Mid-Day Report: Dollar and Yen Retreats, Fed to Buy Commercial Paper

Market Overview | Written by ActionForex.com | Oct 07 08 13:51 GMT |

Dollar and yen continues to retreat today following higher open in the US stock markets with Dow back above the psychologically important 10,000 level. Dollar index is back below 81 level as dollar retreats. Oil recovers mildly to above 91 level while gold surges further to above 880 level. Markets is entering into a short term consolidation phase which could saw dollar and yen retreats further in the next few days. However, the overall outlook remains unchanged. As mentioned before, the deepening in global credit markets triggers speculation of coordinated central bank actions and markets are cautious on dumping stocks further at this level. Thus, the world's financial markets could stabilize a bit after yesterday's spike low and another round of panic selling would probably be delayed after the rumors of coordinated rate cuts becomes news. Technically speaking, we'd expect Dow to plunge further to below 9000 level after the current recovery and thus, another round of yen, and to a lesser extent dollar, buying is still expected after the current consolidation. To further stabilize the credit markets, Fed announced that they will buy "commercial paper" to support financing needs of corporations. The $99 b daily market of commercial paper has virtually dried up recently which made it increasingly difficult for corporations to raise short term money. Such unstable situations will leave many companies vulnerable. Fed will create special fund to purchase from eligible issuers three-month dollar denominated commercial paper at a spread over the three-month overnight-indexed swap rate. the paper purchased by the vehicle must be rated at least A1/P1/F1. RBA surprised the markets by cutting one full percent point, the most since 1992, to bring Overnight Cash Rate down to 6.00%, doubling expectation of 50bps cut. Governor Stevens said that "conditions in international financial markets took a significant turn for the worse in September." "Demand and output could be significantly weaker than earlier expected" due to deterioration in global growth prospects and difficult credit market conditions. Hence, "an unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers." BoJ left rates unchanged at 0.50% as widely expected. Japanese leading indicators dropped more than expected by -2.1% in Aug. Economic data released today saw Japanese leading indicators dropped -2.1% in Aug. UK industrial production deteriorated further to -2.3% yoy in Aug with Manufacturing production dropped further to -1.9% yoy. Germany factory order rose 3.6% mom, dropped -7.6% yoy in Aug. FOMC minutes of Sep meeting will be released later in the US afternoon. GBP/JPY Mid-Day Outlook Daily Pivots: (S1) 172.37; (P) 179.19; (R1) 184.34; More GBP/JPY recovers after hitting long term trend line support at 174.64. Break of 180.64 indicates that an intraday low is in place and further consolidation could be seen. Nevertheless, upside of recovery is expected to be limited below 188.58 resistance and bring fall resumption. Below 174.03 will indicate decline from 197.42 has resumed for next short term target of 100% projection of 215.87 to 184.47 from 197.42 at 166.02. In the bigger picture, 180 psychological support is taken out decisively. GBP/JPY is now pressing long term rising trend line support (129.32, 148.19). Sustained trading below will encourage fall to next medium term target of 100% projection of 251.09 to 192.60 from 215.87 at 157.38 and probably further to 148.19 low. On the upside, above 197.42 is needed to confirm that a medium term bottom is formed. Otherwise, outlook remains bearish.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
3:30	AUD	RBA rate decision Oct	6.00%	6.50%	7.00%
3:58	JPY	BOJ rate decision Oct	0.50%	0.50%	0.50%
5:00	JPY	Japan Leading indicators Aug	-2.10%	-2.30%	0.90%
8:30	GBP	U.K. Industrial prod'n M/M Aug	-0.60%	-0.20%	-0.40%
8:30	GBP	U.K. Industrial prod'n Y/Y Aug	-2.30%	-2.00%	-1.90%
8:30	GBP	U.K. Manufacturing prod'n M/M Aug	-0.40%	-0.20%	-0.20%
8:30	GBP	U.K. Manufacturing prod'n Y/Y Aug	-1.90%	-1.60%	-1.40%
10:00	EUR	Germany Factory orders M/M Aug	3.60%	-0.10%	-1.70%	-1.30%
10:00	EUR	Germany Factory orders Y/Y Aug	-7.60%	-4.70%	-0.70%	-0.30%
13:30	EUR	ECB Trichet speaks
17:15	USD	Fed Bernanke speaks
18:00	USD	FOMC mintues Sep

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Europe stocks rise after Fed CP funding facilitiy

LONDON, Oct 7 (Reuters) - European shares extended gains on Tuesday after the U.S. Federal Reserve announced the creation of a special-purpose facility to begin buying commercial paper in yet another emergency move aimed at calming financial markets.

By 1314 GMT, the FTSEurofirst 300 of top European companies was up 2 percent at 1,025.02 points, after trading at 1,006.99 before the announcement.

Oil and gas were the top performing sector on the index, with BP (BP.L: Quote, Profile, Research, Stock Buzz) up 5 percent and Total (TOTF.PA: Quote, Profile, Research, Stock Buzz) rising 5.4 percent.


UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) gained 1.8 percent, Santander (SAN.MC: Quote, Profile, Research, Stock Buzz) advanced 4.3 percent and BNP Paribas (BNPP.PA: Quote, Profile, Research, Stock Buzz) climbed 5 percent. But Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) slumped nearly 22 percent and HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz) shed 14.6 percent. (Reporting by Dominic Lau)


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Time to Look in the Other Direction - at Least for Short-term Bounce?

Daily Forex Fundamentals | Written by Black Swan Capital | Oct 07 08 13:25 GMT |

Currency Currents Key News Australia's central bank cut its benchmark interest rate by one percentage point. (Bloomberg) US Economic Events (WSJ): 7:45a.m. ICSC Chain Store Sales Index For Oct 4: Previous: -0.2%. 8:55a.m. Redbook Retail Sales Index For Oct 4: Previous: -1.3%. 2:15p.m. Sep 16 FOMC Minutes 3:00p.m. Aug Consumer Credit: Expected: +$6B. Previous: +$4.6B 5:00p.m. ABC/Wash Post Consumer Conf For Oct 4: Previous: -41. Quotable "Why are markets turbulent? I am a scientist, not a philosopher; so I can only hazard some suggestions. One possible source is the world outside markets - what economist call exogenous effects. After I had, in the early 1960s, focused on scaling and long-term dependence, key traits of turbulence, I soon found innumerable other examples in many natural phenomena; these phenomena, in turn, may impress a corresponding pattern on prices. For instance, I have found characteristic scaling patterns, from many small items to a few large ones, in the area and reserves of oil fields. The valuation of certain gold, uranium, and diamond mines in South Africa scales. Storms and earthquakes scale. "You can imagine a chain reaction. Weather affects harvests, and harvests affect prices. The distribution of natural resources around the globe - oil, gold, and other minerals - affects supply, hence affects prices. The same goes for business: The size of the firms in an industry, from mighty Microsoft to a legion of little software houses, also follows a scaling pattern. So, industry concentration affects profit, hence affects stock prices. Now, this is unsatisfactory for a rigorous analysis of cause and effect in economics. But if one must have a ‘story' to explain data, then this is at least a plausible partial one. Scaling enters the system from the fundamentals of weather patterns, resource distributions, and industrial organization. Scaling finishes - and feeds back through the system again - in the market place. "…Imagine, finally the world economy: a chamber of mirrors. Each company relays, distorts, and attenuates the economic signals as they flash around the globe. The signals fade in time. But it can take months, years, or decades for a signal to become so weak and remote as to be unremarkable. Such is long-term dependence in an economy: Every event, no matter how remote or long ago, echoes across all other events." Benoit Mandelbrot, The Misbehavior of Markets FX Trading - Time to Look in the Other Direction - at Least for Short-term Bounce? We saw a significant degree of real and psychological capitulation yesterday in favor of the dollar. The driver for the buck continues to be risk (money back to the center to hide, we see it in the bond prices and soaring labor yield), global growth screeching to a halt (we see that in the big cut out of Australia), and emerging markets most everywhere being crushed. 10-yr Treasury Notes Daily Time for a breather here? Aussie: Is it "sell the rumor and buy the news"? Or is it trying to catch a falling knife? Maybe not a bad short-term risk/reward bet given the massive hammering of the Aussie yesterday. Buying power is available, as evidenced by the following stat from the Commitment of Traders report as of 30 Sep 2008 (this is likely magnified now): Spec Traders: Short Aussie futures 23,450 72% Long Aussie futures 9,103 18% A bounce is worth a bunch of points. But this is a trade you enter at your peril - take a shot with a stop-loss only. Big down moves usually don't turn on a dime. And the fundamentals really haven't changed. We think deflation will soon replace inflation as the order of the day. Deflation isn't good news for currencies such as the Aussie levered for global growth and inflation. But I guess that is clear to many already! If we had to pick a "looking in the other direction" favorite, I guess it's the good old Swissie. With the Eurozone breaking down in a big way, Switzerland, though not setting the world on fire and still smarting from the reality that Swiss bankers don't seem to be able to control risk any better than anyone else, seems as though it might garner some money flow from the zone and Central Europe. Swiss futures Daily: A decent risk/reward setup we think. We know where to run from the trade…it appears the selling pressure is waning, evidenced by the decline in selling volume in the Swiss futures listed on the CME. Notice the high volume of selling at the previous low, #3, compared to the selling even though that low was pierced. Maybe this is telling us something. Key word is "maybe." But, we are thinking risk to reward and as stated, we know where we are wrong on the trade and it isn't far away. Longer term our reasons why the dollar has put in a long-term bottom haven't changed. The trend is validating those reasons. We think the buck is beginning at the early stages of a multi-year bull market rally. We stay with those reasons and that trend over the intermediate-term until something changes. But we can't help pecking when a near-term opportunity in the other direction sets up. Jack Crooks Black Swan Capital http://www.blackswantrading.com Black Swan Capital's Currency Snapshot is strictly an informational publication and does not provide individual, customized investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed disclaimer can be found at http://www.blackswantrading.com/disclaimer.html

