Seniors to Lead Japan Consumer Spending: Chart of Day

By Lee J. Miller

Aug. 18 (Bloomberg) -- Japan, the country with the lowest birth rate, will have senior citizens as its largest consumer group by the year 2020, Mitsubishi UFJ Financial Group Inc. said in a report.

``The elderly will play a leading role in Japan's domestic consumption,'' the report said. People in their 70s and older will account for about 20 percent of consumption, up from 13 percent in 2005, the Mitsubishi UFJ report said.

The CHART OF THE DAY shows the proportion of people at least 65 years old in Japan, the U.S., U.K. and China since 1991. The U.K. had an older population than Japan until a decade ago.

About 20.6 percent of Japan's 127 million people are at least 65, according to the U.S. Census Bureau. A report last week by the Bureau said 20.2 percent of the U.S. population will be in that age group by 2030. It projected America's population to grow more than 40 percent over that period to 439 million.

Japan's population started to decline in 2007, Mitsubishi UFJ said, citing Japan government data, the result of a low birth rate and people living longer. Japan's economy trails only the U.S.'s in terms of total output.

``We believe the decrease in the total population will inevitably impact personal consumption for every expenditure item,'' the report said. Spending on medical care, reading and recreation are among the services that will increase as Japan's population ages, the Aug. 8 report said.

Spending by ``junior baby boomers,'' people mostly born after 1970, probably won't be as much as by the previous generation because of ``defensive'' spending habits learned in recent years, when Japan's economy had stagnating wages and limited growth relative to other countries, the report said.

To contact the reporter on this story: Lee J. Miller in Bangkok at lmiller@bloomberg.net

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Singapore's Home Prices to Reach Record in 2010, SC Global Says

By Leslie Tan and Liza Lin

Aug. 18 (Bloomberg) -- Singapore's luxury home prices may rebound and reach a record in two years as the city state's casino resorts open and the private banking industry develops, SC Global Developments Ltd. Chief Executive Office Simon Cheong said.

About 13 million square feet of office space is expected to be built in the next two years, compared with about 50 million square feet of space now, and companies have already signed leases before the buildings are completed, he said, pointing to his optimism that it would translate into demand for homes.

``2010 is a fair time frame,'' said Cheong in an interview today. ``When the market turns around, you must have the product.''

Singapore's home prices, which rose to a record in 2007, are easing as the government predicts slower growth amid the U.S. subprime crisis. Prime Minister Lee Hsien Loong said yesterday the economic woes will ``at least'' continue into next year.

The government this month lowered its 2008 economic expansion forecast to between 4 percent and 5 percent from an earlier estimate of as much as 6 percent. The economy is expected to slow down as Asian manufacturers face declining demand from the U.S., the region's largest overseas market. Singapore's economy expanded 7.7 percent in 2007.

`Wobbliness in Prices'

SC Global's ``The Marq'' apartment project, close to the Orchard Road shopping belt, fetched a record S$5,100 ($3,613) a square foot in June last year. The company didn't disclose the size of the unit, and said at the time investors paid between S$11 million and S$31 million for homes at the project.

Prices at the project fell to S$4,719 a square foot by December, when a 6,232-square-foot apartment was sold for S$29.4 million, government data showed. SG Global defines luxury homes as those with prices exceeding S$4,000 a square foot.

``In the short term, there could be some wobbliness in prices due to global market uncertainty, but it has nothing to do with fundamentals,'' said Donald Han, Singapore-based managing director of Cushman & Wakefield Pte, a real estate consulting company. ``In the medium term, the value proposition for Singapore still remains.''

SC Global said Aug. 13 second-quarter net income more than doubled to S$11.5 million as selling prices rose, boosting pretax profit margins to 51 percent from 23 percent last year.

Singapore's two casino resorts, which will cost more than $6 billion to build, are scheduled to open in the next two years. Lee said yesterday the two resorts would need 20,000 workers, which would increase the number of expatriates to the city state.

To contact the reporters on this story: Leslie Tan in Singapore at lestan@bloomberg.net; Liza Lin in Singapore at Llin15@bloomberg.net



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Russian July Output Rises 3.2%, Less Than Forecast

By Alex Nicholson

Aug. 18 (Bloomberg) -- Russian industrial production grew at a slower pace than economists forecast in July as oil and gas production fell and manufacturing growth remained weak.

Output rose an annual 3.2 percent, following a 0.9 percent advance in June, the Federal Statistics Service said today. The median forecast of 16 economists in a Bloomberg survey was for 3.8 percent growth. Production rose 3.3 percent from June.

``The softening may not be as temporary as we thought,'' said Yevgeny Nadorshin, an economist at Trust Investment Bank in Moscow. ``The pace of manufacturing growth is very low, and the picture with mineral extraction isn't pleasant.''

Russian manufacturers are finding it harder to finance operations after the collapse of the U.S. subprime market pushed up borrowing costs worldwide, threatening their ability to boost output, Nadorshin said. Industrial investment rose 10.8 percent in June, the slowest pace in more than two years. The Economy Ministry forecast economic growth to slow to 7.8 percent this year after expanding 8.5 percent in the first quarter, the second- highest rate since 2000.

Russia's biggest carmaker, OAO AvtoVAZ sold 5 billion rubles ($203 million) of seven-year bonds in May 2007 at a yield of 7.8 percent. When the company sold more bonds this May it sold 1 billion rubles ($41 million) of debt, with a yield of 9.2 percent for one year, Bloomberg data show.

OAO Acron, Russia's third-biggest producer of nitrogen fertilizers, said on July 29 that it postponed a share sale in London that may have raised as much as $715 million, citing market conditions.

Ruble, Bonds

Emerging markets around the world are facing cooling growth and demand, while food and fuel prices surge. The Reserve Bank of India said containing inflation is its ``overriding priority'' and forecast the economy to expand 8 percent this year, the weakest pace since 2004.

Chinese industrial production grew in July at the weakest pace in 16 months amid faltering orders for Chinese exports. China's economy grew 10.1 percent in the second quarter, the fourth consecutive slowdown.

Though manufacturing increased an annual 4.6 percent in July, compared with a 0.6 percent advance in the previous month, mining and quarrying fell 1.8 percent, compared with growth of 0.6 percent in June, the service said. Crude oil and gas condensate production fell 1.9 percent, compared with a year ago.

Oil, Gas Revenue

Oil and gas revenue will fall from 8.8 percent of gross domestic production in 2007 to 3.1 percent in 2023, Alexei Kudrin said yesterday as old fields go out of production ``en masse.''

Even if new fields are developed at the fastest possible schedule, production would only increase ``slightly,'' he said.

Production of windows grew by 44.7 percent and tractor output increased by 45 percent, the service said. Cement production dropped 8.2 percent.

Electricity, gas and water output increased an annual 5 percent, compared with 4 percent in the previous month.

Economists argued that productivity suffered in June as millions celebrated the national team's performance in Europe's most-prestigious soccer tournament, where Russia unexpectedly progressed to the semi-finals.

The ruble climbed 0.2 percent to 29.7240 against its currency basket by 11:30 a.m. in Moscow, from 29.7774 on Aug. 15. It gained 0.5 percent against the dollar to 24.4880, and fell 0.1 percent to 36.1246 per euro.

Government bonds were mixed, with the yield on the 7.5 percent note due March 2030 at 5.67 percent. The yield on the 8.25 percent security maturing in March 2010 gained 2 basis points to 5.79 percent.

To contact the reporter on this story: Alex Nicholson in Moscow at anicholson6@bloomberg.net.



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Europe's Trade Deficit Widens to Biggest Since 2006

By Fergal O'Brien

Aug. 18 (Bloomberg) -- Europe's trade deficit widened to the biggest in almost two years in June as a cooling global economy and the euro's gains against the dollar damped exports.

The 15-nation euro region had a seasonally adjusted deficit of 3 billion euros ($4.4 billion), compared with a 1 billion- euro trade gap in May, as imports rose twice as fast as exports, the European Union's statistics office in Luxembourg said today. The June deficit was the largest since August 2006.

European sales to the U.S., the second-biggest buyer of the region's goods, have fallen this year as economic expansion there eased. While demand in China and Russia has helped support exports, rising oil and commodity prices have pushed up the cost of imports and eroded Europe's trade balance.

``The euro zone's export performance is likely to deteriorate over the near term,'' said Martin van Vliet, an economist at ING Group in Amsterdam. ``The adverse impact of past euro appreciation has not been fully felt and the U.S.-led slowdown in global demand appears to be deepening.''

Exports to the U.S. fell 4 percent in the five months through May from a year earlier, according to detailed data the statistics office publishes with a one-month lag. Sales to the U.K., the euro region's largest market, increased 2 percent.

