Top banker: Domestic growth key to market stability

Updated: 2008-11-09
(China Daily)

SAO PAULO - China's central bank will seek to help stabilize global financial markets by maintaining Chinese economic growth and spurring domestic demand, the bank's governor said on Saturday.

China's central bank governor Zhou Xiaochuan. [file photo]

Speaking to reporters at a G20 finance officials meeting in Brazil's business capital, Zhou Xiaochuan also said the People's Bank of China is monitoring the market situation to decide its next interest rate move.

"We are closely watching the developments of the financial crisis and the situation of global activity... On the other hand, we also pay attention to declining inflation. We put them together to decide what we should do," Zhou said when asked if China would keep following the global trend of lowering rates.

China has already reduced interest rates three times in the last month and a half.

Zhou added that China's central bank intends to "actively work" with the International Monetary Fund to hash out a plan to stabilize volatile financial markets.

He stressed that maintaining economic growth in China is crucial to helping restore a sense of normalcy to global markets.

"I think, China, as a large country, try to maintain our economic growth and domestic demand. If China could maintain internal demand, I think it will be good for global stabilization," he said.

Zhou said the bank forecasts the Chinese economy to expand between 8 and 9 percent in 2009.

Some economists have predicted that Chinese growth could slow to less than 8 percent next year.

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Active fiscal, monetary policies to boost economy

Updated: 2008-11-09

(Xinhua/Agencies)

Workers walk out of a Smart Union factory in Dongguan, Guangdong province, on October 18, three days after it declared bankruptcy. [China Daily]

BEIJING -- China said on Sunday it will loosen credit conditions, cut taxes and embark on a massive infrastructure spending program in a wide-ranging effort to offset adverse global economic conditions by boosting domestic demand.

This is a shift long advocated by analysts of the Chinese economy and by some within the government. It comes amid indications that economic growth, exports and various industries are slowing.

A stimulus package estimated at 4 trillion yuan (about $586 billion) will be spent over the next two years to finance programs in 10 major areas, such as low-income housing, rural infrastructure, water, electricity, transportation, the environment, technological innovation and rebuilding from several disasters, most notably the May 12 earthquake.

The policies include a comprehensive reform in value-added taxes, which would cut industry costs by 120 billion yuan ($17.5 billion).

Commercial banks' credit ceilings will be abolished to channel more lending to priority projects, rural areas, smaller enterprises, technical innovation and industrial rationalization through mergers and acquisitions.

The decision was announced on Sunday by the State Council, or cabinet, after Premier Wen Jiabao presided over an executive meeting on Wednesday.

The meeting decided that credit expansion must be "rational" and "target spheres that would promote and consolidate the expansion of consumer credit."

With 100 billion yuan from current-year central government funds and another 20 billion yuan brought forward from next year's budget for post-disaster reconstruction, the fourth quarter is expected to see a total investment of 400 billion yuan across the nation.

"With the deepening of the global financial crisis over the past two months, the government must take flexible and prudent macro-economic policies to deal with the complex and changing situation," said the meeting.

The meeting also announced that China will adopt "active" fiscal and "moderately active" monetary policies and map out more forceful measures to expand domestic demand, speed up the construction of public facilities and improve living standards of the poor to achieve "steady and relative fast" economic growth.

The macro-economic policy changes announced on Sunday are one of only a few major shifts during the 30 years since the beginning of reform and opening up, 1978.

The People's Bank of China has already cut interest rates three times since mid-September and scrapped lending quotas in a bid to support the economy.

Officials have been flagging measures to pump up demand since gross domestic product growth slowed unexpectedly sharply to 9.0 percent in the third quarter from 10.4 percent in the first half.

Indicators for October have been even weaker.

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Weekly Review and Outlook: Markets Indecisive after a Handful of Events

