Mid-Day Report: Dollar Gives Back Some Gains after ISM

Market Overview | Written by ActionForex.com | Sep 02 08 14:36 GMT |

Dollar extended rally throughout the dollar following sharp decline in oil price but gives back some gains after ISM manufacturing report. ISM manufacturing index dropped slightly from 50.0 to 49.9 in Aug. More importantly, price paid component dropped sharply to 77.0, lowest level since Feb. Employment component also dropped back into contraction region at 49.7. Construction spending dropped -0.6% in Jul, worse than expectation of -0.4%.

Other data released today saw UK PMI construction unexpectedly rebounded to 40.5 in Aug, but still remain deep in contraction region below 50. Eurozone PPI rose 1.1% mom, 9.0% yoy in Jul, below expectation of 1.3% mom, 9.1% yoy. Swiss CPI dropped -0.3% mom in Aug, with yoy rate moderated from 3.1% to 2.9%. Q2 GDP growth came in at 0.4% qoq, 2.3% yoy.

UK Prime Minister Gordon Brown proposed spending 1 billion pounds to help the housing market to reverse the worse recession in at least 18 years, including suspending tax on UK houses cost less that 175,000 pounds, and exempting stamp duty for a year.

RBA cut rates for the first time in seven years as widely expected. The overnight cash rate is lowered by 25bps to 7.00%. The statement is somewhat less dovish than expected and suggests that the next policy move will be data dependent. The statement said that the Board will continue to assess prospects for demand and inflation over the period ahead, and set monetary policy as needed to bring inflation back to the 2-3 per cent target over time."
USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.0621; (P) 1.0656; (R1) 1.0702; More.

USD/CAD rises to as high as 1.0747 today following broad based strength in the greenback. Some retreat is seen in early US session but intraday bias remains on the upside as long as 1.0612 minor support holds. Further rally is expected to be seen to 1.0791/98 cluster resistance. On the downside, below 1.0612 minor support will turn intraday outlook neutral first. But pull back should be contained above 1.0471 support and bring another rise. However, break of 1.0471 will indicate that a short term top is in place and bring deeper decline towards 0.9974 support.

In the bigger picture, medium term rise from 0.9056 is still in progress towards mentioned cluster resistance at 1.0791/98 (61.8% retracement of 1.1874 to 0.9056 at 1.0798, 61.8% projection of 0.9056 to 1.0378 from 0.9974 at 1.0791) first. Sustained break of 1.0791/98 will argue that rise from 0.9056 is probably more than just a correction in the long term down trend and will set the stage to test key long term resistance at 1.1874. On the downside, a break below 0.9974 support is needed to confirm that rise from 0.9056 has completed. Otherwise, further rally is still expected even in case of a deep pull back.

Economic Indicators Update
GMT  Ccy  Events  Actual  Consensus  Previous  Revised
04:30  AUD  RBA rate decision  7.00%  7.00%  7.25%  
05:45  CHF  Swiss CPI M/M Aug  -0.30%  -0.10%  -0.40%  
05:45  CHF  Swiss CPI Y/Y Aug  2.90%  3.10%  3.10%  
05:45  CHF  Swiss GDP Q/Q Q2  0.40%  0.20%  0.30%  
05:45  CHF  Swiss GDP Y/Y Q2  2.30%  2.40%  3.00%  
08:30  GBP  U.K. PMI construction Aug  40.5  36  36.7  
09:00  EUR  Eurozone PPI M/M Jul  1.10%  1.30%  0.90%  
09:00  EUR  Eurozone PPI Y/Y Jul  9.00%  9.10%  8.00%  
14:00  USD  U.S. ISM manufacturing Aug  49.9  49.9  50  
14:00  USD  U.S. ISM manufacturing Prices Aug  77  82  88.5  
14:00  USD  U.S. Construction spending Jul  -0.60%  -0.40%  -0.40%  

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European Factory Prices Rose 9% in July on Oil Record

By Fergal O'Brien

Sept. 2 (Bloomberg) -- European producer prices increased the most in at least 18 years in July as crude oil reached a record before easing last month.

The 9 percent increase from a year earlier in the 15 euro countries was the biggest since the series began in 1990 and followed an 8 percent gain in June, the European Union statistics office in Luxembourg said today. Core prices, which exclude energy, accelerated to 4.3 percent from 4 percent.

Crude oil, which reached a record $147.27 a barrel on July 11, has fallen almost 28 percent since then to a five-month low, easing inflation pressures. Still, the European Central Bank will probably keep interest rates at a seven-year high this week even after the economy contracted in second quarter as it seeks to prevent a wage-price spiral.

``The core measure has also shown some signs of pass- through as it has climbed up over the last twelve months,'' said Carsten Brzeski, an economist at ING Group in Brussels. While retailers may find it hard to pass on price increases as consumer demand weakens, ``today's numbers are new evidence that it is far too early for the ECB to give the all-clear on the inflation front.''

Interest Rates

The ECB raised the benchmark interest rate to 4.25 percent in July on concerns that consumer-price gains at twice the bank's 2 percent limit will become embedded in the economy even as growth cools. While it left rates unchanged last month, policy makers Axel Weber and Lucas Papademos last week said the ECB remains focused on inflation risks and may need to lift rates again if they intensify.

All but one of 53 economists surveyed by Bloomberg News predict the bank will leave the benchmark rate at 4.25 percent on Sept. 4 and only five expect a cut this year.

Annual energy-price inflation accelerated to 29.4 percent in July from 27.6 percent in June, today's report showed. Crude oil fell as low as $105.46 a barrel today, the lowest since April 4, and was at $108.39 as of 12:15 p.m. in London.

``The data reflect the pressure from oil we saw until last month, but this may be the peak,'' said Aurelio Maccario, chief euro area economist at Unicredit MIB in Milan. After Hurricane Gustav passed the U.S. Gulf Coast without causing major damage to offshore platforms, ``it seems the downward trend we've seen in oil has become a little bit more entrenched.''

Economists expected overall producer price inflation of 9.1 percent in July, according to the median of 24 forecasts in a Bloomberg News survey. From a month earlier, producer prices rose 1.1 percent in the euro area in July.

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



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The ISM Manufacturing Takes the First Shot

Daily Forex Fundamentals | Written by Crown Forex | Sep 02 08 14:57 GMT |


The day in general was just a continuation for the undergoing trend since about a month, more dollar strength, and very heavy losses in the pound and the Euro in specific, but in today’s U.S. session things were a little bit different.

The only due number was the ISM manufacturing index that came out less than the previous and the expectations of 50, it actually came out at 49, which is still a sign of a contraction in the economy, while the currencies has already rebounded from their lowest levels in the beginning of the session, dollar continued to lose some of its gains after the release.

Euro, and after recording an important low at 1.4467 climbed after the ISM number to about 1.4540, almost 50 points from before the release, not yet recording any daily high, which still resides at 1.4600.

The British pound, who already lost almost five cents in two days rebounded as well from a very important support level at 1.7780 reaching after the news to 1.7880, while both currencies are waiting for their rates decisions that will be released on Thursday, along with major economical fundamentals all over the week.

The Japanese yen eventually started moving, and from a low of 107.70 reached in the U.S. session to a high of 109.20, but with such bad economical fundamentals from the states, the pair declined again to 108.80 levels, waiting for more confirmation to continue the move, and to face the important resistance at 109.30.

Tomorrow will be a new day with more focus on the European Zone rather than any other, but up till now, those current currency levels are likely to be maintained since they are very critical, and because such lows achieved by currencies today are very hard to be broken with no big market mover…

Crown Forex

disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.



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Chart Of The Day: GBP/JPY

Daily Forex Technicals | Written by FX Solutions | Sep 02 08 14:55 GMT |

9/02/2008 - GBP/JPY - Price on the GBP/JPY daily chart, as shown, bounced precisely up off a significant long-term support level late on Monday. This level resides around 192.60, give or take a few pips. Back in July 2005, this pair reached a swing low of 192.60, and then reached down to 192.57 in March of this year. Just yesterday, price descended quickly and bounced accurately off the 192.61 level. The sheer precision of this support level has been remarkable. As of Tuesday morning, price has corrected substantially to the upside after retreating from support. Any continuation of this correction should hit additional resistance around the 196.80 region, a relatively significant prior support/resistance level. The 192.60 support level to the downside, as mentioned, should continue to act as strong support going forward.

James Chen
Chief Technical Analyst

FX Solutions

IMPORTANT NOTICE: These comments are for information purposes only. Past results are not necessarily indicative of future results. Trading Futures, Options on Futures, and Foreign Exchange involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time. The information contained on this email does not constitute a solicitation to buy or sell by FX Solutions,LLC., and/or its affiliates, and is not to be available to individuals in a jurisdiction where such availability would be contrary to local regulation or law.

(Chart courtesy of FX Solutions' FX AccuCharts. Price on 1st pane, Slow Stochastics on 2nd pane; uptrend lines in green; downtrend lines in red; horizontal support/resistance lines in yellow; 200-period simple moving average in light blue.)



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U.S. Manufacturing Shrank in August, ISM Index Shows

By Bob Willis

Sept. 2 (Bloomberg) -- An index of manufacturing in the U.S. fell in August for the first time in three months as companies slowed production and cut payrolls in the face of weakening consumer spending.

The Institute for Supply Management's factory index fell to 49.9 last month from 50.0 the prior month, the Tempe, Arizona- based group reported today. The ISM gauge has hovered near 50, the dividing line between expansion and contraction, for the past year.

Manufacturers are receiving fewer orders as tumbling home prices and expensive gasoline weigh on consumer demand. Surging exports are keeping factories from stumbling as the broader economy slows.

``Manufacturing has been rather flat,'' said Norbert Ore, chairman of the ISM survey, in a conference call from Atlanta. ``It's a consistent story of slow contraction that's been going on for quite some time.''

The ISM index was projected to remain unchanged at 50, according to the median of 72 economists' forecasts in a Bloomberg News survey. Estimates ranged from 48.5 to 52.

The purchasing managers' gauge of new orders for factories increased to 48.3 from 45 the prior month, when it reached its lowest level since October 2001. The production measure dropped to 52.1 from 52.9.

Export Orders Jump

Orders from overseas have helped some companies withstand slower U.S. sales. The group's export gauge jumped to 57 from 54 the prior month.

The employment index dropped to 49.7 from 51.9 in July, further signs of weakness in factory employment. Ford Motor Co., the second-largest U.S. automaker, last month said it would lay off 300 workers at a Michigan engine factory as demand dwindles for vehicles equipped with V-8 engines because of gasoline prices.

The purchasing managers' index of prices paid dropped to 77 from 88.5.