Meanwhile, the 56 percent increase is oil prices in the past 12 months pushed up the cost of imported energy. The euro area's energy deficit soared 40 percent in the January-May period, as imports of oil and other fuels surged 39 percent to 155 billion euros. Crude oil reached a record above $147 a barrel last month.

All-Time High

The higher cost of crude added 1 billion euros to French imports in June and drove that nation's trade gap to a record, the Trade Ministry in Paris said last week. Imports jumped 2.8 percent to an all-time high, outpacing the 0.6 percent gain in exports, which were hampered by the euro's advance.

``Demand from the U.S. is very weak and there's a moderation in world activity, which is having an impact on the euro zone,'' said Dominic Bryant, an economist at BNP Paribas in London. ``Elsewhere, China's imports are accelerating and while some emerging markets may be moderating, it's not a sharp slowdown.''

Exports to China jumped 15 percent and shipments to Russia increased 22 percent over the January-May period, the statistics office said. Trade figures last week from China showed its imports increased 34 percent in July from a year earlier.

Taking Advantage

Germany is taking advantage of that demand. Europe's largest economy had a record trade surplus in June as exports jumped more than economists forecast. Munich-based Siemens AG, Europe's largest engineering company, last month reported third- quarter earnings that beat analyst estimates on increased orders from Russia and China.

Hochtief AG, Germany's largest builder, on Aug. 14 raised its full-year forecasts on rising demand for construction and mining work in Australia and Asia. Audi AG, Volkswagen AG's luxury-car brand, said its worldwide deliveries rose 2.5 percent in July, led by growth in China and Russia.

Exporters may get some ``relief'' from the euro's decline from an all-time high against the dollar, ING's van Vliet said. Since reaching a record $1.6038 on July 15, the currency has dropped around 8 percent to $1.4715 today.

Still, an index of European manufacturing activity showed that export orders fell for a fifth month in July.

Europe's trade deficit with China, which last year overtook the U.K. to become the euro area's biggest supplier, narrowed by 2 percent to 42 billion euros in the five months through May. The trade gap with Russia soared 25 percent to 17.4 billion euros, according to today's report.

Economists had expected the euro region to show a trade surplus of 500 million euros in June, according to the median of seven estimates in a Bloomberg News survey.

To contact the reporter on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net.



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French Manufacturing Confidence Declined, BoF Says

By Simone Meier

Aug. 18 (Bloomberg) -- French manufacturing confidence fell to the lowest in five years in July as a stronger euro and rising oil prices dimmed the outlook for growth in Europe's third-largest economy.

The Paris-based Bank of France said its index of manufacturing confidence declined to 92, the lowest since May 2003, from 95 in June. Economists expected a drop to 94, the median of 10 forecasts in a Bloomberg News survey showed.


The French economy is weakening as surging oil prices erode the spending power of companies and consumers just as the euro's ascent against the dollar makes exports less competitive abroad. The data suggests the economy grew 0.1 percent in the third quarter after contracting 0.3 percent in the prior three months, the central bank said.

``According to business managers' forecasts, industrial activity is expected to decline over the coming months,'' the report said.

Foreign orders dropped faster than domestic ones, the Bank of France showed in its survey, led by ``slower European Union demand.'' The trade deficit expanded in June to 5.6 billion euros ($8.7 billion), a record.

French economic growth may slow to 1.6 percent this year from 2.2 percent in 2007 followed by a reacceleration in the second half of 2009, the Washington-based International Monetary Fund said on July 17. The IMF previously forecast the economy would expand 1.4 percent this year. Gross domestic product fell 0.3 percent from the first quarter, national statistics office Insee in Paris said last week.

French industrial production, which accounts for 15 percent of the euro-area's second-largest economy, unexpectedly declined in June as car sales fell, Insee said on Aug. 11. Bank of France said today that production forecasts for the automotive industry fell in July.

To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net


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Storm Fay Strengthens Over Cuba, May Hit Florida as Hurricane

By Alex Morales and Dan Hart

Aug. 18 (Bloomberg) -- Tropical Storm Fay strengthened as it plowed across Cuba, drenching the Caribbean island on a northward course that's forecast to take it to Florida, with the system strengthening into a hurricane on the way.

Fay killed four people in the Dominican Republic, the country's Emergency Operations center said on its Web site. At least seven people were killed by the storm in Haiti, Agence France-Presse said.

Fay's maximum sustained winds were 60 miles (97 kilometers) per hour shortly before 8 a.m. Miami time, 10 mph faster than three hours earlier, the U.S. National Hurricane Center said in an advisory on its Web site. The storm was located over Cuba's north coast, just northeast of the tourist resort of Varadero and about 80 miles east of Havana. Fay was 100 miles south-southeast of Florida's Key West and heading north-northwest at 12 mph.

``Some strengthening is expected as the center of Fay moves over water,'' the center said. ``Fay is forecast to be approaching hurricane strength in the Florida Keys and to become a hurricane before it reaches the Florida peninsula.''

In Haiti, dozens of people died when the truck they were traveling in plunged into a river, AFP said. The incident was initially thought to be storm-related, though the cause may not be due to Fay, the news agency said, citing authorities.

To contact the reporter on this story: Alex Morales in London at amorales2@bloomberg.net; Dan Hart in Washington at dahart@bloomberg.net

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OPEC Set to Cut Supply in 2009 to Maintain $100 Oil, CGES Says

By Grant Smith

Aug. 18 (Bloomberg) -- OPEC will probably reduce oil production in the first quarter of next year to prevent crude prices falling below $100 a barrel, according to the Centre for Global Energy Studies.

The Organization of Petroleum Exporting Countries, supplier of more than 40 percent of the world's crude, will likely trim output by 300,000 barrels a day, and implement a further 500,000 barrel-a-day reduction in the second quarter, the CGES said today in a report. The 13-member group is unlikely to announce the cut at its Sept. 9 meeting unless crude falls to $100 a barrel or lower.

``We expect OPEC to act to defend a price floor of somewhere around $100 a barrel and in order to do this they would need to start cutting production at the start of 2009,'' the report said.

Oil, down more than $30 from its July 11 peak of $147.27, will probably decline further if OPEC decides against curbing supplies and if there are no further unscheduled losses similar to this month's disruption in Azerbaijan, the CGES said.

Iranian OPEC governor Mohammad Ali Khatibi said Aug. 12 that OPEC may consider cutting production at its September meeting to reduce an excess in the market.

Kuwait's oil minister has said any quota decrease is unlikely, and Ecuador said it would be unnecessary. Last month, OPEC President and Algerian Oil Minister Chakib Khelil said there was no need to lower output because prices are ``too high.''

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



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Crude Oil Traders Increase Bets on Price Drop, CFTC Data Shows

By Dan Stets

Aug. 18 (Bloomberg) -- Hedge-fund managers and other large speculators increased their net-short position in New York crude-oil futures in the week ended Aug. 12, according to U.S. Commodity Futures Trading Commission data.

Each Friday the CFTC publishes aggregate numbers for long and short positions for speculators such as hedge funds and institutional investors, as well as commercial companies that buy or sell futures to protect against price moves. Analysts and investors follow changes in speculators' positions because such transactions can reflect an expectation of a change in prices.



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Gulf Keystone Hires Weatherford Rig to Drill Wells in Iraq

By Alexander Kwiatkowski

Aug. 18 (Bloomberg) -- Gulf Keystone Petroleum Ltd., the Bermuda-based company that explores for oil and gas in Algeria and the Middle East, contracted a rig from Weatherford Drilling International Ltd. to drill wells in Iraq's Kurdistan.

The contract is for a minimum of two wells and three optional wells, the company said today in a statement distributed by the Regulatory News Service. The first well will be drilled in early 2009 in the Shaikan Block.

To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net



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Nabucco Says European Gas Demand Outstrips Pipeline's Capacity

By Matthias Wabl

Aug. 18 (Bloomberg) -- Nabucco, the OMV AG-led venture building a pipeline between Central Asia and western Europe, said a survey among potential customers showed demand for natural gas outstrips capacity on the link.

``Nabucco capacities are more than 100 percent overbooked by potential shippers from day one in 2013 on a long-term basis,'' Vienna-based Nabucco said today in an e-mailed statement. The survey indicated demand for gas from Central Asia and the Middle East is ``strong,'' it said.

The 3,300-kilometer (2,050-mile) pipeline, backed by the European Union, will bring gas from the Caspian region via Turkey to Austria and western Europe by 2013. The partners plan to start a binding bidding process for capacity on the 7.9 billion-euro ($11.7 billion) link as soon as European countries adopt the necessary laws, Nabucco said.

