Bernanke Plays `Dangerous Game' Balancing Rate Talk With Action

By Scott Lanman

June 24 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, by voicing concern about inflation and the slumping dollar, has fanned investor expectations for an interest-rate increase as soon as August. He may regret it.

Raising rates may exacerbate the economic slowdown and roil banks whose losses sent their stocks down the most in a decade this month. Forgoing a rate boost next quarter risks damaging the Fed's credibility and deepening its divisions. Already this year, three officials have dissented on rate decisions.

While Bernanke's warning that the Fed will ``strongly resist'' a jump in inflation expectations led traders to bet on a rate increase, economists are more skeptical. All 101 in a Bloomberg News survey said the Federal Open Market Committee will keep the benchmark rate unchanged tomorrow and most analysts this month predicted officials will stand pat until 2009.

``That's the dangerous game,'' said Scott Anderson, senior economist in Minneapolis at Wells Fargo & Co., the fourth- largest U.S. bank by market value. ``Instead of putting the shot across the bow on inflation,'' Bernanke might have ``held off a few more months to let the credit crisis heal a little bit more.''

The Fed chief shifted stance after soaring costs of energy and imported goods threatened to stoke consumer price expectations. Gasoline climbed 37 percent in the past year, according to AAA. Import prices excluding petroleum rose the most since 1988 in the 12 months to May, government figures show.

Bernanke's Message

Bernanke said at a Boston Fed conference June 9 the risk of a ``substantial downturn'' in the economy had diminished and accelerating inflation ``would be destabilizing for growth.'' The previous week, he said the falling dollar caused an ``unwelcome'' increase in domestic prices and the Fed was ``attentive'' to the problem.

There are widespread expectations among traders for a rate rise in the next three months: There are 36 percent odds of a boost in August and 93 percent in September, according to futures contracts on the Chicago Board of Trade. Economists in a monthly Bloomberg survey through June 11 projected the Fed will keep the rate at 2 percent this year, according to the median estimate.

The FOMC begins gathering today in Washington and will issue its statement tomorrow around 2:15 p.m.

`No Bite'

``Unless the inflation expectations and the numbers come down, they're going to have to raise rates,'' William Ford, a former Atlanta Fed chief who's now at Middle Tennessee State University in Murfreesboro, said in a Bloomberg Radio interview. ``If he's saying we're going to fight inflation but he's all bark and no bite, division is what's going to happen.''

Dallas Fed President Richard Fisher, Philadelphia Fed chief Charles Plosser and William Poole, who retired from the St. Louis Fed in March, dissented on rate decisions this year.

The FOMC usually has seven Fed board members and five district-bank heads. Two board positions are now vacant, and a third opens in August with Governor Frederic Mishkin's departure.

That means the presidents, who tend to dissent more than governors, may get a majority. The Senate has yet to confirm the Bush administration's board nominees, though Democratic Senator Christopher Dodd of Connecticut, who chairs the Senate Banking Committee, has said he may hold a vote on at least one of the picks.

Officials are increasingly sounding the alert that they're prepared to raise rates this year.

`Act Preemptively'

``If we don't take action and stay on top of the situation,'' inflation will probably accelerate, James Bullard, Poole's successor, said June 11. Bullard doesn't vote this year. The Fed must ``act preemptively,'' Plosser said June 12.

Consumers anticipate annual inflation of 3.4 percent in the coming five years, a 13-year high, a Reuters/University of Michigan survey showed this month. A measure of price expectations based on 10-year Treasury inflation-protected securities has also risen this year, to 2.46 percent.

A measure of prices tied to consumer spending has averaged annual gains of 3.3 percent so far this year, up from 2.5 percent in 2007. Excluding food and energy costs, the Commerce Department's index has averaged 2 percent increases this year, compared with a 1.8 percent average pace since 1998.

Bernanke has said the slowdown should alleviate price pressures. The economy expanded 0.9 percent in the first quarter, capping the weakest six-month performance in five years.

Bank Losses

The downturn is weakening U.S. banks already struggling with the credit crisis and the worst housing slump in a quarter century.

The Standard & Poor's 500 Banks Index is down 20 percent in June, on course for the worst month since August 1988. More than 100 lenders have been forced to close, halt operations or sell themselves since the beginning of last year.

Fifth Third Bancorp, Ohio's second-biggest bank, said June 18 most of its quarterly profit will evaporate after already posting nine consecutive declines.