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US STOCKS-Market opens up on Fed commercial paper move

(Updates to open)

NEW YORK, Oct 7 (Reuters) - U.S. stocks opened higher on Tuesday after the U.S. Federal Reserve moved to unclog the commercial paper market, which is widely used to fund day-to-day business by companies.

The Dow Jones industrial average .DJI was up 56.63 points, or 0.57 percent, at 10,012.13. The Standard & Poor's 500 Index .SPX was up 5.30 points, or 0.50 percent, at 1,062.19. The Nasdaq Composite Index .IXIC was up 10.03 points, or 0.54 percent, at 1,872.99.

(Reporting by Kristina Cooke; Editing by Kenneth Barry)



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London Session Recap

Daily Forex Fundamentals | Written by Forex.com | Oct 07 08 12:23 GMT |

The buck reasserted itself once again in London trading, moving higher against most of the majors. Poor data across the pond helped matters as it suggests that the deterioration in European economies continues unabated. UK industrial production came in at an awful -0.6% for August, on the heels of an already paltry -0.4% the prior month. This dealt a blow to the pound and GBP/USD plunged more than -100 pips into the 1.7420 mark. The data in the Euro-zone was no better as German industrial production -- while up in the month of August -- fell to an annual rate of -7.6% after running near -0.3% previously. This is the weakest run-rate since late 2001. EUR/USD was broadly unchanged however, sitting near the 1.3570/80 zone at the close. The pair basically drifted as the market awaits comments from Fed Chairman Bernanke at 1715GMT today. Bernanke is due to speak on the economy and markets and traders anticipate he will offer up whether the Fed is contemplating rate cuts or not. We would expect the USD to trade lower if Bernanke hints that rate cuts are coming. This could see a reversal later in the week, however, if his European counterparts step up the rate cut rhetoric as well, as this could negate any impact to the buck from a rate differential standpoint. Stay tuned! Upcoming Economic Data Releases (NY Session) Prior Estimate 10/7/2008 13:30 GMT GE ECB's Trichet Speaks in Evian, France 10/7/2008 15:00 GMT US Fed's Stern Speaks in Chicago on Financial Shock 10/7/2008 17:15 GMT US Bernanke Speaks on Economy, Markets in Washington 10/7/2008 18:00 GMT US Minutes of Sept. 16 FOMC Meeting 10/7/2008 19:00 GMT US Consumer Credit AUG $4.6B $5.8B 10/7/2008 21:00 GMT US ABC Consumer Confidence 5-Oct -41 - - Forex.com http://www.forex.com DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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German Factory Orders Jump, Breaking Losing Streak

By Gabi Thesing

Oct. 7 (Bloomberg) -- German factory orders rose for the first time in nine months in August, ending their longest-ever losing streak.

Orders, adjusted for seasonal swings and inflation, jumped 3.6 percent from July, the Economy Ministry in Berlin said today. That's the most since October 2007. Economists expected a gain of 0.5 percent, the median of 28 forecasts in a Bloomberg News survey showed. From a year earlier, orders dropped 7.6 percent.

``Unfortunately, this is just a technical payback for eight months of decline,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt, who expects Germany's economy to shrink 0.2 percent next year. ``The trend is down and there is no escaping the recession.''

The financial-market crisis is escalating in Europe, with stocks plunging, credit costs soaring and governments forced to bail out banks. Germany's economy contracted 0.5 percent in the second quarter and may not have recovered in the third, raising the possibility of a recession.

Factory orders declined 1.3 percent in July, the ministry said in the statement, revising an initial estimate of a 1.7 percent drop. This month's increase was driven by a 3.7 percent gain in domestic orders and a 3.5 percent advance in sales abroad, which was entirely driven by orders from outside the euro region. Sales of investment goods outside the region surged 23 percent.

Big-Ticket Orders

There was ``disproportionately strong big-ticket order intake in August,'' the ministry said, adding a below-average number of holidays may also have played a role. ``The outlook for industrial production over the coming months remains muted,'' the statement said.

The VDMA lobby said last week that orders for plant and machinery declined for a fourth straight month in August from a year earlier, as a stronger euro and slowing global economic growth curbed foreign demand. German business confidence last month fell to a lowest level in more than three years.

The 15-nation euro area, which takes just over 40 percent of Germany's exports, is also teetering on the brink of a recession after contracting 0.2 percent between April and June.

Orders for German goods from the region slumped 9.3 percent in August, today's report showed.

Credit Crunch

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 on Sept. 15 and forcing governments to rescue banks in the U.S. and Europe.

Europe's Dow Jones Stoxx 600 Index tumbled the most since 1987 yesterday, dropping 7.6 percent.

General Motors Corp.'s Opel division plans to reduce Europe- wide production by 40,000 vehicles by the end of the year and has already halted production at two German plants, Bild-Zeitung reported today.

Still, the price of oil has retreated almost 40 percent from its July record, damping inflation and lifting German consumer confidence for the first time in five months, GfK AG's index for October showed Sept. 25. Unemployment fell more than economists forecast in September as machine makers hired people to work off an order backlog.

Slower inflation may also prompt the European Central Bank to reduce borrowing costs from a seven-year high. ECB President Jean-Claude Trichet said on Oct. 2 that inflation risks ``have diminished somewhat'' and that policy makers discussed cutting the benchmark rate from 4.25 percent.

Euro-region inflation slowed to 3.6 percent in September from a 16-year high of 4 percent in July. That's still above the ECB's 2 percent limit.

To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net



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Europe May Raise Deposit Insurance to Stem Crisis

By Brian Swint and Elizabeth Konstantinova

Oct. 7 (Bloomberg) -- European Union finance ministers are considering a fivefold increase in deposit insurance for consumers across the EU after failing to agree on a U.S.-style bank-bailout fund to stem the deepening global credit crunch.

Increasing deposit guarantees to up to 100,000 euros ($135,000) is ``an issue under examination,'' Irish Finance Minister Brian Lenihan told reporters in Luxembourg today at a regular monthly meeting of finance chiefs. Luxembourg's Jeannot Krecke said the ministers will ``quite certainly come up with a proposal today'' that ``will go further than just guaranteeing the safety of deposits.''

Ministers from the 15 countries sharing the euro yesterday failed to come up with specific plans to ease concerns on financial markets after European stocks dropped by the most since 1987. Luxembourg Finance Minister Jean-Claude Juncker, who led yesterday's meeting of euro-area counterparts, said they ``reinforced arrangements concerning deposit protection.''

The debate followed rescues of major European financial institutions in recent days. Money-market rates rose to records today as U.K. lenders held talks with the government on emergency funding and Iceland took steps to bolster its banks amid an unprecedented credit squeeze.

EU leaders meeting in Paris last weekend asked the European Commission to propose new rules on bank-deposit guarantees. EU governments currently must assure that there is a guarantee fund covering at least 20,000 euros in savings accounts.

`End of the Road'

``We haven't seen a run on banks by households yet,'' said Sylvain Broyer, an economist at Natixis in Frankfurt. ``That's the end of the road and something to avoid by any means necessary.''

There appeared to be little support for suggestions that Europe create a U.S.-style bank rescue fund. Italian Prime Minister Silvio Berlusconi and French Finance Minister Christine Lagarde both have suggested a plan modeled after the $700 billion fund approved by Congress last week.

``We all agreed that we want to do all we can to avoid financial institutions of systemic importance failing,'' Juncker said yesterday.

