Mid-Day Report: Markets Stay in Range after Mixed US Data

Market Overview | Written by ActionForex.com | Nov 17 08 14:37 GMT |

Market remains rather quiet today, searching for direction. Mixed data from US didn't trigger much volatility neither. One the one hand, Empire Statement Manufacturing index dropped to record low of -25.4 in Nov but was slightly better than expectation of -26. On the other hand, industrial production unexpectedly grew 1.3% mom in Oct, much better than consensus of -0.4% contraction. Capacity utilization was unchanged at 76.4%. Technically speaking, though, firstly, Dollar index once again fails to take out 87.87/98 resistance level and retreats again. As mentioned before, EUR/USD and AUD/USD are likely still staying in consolidation. More importantly, GBP/USD's recovery today argues that some more consolidation is underway. After all, some more pullback is now in favor for the greenback in short term before resuming recent up trend. Elsewhere, DOW opens mildly lower. Crude oil and gold are both staying in tight range so far. Released earlier, Eurozone trade deficit narrowed to -5.6b in Sep. UK Right move house prices fell -2.9% mom, -7.1% yoy in Nov, steeper than prior month's -4.9% yoy. Australian retail sales rose less than expected by a mere 0.1% qoq in Q3 even though it's still an improvement over Q2's -0.6% contraction. Japanese Q3 GDP contracted -0.1% qoq, -0.4% annualized, worse than expectation of 0% qoq, 0.1% annualized. Q2's figures were also revised down from -0.7% qoq and -3.0% annualized to -0.9% and -3.7% respectively. Two successive quarters of contraction in GDP confirmed that Japan is technically in the first recession since 2001. Tertiary industry index dropped -0.6% in Sep, below expectation of -0.5%. GBP/USD Mid-Day Outlook Daily Pivots: (S1) 1.4609; (P) 1.4781; (R1) 1.4907; More GBP/USD's recovery from 1.4557 extends further today and with 4 hours MACD staying well above signal line, an intraday low should be in place. Some more consolidation is in favor. Above 1.4557 will encourage stronger recovery towards 4 hours 55 EMA (now at 1.5327). But upside should be limited below 1.5600 support turned resistance and bring fall resumption. On the downside, below 1.4557 will target mentioned 100% projection of 1.7630 to 1.5269 from 1.6671 at 1.4310. In the bigger picture, there are some different interpretations of the structure of the whole down trend from 2.1161, with different projection targets. Main question is whether fall from 1.8668 is the fifth wave in the five wave sequence from 2.1161 (1.9337, 2.0158, 1.7445, 1.8668, ?) or it's the third wave inside the fall from 2.0158. In either case, fall from 1.8668 is possibly completing a five wave sequence of its own. Strong rebound from 1.4278/4310 cluster projection target (100% projection of 1.7630 to 1.5269 from 1.6671 at 1.4310, 161.8% projection of 2.0158 to 1.7445 from 1.8668 at 1.4278), followed by break of 1.5600 resistance will suggests that a medium term bottom is formed and bring larger scale correction. Though, sustained trading below 1.4278/4310 will target 1.3680 key long term support (01 low).

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
23:50	JPY	Japan GDP Q/Q Q3	-0.10%	0.00%	-0.70%	-0.90%
23:50	JPY	Japan GDP annualised Q3	-0.40%	0.10%	-3.00%	-3.70%
23:50	JPY	Japan GDP deflator Y/Y Q3	-1.60%	-1.70%	-1.50%	-1.60%
23:50	JPY	Japan Tertiary industry index Sep	-0.60%	-0.50%	-1.40%	-1.30%
00:01	GBP	U.K. Rightmove hse prices M/M Nov	-2.90%	N/A	1.00%
00:01	GBP	U.K. Rightmove hse prices Y/Y Nov	-7.10%	N/A	-4.90%
00:30	AUD	Australia Retail sales Q/Q Q3	0.10%	0.40%	-0.60%
10:00	EUR	Eurozone Trade balance (euro) Sep	-5.6B	-6.0B	-9.3B	-9.4B
13:30	USD	U.S. Empire state mfg Nov	-25.4	-26	-24.62
14:15	USD	U.S. Capacity utilisation Oct	76.40%	76.30%	76.40%
14:15	USD	U.S. Industrial prod'n M/M Oct	1.30%	-0.40%	-2.80%