A government report today showed construction spending in the U.S. fell more than economists forecast in July as work slowed on homes, power plants and factories, a government report showed.

Construction Spending Declines

The 0.6 percent decrease followed a revised 0.3 percent gain that initially was reported as a 0.4 percent drop, the Commerce Department said today in Washington. Private residential projects declined 2.3 percent in July to the lowest level since March 2001, the start of the country's last official recession.

The economy will grow at an average 0.7 percent pace in the second half of the year, economists surveyed by Bloomberg News forecast in the first week of August. Last week, the government reported the economy grew at a better-than-forecast 3.3 percent annual rate in the second quarter, following 0.9 percent in the first three months of the year.

The smallest trade deficit in eight years was the biggest contributor to growth last quarter. The smaller gap added 3.1 percentage points to growth, the most since 1980. That is likely to diminish as overseas economies slow and the dollar strengthens.

Manufacturers have also turned cautious as consumer spending weakens with the fading effects of tax rebate checks. Tumbling house prices and gasoline that topped $4 a gallon two months ago are also holding back consumer demand.

The auto industry is at the forefront of the manufacturing slump. Sales of cars and light trucks in July slid to a 12.5 million annual rate, the lowest level since 1993, according to industry figures.

General Motors Corp. Chief Executive Officer Rick Wagoner said Aug. 16 he's not yet seeing signs of a recovery in the U.S. economy or in vehicle sales.

The sluggish economy helped push GM, the world's largest automaker, to a $15.5 billion loss in the second quarter. ``It still feels to me like we're in it,'' Wagoner said of the economic slowdown.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net



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U.K. Suspends Homebuyer Tax in Moves to Reverse Slump

By Gonzalo Vina

Sept. 2 (Bloomberg) -- Prime Minister Gordon Brown suspended a tax on buying some homes for the first time since 1991 and brought forward 1 billion pounds ($1.8 billion) of spending in an effort to revive the U.K. economy.

Residential properties costing less than 175,000 pounds will be exempt from stamp duty for a year under plans announced by the Treasury today. The government also will help 16,000 people struggling to meet mortgage payments and another 10,000 to buy their first home.

The pound dropped, continuing the biggest rout in 16 years, as concerns grow that a dearth of lending will tip the British economy into recession. Banks approved 33,000 mortgages in July, a quarter of the level of a year ago, after a worldwide credit crunch dried up funding for loans.

``Until more funding is available we are still some way from restoring long-term stability to the housing and mortgage markets,'' said Michael Coogan, director general of the Council of Mortgage Lenders, which represents banks making home loans. ``There are no easy solutions to some of these problems.''

Against the dollar, the U.K. currency fell as low as $1.7782, about 16 percent below last year's peak above $2.11. Britain's economy unexpectedly stagnated in the second quarter, and Bank of England Governor Mervyn King said last month that growth would be ``broadly flat'' over the next year.

``These are the things that a government should do when the economy is in a difficult decision,'' Brown said in an interview on Sky News.

Conservative Support

Brown's Labour government has trailed the Conservative opposition in polls since October and is planning a package of measures to help consumers cope with the credit crunch. The opposition said the measures don't go far enough.

``This is a short term survival plan for the prime minister, not a long term recovery plan for the economy,'' said George Osborne, a Conservative lawmaker who speaks on finance. ``Most families will not be helped and the micro measures announced.''

Chancellor of the Exchequer Alistair Darling said the measure would help half of all homebuyers. The stamp duty move effectively raises the current threshold for paying the tax from 125,000 pounds and means the buyer of a 175,000-pound home will save 1,750 pounds.

``We face a unique set of circumstances that we have not seen in a generation,'' Darling said in an interview broadcast on U.K. television channels. ``I remain optimistic that we can get through it. We will get through it.''

Housing Costs

The average house price was about 178,364 pounds in the U.K. in July, government Land Registry figures show. In London, where house prices are double the national average, 175,000 pounds would buy a studio flat in Chelsea, according to estate agent John D. Wood & Co.

``This will have no impact on the London market and provide very little assistance to U.K. house builders,'' said Robert Bartlett, chief executive officer of Chesterton estate agents. ``There are few homes built in this country for under 175,000.''

Others said the Treasury must do more to increase the funding available to home loan providers before the housing market turns around. Darling still is considering those measures and plans to make a statement later in the year.

``Until more funding is available we are still some way from restoring long-term stability to the housing and mortgage markets,'' said Michael Coogan, director general of the Council of Mortgage Lenders, which represents banks making home loans. ``There are no easy solutions to some of these problems.''

Previous Change

Conservative Chancellor of the Exchequer Norman Lamont suspended stamp duty between December 1991 and August 1992 by raising the threshold to 250,000 pounds from 30,000 pounds. The move had little effect. House prices fell about 8 percent in 1992, and home sales declined.

As finance minister, Brown raised stamp duty rates on properties above 250,000 in 1998, 1999 and 2000, leaving the lowest 1 percent rate unchanged. The threshold for paying the lowest rate doubled to 120,000 pounds in March 2005 and rose to 125,000 pounds a year later. Higher thresholds have remained unchanged since they were introduced in 1997.

Nationwide Building Society said last week that house prices declined 10.5 percent in August from a year earlier, the biggest drop since the final quarter of 1990. Banks repossessed the most homes in 12 years during the first half as the credit squeeze left more consumers unable to pay record debts.

Treasury Plan

The Treasury plans to use the 6.5 billion pounds earmarked for social-housing programs over the next three years so that more of it is used in the next 12 months. Of the 1 billion pounds announced today, 300 million pounds will fund plans where local authorities take a share of the equity of houses to help people buy their first home.

Another 200 million pounds will help those facing reposession, and 100 million pounds will go for a government program from the Department of Work and Pensions to fund loan repayments of those on government benefits. About 400 million pounds will go for building low-cost housing for the poor.

``It doesn't seem like it will produce a stampede of buyers,'' said Ed Stansfield, property economist at Capital Economics in London. ``The fear that house prices have further to fall is the dominant factor. There's not really that much the government can do or arguably should do.''

Darling said he will explain how the Treasury proposes to fund it when he announces his annual pre-budget report toward the end of the year.

Union View

``This is active government at its best,'' Brendan Barber, general secretary of the 7-million-member Trades Union Congress, said in a statement. ``It will increase the supply of social housing, help those threatened by repossession and provide a real boost to low and middle income first-time buyers.''

The revival plan lifted U.K. homebuilders in London trading. Taylor Wimpey Plc, the country's largest house builder, gained as much as 13 percent, while Persimmon Plc advanced as much as 10 percent and Barratt Developments Plc as much as 8.3 percent.

The economic slump has reduced support for Labour to the lowest since the party took office in 1997. The opposition Conservative Party, led by David Cameron, widened its lead to 22 percentage points in a YouGov Plc poll finished on Aug. 21, up from 8 points at the beginning of the year.

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



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Houston Ship Channel Reopened After Gustav Passes

By Jim Polson

Sept. 2 (Bloomberg) -- The Houston Ship Channel, which serves the largest U.S. petroleum port, reopened this morning, a day after it was shut to inbound traffic as Hurricane Gustav pounded the Gulf Coast.

Port restrictions were lifted at 8:45 a.m. local time, the U.S. Coast Guard said today in a statement posted on its Web site. About 49 ships were waiting to enter Galveston Bay, which serves the ports of Houston, Texas City and Galveston, according to the statement. Three vessels were waiting to leave.

The port at Freeport, Texas, home to the ConocoPhillips Sweeny refinery, remained shut to inbound traffic, the Coast Guard said in a statement.

Houston has the second-biggest U.S. port of any kind by tonnage. The area's eight refineries have a combined processing capacity of 2.22 million barrels a day, which represents 13 percent of the U.S. total, according to their owners and the National Petrochemical and Refiners Association.

Companies with refineries served through Galveston Bay include Exxon Mobil Corp., Valero Energy Corp., BP Plc, Royal Dutch Shell Plc, and Lyondell Chemical Co.

To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net.



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Natural Gas Futures Fall as Gustav Gulf Damage Appears Limited

By Reg Curren

Sept. 2 (Bloomberg) -- Natural gas futures fell the most in seven weeks amid speculation production from offshore platforms in the Gulf of Mexico will soon resume, after Hurricane Gustav forced companies to shut output last week.

Royal Dutch Shell Plc, Total SA and ConocoPhillips plan to inspect platforms today after Gustav passed through the region yesterday. Crude oil also fell on speculation the storm did minimal damage. The Gulf accounts for about 14 percent of U.S. natural gas output.

``It's a sigh of a relief from traders that the energy industry dodged a bullet,'' said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire. ``They're taking the storm-risk premium out of the market.''

Natural gas for October delivery declined 56.3 cents, or 7.1 percent, to $7.38 per million British thermal units at 9:11 a.m. on the New York Mercantile Exchange, the biggest one-day decline since July 17. Gas touched $7.237 per million Btu, the lowest since Dec. 28.

Workers from more than 70 percent of the platforms and rigs in the Gulf were evacuated as Gustav approached, according to the U.S. Minerals Management Service. All of the area's 1.3 million barrels a day of oil and 95 percent of its gas, or 7.06 billion cubic feet, were shut.

``This also has a lot to do with the dollar,'' said Jarvis. ``As long as commodities, and especially crude, continue to sell off, the entire energy sector has downside risk.''

The dollar traded at $1.4487 per euro, 0.9 percent stronger than $1.4617 yesterday.

Crude oil fell $8.11, or 7 percent, to $107.35 a barrel. Earlier it reached as low as $105.46, the lowest since April 4.

A rising dollar can prompt investors who use commodities as an inflation hedge to exit the market.

Gas stockpiles are also above the five-year average for this time of year, suggesting there will be adequate supplies to meet winter demand.

Inventories totaled 2.757 trillion cubic feet in the week ended Aug. 22, 71 billion more than the five-year average, the U.S. Energy Department said last week.

To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net



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Colorado State Forecasters Predict Four Hurricanes in September

By Robin Stringer

Sept. 2 (Bloomberg) -- Colorado State University forecasters today predicted ``well above-average'' tropical activity in the Atlantic for September, with four of five named storms becoming hurricanes.

``We expect the month of September to be quite active,'' Phil Klotzbach, the forecast's lead author, wrote in the report. The activity is predicted to be at about 190 percent of the September average, with two of the five storms predicted to become major hurricanes of Category 3, 4, or 5. A Category 3 hurricane has sustained winds of at least 111 mph (179 kph).

Activity in August was slightly above-average, mostly because of Hurricane Gustav, which went ashore yesterday in Louisiana, according to the forecasters.