Ireland's parliament on Oct. 2 passed legislation guaranteeing 100 percent of the deposits and borrowings of six Irish banks. The action triggered complaints from governments and the European Central Bank that the country was acting alone to tackle the banking crisis.

``One country's solution is another country's problem,'' Swedish Finance Minister Anders Borg told reporters in Luxembourg today. ``We need to push for a common solution.''

Criticism of Ireland

The ECB said the Irish government should have ``properly'' informed the EU before announcing the bank-guarantee plan. And EU Competition Commissioner Neelie Kroes asked Ireland to expand the measure to include non-Irish banks to comply with EU rules that prohibit discriminating in favor of domestic institutions.

EU countries ``will take whatever measures are necessary to maintain the stability of the financial system,'' the 27 EU member countries said in a joint statement released yesterday by Berlusconi's office. ``We will continue to take the necessary measures to protect the system so that individual depositors in our countries' banks do not suffer any loss of money.''

Finance ministers today also debated proposals to link executive pay more closely with performance and for more investor and regulatory scrutiny of compensation packages. They also discussed ways to combat value-added-tax fraud and capital requirements for insurers.

Europe's Dow Jones Stoxx 600 Index added 0.2 percent to 241.93 at 11:25 a.m. in London after dropping the most since October 1987 yesterday. The euro fell below $1.35 for the first time in a year.

To contact the reporters on this story: Brian Swint in Luxembourg at bswint@bloomberg.net; Elizabeth Konstantinova in Luxembourg at ekonstantino@bloomberg.net.

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Australia Slashes Rates, Central Banks Inject Cash

By Jennifer Ryan and Garfield Reynolds

Oct. 7 (Bloomberg) -- Australia slashed its benchmark interest rate by the most since 1992 and central banks pumped more than $480 billion into money markets as policy makers tried to staunch the worsening financial crisis.

Australia's central bank lowered its key rate by one percentage point to 6 percent, twice as much as economists forecast. The European Central Bank and its counterparts provided extra funds one day after the worldwide stock market slide wiped more than $2 trillion off investors' wealth.

The moves failed to stem strains in credit markets that have pushed Iceland's financial system close to collapse and sent European money-market rates to records today. With financial conditions deteriorating, central banks are coming under pressure to follow Australia and cut interest rates.

``There seems a growing chance of emergency ECB and Bank of England easing in the next few days,'' said Michael Saunders, chief western European economist at Citigroup Inc. ``To be sure, early easing, even 50 basis points or more, would not provide a full solution to the current economic and financial crisis.''

ECB President Jean-Claude Trichet is scheduled to speak in Evian, France at 3:30 p.m. local time today. Fed Chairman Ben S. Bernanke will discuss the economic outlook from 12:30 p.m. in Washington. They will meet Group of Seven counterparts in the U.S. capital on Oct. 10.

ECB Loans

The ECB today loaned banks 250 billion euros ($339 billion) in seven-day funds, six times more than it initially estimated would be needed. It also lent banks $50 billion for one day at a marginal rate of 6.75 percent, more than three times the Federal Reserve's 2 percent benchmark interest rate.

The Australian rate cut triggered a rebound in Asian stocks on speculation other countries will follow to unlock credit markets. The MSCI Asia Pacific Index pared a 3.2 percent loss and ended the day 1.2 percent lower.

``Rumors are now circulating that today's aggressive move by the Reserve Bank of Australia is the precursor for coordinated rate cuts by global central banks,'' said Katie Dean, a senior economist at Australia & New Zealand Banking Group Ltd. in Melbourne.

So far, some central banks have been reluctant to move as fast as the Fed in lowering borrowing costs. Indonesia's central bank today raised its policy rate to slow inflation and boost the rupiah. The ECB in July increased its benchmark rate to 4.25 percent and the Bank of England has left its key rate at 5 percent since April. The Fed by contrast has slashed its benchmark by 3.25 percentage points to 2 percent.

Credit Squeeze

As the credit squeeze worsens and spills over into Europe's economy, its central banks may nevertheless have to act. Trichet said Oct. 2 that the ECB considered easing policy last week. The Bank of England will cut its benchmark rate by at least quarter point on Oct. 9, according to 48 of 61 economists in a Bloomberg News survey.

The concern for governments and central banks is that their measures have so far failed to contain the financial crisis.

The London interbank offered rate, or Libor, for overnight dollar loans rose to 3.94 percent from 2.37 percent. One-day rates for loans in pounds climbed to 5.84 percent from 5.08 percent. Earlier today the euro interbank offered rate, or Euribor, for three-month loans reached a record 5.38 percent.

``Despite central banks pumping liquidity into the system, banks are either hoarding cash or putting it into treasury bills,'' said Ong Hock Ann, a money-market dealer at ING Asia Private Bank Ltd. in Singapore. ``It's a question of confidence and trust. There is money, but money is not flowing to the right channels.''

Money Flow

Bernanke yesterday signaled he's preparing measures with Treasury Secretary Henry Paulson to unfreeze markets where loans aren't secured by assets. Russia may lend Iceland's central bank 4 billion euros ($5.43 billion) to inject liquidity into the financial system, the bank said today.

Financial institutions have incurred more than $585 billion in writedowns and credit-market losses since the collapse of the U.S. subprime mortgage market in early 2007. Governments in Europe and the U.S. arranged rescues for six financial institutions in the past two weeks.

The ECB also added $50 billion in overnight dollar funds. The Bank of England provided $25.9 billion in overnight and weekly money and 31 billion pounds ($54 billion) in three-month funds.

The Bank of Japan added 1 trillion yen ($9.8 billion) into money markets and the Reserve Bank of Australia provided A$1.82 billion ($1.3 billion) of funds. The Swiss National Bank today loaned $10 billion of overnight funds.

To contact the reporters on this story: Jennifer Ryan in London at Jryan13@bloomberg.net; Garfield Reynolds in Sydney at greynolds1@bloomberg.net.

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EU Panel Seeks 18% Rise in Imported Emission Credits

By Jonathan Stearns

Oct. 7 (Bloomberg) -- The European Parliament's environment committee voted to let energy and manufacturing companies import 18 percent more emission credits through 2020 to cut the cost of stricter domestic caps on pollution blamed for climate change.

The panel inserted the provision in a draft European Union law that would tighten carbon-dioxide curbs on electricity, steel, paper and other industries now in the EU emissions- trading system by 11 percent on average in 2013-2020 compared with 2008-2012. The system, the world's biggest greenhouse-gas market, requires companies that exceed their quotas on CO2 discharges in the EU to buy allowances from businesses that trimmed emissions.

The committee said today that United Nations-backed credits created through energy-efficient projects in developing countries such as China should cover an estimated 1.65 billion metric tons of EU emissions in 2008-2020 rather than 1.4 billion tons proposed by European regulators in January. UN permits are cheaper than EU allowances and can be used as an alternative for compliance under the emissions-trading program.

``It's a very balanced outcome,'' Avril Doyle, an Irish member steering the law through the 27-nation Parliament, said after the verdict in Brussels in a committee room overflowing with lobbyists. Further increasing the importance of access to UN credits, which are generated under the Kyoto Protocol's clean development mechanism, the committee endorsed adding the aluminum and chemicals industries to the cap-and-trade system and requiring the auctioning of EU allowances now allocated largely for free under the quotas.

Call for Flexibility

Industry and traders are pressing the EU to be more flexible with foreign credits beginning in 2013 as the European economy slows and concerns mount about energy-cost increases from targeting fossil fuels that are a root cause of manmade global warming. The companies affected range from utility RWE AG and oil refiner Royal Dutch Shell Plc to steelmaker ArcelorMittal and paper producer Stora Enso Oyj.

Stricter domestic emission caps underpin an EU goal to reduce greenhouse gases including CO2, the main such pollutant, by a fifth in 2020 from 1990. At stake is Europe's quest to persuade the U.S. and China, the biggest emitters, to sign up to a new global accord that would curb these gases after the Kyoto Protocol expires in 2012.

Lower Limit

The European Commission, the EU's regulatory arm, proposed the tougher emission rules on Jan. 23. The draft law covering the period 2013-2020 still needs the backing of the full 785- seat EU Parliament and national governments, which aim for an agreement by year-end under a fast-track procedure that increases the importance of today's committee vote.

The legislation proposed by the commission and approved by the environment panel would reduce the overall cap for the 11,400 installations now in the EU emissions-trading system to an average 1.846 billion tons of CO2 a year in the eight years through 2020 from 2.083 billion tons annually in 2008-2012.

In that context, the commission proposed limiting the use of imported credits in 2013-2020 to unexhausted quotas fixed for 2008-2012 as long as no global accord is reached to succeed the Kyoto Protocol, saying looser rules could open the ``floodgates'' for extra supply. This provision would translate into UN credits covering a total of 1.4 billion tons of emissions in 2008-2020, according to the commission.