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U.S. Empire Manufacturing Slips to Record Low as Demands Falter

Daily Forex Fundamentals | Written by DailyFX | Nov 17 08 14:06 GMT |

The Empire manufacturing index fell to a record low reading of -25.4 from -24.6 in October to reach its lowest level since recordkeeping began in 2001. Despite the significant decline in production, the release was slightly better than the -26.0 forecast projected by economists. A breakdown of the report showed that new orders slipped to -22.21 from -20.45, while the employment component plunged to -28.92 from -3.66 in the previous month. Fading demands from home and abroad have led firms to aggressively cutback on production, and conditions may only get worse over the coming months as the major economies around the world head into a recession. In addition, the dour outlook for the world’s largest economy has fueled expectations that employment opportunities will become increasingly scarce as firms cut down on costs, and may lead the jobless rate to surge higher well into the next year. Meanwhile, deteriorating fundamentals continues to spur expectations for a rate cut by the Fed at the December 16th policy meeting, and the central bank may continue to ease policy further in order to avoid a deep and severe recession. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.

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Bloomberg U.S. Mortgage Delinquency, Foreclosure Rates (Table)

By Alex Tanzi

Nov. 17 (Bloomberg) -- The following table shows residential mortgage delinquency rates for U.S. loans as reported by the Bloomberg non-agency database comprised of over 45 million securitized loans.

=========================================================================
                           10/31/08 09/30/08 08/31/08 10/31/07 10/31/06
=========================================================================
Bankruptcy                     1.35%    1.28%    1.23%    0.77%    0.85%
of which Prime                0.60%    0.53%    0.50%    0.18%    0.13%
of which Alt-A                1.06%    0.93%    0.87%    0.35%    0.02%
of which Subprime             2.52%    2.44%    2.38%    1.60%    2.08%
Foreclosure                    7.20%    7.10%    6.83%    3.37%    1.34%
of which Prime                3.34%    3.25%    3.03%    0.87%    0.22%
of which Alt-A                6.04%    5.82%    5.56%    1.73%    0.37%
of which Subprime            12.54%   12.39%   12.03%    6.66%    2.80%
Real Estate Owned              4.20%    4.13%    3.96%    1.64%    0.49%
of which Prime                1.66%    1.54%    1.42%    0.37%    0.07%
of which Alt-A                2.89%    2.76%    2.52%    0.70%    0.13%
of which Subprime             7.96%    7.90%    7.67%    3.37%    1.03%
=========================================================================
                           10/31/08 09/30/08 08/31/08 10/31/07 10/31/06
=========================================================================
Delinq. (30,60,90,REO&Fore)   20.87%   20.22%   19.27%   11.48%    6.09%
of which Prime               10.12%    9.57%    8.80%    3.96%    1.78%
of which Alt-A               18.96%   18.10%   16.74%    7.95%    3.48%
of which Subprime            35.14%   34.23%   33.16%   20.37%   10.85%
Delinquency (30 days)          3.59%    3.56%    3.28%    3.09%    1.97%
of which Prime                2.02%    2.04%    1.81%    1.48%    0.85%
of which Alt-A                4.09%    4.06%    3.64%    3.22%    1.93%
of which Subprime             5.31%    5.18%    4.91%    4.73%    3.15%
Delinquency (60 days)          2.07%    1.99%    1.86%    1.50%    0.73%
of which Prime                1.15%    1.09%    1.01%    0.56%    0.21%
of which Alt-A                2.22%    2.14%    1.93%    1.24%    0.45%
of which Subprime             3.15%    3.02%    2.85%    2.58%    1.37%
Delinquency (60+ days)        17.28%   16.66%   15.99%    8.05%    3.53%
of which Prime                8.09%    7.53%    6.98%    2.26%    0.70%
of which Alt-A               14.87%   14.04%   13.10%    4.68%    1.32%
of which Subprime            29.81%   29.03%   28.23%   15.47%    7.18%
-------------------------------------------------------------------------