To contact the reporter on this story: Robin Stringer in New York at rstringer@bloomberg.net.



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Natural Gas Futures Fall as Gustav Gulf Damage Appears Limited

By Reg Curren

Sept. 2 (Bloomberg) -- Natural gas futures fell the most in seven weeks amid speculation production from offshore platforms in the Gulf of Mexico will soon resume, after Hurricane Gustav forced companies to shut output last week.

Royal Dutch Shell Plc, Total SA and ConocoPhillips plan to inspect platforms today after Gustav passed through the region yesterday. Crude oil also fell on speculation the storm did minimal damage. The Gulf accounts for about 14 percent of U.S. natural gas output.


``It's a sigh of a relief from traders that the energy industry dodged a bullet,'' said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire. ``They're taking the storm-risk premium out of the market.''

Natural gas for October delivery declined 56.3 cents, or 7.1 percent, to $7.38 per million British thermal units at 9:11 a.m. on the New York Mercantile Exchange, the biggest one-day decline since July 17. Gas touched $7.237 per million Btu, the lowest since Dec. 28.

Workers from more than 70 percent of the platforms and rigs in the Gulf were evacuated as Gustav approached, according to the U.S. Minerals Management Service. All of the area's 1.3 million barrels a day of oil and 95 percent of its gas, or 7.06 billion cubic feet, were shut.

``This also has a lot to do with the dollar,'' said Jarvis. ``As long as commodities, and especially crude, continue to sell off, the entire energy sector has downside risk.''

The dollar traded at $1.4487 per euro, 0.9 percent stronger than $1.4617 yesterday.

Crude oil fell $8.11, or 7 percent, to $107.35 a barrel. Earlier it reached as low as $105.46, the lowest since April 4.

A rising dollar can prompt investors who use commodities as an inflation hedge to exit the market.

Gas stockpiles are also above the five-year average for this time of year, suggesting there will be adequate supplies to meet winter demand.

Inventories totaled 2.757 trillion cubic feet in the week ended Aug. 22, 71 billion more than the five-year average, the U.S. Energy Department said last week.

To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net


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Colorado State Forecasters Predict Four Hurricanes in September

By Robin Stringer

Sept. 2 (Bloomberg) -- Colorado State University forecasters today predicted ``well above-average'' tropical activity in the Atlantic for September, with four of five named storms becoming hurricanes.

``We expect the month of September to be quite active,'' Phil Klotzbach, the forecast's lead author, wrote in the report. The activity is predicted to be at about 190 percent of the September average, with two of the five storms predicted to become major hurricanes of Category 3, 4, or 5. A Category 3 hurricane has sustained winds of at least 111 mph (179 kph).

Activity in August was slightly above-average, mostly because of Hurricane Gustav, which went ashore yesterday in Louisiana, according to the forecasters.

To contact the reporter on this story: Robin Stringer in New York at rstringer@bloomberg.net.



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Gustav Spares New Orleans; Hanna Heads for Carolinas

By Brian K. Sullivan and Alex Morales
Sept. 2 (Bloomberg) -- Gustav, now downgraded to a depression over western Louisiana, spared New Orleans the devastation wrought three years ago by Katrina, as Hurricane Hanna hit the Bahamas on a course for the Carolinas.

As a hurricane, Gustav left half of New Orleans without power as it lashed Louisiana and Mississippi, toppling trees and tearing off roofs. The city's flood defenses were intact and the death toll may have been kept to single figures, officials said. Katrina flooded 80 percent of the city and killed 1,800 people.

``We had everything coordinated. We had a good plan,'' New Orleans Mayor Ray Nagin said on CNN late yesterday. Officials are ``getting the city ready to receive its citizens again.''

Some 1.9 million people fled Louisiana's coastal areas as authorities, stung by criticism of their handling of Katrina, undertook the biggest evacuation in the state's history. Emergency workers stacked sandbags late yesterday and prevented a storm surge from overwhelming a levee south of New Orleans.

``We have stopped the bleeding,'' Billy Nungesser, president of Plaquemines Parish, about 55 miles (88 kilometers) from New Orleans, said in a statement. ``So far no homes have flooded,'' he said.

An unmanned Predator drone and a helicopter with night- vision equipment will survey the area's flood barriers, Louisiana Governor Bobby Jindal told reporters yesterday in Baton Rouge, the state capital.

Death Toll

The storm killed more than 70 people in the Dominican Republic, Haiti and Jamaica, as it passed over the Caribbean. In the U.S., seven deaths are being blamed on the storm so far, Jindal said, adding that the toll may rise.

``We're not hearing reports at this time of large numbers of fatalities or injuries,'' Jindal said. ``You are going to see severe property damage.''

The hurricane shut down all oil production in the Gulf of Mexico and 95 percent of gas production as Exxon Mobil Corp., Royal Dutch Shell Plc and other companies took safety measures, Jindal said. As much as 20 percent of oil and gas production may be restored by this weekend, he added.

Crude oil for October delivery fell as low as $105.46 a barrel, down 8.7 percent from the close of Aug. 29 on the New York Mercantile Exchange and the lowest since April 4. The contract traded at $108.44 at 12:40 p.m. London time.

Gustav's winds slowed to about 35 miles per hour shortly before 4 a.m. local time, the National Hurricane Center said. The storm was moving northwest at almost 10 mph and was about 135 miles northwest of Lafayette, Louisiana, the center said. It is forecast to cross into northeastern Texas later today.

Hanna, Ike, Depression

In the Caribbean, Hanna weakened to a tropical storm today and may regain hurricane strength tomorrow as it moves over the southeastern Bahamas, the center said in an advisory at 8 a.m. Miami time. The system, packing 70 mph winds, was near Great Inagua Island and drifting west at 2 mph. Hanna is forecast to begin moving northwest later today before possible landfall in South Carolina on Sept. 5.

Hundreds of miles east of Hanna, Tropical Storm Ike formed, while off the West Africa coast, the 10th tropical depression of the Atlantic hurricane season developed today.

Gustav tested the preparedness of authorities after Katrina, which made landfall as a Category 3 storm, killed 1,800 people in Louisiana and Mississippi and caused more than $80 billion in damage.

Corps of Engineers

The Army Corps of Engineers has worked since 2005 to strengthen the levees, which form a ring surrounding New Orleans, a city of 300,000 people that lies below sea-level. Work isn't scheduled to be complete until 2011.

Waves crashed high against some flood walls yesterday and washed over the Industrial Canal, exposing weaknesses in the system. Gustav, which came ashore at Category 2 on the five-step Saffir-Simpson scale, was less powerful than Katrina and brought a maximum storm surge of about 14 feet, some 5 feet lower than the 2005 hurricane.

After Katrina, thousands of people were forced to take shelter at the New Orleans Superdome and Convention Center. Only an estimated 10,000 people remained in the city this time to ride out the storm.

In Chauvin, close to the coast southeast of Houma, resident Miriam LeBoeuf stayed put as the eye of the storm passed over.

``My house is 5 feet off the ground, it was shaking like a freight train,'' she said by telephone yesterday. ``I have glass shelves and they shook right off the wall.''

Assessment Begins

Lafourche Parish, southwest of New Orleans, said it was beginning to assess the impact of the storm and that high winds had damaged a large number of homes and businesses. Only some residents, including law enforcement officials and medical staff, will be allowed back today, it said.

Jindal asked the federal government to release fuel from the Strategic Petroleum Reserve because about 85 percent of South Louisiana service stations don't have gasoline in their tanks.

Gustav may trigger insurance claims of as much as $10 billion, making it potentially the fourth-costliest storm to hit the U.S., according to Newark, California-based Risk Management Solutions Inc.

Insured losses on land will be between $3 billion and $7 billion and oil-drilling damage between $1 billion and $3 billion, it said. That's ``significantly smaller'' than Katrina's record $41.1 billion, Robert Muir-Wood, head of research for RMS, said in an interview on Bloomberg Television.

To contact the reporters on this story: Brian K. Sullivan in Baton Rouge at bsullivan10@bloomberg.net; Alex Morales in London at amorales2@bloomberg.net. 




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GDF to Buy FirstLight Power as Part of U.S. Expansion

By Tara Patel

Sept. 2 (Bloomberg) -- GDF Suez SA, the world's second- biggest utility, agreed to buy U.S. hydroelectricity producer FirstLight Power Enterprises Inc. from Energy Capital Partners, making it the third-largest supplier to businesses in the U.S.

FirstLight has 15 power plants, plus one under construction, with a total generating capacity of 1,538 megawatts in Massachusetts and Connecticut, the Paris-based company said today in a statement. Le Figaro newspaper said today GDF Suez paid 1.3 billion euros ($1.9 billion), citing unidentified bankers. GDF Suez Spokesman Jerome Chambin declined to give a price.

The purchase will increase GDF Suez's power-generating capacity in North America by 25 percent, adding to the 6,193 megawatts it already has, made up mostly of natural gas-fired power plants in the eastern U.S. It also has 200 megawatts of wind turbines in eastern Canada, acquired in its purchase of Ventus Energy Inc. last year, and trades liquefied natural gas through terminals in Boston and Florida.

``The strategy behind the acquisition is a good one in that it gives them generating capacity in a different form from the mostly natural gas-fired plants they already have in the U.S.,'' Thierry Bros, an analyst at Societe Generale said by telephone.

U.S. Expansion

GDF Suez shares fell as much as 1.8 percent to 39.30 euros and were trading down 0.6 percent at 39.76 euros at 1:21 p.m. in Paris. They have dropped 5.5 percent since they began trading July 22 following the merger of Gaz de France SA and Suez SA.

``FirstLight will complement GDF Suez's LNG and gas business in North America,'' the statement said, adding that the acquisition will ``strengthen the group's existing power generating assets and retail activities in New England and eastern Canada.''

FirstLight is owned by Energy Capital Partners, a private equity company with offices in Short Hills, New Jersey. The fund paid $1.34 billion in cash and debt for the generation business of Northeast Utilities and its affiliates in November, 2006, which became FirstLight Power.

FirstLight, which is based in Hartford, Connecticut, operates conventional hydro stations with a generating capacity of 216 megawatts on the Shetucket and Housatonic Rivers in Connecticut and the Connecticut River in Massachusetts, according to the company's Web site.

Hydro Power

The company also has a 1,080 megawatt pumped storage hydroelectric station in Northfield, Massachusetts as well as another 29 megawatts in New Milford, Connecticut, the web site said. It has a 146-megawatt coal-fired plant in Holyoke, Massachusetts.

Its total generation capacity is enough power for about 1.2 million average U.S. homes, based on an estimate by the Energy Department in Washington.