The Nabucco group includes OMV; Budapest-based Mol Nyrt.; Germany's RWE AG; Bulgaria's Bulgargaz EAD; Romania's Transgaz SA; and Ankara-based Botas.

To contact the reporter on this story: Matthias Wabl in Vienna at mwabl@bloomberg.net



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Natural-Gas Discount to Crude Is `Too Large': Chart of the Day

By Dan Lonkevich

Aug. 18 (Bloomberg) -- Natural gas is poised to outperform crude oil after prices for the heating and power-plant fuel dropped almost 40 percent since the end of June.

The CHART OF THE DAY shows how the ratio of crude to gas futures prices on the New York Mercantile Exchange rose Aug. 14 to the highest level since September 2006. It also shows how historically, gas outperforms crude after the ratio climbs to more than 10 or 12 to 1. The ratio of oil to gas prices, which has averaged 8.04 since 2000, reached 14.14 last week.

``It's too large of a price disparity,'' said Tom Orr, director of research at Weeden & Co. in Greenwich, Connecticut.

After a barrel of oil rose to 12.92 times the price of 1 million British thermal units of gas on Jan. 3, the ratio slid to 10.06 on March 31 and went below 10 in June. Gas futures have tumbled since the end of the second quarter, falling twice as fast as crude, amid a slowing economy and increasing fuel production from U.S. shale formations.

Oklahoma City-based Chesapeake Energy Corp. and other gas producers announced discoveries of as much as 44 trillion cubic feet of gas in the Haynesville Shale region of East Texas and northwest Louisiana.

``Gas is trying to hold a bottom at $8 per million Btu,'' Orr said. ``If you have a bit of good news it won't stay that way for long.''

Gas for September delivery traded as low as $7.96 per million Btu on Aug. 15. The futures traded as high as $13.694 on July 2. Orr said he sees prices rising to $9 or $10 in about six months.

Demand can react when oil and gas diverge. Gas competes with oil-based fuels in 5 percent to 10 percent of U.S. factories and power plants, according to the National Petroleum Council.

To contact the reporter on this story: Dan Lonkevich in New York at dlonkevich@bloomberg.net.



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World LNG Output May Rise 14% in 2009 on New Projects

By Dinakar Sethuraman

Aug. 18 (Bloomberg) -- Liquefied natural gas output may rise 14 percent next year as ventures in countries like Qatar and Indonesia, accounting for more than a quarter of the world's supplies, begin production, said a London-based consultant.

Output of LNG, or gas chilled to liquid form for transport by tankers, may climb about 25 million metric tons to about 208 million tons next year, Andy Flower, an industry consultant and a former executive at BP Plc's LNG business, said in an interview in Singapore. The increase may suffice to meet annual demand from South Korea, the world's second-biggest LNG buyer.

Global LNG trade rose 7.3 percent to 165.3 million tons last year, according to the BP Statistical Review of World Energy June 2008. Demand for the cleaner-burning fuel will increase 10 percent a year through 2015, more than five times as fast as crude oil, Citigroup Inc. analysts led by James Neale said in an April report.

``Consumption of LNG this year may reach about 183 million tons from 173 million last year,'' Flower said in Singapore on Aug. 15. ``New projects are starting up in Qatar, Indonesia, Yemen, Australia and Russia.'' Flower's output estimates for last year are higher than BP Plc's. Projects from Australia to Nigeria may have produced about 88 million tons in the first six months of 2008, he said.

Still, output was lower than expected because of diversion of gas for domestic use in some countries and inadequate pipeline infrastructure and equipment failures in others. Egypt produced about 5.2 million tons in the first six months of 2008, compared with a potential 6.1 million tons, to meet energy demand at home, Flower said. Nigeria supplied about 8 million tons, or about 72 percent of its first-half capacity, he said.

Tight Winter Supplies

LNG supplies this winter may be ``very tight,'' Flower said, which could boost prices. Prices may rise to as much as $25 per million Btu in the Northern Hemisphere winter, said John Harris, a director at Cambridge Energy Research Associates Inc.

``Asian prices are influenced by U.K. gas future prices,'' Flower said, because Japan and South Korea compete for LNG with Europe. Prices of gas in Continental Europe are linked to oil prices and they trail behind crude oil by three to six months, he said, declining to give a forecast on LNG prices.

U.K. gas futures for winter are trading at about $17.3 per million Btu, according to data compiled by Bloomberg News. A British thermal unit is equivalent to the heat generated by a lighted match.

LNG is natural gas that has been reduced to one-six- hundredth of its original volume at minus 161 degrees Celsius (minus 259 Fahrenheit) for transportation by ship to destinations not connected by pipeline. On arrival, it is turned back into gas for distribution to power plants, factories and households.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net



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Diapason Commodity Investors Cut Funds as Prices Fall

By Chanyaporn Chanjaroen and Nigel Stevenson

Aug. 18 (Bloomberg) -- Diapason Commodities Management SA, the Switzerland-based manager of $8.5 billion in commodities, said investors withdrew 5 percent to 10 percent of their holdings from its index funds after a drop in prices.

The Diapason Commodities Index has lost 20 percent from its July 3 peak as crude oil, gold and agricultural products fell. The Standard & Poor's GSCI index has dropped 21 percent over the same period and the Reuters/Jefferies CRB index 19 percent.

``The market has come back 15 percent off the peak and we probably had 5 to 10 percent in redemptions on top of that,'' Sean Corrigan, chief investment strategist at Diapason, said today in a Bloomberg Television interview.

Commodities as measured by the CRB index advanced for six consecutive years, bolstered by record prices for everything from oil to gold. Assets linked to commodity indexes totaled $297 billion as of June, from about $76.7 billion at the beginning of 2006, according to Lehman Brothers Holdings Inc.

Stock markets and bonds beat commodities since the start of the third quarter on concern that the global credit crisis and recession may curb demand for raw materials and energy. The Standard & Poor's 500 Index has returned 1.4 percent and U.S. 10-year treasuries have climbed 1.3 percent in the period, compared with a 17 percent slump in the Reuters/Jefferies index.

Structured Products

Money has also been withdrawn from structured commodity products, customized investments for those unwilling or unable to invest through indexes or derivatives, Lausanne-based Corrigan said.

``Some of the frothy money has clearly been redeemed,'' he said. Still, pension and insurance funds are still investing.

``They have come to a decision that commodities should be a part of their portfolio and so far they are sticking to it,'' Corrigan said.

His comment echoes the California Public Employees' Retirement System, the largest U.S. pension fund, which said Aug. 15 it remains committed to investments in commodities even after prices descended into a bear market this month.

``In the long run, there is a price when you don't want to be short of these resources,'' Corrigan said. ``Raw materials are the basis of modern industry.''

To contact the reporters on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net; Nigel Stevenson in London at nstevenson@bloomberg.net



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Turkey Expects BTC Pipeline to Open in `a Few Days' After Fire

By Steve Bryant and Mark Bentley

Aug. 18 (Bloomberg) -- Turkey expects the Baku-Tbilisi- Ceyhan oil pipeline to open in ``a few days'' after repairs on the fire-damaged route are complete, Energy Minister Hilmi Guler said today.

An assessment of damage to the pipeline, where a fire broke out on Aug. 5, has revealed no evidence of sabotage, Guler told reporters in Turkey's capital Ankara.

BP Plc, StatoilHydro ASA and partners had to reduce production at oil fields in the Azeri part of the Caspian Sea after flows were halted through BTC. The 1,768-kilometer (1,100- mile) link, which has a 1 million barrel-a-day capacity, connects Azerbaijan with the Turkish port of Ceyhan via Georgia.

Guler said he expects to complete gas accords with the Iranian government within a month. Turkey has been negotiating with Iran to build a pipeline to transport natural gas to Europe via Turkey and to exploit gas fields in Iran.

To contact the reporters on this story: Steve Bryant in Ankara t sbryant5@bloomberg.netMark Bentley in Ankara at mbentley3@bloomberg.net.



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Oil Little Changed as Tropical Storm Fay Nears Gulf of Mexico

By Christian Schmollinger and Grant Smith
Enlarge Image/Details

Aug. 18 (Bloomberg) -- Crude oil traded little changed as a storm near Cuba prompted evacuations from rigs and platforms in the Gulf of Mexico, which accounts for about a fifth of U.S. production.

Royal Dutch Shell Plc and Transocean Inc. have evacuated workers as Tropical Storm Fay, with maximum sustained winds of almost 60 miles (100 kilometers) an hour, may strengthen to a hurricane before striking Florida's northwestern coast today, the National Hurricane Center said. Crude oil in New York fell to a 15-week low on Aug. 15, its second consecutive weekly decline.

