By Christian Vits
Oct. 2 (Bloomberg) -- Banks borrowed more than 15 billion euros from the European Central Bank at its emergency rate for a third day yesterday, pushing the amount lent over a three-day period to a record.
The ECB's marginal lending rate is 5.25 percent, one percentage point above its benchmark rate for regular auctions. At the same time, banks deposited 48.5 billion euros ($67.5 billion) with the ECB overnight, the central bank said in a statement today. The deposit rate is 3.25 percent
Commercial banks are refusing to lend to each other after the U.S. housing slump caused the collapse of New York-based Lehman Brothers Holdings Inc. and forced governments to bail out banks in the U.S. and Europe. Central banks including the Federal Reserve and the ECB are injecting billions into global money markets in an effort to keep them functioning.
``Trust has completely left the system,'' said Thorsten Polleit, chief German economist at Barclays Capital in Frankfurt. ``I don't see a return to more normal conditions any time soon.''
As some market players are flooded with cash after the ECB's continued liquidity injections, the ECB also offered to drain 200 billion euros from money markets. This is the second drain in two days, after banks' deposits with the ECB jumped to a record 102.8 billion euros on Sept. 30.
More Inventive
The ECB may have to become even more innovative to get banks lending again, say economists at Morgan Stanley and UBS AG. Options include enabling banks to borrow cash for longer timeframes as it did this week when auctioning 120 billion euros for one month or allocating money at a fixed rate rather than letting it be set at elevated levels by market demand.
``The ECB will remain very active in the money market to address the liquidity issue,'' Stephane Deo, chief European economist at UBS AG, said this week.
The ECB today also drained 199 billion euros in overnight funds from money markets at a fixed rate of 4.25 percent. It had previously offered to absorb 200 billion euros. Some 65 banks bid for a total of 216 billion euros.
To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net
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Thursday, October 2, 2008
European Officials Squabble Over Response to Crisis
By Brian Parkin
Oct. 2 (Bloomberg) -- European officials squabbled over how to respond to the global credit crunch, with Germany opposing a coordinated approach and the Netherlands calling on states to set aside funds to help troubled banks.
French President Nicolas Sarkozy distanced himself from comments by his finance minister Christine Lagarde over the need to set up a ``rescue fund.'' Luxembourg Prime Minister Jean- Claude Juncker told DeutschlandRadio today he didn't ``see the need'' for an effort to emulate the $700 billion rescue package that U.S. senators passed yesterday.
The conflict undermined efforts to build a consensus European strategy to counter the financial crisis as a recession looms. Other fissures emerged, as Ireland's decision to guarantee bank deposits and debts prompted criticism by British bankers yesterday that it ``distorted competition.''
``I cannot see a common response,'' Jean Peyrelevade, former chief executive officer of French bank Credit Lyonnais SA, now owned by Credit Agricole SA, said in an interview. ``For this crisis it's too late to build a common response.''
Fallout from the crisis that drove Lehman Brothers Holdings Inc. into bankruptcy hit Europe this week, with Germany, France, Belgium, Luxembourg, Iceland and the U.K. rescuing five lenders and Italian Prime Minister Silvio Berlusconi pledging to prevent losses for depositors.
Euro Weakens
The euro tumbled against the dollar amid the infighting among European leaders. The Senate's vote in favor of the rescue plan for financial companies today also gave the dollar a boost. The euro fell to $1.3884 per euro at 13:05 p.m. in Frankfurt, near a one-year low, from $1.4009 yesterday in New York.
Dutch Prime Minister Jan Peter Balkenende will discuss his plan for European Union nations to create accounts to support their finance industry when he meets Sarkozy in Paris today, Dutch Finance Ministry spokeswoman Hendrieneke Bolhaar said.
``If all European countries reserve funds, it will add up to hundreds of billions of euros and that provides trust to Europeans,'' Dutch Finance Minister Wouter Bos told parliament today. ``The funds will be strictly national, although we need to reach consensus over when to use them.''
In the U.S., Treasury Secretary Henry Paulson proposed a $700 billion bailout on Sept. 20 that lawmakers are struggling to pass. The House of Representatives rejected a version of the plan three days ago. Senators who approved the package urged opponents in the House to drop their objections.
`Non-Starter'
A European version of the Paulson plan is a ``non-starter'' because of competing agendas and coordination difficulties, Klaus Baader, chief European economist at Merrill Lynch and Co. in London, said in a Sept. 29 report. Still, he expects increased cooperation among governments confronting the crisis.
The disagreements will be aired at an Oct. 4 meeting called by Sarkozy in Paris with Juncker, leaders of Great Britain, Italy and Germany, as well as European Central Bank President Jean-Claude Trichet.
Lagarde told the German newspaper Handelsblatt in an interview today that a ``rescue package'' was needed to help ``smaller'' European states ``threatened with a banking failure.'' Germany opposes the proposal ``based on its current assessment of risk,'' said Finance Ministry spokesman Stefan Olbermann.
``We see no need for a fund,'' Olbermann said today.
Reuters reported that the fund would total 300 billion euros ($420 billion), citing an unnamed European government official.
Sarkozy Denial
Speaking to reporters today in Paris, Sarkozy said he ``denied the amount and the principle'' of such a fund.
``Everyone is working very well together,'' Lagarde told reporters in Paris today.
The specifics of a coordinated plan notwithstanding, Germany rejects a Europe-wide approach to bank rescues, said Torsten Albig, another finance ministry spokesman.
``The idea of applying one solution, one big bang'' should the banking crisis spread ``is not practicable and would create new, enormous problems,'' he told reporters yesterday in Berlin. ``The tailor-made solution is the right way.''
That contrasts with pleas from European Union officials for less unilateral action. Charlie McCreevy, EU financial-services commissioner, yesterday proposed more coordinated oversight and rules that banks hold additional capital for asset-backed bonds.
``Capital and strong financial institutions are the lifeblood of an economy,'' McCreevy said in a Bloomberg Television interview in Brussels.
Money Markets
As banks hoarded cash, the Libor-OIS spread, a gauge of cash scarcity, widened for an eighth day. The difference between the three-month London interbank offered rate for dollars and the overnight indexed swap rate widened 7 basis points to 254 basis points as of 8:44 a.m. in London. It averaged 8 basis points in the 12 months to July 31, 2007, before the credit squeeze spurred by the U.S. subprime- mortgage crisis began.
The credit-market turmoil may require a more comprehensive approach in Europe, the Organization for Economic Cooperation and Development said yesterday.
``Considering the exposure of European financial institutions, we might have to start thinking of a systemic plan for Europe if things don't improve on the other side of the Atlantic,'' OECD Secretary General Angel Gurria said in Paris. ``The piecemeal approach may not work in Europe either.''
A group of economists including Alberto Alesina of Harvard University and Klaus Zimmerman of Berlin's DIW economic institute appealed for an EU initiative to recapitalize banks.
`Once-in-a-Lifetime'
``This is a once-in-a-lifetime crisis,'' the 10 academics said in an emailed statement. European leaders need to tackle the bank industry's crisis ``head on before it spirals out of control.''
One proposal is for European countries to follow Ireland, either as a bloc or individually, in guaranteeing banks' deposits and debts. Spain's Finance Ministry today said it supports strengthening EU protections of deposits. Berlusconi and Sarkozy have already pledged to prevent losses for depositors.
The advantage of such a program would be that it would boost confidence among banks and give them time to resolve their problems, although it would also put taxpayer funds at greater risk, economists at Royal Bank of Scotland Group Plc. said in a report today.
To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net
Read more...
Oct. 2 (Bloomberg) -- European officials squabbled over how to respond to the global credit crunch, with Germany opposing a coordinated approach and the Netherlands calling on states to set aside funds to help troubled banks.
French President Nicolas Sarkozy distanced himself from comments by his finance minister Christine Lagarde over the need to set up a ``rescue fund.'' Luxembourg Prime Minister Jean- Claude Juncker told DeutschlandRadio today he didn't ``see the need'' for an effort to emulate the $700 billion rescue package that U.S. senators passed yesterday.
The conflict undermined efforts to build a consensus European strategy to counter the financial crisis as a recession looms. Other fissures emerged, as Ireland's decision to guarantee bank deposits and debts prompted criticism by British bankers yesterday that it ``distorted competition.''
``I cannot see a common response,'' Jean Peyrelevade, former chief executive officer of French bank Credit Lyonnais SA, now owned by Credit Agricole SA, said in an interview. ``For this crisis it's too late to build a common response.''
Fallout from the crisis that drove Lehman Brothers Holdings Inc. into bankruptcy hit Europe this week, with Germany, France, Belgium, Luxembourg, Iceland and the U.K. rescuing five lenders and Italian Prime Minister Silvio Berlusconi pledging to prevent losses for depositors.
Euro Weakens
The euro tumbled against the dollar amid the infighting among European leaders. The Senate's vote in favor of the rescue plan for financial companies today also gave the dollar a boost. The euro fell to $1.3884 per euro at 13:05 p.m. in Frankfurt, near a one-year low, from $1.4009 yesterday in New York.
Dutch Prime Minister Jan Peter Balkenende will discuss his plan for European Union nations to create accounts to support their finance industry when he meets Sarkozy in Paris today, Dutch Finance Ministry spokeswoman Hendrieneke Bolhaar said.
``If all European countries reserve funds, it will add up to hundreds of billions of euros and that provides trust to Europeans,'' Dutch Finance Minister Wouter Bos told parliament today. ``The funds will be strictly national, although we need to reach consensus over when to use them.''
In the U.S., Treasury Secretary Henry Paulson proposed a $700 billion bailout on Sept. 20 that lawmakers are struggling to pass. The House of Representatives rejected a version of the plan three days ago. Senators who approved the package urged opponents in the House to drop their objections.
`Non-Starter'
A European version of the Paulson plan is a ``non-starter'' because of competing agendas and coordination difficulties, Klaus Baader, chief European economist at Merrill Lynch and Co. in London, said in a Sept. 29 report. Still, he expects increased cooperation among governments confronting the crisis.
The disagreements will be aired at an Oct. 4 meeting called by Sarkozy in Paris with Juncker, leaders of Great Britain, Italy and Germany, as well as European Central Bank President Jean-Claude Trichet.
Lagarde told the German newspaper Handelsblatt in an interview today that a ``rescue package'' was needed to help ``smaller'' European states ``threatened with a banking failure.'' Germany opposes the proposal ``based on its current assessment of risk,'' said Finance Ministry spokesman Stefan Olbermann.
``We see no need for a fund,'' Olbermann said today.
Reuters reported that the fund would total 300 billion euros ($420 billion), citing an unnamed European government official.
Sarkozy Denial
Speaking to reporters today in Paris, Sarkozy said he ``denied the amount and the principle'' of such a fund.
``Everyone is working very well together,'' Lagarde told reporters in Paris today.
The specifics of a coordinated plan notwithstanding, Germany rejects a Europe-wide approach to bank rescues, said Torsten Albig, another finance ministry spokesman.
``The idea of applying one solution, one big bang'' should the banking crisis spread ``is not practicable and would create new, enormous problems,'' he told reporters yesterday in Berlin. ``The tailor-made solution is the right way.''
That contrasts with pleas from European Union officials for less unilateral action. Charlie McCreevy, EU financial-services commissioner, yesterday proposed more coordinated oversight and rules that banks hold additional capital for asset-backed bonds.
``Capital and strong financial institutions are the lifeblood of an economy,'' McCreevy said in a Bloomberg Television interview in Brussels.
Money Markets
As banks hoarded cash, the Libor-OIS spread, a gauge of cash scarcity, widened for an eighth day. The difference between the three-month London interbank offered rate for dollars and the overnight indexed swap rate widened 7 basis points to 254 basis points as of 8:44 a.m. in London. It averaged 8 basis points in the 12 months to July 31, 2007, before the credit squeeze spurred by the U.S. subprime- mortgage crisis began.
The credit-market turmoil may require a more comprehensive approach in Europe, the Organization for Economic Cooperation and Development said yesterday.
``Considering the exposure of European financial institutions, we might have to start thinking of a systemic plan for Europe if things don't improve on the other side of the Atlantic,'' OECD Secretary General Angel Gurria said in Paris. ``The piecemeal approach may not work in Europe either.''
A group of economists including Alberto Alesina of Harvard University and Klaus Zimmerman of Berlin's DIW economic institute appealed for an EU initiative to recapitalize banks.
`Once-in-a-Lifetime'
``This is a once-in-a-lifetime crisis,'' the 10 academics said in an emailed statement. European leaders need to tackle the bank industry's crisis ``head on before it spirals out of control.''
One proposal is for European countries to follow Ireland, either as a bloc or individually, in guaranteeing banks' deposits and debts. Spain's Finance Ministry today said it supports strengthening EU protections of deposits. Berlusconi and Sarkozy have already pledged to prevent losses for depositors.
The advantage of such a program would be that it would boost confidence among banks and give them time to resolve their problems, although it would also put taxpayer funds at greater risk, economists at Royal Bank of Scotland Group Plc. said in a report today.
To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net
Read more...
Home Prices Fall in 24 U.S. Cities as Foreclosures Hurt Market
By Sharon L. Lynch
Oct. 2 (Bloomberg) -- Home prices dropped in 24 of 25 U.S. metropolitan areas in July from a year earlier as foreclosures depressed property prices.
Las Vegas had the biggest drop on a per-square foot basis, falling 33 percent, New York-based real estate data company Radar Logic Inc. said in a report today. Los Angeles, Phoenix, Sacramento and San Francisco each dropped about 28 percent. Three of the five worst-performing markets were in California.
``Buyers are increasingly reluctant,'' Radar Logic Chief Executive Officer Michael Feder said in an interview. ``There has been an awful lot of talk about the declining of the housing markets.''
U.S. foreclosures rose to a record 2.75 percent of all mortgages in the second quarter, according to the Washington- based Mortgage Bankers Association. Foreclosed houses tend to sell at a discount of about 20 percent, according to research by Lehman Brothers Holdings Inc. Those discounts are weighing on prices throughout the country, Radar Logic said.
The U.S. Senate passed a $700 billion financial-market rescue package yesterday loaded with inducements for the House of Representatives to approve the measure. The House rejected an earlier version.
The legislation, approved last night on a 74-25 vote, authorizes the government to buy troubled assets from financial institutions rocked by record home foreclosures. It contains two provisions favored by House Republicans: One raises the limit on federal bank-deposit insurance; the other reiterates the authority of securities regulators to suspend asset-valuing rules that corporate executives blame for fueling the crisis.
`Dramatic Impact'
``As you clear out the discount inventory, it is going to come back,'' Feder said of the housing market. ``The bill that's struggling through Congress could have a dramatic impact.''
U.S. foreclosures have come in three waves, Moody's Economy.com Chief Economist Mark Zandi said in a report this week.
The first hit in early 2006 when investors who bought houses intending to quickly resell them for a profit realized the boom was over and walked away. The second came a year later as owners who used adjustable-rate mortgages to buy in 2005 and 2006 began to see their monthly payments rise. Now, falling home prices combined with rising unemployment have spurred a third round, Zandi said.
The biggest price declines were in the California and southwestern states, Radar Logic said in today's report.
Prices dropped 26.5 percent in San Diego from a year earlier, 24.1 percent in Miami, 17.9 percent in San Jose and 17.4 percent in Tampa, Florida, the report said.
Only Milwaukee saw home prices climb in July, rising 2.9 percent since July 2007. Prices have risen 3.6 percent there in the last two years. The only other city to see an increase in that period was Charlotte, North Carolina, which rose 1.5 percent.
``They didn't have the same boom, and their economy is somewhat more stable,'' Feder said of Wisconsin. ``They are, to some degree, not suffering the bust.''
In the New York metropolitan area, prices fell 7.8 percent in July from a year earlier and in Boston they fell 13.6 percent, Radar Logic said.
The RPX Monthly Housing Market Report, published by Radar Logic, measures home values using price per square foot. The data reflects 28-day aggregated values, the company said.
The prices are the basis for property derivatives traded on the Residential Property Index, which has a volume of $2 billion. The index allows investors to benefit from the movement of metro area home prices without owning land or physical property.
To contact the reporter on this story: Sharon L. Lynch in New York at sllynch@bloomberg.net
Read more...
Oct. 2 (Bloomberg) -- Home prices dropped in 24 of 25 U.S. metropolitan areas in July from a year earlier as foreclosures depressed property prices.
Las Vegas had the biggest drop on a per-square foot basis, falling 33 percent, New York-based real estate data company Radar Logic Inc. said in a report today. Los Angeles, Phoenix, Sacramento and San Francisco each dropped about 28 percent. Three of the five worst-performing markets were in California.
``Buyers are increasingly reluctant,'' Radar Logic Chief Executive Officer Michael Feder said in an interview. ``There has been an awful lot of talk about the declining of the housing markets.''
U.S. foreclosures rose to a record 2.75 percent of all mortgages in the second quarter, according to the Washington- based Mortgage Bankers Association. Foreclosed houses tend to sell at a discount of about 20 percent, according to research by Lehman Brothers Holdings Inc. Those discounts are weighing on prices throughout the country, Radar Logic said.
The U.S. Senate passed a $700 billion financial-market rescue package yesterday loaded with inducements for the House of Representatives to approve the measure. The House rejected an earlier version.
The legislation, approved last night on a 74-25 vote, authorizes the government to buy troubled assets from financial institutions rocked by record home foreclosures. It contains two provisions favored by House Republicans: One raises the limit on federal bank-deposit insurance; the other reiterates the authority of securities regulators to suspend asset-valuing rules that corporate executives blame for fueling the crisis.
`Dramatic Impact'
``As you clear out the discount inventory, it is going to come back,'' Feder said of the housing market. ``The bill that's struggling through Congress could have a dramatic impact.''
U.S. foreclosures have come in three waves, Moody's Economy.com Chief Economist Mark Zandi said in a report this week.
The first hit in early 2006 when investors who bought houses intending to quickly resell them for a profit realized the boom was over and walked away. The second came a year later as owners who used adjustable-rate mortgages to buy in 2005 and 2006 began to see their monthly payments rise. Now, falling home prices combined with rising unemployment have spurred a third round, Zandi said.
The biggest price declines were in the California and southwestern states, Radar Logic said in today's report.
Prices dropped 26.5 percent in San Diego from a year earlier, 24.1 percent in Miami, 17.9 percent in San Jose and 17.4 percent in Tampa, Florida, the report said.
Only Milwaukee saw home prices climb in July, rising 2.9 percent since July 2007. Prices have risen 3.6 percent there in the last two years. The only other city to see an increase in that period was Charlotte, North Carolina, which rose 1.5 percent.
``They didn't have the same boom, and their economy is somewhat more stable,'' Feder said of Wisconsin. ``They are, to some degree, not suffering the bust.''
In the New York metropolitan area, prices fell 7.8 percent in July from a year earlier and in Boston they fell 13.6 percent, Radar Logic said.
The RPX Monthly Housing Market Report, published by Radar Logic, measures home values using price per square foot. The data reflects 28-day aggregated values, the company said.
The prices are the basis for property derivatives traded on the Residential Property Index, which has a volume of $2 billion. The index allows investors to benefit from the movement of metro area home prices without owning land or physical property.
To contact the reporter on this story: Sharon L. Lynch in New York at sllynch@bloomberg.net
Read more...
IMF Says U.S. Faces `Sharp Downturn' as Market Crisis Worsens
By Christopher Swann
Oct. 2 (Bloomberg) -- The U.S. may fall into a recession as the financial rout deepens, the International Monetary Fund said in its most pessimistic outlook for the world's largest economy since the credit crisis began last year.
``The financial turmoil that began in the summer of 2007 has mutated into a full-blown crisis,'' the fund said in a section of its semiannual World Economic Outlook released in Washington today. There is ``a substantial likelihood of a sharp downturn in the United States,'' the fund said.