=========================================================================
                           10/31/08 09/30/08 08/31/08 10/31/07 10/31/06
=========================================================================
Delinquency (90 days)          3.80%    3.44%    3.34%    1.50%    0.97%
of which Prime                1.95%    1.64%    1.52%    0.44%    0.19%
of which Alt-A                3.72%    3.32%    3.08%    1.00%    0.36%
of which Subprime             6.12%    5.68%    5.64%    2.80%    1.97%
Delinquency (90+ days)        15.20%   14.67%   14.13%    6.55%    2.80%
of which Prime                6.94%    6.44%    5.98%    1.70%    0.49%
of which Alt-A               12.65%   11.90%   11.16%    3.44%    0.86%
of which Subprime            26.64%   25.99%   25.36%   12.88%    5.81%
=========================================================================
SOURCE: Bloomberg non-agency database of 45 million securitized loans.

To contact the reporter on this story:
Alex Tanzi in Washington at  atanzi@bloomberg.net

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Obama-Pelosi Stimulus May Fail to Reignite Economy

By Rich Miller

Nov. 17 (Bloomberg) -- President-elect Barack Obama and House Speaker Nancy Pelosi may throw as much as half a trillion dollars worth of stimulus at the economy -- and have little or no growth to show for it.

The forces arrayed against recovery, including the credit contraction and cutbacks by consumers, are so powerful that they may overwhelm the record sums of spending and tax cuts being discussed in Washington. The only consolation, economists say, is that without the stimulus, things would be even worse.

``It's hard for me to imagine we'll have a return to positive growth before the fourth quarter of 2009, even with a $500 billion stimulus,'' says Barry Eichengreen, an economics professor at the University of California, Berkeley. He sees the unemployment rate rising to 9.5 percent in early 2010, from 6.5 percent now.

The first dose of fiscal medicine might come within weeks, following the return of Congress today for a lame-duck session, and would focus on stepped-up government spending. The balance, including a tax rebate, would come after Obama assumes the presidency in January.

Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania, says the economy may contract 2 percent next year without a package of at least $300 billion. With it, ``we could get growth pretty close to zero,'' he adds. That would still be the worst result since 1991.

A `Bolder' Approach

``The breadth and potential depth'' of the crisis call for a ``bolder'' approach, Obama economic adviser Gene Sperling said in congressional testimony Nov. 13. A package costing $300 billion to $400 billion ``should be the starting point, with an understanding that more could be needed,'' Sperling said, noting he was speaking for himself.

That would make the next stage of stimulus significantly bigger than the plan President George W. Bush signed in February. The new package will also take a different shape, as policy makers try to get more economic bang for each government buck.

The earlier program -- $168 billion, mainly in tax rebates -- was neutralized by a surge in gasoline prices. It was also robbed of punch because skittish consumers used part of the money they received to build up their savings or pay down debt instead of spending all of it. The savings rate more than doubled to an average 2.3 percent during the last five months from a 1.1 percent average the previous five years.

Feldstein Favors

That's one reason why Martin Feldstein, the Harvard University economics professor, now favors a major government program that will directly inject money into the economy instead of depending on consumers.

``I hate to say it, because I'm a guy who doesn't like government spending and doesn't like fiscal deficits, but I don't see any alternative,'' he said in a Bloomberg Television interview Nov. 12.

Pelosi and her fellow Democrats plan to push a package of extended unemployment benefits, federal aid to the states and increased outlays on roads, bridges and other infrastructure in the lame-duck session that starts today.

The states will likely use immediately any money they receive because of falling revenue and rising costs. Unlike the federal government, most are required to run balanced budgets, so they must cut spending to make up for any shortfall in taxes.

As many as 27 states face deficits totaling $26 billion, according to a letter distributed to Congress last month by the National Governors Association.

``The numbers are astounding in terms of lost revenue,'' says Leonard Santow, a former Federal Reserve economist who is now a managing director at Griggs & Santow in New York.

Delayed Projects

Governors including David Paterson of New York and Jon Corzine of New Jersey are also pressing for federal money to spend on public-works projects delayed by the spending squeeze.