Crude oil for September delivery was at $113.54 a barrel, 23 cents lower on the New York Mercantile Exchange at 1:32 p.m. in London. It earlier gained as much as $1.58, or 1.4 percent, to $115.35.

``After oil plumbed new lows at the end of last week, Storm Fay caused a recovery in prices,'' said Christopher Bellew, a senior broker at Bache Commodities Ltd. in London. ``Much depends on how it develops and whether it threatens U.S. production or refineries.''

Prices have declined 22 percent from the record $147.27 a barrel reached on July 11 as the dollar rose for a fifth week against the euro and the Organization of Petroleum Exporting Countries warned of risks to world demand from the slowing global economy.

Azeri Shipments

Disruption to exports from Azerbaijan, third-largest producer in the former Soviet Union, because of an Aug. 5 pipeline explosion in Turkey and fighting in Georgia have failed to stem the decline in prices.

Turkey expects the Baku-Tbilisi-Ceyhan oil pipeline to open in ``a few days'' after repairs on the fire-damaged route are complete, Energy Minister Hilmi Guler said today. The BTC pipeline has a capacity of about 1 million barrels a day.

Russia said it will begin pulling its troops out of Georgian territory today after the U.S. and other Western countries pressed President Dmitry Medvedev to honor a cease- fire deal he signed two days ago.

Brent crude for October settlement rose as much as $1.60, or 1.4 percent, to $114.15 a barrel on London's ICE Futures Europe exchange. It was at $112.39 a barrel at 1:32 p.m. London time.

Storms routinely disrupt tanker traffic and production in the region in the North Atlantic hurricane season running June through November. In 2005, Hurricane Katrina wrecked platforms and refineries around New Orleans, prompting an international release of fuel from reserve stockpiles.

Fay Over Cuba

Shell evacuated about 360 non-essential staff from the eastern Gulf the past two days. Production hasn't been affected. Transocean, the world's largest offshore oil driller, said it evacuated 130 workers and suspended operations at several rigs in the Gulf as a precaution because of the storm.

Shortly before 8 a.m. Miami time, Fay was over the northern coast of western Cuba, about 80 miles east of Havana and 100 miles south-southeast of Key West, Florida, according to an advisory on the National Hurricane Center's Web site. The storm was moving north-northwest at 12 miles an hour, the center said.

Hedge-fund managers and other large speculators increased their net-short position in New York crude-oil futures in the week ended Aug. 12, according to U.S. Commodity Futures Trading Commission data.

Speculative short positions, or bets prices will fall, outnumbered long positions by 9,130 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-short positions rose by 3,580 contracts, or 65 percent, from a week earlier.

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



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Azeri Oil Rail Exports Hit by Georgian Bridge Blast

By Eduard Gismatullin and Stephen Bierman

Aug. 18 (Bloomberg) -- BP Plc, Azerbaijan's national oil company and other exporters halted rail transport of crude through Georgia to the Black Sea after a bridge was blown up two days ago.

Russian troops attacked a railway bridge near the Georgian village of Grakali on Aug. 16, paralyzing the country's train system, according to Interior Minister Shota Upiashvili. Russia General Staff Deputy Chief Anatoly Nogovitsyn denied his military was involved in the incident.

``The bridge is still not operating,'' Garsevan Jorbenadze, a shipping agent at TeRo Co. Ltd. in Batumi, a Georgian port, said by phone today. ``It will take about a week to repair it.''

BP and partners have also shut two main pipelines for Azeri crude because of security concerns amid an armed conflict between Russian and Georgia and after a fire damaged the Turkish stretch of a 1 million barrel-a-day link. Russia started withdrawing its troops from Georgia today, a Defense Ministry official said, after President Dmitry Medvedev yesterday announced the pullout.

The Black Sea port of Batumi has enough stockpiles to load tankers for the next five days, Jorbenadze said. The ports of Supsa and Poti don't have any tankers scheduled for loading, while Kulevi is loading fuel oil in a tanker, he said.

``We are looking at other potential diversions, but at the moment that route isn't available,'' Robert Wine, a London-based spokesman at BP, said by phone today. Oil is now only being transported from Azerbaijan through the Baku-Novorossiysk link to the Russian Black Sea coast, which has a capacity of more than 100,000 barrels a day, according to Wine.

Reduced Rate

State Oil Company of Azerbaijan, or Socar, said an alternative bridge would be ready for use tomorrow, allowing for rail deliveries at a reduced rate. Socar usually sends between 20,000 and 30,000 tons of oil and crude products a day across Georgia, said company Vice President Vadik Aliyev.

BP, StatoilHydro ASA and partners had to reduce production at oil fields in the Azeri part of the Caspian Sea after flows were halted through BTC. The 1,768-kilometer (1,100-mile) link connects Azerbaijan with the Turkish port of Ceyhan via Georgia.

Turkey expects the Baku-Tbilisi-Ceyhan oil pipeline to open in ``a few days'' after repairs are complete, Energy Minister Hilmi Guler said today. An assessment of damage where a fire broke out on Aug. 5 revealed no evidence of sabotage, Guler told reporters in Turkey's capital Ankara today.

Another pipeline, which passes through Georgia to the Black Sea port of Supsa, remains closed because of security concerns, Tamam Bayatly, a BP spokeswoman in Baku, said today by phone. BP isn't aware of any damage to its pipelines in Georgia, Bayatly said today.

Shippers declared force majeure on exports from the Supsa and Ceyhan ports, a legal clause that exempts them from meeting contracts because of circumstances beyond their control.

To contact the reporters for this story: Stephen Bierman in Moscow at Sbierman1@bloomberg.net;



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Pakistan Stocks, Rupee Advance After President Musharraf Quits

By Pooja Thakur

Aug. 18 (Bloomberg) -- Pakistan stocks and the rupee rose after President Pervez Musharraf resigned, ending a six-month standoff that had distracted the government from preventing an economic slowdown.

The benchmark share index rose 4.5 percent, the most in eight weeks, led by Oil & Gas Development Co. and MCB Bank Ltd. The rupee had its biggest advance in a month against the dollar, after Musharraf quit to avoid facing impeachment charges.

``Clearly we see this as a positive,'' said Thomas Harr, a senior currency strategist in Singapore at Standard Chartered Plc, a London-based bank that gets most of its profit in Asia. ``There was political uncertainty and now you can say there's a little bit of clearance on that.''

The government's struggle to oust Musharraf has diverted its focus from reviving slowing economic growth and tackling food shortages. Coalition leaders Nawaz Sharif and Asif Ali Zardari have been criticized by the U.S. for not doing enough to fight militants on the border with Afghanistan.

The Karachi Stock Exchange 100 Index climbed 460.91 to close at 10,719.62. The rupee advanced 1.2 percent to 75.50 per dollar. Harr said the rupee may rise to 74.50.

Investors stoned the stock exchange last month after a slump wiped out $30 billion of market value in three months, prompting the regulator to attempt to support the market. The Securities and Exchange Commission of Pakistan imposed and then removed a 1 percent daily limit on price declines after stock trading volumes fell to their lowest in a decade.

Democratic Path

``The country will try to get back on a complete democratic path,'' said Farhan Rizvi, an economist at JS Global Capital Ltd. in Karachi. ``The government will focus on developmental issues. It will try to attract capital flows.''

The rupee may stabilize near 75 per dollar, stocks will rise and the yield premium for investing in the nation's debt will narrow, he said.

Still, the coalition government has its task cut out as it grapples with a slowdown in economic growth, a widening budget deficit and an inability to rein in inflation running at a 30- year high.

``It is too soon to say whether or not this is a credit- positive event because Pakistan's external finances remain under a lot of pressure and we have yet to see the effects of policy adjustments come through,'' said Aninda Mitra, vice president at Moody's Investors Service in Singapore. ``The rupee has depreciated in the past couple of weeks to unprecedented levels and much more work still needs to be done in terms of implementing policies.''

Year's Low

Credit-default swaps on Pakistan's government debt were last quoted at 740 basis points, unchanged from Aug. 15, according to CMA Datavision's prices. The contract has risen from this year's low of 410 basis points recorded on April 28.

The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. The contracts rise as perceptions of credit quality deteriorate. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt from default.

Oil & Gas, Pakistan's biggest petroleum explorer, rose by its 5 percent daily limit to 118.68 rupees, its highest since July 22. MCB, the country's second-largest lender, also gained the 5 percent limit to 303.71 rupees, the highest since July 10. Pakistan's currency, which has depreciated 22 percent this year, snapped a six-day 5.5 percent decline.