Market Overview | Written by ActionForex.com | Nov 09 08 06:43 GMT |

Top 5 Current Last Change (Pips) Change (%) GBPCAD 1.8597 1.9474 -877 -4.72% GBPAUD 2.3158 2.4054 -896 -3.87% GBPJPY 153.58 158.17 -459 -2.99% GBPUSD 1.5640 1.6073 -433 -2.77% EURGBP 0.8130 0.7919 +211 +2.60% Dollar EURUSD 1.2721 1.2729 -8 -0.06% USDJPY 98.21 98.44 -23 -0.23% GBPUSD 1.5640 1.6073 -433 -2.77% USDCHF 1.1781 1.1582 +199 +1.69% USDCAD 1.1888 1.2115 -227 -1.91% Euro EURUSD 1.2721 1.2729 -8 -0.06% EURGBP 0.8130 0.7919 +211 +2.60% EURCHF 1.4988 1.4743 +245 +1.63% EURJPY 124.91 125.32 -41 -0.33% EURCAD 1.5127 1.5426 -299 -1.98% Yen USDJPY 98.21 98.44 -23 -0.23% EURJPY 124.91 125.32 -41 -0.33% GBPJPY 153.58 158.17 -459 -2.99% AUDJPY 66.17 65.64 +53 +0.80% NZDJPY 57.98 57.16 +82 +1.41% Sterling GBPUSD 1.5640 1.6073 -433 -2.77% EURGBP 0.8130 0.7919 +211 +2.60% GBPCHF 1.8426 1.8613 -187 -1.01% GBPJPY 153.58 158.17 -459 -2.99% GBPCAD 1.8597 1.9474 -877 -4.72% The markets had every reason to extend the trend last week after another round of massive rate cut from four of the world's major central banks. ECB, SNB, RBA cut by 50bps and more impressively, the BoE cut by 150bps. There were extremely poor economic data out of US. But after all, there was no noticeable breakout and the currency pairs as well as the stock markets are still bounded in range. Yes, volatility was high considering almost 3.0 (83.9 to 86.89) swing in the dollar index and over 1000 pts (8673 - 9653) swing in the DOW. But as we've pointed out before, the scale of the prior trend needs to be taken into perspective when looking at the scale of the consolidation itself. And looking at the rally from 75.89 to 86.89 in dollar index from Sep and the sharp fall from 11450 to 7884 in DOW since Aug, the above mentioned range is indeed pretty normal. The lack of breakout can be attributed to the fact that "the worst" has possibly been priced in by the markets already. More rate cuts are expected from major central banks around the world that could eventually bring everyone into the range of 0-2%. Economic data are expected to continue to reflect recession has started in major economies. Hence, the news are indeed not news. And with the lack of breakout, traders continue to lighten up their positions to lock in profits. That also helped stabilize the markets. But after fall, recent developments continue to support the view that markets are merely in consolidation. In other words, the trend is not over yet. There are some points to note though. Firstly, the developments in dollar index, EUR/USD as well as Dow argue that the current consolidation might be in form of triangles and choppy sideway trading might continue further for a while before completion. Secondly, the move following triangles are usually exhaustive. Based on the current indecisiveness in the markets as well as the lack of negative surprises that could exceed current market pessimism, markets could set a sizeable turnaround after the next move. Thirdly, note that commodity currencies are relatively firm even though crude oil breached below $60 level last week, the next rebound could indeed be led by them. Fourthly, Sterling is taking over the weakest currency spot as markets expect BoE to cut faster than others and with much chance of adopting the Zero Interest Rate Policy. The pound will likely remain the weaker one. Currency Heat Map Weekly View USD EUR JPY GBP CHF CAD AUD USD EUR JPY GBP Obama won the US presidential election and became the first African-American US president in history. Obama got 53% of popular vote and wong the electoral college by a big margin of 349-159. Non Farm Payroll report showed -240k contraction in Oct, much worse than expectation of -200K. Sep's figure was even worse after downward revision from -159k to -284k. Sep and Oct together recorded the worse two month slide since 2001. Unemployment rate surged much more than expected to 6.5%, highest level since 1994. ISM manufacturing index continued the slide that started in Jun and reached 38.9 in Oct, much worse than expectation and was worst reading since 1982. Price paid component receded sharply to 37. Employment component also deteriorated sharply to 34.6. ISM non-manufacturing index dropped more than expected to new cyclical low of 44.4 in Oct. Employment component dropped deeper into contraction region at 41.5. Construction spending dropped -0.3% in Sep. factory orders dropped -2.5% in Sep. Jobless claims came in at 481K. Q3 labor cost rose 3.6% in US, with productivity up 1.1%. Pending home sales dropped -4.6% to 89.2M in Sep. Wholesale inventories dropped -0.1%. ECB met market expectation and lowered interest rates by 50bps to 3.25% on unanimous vote even though the possibility of a 75bps cut was discussed. In the following press conference, Trichet said that markets are now facing an extraordinary degree of uncertainty stemming from the financial market turmoil which will dampen demand in the Eurozone. Recent data confirms that growth momentum has weakened. Sluggish domestic demand and tighter financial conditions are expected. Upside inflation risks has fallen and Trichet expects strong CPI declines due to base effects. European Commission forecasts contraction in the economy for three consecutive quarters. Growth forecast for 2008 was revised down from 1.3% to 1.2%. Also, the EC forecast growth to be a mere 0.1% next year, worse since 1993. Eurozone PMI manufacturing was revised down to a record low of 41.1 in Oct. Services PMI was revised lower to 42.4 in Oct. PPI moderated sharper than expected to 7.9% yoy in Sep. Retail sales dropped -0.2% mom, -1.6% yoy in Sep. BoE surprised the markets by cutting as much as 150bps to bring the benchmark interest rates to 3.00%, lowers since 1955. Also, this was the largest single cut in 16 years. The accompanying statement acknowledged that there is a "marked deterioration in the outlook for economic activity at home and abroad," and "availability of credit to households and businesses is likely to remain restricted for some time". Risks to inflation is believed to have "shifted decisively to the downside," and now with "substantial risk of undershooting the inflation target". Hence, it's believed that the policy easing cycle is not over yet. UK PMI manufacturing beat expectation and climbed to 41.5 in Oct. PMI construction dropped more than expected to 35.1 in Oct. Services PMI plunged more than expected to record low of 42.4 in Oct. Industrial production fell less than expected by -2.3% yoy in Sep but manufacturing production fell faster than expected by -2.3% yoy. Nationwide consumer confidence unexpectedly improved to 55 in Oct. Halifax house prices dropped more than expected by -2.2% mom in Oct. In a surprised move, SNB lowed the LIBOR target rate by 50bps to 1.5-2.5%, with point target of 2.0%, in an unscheduled meeting. SNB said in the statement that the global economic outlook has "deteriorated more severely than anticipated". Much impact is expected to growth which, as SNB said, might even be "negative" in 2009. Swiss SVEM PMI dropped to 47 but was better than expectation of 45.3. CPI moderated less than expected to 2.6% yoy in Oct. Unemployment rate rose from 2.4% to 2.5% in Oct. Japan leading indicator rose 0.2% to 89.2% in Sep. Canadian building permits surprised on the upside, rising 13.4% in Sep. Germany factory orders dropped sharply by -8.0% mom, -2.7% yoy in Sep. RBA cut overnight cash rate by 75bps to 5.25%, larger than expectation of 50bps cut to 5.50%. In the accompanying statement, Governor Stevens acknowledged turbulence in world financial markets and weakness in major industrial economies around the world. Such "deteriorating international conditions and falling commodity prices" will have a negative dampening influence to the prior rate cuts and stimulus package to boost the economy. Spending and activity in Australia will be "weaker than earlier expected". Australian retail sales rose a mere 0.2% mom in Sep. Seasonally adjusted sales resulted in a -1.1% mom contraction, worst in three years. House price index dropped much more than expected by -1.8% qoq in Q3, the biggest quarterly decline since 1978. Annual growth rate closed sharply from 8.2% to 2.8%. TD Securities inflation estimation fell for the first time since Feb 2006, by -0.2% mom. Unemployment rate was unchanged at 4.3% in Oct, better than expected 4.4%. New Zealand unemployment rate rose less than expected from 3.9% to 4.2% in Q3.

The Week Ahead

Economic calendar is relatively lighter this week. From US, trade balance , Fed Budget. retail sales, University of Michigan consumer sentiments will be released. In Eurozone, main focus is on Germany ZEW Investor Confidence, HICP final, Q3 GDP. Form UK, PPI, Trade Balance, employment report will be featured. Other scheduled data include Swiss ZEW, combined PPI, Canadian housing starts, new housing price index, trade balance, and New Zealand retail sales.

On the technical side, main focus is on how the current consolidation, in particular in dollar index and DOW, will develop. It will become even harder to trade if range in the dollar index continues to narrow as the triangle consolidation goes. Though, a break of 86.89 will be an early signal that the consolidation has completed. Focus on DOW will be on whether it will continue the current slide to next near term support at 8599. Another focus will be the development in yen crosses. So far, with the exception of GBP/JPY, most yen pairs are still holding above near term supports. However, weakness in the stock markets this week will likely trigger selling in yen crosses which will send them through near term support and thus pave the wave to retest recent lows.

EUR/USD Weekly Outlook

EUR/USD continued to engage in choppy sideway consolidation between 1.2329 and 1.3290 last week. As discussed before, with EUR/USD just missed 38.2% retracement of 1.4867 to 1.2329 at 1.3299, it's believed that fall from 1.4867 has completed. Consolidation from 1.2329 is still in progress and is probably developing into triangle pattern. Nevertheless, in any case, firstly, as long as 1.2329 low holds, such consolidation could extend further. Secondly, in case of another rise, upside should be limited below 1.3768 cluster resistance. And more importantly, the path of the consolidation will remain unpredictable.