``The issue here is whether the Fed is willing to risk an escalation of inflation and then a bigger recession later, or acts earlier, taking a risk of a smaller recession, but preventing inflation from getting out of hand,'' Poole said in a Bloomberg Television interview.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net





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FOREX-Yen under pressure, hits 11-mth low vs euro

By Ian Chua

LONDON, June 24 (Reuters) - The yen plumbed an 11-month low versus the euro and lost ground against the dollar on Tuesday on talk that investors in Japan were using summer bonuses to buy higher yielding assets overseas.

This contrasted with a Reuters poll showing Japanese individual investor sentiment on the stock market grew less negative in June, which should be a positive for the currency. For more on the poll, see [ID:nTKF003220]

"The market seems to be fixated with the idea that Japanese retail investors are sellers of yen," said Adam Cole, global head of FX currency strategy at RBC Capital Markets in London.

"Yen weakness seems to be driven by talk of strong retail outflows from Japan into overseas assets, possibly associated with the allocation of summer bonuses into overseas bond funds."

While investors might be more upbeat on Japanese equities, the search yield was highlighted by expectations for Japanese interest rates to stay on hold this year as euro area and U.S. borrowing costs rise.

Investors were also unwinding positions ahead of the outcome of the Federal Reserve policy meeting due on Wednesday after having sold the euro on the back of disappointing euro zone data in the previous session.

At 0800 GMT, the euro was up 0.2 percent against the greenback at $1.5560, recovering from Monday's fall to about $1.5467 after a closely watched survey showing contraction in the euro zone's manufacturing and service sectors.

The single currency gained 0.5 percent versus the Japanese currency to 168.03 yen after earlier reaching an 11-month peak of 168.26 yen.

The dollar rose 0.2 percent against a broadly softer yen to 108.00 yen, while the Australian dollar reached a seven-month high above 103 yen .

Against a basket of major currencies, the dollar slipped 0.2 percent to 73.279 .DXY.

Data on Tuesday was mixed. A report by market research firm GfK showed German consumers were likely to be less ready to spend money in July on worries about rising energy bills, and Italian consumer morale fell sharply in June.

But consumer spending in France jumped 2.0 percent in May, beating the consensus forecast in a Reuters poll for a rise of 0.7 percent.

FED MAY DISAPPOINT?

The Fed statement due on Wednesday following the two-day policy meeting will be the key driver for currencies this week.

While the U.S. central bank is widely expected to keep the key Fed funds rate unchanged at 2.0 percent, investors are keenly awaiting confirmation of market pricing of nearly 75 basis points worth of hikes by year-end. See [FEDWATCH].

But some analysts said the U.S. central bank might be less hawkish than some in the market are expecting.

"We expect this week's FOMC meeting to disappoint the market's expectation of three U.S. rate hikes before the end of the year," said UBS analysts in a report.

"In contrast the ECB is likely to raise interest rates next month so the euro should trade back towards the top of its $1.53/1.60 range. This will also drag euro/yen up as the Bank of Japan, like the Fed, is unlikely to raise interest rates either."

Reflecting a stronger risk taking mood among investors, European stocks were slightly higher in early trade .






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Germany's DAX Index Erases Gains; Deutsche Post, Daimler Fall

By Henrietta Rumberger

June 24 (Bloomberg) -- German stocks erased earlier gains as Deutsche Post AG and Daimler AG declined. Deutsche Telekom AG, Europe's largest telephone company, led rising shares.

The benchmark DAX Index was little changed at 6,592.18 as of 9:44 a.m. in Frankfurt after climbing as much as 0.4 percent. DAX futures expiring in September slipped 0.1 percent to 6,659. The HDAX Index of the country's 110 biggest companies added less than 0.1 percent to 3,400.55.

German consumer confidence dropped to the lowest in more than two years as soaring energy prices sapped people's purchasing power. GfK AG's index for July, based on a survey of about 2,000 people, declined to 3.9 from a revised 4.7 in June, the Nuremberg-based market-research company said today.

Deutsche Post, Europe's biggest postal service, declined 21 cents, or 1.2 percent, to 17.44 euros. United Parcel Service Inc., the world's largest package-delivery company, lowered its profit forecast because of rising fuel costs and a slowing U.S. economy.

Daimler, the world's second-biggest maker of luxury cars, lost 62 cents, or 1.4 percent, to 42.91 euros.