By contrast, the IMF in July projected the U.S. would ``contract moderately'' in the second half of 2008 before recovering in 2009. Officials also said in a July update of economic forecasts that the global growth outlook was more ``balanced.''
``Strong actions by policy makers to deal with the stress and support the restoration of financial system capital seem particularly important,'' the lender said today. Next week, the IMF will release updated projections for gross domestic product for the U.S. and other economies.
The warning came as the U.S. Congress worked to pass a $700 billion bank rescue package to reassure financial markets. The Senate passed the legislation late yesterday, and the House of Representatives may vote tomorrow after rejecting a different version three days ago.
Euro Area
The 15 countries that use the euro may be able the weather financial shocks and slowing growth, the IMF said. ``In the euro zone, by contrast, the relatively strong position of households offers some protection against a sharp downturn,'' the report stated.
IMF Managing Director Dominique Strauss-Kahn said as recently as Sept. 17 that ``we may be seeing the end of the financial-sector crisis.''
Last week, IMF First Deputy Managing Director John Lipsky said the global economy may skirt a recession if policy makers respond with ``effective'' measures to ease financial stress. ``The latest challenges have not altered our core expectation of a gradual 2009 growth recovery'' and ``a global recession can be avoided,'' Lipsky said Sept. 24.
Since then, the Dow Jones Industrial Average suffered its biggest point decline, plunging 777 points to 10,365.45 on Sept. 29 after the House initially rejected the rescue plan.
Banking System
In today's report, the IMF warned that stress in the banking sector tends to deepen recessions, based on comparisons with previous periods of market instability. Slowdowns or contractions preceded by a banking crisis tended to double or triple the size of the downturn, the fund said.
The threat of a recession was increased by ``the extent to which house prices and aggregate credit have risen prior to the stress episode,'' the fund said.
Earlier this week the S&P/Case-Shiller index showed home prices in 20 U.S. cities declined in July by 16.3 percent from a year earlier -- the most on record.
``The current situation of the United States bears some resemblance to previous episodes of banking-related financial stress episodes that were followed by recessions,'' the fund said.
In a press briefing today, IMF Deputy Director of Research Charles Collyns called the financial crisis ``the most dangerous shock to the financial sector since the 1930s.''
``I cannot think of an example of a country that had a major banking system failure and not suffered serious economic consequences as a result,'' Collyns said. ``When the banking system suffers major damage -- as in the current episode -- the likelihood of a severe and protracted downturn in activity increases.''
To contact the reporters on this story: Christopher Swann in Washington at cswann1@bloomberg.net
Read more...
Oct. 2 (Bloomberg) -- The U.S. may fall into a recession as the financial rout deepens, the International Monetary Fund said in its most pessimistic outlook for the world's largest economy since the credit crisis began last year.
``The financial turmoil that began in the summer of 2007 has mutated into a full-blown crisis,'' the fund said in a section of its semiannual World Economic Outlook released in Washington today. There is ``a substantial likelihood of a sharp downturn in the United States,'' the fund said.
By contrast, the IMF in July projected the U.S. would ``contract moderately'' in the second half of 2008 before recovering in 2009. Officials also said in a July update of economic forecasts that the global growth outlook was more ``balanced.''
``Strong actions by policy makers to deal with the stress and support the restoration of financial system capital seem particularly important,'' the lender said today. Next week, the IMF will release updated projections for gross domestic product for the U.S. and other economies.
The warning came as the U.S. Congress worked to pass a $700 billion bank rescue package to reassure financial markets. The Senate passed the legislation late yesterday, and the House of Representatives may vote tomorrow after rejecting a different version three days ago.
Euro Area
The 15 countries that use the euro may be able the weather financial shocks and slowing growth, the IMF said. ``In the euro zone, by contrast, the relatively strong position of households offers some protection against a sharp downturn,'' the report stated.
IMF Managing Director Dominique Strauss-Kahn said as recently as Sept. 17 that ``we may be seeing the end of the financial-sector crisis.''
Last week, IMF First Deputy Managing Director John Lipsky said the global economy may skirt a recession if policy makers respond with ``effective'' measures to ease financial stress. ``The latest challenges have not altered our core expectation of a gradual 2009 growth recovery'' and ``a global recession can be avoided,'' Lipsky said Sept. 24.
Since then, the Dow Jones Industrial Average suffered its biggest point decline, plunging 777 points to 10,365.45 on Sept. 29 after the House initially rejected the rescue plan.
Banking System
In today's report, the IMF warned that stress in the banking sector tends to deepen recessions, based on comparisons with previous periods of market instability. Slowdowns or contractions preceded by a banking crisis tended to double or triple the size of the downturn, the fund said.
The threat of a recession was increased by ``the extent to which house prices and aggregate credit have risen prior to the stress episode,'' the fund said.
Earlier this week the S&P/Case-Shiller index showed home prices in 20 U.S. cities declined in July by 16.3 percent from a year earlier -- the most on record.
``The current situation of the United States bears some resemblance to previous episodes of banking-related financial stress episodes that were followed by recessions,'' the fund said.
In a press briefing today, IMF Deputy Director of Research Charles Collyns called the financial crisis ``the most dangerous shock to the financial sector since the 1930s.''
``I cannot think of an example of a country that had a major banking system failure and not suffered serious economic consequences as a result,'' Collyns said. ``When the banking system suffers major damage -- as in the current episode -- the likelihood of a severe and protracted downturn in activity increases.''
To contact the reporters on this story: Christopher Swann in Washington at cswann1@bloomberg.net
Read more...
Greenspan Says Markets to Recover as Investors Return
By Scott Lanman and John Brinsley
Oct. 2 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said financial markets and the economy will recover ``sooner rather than later'' from the worst turmoil in seven decades.
``Trust will eventually reemerge as investors dip hesitantly back into the marketplace,'' Greenspan said today in a speech at Georgetown University's law school in Washington. ``From that point, history tells us, financial and economic revival sets in. I suspect it will be sooner rather than later.''
Greenspan urged lawmakers last week to back ``extensive'' measures to tackle the worst financial crisis since the 1930s and head off a recession. The U.S. Senate passed a $700 billion financial-market rescue package yesterday loaded with inducements for the House of Representatives to approve the measure following its rejection of an earlier version Sept. 29.
``We are living through the type of wrenching financial crisis that comes along only once in a century,'' Greenspan said today. ``Financial markets freeze up as an excess of fear displaces a protracted period of what some might call irrational exuberance. Eventually the market freeze will thaw as frightened investors take tentative steps towards reengagement with risk.''
Greenspan, 82, who served 18 years as Fed chief, took office just before the 1987 stock-market crash. He led the central bank during two eight-month-long recessions, the Asian financial crisis, the 2001 terrorist attacks and the bursting of the Internet bubble.
Deepening Crisis
He spoke amid signs the crisis was deepening. Corporate short-term borrowing plummeted 5.6 percent, the most on record, to the lowest amount outstanding in three years, the Fed said today. Separately, the cost of borrowing in dollars for three months in London rose for a fourth day as banks hoarded cash.
Greenspan, while not commenting today on the rescue bill, spoke from a text about the importance of property rights at a conference entitled, ``Our Courts and Corporate Citizenship.'' He didn't take audience questions.
``Broken market ties among banks, pension and hedge funds and all types of non-financial businesses, will become reestablished, and our complex economy, that has the capacity to produce a fifth of the world's goods and services, will reemerge,'' he said.
The House may vote tomorrow afternoon on the rescue bill.
In a statement e-mailed to lawmakers Sept. 25, signed by Greenspan, former Treasury Secretary George Shultz and Stanford University economist Robert Hall, the three economists wrote that ``the only way that financial institutions can continue to function is for the government to provide financial support.''
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; John Brinsley in Washington at jbrinsley@bloomberg.net.
Read more...
Oct. 2 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said financial markets and the economy will recover ``sooner rather than later'' from the worst turmoil in seven decades.
``Trust will eventually reemerge as investors dip hesitantly back into the marketplace,'' Greenspan said today in a speech at Georgetown University's law school in Washington. ``From that point, history tells us, financial and economic revival sets in. I suspect it will be sooner rather than later.''
Greenspan urged lawmakers last week to back ``extensive'' measures to tackle the worst financial crisis since the 1930s and head off a recession. The U.S. Senate passed a $700 billion financial-market rescue package yesterday loaded with inducements for the House of Representatives to approve the measure following its rejection of an earlier version Sept. 29.
``We are living through the type of wrenching financial crisis that comes along only once in a century,'' Greenspan said today. ``Financial markets freeze up as an excess of fear displaces a protracted period of what some might call irrational exuberance. Eventually the market freeze will thaw as frightened investors take tentative steps towards reengagement with risk.''
Greenspan, 82, who served 18 years as Fed chief, took office just before the 1987 stock-market crash. He led the central bank during two eight-month-long recessions, the Asian financial crisis, the 2001 terrorist attacks and the bursting of the Internet bubble.
Deepening Crisis
He spoke amid signs the crisis was deepening. Corporate short-term borrowing plummeted 5.6 percent, the most on record, to the lowest amount outstanding in three years, the Fed said today. Separately, the cost of borrowing in dollars for three months in London rose for a fourth day as banks hoarded cash.
Greenspan, while not commenting today on the rescue bill, spoke from a text about the importance of property rights at a conference entitled, ``Our Courts and Corporate Citizenship.'' He didn't take audience questions.
``Broken market ties among banks, pension and hedge funds and all types of non-financial businesses, will become reestablished, and our complex economy, that has the capacity to produce a fifth of the world's goods and services, will reemerge,'' he said.
The House may vote tomorrow afternoon on the rescue bill.
In a statement e-mailed to lawmakers Sept. 25, signed by Greenspan, former Treasury Secretary George Shultz and Stanford University economist Robert Hall, the three economists wrote that ``the only way that financial institutions can continue to function is for the government to provide financial support.''
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; John Brinsley in Washington at jbrinsley@bloomberg.net.
Read more...
U.S. August Factory Orders Fall More Than Forecast
By Timothy R. Homan
Oct. 2 (Bloomberg) -- Orders to U.S. factories decreased in August by the most in almost two years, signaling business spending slowed down even before the recent worsening of the credit crunch.
The 4 percent drop in bookings was larger than forecast and followed a revised 0.7 percent increase in July that was smaller than previously estimated, the Commerce Department said today in Washington. A separate report showed the total number of Americans collecting jobless benefits rose to the highest level in five years.
Banks have become reluctant to lend as losses mount, making it harder for companies to obtain the financing needed to investment in new equipment. Exports, which had made up for a slowdown in U.S. sales, are likely to weaken in coming months as growth in Europe and Japan also falters.
``This is certainly more bad news, and we think the economy is really sitting on the precipice,'' said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. ``The benefit from exports looks as if it may be shrinking.''
Economists forecast factory orders for August would drop 3 percent after a previously reported 1.3 percent gain in July, according to the median estimate of 59 economists in a Bloomberg News survey. Estimates ranged from a drop of 6 percent to an increase of 0.5 percent.
U.S. stocks extended losses after the report. The Standard & Poor's 500 Index was down 26.3, or 2.3 percent, to 1134.7 at 10:36 a.m. in New York.
Labor Market
The number of people collecting jobless benefits rose to 3.59 million in the week ended Sept. 20, the most since 2003, the Labor Department reported today. First-time claims reached a seven-year high in the week ended Sept. 27, reflecting job losses in the aftermath of the Gulf Coast hurricanes.
Excluding demand for transportation equipment, which tends to be volatile, factory orders decreased 3.3 percent, the most since September 2001 when terrorists attacked the World Trade Center and the Pentagon.
Bookings for all durable goods, which make up just under half of total orders, fell 4.8 percent in August, more than the Commerce Department estimated last week. Non-durable goods orders, including those for food, petroleum and chemicals, dropped 3.3 percent after.
Today's revision also made the outlook for business investment even dimmer. Bookings for capital goods excluding defense and aircraft, a proxy for future business spending, fell 2.4 percent in August compared with the 2 percent decline estimated last week.
Shipments Fall
Shipments of such goods, which the government uses to calculate gross domestic product, decreased 2.1 percent, also worse than previously estimated and the biggest drop since January 2007.
A private report yesterday showed the slump may have worsened last month. Manufacturing contracted in September at the fastest pace since the 2001 recession, according to the Institute for Supply Management. Orders, production and employment all dropped and exports rose at the slowest pace in two years.
``I just can't imagine that we'll see a lot strength in the index in the next few months,'' Norbert Ore, chairman of the ISM survey, said yesterday in a conference call from Atlanta. ``Manufacturing has weathered this downturn in the economy quite well, to this point.''
The slowdown in overseas demand threatens to undermine one of the last remaining bright spots for the economy. A narrowing of the trade gap last quarter added 2.9 percentage points to growth, the biggest contribution since 1980, the Commerce Department said last month.
Business Spending
Excluding trade, the economy would have contracted at a 0.1 percent pace from April through June, instead of the 2.8 percent pace of expansion.
Business spending on new equipment and software dropped at a 5 percent annual pace during the second quarter, the most in six years, Commerce also said.
A slowdown in factory orders is forcing some companies to trim payrolls. Rockwell Automation Inc., the world's largest maker of factory automation products, said this week it will cut about 3 percent of its 20,000-member workforce immediately to reduce costs.
Keith Nosbusch, chief executive officer of the Milwaukee- based company, said in July that slower demand hurt profit for the quarter ended June 30.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
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Oct. 2 (Bloomberg) -- Orders to U.S. factories decreased in August by the most in almost two years, signaling business spending slowed down even before the recent worsening of the credit crunch.
The 4 percent drop in bookings was larger than forecast and followed a revised 0.7 percent increase in July that was smaller than previously estimated, the Commerce Department said today in Washington. A separate report showed the total number of Americans collecting jobless benefits rose to the highest level in five years.
Banks have become reluctant to lend as losses mount, making it harder for companies to obtain the financing needed to investment in new equipment. Exports, which had made up for a slowdown in U.S. sales, are likely to weaken in coming months as growth in Europe and Japan also falters.
``This is certainly more bad news, and we think the economy is really sitting on the precipice,'' said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. ``The benefit from exports looks as if it may be shrinking.''
Economists forecast factory orders for August would drop 3 percent after a previously reported 1.3 percent gain in July, according to the median estimate of 59 economists in a Bloomberg News survey. Estimates ranged from a drop of 6 percent to an increase of 0.5 percent.
U.S. stocks extended losses after the report. The Standard & Poor's 500 Index was down 26.3, or 2.3 percent, to 1134.7 at 10:36 a.m. in New York.
Labor Market
The number of people collecting jobless benefits rose to 3.59 million in the week ended Sept. 20, the most since 2003, the Labor Department reported today. First-time claims reached a seven-year high in the week ended Sept. 27, reflecting job losses in the aftermath of the Gulf Coast hurricanes.
Excluding demand for transportation equipment, which tends to be volatile, factory orders decreased 3.3 percent, the most since September 2001 when terrorists attacked the World Trade Center and the Pentagon.
Bookings for all durable goods, which make up just under half of total orders, fell 4.8 percent in August, more than the Commerce Department estimated last week. Non-durable goods orders, including those for food, petroleum and chemicals, dropped 3.3 percent after.
Today's revision also made the outlook for business investment even dimmer. Bookings for capital goods excluding defense and aircraft, a proxy for future business spending, fell 2.4 percent in August compared with the 2 percent decline estimated last week.
Shipments Fall
Shipments of such goods, which the government uses to calculate gross domestic product, decreased 2.1 percent, also worse than previously estimated and the biggest drop since January 2007.
A private report yesterday showed the slump may have worsened last month. Manufacturing contracted in September at the fastest pace since the 2001 recession, according to the Institute for Supply Management. Orders, production and employment all dropped and exports rose at the slowest pace in two years.
``I just can't imagine that we'll see a lot strength in the index in the next few months,'' Norbert Ore, chairman of the ISM survey, said yesterday in a conference call from Atlanta. ``Manufacturing has weathered this downturn in the economy quite well, to this point.''
The slowdown in overseas demand threatens to undermine one of the last remaining bright spots for the economy. A narrowing of the trade gap last quarter added 2.9 percentage points to growth, the biggest contribution since 1980, the Commerce Department said last month.
Business Spending
Excluding trade, the economy would have contracted at a 0.1 percent pace from April through June, instead of the 2.8 percent pace of expansion.
Business spending on new equipment and software dropped at a 5 percent annual pace during the second quarter, the most in six years, Commerce also said.
A slowdown in factory orders is forcing some companies to trim payrolls. Rockwell Automation Inc., the world's largest maker of factory automation products, said this week it will cut about 3 percent of its 20,000-member workforce immediately to reduce costs.
Keith Nosbusch, chief executive officer of the Milwaukee- based company, said in July that slower demand hurt profit for the quarter ended June 30.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
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Trichet Says ECB Discussed Rate Cut as Growth Slowed
By Gabi Thesing
Oct. 2 (Bloomberg) -- European Central Bank President Jean- Claude Trichet indicated he's poised to cut interest rates as the credit crunch hurts the economy and damps inflation.
Investors are betting the ECB will lower borrowing costs as soon as next month after Trichet told a press conference in Frankfurt that policy makers discussed a rate reduction today. While leaving the benchmark at a seven-year high of 4.25 percent, Trichet said financial-market turmoil is damping economic growth and inflation risks ``have diminished.''
The financial crisis reached new heights in Europe this week as governments stepped in to help rescue five banks and credit costs soared to records. With the euro-region economy on the brink of a recession and retreating oil prices pushing down inflation, the ECB has more room to lower rates.
``Evidently the governing council has woken up and smelt the coffee,'' Julian Callow, chief European economist at Barclays Capital in London, said in a note to investors. Trichet is ``clearly signaling a policy cut is in the works. The question is November or December.''
The euro plunged more than a cent to $1.3748, the lowest since Sept. 7 last year, after Trichet spoke. Bonds rose, pushing the yield on the two-year note down 12 basis points.
BOE, Fed
Marks & Spencer Group Plc, the U.K.'s largest clothing retailer, today urged the Bank of England to cut interest rates, saying it would ``give confidence to consumers.'' The BOE, whose key rate is currently at 5 percent, next decides on borrowing costs on Oct. 9.
Investors are certain that the U.S. Federal Reserve will lower its key rate by at least a quarter point on Oct. 29, according to Fed funds futures.
The world's biggest financial institutions have recorded almost $600 billion in writedowns and losses tied to the U.S. mortgage market since the start of 2007, driving Lehman Brothers Holdings Inc. into bankruptcy and forcing governments to rescue banks in the U.S., U.K and Europe.
At the same time, the ECB remains concerned that the jump in inflation will become entrenched through a wage-price spiral as workers seek compensation for the higher cost of living.
While inflation in Europe slowed to 3.6 percent in September after crude oil prices retreated 31 percent from a July record of $147.27 a barrel, it is still above the ECB's 2 percent limit.
``Upside risks to price stability have diminished somewhat but they haven't disappeared,'' Trichet said today.
No Hurry
``It certainly didn't strike us that Trichet was in a hurry to bring rates down,'' said Philip Shaw, chief economist at Investec Securities in London. ``He said price risks are still there, but he gave himself sufficient flexibility to move if there was a worsening in the economic outlook.''
Companies may be reluctant to raise prices as the economy of the 15 euro nations shows few signs of recovering from a contraction in the second quarter. The manufacturing, services and retail sectors all shrank for a fourth month in September and confidence in the economic outlook is the lowest since the slump following the Sept. 11 terrorist attacks in 2001, according to the European Commission.
With credit markets freezing as banks refuse to lend to each other, the ECB has injected billions of euros and dollars into the banking system. That hasn't stopped money-market rates from surging.
France, Belgium, Luxembourg and the U.K. rescued lenders this week and Italian Prime Minister Silvio Berlusconi pledged to prevent losses for depositors.
