Economic Calendar Eco Data 8/6/08

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
23:01	GBP	U.K. N'wide Consumer Confi. Jul		57	61
05:00	JPY	Japan Leading indicators Jun		-1.80%	-0.20%
10:00	EUR	Germany Factory orders M/M Jun		0.40%	-0.90%
10:00	EUR	Germany Factory orders Y/Y		-4.70%	-2.00%
14:00	CAD	Canada Ivey PMI Jul		62.5	69.6

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Closing Market Recap: U.S. Treasury Yields Higher; Oil & Canadian Dollar Drop Further

Market Updates | Written by CEP News | Aug 05 08 20:33 GMT |
(CEP News) - U.S. Treasury yields received two big boosts on Tuesday, from a better-than-expected ISM non-manufacturing index as well as from the Federal Open Market Committee's balanced statement that accompanied its decision to hold interest rates at 2.00%.

U.S. two-year yields are up 2.4 bps to 2.55%, rebounding after falling 6.4 bps to session lows of 2.507% on the release. Yields had initially reacted favourably to the statement, with five-year yields initially rising 2.5 bps to 3.279% before retracing those gains. They are currently up 5.1 bps to 3.30%. Ten-year yields are up 6.5 bps to 4.03% and 30-year yields are up 5.8 bps to 4.65%.

The FOMC's statement was balanced between a concern for slowing growth and elevated inflation levels. The only dissenting voice in the FOMC decision was Dallas Fed President Richard Fisher, who preferred an increase in the target rate.

"This statement supports our view that the Fed is stuck on the horns of the dilemma posed by its dual mandates (full employment and steady prices), which are currently providing contradictory prescriptions for policy," wrote RBC Capital Markets fixed income strategist T.J. Marta. "Consequently, the statement also supports our curve steepening and bullish eurodollar positions."

The Eurodollar March 09 contract is up 1.5 ticks to 96.84. The yield curve is steeper, with the 10/2-year spread up 4.0 bps to 147.21 bps.

The Canadian 10-year note is yielding 32.95 bps less than the U.S. 10-year note.

Yields on two-year Canadian government bonds are up 1.4 bps to 2.90%, with five-year yields up 1.3 bps to 3.22%, 10-year yields up 3.5 bps to 3.70% and 30-year yields up 3.4 bps to 4.11%. The December 08 BAX contract is up 1.0 tick to 97.06.

In Germany, returns on two-year German bonds are flat at 4.25%, with five-year yields down 1.9 bps to 4.24%, 10-year yields down 2.3 bps to 4.31% and 30-year yields down 1.0 bps to 4.64%.

Yields on UK two-year bonds are down 5.3 bps to 4.75%, with five-year yields down 5.3 bps to 4.72%, 10-year yields down 4.5 bps to 4.77% and 30-year yields down 2.7 bps to 4.53%.

Earlier in the day, the U.S. services industry was reported to have remained in contraction for the second month in a row in July, though the ISM non-manufacturing survey improved more than expected to 49.5, against expectations that it would come in at 48.7. The release gave yields a small boost.

The survey also proved bullish for equities, with the Dow Jones industrial average up 332 points to clsoe the day at 11616. The S&P 500 closed up 36 points to 1285 and the Nasdaq closed up 64 points to 2350.

European stock markets closed in positive territory with the Eurostoxx up 75 points to 2899, the UK FTSE 100 up 134 points to 5455 and the German DAX up 169 points to 6519.

IG Index chief market strategist David Jones suggested in an email to clients that there was a definite correlation between stock-market performance in the U.S. and in the UK.

"It has been a case of solid gains all day, with a stronger opening on Wall Street helping to keep the momentum positive," he wrote. "With the price of oil still weak, and with a retest of the $100 mark not looking out of the question, it could set up something of a tug of war for the index over the next few weeks. A lower oil price is of course a good thing for most businesses - but with so many mining companies making up the FTSE 100, further slides in commodities may well temper gains elsewhere."

Toronto's S&P/TSX composite index closed down 254 points to 13242. The front month gold contract at the Chicago Board of Trade was down $25.30 to $882.60 per ounce and WTI crude oil was down $2.85 to $118.56. The $117.98 session low for oil also represented a three-month low, dating back to early May.

The Canadian dollar is down 0.55 to 103.90 against the yen and down 0.0054 to 0.9596 against the U.S. dollar (1.0421 USD/CAD). The CAD/USD's 0.9968 low was also an 11-month low.

"Net CAD positioning shifted back to the short side, an overall positioning change of $2.4 bln. Speculators seem to be piggybacking USD positive flow from real money managers that are rotating out of Canada's energy heavy TSX, which is down 9.5% since July 1 when compared to the S&P 500," wrote CIBC strategists in a research note.

The U.S. dollar is down 0.01 to 108.26 against the yen and the Dollar Index is up 0.432 to 73.894.

The euro is down 0.0119 to 1.5458 against the U.S. dollar, down 0.0036 to 1.6111 against the Canadian dollar, down 0.0036 to 0.7903 against the pound sterling and is lower by 1.28 to 167.35 against the yen.

The pound sterling is down 0.0062 to 1.9560 against the U.S. dollar and up 0.0041 to 2.0382 against the Canadian dollar.

All data taken at 4:08 p.m. EDT.

By Ryan Szporer, rszporer@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , with contributions from Patrick McGee, pmcgee@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Stephen Huebl, shuebl@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it

CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca

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

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Tuesday's News Recap: ISM NMI Surprises to Upside, FOMC Holds Rates at 2.00%

News Recap | Written by CEP News | Aug 05 08 20:40 GMT |
(CEP News) - The North American trading day began with the morning release of the ISM non-manufacturing index, which showed an improvement in the U.S. services sector in July even though it remained in contraction. The other major event came in the afternoon, when the FOMC held interest rates at 2.00% and released a less hawkish statement on economic outlook.

The Federal Reserve announced Tuesday that it is holding the Fed funds target rate at 2.00%, as was widely expected. The accompanying statement was balanced between a concern for slowing growth and elevated inflation levels.

In the growth paragraph, the FOMC said "economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports." On inflation, the statement said energy and commodities prices have pushed inflation to "high" levels, which should moderate this year and the next, "but the inflation outlook remains highly uncertain."

The only dissenting voice in the FOMC decision was Dallas Fed President Richard Fisher, who preferred an increase in the target rate.

Economists from FT Advisors called the FOMC statement "more hawkish" compared to the June statement, and suggested it is consistent with the Fed raising rates later this year "but only if real economic growth shows that elevated energy prices and financial market turmoil are not throwing the U.S. back into recession or a prolonged period of weakness."

The services industry in the United States remained in contraction for the second month in a row in July, yet the sector improved more than expected to 49.5, according to the ISM Non-Manufacturing Index released Tuesday morning. Economists had expected a reading of 48.7.

The previous month's report saw a record-low in employment, a record-high in prices paid, and a slowdown in new orders and production. This month's employment decline was less severe, while prices remain elevated but moderated somewhat, as production and new orders each remained in slowdown.

"The most forward-looking components of this survey, new orders and employment, still remain below the key '50' level," said Sam Bullard, economist from Wachovia. "This suggests to us that the economy, while not technically in recession, remains uncomfortably sluggish."

Also earlier in the day, the Fed announced that Elizabeth Duke, former senior executive Vice-President and Chief Operating Officer of TowneBank, was sworn in as governor of the U.S. Federal Reserve on Tuesday morning. The Fed confirmed that Duke would participate and vote at today's FOMC meeting.

In other releases, retail sales rose by their biggest margin so far this year, advancing 2.9% on a year-over-year basis in the week ending Aug. 2, according to a weekly survey from the International Council of Shopping Centers (ICSC) and UBS Securities. Similarly, the Johnson Redbook retail survey recorded a 3.5% gain in the week compared to last year. Sales tax holidays in some states to spur back-to-school shopping were credited for part of the gain, the ICSC noted. On a week-over-week basis, however, ICSC-UBS sales were flat, following a 1.2% advance in the previous week.

Oil prices continue to free-fall on Tuesday, falling more than $2.60 to a three-month low of $118 a barrel. The decline was mostly due to concerns about a drop in demand.

There were no significant releases out of Canada on Tuesday.

Overseas, Asian markets received an unexpectedly dovish statement from the Reserve Bank of Australia following its decision to hold rates, while UK markets received an unexpectedly sharper contraction in industrial production.

As expected, the Reserve Bank of Australia's board decided to leave the cash rate unchanged at 7.25%, however, the statement accompanying the decision was dovish, with promises of rate cuts to come. "With demand slowing, the Board's view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing," read the statement from the RBA.

The Office for National Statistics (ONS) reported that the UK industrial production level fell 1.6% year-over-year in June, deepening the 1.7% decline seen in the previous month. Economists had expected a fall of 1.2%, while May's reading was revised down from the -1.6% reported earlier. Month-over-month, industrial output in the UK fell 0.2% following the 0.9% decline seen in May, revised down from -0.8%.

Despite expectations of a 1.3% decline, euro zone retail sales contracted by a full 3.1% in June year-over-year, adding to the 0.1% fall seen in the previous month. May's figure was revised down from the +0.2% initially reported. On a monthly basis, retail sales in the monetary union slipped 0.6% as expected following May's 0.5% gain, revised down from an initial reading of +1.2%.

In an interview with BBC Radio 4 on Tuesday, UK Chancellor of the Exchequer Alistair Darling suggested that a windfall energy tax was not especially practical for the UK and said that he saw "problems" with such an idea. Darling added that he would be aiming to pressure energy companies to help struggling customers, rather than having those firms taxed.

By Stephen Huebl, shuebl@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , with contributions from Patrick McGee, pmcgee@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , Erik Kevin Franco, efranco@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , Todd Wailoo, twailoo@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it and Steve Stecyk, sstecyk@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Sarah Sussman, ssussman@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it

CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca

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

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Indonesia Raises Rate a Fourth Time to Tame Inflation

By Aloysius Unditu and Arijit Ghosh


Aug. 5 (Bloomberg) -- Indonesia's central bank raised its benchmark interest rate for a fourth straight meeting to tame inflation running at the fastest pace in almost two years.

Governor Boediono and his seven colleagues increased the policy rate by a quarter point to 9 percent, Bank Indonesia said in a statement in Jakarta today. That matched the forecast of 20 of 22 economists in a Bloomberg News survey.