Deutsche Telekom gained 18 cents, or 1.8 percent, to 10.38 euros. The stock was raised to ``overweight'' from ``equal- weight'' by Morgan Stanley, which said long-term investors ``should begin to build positions.''

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





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European Stocks Fall; U.S. Index Futures Are Little Changed

By Adria Cimino

June 24 (Bloomberg) -- European stocks fell for a fifth day as higher oil prices weighed on earnings prospects for carmakers and airlines, while Kesa Electricals Plc said sales weakened. U.S. index futures were little changed, and Asian financial shares dropped.

Daimler AG, the world's second-largest maker of luxury cars, and Ryanair Holdings Plc, Europe's biggest discount carrier, declined as oil rose for a third day. Kesa dropped after Europe's third-largest consumer-electronics retailer refrained from announcing a stock buyback after sales growth weakened in its second half.

The Dow Jones Stoxx 600 Index lost 0.3 percent to 293.97 at 9:35 a.m. in London. Futures on the Standard & Poor's 500 Index rose less than 0.1 percent, while the MSCI Asia Pacific Index decreased less than 0.1 percent.

The Stoxx 600 has tumbled 19 percent this year on speculation higher inflation will keep policy makers from cutting borrowing costs, while credit-related losses approaching $400 billion erode economic and profit growth.

National benchmark indexes decreased in 12 of the 17 western European markets that were open. France's CAC 40 and Germany's DAX fell 0.3 percent. The U.K.'s FTSE 100 gained 0.2 percent.

Daimler slid 2.7 percent to 42.36 euros. Fiat SpA, Italy's biggest carmaker, retreated 2.2 percent to 11.33 euros.

Ryanair lost 1.9 percent to 2.91 euros.

Crude rose as the U.S. dollar dropped, enhancing the appeal of commodities as an inflation hedge, and OPEC's secretary- general said the group won't increase production.

Oil for August delivery increased as much as $1.16, or 0.9 percent, to $137.90 a barrel in electronic trading on the New York Mercantile Exchange.

Consumer Confidence

Kesa sank 5.3 percent to 165.25 pence. Chief Executive Officer Jean-Noel Labroue said profit and sales growth weakened over the second half and that a drop in consumer confidence is continuing. Kesa, which raised 550 million euros ($856 million) by selling its BUT unit, refrained from announcing the timing or amount of a share buyback.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.




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European shares turn negative, autos weigh

LONDON, June 24 (Reuters) - European shares gave up gains to turn negative early on Tuesday as weaker auto and utility stocks more than offset gains in oil shares that tracked crude higher.

At 0824 GMT, the FTSEurofirst 300 index of top European shares was down 0.1 percent at 1,221.52 points after earlier rising to as high as 1,229.08.

Auto stocks fell, led lower by the stronger euro and concerns about the U.S. market. BMW fell 1.8 percent, Daimler (DAIGn.DE: Quote, Profile, Research, Stock Buzz) lost 2.5 percent and Fiat slipped 4 percent.

BP , Shell and Total gained 0.8-1.0 percent as crude rose more than $1 a barrel to around $138.

(Reporting by Sitaraman Shankar)





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Oil extends gains as Asian steel makers drop

Tue Jun 24, 2008 2:44am EDT

By Rafael Nam

HONG KONG (Reuters) - Oil prices climbed further on Tuesday, propped up by worries over supply disruptions in Nigeria and tensions in the Middle East, while Asian stocks eased to new multi-month lows on concerns about the U.S. economy.

Surging energy costs in Asia coincide with signs of a global economic slowdown, a bad omen for a region that relies on exports to help fuel profits.

United Parcel Service Inc , the world's largest package delivery company, warned on Monday that high fuel prices and a sluggish U.S. economy will hit its second-quarter earnings would be below expectations.

Trading was thin, with the dollar and regional bonds steady as investors wait for the outcome of a two-day U.S. Federal Reserve meeting that is widely expected to end on Wednesday with no change to interest rates.


European shares were set to open flat on Tuesday as well.

"Investors are holding back ahead of the U.S. interest rate meeting, as they are keen on hearing the Fed's comments on the economy and any hints about its future stance," said Bae Sung-young, a market analyst at Hyundai Securities in Seoul.

"What the market needs is some sort of positive outlook from the Fed, but we'll see about that."

The MSCI index of Asian stocks outside Japan inched down 0.1 percent, after at one point hitting its lowest since late March.

The index has fallen some 17 percent so far this year, reflecting investor unease about inflation and the global economy, as well as fears of more write-downs by financial firms.