Paterson, a Democrat, told the House Ways and Means Committee Oct. 29 that New York has 40 ``shovel-ready'' plans to improve highways and bridges and another 58 water and sewer projects that could begin immediately with federal funds.

``There is a compelling case for a significant new commitment to infrastructure spending,'' Lawrence Summers, an Obama adviser and Harvard professor, told the House Budget Committee in September. While such spending ``is often seen as operating only with significant lags,'' he said, he's convinced that ``properly designed'' support can make ``a timely difference for the economy.''

Obama has also structured his proposed tax rebate to have more impact. Unlike Bush's one-time disbursement, Obama's would be a down payment on a permanent income-tax cut aimed at the middle class. It would boost take-home pay by lowering taxes withheld from paychecks, which might encourage households to spend more.

Nosediving Demand

Increased spending might benefit companies such as Intel Corp., the world's largest computer-chip maker, and Best Buy Co., the largest U.S. electronics retailer, which both said last week that demand for their products has nosedived.

``In 42 years of retailing, we've never seen such difficult times for the consumer,'' Brian Dunn, president and chief operating officer of Best Buy, said Nov. 12.

Allen Sinai, chief economist at Decision Economics in New York, says falling house prices and slumping stock markets will destroy some $7 trillion of household wealth this year, far in excess of the amounts being talked about for the stimulus.

Nomura Research Institute chief economist Richard Koo says the U.S. is undergoing a ``balance-sheet recession,'' much like the one that gripped Japan in the 1990s: Consumers and companies, seeing see their wealth shrinking, are curbing spending and reducing debt, while banks are shying away from lending.

Japan's Experience

Japan's experience suggests the U.S. should be cautious about when it decides to start easing up on its stimulus programs. The world's second-largest economy raised consumption taxes in 1997 and fell back into a recession.

That's why economist Sherle Schwenninger of the New America Foundation in Washington, says talk about Obama's plan to raise taxes on the wealthy isn't ``helpful'' now.

Figures published today showed Japan's economy entered its first recession since 2001 last quarter. Gross domestic product shrank an annualized 0.4 percent in the three months ended Sept. 30 after contracting 3.7 percent in the previous period.

The Japanese example also suggests that a big increase in government borrowing won't push up interest rates, as some fear. Yields on Japanese bonds fell throughout the 1990s, even as borrowing grew, because the economy stayed weak.

The U.S. faces a recession that will be ``deeper, broader and much stickier than the last couple,'' says Martin Regalia, chief economist at the U.S. Chamber of Commerce in Washington. ``This is not the time to be penny wise and pound foolish,'' he adds.

To contact the reporter on this story: Rich Miller in Washington rmiller28@bloomberg.net

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China to Take More Measures to Revive Economic Growth

By Li Yanping

Nov. 17 (Bloomberg) -- China, spending 4 trillion yuan ($586 billion) on a stimulus plan, may take ``preemptive'' measures to revive growth as the financial crisis increasingly takes its toll on the economy, the central bank said.

The People's Bank of China will be flexible and has ``ample room'' for policy changes, it said today in its quarterly monetary policy report posted on its Web site. It will ensure money supply liquidity, the bank said.

``The global financial markets are in severe turbulence, world economies are seriously shocked and the negative impact on China is emerging and intensifying,'' the bank said. The impact on China ``shouldn't be underestimated.''

China's economy grew at its slowest pace in five years in the third quarter, and its October industrial production and trade figures suggested the slowdown was deepening. The government unveiled the stimulus package on Nov. 9, and shifted to a ``moderately loose'' monetary policy.

``As capital inflows decrease amid the financial crisis, the central bank is worried about liquidity in the financial system,'' Xing Ziqiang, an economist at China International Capital Corp., said in Beijing. The central bank may cut reserve ratios for banks by the end of this year and also trim lending rates further, he said.

China's central bank has cut interest rates three times since September and removed controls on bank lending to support small businesses and fund the building of railways, airports and roads. It didn't specify what measures it may take to bolster the world's fourth-largest economy in today's statement.

