U.S. July Producer Price Index: Statistical Summary (Table)

By Andy Burt

Aug. 19 (Bloomberg) -- Following is a summary of the July producer price report from the Labor Department. ===============================================================================

July June May April March Feb. 3-mo. July

Weight 2008 2008 2008 2008 2008 2008 Annual YOY% ===============================================================================

---------------------Finished Goods----------------------- Total finished 100.0% 1.2% 1.8% 1.4% 0.3% 0.9% 0.3% 18.9% 9.8% ex food & energy 57.05% 0.7% 0.2% 0.2% 0.6% 0.1% 0.4% 4.7% 3.5% ex food 78.70% 1.4% 1.9% 1.5% 0.4% 0.7% 0.6% 21.3% 10.1% ex energy 78.35% 0.6% 0.6% 0.4% 0.4% 0.4% 0.2% 6.6% 4.9% Consumer goods 78.28% 1.2% 2.3% 1.8% 0.2% 1.1% 0.4% 23.4% 11.9% Women's Apparel(*) n/a 0.1% -0.4% -0.2% 0.1% -0.1% 0.2% -2.0% -0.4% Res. electricity n/a 2.0% 0.8% 0.6% 1.2% 1.1% -0.4% 31.2% 6.3% Residential gas n/a 8.8% 6.6% 3.8% 5.4% 4.2% 5.7% 92.4% 23.5% Gasoline n/a -0.2% 9.0% 9.3% -4.6% 1.3% 2.9% 122.5% 36.0% Prescriptions (*) n/a 0.7% -0.1% 0.2% 0.7% 0.4% 1.3% 3.6% 6.9% Passenger cars n/a 1.4% 2.2% -1.0% 0.4% -0.2% 0.8% 1.6% 3.1% Tobacco goods(*) n/a 0.0% 0.0% 2.2% 0.1% 0.0% 0.1% 9.2% 4.7% ===============================================================================

July June May April March Feb. 3-mo. July

Weight 2008 2008 2008 2008 2008 2008 Annual YOY% =============================================================================== Capital equipment 21.72% 0.8% 0.3% 0.1% 0.6% 0.0% 0.4% 4.8% 3.0% Computers (*) n/a -1.5% -0.2% -1.9% -0.5% -3.2% -1.1% -13.5% -18.9% Light motor truck n/a 0.8% -1.8% -0.9% 1.3% -0.3% 0.8% -17.2% -1.7% Civilian aircraft n/a 0.3% 0.4% 1.1% 0.1% 0.1% 0.6% 9.2% 4.7% Foods 21.30% 0.3% 1.5% 0.8% -0.1% 1.4% -0.6% 10.9% 8.7% Energy 21.65% 3.1% 6.0% 4.9% -0.2% 2.5% 1.0% 72.6% 28.0%

-------------------Intermediate Goods--------------------- Total intermediate 100.0% 2.7% 2.1% 2.9% 0.7% 2.4% 0.9% 36.0% 16.6% ex food & energy 72.70% 2.0% 1.3% 2.0% 0.9% 1.3% 0.6% 23.2% 10.2% ex food 96.01% 2.6% 2.2% 2.9% 0.8% 2.4% 0.8% 35.6% 16.3% ex energy 76.69% 2.2% 1.2% 2.1% 0.7% 1.3% 0.8% 24.5% 11.0% ------------------------------------------------------------------------------- Containers 2.92% 1.7% 0.3% 0.5% 0.6% 0.1% 0.3% 10.4% 6.3% Foods 3.99% 4.0% 1.0% 3.2% -0.9% 3.0% 2.4% 38.3% 24.8% Energy 23.31% 4.3% 5.0% 6.2% 0.1% 6.0% 1.2% 82.9% 37.4%

-----------------------Crude Goods------------------------ Total crude 100.0% 4.2% 3.7% 6.7% 4.6% 6.7% 3.9% 76.5% 51.2% ===============================================================================

July June May April March Feb. 3-mo. July

Weight 2008 2008 2008 2008 2008 2008 Annual YOY% =============================================================================== ex food & energy 16.37% 3.4% -0.2% 5.0% 7.7% 3.7% 3.6% 37.9% 36.3% ex food 66.55% 6.1% 3.9% 10.6% 6.6% 9.3% 5.7% 120.3% 70.6% ex energy 49.03% 1.3% 2.1% 3.1% 1.5% 2.7% 2.0% 29.0% 25.2% Foods 32.76% 0.1% 3.5% 1.8% -1.6% 2.2% 1.2% 23.5% 19.5% Energy 50.87% 6.9% 5.4% 13.1% 5.7% 11.5% 6.6% 164.0% 84.9% =============================================================================== NOTE: (*) denotes unadjusted figures. All monthly percentage changes are seasonally adjusted unless noted. All yearly percentage changes are not seasonally adjusted.

To contact the reporter on this story: Andy Burt in Washington aburt1@bloomberg.net

Read more...

Large U.S. Banks May Fail Amid Recession, Rogoff Says

By Shamim Adam

Aug. 19 (Bloomberg) -- Credit market turmoil has driven the U.S. into a recession and may topple some of the nation's biggest banks, said Kenneth Rogoff, former chief economist at the International Monetary Fund.

``The worst is yet to come in the U.S.,'' Rogoff, a Harvard University professor of economics, said in an interview in Singapore today. ``The financial sector needs to shrink; I don't think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job.''

The U.S. housing slump has triggered more than $500 billion of credit market losses for banks globally and led to the collapse and sale of Bear Stearns Cos., the fifth-largest U.S. securities firm. Rogoff, 55, said the government should nationalize Fannie Mae and Freddie Mac, the nation's biggest mortgage-finance companies, which have lost more than 80 percent of market value this year.

Freddie Mac and Fannie Mae ``should have been closed down 10 years ago,'' he said. ``They need to be nationalized, the equity holders should lose all their money. Probably we need to guarantee the bonds, simply because the U.S. has led everyone into believing they would guarantee the bonds.''

Last month, President George W. Bush signed into law a housing bill that provides Treasury Secretary Henry Paulson the power to make equity purchases in Fannie Mae and Freddie Mac. Paulson asked for the authority July 13 after the shares of the firms, which own or guarantee almost half of the $12 trillion of U.S. mortgages, slid to the lowest level in more than 17 years.

Shares Slump

The mortgage lenders have been battered by record delinquencies and rising losses. Fannie Mae fell to its lowest level in 19 years yesterday amid concern the government- chartered companies will fail to raise the capital they need to offset losses. Freddie Mac slid 25 percent yesterday to the lowest since January 1991.

Banks repossessed almost three times as many U.S. homes in July as a year earlier and the number of properties at risk of foreclosure jumped 55 percent, according to RealtyTrac Inc., an Irvine, California-based seller of foreclosure data. U.S. builders broke ground on the fewest houses in 17 years last month, according to a Bloomberg News survey.

Rogoff told a conference in Singapore today that the credit crisis is likely to worsen and a large bank may fail, Reuters reported earlier. He was the IMF's chief economist from August 2001 to September 2003.

``Like any shrinking industries, we are going to see the exit of some major players,'' Rogoff told Bloomberg, declining to name the banks he expects to fail. ``We're really going to see a consolidation even among the major investment banks.''

IndyMac Bancorp

IndyMac Bancorp Inc., once the second-largest U.S. independent mortgage lender, filed for bankruptcy protection Aug. 1, three weeks after it was taken over by the Federal Deposit Insurance Corp. amid a run by depositors that left it strapped for cash. Bear Stearns collapsed in March and sold itself to JPMorgan Chase & Co. for $10 a share.

``The only way to put discipline into the system is to allow some companies to go bust,'' Rogoff said. ``You can't just have an industry where they make giant profits or they get bailed out.''

The world's largest economy is already in a recession, and the housing market will continue to deteriorate, Rogoff said. The U.S. slowdown will last into the second half of next year, he said, predicting a faster recovery in Europe and Asia.

The Federal Reserve, which has left its key interest rate at 2 percent after the most aggressive series of rate reductions in two decades, risks raising inflationary pressures, he said.

``Rates are too low,'' Rogoff said. ``They must realize we're going to get inflation if things stay where they are. They need to raise rates but I don't think they are going to because they're way too nervous.''

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

Read more...

South African Economy Rebounds as Power Outages Ease

By Nasreen Seria and Vernon Wessels

Aug. 19 (Bloomberg) -- South African economic growth rebounded to an annualized 4.9 percent in the second quarter as a power shortage that shut mines in January eased.

Gross domestic product climbed from 2.1 percent in the first three months of the year, Pretoria-based Statistics South Africa said in a report today. Growth was higher than the 4.2 percent median forecast of 16 economists surveyed by Bloomberg.

Mining and manufacturing output, which together account for about a fifth of the economy, increased as electricity supply stabilized, benefiting miners such as Anglo Platinum Holdings Ltd., the world's largest producer of the metal. Growth may slow again as six interest rate increases since June last year slash consumer spending on cars and furniture.

``It's not a sign of amazing strength, it's more a sign of returning to normal production,'' said Nicky Weimar, an economist at Nedbank Group Ltd., South Africa's fourth-largest bank. ``The true story is in the financial and retail sectors, which is showing the stress that consumers are under.''

The rand was at 7.8311 against the dollar as of 3:19 p.m. in Johannesburg from 7.7799 before the data was released.