Asian central banks from China to Vietnam, are being forced to tighten monetary policy, as they grapple with surging energy and food costs, bringing an end to several years of double-digit growth in several of the region's bourses.

Tokyo's Nikkei average .N225 closed flat.

Shares in Taiwan fell 1.8 percent, while markets in South Korea , Hong Kong .HSI, and Singapore .FTSTI were down less than 1 percent each.

But shares in Australia and India .BSESN rose, while Shanghai's main index .SSEC gained 1.8 percent.

STEEL MAKERS HIT

Among the big movers in the region, shares in steel makers slumped after Baoshan Iron and Steel (Baosteel) (600019.SS: Quote, Profile, Research, Stock Buzz) agreed on behalf of the Chinese steel industry to the steepest price rise in at least a decade for iron ore term contracts with Rio Tinto

Baosteel shares dropped as much as 10 percent at one point, while South Korea's POSCO fell 1.9 percent, as concerns it would also have to pay up offset its announcement on Tuesday it would raise steel prices.

Australia-listed shares of Rio Tinto gained 3.2 percent, while rival BHP Billiton , which has not signed a deal, rose 2.9 percent in Sydney on expectations it will also win better terms.

BHP had previously launched a formal bid for rival Rio Tinto.

Meanwhile, shares in Origin Energy surged 5.7 percent after British gas producer BG Group submitted a hostile $13.1 bid for the Australian firm.

OIL GAINS

U.S. crude futures prices rose for a third consecutive session, up 15 cents at $136.89 a barrel as of 2:05 a.m. EDT, after already gaining more than $1 on Monday. Oil hit a record $139.89 on June 16.

Saudi Arabia's recent pledge to increase output has been overshadowed by a limited strike by some oil workers at Chevron in Nigeria, raising concerns that supply from the oil producing nation could be disrupted, though it hasn't yet.

On top of that, Iran and Israel are engaged in an escalating exchange of sharp words this month, adding to concerns over supply.

The dollar edged up on Tuesday to 108.05 yen, holding below a four-month high of 108.59 yen hit last week, ahead of the Fed meeting. The euro was little changed at

$1.5522.

The region's government bonds were also largely flat ahead of the Fed. Japan's September 10-year futures were up 0.05 point at 134.05 by early afternoon.





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Gold Gains as Crude Rises, Spurring Demand for Inflation Hedge

By Feiwen Rong

June 24 (Bloomberg) -- Gold rose as crude oil traded above $137 a barrel for a second day, spurring demand for the precious metal as a hedge against inflation. Silver also gained.

Crude oil futures rose for a third day in New York amid signs that an increase in output by Saudi Arabia may not boost supply enough to make up for disruptions in Nigeria. Gold has gained 6.2 percent this year as crude oil soared 43 percent. Investors usually buy gold to preserve buying power amid rising inflation.

``Gold is supported by the inflation scare, especially in emerging markets such as China and India,'' Wei Yanan, an analyst at Jingyi Futures Co., said today by phone from Shanghai.

Bullion for immediate delivery climbed 0.2 percent to $885.75 an ounce at 10:24 a.m. in Singapore, paring yesterday's 2.1 percent decline that was driven by the dollar's gain against the euro. Silver rose 0.3 percent to $16.845 an ounce.

An agreement yesterday by Baosteel Group Corp., China's largest steelmaker, to pay about 80 percent more for iron ore from Rio Tinto Group further stoked inflationary concern as manufacturers will try to pass cost increases, Wei said.

China's producer prices accelerated 8.2 percent last month, their fastest pace in more than three years. Consumer prices in the world's largest consumer of commodities gained 7.7 percent in May, beating the government's annual target of 4.8 percent.

Fed Decision

Still, gold's gains may be limited amid expectations that the dollar may rise before Federal Reserve policy makers agree this week to keep the benchmark interest rate on hold at 2 percent, Wei added. The Fed is scheduled to convene for a two-day meeting today.

The dollar was little changed today against the euro before an industry survey that may show U.S. consumer confidence slumped to the lowest since 1992 amid a housing recession. The dollar traded at $1.5519 against the euro at 9:00 a.m. in Singapore.

Gold for August delivery was little changed at $888 an ounce in after-hours electronic trading on Comex at 9:44 a.m. Singapore time.