`Small Step'

The environment panel raised this ceiling by an estimated 245 million tons by letting companies use imported credits to cover up to 4 percent of their discharges as an alternative to carrying over unused 2008-2012 import quotas. The new option would be conditional on companies having used such credits in 2008-2012 for less than 6.5 percent of their emissions.

``It's a small step,'' said Guy Turner, director of New Energy Finance, a London research company. The increase ``will act to reduce EU allowance prices, but not by very much.''

EU emission allowances for December rose 7 cents, or 0.3 percent, to 22.15 euros ($30.19) a ton on London's European Climate Exchange as of 1:14 p.m. local time. UN certified emission reduction credits for December gained 29 cents, or 1.6 percent, to 18.70 euros a ton.

The committee supported the commission's proposal to add the aluminum and chemicals industries to the emissions-trading system in 2013. A separate EU law approved earlier this year will also extend the rules to airlines as of 2012. As a result of these additions, the overall average annual EU cap for 2013- 2020 isn't yet known.

Lower Auctioning Rate

The committee also endorsed allocating fewer emission allowances for free under the quotas to prevent windfall profits and raise pollution costs, saying power producers should purchase their whole allotment as of 2013 and full auctioning should apply to the other industries from 2020 after a phase-in.

In a concession to those other industries, the committee said the auctioning rate for them should start at 15 percent in 2013 rather than the 20 percent proposed by the commission. The level would rise annually until reaching 100 percent in 2020.

The draft law allows for a possible exemption from auctioning for any energy-intensive industries judged to be exposed to global competition and liable to relocate to non-EU countries without emission curbs. The commission would have to determine these industries in 2010.

In a separate concession to companies including utilities, the panel voted to set aside for plants that capture CO2 and store it underground as many as 500 million allowances from a reserve for new market entrants in 2013-2020. This would be in addition to counting stored CO2 as not emitted under the emissions-trading system.

``This provides a realistic basis for funding,'' Doyle said.

The EU aims for about 12 carbon capture and storage demonstration projects by 2015 and is seeking ways to kick-start them with government aid. Companies including Vattenfall AB and Shell have urged the EU to grant allowances from the reserve to help finance the technology.

To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net



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BP's BTC Crude Oil Pipeline Will Export 18 Cargoes in November

By Alexander Kwiatkowski

Oct. 7 (Bloomberg) -- Shipments of Azeri crude via the Baku-Tbilisi-Ceyhan pipeline will total 12.34 million barrels in November, 47 percent of the volume pumped before a spate of disruptions starting in August.

Eighteen cargoes, or an average of 411,333 barrels a day, will be exported next month, according to a revised loading schedule. In July, schedules showed a total of 24 million barrels would load, or 774,194 barrels a day.

The pipeline, which transports oil from Azerbaijan through Georgia to Turkey's Mediterranean coast, was disrupted for 20 days on Aug. 5 after a fire on the Turkish part of the link and again on Sept. 17 following a gas leak. BP Plc, the operator of the link, said flows were still reduced today.



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Libya Urges OPEC to Cut Output to Halt Price Decline

By Maher Chmaytelli

Oct. 7 (Bloomberg) -- OPEC, the producer of more than 40 percent of the world's oil, should cut output after crude fell 36 percent from its July record in the wake of the credit crisis, Libya's top energy official said today.

``With oil prices collapsing and international banks being routed, it's better to keep our oil underground,'' Shokri Ghanem, chairman of Libya's National Oil Corp., said in a telephone interview from Tripoli. He declined to say by how much OPEC should lower production.

Crude slid below $90 a barrel in New York yesterday for the first time since February on concern slower global economic growth will reduce demand for fuels. OPEC President Chakib Khelil promised ``appropriate measures'' to stabilize prices and Qatar said it's reducing output in line with official quotas.

The Organization of Petroleum Exporting Countries should meet before its next scheduled gathering on Dec. 17 in Oran, Algeria, to decide on an output cut, Ghanem said.

OPEC agreed at a meeting in Vienna on Sept. 9 to a total production limit for 11 members of 28.8 million barrels a day, unchanged from previous targets. OPEC Secretary-General Abdalla El-Badri said this meant the group would trim ``oversupply'' by about 500,000 barrels a day.

Libya wants OPEC to cut production further. The North African nation is abiding by its OPEC quota of 1.7 million barrels a day, Ghanem said.

Crude oil for November delivery rose for the first time in five days, gaining as much as 5.3 percent to $92.48 on the New York Mercantile Exchange. It traded at $92.46 as of 9:15 a.m. local time. Prices reached a record $147.27 on July 11.

Goldman Forecast

Arjun Murti, the Goldman Sachs Group Inc. analyst who predicted a crude ``super spike'' in March 2005, said in a report dated yesterday that a sustained rally in the oil price is unlikely because of concern demand will weaken.

Qatar is reducing oil production to return to its official target, the nation's oil minister Abdullah bin Hamad al-Attiyah said today in a telephone interview from Doha. Qatar was producing about 50,000 barrels a day above its last known quota in September, according to Bloomberg data.

Crude prices will continue to fall next year, Khelil said yesterday in Algiers. ``OPEC will take the appropriate measures at the next meeting to preserve stability in the international market,'' Khelil, who is also Algeria's oil minister, said.

OPEC members pumped an average 32.19 million barrels a day last month, down 425,000 barrels a day from August, as Iraq's and Iran's production fell, according to a Bloomberg News survey of oil companies, producers and analysts, released on Oct. 3.

To contact the reporter on this story: Maher Chmaytelli in Athens at mchmaytelli@bloomberg.net



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Asian Currencies: Korean Won, Rupee Fall on Credit Concerns

By Lilian Karunungan and Kim Kyoungwha

Oct. 7 (Bloomberg) -- South Korea's won slumped to a seven- year low and the Indian rupee fell on speculation deepening turbulence in global financial markets will prompt investors to steer clear of emerging-market assets.

The won, Asia's worst-performing currency this year, tumbled as much as 7 percent, the most since December 1997 when the nation sought an emergency loan from the International Monetary Fund to meet debt payments. India's rupee declined to its weakest in almost six years and the ringgit fell to a 13- month low as stock markets in the region extended a slump.

``Sentiment is extremely unstable as the crisis seems to be spreading fast,'' said Jay Won, a currency dealer at Korea Exchange Bank in Seoul. ``People are panicking and they only want to hold dollars.''

The won tumbled 4.7 percent to 1,328.10 per dollar as of the 4 p.m. local close, according to Seoul Money Brokerage Services Ltd. The currency touched 1,364.05, the weakest since April 2001 and is down 30 percent this year. The rupee fell as much as 0.7 percent to 48.14 per dollar, the lowest since December 2002, before trading at 48.08 in Mumbai, according to data compiled by Bloomberg.

The MSCI Asia-Pacific Index of regional shares dropped 1 percent, taking losses over the past four days to more than 9 percent. Benchmark stock indexes in Japan, Singapore, Malaysia and Indonesia have all lost more than 30 percent this year.

The Korean government will use its currency reserves to provide funds when needed, Deputy Finance Minister Shin Je Yoon said today. Finance Minister Kang Man Soo yesterday urged banks to sell overseas assets to raise cash they can use to lend to companies struggling with rising offshore borrowing costs.

Foreign Reserves

South Korea is the world's sixth-largest holder of foreign reserves, which fell for a fifth month in August to $243.2 billion, according to the central bank, as policy makers intervened to stem the won's slide.

Asian currencies trimmed losses after the Reserve Bank of Australia lowered interest rates by a full percentage point to 6 percent, bigger than the median estimate of a half-point cut.

India's rupee declined for a third day after the local benchmark share index fell to its lowest in more than two years.

``The rupee will weaken further as investors continue to pull out of the equity market,'' said Krishnamurthy Harihar, a treasurer at Development Credit Bank Ltd. in Mumbai. ``The turmoil across global markets is going to affect the sentiment on the local currency.''

Thai Baht

The Thai baht declined for a fifth day as Deputy Prime Minister Chavalit Yongchaiyudh resigned after dozens of anti- government protesters were injured as police cleared a blockade of Parliament, quashing reconciliation efforts to end a five- month standoff.

``The political situation in Thailand is extremely fluid,'' said Joseph Tan, Asia chief economist at Credit Suisse in Singapore. ``We are not bullish on the Thai baht at all.''

The baht dropped 0.2 percent to 34.46, according to data compiled by Bloomberg. The currency is this year's third-worst performer in Asia after the Korean won and the Indian rupee, with losses of 14 percent.

Police fired tear gas at demonstrators who attempted to prevent lawmakers from entering the Parliament building to hear the government's policies. Protesters accuse the government of being a proxy for former leader Thaksin Shinawatra, who fled to the U.K. in August to escape corruption charges.