In the bigger picture, as discussed before, the strength of the fall from 1.6038 reinforces the case that whole decline from 1.6038 is developing into a five wave impulsive fall. The completed decline from 1.4867 to 1.2329 might represent the third wave decline in the five wave sequence. Consolidation from 1.2329 might represent the fourth wave consolidation. Hence, another decline is still expected before making a medium term bottom. Below 1.2329 will target next long term fibonacci level of 50% retracement of 0.8223 to 1.6038 at 1.2131 or even further to 1.1639 key medium term support. On the upside, sustained break of 1.3768 cluster resistance (38.2% retracement of 1.6038 to 1.2329 at 1.3746) is needed to invalidate this view and indicate that whole decline from 1.6038 has made a medium term bottom.

In the long term picture, 1.6038 is no doubt an important long term top and the long term trend has definitely changed. The question is how far such down trend can go. Would EUR/USD retest historical low of 0.8223? There is no clear answer for the moment. Nevertheless, the impulsive nature of the fall from 1.6038 suggests that the development after EUR/USD makes a medium term bottom will be corrective in nature and then be followed by at least one more medium term decline before completing the whole long term down trend.

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Pelosi, Reid Urge Paulson to Use Rescue Fund to Aid Automakers

By Dawn Kopecki

Nov. 9 (Bloomberg) -- Democratic congressional leaders urged Treasury Secretary Henry Paulson to use the $700 billion financial-rescue package approved last month to lend to U.S. automakers.

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid sent a letter to Paulson yesterday saying the rescue bill gives him ``broad discretion to purchase, or make commitments to purchase, financial instruments you determine necessary to restore financial-market stability.''

Pelosi was among the lawmakers who met last week with the chief executives of General Motors Corp., Ford Motor Co. and Chrysler LLC. The three companies are seeking $50 billion in federal loans to help them weather the worst auto market in 25 years, according to a person familiar with the matter.

The letter increases pressure on the administration of George W. Bush to take action as he prepares to hand power to President-elect Barack Obama on Jan. 20. Obama said last week that policy options to help the industry will be a ``high priority'' for his transition team.

``A healthy automobile manufacturing sector is essential to the restoration of financial-market stability, the overall health of our economy, and the livelihood of the automobile sector's workforce,'' Pelosi and Reid said in their letter.

They argued that the industry may qualify for federal financing under the $700 billion Troubled Asset Relief Program, originally intended to buy bad loans from lenders and broadened to include purchases of equity stakes. Paulson has set aside $250 billion to buy stakes in U.S. financial companies.

``We continue to work on a strategy that most effectively deploys the remaining TARP funds to strengthen the financial system and get lending going again,'' Treasury spokeswoman Brookly McLaughlin said yesterday in response to the lawmakers' letter.

`Significantly Short'

Time for a solution may be running out. General Motors last week said it may not have enough cash to keep operating this year and will fall ``significantly short'' of the amount needed by the end of June unless the auto market improves or it raises more capital.

The largest U.S. automaker reported a $4.2 billion third- quarter operating loss and said its available cash fell to $16.2 billion on Sept. 30 from $21 billion at the end of June. Merger talks with Chrysler LLC were suspended.

GM's cash forecast was the bleakest yet from the company, which has lost almost $73 billion since the end of 2004. Using $6.9 billion in cash last quarter pushed GM closer to the $11 billion minimum it says is needed to pay bills.

The top three automakers suffered a combined $28.6 billion in first-half losses. New vehicles sold at a seasonally adjusted annual rate of 10.6 million in October, the lowest since 1983.

Car Sales Plunge

Car sales plunged 18 percent last quarter and 32 percent last month while manufacturing contracted the most in 26 years. Consumer confidence fell to a record low and the unemployment rate surged to 6.5 percent, its highest in 14 years.

General Motors Chief Executive Officer Rick Wagoner, Ford's Alan Mulally and Chrysler's Robert Nardelli met with U.S. House and Senate leaders in Washington on Nov. 6. Wagoner said GM also has been in contact with Obama's staff.

Should GM file for bankruptcy protection, the result would be 2.5 million jobs lost in the first year among automakers, suppliers and related businesses, according to a Nov. 4 report by the Center for Automotive Research, based in Ann Arbor, Michigan.

If Paulson extends financing to the industry, Reid, of Nevada, and California's Pelosi asked him to take equity stakes in the companies and limit executive compensation.

`Strong Conditions'

``We would urge you to impose strong conditions on such assistance in order to protect taxpayers and maximize the potential for the industry's recovery,'' they said.

Of the $50 billion in loans automakers are seeking, half would be for health-care spending, and the rest for general liquidity that could be delivered in different ways, including short-term borrowing from the Federal Reserve, said a person familiar with the matter who asked not to be identified because the plan isn't public. In return, the companies would be willing to take steps such as granting stock warrants, the person said.

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.

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Arabian Scandinavian Posts Third-Quarter Loss on Investments

By Shaji Mathew

Nov. 9 (Bloomberg) -- Arabian Scandinavian Insurance Co., a United Arab Emirates insurer, said it made a loss in the third-quarter as income from investments declined.

The company posted a loss of 6.6 million dirhams ($1.8 million), or a loss of 5 fils a share, compared with a profit of 2.3 million dirhams, or 2 fils a share, in the year-earlier period, Arabian Scandinavian said today in a statement to the Dubai bourse Web site.

Arabian Scandinavian incurred a loss of 9.9 million dirhams from investments compared with earnings 2.7 million dirhams a year earlier.

For Related News: U.A.E. earnings news: {TNI UAE ERN COS}

To contact the reporter on this story: Shaji Mathew in Dubai at shajimathew@bloomberg.net

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Saudi Aramco Sticks to 2009 Oil-Production Target

By Abdulla Fardan and Glen Carey

Nov. 9 (Bloomberg) -- Saudi Aramco, the world's biggest state-owned oil company, still plans to expand production capacity to 12.5 million barrels a day next year as demand slows, according to Chief Executive Officer Khalid A. Al-Falih.

Saudi Aramco has delayed refinery projects with international partners including ConocoPhillips as the global credit crisis causes uncertainty about future demand, Al-Falih said in an interview broadcast by Dubai-based al-Arabiya television.

``The market in general is slowing at a fast pace, therefore all refinery projects will be reviewed by investing companies,'' al-Falih said. ``It was difficult to get suitable offers for several projects by the end of this year.''

Saudi Aramco and ConocoPhillips said this week they would halt the bidding process for a planned 400,000 barrel-per-day export refinery in Saudi Arabia, citing market ``uncertainties.'' The project at the Yanbu Industrial City will be re-tendered in the second quarter of 2009, the companies said.

Saudi Aramco and Total SA of France may also delay the planned 400,000 barrel-a-day Jubail refinery, Al-Hayat reported yesterday, without saying where it got the information. The Jazan refinery on the Rea Sea coast, also a 400,000 barrel-a-day project, may also be postponed, the newspaper reported.

Saudi Aramco and Total agreed in June to build an oil refining and petrochemical complex in Jubail to export fuel and petrochemicals by 2012. Saudi Arabia had planned to announce the builder of the Jazan refinery by the end of the second quarter next year, the Saudi Press Agency reported last month.

