Forex Technical Analysis

Daily Forex Technicals | Written by DeltaStock Inc. | Jul 17 08 09:44 GMT |

EUR/USD Current level-1.5867 EUR/USD is in an uptrend from recent bottom at 1.5301, that was the final of the prolonged consolidation since 1.5909 (17 March 2008). Technical indicators are slowly rising and trading is situated above the 50- and 200-Day SMA, currently projected at 1.5609 and 1.5095. Tuesday's uptrend managed to climb above March's all-time high at 1.6019, but lost ground and sharply reversed, breaking back again below 1.5950 support, thus setting a final of the rise from 1.5610. Of course this sell-off has no power to change the short-term direction and the fact, that the pair is heading towards 1.6216 and probably 1.6566. Yesterday's correction was limited below 1.5951, as expected and the slide from these levels bottomed at 1.5798. Nicely correcting so far, there is still some potential for 1.5891, but one more leg downwards should follow, toward 1.5763. Today's strategy: Sell rallies to 1.5885, stop above 1.5951, add on a break below 1.5811, target seen at 1.5783. American session: Stay tuned for a reversal pattern above 1.5763. Resistance Support intraday intraweek intraday intraweek 1.5951 1.5989 1.6019 1.6216 1.5891 1.5802 1.5461 1.50+ USD/JPY Current level - 105.38 The pair has finalized its corrective uptrend from 95.75 mid-term bottom with the recent top at 108.59. Trading is situated below the 50- and 200-day SMA, currently projected at 105.81 and 107.25. The sharp rebound from local bottom at 103.79 confirms a final of the slide from 107.31, so allow one, two corrective days before renewing the overall downtrend towards 98.52. We expect this consolidation to be limited below 105.90 and above 104.37, so range trading is to be preferred with a risk limit above 106.31. Today's strategy: Trade the 104.37-105.91 range. Resistance Support intraday intraweek intraday intraweek 105.75 106.31 108.66 109.51 104.37 102.63 102.63 100.00 GBP/USD Current level- 2.0009 The pair is in a broad consolidation above 1.9338 and below 2.0397. Technical indicators are flat on the higher time-frames and trading is situated above the 50- and 200-day SMA, currently projected at 1.9685 and 1.9982 Having topped at 2.0154 the pair entered in a consolidation phase above 2.0007 before renewing the uptrend towards 2.0274. We think, that one more downward leg to 1.9901 is needed before advancing beyond 2.0096 resistance, towards 2.0274. Today's strategy : Stand aside. Resistance Support intraday intraweek intraday intraweek 2.0031 2.0096 2.0274 2.0397 1.9963 1.9901 1.9477 1.9196 DeltaStock Inc. - Online Forex & Securities Broker www.deltastock.com RISK DISCLAIMER: These analyses are for information purposes only. They DO NOT post a BUY or SELL recommendation for any of the financial instruments herein analyzed. The information is obtained from generally accessible data sources. The forecasts made are based on technical analysis. However, Delta Stock’s Analyst Dept. also takes into consideration a number of fundamental and macroeconomic factors, which we believe impact the price moves of the observed instruments. Delta Stock Inc. assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person's reliance upon the information on this page. Delta Stock Inc. shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation, losses or unrealized gains that may result. Any information is subject to change without notice.

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Lagarde Expects French Inflation to Slow Starting in August

By Francois de Beaupuy

July 17 (Bloomberg) -- French Finance Minister Christine Lagarde said inflation will remain ``quite high'' in July and start slowing from August, reflecting lower monthly price increases compared with last year.

French consumer prices climbed an annual 4 percent, from 3.7 percent in May, based on the European Union-harmonized method, Insee, the national statistics bureau, said yesterday in Paris. The inflation rate is the highest since Insee began reporting the data in 1996.

``I think we'll have a drop in inflation from August,'' Lagarde said on LCI television today. ``We'll finish the year at a clearly lower rate.''

Faster inflation is making it difficult for the European Central Bank to cut borrowing costs even as growth slows across the region's economy. The ECB raised its key rate by a quarter point to 4.25 percent this month, adding to constraints on companies already feeling the pressure of a record-high euro.

``Inflation is rising in all countries'' of the world, whether monetary policy is ``very rigorous'' or lax, Lagarde said. ``It's an inflation which results from rising oil and raw material prices,'' so ``I'm not sure that there's such a marked link between inflation and interest rates.''

ECB President Jean-Claude Trichet said last week he has ``no bias'' from now on, adding that the bank isn't ``pre-committed and will do what is necessary to ensure price stability.''

``I'm half satisfied by the statement'' of Trichet who has said he's not considering a series of rate increases, Lagarde said today.

To contact the reporter on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net.



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FX market Dollar fears receded after Oil slide and Wells Fargo results

Daily Forex Fundamentals | Written by AC-Markets | Jul 17 08 09:40 GMT |

Forex Market Issues and Risks News and Events: The Dollar rose on Wednesday, moving further from a record low against the Euro, as a slide in Oil prices and surprisingly strong earnings at Wells Fargo & Co reduced fears about the US economy and financial sector. US stocks also rallied, while the Dollar got an added boost after minutes from the Federal Reserve's June meeting showed officials believed inflation pressures meant the next interest rate move was likely to be an increase. With separate data showing US consumer prices rose last month at their fastest rate since the aftermath of Hurricane Katrina in 2005, analysts said FX investors were increasingly certain of at least one Fed rate hike before the year is out. US short-term interest rate futures are pricing in a 76% chance that the Fed raises interest rates from their current 2% by December. EurUsd was down 0.58% at 1.5825 as North American trade wound down, well off a record high 1.6039 set a day ago. UsdJpy was up 0.32% at 105.10 and UsdChf was up 0.85% at 1.1077. GbpUsd fell 0.3% to 1.9996. Investor attention remains focused on the US financial sector particularly after the US government was forced to come up with a rescue plan for mortgage finance giants Fannie Mae and Freddie Mac, just as one of the country's biggest mortgage banks, Indy Mac, collapsed. The turmoil around Fannie and Freddie and fears about more credit losses at regional banks drove the Dollar sharply lower a day ago, with the Euro hitting a record high at 1.6037. But concerns about the US financial sector receded a bit on Wednesday after Wells Fargo, the fifth-largest US bank, raised its dividend despite a 23% decline in profit caused by bad loans. Federal Reserve Chairman Ben Bernanke reiterated to a House of Representatives panel on Wednesday that the risks to US growth have increased along with upside inflation risks, mirroring remarks he made a day earlier before the Senate. Today Key Issues: 09:00 CHF July ZEW Investor sentiment vs -63.8 in June 12:30 USD June Building permits 960k vs 978k 12:30 USD June Housing starts 960k vs 975k 12:30 USD weekly Initial claims 380k vs 346k 12:30 CAD May Securities Transactions C$3.7B vs C$9.75B 13:10 USD Fed's Kroszner debates depository institutions 14:00 USD July Philadelphia Fed business index -15 vs -17.1 13:00 USD May Net L-T flows $85B vs $115.1B 13:15 USD June Capacity utilization 79.3% vs 79.4% 13:15 USD June Industrial output 0% vs -0.2% (MoM) 14:30 CAD Bank of Canada Monetary Policy Report 17:00 USD July NAHB housing market index 18 vs 18 The Risk Today: EurUsd Market hit 1.6039 high on Tuesday. This marks initial resistance over 1.6000 Pivot point resistance. A break there would open the way to key resistance 1.6200. On the downtrend, return below 1.5800 will undermine the recent uptrend. Any weakness may bring back 1.5400 - 1.5800 consolidation range. Below, strong support holds 1.5304 13th June low. GbpUsd Cable is getting over trading range 1.9400 - 2.0000. It hit 2.0158 high on Tuesday. Key level holds again 2.0100. On the downside, only a return below 1.9649 might bring again focus on 1.9337 January low and 1.9105 (50% retracement of 1.7049 - 2.1162 advance). Initial support holds 1.9649 July 7th low. Strong support holds 1.9363 20th February and 14th May low. UsdJpy Last 3-month up-trend has been ended as market broke down 105 level. Further profit taking would push the market into 100 - 104 consolidation trading range and toward 100 level. Renewed advance over 105 would put mid-June 108.59 resistance and 110.10 strong resistance (Trendline) into focus ahead of 111.92 early January high. UsdChf Market hit 1.0013 low on Tuesday. Further weakness below 1.0000 may open the way toward 0.9637 17th March low. Renewed strength over 1.0200 would reopen the 1.0200 - 1.0600 consolidation range. Initial resistance holds 1.0353 9th July high. EURUSD GBPUSD USDJPY USDCHF 1.6200 T 2.1162 S 111.92 K 1.1191 K 1.6039 M 2.0158 M 110.10 T 1.0625 T 1.6000 K 2.0100 K 105.66 M 1.0353 S 1.5865 2.0010 105.35 1.0155 1.5800 M 2.0000 S 103.92 M 1.0013 M 1.5304 S 1.9649 S 102.73 S 1.0000 P 1.5000 K 1.9337 T 100.00 P 0.9637 K S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot ACM FOREX Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

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Home Prices Unchanged in Queens, Long Island as Loans Tighten

By Sharon L. Lynch

July 17 (Bloomberg) -- Sales of homes in Long Island and Queens, New York, declined in the second quarter as mortgage companies tightened lending standards.