Output in the retail, hotel and restaurant industries dropped an annualized 2.2 percent in the second quarter, after gaining 3.6 percent in the previous three months, the statistics office said. Growth in the finance and real estate industries slowed to 2.3 percent from 4.9 percent in the first quarter.

Rate Increases

The Reserve Bank increased its benchmark interest rate to 12 percent in June, curbing spending and cutting profits at companies such as JD Group Ltd., the country's biggest furniture retailer. Retail sales fell an annual 2.6 percent in June, the fourth straight monthly decline, the statistics office said on Aug. 13.

Growth may slow to 2.9 percent this year, down from 5.1 percent in 2007 and lower than the government's forecast of 4 percent, Weimar said.

``Even though we've probably reached the end of the domestic interest rate hiking cycle, domestic consumer demand growth is bound to continue moderating over the next few quarters as the lagged impact of higher interest rates takes full effect on consumer spending,'' Johan Rossouw, an economist at Vunani Securities, said in a note to clients.

Mining surged an annualized 15.6 percent in the second quarter, after plunging a revised 25.1 percent in the previous three months, the statistics office said. Manufacturing, which accounts for 16 percent of the economy, jumped 14.5 percent after dropping 1 percent in the first quarter.

Construction continued to boom, expanding 10.6 percent in the second quarter, as the government stepped up spending on roads and stadiums in preparation for the 2010 FIFA World Cup. Eskom Holdings Ltd., the state-owned electricity utility, is spending 343 billion rand ($44.3 billion) over the next five years to expand capacity.

Agriculture, which makes up 2.3 percent of the economy, surged an annualized 19.6 percent in the second quarter after expanding 17.2 percent in the previous three months, the statistics office said.

To contact the reporters on this story: Nasreen Seria in Johannesburg nseria@bloomberg.net; Vernon Wessels in Johannesburg at vwessels@bloomberg.net.



Read more...

Zimbabwean Inflation Surges to 11.2 Million Percent

By Nasreen Seria

Aug. 19 (Bloomberg) -- Zimbabwe's inflation rate surged to a record 11.2 million percent in June, the highest in the world, after almost a decade of recession worsened food and fuel shortages.

Inflation accelerated from 2.2 million percent in the previous month, Moffat Nyoni, acting director of the Central Statistics Office, said by telephone from the capital Harare today.

The economy faces collapse with consumers resorting to barter as inflation and a slump in the Zimbabwe dollar erodes the value of cash. The southern African nation has had shortages of basic commodities since 2001, a year after President Robert Mugabe began seizing white-owned commercial farms. The central bank cut 10 zeroes off its currency last month, revaluing the 100 billion note to 10 Zimbabwe dollars.

``The economy is in complete meltdown,'' Victor Munyama, an economist at Standard Bank Group Ltd., Africa's biggest lender, said by phone from Johannesburg today. ``There is a shortage of foreign exchange and they don't have the resources to import raw materials to sustain production. That's the bottom line.''

Latin America

Hyperinflation in Zimbabwe surpasses that of Latin American countries, such as Argentina, Bolivia and Brazil in the late 1980s and early 1990s. Inflation in Bolivia peaked at 23,447 percent in August 1985, according to the International Monetary Fund.

Zimbabwe's central bank Governor Gideon Gono proposed a six- month freeze on prices and wages because the economy is in a ``state of socio-economic emergency,'' the state-controlled Herald reported on Aug. 1.

Cash-strapped consumers are resorting to bartering fuel coupons for goods, such as household appliances and furniture. Some retailers prefer payment in coupons instead of local currency because of the rapid devaluation of the Zimbabwe dollar. The currency trades at about 1,400 per U.S. dollar on the black market, where most residents buy foreign exchange. On July 25, the rate was about 10 per U.S. dollar.

A governmental crisis is further undermining the economic outlook. Zimbabwe has been in political limbo since Mugabe claimed victory in a one-man runoff presidential election that opposition leader Morgan Tsvangirai boycotted in protest of violence targeting his supporters.

Hyperinflation will continue to be a problem ``as long as the political crisis isn't resolved,'' Munyama said. ``That is the stumbling block. If they resolve the political crisis, there's no doubt they'll get the balance of payments funding they need'' from agencies such as the IMF.

Four weeks of talks between Tsvangirai, who won the most votes in the initial poll on March 29, and Mugabe, 84, have deadlocked because of disagreement on the division of powers in a new government. While the two parties have agreed that Mugabe remains as president and Tsvangirai, 56, becomes prime minister, the opposition wants the prime minister to chair the Cabinet and have responsibility over the government, Tsvangirai said on Aug. 17.

To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net



Read more...

U.S. Housing Starts Fall to 17-Year Low, Permits Drop

By Shobhana Chandra

Aug. 19 (Bloomberg) -- Builders in the U.S. broke ground on the fewest houses in 17 years in July, signaling the residential- construction slump will continue to hurt economic growth.

The 11 percent decrease to an annual rate of 965,000, the lowest since March 1991, followed a 1.084 million pace the prior month, the Commerce Department said today in Washington. July's level was higher than economists anticipated. Building permits, a sign of future construction, also fell.

The report will reinforce concern that stricter lending rules, rising borrowing costs, falling property values and record foreclosures will further depress home sales and cause builders to keep retrenching. Housing, job losses and the credit crisis may weaken the economy for the rest of this year and into 2009.

``There's still a lot of excess inventory,'' Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York, said before the report. ``Foreclosures are competing with builders, and that will keep builders on the sidelines for a while.''

The Labor Department reported separately that prices paid to U.S. producers in July rose double the amount that economists had projected. The producer price index climbed 1.2 percent from June. Stripping out food and fuel costs, prices were up 0.7 percent, exceeding the 0.2 percent median projection among economists surveyed by Bloomberg News.

Treasuries, Stocks

Treasuries were little changed after the reports, with benchmark 10-year notes yielding 3.81 percent at 8:37 a.m. in New York, from 3.82 percent late yesterday. Futures contracts on the Standard & Poor's 500 Stock Index were down 0.9 percent at 1,270.20.

Starts were projected to fall to a 960,000 annual pace from a previously estimated 1.066 million in June, according to the median forecast of 77 economists polled by Bloomberg News. Estimates ranged from 875,000 to 1.09 million.

Compared with July 2007, work began on 30 percent fewer homes.

Permits decreased 18 percent to a 937,000 annual pace, lower than the 970,000 rate projected by economists, according to the survey median.

Construction of single-family homes fell 2.9 percent to a 641,000 rate, the fewest since January 1991, today's report showed. Work on multifamily homes, such as townhouses and apartment buildings, dropped 24 percent from the prior month to an annual rate of 324,000.

Northeast Slumps

The decrease in starts was led by a 30 percent decline in the Northeast. Construction fell 8.2 percent in both the South and West. Starts in the West slumped to a 26-year low. The Midwest showed a 10 percent gain.

The magnitude of the July drop in the Northeast reflected, in part, a payback from an unexpected surge the prior month. Starts and permits jumped in June as builders hurried to break ground ahead of new regulations in New York City's building code that took effect July 1.

Underneath the gyrations, demand is weakening. Sales of existing homes fell to a 10-year low in the second quarter, according to the National Association of Realtors. A third of all sales were foreclosures or ``short sales,'' in which lenders take a loss on a property.

Financing is also becoming scarce, a quarterly survey of banks by the Federal Reserve showed. Compared with the April survey, more of the loan officers polled reported they tightened standards on prime mortgage loans and on non-traditional loans.

Mounting Losses

The five largest U.S. homebuilders reported a combined $1.08 billion in losses in their most recent quarters.

Builders are pessimistic as losses mount. The National Association of Home Builders/Wells Fargo's sentiment index yesterday showed optimism held at a record low in August for a second month.

Still, construction companies are making some headway in reducing the supply glut. The number of new homes for sale dropped in June by the most in four decades.

The government's tax rebates have helped some housing- related companies. Lowe's Cos., the world's second-largest home- improvement retailer, yesterday said full-year profit may fall less than it had anticipated and larger rival Home Depot Inc. today said profit fell les than analysts estimated as customers spent the rebates.

``The macro economic factors pressuring consumers and the ongoing challenges and uncertainty of the financial markets suggest a cautious sales forecast for the balance of fiscal 2008 is prudent,'' Lowe's Chief Executive Officer Robert Niblock said in a statement.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net



Read more...

German Investor Confidence Rises More Than Forecast

By Simone Meier

Aug. 19 (Bloomberg) -- German investor confidence increased more in August than economists forecast after the euro declined and oil prices retreated from a record.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose to minus 55.5 from minus 63.9 in July, the lowest since the survey began in 1991. Economists expected a gain to minus 62, the median of 43 forecasts in a Bloomberg News survey shows.

A 24 percent drop in oil prices from a July 11 record of $147.27 a barrel leaves companies with more money to spend just as a weaker euro underpins exports. Germany's BGA trade association today maintained its 2008 forecast for economic growth. Still, the DAX benchmark share index has shed 20 percent this year.

The report is ``providing a glimmer of hope that there is light at the end of the tunnel,'' Martin van Vliet, an economist at ING Group in Amsterdam, said in an e-mailed note today. ``We would caution against becoming overexcited about this. Investor confidence is still at recessionary levels.''