Trichet will join leaders from France, Britain, Italy and Germany in Paris on Oct. 4 to discuss the crisis. He said today that a government-sponsored bailout of banks similar to the $700 billion plan proposed by U.S. Treasury Secretary Henry Paulson would not ``fit the political structure of Europe.''
To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.netSimone Meier in Frankfurt at smeier@bloomberg.net
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Oct. 2 (Bloomberg) -- European Central Bank President Jean- Claude Trichet indicated he's poised to cut interest rates as the credit crunch hurts the economy and damps inflation.
Investors are betting the ECB will lower borrowing costs as soon as next month after Trichet told a press conference in Frankfurt that policy makers discussed a rate reduction today. While leaving the benchmark at a seven-year high of 4.25 percent, Trichet said financial-market turmoil is damping economic growth and inflation risks ``have diminished.''
The financial crisis reached new heights in Europe this week as governments stepped in to help rescue five banks and credit costs soared to records. With the euro-region economy on the brink of a recession and retreating oil prices pushing down inflation, the ECB has more room to lower rates.
``Evidently the governing council has woken up and smelt the coffee,'' Julian Callow, chief European economist at Barclays Capital in London, said in a note to investors. Trichet is ``clearly signaling a policy cut is in the works. The question is November or December.''
The euro plunged more than a cent to $1.3748, the lowest since Sept. 7 last year, after Trichet spoke. Bonds rose, pushing the yield on the two-year note down 12 basis points.
BOE, Fed
Marks & Spencer Group Plc, the U.K.'s largest clothing retailer, today urged the Bank of England to cut interest rates, saying it would ``give confidence to consumers.'' The BOE, whose key rate is currently at 5 percent, next decides on borrowing costs on Oct. 9.
Investors are certain that the U.S. Federal Reserve will lower its key rate by at least a quarter point on Oct. 29, according to Fed funds futures.
The world's biggest financial institutions have recorded almost $600 billion in writedowns and losses tied to the U.S. mortgage market since the start of 2007, driving Lehman Brothers Holdings Inc. into bankruptcy and forcing governments to rescue banks in the U.S., U.K and Europe.
At the same time, the ECB remains concerned that the jump in inflation will become entrenched through a wage-price spiral as workers seek compensation for the higher cost of living.
While inflation in Europe slowed to 3.6 percent in September after crude oil prices retreated 31 percent from a July record of $147.27 a barrel, it is still above the ECB's 2 percent limit.
``Upside risks to price stability have diminished somewhat but they haven't disappeared,'' Trichet said today.
No Hurry
``It certainly didn't strike us that Trichet was in a hurry to bring rates down,'' said Philip Shaw, chief economist at Investec Securities in London. ``He said price risks are still there, but he gave himself sufficient flexibility to move if there was a worsening in the economic outlook.''
Companies may be reluctant to raise prices as the economy of the 15 euro nations shows few signs of recovering from a contraction in the second quarter. The manufacturing, services and retail sectors all shrank for a fourth month in September and confidence in the economic outlook is the lowest since the slump following the Sept. 11 terrorist attacks in 2001, according to the European Commission.
With credit markets freezing as banks refuse to lend to each other, the ECB has injected billions of euros and dollars into the banking system. That hasn't stopped money-market rates from surging.
France, Belgium, Luxembourg and the U.K. rescued lenders this week and Italian Prime Minister Silvio Berlusconi pledged to prevent losses for depositors.
Trichet will join leaders from France, Britain, Italy and Germany in Paris on Oct. 4 to discuss the crisis. He said today that a government-sponsored bailout of banks similar to the $700 billion plan proposed by U.S. Treasury Secretary Henry Paulson would not ``fit the political structure of Europe.''
To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.netSimone Meier in Frankfurt at smeier@bloomberg.net
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Nordic Currencies: Iceland's Krona Slumps on Rating Downgrades
By Bo Nielsen
Oct. 2 (Bloomberg) -- Iceland's krona tumbled to the lowest level against the dollar since at least 1992 as bank bailouts and debt-rating downgrades this week by Standard & Poor's and Fitch Ratings spurred investors to dump the currency.
The krona plunged 22 percent this week after the island nation's government said Sept. 29 it will purchase a 75 percent stake in 104-year-old Glitnir Bank hf after the firm's short-term funding dried up. The currency fell for a sixth day versus the dollar, its longest run of declines since June 16.
``This is a fully-fledged currency crisis,'' said Carl Hammer, an emerging-markets analyst in Stockholm at SEB AB. ``Investors have lost confidence in the financial system and the central bank can't bail out the rest of the banks the same way it did Glitnir. It simply doesn't have the money.''
Against the dollar, the Icelandic krona slid almost 5 percent to 114.60 by 2:30 p.m. in Reykjavik, compared with 94.35 at the end of last week.
The krona dropped 7 percent on Sept. 30 after Moody's Investors Service put its Aa1 rating for Iceland on review for a potential downgrade. Fitch lowered Iceland's rating after the government paid 600 million euros ($859 million) for its stake in 104-year-old Glitnir. S&P cut its rating the day before.
Glitnir and Kaupthing Bank hf, Iceland's biggest bank, have funded lending for acquisitions and other investments in northern Europe by borrowing in money markets rather than using customers' deposits. The banks, along with Landsbanki Islands hf, top the list of European banks most likely to fail, according to prices of credit default swaps collected by Bloomberg.
`Liquidity Squeeze'
``If the liquidity squeeze is a big problem in the U.S. and euro zone, imagine what's its like for a tiny economy like Iceland,'' said Elisabeth Andreew, chief currency strategist in Copenhagen at Nordea AB, Scandinavia's biggest bank. ``We have advised our customers to stay out of the krona for a long time.''
The swap market is frozen, with rates yesterday reaching a negative 70 percent, according to SEB's Hammer, as investors sought to sell the krona for dollars and euros. A negative swap price indicates investors are willing to receive lower interest payments for krona they lend to get financing in euros or dollars.
The benchmark interest rate in the nation of 320,000 citizens has been kept at 15.5 percent since April in an effort to lure investors to the economy and fight the fastest inflation in 18 years.
The krona is the third-worst performing currency in the past 12 months among the 179 covered by Bloomberg, behind only the Turkmenistan Manat and the Zimbabwean dollar. It has slipped 45.9 percent against the euro and 47.1 percent versus the dollar.
Money-Market Rates
In other trading, Norway's krone was at 8.2726 per euro, from 8.2780 yesterday, after the European Central Bank left its key interest rate at 4.25 percent today and President Jean-Claude Trichet said a reduction in borrowing costs was discussed.
The one-month Norwegian interbank offered rate, or Nibor, snapped six days of increases, falling to 7.73 percent, from 7.91 percent yesterday, the highest level since 1999. The Nibor rate is fixed at noon local time.
Norway's central bank may be forced to reduce interest rates to ease credit constraints, Dagens Naeringsliv reported today, citing Skagen fund manager and former central bank policy maker Torgeir Hoeien.
``The money-market rates remain high because of a lack of dollars,'' said Arne Lohmann Rasmussen, a senior economist at Danske Bank A/S. ``We expect rates to remain elevated for the rest of the year.''
Norges Bank last month supplied one-week dollar currency swaps to ease liquidity in the financial market.
Norway's jobless rate dropped to 1.7 percent in September, the lowest in three months, threatening to fuel wage growth and create a second wave of price gains.
Sweden's krona climbed to 9.7056 per euro, from 9.7463. It slipped to 7.0216 versus the dollar, from 6.9573.
Nordic government bonds rose, with the yield on Sweden's 5.25 percent note due March 2011 falling 1 basis point to 3.67 percent. The yield on Norway's 6 percent security maturing in May 2011 lost 7 basis points to 4.56 percent, according to Danske Bank A/S prices. Yields move inversely to bond prices.
To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
Read more...
Oct. 2 (Bloomberg) -- Iceland's krona tumbled to the lowest level against the dollar since at least 1992 as bank bailouts and debt-rating downgrades this week by Standard & Poor's and Fitch Ratings spurred investors to dump the currency.
The krona plunged 22 percent this week after the island nation's government said Sept. 29 it will purchase a 75 percent stake in 104-year-old Glitnir Bank hf after the firm's short-term funding dried up. The currency fell for a sixth day versus the dollar, its longest run of declines since June 16.
``This is a fully-fledged currency crisis,'' said Carl Hammer, an emerging-markets analyst in Stockholm at SEB AB. ``Investors have lost confidence in the financial system and the central bank can't bail out the rest of the banks the same way it did Glitnir. It simply doesn't have the money.''
Against the dollar, the Icelandic krona slid almost 5 percent to 114.60 by 2:30 p.m. in Reykjavik, compared with 94.35 at the end of last week.
The krona dropped 7 percent on Sept. 30 after Moody's Investors Service put its Aa1 rating for Iceland on review for a potential downgrade. Fitch lowered Iceland's rating after the government paid 600 million euros ($859 million) for its stake in 104-year-old Glitnir. S&P cut its rating the day before.
Glitnir and Kaupthing Bank hf, Iceland's biggest bank, have funded lending for acquisitions and other investments in northern Europe by borrowing in money markets rather than using customers' deposits. The banks, along with Landsbanki Islands hf, top the list of European banks most likely to fail, according to prices of credit default swaps collected by Bloomberg.
`Liquidity Squeeze'
``If the liquidity squeeze is a big problem in the U.S. and euro zone, imagine what's its like for a tiny economy like Iceland,'' said Elisabeth Andreew, chief currency strategist in Copenhagen at Nordea AB, Scandinavia's biggest bank. ``We have advised our customers to stay out of the krona for a long time.''
The swap market is frozen, with rates yesterday reaching a negative 70 percent, according to SEB's Hammer, as investors sought to sell the krona for dollars and euros. A negative swap price indicates investors are willing to receive lower interest payments for krona they lend to get financing in euros or dollars.
The benchmark interest rate in the nation of 320,000 citizens has been kept at 15.5 percent since April in an effort to lure investors to the economy and fight the fastest inflation in 18 years.
The krona is the third-worst performing currency in the past 12 months among the 179 covered by Bloomberg, behind only the Turkmenistan Manat and the Zimbabwean dollar. It has slipped 45.9 percent against the euro and 47.1 percent versus the dollar.
Money-Market Rates
In other trading, Norway's krone was at 8.2726 per euro, from 8.2780 yesterday, after the European Central Bank left its key interest rate at 4.25 percent today and President Jean-Claude Trichet said a reduction in borrowing costs was discussed.
The one-month Norwegian interbank offered rate, or Nibor, snapped six days of increases, falling to 7.73 percent, from 7.91 percent yesterday, the highest level since 1999. The Nibor rate is fixed at noon local time.
Norway's central bank may be forced to reduce interest rates to ease credit constraints, Dagens Naeringsliv reported today, citing Skagen fund manager and former central bank policy maker Torgeir Hoeien.
``The money-market rates remain high because of a lack of dollars,'' said Arne Lohmann Rasmussen, a senior economist at Danske Bank A/S. ``We expect rates to remain elevated for the rest of the year.''
Norges Bank last month supplied one-week dollar currency swaps to ease liquidity in the financial market.
Norway's jobless rate dropped to 1.7 percent in September, the lowest in three months, threatening to fuel wage growth and create a second wave of price gains.
Sweden's krona climbed to 9.7056 per euro, from 9.7463. It slipped to 7.0216 versus the dollar, from 6.9573.
Nordic government bonds rose, with the yield on Sweden's 5.25 percent note due March 2011 falling 1 basis point to 3.67 percent. The yield on Norway's 6 percent security maturing in May 2011 lost 7 basis points to 4.56 percent, according to Danske Bank A/S prices. Yields move inversely to bond prices.
To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
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Latin American Currencies: Chile Peso at Lowest Since July 2005
By Drew Benson
Oct. 2 (Bloomberg) -- Chile's peso tumbled to its lowest since July 2005, amid a rout of most Latin American currencies on concern that a $700 billion U.S. financial industry rescue plan won't avert a global slowdown.
``The package announced here in the U.S. doesn't have as much to do with Latin America these days,'' said Aryam Vazquez, an emerging markets economist with Wells Fargo & Co. in New York. Investors in Latin America ``are more focused on the pace of U.S. growth in general.''
The U.S. Senate passed a financial industry relief measure last night. It faces a vote in the House of Representatives tomorrow.
A U.S. and global slowdown will mean less demand for commodities on which Latin American economies rely.
The Chilean peso dropped 2 percent to 570.67 per dollar, at 10:53 a.m. New York time, from 559.45 yesterday. It fell as much as 2.7 percent to 574.55, the lowest since July 29, 2005.
Financial systems in Latin America are unlikely to stop functioning normally because they became more insulated from external shocks in the past few years, Vazquez said. ``If this crisis had occurred 10 years ago, Latin American financial systems would be in the Dumpster by now.''
Colombia's peso dropped 1.6 percent to 2,188. 5 per dollar from 2,155 yesterday, according to the Colombian foreign- exchange electronic transactions system, known as SET-FX.
The yield on Colombia's benchmark 11 percent bonds due in July 2020 fell 15 basis points, or 0.15 percentage point, to 11.75 percent, according to Colombia's stock exchange. The bond's price rose 0.918 centavo to 95.266 centavos per peso.
Peru's sol ended a two-day rebound, sliding 0.8 percent to 2.9927 per dollar, from 2.9701 yesterday.
To contact the reporters on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net
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Oct. 2 (Bloomberg) -- Chile's peso tumbled to its lowest since July 2005, amid a rout of most Latin American currencies on concern that a $700 billion U.S. financial industry rescue plan won't avert a global slowdown.
``The package announced here in the U.S. doesn't have as much to do with Latin America these days,'' said Aryam Vazquez, an emerging markets economist with Wells Fargo & Co. in New York. Investors in Latin America ``are more focused on the pace of U.S. growth in general.''
The U.S. Senate passed a financial industry relief measure last night. It faces a vote in the House of Representatives tomorrow.
A U.S. and global slowdown will mean less demand for commodities on which Latin American economies rely.
The Chilean peso dropped 2 percent to 570.67 per dollar, at 10:53 a.m. New York time, from 559.45 yesterday. It fell as much as 2.7 percent to 574.55, the lowest since July 29, 2005.
Financial systems in Latin America are unlikely to stop functioning normally because they became more insulated from external shocks in the past few years, Vazquez said. ``If this crisis had occurred 10 years ago, Latin American financial systems would be in the Dumpster by now.''
Colombia's peso dropped 1.6 percent to 2,188. 5 per dollar from 2,155 yesterday, according to the Colombian foreign- exchange electronic transactions system, known as SET-FX.
The yield on Colombia's benchmark 11 percent bonds due in July 2020 fell 15 basis points, or 0.15 percentage point, to 11.75 percent, according to Colombia's stock exchange. The bond's price rose 0.918 centavo to 95.266 centavos per peso.
Peru's sol ended a two-day rebound, sliding 0.8 percent to 2.9927 per dollar, from 2.9701 yesterday.
To contact the reporters on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net
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Euro Falls to 13-Month Low Versus Dollar; ECB Debated Rate Cut
By Kim-Mai Cutler
Oct. 2 (Bloomberg) -- The euro fell to a 13-month low against the dollar and the weakest in two years versus the yen after European Central Bank President Jean-Claude Trichet said policy makers discussed cutting interest rates as economic growth slows.
The European single currency dropped for the fourth day against the dollar as Trichet said recent data suggests ``increased downside risks'' to growth. The ECB kept its main rate at 4.25 percent today, a seven-year high. The decision was predicted by all 58 economists surveyed by Bloomberg.
``The euro is under pressure across the board,'' said Marcus Hettinger, a Zurich-based currency strategist for Credit Suisse Group. ``The next move in rates will be down. It's more a question of time.''
The euro declined to $1.3828 at 3:23 p.m. in London, from $1.4009 yesterday in New York. It touched $1.3748, the weakest level since Sept. 7, 2007. The euro fell to 145.52 yen, from 148.11 yen, reaching 145.19, the lowest level since July 11, 2006. The U.S. currency traded at 105.25 yen, from 105.71 yen.
Declines in the euro reduce the likelihood of coordinated action by central banks to support the dollar, which has dropped more than 17 percent against the 15-nation currency in the past five years.
It may also help European exporters such as Fiat SpA, Volkswagen AG and Airbus SAS just as the region heads toward a recession. French Finance Minister Christine Lagarde said Sept. 11 she welcomed the euro's decline to below $1.40. Belgium's Didier Reynders said a weaker euro reflected ``fundamentals.''
`Downside Risks'
The euro has slid 5.6 percent this week, the biggest four-day drop since the currency's debut in 1999.
Traders raised bets on a rate cut in coming months. The implied yield on the Euribor futures contract expiring in March was at 4.16 percent today, from 4.77 percent a month ago.
``The economic outlook is subject to increasing downside risks,'' mainly ``stemming from ongoing financial-market tensions,'' Trichet said at a Frankfurt press conference following the decision. ``Upside risks to price stability have diminished, but they have not disappeared.''
Euro-region inflation was 3.6 percent last month, down from a 16-year high of 4 percent in July. The ECB's inflation target is below 2 percent.
``Trichet has downplayed the upside inflation risks for the first time in a long time,'' Dustin Reid, a senior currency strategist at ABN Amro Holding NV in Chicago, wrote in an e-mailed report. The fact the ECB discussed a rate-cut option today ``may give this move some further legs,'' he said, adding the euro may trade as low as $1.3600 in the coming week.
Dollar Strength
The dollar rose against 15 of the 16 most frequently traded currencies as demand for dollar funding increased amid the seizure in the money markets. The dollar also advanced after the Senate approved a $700 billion bank-rescue bill, bolstering expectations the U.S. will act faster than Europe to address the credit squeeze.
``Looking at the euro against the dollar, it's like matching one dog against another dog. Who's got the most fleas?'' said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``Dollar fundamentals don't seem to matter. It's extremely hard to fight this move into the dollar.''
European producer-price growth slowed in August from an 18- year high in the prior month as oil prices slid from a record, easing inflationary pressures, the European Union statistics office in Luxembourg said today. Crude declined by 33 percent since reaching an all-time high of $147.27 a barrel in July.
Rate Predictions
The ECB will lower borrowing costs in December as financial turmoil increases growth risks, JPMorgan Chase & Co. and Goldman Sachs Group Inc. said two days ago, revising their forecasts.
JPMorgan's David Mackie, the chief European economist in London, previously forecast the ECB would start cutting in March and now predicts the benchmark rate will fall to 2.75 percent by the end of 2009, compared with 3.5 percent before. Goldman's Erik Nielsen, the chief European economist in London, who had expected the benchmark to stay at 4.25 percent through the middle of 2009, sees three quarter-point reductions by then.
The financial crisis reached new heights in Europe this week as governments stepped in to help bail out five banks and credit costs soared to records.
Dexia SA, the world's biggest lender to local governments, received a 6.4 billion-euro state-backed rescue this week as the credit crisis spread to Europe. Governments in Belgium, the Netherlands and Luxembourg extended a lifeline to Fortis, Belgium's largest financial-services firm, and Hypo Real Estate Holding AG received a loan guarantee from Germany.
Senate Vote
The cost of borrowing in dollars in London for three months rose for a fourth day, signaling banks haven't started to lend. The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 6 basis points to 4.21 percent today, the highest since Jan. 11, the British Bankers' Association said. The corresponding rate for euros advanced 3 basis points to a record 5.32 percent.
The U.S. Senate voted 74-25 in favor of legislation that links the rescue plan for financial companies to an increase in bank-deposit-insurance limits and tax breaks, after the House of Representatives rejected an earlier version of the bill. The House is likely to vote on the latest version tomorrow, said Brendan Daly, a spokesman for House Speaker Nancy Pelosi.