Asian central banks from Pakistan to the Philippines are raising borrowing costs as soaring fuel and food costs fan inflation across the region. Boediono, governor for less than three months, needs to get runaway prices under control to help the 50 percent of Indonesia's 243 million people who survive on less than $2 a day.

``Indonesia may hold its monetary policy tightening cycle longer than the rest of Asia,'' said Christy Tan, a currency strategist at Bank of America Corp. in Singapore. ``The signals they are sending that they will hike in a measured manner are a way to manage and anchor inflation expectations going forward.''

Stocks fell after the announcement. Indonesia's benchmark index dropped as much as 3.3 percent and was trading down 3 percent at 3:25 p.m. in Jakarta.

Consumer prices in Indonesia jumped 11.9 percent in July, beating estimates for an 11.2 percent gain, the Central Statistics Bureau reported last week. Food costs increased 19.9 percent, the most in more than a decade.

Indonesia's wholesale-price inflation accelerated to 34.7 percent in June, the Central Statistics Bureau said today. That's the fastest pace in nine years.

`Upside Risk'

The momentum in wholesale-price inflation ``suggests that cost-push inflationary pressures are sizeable and could create upside risk to our consumer-price inflation forecast'' of 12.7 percent for this year, Cem Karacadag, an economist at Credit Suisse in Singapore, said in a note to investors today.

Boediono last week said Bank Indonesia would use ``all instruments'' at its disposal to tame price pressures in Southeast Asia's largest economy. The central bank aims to bring inflation down to between 6.5 percent and 7.5 percent in 2009 from a range of 11.5 percent to 12.5 percent this year.

``The high risk of inflationary pressures was the main consideration'' in raising rates, Bank Indonesia said in a statement today. Monetary policy is also equipped ``with instruments such as the control of rupiah volatility and the absorption of market liquidity through market operations.''

Not the Last

Bank Indonesia has increased its key rate by one percentage point since it started raising borrowing costs in May. Today's move may also help manage price expectations as the world's most populous Muslim nation prepares to celebrate Id-ul-Fitr following the fasting month of Ramadan that begins in September.

``We haven't seen the last'' of the rate increases, said Helmi Arman, an economist with PT Bank Danamon Indonesia in Jakarta. ``The risk is more to the upside'' for the central bank not meeting its inflation forecast for next year, he said.

President Susilo Bambang Yudhoyono's government raised fuel prices by about 30 percent in May to reduce its burden of capping pump costs. That made it more expensive to transport food, steel and cement across the 18,000 islands that make Indonesia the world's largest archipelago.

Bank Indonesia in May was the first central bank in Southeast Asia after Vietnam to raise borrowing costs this year. Vietnam increased its benchmark rate in January. India on July 29 raised its policy rate by a more-than-expected half point as inflation accelerated to the fastest pace since 1995.

Stronger Currency

The appreciation of the rupiah, the second-best performing among Asia's 10 most-traded currencies outside Japan in the past month, helped Bank Indonesia today avoid a half-point increase in rates.

``To reduce the negative impact on growth we will use all available instruments in our arsenal including exchange-rate policy,'' Bank Indonesia Deputy Governor Hartadi Sarwono said on July 24. ``This will reduce excessive increase of interest rates. This also explains why we prefer gradual rate increases.''

The rupiah rose as much as 0.1 percent and was unchanged at 9,087 against the dollar at 2:52 p.m. in Jakarta.

To contact the reporters on this story: Arijit Ghosh in Jakarta at aghosh@bloomberg.net; Aloysius Unditu in Jakarta at aunditu@bloomberg.net



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U.K. Services Contract, Factory Production Drops

By Jennifer Ryan and Svenja O'Donnell
Enlarge Image/Details

Aug. 5 (Bloomberg) -- U.K. services from banks to airlines contracted in July and factory production unexpectedly dropped for a fourth month in June, evidence the economy may be shrinking.

An index based on a survey of about 700 service companies was at 47.4, staying below the 50 threshold for expansion for a third month, the Chartered Institute of Purchasing and Supply said today. Factory production dropped 0.5 percent, the Office for National Statistics said.

The pound fell against the dollar after the reports, which showed that the credit squeeze, falling house prices and record oil costs have choked economic growth. The Bank of England probably won't cut the benchmark interest rate from the current 5 percent this week to avert a recession as policy makers battle to control the fastest inflation in 11 years, economists say.

``The Bank of England's hands are tied,'' said Nick Kounis, an economist at Fortis in Amsterdam and a former U.K. Treasury official. ``We're forecasting a recession in the second half. The odds are significantly above 50 percent.''

The pound fell to its lowest level in seven weeks against the dollar, and traded at $1.9552 as of 11:59 a.m. in London.

GKN Plc, the U.K. car-parts company that also builds plane components, today said first-half profit fell 3 percent as raw- material prices rose. British Airways Plc said Aug. 1 that first- quarter profit fell 90 percent and the airline cut its revenue forecast on record fuel costs and reduced demand.

Bank Losses

HSBC Holdings Plc, based in London and Europe's biggest bank by market value, said yesterday that first-half profit declined 29 percent as it set aside more money for bad loans in the U.S. Banks worldwide have announced more than $482 billion in losses and writedowns from the collapse of the U.S. subprime mortgage market.

``We are going through a tough time that is likely to continue for a while,'' Chancellor of the Exchequer Alistair Darling said in an interview on BBC Radio 4 today. ``It isn't just the effects of the credit crunch but it's also the effects we are seeing in very high oil prices.''

Today's services report excludes retailers, which along with other parts of the industry make up three-quarters of the economy. The CIPS reports for July showed manufacturing, about 15 percent of gross domestic product, shrank the most in a decade, while construction contracted the most since 1997.

Twelve out of 13 categories of factory production fell in June, led by a decline in electrical and optical equipment, the statistics office said. Economists had predicted a 0.1 increase on the month, according to the median of 30 forecasts in a Bloomberg News survey.

Oil Costs

Record commodity prices are also crimping companies' margins. Oil rose above $147 a barrel for the first time last month, while corn and wheat prices climbed to the highest ever this year.

The U.K. economy expanded 0.2 percent in the second quarter, matching the slowest pace since 2001 and sharpening the central bank's dilemma on interest rates. Inflation accelerated to 3.8 percent in June, the highest in more than a decade and almost double the bank's 2 percent target.

The bank will publish its next quarterly inflation and growth forecasts on Aug. 13. All 60 economists in a Bloomberg News survey predict the Monetary Policy Committee will keep the main rate unchanged for a fourth month this week. The bank will announce the decision at noon in London on Aug. 7.

``I would certainly be voting for cuts if I were on the MPC,'' said James Shugg, an economist at Westpac Banking Corp. in London. ``The situation on the economy is so dire, ultimately they'll see there's a massive risk of an inflation undershoot.''

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net; Svenja O'Donnell in London at sodonnell@bloomberg.net.



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European June Retail Sales Decline by Most Since at Least 1995

By Brian Swint

Aug. 5 (Bloomberg) -- European retail sales dropped by the most in at least 13 years in June as a surge in oil and food costs left consumers with less money to spend on other goods.

Sales in the 15-nation euro area fell 3.1 percent from a year earlier, the largest annual decline since the European Union's statistics office in Luxembourg began collecting the data in 1995. That was more than twice the 1.3 percent drop expected by economists, according to the median of 16 forecasts in a Bloomberg News survey. From May, sales fell 0.6 percent.

Higher oil and food costs are eroding households' purchasing power across the region and crimping sales at Unilever, Beiersdorf AG and other consumer-products makers. European Central Bank President Jean-Claude Trichet, who last month raised interest rates to curb price increases, said July 18 that economic growth will endure a ``trough'' in the six months through September.

``We could possibly have negative growth in the third quarter. Household spending has been very weak,'' said James Shugg, an economist at Westpac Banking Corp. in London. ``We see the ECB cutting rates in the early part of next year.''

Sales of food products declined 4.4 percent in June from a year earlier, while non-food goods decreased 2.2 percent, the statistics office said in today's report. From May, food sales fell 0.4 percent and non-food items dropped 0.6 percent.

Unilever, the world's second-biggest consumer-products company, last week said net income dropped 20 percent in the quarter ended in June after price increases for products ranging from Magnum ice cream to Omo detergents hampered sales. Unilever, based in London and Rotterdam, said volume in Europe fell 2.9 percent in the second quarter.

Consumer Spending

Hamburg-based Beiersdorf AG, the maker of Nivea skin creams, today said sales growth slowed and its operating margin narrowed in the latest quarter. Weaker consumer spending in western Europe and the U.S. prompted L'Oreal SA, the world's biggest cosmetics maker, to cut its sales forecast last month after reporting the smallest gain in more than three years.

Consumer-price inflation accelerated to 4.1 percent in July, the fastest pace in more than 16 years, as crude oil climbed to a record above $147 a barrel. The higher energy prices are pushing up raw-material costs and putting pressure on companies to pass along the increases to consumers.

Producer prices rose 8 percent in June, the most in at least 18 years, data released yesterday showed. A gauge of companies' selling-price expectations rose to a 13-year high last month, the European Commission reported July 30.

Living Expenses

The ECB raised its key interest rate to the highest in seven years last month on concerns consumer-price growth at twice the 2 percent limit will become embedded in the economy even as growth slows. The central bank has urged labor unions not to seek bigger pay raises to compensate for increased living expenses, saying inflation will return to the ECB's ceiling within 18 months.

All 60 economists in a Bloomberg News survey say they expect the ECB to keep the benchmark rate at 4.25 percent when policy makers meet in Frankfurt Aug. 7.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.



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Aso Says Japan in Recession, May Need to Delay Balancing Budget

By Keiichi Yamamura and Toru Fujioka

Aug. 5 (Bloomberg) -- Japan's longest postwar expansion may be over so the government should consider postponing its goal of balancing the budget by 2011, according to Taro Aso, the ruling Liberal Democratic Party's No. 2 official.

``Japan has probably entered a recession,'' Aso, who was appointed secretary-general of the LDP last week, told reporters in Tokyo today. ``We shouldn't try to balance the budget at the expense of the economy'' and the goal can be put off, he said.

Aso differs from Prime Minister Yasuo Fukuda, his political rival, who said today he'll use ``every means necessary'' to balance the books, leaving open the option of raising the sales tax from 5 percent. New Economy Minister Kaoru Yosano and Finance Minister Bunmei Ibuki said eliminating the deficit will be difficult, though the government will stick to the goal.