`Contingency Plans'

China has ``various contingency plans,'' the bank said, adding that it will ensure sufficient liquidity in the financial markets by reducing open market operations and increasing fund supply.

The government may take more measures to boost domestic consumption, expand fixed-asset investment, and increase spending, the central bank said.

The weakening property markets may drag down growth and plunging stocks are trimming households' income, adding to the downside risks of China's growth just as the world economic slowdown slashes exports, the central bank said.

House prices grew at the slowest pace in more than three years in October, government data showed. Sales by volume fell 55.5 percent and 38.5 percent in Beijing and Shanghai in the first eight months from a year earlier, according to state media.

The nation's stock benchmark CSI 300 Index has dropped 63 percent this year.

Housing Market

Measures should also be taken to ensure ``rational'' investment in real estate which is key to spurring consumption of steel, raw materials, appliances and to the health of the financial industry, the central bank said.

The central bank previously ratcheted up benchmark interest rates and imposed quotas on how much banks can lend to fight inflation that climbed to a 12-month high in February. Inflation has since halved.

China faces deflationary pressure in the short-term after the rate of inflation slowed for six consecutive months, the central bank said today.

Still, capital injections by central banks worldwide and expected future increases in China's labor and energy prices may lead to inflationary pressure over a long-term, the bank said.

To contact the reporters on this story: Li Yanping in Beijing at yli16@bloomberg.net

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U.S. Industrial Production Rebounded in October From Hurricanes

By Timothy R. Homan

Nov. 17 (Bloomberg) -- U.S. industrial production rose more than forecast in October, led by a jump in mining as work resumed at Gulf Coast refineries following shutdowns caused by Hurricanes Gustav and Ike.

The 1.3 percent increase in production at factories, mines and utilities followed a revised 3.7 percent drop in September that was the biggest since 1946, the Federal Reserve said today. Excluding the effect of the storms and a strike at Boeing Co., output would have shrank about 0.7 percent in October and September, the Fed said.

The deepening credit crisis coupled with weakening global demand is forcing companies to cutback on investments for heavy machinery and manufactured goods. Today's report showed output of automobiles, computers, furniture and metals all dropped.

``The outlook for industrial production is worrisome as slower export activity due to a stronger U.S. dollar and slower global growth may limit improvement in the second half of 2008 and early 2009,'' John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, said before the report.

Industrial production was forecast to rise 0.2 percent after a previously reported 2.8 percent drop in September, according to the median estimate of 64 economists surveyed by Bloomberg News. Projections ranged from a drop of 1 percent to a gain of 1.7 percent.

Capacity utilization, which measures the proportion of plants in use, climbed to 76.4 percent from 75.5 percent the prior month.

New York Manufacturing

A separate report showed manufacturing in New York contracted in November at the fastest pace on record as orders and sales plunged. The Federal Reserve Bank of New York's general economic index fell to minus 25.4, the lowest since records began in 2001, from minus 24.6 percent in October, the bank said today. Readings below zero for the Empire State index signal manufacturing activity is shrinking.

Factory output, which accounts for about four-fifths of industrial production, increased 0.6 percent, led by a rebound petroleum and chemical products that reflected the rebound in operations from the storms.

Utility production increased 0.4 percent after rising 2.4 percent. Mining output, which includes oil drilling, jumped 6.1 percent after falling 8.5 percent in September.

Oil production operations and other facilities have resumed operations after being shut down because of Hurricane Ike, which made landfall on the Gulf Coast of Texas on Sept. 13, less than two weeks after Hurricane Gustav struck Louisiana.

Capacity Use

Industrial capacity utilization was estimated to increase to 76.5 percent from 76.4 percent, according to the Bloomberg survey median.

Motor vehicle and parts production dropped 3.5 percent following a 1.3 percent increase the prior month, the report said.

Production of consumer durable goods, including automobiles, furniture and electronics, fell 2.1 percent. Factories assembled just 8.09 million motor vehicles at an annual pace last month, the fewest since 1991.

Auto industry figures earlier this month showed cars and light trucks sold at a 10.6 million annual pace in October, the lowest since April 1991. President-elect Barack Obama is pushing Congress to approve as much as $50 billion this year for cash-starved U.S. automakers.