The German economy may expand 1.7 percent this year before cooling to less than 1 percent in 2009, the BGA said today. BGA President Anton Boerner said the economy is in a ``corrective phase'' after a ``strong start.''

`Positive Factors'

``We had two positive factors: the drop in oil prices and the depreciation of the euro,'' Sandra Schmidt, an economist at ZEW, said in an interview with Bloomberg Television. It ``should also have a positive influence on the indicator in the future.''

ThyssenKrupp AG and Salzgitter AG, Germany's largest steelmakers, on Aug. 14 both increased their full-year earnings forecasts on rising demand from builders and automakers. Salzgitter Chief Executive Officer Wolfgang Leese said that day that markets are ``stable.''

Still, gross domestic product may rise just 0.1 percent in the three months through September, the Berlin-based DIW economic institute predicted yesterday. In the second quarter, the economy shrank 0.5 percent from the first three months.

In the economy of the 15 euro nations, the slowdown is already deepening. Consumer and executive confidence in the outlook fell by the most since the Sept. 11 terrorist attacks. European manufacturing and service industries probably shrank for a third month in August, a Bloomberg survey shows.

Faster Inflation

Tognum AG, the German diesel-engine maker that former owner Daimler AG is reinvesting in, scaled back 2008 sales and margin forecasts on Aug. 12 after a declining dollar and slowing economic growth led to a drop in second-quarter orders.

Some companies are passing on higher costs to bolster earnings. German producer-price inflation accelerated to the fastest pace since October 1981 last month, the Federal Statistics Office in Wiesbaden said today.

While the euro's 8 percent drop against the dollar over the past month has made exports more affordable abroad, the U.S. economy, the world's largest, is grappling with a worsening housing slump, curbing economic growth.

The single currency rose to as high as $1.4690 after the release from $1.4665. It has since retreated to $1.4668 at 12:07 p.m. in Frankfurt.

Looking East

Some companies are looking to expand in faster-growing economies to boost sales. Hochtief AG, Germany's largest builder, on Aug. 14 raised its full-year earnings forecasts on rising demand in markets such as Australia and Asia.

``The biggest weakness is North America,'' Juergen Hambrecht, chief executive officer of BASF SE, the world's largest chemical producer, said last month. ``Asia and South America expand at a robust pace. In these regions, we'll continue to have very, very robust growth, also in the future.''

The euro dropped almost 8 cents after European Central Bank President Jean-Claude Trichet on Aug. 7 said growth will be ``particularly weak'' through the third quarter. The Frankfurt- based central bank that day kept its key rate at 4.25 percent.

The worsening European growth outlook may stop the central bank from raising rates further. Eonia forward contracts show investors have scaled back bets on higher interest rates, with the rate on the December contract at 4.24 percent today, down from 4.43 percent a month ago.

``The economic dynamic has considerably weakened and moved into a flattening phase, which will also influence next year,'' said Stephan Rieke, an economist at BHF-Bank AG in Frankfurt. Weaker growth also ``opens the window for inflation to slow, paving the way for the ECB to cut interest rates.''

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

Read more...

Pound Falls Near Two-Year Low Versus Dollar, Drops Against Euro

By Lukanyo Mnyanda and Andrew MacAskill

Aug. 19 (Bloomberg) -- The pound fell to near a two-year low against the dollar and slipped versus the euro after Bank of England policy maker Tim Besley said inflation will fall by the end of next year, adding to the case for interest-rate cuts.

The currency extended its longest sequence of declines against the dollar in more than 37 years, dropping for a 13th day. Increases in food and energy prices will slow, allowing inflation to ease toward the central bank's 2 percent ceiling by the end of 2009, Besley wrote in the Sun newspaper today. The Bank of England will release the minutes of its Aug. 7 policy meeting tomorrow.

``Once the Bank of England do signal that they are going to cut soon then I think the pound is going to come under extreme selling pressure,'' said Lee Hardman, a currency strategist in London for the Bank of Tokyo-Mitsubishi Ltd. ``The outlook for the pound continues to remain very dire.'' The currency may drop to $1.83 by the end of the year, he said.

The pound was at $1.8617 by 3:38 p.m. in London, from $1.8651 yesterday. It slipped to $1.8512 on Aug. 15, the lowest level since July 2006. The currency declined to 78.96 pence per euro, from 78.81.

The pound lost 3 percent against the dollar last week, its biggest five-day loss since the period through July 1, 2005, amid speculation falling house prices may exacerbate the economic slowdown. BOE Governor Mervyn King said Aug. 13 there is a ``chill in the economic air.'' The average asking price for a house fell 4.8 percent in August, Rightmove Plc, the nation's most-used property Web site, reported yesterday.

Gilts Gain

Government bonds rose, with the yield on the 10-year gilt falling 4 basis points to 4.56 percent. The 5 percent security due March 2018 rose 0.28, or 2.8 pounds per 1,000-pound ($1,862) face amount, to 103.40. The yield on the two-year gilt, which is more sensitive to the outlook for interest rates, fell 3 basis points to 4.52 percent. Bond yields move inversely to prices.

The notes, which have risen as investors have pared back expectations of higher interest rates, were also buoyed as stock markets fell around the world, boosting demand for the safest assets. The FTSE 100 Index dropped 2.1 percent.

The spread between U.K. government bonds and their German counterparts has narrowed as traders bet the end of a decade-long rally in the nation's property market will persuade policy makers to cut interest rates. The 10-year gilt yielded 43 basis points more than the German bund today, down from 69 basis points on Feb. 25, the widest this year.

Rate Futures

``All being well, inflation will fall again next year and will be much closer to the 2 percent target by the end of 2009,'' Besley wrote in the Sun. ``Don't expect food and energy prices to rise forever.''

Traders pared bets the central bank will raise the benchmark interest rate, with the implied yield on the March short-sterling futures contract dropping 6 basis points to 5.15 percent. It was at 5.44 percent at the end of July.

Inflation expectations, as measured by the difference between regular and index-linked bonds, have dropped from this year's peak reached in July. The so-called 10-year U.K. breakeven rate was 351 basis points today, from 416 basis points on July 7.

The pound has lost almost 12 percent since reaching a 26- year-high of $2.1161 on Nov. 9 as the Federal Reserve cut 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 U.K. 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, are due for release at 9:30 a.m. in London tomorrow.

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

Read more...

U.S. Producer Prices Surge More Than Forecast in July

By Timothy R. Homan

Aug. 19 (Bloomberg) -- Prices paid to U.S. producers rose twice as much as economists had forecast in July, reflecting the jump in energy and commodity costs that has since started to wane.

The 1.2 percent increase in the producer price index followed a 1.8 percent increase the prior month, the Labor Department said today in Washington. Costs were up the most in 27 years from a year before. So-called core prices that exclude fuel and food rose 0.7 percent after a 0.2 percent gain in June.

Oil prices have dropped 21 percent since the start of last month, copper is down 15 percent and corn has dropped 14 percent, helping ease the cost pressures on companies. Federal Reserve officials anticipate the economic slowdown, along with a stabilization in commodity costs, will help contain inflation.

``It's not a pretty number,'' said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh. ``Today's PPI is a bit of an echo and maybe a little bit of a rude reminder of how much of a problem inflation was in July.''

Another government report showed builders in the U.S. broke ground in July on the fewest houses in 17 years, signaling the residential-construction slump will continue to hurt economic growth.

Treasuries were little changed after the reports, with benchmark 10-year notes yielding 3.80 percent at 8:37 a.m. in New York, from 3.82 percent late yesterday. Futures contracts on the Standard & Poor's 500 Stock Index were down 0.9 percent at 1,270.20.

Housing Starts

The 11 percent decrease in housing starts to an annual rate of 965,000, the lowest since March 1991, followed a 1.084 million pace the prior month, the Commerce Department said today in Washington. Building permits, a sign of future construction, also fell.

Prices paid to factories, farmers and other producers were forecast to rise 0.6 percent following a previously reported 1.8 percent increase the previous month, according to the median of 77 forecasts in a Bloomberg News survey. Estimates ranged from gains of 0.1 percent to 1.8 percent.

Core prices were projected to rise 0.2 percent, according to the survey median.

Producers paid 9.8 percent more for goods from July 2007, the biggest year-over-year gain since June 1981, compared with a 9.2 percent gain in the 12 months ended in June. Excluding food and energy, the increase was 3.5 percent from a year earlier, its biggest jump since 1991, compared with a 3 percent gain in the prior month.

Gasoline

Producers paid 0.2 percent less for gasoline, and diesel fuel gained 2.6 percent, the report showed. Natural gas costs were up 7.8 percent from the previous month.

The wholesale-price report is based on figures for the Tuesday of the week that includes the 13th of the month. On that basis, a barrel of crude oil cost $138.74 on the New York Mercantile Exchange for July, up from $131.31 the previous month.

August producer prices are likely to reflect this month's drop in the cost of oil, which traded at $112.11 a barrel earlier today. Oil futures prices reached a record $147.27 a barrel July 11.

Food was 0.3 percent more costly, after a 1.5 percent increase the previous month, today's report showed.

Prices for raw materials, or so-called crude goods, increased 4.2 percent, after a 3.7 percent rise the prior month.

Inflation Outlook

Fed policy makers in their statement on Aug. 5 indicated that they expect inflation will moderate in the second half of the year and into 2009. Still, the outlook for prices is ``highly uncertain,'' the central bank's Federal Open Market Committee said in a statement when it voted to keep its benchmark interest rate at 2 percent.