``Aso doesn't want voters to think the sales tax might be increased anytime soon,'' said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo. ``It's just an election strategy and they shouldn't give up the goal so soon.''

Fukuda reshuffled his Cabinet last week to shore up his popularity, which has slumped as rising food and fuel prices sap household income. His LDP-led coalition must defend its two- thirds majority in lower house elections due by September 2009.

Aso is the best choice for prime minister, according to a survey by the Sankei newspaper published yesterday. Fukuda beat Aso in a contest for the party's leadership after Shinzo Abe resigned last September.

Approval Rating

The Cabinet's approval rating rose 12 percentage points to 38 percent after the Aug. 1 reshuffle, a survey conducted by the Nikkei newspaper and TV Tokyo Corp. showed yesterday.

Ibuki and Yosano said Aug. 2 that the government can't rely on faster growth to balance the budget, a goal set in 2006 to reduce the world's largest public debt. Japan will have a 3.9 trillion yen ($37 billion) shortfall in the year starting April 2011, the Cabinet Office said last month.

``It'll be very tough,'' Ibuki said today. ``But the Ministry of Finance has a duty to make an effort.''

Japan may downgrade its economic assessment this week, saying the world's second-largest economy is ``weakening'' for the first time since May 2001, when the nation was in a recession, the Nikkei newspaper reported today.

The economy has yet to contract for two consecutive quarters, one definition of a recession. Still, soaring costs and weakening demand have eroded profits, prompting companies to pare output, investment and hiring. Production, household spending and exports declined in June, and the unemployment rate climbed to the highest in almost two years.

The government needs to propose its tax-reform plans within the next two to three years, Ibuki said on Aug. 2.

``Given the economic situation at present, it will be essentially impossible for the new Cabinet to raise taxes,'' said Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo.

To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; Keiichi Yamamura in Tokyo at kyamamura@bloomberg.net.



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Brown's Plan to Bolster U.K. Economy May Include Tax Changes

By Gonzalo Vina

Aug. 5 (Bloomberg) -- Prime Minister Gordon Brown's plan to shore up the British economy and reverse a slump in his government's popularity may include tax changes to benefit consumers, Chancellor of the Exchequer Alistair Darling said.

Darling said Brown will unveil proposals after his summer holiday, aiming to win back voters who turned away from the Labour Party. The finance minister left open the possibility of a temporary suspension of a tax on house sales as a way of reviving the property market.

``The prime minister is very focused on what we need to do to recapture people's enthusiasm,'' Darling told BBC Radio 4 today. ``When he gets back from his holiday, he will set out very clearly what he intends to do.''

After 13 months in office, Brown's grip on the ruling Labour Party is faltering after three defeats in special elections in recent weeks and a plunge in his popularity. Lawmakers in his own party including Foreign Secretary David Miliband have called for change, signaling the possibility of a challenge to his leadership.

Brown is working on a package of measures aimed at helping the economy and reengaging with voters through a series of meetings of his Cabinet outside his Downing Street residence in London. Ministers will convene on Sept. 8 in the West Midlands in central England, a government spokesman said yesterday.

Backing for Brown

Darling said he will continue to back Brown as leader and that the government can beat David Cameron's Conservative Party so long as it recaptured the ``enthusiasm and zeal.''

Part of the recovery plan may include measures to spur the housing market after nine consecutive months of price declines. When asked whether he would suspend stamp duty charged on property sales, Darling said he is ``looking at a number of measures'' and declined to discuss specifics.

``I want to look at a range of options to help people out,'' Darling said.

House prices declined the most in almost two decades in July, and consumer confidence fell to a record low as the economy edged closer to a recession. The average value of a home dropped 8.1 percent from a year earlier, Nationwide Building Society said last week.

Darling was less enthusiastic about a one-time tax on energy companies, whose earnings have benefited from record oil prices. Darling said collecting a windfall tax would create practical problems because many companies aren't based in the U.K. He also wants to encourage the companies to boost output.

Windfall Tax

He said he ``understands'' concerns from unions and Labour lawmakers that energy companies will reap further gains from a government system aimed at forcing them to trade permits to pollute.

Darling also rejected suggestions that he change the Bank of England's inflation-fighting mandate by requiring it to encourage growth and employment.

``Its remit is perfectly adequate to allow it to take everything it needs to into account,'' Darling said.

Pressure on Brown, who spent the last week on his summer vacation in the east of England, has increased after losing the mayoralty of London to the Conservatives and three by-election defeats, mostly in traditionally Labour-supporting districts.

Labour's support has deteriorated in the last 10 months, with the latest survey, by BPIX Ltd., showing 47 percent of respondents backing the Conservative opposition compared with 24 percent for Brown's party. BPIX surveyed 2,194 adults from July 31 to Aug. 2.

To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net



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ANZ Cuts Australian Dollar Forecast; Deutsche Sells Currency

By Chris Young and Bob Chen

Aug. 5 (Bloomberg) -- Australia & New Zealand Banking Group Ltd., among the most bullish forecasters for the Australian dollar, cut its estimate for the currency after the central bank signaled it may reduce interest rates from a 12-year high.

ANZ, one of five banks among 31 surveyed by Bloomberg News to predict Australia's currency would trade one-for-one with the U.S. dollar this year, estimates it will trade at 92 U.S. cents by year-end from a previous forecast of $1.04. Commonwealth Bank of Australia said the currency has ``peaked'' and will lower its forecast in coming days. Deutsche Bank AG, the world's largest foreign-exchange trader, said it was selling Australia's dollar.

``Bad news has flooded the Australian dollar,'' Amy Auster, head of foreign exchange and international economics research in Melbourne at ANZ, wrote in a research note. ``Parity looks very difficult to reach from here and is no longer our central case scenario for the Australian dollar.''

The currency, known as the Aussie, slid to a four-month low of 92.12 U.S. cents after the Reserve Bank of Australia left its benchmark interest rate at 7.25 percent and flagged a possible reduction in borrowing costs to help the economy. Today's decision, which follows four rate increases in the past 12 months, was forecast by all 24 economists surveyed by Bloomberg.

`Less Restrictive Stance'

``With demand slowing, the board's view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing,'' RBA Governor Glenn Stevens said in Sydney after today's rate decision.

Deutsche Bank has gone ``short'' the Australian dollar at 92.50 cents with a target of it reaching 89 cents, Sydney-based currency strategist John Horner wrote in a client note. A short position is one that profits from a decline it the asset's value.

``Our forecasts had the Australian dollar reaching a peak of parity to the U.S. dollar at the end of the September quarter before depreciating into year-end,'' Richard Grace, chief currency strategist at Commonwealth Bank in Sydney wrote in a report today. ``We now believe it has reached a peak early in the September quarter and will be adjusting our forecasts.''

The Australian dollar reached a 25-year high of 98.49 cents on July 16 as rising commodity prices and the nation's interest- rate advantage fueled demand.

Australia's $1 trillion economy expanded at the slowest pace in almost two years in the first quarter. Since the central bank's previous meeting on July 1, reports have shown consumer confidence slumped in July to the lowest level in 16 years, lending to consumers and businesses rose at the slowest annual pace since 2002 and house prices fell in the second quarter for the first time in almost three years.

`More Rapidly'

``The Australian domestic economy, led by retail sales, credit growth and housing has slowed more rapidly than anticipated,'' Commonwealth Bank's Grace said. He had been forecasting the local dollar would end the year at 96 cents.

The Australian dollar was trading at 92.24 cents at 5:35 p.m. in Sydney, compared with 93.37 cents in late Asian trading yesterday. The median year-end estimate among analysts surveyed by Bloomberg is for 91 cents.

Investors are betting the central bank will cut its benchmark rate by 0.91 percentage point in the next 12 months, up from 0.65 percentage point yesterday, according to a Credit Suisse Group index based on interest-rate swaps. Policy makers last reduced borrowing costs on Dec. 5, 2001, when the Aussie was trading at about 51.59 U.S. cents.



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Bernanke May Sound Tougher to Avert Fed Rebellion

By Scott Lanman
Enlarge Image/Details

Aug. 5 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, likely to leave interest rates unchanged today, may need to sound tougher on inflation to avert the sharpest public disagreement among policy makers in more than a decade.

The fastest inflation in 17 years adds to the risk that three members of the Federal Open Market Committee will dissent for the first time since 1992. Gary Stern, president of the Fed's Minneapolis bank, and the Philadelphia Fed's Charles Plosser joined Dallas's Richard Fisher since the last meeting in June in calling for an increase in rates to limit price increases.

The trio wield more clout than usual because two seats assigned to Fed governors on the 12-member panel will be vacant at the end of this month. That means Bernanke must craft a consensus that's responsive to their inflation warnings while still heeding tumbling housing prices, a faltering economy and the worst credit crisis since the Great Depression.

``Bernanke and Kohn would struggle like heck to make sure there were not three dissents,'' said Wachovia Corp. Chief Economist John Silvia, referring to Fed Vice Chairman Donald Kohn. ``They would probably be biased in their statement to really be focused more on inflation.''

Lehman Brothers Holdings Inc. economists forecast a ``significant chance,'' though less than 50 percent, that Stern, 63, will join Fisher and Plosser.

The FOMC is scheduled to announce its decision at about 2:15 p.m. in Washington. The benchmark rate will be held at 2 percent, according to all 69 economists surveyed by Bloomberg News. The gathering commenced at 8:30 a.m.

End to Easing

Fisher, 59, was the lone official to favor higher borrowing costs in June, his fourth dissent of the year. The rest of the panel voted to keep the federal funds rate unchanged, ending a series of cuts that had slashed it by 3.25 percentage points since September.

Stern said in a July 18 interview with Bloomberg News that the central bank shouldn't wait for housing and financial markets to stabilize before tightening. Plosser, 59, who dissented from two reductions this year, said July 22 that rates should rise ``sooner rather than later.''

A vote for tightening by the three district-bank presidents would fuel speculation among investors that Bernanke will be pushed into an increase earlier than he might prefer, said Standard & Poor's Corp. Chief Economist David Wyss.

`Awkward Position'

``It puts the Fed in an awkward position,'' said Wyss, a former Fed economist based in New York. The central bank ``may end up tightening just as we go into a deeper recession,'' he said.