Malaysian Ringgit

Malaysia's ringgit fell for a fourth day on speculation overseas investors are taking money out of the country as local stocks decline.

``Capital will keep leaving the region until at least the end of the year and the ringgit will keep depreciating,'' said Nikhilesh Bhattacharyya, an economist in Sydney at Moody's Economy.com. ``It's not such a bad thing if bank lending does slow in some markets, but this will still hurt exporters and businesses.''

The ringgit declined 0.1 percent to 3.4915, according to data compiled by Bloomberg. The currency reached 3.5078, the weakest since September 2007.

Elsewhere, Indonesia's rupiah rose 0.13 percent to 9,566 per dollar and the Philippine peso was little changed at 47.40. The Singapore dollar fell 0.2 percent to S$1.4664. Taiwan's dollar was at NTS32.35 versus NT$32.343 yesterday. Vietnam's dong was little changed at 16,610.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@blooomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net.



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Copper Rises on London Metal Exchange, Reversing Earlier Drop

By Chanyaporn Chanjaroen

Oct. 7 (Bloomberg) -- Copper rose on the London Metal Exchange, reversing earlier losses. Aluminum and lead also increased.

Copper for delivery in three months gained $60, or 1.1 percent, to $5,620 a metric ton as of 12:13 p.m. local time. It earlier fell as much as 1.4 percent to $5,480 a ton.

Aluminum added $30, or 1.3 percent, to $2,280 a ton and lead gained $35, or 2.1 percent, to $1,670 a ton. Nickel dropped $49 to $14,251, zinc was up $1 to $1,550 and tin was unchanged at $16,200 a ton.

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



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Iceland's Krona Pegged; Government Takes Over Lender Landsbanki

By Bo Nielsen

Oct. 7 (Bloomberg) -- Iceland pegged the krona to the euro at a rate 24 percent stronger than yesterday's close in an effort to stabilize the currency and forestall possible bank defaults.

The krona was fixed at a rate of 131 per euro, according to the Icelandic central bank's Web site. It traded at 200 per euro as of about 11:45 a.m. in Reykjavik, according to Nordea Bank AB, Scandinavia's biggest lender. The currency slid earlier against the euro as a government regulator took control of lender Landsbanki Islands hf. The central bank said talks with Russia about receiving a 4 billion-euro ($5.4 billion) loan were ongoing.

``This means the central bank will try to intervene if the price of the krona rises above 131 per euro,' said Carl Hammer, an emerging-markets strategist in Stockholm at SEB AB. ``It's going to be tough to make that successful in the long run. Everything is going so fast that nobody knows what's true.''

The krona traded at about 150 per euro, according to Kaupthing Bank hf and Glitnir Bank prices. The krona yesterday was at 172.89 per euro.

Iceland's central bank Governor David Oddsson said an announcement the government had agreed on the loan from Russia was ``overstated'' and that talks were still ``ongoing.''

Kaupthing, Iceland's largest bank, said today the central bank agreed to lend it 500 million euros.

``The actions of the authorities over the last 24 hours suggest that this may in fact be a solvency crisis and that liquidity injections would not have helped,'' Beat Siegenthaler, chief strategist for emerging markets at TD Securities Ltd. in London, wrote in a research report today.

`Danger Real'

``The danger is real that the Icelandic economy would be sucked, along with banks, under the waves and the nation would become bankrupt,'' Icelandic Prime Minister Geir Haarde said at a press conference yesterday in Reykjavik.

Standard & Poor's cut Iceland's long-term credit rating to BBB+ from A+ and the foreign-currency rating to BBB from A- yesterday. The rating company now predicts an economic contraction ``much sharper than we had foreseen,'' which is likely to result in lower government revenue.

Icelandic banks including Kaupthing and Landsbanki were suspended from trading in Reykjavik because of concern about the pricing of their shares.

To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net



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Yuan Gains Most in Seven Months, Erasing Biggest Loss Since Peg

By Belinda Cao and Kim Kyoungwha

Oct. 7 (Bloomberg) -- The yuan rose the most in seven months, erasing a record loss posted in the run-up to last week's break in trading, after the central bank said it wants a stable currency.

The People's Bank of China will focus on ``maintaining the stability of the currency when applying macro-economic controls to the financial sector and formulating monetary policy,'' said Central Bank Governor Zhou Xiaochuan in a statement the agency posted on its Web site yesterday.

The currency rose 0.38 percent to 6.8169 a dollar as of 5:30 p.m. in Shanghai, according to the China Foreign Exchange Trade System. A 0.08 percent gain yesterday followed a 0.46 percent slide on Sept. 26, the biggest drop since a dollar peg ended in July 2005. China's financial markets were closed last week for a public holiday.

``The decline before the holiday was too big, and the government thinks it necessary to stabilize the market,'' said Liu Dongliang, a Shenzhen-based foreign-exchange analyst at China Merchants Bank Co., the country's sixth-largest lender. He predicts the yuan won't strengthen beyond 6.8 a dollar this week.

China's currency is allowed to trade by up to 0.5 percent against the dollar on either side of the so-called central parity rate, which was set at 6.8345 per dollar today.

The yuan gained 0.08 percent in the last three months, the smallest quarterly advance since the peg ended more than three years ago. Gains have slowed as the government shifts its focus to sustaining economic growth.

Smooth and fast economic development in China is a policy that will be of greatest benefit to the global economy, Premier Wen Jiabao said Oct. 6. Governments in Europe are seeking to shore up faltering financial institutions and the U.S. is enacting a $700 billion rescue package as a deepening credit crisis increases the risk of a global recession.

Bonds Rise

Government bonds gained after the central bank sold one- year sterilization bills at a lower yield for the third time this year.

The People's Bank of China issued 80 billion yuan ($11.7 billion) of one-year bills at a yield of 3.9069 percent, 9.7 basis points less than for similar-dated paper sold Sept. 23. The amount sold was 20 billion yuan less.

The yield on similar-dated bills sold by the central bank declined for the first time this year on Sept. 16 following a 0.27 percentage-point cut in benchmark lending rates. The yield has since then dropped 15 basis points in three weekly auctions from the previous 4.0583 percent.

``The central bank will continue to reduce the size of the money-market bill sales and at the same time cut the rates slowly, which will drag down the yields further,'' said Xu Hanfei, a fixed-income analyst at Industrial Bank Co. in Shanghai. ``Monetary policy is easing as economic growth becomes less optimistic.''

China's growth slowed for a fourth straight quarter in the three months ended June 30. The central bank may cut its benchmark deposit rate in the near future, after trimming the one-year lending rate by 0.27 percentage point last month, Xu said.

The yield on the 4.41 percent bond due December 2017 fell 15 basis points to 3.55 percent, according to the China Interbank Bond Market. The price rose 1.19 per 100 yuan face amount to 106.69. A basis point is 0.01 percentage point.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net; Belinda Cao in Beijing at lcao4@bloomberg.net.



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Canada's Dollar Drops for a Fourth Day Amid Global Slowdown

By Chris Fournier

Oct. 7 (Bloomberg) -- Canada's currency dropped for a fourth day, the longest losing streak in more than a month, as the prospects for global economic growth dwindled.

The Canadian dollar has weakened 6.1 percent since Sept. 26. Canada relies on commodities for about half its export revenue. The U.S. is the country's largest trading partner.

``We're entering something of a global slowdown,'' said Firas Askari, head currency trader at BMO Nesbitt Burns in Toronto. ``Canada being one of the biggest suppliers of what the world needs to run its engines, it's not surprising that we're getting hit.''

The Canadian dollar fell as much as 0.5 percent to C$1.1047 per U.S. dollar. It last traded at C$1.1021 at 8:28 a.m. in Toronto. One Canadian dollar buys 90.73 U.S. cents.

Canada's currency will slip to C$1.13 against the U.S. dollar by the end of 2009, according to the median forecast in a Bloomberg News survey of economists.

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



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Gold Advances in London on Rising Demand for Haven Investment

By Rachel Graham

Oct. 7 (Bloomberg) -- Gold rose for a second day in London, buoyed by demand for a haven from financial market turmoil as banking shares tumble around the world. Platinum also rose.

Australia slashed interest rates by the most in 16 years, fueling speculation other central banks plan cuts to ease the financial crisis. The U.K. government may invest at least 45 billion pounds ($79 billion) in the country's banks, two people with knowledge of the situation said.

Gold ``should look to make further gains in the coming days as flight-to-safety demand increases,'' James Moore, an analyst at TheBullionDesk.com, wrote today in a report.

Gold for immediate delivery rose $28.27, or 3.3 percent, to $888.02 an ounce in London as of 11:23 a.m. in London. Futures for December rose $23.30, or 2.7 percent, to $889.50 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange.