Industrial production in October also was weakened by a now-resolved 8-week strike by approximately 27,000 machinists at Boeing, the world's second-largest commercial planemaker.

Other reports indicate a bleak outlook for manufacturing. The Institute for Supply Management's factory index for October dropped at the fastest pace in 26 years, the Tempe, Arizona- based group said Nov. 3.

Slowing demand in the U.S. and abroad is causing some companies to trim their payrolls. U.S. Steel Corp., the largest U.S.-based steelmaker by 2007 sales, will cut 500 American jobs amid a ``dramatic downturn'' in the economy, John Armstrong, a spokesman, said in a telephone interview Nov. 13.

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

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New York Manufacturing Index Declines to Record Low

By Shobhana Chandra

Nov. 17 (Bloomberg) -- Manufacturing in New York contracted in November at the fastest pace on record as orders and sales plunged.

The Federal Reserve Bank of New York's general economic index fell to minus 25.4, the lowest since records began in 2001, from minus 24.6 percent in October, the bank said today. Readings below zero for the Empire State index signal manufacturing activity is shrinking.

Factories are trimming production as banks restrict lending, worsening the economic slump that may be the longest in decades. A slide in overseas demand is also slowing American exports, which were helping manufacturers cushion the slide in U.S. sales.

``It's almost like a snowballing effect as we're starting to see the manufacturing numbers get worse,'' said Maxwell Clarke, chief U.S. economist at IDEAglobal in New York, who had forecast the Empire index would drop to minus 25. ``We expect sharp declines with a slow recovery from this recession.''

Economists had forecast the Empire State index would fall to minus 26, according to the median of 46 estimates in a Bloomberg News survey. Projections ranged from minus 35 to minus 20.

The gauge measuring the manufacturing outlook for six months from now dropped to 13, the second-lowest reading on record, from 24.2 the prior month.

The Commerce Department reported last week that retail sales fell 2.8 percent in October, the most on record, signaling intensifying weakness that will further discourage producers.

The New York Fed's measure of new orders slumped to minus 22.2 from minus 20.5 the prior month. A gauge of shipments dropped to minus 13.9 from minus 8.

Less Inflation

The report also showed inflation eased. The index of prices paid for raw materials decreased to 20.5 after 31.7, and the gauge of prices received fell to 6 from 20.7.

A measure of employment plunged to minus 28.9, the lowest reading since December 2001, from minus 3.7.

Today's report is one of the earliest regional takes on manufacturing this month. A report from the Philadelphia Fed, due Nov. 20, may show manufacturing in the region contracted in November for the 11th time in the last year, according to the Bloomberg survey median.

Later today, the Fed may report that industrial production including mining and utilities rose 0.2 percent in October after a September drop of 2.8 percent that was the biggest decline since 1974, the survey median shows. The increase will probably reflect a rebound in refining and offshore drilling following the Gulf Coast hurricanes.

Eastman Kodak Co., a 128-year-old photography company based in Rochester, New York, is among the businesses struggling. It predicted a third-straight annual sales decline and said it will eliminate more jobs.

``The economic environment is increasingly difficult,'' Chief Executive Officer Antonio Perez said in a statement on Oct. 30. ``We must be prudent.''

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

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UBS Expects Crude Oil to Average $60 Next Year on Weak Demand

By Fiona MacDonald

Nov. 17 (Bloomberg) -- Oil prices are expected to fall to an average $60 a barrel next year, from $99 this year, as a global financial crisis weakens oil consumption, UBS AG analysts said.

The bank expects West Texas Intermediate crude oil to average $75 a barrel in 2010.

Global oil demand will contract this quarter ``far more sharply'' than it did during the third quarter, UBS analysts Jan Stuart and Daniel Brebner said in a report dated today.

``We see further, steep declines through'' the first half of next year, ``and a full year average contraction in 2009 as well,'' the first since 1984, the analysts said.

December oil futures traded in New York, which are based on the West Texas Intermediate grade, fell $1.47 to $55.57 a barrel in electronic trading at 11:37 a.m. London time. Prices have fallen from a record $147.27 a barrel reached in July on signs that the contracting U.S. economy is cutting fuel use around the world.