Musharraf has been under pressure to quit since he fired 60 judges, including Supreme Court Chief Justice Iftikhar Muhammed Chaudhry last year, leading to nationwide street protests. The government led by the Pakistan Peoples Party, which came to power in March after defeating pro-Musharraf parties in the Feb. 18 elections, vowed to reinstate the senior judiciary but has been unable to agree on how to do so.

To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net



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India Rupee Drops Against Dollar on Refiners' Demand for Oil

By Anoop Agrawal

Aug. 18 (Bloomberg) -- India's rupee fell for a fifth day, the longest losing streak in more than eight months, on speculation refiners stepped up purchases of crude oil.

Companies including Indian Oil Corp., the nation's biggest refiner, may have purchased the dollar to buy more crude after the oil price on Aug. 15 touched the lowest in more than three months, according to Sudarshan Bhatt, chief currency trader at Corporation Bank. India's markets were closed that day for a holiday.

``Crude oil is still not at levels where Indian refiners can breathe easy and hence dollar demand is persistent,'' Mumbai-based Bhatt said. ``Pressure on the rupee may increase the pace of its decline in the near term.''

The rupee weakened 0.5 percent to 43.29 per dollar as of 10:18 a.m. in Mumbai, from 43.055 on Aug. 14, according to data compiled by Bloomberg. It earlier touched 43.33, the weakest since July 8.

The currency may decline to 44 within a month, Bhatt predicted. The rupee last slid for five days in a row in the period ended Nov. 28.

The price of crude oil on the New York Mercantile Exchange has tumbled 22 percent since reaching a record high of $147.27 a barrel on July 11, reducing costs for Indian refiners. India imports more than 70 percent of its annual oil needs.

Crude oil for September delivery recently traded at $115.01 a barrel, 1.1 percent higher than the close on Aug. 15, when it touched a low of $111.34. The oil price rose today as Tropical Storm Fay prompted evacuations from rigs and production platforms in the Gulf of Mexico.

To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.



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Asian Currencies: Ringgit Snaps Two-Day Loss; Korean Won Falls

By Lilian Karunungan and David Yong

Aug. 18 (Bloomberg) -- Malaysia's ringgit rose by the most in almost six weeks as charts signaled the currency's slump in the past four weeks was excessive. South Korea's won dropped as a report showed growth in department store sales slowed.

The ringgit also gained from near this year's low as the dollar weakened against the Japanese yen and euro. U.S. government reports this week may show housing starts declined and producer prices eased in July, adding to speculation the Federal Reserve will delay increasing interest rates until 2009.

``The ringgit has been sold down too aggressively,'' said Wan Murezani Mohamad, an analyst at Malaysian Rating Corp. in Kuala Lumpur. ``The U.S. credit and housing markets are still in the doldrums so there's no room for the Fed to be hawkish in the coming months.''

The ringgit climbed 0.5 percent to 3.3325 per dollar as of 4:13 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. The currency fell 1.4 percent last week, the most since the five days ended Nov. 16. Korea's won declined 0.7 percent to 1,046.80.

The dollar-ringgit's 14-day relative strength index, a comparison of the magnitude of gains and losses, reached more than 70 in the past seven trading days, Bloomberg data showed. A level below 30 or above 70 signals a reversal may occur.

Singapore's Economy

Traders raised bets from a week ago that the Fed will hold its target rate for overnight loans between banks at 2 percent in the remaining three meetings this year, according to interest- rate futures contracts. The odds of a quarter-percentage point increase in borrowing costs in January were 45 percent.

The Singapore dollar rose after four weeks of losses as charts indicated the local currency was set to gain.

The currency's rise is ``probably more of a technical thing than anything,'' said Emmanuel Ng, an economist at Oversea- Chinese Banking Corp. in Singapore. ``The credit concern in the U.S. is not over by any means.''

The Singapore dollar rose 0.3 percent to S$1.4126, according to data compiled by Bloomberg.

The 14-day relative strength indicator for the Singapore dollar reached 76 today. In technical analysis, investors and analysts study charts of trading patterns and prices to forecast price changes in a security, commodity, currency or index.

Singapore's dollar had declined on signs the U.S. economic turmoil was spreading to Europe and Japan. Economic difficulties will continue at least until next year amid accelerating inflation and the global slowdown, Singapore Prime Minister Lee Hsien Loong said in his National Day rally speech yesterday.

Won, Retail Sales

South Korea's won fell to a six-week low after retail sales grew at the slowest pace in five months.

Korea's currency weakened for a seventh day as an index that tracks the dollar against six major currencies climbed for a fifth week through Aug. 15, making it harder for the central bank to intervene to halt won declines. A government report today showed sales at the nation's three biggest department stores for July increased 5.9 percent, half the pace in June.

``The global trend of a stronger dollar is behind the won's weakness,'' said Ko Yun Jin, a currency dealer with Kookmin Bank in Seoul. ``Economy wise, the recent data aren't hopeful enough to keep traders buoyant about the currency.''

India's rupee fell for a fifth day, the longest losing streak in more than eight months, on speculation refiners stepped up purchases of crude oil.

Companies including Indian Oil Corp., the nation's biggest refiner, may have purchased the dollar to buy more crude after the oil price on Aug. 15 touched the lowest in more than three months, according to Sudarshan Bhatt, chief currency trader at Corporation Bank. India's markets were closed that day for a holiday.

Oil Demand

``Crude oil is still not at levels where Indian refiners can breathe easy and hence dollar demand is persistent,'' Mumbai- based Bhatt said. ``Pressure on the rupee may increase the pace of its decline in the near term.''

The rupee weakened 0.5 percent to 43.2650 in Mumbai, from 43.055 on Aug. 14, according to data compiled by Bloomberg. It earlier touched 43.33, the weakest since July 8.

The currency may decline to 44 within a month, Bhatt predicted.

Elsewhere, Taiwan's dollar rose 0.1 percent to NT$31.307. Thailand's baht was little changed at 33.84 against the dollar. The Vietnamese dong fell 0.5 percent to 16,685. Markets were closed in Indonesia and the Philippines for public holidays.

To contact the reporters on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net;



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Polish Zloty Advances Against Euro as Wage Growth Slows in July

By Ewa Krukowska

Aug. 18 (Bloomberg) -- Poland's zloty advanced against the euro, reversing an earlier drop, after a government report showed wage growth slowed in July, easing concern interest rates will be raised to curb inflation.

The zloty rose to 3.3284 per euro by 3:05 p.m. in Warsaw, from 3.3339 on Aug. 15 and 3.3450 prior to the release of the data.

Wages increased an annual 11.6 percent, compared with a gain of 12 percent in June, the statistical office in Warsaw said today. The rate was in line with a median estimate of 15 analysts surveyed by Bloomberg. The Monetary Policy Council will decide on interest rates Aug. 27.

To contact the reporters on this story: Ewa Krukowska in Warsaw at ekrukowska@bloomberg.net;



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Looking Into Putin's Eye Fails as War Shows Friendship's Limits

By Ken Fireman

Aug. 18 (Bloomberg) -- President George W. Bush once told the world that he had looked Vladimir Putin in the eye, gotten ``a sense of his soul'' and found the Russian leader to be ``very straightforward and trustworthy.''

That moment in 2001 was the apex of a belief that a close personal relationship between the leaders of Russia and the U.S. could be a cornerstone of American foreign policy and a stabilizing influence in international affairs.

Last week, as Russian forces hammered their way into Georgia, U.S. Defense Secretary Robert Gates pronounced the epitaph for that approach, which has been central to American policy since the Soviet Union collapsed in 1991.

``I have never believed that one should make national security policy on the basis of trust,'' Gates told reporters on Aug. 15. ``I think you make national security policy based on interests and on realities.''

The Russian offensive, launched even as Bush and Putin were socializing at the Beijing Olympics, demonstrated the irrelevance of interpersonal connections when national interests collide, several Russia experts said.

``This shows that you can't overcome real policy differences by developing personal relationships,'' said Barry Blechman, a senior fellow at the Washington-based Stimson Center. ``There are bigger stakes here, and each country's interests have to be accommodated.''

Clinton and Yeltsin

Bush isn't the first president to personalize U.S.-Russian relations. His predecessor, Bill Clinton, developed a warm relationship with Russian President Boris Yeltsin and preserved it at the cost of tolerating Yeltsin's military assaults on rebellious lawmakers and Chechen separatists.

Ellen Laipson, who was vice chairwoman of the U.S. National Intelligence Council during Clinton's second term, said she saw in him a capacity to identify with other world leaders like Yeltsin and ``feel solidarity with the loneliness'' they experience.