Europe has yet to follow the U.S. with any bailout proposals. France and Germany clashed over whether to create a fund to rescue beleaguered banks. Lagarde told the German newspaper Handelsblatt a package is needed to help ``smaller'' European states ``threatened with a banking failure.'' German finance ministry spokesman Torsten Albig told reporters in Berlin his government ``doesn't support the plan.''
``Europe hasn't yet taken steps in a unified manner,'' said Akifumi Uchida, deputy general manager of the marketing unit in Tokyo at Sumitomo Trust & Banking Co., Japan's fifth-largest bank. ``Market consensus is that the U.S. bill will eventually pass in some kind of form. The package is likely to reduce worries over the U.S. and bolster the dollar.''
To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net
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Oct. 2 (Bloomberg) -- The euro fell to a 13-month low against the dollar and the weakest in two years versus the yen after European Central Bank President Jean-Claude Trichet said policy makers discussed cutting interest rates as economic growth slows.
The European single currency dropped for the fourth day against the dollar as Trichet said recent data suggests ``increased downside risks'' to growth. The ECB kept its main rate at 4.25 percent today, a seven-year high. The decision was predicted by all 58 economists surveyed by Bloomberg.
``The euro is under pressure across the board,'' said Marcus Hettinger, a Zurich-based currency strategist for Credit Suisse Group. ``The next move in rates will be down. It's more a question of time.''
The euro declined to $1.3828 at 3:23 p.m. in London, from $1.4009 yesterday in New York. It touched $1.3748, the weakest level since Sept. 7, 2007. The euro fell to 145.52 yen, from 148.11 yen, reaching 145.19, the lowest level since July 11, 2006. The U.S. currency traded at 105.25 yen, from 105.71 yen.
Declines in the euro reduce the likelihood of coordinated action by central banks to support the dollar, which has dropped more than 17 percent against the 15-nation currency in the past five years.
It may also help European exporters such as Fiat SpA, Volkswagen AG and Airbus SAS just as the region heads toward a recession. French Finance Minister Christine Lagarde said Sept. 11 she welcomed the euro's decline to below $1.40. Belgium's Didier Reynders said a weaker euro reflected ``fundamentals.''
`Downside Risks'
The euro has slid 5.6 percent this week, the biggest four-day drop since the currency's debut in 1999.
Traders raised bets on a rate cut in coming months. The implied yield on the Euribor futures contract expiring in March was at 4.16 percent today, from 4.77 percent a month ago.
``The economic outlook is subject to increasing downside risks,'' mainly ``stemming from ongoing financial-market tensions,'' Trichet said at a Frankfurt press conference following the decision. ``Upside risks to price stability have diminished, but they have not disappeared.''
Euro-region inflation was 3.6 percent last month, down from a 16-year high of 4 percent in July. The ECB's inflation target is below 2 percent.
``Trichet has downplayed the upside inflation risks for the first time in a long time,'' Dustin Reid, a senior currency strategist at ABN Amro Holding NV in Chicago, wrote in an e-mailed report. The fact the ECB discussed a rate-cut option today ``may give this move some further legs,'' he said, adding the euro may trade as low as $1.3600 in the coming week.
Dollar Strength
The dollar rose against 15 of the 16 most frequently traded currencies as demand for dollar funding increased amid the seizure in the money markets. The dollar also advanced after the Senate approved a $700 billion bank-rescue bill, bolstering expectations the U.S. will act faster than Europe to address the credit squeeze.
``Looking at the euro against the dollar, it's like matching one dog against another dog. Who's got the most fleas?'' said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``Dollar fundamentals don't seem to matter. It's extremely hard to fight this move into the dollar.''
European producer-price growth slowed in August from an 18- year high in the prior month as oil prices slid from a record, easing inflationary pressures, the European Union statistics office in Luxembourg said today. Crude declined by 33 percent since reaching an all-time high of $147.27 a barrel in July.
Rate Predictions
The ECB will lower borrowing costs in December as financial turmoil increases growth risks, JPMorgan Chase & Co. and Goldman Sachs Group Inc. said two days ago, revising their forecasts.
JPMorgan's David Mackie, the chief European economist in London, previously forecast the ECB would start cutting in March and now predicts the benchmark rate will fall to 2.75 percent by the end of 2009, compared with 3.5 percent before. Goldman's Erik Nielsen, the chief European economist in London, who had expected the benchmark to stay at 4.25 percent through the middle of 2009, sees three quarter-point reductions by then.
The financial crisis reached new heights in Europe this week as governments stepped in to help bail out five banks and credit costs soared to records.
Dexia SA, the world's biggest lender to local governments, received a 6.4 billion-euro state-backed rescue this week as the credit crisis spread to Europe. Governments in Belgium, the Netherlands and Luxembourg extended a lifeline to Fortis, Belgium's largest financial-services firm, and Hypo Real Estate Holding AG received a loan guarantee from Germany.
Senate Vote
The cost of borrowing in dollars in London for three months rose for a fourth day, signaling banks haven't started to lend. The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 6 basis points to 4.21 percent today, the highest since Jan. 11, the British Bankers' Association said. The corresponding rate for euros advanced 3 basis points to a record 5.32 percent.
The U.S. Senate voted 74-25 in favor of legislation that links the rescue plan for financial companies to an increase in bank-deposit-insurance limits and tax breaks, after the House of Representatives rejected an earlier version of the bill. The House is likely to vote on the latest version tomorrow, said Brendan Daly, a spokesman for House Speaker Nancy Pelosi.
Europe has yet to follow the U.S. with any bailout proposals. France and Germany clashed over whether to create a fund to rescue beleaguered banks. Lagarde told the German newspaper Handelsblatt a package is needed to help ``smaller'' European states ``threatened with a banking failure.'' German finance ministry spokesman Torsten Albig told reporters in Berlin his government ``doesn't support the plan.''
``Europe hasn't yet taken steps in a unified manner,'' said Akifumi Uchida, deputy general manager of the marketing unit in Tokyo at Sumitomo Trust & Banking Co., Japan's fifth-largest bank. ``Market consensus is that the U.S. bill will eventually pass in some kind of form. The package is likely to reduce worries over the U.S. and bolster the dollar.''
To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net
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Brazil's Real Drops to 13-Month Low on Slowdown, Export Outlook
By Adriana Brasileiro
Oct. 2 (Bloomberg) -- Brazil's real fell to a 13-month low on concern slowing global economic growth will curb demand for local exports and financial assets.
``Investors are eliminating any structural positions they have in Brazil because the market is acting irrationally now and there is a lot of fear about the shape of the world economy,'' said Jorge Knauer, manager of the foreign-exchange trading desk at Rio de Janeiro-based Banco Prosper SA.
The real slumped 3.5 percent to 1.9845 per dollar at 10:26 a.m. New York time, from 1.9176 yesterday. It fell as much as 4.4 percent to 2.0015 per dollar, the weakest level since Aug. 31, 2007.
The euro's drop against the dollar to a 13-month low today also reduced demand for reais, Knauer said. The 15-nation currency fell for a fourth day, declining as much as 1.9 percent to $1.3748, after European Central Bank President Jean-Claude Trichet said the regional economy is ``weakening.'' Policy makers discussed cutting the main refinancing rate before deciding to hold it at a seven-year high of 4.25 percent.
In the U.S., stocks dropped for a second day after first- time applications for jobless benefits rose to the highest level in seven years and factory orders decreased more than economists expected, falling by the most in almost two years.
The data added to investor anxiety in emerging markets, Knauer added.
The yield on Brazil's zero-coupon bond due in January 2010 rose 3 basis points, or 0.03 percentage point, to 14.52 percent. The yield on Brazil's overnight futures contract for January 2009 delivery increased 2 basis points to 14 percent.
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net
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Oct. 2 (Bloomberg) -- Brazil's real fell to a 13-month low on concern slowing global economic growth will curb demand for local exports and financial assets.
``Investors are eliminating any structural positions they have in Brazil because the market is acting irrationally now and there is a lot of fear about the shape of the world economy,'' said Jorge Knauer, manager of the foreign-exchange trading desk at Rio de Janeiro-based Banco Prosper SA.
The real slumped 3.5 percent to 1.9845 per dollar at 10:26 a.m. New York time, from 1.9176 yesterday. It fell as much as 4.4 percent to 2.0015 per dollar, the weakest level since Aug. 31, 2007.
The euro's drop against the dollar to a 13-month low today also reduced demand for reais, Knauer said. The 15-nation currency fell for a fourth day, declining as much as 1.9 percent to $1.3748, after European Central Bank President Jean-Claude Trichet said the regional economy is ``weakening.'' Policy makers discussed cutting the main refinancing rate before deciding to hold it at a seven-year high of 4.25 percent.
In the U.S., stocks dropped for a second day after first- time applications for jobless benefits rose to the highest level in seven years and factory orders decreased more than economists expected, falling by the most in almost two years.
The data added to investor anxiety in emerging markets, Knauer added.
The yield on Brazil's zero-coupon bond due in January 2010 rose 3 basis points, or 0.03 percentage point, to 14.52 percent. The yield on Brazil's overnight futures contract for January 2009 delivery increased 2 basis points to 14 percent.
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net
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Platinum Drops Below $1,000 as Car Sales Slump; Gold Declines
By Marianne Stigset
Oct. 2 (Bloomberg) -- Platinum plunged below $1,000 an ounce in London after U.S. auto sales had their worst month since 1991, reducing demand for the metal used in autocatalysts. Gold fell for a third day as the dollar strengthened and oil declined.
Ford Motor Co.'s September sales fell 35 percent from a year earlier and Toyota Motor Corp.'s dropped 32 percent, the poorest performances in more than two decades. Autocatalysts, used to reduce noxious tailpipe emissions, account for 47 percent of platinum demand, according to Johnson Matthey Plc. The figures take into account recycling.
``We've seen auto sales dropping, and not just in Western markets,'' said James Moore, an analyst at TheBullionDesk.com in London. ``We are edging toward recession globally, so some of the industrial demand will be reduced. But the longer-term outlook is still positive because emissions controls will still tighten.''
Platinum for immediate delivery in London declined as much as 5.3 percent to the lowest since January 2006 and was down $39.50 at $996.50 an ounce as of 12:44 p.m. local time. Platinum futures dropped to a three-year low on the Tokyo Commodity Exchange.
Platinum is a ``buying opportunity'' at $800 to $850, Moore said. He expects the metal to trade at $900 in a month and $1,100 in three months.
The metal may also be buoyed by limited opportunities to expand output in South Africa, the biggest supplier, he said. Eskom Holdings Ltd., the country's state-owned utility, cut supply to mines and smelters for five days in January because of power shortages.
Gold Slides
Gold declined for a third day in London as the dollar gained against the euro and crude oil fell, diminishing demand for the metal as a hedge against U.S. currency weakness and inflation.
The dollar strengthened to a one-year high against the euro, after the U.S. Senate approved a $700 billion financial-rescue package. Gold has had a correlation of 0.66 to the euro-dollar exchange rate this year, up from 0.58 last year. A figure of 1 would mean they move in lockstep.
Gold for immediate delivery fell $1.27, or 0.2 percent, to $869.53 an ounce in London. Futures for December slipped $15, or 1.7 percent, to $872.30 in electronic trading on the Comex division of the New York Mercantile Exchange.
``The rescue plan will have a slightly marginal negative impact on the gold price but investors' willingness to pay for the gold price is around $850, $880,'' Bayram Dincer, a commodity research analyst at Dresdner Bank in Zurich, said in a Bloomberg Television interview today.
Goldman Forecasts
Goldman Sachs Group Inc. yesterday cut its 2008 forecast for gold by 1 percent to $872 and raised its 2009 estimate by 9 percent to $876. The 2010 forecast was increased 19 percent to $912. The bank also reduced its 2009 platinum estimate by 9 percent to $1,782 an ounce and its 2010 forecast by 17 percent to $1,855.
Gold holdings in the world's largest exchange-traded fund backed by bullion, the SPDR Gold Trust, were at a record 755.26 tons as of yesterday.
``We say yes to gold in good times and bad times,'' Dincer said. When portfolios are reviewed in December ``investors will have the opportunity to buy gold as a further investment class for 2009, 2010 and gold will shine at the year end.''
Among other metals for immediate delivery, silver slipped 32 cents, or 2.6 percent, to $12.24 an ounce and palladium fell $1.50, or 0.7 percent, to $205 an ounce.
To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net
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Oct. 2 (Bloomberg) -- Platinum plunged below $1,000 an ounce in London after U.S. auto sales had their worst month since 1991, reducing demand for the metal used in autocatalysts. Gold fell for a third day as the dollar strengthened and oil declined.
Ford Motor Co.'s September sales fell 35 percent from a year earlier and Toyota Motor Corp.'s dropped 32 percent, the poorest performances in more than two decades. Autocatalysts, used to reduce noxious tailpipe emissions, account for 47 percent of platinum demand, according to Johnson Matthey Plc. The figures take into account recycling.
``We've seen auto sales dropping, and not just in Western markets,'' said James Moore, an analyst at TheBullionDesk.com in London. ``We are edging toward recession globally, so some of the industrial demand will be reduced. But the longer-term outlook is still positive because emissions controls will still tighten.''
Platinum for immediate delivery in London declined as much as 5.3 percent to the lowest since January 2006 and was down $39.50 at $996.50 an ounce as of 12:44 p.m. local time. Platinum futures dropped to a three-year low on the Tokyo Commodity Exchange.
Platinum is a ``buying opportunity'' at $800 to $850, Moore said. He expects the metal to trade at $900 in a month and $1,100 in three months.
The metal may also be buoyed by limited opportunities to expand output in South Africa, the biggest supplier, he said. Eskom Holdings Ltd., the country's state-owned utility, cut supply to mines and smelters for five days in January because of power shortages.
Gold Slides
Gold declined for a third day in London as the dollar gained against the euro and crude oil fell, diminishing demand for the metal as a hedge against U.S. currency weakness and inflation.
The dollar strengthened to a one-year high against the euro, after the U.S. Senate approved a $700 billion financial-rescue package. Gold has had a correlation of 0.66 to the euro-dollar exchange rate this year, up from 0.58 last year. A figure of 1 would mean they move in lockstep.
Gold for immediate delivery fell $1.27, or 0.2 percent, to $869.53 an ounce in London. Futures for December slipped $15, or 1.7 percent, to $872.30 in electronic trading on the Comex division of the New York Mercantile Exchange.
``The rescue plan will have a slightly marginal negative impact on the gold price but investors' willingness to pay for the gold price is around $850, $880,'' Bayram Dincer, a commodity research analyst at Dresdner Bank in Zurich, said in a Bloomberg Television interview today.
Goldman Forecasts
Goldman Sachs Group Inc. yesterday cut its 2008 forecast for gold by 1 percent to $872 and raised its 2009 estimate by 9 percent to $876. The 2010 forecast was increased 19 percent to $912. The bank also reduced its 2009 platinum estimate by 9 percent to $1,782 an ounce and its 2010 forecast by 17 percent to $1,855.
Gold holdings in the world's largest exchange-traded fund backed by bullion, the SPDR Gold Trust, were at a record 755.26 tons as of yesterday.
``We say yes to gold in good times and bad times,'' Dincer said. When portfolios are reviewed in December ``investors will have the opportunity to buy gold as a further investment class for 2009, 2010 and gold will shine at the year end.''
Among other metals for immediate delivery, silver slipped 32 cents, or 2.6 percent, to $12.24 an ounce and palladium fell $1.50, or 0.7 percent, to $205 an ounce.
To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net
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Sugar Falls in N.Y. as Dollar Firms, Raising Commodity Costs
By Ron Day
Oct. 2 (Bloomberg) -- Sugar dropped as the dollar strengthened against the euro, boosting commodity prices for buyers holding the 15-nation currency.
The dollar gained on speculation that the risk of a recession in Europe is rising after the European Central Bank kept its benchmark interest rate unchanged at a seven-year high. The Reuters/Jefferies CRB Index of 19 commodities fell as gold and crude oil slid. Lower crude cuts demand for ethanol, a fuel made from sugar cane in Brazil.
Raw-sugar futures for March delivery dropped 0.28 cent, or 2 percent, to 13.65 cents a pound at 8:42 a.m. on ICE Futures U.S. in New York. Sugar gained 29 percent this year through yesterday, the second-best performer on the CRB after cocoa.
To contact the reporter on this story: Ron Day in New York at rday1@bloomberg.net.
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Oct. 2 (Bloomberg) -- Sugar dropped as the dollar strengthened against the euro, boosting commodity prices for buyers holding the 15-nation currency.
The dollar gained on speculation that the risk of a recession in Europe is rising after the European Central Bank kept its benchmark interest rate unchanged at a seven-year high. The Reuters/Jefferies CRB Index of 19 commodities fell as gold and crude oil slid. Lower crude cuts demand for ethanol, a fuel made from sugar cane in Brazil.
Raw-sugar futures for March delivery dropped 0.28 cent, or 2 percent, to 13.65 cents a pound at 8:42 a.m. on ICE Futures U.S. in New York. Sugar gained 29 percent this year through yesterday, the second-best performer on the CRB after cocoa.
To contact the reporter on this story: Ron Day in New York at rday1@bloomberg.net.
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Oil Falls as Dollar Climbs Against Euro, U.S. Fuel Demand Drops
By Mark Shenk
Oct. 2 (Bloomberg) -- Crude oil fell for a second day as the dollar reached a one-year high against the euro and U.S. fuel demand dropped to the lowest since the last recession.
Oil has tumbled 9.9 percent so far this week as the euro dropped against the U.S. currency amid signs that Europe's economy is slowing. Fuel use over the past four weeks averaged 19 million barrels a day, the lowest since October 2001, an Energy Department report showed yesterday.
``The first thing I look at when I come into the office now is the dollar,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``I think the dollar's strength pretty much explains the movement of the oil market today. Also, yesterday's report showed very anemic product demand.''
Crude oil for November delivery fell $2.18, or 2.2 percent, to $96.35 a barrel at 9:19 a.m. on the New York Mercantile Exchange. Prices, which are up 21 percent from a year ago, have dropped 35 percent from the record $147.27 a barrel reached on July 11.
``We are going to soon test $93.36, the low the other day,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York. ``If prices get below $93.36 we will soon test $90 and then $86.11, which was the low on Jan. 22.''
The euro declined to $1.3768, from $1.4009 yesterday in New York. It touched $1.3748, the weakest level since Sept. 7, 2007.
The U.S. Senate passed a $700 billion financial-market rescue package loaded with inducements for the House of Representatives to approve the measure following its rejection of an earlier version.
Prices Will Tumble
``A perception is developing that even if the rescue plan is passed by the House, it won't address the underlying problems that threaten the economy,'' Barakat said. ``If the economy continues to weaken oil prices will tumble.''
Prices may fall as low as $50 a barrel next year in the event of a ``global recession,'' Merrill Lynch & Co. said in a report today. Such an occurrence is still ``unlikely,'' Merrill said, while reducing its 2009 oil forecast by 16 percent to $90 a barrel.
Brent crude oil for November settlement declined $2.42, or 2.5 percent, to $92.91 a barrel on London's ICE Futures Europe exchange.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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Oct. 2 (Bloomberg) -- Crude oil fell for a second day as the dollar reached a one-year high against the euro and U.S. fuel demand dropped to the lowest since the last recession.
Oil has tumbled 9.9 percent so far this week as the euro dropped against the U.S. currency amid signs that Europe's economy is slowing. Fuel use over the past four weeks averaged 19 million barrels a day, the lowest since October 2001, an Energy Department report showed yesterday.
``The first thing I look at when I come into the office now is the dollar,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``I think the dollar's strength pretty much explains the movement of the oil market today. Also, yesterday's report showed very anemic product demand.''