Gold for April 2009 delivery fell 46 yen, or 1.5 percent, to 3,103 yen a gram ($894 an ounce) on the Tokyo Commodity Exchange at 10:45 a.m. local time. Gold for December traded in Shanghai fell 2 percent to 196.61 yuan a gram ($890 an ounce).

To contact the reporter for this story: Feiwen Rong in Singapore at frong2@bloomberg.net




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Oil Rises as Nigeria Supply Disruptions Outweigh Saudi Pledge

By Christian Schmollinger

June 24 (Bloomberg) -- Crude oil rose for a third day in New York as disruptions in Nigeria have removed more supply from the market than Saudi Arabia's promised output increase.

Attacks on a Royal Dutch Shell Plc platform and a Chevron Corp. pipeline last week halted 300,000 barrels a day of Nigerian output. The country's white-collar oil union began a strike against Chevron today that may stop up to 350,000 barrels a day. Saudi Arabia will pump an extra 200,000 barrels a day next month, Oil Minister Ali al-Naimi said June 22.

``When you have so many short-termed focused traders in the market, something like what's happening in Nigeria has a big influence,'' said Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne.

Crude oil for August delivery climbed as much as 74 cents, or 0.5 percent, to $137.48 a barrel on the New York Mercantile Exchange. The contract was trading at $136.94 a barrel at 9:40 a.m. in Singapore.

Prices touched a record $139.89 on June 16 and are up 99 percent in the past year. Yesterday, oil rose $1.38, or 1 percent, to settle at $136.74 a barrel.

An attack on Shell's Bonga platform, off the coast of Nigeria, on June 19 may halt deliveries for as long as six weeks, the company said last week. The field produces about 190,000 barrels a day. Chevron halted 120,000 barrels a day of onshore production after its pipeline was blown up last week.

After the latest round of attacks, the Movement for the Emancipation of the Niger Delta said it will declare a cease- fire starting today to ``give peace and dialogue another chance.'' Action against foreign oil companies in Nigeria will end at midnight local time today, the group said.

Low-Sulfur Oil

Brent crude oil for August settlement was at $136.02 a barrel, up 11 cents, on London's ICE Futures Europe exchange at 9:26 a.m. Singapore time. It rose $1.05, or 0.8 percent, to settle at $135.91 a barrel yesterday. Prices climbed to a record $139.32 on June 16.

Nigeria produces low-sulfur, or sweet, oils prized by refiners because of the high proportion of gasoline and distillate fuels it yields. Distillate fuel is a category that includes heating oil and diesel.

``The employees belonging to the Petroleum and Natural Gas Senior Staff Association of Nigeria have declared a work stoppage,'' Chevron spokeswoman Margaret Cooper said yesterday in a statement.

Cooper said it's too early to comment on the impact of the strike on operations. Chevron in 2007 produced about 350,000 barrels of oil a day from its 32 fields in Nigeria, according to the company's Web site.

Full-Scale Strike

Jonathan Omare, secretary of the local Chevron union, said a full-scale strike had begun, though production was not yet affected. ``The strike is everywhere,'' Omare said by telephone. `Nobody's working apart from the guys in the field.''

Saudi Arabia first pledged to raise output by 200,000 barrels a day after King Abdullah met with United Nations Secretary-General Ban Ki-Moon on June 15.

``People were expecting an increase of about this size, so it's a minor element in the market today,'' Lynch said. ``There would have had to be an increase of 1 million barrels to have a major impact.''

The kingdom will offer more oil if there is demand and also plans to increase its production capacity to 12.5 million barrels a day by the end of next year, Al-Naimi said June 22 at a summit in Jeddah. Capacity may eventually rise to 15 million if necessary, using oil from five ``mega'' fields that could potentially start up within three years, Al-Naimi said.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.



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Dollar Is Little Changed Before Confidence Data, Fed Meeting

By Stanley White and Kosuke Goto

June 24 (Bloomberg) -- The dollar was little changed against the euro before an industry survey that may show consumer confidence in the U.S. slumped to the lowest since 1992 as a housing recession weighs on the economy.

Federal Reserve policy makers start a two-day meeting later today at which they will probably keep the benchmark interest rate on hold at 2 percent. The yen may weaken on speculation Japanese individuals due to receive summer bonuses in June will plow cash into investment trusts targeting higher yields overseas.

``Weak consumer confidence could ripple through the currency market and keep pressure on the dollar,'' said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co., a unit of Japan's largest brokerage. ``Expectations for a Fed rate increase later this year are slowly peeling away.''