``FirstLight has various expansion opportunities within its portfolio and reinforces GDF Suez's power generation position in the New England market,'' the company said in a statement, adding FirstLight's assets have ``diversity'' in type and location and will complement GDF Suez's U.S. gas business.

Among GDF Suez's biggest natural gas-fired power plants in the U.S. is the Chehalis 520-megawatt plant in Washington State, the 304-megawatt Bellingham installation in Massachusetts and the Eniss and Wise County plants in Texas, which have a total output of 1,089 megawatts, company documents indicate. The gas-fired Hot Springs plant in Arkansas generates 746 megawatts.

GDF Suez yesterday reported first-half profit rose 14 percent to 3.38 billion euros on higher power and natural gas prices. The results were the first for the newly-created company, which began trading July 22 following a merger process that lasted nearly 2 1/2 years.

To contact the reporter on this story: Tara Patel in Paris at Tpatel2@bloomberg.net



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Oil to Extend Drop With U.S. in Recession, Faber Says

By Carol Massar and Alexis Xydias

Sept. 2 (Bloomberg) -- Oil will likely drop further in the next three to six months, according to investor Marc Faber, who reiterated his forecast that the second half of 2008 won't be ``favorable'' for commodities.

The decline in crude, which today slid to a five-month low, is a ``symptom'' of economic slowdowns in the U.S. and Europe, Faber, who forecast the so-called Black Monday crash in 1987, said in an interview with Bloomberg Television from Bangkok.

``In the U.S., if statistics were compiled properly, the economy would be in recession, same in Europe,'' said Faber, 62. ``Oil coming down is a symptom of economic weakness, not a symptom of strength. All I can say is we peaked out in commodity prices.''

Crude and gold led a decline in commodities today as Hurricane Gustav spared the U.S. Gulf states the destruction caused by Katrina and Rita in 2005. Economists forecast U.S. economic growth will slip to 1.5 percent this year from 2 percent in 2007, according to a Bloomberg survey.

The S&P GSCI index of 24 commodity futures has dropped as much as 7 percent in two days, to the lowest level since April 2. Oil is trading at a five-month low, 27 percent below the record $147.27 a barrel reached July 11.

Airline Stocks

Today's retreat in oil sparked a rally by U.S. airlines, with AMR Corp., American Airlines' parent company, climbing $1.65 to $11.98 in Germany. Faber said he recommended the shares two months ago even though it is a ``disastrous'' airline. Since reaching the 2008 low on July 15, AMR has more than doubled.

``In investing money you should not look only at your personal experience,'' Faber said. ``You can buy stocks of companies that are of poor quality. If they are low enough, they can rebound.''

The publisher of the ``Gloom, Boom and Doom Report'' newsletter also said investors expecting a stock market rally in Thailand will be disappointed. The country's SET Index dropped to a 19-month low today after Prime Minister Samak Sundaravej declared a state of emergency following clashes between pro- and anti-government demonstrators.

Samak issued the decree after fighting between government supporters and the People's Alliance for Democracy left one person dead and 41 injured. The People's Alliance, which is seeking Samak's resignation, has occupied the Government House, which contains the prime minister's office, since Aug. 26.

`Political Mess'

``Thailand is essentially a political mess,'' Faber said. ``The economy is not very dynamic and it will continue to kind of move ahead slowly.''

The SET Index has lost 25 percent since street protests started on May 25. Overseas investors sold a net 98 billion baht ($2.8 billion) of Thai stocks in that period.

The decline has left the SET valued at 9.9 times the earnings of its 476 companies, the cheapest since December 2006, data compiled by Bloomberg show. Dividend payouts for Thai companies in the index reached 5.12 percent of share prices today, the highest since March 2007, Bloomberg data indicate.

``Thai shares are inexpensive,'' Faber said. ``That will give some support to the market,'' he said. Still, if people ``look for a strong stock market, I think that will be misplaced.''

To contact the reporters on this story: Carol Massar in New York at cmassar@bloomberg.net; Alexis Xydias in London at axydias@bloomberg.net.



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Oil Falls to 5-Month Low as Gulf Production Prepares to Resume

By Mark Shenk

Sept. 2 (Bloomberg) -- Crude oil fell below $106 a barrel to a five-month low as energy companies prepared to resume output at platforms in the Gulf of Mexico closed by Hurricane Gustav.

Royal Dutch Shell Plc, Total SA and ConocoPhillips said they were inspecting Gulf platforms today. Oil, down more than $40 from its July record, dropped because Gustav inflicted less damage to states along the Gulf than occurred in 2005 when hurricanes Katrina and Rita stuck the region.

``This selloff is a direct result of the non-event that Gustav turned out to be,'' said Gene McGillian, an analyst at TFS Energy LLC in Stamford, Connecticut. ``This is the first test of the infrastructure along the Gulf since the damage in 2005. The initial signs are that damage was light and there won't be delays starting up production.''

Crude oil for October delivery fell $7.18, or 6.2 percent, to $108.28 a barrel at 10:02 a.m. on the New York Mercantile Exchange. Futures touched $105.46, the lowest since April 4. Prices are up 44 percent from a year ago.

Natural gas for October delivery tumbled 49.1 cents, or 6.2 percent, to $7.452 per million British thermal units in New York.

``This drop in prices kills the notion that we weren't in a bubble,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``The oil market won't turn around till the economy recovers.''

Aerial Survey

An aerial survey of oil and natural-gas platforms and rigs in the Gulf yesterday found no structural damage and no oil spills, the U.S. Coast Guard said. A flight this morning over the lower Mississippi River discovered some oil sheen, possibly from a partly sunken tugboat, Coast Guard Chief Petty Officer Adam Wine said today in an interview.

Shell, Europe's largest oil company, plans to send a limited number of workers to its platforms in the Gulf of Mexico today, the company said in a statement.

Louisiana refineries shut by Hurricane Gustav may take about 10 days to resume operations because of a lack of power, according to companies that include Marathon Oil Corp., Valero Energy Corp. and Exxon Mobil Corp.

Exxon Mobil shut Baton Rouge, its second-largest U.S. refinery, after Gustav's winds cut power to the Louisiana-based plant, according to an advisory on the company's Web site.

ConocoPhillips, the second-largest U.S. refiner, said its 247,000-barrel-a-day Alliance refinery in southern Louisiana sustained ``minor damage'' and a complete assessment of the refinery would be made later today, spokesman Bill Tanner said by telephone.

Gasoline for October delivery dropped 17.13 cents, or 6 percent, to $2.6829 a gallon in New York.

Evacuations

Workers from more than 70 percent of the platforms and rigs in the Gulf were evacuated as Gustav approached, according to the U.S. Minerals Management Service. All of the area's 1.3 million barrels a day of oil output and 95 percent of its gas production, or 7.06 billion cubic feet, were shut.

Oil's 28 percent slide from its July 11 record of $147.27 a barrel is a ``symptom'' of an economic slowdown in the U.S. and Europe and may continue over the next six months, investor Marc Faber said in a television interview in Bangkok.

Faber reiterated his forecast that the second half of 2008 won't be ``favorable'' for commodities.

The dollar rose to the highest level against the euro in almost seven months as oil fell and Federal Reserve rate cuts raised speculation that the U.S. economy will outperform Europe and Asia. The dollar increased 0.7 percent to $1.4516 per euro from $1.4617 yesterday. It touched $1.4467, the strongest level since Feb. 8.

Dollar and Oil

``A lower crude-oil price directly impacts the U.S. trade balance, which helps the dollar,'' said Tim Evans, an energy analyst with Citi Futures Perspective in New York. ``The dollar's rise can then feed into the drop in oil, which is the reverse of what occurred during the first half of the year.''

Brent crude oil for October settlement fell $2.47, or 2.3 percent, to $106.94 a barrel on London's ICE Futures Europe exchange.

The 13 members of the Organization of Petroleum Exporting Countries, will meet on Sept. 9 in Vienna to review production targets.

``Now the big question is how OPEC will respond to the drop in prices,'' Lynch said. ``It will probably be a battle between those who are looking for prices at $100 or $80. The Saudis will probably be happy with lower prices and they are the ones with the barrels.''

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.



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U.K. Pound Falls as Housing Measures Deepen Recession Concern

By Lukanyo Mnyanda and Andrew MacAskill

Sept. 2 (Bloomberg) -- The U.K. pound dropped for a sixth day against the dollar and the euro as Prime Minister Gordon Brown announced measures to reverse a plunge in property values, adding to evidence the economy is headed toward a recession.

Brown proposed spending 1 billion pounds ($1.79 billion) sooner than planned to help the housing market recover from its worst slump in at least 18 years. Britain's building industry shrank last month, a survey showed today. The pound slipped below $1.80 yesterday for the first time since April 2006 after Chancellor of the Exchequer Alistair Darling told the Guardian newspaper the U.K. faces its biggest economic slowdown in 60 years.

``The data has really been weak and the market is increasing expectations of rate cuts,'' said Marcus Hettinger, a currency strategist in Zurich at Credit Suisse Group, Switzerland's second- largest bank. ``That's undermining the pound,'' which may fall to $1.76 in ``the next couple of days,'' he said.

The pound dropped to $1.7838 as of 1:28 p.m. in London, from $1.8014 yesterday. It's the first time it has traded below $1.79 in almost 2 1/2 years. The U.K. currency slipped to 81.64 pence per euro, its lowest level since the introduction of the single currency in 1999, and was last at 81.24, from 81.13.

An index based on a survey of purchasing managers at building companies was at 40.5, compared with 36.7 in July, the lowest since the survey began in April 1997, the Chartered Institute of Purchasing and Supply and Markit said today. A reading below 50 indicates contraction.

The government suspended a tax on U.K. homes bought for less than 175,000 pounds, the Treasury said in a statement today. The exemption from stamp duty will apply for a year, starting tomorrow, it said. The measure will cost the government 600 million pounds in lost revenue over the 12 months, a Treasury official said.

Rates Outlook

Traders are paring bets on higher borrowing costs in the U.K., with the implied yield on the March short-sterling futures contract falling 39 basis points in the past month to 5.11 percent today. The Bank of England will keep the nation's key interest rate at 5 percent at a meeting in two days' time, according to a Bloomberg News survey of economists.

The world's leading central banks should keep interest rates at their current levels as they try to balance strong inflation with weak expansion, the Organization for Economic Cooperation and Development said today.

`Spring a Surprise'

``The BOE is uniformly expected to keep rates steady this week, but there has to be some chance they spring a surprise cut on the market,'' Greg Gibbs, a currency strategist at ABN Amro Holding NV in Sydney, wrote in a note today.