Today's report showed passenger car prices gained 1.4 percent and light trucks increased 0.8 percent.

The report also showed prices for capital equipment increased 0.8 percent. Consumer goods prices were up 1.2 percent.

Producer prices are one of three monthly inflation gauges reported by the Labor Department. Import prices rose 1.7 percent in July and consumer prices increased 0.8 percent for the same period, the Labor Department said last week. Both figures were higher than estimated.

Higher raw-material costs are outpacing price increases for some companies. Deere & Co., the world's largest maker of farm equipment, last week said higher prices for tractors and combines weren't enough to counter a $140 million increase in production costs for materials such as steel.

``Escalating raw-material costs are expected to have an impact on margins'' for the fourth quarter, the Moline, Illinois- based company said last week in a statement.

Hershey Co., the largest U.S. chocolate maker, on Aug. 15 said it will raise prices to counter higher commodity costs. The changes will result in a roughly 10 percent increase across Hershey's entire U.S. product line, the company said in a statement.

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



Read more...

Thai Baht Falls to Near 10-Month Low on Politics, Stock Slump

By Shanthy Nambiar

Aug. 19 (Bloomberg) -- Thailand's baht fell to the lowest in almost 10 months on speculation a possible disbanding of the ruling party may delay Prime Minister Samak Sundaravej's plans to boost spending and economic growth, curbing demand for stocks. Government bonds advanced.

The baht has declined 1.6 percent this month as global funds cut their stock holdings amid political turmoil and after a central bank official said there is ``no need to panic'' about the currency's fall. The nation's Election Commission will next month decide whether to pursue a formal request through the Constitutional Court to disband Samak's People Power Party.

``We have the whole motion on-going against the People Power Party,'' said Vishnu Varathan, a regional economist at Forecast Singapore Pte. ``The situation in Thailand has gotten much worse. It isn't looking very Thai-baht friendly. Whoever can get out will get out of their positions.''

The currency fell 0.7 percent to 34.08 per dollar as of 4:55 p.m. in Bangkok, according to data compiled by Bloomberg. It earlier fell to 34.10, the weakest it's been since Oct. 30.

The Bank of Thailand's senior director Pongpen Ruengvirayudh said today the central bank will support the baht, without confirming whether it bought the currency. Equity outflows are also putting pressure on the baht as foreign investors continue to pull out of local stocks, Pongpen said.

``We will enter the market if needed, but I can't tell whether we do it now or not,'' Pongpen told reporters in Bangkok. ``The money is flowing out steadily, but the amount is not that great.''

Outflows

The Supreme Court last month convicted Yongyuth Tiyapairath, a senior member of Samak's party, of buying votes in the December national elections. The Election Commission in February accused Yongyuth of vote fraud.

The People Power Party, formed by supporters of former Prime Minister Thaksin Shinawatra after his Thai Rak Thai party was disbanded in May 2007 for election offences, now faces dissolution itself under constitutional rules.

``It is going to be difficult for the Bank of Thailand to defend attacks against the baht,'' Varathan said. ``The central bank is recanting a bit on its hawkish stance on rates.''

Bank of Thailand Governor Tarisa Watanagase said last week further interest-rate increases may not be needed to temper inflation, which accelerated to a decade-high 9.2 percent in July. Policy makers, who increased the one-day bond repurchase rate to 3.5 percent last month, meet Aug. 27 to decide on rates.

Bonds Gained

Ten-year government bonds advanced, as stock declines fueled demand for lower risk assets. The benchmark SET Index of shares dropped 0.9 percent today, tracking regional declines.

The yield on the 5.125 percent bond due March 2018 fell 6.6 basis points to 4.64 percent, according to the Thai Bond Market Association. The price rose 0.51198, or 5.11 baht per 1,000 baht face amount, to 103.6874. A basis point is 0.01 percentage point.

Overseas fund managers sold $194 million more Thai stocks than they bought this month, according to data compiled by Bloomberg. The Office of Auditor-General is also investigating whether Finance Minister Surapong Suebwonglee misused his power by granting a contract to a company without competitive bidding, The Nation newspaper reported today.

To contact the reporter for this story: Shanthy Nambiar in Bangkok at snambiar1@bloomberg.net.



Read more...

South African Rand Falls Against Dollar as Gold, Platinum Slump

By Garth Theunissen

Aug. 19 (Bloomberg) -- South Africa's rand weakened against the dollar as the country's stocks fell with the prices of gold and platinum, its biggest exports, reducing revenue prospects for the world's biggest producer of precious metals.

The rand retreated from a one-week high reached yesterday as gold fell below $800 an ounce on concern a stronger U.S. dollar will continue to erode its appeal as an alternative investment. Platinum slumped to an 11-month low on speculation weaker global economic growth will trim demand for vehicles, which use the metal in their pollution-cutting devices known as autocatalysts.

``Slowing economic growth is impacting negatively on commodity prices,'' said Caroline Gorman, a fund manager in London at Augustus Asset Managers, which oversees about $13 billion. ``A stronger dollar is also affecting commodity prices, and the rand's caught up in the fall.''

The rand fell as much as 1.6 percent to 7.8468 per dollar and was at 7.8330 by 4:49 p.m. in Johannesburg, from 7.7222 yesterday. It declined versus all 16 most-actively traded currencies monitored by Bloomberg, losing 1.4 percent against the euro to 11.5056.

Gold slid as much as 2.5 percent to $783.05 an ounce while platinum dropped as much as 6.4 percent to $1,306.50 an ounce. The fall in the metals sparked a 1.7 percent decline in South Africa's FTSE/JSE Africa All Share Index as mining companies including Anglo American Plc, BHP Billiton Plc and Impala Platinum Holdings Ltd slumped. South Africa produces almost 80 percent of the world's platinum and about 10 percent of its gold, typically causing the rand to move in tandem with the metals' prices.

Growth Rebound

The rand fell even after a government report showed economic growth rebounded in the second quarter from the slowest pace in six years. Africa's biggest economy expanded an annualized 4.9 percent, from 2.1 percent in the first three months of the year, Pretoria-based Statistics South Africa said today. Growth was higher than the 4.2 percent median forecast of 16 economists surveyed by Bloomberg News.

``The growth figures were better than consensus but it won't benefit the rand in the long term,'' said Kay Muller a currency researcher at Rand Merchant Bank in Johannesburg. ``The economy is still expected to slow this year, which will hamper South Africa's attract portfolio inflows into the equity market.''

Gross domestic product climbed as mining and manufacturing output, which account for about a fifth of the economy, rebounded after electricity supplies stabilized. Growth may slow to 3.7 percent this year, from 5.1 percent in 2007, according to the median estimate of eight economists surveyed by Bloomberg in May. Expansion is slowing as six interest-rate increases since June last year damp consumer spending.

Government bonds fell, with the yield on South Africa's benchmark 13.5 percent security due September 2015 adding 10 basis to 9.06 percent. The yield on the 13 percent note due August 2010 climbed 8 basis points to 9.70 percent. Yields move inversely to bond prices.

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



Read more...

East European Currencies: Poland's Zloty Drops Against Euro

By Ewa Krukowska and Yon Pulkrabek

Aug. 19 (Bloomberg) -- Poland's zloty fell against the euro as stock-market losses sapped investors' appetite for emerging- market assets. The Czech koruna also declined.

The zloty is the worst emerging-market performer this month as investors cut their holdings of higher-yielding currencies and purchased U.S. dollars on concern economic growth in Europe is contracting. The euro dropped to a six-month low against the dollar earlier today and the NTX Index of the 30 largest publicly traded companies in central and eastern Europe fell to its lowest level in a month.

``A stronger dollar means a weaker zloty,'' said Jaroslaw Janecki, chief economist at Societe Generale in Warsaw. ``Economic data from the European Union show it may be nearing a recession, while news from the U.S. is more positive. This reduces risk appetite for our region.''

The zloty declined 0.4 percent to 3.3274 per euro by 3:22 p.m. in Budapest, from 3.3144 yesterday, extending its decline this month to 3.9 percent.

The NTX Index fell 1.9 percent to 1610.85, headed for its lowest close since July 15. Bourses tracked lower in Bucharest, Budapest, Prague and Warsaw as well.

The zloty is ``too strong'' and it's a ``serious threat'' for Polish companies, the Polish Chamber of Commerce said. ``The strong zloty harmed exporters and reduced inflows from the EU,'' the chamber said in Warsaw today.

The Czech koruna dropped from its highest level in two months, losing 0.7 percent to 24.438 per euro, while the Romanian leu was little changed at 3.5242 versus the euro, as was the Slovak koruna at 30.314.

Turkish Pressures

Turkey's lira lost 0.6 percent to 1.1965 per dollar, and slipped 0.2 percent to 1.7523 against the euro. The impact of the global credit crunch on Turkey will worsen in the months ahead, Vatan newspaper reported, citing Economy Minister Mehmet Simsek.

Hungary's forint was little changed at 236.12 per euro after a report showed the average monthly gross wage increased in June to an annual 9.7 percent, from 9.6 percent a month earlier, the Budapest-based statistics office said today. Wages were expected to rise 8 percent, according to the median estimate of seven economists in a Bloomberg survey.