The dollar traded at $1.5507 against the euro at 10:52 a.m. in Tokyo, little changed from last yesterday. It touched an all- time low of $1.6019 on April 22. The greenback held at 107.99 yen while the euro bought 167.47 yen from 167.35. The dollar may fall to 107.60 yen today, Amikura forecast.


The Australian dollar bought 95.02 U.S. cents, near a two- week high of 95.67 cents, after Rio Tinto Group said China had agreed to pay a record price increase for iron ore, Australia's largest export. The South Korean won rose to 1,037.65 per dollar from 1,039.15, snapping two days of losses, on speculation South Korean officials will buy the currency to lower import prices.

Fund Raising

Japanese asset management companies and banks will market more than 1 trillion yen ($9.2 billion) of funds focused on foreign securities by the end of the month, according to data compiled by Bloomberg. T&D Asset Management Co. will seek to raise 500 billion yen for a fund focused on Chinese environment- related business on June 27. Daiwa Asset Management Co. will seek 20 billion yen for commodity funds.

``Sales of investment trusts are not so bad,'' said Kei Katayama, who helps oversee the equivalent of about $1 billion at Daiwa SB Investments Ltd. in Tokyo. ``This is supportive for foreign currencies against the yen.''

Japan's currency may weaken to 110 per dollar in a month, Katayama said.

U.S. Economy

The Conference Board's confidence index declined to 56 in June, the lowest since December 1992, from 57.2 in May, according to a Bloomberg News survey of economists. The research group will release the data at 10 a.m. in New York. The S&P/Case-Shiller home-price index fell 16 percent in April from a year earlier, according to a separate survey. The report is due an hour before the confidence survey.

All of the 102 economists surveyed by Bloomberg News predict the central bank will leave rates unchanged tomorrow. The dollar has traded in a range of $1.5303 to $1.5843 per euro since Fed Chairman Ben S. Bernanke said on June 9 that economic risk has faded, prompting investors to bet the central bank will increase the target lending rate later this year after seven reductions beginning in September.

Traders have since reduced bets on a rate increase. Futures contracts show a 38.9 percent chance the Fed will raise rates by at least a quarter of percent at its meeting in August, down from 68.5 percent odds a week ago.

Slowdown in Europe

Any gains in the euro may be limited before a survey forecast by economists to show German consumer confidence will fall in July, reducing speculation the European Central Bank will increase borrowing costs.

The dollar has gained 1.7 percent against the euro this quarter as traders bet the economic slowdown sparked by the collapse of the subprime-mortgage market will spread to Europe as the U.S. recovers. The greenback is down 7 percent this year.

``Economic data point to a slowdown in Europe and make it hard for the ECB to raise rates beyond its July policy meeting,'' said Masaki Fukui, a senior economist and currency analyst in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded financial group. ``The euro may move between $1.53 and $1.58 against the dollar in one month.''

The Nuremberg-based GfK AG's index for July, based on a survey of about 2,000 people, will probably fall to 4.6, from 4.9 in June, according to the median forecast of 28 economists surveyed by Bloomberg News.

ECB Rates

Investors reduced bets yesterday on rate increases by the ECB, futures contracts showed. The implied yield on the March Euribor futures contract dropped 2 basis points, or 0.02 percentage point, to 5.31 percent. The contract has gained 55 basis points in the past month.

ECB President Jean-Claude Trichet speaks later today. He said on June 5 that the bank may increase the 4 percent main refinancing rate by a quarter-percentage point next month. The central bank will make such an increase by the end of September, while the Fed will hold its target unchanged, according to the median forecast of economists in Bloomberg News surveys.

``There's still an expectation that the ECB will tighten quicker than the Fed,'' said Alan Ruskin, head of international currency strategy, at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``But if they're tightening into weakening data,'' the ECB may be more cautious.

To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.netKosuke Goto in Tokyo at kgoto2@bloomberg.net





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Korean Won Advances on Speculation Central Bank May Purchase It

By Kim Kyoungwha
June 24 (Bloomberg) -- South Korea's won rose on speculation the nation's foreign-exchange authorities will purchase the currency to help strengthen it and limit inflation caused by rising import prices. Bonds were little changed.

The won snapped a two-day loss as government officials have shifted their focus in recent months to curbing inflation that quickened to the fastest pace in seven years in May. Finance Minister Kang Man Soo said last week the government will ``put utmost priority on stabilizing prices and looking after the lives of the people.''