Futures traders aren't betting on a move before September, though they do anticipate a quarter-point increase by December.

Eleven officials will decide the price of money today: Four are district-bank leaders that rotate into voting slots each year, joining six Washington-based governors. The New York Fed president has a permanent slot as the FOMC's vice chairman and tends to back the chairman.

The other district-bank president with a say is Cleveland Fed chief Sandra Pianalto, who hasn't bucked the consensus once since her appointment in 2003. Elizabeth Duke was confirmed as a governor by the Senate in June, though not sworn in until today.

Bernanke has acknowledged inflation pressures, while expressing concern about the fragility of the economy. In testimony to Congress on July 15, he described ``significant downside risks'' to growth and worsening ``upside risks'' to inflation.

BOE Approach

Bernanke may be willing to accommodate dissent. Bernanke has praised the Bank of England, whose chief, Mervyn King, has been outvoted twice on rates, as a ``leading exponent of increased transparency.''

Bernanke has also opened up FOMC meetings to allow officials to speak out of turn during debates. That means the sessions may resemble the frank exchange of conflicting views common to Bernanke's discussions during 23 years as an economics professor, said Edward McKelvey, a senior U.S. economist at Goldman Sachs Group Inc.

In 20 FOMC interest-rate decisions as chairman, Bernanke has recorded nine with one dissenting vote and two with a pair of `nays.' His predecessor, Alan Greenspan, had 17 decisions with one or two dissents in his last 10 years as Fed chief.

Since the June FOMC meeting, crude oil rose to a record $147.27 a barrel on July 11 before dropping 18 percent. A government report showed consumer prices surged 5 percent in the 12 months through June, the biggest jump since 1991.

1992 Revolt

The last time three policy makers dissented was Nov. 17, 1992, when one governor and two district-bank presidents argued for stricter anti-inflation words or action. A month earlier, four rebelled for similar reasons.

Not all inflation signs are pointing up. Consumers last month expected inflation over the next five years to be 3.2 percent, down from a forecast of 3.4 percent in June, according to the Reuters/University of Michigan survey. Home prices in 20 metropolitan areas fell 15.8 percent from a year earlier, based on the S&P/Case-Shiller index.

And any tolerance by Bernanke for dissent may be outweighed by the need to avoid spooking investors. ``They know that the markets would not take that well,'' McKelvey said.

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



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Turkish Lira Falls Against Dollar on Bets Inflation May Slow

By Yon Pulkrabek

Aug. 5 (Bloomberg) -- The Turkish lira fell against the dollar after the country's central bank said inflation may slow as oil prices fall, signaling it may keep interest rates on hold in August.

The lira snapped a six-day gain and was at 1.1555 against the dollar at 3:47 p.m. in Istanbul, compared with 1.1535 yesterday. It rose to 1.1499 earlier today.

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



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Pound Falls to 7-Week Low Versus Dollar on Signs Growth Slowing

By Kim-Mai Cutler

Aug. 5 (Bloomberg) -- The pound declined to the lowest level in seven weeks against the dollar as U.K. factory production unexpectedly shrank for a fourth month in June.

Britain's currency slipped most against the yen as traders added to bets the Bank of England will leave interest rates unchanged this year. The pound also dropped for a third day versus the dollar after a separate report showed the country's services industries contracted in July.

``Sterling is the last man standing,'' said Paul Robson, a London-based currency strategist at the Royal Bank of Scotland Group Plc. ``With other central banks already cutting rates, people are going to think the Bank of England is next.''

The pound slid to as low as $1.9525, the weakest level since June 18, and was at $1.9552 by 2 p.m. in London, from $1.9623 yesterday. It climbed to 79.18 pence per euro, from 79.41 pence.

Against the yen, the pound slipped as much as 0.9 percent to 210.60, the lowest level since July 17, from 212.46 yesterday

Factory output fell 0.5 percent from May and was 1.3 percent lower than a year earlier, the Office for National Statistics said today. Economists forecast a gain of 0.1 percent on the month, according to the median of 30 estimates in a Bloomberg News survey.

An index based on replies on sales and business conditions from about 700 service companies rose to 47.4, from 47.1 in June, according to The Chartered Institute of Purchasing and Supply. A reading below 50 shows contraction.

Traders pared bets on an interest-rate increase this year, with the implied yield on the March short-sterling futures contract dropping 2 basis points to 5.38 percent. The nation's benchmark rate is 5 percent.

Recession Threat

Policy makers kept borrowing costs on hold at their July 10 meeting after lowering them three times since November in a bid to stave off a recession in the face of accelerating inflation. They will keep it on hold again on Aug. 7, according to all 60 economists surveyed by Bloomberg.

U.K. 10-year government bonds rose for a second day, with the yield falling 5 basis points to 4.76 percent. The 5 percent security due March 2018 rose 0.42, or 4.2 pounds per 1,000-pound ($1,957) face amount, to 101.83. The yield on the two-year note slipped 6 basis points to 4.72 percent. Bond yields move inversely to prices.

The pound will weaken to $1.90 and to 80 pence per euro by year-end, according to the median forecast of analysts and strategists surveyed by Bloomberg. The 10-year note yield will end the year at 4.87 percent, according to a separate survey.

The pound fell 7.4 percent against the euro this year. It has declined 1.4 percent versus the dollar.

The U.K. today sold 2.25 billion pounds of 4.75 percent notes due in 2030. They yielded an average 4.841 percent, and demand for the securities was 1.58 times higher than the amount offered, up from 1.41 times at the last auction on March 13.

``The result was average, pointing to at best modest appetite for the issue,'' said Richard McGuire, a senior fixed- income strategist in London at RBC Capital Markets. ``We didn't expect a hugely successful result as the market has struggled to take in supply in the U.K.''

To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net.



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Swiss Franc Declines Versus Dollar as Stocks in Europe Rally

By Agnes Lovasz

Aug. 5 (Bloomberg) -- The Swiss franc fell to the lowest level against the dollar since mid-May as gains in European shares gave investors the confidence to buy higher-yielding assets funded in Switzerland.

The franc, often used to finance so-called carry trades because of the country's low borrowing costs, also declined against the Brazilian real and the South Korean won. The dollar was supported before a Federal Reserve meeting today at which policy makers may leave interest rates unchanged and highlight concern about inflation.

``We expect the franc to remain weak,'' said Manuel Oliveri, a currency strategist in Zurich at UBS AG, the world's second- biggest currency trader. ``Risk appetite's momentum remains strong and this is limiting gains in the franc.''

Against the dollar, the franc dropped to 1.0521 by 11:16 a.m. in Zurich, from 1.0483 yesterday, extending its loss this quarter to 3.1 percent. It reached 1.0542 earlier, the weakest level since May 19. Against the euro, it was at 1.6308, from 1.6327.

The franc will fall to 1.63 per euro in the coming month, UBS forecast. The Swiss currency declined to 1.4823 real, from 1.4884, and to 966.6929 won, from 970.7133.

The Swiss Market Index of the biggest companies climbed 1.2 percent, and the Dow Jones Stoxx 600 Index advanced 1.7 percent. Futures on the Standard & Poor's 500 Index expiring in September added 0.7 percent.

Gains in stock markets prompted investors to add to carry trades, where they get funds in a country with low borrowing costs and invest in those with higher interest rates, earning the spread between them.

Global Rates

Switzerland's target rate of 2.75 percent is the third lowest among industrialized nations, after Japan and the U.S. The equivalent rate for the 15 nations sharing the single currency is 4.25 percent.

The Federal Open Market Committee is scheduled to announce its decision at about 2:15 p.m. in Washington. The benchmark rate will be held at 2 percent, according to all 69 economists surveyed by Bloomberg News.

Traders reduced bets the Swiss National Bank will raise borrowing costs this year, futures prices show. The implied yield on the three-month Swiss franc interest-rate futures contract due December fell 2 basis points to 2.87 percent today. It has dropped 18 basis points in the past month.

Swiss government bonds were little changed, with the yield on the 3 percent note due in January 2018 holding at 3.06 percent. Yields move inversely to bond prices. The yield advantage of 10-year U.S. notes over comparable Swiss government debt widened to 92 basis points today, from an average 71 basis points during the past month.

To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net



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Canadian Dollar Drops to Year Low as Commodities Prices Fall

By Cordell Eddings

Aug. 5 (Bloomberg) -- Canada's dollar fell to the lowest in more than a year as the prices of commodities including crude oil tumbled and the U.S. currency strengthened.

The loonie, as the currency is known because of the aquatic bird on the one-dollar coin, slumped for a fourth consecutive day. Commodities account for about half of the nation's exports, while the U.S. is Canada's biggest trading partner.

``The main catalyst has been weakness in commodity markets, most notably crude,'' said Jack Spitz, managing director of foreign-exchange trading at National Bank of Canada in Toronto. ``And they are still going lower which is fueling bearish sentiment in the Canadian dollar and broad-based demand for the U.S. dollar.''

The currency fell 0.7 percent to C$1.0437 per U.S. dollar at 8:08 a.m. in Toronto, from $1.0366 yesterday. The loonie touched C$1.0453, the lowest since Sept. 11. One Canadian dollar buys 95.80 U.S. cents.

Crude oil fell to $118 a barrel on speculation Tropical Storm Edouard will leave U.S. oil rigs and refineries undamaged and as other commodity prices tumble. Oil has lost almost $30 since touching a record of $147.27 a barrel in New York on July 11 as unprecedented fuel costs prompted consumers to limit spending on fuel.

After gaining 17 percent in 2007, the dollar is down 4.4 percent in 2008 amid a shrinking economy and a 15 percent drop in oil prices the past month. It's one of five of the 16 most- widely traded currencies to drop against the U.S. greenback, joining the New Zealand dollar, South Korean won, South African rand and British pound.

Canada's economy shrank 0.1 percent in May, as the extraction of natural gas slowed and car production dropped, Statistics Canada said last week in Ottawa. Economists surveyed by Bloomberg predicted a 0.2 percent expansion, according to the median of 24 estimates.

The Canadian dollar will weaken to C$1.09 by the end of 2009, according to the median estimate of 31 economists surveyed by Bloomberg News.

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



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India Coffee Output May Meet Target as Rains Aid Crop Prospects

By Thomas Kutty Abraham

Aug. 5 (Bloomberg) -- India's coffee production, the third- biggest in Asia, is more likely to meet a government target after rains revived over the biggest coffee-growing areas, helping ease last month's dry spell that had threatened to lower yields.