Saudi Arabia had pledged to spend some $250 billion on energy by 2012 to raise oil output and increase refining capacity by 50 percent.

To contact the reporter on this story: Glen Carey in Dubai at gcarey8@bloomberg.net. Abdulla Fardan in Bahrain at afardan@bloomberg.net

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Gulf Property Shares Fall as Emaar Says It Deferred Payments

By Matthew Brown

Nov. 9 (Bloomberg) -- Gulf real-estate shares declined after reports said Emaar Properties PJSC, the Middle East's biggest publicly traded property developer, will allow customers to defer payments because of the credit crisis.

``The news of Emaar deferring payments is clearly not well received,'' Roy Cherry, vice president of research at Shuaa Capital PJSC, said today in a phone interview from Dubai. ``It means there is a risk clients, mortgage providers could default on payments. There were also reports this weekend of fall in property prices, and of redundancies in sales departments at property developers.''

Emaar lost as much as 45 fils, or 9.1 percent, to 4.48 dirhams in Dubai trading. The stock was trading at 4.59 dirhams at 12:51 p.m. local time, the lowest since November 2004.

The company will allow real-estate customers to defer payments because the credit crisis has made it more difficult for buyers to get loans from banks, Gulf News reported yesterday, citing Eisam Galadari, chief executive officer of Emaar's international operations.

Aldar Properties PJSC, the largest real-estate developer in Abu Dhabi, dropped 7.1 percent to 5 dirhams, while Sorouh Real Estate Co., the emirate's second-largest developer by market value, fell 7.5 percent to 3.58 dirhams.

Al Mazaya Holding Co., a Kuwait-based property developer, plunged 8.5 percent to 540 fils. Ezdan Real Estate Co., Qatar's largest real-estate company by market value, dropped 8.6 percent to 32 riyals.

To contact the reporter on this story: Matthew Brown in Dubai at mbrown42@bloomberg.net



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Kuwait Guarantee of Banks Deposits to Continue, KUNA Reports

By Abdulla Fardan

Nov. 9 (Bloomberg) -- The Kuwaiti government will continue to guarantee bank deposits until the market has ``stabilized,'' with no time limit to the measure, state-Run Kuwait News Agency said today, citing comments by the central bank governor.

The guarantee is meant to enhance the competitiveness of local banks against foreign lenders that have benefited from similar measures in their countries, Sheik Salem Abdul-Aziz al- Sabah said, according to KUNA.

Kuwaiti banks should consider merger plans now to strengthen their financial positions and boost their capacity to take on risk, al-Sabah said.

``Shareholders should realize the various positives and benefits of a merger,'' he said.

To contact the reporter on this story: Abdulla Fardan in Bahrain at afardan@bloomberg.net

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Air Arabia Falls Most in 2 Weeks as Gulf Shares Fall

By Shaji Mathew

Nov. 9 (Bloomberg) -- Air Arabia PJSC, the low-cost carrier that posted a 30 percent increase in third-quarter profit, declined the most in two weeks in Dubai trading after falling oil prices pushed Dubai shares to their lowest since February 2005.

``The fall in Air Arabia share price could be attributed to the general market trend as the company's third-quarter net income was impressive,'' Kareem Murad, vice president of research at Shuaa Capital PSC, said today by phone from Dubai.

Air Arabia declined 5.1 percent, the most since Oct. 27, to close at 1.11 dirhams. The stock has lost 44 percent this year. The Dubai Financial Market General Index dropped 5.9 percent to 2631.46.

Third-quarter net income advanced to 214 million dirhams ($58.3 million) from 165 million dirhams a year earlier, the Sharjah-based airline said yesterday. Passenger numbers increased 34 percent to 978,794, while revenue jumped 69 percent to 625 million dirhams.

Robust economic growth in the U.A.E., the second-biggest Arab economy, and a rise in tourism are boosting air travel demand and helping airlines expand. Air Arabia said this month it plans to start operations from its second hub in Morocco early next year. Air Arabia Maroc will use the Casablanca base to fly to destinations in Europe, the Middle East and Africa.

``Air Arabia is expected to benefit from the decline in oil prices and the rise in passenger numbers in its main markets in the Indian subcontinent and the Middle East,'' Murad said. ``There is also a huge under-penetrated market in the Gulf Cooperation Council countries for low-cost carriers.''

Crude in New York has dropped 59 percent from the record $147.27 a barrel reached on July 11 on signs that the contracting U.S. economy is cutting fuel use in the biggest energy-consuming country.

To contact the reporter on this story: Shaji Mathew in Dubai at shajimathew@bloomberg.net

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Kuwait Inflation to Slow to 7% by Year-End, National Bank Says

By Matthew Brown

Nov. 9 (Bloomberg) -- Kuwaiti inflation will slow to between 7 percent and 8 percent by year-end from 11.1 percent in July, as rent and food prices ease, National Bank of Kuwait said.

Annual inflation will slow to between 5 percent and 6 percent, the country's largest commercial bank by market value said in an e-mailed report late yesterday. Inflation is more likely to be lower than forecast because spending and economic growth may be impacted by the global financial crisis, it said.

``The Central Bank of Kuwait should be mildly relieved as these relatively reassuring numbers take the urgency out of tackling inflation at a time the central bank, and most others worldwide, have switched their attention to fighting financial market turmoil and to restoring confidence,'' the report said.

Kuwait's central bank has taken a number of measures to strengthen the local banking system and maintain lending in recent months, including guaranteeing deposits, raising the loan-to-deposit ratio and injecting funds into the interbank market.

The central bank was previously focused on slowing money supply growth, and took measures to discourage local banks from lending dinars to foreign institutions for speculation on the value of the Kuwaiti currency.

To contact the reporter on this story: Matthew Brown in Dubai at mbrown42@bloomberg.net

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EFG-Hermes Slashes Gulf Growth Forecasts on Lower Oil Prices

By Matthew Brown

Nov. 9 (Bloomberg) -- Gulf economies will grow at around half the pace in 2009 as previously forecast because of plunging oil prices, EFG-Hermes Holding SAE, the largest Arab investment bank by market value, said.

Saudi Arabia's real gross domestic product, the value of all goods and services produced at historical prices, will grow 2.4 percent in 2009, down from 6.2 percent in 2008, EFG said in a report received by e-mail today. EFG had forecast 4.5 percent growth for 2009.

``Across the region, we have reduced our real GDP growth estimates as a result of the oil production cuts,'' EFG's Chief Economist Monica Malik said in the report. ``We forecast that nominal GDP growth will contract for the more oil dependant countries, Saudi Arabia, Oman and Kuwait.''

Crude oil prices have plunged more than 50 percent since July on concern that demand will decline sharply following recessions in the U.S. and much of Europe. Five of the six Gulf Cooperation Council economies will continue to enjoy fiscal surpluses as long as the price of oil remains above $50 per barrel, the International Monetary Fund said last month.