``It's hard for market players to take positions either way given that the dollar is trading near the 1,040 level where authorities last intervened to stem the won's loss,'' said Kim Hee, a currency dealer with state-run Korea Development Bank. ``Some export deals flew in, propping up the won as well.''

The won rose 0.2 percent to 1,037.20 against the dollar as of 10:16 a.m. local time, according to Seoul Money Brokerage Services Ltd. The currency has weakened 9.8 percent this year, the second worst performer of the 10 most-active currencies in Asia outside of Japan, according to data compiled by Bloomberg.

Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.

Gains in the won may be tempered on concern a four-day decline in the benchmark Kospi stock index will spur overseas investors to cut their holdings of the nation's assets.

`Intervention Fears'

``A weak stock market and foreign sales of equities all point to demand for the dollar,'' said Ko Yun Jin, a currency dealer at Kookmin Bank in Seoul. ``Still, intervention fears will keep investors on their toes.''

South Korea's government bond yields stayed near the highest level since January on concern that rising inflation will erode the value of the fixed payments of debt.

``The inflation concern is unnerving debt investors,'' said Kim Do Sung, a futures trader with PB Futures Co. in Seoul. ``Trading is also very limited as few in the market are willing to take positions.''

The yield on the 5.25 note due March 2013 was little changed at 5.92 percent, according to Korea Exchange. The price held at about 98.76. A basis point is 0.01 percentage point.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net.





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Australian Dollar Little Changed on Ore; N.Z. Dollar Falls

By Ron Harui and Tracy Withers

June 24 (Bloomberg) -- Australia's dollar was little changed as Rio Tinto Group said China agreed to pay a record price for iron ore, the nation's largest export. The New Zealand dollar fell before a report on economic growth.

The Australian currency headed for a second quarterly gain as Rio said Baosteel Group Corp., China's biggest steelmaker, will pay 80 percent more for ore. That could bolster Australia's overseas earnings and support the nation's economic expansion. The New Zealand currency was poised to snap a two-quarter winning stretch as a government report this week is forecast by economists to show the economy contracted.

``News that Rio Tinto had achieved an average 85 percent increase in iron ore contract prices helped the Australian dollar gain,'' said John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney, in a client note today. ``Traders believe the boost from commodity prices could see economic growth re-accelerate in the second half of the year.''

The Australian dollar traded at 95.17 U.S. cents at 11:07 a.m. in Sydney from 95.14 cents late in Asia yesterday. It has risen 4.2 percent this quarter and 8.7 percent this year. The currency advanced to 102.71 yen from 102.49 yen.

The New Zealand dollar fell to 75.73 U.S. cents from 75.84 cents late in Asia yesterday. It has lost 3.6 percent this quarter and 1.1 percent this year. The currency traded at 81.79 yen from 81.69 yen.

Commodity Exports

China's Baosteel will pay $144.66 a dry metric ton for so- called Pilbara blend fines in the year that began April 1, Rio said yesterday in a statement. The contract marks the first time Chinese buyers agreed to pay more for Australian ore than supplies from Brazil, which are costlier to ship.

The Australian Bureau of Agricultural and Resource Economics said yesterday commodity exports may rise to a record A$212 billion ($202 billion) in the year ending June 30, 2009. That compares with its March forecast of A$189 billion and estimated 2008 sales of A$151 billion. Exports of raw materials contribute 17 percent to Australia's economy.

The New Zealand dollar was set for a monthly decline on concern that slowing economic growth may spur Reserve Bank of New Zealand Governor Alan Bollard to lower interest rates.

``Market pricing for a Reserve Bank easing sticks out like a sore thumb against a backdrop of expected rate hikes elsewhere,'' said Michael Gordon, a currency strategist at Westpac Banking Corp. in Wellington. ``There seems to be little appetite to hold the currency.''

New Zealand's Economy

A government report on June 27 will show the economy contracted 0.3 percent in the first three months of the year, according to the median forecast of 13 economists surveyed by Bloomberg. Seven of the economists said gross domestic product may also shrink in the second quarter, pushing New Zealand into its first recession since 1998.

Bollard said on June 5 it is ``likely'' he will reduce the 8.25 percent benchmark interest rate this year because weak growth is slowing inflation. He forecast the economy will rebound in the second quarter after shrinking in the three months ended March 31.

There is a 28 percent chance of a quarter-point cut next month, according to an index calculated by Credit Suisse Group based on trading in overnight interest-rate swaps.