The state-owned Coffee Board won't reduce its June estimate of 293,000 metric tons, Chairman G.V. Krishna Rau, said today in a telephone interview. Dry weather may cut harvest by 5 percent, Ramesh Rajah, president of the All India Coffee Exporters' Association, forecast on July 22.

``Rainfall in the past 10 days has been so good that it has almost wiped out the deficit seen last month,'' N. Bose Mandanna, a plantation owner and former vice chairman of the Board, said.

A bigger harvest in India, which exports 80 percent of its output, may weigh on robusta coffee prices, which have declined 5 percent in the past month. Global production may climb by about 9 percent next season, led by Brazil, and match demand, according to the London-based International Coffee Organization.

South interior Karnataka, home to the biggest coffee-growing districts of the country, received 97.2 millimeters (3.8 inches) of rain in the week ended July 30, twice the level deemed normal, according to the weather office. Rainfall in the region was 10 percent below average in June-July period, the agency said.

``Below normal rains won't have any major impact on coffee as it is grown in high rainfall zones,'' Coffee Board's Rau said. ``There are not many incidents of pest attacks'' because of inadequate rains last month, he said.

India's coffee exports rose 6.4 percent in the first seven months of this year as producers including local units of Nestle SA shipped more to nations including Russia and Italy. Shipments totaled 151,736 tons, compared with 142,631 tons a year earlier, according to provisional data on Coffee Board's Web site.

To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net.



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Cocoa Declines in London as Plunging Oil Curbs Commodity Demand

By Rachel Graham

Aug. 5 (Bloomberg) -- Cocoa fell for a second consecutive day in London after a plunge in crude-oil prices curbed demand for commodities as an alternative investment to stocks and bonds.

Crude oil traded at $119.22 a barrel on the New York Mercantile Exchange, as of 1:09 p.m. in London. That's 19 percent below the record reached July 11. The Reuters/Jefferies CRB Commodity Index yesterday fell the most since March.

``Cocoa is taking its lead from crude oil,'' Jamie Craggy, a dealer at One Financial, an online brokerage specializing in commodities, said by phone from London. Declines in oil are ``bound to have an impact on other commodities,'' he said.

Cocoa for September delivery fell as much as 51 pounds, or 3.4 percent, to 1,450 pounds ($2,834) a metric ton on the Liffe exchange in London. The contract traded at 1,458 pounds as of 1:06 p.m. local time.

Cocoa slid 6.3 percent yesterday, the biggest one-day decline compared with closing prices since July 17, 2006. Cocoa rose to as much as 1,800 pounds a ton in London on July 1, the highest since at least 1989, partly on concerns farmers wouldn't ship enough to fill a global shortage.

Ivory Coast, the world's biggest cocoa producer, got 9.7 percent more of the crop at its main ports so far this season than a year earlier, government official Saint-Cyr Djikalou said in an interview in London yesterday.

Deliveries to ports, a gauge of production, rose to 1.27 million metric tons between Oct. 1, 2007, and July 13 this year, The figure was 1.15 million tons a year ago. The country's main ports are San Pedro and Abidjan.

White, or refined, sugar for October delivery fell for a second session, trading down $5.50, or 1.4 percent, at $373.40 a ton on Liffe.

Sugar Funds

ETF Securities Ltd., a provider of contracts tracking commodities, said ETFS Sugar, which tracks sugar futures contracts, lost $3.1 million in investment last week.

ETFS Short Sugar, which investors buy to bet on a drop in prices, attracted about $300,000 in the week to Aug. 1, Jersey, Channel Islands-based ETF Securities said in a report today.

Robusta coffee for September delivery rose $10, or 0.4 percent, to $2,355 a ton. The contract earlier traded as low as $2,335 a ton.

To contact the reporter on this story: Rachel Graham in London rgraham13@bloomberg.net.



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Gold, Platinum Fall as Decline in Oil Signals Weakening Demand

By Claudia Carpenter

Aug. 5 (Bloomberg) -- Gold, platinum and silver fell as a slump in crude oil to a three-month low added to signs of weakening global economic growth and speculation demand for precious metals used in jewelry and auto parts will wane.

Platinum headed for its biggest three-day drop since at least 1992 as reduced car sales in the U.S. and Germany capped demand for emission-control car parts, the metal's biggest market. Gold has dropped 8 percent since July 11, when oil began its 20 percent slide from a record.

``Fear of real economic slowdown and less demand from emerging markets'' is spurring the declines, said Ben Davies, who helps manage the Hinde Gold Fund in London and prefers investments in gold mining stocks to the metal.

Gold for immediate delivery dropped $9.74, or 1.1 percent, to $885.06 an ounce as of 12:10 p.m. in London after earlier declining to $882.16, the lowest since June 25.

Declines may slow on signs of increased demand from India, the world's largest buyer.

``There is very good physical interest'' in India after a purchasing lull ``for quite some time,'' said Simon Weeks, a London-based managing director at ScotiaMocatta, the metal- trading unit of Canada's Bank of Nova Scotia. Gold at $880 is a ``key point as far as charts are concerned,'' and a drop below may send prices down another $20, Weeks said.

UBS AG analyst John Reade will ``throw the towel in'' on his one- and three-month price forecasts if gold ``closes weakly today,'' he wrote in an e-mail. As of July 21, his forecasts were $1,000 in one month and $1,050 in three months.

Platinum Drops

Platinum declined $23, or 1.5 percent, to $1,542 an ounce, bringing the drop in three days to more than 12 percent. The price earlier fell to $1,537, the lowest since Jan. 22.

Automobile companies use platinum in catalytic converters to reduce noxious gases in vehicle emissions. The devices accounted for 79 percent of demand in Europe last year and 86 percent of use in North America, according to catalyst manufacturer Johnson Matthey Plc.

Silver dropped 22.5 cents to $16.715 an ounce and palladium declined $10.50 to $344 an ounce. Palladium, also used in auto catalysts, earlier fell to $343.50, the lowest since Dec. 10.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net



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Oil Falls to $118 as Storm Danger Abates, Demand Concern Grows

By Grant Smith

Aug. 5 (Bloomberg) -- Crude oil fell to $118 a barrel on
speculation Tropical Storm Edouard will leave U.S. oil rigs and
refineries undamaged and as commodities prices tumble because of
the slowing U.S. economy.

Oil dropped to its lowest level since May 5 as Edouard's wind speeds remained below hurricane strength. Gold, platinum and wheat dropped on speculation slower growth will curb demand and as a stronger dollar dulled the appeal of commodities as an inflation hedge.

``As the storm no longer appears an immediate threat, the dominant theme is still weaker demand,'' said Andrey Kryuchenkov, an analyst at London-based Sucden (U.K.) Ltd. ``Dropping below support levels around $120, where buying had first kicked in April, has probably triggered a lot of sell- orders.''

Crude oil for September delivery fell as much as $3.41, or 2.8 percent, to $118 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $119.34 at 1:32 p.m. London time.

Oil has lost almost $30 since touching a record of $147.27 a barrel in New York on July 11 as unprecedented fuel costs prompted U.S. consumers to limit spending on fuel. Yesterday, the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials fell 3.25 percent, its biggest loss since March.

``Very little oil production seems to have been shut in by Edouard,'' said Christopher Bellew, a senior broker at Bache Commodities Ltd. in London. ``Gasoline stocks are high enough to limit any crisis from refinery shutdowns, so the market's returning its attention to the weak demand picture.''

Gasoline Stockpiles

U.S. gasoline stockpiles are 3 percent above their five- year seasonal norm at 213.6 million barrels, according to the Energy Department. The department will probably say gasoline supplies fell 1.75 million barrels last week in its weekly report tomorrow, a Bloomberg survey predicted.

The dollar rose to a six-week high against the euro before a Federal Reserve meeting today at which policy makers may leave interest rates on hold and highlight concern about inflation. The dollar traded at $1.5494 per euro, the strongest level since June 24.

``It s going to be difficult to retrace another $20 up,'' Jason Gammel, an analyst at Macquarie Bank Ltd. in New York said in a radio interview. ``The market's adequately supplied. We've seen enough incremental demand peeled out of the developed countries as a result of the high prices.''

Tropical Storm Edouard was blowing towards Galveston, Texas, with winds as fast as 65 miles (100 kilometers) per hour, prompting the evacuation of some oil and gas rigs. Galveston is the biggest U.S. petroleum port.

U.S. producers have idled less than 1 percent of oil output and 7.2 percent of natural gas production in the Gulf of Mexico because of the storm, the U.S. Minerals Management Service said.

Brent Crude

Brent crude for September settlement fell as much as $3.77, or 3.1 percent, to $116.91 a barrel on London's ICE Futures Europe exchange, and was at $118.51 at 1:14 p.m. London time.

Kuwait ``isn't worried'' about the recent price decline and doesn't expect the Organization of Petroleum Exporting Countries to reduce production quotas when it meets next month, Oil Minister Mohammed al-Olaim said in an interview today.

``Supply is going to continue as it is, no reduction,'' al- Olaim said. ``By all means there is no cut in production, although there is a very big drop in prices.''

The flow of crude oil from Kirkuk in Iraq to Turkey's Mediterranean port of Ceyhan resumed today after stopping two days ago, according to officials at Botas, the Turkish pipeline operator.

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



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Nickel, Zinc Drag Metals Lower in London on Signs Use Weakening

By Chanyaporn Chanjaroen

Aug. 5 (Bloomberg) -- Nickel and zinc led a slide in metals traded in London as rising stockpiles indicated weakening world demand amid a global economic slowdown.

Nickel fell to a two-year low as inventories tracked by the London Metal Exchange nearly trebled in the past year, while zinc traded at the lowest since December 2005 after stockpiles surged to a 23-month high.

``As LME inventories increased, investors' assessment of the market has changed,'' Tobias Merath, a commodity analyst at Credit Suisse Group in Singapore, said today by phone. ``They see it as a sign of weakening demand.''

Nickel for delivery in three months fell as much as $425, or 2.4 percent, to $17,600 a metric ton, the lowest since June 14, 2006. It traded at $17,725 a ton as of 11:24 a.m. in London. Zinc lost as much as $37, or 2.1 percent, to $1,730 a ton, the lowest since Dec. 1, 2005.