The National Bank of Hungary earlier this year said accelerating wage growth signaled rising inflation expectations at a time when government austerity measures are curbing corporate profits. Policy makers have raised interest rates by 1 percentage point this year to 8.5 percent.

``The significant increase in the headline figure was due to higher bonus payments in June at several big financial institutions,'' Gyula Toth, an economist at UniCredit MIB in Vienna, wrote in a research note today. ``We expect the NBH to keep rates on hold at the August meeting and see scope for the start of the easing cycle in the fourth quarter.''

To contact the reporter on this story: Ewa Krukowska in Warsaw at ekrukowska@bloomberg.net; Yon Pulkrabek in Prague at ypulkrabek@bloomberg.net



Read more...

Russia orders 15 pct coal price cut for Mechel-Ifax

(Adds quote, details, background)

MOSCOW, Aug 19 (Reuters) - Mechel , the Russian coal miner savaged by Prime Minister Vladimir Putin last month, will be ordered to cut coal prices for the steel industry by 15 percent from Sept. 1, Interfax news agency reported on Tuesday. New York-listed Mechel would also be fined 5 percent of its annual coking coal revenues, or about 790 million roubles ($32.2 million), for abusing its dominant market position, Interfax quoted the head of Russia's anti-trust watchdog as saying. "We will recommend that the company lower its prices by 15 percent to the end of the year from September 1," said Igor Artemyev, head of the Federal Anti-Monopoly Service (FAS).

Interfax quoted Artemyev as saying similar sanctions would be applied to coal miner Raspadskaya and a trading unit of steel maker Evraz Group , which are both under investigation for alleged abuses of their market dominance.

Mechel's case has drawn special attention after Putin twice last month attacked the company's pricing policy, triggering a sell-off that erased $8 billion, or half the New York-listed company's market value, in the space of three trading days.

FAS, in a ruling last Thursday, found Mechel guilty of abusing its market position and demanded the company, owned by billionaire Igor Zyuzin, switch to long-term contracts for its coking coal supplies from 2009. (Reporting by Robin Paxton; editing by Michael Roddy)



Read more...

Yen Advances as Credit Losses Damp Demand for Higher Yields

By Ye Xie and Gavin Finch

Aug. 19 (Bloomberg) -- The yen rose to a three-month high against the euro as declines in stocks on concern financial firms will post more losses damped demand for higher-yielding assets funded by loans in Japan.

Japan's currency also advanced versus the dollar, New Zealand dollar and the pound after JPMorgan Chase & Co. said Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, may post $4 billion in credit writedowns. The dollar traded near a six-month high against the euro as U.S. wholesale prices increased in July twice the amount forecast.

``We're seeing the yen benefit from an element of risk aversion,'' said Jeremy Stretch, a senior strategist in London at Rabobank International, the third-largest Dutch bank. ``There's still some nervousness about residual financial-market weakness.''

The yen climbed 0.3 percent to 161.30 per euro at 9:42 a.m. in New York, from 161.82 yesterday, after touching 160.87, the strongest level since May 13. The yen advanced 0.3 percent to 109.81 per dollar, from 110.13. The dollar was at $1.4689 per euro, compared with $1.4694, after reaching $1.4631, the strongest level since Feb. 20.

Japan's currency rose 0.3 percent to 77.99 per New Zealand dollar and advanced 0.5 percent to 204.50 versus the pound as concern Lehman writedowns may deepen discouraged the carry trade, in which investors get funds in a country with low borrowing costs and invest where returns are higher.

The Bank of Japan held its target lending rate at 0.5 percent today, the lowest among industrialized countries. The benchmark compares with 5 percent in the U.K. and 8 percent in New Zealand.

Outlook for Lehman

JPMorgan predicted Lehman may lose $3.30 a share in the third quarter, more than three times the average analyst estimate in a Bloomberg survey. Financial institutions have posted more than $500 billion of losses and writedowns since the start of last year, according to data compiled by Bloomberg.

The Standard & Poor's 500 Index dropped 0.3 percent, while Europe's Dow Jones Stoxx 600 slid 2.1 percent. The MSCI Asia- Pacific Index of regional shares lost 2.1 percent.

Banks are being ``crushed by ballooning debts,'' said Tetsuhisa Hayashi, chief manager of foreign-exchange trading at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo, a unit of Japan's largest lender by market value. ``Risk aversion among investors will cause further yen buying,'' driving the Japanese currency to 100 per dollar by year-end, Hayashi said.

Producer Prices

The dollar briefly strengthened versus the euro after the U.S. Labor Department reported that producer prices climbed 1.2 percent in July after increasing 1.8 percent the previous month. The median forecast of 77 economists surveyed by Bloomberg News was for an increase of 0.6 percent.

``The market is seizing on any data that suggest interest rates need to go higher,'' said Stephen Malyon, co-head of currency strategy at Scotia Capital Inc. in Toronto. ``Our view is that inflation won't be a major problem in the medium term. Once the market gets a chance to reflect on that, it should be less dollar-bullish.''

Futures on the Chicago Board of Trade show a 20 percent chance the U.S. central bank will raise the 2 percent target rate for overnight lending between banks by at least a quarter- percentage point by its Dec. 16 meeting, down from 37 percent odds a week earlier. Policy makers next meet Sept. 16.

Crude oil for September delivery was little changed at $112.78 a barrel on the New York Mercantile Exchange.

BOJ Assessment

The Bank of Japan cut its economic assessment for a second straight month, acknowledging that threats to growth outweigh decade-high inflation as its chief concern. The world's second- largest economy shrank last quarter, putting it on the brink of the first recession in six years.

The revised BOJ outlook ``will place even less pressure on the yen to appreciate in the middle to long term,'' wrote Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo and a former BOJ currency trader, in a research note today.

RBS pushed back its forecast for a BOJ rate increase to the fourth quarter of 2009 from the second quarter, Yamamoto said, confirming the contents of the report.

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



Read more...

Fannie Mae Extends Decline to 19-Year Low in Pre-Market Trading

By Cecile Gutscher and Shamim Adam
Enlarge Image/Details

Aug. 19 (Bloomberg) -- Fannie Mae fell to the lowest in 19 years amid concern the U.S. government will need to bail out the nation's biggest mortgage finance company. Freddie Mac rose.

Fannie fell 2.5 percent to $6 in pre-market trading at 8 a.m. in New York, extending a 22 percent drop in New York trading yesterday. Fannie fell as much as 3 percent in earlier trading in Frankfurt. Freddie Mac rose 1.3 percent to $4.45 after sliding 25 percent yesterday to the lowest since January 1991.

``They need to be nationalized,'' Kenneth Rogoff, a former chief economist at the International Monetary Fund said in an interview in Singapore today.


Barron's reported Aug. 16 that the Bush administration anticipates the government-chartered companies will fail to raise the capital they need to offset losses, leading Treasury Secretary Henry Paulson to exercise the authority granted to him last month to fund the companies if needed.

``Probably we need to guarantee the bonds, simply because the U.S. has led everyone into believing they would guarantee the bonds,'' said Rogoff, now a professor of economics at Harvard University who left the IMF in 2003. ``The equity holders should lose all their money. We should gradually break up the businesses and at least make part of them private. We may need to keep a nationalized part of them for a long time.''

The mortgage-finance companies have been battered by record delinquencies and rising losses amid the worst housing slump since the Great Depression, posting four straight losses totaling $14.9 billion. Washington-based Fannie has lost about 85 percent of its market value this year, while McLean, Virginia-based Freddie has lost 87 percent.

Fannie Mae has raised $14.4 billion in new capital since December to offset credit losses. Freddie Mac, which sold $6 billion in preferred stock in November, plans to raise an additional $5.5 billion, it said in May.

To contact the reporter on this story: Cecile Gutscher in London at cgutscher@bloomberg.netShamim Adam in Singapore at sadam2@bloomberg.net.


Read more...

Brazil Real Falls on Speculation of U.S. Credit Market Woes

By Adriana Brasileiro

Aug. 19 (Bloomberg) -- Brazil's real fell for a fourth day amid speculation of growing U.S. credit market woes and aversion to higher-yielding, emerging-market assets.

``We are riding a wave of pessimism about U.S. markets and the economy, and riskier assets inevitably suffer,'' said Luiz Carlos Barroso Simao, chief strategist at Mandarim Investimentos, an asset-management firm in Rio de Janeiro.

The real fell 0.3 percent to 1.6436 per dollar at 9:39 a.m. New York time. The currency has declined 4.7 percent this month, paring its advance this year to 8.3 percent. It remains the biggest gainer among the 16 most-actively traded currencies tracked by Bloomberg.

The yield on Brazil's zero-coupon bonds due in January 2010 rose 1 basis point, or 0.01 percentage point, to 14.74 percent, according to Banco Votorantim. The yield on the overnight interest futures contract for January delivery was little changed at 13.80 percent.

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



Read more...

HSBC Cuts Outlook for Malaysia Ringgit, Says No Gain Until 2010

By David Yong

Aug. 19 (Bloomberg) -- Malaysia's ringgit won't strengthen until at least 2010 because falling commodity prices and rising political tension will damp demand for the currency, according to HSBC Holdings Plc.

The London-based bank, Europe's biggest, said the currency will weaken to 3.5 per dollar at the end of this year, revising a prediction of 3.28, strategist Daniel Hui wrote in a research note yesterday. HSBC said the ringgit will remain around that level throughout 2009, changing its call for a gain to 3.05.