ETF Securities Ltd., a provider of contracts tracking commodities, said its investment products backed by gold have attracted $93 million in funds in the past six days, the largest increase in 10 weeks.

``In volatile times like these, gold comes into its own,'' Chief Operating Officer Nik Bienkowski said in an e-mailed statement. ETF manages ETFS Physical Gold.

Gold in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, increased 0.6 percent yesterday.

The amount of gold held by the company rose to 744.54 metric tons from 739.95 tons on Oct. 3, according to figures posted on the company's Web site. The fund reached a record 755.26 tons on Sept. 30, an amount that would place it eighth in a ranking of central bank holdings.

Among other metals for immediate delivery, silver rose 66.5 cents, or 6 percent, to $11.705 an ounce, platinum advanced $40.75, or 4.2 percent, to $1,013.75 and palladium added $3.75, or 1.9 percent, to $201.50 an ounce.

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



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Bank of America Falls, Dividend Slashed as `Recession' Deepens

By David Mildenberg and Andrew Frye
Enlarge Image/Details

Oct. 7 (Bloomberg) -- Bank of America Corp. fell 8.3 percent in early trading after chopping its dividend in half and offering $10 billion of new stock to brace itself for an extended recession.

Bank of America slid to $29.55 in New York after the Charlotte, North Carolina-based company said late yesterday that third-quarter profit dropped 68 percent. The results were worse than analysts expected, and the bank reduced its quarterly payout to 32 cents a share.

Chief Executive Officer Kenneth Lewis, who told investors in July that the bank didn't need to cut its dividend or raise capital, said the U.S. economy slowed in the past 45 days with little prospect for immediate improvement. Troubled assets rose 37 percent in three months, according to Deutsche Bank AG analyst Michael Mayo.

``The recession is going to be a little deeper than we thought,'' Lewis said on a conference call. ``It's going to take some more time and some more pain.''

Profit dropped to $1.18 billion, or 15 cents a share, in the quarter ended Sept. 30, from $3.7 billion, or 82 cents, a year earlier. Bank of America announced results two weeks early.

``We don't look real smart today, given what's happened,'' Lewis said. ``But all in all, we just thought it was prudent to get out there sooner rather than later.

Credit Markets

U.S. Federal Reserve and Treasury officials are considering new ways of helping credit markets, as banks hoard cash and interest rates soar on corporate short-term borrowing. Stocks fell around the world yesterday on the first full day of trading after the U.S. enacted a $700 billion bank-bailout plan on Oct. 3. The Standard & Poor's 500 Index retreated almost 4 percent.

``The economy weakened materially from the second quarter as evidenced by rising unemployment, bankruptcies and continuing home-price declines,'' Lewis said.

The Bank of America share offering has already started, according to a statement, with the company and Merrill Lynch & Co. managing the sale. Bank of America may realize ``a few billion dollars'' more than $10 billion, depending on investor demand, Lewis said.

Lewis has been taking advantage of the financial industry's disarray to expand. In July he bought Countrywide Financial Corp., the largest U.S. home lender, for about $2.5 billion. Last month he agreed to buy Merrill Lynch, the world's largest securities brokerage, for $50 billion.

Stock Sale

The share sale was widely expected, said Nancy Bush, an independent bank analyst in Annandale, New Jersey.

``With Merrill and Countrywide on the plate, and whatever else is coming down the highway, I'm surprised they aren't raising more capital,'' she said.

Retail deposits advanced $56 billion to $586 billion in the quarter, boosted by $35 billion from Countrywide. Much of the increase occurred in September from the ``flight to quality,'' in which depositors seek out banks seen as safe places to store cash as other institutions fail, Chief Financial Officer Joe Price said.

Bank of America earned more than $5 billion for five consecutive quarters in 2006 and 2007 and expects to achieve higher profit once the economy rebounds and benefits from Countrywide and Merrill Lynch kick in, Lewis said on the call.

The global credit crunch has led to more than $580 billion of losses at the world's biggest financial companies, which have responded by raising at least $432 billion in capital.

``You could talk about a miss on estimates, but estimates don't seem to mean as much as they used to,'' Lewis said. ``We thought that having a level of profitability over a billion dollars might distinguish us among our competitors.''

To contact the reporters on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net; Andrew Frye in New York at afrye@bloomberg.net.



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Europe Stocks, U.S. Futures Rise on Fed's Commercial Paper Plan

By Michael Patterson

Oct. 7 (Bloomberg) -- European stocks and U.S. index futures rose on speculation the Federal Reserve's plan to buy commercial paper will unlock the credit markets used by companies to finance their daily operations.

Total SA rallied 5.4 percent as oil climbed for the first time in five days on increased bets that central banks around the world will cut interest rates. Europe's Dow Jones Stoxx 600 Index dropped as much as 1.6 percent earlier on concern banks need more capital, then rallied as Barclays Plc and Royal Bank of Scotland Group Plc said they didn't request investments from the U.K. government and Deutsche Bank AG said it doesn't plan to sell shares.

The Stoxx 600 added 1.5 percent to 245.04 at 2:09 p.m. in London. Futures on the Standard & Poor's 500 Index added 1.6 percent. The MSCI Emerging Markets Index dropped 1.1 percent, while the MSCI Asia Pacific Index fell 1 percent.

The Federal Reserve Board, invoking emergency powers, will create a special fund to backstop the U.S. commercial paper market in an effort to support the financing needs of corporations. The Fed said it will lend against a special purpose vehicle at the targeted federal-funds rate. The unit will purchase from eligible issuers three-month dollar- denominated commercial paper at a spread over the three-month overnight-indexed swap rate, according to a press release today.

Europe's Stoxx 600 tumbled the most since 1987 yesterday as bank bailouts spread and falling commodities dragged down raw- materials producers. The Dow Jones Industrial Average dropped as much as 800 points in New York, then recouped more than half its losses in the final 75 minutes of trading on speculation the Federal Reserve will lower rates.

2008 Decline

The Stoxx 600, down 33 percent this year, was valued at 10.05 times the reported earnings of companies in the index yesterday, the cheapest since Bloomberg began compiling the data in January 2002. The MSCI World traded at 12.83 times profit yesterday, the cheapest since at least January 1995, while the S&P 500 trades for 20 times earnings. The emerging markets gauge was valued at 9.48 times earnings.

The London interbank offered rate, or Libor, that banks charge each other for overnight loans in dollars rose 157 basis points to 3.94 percent today, the British Bankers' Association said.

The seizure in credit markets prompted Iceland's Financial Supervisory Authority to take control of Landsbanki Islands hf, the nation's second-biggest lender, and the nation's central bank gave a 500 million-euro ($680 million) loan to Kaupthing Bank hf, the largest.

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.



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Oil Rises for First Time in Five Days on Rate Cut Speculation

By Grant Smith

Oct. 7 (Bloomberg) -- Crude oil rose for the first time in five days as an interest-rate cut in Australia triggered speculation that other central banks will ease policy to shore up economic growth.

Oil also rose on speculation OPEC, due to meet in December, may trim supply. Libya's top oil official called for a cut, while Qatar's oil minister said it's reducing output in line with official quotas. OPEC President Chakib Khelil said the group will take ``appropriate measures'' to stabilize international markets.

``We'll see more commitment from central banks that will help the market in the short term,'' said Hannes Loacker, an analyst at Raiffeisen Zentralbank Oesterreich in Vienna. ``If prices fall to $80, the possibility of OPEC cutting before its December meeting increases.''

Crude oil for November delivery jumped as much as $3.57, or 4.1 percent, to $91.38 a barrel in electronic trading, and was at $90.84 at 1:11 p.m. London time on the New York Mercantile Exchange. Crude oil futures have declined 38 percent from the record $147.27 reached July 11.

Yesterday, crude futures fell $6.07 to settle at $87.81 a barrel in New York. The contract touched $87.56, the lowest since Feb. 7, as the dollar rose against the euro, while OPEC chief Khelil said the price slide will continue next year.

Arjun Murti, the Goldman Sachs Group Inc. analyst who predicted a crude ``super spike'' in March 2005, said there is a ``downside'' risk to his forecast that oil may rise to $120 in the fourth-quarter.

`Mounting Concern'

``Oil prices increasingly appear unlikely to sustain a rally until global GDP expectations bottom,'' Goldman said in a note. ``While we believe oil supply/demand fundamentals are not as bearish as is sentiment, we recognize that concern continues to mount towards global oil demand growth.''

Crude was supported against the deteriorating economic outlook by risks to supply from the Organization of Petroleum Exporting Countries, as well as producers outside the group such as Mexico and the former Soviet Union.