Manufacturing shrank last month in China and Europe, and stagnated in the U.S., the biggest sources of demand for industrial metals. Chinese home-appliance makers, the world's largest exporters of the products, are cutting purchase of copper as shipments of air conditioners and fridges slow, said Jiangxi Copper Co., the nation's second-largest copper producer.

Copper stockpiles expanded 2,550 tons, or 1.7 percent, to 148,750 tons, according to the LME's daily report, the highest since Feb. 26. The metal dropped as much as $75, or 1 percent, to $7,530, the lowest since Feb. 7, and last traded at $7,600.

Metal Consumption

Metal consumption may grow less than 10 percent this year in China, slower than 2007, Zhao Mingwang, general manager of Jiangxi Copper's rod and wire sales, said today by phone. Manufacturers of appliances and electronics account for 20 percent of copper demand in China.

Between 50 percent and 79 percent of LME copper stockpiles were held by one firm as of July 30, according to LME figures. Buyers of next-day delivery are paying $14 per ton a day as borrowing fees.

``We would be cautious about getting short copper here,'' said John Reade, a metals strategist at UBS AG in London. Price differentials between LME and the Shanghai Futures Exchange are narrowing, ``indicating the Chinese hate copper less than the rest of the world,'' Reade wrote today in an e-mailed note.

Lead rose $5 to $2,000. Lead stockpiles earmarked for withdrawal from LME-registered warehouses, known as canceled warrants, jumped 20 percent to 10,250 tons, according to the exchange. That accounts for 11 percent of total lead inventories. All the canceled warrants are in Long Beach, California, where a lead recycler owned by Quemetco Inc. shut down after a July 3 fire.

Among other metals traded on the LME, aluminum fell $1 to $2,881 a ton and tin declined $450, or 2.2 percent, to $20,150.

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net



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Japan Stocks Fall, Led by Commodity Producers, on Oil Decline

By Masaki Kondo

Aug. 5 (Bloomberg) -- Japan stocks fell as declining raw materials prices sent commodities producers lower, overshadowing gains by paper and tire makers.

Inpex Holdings Inc., Japan's largest oil explorer, sank to a six-month low after crude fell below $120 a barrel. Nippon Paper Group Inc. led its peers to a seven-month high on easing concern fuel costs will eat into profits. JFE Holdings Inc., the nation's second-largest steelmaker, tumbled the most in four months on speculation demand from shipbuilders and China is slowing.

``The market changes so rapidly that it's more or less impossible for investors to buy and hold promising stocks for the long term,'' said Hideo Arimura, who oversees the equivalent of $1.9 billion at Mizuho Asset Management Co. in Tokyo. ``Nobody can foresee what lies in store for the oil market.''

The Nikkei 225 Stock Average declined 18.52, or 0.1 percent, to 12,914.66 in Tokyo, after swinging between gains and losses nine times. The broader Topix index dipped 0.54, or less than 0.1 percent, to 1,247.71. Seventeen of 33 industry groups on the Topix fell.

Crude oil yesterday dropped 3 percent to the lowest since May 5, as Tropical Storm Edouard will avoid most offshore production facilities in the U.S. Gulf Coast as it approaches Texas. The contract was recently at $118 a barrel.

Inpex tumbled 4 percent to 985,000 yen, the lowest close since Feb. 8. Sumitomo Corp., Japan's third-largest trading company by value, dropped 3.8 percent to 1,294 yen. Sumitomo Metal Mining Co., the nation's second-biggest copper producer, sank 3.7 percent to 1,231 yen after copper prices fell to a six- month low.

Bear Market

A gauge of 117 energy producers in the MSCI World Index slipped 3.1 percent yesterday, bringing its decline from a May record to 20 percent, the common definition of a bear market. A measure of mining, farm and chemical companies dropped 3.3 percent, pushing its retreat from an all-time high to 21 percent.

JFE tumbled 7.2 percent to 4,390 yen, the biggest decline since March 7 and bringing its four-day plunge to 19 percent. Nippon Steel Corp., Japan's biggest maker of the alloy, slumped 4.9 percent to 526 yen. The Topix Iron & Steel Index fell 4.8 percent to the lowest since April 14, and contributed the most to the Topix's decline.

Cancelled orders from South Korean shipbuilders last week raised concerns faltering global growth will slow demand for vessels, hurting steel demand. A slowdown in the property market may drag down steel prices in China, the Taipei-based Commercial Times reported today, quoting a report from the China Iron & Steel Association.

Seven Gallons a Tire

Bridgestone Corp., the world's biggest tiremaker, jumped 3.5 percent to 1,715 yen, the biggest gain since July 24. Sumitomo Rubber Industries Ltd., which sells Dunlop and Falken-branded tires, rose 4.1 percent to 821 yen. About seven gallons of oil are required to produce a car tire, according to the Rubber Manufacturers Association.

Nippon Paper surged 13 percent to 321,000 yen, the sharpest jump since its March 2001 listing and making it the biggest winner on the MSCI World Index. The company posted a 41 percent decline in first-quarter net income.

The drop in oil ``takes a lot of weight off the company and they're managing to get price hikes through,'' said Nicholas Smith, director of equity sales at HSBC Holdings Plc in Tokyo. ``There's a certain amount of short covering going on.''

Rival Oji Paper Co., the nation's biggest user of high- sulfur fuel oil, jumped 4.4 percent to 576 yen.

Orix Corp., Japan's largest non-bank financial company, added 2.6 percent to 15,070 yen, while credit-card provider Credit Saison soared 11 percent to 2,330 yen, posting the third- biggest gain among members on the Nikkei.

Merger Talks

Orix and Credit Saison may reach an agreement next month that would unite Orix's leasing and real-estate operations with Credit Saison's consumer-finance business, the Nikkei reported today. The companies denied the report.

Nippon Suisan Kaisha Ltd., a seafood processor, plunged 16 percent, the most on record, to 432 yen. The company today reported its first quarterly net loss since it started disclosing quarterly earnings in 2004, according to figures gathered by Bloomberg. Higher fuel prices boosted costs to run fishing boats, the company said during stock trading.

Among Topix-listed companies reporting quarterly results in the month to yesterday, 59 percent posted a decline in net income, according to data compiled by Bloomberg.

Nikkei futures expiring in September slipped 0.2 percent to 12,920 in Osaka and lost 0.1 percent to 12,930 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.



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Asian Currencies Decline, Led by Thai Baht, as Dollar Rallies

By Aaron Pan and Shanthy Nambiar

Aug. 5 (Bloomberg) -- Asian currencies declined, led by Thailand's baht, on speculation the Federal Reserve will cite inflation risks and keep interest rates unchanged today, boosting demand for the U.S. currency.

The dollar rallied to a six-week high against the euro as futures contracts showed Fed policy makers may increase borrowing costs by year-end after keeping rates on hold today. Seven out of the 10 most-active Asian currencies outside of Japan fell today.

``We are seeing some demand from foreign banks for the dollar,'' helping push the baht lower, said Apichart Suratanasurang, a foreign-exchange trader at BankThai Pcl in Bangkok. ``The dollar is rebounding.''

The baht fell 0.2 percent to 33.61 against the dollar as of 4:30 p.m. in Bangkok, according to data compiled by Bloomberg. It earlier declined to 33.65, the weakest since July 15.

Overseas investors sold 790 million baht ($23.5 million) more Thai stocks than they bought yesterday, according to data from the stock exchange.

Singapore's dollar fell 0.4 percent to S$1.3781 against the U.S. currency, Malaysia's ringgit lost 0.1 percent to 3.2725 and Taiwan's dollar declined 0.2 percent to NT$30.721. Vietnam's dong advanced 0.3 percent to 16,690.

South Korea's won fell to the lowest in two weeks as global funds dumped local stocks and importers bought the dollar to pay for imports.

`Preemptive Steps'

The won's weakness was limited after Vice Finance Minister Kim Dong Soo said the government will take ``preemptive steps'' to prevent price gains, spurring speculation of intervention.

``Market players are increasingly mindful of what the government is worried about,'' said Roh Sang Chil, a currency dealer with Kookmin Bank in Seoul. ``Still, demand for the dollar is high due to foreign stock sales and importer deals.''

The currency closed at 1,017.90 against the dollar, compared with 1,017.40 yesterday, according to Seoul Money Brokerage Services Ltd. The won has slumped 8.4 percent this year, the second-worst performer among the 10 most-active regional currencies.

Record oil and food costs pushed up annual consumer prices by 5.9 percent in July, the biggest gain since November 1998, according to a government report on Aug. 1. Central banks intervene in currency markets by arranging sales and purchase of foreign exchange.

Rate Increase

Indonesia's rupiah climbed to the strongest in almost five months after the central bank raised its benchmark interest rate for a fourth time in as many months to tame the fastest inflation in almost two years.

Bank Indonesia Governor Boediono increased the policy rate by a quarter-percentage point to 9 percent, the bank said in a statement in Jakarta today. That matched the forecast of 20 of 22 economists in a Bloomberg News survey.

``I'm still very bullish on the rupiah and I expect them to remain hawkish on their policy stance, even after today's meeting,'' said Craig Chan, a currency strategist at Lehman Brothers Holdings Inc. in Singapore.

The rupiah traded at 9,075 versus the dollar, the highest level since March 10, versus 9,087 yesterday, according to data compiled by Bloomberg.

``The high risk of inflationary pressures was the main consideration'' in raising rates, Bank Indonesia said in a statement today. Monetary policy is also equipped ``with instruments such as the control of rupiah volatility and the absorption of market liquidity through market operations,'' the central bank said.

Oil Helps Peso

The Philippine peso gained the most in almost two weeks on speculation lower oil prices will slow inflation in the coming months.

The peso was the best performer of the 10 most-traded currencies in Asia outside Japan as crude oil fell for a second day, extending its decline to almost 19 percent from a record $147.27 a barrel on July 11. Inflation accelerated to the fastest in 16 years in July due to costlier oil and food, a government report showed today.

``A tapering off of inflationary pressures will favor the local currency and fund flows,'' said Lito Biacora, vice president for treasury at Bank of the Philippine Islands in Manila. Inflation may still climb but the ``degree of increase may not be as much if oil stabilizes at $120 a barrel.''

The peso rose 0.6 percent to 44.135 versus the dollar, according to Tullett Prebon Plc. The gain was the biggest since July 23, when it surged 1.3 percent.