Australian government debt gained for a second day, pushing the yield on the 10-year security down 1 basis point to 6.53 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.081, or A$0.81 per A$1,000 face amount, to 90.211. A basis point is 0.01 percentage point.

New Zealand's government bonds were little changed. The yield on the 6 percent note due December 2017 was unchanged from yesterday at 6.44 percent, and the three-year yield held at 6.50 percent. Yields move inversely to prices.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.net




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Nikkei down 0.4 pct on US, Japan economy worries

TOKYO, June 24 (Reuters) - Japan's Nikkei stock average fell 0.4 percent on Tuesday, led lower by blue chips such as Fast Retailing Co (9983.T: Quote, Profile, Research, Stock Buzz) and Fanuc Ltd (6954.T: Quote, Profile, Research, Stock Buzz) on worries about the economic outlook in the United States and Japan.

The persistent strength of oil prices pushed up energy shares such as oil and gas field developer Inpex Holdings Inc (1605.T: Quote, Profile, Research, Stock Buzz).

"Yesterday, Wall Street ended virtually flat. But if you take a closer look, it's a lot worse than that. Auto and financial sectors were a damper in investors' minds," said Katsuhiko Kodama, senior strategist at Toyo Securities.


"Japan's not good either. Recent economic data points to weak fundamentals."

Government data showed on Monday that big Japanese firms were more pessimistic about business conditions in the three months to June, signalling that gloom was spreading across the economy. [ID:nT183666]

As of 0059 GMT, the benchmark Nikkei .N225 fell 52.34 points to 13,805.13. The broader Topix lost 0.1 percent to 1,346.83.

Trade is expected to remain thin, as investors hold off making bets ahead of the U.S. Federal Reserve meeting.

The Fed is expected to leave rates unchanged in its decision due out on Wednesday, and the market will focus on the accompanying statement for clues on the future course of monetary policy.

Apparel retailer Fast Retailing fell 2.1 percent to 10,050 yen and industrial robot maker Fanuc lost 1.8 percent to 11,590 yen, the two biggest drags on the Nikkei.

Inpex gained 1.6 percent to 1.31 million yen and Mitsubishi Corp (8058.T: Quote, Profile, Research, Stock Buzz) rose 2.1 percent to 3,490 yen. Mitsubishi and rival trading houses have stakes in overseas natural resources.

Drug maker Daiichi Sankyo (4568.T: Quote, Profile, Research, Stock Buzz) slid 3.2 percent to 2,745 yen after it and Eli Lilly and Co (LLY.N: Quote, Profile, Research, Stock Buzz) said on Tuesday the U.S. Food and Drug Administration has extended the review period for its blood thinner prasugrel by three months. (Reporting by Taiga Uranaka; Editing by Brent Kininmont)



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Most Asian Stocks Drop, Led by Banks, Carmakers; Woodside Gains

By Chua Kong Ho

June 24 (Bloomberg) -- Most Asian stocks fell for a fourth day, led by financials and automakers, after Goldman Sachs Group Inc. advised selling banks as credit losses continue and oil prices rose.

Mizuho Financial Group Inc., which recorded the biggest losses in Japan from subprime-related securities, and Commonwealth Bank of Australia retreated on speculation financial institutions will have to write down more assets. Toyota Motor Corp., Japan's largest automaker, dropped on concern higher oil prices will cut demand for cars. Inpex Holdings Inc. and Woodside Petroleum Ltd. advanced as oil rose for a third day.


``There is a heightening sense of alarm as crude prices continue their climb,'' Mamoru Shimode, Tokyo-based chief equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television.

The MSCI Asia Pacific Index was little changed at 138.61 as of 9:31 a.m. in Tokyo. About three stocks fell for every two that rose, with financial shares contributing the most to declines.

Japan's Nikkei 225 Stock Average fell 0.6 percent to 13,776. South Korea's Kospi Index declined 0.5 percent. Posco, Asia's largest stainless-steel maker, slid after saying it will cut production of the metal in July because of lower demand.

More than $8 trillion in global stock market value has been wiped out this year as a 43 percent jump in oil raises costs for consumers and businesses. Oil rose for a third day in New York amid signs an increase in output from Saudi Arabia may not boost supply enough to make up for production disruptions in Nigeria.

About $398 billion in asset writedowns and credit losses stem from the collapse of the U.S. subprime-mortgage market, according to data compiled by Bloomberg.

To contact the reporter for this story: Chua Kong Ho at kchua6@bloomberg.net





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