The number of sales fell 5.3 percent to 8,694 from a year earlier, appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said in a report today. The median price in Queens, a borough of New York City, and in Nassau County and parts of Suffolk County excluding the East End of Long Island rose 0.1 percent to $445,450. The number of sales in Queens alone fell almost 24 percent to 2,363.

``Financing plays a big part,'' Dottie Herman, chief executive officer of the brokerage, said in a telephone interview. ``It's going to affect your market and I think it is going to affect your younger buyers.''

Lenders are imposing higher borrowing standards and charging more for credit, creating a bigger hurdle for low-end buyers in the city's outer boroughs than for buyers in Long Island's wealthier suburbs, Herman said. About 60 percent of lenders made it more difficult for the most qualified applicants to secure financing in the first quarter, a Federal Reserve survey shows.

Today's Miller Samuel report is the latest indication the national housing slump has moved into the New York metropolitan area.

Nationally, sales of previously owned homes in the U.S. rose in May from a record low. Resales increased 2 percent to a 4.99 million annual rate, higher than forecast, from a 4.89 million pace in April, the National Association of Realtors said June 26.

Manhattan Apartments

Manhattan apartment sales in the three months ended in June dropped the most for a second quarter since 1998 and unsold inventory approached an eight-year record, New York-based Miller Samuel and Prudential said in a July 2 survey.

In Queens, which sits across the East River from Manhattan, the median price rose 0.2 percent to $470,000, the companies said today. In Nassau County, on western Long Island, the median remained exactly $485,000, and in the sections of Suffolk County surveyed it declined 0.6 percent to $396,550.

``I don't think there is any bloodbath,'' Herman said.

The number of sales in Nassau rose 5.3 percent to 2,875 homes. In Suffolk, the increase was 4.6 percent to 2,999 properties.

Luxury prices in the area, defined as the top 10 percent of sales, rose 7.4 percent to a median of $1.02 million, Miller Samuel said. The number of sales fell 11 percent for the sector.

Today's report does not include the beachside vacation haven of the Hamptons.

Second-quarter sales volume there dropped 29 percent and the median price fell 11 percent to $735,000 from a year earlier, Suffolk Research Service Inc., based in Hampton Bays, New York, said yesterday.

To contact the reporter on this story: Sharon L. Lynch in New York at sllynch@bloomberg.net



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Lagarde Expects French Inflation to Slow Starting in August

By Francois de Beaupuy

July 17 (Bloomberg) -- French Finance Minister Christine Lagarde said inflation will remain ``quite high'' in July and start slowing from August, reflecting lower monthly price increases compared with last year.

French consumer prices climbed an annual 4 percent, from 3.7 percent in May, based on the European Union-harmonized method, Insee, the national statistics bureau, said yesterday in Paris. The inflation rate is the highest since Insee began reporting the data in 1996.

``I think we'll have a drop in inflation from August,'' Lagarde said on LCI television today. ``We'll finish the year at a clearly lower rate.''

Faster inflation is making it difficult for the European Central Bank to cut borrowing costs even as growth slows across the region's economy. The ECB raised its key rate by a quarter point to 4.25 percent this month, adding to constraints on companies already feeling the pressure of a record-high euro.

``Inflation is rising in all countries'' of the world, whether monetary policy is ``very rigorous'' or lax, Lagarde said. ``It's an inflation which results from rising oil and raw material prices,'' so ``I'm not sure that there's such a marked link between inflation and interest rates.''

ECB President Jean-Claude Trichet said last week he has ``no bias'' from now on, adding that the bank isn't ``pre-committed and will do what is necessary to ensure price stability.''

``I'm half satisfied by the statement'' of Trichet who has said he's not considering a series of rate increases, Lagarde said today.

To contact the reporter on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net.



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Philippines Raises Key Rate a Second Month to Fight Inflation

By Shamim Adam and Karl Lester M. Yap

July 17 (Bloomberg) -- The Philippine central bank raised its benchmark interest rate for a second straight meeting as rising transport and food prices threaten to stoke inflation that's already at a 14-year high.

Bangko Sentral ng Pilipinas increased the rate it pays banks for overnight deposits by 50 basis points to 5.75 percent, Governor Amando Tetangco told reporters in Manila today. The decision was predicted by 4 of the 20 economists surveyed by Bloomberg News, with the rest expecting a quarter percentage point increase.

Record oil and food prices have forced central banks from Vietnam to Pakistan to raise borrowing costs, even at the risk of stifling expansion as a U.S. slowdown hurts demand for exports and erodes growth in the region. Bangko Sentral, mulling a second increase in its 2008 inflation forecast, may have to raise rates higher after today's move.

``With the balance of risks shifting unequivocally to inflation, and inflation expectations starting to get unhinged, more policy-rate adjustments would be warranted,'' said Jun Trinidad, an economist at Citigroup Inc. in Manila. ``The central bank can afford to accelerate the rate tightening.''

Fuel prices have risen every week since April and rice costs have jumped 70 percent this year in the Philippines, which is the world's biggest importer of the grain and buys almost all of its oil from abroad. The government approved higher transport fares from last week to allow drivers and vehicle owners to cope with rising fuel costs.

Public Protests

Philippine consumer prices rose 11.4 percent in June from a year earlier, and the central bank revised up its 2008 inflation estimate to a range of 7 percent to 9 percent last month.

Crude reached a record $147.27 on July 11, and rice, wheat and palm oil also surged to unprecedented levels this year. That's fueled inflation across Asia and spurred public protests against price increases by Japanese fishermen, Indian truck drivers and Indonesian students. The Asian Development Bank expects inflation in the region to reach a decade-high this year.

The Bank of Thailand raised its benchmark interest rate yesterday for the first time in two years and said ``risks to inflation have risen markedly.'' Vietnam last month pushed borrowing costs to 14 percent, the highest in Asia, and Indonesia increased its key rate for a third consecutive meeting earlier this month.

In the Philippines, where a third of the 96 million population lives on less than $1 a day, surging inflation has hurt expansion and made helping the poor the government's priority. Growth was the slowest in more than a year in the first quarter, and the government has said it may lower its 2008 economic growth target for a second time.

`Tightening Bias'

Bangko Sentral officials have warned that they are inclined to raise interest rates to keep inflation contained.

``The bias is towards tightening,'' Deputy Governor Diwa Guinigundo said July 11. ``We have to make sure inflation expectations remain well anchored.''

President Gloria Arroyo, seeking to boost her approval rating that's at a two-year low, will spend 4 billion pesos ($88 million) from higher-than-expected tax collections to help poor families cope with faster inflation, her press secretary Jesus Dureza said this week. The government will also release more rice into the market to cool prices.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net



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Budapest Developer Builds Luxury Homes in Former Red Light Zone

By Alex Kuli

July 17 (Bloomberg) -- Peter Futo, a Hungarian candy salesman turned real estate millionaire, is betting 850 million euros ($1.3 billion) he can transform a Budapest slum into prime real estate in the European Union's slowest economy.

Futo, who owns property developer Futureal Zrt. with his son Gabor, is building Corvin Promenade, Hungary's biggest development since communism fell, on the site of demolished homes near what used to be Budapest's red light district. Affluent people will live there because it's on the boulevard that borders downtown, offers easy airport access and is near the Danube, the Futos said.

``The key to success is to be able to acquire and develop a big enough piece of land that you can have impact,'' said the younger Futo. ``If you are able to grab the whole thing, take it as one, and have a city vision for that, then you can really make a change.''

The father-and-son team is investing in Hungary at a time when other developers aren't. The country's economic growth was 1.3 percent in 2007, the slowest in 14 years. Hungary issued 8,956 residential building permits in the first quarter of 2008, the fewest since 2001, according to government statistics.

At the same time, the Futos have scaled back their plans in neighboring Romania, where the economy grew 6 percent last year, because they're concerned real estate prices have risen too fast and are about to tumble.