To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Shanthy Nambiar in Bangkok at snambiar1@bloomberg.net.



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French Stocks: Air France, Societe Generale, Total, Vallourec

By Adria Cimino

Aug. 5 (Bloomberg) -- France's CAC 40 Index added 68.34, or 1.6 percent, to 4,348.91 at 1:56 p.m. in Paris after three days of losses. The SBF 120 Index also increased 1.6 percent.

The following shares rose or fell in Paris. Stock symbols are in parentheses.

Air France-KLM Group (AF FP) climbed 1.15 euros, or 7.1 percent, to 17.41 euros. Europe's biggest airline said first- quarter profit fell 59 percent to 168 million euros ($260 million) as fuel prices increased and asset sales boosted year- earlier earnings. That surpassed the average analyst estimate of 152 million euros.

GFI Informatique SA (GFI FP) rose 6 cents, or 1.5 percent, to 4.01 euros, advancing for a second day. The computer- services company reported a 16 percent rise in second-quarter sales to 191.3 million euros and said it was ``confident'' of meeting full-year targets.

Societe Generale SA (GLE FP) advanced 4.49 euros, or 7.6 percent, to 63.99 after earnings beat analysts' estimates. France's second-biggest bank by market value reported a 63 percent decline in second-quarter profit to 644 million euros after writedowns linked to the subprime contagion led to a loss at the investment-banking unit. Earnings exceeded the 550 million-euro median estimate of 13 analysts surveyed by Bloomberg.

Rival lender BNP Paribas SA, which reports earnings Wednesday before market open, jumped 1.93 euros, or 3.3 percent, to 61.435 euros. Credit Agricole SA, France's third- largest bank by market value, gained 62 cents, or 4.5 percent, to 14.33.

Teamlog SA (TLO FP), a consulting company, climbed 24 cents, or 7 percent, to 3.65 euros. Groupe Open SA, a computer- services company, raised its Teamlog stake to 98 percent.

Total SA (FP FP), the share with the largest weighting on the CAC 40 index, slid 1.02 euros, or 2.1 percent, to 47.25, falling for a third day. Crude oil fell below $120 a barrel in New York as meteorologists forecast Tropical Storm Edouard will miss most offshore production facilities in the U.S. Gulf Coast while approaching Texas.

Vallourec SA (VK FP), the world's second-largest supplier of seamless pipes for energy extraction, tumbled 11.26, or 5.9 percent, to 179.46, making it today's worst performer on the CAC 40 index.

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



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German Stocks Rise, Led by Adidas, Infineon, Lufthansa, Daimler

By Henrietta Rumberger and Stefanie Haxel

Aug. 5 (Bloomberg) -- German stocks gained the most in more than three months as earnings from Adidas AG beat analysts' estimates and Deutsche Bank AG recommended buying shares of Infineon Technologies AG.

Adidas, the world's second-largest sporting-goods maker, rose the most in six months while Infineon had its steepest advance in more than two weeks. Deutsche Lufthansa AG and Daimler AG climbed as crude oil dropped to a three-month low. Deutsche Bank led financial shares higher after better-than-projected earnings from Societe Generale SA.

The benchmark DAX Index jumped 142.51, or 2.2 percent, to 6,492.32 as of 1:44 p.m. in Frankfurt, the steepest gain since April 18. DAX futures expiring in September added 2.4 percent to 6,528.5. The HDAX Index of the country's 110 biggest companies rose 2 percent to 3,289.76.

``Adidas and Societe Generale are the driving forces for the German market today,'' Thorsten Winkelmann, a Frankfurt-based portfolio manager at Allianz Global Investors, which oversees $464 billion in Germany, said in a Bloomberg Television interview. ``Banking stocks are very sensitive to positive surprises within the sector.''

Adidas advanced 2.68 euros, or 7 percent, to 41.05. The sporting-goods maker said second-quarter profit rose 12 percent to 116 million euros ($180 million), beating the 113 million-euro average estimate of five analysts compiled by Bloomberg. Adidas said the annual gross margin will exceed 48 percent, more than its previous forecast of 47.5 percent to 48 percent.

Infineon, Banks

Infineon rallied 29 cents, or 5.8 percent, to 5.31 euros after Deutsche Bank rated the stock ``buy'' in new coverage.

``We see margins and profitability recover over the next 12 months,'' Kai Korschelt, a London-based analyst at the brokerage, wrote in a report dated Aug. 4. He set his share-price estimate at 7 euros.

Deutsche Bank, Germany's largest bank, gained 2.70 euros, or 4.7 percent, to 60.53. Commerzbank AG, the second-biggest, added 90 cents, or 4.3 percent, to 21.82 euros. Hypo Real Estate Holding AG, the country's second-largest commercial-property lender, increased 34 cents, or 1.9 percent, to 18.36 euros.

Societe Generale, France's second-biggest bank, said profit fell 63 percent in the second quarter, less than analysts estimated, on writedowns linked to the subprime contagion.

The Dow Jones Europe Stoxx Banks Index, a benchmark for the industry, rallied as much as 4.3 percent.

Crude Oil

Lufthansa, Europe's second-largest airline, increased 71 cents, or 4.9 percent, to 15.25 euros. Air Berlin Plc, the region's third-biggest discount airline, climbed 19 cents, or 5.4 percent, to 3.68 euros.

Crude oil fell to $118 a barrel in New York, the lowest since May 5, on speculation Tropical Storm Edouard won't damage U.S. Gulf facilities and as concern economic growth will slow prompted investors to sell commodities.

Daimler, the world's second-largest luxury automaker, advanced 1.94 euros, or 5.2 percent, to 38.91. Cevian Capital AB, the Swedish investor, is accumulating shares in the carmaker, Sueddeutsche Zeitung reported, citing an unidentified hedge fund manager.

The following stocks also rose or fell in German markets. Symbols are in parentheses.

Adva AG Optical Networking (ADV GY) jumped the most in more than two weeks, climbing 9 cents, or 5.4 percent, to 1.75 euros. The maker of networking equipment for customers such as Deutsche Telekom AG reported a second-quarter loss that was less than anticipated by Adva.

Allianz SE (ALV GY), Europe's largest insurer, gained 4.27 euros, or 3.9 percent, to 112.99. China Development Bank is competing with Commerzbank AG to buy the insurer's Dresdner Bank, Germany's third-largest lender by assets, three people familiar with the matter said.

Beiersdorf AG (BEI GY) lost 2.50 euros, or 6.1 percent, to 38.68, the biggest decline in almost four years. The maker of Nivea skin creams reported slowing sales growth and said its operating margin narrowed in the second quarter.

Deutsche Boerse AG (DB1 GY) rose 2.51 euros, or 3.8 percent, to 69.25, the steepest increase in more than two weeks. Europe's biggest exchange by market value said it may start an internal electronic trade-matching system known as a dark pool to brace for competition. So-called dark pools, which match orders anonymously, are becoming increasingly popular as investors seek to disguise their strategies.

Freenet AG (FNT GY) tumbled 50 cents, or 4.3 percent, to 11.06 euros. The mobile-phone and Internet operator that agreed to buy rival Debitel AG said pretax profit plummeted 95 percent in the first two months of the second quarter and there will be further writedowns.

Heidelberger Druckmaschinen AG (HDD GY) advanced 47 cents, or 4.1 percent, to 11.97 euros, the biggest gain in almost a week. The world's largest maker of printing machines posted a lower-than-estimated net loss for the fiscal first quarter.

K+S AG (SDF GY) plunged for a third day, losing 4.56 euros, or 6.3 percent, to 67.79. Europe's largest producer of potash used in fertilizers fell amid concern declining crop prices may curb demand for pesticide and fertilizer. Switzerland's Syngenta AG, the world's biggest maker of agricultural chemicals, and Israel Chemicals Ltd. also declined.

KUKA AG (IWK GY) fell 28 cents, or 1.9 percent, to 14.72 euros, the lowest in 11 months. The company that makes robots that manufacture bodies for Chrysler LLC's Jeep Wrangler said second-quarter profit slumped 89 percent following a one-time gain from the sale of a unit in the year-earlier period.

Pfleiderer AG (PFD4 GY) added 71 cents, or 8.8 percent, to 8.75 euros, the steepest increase since March 20. The flooring maker with 22 factories on two continents bought a chipboard factory in North Carolina and decided to move some production capacity from its facility in La Baie, Canada, Boersen-Zeitung reported, citing Chief Executive Officer Hans Overdiek.

Roth & Rau AG (R8R GY) jumped 2.43 euros, or 8.4 percent, to 31.48, the highest in two weeks. The world's largest maker of equipment used to coat solar panels said first-half profit almost doubled and raised its full-year sales forecast.

Technotrans AG (TTR GY) tumbled 2.70 euros, or 23 percent, to 9, the lowest in almost five years. The supplier of components to the print industry reported a 45 percent drop in first-half profit to 2.6 million euros and cut its full-year sales forecast.

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



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European Stocks, U.S. Futures Gain; SocGen, Air France, GM Rise

By Sarah Jones

Aug. 5 (Bloomberg) -- European stocks rose for the first time in four days after Societe Generale SA and Air France-KLM Group reported better-than-estimated earnings, stoking speculation profit growth will withstand the economic slowdown. U.S. index futures gained, while Asian shares fell.

Societe Generale, France's second-largest bank, climbed to a two-month high as writedowns slowed. Air France jumped the most in three weeks after Europe's largest airline reaffirmed its profit forecast, and Daimler AG and General Motors Corp. rallied in Germany as oil fell to a three-month low. Adidas AG gained after the sporting-goods maker raised its projection for profit margins.

The Dow Jones Stoxx 600 Index advanced 2 percent to 283.26 at 1:42 p.m. in London, while futures on the Standard & Poor's 500 Index added 0.7 percent before the Federal Reserve announces its decision on interest rates. The MSCI Asia Pacific Index slid 0.9 percent, led by declines in commodity producers.

The earnings reporting season ``hasn't been as disastrous as people had thought,'' said James Buckley, a London-based director at Baring Asset Management, which oversees about $48 billion. ``We have seen a sharp decline in energy prices and commodities prices, which is also supporting the broader equity market.''