``Real economic damage is done and will take time to repair,'' the UBS analysts said. ``The full extent of that damage and its impact on oil demand is `unknowable' as yet.''

The analysts said their estimate of global spare oil production capacity has now risen to about 4 million barrels a day for 2009 through 2010, which is similar to levels at the start of this decade.

``All is not well on the oil supply side either,'' the report said. ``Companies are falling all over themselves to announce capital expenditure and other spending cuts and development delays.''

To contact the reporter on this story: Fiona MacDonald in Kuwait FmacDonald4@bloomberg.net

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Greenhouse-Gas Emissions Drop 0.1% in Developed World, UN Says

By Alex Morales

Nov. 17 (Bloomberg) -- Greenhouse-gas emissions declined 0.1 percent during 2006 in industrialized nations, the United Nations said, showing that many of the world's biggest polluters are making slow progress in fighting global warming.

Germany, Japan and 18 other nations that signed the 1997 Kyoto Protocol treaty that limits emissions aren't yet on target to meet their obligations of limiting output of carbon dioxide and other global-warming gases, the UN Framework Convention on Climate Change said today in a survey of 2006, the most recent year for which worldwide air-pollution statistics are given.

In two weeks, the organization's 192 members meet in Poznan, Poland, to resume efforts to devise a successor treaty to Kyoto, which expires in 2012. Evidence that emissions this decade are on a rising trend after falling in the 1990s shows more work is needed, UNFCCC Executive Secretary Yvo de Boer said.

``The figures clearly underscore the urgency for the UN negotiating process to make good progress in Poznan and move forward quickly in designing a new agreement to respond to the challenge of climate change,'' de Boer said today in an e-mailed statement.

Emissions of all developed countries including the U.S., which isn't bound by Kyoto, fell 4.7 percent since 1990, the base year for the treaty, or by 17 percent for Kyoto signatories. This was largely because of the economic collapse of Russia, the Ukraine and other eastern European countries in the 1990s, following the breakup of the Soviet Union, the UN said.

Since 2000 output from developed countries including the U.S. rose 2.3 percent.

$46 Billion

Data isn't available for three countries that ratified Kyoto, and 16 are on track to attain their goals. Nations that fail to make the necessary cuts will have to buy 2.3 billion permits, one for every excess ton of greenhouse gases, through 2012, New Carbon Finance, a research firm in London, has estimated. At current permit prices, that would cost about 36 billion euros ($46 billion).

Kyoto, brokered in 1997, sets an overall target for developed countries to trim emissions by 5 percent for the average of the five years from 2008 to 2012, compared with 1990 levels. Each nation was assigned a target, and the then-15 members of the European Union devised their own goals to share the burden. The targets range from Luxembourg, required to make a 28 percent cut, to Portugal, allowed to raise output 27 percent.

To contact the reporter on this story: Alex Morales in London at amorales2@bloomberg.net.

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OPEC Cuts 2009 Oil Demand Forecast for a Third Month

By Alexander Kwiatkowski

Nov. 17 (Bloomberg) -- The Organization of Petroleum Exporting Countries, supplier of more than 40 percent of the world's oil, slashed its 2009 demand forecast for a third month as the looming global recession threatens fuel consumption.

The 13-member group reduced its forecast for average oil consumption next year by 530,000 barrels a day, or 0.6 percent, to 86.68 million barrels a day, it said in its monthly oil market report. Falling transport fuel use and a slump in demand from the petrochemical industry are cutting oil consumption.

``The downbeat economic forecast has darkened the outlook for oil demand substantially,'' OPEC's Vienna-based secretariat said today. ``Some institutions are even forecasting a contraction in oil demand in the coming year.''

OPEC has called a ministerial meeting in Cairo for Nov. 29 after the 1.5 million barrel-a-day production cut announced last month failed to stem a slump in prices. Crude touched $54.67 a barrel, a 21-month low, on Nov. 13 and has fallen more than 12 percent since OPEC's last meeting in Vienna.