Old Homes Destroyed

Corvin Promenade was conceived by members of the local government in Budapest's Jozsefvaros district who wanted to replace the slum dwellings, the Futos said in an April 23 interview in Peter Futo's office in downtown Budapest. The council invited bids, persuaded residents to move into new homes, and knocked down the old ones, they said.

The average apartment size was 23 square meters (250 square feet), and most residents had their toilet outside the apartment, at the end of the corridor, said Peter Futo.

``The only reason why such a project is possible at all is there was a slum,'' his son said. ``There was a population problem, a social problem. But that's not a location problem.''

Futureal took over the project in 2004 when it paid an undisclosed amount to acquire Corvin Rt., the developer that won the bid. The Futos hired architects including British landscape designer Robert Townshend to redesign the development and center it around retail and office space.

Mall Rights Sold

They sold the right to build Corvin Promenade's 35,000- square-meter shopping center to Klepierre SA, the French mall owner controlled by BNP Paribas SA, last year. The mall will cost an estimated 229 million euros ($313 million).

The development will include a park, restaurants, and penthouse apartments that overlook the Buda hills on the west side of the Danube. The complex has its own underground parking garage, and its website notes that with such amenities, ``common downsides of city life will be avoided.''

All 820 of the still-unbuilt apartments in the first phase of the project have already been sold at an average 2,150 euros per square meter, 32-year-old Gabor Futo said. That's more than double the average price for residences in Jozsefvaros, according to a database kept by online real-estate broker Ingatlan.com.

Corvin Promenade's first phase will finish next year. The second phase will add 2,000 more apartments by 2012.

Futureal is financing each phase of the project separately, using banks including Intesa Sanpaolo SpA, UniCredit SpA, and Erste Bank AG, Gabor Futo said. The banks finance 80 percent to 90 percent of certain projects, with Futureal funding the rest from its own equity, he said. He declined to give further details.

Contrast

The contrast between the sleek lines and glass-walled balconies promised by Corvin Promenade may clash with the rundown tenements and their crumbling neoclassic facades next door, said city architect Ivan Bojar.

``It cuts into the city fabric,'' he said. ``I'm keeping my fingers crossed for it, because this idea of clearing buildings for a new development has no precedent'' in Budapest.

Balazs Bazsalya, a researcher at Budapest polling company Marketing Centrum, said the new development will raise the value of the apartment he bought near the site two years ago.

There are also fewer poor neighbors than before, he said.

``There haven't been any major complaints'' about the forced relocation, Bazsalya said. ``It's probably because these aren't the kind of people who have the organizational skills to mount opposition.''

Mathematician and Candymaker

Peter Futo, 62, never planned to be a developer. In the 1970s, he worked both as a mathematician and at his grandfather's candy factory, which Hungary's communist government seized in 1948, he said.

After communism collapsed in 1990, Futo founded his own confectionery company, Fundy Kft., selling gumdrop bears, frogs and dinosaurs, as well as chocolate and wafer snacks. Annual profit exceeded 2 million euros by the end of the decade, he said.

Futo sold Fundy to Van Melle NV, the Dutch maker of Mentos mints, for an undisclosed sum in 1999. He used the proceeds to create Futureal because, he said, real estate was an investment opportunity that wasn't dominated by multinational companies.

The Futos are focusing on Hungary, in spite of the country's slow economic growth, because land values in Romania are inflated and competition is ``getting out of control,'' Gabor Futo said.

``It's just incredibly, incomparably and irrationally high,'' he said. ``We went there to do five shopping centers. We are doing one only, because we have decided not to take the risk.''

Residential land prices in Bucharest, the Romanian capital, have tripled to as much as 3,000 euros per square meter since 2004, according to a survey by Colliers International. Futureal is selling its 118 apartments in Bucharest's Nightingale Park and ``cautiously'' considering new projects, Futo said.

Even with the slower growth in Hungary, Corvin Promenade may serve as a model for further developments in the country, whose mayors have been reluctant to bring in private capital, said Miklos Nemeth, head of the Hungarian Association of Real Estate Management in a May 14 interview.

``Municipalities will realize that you need to attract private capital, and the nice things you can do with it,'' he said.

To contact the reporter on this story: Alex Kuli in Budapest at akuli@bloomberg.net;



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Paulson Lobbies Congress to Get Fannie-Freddie Rescue Approved

By Brian Faler

July 17 (Bloomberg) -- Treasury Secretary Henry Paulson tried to rally support yesterday for his plan to rescue Fannie Mae and Freddie Mac and said he is confident Congress will pass it by next week.

A growing number of lawmakers from both parties agree with his assessment, even if they don't back the legislation. House Minority Leader John Boehner, an Ohio Republican, said there's no question ``that this will become law and become law very soon.'' Senator Christopher Dodd, a Connecticut Democrat who is chairman of the Senate Banking Committee, expects a vote on the measure next week.

``I am optimistic that this is going to be done quickly,'' Paulson said yesterday.

Paulson asked Congress on July 13 to approve a three-part plan that would allow the Treasury to increase the credit lines of the two mortgage companies, buy shares in the firms if necessary and give the Federal Reserve what he called a ``consultative role'' in overseeing their capital requirements. The proposals are meant to restore confidence in the government- chartered companies which together own or guarantee more than half of the $12 trillion of U.S. home loans outstanding.

Boehner was among Republicans who on July 15 urged Democrats to hold hearings on the measure so they could get a better idea of how it would work. He said after meeting with Paulson yesterday that he hasn't decided whether to support the bill.

Dodd, Shelby

Paulson also met yesterday with Dodd and Alabama Senator Richard Shelby, the top Republican on the banking panel, to try to address concerns that Treasury would have too much power under the plan. Paulson declined to comment upon leaving that meeting.

``We had a very positive meeting, and think it's going in the right direction,'' Shelby said after the session. ``We're trying to do it right.''

Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac have lost more than 80 percent of their stock market values this year on concern they don't have enough capital to survive the biggest housing slump since the Great Depression.

Lawmakers from both parties raised questions about how much authority Treasury should have.

``I want to make darn sure that, if we do this, that the American taxpayer is going to be protected,'' Dodd said earlier yesterday.

Paulson said he emphasized with lawmakers that Treasury's authority would be temporary.

`Tough' Issue

This issue is ``tough,'' Paulson said. ``There's never unanimity, but I'm feeling very good as a result'' of meetings today, he said.

Representative Jeff Flake, an Arizona Republican, said Paulson received a ``mixed'' reception from lawmakers.

``Everybody knows something has to be done. It's just a question of what are we willing to accept,'' Flake said.

Congress created Fannie Mae and Freddie Mac to expand homeownership by increasing mortgage financing and to provide market stability. The shareholder-owned companies make money by holding mortgage assets and on guarantees of mortgage-backed securities they create out of loans bought from lenders.

Debt from the government-sponsored enterprises ``is globally held in extensive amounts so we want to reassure that market that we understand the importance of this,'' Dodd said. ``And simultaneously, we need to reassure the American taxpayer that they're not going to be exposed to a massive bill at the end of the day. So striking that balance is what I'm trying to achieve.''

No Dividends

House Financial Services Committee Chairman Barney Frank has suggested prohibiting the companies from paying dividends if they tap a proposed increased line of credit with the Treasury. He also said regulators should be required to approve the compensation for top executives of Fannie Mae and Freddie Mac.

House Democrats postponed a vote on the rescue plan until early next week. Paulson had initially pushed for a vote this week.

``I think we're going to have it all done by the end of next week,'' Frank told reporters yesterday. Senate Minority Leader Mitch McConnell, a Kentucky Republican, said he doesn't expect the bill to get ``bogged down'' in the Senate.

Lawmakers plan to graft the rescue plan onto a pending housing bill that would allow thousands of Americans struggling with subprime loans to refinance into fixed-rate mortgages backed by the government. The measure would also install tougher regulators for Fannie Mae and Freddie Mac.

Bush Veto Threat

Frank said July 15 that Democrats may retain provisions opposed by the Bush administration to send $4 billion to communities to buy up foreclosed properties. The White House has threatened to veto the bill over those plans because administration officials say they would benefit lenders who own the vacated properties, not homeowners.

Representative Spencer Bachus of Alabama, the top Republican on the House Financial Services Committee, who also met with Paulson yesterday, said he preferred a stand-alone Fannie-Freddie bill.

``We don't need to deal with 40 different issues,'' he said. ``We need a clean bill.''

Fannie Mae dropped 27 percent July 15, its biggest slump since at least July 1980, while Freddie Mac declined 26 percent.

Fannie Mae rebounded yesterday, rising 31 percent to $9.25 in New York, while Freddie Mac climbed 30 percent to $6.83.