Energy and raw-materials stocks fell into bear markets yesterday, commonly defined as a slump of 20 percent or more, after plunging oil, gold, copper and wheat prices spurred declines in last year's best-performing industries. Exxon Mobil Corp., OAO Gazprom, and StatoilHydro ASA all sank more than 19 percent from records as crude prices tumbled.

Writedowns

The Stoxx 600 has retreated 22 percent in 2008, led by HBOS Plc and UBS AG, as banks' credit losses and asset writedowns topped $480 billion worldwide, helping spur analysts to reduce earnings estimates.

Profits at Stoxx 600 companies may drop 2.5 percent on average in 2008, according to projections tracked by Bloomberg. That's down from a forecast for 11 percent growth in January.

National benchmark indexes increased in all 18 western European markets except Norway and Austria. France's CAC gained 1.7 percent and Germany's DAX jumped 2.4 percent. The U.K.'s FTSE 100 climbed 1.9 percent as Standard Chartered Plc reported higher profit and Wolseley Plc surged.

Societe Generale climbed 8.1 percent to 64.29 euros. The bank reported a 63 percent decline in second-quarter profit to 644 million euros ($1 billion), more than the 550 million-euro median estimate in a Bloomberg survey. The company reported 575 million euros of markdowns on subprime-infected debt, less than half the level of the first quarter.

Standard Chartered

Standard Chartered jumped 4.6 percent to 1,488 pence after the U.K. bank that earns most of its money in Asia said first- half profit climbed 31 percent to $1.79 billion, helped by corporate lending in India and Hong Kong.

Barclays Plc added 7.7 percent to 365.5 pence after the U.K.'s third-biggest bank agreed to sell its U.K. life insurance unit to Swiss Reinsurance Co. for 753 million pounds ($1.5 billion) as it seeks to fund expansion in fast-growing overseas markets.

Air France gained 7.4 percent to 17.46 euros, the highest since May. First-quarter profit totaled 168 million euros, beating analysts' estimates of 152 million euros.

Chief Executive Officer Jean-Cyril Spinetta reaffirmed his forecast of May that fiscal-year earnings before interest and taxes will drop 30 percent.

Airlines and carmakers were also buoyed by lower oil.

Ryanair Holdings Plc, Europe's biggest discount carrier, jumped 14 percent to 2.56 euros. British Airways Plc, the region's third-largest airline, climbed 6.4 percent to 271.25 pence. Merrill Lynch & Co. also upgraded the shares to ``buy'' from ``underperform.''

Daimler, GM

Daimler, the world's second-biggest maker of luxury cars, rallied 5.1 percent to 38.87 euros. GM, the largest U.S. carmaker, climbed 27 cents to $10.37 in Germany.

Crude oil for September delivery declined as much as $3.41, or 2.8 percent, to $118 a barrel on the New York Mercantile Exchange.

BP Plc, Europe's second-biggest oil company, dropped 1.4 percent to 511 pence. Total SA, Europe's third-largest energy company, declined 2.2 percent to 47.22 euros.

Adidas rose 6.5 percent to 40.87 euros after the world's second-largest sporting-goods maker reported a 12 percent increase in second-quarter profit to 116 million euros, beating analysts' estimates. The company also raised its forecasts for annual profit margins.

Carlsberg, Wolseley

Carlsberg A/S rallied 15 percent to 437 kroner. The Nordic region's largest brewer said second-quarter profit rose 36 percent to 1.42 billion kroner ($296 million) after April's joint takeover of competitor Scottish & Newcastle Plc with Heineken NV. That beat the 1.28 billion-krona median estimate of eight analysts surveyed by Bloomberg.

Wolseley jumped 13 percent to 398.25 pence, the biggest gain on the FTSE 100, on speculation the world's largest distributor of plumbing and heating equipment may sell its U.S.- based Stock Building Supply division.

Rumors that Stock may be sold ``have been around for two to three weeks and there has been more steam in the last couple of days,'' Kevin Cammack, an analyst at London Kaupthing, said by phone today.

Michael Page International Plc soared by a record 35 percent to 358 pence after the U.K.'s second-largest recruitment firm said it received a takeover approach from Adecco SA of Switzerland.

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



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Buy GM Put Spreads, Don't Short Stock, Lehman Strategists Say

By Jeff Kearns

Aug. 5 (Bloomberg) -- Investors should use options instead of short selling the stock to bet General Motors Corp., the automaker that reported a $15.5 billion loss last week, will keep falling, according to Lehman Brothers Holdings Inc.

Maneesh Deshpande and Devapriya Mallick, the top-ranked derivatives strategists in Institutional Investor magazine's 2007 survey, advised buying put spreads, purchasing one GM January $10 put and simultaneously selling two January $5 puts. They said investors should also acquire shares of Ford Motor Co., the second-largest U.S. automaker, because it will probably outperform GM, which closed at a five-decade low of $9.38 in New York Stock Exchange composite trading on July 14.

``The large short interest in the GM stock makes it vulnerable to a short squeeze, making a straight short position quite risky,'' the two strategists wrote in a report yesterday. Put spreads have a ``much better risk-reward profile.''

Almost 29 percent of Detroit-based GM's stock available for trading has been sold short, compared with 15 percent for Ford, based in Dearborn, Michigan, according to Bloomberg data. In a short sale, investors sell borrowed stock in the hopes of profiting by buying them back later at a lower price. When short sellers perform the latter step, they tend to push the shares higher.

GM reported the third-biggest loss in its 100-year history Aug. 1 on plunging U.S. sales and the declining value of truck leases. Lehman stock analyst Brian Johnson cut his share-price forecast for GM yesterday by 44 percent to $11 and more than doubled his 2008 loss estimate to $14.51 a share.

GM retreated 1.3 percent to $10.10 yesterday, extending its 2008 slump to 59 percent. Ford rose 3.4 percent to $4.81, paring its loss this year to 29 percent.

Selling options when using a put-spread strategy helps finance the transaction because the seller collects the premium paid by the buyer. Spreads also cap profit if the stock falls below the lower strike price. Puts give the right to sell a security for a certain amount, the strike, by a given date.

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



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U.S. Stock-Index Futures Advance; Procter & Gamble, AIG Climb

By Adam Haigh and Elizabeth Stanton

Aug. 5 (Bloomberg) -- U.S. stock-index futures gained, indicating the Standard & Poor's 500 Index may rebound from three days of losses, as investors speculated earnings will continue to beat estimates and oil dropped to $118 a barrel.

Procter & Gamble Co., the world's largest consumer-products company, rose after posting profit that topped projections. American International Group Inc. rallied on UBS AG's recommendation to buy the shares before the world's largest insurer reports results tomorrow. General Motors Corp. advanced as crude slumped for a second day. The Federal Reserve is scheduled to announce its decision on interest rates.

Futures on the S&P 500 Index expiring in September added 7.8 to 1,256.6 at 8:29 a.m. in New York. Dow Jones Industrial Average futures climbed 71 to 11,342. Nasdaq-100 Index futures increased 13.75 to 1,825.5.

Outside the financial industry, ``earnings haven't been quite as bad as many anticipated,'' said Chirin Gill, a fund manager at Daiwa SB Investments in London, which has about $60 billion. ``A slightly-better-than-expected earnings season does help sentiment but there are still a number of risks hanging over the markets that investors are acutely aware of.''

The S&P 500 is down almost 15 percent this year on concern record oil prices and more than $480 billion in global credit losses and asset writedowns will push the U.S. economy into recession and curb profit growth.

About 73 percent of S&P 500 companies that reported second- quarter earnings so far topped analysts' estimates, according to data compiled by Bloomberg. Excluding financials, profit at companies in the measure is forecast to grow by 5.4 percent in the period, Bloomberg data shows.

Europe Advances

European stocks rose for the first time in four days after Societe Generale SA and Air France-KLM Group reported better- than-estimated earnings, stoking speculation profit growth will withstand the economic slowdown. Asian shares fell.

Procter & Gamble added 18 cents to $66 after the company reported earnings excluding some items of 80 cents a share, more than the 78 cents estimated by analysts.

AIG jumped 91 cents to $27.60. UBS analyst Andrew Kligerman said the insurer's valuation ``more than reflects ultimate economic loss exposure.'' AIG is forecast to report second- quarter earnings of 79 cents a share, according to the average analyst estimate compiled by Bloomberg. The shares are trading at less than 14 times projected earnings, 42 percent below the company's average valuation versus reported earnings over the last decade.

Fed Watch

All 69 economists surveyed by Bloomberg News expect the Fed's Open Market Committee to leave its benchmark rate on hold at 2 percent. Futures traders are pricing in 93 percent odds of no change in the Federal funds target rate. The announcement is due at 2:15 p.m. in Washington.

``I think the Fed is on hold until you get into February of next year when the new governors are seated and then I would expect them to raise interest rates,'' Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said in a Bloomberg Television interview.

Oil dropped to the lowest in three months in New York on speculation Tropical Storm Edouard isn't strong enough to damage offshore production facilities in the U.S. Gulf.

General Motors added 30 cents to $10.40.

Bear Market

Energy companies in the S&P 500 fell into a bear market yesterday, bringing their decline from a May record to more than 20 percent as crude prices tumbled.

Apple Inc. rose $1.96 to $155.19. UBS AG initiated coverage of the maker of the iPod music player with a ``buy'' rating and predicted the shares will rise to $195. New products to be introduced in the next 12 months are likely to boost profits, UBS said.

News Corp. and Cisco Systems Inc. are also among companies scheduled to report results today.

Sirius XM Radio Inc. rose 8 cents to $1.47. Chief Executive Officer Mel Karmazin bought 2 million shares of the satellite broadcaster, bringing his stake to more than 8.5 million shares.

Masimo Corp. climbed $2.70 to $39.94. The maker of medical devices reported second-quarter profit of 18 cents a share, beating the 13-cent average analyst estimate in a Bloomberg survey.

Syniverse Holdings Inc. soared $1.60 to $18.01 in trading after the official close of U.S. exchanges. The provider of technology services to mobile-phone companies said revenue may be as much as $495 million this year. Analysts polled by Bloomberg estimated $464.8 million. The shares didn't trade in Europe.

A report by the Institute for Supply Management today may show service industries in the U.S. shrank in July for a second straight month, signaling the steeper slowdown in growth, according to economists in a survey.

To contact the reporters on this story: Adam Haigh in London at ahaigh1@bloomberg.net; Elizabeth Stanton in New York at estanton@bloomberg.net



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