Petroleos Mexicanos, the third-largest supplier to the U.S., closed six wells in the Gulf of Mexico and removed 33 workers from offshore platforms as Tropical Storm Marco passed nearby. Output from the producer's Lankahuasa platform was shut at 3 p.m. yesterday, Mexico City-based Pemex said on its Web site.

Azerbaijan's crude shipments via the Baku-Tbilisi pipeline will be 47 percent lower next month than they were before a fire on the link's Turkish section in August, loading schedules show. A total of 12.34 million barrels will be transferred in November.

OPEC Output

Brent crude oil for November settlement gained as much as $2.75, or 3.2 percent, to $86.37 a barrel on London's ICE Futures Europe exchange. It was at $85.50 at 1:11 p.m. London time. Yesterday, the contract fell $6.57, or 7.3 percent, to $83.68 a barrel, the lowest closing price since Oct. 23, 2007.

Qatari Minister Abdullah bin Hamad al-Attiyah said today the country would trim by ``small amounts.'' Qatar was producing about 50,000 barrels a day above its last known quota in September, according to Bloomberg data.

Oil production by OPEC, which pumps 40 percent of the world's crude, fell 1.3 percent in September as output in Iraq dropped to a 13-month low, a Bloomberg News survey released Oct. 3 showed.

``With oil prices collapsing and international banks being routed, it's better to keep our oil underground,'' Shokri Ghanem, chairman of Libya's National Oil Corp., said in a telephone interview from Tripoli.

OPEC members pumped an average 32.19 million barrels a day last month, down 425,000 barrels a day from August, according to the survey of oil companies, producers and analysts. August output was revised up by 40,000 barrels a day because of higher Nigerian output.

OAO Gazprom Deputy CEO Alexander Medvedev said he expects OPEC members to prevent a further ``substantial'' drop in the oil price. Medvedev spoke in an interview with Bloomberg Television in Moscow today.

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



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CML, Husky, Suncor, Telus, Timminco: Canadian Equity Preview

By John Kipphoff

Oct. 7 (Bloomberg) -- The following companies may have unusual price changes in Canadian trading today. Stock symbols are in parentheses, and share prices are from yesterday's close in Toronto.

The Standard & Poor's/TSX Composite Index dropped 5.3 percent to 10,230.43.

CML HealthCare Income Fund (CLC-U CN): The Mississauga, Ontario-based drug development and research company was raised to ``sector outperform'' from ``sector perform'' at CIBC World Markets. The shares fell 6.9 percent to C$12.75.

Husky Energy Inc. (HSE CN): The oil and gas producer controlled by Hong Kong billionaire Li Ka-shing was raised to ``overweight'' from ``neutral'' by JPMorgan analyst Katherine Lucas Minyard in New York. The shares fell 9.3 percent to C$35.61.

Ivanhoe Energy Inc. (IE CN): The Canadian oil and natural- gas producer will sign an oil production deal this week with state-owned energy company PetroEcuador, Ecuador's Mines and Oil Minister Galo Chiriboga said. Ivanhoe shares fell 2.3 percent to C$1.30.

Suncor Energy Inc. (SU CN): The world's second-largest oil- sands producer was downgraded to ``underweight'' from ``overweight'' by JPMorgan's Minyard. The shares dropped 12 percent to C$32.15.

Telus Corp. (T CN): Canada's second-biggest phone company was raised to ``buy'' from ``neutral/short-term sell'' by Jeffrey Fan at UBS AG in Toronto. With UBS predicting a recession around the globe and in Canada, phone companies ``provide shelter'' to investors, given resilient earnings, strong balance sheets and high dividends, the Toronto-based analyst wrote in a note today. Telus may even modestly increase its payout in November, Fan wrote. The shares fell 1.9 percent to C$38.78.

Timminco Ltd. (TIM CN): The maker of silicon for use in solar cells said it produced 342 metric tons of the material during the third quarter. Timminco reiterated its forecast for shipments of 1,200 to 1,500 metric tons in 2008, according to a statement carried on Market Wire. The shares fell 5.3 percent to C$13.25.

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



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Buenaventura, Durango, Modelo, Sadia, VCP: Latin Equity Preview

By William Freebairn and Paulo Winterstein

Oct. 7 (Bloomberg) -- The following companies may have unusual price changes today in Latin America trading. Stock symbols are in parentheses, and share prices are from the previous close. Preferred shares are usually the most-traded class of stock in Brazil.

The MSCI Latin America Index fell 11 percent to 2,502.6 yesterday.

Brazil

EDP - Energias do Brasil SA (ENBR3 BS): EDP-Energias de Portugal SA's Brazilian unit was reiterated at ``buy'' at Citigroup Inc. after it said yesterday that it plans to buy back as much as 10 percent of its common shares. Energias do Brasil fell 1.6 percent to 22.47 reais.

Rossi Residencial SA (RSID3 BS): Brazil's fourth-largest homebuilder plans to raise 150 million reais ($68.8 million) by selling new shares to existing shareholders. The company plans to issue 34.5 million new voting shares to be sold at 4.35 reais each in a private placement, Rossi said in a statement. Rossi fell 20 percent to 3.70 reais.

Sadia SA (SDIA4 BS): The Brazilian food company that fired its chief financial officer after posting a hedging loss said its chairman and vice chairman resigned. Luiz Fernando Furlan, Brazil's former trade minister, will take over temporarily as chairman, replacing Walter Fontana Filho, Sadia said yesterday in a statement. Vice Chairman Eduardo Fontana d'Avila also resigned. Separately, Standard & Poor's cut Sadia's credit rating one level to BB, two levels below investment grade, citing the hedging losses. Sadia fell 5.3 percent to 5.60 reais.

Votorantim Celulose & Papel SA (VCPA4 BS): The announcement by Brazil's third-biggest pulp maker that it was delaying its merger with Aracruz Celulose SA is ``negative news for both companies'' as it creates uncertainty about the deal, Fator Corretora strategist Lika Takahashi wrote in a note yesterday. VCP fell 1 percent to 22.75 reais.

Chile

Cia. Cervecerias Unidas SA (CCU CC): Chile's largest beer brewer said third-quarter sales volume rose 11 percent to 3.42 million hectoliters, in a preliminary review of results. Sales increased 4 percent in Chile and 45 percent in Argentina compared with the year-earlier quarter, the Santiago-based company said yesterday in an e-mailed statement. CCU said it will report third-quarter earnings by the end of October. Shares fell 6.4 percent to 3,366.90 pesos.

Sociedad Quimica y Minera de Chile SA (SQM/B CC): Chile's biggest crop nutrient producer has fallen in an ``overreaction'' to declining commodity prices, Rodrigo Martin, head of research at Banchile Inversiones, said by phone from Santiago yesterday. The company known as Soquimich has dropped 39 percent in the last month, making it the Ipsa index's worst-performing stock. Soquimich shares fell 5.1 percent to 10,520 pesos.

Mexico

Corporacion Durango SAB (CODUSA* MM): Mexico's largest paper maker missed an interest payment on senior notes and filed for bankruptcy protection in the U.S. and Mexico. Durango fell 15 percent to 5.80 pesos.

Financiera Independencia SAB (FINDEP* MM): The Mexican lender to low-income consumers said it may increase its bank debt by 22 percent to 618 million pesos ($52 million) as it buys back as many as 50 million shares. Bank borrowing may increase to 3.4 billion pesos, the bank said in a statement to the Mexican stock exchange yesterday. Financiera Independencia fell 4.6 percent to 10 pesos.

Grupo Modelo SAB (GMODELOC MM): Mexico's largest beer maker is ``unlikely'' to win a dispute with Anheuser-Busch Cos., which holds a 50 percent non-controlling share in Modelo, Citigroup Inc. said. Modelo is seeking arbitration over the U.S. brewer's acquisition by InBev NV. InBev structured the purchase of Anheuser-Busch to avoid Modelo's challenge, analyst Celso Sanchez wrote in a report e-mailed yesterday. Modelo fell 9.4 percent to 39.07 pesos.

Peru

Cia. de Minas Buenaventura (BVN PE): The world's seventh- largest gold producer said it may sell as much as $350 million in bonds. No date has been set for the sale of the unsecured notes, the company said in a statement e-mailed yesterday. Buenaventura fell 1.4 percent to $20.70.

To contact the reporters on this story: William Freebairn in Mexico City at wfreebairn@bloomberg.net; Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.



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Thai Stocks, Baht, Bonds Drop as Police Clash With Protesters

By Anuchit Nguyen

Oct. 7 (Bloomberg) -- Thai stocks, the baht and bonds fell as police clashed with protesters surrounding parliament, deepening concern the political crisis will speed an exit by overseas investors.