The six Gulf Arab states, including Saudi Arabia, the United Arab Emirates and Kuwait, pump almost 20 percent of the world's daily oil supply. Crude has dropped 59 percent from the record $147.27 in July on signs the contracting U.S. economy is cutting fuel use in the biggest energy-consuming country.

Crude for December delivery fell 10 percent to $61.04 a barrel last week in New York, sliding as low as $59.97 Nov. 7.

Saudi Arabia

Saudi Arabia's nominal GDP, the value of all goods and services at current prices, will shrink by 4.5 percent to $458.7 billion in 2009, EFG said. It had previously forecast 2.1 percent growth to $490.7 billion.

In the United Arab Emirates, the second-largest Arab economy after Saudi Arabia, real GDP growth will slow to 4.8 percent in 2009 from 8.5 percent in 2008, while nominal GDP will rise 0.6 percent to $235.5 billion, EFG said. Its previous forecast was for 7 percent real GDP growth and nominal GDP of $274.6 billion.

``The economic reality on the ground will not be as stark as figures indicate,'' Malik said. ``If the oil price averages $85 per barrel, we expect government spending plans will not change markedly and will remain expansionary. If the oil price stabilizes at current levels and averages around $60 to $65, we believe that government spending growth will decline, thereby providing a much smaller fiscal stimulus to the economy.''

To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net

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Gulf Shares Decline on Oil, Economic Concern; Emaar, Aldar Drop

By Haris Anwar

Nov. 9 (Bloomberg) -- Persian Gulf shares fell for a second day, led by real-estate companies, on concern lower oil prices and a U.S. recession will cut export revenue and slow economic growth in the region.

Emaar Properties PJSC, the Middle East's biggest publicly traded real-estate developer, tumbled to the lowest in almost four years after Gulf News said the company will allow customers to defer payments because of the credit crisis. Aldar Properties PJSC, Abu Dhabi's largest real-estate developer by market value, posted the biggest drop in three weeks as EFG-Hermes Holding SAE cut its 2009 economic-growth estimate for the United Arab Emirates. Industries Qatar dropped the most in two weeks after its unit Qatar Steel Co. said it was lowering steel prices.

The Dubai Financial Market General Index slumped 5.9 percent to 2,631.46, the lowest since February 2005. The Abu Dhabi Securities Exchange General Index fell 4 percent, while the Kuwait Stock Exchange Index declined 2.8 percent after oil slid below $60 a barrel last week.

``Falling oil prices are eroding market confidence,'' Ali Khan, head of equity trading at Dubai's Arqaam Capital Ltd., said in a phone interview. ``As oil starts to test $60 or $50 a barrel, it becomes an issue here.''

Stock indexes in Dubai and Saudi Arabia lost about half of their value this year on concern a 36 percent slide in oil, $689 billion in global bank losses from the credit crises and a U.S. economic contraction will slow growth in the Middle East.

Emaar Properties has retreated 70 percent in 2008, while Dubai Islamic Bank PJSC, the U.A.E.'s biggest lender complying with Muslim banking rules, slumped 62 percent.

Oil, Economic Forecasts

The six Gulf Arab states, including Saudi Arabia, the United Arab Emirates and Kuwait, pump almost 20 percent of the world's daily oil supply. Crude has dropped 59 percent from the record $147.27 in July on signs the contracting U.S. economy is cutting fuel use in the biggest energy-consuming country.

EFG-Hermes, the largest Arab investment bank by market value, cited plunging oil in a report received by e-mail today in which it reduced the 2009 economic growth forecast for the United Arab Emirates to 4.8 percent from 7 percent. The bank cut the estimate for Saudi Arabia to 2.4 percent from 4.5 percent.

U.S. Recession

U.S. President-elect Barack Obama will inherit the worst recession since Ronald Reagan's second year in the White House, economists said as figures showed last week that U.S. payrolls plunged by more than half a million the past two months. The world's largest economy will shrink at a 3.5 percent annual rate in the fourth quarter, according to Goldman Sachs Group Inc.

``The liquidity crunch is affecting every sector in the market,'' said Faisal Hasan, head of research at Global Investment House KSCC, which has $9.4 billion in assets under management. ``Investors are sitting on the sidelines with cash. Falling oil prices and news on Emaar are certainly not helping.''

Emaar fell 9.9 percent to 4.44 dirhams, the lowest since November 2004. The developer will allow real-estate customers to defer payments because the credit crisis has made it more difficult for buyers to get loans from banks, Gulf News reported, citing Eisam Galadari, chief executive officer of Emaar's international operations.

Aldar Properties dropped 7.8 percent to 4.96 dirhams, while Sorouh Real Estate Co., the emirate's second-largest developer by market value, fell 8.3 percent to 3.55 dirhams.

Steel Prices

Industries Qatar lost 7.7 percent to 102.5 riyals. Qatar Steel, a unit of the largest publicly traded company in the Gulf emirate, said it's lowering steel prices to match the drop in international prices, without disclosing the size of the cut.

The new retail price for 10-40 millimeter steel will range from 2,400 riyals ($659) to 2,460 riyals, the company said in a statement posted on the Doha bourse.

Saudi Arabia's Tadawul All Share Index added 1.4 percent today after falling 5.8 percent yesterday. Oman's Muscat Securities Market 30 Index lost 2.6 percent, while in Qatar the DSM 20 Index retreated 5.2 percent. The Bahrain All Share Index fell 1.7 percent.

Today's decline left Dubai's benchmark index valued at 6.2 times the earnings of its 29 companies, the lowest level since at least February 2007, data compiled by Bloomberg show. Abu Dhabi's index trades at 7.9 times profit. The MSCI Emerging Markets Index is valued at 8.3 times earnings.

The following stocks also rose or fell in the region. Stock symbols are in parentheses after company names:

Al Themar International Holding (THEMAR KK) dropped 3.5 percent to 112 fills. The Kuwaiti property-trading company said third-quarter profit fell to 1 million dinars from 1.9 million in the year-earlier period.

Kuwait Hotels Co. (KHOT KK) slid 1.1 percent to 188 fils. The hotel operator and developer said third-quarter profit declined to 134,377 dinars from 417,081 dinars in the year- earlier period.

National Central Cooling Co. (TABREED UH) declined 4.7 percent to 1.01 dirham. The air-conditioning company known as Tabreed was cut to ``equal weight'' from ``overweight'' at Morgan Stanley.

Qatar Telecom QSC (QTEL QD) fell 3.5 percent to 139.3 riyals. The provider of phone services in 16 countries views its revised offer to buy a 24.2 percent stake in Indonesia's PT Indosat at 6,416 rupiah a share as still being fair, Bisnis Indonesia reported. Indonesia's capital markets regulator said Qatar Telecom should stick to its original offer price to raise its holding in Indonesia's second-largest telephone company.