In addition, Laipson said, Clinton genuinely liked his Russian counterpart. ``Clinton had this curiosity and this appetite for colorful characters,'' she said. ``He was taken with the larger-than-life aspects of Yeltsin.''

Bush, 62, took personality politics even further, starting with his June 2001 summit with Putin in Slovenia that generated the public proclamation of the Russian's trustworthiness.

Over the next seven years, Bush hosted Putin, 55, at his Texas ranch and his father's house in Maine and was Putin's guest at the Russian's summer home in Sochi.

`Remarkable Relationship'

``It's been a remarkable relationship,'' Bush said at a joint news conference on April 6 at the end of the Sochi visit. ``We worked very hard over the past years to find areas where we can work together, and find ways to be agreeable when we disagree.''

For all that friendliness, the two nations were drifting apart. The U.S. pulled out of a treaty banning anti-ballistic- missile defenses in 2002; Russia suspended participation in an accord limiting conventional forces in Europe last year. Russia bristled at America's support for Kosovo's independence and its plan to base a missile-defense system in Eastern Europe; the U.S. condemned what it called Russian bullying of neighboring countries such as Georgia and Ukraine.

Then came Georgia's military thrust into the breakaway region of South Ossetia on Aug. 7 and the Russian counterattack the next day. As Russian troops poured in, Bush raised the issue with Putin in Beijing, telling him that ``this violence is unacceptable'' and that Russia's response was ``disproportionate,'' as Bush later recounted in an NBC interview.

Beijing Meetings

His remonstrances had no effect on Russian behavior, and the televised images of the two leaders taking in the Olympics while Russian tanks rolled didn't go down well in some quarters.

Michael McFaul, a Russia expert at Stanford University's Hoover Institution, said he was speaking by telephone that night with a senior Georgian official in Tbilisi. The official, whom he declined to name, was ``rather appalled to see our president being so jolly with Putin at the Olympics,'' McFaul said.

That scene now seems part of another era, with little chance of repetition under Bush or his successor.

The president, since his return from China, has issued several increasingly sharp condemnations of Russia. Republican presidential candidate John McCain has long advocated a tougher approach to Russia and often quips that when he peered into Putin's eyes, he saw only the letters KGB. Democratic contender Barack Obama says he would reassess all aspects of U.S.-Russian relations in light of the recent events in the Caucasus.

Policy Over Personality

Analysts say this decoupling of policy from personality is long overdue.

``It can never be the goal of American foreign policy to have a close relationship with a president or a prime minister,'' McFaul said. ``That has to be a means to advancing the interests of the United States.''

Blechman says that, while it may in time be possible to change Russian behavior, that will only be done by persuading Russian leaders that the price for resorting to force isn't worth paying, while taking into account their legitimate interests.

``The only way to do it is to cajole them by pointing out the choice they face,'' he said. ``Their economy isn't going anywhere, they have no high-tech sector. If they want to reverse the trends they're on, they really need the West.''

To contact the reporter on this story: Ken Fireman in Washington at kfireman1@bloomberg.net

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Pound Declines After House Prices Fall Most Since at Least 2002

By Andrew MacAskill and Lukanyo Mnyanda

Aug. 18 (Bloomberg) -- The pound dropped against the euro and traded near a two-year low versus the dollar after U.K. house prices posted their biggest annual decline in August since at least 2002, strengthening the case for lower interest rates.

The U.K. currency has tumbled more than 7 percent against the dollar this month amid speculation falling property prices and rising joblessness will push the economy, Europe's second largest, into a recession. It fell against the euro as Rightmove Plc, Britain's most-used property Web site, said the average asking price for a house fell almost 5 percent.

``As far as sterling is concerned we are still very bearish over the medium term,'' said Ian Stannard, a senior currency strategist in London at BNP Paribas SA, the largest French bank. Today's data ``is consistent with our view that the U.K. is heading into a recession.''

The British currency declined as much as 0.5 percent to 79.08 pence per euro and was at 78.83 pence by 2:36 p.m. in London, from 78.70 pence at the end of last week. It was at $1.8673, from $1.8668. It slipped to $1.8512 on Aug. 15, the lowest since July 26, 2006. The pound may drop to $1.82 by the end of the month, Stannard said.

Britain's currency dropped versus its U.S. counterpart in each of the 11 trading days through Aug. 15, the longest run of losses in at least 37 years, amid speculation the faltering economy will force the central bank to cut rates.

The pound slumped almost 3 percent against the dollar last week, its biggest five-day loss since the period through July 1, 2005, after Bank of England Governor Mervyn King said the housing market faces ``a significant adjustment'' as banks ration loans for homebuyers. Falling prices may exacerbate the economic slowdown as the threat of a recession looms and unemployment rises the most in 16 years.

Recession Forecast

Britain's gross domestic product will either stagnate or contract in the next two or three quarters, meaning the economy may fall into a recession, the British Chambers of Commerce said in forecasts released today.

Government bonds, which have risen in the past four weeks, dropped today. The yield on the 10-year gilt rose 2 basis points to 4.59 percent today. The price of the 5 percent security due March 2018 fell 0.16, or 1.6 pounds per 1,000-pound ($1,867) face amount, to 103.13. The yield on the two-year gilt, which is more sensitive to the outlook for interest rates, rose 3 basis points to 4.54 percent. It has dropped from 4.74 percent a week ago. Bond yields move inversely to prices.

The 10-year gilt today yielded 44 basis points more than the German bund. The spread has narrowed from 69 basis points on Feb. 25, the widest this year, as the end of a decade-long rally in the nation's housing market prompted investors to bet the economy will slow enough to prompt rate cuts.

Bond Returns

U.K. bonds have returned 2.4 percent in the past three months, compared with 1.3 percent by their European counterparts, according to Merrill Lynch & Co.'s EMU Direct Government and U.K. gilts Master indexes.

The pound has lost almost 11 percent since reaching a 26- year-high of $2.1161 on Nov. 9 as the Federal Reserve slashed interest rates seven times to 2 percent from 5.25 percent since September. The BOE cut its main rate by 0.75 percentage point in the period.

The average asking price for a home fell 4.8 percent in August from a year earlier to 229,816 pounds, Rightmove said in a statement today. On the month, house values dropped 2.3 percent, the most since December, led by London.

Losses by the pound may be limited as some investors bet an inflation rate more than twice the central bank's 2 percent target will prevent the Bank of England from cutting rates. Inflation may exceed 5 percent before slowing to just below 2 percent in two years if interest rates stay on hold, the bank said Aug. 13.

`Extended Pause'

``It's going to be pretty hard for the BOE to cut interest rates and we could be in for an extended pause'' in the pound's decline, Adrian Schmidt, a London-based senior currency strategist for Royal Bank of Scotland Group Plc, said in a Bloomberg Television interview. Sterling ``might drift back up to $1.90.''

Confidence in the nation's business prospects fell to the lowest level in at least six years, according to a survey of more than 200 companies released by Lloyds TSB Group Plc today. The index of sentiment on the next 12 months fell to 22 in July, the lowest since the survey began in 2002, from 32 in June.

The economy probably grew 0.1 percent in the second quarter, less than previously estimated and matching the slowest pace since the aftermath of the last recession in 1992, the median forecast of 34 economists surveyed by Bloomberg News shows. The statistics office will publish the figures Aug. 22.

The central bank kept its benchmark interest rate at 5 percent on Aug. 7 for a fourth month, as policy makers weighed the risk of accelerating inflation against the threat of a recession. Minutes of their meeting, showing how the panel voted, will be released on Aug. 20.

To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net



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Colombia, Mexico: Latin America Bond and Currency Preview

By Jamie McGee

Aug. 18 (Bloomberg) -- The following events and economic reports may influence trading in Latin American local bonds and currencies today. Bond yields and exchange rates are from a previous session.

Colombia: The central bank left borrowing costs unchanged as policy makers bet a slowing economy and 16 interest rate increases in the past 28 months are enough to stem inflation.

Policy makers held the overnight interbank rate at a seven- year high of 10 percent, matching the forecast of 35 of 39 economists surveyed by Bloomberg. Four analysts expected a quarter-point increase to 10.25 percent.

The peso fell 0.6 percent to 1,875 per U.S. dollar, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX.

The yield on Colombia's benchmark 11 percent bond due July 2020 fell 22 basis points, or 0.22 percentage point, to 11.63 percent, according to Colombia's stock exchange.

Mexico: Industrial production rose 0.2 percent in June from the year-earlier period after dropping 1.2 percent in May, according to the median estimate of 17 economists in a Bloomberg survey.