``Deterioration across several fronts leads us to believe that an unfavorable fundamental backdrop will be much protracted,'' Hong Kong-based Hui said. ``All the conditions that helped drive capital inflows in the first quarter have now vanished,'' wrote Hui, who confirmed the report yesterday.

HSBC in June turned ``neutral'' on the ringgit as consumer prices surged by the most in 26 years and police started investigating the leader of the opposition for illegal sex.

Crude oil has fallen 23 percent and palm oil 45 percent from their record levels this year. Both commodities accounted for 14.5 percent of Malaysia's exports in the first half, according to data published by the trade ministry. Malaysia is the world's second-largest palm oil exporter and the second- biggest oil producer in Southeast Asia.

``Falling commodity prices will be a net negative for the trade account, national income and the fiscal balance,'' Hui said in the report.

Political Turmoil

The ringgit traded at 3.3365 per dollar as of 8:39 a.m. in Kuala Lumpur, compared with 3.3340 yesterday, according to data compiled by Bloomberg. The ringgit fell 1.4 percent last week, its biggest loss since the five days ended Nov. 16.

The currency will reach 3.3250 in a year, according to non- deliverable forwards contracts, compared with bets for a gain to 3.2620 two weeks ago. Forwards are agreements in which assets are bought and sold at current prices for future delivery.

Demand for the ringgit is limited as opposition leader Anwar Ibrahim faces a Sept. 10 trial after pleading not guilty to illegal sex with a former male aide. Anwar seeks to re-enter parliament in a by-election in northern Penang state on Aug. 26 and has said the accusations are a ploy to derail his comeback.

Anwar, the former deputy prime minister, said on Aug. 8 lawmakers from the ruling National Front coalition may announce their defections to the opposition camp as early Aug. 27 to topple the government.

Fund Outflows

``Political developments in the past few months have worsened the environment and made the outlook even more uncertain,'' HSBC's Hui said. ``The probability of a decisive end-game is declining, while prospects for protracted instability are becoming more real.''

Malaysia's weakening currency and relatively low yields may cause foreign investors to liquidate their holdings of local debt, HSBC said. Global funds owned about 30 percent of Malaysia's government bonds, of which almost half is concentrated in the short-term bills, Hui said.

Bank Negara's decision to hold its overnight policy rate unchanged at 3.5 percent since April 2006 made it the region's least responsive central bank, raising serious questions about its credibility and independence, HSBC also said.

Inflation quickened 7.8 percent in July after reaching a 26-year high of 7.7 percent in June, according to the median forecast in a Bloomberg News survey of 19 economists before the government releases the latest figures on Aug. 22.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.

Read more...

Canada's Dollar Little Changed After Wholesale Sales Climb

By Chris Fournier

Aug. 19 (Bloomberg) -- Canada's dollar was little changed after a report showed the country's wholesale sales rose at the fastest pace in more than a year, while commodities including crude oil and gold fell.

The Canadian currency traded at C$1.0659 per U.S. dollar at 9:54 a.m. in Toronto, from C$1.0646 yesterday. One Canadian dollar buys 93.81 U.S. cents. The currency has dropped 6.2 percent this year.

June wholesale sales advanced 2 percent, Statistics Canada said today, almost triple the 0.7 percent median forecast of 16 economists in a Bloomberg survey, as shipments of cars recovered after a strike. That compares with a revised gain of 1.5 percent in May.

``The number suggests a little more momentum in the economy than thought,'' said Sal Guatieri, a senior economist at Bank of Montreal in Toronto. ``If that strength held up, that would be positive for the loonie.''

After reaching parity with its U.S. counterpart in September for the first time in three decades, Canada's dollar sank to a one-year low last week and has lost 5.2 percent since crude oil reached a record $147.27 a barrel on July 11. Commodities such as crude account for about half of Canada's exports.

Crude for September delivery fell for a fourth day to as low as $111.64 a barrel, near the lowest in four months. Gold fell below $800 an ounce.

Commodity prices are playing a ``huge role,'' Guatieri said. ``The main driver of our currency is commodity prices. If they keep falling, so too will the loonie.''

Weaker Dollar

The loonie, as the Canadian currency is known because of the aquatic bird on the one-dollar coin, will weaken to C$1.070 by the end of this year, Guatieri predicts. Thirty economists surveyed by Bloomberg News anticipate the currency will weaken to C$1.10 by the end of 2009, according to the median forecast.

Canada's dollar ``failed to gain any support'' from today's wholesale report, Stewart Hall, a market strategist at HSBC Securities Canada in Toronto, wrote in a report today. He blamed that on the ``significant upside'' in U.S. producer price index, which rose twice as much as forecast in July, boosting the U.S. dollar against 13 of 16 major currencies.

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



Read more...

Saks loss wider, sees weakness in rest of year

By Aarthi Sivaraman

NEW YORK (Reuters) - Upscale retailer Saks Inc. posted a wider-than-expected quarterly loss on Tuesday, as even its well-to-do shoppers curbed spending as the economy weakens, and forecast a drop in its 2008 operating margin.

The company forecast same-store sales, a key metric of retail health, to be flat or down in the low-single-digit rate in the second half of the year -- a period that includes the critical holiday shopping season, when most retailers usually hope for good fortunes.

"We know we are continuing to face the headwinds of the economic and retail environment. Consequently, we are approaching the near term conservatively and believe our 2008 operating margin (excluding certain items) will decline from 2007 levels," Chief Executive Stephen Sadove said in a statement.

Saks' caution is a fresh indicator that spending worries have spilled over into the luxury sector, where shoppers are normally expected to be more resistant to higher costs for necessities like food and fuel, or the housing downturn.

Net loss at the New York-based retailer was $31.7 million or 23 cents per share, compared to a net loss of $24.6 million or a loss of 17 cents per share.

Excluding some asset impairment and severance costs, Saks lost 22 cents per share, while analysts, on average, expected a loss of 19 cents per share, according to Reuters Estimates.

The operator of Saks Fifth Avenue stores said quarterly sales fell to $669.2 million, from $694.1 million a year ago.

Saks previously reported July sales fell 5.3 percent at stores open a year.

"During the quarter, we experienced a softening across nearly all geographies and merchandise categories," Sadove said.

Sales at stores open at least a year would have been slightly positive, excluding the effect of a spring season sale, which it moved into the first quarter of this year from the second quarter a year ago, Sadove added.

(Editing by Dave Zimmerman)



Read more...

Platinum Falls to 11-Month Low, Palladium Drops on Dollar, Oil

By Halia Pavliva

Aug. 19 (Bloomberg) -- Platinum fell to an 11-month low and palladium slumped to the lowest since February 2006 as a rallying dollar and declining oil prices eroded the appeal of the precious metals as hedges against inflation.

The dollar rose to a six-month high against the euro after a government report showed U.S. wholesale prices increased in July twice the amount that economists forecast. Crude oil fell for a fourth day. Platinum has dropped 36 percent since the end of June and palladium is down 40 percent as the dollar rebounded from a record low against the euro in mid-July.

The metals are ``under pressure again as the dollar firmed and crude slipped lower,'' John Reade, the head of UB AG metals strategy in London, said today in a note to clients.

Platinum futures for October delivery fell $60.80, or 4.4 percent, to $1,333.10 an ounce at 9:50 a.m. on the New York Mercantile Exchange, after earlier dropping to $1,307, the lowest for a most-active contract since Sept. 20. The metal fell 11 percent last week, the most since September 2001.

Palladium futures for September delivery fell $7.80, or 2.7 percent, to $279.10 an ounce on Nymex, after earlier reaching $267.90, the lowest for a most-active contract since Feb. 14, 2006. The price declined 25 percent this month before today, including a 14 percent drop last week, the most since March.

``The sharp sell-off seen in precious metals over the past six weeks shows no sign of abating,'' Reade said. ``Until the dollar tops out, it is too dangerous to be long outright at current levels.''

Oil, Dollar

Oil prices have declined 23 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 demand from slower global growth.

The U.S. Dollar Index, which measures the currency against those of six major trading partners, today rose to the highest level this year. Some investors purchase precious metals priced in dollars when the U.S. currency falls and crude oil rises.

Platinum also has plunged on concern that demand from the automotive industry may decline as economic growth weakens. Car and light-truck sales in the U.S., the world's largest market, are on a pace to make 2008 the worst year since 1993.

About 60 percent of global platinum output is used to make pollution-control parts for car-exhaust systems, according to estimates by Johnson Matthey Plc in London, which makes about a third of the world's auto-emissions catalysts. The metal is also used to make jewelry, glass for liquid-crystal displays and emissions filters for oil refineries, ships and construction machinery.

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



Read more...

India May Harvest Record Wheat Crop on Rainfall

By Pratik Parija and Thomas Kutty Abraham
Enlarge Image/Details

Aug. 19 (Bloomberg) -- Farmers in India, the world's second-biggest wheat producer, may increase planting starting October because of above-average rainfall, possibly helping the nation gather a record harvest for a second year.

``Rains are good and conditions seem to be very favorable'' for wheat plantings this year, Federal Food Secretary T. Nanda Kumar said in an interview in New Delhi yesterday.

The South Asian country may have harvested a record 78.4 million metric tons of the grain in the year ended June 30, up 3.4 percent from the previous year, the farm ministry has said.