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net



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Housing Starts in U.S. Probably Fell in June to 17-Year Low

By Timothy R. Homan

July 17 (Bloomberg) -- Builders probably broke ground in June on the fewest houses in 17 years, signaling the real- estate recession will keep hurting growth, economists said ahead of a government report today.

Housing starts fell to a 960,000 annual pace last month, the weakest since March 1991, from 975,000 in May, according to the median of 76 forecasts in a Bloomberg News survey. Building permits, a sign of future construction, probably fell to a 965,000 rate from 978,000.

Builders are cutting back as rising foreclosures, higher mortgage rates and declining property values threaten to depress home sales further. The slump in financial markets brought on by mounting subprime losses may prompt lenders to choke off credit, making the situation even worse.

``Mortgage rates have edged higher and distress in financial markets has escalated, keeping potential buyers on the sidelines,'' said Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York. ``Until the supply comes down, builders would rather cut construction.''

The Commerce Department's report on starts is due at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from annual rates of 925,000 to 1.03 million.

Other reports today are projected to show first-time claims for jobless benefits rebounded last week and manufacturing in the Philadelphia region contracted in July for an eighth month.

Hurting Economy

Declines in construction will probably limit economic growth, even as tax rebates give consumer spending a boost. Residential building dropped at a 24.6 percent pace in the first quarter and subtracted 1.1 percentage points from growth.

Federal Reserve Chairman Ben S. Bernanke this week abandoned his June assessment that the threat of an economic downturn had diminished. During testimony before U.S. lawmakers in Washington he also said that ``upside risks to the inflation outlook have intensified.''

A report yesterday from the National Association of Home Builders/Wells Fargo showed confidence among U.S. homebuilders in July dropped to the lowest level since records began in 1985.

Concern over the ability of Fannie Mae and Freddie Mac, the largest U.S. purchasers of mortgages, to withstand the subprime lending meltdown has heightened the credit crisis and may further limit access to loans.

Foreclosures Jump

Foreclosure filings rose 53 percent in June and bank seizures increased a record 171 percent from a year ago, RealtyTrac Inc., a seller of default data, said last week in a statement. The Irvine, California-based company began collecting statistics on default notices, warnings of scheduled auction and repossessions in January 2005.

One in every 500 U.S. households has entered a stage of the foreclosure process, RealtyTrac said.

M/I Homes inc., a homebuilder concentrating in the Midwest, Florida and the Mid-Atlantic states, said July 10 it delivered 478 homes in the second quarter, down from 755 in the same period in 2007. The Columbus, Ohio-based company said the number of new contracts fell to 530, from 688.

                        Bloomberg Survey

==============================================================
                          Housing Building  Initial   Philly
                           Starts  Permits   Claims      Fed
                           ,000's   ,000's   ,000's    Index
==============================================================
Date of Release              07/17    07/17    07/17    07/17
Observation Period            June     June   13-Jul     July
--------------------------------------------------------------
Median                         960      965      380    -15.0
Average                        964      962      379    -15.4
High Forecast                 1030      980      414     -5.0
Low Forecast                   925      925      350    -22.0
Number of Participants          76       47       41       56
Previous                       975      978      346    -17.1
--------------------------------------------------------------
4CAST Ltd.                     960      960      400    -17.5
Action Economics               970      970      360    -12.0
AIG Investments               1006     ---      ---     -12.5
Aletti Gestielle SGR           960      965      375    -13.5
Analytical Synthesis           925      965     ---      ---
Argus Research Corp.          1000     ---      ---      -5.0
Banc of America Securitie      970     ---      ---     -15.0
Bank of Tokyo- Mitsubishi      988      939      379     -9.0
Bantleon Bank AG               960      975     ---     -16.0
Barclays Capital               960     ---       380    -15.0
BBVA                           950      950      380    -19.2
BMO Capital Markets            956      958      380    -15.0
BNP Paribas                    935     ---      ---     -22.0
Briefing.com                   985      980     ---     -15.0
Calyon                         960      965     ---     -14.0
CFC Group                      940      940      405    -17.0
CIBC World Markets             968      960     ---      ---
Citi                           970      970      380    -15.0
ClearView Economics            990     ---      ---      ---
Commerzbank AG                 950      960      405    -16.0
Credit Suisse                  960     ---       390     ---
Daiwa Securities America       970     ---      ---      ---
Danske Bank                    950     ---      ---     -12.0
DekaBank                       955      960     ---     -18.0
Desjardins Group               950      925      376    -14.0
Deutsche Bank Securities       960      970      385    -18.0
Deutsche Postbank AG           975     ---      ---      ---
Dresdner Kleinwort             960     ---      ---     -14.0
DZ Bank                        970      975     ---     -17.1
First Trust Advisors           960     ---       365    -15.6
Fortis                         975     ---      ---     -12.0
FTN Financial                  970      970     ---     -12.0
Global Insight Inc.            952      939     ---      ---
Goldman, Sachs & Co.           975     ---      ---      ---
Helaba                         960      965     ---     -17.0
High Frequency Economics       960      950      400    -17.1
Horizon Investments            970     ---      ---      ---
HSBC Markets                   990      975      380    -12.0
IDEAglobal                     960      970      380    -14.0
ING Financial Markets          960     ---       385    -17.0
Insight Economics              960     ---       400    -19.0
Intesa-SanPaulo                970      970     ---     -15.0
J.P. Morgan Chase              930     ---       375    -15.0
Janney Montgomery Scott L      962      970     ---      ---
JPMorgan Private Client        970      970      350    -18.0
Landesbank Berlin              940      960      390    -12.0
Lehman Brothers                965      930      385    -17.1
Lloyds TSB                     970      970      365    -14.5
Maria Fiorini Ramirez Inc      985     ---       375     ---
Merk Investments               961      979      380    -18.4
Merrill Lynch                  955      973      414    -14.0
Moody's Economy.com            958      962      375    -17.0
Morgan Stanley & Co.           960     ---      ---      ---
National Bank Financial        960     ---      ---      ---
National City Corporation     1030      951     ---     -11.4
Natixis                        960     ---      ---      ---
Newedge                       ---      ---      ---     -16.0
Nomura Securities Intl.        970      965     ---     -12.0
Nord/LB                        960      960      350    -13.0
Okasan Securities              990     ---      ---      ---
PNC Bank                       970     ---      ---      ---
RBS Greenwich Capital          940     ---      ---      ---
Ried, Thunberg & Co.           960      969      365    -18.0
Schneider Trading Associa      955      968      383    -16.8
Scotia Capital                 950      930      375    -18.0
Standard Chartered             955      970     ---     -17.5
Stone & McCarthy Research      965     ---       380    -19.7
TD Securities                  960     ---       390     ---
Thomson Financial/IFR          960      950      365    -21.5
UBS Securities LLC             950     ---       365    -15.0
Unicredit MIB                  960      960      380     ---
University of Maryland         965      970      380     ---
Wachovia Corp.                 950     ---      ---      ---
Wells Fargo & Co.              970      970      360    -12.0
WestLB AG                      980      975     ---     -15.0
Westpac Banking Co.            956      978      380    -19.0
Wrightson Associates           960      950      365    -18.0
================================================================

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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China's Economic Growth Cools to Slowest Since 2005

By Kevin Hamlin and Li Yanping

July 17 (Bloomberg) -- China's economy grew at the slowest pace since 2005 in the second quarter, prompting the yuan's biggest drop in seven weeks on speculation the government will slow its advance to protect exporters.

Gross domestic product rose 10.1 percent from a year earlier, down from 10.6 percent in the first quarter, as exports weakened and the government curbed lending. Consumer prices rose 7.1 percent in June, slowing from 7.7 percent in May, the statistics bureau said today in Beijing.

The yuan fell 0.2 percent against the dollar, paring a 7 percent advance this year that made it Asia's best performer. Some Chinese officials are pressing for slower currency appreciation to protect jobs as cooling global demand threatens to trigger a slump in shipments from the world's fastest-growing major economy.

``A slower pace of appreciation would mean breathing room for the export sector,'' said Jing Ulrich, JPMorgan's chairwoman of China equities.

The yuan traded at 6.8270 against the dollar as of 3:55 p.m. in Shanghai, the biggest drop since May 27.

GDP growth cooled for the fourth straight quarter. The median estimate of 18 economists surveyed by Bloomberg News was for a 10.3 percent expansion. The U.S. economy grew 2.5 percent in the first quarter.

`Orderly Slowdown'

China's growth is still the fastest of the world's 20 biggest economies and is helping to sustain the global expansion this year as a housing slump and credit-market turmoil threaten to send the U.S. into a recession.

``This is an orderly slowdown, not a dramatic one,'' said Kevin Lai, a Hong Kong-based economist with Daiwa Institute of Research.

The trade surplus for the second quarter narrowed 12 percent from a year earlier to $58.14 billion as import costs climbed and U.S. demand faltered.