The National Institute of Statistics is scheduled to releases the data at 3:30 p.m. New York time.

The peso fell 0.2 percent to 10.1866 per dollar.

The yield on Mexico's benchmark 10 percent bonds due December 2024 fell 21 basis points to 8.6 percent, according to Banco Santander SA.

To contact the reporter on this story: Jamie McGee in New York at jmcgee8@bloomberg.net



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Dollar Declines on Speculation Rally Is Too Fast to Sustain

By Ye Xie and Gavin Finch

Aug. 18 (Bloomberg) -- The dollar fell from a seven-month high against the yen and declined versus currencies in New Zealand and Australia on speculation its recent rally is too fast to sustain.

The U.S. currency retreated from its strongest level in almost six months against the euro, falling for the first time in four days, before U.S. housing and inflation reports this week that may add to speculation that the Federal Reserve will delay raising interest rates.

``The dollar had a significant run without any consolidation,'' said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago. ``It's not surprising to see it taking a break.''

The U.S. currency declined 0.2 percent to 110.33 yen at 8:50 a.m. in New York, from 110.53 yen on Aug. 15, when it reached 110.66, the strongest level since Jan. 2. The dollar declined 0.3 percent to $1.4725 per euro, from $1.4687 at the end of last week. It touched $1.4647 today, the strongest since Feb. 20. The euro was at 162.43 yen, compared with 162.30.

The greenback fell 0.9 percent to 87.36 cents per Australian dollar, the biggest decline in a month. It dropped 1.1 percent to 71.41 cents per New Zealand dollar.

The dollar index, which tracks the greenback against the currencies of six U.S. trading partners, fell for the first time in 12 days, dropping 0.2 percent. It's up more than 7 percent since July 15 as economies outside the U.S. slowed and oil declined from a record.

Relative Strength

The 14-day relative strength index of the euro against the dollar was at 19.73 today. A reading below 30 suggests a currency is due for a turnaround.

Traders added to bets that the U.S. housing slump and widening credit-market losses will keep the Fed from raising interest rates this year after cutting them seven times beginning in September. Fed funds futures on the Chicago Board of Trade show a 21 percent chance the U.S. central bank will increase the 2 percent target rate for overnight lending between banks by at least a quarter-percentage point by its Dec. 16 meeting, down from 47 percent odds a week earlier. Policy makers next meet Sept. 16.

Benchmark interest rates are 4.25 percent in the euro area, 7.25 percent in Australia and 8 percent in New Zealand.

U.S. housing starts dropped 9.9 percent to an annual rate of 960,000 in July, the fewest in 17 years, according to the median forecast of 66 economists surveyed by Bloomberg News before the Commerce Department report's tomorrow.

Wholesale Costs

A Labor Department report is forecast to show tomorrow that wholesale costs rose at a slower pace last month as fuel expenses peaked. The producer price index probably climbed 0.5 percent in July after increasing 1.8 percent the prior month, according to the median forecast of 70 economists in a separate Bloomberg News Survey.

Futures traders are betting for the first time since March 2007 that the dollar will advance against the euro, yen and British pound.

The difference in the number of wagers by hedge funds and other large speculators on a gain in the dollar compared with those on a decline, known as net longs, was 24,060 on Aug. 12, compared with net shorts of 20,886 a week earlier, figures from the Washington-based Commodity Futures Trading Commission showed on Aug. 15.

The dollar gained against the euro last week for a fifth week, its longest weekly winning streak since February 2006.

JPMorgan Chase & Co., the third-largest U.S. bank, raised its forecasts for the dollar against the euro, the pound and the Australian dollar.

Dollar Outlook

The dollar may trade at $1.47 per euro by year-end, compared with a previous forecast of $1.50, wrote Tohru Sasaki, chief currency strategist at JPMorgan in Tokyo, in a research note today. The currency will trade at $1.84 per pound and 84 cents against the Australian dollar by Dec. 31, compared with earlier forecasts of $1.85 and 93 cents he wrote.

``This is the unwinding of short-dollar positions,'' said Sasaki, confirming the report. Short positions are bets that a currency will decline.

Investor confidence in Germany remained near a record low, a survey report tomorrow is forecast to show. The ZEW Center for European Economic Research's index of investor and analyst expectations was minus 62 in August, according the median forecast of 43 economists surveyed by Bloomberg News. That's near last month's minus 63.9, which was the weakest since the ZEW began compiling the data in December 1991.

The Brazilian real is showing signs of weakening as a decline in commodity prices cuts export receipts and adds to concern that the current-account deficit, the broadest measure of trade, will keep widening.

The real slid 4.4 percent in the past two weeks to 1.6305 today as the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials sank 17 percent from July 2. Commodities account for about one-third of exports in Latin America's biggest economy.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net.



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Copper Rises in London as China, Biggest User, Increases Buying

By Chanyaporn Chanjaroen

Aug. 18 (Bloomberg) -- Copper rose for the first time in three days in London as consumers in China, the world's largest user, bought the metal following a 20 percent drop in prices. Lead and tin also gained.

London Metal Exchange copper prices have become cheaper than those in Shanghai after a 17 percent local tax and freight costs, according to Triland Metals Ltd., one of the 12 companies that trade on the LME floor.

``There is a big appetite for LME copper,'' Eric Yan, head of Triland's China desk, said today by phone. Buying interest from Chinese customers is likely to keep prices above $7,200 a metric ton, he said.

Copper for delivery in three months rose $25, or 0.3 percent, to $7,385 a ton as of 1:20 p.m. on the LME. The contract lost 0.5 percent last week, a seventh consecutive decline, and had fallen 20 percent from last month's all-time high of $8,940 a ton.

Copper is in its seventh year of advances, boosting profits at mining companies including BHP Billiton Ltd., the world's largest. The Melbourne-based company today reported a 30 percent increase in second-half net income.

``In the short term, we expect prices to remain high relative to historical levels, albeit with higher volatility,'' BHP Billiton said in a statement today. ``Looking to the longer term, demand for our commodities is expected to remain strong.''

Lead gained $25, or 1.5 percent, to $1,695 a ton on indications that stockpiles of the metal will decline further, crimping supply. The contract has lost 34 percent this year, the biggest drop on the LME.

Lead inventories earmarked for withdrawal from warehouses registered with the LME jumped 27 percent to 12,800 tons, the exchange reported today. That accounted for 14 percent of total stockpiles.

Among other metals traded on the LME, aluminum lost $5 to $2,775 a ton and nickel fell $450, or 2.4 percent, to $18,250 a ton and tin gained $400, or 2.1 percent, to $19,100. Zinc declined $29 to $1,646.

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



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Canada's Dollar Is Little Changed as Copper, Gold Advance

By Chris Fournier

Aug. 18 (Bloomberg) -- Canada's dollar was little changed as commodities including copper and gold advanced.

The loonie, as the Canadian currency is known because of the aquatic bird on the one-dollar coin, traded at C$1.0596 per U.S. dollar at 9:09 a.m. in Toronto. One Canadian dollar buys 94.37 U.S. cents. The currency has dropped 5.8 percent so far this year.

The Canadian dollar will weaken to C$1.10 by the end of 2009, according to the median forecast of 30 economists surveyed by Bloomberg News.

Copper for delivery in three months rose $25 to $7,385 a ton on the London Metal Exchange, the first gain in three days. Gold for immediate delivery gained $9.55 to $797.30 an ounce.

International investors bought a net C$7.25 billion ($6.84 billion) of Canadian securities in June, Statistics Canada said in a report today, beating the C$5 billion median forecast of seven economists surveyed by Bloomberg News.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net



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Real Rally End Signaled by Sex and City's Parker

By Adriana Brasileiro

Aug. 18 (Bloomberg) -- A glimpse of Brazilian television ads provides a who's who of Hollywood's biggest stars.

Sex and the City's Sarah Jessica Parker tells shoppers she loves to stroll through Sao Paulo's newest mall. Sylvester Stallone and Kiefer Sutherland hawk cars. Richard Gere peddles women's hair products -- in Portuguese laced with an American accent -- to the pulsating sound of ``Pretty Woman.''

Brazil is drawing U.S. celebrities at an unprecedented clip, contributing to a record current account deficit that is leading Wall Street firms from Goldman Sachs Group Inc. to Morgan Stanley to predict an end to the four-year, 83 percent rally in the real. The appreciation allowed Sao Paulo-based ad agency MPM Propaganda to land Parker for $600,000, less than top Brazilian entertainers charge, said Gal Barradas, a vice president at MPM.