To contact the reporter on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.net

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Japan's JICA to Issue $305 Million Bond Next Year, Nikkei Says

By Aya Takada

Nov. 9 (Bloomberg) -- The Japan International Cooperation Agency will issue its first-ever bond by March, raising up to 30 billion yen ($305 million), the Nikkei newspaper said today.

JICA, which runs the nation's Official Development Assistance (ODA) program, may also issue a 50 billion yen bond in the fiscal year beginning in April and gradually expand such offerings, the newspaper said, citing unnamed agency sources.

The bond will likely have a maturity of 20 to 30 years, as yen loans extended through the ODA are usually repaid over a 30- year period, Nikkei said. The issuance will be aimed at life insurers, pension funds and other institutional investors, it said, and the agency picked Mitsubishi UFJ Securities Co. and Goldman Sachs Group Inc. as joint underwriters.

JICA, which sends volunteers to developing countries as well as running grant and loan programs, is the world's biggest development aid agency, with $10.3 billion in operations, according to its Web site.

To contact the reporter on this story: Aya Takada in Tokyo atakada2@bloomberg.net.

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Japan to Skip Tax Hike, Use Reserves for Pensions, Yomiuri Says

By Aya Takada

Nov. 9 (Bloomberg) -- Japan will increase spending on the nation's pension program next fiscal year without raising sales taxes, using reserves from special accounts instead, the Daily Yomiuri said today, citing government sources it didn't name.

The government is scheduled to raise its contribution to the pension fund to half from a third beginning in April, and will do so using special account reserves related to its fiscal investment and loan program, the newspaper said.

Use of the reserves indicates the economic slowdown is precluding government officials from raising the consumption tax rate from its current 5 percent, Yomiuri said. A higher sales tax had been seen as the likely funding source for increased pension expenses, it said.

Under the fiscal investment and loan program, also known as ``zaito,'' the government borrows from institutions such as public pension funds and postal savings, to invest in projects operated by state-owned companies. Special accounts in the program accrue income when interest payments from the projects exceed the state's borrowing cost, according to the report.

To contact the reporter on this story: Aya Takada in Tokyo atakada2@bloomberg.net

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Sekisui, Daiwa House to Cut Spending on House Lots, Nikkei Says

By Aya Takada

Nov. 9 (Bloomberg) -- Sekisui House Ltd. and Daiwa House Industry Co. will slash spending on lots for homes as Japan's housing market deteriorates, Nikkei English News said today.

Sekisui House, Japan's largest builder of detached houses, will stop buying lots for single-family homes, cutting such spending for the year ending Jan. 31 by 25 percent to about 50 billion yen ($509 million), Nikkei said without naming a source.

Daiwa House halted purchases of plots for condominiums, as its sales of the housing units fell 26 percent in the six months ended Sept. 30, the newswire said. The company will reduce its projection for lot purchases this fiscal year by about 40 percent to less than 70 billion yen, Nikkei said.

Sekisui on Sept. 1 cut its full-year net income forecast by 14 percent to 48 billion yen on slowing sales and higher-than- expected costs. Daiwa House last week cut its annual profit forecast 49 percent to 26.5 billion yen. Both companies are based in Osaka, western Japan.

To contact the reporter on this story: Aya Takada in Tokyo atakada2@bloomberg.net

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India's First Unmanned Space Probe Enters Orbit Around Moon

By Jay Shankar

Nov. 9 (Bloomberg) -- India's first unmanned space probe entered the lunar orbit yesterday and will spend the next two years mapping the moon's terrain, said the country's space agency.

India became the fifth nation to send a spacecraft to the moon after the U.S., Russia, Japan and China, the Indian Space Research Organization said in an e-mailed statement yesterday. Chandrayaan I, or ``Moon Craft,'' will transmit data to the Indian Deep Space Network Campus on the outskirts of Bangalore.

The moon is the focus of international exploration 39 years after American Neil Armstrong became the first man to walk on its surface. India's $78.9 million mission to map the moon's terrain is a first step toward landing an unmanned rover there by 2012.

The path taken by Chandrayaan I will be reduced in the coming days to achieve a final polar orbit of about 100 kilometers (62 miles) and a probe will be released to hit the lunar surface. Close-range images will be taken during the probe's 25-minute descent, the space agency said.

The spacecraft is also carrying mapping instruments for the European Space Agency, radiation-measuring equipment for the Bulgarian Academy of Sciences and two devices for the National Aeronautics and Space Administration. One of the NASA devices will look for ice deposits in the lunar poles, while the other will assess the moon's mineral composition.

India launched its first rocket in 1963 and its first satellite in 1975. The country's satellite program consists of 21 orbiters, of which 11 are currently in service, making it one of the largest communication systems in the world.

Russia is India's main partner in space programs and has provided manufacturing and design technology. Most of India's space programs are developed by its own scientists.

To contact the reporter on this story: Jay Shankar in Bangalore at jshankar1@bloomberg.net

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Latvia Government Takes Control of Parex to Bolster Bank System

By Aaron Eglitis

Nov. 9 (Bloomberg) -- The Latvian government took control of Parex Banka AS, the country's second biggest lender, to safeguard the financial system, Prime Minister Ivars Godmanis said.

Latvijas Hipoteku Un Zemes Banka AS, the only state-owned lender in the Baltic nation, will buy 51 percent of Parex for 2 lati ($3.60), the Finance Ministry said in a statement yesterday.

Investors fleeing the worst financial crisis since the Great Depression have pulled funding from emerging markets, looking for safer assets. Parex had about 775 million euros ($989 million) in syndicated credits that it would have to pay back next year.

``If the state did not help Parex then it would cost the country billions,'' Finance Minister Atis Slakteris said at a press conference in Riga. ``The decision was to either allow a bankruptcy or ensure the bank's stability,'' he said.

State-controlled enterprises including Latvijas Valsts Mezi AS, the forestry company, Latvenergo AS, the country's electricity provider and the television and radio center had deposits in Parex, he said.

Godmanis said no similar action was planned for other banks.

The government previously announced a plan for loan guarantees to ease funding pressures for local lenders, who finance their operations with syndicated loans, after Sweden offered a similar program that covered units of Swedish banks in the Baltics.

`Not Functioning'

Latvia's central bank said on Nov. 3 that about 1.2 billion euros ($1.53 billion) in syndicated loans come due next year.

The syndicated loan market ``was not functioning at all, you can't call it a market,'' said Martins Jaunarajs, Parex Banka's senior vice-president, by telephone before the announcement.

Parex Chairman of the Board Valery Kargin will be replaced by a state appointment, the Finance Ministry said.

The Baltic country's economy contracted 4.2 percent in the third quarter after expanding 10.3 percent last year before soaring inflation damped purchasing power and tighter credit led to a drop in housing prices.

Moody's Investors Service on Nov. 7 downgraded Latvia's credit rating to A3 from A2, the third-lowest investment grade level, citing a worsening global liquidity crunch and economic slowdown.

Parex Banka, rated BB+ by Fitch Ratings, has 1.9 billion lati in deposits, the biggest deposit base in the country, according to the Latvian Association of Commercial Banks.