Export prospects have deteriorated, with Federal Reserve Chairman Ben S. Bernanke saying this week that the U.S. faces ``significant downside risks to the outlook for growth.''

Rising prices, constraints on agricultural output, lagging rural incomes and global financial market turmoil are problems for China's economy, the statistics bureau said in a statement.

The Ministry of Commerce has urged China's cabinet to rein in currency gains and raise some export rebates, a ministry official said July 14, speaking on condition of anonymity.

`We'll Be Dead''

``We'll all be dead if the government doesn't increase tax rebates and slow the appreciation,'' Tang Zhenya, a salesman at Changshu Shengtian Knitting & Clothing Co. in Jiangsu province said yesterday.

Most textile companies were unprofitable in the first five months of the year, Du Yuzhou, President of China Chamber of Commerce for Import and Export of Textiles said at an industry conference in Shanghai.

As many as 45 million workers earn their livings in export- oriented sectors, according to Jonathan Anderson, a Hong Kong- based economist with UBS AG. He cites government surveys.

Inflation has eased from February's 12-year high of 8.7 percent on smaller gains in food prices. It remains above the central bank's 4.8 percent annual target and rising commodity costs may keep prices elevated.

Producer-Price Inflation

Producer prices climbed 8.8 percent in June from a year earlier, the statistics bureau said today, after rising 8.2 percent in May. That is the fastest pace since Bloomberg data began in 1999.

``The high producer-prices number points to the potential risk of inflation in the coming months,'' said Huang Yiping, chief Asia economist at Citigroup Inc. in Hong Kong. ``Inflation is still way above the official target so a tight policy will continue.''

Besides using the currency to cool inflation, China has imposed lending quotas and ordered banks to set aside a record 17.5 percent of deposits as reserves to soak up cash flooding the economy from trade, foreign direct investment and investors betting on gains by the yuan. The central bank hasn't raised interest rates this year to avoid attracting capital inflows.

Standard Chartered Bank Plc today cut its forecast for four interest-rate increases this year to none and said policy makers' next move will be to cut rates in 2009.

Retail Sales Soar

Government efforts to boost consumption at home may be paying off. Retail sales rose 23 percent in June from a year earlier, the fastest pace since at least 1999. Urban disposable incomes rose 14.4 percent to 8065 yuan for the first half from a year earlier. Rural cash incomes climbed 19.8 percent to 2528 yuan.

``The surprising thing is the strength of the domestic economy,'' said Paul Cavey, an economist with Macquarie Securities Ltd. in Hong Kong. ``Consumers still have a lot of cash and in that sense it's difficult to be too pessimistic about the domestic economy.''

Investment jumped amid rebuilding after the Sichuan earthquake in May. Urban fixed-asset investment surged 26.8 percent in the first half from a year earlier, the statistics bureau said, after climbing 25.6 percent in the first five months.

``They can keep the economy growing at 10 percent even if there is a sharp slowdown elsewhere in the world,'' said Julian Jessop, an economist with Capital Economics Ltd. in London, citing the government's ability to boost spending.

To contact the reporters on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net; Li Yanping in Beijing at yli16@bloomberg.net

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China Regulator Warns Against Further Bank Tightening

By Philip Lagerkranser

July 17 (Bloomberg) -- China's banking regulator told policy makers that forcing banks to increase reserves has hurt the industry's ability to repay debt, according to a person with knowledge of the matter.

The People's Bank of China raised its reserve ratio requirement to a record 17.5 percent last month to rein in loan growth and inflation. The China Banking Regulatory Commission has warned against ordering further increases, the person said, declining to be identified as he isn't authorized to speak publicly on the matter.

China's push to remove funds from the banking system resulted in the slowest loan growth in more than two years last month. The risk is that more banks will fall below the minimum requirement for short-term financial strength, the person said.

``While helping to control liquidity, further RRR hikes run the risk of repressing the financial system,'' wrote Sun Mingchun, a Hong Kong-based economist at Lehman Brothers Holdings Inc., in a July 15 note to clients. China may be approaching ``the limit where further hikes do more harm than good,'' he said.

CBRC's recommendations were sent to the State Council, China's cabinet, the person said. China's state radio said yesterday that the nation needs a ``tight'' monetary policy, citing the legislature's Financial and Economic Affairs Committee.

The central bank has boosted the reserve ratio requirement by 3 percentage points this year, freezing up an estimated 1.3 trillion yuan ($191 billion) of bank funds. Meanwhile, it has left interest rates unchanged after six increases in 2007.

Liquidity Threshold

Lehman's Sun forecast the reserve ratio will rise by another 2.5 percentage points this year.

The number of Chinese banking institutions whose liquidity ratio, a measure of ability to meet short-term funding needs, had dropped below the 25 percent regulatory minimum increased by 85 to 392 in the five months to May 31, the person said.

The so-called excess reserve ratio at Chinese banks -- the share of bank deposits that lenders voluntarily lodge with the central bank in addition to required reserves -- dropped to 1.95 percent in June, the lowest since at least 2001, reflecting the strain on banks' finances, according to Sun.

In addition, China's export-driven economic expansion is cooling as weaker U.S. and European economies curtails demand for the nation's goods. Gross domestic product rose 10.1 percent in the second quarter, the slowest since 2005, the statistics bureau said today.

Easing export growth is putting pressure on Chinese officials to slow gains in the yuan, potentially putting more emphasis on using monetary tightening to combat inflation.

Don't Raise Rates

Efforts to drain surplus funds from the financial system should focus on measures such as issuing central bank bills, the banking regulator told the State Council, according to the person. The central bank auctioned 15 billion yuan of one-year bills on July 15 and mopped up 20 billion yuan through repurchase agreements.

Further interest rate increases could exacerbate declines in stock markets and real estate prices, the banking regulator said. The nation's benchmark lending rate stands at 7.47 percent, more than two percentage points higher than in neighboring Hong Kong.

In its proposals to the State Council, the regulator called for exempting some smaller banks and rural credit cooperatives from more reserve ratio increases, or even lowering the proportion of cash they must keep in reserve, the person said.

Bad-Loan Rebound

So-called special mention loans at Chinese banks, credits that may become non-performing unless amended, increased by 35.8 billion yuan in the first five months of the year to 2.16 trillion yuan, according to the regulator. That may be a precursor to a rebound in bad loans, as shrinking corporate profits in some industries erode companies' ability to repay debts, the person said.

Chinese banks' bad-loan ratio dropped to 7.5 percent at the end of May, down 1.74 percentage points from a year earlier, the person said. Total non-performing loans fell 5.3 percent to 2.25 trillion yuan.

``There's no need for further reserve ratio hikes in the near term as lending controls have been effective,'' said Samuel Chen, an analyst at JPMorgan Chase & Co. ``Liquidity risk at Chinese banks remains relatively low at present, but it's good for the regulator to prepare for rainy days.''

To contact the reporter for this story: Philip Lagerkranser at lagerkranser@bloomberg.net



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Dollar Falls Against Euro Before Housing, Manufacturing Reports

By Agnes Lovasz and Kosuke Goto

July 17 (Bloomberg) -- The dollar fell against the euro before reports that may show U.S. housing starts declined to a 17-year low and manufacturing contracted for an eighth month.

The U.S. currency traded close to the lowest in almost two months against the yen on speculation credit-market losses in the U.S. will deepen, undermining the case for the Federal Reserve to raise interest rates. The Chinese yuan fell the most in seven weeks on expectations the government will slow the currency's gains to help exporters weather the global slump.

``The sentiment towards the dollar is very negative,'' said Lee Ferridge, a senior foreign-exchange strategist in London at State Street Global Markets. ``The housing starts aren't going to be good numbers. The Fed is focusing back on the growth issue and real economic numbers are going to have more of an impact. Investors are selling the dollar again.''

The dollar weakened to $1.5854 per euro as of 8:46 a.m. in London, from $1.5827 in New York yesterday. It touched an all- time low of $1.6038 two days ago. It traded at 105.46 yen, from 105.13 yen yesterday, when it weakened to 103.77 yen, the lowest since May 27. The euro traded at 167.21 yen, from 166.39 yen.

The U.S. currency will probably break its record low versus the euro in coming days and fall to $1.65 during the next few months, Ferridge said

The yuan declined to 6.8270 per dollar, from 6.8113 yesterday.

Australian Dollar

The Australian dollar fell for a second day as investors added to bets the central bank will reduce interest rates in coming months. The Australian currency dropped to 97.66 U.S. cents, from 97.84 cents yesterday, when it reached 98.49 cents, the highest since 1983. Reserve Bank of Australia Governor Glenn Stevens signaled yesterday that the nation's borrowing costs are high enough to curb inflation.