Crude oil for November delivery fell $2.18, or 2.2 percent, to $96.35 a barrel at 9:19 a.m. on the New York Mercantile Exchange. Prices, which are up 21 percent from a year ago, have dropped 35 percent from the record $147.27 a barrel reached on July 11.
``We are going to soon test $93.36, the low the other day,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York. ``If prices get below $93.36 we will soon test $90 and then $86.11, which was the low on Jan. 22.''
The euro declined to $1.3768, from $1.4009 yesterday in New York. It touched $1.3748, the weakest level since Sept. 7, 2007.
The U.S. Senate passed a $700 billion financial-market rescue package loaded with inducements for the House of Representatives to approve the measure following its rejection of an earlier version.
Prices Will Tumble
``A perception is developing that even if the rescue plan is passed by the House, it won't address the underlying problems that threaten the economy,'' Barakat said. ``If the economy continues to weaken oil prices will tumble.''
Prices may fall as low as $50 a barrel next year in the event of a ``global recession,'' Merrill Lynch & Co. said in a report today. Such an occurrence is still ``unlikely,'' Merrill said, while reducing its 2009 oil forecast by 16 percent to $90 a barrel.
Brent crude oil for November settlement declined $2.42, or 2.5 percent, to $92.91 a barrel on London's ICE Futures Europe exchange.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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U.S. Jobless Claims for the Week of Sept. 27: Summary
By Andy Burt
Oct. 2 (Bloomberg) -- Following is a summary of the Sept. 27 initial jobless claims report from the Labor Department.
(SA) = Seasonally adjusted figures. (NSA) = Not seasonally adjusted.
To contact the reporter on this story: Andy Burt in Washington at aburt1@bloomberg.net
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Oct. 2 (Bloomberg) -- Following is a summary of the Sept. 27 initial jobless claims report from the Labor Department.
========================================================================
Week Ending Sept. 27 Sept. 20 Sept. 13 Prior Year
========================================================================
Initial Claims (SA) 497,000 496,000 458,000 324,000
Change 1,000 38,000 13,000 173,000
Percent change 0.2% 8.3% 2.9% 53.4%
4-Wk moving average 474,000 462,500 445,750 318,500
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Initial Claims (NSA) 390,837 398,070 382,249 255,431
Change -7,233 15,821 45,516 135,406
Percent change -1.8% 4.1% 13.5% 53.0%
========================================================================
Week Ending Sept. 20 Sept. 13 Sept. 6 Prior Year
========================================================================
Continuing claims (SA) 3,591,000 3,543,000 3,448,000 2,555,000
Change 48,000 95,000 -84,000 1,036,000
========================================================================
Week Ending Sept. 20 Sept. 13 Sept. 6 Prior Year
========================================================================
Percent change 1.4% 2.8% -2.4% 40.5%
4-Wk Moving average (SA) 3,528,500 3,481,750 3,453,250 2,566,500
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Ins. Unemployment Rate (SA) 2.7% 2.7% 2.6% 1.9%
Ins. Unemployment Rate (NSA) 2.3% 2.3% 2.3% 1.6%
------------------------------------------------------------------------
Continuing claims (NSA) 3,009,578 3,014,874 3,040,859 2,140,701
Change -5,296 -25,985 -18,267 868,877
========================================================================
Sept. 13 Sept. 6 Aug. 30 Prior Year
========================================================================
Percent change -0.2% -0.9% -0.6% 40.6%
Extended benefits (NSA) 1,125 1,326 526 0
Change -201 800 -1,022 1,125
Emergency Unemp. Comp. (NSA) 1,431,754 1,056,924 1,394,329 0
Change 374,830 -337,405 296,954 1,431,754
========================================================================
(SA) = Seasonally adjusted figures. (NSA) = Not seasonally adjusted.
To contact the reporter on this story: Andy Burt in Washington at aburt1@bloomberg.net
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U.K. Stocks Erase Earlier Gains, Led by Vedanta and Wolfson
By Alexis Xydias
Oct. 2 (Bloomberg) -- U.K. stocks fell, erasing earlier gains. Vedanta Plc, India's largest copper producer, and Wolfson Microelectronics Plc led the retreat.
The FTSE 100 Index lost 31.69, or 0.6 percent, to 4,927.90 at 3:07 p.m. in London, after earlier gaining as much as 1.9 percent.
Vedanta fell 111.5 pence, or 11 percent, to 993.5, an eighth day of declines. Shares in the mining company cut to ``sell'' from ``buy'' by Goldman, Sachs & Co., which also added the stock to its ``conviction sell'' list.
Wolfson tumbled 20.5 pence, or 19 percent, to a record low of 89 pence. The maker of semiconductors used to power mobile phones said it has experienced a ``material reduction'' in orders.
To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net.
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Oct. 2 (Bloomberg) -- U.K. stocks fell, erasing earlier gains. Vedanta Plc, India's largest copper producer, and Wolfson Microelectronics Plc led the retreat.
The FTSE 100 Index lost 31.69, or 0.6 percent, to 4,927.90 at 3:07 p.m. in London, after earlier gaining as much as 1.9 percent.
Vedanta fell 111.5 pence, or 11 percent, to 993.5, an eighth day of declines. Shares in the mining company cut to ``sell'' from ``buy'' by Goldman, Sachs & Co., which also added the stock to its ``conviction sell'' list.
Wolfson tumbled 20.5 pence, or 19 percent, to a record low of 89 pence. The maker of semiconductors used to power mobile phones said it has experienced a ``material reduction'' in orders.
To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net.
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Russia Has Worst IPO Quarter Since 2004, PBN Says
By Denis Maternovsky
Oct. 2 (Bloomberg) -- Forty-three companies from Russia and the former Soviet Union canceled or postponed initial public offerings so far this year, culminating in the worst quarter for IPOs since at least 2004, according to the PBN Co.
A total of seven IPOs in the first nine months of 2008 raised $1.68 billion, compared with $26.3 billion in 22 IPOs in the same period last year, according to a report by PBN, a communications company that has advised foreign companies investing in Russia including BP Plc and Merrill Lynch & Co..
``Given that market recovery is increasingly improbable through the end of the year, we are unlikely to see more than a handful of IPOs at most - and even that is probably optimistic,'' Peter Necarsulmer, PBN's chairman, said in an e-mailed statement.
Last month, Russia pledged more than $100 billion in emergency funding after closing the stock market for two days as equities plunged and the MosPrime measure of overnight interbank lending rates reached a record. The Micex Index of stocks has lost 47 percent of its value this year, weighed down by Russia's war with Georgia, a plunge in oil prices, and the global credit crisis.
As many as 120 companies in Russia and the Commonwealth of Independent States are planning to sell shares in the next five years, after cancellation or postponement of 43 IPOs this year, Necarsulmer said. Last year, Russian IPOs reached a record, according to PBN.
OAO Acron, Russia's third-largest producer of nitrogen fertilizers, raised $2.7 million in London and Moscow in the third quarter's only IPO by a Russian or CIS company, according to PBN.
This compares with $1 billion in the same period last year, $1.1 billion for the second quarter of 2008, and $556 million in the first three months of this year, according to the report.
To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
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Oct. 2 (Bloomberg) -- Forty-three companies from Russia and the former Soviet Union canceled or postponed initial public offerings so far this year, culminating in the worst quarter for IPOs since at least 2004, according to the PBN Co.
A total of seven IPOs in the first nine months of 2008 raised $1.68 billion, compared with $26.3 billion in 22 IPOs in the same period last year, according to a report by PBN, a communications company that has advised foreign companies investing in Russia including BP Plc and Merrill Lynch & Co..
``Given that market recovery is increasingly improbable through the end of the year, we are unlikely to see more than a handful of IPOs at most - and even that is probably optimistic,'' Peter Necarsulmer, PBN's chairman, said in an e-mailed statement.
Last month, Russia pledged more than $100 billion in emergency funding after closing the stock market for two days as equities plunged and the MosPrime measure of overnight interbank lending rates reached a record. The Micex Index of stocks has lost 47 percent of its value this year, weighed down by Russia's war with Georgia, a plunge in oil prices, and the global credit crisis.
As many as 120 companies in Russia and the Commonwealth of Independent States are planning to sell shares in the next five years, after cancellation or postponement of 43 IPOs this year, Necarsulmer said. Last year, Russian IPOs reached a record, according to PBN.
OAO Acron, Russia's third-largest producer of nitrogen fertilizers, raised $2.7 million in London and Moscow in the third quarter's only IPO by a Russian or CIS company, according to PBN.
This compares with $1 billion in the same period last year, $1.1 billion for the second quarter of 2008, and $556 million in the first three months of this year, according to the report.
To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
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Mexican Peso Drops to One-Year Low on Economic Growth Concern
By Michael J. Moore
Oct. 2 (Bloomberg) -- Mexico's peso dropped to a one-year low against the U.S. dollar on concern a global economic slowdown will reduce demand for emerging-market assets.
``We're operating in an environment where investors are shifting their funds toward expecting a global recession,'' said Gerardo Margolis, a currency trader at TD Securities Inc. in Toronto. ``That's hurting all the high-yielding currencies and emerging-market currencies and equities.''
The peso fell 1.7 percent to 11.1254 per dollar at 10:20 a.m. New York time, from 10.9601 yesterday. It touched 11.1463, the weakest since Sept. 17, 2007, the day before the U.S. Federal Reserve began cutting its benchmark interest rate, which was 5.25 percent. It is currently 2 percent.
Mexico's economy may expand 2.5 percent next year, according to the average estimate of 33 economists surveyed by the central bank, which released its report yesterday. They previously forecast 2.9 percent.
Citigroup Inc. said yesterday that if the peso closes for the week beyond the 11.02-per-dollar resistance level, the bank would revise its target to 11.33 per dollar.
European Central Bank President Jean-Claude Trichet told reporters in Frankfurt today that financial-market turmoil is weakening economic growth, reducing the threat of inflation. Policy makers discussed lowering the benchmark interest rate from 4.25 percent before deciding to hold it steady.
Crude oil for November delivery fell as much as 3.5 percent in trading on the New York Mercantile Exchange as U.S. consumption dropped to the lowest since 2001. Mexico, the third- largest supplier of crude to the U.S., relies on oil for 40 percent of its federal budget.
Crude Oil
Petroleos Mexicanos, the state-owned oil company, said Sept. 22 that it extracted less than 1 million barrels a day from its largest field for a second consecutive month. Crude output fell 3 percent in August from a year earlier.
``Commodities like oil are lower, and that's also hurting the peso because in Mexico the production is already coming off every month as well,'' Margolis said.
The worst decline in the U.S. housing industry since the Great Depression is cutting remittances to Mexico from workers abroad, a Banco de Mexico report showed yesterday. Money transfers fell 12 percent in August from the same month a year earlier, the biggest decline since the central bank began tracking the data in 1995. Remittances are Mexico's second- biggest source of dollar flows after oil exports.
Yields on Mexico's 10 percent bond due in December 2024 rose 1 basis point, or 0.01 percentage point, to 8.41 percent. The bond's price fell 0.1 centavo to 114.37 centavos per peso, according to Banco Santander SA.
To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net
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Oct. 2 (Bloomberg) -- Mexico's peso dropped to a one-year low against the U.S. dollar on concern a global economic slowdown will reduce demand for emerging-market assets.
``We're operating in an environment where investors are shifting their funds toward expecting a global recession,'' said Gerardo Margolis, a currency trader at TD Securities Inc. in Toronto. ``That's hurting all the high-yielding currencies and emerging-market currencies and equities.''
The peso fell 1.7 percent to 11.1254 per dollar at 10:20 a.m. New York time, from 10.9601 yesterday. It touched 11.1463, the weakest since Sept. 17, 2007, the day before the U.S. Federal Reserve began cutting its benchmark interest rate, which was 5.25 percent. It is currently 2 percent.
Mexico's economy may expand 2.5 percent next year, according to the average estimate of 33 economists surveyed by the central bank, which released its report yesterday. They previously forecast 2.9 percent.
Citigroup Inc. said yesterday that if the peso closes for the week beyond the 11.02-per-dollar resistance level, the bank would revise its target to 11.33 per dollar.
European Central Bank President Jean-Claude Trichet told reporters in Frankfurt today that financial-market turmoil is weakening economic growth, reducing the threat of inflation. Policy makers discussed lowering the benchmark interest rate from 4.25 percent before deciding to hold it steady.
Crude oil for November delivery fell as much as 3.5 percent in trading on the New York Mercantile Exchange as U.S. consumption dropped to the lowest since 2001. Mexico, the third- largest supplier of crude to the U.S., relies on oil for 40 percent of its federal budget.
Crude Oil
Petroleos Mexicanos, the state-owned oil company, said Sept. 22 that it extracted less than 1 million barrels a day from its largest field for a second consecutive month. Crude output fell 3 percent in August from a year earlier.
``Commodities like oil are lower, and that's also hurting the peso because in Mexico the production is already coming off every month as well,'' Margolis said.
The worst decline in the U.S. housing industry since the Great Depression is cutting remittances to Mexico from workers abroad, a Banco de Mexico report showed yesterday. Money transfers fell 12 percent in August from the same month a year earlier, the biggest decline since the central bank began tracking the data in 1995. Remittances are Mexico's second- biggest source of dollar flows after oil exports.
Yields on Mexico's 10 percent bond due in December 2024 rose 1 basis point, or 0.01 percentage point, to 8.41 percent. The bond's price fell 0.1 centavo to 114.37 centavos per peso, according to Banco Santander SA.
To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net
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Gold, Silver Futures Fall on Speculation Bailout Plan Will Pass
By Pham-Duy Nguyen
Oct. 2 (Bloomberg) -- Gold tumbled more than 3 percent on speculation the U.S. Congress will approve a plan to revive credit markets, reducing the appeal of the precious metal as a haven. Silver plunged more than 6 percent.
The dollar jumped as much as 1.8 percent against the euro after the Senate authorized the government to buy troubled assets from banks. The House of Representatives is set to vote on the measure tomorrow. Gold gained 5.5 percent in September as Lehman Brothers Holdings Inc. collapsed and the U.S. took over American International Group Inc., Fannie Mae and Freddie Mac.
``The dollar is up big on the Senate passing the bailout plan,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``In terms of gold, there's a lot of optimism that this bill is going to pass in the House. The safe haven is gone, and gold definitely suffers if this thing is passed.''
Gold futures for December delivery fell $28.30, or 3.2 percent, to $859 an ounce at 9:13 a.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price touched $853.50, the lowest since Sept. 19.
Silver futures for December delivery declined 83.5 cents, or 6.5 percent, to $11.935 an ounce.
Before today, gold was up 5.9 percent this year, while silver dropped 14 percent.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Oct. 2 (Bloomberg) -- Gold tumbled more than 3 percent on speculation the U.S. Congress will approve a plan to revive credit markets, reducing the appeal of the precious metal as a haven. Silver plunged more than 6 percent.
The dollar jumped as much as 1.8 percent against the euro after the Senate authorized the government to buy troubled assets from banks. The House of Representatives is set to vote on the measure tomorrow. Gold gained 5.5 percent in September as Lehman Brothers Holdings Inc. collapsed and the U.S. took over American International Group Inc., Fannie Mae and Freddie Mac.
``The dollar is up big on the Senate passing the bailout plan,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``In terms of gold, there's a lot of optimism that this bill is going to pass in the House. The safe haven is gone, and gold definitely suffers if this thing is passed.''
Gold futures for December delivery fell $28.30, or 3.2 percent, to $859 an ounce at 9:13 a.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price touched $853.50, the lowest since Sept. 19.
Silver futures for December delivery declined 83.5 cents, or 6.5 percent, to $11.935 an ounce.
Before today, gold was up 5.9 percent this year, while silver dropped 14 percent.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Gold, Silver Futures Fall on Speculation Bailout Plan Will Pass
By Pham-Duy Nguyen
Oct. 2 (Bloomberg) -- Gold tumbled more than 3 percent on speculation the U.S. Congress will approve a plan to revive credit markets, reducing the appeal of the precious metal as a haven. Silver plunged more than 6 percent.
The dollar jumped as much as 1.8 percent against the euro after the Senate authorized the government to buy troubled assets from banks. The House of Representatives is set to vote on the measure tomorrow. Gold gained 5.5 percent in September as Lehman Brothers Holdings Inc. collapsed and the U.S. took over American International Group Inc., Fannie Mae and Freddie Mac.
``The dollar is up big on the Senate passing the bailout plan,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``In terms of gold, there's a lot of optimism that this bill is going to pass in the House. The safe haven is gone, and gold definitely suffers if this thing is passed.''
Gold futures for December delivery fell $28.30, or 3.2 percent, to $859 an ounce at 9:13 a.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price touched $853.50, the lowest since Sept. 19.
Silver futures for December delivery declined 83.5 cents, or 6.5 percent, to $11.935 an ounce.
Before today, gold was up 5.9 percent this year, while silver dropped 14 percent.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
Read more...
Oct. 2 (Bloomberg) -- Gold tumbled more than 3 percent on speculation the U.S. Congress will approve a plan to revive credit markets, reducing the appeal of the precious metal as a haven. Silver plunged more than 6 percent.
The dollar jumped as much as 1.8 percent against the euro after the Senate authorized the government to buy troubled assets from banks. The House of Representatives is set to vote on the measure tomorrow. Gold gained 5.5 percent in September as Lehman Brothers Holdings Inc. collapsed and the U.S. took over American International Group Inc., Fannie Mae and Freddie Mac.
``The dollar is up big on the Senate passing the bailout plan,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``In terms of gold, there's a lot of optimism that this bill is going to pass in the House. The safe haven is gone, and gold definitely suffers if this thing is passed.''
Gold futures for December delivery fell $28.30, or 3.2 percent, to $859 an ounce at 9:13 a.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price touched $853.50, the lowest since Sept. 19.
Silver futures for December delivery declined 83.5 cents, or 6.5 percent, to $11.935 an ounce.
Before today, gold was up 5.9 percent this year, while silver dropped 14 percent.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Russia Has Worst IPO Quarter Since 2004, PBN Says
By Denis Maternovsky
Oct. 2 (Bloomberg) -- Forty-three companies from Russia and the former Soviet Union canceled or postponed initial public offerings so far this year, culminating in the worst quarter for IPOs since at least 2004, according to the PBN Co.
A total of seven IPOs in the first nine months of 2008 raised $1.68 billion, compared with $26.3 billion in 22 IPOs in the same period last year, according to a report by PBN, a communications company that has advised foreign companies investing in Russia including BP Plc and Merrill Lynch & Co..
``Given that market recovery is increasingly improbable through the end of the year, we are unlikely to see more than a handful of IPOs at most - and even that is probably optimistic,'' Peter Necarsulmer, PBN's chairman, said in an e-mailed statement.
Last month, Russia pledged more than $100 billion in emergency funding after closing the stock market for two days as equities plunged and the MosPrime measure of overnight interbank lending rates reached a record. The Micex Index of stocks has lost 47 percent of its value this year, weighed down by Russia's war with Georgia, a plunge in oil prices, and the global credit crisis.
As many as 120 companies in Russia and the Commonwealth of Independent States are planning to sell shares in the next five years, after cancellation or postponement of 43 IPOs this year, Necarsulmer said. Last year, Russian IPOs reached a record, according to PBN.
OAO Acron, Russia's third-largest producer of nitrogen fertilizers, raised $2.7 million in London and Moscow in the third quarter's only IPO by a Russian or CIS company, according to PBN.
This compares with $1 billion in the same period last year, $1.1 billion for the second quarter of 2008, and $556 million in the first three months of this year, according to the report.
To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
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Oct. 2 (Bloomberg) -- Forty-three companies from Russia and the former Soviet Union canceled or postponed initial public offerings so far this year, culminating in the worst quarter for IPOs since at least 2004, according to the PBN Co.