``We brought in a star of a magnitude that was unheard of in Brazil,'' Barradas said. MPM signed Parker in April to the ad contract for Shopping Cidade Jardim, a four-story mall that squeezes stores such as Rolex, Hermes and Louis Vuitton around an open-air garden lined with palm trees and Brazilian bamboo. ``For the international stature that she has, it's a great deal. The exchange rate makes it possible.''

The real soared to a nine-year high of 1.5545 per dollar on Aug. 1 after a rally in the price of the country's commodity exports such as soybeans, iron ore and orange juice fueled 25 straight quarters of economic expansion. The real is the biggest gainer both in 2008 and in the past four years among the 16 most- traded currencies.

Commodities Rally

Brazil's currency is now showing signs of weakening as a decline in commodity prices cuts export receipts and adds to concern that the current account deficit, the broadest measure of trade, will keep widening.

The deficit ballooned to $17.4 billion in the first half of the year, the widest since the central bank began tracking the data in 1947, as imports climbed to a record. The country had a $2.4 billion surplus in the year-earlier period.

The real slid 4.2 percent in the past two weeks to 1.6283 as the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials sunk 16.6 percent from July 2. Commodities account for about one-third of exports in Latin America's biggest economy.

By the end of 2009 the real will weaken 9.5 percent to 1.8, according to the median forecast of 14 economists surveyed by Bloomberg. The expected decline is the most of any of the major currencies. Goldman forecasts the real will depreciate to 1.7 in 12 months; Morgan Stanley sees it at 2 per dollar by the start of 2010.

Real `Overvalued'

``The real is overvalued,'' said Tony Volpon, chief economist at Sao Paulo-based brokerage CM Capital Markets. ``These signs -- the Hollywood stars on TV, the imported iPhones we see all over the place -- they are all micro evidence of what we are starting to see at the macro level.''

Imports totaled $154 billion in the 12 months through July, a 46 percent increase from the year-earlier period.

Volpon said he recommends clients close out bets that the real will gain. He predicts it will drop to 1.75 by year-end.

The length of the real's rally has surprised analysts and policy makers. Economists predicted in each of the past five years that it would decline over the following 12 months, according to the median forecast in surveys conducted by the central bank. Each year the real rose.

President Luiz Inacio Lula da Silva first expressed concern that the currency rally could hurt exports and slow economic growth in late 2004. He told Bloomberg News that November that he didn't ``want the real to become a very strong currency.'' The real traded at 2.742 per dollar then. He said he wanted it to weaken to between 2.9 and 3.1 per dollar.

1990s Ads

Brazil has brought in U.S. stars to film ads before. Sao Paulo-based brewer Cia. Antarctica Paulista, now part of InBev NV in Leuven, Belgium, hired singer Ray Charles and actresses Whoopi Goldberg and Kim Basinger to join soccer star Pele in an ad campaign that ran during the 1994 World Cup. Actress Sharon Stone and Olympian Carl Lewis also did ads in the 1990s.

``It wasn't as common then as it is now,'' said Barradas, who's worked in advertising for 20 years. ``Not even close.''

The $600,000 contract Parker signed in April equals 976,980 reais at today's exchange rate. Brazilian stars such as singer Ivete Sangalo demand about 1.2 million reais for similar contracts, according to Barradas. Parker's contract would have come to 1.8 million reais at the 3-per-dollar exchange rate four years earlier.

Brosnan, Stallone, Sutherland

Gere was paid $300,000, or 488,490 reais, for a 30-second spot for Rio de Janeiro-based Niely Cosmeticos, according to Rodolfo Medina, president of Artplan, the Rio-based agency that handled the contract.

Alan Nierob, Gere's publicist, declined to comment on the contract. Ina Treciokas, Parker's publicist, didn't return phone calls seeking comment.

``There was a time when hiring a Hollywood star was unthinkable,'' said Adriana Cury, who runs McCann Erickson Brasil, the local unit of New York-based Interpublic Group of Cos. ``Now they are not only affordable, they are actually cheaper than the locals'' in some cases, she said.

McCann hired actor Pierce Brosnan this year to shoot an ad in Sao Paulo for the Vectra Elite 2.0, a $47,000 sedan produced by the Brazilian unit of General Motors Corp. Cury declined to comment on how much Brosnan was paid. Liz Dalling, his agent, didn't return calls seeking comment.

`What Pretty Hair'

Sutherland also traveled to Sao Paulo to film for PSA Peugeot Citroen's local unit, said Carlos Castelo, a director at Euro RSCG Brasil, the company that made the commercial. Stallone filmed his ads for the Sao Paulo-based unit of Volkswagen AG alongside Brazilian model Gisele Bundchen in Los Angeles.

Parker and Gere filmed in New York. Parker's role in the ad mirrors her character in Sex and the City, Carrie Bradshaw. She sips a drink at a bar, tries on some dresses, checks out a guy walking by her and thinks out loud -- in English with Portuguese subtitles -- as she writes up a review of her day at the mall.

Sutherland, Brosnan, Stallone and Gere say little. Gere is the only one who speaks in Portuguese.

``What pretty hair,'' he tells Brazilian actress Carolina Ferraz as they dine at a restaurant.

His thick accent didn't deter shoppers. Niely sales soared 30 percent in the first quarter after the ad debuted in January, said company spokeswoman Danielle de Jesus.

``The Hollywood star is unique,'' said McCann's Cury. ``And we as consumers are moved by what's new.''

To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net

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Copper Rises in London as China, Biggest User, Increases Buying

By Chanyaporn Chanjaroen

Aug. 18 (Bloomberg) -- Copper rose for the first time in three days in London as consumers in China, the world's largest user, bought the metal following a 20 percent drop in prices. Lead and tin also gained.

London Metal Exchange copper prices have become cheaper than those in Shanghai after a 17 percent local tax and freight costs, according to Triland Metals Ltd., one of the 12 companies that trade on the LME floor.

``There is a big appetite for LME copper,'' Eric Yan, head of Triland's China desk, said today by phone. Buying interest from Chinese customers is likely to keep prices above $7,200 a metric ton, he said.

Copper for delivery in three months rose $25, or 0.3 percent, to $7,385 a ton as of 1:20 p.m. on the LME. The contract lost 0.5 percent last week, a seventh consecutive decline, and had fallen 20 percent from last month's all-time high of $8,940 a ton.

Copper is in its seventh year of advances, boosting profits at mining companies including BHP Billiton Ltd., the world's largest. The Melbourne-based company today reported a 30 percent increase in second-half net income.

``In the short term, we expect prices to remain high relative to historical levels, albeit with higher volatility,'' BHP Billiton said in a statement today. ``Looking to the longer term, demand for our commodities is expected to remain strong.''

Lead gained $25, or 1.5 percent, to $1,695 a ton on indications that stockpiles of the metal will decline further, crimping supply. The contract has lost 34 percent this year, the biggest drop on the LME.

Lead inventories earmarked for withdrawal from warehouses registered with the LME jumped 27 percent to 12,800 tons, the exchange reported today. That accounted for 14 percent of total stockpiles.

Among other metals traded on the LME, aluminum lost $5 to $2,775 a ton and nickel fell $450, or 2.4 percent, to $18,250 a ton and tin gained $400, or 2.1 percent, to $19,100. Zinc declined $29 to $1,646.

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



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Hong Kong Stocks Drop to 1-Year Low; Foxconn Slumps By Record

By Rachel Graham

Aug. 18 (Bloomberg) -- Global sugar production will drop to its lowest since 2005-06, led by a drop in Indian output, and leave a supply shortfall that will support prices in 2009, Czarnikow Group Ltd. said.

Production will drop to 164.1 million metric tons in the 2008-09 crop cycle, the lowest since 2005-06, London-based Toby Cohen and other Czarnikow analysts wrote in a report today. Demand will exceed supply by about 3.3 million tons, compared with a surplus of more than 11 million tons in 2007-08.

``The downward trend in production is clear,'' Czarnikow said. ``The balance of risk in the market is changing, which will bring fundamental support to sugar prices in 2009.''

Raw and white, or refined, sugar prices have declined for two consecutive years as supply outpaced demand. The London-based International Sugar Organization is forecasting a production surplus of 7.8 million tons in the year to Sept. 30, equal to about 5 percent of global output.

World demand for sugar should rise to 166.4 million tons in 2009, compared with 161.6 million tons this year, Czarnikow estimates.

Indian cane production in 2008-09 is forecast to drop to 23.9 million tons, from 28.9 million tons. The decline is ``predominantly due to lower acreage as farmers have begun to switch away from cane towards crops such as wheat, paddy and pulses,'' Czarnikow said.

Cane output in Brazil, the biggest producer, will be unchanged at 33.5 million tons.

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



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