Ten-year gilts declined for the first time since Aug. 27, with the yield rising 8 basis points to 4.54 percent. The 5 percent security due March 2018 dropped 0.71, or 7.1 pounds per 1,000-pound face amount, to 103.45. The yield on the two-year note, which is more sensitive to interest-rate changes, climbed 7 basis points to 4.48 percent.

Yesterday, the yield on the 10-year note dropped to the lowest level since April as more investors bet the U.K. economy, the second-largest in Europe, is headed for its first recession since the early 1990s amid a worldwide credit crunch that's dried up mortgage financing and hurt consumer spending.

The notes dropped on concern Brown's package may boost government spending, requiring extra borrowing.

The Debt Management Office sold 2.25 billion pounds of gilts maturing in 2049 today. The 4.25 percent securities were sold at an average yield of 4.37 percent, according to the DMO, which manages debt sales for the Treasury. Demand exceeded supply by 1.73 times, the DMO said.

`A Lot of Supply'

``The housing package may add to the budget deficit, so that won't be good for gilts,'' said Jason Simpson, a fixed- income strategist in London at Royal Bank of Scotland Group Plc, the U.K.'s second-largest bank. ``There's a lot of supply coming through.'' The 10-year note may hold at current levels and yield 4.55 percent at year-end, Simpson said.

The pound slumped 3 percent versus the euro in the past month as the difference in yield, or spread, between 10-year gilts and German bunds of similar maturity contracted. The gilts yielded 33 basis points more than their German counterparts today, down from 69 basis points on Feb. 25, the widest this year. The spread was 49 basis points a month ago.

``The fear is the economic downturn has gained momentum,'' Hans-Guenter Redeker, the London-based global head of currency strategy at BNP Paribas SA, France's biggest bank, wrote in a research note yesterday. ``The burden of adjustment is currently falling on sterling.''

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



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Mexican Peso Tumbles to Two-Month Low Amid Rally in U.S. Dollar

By Valerie Rota

Sept. 2 (Bloomberg) -- Mexico's peso dropped to a two-month low after the U.S. dollar rallied against all major currencies amid falling prices for oil.

The peso fell 0.4 percent to 10.3811 per dollar at 9:52 a.m. New York time, compared with 10.3361 yesterday. Earlier, it touched 10.3974, its weakest since July 3.

The decline in the world's 16 major currencies against the U.S. dollar today ranged between a 0.3 percent drop in the Canadian dollar and a 2.1 percent slide in the Australian dollar as investors bet falling oil prices and seven Federal Reserve rate cuts in the past year will spur U.S. economic growth.

Crude oil declined 6.3 percent to $108.18 per barrel in trading on the New York Mercantile Exchange.

The U.S. is Mexico's biggest trading partner, buying about 80 percent of its exports.

Yields on Mexico's 10 percent bond due in December 2024 fell 4 basis points, or 0.04 percentage point, to 8.48 percent. The bond's price rose 0.38 centavo to 113.34 centavos per peso, according to Banco Santander SA.

To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net.



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Canada Dollar Declines as Crude Oil Drops, U.S. Dollar Rallies

By Chris Fournier

Sept. 2 (Bloomberg) -- Canada's currency fell after crude oil dropped to a five-month low and the U.S. dollar rose against other major currencies.

The Canadian dollar traded at C$1.0703 against its U.S. counterpart at 9:26 a.m. in Toronto, down 0.3 percent from C$1.0667 yesterday. One Canadian dollar buys 93.43 U.S. cents.

Crude oil for October delivery touched $105.46 a barrel on the New York Mercantile Exchange, the lowest since April 4, as Hurricane Gustav waned before touching down in Louisiana. Commodities, including oil, account for about half of Canada's export revenue.

``Lower crude price is one of the things causing weakness in the Canadian dollar,'' said David Watt, a senior currency strategist in Toronto at RBC Capital Markets Inc. ``Nervousness about Gustav hitting land restrained it. Now that the risk has dissipated, we're getting dollar-CAD breaking to the levels it probably was heading to late last week.'' Watt predicted Canada's currency will trade at C$1.06 by year-end.

The Canadian dollar also declined as its U.S. counterpart gained against all 16 of the most-actively traded currencies, including the euro, yen and British pound.

``It's a crude story for Canada primarily,'' said Firas Askari, head currency trader at BMO Capital Markets in Toronto. ``Gustav was more of a non-event, at least where crude is concerned.''

Canada's currency, dubbed the loonie because of the aquatic bird on the one-dollar coin, will slip to C$1.10 against the U.S. dollar by the end of 2009, according to the median forecast of economists surveyed by Bloomberg News.

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



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Dollar Rises to Highest in Almost Seven Months on Oil, Fed Cuts

By Ye Xie and Agnes Lovasz

Sept. 2 (Bloomberg) -- The dollar rose to the highest level against the euro in almost seven months as oil fell and Federal Reserve rate cuts raised speculation that the U.S. economy will outperform Europe and Asia.

The pound fell to a two-year low versus the greenback on evidence a recession in the U.K. is looming. Australia's dollar fell to the weakest level in almost a year after the country's central bank cut interest rates for the first time since 2001 and said economic growth will slow.

``Lower oil and a stronger dollar have reinforced each other,'' said Mike Moran, senior currency strategist at Standard Chartered Bank in New York.

The dollar increased 0.7 percent to $1.4516 per euro at 10:07 a.m. in New York, from $1.4617 yesterday. It touched $1.4467, the strongest level since Feb. 8. Standard Chartered raised its forecast for the dollar to $1.44 per euro by year-end and $1.36 by the end of the first quarter, compared with previous forecasts of $1.49 and $1.42. The U.S. currency rose 0.9 percent to 109.13 yen, from 108.14 yesterday. The euro advanced 0.3 percent to 158.45 yen, from 157.95.

The greenback's 6 percent gain versus the euro in August was its biggest monthly advance since the 15-nation currency was introduced in 1999. Investors bought four times as many dollars in August compared with the average over the previous 12 months, according to Bank of New York Mellon Corp., a custodian of more than $23 trillion in assets.

`Dollar Is Cheap'

``The dollar is cheap,'' said Roddy MacPherson, an Edinburgh-based fund manager at Scottish Widows Investment Partnership Ltd., which manages about $165 billion. ``The U.S. has been quite preemptive in bringing rates down, and that bodes better for the U.S. relative to many other countries.''

The Fed has cut the target rate for overnight lending between banks seven times from 5.25 percent in September 2007 to 2 percent. Policy makers next meet Sept. 16.

Central bank policy makers agreed in August that their next change in interest rates will be to raise them, while reaching no conclusion on the timing of such a decision, according to minutes of their Aug. 5 meeting released last week.

The Institute for Supply Management's factory index fell to 49.9 last month from 50.0 the prior month, the Tempe, Arizona- based group reported today. The ISM gauge has hovered near 50, the dividing line between expansion and contraction, for the past year.

The ECB will hold its main refinancing rate at a seven-year high of 4.25 percent at its meeting Sept. 4, according to all but one of the 53 analysts surveyed by Bloomberg News. Jay Bryson, global economist at Wachovia Corp. in Charlotte, North Carolina, forecasts a cut of a quarter-percentage point.

Weaker Pound

The pound fell as much as 1.3 percent to $1.7783, the lowest level since April 2006. U.K. mortgage approvals dropped to the lowest level in nine years and manufacturing contracted, reports showed yesterday. The pound depreciated as much as 0.6 percent to 81.64 pence per euro, the weakest since the European currency's debut.

The Bank of England will keep the target lending rate unchanged at 5 percent on Sept. 4, according to all of the 61 economists surveyed by Bloomberg News.

The ICE futures exchange's Dollar Index, which gauges the greenback against the currencies of six major U.S. trading partners, rose as much as 0.9 percent to 78.310 today, the highest level since October.

Crude oil for October delivery fell today as much as 8.7 percent to $105.46 a barrel, the lowest level since April. The euro-dollar exchange rate and oil had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.

Dollar and Oil

``Oil is becoming an increasingly important factor for the dollar,'' said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly listed lender. ``The dollar could rally further should oil break below $110.''

BNP Paribas SA currency strategist Ian Stannard raised his year-end forecasts for the dollar against the euro and the pound. He said the dollar will rise to $1.42 versus the 15- nation euro and $1.71 against the pound by year-end, compared with his earlier prediction of $1.45 and $1.88.

The Australian dollar fell as much as 2.8 percent to 82.70 U.S. cents, the lowest level since September 2007, after the Reserve Bank of Australia lowered the overnight cash target rate by a quarter-percentage point to 7 percent.

The Aussie may decline to 80 U.S. cents in the next two months after dipping below a so-called cloud on its weekly ichimoku chart, said Kengo Suzuki, a currency strategist at Shinko Securities Co. in Tokyo.

Support at 80 U.S. cents is near the 76.4 percent retracement of its advance from its October 2006 low of 74.16 cents to its July high of 98.49 cents, according to a series of numbers known as the Fibonacci sequence.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Agnes Lovasz in London at alovasz@bloomberg.net



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Palm Oil Falls After Crude Slumps as Storm Damage Concern Eases

By Jae Hur and Thomas Kutty Abraham

Sept. 2 (Bloomberg) -- Palm oil dropped the most in a week as crude oil plunged, reducing demand for alternative fuel made from vegetable oils, including the tropical commodity.

Crude oil fell to a five-month low after oil producers and refiners prepared to restart output from rigs closed by Hurricane Gustav, which passed the U.S. Gulf Coast without causing major damage. Soybean oil, which competes with palm oil in usage for food and biofuel, declined as much as 4.5 percent to the lowest in more than two weeks.

Crude oil drove the palm oil market down ``and it's really a function partly of the dollar's strength that is driving oil prices and commodities lower,'' said James Gruber, an analyst at CLSA Asia Pacific Markets in Jakarta. ``Secondly, there's demand concern due to weakening economic growth globally.''

Palm oil for November delivery slumped 5.2 percent to 2,484 ringgit ($725) in Kuala Lumpur, the most since Aug. 26. Earlier, the futures fell as low as 2,434 ringgit, extending a 14 percent decline in August, the second straight monthly drop.

The price of the tropical oil has fallen 45 percent from a record 4,486 ringgit on March 4. The Malaysian market was closed yesterday for the National Day holiday.

IOI Corp., Malaysia's second-biggest palm oil grower, fell 2.4 percent to 4.98 ringgit in Kuala Lumpur trading. Its bigger rival Sime Darby Bhd. lost 2.2 percent to 6.65 ringgit.

Golden Agri-Resources Ltd., a unit of Sinar Mas Group, Indonesia's largest oil-palm grower, fell 5.6 percent to 59.5 Singapore cents.