A bigger harvest may help Prime Minister Manmohan Singh's government head off a food shortage that has stoked inflation to a 16-year high. India imported 1.79 million tons of wheat since July 2007 to build its stockpiles, helping fuel last year's 77 percent gain in prices on the Chicago Board of Trade.

``I don't see a possibility of any imports until April,'' said Kumar, who's responsible for food policy in the world's second-most populous country.

Rainfall has been at least 25 percent above normal in the main wheat-growing states of Uttar Pradesh, Punjab and Haryana in the June 1-Aug. 13 period, according to the weather office. Showers across the nation have been 2 percent more than average.

``Rains have increased the moisture level in the soil and will encourage farmers to boost sowing,'' said M.K. Dattaraj, president of Roller Flour Millers Federation of India, by phone from the southern city of Bangalore.

Rice Sowing

Plentiful rain may also boost the country's rice output by 5 percent, Kumar said. Farmers sowed the crop to 28.2 million hectares as of yesterday, compared with 25.6 million hectares a year earlier, according to the farm ministry.

The government may sell as much as 6 million tons of wheat from its reserves between September and March to keep domestic prices affordable, Kumar said. State-owned Food Corp., the country's biggest buyer of food grains, bought a record 22.5 million tons of wheat from farmers this year.

``We have enough stocks in government warehouses, which we always unload if something goes wrong,'' Kumar said. ``We are going to do that.''

Wheat for December delivery declined as much as 2 percent to $8.6725 a bushel and stood at $8.73 at 2:48 p.m. New Delhi time. Prices have fallen 35 percent from their record $13.495 a bushel on Feb. 27.

India's production of food grains such as rice, wheat and lentils in the year ended June probably climbed to 230.7 million tons, more than the 227.3 million tons estimated in April, farm secretary P.K. Mishra said July 9.

Wheat, the country's biggest winter food grain, is planted from October through December. Harvesting starts in March and continues through April.

To contact the reporters on this story: Pratik Parija in New Delhi at pparija@bloomberg.net; Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net.



Read more...

Gold, Silver Fall as U.S. Producer Prices Rise Most Since 1981

By Pham-Duy Nguyen

Aug. 19 (Bloomberg) -- Gold fell on speculation surging U.S. producer costs will spur the Federal Reserve to raise interest rates, boosting the dollar and eroding the metal's appeal as an alternative investment. Silver also declined.

Prices paid by U.S. producers surged 9.8 percent in the year through July, the biggest jump since June 1981, the Labor Department reported today. The dollar climbed as much as 0.4 percent against the euro after rising 5.8 percent this month. Gold set a record in March as interest-rate cuts pushed the dollar toward an all-time low against the euro, reached last month.

``Higher inflation used to mean higher gold prices,'' said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. ``Now higher inflation means higher rates are coming, which means a stronger dollar and lower gold prices. Rates have to go up. One thing the Fed is really scared of is inflation.''

Gold futures for December delivery fell $10.50, or 1.3 percent, to $795.20 an ounce at 9:55 a.m. on the Comex division of the New York Mercantile Exchange. Before today, the metal dropped 22 percent from a record $1,033.90 set March 17, including a 13 percent decline this month.

Silver futures for December delivery fell 29.2 cents, or 2.2 percent, to $12.925 an ounce on the Comex. Silver had fallen 11 percent this year before today while gold lost 3.9 percent.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.



Read more...

Copper Drops in New York as U.S. Housing Starts Plunge in July

By Millie Munshi

Aug. 19 (Bloomberg) -- Copper fell in New York after a report showed U.S. builders in July broke ground on the fewest houses in 17 years, signaling metal demand will dwindle.

U.S. housings starts plunged 11 percent to an annual rate of 965,000, the lowest since March 1991, the Commerce Department said today. Builders are the biggest consumers of copper, using the metal for pipes and wires. Before today, the price tumbled 22 percent from a record in May.

``The weakening economics means that a lot of people will continue to be negative toward copper,'' said Ron Goodis, a futures-trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``There's still more downside to go.''

Copper futures for December delivery declined 0.7 cent, or 0.2 percent, to $3.302 a pound at 9:54 a.m. on the Comex division of the New York Mercantile Exchange. The metal earlier rose as much as 0.5 percent on speculation a six-week slide may spur demand. The all-time high on May 5 was $4.2605.

U.S. building permits, a sign of future construction, declined 1 percent to a 937,000 annual pace. That compared with the 970,000 rate projected by economists, according to the median pf 53 forecasts in a Bloomberg News survey.

The permits data show ``the outlook is pretty negative'' for copper demand, Goodis said.

On the London Metal Exchange, copper for delivery in three months gained $5 to $7,360 a metric ton ($3.34 a pound). Before today, the price rose 4.9 percent in the past 12 months.

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



Read more...

Google invests $10 mln in geothermal technology

LOS ANGELES, Aug 19 (Reuters) - Google Inc (GOOG.O: Quote, Profile, Research, Stock Buzz) on Tuesday said it would invest more than $10 million in a breakthrough geothermal energy technology.

Google's philanthropic arm, Google.org, said the investment would go toward so-called Enhanced Geothermal Systems. The technology circulates water through hot rocks in the ground, producing steam to power a turbine.

Conventional geothermal technology relies on finding naturally occurring pockets of steam and hot water in the ground.

Google's investment includes $6.25 million for AltaRock Energy Inc, $4 million for Potter Drilling Inc, and a $489,521 grant for Southern Methodist University's Geothermal Lab. (Reporting by Nichola Groom, editing by Gerald E. McCormick)



Read more...

French Stocks: ADP, Credit Agricole, Natixis, Saint Gobain

By Sarah Thompson

Aug. 19 (Bloomberg) -- France's CAC 40 Index retreated 65.65, or 1.5 percent, to 4,383.19 at 9:27 a.m. in Paris. The SBF 120 Index fell 1.4 percent.

The following shares rose or fell in the local market. Stock symbols are in parentheses.

Aeroports de Paris (ADP FP) slipped 1.8 euros, or 3 percent, to 57.52, the first decline in four sessions. The owner of the French capital's Charles de Gaulle and Orly airports said traffic fell 0.5 percent to 8.5 million passengers in July, hurt by a decline in domestic travel.

Cie. de Saint-Gobain SA (SGO FP), Europe's biggest supplier of building materials, lost 1.28 euros, or 3 percent, to 41.97. Vienna-based Wienerberger AG, the world's largest brickmaker, reported a 39 percent drop in second-quarter profit and cut its outlook for annual earnings after the worst homebuilding slump in the U.S. for almost two decades.

Credit Agricole SA (ACA FP) dropped 39 cents, or 2.8 percent, to 13.74 euros. Societe Generale SA (GLE FP) slid 1.66 euros, or 2.6 percent, to 62.75. France's third- and second- largest banks declined in line with peers across Europe as concern deepened financial firms will post more losses as the credit-market turmoil spreads.

Natixis SA (KN FP) dropped 11 cents, or 1.8 percent, to 6.14 euros. Greenlight Capital Inc., an investor in Natixis, said it opposes the French bank's planned 3.7 billion-euro ($5.4 billion) rights offer and wants the bank to sell back stakes in its parent companies to restore capital. Natixis said it plans to go ahead with the offer.

To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.



Read more...

Fannie Mae Extends Decline to 19-Year Low in Pre-Market Trading

By Cecile Gutscher and Shamim Adam

Aug. 19 (Bloomberg) -- Fannie Mae fell to the lowest in 19 years amid concern the U.S. government will need to bail out the nation's biggest mortgage finance company. Freddie Mac rose.

Fannie fell 2.5 percent to $6 in pre-market trading at 8 a.m. in New York, extending a 22 percent drop in New York trading yesterday. Fannie fell as much as 3 percent in earlier trading in Frankfurt. Freddie Mac rose 1.3 percent to $4.45 after sliding 25 percent yesterday to the lowest since January 1991.

``They need to be nationalized,'' Kenneth Rogoff, a former chief economist at the International Monetary Fund said in an interview in Singapore today.

Barron's reported Aug. 16 that the Bush administration anticipates the government-chartered companies will fail to raise the capital they need to offset losses, leading Treasury Secretary Henry Paulson to exercise the authority granted to him last month to fund the companies if needed.

``Probably we need to guarantee the bonds, simply because the U.S. has led everyone into believing they would guarantee the bonds,'' said Rogoff, now a professor of economics at Harvard University who left the IMF in 2003. ``The equity holders should lose all their money. We should gradually break up the businesses and at least make part of them private. We may need to keep a nationalized part of them for a long time.''

The mortgage-finance companies have been battered by record delinquencies and rising losses amid the worst housing slump since the Great Depression, posting four straight losses totaling $14.9 billion. Washington-based Fannie has lost about 85 percent of its market value this year, while McLean, Virginia-based Freddie has lost 87 percent.

Fannie Mae has raised $14.4 billion in new capital since December to offset credit losses. Freddie Mac, which sold $6 billion in preferred stock in November, plans to raise an additional $5.5 billion, it said in May.

To contact the reporter on this story: Cecile Gutscher in London at cgutscher@bloomberg.netShamim Adam in Singapore at sadam2@bloomberg.net.

Read more...