A total of seven IPOs in the first nine months of 2008 raised $1.68 billion, compared with $26.3 billion in 22 IPOs in the same period last year, according to a report by PBN, a communications company that has advised foreign companies investing in Russia including BP Plc and Merrill Lynch & Co..
``Given that market recovery is increasingly improbable through the end of the year, we are unlikely to see more than a handful of IPOs at most - and even that is probably optimistic,'' Peter Necarsulmer, PBN's chairman, said in an e-mailed statement.
Last month, Russia pledged more than $100 billion in emergency funding after closing the stock market for two days as equities plunged and the MosPrime measure of overnight interbank lending rates reached a record. The Micex Index of stocks has lost 47 percent of its value this year, weighed down by Russia's war with Georgia, a plunge in oil prices, and the global credit crisis.
As many as 120 companies in Russia and the Commonwealth of Independent States are planning to sell shares in the next five years, after cancellation or postponement of 43 IPOs this year, Necarsulmer said. Last year, Russian IPOs reached a record, according to PBN.
OAO Acron, Russia's third-largest producer of nitrogen fertilizers, raised $2.7 million in London and Moscow in the third quarter's only IPO by a Russian or CIS company, according to PBN.
This compares with $1 billion in the same period last year, $1.1 billion for the second quarter of 2008, and $556 million in the first three months of this year, according to the report.
To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
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European Stocks Fall on Economy Concern; BHP, Rio, BMW Decline
By Sarah Jones
Oct. 2 (Bloomberg) -- European stocks fell for the first time in three days, led by commodity producers and carmakers, as concern deepened the economic slowdown will hurt profit growth.
BHP Billiton Ltd. and Rio Tinto Group led mining companies lower, dropping more than 5 percent as metals prices declined. BG Group Plc sank 6.1 percent, following oil prices lower after U.S. jobless claims climbed to a seven-year high. Bayerische Motoren Werke AG slipped 4.2 percent after the world's largest maker of luxury cars said there'll be no recovery in auto markets until at least the middle of next year.
The Dow Jones Stoxx 600 Index lost 0.7 percent to 255.87 as of 3:29 p.m. in London. The index earlier climbed as much as 1.7 percent after UBS AG said it expects a ``small profit'' in the third quarter, spurring a rally in banking shares.
National benchmark indexes decreased in 14 of the 18 western European markets. France's CAC 40 sank 1.1 percent, and the U.K.'s FTSE 100 dropped 0.8 percent. Germany's DAX slumped 1.9 percent.
Europe's Stoxx 600 tumbled 30 percent this year as bailouts of financial companies worldwide accelerated and bank credit losses and writedowns approached $600 billion. Europe's regional index is valued at 11 times the earnings of its companies, near the level of 10.6 in July that was the lowest in at least six years, according to data compiled by Bloomberg.
The U.S. Senate yesterday approved a $700 billion bank rescue plan in an effort to stabilize the financial system. The plan, which was rejected earlier by the lower house of Congress, authorizes the purchase of troubled assets from financial companies. It passed the Senate with a 74-25 vote.
No Consensus
European officials have squabbled today over how to respond to the global credit crunch, with Germany opposing a coordinated approach and the Netherlands calling on states to set aside funds to help troubled banks. The conflict undermined efforts to build a consensus European strategy to counter the financial crisis.
The cost of borrowing in euros for three months rose to a record for a fifth day, signaling that banks haven't started to lend. The euro interbank offered rate, or Euribor, that banks charge each other for such loans climbed 4 basis points to 5.33 percent today, the European Banking Federation said.
BHP Billiton, the world's biggest mining company, sank 5.3 percent to 1,144 pence. Rio Tinto, the third largest, lost 6.9 percent to 3,245 pence. Copper, nickel, zinc and tin declined in London.
BG Group
BG Group, the U.K.'s third-biggest oil and gas company, fell 6.1 percent to 947.5 pence. BP Plc, Europe's second-biggest energy producer, slipped 2.1 percent to 454.5 pence.
Oil fell for a second day as the dollar reached a one-year high against the euro and U.S. fuel demand dropped to the lowest since the last recession.
BMW lost 4.2 percent to 24.995 euros after saying that it's prepared to deepen production cuts if demand continues to slide. The carmaker also said U.S. sales fell 26 percent last month.
UBS, the European bank with the most losses from the global credit crisis, rallied 11 percent to 21.78 francs. The company has posted $44 billion in writedowns and credit losses.
``UBS currently expects to report a small profit,'' the Zurich-based bank said. The company, which ``substantially reduced its U.S. commercial and residential mortgage-related positions,'' forecast 2009 will be a profitable year.
To contact the reporter on this story: Sarah Jones in Copenhagen at sjones35@bloomberg.net.
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Oct. 2 (Bloomberg) -- European stocks fell for the first time in three days, led by commodity producers and carmakers, as concern deepened the economic slowdown will hurt profit growth.
BHP Billiton Ltd. and Rio Tinto Group led mining companies lower, dropping more than 5 percent as metals prices declined. BG Group Plc sank 6.1 percent, following oil prices lower after U.S. jobless claims climbed to a seven-year high. Bayerische Motoren Werke AG slipped 4.2 percent after the world's largest maker of luxury cars said there'll be no recovery in auto markets until at least the middle of next year.
The Dow Jones Stoxx 600 Index lost 0.7 percent to 255.87 as of 3:29 p.m. in London. The index earlier climbed as much as 1.7 percent after UBS AG said it expects a ``small profit'' in the third quarter, spurring a rally in banking shares.
National benchmark indexes decreased in 14 of the 18 western European markets. France's CAC 40 sank 1.1 percent, and the U.K.'s FTSE 100 dropped 0.8 percent. Germany's DAX slumped 1.9 percent.
Europe's Stoxx 600 tumbled 30 percent this year as bailouts of financial companies worldwide accelerated and bank credit losses and writedowns approached $600 billion. Europe's regional index is valued at 11 times the earnings of its companies, near the level of 10.6 in July that was the lowest in at least six years, according to data compiled by Bloomberg.
The U.S. Senate yesterday approved a $700 billion bank rescue plan in an effort to stabilize the financial system. The plan, which was rejected earlier by the lower house of Congress, authorizes the purchase of troubled assets from financial companies. It passed the Senate with a 74-25 vote.
No Consensus
European officials have squabbled today over how to respond to the global credit crunch, with Germany opposing a coordinated approach and the Netherlands calling on states to set aside funds to help troubled banks. The conflict undermined efforts to build a consensus European strategy to counter the financial crisis.
The cost of borrowing in euros for three months rose to a record for a fifth day, signaling that banks haven't started to lend. The euro interbank offered rate, or Euribor, that banks charge each other for such loans climbed 4 basis points to 5.33 percent today, the European Banking Federation said.
BHP Billiton, the world's biggest mining company, sank 5.3 percent to 1,144 pence. Rio Tinto, the third largest, lost 6.9 percent to 3,245 pence. Copper, nickel, zinc and tin declined in London.
BG Group
BG Group, the U.K.'s third-biggest oil and gas company, fell 6.1 percent to 947.5 pence. BP Plc, Europe's second-biggest energy producer, slipped 2.1 percent to 454.5 pence.
Oil fell for a second day as the dollar reached a one-year high against the euro and U.S. fuel demand dropped to the lowest since the last recession.
BMW lost 4.2 percent to 24.995 euros after saying that it's prepared to deepen production cuts if demand continues to slide. The carmaker also said U.S. sales fell 26 percent last month.
UBS, the European bank with the most losses from the global credit crisis, rallied 11 percent to 21.78 francs. The company has posted $44 billion in writedowns and credit losses.
``UBS currently expects to report a small profit,'' the Zurich-based bank said. The company, which ``substantially reduced its U.S. commercial and residential mortgage-related positions,'' forecast 2009 will be a profitable year.
To contact the reporter on this story: Sarah Jones in Copenhagen at sjones35@bloomberg.net.
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Canadian Stocks Decline, Led by Potash, Agrium, Barrick Gold
By John Kipphoff
Oct. 2 (Bloomberg) -- Canadian stocks dropped a second day, led by Potash Corp. of Saskatchewan Inc. and other raw-materials producers, on concern demand will weaken for fertilizers and declines in grain and metals prices.
Potash Corp. had its biggest intraday decline in 19 years after rival Mosaic Co. reported profit that fell short of analyst estimates and cut its forecast for phosphate sales. Merrill Lynch & Co. lowered its ratings on Potash and two other fertilizer stocks on concern that slumping prices and lower demand may hurt profit.
Barrick Gold Corp. dropped as bullion prices slid on speculation the U.S. will approve a plan to revive credit markets, reducing the appeal of the precious metal as a haven.
The Standard & Poor's/TSX Composite Index fell 2.6 percent to 11,414.49 at 9:55 a.m. in Toronto. Canada's main equity benchmark slipped 0.3 percent yesterday and fell 15 percent in September as declining commodity prices dragged down raw- materials and energy producers.
Potash, the largest maker of crop nutrients, fell 20 percent to C$108.88 for its steepest intraday loss since November 1989.
Agrium Inc., the third-biggest in North America, declined 15 percent to C$49.51. Mosaic, Potash and Agrium were cut to ``underperform'' from ``buy'' by Merrill Lynch analysts led by Don Carson in New York.
``With phosphate prices falling, nitrogen prices peaking and potash prices rising less than expected, there is considerable uncertainty surrounding the near-term earnings outlook,'' the Merrill analysts wrote in a note to clients today.
Gold futures for December delivery fell $28.30, or 3.2 percent, to $859 an ounce in New York.
Barrick Gold, the biggest bullion producer, dropped 3.5 percent to C$38.37. Goldcorp Inc, the second-biggest by market value, fell 2.5 percent to C$33.48.
Fairfax Financial Holdings Inc., the owner of U.S. and Canadian insurance companies that said last month it made a profit of $521.5 million on bets against U.S. financial companies, gained 2.1 percent to C$355.21 today.
To contact the reporter on this story: John Kipphoff in Montreal at jkipphoff@bloomberg.net.
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Oct. 2 (Bloomberg) -- Canadian stocks dropped a second day, led by Potash Corp. of Saskatchewan Inc. and other raw-materials producers, on concern demand will weaken for fertilizers and declines in grain and metals prices.
Potash Corp. had its biggest intraday decline in 19 years after rival Mosaic Co. reported profit that fell short of analyst estimates and cut its forecast for phosphate sales. Merrill Lynch & Co. lowered its ratings on Potash and two other fertilizer stocks on concern that slumping prices and lower demand may hurt profit.
Barrick Gold Corp. dropped as bullion prices slid on speculation the U.S. will approve a plan to revive credit markets, reducing the appeal of the precious metal as a haven.
The Standard & Poor's/TSX Composite Index fell 2.6 percent to 11,414.49 at 9:55 a.m. in Toronto. Canada's main equity benchmark slipped 0.3 percent yesterday and fell 15 percent in September as declining commodity prices dragged down raw- materials and energy producers.
Potash, the largest maker of crop nutrients, fell 20 percent to C$108.88 for its steepest intraday loss since November 1989.
Agrium Inc., the third-biggest in North America, declined 15 percent to C$49.51. Mosaic, Potash and Agrium were cut to ``underperform'' from ``buy'' by Merrill Lynch analysts led by Don Carson in New York.
``With phosphate prices falling, nitrogen prices peaking and potash prices rising less than expected, there is considerable uncertainty surrounding the near-term earnings outlook,'' the Merrill analysts wrote in a note to clients today.
Gold futures for December delivery fell $28.30, or 3.2 percent, to $859 an ounce in New York.
Barrick Gold, the biggest bullion producer, dropped 3.5 percent to C$38.37. Goldcorp Inc, the second-biggest by market value, fell 2.5 percent to C$33.48.
Fairfax Financial Holdings Inc., the owner of U.S. and Canadian insurance companies that said last month it made a profit of $521.5 million on bets against U.S. financial companies, gained 2.1 percent to C$355.21 today.
To contact the reporter on this story: John Kipphoff in Montreal at jkipphoff@bloomberg.net.
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U.S. Stocks Drop on Economic Data, Rising Bank Rates; GE Falls
By Lynn Thomasson
Oct. 2 (Bloomberg) -- U.S. stocks dropped for a second day as a jump in borrowing costs and reports showing a worsening economy spurred concern that the government's $700 billion bank bailout plan won't be enough to stimulate growth.
Caterpillar Inc., Alcoa Inc. and Deere & Co. tumbled more than 5 percent as bank lending rates climbed to the highest since January in London, while the government said jobless claims increased to a seven-year high and factory orders slumped more than forecast. General Electric Co. lost 9.4 percent after selling $12.2 billion in shares at a discount. Monsanto Co. slid 17 percent, its steepest loss in five years, after Merrill Lynch & Co. said slumping demand will hurt farm companies.
``There's a liquidity crisis going on that's putting investors on edge,'' said Alan Gayle, the Richmond, Virginia- based senior investment strategist at Ridgeworth Investments, which oversees about $70 billion. ``Liquidity is like oxygen. Lack of it can cause serious damage in a very short time.''
The Standard & Poor's 500 Index slid 30.27, or 2.6 percent, to 1,130.79 at 10:42 a.m. in New York. The Dow Jones Industrial Average lost 243.41, or 2.3 percent, to 10,587.66. The Nasdaq Composite Index slipped 2.7 percent to 2,012.75. Fifteen stocks retreated for each that rose on the New York Stock Exchange.
`Flat on the Floor'
The S&P 500 has slumped 23 percent this year as the subprime mortgage crisis brought down banks including Lehman Brothers Holdings Inc. and made borrowing more expensive for companies and consumers. Billionaire Warren Buffett, the world's preeminent stock picker, described the world's largest economy yesterday as being ``flat on the floor'' after a cardiac arrest.
Caterpillar, the biggest maker of earthmoving equipment, lost $2.59 to $54.36. Deere, the largest producer of tractors, declined 8.3 percent to $42.47.
The cost of borrowing in dollars in London for three months rose for a fourth day, signaling that banks haven't started to lend after the U.S. Senate approved a plan to rescue beleaguered financial institutions. The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 6 basis points to 4.21 percent today, the highest since Jan. 11.
Alcoa, the largest U.S. aluminum producer, slumped 5.3 percent to $20.14 after Goldman Sachs Group Inc. downgraded the shares to ``neutral'' from ``buy.''
The S&P 500 Industrials Index lost 4.9 percent after the 4 percent drop in bookings at factories topped the average forecast of economists in a Bloomberg survey. A separate government report showed first-time claims for unemployment benefits climbed to a seven-year high.
GE's Offering
GE, which got a $3 billion investment from Buffett's Berkshire Hathaway Inc. yesterday, dropped $2.30 to $22.20. The Fairfield, Connecticut-based company sold stock today at a 9.2 percent discount to yesterday's closing price as the company seeks to fund its operations.
Producers of agricultural products slumped after Merrill downgraded the fertilizer industry to ``underperform'' and Mosaic Co., the world's largest producer of phosphates, reported weaker-than-estimated earnings. Merrill analysts cut their rating on Monsanto, the world's biggest seed producer, to ``neutral'' from ``buy,'' sending its shares down $17.28 to $80.56.
Mosaic tumbled 20 percent to $54. CF Industries Holdings Inc., a maker of nitrogen and phosphate fertilizers, slumped 14 percent to $79.50. Terra Industries Inc. fell 10 percent to $25.50.
EBay Inc., the largest Internet auction company, was downgraded to ``equal-weight'' from ``overweight'' at Morgan Stanley, which said ``trends deteriorated more than expected'' in the third quarter.
Bailout Plan
The financial-market rescue legislation, which the House likely will act on tomorrow, passed the Senate on a 74-25 vote. It would give the Treasury Department authority to buy assets including mortgage-backed securities that are burdening financial institutions. The Senate added tax provisions to woo Republican votes in the House, where an earlier version of the bailout plan failed on Sept. 29 and sent the Dow average to a 777-point plunge.
``After the eventual passage, the market focus will also move gradually from the financial sector to the impact on the real economy,'' said Cho Min Keon, a fund manager at Kyobo AXA Investment Managers Co. in Seoul, which manages the equivalent of $578 million in equities.
The U.S. Securities and Exchange said it will extend a prohibition on short-sales of financial stocks, keeping restrictions on bets against companies' shares in place while Congress works on the bailout plan.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
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Oct. 2 (Bloomberg) -- U.S. stocks dropped for a second day as a jump in borrowing costs and reports showing a worsening economy spurred concern that the government's $700 billion bank bailout plan won't be enough to stimulate growth.
Caterpillar Inc., Alcoa Inc. and Deere & Co. tumbled more than 5 percent as bank lending rates climbed to the highest since January in London, while the government said jobless claims increased to a seven-year high and factory orders slumped more than forecast. General Electric Co. lost 9.4 percent after selling $12.2 billion in shares at a discount. Monsanto Co. slid 17 percent, its steepest loss in five years, after Merrill Lynch & Co. said slumping demand will hurt farm companies.
``There's a liquidity crisis going on that's putting investors on edge,'' said Alan Gayle, the Richmond, Virginia- based senior investment strategist at Ridgeworth Investments, which oversees about $70 billion. ``Liquidity is like oxygen. Lack of it can cause serious damage in a very short time.''
The Standard & Poor's 500 Index slid 30.27, or 2.6 percent, to 1,130.79 at 10:42 a.m. in New York. The Dow Jones Industrial Average lost 243.41, or 2.3 percent, to 10,587.66. The Nasdaq Composite Index slipped 2.7 percent to 2,012.75. Fifteen stocks retreated for each that rose on the New York Stock Exchange.
`Flat on the Floor'
The S&P 500 has slumped 23 percent this year as the subprime mortgage crisis brought down banks including Lehman Brothers Holdings Inc. and made borrowing more expensive for companies and consumers. Billionaire Warren Buffett, the world's preeminent stock picker, described the world's largest economy yesterday as being ``flat on the floor'' after a cardiac arrest.
Caterpillar, the biggest maker of earthmoving equipment, lost $2.59 to $54.36. Deere, the largest producer of tractors, declined 8.3 percent to $42.47.
The cost of borrowing in dollars in London for three months rose for a fourth day, signaling that banks haven't started to lend after the U.S. Senate approved a plan to rescue beleaguered financial institutions. The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 6 basis points to 4.21 percent today, the highest since Jan. 11.
Alcoa, the largest U.S. aluminum producer, slumped 5.3 percent to $20.14 after Goldman Sachs Group Inc. downgraded the shares to ``neutral'' from ``buy.''
The S&P 500 Industrials Index lost 4.9 percent after the 4 percent drop in bookings at factories topped the average forecast of economists in a Bloomberg survey. A separate government report showed first-time claims for unemployment benefits climbed to a seven-year high.
GE's Offering
GE, which got a $3 billion investment from Buffett's Berkshire Hathaway Inc. yesterday, dropped $2.30 to $22.20. The Fairfield, Connecticut-based company sold stock today at a 9.2 percent discount to yesterday's closing price as the company seeks to fund its operations.
Producers of agricultural products slumped after Merrill downgraded the fertilizer industry to ``underperform'' and Mosaic Co., the world's largest producer of phosphates, reported weaker-than-estimated earnings. Merrill analysts cut their rating on Monsanto, the world's biggest seed producer, to ``neutral'' from ``buy,'' sending its shares down $17.28 to $80.56.
Mosaic tumbled 20 percent to $54. CF Industries Holdings Inc., a maker of nitrogen and phosphate fertilizers, slumped 14 percent to $79.50. Terra Industries Inc. fell 10 percent to $25.50.
EBay Inc., the largest Internet auction company, was downgraded to ``equal-weight'' from ``overweight'' at Morgan Stanley, which said ``trends deteriorated more than expected'' in the third quarter.