Fed Chairman Ben S. Bernanke told lawmakers yesterday that growth and inflation risks are increasing and the housing market is the ``central element'' of the crisis.

Housing starts fell to a 960,000 annual pace last month, the weakest since March 1991, from 975,000 in May, according to the median of 76 forecasts in a Bloomberg News survey. The Department of Commerce report is due at 8:30 a.m. New York time.

The Fed Bank of Philadelphia's general economic index will be minus 15 in July, from minus 17.1 in June, according to a separate Bloomberg survey. Readings less than zero signal a decline. The bank releases the report at 10 a.m. in New York.

The dollar also fell after the Financial Times reported the world's largest sovereign wealth funds are looking to reduce their holdings of U.S. dollars in a sign of concern about the currency, said Yuji Saito at Societe Generale SA.

Sovereign Wealth Funds

``The news made us think that not only institutional money managers and individual investors but also governments are shifting away from dollar-denominated assets,'' said Saito, head of foreign-exchange sales at the Tokyo unit of France's second- largest bank by market value. ``I am dollar-bearish.''

The U.S. currency may fall to 104.50 yen and $1.5920 a euro today, Saito forecast.

One large sovereign fund in the Gulf has cut back its dollar-denominated holdings to less than 60 percent from over 80 percent a year earlier, the FT reported, without saying where it obtained the information.

The dollar and U.S. stocks advanced yesterday as the oil price fell and lender Wells Fargo & Co., which has avoided the worst of the fallout from the subprime-mortgage market's collapse, reported earnings that beat analyst estimates. The Standard & Poor's 500 Index rose for the first time in four days, gaining 2.5 percent. Crude oil for August delivery slid 3 percent to $134.60 a barrel.

`Wall Street Banks'

Global banks and securities firms have reported losses and writedowns of more than $420 billion related to subprime mortgages. Merrill Lynch & Co. and JPMorgan Chase & Co. announce earnings today and Citigroup Inc., the biggest U.S. bank, publishes its tomorrow.

``Wall Street banks could still lose a lot more money,'' said Akifumi Uchida, deputy general manager of the marketing unit at Sumitomo Trust & Banking Co. in Tokyo. ``The dollar has the potential to head lower as its problems are deep-rooted.''

U.S. investors turned bearish on the dollar for the first time in three months, a survey of Bloomberg customers showed.

The dollar will weaken against the euro, yen, Brazilian real and Swiss franc in the next six months as confidence in Fed and Treasury efforts to keep the economy out of a recession fades, according to respondents in the monthly Bloomberg Professional Global Confidence Index, which questioned 5,450 customers from Los Angeles to Paris to Tokyo.

JPMorgan, the third-largest U.S. bank, predicted the Fed will keep borrowing costs on hold this year and raise rates in the first quarter, a change from its previous estimate for higher rates in September.

Interest-Rate Futures

Fed funds futures on the Chicago Board of Trade showed a 21 percent chance the central bank will increase its 2 percent target rate for overnight bank loans by a quarter-point at its Dec. 16 meeting, down from 24 percent odds the previous day.

Anything that can be done to strengthen the housing market ``would be beneficial,'' Bernanke told the House Financial Services Committee in Washington yesterday.

The Dollar Index on the ICE market fell to 71.927, from 72.064 yesterday, when it touched 71.508, the lowest level since April 23.

Yen sales by Japanese individual investors on the Tokyo Financial Exchange climbed to the highest since August for a second day yesterday as gains in the currency made higher- yielding assets abroad cheaper.

Net short positions on the yen against seven major currencies, including the U.S. dollar and the Australian dollar, rose to 362,619 contracts among so-called mom-and-pop traders yesterday, the highest since Aug. 14, data showed. The contracts are denominated in 10,000 units of the foreign currency.

To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Kosuke Goto in Tokyo at at kgoto2@bloomberg.net



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Yuan Falls on Speculation China Will Curb Gains to Help Exports

By Aaron Pan and Judy Chen

July 17 (Bloomberg) -- The yuan fell the most in seven weeks on speculation the government will slow the currency's advance to help exporters weather a global economic slump.

China's currency declined for the first time in three days after a report today showed China's economic growth cooled in the second quarter, increasing pressure on authorities to switch from fighting inflation to protect exporters. The yuan also dropped after the central bank set a weaker daily reference rate, suggesting it's seeking to boost growth and deter speculators.

``If there's a further slowdown in exports, authorities may slow the pace of yuan gains to prevent widespread bankruptcies,'' said Liu Dongliang, a Shenzhen-based foreign- exchange analyst at China Merchants Bank Co., the country's sixth-largest lender.

The yuan declined 0.23 percent to 6.8271 per dollar as of 12:43 p.m. in Shanghai, from 6.8113 yesterday, according to the China Foreign Exchange Trade System. That's the biggest drop since May 27.

The Chinese currency is allowed to trade by up to 0.5 percent versus the dollar either side of the so-called central parity rate, which was fixed at 6.8189 today.

Gross domestic product grew 10.1 percent in the second quarter from a year earlier, the slowest since 2005, compared with a 10.6 percent pace of growth in the first three months of the year, the statistics bureau said today in Beijing.

Inflation Slows

China will likely allow the yuan to appreciate more slowly and relax controls on fuel price increases, the South China Morning Post reported yesterday, citing an unidentified person close to the National Development and Reform Commission.

The Ministry of Commerce has urged China's cabinet to rein in currency gains and increase some export-tax rebates, a ministry official, who declined to be named, said July 14.

Government bonds were little changed after June's inflation rate met expectations.

The yield on the 4.41 percent note due in June 2018 was at 4.43 percent, according to the China Interbank Bond Market. The price was 99.84.

Consumer prices rose 7.1 percent in June, the smallest gain in five months and slowing from 7.7 percent in May. Faster inflation erodes the value of the debt's fixed payments.

To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Judy Chen in Shanghai at xchen45@bloomberg.net.



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Dollar May Rebound Next Year on Rates, Deutsche's Fukaya Says

By Stanley White

July 17 (Bloomberg) -- The dollar may rise against the yen next year as the U.S. weathers the credit-market slump and the Federal Reserve raises interest rates to slow inflation, according to Deutsche Bank AG.

The Fed will be able to raise rates as U.S. regulators have avoided a collapse of the financial system after the subprime mortgage meltdown, Koji Fukaya, Deutsche's senior currency strategist in Tokyo, said yesterday. The dollar may approach 110 yen provided the yield spread on 10-year Treasuries over similar maturity Japanese government bonds widens to 2.5 percentage points, Fukaya at the world's largest currency trader said.

``The foreign-exchange market has yet to fully respond to the receding risks of financial system collapse,'' Fukaya said at a Bloomberg seminar. ``People will start to focus more on rates. It may take some time, but the dollar should recover.''

The U.S. currency fell to 104.94 yen at 1:35 p.m. in Tokyo from 105.13 yen yesterday, when it declined to 103.77 yen, the lowest since May 27.

The 10-year yield spread between U.S. and Japanese government notes was 2.33 percentage points, down from a two- week high of 2.35 percentage points reached yesterday.

The dollar slid this year to a 12-year low versus the yen as delinquencies on loans to U.S. homeowners with poor credit caused more than $400 billion in losses at global financial institutions and Bear Stearns Cos. only avoided collapse by being rescued by the Fed.

Safety Net

U.S. Treasury Secretary Henry Paulson announced on July 13 a plan to purchase shares in Fannie Mae and Freddie Mac if necessary to boost confidence in the two largest buyers of U.S. mortgages.

``Some form of a safety net is being put in place,'' Fukaya said. ``The situation is a lot different now than when Bear Stearns rattled financial markets.''

Inflation is too high and is a top priority, Fed Chairman Ben S. Bernanke told U.S. lawmakers yesterday as data showed consumer prices rose 5 percent in June, the biggest increase in 17 years.

Futures on the Chicago Board of Trade show a 42 percent chance the Fed will raise its 2 percent target rate for overnight lending between banks by a quarter-percentage point at its meeting on Jan. 28, 2009, compared with 39 percent odds a week ago. The Fed lowered rates seven times between September and April from 5.25 percent to ward off a recession.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net



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Home Prices Unchanged in Queens, Long Island as Loans Tighten

By Sharon L. Lynch

July 17 (Bloomberg) -- Sales of homes in Long Island and Queens, New York, declined in the second quarter as mortgage companies tightened lending standards.

The number of sales fell 5.3 percent to 8,694 from a year earlier, appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said in a report today. The median price in Queens, a borough of New York City, and in Nassau County and parts of Suffolk County excluding the East End of Long Island rose 0.1 percent to $445,450. The number of sales in Queens alone fell almost 24 percent to 2,363.