Valery Kargin and Viktor Krasovicki each owned 42 percent of the lender, with East Capital Funds owning about 4 percent, Danske Capital Funds controlling 2.7 percent and Julius Baer International Equity Fund owning about 2 percent, according to Parex's Web site. Firebird Funds had about 1.8 percent and Swenska Handelsbanken AB had about 0.3 percent of Parex.

To contact the reporters on this story: Aaron Eglitis in Riga, Lia, at aeglitis@bloomberg.net

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China's Government Considers Policies to Promote Vehicle Sales

By Tian Ying

Nov. 9 (Bloomberg) -- China's government is discussing policies to help automakers boost sales and fend off the global financial crisis, according to the country's top planning agency.

The government is analyzing policy options including consumption-tax breaks and subsidies to automakers that develop vehicles powered by alternative energies, Chen Jianguo, deputy head of the industrial coordination department of the National Development and Reform Commission, told a conference in Tianjin yesterday.

Chinese automakers are facing their toughest challenge in three years as demand is falling and profitability is plunging amid rising costs. The country's auto sales fell in August and September as a 64 percent stock-market slump and the economic slowdown curbed demand.

The government held a meeting in Beijing yesterday of more than 10 automakers to gather industry suggestions, Chen said. ``It is possible the government may announce policies'' to help revive the industry, he added.

Chinese carmakers have been forced to slash prices, even as steel costs have risen, to compete among the 52 brands on sale, the most in any country. SAIC Motor Corp., China's biggest automaker, had a 78 percent drop in third-quarter profit. Chongqing Changan Automobile Co., the Chinese partner of Ford Motor Co., had a third-quarter loss of 107 million yuan, compared with a 68.4 million yuan profit a year earlier.

China's car sales rose 11 percent in the first nine months, compared with a 22 percent increase for the whole of last year.

The government is also urging automakers to take advantage of a reshuffle in the global automobile industry and speed up development of vehicles using alternative energies, Chen said.

China's government will help automakers with technology and financial support to make progress in the area of electric cars, Chen added.

To contact the reporter on this story: Tian Ying in Beijing on ytian@bloomberg.net

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General Motors in Talks to Raise Stake in China Van Venture

By Tian Ying

Nov. 9 (Bloomberg) -- General Motors Corp., the biggest overseas automaker in China, is talking with its local partner about increasing its stake in a van venture in southern China, according to the venture's majority shareholder.

GM wants to boost its stake in SAIC-GM-Wuling Automobile Co. by acquiring some shares from its local partner in the southern Guangxi province, Hu Maoyuan, chairman of SAIC Motor Corp., said yesterday in an interview in Tianjin. SAIC is the majority shareholder of the venture with 50.1 percent. GM owns 34 percent and the rest is held by Liuzhou Wuling Motors Co.

GM, which receives about half of its China sales from the van venture, is trying to boost its market share in China. GM said last week that it may not have enough cash to keep operating this year after reporting a $4.2 billion third-quarter operating loss.

``GM and our partner in Guangxi are still discussing how to settle the share transfer,'' Hu said. ``We won't give up any of our stake.'' Hu didn't provide details about what size stake GM may be seeking.

GM sold 1.03 million vehicles in China last year, about 11 percent of its global total. The company is the biggest overseas automaker in the country in terms of overall sales. Total nine- month sales at its Chinese ventures rose 9.3 percent to 785,144, according to Bloomberg calculations.

To contact the reporter on this story: Tian Ying in Beijing on ytian@bloomberg.net

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Emerging Economies Pledge New Stimulus to Tackle Global Slump

By Ben Sills

Nov. 9 (Bloomberg) -- Finance ministers from emerging economies said they'd take new measures to tackle the global economic slowdown at a meeting of finance officials from the Group of 20 nations meeting in Sao Paulo yesterday.

Brazil, Russia, India and China, the so-called BRIC nations, plan coordinated measures to increase trade and capital flows between their economies, Russian Finance Minister Alexei Kudrin said in an interview. Mexican Deputy Finance Minister Alejandro Werner said slower economic growth and lower food and commodity prices justify cutting interest rates.

The ministers are meeting amid evidence the financial crisis that is pushing the world's biggest industrialized economies into recession is dragging down growth in Asia and Latin America. India, Russia and Brazil have already injected funds into commercial banks and South Korea last week unveiled a 14 trillion won ($10.8 billion) fiscal stimulus plan.

``This is a global crisis and demands global solutions,'' Brazilian President Luiz Inacio Lula da Silva told delegates. ``The participation of the developing world is essential.''

Finance ministers and central bankers from the G-20 are meeting in Sao Paulo to lay the groundwork for a Nov. 15 heads of state summit in Washington. The meeting concludes today.

``Finance ministers of BRIC countries have worked out measures for the near future,'' Kudrin said yesterday. ``We have agreed that we can jointly increase trade and capital flows. The major thing is that we are prepared to coordinate.''

International Monetary Fund

The International Monetary Fund is forecasting that the U.K., Japan, the euro region and the U.K. economies will all contract next year, their first simultaneous recessions since the Second World War. With slower growth damping inflationary pressures, central banks are likely to cut borrowing costs further, Canadian Finance Minister Jim Flaherty said.

``There are ongoing conversations about who plans to do what when'' on interest rates, Flaherty said. ``I expect that these discussions will lead to some degree of coordinated action.''

Canada's central bank joined the Fed, the European Central Bank and the Bank of England in an unprecedented coordinated interest rate cut on Oct. 8 after the collapse of Lehman Brothers Holdings Inc. sent credit markets into seizure. The Reserve Bank of India on Nov. 1 lowered its main interest rate for the second time in two weeks while China cut its key interest rate for the third time in two months on Oct. 29.

``We are closely watching the development of the financial crisis and the situation regarding global activity,'' Zhou Xiaochuan, governor of the People's Bank of China, said yesterday. ``If China can maintain domestic demand, it's helpful for global stability.''

Government Spending

Calls from the IMF and U.K. Prime Minister Gordon Brown for coordinated fiscal stimulus will probably fail to win backing from the group because some countries are concerned about increasing public spending, Flaherty said.

``Ideally that would be so -- it's just not likely to happen,'' Flaherty said. ``Some countries feel that they are more constrained than others.''

China's willingness to stimulate its economy may play an important role in supporting world growth, Flaherty said. China's economy grew at the slowest pace in five years in the three months through September as export orders shrank and industrial production waned.

``Chinese authorities talked about having a strong fiscal expansion,'' World Bank President Robert Zoellick said in a briefing yesterday. ``China is in a very good position.''

Companies from Paris to Mexico City are feeling the heat as credit dries up. PSA Peugeot Citroen is cutting staff in China, Mexican homebuilder Consorcio Ara SAB's middle-class clients are struggling to raise home-loans and Brazilian aircraft maker, Empresa Brasileira de Aeronautica SA, slashed its 2009 forecast for deliveries by a quarter.