Bailout Plan
The financial-market rescue legislation, which the House likely will act on tomorrow, passed the Senate on a 74-25 vote. It would give the Treasury Department authority to buy assets including mortgage-backed securities that are burdening financial institutions. The Senate added tax provisions to woo Republican votes in the House, where an earlier version of the bailout plan failed on Sept. 29 and sent the Dow average to a 777-point plunge.
``After the eventual passage, the market focus will also move gradually from the financial sector to the impact on the real economy,'' said Cho Min Keon, a fund manager at Kyobo AXA Investment Managers Co. in Seoul, which manages the equivalent of $578 million in equities.
The U.S. Securities and Exchange said it will extend a prohibition on short-sales of financial stocks, keeping restrictions on bets against companies' shares in place while Congress works on the bailout plan.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
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Con-Way, Ebay, Las Vegas Sands: U.S. Equity Movers
By Whitney Kisling and Elizabeth Campbell
(Corrects size of drop for Constellation and Con-way.)
Oct. 2 (Bloomberg) -- The following companies are having unusual price changes in U.S. trading. Stock symbols are in parentheses, and share prices are as of 9:40 a.m. in New York.
Fertilizer makers declined after Mosaic Co. (MOS US) reported profit that missed analyst estimates and Merrill Lynch & Co. downgraded Potash Corp. of Saskatchewan Inc. (POT US), Agrium Inc. (AGU US) and Mosaic to ``underperform'' from ``buy.''
Mosaic tumbled 28 percent to $48.82 and earlier dropped to as low as $48.15 for the biggest intraday loss since its 2004 initial public offering. The world's second-largest fertilizer maker by market value reported first-quarter profit that missed the average analyst estimate by 9.8 percent, according to Bloomberg data. The company reduced its annual forecast for phosphate sales.
Potash dropped 19 percent to $103.45. Agrium plunged 18 percent to $44.79.
Terra Industries Inc. (TRA US) slid 20 percent to $22.86. Intrepid Potash Inc. (IPI US) fell 27 percent to $21.72. CF Industries Holdings Inc. (CF US) slumped 21 percent to $70.20. The three companies also were cut to ``underperform'' at Merrill.
Con-way Inc. (CNW US) tumbled to 14 percent to $37 and earlier dropped as much as 16 percent, the biggest intraday decline since October 1999. The second-largest U.S. trucking company lowered its full-year earnings forecast by 40 cents to a range of $2.60 to $2.80 a share, citing a slump in freight demand amid a weakening economy.
Constellation Energy Inc. (CEG US) jumped 10 percent to $26.16 and earlier rose as much as 13 percent for the steepest intraday advance since Sept. 22. Electricite de France SA (EDF FP) said it plans to ``pursue all options'' in relation to Constellation after its takeover approach was rebuffed in favor of Warren Buffett's MidAmerican Energy Holdings Co.
EBay Inc. (EBAY US) dropped 5.1 percent to $19.78 and earlier slid to as low as $19.60, the lowest intraday prices since March 2003. The world's largest Internet auction company was cut to ``equal weight'' from ``overweight'' at Morgan Stanley, which said ``trends deteriorated more than expected'' in the third quarter.
General Electric Co. (GE US) dropped 9 percent to $22.29, the lowest since February 2003. The Fairfield, Connecticut-based company sold stock at a 9.2 percent discount to yesterday's closing price, according to two people with direct knowledge of the sale.
Las Vegas Sands Corp. (LVS US) fell 13 percent to $27.19 and earlier dropped to $27.05, the lowest intraday price since shares went public in December 2004. The world's largest casino company by market value was cut to ``equal weight'' from ``overweight'' at Morgan Stanley.
Marriott International Inc. (MAR US) dropped 2.8 percent to $24.38 and earlier fell as much as 11 percent for the steepest decline in seven years. The world's largest hotel chain forecast a steeper drop in 2009 earnings than analysts estimated as the rest of the world follows the U.S. in cutting back on travel. Third-quarter profit fell 28 percent.
Monsanto Co. (MON US) fell 18 percent to $80.71 and earlier tumbled 21 percent for the biggest loss since October 2000. The world's biggest seed producer was cut to ``neutral'' from ``buy'' at Merrill Lynch.
Standard Microsystems Corp. (SMSC US) slid 9.9 percent to $23.02 and tumbled as much as 13 percent for the steepest drop since April 2006. The maker of chips for multimedia systems in Toyota Motor Corp. cars said profit fell in the second quarter on higher taxes and lower sales. The company's forecasts for third- quarter revenue and earnings trailed analysts' estimates.
To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net; Elizabeth Campbell in New York at ecampbell11@bloomberg.net
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(Corrects size of drop for Constellation and Con-way.)
Oct. 2 (Bloomberg) -- The following companies are having unusual price changes in U.S. trading. Stock symbols are in parentheses, and share prices are as of 9:40 a.m. in New York.
Fertilizer makers declined after Mosaic Co. (MOS US) reported profit that missed analyst estimates and Merrill Lynch & Co. downgraded Potash Corp. of Saskatchewan Inc. (POT US), Agrium Inc. (AGU US) and Mosaic to ``underperform'' from ``buy.''
Mosaic tumbled 28 percent to $48.82 and earlier dropped to as low as $48.15 for the biggest intraday loss since its 2004 initial public offering. The world's second-largest fertilizer maker by market value reported first-quarter profit that missed the average analyst estimate by 9.8 percent, according to Bloomberg data. The company reduced its annual forecast for phosphate sales.
Potash dropped 19 percent to $103.45. Agrium plunged 18 percent to $44.79.
Terra Industries Inc. (TRA US) slid 20 percent to $22.86. Intrepid Potash Inc. (IPI US) fell 27 percent to $21.72. CF Industries Holdings Inc. (CF US) slumped 21 percent to $70.20. The three companies also were cut to ``underperform'' at Merrill.
Con-way Inc. (CNW US) tumbled to 14 percent to $37 and earlier dropped as much as 16 percent, the biggest intraday decline since October 1999. The second-largest U.S. trucking company lowered its full-year earnings forecast by 40 cents to a range of $2.60 to $2.80 a share, citing a slump in freight demand amid a weakening economy.
Constellation Energy Inc. (CEG US) jumped 10 percent to $26.16 and earlier rose as much as 13 percent for the steepest intraday advance since Sept. 22. Electricite de France SA (EDF FP) said it plans to ``pursue all options'' in relation to Constellation after its takeover approach was rebuffed in favor of Warren Buffett's MidAmerican Energy Holdings Co.
EBay Inc. (EBAY US) dropped 5.1 percent to $19.78 and earlier slid to as low as $19.60, the lowest intraday prices since March 2003. The world's largest Internet auction company was cut to ``equal weight'' from ``overweight'' at Morgan Stanley, which said ``trends deteriorated more than expected'' in the third quarter.
General Electric Co. (GE US) dropped 9 percent to $22.29, the lowest since February 2003. The Fairfield, Connecticut-based company sold stock at a 9.2 percent discount to yesterday's closing price, according to two people with direct knowledge of the sale.
Las Vegas Sands Corp. (LVS US) fell 13 percent to $27.19 and earlier dropped to $27.05, the lowest intraday price since shares went public in December 2004. The world's largest casino company by market value was cut to ``equal weight'' from ``overweight'' at Morgan Stanley.
Marriott International Inc. (MAR US) dropped 2.8 percent to $24.38 and earlier fell as much as 11 percent for the steepest decline in seven years. The world's largest hotel chain forecast a steeper drop in 2009 earnings than analysts estimated as the rest of the world follows the U.S. in cutting back on travel. Third-quarter profit fell 28 percent.
Monsanto Co. (MON US) fell 18 percent to $80.71 and earlier tumbled 21 percent for the biggest loss since October 2000. The world's biggest seed producer was cut to ``neutral'' from ``buy'' at Merrill Lynch.
Standard Microsystems Corp. (SMSC US) slid 9.9 percent to $23.02 and tumbled as much as 13 percent for the steepest drop since April 2006. The maker of chips for multimedia systems in Toyota Motor Corp. cars said profit fell in the second quarter on higher taxes and lower sales. The company's forecasts for third- quarter revenue and earnings trailed analysts' estimates.
To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net; Elizabeth Campbell in New York at ecampbell11@bloomberg.net
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Brazilian Stocks Fall on Credit Concerns, Led by Retailers
By Paulo Winterstein
Oct. 2 (Bloomberg) -- Brazilian stocks fell for the first time in three days, led by retailers, after commodity prices slid and Citigroup Inc. advised investors to sell consumer shares on concern the credit crisis will make it difficult to borrow money.
Lojas Americanas SA, Brazil's biggest discount retailer, led declines after Citigroup said Brazil is ``exposed to a drying-up of credit flows.'' Cia. Vale do Rio Doce, the world's biggest iron-ore producer, dropped after Merrill Lynch & Co. said slowing demand may lead to lower-than-expected ore price increases next year. Petroleo Brasileiro SA, Brazil's state-controlled oil company, fell as crude prices slumped for a second day.
The Bovespa index dropped 825.120, or 1.7 percent, to 48,973.53 at 9:33 a.m. New York time. The BM&FBovespa MidLarge Cap index dropped 1.8 percent, while the BM&FBovespa Small Cap index fell 1.2 percent. Mexico's Bolsa fell 0.4 percent.
Lojas Americanas paced declines for retailers, dropping 3.4 percent to 8.55 reais.
``Brazil appears exposed to a drying-up of credit flows given high debt ratios, short term debt repayments and variable cash flow generation,'' Citigroup strategist Geoffrey Dennis wrote in a note to clients. He also downgraded energy stocks to ``underweight'' from ``neutral.''
Lojas Renner SA, the biggest publicly traded clothing retailer, fell 2.6 percent to 23.49 reais. B2W Cia. Global do Varejo, the largest Internet retailer, fell 3.4 percent to 45.61 reais.
Rio de Janeiro-based Vale dropped 2.4 percent to 31.93 reais. Australian producers, including Rio Tinto Group and BHP Billiton Ltd., may win a 10 percent jump in contract prices, down from a previous estimate of 15 percent, Merrill Lynch analysts led by Vicky Binns said in a report dated yesterday. Vale may not get an increase next year, assuming it wins a planned 12 percent raise this half, she said.
Petrobras, as the Rio de Janeiro-based company is known, fell 1.1 percent to 34.51 reais. Oil dropped as much as 2.6 percent as the dollar reached a one-year high against the euro and U.S. fuel demand dropped to the lowest since the last recession.
To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.
Read more...
Oct. 2 (Bloomberg) -- Brazilian stocks fell for the first time in three days, led by retailers, after commodity prices slid and Citigroup Inc. advised investors to sell consumer shares on concern the credit crisis will make it difficult to borrow money.
Lojas Americanas SA, Brazil's biggest discount retailer, led declines after Citigroup said Brazil is ``exposed to a drying-up of credit flows.'' Cia. Vale do Rio Doce, the world's biggest iron-ore producer, dropped after Merrill Lynch & Co. said slowing demand may lead to lower-than-expected ore price increases next year. Petroleo Brasileiro SA, Brazil's state-controlled oil company, fell as crude prices slumped for a second day.
The Bovespa index dropped 825.120, or 1.7 percent, to 48,973.53 at 9:33 a.m. New York time. The BM&FBovespa MidLarge Cap index dropped 1.8 percent, while the BM&FBovespa Small Cap index fell 1.2 percent. Mexico's Bolsa fell 0.4 percent.
Lojas Americanas paced declines for retailers, dropping 3.4 percent to 8.55 reais.
``Brazil appears exposed to a drying-up of credit flows given high debt ratios, short term debt repayments and variable cash flow generation,'' Citigroup strategist Geoffrey Dennis wrote in a note to clients. He also downgraded energy stocks to ``underweight'' from ``neutral.''
Lojas Renner SA, the biggest publicly traded clothing retailer, fell 2.6 percent to 23.49 reais. B2W Cia. Global do Varejo, the largest Internet retailer, fell 3.4 percent to 45.61 reais.
Rio de Janeiro-based Vale dropped 2.4 percent to 31.93 reais. Australian producers, including Rio Tinto Group and BHP Billiton Ltd., may win a 10 percent jump in contract prices, down from a previous estimate of 15 percent, Merrill Lynch analysts led by Vicky Binns said in a report dated yesterday. Vale may not get an increase next year, assuming it wins a planned 12 percent raise this half, she said.
Petrobras, as the Rio de Janeiro-based company is known, fell 1.1 percent to 34.51 reais. Oil dropped as much as 2.6 percent as the dollar reached a one-year high against the euro and U.S. fuel demand dropped to the lowest since the last recession.
To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.
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Daily Report: Senate Approved Rescue Plan, Euro Tumbles ahead of ECB
Market Overview | Written by ActionForex.com | Oct 02 08 07:41 GMT |
Dollar extends rally against most major currencies after the $700b rescue plan was approved by US Senate overnight on a 74-25 vote. While the core of the plan was kept and the US government will be able to buy troubled assets from financial institutions, the plan is sweetened by increasing FDIC protection temporarily from the current $100k to $250k and a $149b package of tax breaks. The revamped bill will return to House, which rejected the original version by 228-205 vote on Monday and triggered a historical crash in the US stock markets. House leaders are believed to be working to get enough votes to get the bill passed as early as Thursday evening.
Euro extends weakness against dollar and yen as focus is now turning to ECB rate decision and press conference. Markets widely expect ECB to keep rates unchanged at 4.25% today. However, as the credit crisis is now clearly spreading over to Europe, markets are starting to speculate that Trichet could be forced to a rate cut by year end. Recent moderation of inflation and money supply growth are also giving room for ECB for easing the monetary policy. Hence, the focus today will be on sign of softening in Trichet's tone and thus for assessing the possibility and timing of rate cut from ECB.
Technically speaking, the development is so far inline with our view. EUR/USD just make a new low at 1.3865 and is pressing key medium term support of 1.3851. EUR/JPY also takes out 147.03 low to 146.24 so far. Dollar and yen are both expected to extend gains against most major currencies.
On the data front, Australia trade surplus came in wider than expected at 1364m in Aug. UK Nationwide house price dropped -1.7% mom, -12.4% yoy in Sep. Eurozone PPI, US jobless claims and factory orders will be released later today.
EUR/JPY Daily Outlook
Daily Pivots: (S1) 146.87; (P) 148.72; (R1) 149.94; More.
EUR/JPY's break of 147.03 low confirms that sharp fall from 169.96 has resumed. At this point, intraday bias remains on the downside as long as 148.09 minor resistance holds. Further fall should be seen to next target of 61.8% projection of 169.96 to 147.03 from 156.84 at 142.67 first. Above 148.09 will indicate an intraday low is in place but further decline is still expected after brief recovery.
In the bigger picture, sustained trading below the long term rising channel added strong evidence that whole up trend from 88.97 (00 low) has completed, with bearish divergence conditions in weekly MACD and RSI and with monthly MACD remains below signal line. Break of 149.27 provides further credence too. Hence, the fall from 169.96 is expected to extend further to 38.2% retracement of 88.97 to 169.96 at 139.02 first. While some rebound might be seen, medium term outlook will remain bearish as long as 156.84 resistance holds.
Economic Indicators Update
Read more...
Dollar extends rally against most major currencies after the $700b rescue plan was approved by US Senate overnight on a 74-25 vote. While the core of the plan was kept and the US government will be able to buy troubled assets from financial institutions, the plan is sweetened by increasing FDIC protection temporarily from the current $100k to $250k and a $149b package of tax breaks. The revamped bill will return to House, which rejected the original version by 228-205 vote on Monday and triggered a historical crash in the US stock markets. House leaders are believed to be working to get enough votes to get the bill passed as early as Thursday evening.
Euro extends weakness against dollar and yen as focus is now turning to ECB rate decision and press conference. Markets widely expect ECB to keep rates unchanged at 4.25% today. However, as the credit crisis is now clearly spreading over to Europe, markets are starting to speculate that Trichet could be forced to a rate cut by year end. Recent moderation of inflation and money supply growth are also giving room for ECB for easing the monetary policy. Hence, the focus today will be on sign of softening in Trichet's tone and thus for assessing the possibility and timing of rate cut from ECB.
Technically speaking, the development is so far inline with our view. EUR/USD just make a new low at 1.3865 and is pressing key medium term support of 1.3851. EUR/JPY also takes out 147.03 low to 146.24 so far. Dollar and yen are both expected to extend gains against most major currencies.
On the data front, Australia trade surplus came in wider than expected at 1364m in Aug. UK Nationwide house price dropped -1.7% mom, -12.4% yoy in Sep. Eurozone PPI, US jobless claims and factory orders will be released later today.
EUR/JPY Daily Outlook
Daily Pivots: (S1) 146.87; (P) 148.72; (R1) 149.94; More.
EUR/JPY's break of 147.03 low confirms that sharp fall from 169.96 has resumed. At this point, intraday bias remains on the downside as long as 148.09 minor resistance holds. Further fall should be seen to next target of 61.8% projection of 169.96 to 147.03 from 156.84 at 142.67 first. Above 148.09 will indicate an intraday low is in place but further decline is still expected after brief recovery.
In the bigger picture, sustained trading below the long term rising channel added strong evidence that whole up trend from 88.97 (00 low) has completed, with bearish divergence conditions in weekly MACD and RSI and with monthly MACD remains below signal line. Break of 149.27 provides further credence too. Hence, the fall from 169.96 is expected to extend further to 38.2% retracement of 88.97 to 169.96 at 139.02 first. While some rebound might be seen, medium term outlook will remain bearish as long as 156.84 resistance holds.
Economic Indicators Update
GMT Ccy Events Actual Consensus Previous Revised
1:30 AUD Australia Trade balance (aud) Aug 1364M 200M -717M -700M
6:00 GBP U.K. Nationwide hse price M/M Sep -1.70% -1.60% -1.90% -1.70%
6:00 GBP U.K. Nationwide hse price Y/Y Sep -12.40% -12.40% -10.50%
8:30 GBP U.K. PMI construction Sep 38.9 40.5
9:00 EUR Eurozone PPI M/M Aug -0.50% 1.10%
9:00 EUR Eurozone PPI Y/Y Aug 8.50% 9.00%
11:45 EUR ECB rate decision 4.25% 4.25%
12:30 EUR ECB Press conference
12:30 USD U.S. Jobless claims 475.0K 493.0K
14:00 USD U.S. Factory orders Aug -2.50% 1.30%
14:35 USD Natural Gas Storage 51B
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RESEARCH ALERT-UBS starts BNP Paribas, SocGen with buy
(Recasts, adds details)
Oct 2 (Reuters) - UBS started coverage of France's three biggest listed banks, BNP Paribas , Societe Generale and Credit Agricole , and said French banks should benefit from their diversified funding streams.
UBS initiated BNP Paribas and Societe Generale (SocGen) with a "buy" rating, and Credit Agricole with a "neutral" rating.
"We regard their (French Banks) capital positions as either relatively comfortable or, in the case of BNP Paribas, supported by strong cash flow generation and minimal exposure to risk assets," analyst Omar Fall said.
The domestic asset quality of French banks is relatively sound in a European context, with such risk as there is coming from their consumer credit divisions, the analyst said.
Fall has a price target of 89.30 euros on the shares of its top pick SocGen, 80 euros on BNP shares and 13.60 euros on Credit Agricole shares.
After the failure of Wall Street bank Lehman Brothers and the bail-out of insurer AIG , which rocked world markets, SocGen and BNP had said that they were well placed, despite fears of further write downs.
The crisis in the banking sector has raised doubts about the viability of various business models, but has served to affirm the universal banking model practised by French banks, Fall said.
"French banks' revenue profiles in corporate and investment banking, biased as they are to equity derivatives and financing, are a key differentiator, while offering a generational opportunity in the new environment to gain market share," analyst Fall wrote in a research note to clients. (Reporting by Arup Roychoudhury in Bangalore; Editing by Himani Sarkar) (arup.roychoudhury@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: arup.roychoudhury.reuters.com@reuters.net)
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Oct 2 (Reuters) - UBS started coverage of France's three biggest listed banks, BNP Paribas , Societe Generale and Credit Agricole , and said French banks should benefit from their diversified funding streams.