``Financing plays a big part,'' Dottie Herman, chief executive officer of the brokerage, said in a telephone interview. ``It's going to affect your market and I think it is going to affect your younger buyers.''

Lenders are imposing higher borrowing standards and charging more for credit, creating a bigger hurdle for low-end buyers in the city's outer boroughs than for buyers in Long Island's wealthier suburbs, Herman said. About 60 percent of lenders made it more difficult for the most qualified applicants to secure financing in the first quarter, a Federal Reserve survey shows.

Today's Miller Samuel report is the latest indication the national housing slump has moved into the New York metropolitan area.

Nationally, sales of previously owned homes in the U.S. rose in May from a record low. Resales increased 2 percent to a 4.99 million annual rate, higher than forecast, from a 4.89 million pace in April, the National Association of Realtors said June 26.

Manhattan Apartments

Manhattan apartment sales in the three months ended in June dropped the most for a second quarter since 1998 and unsold inventory approached an eight-year record, New York-based Miller Samuel and Prudential said in a July 2 survey.

In Queens, which sits across the East River from Manhattan, the median price rose 0.2 percent to $470,000, the companies said today. In Nassau County, on western Long Island, the median remained exactly $485,000, and in the sections of Suffolk County surveyed it declined 0.6 percent to $396,550.

``I don't think there is any bloodbath,'' Herman said.

The number of sales in Nassau rose 5.3 percent to 2,875 homes. In Suffolk, the increase was 4.6 percent to 2,999 properties.

Luxury prices in the area, defined as the top 10 percent of sales, rose 7.4 percent to a median of $1.02 million, Miller Samuel said. The number of sales fell 11 percent for the sector.

Today's report does not include the beachside vacation haven of the Hamptons.

Second-quarter sales volume there dropped 29 percent and the median price fell 11 percent to $735,000 from a year earlier, Suffolk Research Service Inc., based in Hampton Bays, New York, said yesterday.

To contact the reporter on this story: Sharon L. Lynch in New York at sllynch@bloomberg.net



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Pound Rises to $2.002, Little Changed at 79.24 Pence per Euro

By Daniel Tilles

July 17 (Bloomberg) -- The pound rose against the dollar and was little changed against the euro.

The U.K. currency climbed to $2.002 as of 6:50 a.m. in London, from $1.9991 yesterday. It was at 79.24 pence per euro, from 79.16 pence.

To contact the reporter on this story: Daniel Tilles in London at dtilles@bloomberg.net



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Sovereign Funds Looking to Cut Holdings in U.S. Dollar, FT Says

By Lenka Ponikelska

July 17 (Bloomberg) -- The world's largest sovereign wealth funds are looking to reduce their holdings of U.S. dollars in a sign of concern about the currency, the Financial Times said.

One large sovereign fund in the Gulf has cut back its dollar-denominated holdings to less than 60 percent from over 80 percent a year earlier, the newspaper reported, without saying where it obtained the information.

In China, the State Administration of Foreign Exchange has been talking to European private equity companies about putting billions of dollars into their latest funds, which are not dollar denominated, the FT reported, citing unidentified people familiar with the matter.

The Chinese agency declined to comment, the newspaper said.

To contact the reporter on this story: Lenka Ponikelska in London lponikelska1@bloomberg.net



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S&P Attempts to Make Large Buyouts More Transparent, FT Reports

By Lenka Ponikelska

July 17 (Bloomberg) -- Private equity groups will soon find more financial information publicly disclosed about the progress of European companies in which they invest because of changes to Standard & Poor's debt ratings, the Financial Times reported.

Starting in December, S&P will provide so-called public ratings for buyouts with debt exceeding 1 billion euros ($1.6 billion), the newspaper said.

The change will contrast with the present system of private so-called credit estimates that are performed for individual- paying investors on an impromptu basis, the FT said.

Formal ratings will serve the market better by supporting long-term growth and stability, said Paul Drake, S&P's head of European Leveraged Finance & Recovery, according to the FT.

To contact the reporter on this story: Lenka Ponikelska in London lponikelska1@bloomberg.net



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Asian Currencies: Philippine Peso Surges, Korea's Won Declines

By Aaron Pan and Lilian Karunungan

July 17 (Bloomberg) -- The Philippine peso led gains amongst Asian currencies, as the biggest two-day decline in oil prices since January 2007 stoked speculation demand for dollars to finance fuel imports will cool.

The peso was the biggest gainer of the 10 most-active Asian currencies outside Japan as regional stocks advanced for the first time this week, buoyed by a rally in U.S. shares. Oil prices fell 7.3 percent in the past two days, reducing import costs for regional economies such as the Philippines, Taiwan and Thailand that buy almost all of the fuel they need from abroad.

``Lower crude-oil prices raise appetite for some more risk in the portfolios'' of overseas investors, said Joey Cuyegkeng, an economist at ING Bank in Manila. ``The peso takes its cue from what happens to crude oil prices and the U.S. stock market.''

The currency rose 1.1 percent to 45.025 per dollar as of 4:23 p.m. in Manila, according to Tullett Prebon Plc. That's the sharpest gain since November. The peso may strengthen to 44 by year-end as remittances from Filipinos working overseas increase and oil prices fall due to slowing U.S. demand, Cuyegkeng said.

Taiwan's dollar rose 0.1 percent to NT$30.359 per dollar, while the baht climbed 0.1 percent to 33.46. Indonesia's rupiah slid 0.1 percent to 9,150, Singapore's dollar declined 0.2 percent to S$1.3511 and Vietnam's dong held at 16,820.

South Korea's won led declines in the region. The currency dropped for a fourth day, the longest losing stretch in two months, as overseas funds cut their holdings of the country's equities, increasing demand for the dollar.

Korean Intervention

The currency has fallen 9.3 percent over the past year, the worst performer among the world's 16 most-active currencies. The Ministry of Finance and central bank spent as much as $7 billion supporting the won on July 9 to stem the currency's slide, according to Industrial Bank of Korea, spurring a gain of as much as 3.6 percent.

The currency declined 0.4 percent to 1,012.80 per dollar at the local close in Seoul, from 1,009.30 yesterday, according to Seoul Money Brokerage Services Ltd.

``Importers' purchases of the dollar and foreign investors selling local shares have limited the strength in the won,'' said Ko Yun Jin, a foreign-exchange dealer at Kookmin Bank in Seoul, the country's largest lender.

Fund managers overseas sold more local shares than they bought every day since June 5, according to Korea Exchange. Vice Finance Minister Kim Dong Soo said on July 15 that consumer prices may become more unstable in the second half of this year.

Anwar Arrest

Malaysia's ringgit declined, erasing earlier gains, on concern political jitters will cause the central bank to delay raising interest rates amid accelerating inflation.

The currency yesterday fell from a six-week high after police arrested opposition leader Anwar Ibrahim on allegations he had sex with a male aide, triggering a demonstration by his supporters. Economists predict a government report next week will show consumer prices rose last month at the fastest pace in a decade.

The ringgit fell 0.2 percent to 3.2335 per dollar from 3.2275 yesterday, according to data compiled by Bloomberg. It earlier rose as high as 3.2197.

``The prospect for the ringgit may not be so great with the political drawback,'' said Joanna Tan, an economist and currency strategist at Forecast Singapore Pte. ``The central bank also risks being way behind the curve if it doesn't raise interest rates this month.''

To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Lilian Karunungan in Singapore at lkarunungan@bloomberg.net.



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China Textile Exporters Call for Slower Yuan Gains, Tax Rebates

By Judy Chen

July 17 (Bloomberg) -- China's textile companies said the government should slow yuan gains and raise tax rebates to assist exporters in weathering a decline in global demand.

The currency has risen 7 percent against the dollar this year, more than double the pace of appreciation in the same period of 2007, and that coupled with higher costs is hurting earnings, Du Yuzhou, President of China Chamber of Commerce for Import and Export of Textiles, said at an industry conference in Shanghai. Most textile companies were unprofitable in the first five months of the year, he added.

``We'll all be dead if the government doesn't increase tax rebates and slow the appreciation,'' said Tang Zhenya, a salesman at Changshu Shengtian Knitting & Clothing Co. Ltd. He estimates up to 30 percent of the more than 10,000 textile manufacturers in the eastern Chinese city of Changshu have shut down this year.

The yuan today dropped the most in seven weeks on speculation China's leaders will slow its advance to protect exporters after the government reported the weakest economic growth since 2005. The Ministry of Commerce has urged China's cabinet to rein in currency gains and boost the amount of tax returned to companies selling abroad, a ministry official said July 14, speaking on condition of anonymity.