The benchmark stock index slid to its lowest in more than five years and the baht dropped to a three-week low after police this morning dispersed thousands of protesters who tried to prevent new Prime Minister Somchai Wongsawat from presenting his administration's policies to lawmakers. Clashes resumed in the afternoon as demonstrators sought to prevent members from leaving parliament.

The SET Index dropped 4.2 percent to 528.71 in Bangkok, the lowest since Aug. 27, 2003. The baht fell 0.3 percent to 34.47 per dollar, the weakest since Sept. 15, according to data compiled by Bloomberg. The cost of protecting external debt from default surged.

``The clash has accelerated the baht's weakness, which has already been depressed by outflows of foreign investment from the stock market,'' said Usara Wilaipich, an economist at Standard Chartered Bank in Bangkok. ``The escalating political conflict will certainly spur additional selling of stocks by overseas investors.''

Foreigners Sell

Foreigners' net sales of Thai stocks have mounted to 128 billion baht ($3.7 billion) since May 25, when demonstrators set out to topple the government, which they accuse of being a proxy for former leader Thaksin Shinawatra, who fled to the U.K. in August to escape corruption charges.

PTT Pcl, the nation's biggest oil company, declined 3.5 percent to 195 baht, the lowest Jan. 9, 2007. Banpu Pcl, the largest coal producer, slid 13 percent to 222 baht, the steepest drop since Dec. 19, 2006.

Deputy Prime Minister Chavalit Yongchaiyudh resigned today after the clashes left dozens of people injured. Police fired tear gas shortly after dawn and again in the afternoon. The number of injured protesters rose to 108 as of 2 p.m. in Bangkok, according to the Public Health Ministry.

The use of tear gas by police may reinvigorate the five- month-old anti-government movement led by the People's Alliance for Democracy, which had waned since Somchai took office three weeks ago, vowing to reconcile with demonstrators.

Thaksin's Sister

Somchai, married to Thaksin's sister Yaowapa Wongsawat, has vowed to increase rural spending in a bid to boost the economy. He took office on Sept. 18 after his predecessor was disqualified for violating the constitution by accepting money to host a cooking show.

Thailand's key stock index has slumped 40 percent since protests began May 25, and economic growth slowed in the second quarter as domestic spending eased.

The Finance Ministry on Sept. 25 cut its economic growth estimate for 2008 to 5.1 percent, from 5.6 percent, and said the economy will slow to as little as 4 percent next year as the political crisis and turbulent global markets curb spending, investment and exports.

Thailand's central bank will keep its benchmark interest rate unchanged at 3.75 percent when policy makers meet tomorrow, according to 15 of 16 economists surveyed by Bloomberg. The rate has been raised 50 basis points since July to quell the fastest inflation in a decade. Political uncertainty is a bigger risk to the nation's growth outlook than the global financial ``storm,'' Governor Tarisa Watanagase said Sept. 18.

Default Swaps

Five-year credit-default swaps on Thailand's debt were quoted 21 basis points higher at 206 as of 5:28 p.m. in Singapore, data compiled by Bloomberg show. The cost, which rises as perceptions of repayment ability deteriorate, is equivalent to $206,000 annually to protect $10 million in bonds. Thailand's default swaps have climbed since May.

Ten-year bonds fell for a third day. The yield on the benchmark 5.125 percent government note due March 2018 rose 5 basis points to 4.38 percent, a one-week high, according to the Thai Bond Market Association. The price slid 0.353, or 3.53 baht per 1,000 baht face amount, to 105.73. A basis point is 0.01 percentage point.

``Our expectation is that some degree of unrest will continue,'' said James McCormack, the head of Asian sovereign rankings at Fitch Ratings in Hong Kong. ``It's going to be unsettled.''

Fitch rates Thailand's long-term debt as BBB+, the third- lowest investment grade.

Overseas investors sold 2.2 billion baht more Thai stocks than they bought yesterday, an 11th straight day of net sales, according to Bloomberg's data.

To contact the reporter on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net



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U.K. Stocks Rise; BP, Shell and Diageo Shares Lead the Advance

By Sarah Thompson

Oct. 7 (Bloomberg) -- U.K. stocks advanced, rebounding from the biggest slump in more than twenty years yesterday, led by BP Plc and Royal Dutch Shell Plc as the price of crude oil rallied.

The benchmark FTSE 100 index gained 40.39, or 0.9 percent, to 4,629.58 at 11:59 a.m. in London. The index plummeted the most since Oct. 20, 1987 yesterday, led by banks and mining companies on concern the credit crisis is deepening and as metals plunged. The FTSE All-Share Index rose 0.6 percent. Ireland's ISEQ Index tumbled 3.6 percent.

BP, Europe's second-biggest oil company, climbed 2.2 percent to 439 pence and Shell, the largest, added 2.5 percent to 1,540.

Crude oil rose for the first time in five days as an interest-rate cut in Australia triggered speculation other central banks will ease policy to shore up economic growth.

Diageo Plc, the world's largest liquor maker, jumped 8.3 percent 906 pence. The shares have fallen 16 percent this year.

Financial companies declined on concern banks will need funding as credit markets freeze and after Royal Bank of Scotland Group Plc had its credit rating cut.

RBS, Britain's second-biggest lender, fell to the lowest since 1995, down 19 percent to 120.50 pence on speculation it will be the next U.K. bank to need government assistance.

Separately, Standard & Poor's cut the its credit rating for the first time in 10 years, and RBS estimates it will write down 5.9 billion pounds of assets this year, a third of which are tied to last year's purchase of ABN Amro Holding NV.

``There is a loss of confidence by investors,'' said Mamoun Tazi, a London-based analyst at MF Global Securities, who has a ``buy'' rating on RBS. ``The market is implying that RBS will be the next to go, but I believe the government won't let them. So the risk of partial nationalization is real for RBS.''

Banks Meeting

Chancellor of the Exchequer Alistair Darling and Bank of England Governor Mervyn King met with banking chief executive officers including RBS's Fred Goodwin and Barclays's John Varley late yesterday to discuss investment, said two people with knowledge of the situation said.

Lloyds TSB Group Plc, the bank that agreed to buy HBOS Plc for almost $17.8 billion, lost 11 percent to 230.75 pence.

``Credit ratings downgrades are taking a very deep toll on the markets,'' said Sarah Spikes, a London-based analyst at Arden Partners. ``Even before that, concerns about capital were starting to seem endless.''

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

U.K. companies:

Carluccio's Plc (CARL LN) jumped 5 pence, or 6.4 percent, to 83. The U.K. owner of a chain of Italian restaurants said sales rose 21 percent in the 53 weeks ended Sept. 28.

Michael Page International Plc (MPI LN) dropped 16 pence, or 6.8 percent, to 218.25. The U.K.'s second-largest recruitment company said third-quarter profit in the U.K. declined as clients and candidates became more cautious and the weakness in finance spread to other industries.

Mouchel Group Plc (MCHL LN) advanced 12 pence, or 4.2 percent, to 301. The U.K. company that maintains the M25 highway around London said sales gained 46 percent to 656.7 million pounds.

Shire Ltd (SHP LN) added 32 pence, or 3.8 percent, to 882.5. The U.K.'s third-largest drugmaker was upgraded to ``overweight'' from ``neutral'' at JPMorgan Chase & Co., which cited encouraging Vyvanse share gains and a valuation close to 18-month lows in dollar terms.

Tate & Lyle Plc (TATE LN) slid 12.25 pence, or 3 percent, to 395.75. The maker of the sucralose sweetener Splenda was cut to ``sell'' from ``neutral'' at Goldman Sachs Group Inc., which said the ``erosion of sucralose profits is not priced in.''

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

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Russia Stocks Gain on Bank Funding Pledge, Paring Record Slump

By William Mauldin

Oct. 7 (Bloomberg) -- Russian stocks rose, paring a record decline yesterday, after President Dmitry Medvedev called on the government to lend 950 billion rubles ($36 billion) to the country's banks to ease credit markets.

OAO Sberbank and VTB Group, Russia's biggest banks, led the advance. OAO Rosneft, Russia's biggest oil producer, pared yesterday's 24 percent decline after crude rose in New York.

The Micex Index gained 5.7 percent to 794.48 at 2:12 p.m. in Moscow, after falling 19 percent yesterday. The dollar- denominated RTS Index climbed 4 percent to 900.60 after retreating 19 percent yesterday, the biggest slump since the index began in 1995.

Sberbank should get more than half of the planned loans at 500 billion rubles, and VTB should get 200 billion rubles, Mevedev said. The debt will be repayable after five years.

Sberbank climbed 3.83 rubles, or 11 percent, to 39.05 rubles. VTB, the second-biggest, rose 14 percent to 3.85 kopeks.

Rosneft advanced 10.4 rubles, or 9.6 percent, to 119.50 rubles after crude oil rose for the first time in five days.

To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net.

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