U.K. Stocks Decline, Led by Banks; HSBC, RBS, Brixton Retreat

By Sarah Jones and Sarah Thompson

Aug. 19 (Bloomberg) -- U.K. stocks fell to the lowest in two weeks, led by banks after JPMorgan Chase & Co. said Lehman Brothers Holdings Inc. may write down about $4 billion in credit- related investments this quarter as the mortgage market deteriorates.

HSBC Holdings Plc, Europe's largest bank, fell to the lowest this month. Royal Bank of Scotland Group Plc, the U.K.'s second- biggest bank, declined the most since Aug. 4.

Brixton Plc led shares of real-estate companies lower after the U.K.'s biggest owner of industrial buildings said the ``apocalyptic'' lyrics of a Bob Dylan song best described the country's commercial-property market.

The FTSE 100 Index retreated 83.5, or 1.5 percent, to 5,366.7 at 12:53 p.m. in London. The measure has lost 17 percent this year as asset writedowns and credit losses at financial companies topped $500 billion worldwide. The FTSE All-Share Index lost 1.6 percent today, while Ireland's ISEQ Index dropped 3.6 percent.

``The banks are struggling and still facing problems,'' said Espen Furnes, an Oslo-based fund manager at Storebrand Asset Management, which has the equivalent of $48 billion. ``It's far too early to be bullish and it's likely that we're going to see a further weakening in balance sheets over the next 12 months.''

HSBC fell 3.6 percent to 827 pence and RBS slid 4.8 percent to 217.5. Barclays Plc, the U.K.'s third-largest bank, decreased 4.8 percent to 326.25.

Lehman will probably post losses in the third quarter following the deterioration in the mortgage market, New York- based analysts Kenneth Worthington and Funda Akarsu wrote in a report to investors dated yesterday.

`General Worries'

The analysts lowered their per-share estimate for the third quarter to a loss of $3.30 from a profit of 35 cents previously. Lehman will likely keep the Neuberger Berman LLC asset-management unit, the analysts added.

``There are general worries about the health of the U.S. financial sector,'' said Matt Buckland, a trader at CMC Markets in London.

Brixton fell 6.1 percent to 232.75. Quoting the first verse of Dylan's ``All Along the Watchtower,'' Brixton said a lack of property sales has led to ``too much confusion'' in the market and no one knows ``what any of it is worth.'' The company said: ``There is no `way out' of this impasse -- yet.''

Warehouses, offices and stores in the U.K. have lost value each month since June 2007, following 11 years of gains, as loans for purchasing properties became more expensive and harder to obtain. Brixton's warehouses depreciated by 10 percent in the first half, leading to a net loss of 235 million pounds ($438 million), Brixton said today on its Web site.

Hammerson Plc, the U.K. owner of Birmingham's Bullring and London's Brent Cross shopping centers, plunged 5.2 percent to 875.5.

The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.

U.K. companies:

Findel Plc (FDL LN) jumped 11.75 pence, or 6.5 percent, to 192. The U.K. mail order company whose shares have plunged almost 70 percent this year said full-year revenue rose as consumers bought more goods by post. Revenue for the period through Aug. 15 advanced 2 percent compared with a year earlier. Home shopping sales gained 3 percent.

Inmarsat Plc (ISAT LN) jumped 12.5 pence, or 2.6 percent, to 500.5. The U.K. satellite company whose biggest shareholder is considering a takeover said consolidation would be ``good'' for the industry as it could allow companies to offer more services and cut costs.

Minmet Plc (MNT LN) added 1.75 pence, or 47 percent, to 5.5 pence. The mining company based in Dublin said today that it's in discussions that might lead to a takeover offer for the company.

Vodafone Group Plc (VOD LN) decreased 1.45 pence, or 1 percent, to 138.4. The company will increase prices for some calls in the U.K. beginning Sept. 1 to boost revenue as regulators aim to cut some fees.

Woolworths Group Plc (WLW LN) fell 0.27 pence, or 3.7 percent, to 7.12. The grouping led by Baugur Group Hf, which was rebuffed by the board of Woolworths, has contacted other shareholders of the U.K. retailer in an effort to force its directors to open discussions, the Financial Times reported.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net; Sarah Thompson in London at sthompson17@bloomberg.net.



Read more...

European Stocks Fall, Led by Banks on Loss Concerns; Ciba Drops

By Adam Haigh

Aug. 19 (Bloomberg) -- European stocks declined for a second day as concern deepened that financial firms will post more losses and reports signaled faster-than-forecast inflation.

Barclays Plc slipped 4.7 percent and Societe Generale SA slumped 3.5 percent after JPMorgan Chase & Co. said Lehman Brothers Holdings Inc. may write down about $4 billion in credit- related investments this quarter as the mortgage market deteriorates. Ciba Holding AG tumbled 16 percent after posting a loss on a writedown and higher raw-material prices. Wienerberger AG led construction companies lower, sinking 4.8 percent, after cutting its profit outlook following the U.S. homebuilding slump.

The Dow Jones Stoxx 600 Index lost 1.9 percent to 281.57 at 2:55 p.m. in London, extending this year's decline to 23 percent as higher inflation and more than $500 billion in credit-related losses by banks worldwide threaten economic growth.

``The banking sector is still very, very difficult,'' said Hugh Yarrow, a fund manager at Rathbone Unit Trust Management, whose parent company Rathbone Brothers Plc has about $22.3 billion. Any worries about the value of their holdings and ``investors just start to panic,'' he said in a Bloomberg Television interview.

Producer prices climbed in the U.S. double the amount that economists forecast in July, reflecting a peak in oil prices that have since waned. A similar gauge of wholesale prices in Germany, Europe's largest economy, accelerated last month to the fastest pace since October 1981.

Breeding Fear

Interest-rate derivatives show investors are preparing for another round of turmoil in financial markets. The five-year interest rate swap spread has climbed above 104 basis points on concern Fannie Mae and Freddie Mac, the two largest U.S. mortgage finance companies, may need to be propped up by the government.

The measure has risen above 100 basis points in the past year ahead of the unwinding of structured investment vehicles, the collapse of Bear Stearns Cos. and the seizure of IndyMac Bancorp Inc.

``Fear breeds fear,'' Howard Wheeldon, senior strategist at BGC Partners LP in London, said in a Bloomberg Television interview. ``We are going to get more bad news. Corporate profits are going to be in further decline.''

William Hill Plc and Ladbrokes Plc fell as analysts at JPMorgan recommended selling shares of the U.K. gaming companies on concern the economic slowdown will cut earnings. Schindler Holding AG slid after the world's second-biggest elevator and escalator maker posted profit that missed analysts' estimates.

National benchmark indexes declined in all the 18 western European markets. The U.K. FTSE 100 lost 1.8 percent, as did France's CAC 40. Germany's DAX Index slid 1.7 percent.

Barclays, SocGen

Barclays, the U.K.'s third-biggest bank, lost 4.6 percent to 326.5 pence. Societe Generale, France's second-largest bank, slid 3.5 percent to 62.14 euros.

Lehman will probably post losses in the third quarter following the deterioration in the mortgage market, New York- based JPMorgan analysts Kenneth Worthington and Funda Akarsu wrote in a report to investors dated yesterday.

The analysts lowered their per-share estimate for the third quarter to a loss of $3.30 from a profit of 35 cents previously. Lehman will likely keep the Neuberger Berman LLC asset- management unit, the analysts added.

Ciba sank 16 percent to 26.9 francs after reporting a loss in the second quarter. The world's biggest maker of colors for plastics had a net loss of 606 million francs ($552 million), compared with a 27 million-franc profit a year earlier, after taking a 595 million-franc charge to adjust goodwill at its water and paper-treatment unit.

Wienerberger

Wienerberger dropped 4.8 percent to 16.95 euros after profit sank 39 percent in the second quarter. Sales slipped 4 percent to 690 million euros, missing the 705 million-euro estimate from a survey of analysts by Bloomberg.

Operating profit will decline by 15 percent in 2008, compared with an earlier prediction of a 10 percent drop, the company said.

Cie. de Saint-Gobain SA, Europe's biggest supplier of building materials, lost 4.1 percent to 41.46 euros. Lafarge SA, the world's largest cement producer, slid 2.1 percent to 81.42 euros.

William Hill, the U.K. operator of more than 2,250 betting shops, sank 4.1 percent to 274.25 pence after JPMorgan downgraded the shares to ``underweight'' from ``overweight.'' Ladbrokes, a rival firm, was lowered to ``underweight'' from ``neutral.'' Its shares dropped 5.2 percent to 225 pence.

``We are cutting forecasts across our universe to reflect a recession scenario in 2009,'' London-based analyst James Ainley wrote in a note to clients today.

Schindler

Schindler retreated 2.2 percent to 72.6 francs after posting second-quarter net income of 147 million francs ($134 million), missing the 149 million-franc forecast by analysts surveyed by Bloomberg.

Solarworld AG climbed to the highest in more than two months on renewed speculation General Electric Co. may make an offer for Germany's third-largest solar power company.

The stock is ``up again on unlikely rumors that GE will bid 37.50 euros per share for Solarworld,'' said Thomas Nagel, a trader at Equinet AG in Frankfurt.

``There is no offer nor are there talks with GE,'' Solarworld's Chief Executive Officer Frank Asbeck, 49, said in a telephone interview today. The shares rose 2 percent to 32.45 euros.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net



Read more...