UBS initiated BNP Paribas and Societe Generale (SocGen) with a "buy" rating, and Credit Agricole with a "neutral" rating.
"We regard their (French Banks) capital positions as either relatively comfortable or, in the case of BNP Paribas, supported by strong cash flow generation and minimal exposure to risk assets," analyst Omar Fall said.
The domestic asset quality of French banks is relatively sound in a European context, with such risk as there is coming from their consumer credit divisions, the analyst said.
Fall has a price target of 89.30 euros on the shares of its top pick SocGen, 80 euros on BNP shares and 13.60 euros on Credit Agricole shares.
After the failure of Wall Street bank Lehman Brothers and the bail-out of insurer AIG , which rocked world markets, SocGen and BNP had said that they were well placed, despite fears of further write downs.
The crisis in the banking sector has raised doubts about the viability of various business models, but has served to affirm the universal banking model practised by French banks, Fall said.
"French banks' revenue profiles in corporate and investment banking, biased as they are to equity derivatives and financing, are a key differentiator, while offering a generational opportunity in the new environment to gain market share," analyst Fall wrote in a research note to clients. (Reporting by Arup Roychoudhury in Bangalore; Editing by Himani Sarkar) (arup.roychoudhury@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: arup.roychoudhury.reuters.com@reuters.net)
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Thomson Reuters sees chance in banks consolidation
LONDON, Oct 2 (Reuters) - The financial crisis gripping world markets will hurt Thomson Reuters as banks lose staff and take out trading and information terminals but is an opportunity over the long term, Thomson Reuters' chief executive said.
"You've got to say this is a negative short to middle term," Tom Glocer told analysts at a London investor day, but added that the banking consolidation now beginning represented a long-term opportunity.
"There's a lot of compensating work that needs to be done now to stitch together all these trading operations," he said. (Reporting by Georgina Prodhan; Editing by Richard Hubbard)
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"You've got to say this is a negative short to middle term," Tom Glocer told analysts at a London investor day, but added that the banking consolidation now beginning represented a long-term opportunity.
"There's a lot of compensating work that needs to be done now to stitch together all these trading operations," he said. (Reporting by Georgina Prodhan; Editing by Richard Hubbard)
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Asian stocks hit despite Senate bailout approval
By Rafael Nam
HONG KONG (Reuters) - Asian stocks fell and investors sought the relative safety of government debt on Thursday after the U.S. Senate's approval of a massive bank bailout plan failed to dispel the deepening worries about the global economy.
Doubts about whether the U.S. House of Representatives will now approve the revised $700 billion rescue plan for the financial system also weighed, after their unexpected rejection of an initial package on Monday sent global markets reeling.
However, the dollar remained better bid against other major currencies given expectations the financial crisis is taking a toll on European financial firms, and more broadly on worldwide growth, which could lead to interest rate cuts elsewhere.
Shares were set also to open lower in Europe, where investors are bracing for comments on the financial crisis from the European Central Bank. The ECB meets later in the day amid expectations it will keep interest rates on hold at 4.25 percent.
"Even if the bill is passed, worries remain over the global economic outlook so financial markets are unlikely to stabilize," said Masamichi Adachi, a senior economist at JPMorgan Securities in Japan.
"It's a completely different world now. All the things U.S. authorities are doing now are simply aimed at preventing a global meltdown. They might trigger a short rally in markets but won't offer a fundamental solution," he said.
The MSCI index of Asia-Pacific stocks outside Japan fell 1.2 percent, while Tokyo's Nikkei average dropped 1.9 percent to end at its lowest close in three years.
Stocks in South Korea, Hong Kong, Singapore and Taiwan fell more than 1 percent each, while Australian shares fell 0.6 percent.
STEEP STOCK SLIDE
Asian stocks have dropped nearly 40 percent this year, after a miserable September that saw shares drop 17 percent in the biggest monthly decline since the financial crisis a decade ago.
The inability to gain traction on Thursday came even after the U.S. Senate voted 74 to 25 in favor of a revised bailout package aimed at reinvigorating frozen worldwide credit markets and interbank lending.
The U.S. House of Representatives is expected to vote on the bill on Friday, and investors appeared unwilling to bet on approval yet despite the addition of sweeteners such as a tax cuts and extended federal protection for bank deposits.
With appetite for risk eroded, investors opted for the relative safety of government bonds. The U.S. Treasury 10-year note erased earlier losses to edge up, sending yields down to 3.71 percent, compared to 3.74 percent late in U.S. trade on Wednesday.
Gold also advanced, trading at $871.80 an ounce, up from a notional U.S. close of $868.75 on Wednesday.
Continued signs of weakness in the U.S. economy -- including data on Wednesday showing U.S. factory activity shrank in September to its lowest since the 2001 recession -- bode ill for a global economy that depends in good measure to the largesse of the U.S. consumer.
"Market expectations for Asian growth was a bit too strong at the start of the year. Asian currencies will weaken against the dollar," said Kit Wei Zheng, an economist at Citigroup in Singapore.
"The weakness in the rest of the world has not been priced in and currencies will move to reflect that in the coming months. It will be a story of the rest of the world weakening rather than a rebound in the U.S. dollar."
DOLLAR FIRM
The dollar index, a gauge of performance against six major currencies, rose 0.3 percent to 79.965. That was near a one-year peak struck last month but off a high of 80.025 hit before the Senate vote.
The euro dipped 0.4 percent to $1.3954 and was near a one-year low of $1.3882 struck last month, amid expectations the European Central Bank still has room to cut rates at some point, which would erode the euro's yield advantage over the dollar.
The currency has also slid as Europe is becoming a point of focus for global investors as the credit crisis hits European financial institutions such as Fortis, which was rescued by a 11 billion euro bailout on Sunday.
Oil was up 5 cents at $98.58, down from earlier gains to as much as $100.37 as concerns remained over weakening demand and growing supplies in the United States.
(Editing by Lincoln Feast)
Read more...
HONG KONG (Reuters) - Asian stocks fell and investors sought the relative safety of government debt on Thursday after the U.S. Senate's approval of a massive bank bailout plan failed to dispel the deepening worries about the global economy.
Doubts about whether the U.S. House of Representatives will now approve the revised $700 billion rescue plan for the financial system also weighed, after their unexpected rejection of an initial package on Monday sent global markets reeling.
However, the dollar remained better bid against other major currencies given expectations the financial crisis is taking a toll on European financial firms, and more broadly on worldwide growth, which could lead to interest rate cuts elsewhere.
Shares were set also to open lower in Europe, where investors are bracing for comments on the financial crisis from the European Central Bank. The ECB meets later in the day amid expectations it will keep interest rates on hold at 4.25 percent.
"Even if the bill is passed, worries remain over the global economic outlook so financial markets are unlikely to stabilize," said Masamichi Adachi, a senior economist at JPMorgan Securities in Japan.
"It's a completely different world now. All the things U.S. authorities are doing now are simply aimed at preventing a global meltdown. They might trigger a short rally in markets but won't offer a fundamental solution," he said.
The MSCI index of Asia-Pacific stocks outside Japan fell 1.2 percent, while Tokyo's Nikkei average dropped 1.9 percent to end at its lowest close in three years.
Stocks in South Korea, Hong Kong, Singapore and Taiwan fell more than 1 percent each, while Australian shares fell 0.6 percent.
STEEP STOCK SLIDE
Asian stocks have dropped nearly 40 percent this year, after a miserable September that saw shares drop 17 percent in the biggest monthly decline since the financial crisis a decade ago.
The inability to gain traction on Thursday came even after the U.S. Senate voted 74 to 25 in favor of a revised bailout package aimed at reinvigorating frozen worldwide credit markets and interbank lending.
The U.S. House of Representatives is expected to vote on the bill on Friday, and investors appeared unwilling to bet on approval yet despite the addition of sweeteners such as a tax cuts and extended federal protection for bank deposits.
With appetite for risk eroded, investors opted for the relative safety of government bonds. The U.S. Treasury 10-year note erased earlier losses to edge up, sending yields down to 3.71 percent, compared to 3.74 percent late in U.S. trade on Wednesday.
Gold also advanced, trading at $871.80 an ounce, up from a notional U.S. close of $868.75 on Wednesday.
Continued signs of weakness in the U.S. economy -- including data on Wednesday showing U.S. factory activity shrank in September to its lowest since the 2001 recession -- bode ill for a global economy that depends in good measure to the largesse of the U.S. consumer.
"Market expectations for Asian growth was a bit too strong at the start of the year. Asian currencies will weaken against the dollar," said Kit Wei Zheng, an economist at Citigroup in Singapore.
"The weakness in the rest of the world has not been priced in and currencies will move to reflect that in the coming months. It will be a story of the rest of the world weakening rather than a rebound in the U.S. dollar."
DOLLAR FIRM
The dollar index, a gauge of performance against six major currencies, rose 0.3 percent to 79.965. That was near a one-year peak struck last month but off a high of 80.025 hit before the Senate vote.
The euro dipped 0.4 percent to $1.3954 and was near a one-year low of $1.3882 struck last month, amid expectations the European Central Bank still has room to cut rates at some point, which would erode the euro's yield advantage over the dollar.
The currency has also slid as Europe is becoming a point of focus for global investors as the credit crisis hits European financial institutions such as Fortis, which was rescued by a 11 billion euro bailout on Sunday.
Oil was up 5 cents at $98.58, down from earlier gains to as much as $100.37 as concerns remained over weakening demand and growing supplies in the United States.
(Editing by Lincoln Feast)
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HK shares end up 1.3 pct as Ping An soars
HONG KONG, Oct 2 (Reuters) - Hong Kong shares reversed course to end 1.3 percent higher on Thursday, helped by a sharp rally in Ping An Insurance after newly-nationalised Fortis scrapped a 2.15 billion euro asset management deal with the Chinese insurer.
The benchmark Hang Seng Index .HSI unofficially closed up 238.41 points at 18,254.62 after an earlier 2.1 percent fall to a session low of 17,631.70 points.
The China Enterprises Index .HSCE of top locally listed mainland Chinese firms jumped 3 percent.
(US$1=HK$7.8)
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The benchmark Hang Seng Index .HSI unofficially closed up 238.41 points at 18,254.62 after an earlier 2.1 percent fall to a session low of 17,631.70 points.
The China Enterprises Index .HSCE of top locally listed mainland Chinese firms jumped 3 percent.
(US$1=HK$7.8)
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Nikkei falls as economy worry outweighs bailout vote
*Nikkei down 1.9 pct, hits 3-year closing low
*Topix down 2.2 pct, hits 4-year closing low
*Economy worries weigh despite U.S. Senate passing bailout
*Carmakers, machinery stocks drop on global economy worries
*Investors turn defensive, drugmakers rise (Adds stocks, details)
By Aiko Hayashi
TOKYO, Oct 2 (Reuters) - The benchmark Nikkei average slipped 1.9 percent to a three-year closing low on Thursday despite passage of a $700 billion financial bailout bill by the U.S. Senate, as growing fears about the global recession offset relief.
The broader Topix index fell 2.2 percent to book its lowest close since October 2004.
Auto shares such as Toyota Motor Corp dragged down the market after major automakers reported plunging U.S. sales for September as an escalating credit crisis hit the slumping industry.
Komatsu Ltd, the world's second-largest maker of earth-moving equipment, and other machinery stocks also tumbled on concerns about the outlook for the global economy.
"The market had largely factored in that the Senate would approve the bill and market-driving news seem to be out for now," saidKoichi Ogawa, chief portfolio manager at Daiwa SB Investments.
"I expect the U.S. House to also approve the bill, but the focus is now on whether the deterioration in the global economy, including poor auto sales in the U.S., will ever stop."
The Nikkei .N225 shed 213.50 points to end at 11,154.76, the lowest close since May 2005, while the Topix fell 24.16 points to 1,076.97.
The Senate approved the $700 billion bailout bill that political and financial leaders had warned was crucial to averting economic catastrophe.
"It's a completely different world now," said Masamichi Adachi, a senior economist at JPMorgan Securities.
"All the things U.S. authorities are doing now are simply aimed at preventing a global meltdown. They might trigger a short rally in markets but won't offer a fundamental solution."
A series of weak economic data also helped dampen investor confidence.
U.S. factory activity shrank in September to its lowest since the 2001 recession, and private employers shed jobs for the third time in four months. On Wednesday, the Bank of Japan's quarterly tankan survey showed sentiment among big manufacturers turning negative for the first time in five years.
Yumi Nishimura, deputy general manager at Daiwa Securities SMBC, said supposing the U.S. bailout bill would be approved by the House, the focus will shift to corporate earnings next week.
"The market will probably move to consolidate at the current low levels," she said.
CARMAKERS, MACHINERY SHARES BATTERED
Shares of Toyota lost 3.4 percent to 4,310 yen to hit the lowest point this year, while Honda Motor Co Ltd shed 4.5 percent to 3,000 yen.
Komatsu dropped 10.7 percent to 1,503 yen, its lowest in three years, and Hitachi Construction Co tumbled 14.7 percent to 2,055 yen. Steelmakers also dropped, with Nippon Steel Corp down 8.5 percent at 357 yen. "Stocks sensitive to the health of the global economy are being sold for now as the market is in a state of panic," said Ogawa at Daiwa SB Investments.
High-tech shares such as Sony Corp and Advantest lost ground after a slide in their U.S. peers -- including Apple Inc , which fell 4 percent. Sony dropped 5.9 percent to 3,020 yen and Advantest declined 6.9 percent to 2,015 yen.
Defensive shares helped brake the market's fall, though, with drugmakers extending recent gains. Takeda Pharmaceuticals Co Ltd rose 1.3 percent to 5,590 yen and Astellas Pharma Inc added 1.8 percent to 4,660 yen.
Fujitsu Ltd jumped after a company source said the firm is in talks with Western Digital Corp and others on the sale of its money-losing hard drive business, though Fujitsu denied it was approaching an agreement or arranging a sale.
It gained 4.7 percent to 628 yen.
Trade picked up on the Tokyo exchange's first section, with 2.1 billion shares changing hands, compared with last week's daily average of 1.9 billion.
Declining stocks outpaced advancing ones by nearly 5 to 1. (Reporting by Aiko Hayashi; Editing by Michael Watson)
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*Topix down 2.2 pct, hits 4-year closing low
*Economy worries weigh despite U.S. Senate passing bailout
*Carmakers, machinery stocks drop on global economy worries
*Investors turn defensive, drugmakers rise (Adds stocks, details)
By Aiko Hayashi
TOKYO, Oct 2 (Reuters) - The benchmark Nikkei average slipped 1.9 percent to a three-year closing low on Thursday despite passage of a $700 billion financial bailout bill by the U.S. Senate, as growing fears about the global recession offset relief.
The broader Topix index fell 2.2 percent to book its lowest close since October 2004.
Auto shares such as Toyota Motor Corp dragged down the market after major automakers reported plunging U.S. sales for September as an escalating credit crisis hit the slumping industry.
Komatsu Ltd, the world's second-largest maker of earth-moving equipment, and other machinery stocks also tumbled on concerns about the outlook for the global economy.
"The market had largely factored in that the Senate would approve the bill and market-driving news seem to be out for now," saidKoichi Ogawa, chief portfolio manager at Daiwa SB Investments.
"I expect the U.S. House to also approve the bill, but the focus is now on whether the deterioration in the global economy, including poor auto sales in the U.S., will ever stop."
The Nikkei .N225 shed 213.50 points to end at 11,154.76, the lowest close since May 2005, while the Topix fell 24.16 points to 1,076.97.
The Senate approved the $700 billion bailout bill that political and financial leaders had warned was crucial to averting economic catastrophe.
"It's a completely different world now," said Masamichi Adachi, a senior economist at JPMorgan Securities.
"All the things U.S. authorities are doing now are simply aimed at preventing a global meltdown. They might trigger a short rally in markets but won't offer a fundamental solution."
A series of weak economic data also helped dampen investor confidence.
U.S. factory activity shrank in September to its lowest since the 2001 recession, and private employers shed jobs for the third time in four months. On Wednesday, the Bank of Japan's quarterly tankan survey showed sentiment among big manufacturers turning negative for the first time in five years.
Yumi Nishimura, deputy general manager at Daiwa Securities SMBC, said supposing the U.S. bailout bill would be approved by the House, the focus will shift to corporate earnings next week.
"The market will probably move to consolidate at the current low levels," she said.
CARMAKERS, MACHINERY SHARES BATTERED
Shares of Toyota lost 3.4 percent to 4,310 yen to hit the lowest point this year, while Honda Motor Co Ltd shed 4.5 percent to 3,000 yen.
Komatsu dropped 10.7 percent to 1,503 yen, its lowest in three years, and Hitachi Construction Co tumbled 14.7 percent to 2,055 yen. Steelmakers also dropped, with Nippon Steel Corp down 8.5 percent at 357 yen. "Stocks sensitive to the health of the global economy are being sold for now as the market is in a state of panic," said Ogawa at Daiwa SB Investments.
High-tech shares such as Sony Corp and Advantest lost ground after a slide in their U.S. peers -- including Apple Inc , which fell 4 percent. Sony dropped 5.9 percent to 3,020 yen and Advantest declined 6.9 percent to 2,015 yen.
Defensive shares helped brake the market's fall, though, with drugmakers extending recent gains. Takeda Pharmaceuticals Co Ltd rose 1.3 percent to 5,590 yen and Astellas Pharma Inc added 1.8 percent to 4,660 yen.
Fujitsu Ltd jumped after a company source said the firm is in talks with Western Digital Corp and others on the sale of its money-losing hard drive business, though Fujitsu denied it was approaching an agreement or arranging a sale.
It gained 4.7 percent to 628 yen.
Trade picked up on the Tokyo exchange's first section, with 2.1 billion shares changing hands, compared with last week's daily average of 1.9 billion.
Declining stocks outpaced advancing ones by nearly 5 to 1. (Reporting by Aiko Hayashi; Editing by Michael Watson)
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European shares extend gains, led by banks
LONDON, Oct 2 (Reuters) - European shares extended gains in early trade on Thursday, as banking stocks rose after the passage of a $700 billion bailout package by the U.S. Senate.
At 0744 GMT, the FTSEurofirst 300 index of top European shares was up 0.8 percent at 1,080.97 points, after rising more than 1 percent.
It closed 0.9 percent higher in the previous session, but is still down about 28 percent so far this year.
Banking stocks were the top weighted gainers on the index, with HBOS rising 10.9 percent, Lloyds TSB advancing 3.8 percent and Fortis gaining 8.2 percent.
Shares in French bank Natixis rose 10 percent on market talk that the company was planning to delist its shares. No immediate comment was available from Natixis.
Switzerland's UBS AG rose 8 percent after the bank said it would make a small profit in the third quarter after a year of losses, signalling it had started to turn the corner even as the credit crisis still engulfed many U.S. and European peers. (Reporting by Atul Prakash)
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At 0744 GMT, the FTSEurofirst 300 index of top European shares was up 0.8 percent at 1,080.97 points, after rising more than 1 percent.
It closed 0.9 percent higher in the previous session, but is still down about 28 percent so far this year.
Banking stocks were the top weighted gainers on the index, with HBOS rising 10.9 percent, Lloyds TSB advancing 3.8 percent and Fortis gaining 8.2 percent.
Shares in French bank Natixis rose 10 percent on market talk that the company was planning to delist its shares. No immediate comment was available from Natixis.
Switzerland's UBS AG rose 8 percent after the bank said it would make a small profit in the third quarter after a year of losses, signalling it had started to turn the corner even as the credit crisis still engulfed many U.S. and European peers. (Reporting by Atul Prakash)
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