Palm oil may fall to less than 2,425 ringgit ($709) a ton if crude falls below $100 a barrel, Malaysian Plantation Industries and Commodities Minister Peter Chin Fah Kui said.

Further Decline

If ``petroleum is going to come down further, there will be a chance that palm oil will also follow because the graph tracks each other,'' Chin told reporters today in Kuala Lumpur. Still, the current range of 2,500 ringgit to 3,000 ringgit would be ``comfortable'' for growers, he said, echoing recent comments.

The decline in palm oil prices may prompt the government to review a special tax on domestic producers such as IOI Corp. and Sime Darby Bhd. as the band in which the levy is payable has narrowed, hurting collection, Chin said.

Soybean oil for December delivery on the Chicago Board of Trade was down 4.5 percent at 51.77 cents per pound after dipping to 51.74 cents, the lowest since Aug. 15. The Chicago market was closed yesterday for the Labor Day holiday.

The dollar rose as high as $1.4467 per euro, the highest since Jan. 21. Crude oil fell as much as 8.7 percent from the Aug. 29 close to $105.46 a barrel, the lowest since April 4.

Malaysian Exports

Exports of Malaysian palm oil rose 8 percent in August, compared with the previous month, according to independent surveyor Intertek. A total of 1.49 million metric tons of palm oil exports were tracked in August, Intertek said in a report today. Malaysia exported 1.38 million tons in July, it said.

Indonesia's state marketing center accepted bids for 8,500 metric tons of the 14,000 tons of palm oil offered in a tender today, Aziz Kahar, head of sales, said from Jakarta.

To contact the reporters on this story: Jae Hur in Singapore at jhur1@bloomberg.net; Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net



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Copper Falls to Seven-Month Low on Dollar's Rally, Oil's Slump

By Millie Munshi

Sept. 2 (Bloomberg) -- Copper tumbled to a seven-month low as the dollar's rally and plunging energy prices reduced demand for commodities as a hedge against inflation.

The dollar rose as much as 0.9 percent against a basket of the euro, yen and four other major currencies, heading for the fourth straight gain. Crude oil plummeted as much as 8.7 percent. Before today, copper gained 11 percent this year on demand for raw materials as alternative assets.

``Weaker energy prices and a stronger dollar are weighing on copper,'' Edward Meir, an analyst at MF Global Ltd. in Darien, Connecticut, said in a report. ``The wheels seem to be coming off the commodity markets.''

Copper futures for December delivery declined 7.2 cents, or 2.2 percent, to $3.2355 a pound at 9:29 a.m. on the Comex division of the New York Mercantile Exchange. The price earlier touched $3.159, the lowest for a most-active contract since Jan. 28.

The Reuters/Jefferies CRB Index dropped as much as 4.2 percent.

On the London Metal Exchange, copper for delivery in three months dropped $137, or 1.9 percent, to $7,168 a metric ton ($3.25 a pound). Before today, the price declined 2.1 percent in the past 12 months.

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



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Corn, Soybeans Drop as Oil Dips on Reduced Storm Damage Concern

By Jae Hur

Sept. 2 (Bloomberg) -- Corn plunged by the trading limit and soybeans tumbled as oil fell after Hurricane Gustav passed the U.S. Gulf Coast without causing major damage, driving the dollar up and reducing demand for the crops as an alternative investment.

Crude oil slumped to the lowest in five months after Gustav was downgraded to a Category 2 hurricane before it crossed the coast and weakened as it moved inland, reducing concern of major damage to rigs and refineries. The dollar rose to its highest since February against the euro.

``The sharp drop in crude prices is the driving factor behind the weakness in grains markets today,'' Toby Hassall, an analyst at Commodity Warrants Australia in Sydney, said by e- mail. ``The impact of Gustav was far less traumatic to the Gulf coastline than many had expected. The fear premium that had been built into crude prices was hastily wiped away.''

Corn for December delivery fell as much as 30 cents, or 5.1 percent, to $5.55 a bushel, the lowest since Aug. 18, in after- hours electronic trading on the Chicago Board of Trade. The contract was at $5.5725 at midday London time. The price has fallen 30 percent from a record $7.9925 on June 27. The Chicago market was closed yesterday for the Labor Day holiday.

Soybeans for November delivery fell as much as 69 cents, or 5.2 percent, to $12.55 a bushel, the lowest since Aug. 18, and last traded at $12.565. Futures have declined 23 percent from a record $16.3675 on July 3.

Brazil, the world's second-biggest soybean producer exported 2.36 million metric tons of the oilseed in August, down 12 percent from a year earlier, the Trade Ministry said yesterday on its Web site.

Dollar Gains

The dollar rose as high as $1.4485 per euro, the highest since Feb. 11. Crude oil fell as much as 8.7 percent from the Aug. 29 close to $105.46 a barrel, the lowest since April 4.

Wheat for December delivery fell as much as 40.25 cents, or 5 percent, to $7.61 a bushel, before trading at $7.675 a bushel at midday in London. The contract lost 10 percent last week, the biggest drop since March 21. Futures fell 43 percent from a record $13.495 on Feb. 27.

Australia, forecast to be the world's third-largest wheat exporter, may get rain this week in grain growing areas, with heavier falls expected in the nation's west, the National Climate Center said.

Western Australia, the country's biggest wheat grower, may get between 15 millimeters (0.6 inch) and 25 millimeters of rain, with rainfall above 25 millimeters in some parts, Shoni Dawkins, climatologist with the center said yesterday from Melbourne. Other grain growing regions will get 5-10 millimeters, he said.

Dry weather in August in the country had raised concern production may be limited in some areas. Grain growers need rain between now and the harvest, starting about November, to boost yields.

To contact the reporter on this story: Jae Hur in Singapore at jhur1@bloomberg.net



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Gold Declines for Third Day as Crude Oil Slips, Dollar Rallies

By Rachel Graham

Sept. 2 (Bloomberg) -- Gold fell the most in more than two weeks in London as the dollar strengthened and crude oil slid, reducing demand for the metal as an alternative investment and inflation hedge. Platinum also dropped.

The dollar rose to its highest in almost seven months against the euro on speculation oil prices at a five-month low will support economic growth in the U.S.

``Oil is dropping and taking all the commodities with it,'' Narayan Gopalakrishnan, a Geneva-based trader at MKS Finance, one of Switzerland's four bullion refiners, said by phone. ``If it continues, we will revisit lows in precious metals.''

Gold for immediate delivery fell as much as $26.46, or 3.2 percent, to $791.24 an ounce, the biggest daily decline since Aug. 15. It traded at $791.24 an ounce as of 2:04 p.m. in London.

Gold futures for December dropped $33.20, or 4 percent, to $802 an ounce in electronic trading on the Comex division of the New York Mercantile Exchange.

``If the dollar remains as strong as it is at the moment, we could see the $777 low from mid-August retested,'' Mario Innecco, a futures broker at MF Global Ltd. in London, wrote in an e-mail today. ``It could quite easily go there in the next day or two.''

Crude dropped as much as 8.7 percent in New York after Hurricane Gustav passed the U.S. Gulf Coast without causing major damage to offshore platforms. Yesterday's electronic trading is combined with today's for settlement purposes because of the U.S. Labor Day holiday.

``Oil is down so gold is under pressure,'' Afshin Nabavi, a senior vice president at MKS Finance SA, one of Switzerland's four bullion refiners, said by phone from Geneva.

Tradewaves Target

Tariq Mahmood, a Dubai-based technical analyst at online trader Global Tradewaves Ltd., said he expects gold to extend its decline.

``We have a short position and our target is $790,'' Mahmood said by phone from Dubai. A short position is a bet that prices will fall.

India and Turkey increased gold imports in August.

India, the world's biggest buyer of bullion, increased gold imports in August for the first time in 11 months as a decline in prices boosted demand for jewelry.

Purchases were about 98 to 100 metric tons, compared with 64 tons in the year-ago month, according to provisional data from the Bombay Bullion Association Ltd., a grouping of 230 traders.

Turkish gold imports advanced 70 percent to 47.2 metric tons in August, from a year ago, as prices fell.

The country has imported 133.9 tons of gold so far this year, the Istanbul Gold Exchange said on its Web site today. Turkey imported 230.8 tons last year, making it the world's fourth-biggest buyer of the metal.

Platinum, used in car exhaust systems, fell for a second day, dropping $62.50, or 4.3 percent, to $1,383 an ounce.

Japanese Cars

Platinum is trading lower on ``signs of slowing Japanese auto sales,'' James Moore, an analyst at TheBullionDesk.com, wrote today in a report.

Japanese domestic auto sales had their biggest monthly drop in almost 10 years, the Japan Automobile Dealers Association said yesterday.

Sales of cars, trucks and buses, excluding minicars, fell 15 percent to 193,902 last month from a year earlier, the group said. The drop, the most since December 1998, was amplified by two fewer business days compared with the year-earlier period.

ETF Securities Ltd., a provider of contracts tracking commodities, said its physical platinum fund attracted investment last week for the first time in eight weeks.

ETFS Physical Platinum attracted $2.9 million in investment in the week ending Aug. 29, ETF Securities said in a report today. ``There appears to be a turnaround in sentiment towards platinum, one of the hardest hit commodities in the recent commodity price correction,'' the report said.

Among other metals for immediate delivery, silver dropped 75.50 cents, or 5.6 percent, to $12.69 an ounce and palladium fell $8.75, or 2.9 percent, to $293 an ounce.

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



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Germany's DAX Index Gains, Led by Daimler, Lufthansa, Infineon

By Henrietta Rumberger

Sept. 2 (Bloomberg) -- German stocks rose to a three-week high as a decline in crude oil eased concern higher fuel prices will spur inflation and curb earnings at carmakers and airlines.

Daimler AG and Deutsche Lufthansa AG rallied as crude traded near a five-month low. Infineon Technologies AG climbed the most in a month after the Digitimes reported Micron Technology Inc. may buy its memory-chip unit. Deutsche Boerse AG rose the most in four months.

The DAX Index advanced 89.44, or 1.4 percent, to 6,511.24 as of 12:44 p.m. in Frankfurt. DAX futures expiring in September increased 1.4 percent to 6,522.5. The HDAX Index of the country's 110 biggest companies also rose 1.4 percent.

``One of the most important influences for the market at the moment is the oil price,'' said Matthias Jasper, head of equities at WGZ Bank in Dusseldorf. ``Stocks like Infineon and Deutsche Boerse are driven by the individual news that helps the shares.''

The benchmark index for German equities has declined 19 percent this year on concern higher oil prices, accelerating inflation and more than $500 billion in credit-related losses will curb consumer spending and slow global economic growth.

Crude oil traded near its lowest in five months as producers and refiners prepared to restart output at facilities after Hurricane Gustav passed the U.S. Gulf Coast without causing major damage to offshore platforms.

