of the year and the paring of inventories, which may denote that businesses are anticipating a significant period of weaker activity.

This slowing in combination with energy prices remaining high and languishing equity markets provides clear downside risks to growth in the quarters ahead. At the same time, the rise in the GDP deflator highlights the growing upside risks to the inflation outlook. Our forecast is that, against this backdrop of slowing economic growth but elevated headline inflation, the Fed will hold the policy rate steady at 2% and continue to closely monitor the economic data to determine whether it is the growth or the inflation risk that is beginning to dominate.

RBC Financial Group
http://www.rbc.com

Morning Market Recap: Markets Shirk at GDP Misses and Jobless Claims

Market Updates | Written by CEP News | Jul 31 08 12:56 GMT |

(CEP News) - Growth figures in the United States and Canada were weaker than expected while jobless claims shot higher, sending equity futures reeling and North American currencies scrambling.

The advance U.S. GDP report came in lower than expected in the second quarter of 2008, rising by 1.9% against expectations of 2.3% growth, according to the Bureau of Economic Analysis. At the same time, the fourth quarter of last year was revised to -0.2% from +0.6%.

Canada's gross domestic product took a small dip in May, falling 0.1% from the previous month. Economists had been looking for a 0.2% increase following the previous month's +0.4% reading.

At the same time, initial claims for unemployment benefits in the United States climbed to 448,000 in the week ending July 26 - the highest since April 2003.

S&P futures were up three points before the data but were down eight points following the data. Similarly, Dow futures were up 10 points before tumbling 94. The Canadian and U.S. dollars traded in a relatively tight range before and after the releases but both tumbled against the euro. The euro climbed to 1.5669 from 1.5613 against the greenback and to 1.6070 from 1.5969 against the loonie.

In fixed income, U.S. 10-year yields fell to 3.96% from 4.04%. In Canada, 10-year yields fell to 3.74% from 3.81%.

U.S. two-year yields are down 11.3 bps to 2.52%, with five-year yields down 10.9 bps to 3.26%, 10-year yields down 8.0 bps to 3.96% and 30-year yields down 6.1 bps to 4.58%. The Eurodollar March 09 contract is up 9.5 ticks to 96.96. The yield curve is steeper, with the 10/2-year spread up 3.1 bps to 144.47 bps.

Yields on two-year Canadian government bonds are down 9.7 bps to 2.97%, with five-year yields down 9.8 bps to 3.28%, 10-year yields down 8.4 bps to 3.74% and 30-year yields down 5.2 bps to 4.12%. The December 08 BAX contract is up 8.0 ticks to 96.98. The Canadian 10-year note is yielding 22.67 bps less than the U.S. 10-year note.

In Germany, returns on two-year German bonds are down 3.1 bps to 4.28%, with five-year yields down 4.3 bps to 4.31%, 10-year yields down 2.8 bps to 4.39% and 30-year yields down 1.6 bps to 4.68%.

Yields on UK two-year bonds are down 2.5 bps to 4.80%, with five-year yields down 2.2 bps to 4.79%, 10-year yields down 3.0 bps to 4.82% and 30-year yields down 0.6 bps to 4.52%.

U.S. equity market futures are lower with contracts on the Dow Jones industrial average down 94 points to 11486, the S&P 500 down eight points to 1276 and the Nasdaq down 14 points to 1843.

European stock markets are mixed, with the Eurostoxx down five points to 2877, the UK FTSE 100 down 14 points to 5406 and the German DAX up 12 points to 6473.

Asian markets were higher, with the Japanese Nikkei closing up nine points to 13377 and the Hang Seng Index up 41 points to 22731.

The Canadian dollar is down 0.0022 to 0.9750 against the U.S. dollar (1.0254 USD/CAD) and down 0.63 to 105.07 against the yen.

The U.S. dollar is down 0.38 to 107.75 against the yen and the Dollar Index is down 0.082 to 73.240.

The euro is up 0.0093 to 1.5669 against the U.S. dollar, up 0.0134 to 1.6070 against the Canadian dollar, up 0.0028 to 0.7887 against the pound sterling and is higher by 0.43 to 168.84 against the yen.

The pound sterling is up 0.0051 to 1.9868 against the U.S. dollar and up 0.0100 to 2.0375 against the Canadian dollar.

WTI crude oil is down $0.41 to $126.36. The front month gold contract at the Chicago Board of Trade is up $11.70 to $923.90 per ounce.

All data taken at a.m. EDT.

By Adam Button, abutton@economicnews.ca, edited by Nancy Girgis, ngirgis@economicnews.ca

The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News.

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Revised Figures Shed New Light On The Economy's Resiliency

Daily Forex Fundamentals | Written by Wachovia Corporation | Jul 31 08 14:02 GMT |

Real GDP grew at a 1.9 percent annual rate in the second quarter and revised figures for the past three years show growth was slightly weaker than first reported. The second quarter saw a huge $62.2 billion drop in inventories, which shaved 1.9 percentage points off growth. Fourth quarter GDP was revised down and is now slightly negative.

Sluggish Growth But No Recession Just Yet

Second quarter real GDP expanded at a 1.9 percent annual rate and growth for the past three years was revised down by 0.1 percentage point. The annual revision to the GDP figures produced much less change to the data than had been feared. One notable change is that the economy now shows a modest contraction in the fourth quarter of 2007 and essentially no growth in the first quarter of that year. The revisions show the economy is continuing to operate at a level just slightly better than what we would see in an outright recession. Growth is narrowly focused, however, with most of the improvement coming from net exports. Domestic demand remains extremely weak. Real final sales to domestic purchasers are now up just 0.8 percent over the past year, which is the weakest performance since the 1990/91 recession.

Real personal consumption expenditures grew at a less-robust-than-expected 1.5 percent during the second quarter. The impact of the stimulus is still evident in the figures but it appears to have been concentrated in nondurable goods. Spending for nondurable goods rose at a 4.0 percent annual rate, while spending on big-ticket items fell at a 3.0 percent pace. Services outlays also packed much less punch, rising at just a 1.1 percent annual rate. That marks the weakest gain since the first quarter of 1991 and reflects a decline in spending for travel and a sharp slowdown in spending on housing. Consumers are increasingly doubling up, reducing the demand for both for-sale and rental housing.

Gains in consumer spending were more than offset by a $62.2 billion plunge in inventories, reflecting declines in both output and imports. The large drop in second quarter inventories should make it easier for third quarter growth to remain in positive territory, particularly with the recent strength we have seen in non-defense capital goods orders and continued strong shipments data from West Coast ports. Another bit of encouraging news is that the drag from the housing slump appears to be diminishing. Residential construction declined at a 15.6 percent pace in the second quarter, following declines of 25 percent in the first quarter and 27 percent and 20.6 percent in the two quarters prior to that.

If We Do Not Have A Recession Why Do We Feel So Bad?

Most surveys show that the vast majority of consumers believe the economy is currently in recession and consumer confidence has rarely been this low. The GDP figures show that conditions are not quite that dire, with output climbing 1.8 percent over the past year. We have long held that the best measure of the economy most consumers interact with on a daily basis is final sales to domestic purchasers. On this basis the economy has actually been weaker than it was in the last recession.

Wachovia Corporation
http://www.wachovia.com

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