The currency retreated 0.2 percent from yesterday's record close to 6.8271 per dollar at 1:40 p.m. in Shanghai.

Higher Rebates

``Not every company is able to overcome the difficulties,'' Du said July 15 at the China Textile Industry's Top 500 conference in Shanghai. ``Two-thirds of companies have improved labor efficiency, but are still unable to offset the negative impact of higher costs and a stronger currency.''

There are signs the government will help companies such as Changshu Shengtian, which has about 1,000 employees and is typical of the Chinese manufacturers that U.S. and European lawmakers have said relied on an undervalued currency to compete. Changshu Shengtian sells T-shirts to retailers including Wal- Mart Stores Inc. for typically $1 to $2 apiece, of which about 5 percent is profit, Tang said.

Rebates for textile shipments will be increased to 13 percent from 11 percent this month, and those for clothing to 15 percent from 11 percent, the official China Securities Journal reported last week. The payments were cut in July last year to help ease trade frictions with the U.S. and Europe.

`Chilly Winter'

China's export growth cooled to 18 percent in June, from 28 percent the previous month, amid faltering global demand. The trade surplus shrank 21 percent from a year earlier to $21.4 billion, narrowing for a third straight month.

In addition to cooling demand, manufacturers are having to contend with higher costs. Wages have jumped 30 percent and raw- material prices risen 10 percent this year, according to Zhao Qi, a manager at Risetimes Trading GmbH, who has more than 20 years experience in the clothing trade in Asia and Europe.

``It's a chilly winter for the whole industry, and next year will be even worse,'' said Zhao.

To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net.



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Australia, N.Z. Dollars Fall as Traders Raise Bets on Rate Cuts

By Ron Harui and Candice Zachariahs

July 17 (Bloomberg) -- The Australian and New Zealand dollars fell for a second day as investors added to bets the nations' central banks will cut interest rates in coming months.

Australia's currency extended a decline from near the strongest in 25 years as Reserve Bank of Australia Governor Glenn Stevens signaled yesterday the nation's borrowing costs are high enough to curb inflation. New Zealand's currency slid from a six-week high as the difference in yield between 10-year New Zealand and U.S. government debt narrowed to the least in almost nine months.

``The governor's speech has got people wondering about the Reserve Bank cutting rates,'' said David Watt, a senior currency strategist in Toronto at RBC Capital Markets, a unit of Canada's largest bank. ``That's curtailed some of the bullishness for the Aussie,'' he said, referring to the currency by its nickname.

Australia's dollar fell 0.2 percent to 97.62 U.S. cents as of 4:42 p.m. in Sydney from 97.84 cents late in Asia yesterday, when it reached 98.49 cents, the highest since 1983. The currency bought 102.67 yen from 101.63 yen.

New Zealand's dollar declined to 77.16 U.S. cents from 77.21 cents in Asia yesterday, when it touched 77.60 cents, the strongest since June 5. The currency traded at 81.15 yen from 80.21 yen.

The Australian dollar weakened as traders added to bets the central bank will reduce its 7.25 percent benchmark rate as Stevens said the chances of ``keeping inflation low over the medium term are good.''

A Credit Suisse Group index based on interest-rate swaps shows investors expect the RBA will cut borrowing costs by 12 basis points in the next 12 months. At the start of this week, the probability was for a 2 basis-point increase.

Yield Premium

The New Zealand dollar, known as the kiwi, fell as the yield premium on 10-year bonds over similar-maturity Treasuries shrank to 2.06 percentage points, the lowest since Oct. 31, and as traders raised wagers on a central bank rate reduction.

``The Reserve Bank of New Zealand will be cutting rates in the coming months,'' said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. ``The New Zealand dollar looks top heavy.''

Traders are betting the RBNZ will lower its 8.25 percent benchmark rate by 1.33 percentage points in the next 12 months, compared with a forecast of 1.31 percentage points at the start of the month, according to a separate Credit Suisse index.

`Pretty Conservative'

Losses in the Australian and New Zealand dollars were limited on speculation Japanese investors will buy the currencies, seeking higher returns than they can get at home.

``There are some structural pressures coming on the yen again, partly due to Japanese investors still hunting the high- yielding currencies,'' said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore. ``They prefer the Aussie and the kiwi because they're pretty conservative and they favor the liquid markets.''

Benchmark rates of 7.25 percent in Australia and 8.25 percent in New Zealand compare with 0.5 percent in Japan, making the two currencies popular targets for so-called carry trades.

In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency market moves erase those profits.

Yen sales by Japanese individual investors on the Tokyo Financial Exchange reached the highest since August for a second day yesterday as gains in the yen made higher-yielding assets abroad cheaper.

Housewives, Pensioners

Housewives, pensioners and businessmen accelerated purchases of foreign currencies as the yen rose to the highest since May 27 against the dollar.

Net short positions on the yen against seven major currencies, including the U.S. dollar and the Australian dollar, rose to 362,619 contracts among so-called mom-and-pop traders yesterday, the highest since Aug. 14, data showed today.

The contracts are denominated in 10,000 units of the foreign currency. A short position is a bet an asset will fall.

Australian government bonds rose, pushing the yield on the 10-year note down 2 basis points to 6.31 percent. The price of the 5.25 percent security due March 2019 climbed 0.135, or A$1.35 per A$1,000 face amount, to 91.872.

New Zealand's 10-year yield fell 1 basis point to 6 percent. A basis point is 0.01 percentage point.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Candice Zachariahs in New York at czachariahs1@bloomberg.net.



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Rubber Futures Trade Near Six-Week Low on Slump in Oil, Yen

By Aya Takada

July 17 (Bloomberg) -- Natural rubber futures in Tokyo traded near a six-week low as a slump in oil weakened the appeal of commodities as an inflation hedge and the Japanese currency's drop versus the dollar supported yen-denominated contracts.

Futures also tend to move in the same direction as oil as rival synthetic rubber is made from naphtha, distilled from petroleum. Crude oil in New York tumbled yesterday after a report showed an unexpected gain in U.S. supplies.

Rubber for December delivery was unchanged at 329.2 yen a kilogram ($3,134 a metric ton) on the Tokyo Commodity Exchange at 10:13 a.m. local time. The commodity, used to make car tires, fell to the lowest since June 5 yesterday after reaching a 28- year high of 356.9 yen on June 30.

The dollar advanced against the yen after sinking to the lowest in almost two months yesterday as better-than-estimated earnings at Wells Fargo & Co. pushed U.S. equities higher. A weaker yen is positive for prices of yen-denominated contracts as rubber trades globally in dollars.

Rubber prices were capped by the prospect of increased supply from Thailand, the world's largest producer and exporter. Thai rubber planters have doubled the number of days they tap trees after rain in the nation's south receded, Wirut Niumlek, deputy director of the farm ministry's Rubber Estate Organization, said July 15 in Bangkok.

To contact the reporter on this story: Aya Takada in Tokyo atakada2@bloomberg.net



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Platinum Futures Gain as Stock Rally Eases Auto-Demand Concern

By Dave McCombs

July 17 (Bloomberg) -- Platinum futures in Tokyo rose from a 10-week low as gains in U.S. and Asian equity markets eased concern that global demand for cars and the metal used in their emission control systems may plunge.

Futures gained for the first time in four days as the benchmark MSCI Asia-Pacific Index rose from a 21-month low. Platinum's gains today also prompted some traders to buy out of bets on the metal's decline, said Kazuhiko Saito, a strategist at Interes Capital Management.

``Platinum futures were oversold, so today traders are short covering,'' Saito said today by phone in Tokyo. ``The bear trend will continue next week because there is still no sign of good news for auto demand.''

Platinum for June delivery, the most active contract, gained 15 yen, or 0.2 percent, to 6,430 yen a gram ($1,906 an ounce) at the 11 a.m. break on the Tokyo Commodity Exchange. It plunged by the 300-yen exchange-imposed daily limit yesterday to 6,415 yen a gram, the lowest since May 8.

Metal for immediate delivery today gained $9.50 to $1,938.50 an ounce, 0.5 percent higher than yesterday in New York.

Platinum may drop below $1,900 next week, Interes Capital's Saito said, as investors shift funds to gold and grains.

Car and light-truck manufacturers worldwide account for more than 60 percent of platinum demand, according to estimates by Johnson Matthey Plc, which makes about one-third of the world's auto catalysts.

The MSCI Asia-Pacific Index added 1.5 percent to 131.36 at 10:22 a.m. Tokyo time, halting a three-day, 3.1 percent slump. The benchmark, which dropped yesterday to its lowest since October 2006, has lost 17 percent this year.

To contact the reporter for this story: Dave McCombs in Tokyo at dmccombs@bloomberg.net



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