Daimler, the world's second-largest luxury carmaker, gained 2.15 euros, or 5.3 percent, to 42.72 euros and Lufthansa, Europe's second-largest airline, increased 71.5 cents, or 4.8 percent, to 15.72 euros. Metro AG, Germany's largest retailer, rose 1.47 euros, or 3.8 percent, to 39.76 euros.

Infineon

``The drop in oil prices is good news for inflation,'' Joerg de Vries-Hippen, who oversees about $26 billion as chief investment officer for European stocks at Allianz Global Investors in Frankfurt, said in a Bloomberg Television Interview today. ``This creates a friendly environment for the moment.''

Infineon jumped 35 cents, or 5.9 percent, to 6.25 euros. Buying Qimonda would hand Micron the stake in Taiwan's Inotera Memories Inc. and let it license its technologies to the Taiwanese chipmaker, the Taipei-based, Chinese-language Digitimes newspaper said, without saying where it got the information.

Infineon, Europe's second-biggest maker of semiconductors, is the biggest shareholder of unprofitable Qimonda, with a 77.5 percent stake. Inotera is a computer-memory chipmaking venture between Qimonda and Taiwan's Nanya Technology Corp.

Deutsche Boerse, operator of the Frankfurt Exchange, climbed 4.22 euros, or 6.6 percent, to 68.11 after Atticus Capital LLC and Children's Investment Fund Management LLP, the two largest investors in Deutsche Boerse, said they may push for new management at the company that operates the Frankfurt Stock Exchange.

``Deutsche Boerse is jumping on the Atticus and TCI news,'' said Thomas Nagel, a trader at Equinet AG in Frankfurt. ``It seems that the two investors have mutated from short-term oriented investors to long-term investors.''

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

BASF SE (BAS GY) increased 65 cents, or 1.7 percent, to 40.07 euros. The world's biggest chemical producer and U.S.-based Reike Metals Inc. will sell a new product to be used in pharmaceutical and agricultural applications.

Hochtief AG (HOT GY) rose the most in more than a week, climbing 1.68 euros, or 3 percent, to 58.56 euros. Germany's biggest builder won 221 million euros ($321 million) in orders to strengthen a bridge and expand a refinery in Australia.

Lanxess AG (LXS GY) advanced 1.14 euros, or 4.4 percent, to 27.22 euros. The world's second-largest maker of butyl rubber used in tires raised its prices for synthetic rubber grades used in the automotive and mechanical engineering industries.

Repower Systems AG (RPW GY) lost 6.60 euros, or 2.8 percent, to 228.30 euros. Tulsi Tanti, the billionaire founder of Suzlon Energy Ltd., has submitted a request to the wind-turbine builder on a control and profit transfer agreement with SE Drive Technik GmbH, a subsidiary of the Suzlon group. A control and profit transfer agreement would result in the management of Repower being assumed by the majority shareholder, Repower said in an e- mailed statement.

Outside shareholders will receive an annual compensatory payment in accordance with Article 304 of the German Stock Corporation Act, according to the statement.

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



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Crude Oil, Gold, Copper Lead Decline in Commodities in London

By Chanyaporn Chanjaroen

Sept. 2 (Bloomberg) -- Crude oil led a decline in commodities as Hurricane Gustav spared the U.S. Gulf states the destruction caused by Katrina and Rita in 2005.

Oil slid to a five-month low in New York and gasoline dropped 13 percent, easing concern that inflation will choke global economic growth and pushing copper, gold and soybeans lower. The dollar's rally to close to a seven-month high against the euro also undermined commodities priced in the U.S. currency.

``Oil is the driver of today's declines in commodities, reflecting the lack of appetite from investors,'' Frederic Lasserre, head of commodities research at Societe Generale, said today by phone from Paris.

The S&P GSCI index of 24 commodity futures, down as much as 7 percent in two days, has fallen more than 25 percent from its July 3 all-time high. Lower raw-materials prices may help ease inflation, which accelerated to more than a 17-year high in the U.S. in July and a 16-year high in the euro zone.

``We peaked out,'' said Marc Faber, who forecast in June that commodities would start to fall. ``We'll have to see whether it's a short-term peak or a long-term peak.''

Spiraling food and energy prices prompted the World Bank in June to forecast global growth would slow to 2.7 percent this year from 3.7 percent in 2007.

Any slowdown in consumption in the U.S., the world's largest user of oil, would hurt manufacturing countries that rely on exports to power their emerging economies, Faber said today from Bangkok in a Blooomberg Television interview. The U.S. is second to China in terms of industrial-metals consumption.

Crude oil for October delivery fell as low as $105.46 a barrel on the New York Mercantile Exchange, 8.7 percent less than on Aug. 29. Natural gas for October delivery dropped 8 percent to $7.308 per million British thermal units.

Gulf Inspections

Gasoline futures slumped as low as $2.6082 a gallon, the lowest since April 1, and traded at $2.6690 as of 2:25 p.m. London time.

Today's U.S. trading is combined with yesterday's for settlement purposes because of the Labor Day holiday.

Workers from more than 70 percent of the platforms and rigs in the Gulf were evacuated as Gustav approached. All of the area's 1.3 million barrels a day of oil and 7.06 billion cubic feet of gas, 95 percent of the total, was shut. Royal Dutch Shell Plc, Total SA and ConocoPhillips said they were inspecting offshore U.S. Gulf platforms today.

``There have been specific things to energy and oil bringing prices lower but they have also been caught up in the general demand destruction story, as the U.S. virus spreads globally,'' said Michael Lewis, analyst at Deutsche Bank in London.

`Vulnerable' Downside

Gold for immediate delivery fell as much as $26.46, or 3.2 percent, to $791.24 an ounce, the biggest decline since Aug. 15. Gold dropped as lower oil prices diminished the appeal of the metal as a hedge against inflation.

The precious metal, which also tends to weaken when the dollar strengthens against the euro, has lost 23 percent from a record $1,032.70 an ounce traded March 17. A decline of more than 20 percent is the common definition of a bear market.

Most commodities are priced in dollars and some investors buy them as a hedge against further weakness in the U.S. currency.

``In the short term, gold's direction will be determined by the moves in crude oil and -- barring currently unapparent damage to Gulf of Mexico production facilities or local refining operations -- the downside appears vulnerable,'' John Reade, the head of metals strategy at UBS AG in London, wrote in a report.

On the London Metal Exchange, copper for delivery in three month fell as much as 2.4 percent to $7,128 a metric ton, the lowest intraday price since Aug. 12. Stockpiles of the metal tracked by the bourse rose 3.5 percent to 179,800 tons, the highest since Jan. 21, indicating slower demand growth.

Supply Speculation

Zinc dropped for a second day on speculation supplies from mines will expand faster than demand into next year. The metal dropped $35, or 2 percent, to $1,745 a ton.

Yunnan Chihong Zinc & Germanium Co., China's fifth-biggest zinc producer, said it wasn't affected by the Aug. 30 earthquake in Sichuan province and Nyrstar NV, the world's largest zinc producer, said its U.S. smelter in Tennessee is unaffected by Hurricane Gustav.

``The main problem with zinc is a perception of oversupply,'' said Dan Smith, a metals analyst at Standard Chartered Plc in London.

Corn for December delivery fell as much as 30 cents, or 5.1 percent, to $5.55 a bushel, the lowest since Aug. 18, in after- hours electronic trading on the Chicago Board of Trade. Soybeans also slumped.

``The sharp drop in crude prices is the driving factor behind the weakness in grains markets today,'' Toby Hassall, an analyst at Commodity Warrants Australia in Sydney, said by e- mail. ``The fear premium that had been built into crude prices was hastily wiped away.''

Cocoa for December delivery, the most actively traded contract, fell as much as 61 pounds, or 3.8 percent, to $1,557 pounds ($2,771) a ton on the Liffe exchange in London.

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



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U.K. Stocks Climb, Led By Travel Companies, Retailers on Oil

By Sarah Thompson and Sarah Jones

Sept. 2 (Bloomberg) -- U.K. stocks rose after a slump in crude oil boosted the earnings prospects for travel-related companies and retailers. Carnival Plc, the world's largest cruise line operator, and Next Plc advanced.

Taylor Wimpey Plc led banks and homebuilders higher after Prime Minister Gordon Brown suspended a homebuyer tax and proposed spending 1 billion pounds ($1.8 billion) to help reverse Britain's worst housing slump in at least 18 years.

The FTSE 100 Index rose 15.2, or 0.3 percent, to 5,618 at 11:37 a.m. in London. The measure earlier fell as much as 0.5 percent. The FTSE All-Share Index gained 0.4 percent. Ireland's ISEQ Index added 3.4 percent.

``The drop in the oil price is having a big effect on the market,'' said James Hughes, a London-based analyst at CMC Markets. Homebuilders are also getting a boost ``from Brown's measures. We are seeing some much needed upside for the sector.''

Carnival climbed 4.4 percent to 1,975 pence. British Airways Plc, Europe's third-largest airline, rallied 6.3 percent to 278.25 pence. Next Plc, the U.K.'s second-largest fashion retailer, added 6.2 percent to 1,139 pence.

Crude oil traded near its lowest in five months as producers and refiners prepared to restart output at facilities after Hurricane Gustav passed the U.S. Gulf Coast without causing major damage to offshore platforms.

Taylor Wimpey Plc, the U.K.'s largest housebuilder, jumped 9.4 percent to 61.25 pence after the British Prime Minister suspended a homebuyer tax and proposed spending 1 billion pounds sooner than planned, to help people buy new homes and support those struggling to pay their mortgages.

Rival homebuilder Persimmon Plc surged 9.5 percent to 422 pence. Barratt Developments Plc gained 6.6 percent to 166.25 pence.

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

Asos Plc (ASC LN) lost 10.75 pence, or 2.6 percent, to 406.75. The U.K.'s second-largest online clothes retailer was cut to ``hold'' from ``buy'' at Citigroup Inc.

BowLeven Plc (BLVN LN) soared 32 pence, or 13 percent, to 285. The U.K. company that explores for oil and natural gas in Cameroon said the discovery at its Etinde Permit IF-1r well holds at least 76 million barrels of oil and as much as 249 million barrels.

Dechra Pharmaceuticals Plc (DPH LN) gained 16.5 pence, or 3.9 percent, to 438.75. The U.K.'s third-biggest veterinary drugs and services company reported full-year revenue of 304.4 million pounds and said it's ``confident'' for the future.

Premier Oil Plc (PMO LN) dropped 83 pence, or 6.9 percent, to 1,127 after Royal Bank of Scotland Group Plc lowered its recommendation for the U.K. explorer to ``hold'' from ``buy'' and cut its share price estimate to 1,290 pence from 2,015 pence.