``Clearly, a lower interest rate would be very favorable to stimulate aggregate demand and to lessen the impact of the international crisis,'' said Mexico's Werner, a former central bank economist.

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net

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World Bank Report Paints Bleak Picture for Australia

By Shani Raja

Nov. 9 (Bloomberg) -- Australia's economy may be hit harder than expected as the global economic slowdown spreads to emerging markets that are among the nation's key trading partners, Treasurer Wayne Swan said, citing a World Bank report.

The report, shown to finance ministers and central bank heads meeting in Brazil, shows the crisis that began in advanced economies is spreading to the developing world. That threatens Australia's extensive trade with countries in Asia and elsewhere, Swan said in comments to journalists e-mailed to Bloomberg News by his office in Canberra.

``We had already factored in a slowing of Australian growth and world growth,'' Swan said. ``It appears from this World Bank report that the slowing in growth will be more dramatic than many had thought previously.''

Last week, the government slashed its forecast budget surplus by 75 percent, saying the slowest economic growth in eight years will erode tax revenue. On Nov. 6, the International Monetary Fund approved a $15.7 billion loan to Hungary to shore up an economy it said was among the first emerging markets to be ravaged by the financial crisis.

``Finance has been drying up for the emerging world,'' said Shane Oliver, senior economist at AMP Capital Investors in Sydney. ``Most of Australia's exports go to Asia, and if those economies are slowing down more than expected it'll cut into demand for our exports.''

`Dangerous Zone'

Swan spoke to journalists after the first day of a meeting in Sao Paulo of ministers and bank governors of the so-called Group of 20 industrialized and developing nations, a prelude to the G-20 leaders' meeting on Nov. 15 in Washington.

The summit is exploring the impact of the global financial crisis on the world's developing economies. Separately, European Union leaders completed proposals during the week for tighter worldwide financial regulation, which they plan to take to the Washington summit.

``It is very clear that in the past month or so emerging economies have entered a dangerous new zone,'' Swan said. ``That is the description of the World Bank in their report.''

Swan told journalists a consensus was emerging among G-20 ministers of the need for coordinated action to stimulate national economies, a further loosening of monetary policy and ``fundamental'' reform of the international financial architecture.

`Modest Growth'

Australia's central bank has cut the benchmark interest rate by 2 percentage points since September, the most aggressive round of reductions since the economy was in recession in 1991. House prices dropped in the third quarter by the most since 1978 and retail sales in September had their biggest fall in three years.

The International Monetary Fund forecasts 1.8 percent growth for Australia's economy in fiscal 2009, Swan said last week.

``While the global financial crisis is causing a global recession, Australia is expected to continue to record modest growth and compares favorably with most other advanced economies,'' he said in an e-mailed statement.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.

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General Motors Aims to Raise Stake in China Venture

By Tian Ying and Winnie Zhu

Nov. 9 (Bloomberg) -- General Motors Corp., the biggest overseas automaker in China, is in talks with a local partner to increase its stake in a venture that produces vans and light trucks under the Wuling brand.

The U.S. automaker is seeking to buy additional shares in SAIC-GM-Wuling Automobile Co., Hu Maoyuan, chairman of SAIC Motor Corp., said yesterday in an interview in Tianjin. SAIC is the majority shareholder of the venture with 50.1 percent, GM owns 34 percent and Liuzhou Wuling Motors Co. holds the rest.

GM is seeking to boost market share in the world's fastest- growing major economy, where the venture based in southern Guangxi province accounts for about half its local sales. GM said last week that it may not have enough cash to keep operating this year after reporting a $4.2 billion third-quarter operating loss.

``Given the lobbying power of both SAIC and GM, the American carmaker will sooner or later get more shares,'' Ricon Xia, an analyst with Daiwa Associate Holdings Ltd. in Shanghai, said today. ``This venture is a vital part of GM's China operation.''

Henry Wong, GM's Shanghai-based spokesman, declined to comment, saying all business discussions with its partners are confidential and the company has nothing to announce.

SAIC's Hu didn't provide any details or disclose how large a stake Detroit-based General Motors is seeking.

``GM and our partner in Guangxi are still discussing how to settle the share transfer,'' Hu said. ``We won't give up any of our stake.''

Big Three Losses

Combined first-half losses at GM, Ford Motor Co. and Chrysler LLC, the three largest U.S. automakers, totaled $28.6 billion. The companies are seeking $50 billion in federal loans to help them weather the worst market in 25 years. New vehicles sold at a seasonally adjusted annual rate of 10.6 million in October, the lowest since 1983.

A U.S. rescue package for the so-called Big Three is likely before President George W. Bush leaves office in January, Dennis Virag, president of Automotive Consulting Group in Ann Arbor, told Bloomberg Television last week.

Democratic congressional leaders have urged U.S. Treasury Secretary Henry Paulson to provide temporary aid to the U.S. auto industry from funds available in a $700 billion rescue bill passed last month.

`Essential to Economy'

``A healthy automobile manufacturing sector is essential to the restoration of financial market stability, the overall health of our economy, and the livelihood of the automobile sector's workforce,'' House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid said in the letter to Paulson today.

GM sold 1.03 million vehicles in China last year, about 11 percent of its global total. The company is the biggest overseas automaker in the country in terms of total sales. Combined nine- month vehicle sales at its Chinese ventures rose 9.3 percent to 785,144, according to Bloomberg calculations.

``The current financial situation may actually help GM push forward the deal,'' Daiwa's Xia said. ``Especially given the Chinese government's willingness to help the U.S. fend off the financial crisis that has also hit GM heavily.''

To contact the reporter on this story: Tian Ying in Beijing on ytian@bloomberg.net

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Taiwan Cuts Interest Rates for 4th Time in Two Months

By Chinmei Sung and Yu-huay Sun

Nov. 9 (Bloomberg) -- Taiwan's central bank lowered its benchmark interest rate for the fourth time in two months, adding to a series of cuts in the U.S., Europe and Asia aimed at preventing a prolonged global recession.

The Central Bank of the Republic of China (Taiwan) reduced the discount rate on 10-day loans to banks to 2.75 percent from 3 percent effective tomorrow, Governor Perng Fai-nan said at a press conference in Taipei today. Today's move follows two similar-sized reductions last month and a 0.125 percentage point cut announced Sept. 25.

All three cuts since the start of October have taken place outside of the bank's scheduled quarterly policy meetings. Government trade figures released late on Nov. 7 showed Taiwan's exports, which are equivalent to about half of the island's gross domestic product, dropped 8.3 percent from a year earlier last month, the biggest decline in more than three years.

``Rate cuts can help stimulate domestic demand, lifting economic growth,'' Perng told reporters. ``The central bank has no policy tool to help exports, but at least we can act to help the other portion of the economy, which is domestic demand.''

To contact the reporters on this story: Chinmei Sung in Taipei at csung4@bloomberg.net; Yu-huay Sun in Taipei ysun7@bloomberg.net

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