Serica Energy Plc (SQZ LN) added 0.75 pence, or 1.1 percent, to 70 pence. The London-based energy explorer with projects in Europe and Southeast Asia said RWE AG will help finance oil and natural-gas exploration in an area off the west coast of Ireland.

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



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European Stocks Gain as Oil Slumps; British Airways Advances

By Adam Haigh

Sept. 2 (Bloomberg) -- European stocks climbed to a three- week high after oil's decline eased concern rising fuel costs will spur inflation and curb earnings at airlines and retailers.

British Airways Plc, Europe's third-largest carrier, rallied 6.1 percent and Metro AG, Germany's biggest retailer, gained for a fourth day as crude traded at a five-month low. Taylor Wimpey Plc and Persimmon Plc led an advance in U.K. builders, jumping more than 9 percent each, after Prime Minister Gordon Brown suspended a homebuyer tax and brought forward 1 billion pounds ($1.8 billion) of spending.

The Dow Jones Stoxx 600 Index added 1.3 percent to 290.86 as of 2:36 p.m. in London, the highest since Aug. 12. The measure has lost 20 percent this year on concern more than $500 billion in writedowns and credit losses at the world's largest banks and record crude prices will drag down global economic growth and drive up inflation.

``Inflation is coming off and of course oil prices are a part of that,'' said Nick Nelson, a London-based European equity strategist at UBS AG. Inflation in the euro zone and in the U.K. has ``peaked,'' he added.

Inflation in the euro zone dropped to 3.8 percent from 4 percent last month, according to a report on Aug. 29. Economists had forecast the rate would remain unchanged at a 16-year high. U.K. July inflation accelerated to 4.4 percent from a year earlier, a report on Aug. 12 showed.

National indexes increased in all 18 western European markets except Norway as oil companies weighed on the country's benchmark. The U.K.'s FTSE 100 climbed 0.4 percent, and France's CAC 40 increased 1.5 percent. Germany's DAX added 1.6 percent.

Consumer Shares

Carrefour SA, the world's second-largest retailer, and Carnival Corp., the biggest cruise-line company, also led gains among consumer-related companies as oil's slide eased concern that higher fuel bills will curb spending.

The dollar climbed to its highest since February against the euro on speculation lower oil prices will support economic growth in the U.S., the biggest energy consumer. The U.S. currency rose to $1.7783 versus the pound, the strongest since April 2006.

British Airways rallied 6.1 percent to 277.75 pence. Deutsche Lufthansa AG, Europe's second-biggest airline, climbed 5.2 percent to 15.79 euros.

Crude oil sank to as low as $105.46 a barrel in New York as producers and refiners prepared to restart output and started assessing the damage to production facilities after Hurricane Gustav struck the U.S. Gulf Coast.

`Stabilization'

Metro added 3.2 percent to 39.50 euros, while Carrefour gained 4.4 percent to 36.94 euros. Carnival jumped 4.4 percent to 1,975 pence.

``The decline in the oil price is benefiting shares that are sensitive to it,'' said Guillaume Chaloin, a fund manager at Meeschaert Asset Management, which oversees about $3.9 billion in stocks in Paris. ``We're in a phase of stabilization'' of oil.

Taylor Wimpey, Britain's largest house builder, rallied 9.4 percent to 61.25 pence, while Persimmon surged 11 percent to 427.5 pence.

Residential properties costing less than 175,000 pounds will be exempt from stamp duty for a year under plans announced by the Treasury today. The government also will help 16,000 people struggling to meet mortgage payments and another 10,000 to buy their first home.

Bank shares were buoyed by confirmation from Korea Development Bank Chief Executive Officer Min Euoo Sung that the lender is in talks to buy a stake in Lehman Brothers Holdings Inc., the fourth-biggest U.S. securities firm.

UBS, SocGen

Matthew Russell, a Hong Kong-based spokesman for Lehman, declined to comment.

UBS AG, the hardest hit by the contagion from the U.S. subprime crisis, added 2.3 percent to 24.96 Swiss francs. Societe Generale SA, France's second-largest bank, gained 3.3 percent to 68.15 euros.

Infineon Technologies AG, Europe's second-biggest maker of semiconductors, rallied 6.2 percent to 6.27 euros. Micron Technology Inc. may buy the company's Qimonda AG memory-chip unit, Digitimes reported, without saying where it got the information. Infineon spokesman Guenter Gaugler wouldn't comment on the report.

Bulgari SpA gained 5.5 percent to 7.43 euros. Morgan Stanley upgraded the shares to ``overweight'' from ``equal-weight,'' saying the world's third-largest jeweler is its preferred pick in a sector where it has adopted a ``cautious'' view.

Raw-materials producers led declining shares in the Stoxx 600, following crude, gold and copper prices lower. Rio Tinto Group, the world's third-largest mining company, lost 4.2 percent to 4,800 pence. BHP Billiton Ltd., the biggest, retreated 4.4 percent to 1,576 pence.

Royal Dutch Shell Plc, Europe's biggest oil company, slipped 1.3 percent to 1,862 pence. StatoilHydro ASA, Norway's largest oil and gas producer, dropped 3.8 percent to 154.2 kroner.

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



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Canada Stocks Drop, Led by Suncor Energy, Potash, Goldcorp

By John Kipphoff

Sept. 2 (Bloomberg) -- Canadian stocks fell for the first time in five days, as commodity producers including Suncor Energy Inc. and Potash Corp. of Saskatchewan Inc. slid along with retreating oil, metals and grain prices.

The Standard & Poor's/TSX Composite Index dropped 1.6 percent to 13,550.98 at 9:45 a.m. in Toronto after rising in the previous four sessions.

Canada's main equity benchmark, which derives three- quarters of its value from energy, materials and financial stocks, advanced 3.2 percent in August, its first monthly increase since May.

Suncor Energy, the world's second-largest producer of crude from tar sands, dropped 7.5 percent to C$56.21. Canadian Natural Resources Ltd., the nation's fourth-largest energy company by market value, fell 5.2 percent to C$85.89.

Potash, the world's largest producer of the crop nutrient, slid 4.6 percent to C$176.23.

Goldcorp, the second-biggest bullion mining company by market value, slumped 6.7 percent to C$33.67.

Research In Motion Ltd., the maker of The BlackBerry e-mail phone, rose 2.6 percent to C$132.72, gaining for the first time in three days.

To contact the reporter on this story: John Kipphoff in Montreal at jkipphoff@bloomberg.net.



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U.S. Stocks Climb as Oil Falls; Delta Air Lines, Lehman Advance

By Lynn Thomasson

Sept. 2 (Bloomberg) -- U.S. stocks rallied after Hurricane Gustav spared energy facilities in the Gulf of Mexico, sending oil to a five-month low and improving the earnings outlook for airlines and retailers.

Delta Air Lines Inc. and United Airlines' parent UAL Corp. rose more than 18 percent and Macy's Inc. climbed 5 percent after crude retreated below $110 a barrel. Lehman Brothers Holdings Inc. gained 7.3 percent as Korea Development Bank said it will buy a stake in the fourth-largest U.S. securities firm, while Bank of America Corp. advanced 5.9 percent after Goldman Sachs Group Inc. said the company won't have to issue common shares to raise capital.

The drop in oil ``trickles down to the consumer and it also lowers expectations with respect to inflation,'' Scott Richter, who helps oversee about $21 billion at Fifth Third Asset Management in Cleveland, said in a Bloomberg Television interview. ``That's good for the market.''

The Standard & Poor's 500 Index gained 14.92, or 1.2 percent, to 1,297.75 at 9:34 a.m. in New York. The Dow Jones Industrial Average added 194.1, or 1.7 percent, to 11,737.65. The Nasdaq Composite Index rose 33.87, or 1.4 percent, to 2,401.39. Almost four stocks climbed for each that fell on the New York Stock Exchange.

The S&P 500 added to its biggest monthly advance since April and extended its gain in the third quarter to 1.4 percent as eight of ten of its major industry groups increased. The U.S. market was closed yesterday for the Labor Day holiday.

Oil Slides

Crude oil for October delivery fell as low as $105.46 a barrel today, down 8.7 percent from the close of Aug. 29 on the New York Mercantile Exchange, after Hurricane Gustav passed the U.S. Gulf Coast without causing major damage to offshore platforms. The fuel reached the lowest since April 4.

Oil will likely drop further in the next three to six months, said investor Marc Faber in a Bloomberg Television interview today. He favors shares of AMR Corp., American Airlines' parent company, even if the air carrier is ``disastrous.''

Lehman added 7.3 percent to $17.27. Korea Development Bank is in talks to buy a stake in the securities firm, Chief Executive Officer Min Euoo Sung said, as Asian investors shore up Wall Street firms beaten down by the global credit squeeze.

``I cannot comment further,'' said Min, who headed Lehman's Seoul branch before joining the Korean bank in June. Matthew Russell, a Hong Kong-based spokesman for Lehman, declined to comment.

Bank of America

Bank of America Corp. climbed $1.85 to $32.99. Goldman Sachs Group Inc. analysts recommended buying shares of the second- largest U.S. bank because of its ``long-term earnings power.'' The analysts also said the company will likely avoid selling more shares to raise capital.

Citigroup, which reported the biggest writedowns and credit- market losses among the world's largest banks, gained 71 cents to $19.70.

The most bullish profit forecasts for next quarter are for financial companies, estimates compiled by Bloomberg show. In the fourth quarter, brokerages and insurers will boost earnings almost fivefold from a year ago, analysts say.

Wall Street forecasters, who were too optimistic about earnings for the past four quarters, predict income at America's biggest companies will grow by a record 62 percent in the final three months of 2008, according to data compiled by S&P.

Shares in the S&P 500 have climbed to an average 25.8 times reported profits as of the start of trading today, the highest valuation in five years. The last time that happened, the index fell 38 percent.

Economic Data

A report today may show U.S. manufacturing stagnated for a second month as rising exports countered weakening domestic demand. The Institute for Supply Management's factory index was probably unchanged at 50 for a second month in August, according the median estimate of a Bloomberg survey. The report is due at 10 a.m. New York time.

Commerce Department figures at the same time may show spending on construction projects dropped 0.4 percent in July for a second month, according to Bloomberg estimates.

The S&P 500 has rebounded 6.4 percent from its 2008 low on July 15. The index is still down 12 percent this year as subprime-related losses at global banks climbed above $500 billion and the U.S. economy teetered on the brink of a recession.

To contact the reporters on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net; Lynn Thomasson in New York at lthomasson@bloomberg.net.



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