The group forecasts 2009 global oil demand to rise by 0.6 percent. Last month it predicted growth of 0.9 percent. OPEC expects demand to rise 0.3 percent this year.

The International Energy Agency last week reduced its 2009 estimate by 0.8 percent to 86.5 million barrels a day, the biggest cut to an annual demand forecast since 1996. The revision came after the International Monetary Fund warned of the first simultaneous recession in the U.S., Japan and Europe in more than 60 years.

OPEC's Cairo summit, originally intended for only the group's Arab members, was upgraded to a full OPEC meeting on Nov. 13. The producer group is also scheduled to meet on Dec. 17 in Oran, Algeria.

Assess Situation

OPEC will ``assess the market situation and collect information from member countries,'' the group's president, Chakib Khelil, who is also Algeria's energy minister, told reporters yesterday in Algiers.

``More frequent intervention'' in the market is required under the current circumstances and OPEC ``stands ready to take the necessary decisions to support oil market stability,'' according to the monthly report.

Oil consumption in developing countries will still increase 2.5 percent to 25.70 million barrels a day next year, OPEC said.

Lowered Forecast

The group lowered the demand forecast for its own crude in 2009 by 220,000 barrels a day, or 0.7 percent, to 30.92 million barrels a day. In 2008, demand for OPEC crude is predicted to be 31.84 million barrels a day, 170,000 barrels lower than it forecast last month.

OPEC cut its forecast for oil supply from outside the group by 310,000 barrels a day to 50.39 million barrels a day as oil companies scale back investment in production. Last month it forecast 2009 non-OPEC supply at 50.70 million barrels a day.

``The current financial situation has pressured companies to cut their planned capital expenditure, which has sharply influenced the supply forecast,'' the group said. ``All regions contributed to the downward revision,'' according to OPEC, with the biggest contribution from former Soviet countries.

Total OPEC crude production averaged 32.041 million barrels a day in October, a decline of 132,200 barrels a day from September, the report said, citing secondary-source estimates that include analysts and news agencies.

Saudi output fell by 153,500 barrels a day in October to 9.216 million barrels a day, according to the report. Angola's production rose.

OPEC's 13 members are Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Indonesia will leave the group on Jan. 1.

To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net

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Somali Pirates Hijack Saudi Arabian-Owned Oil Tanker

By Caroline Alexander

Nov. 17 (Bloomberg) -- Somali pirates hijacked a large oil tanker owned by Saudi Arabian Oil Co. off the coast of Kenya, in one of the most daring attacks on a merchant vessel in the region, the U.S. Navy's Fifth Fleet said.

The tanker, Sirius Star, operated by Vela International, was more than 450 nautical miles (833 kilometers) southeast of Mombasa when a group of pirates managed to scale the 10-meter (32-foot) high side of the ship, Lieutenant Nate Christensen said in a phone interview from Bahrain, where the Fifth Fleet is based.

Sirius Star, designed to carry more than 2 million barrels of crude, ``is three times the size of a U.S. aircraft carrier and shows how they are successfully expanding their operations,'' Christensen said, adding that previous attacks have occurred within 200 nautical miles of land.

The crew of 25 includes citizens of Croatia, the U.K., the Philippines, Poland, and Saudi Arabia, Christensen said. He said he believed the ship was carrying crude oil. Further information wasn't immediately available and telephones at the International Maritime Bureau and Saudi Aramco weren't being answered.

Piracy in the Gulf of Aden, between Yemen and Somalia, has more than doubled in 2008, with assailants using the global positioning system and satellite phones to find potential targets, according to an October report by the London-based research organization Chatham House.

Combating Piracy

The European Union agreed on Oct. 10 to join the North Atlantic Treaty Organization, India, Malaysia and Russia in deploying vessels to combat piracy. About 11 percent of the world's seaborne petroleum, on its way to the Suez Canal or regional refineries, passes through the Gulf of Aden.

The seizure is the first of a very large crude carrier, or VLCC, on record, Mark Jenkins, an analyst at Simpson, Spence & Young Ltd., the world's second-largest shipbroker, said by phone, adding the attack was ``probably opportunistic.''

Failure to increase the protection of its fleet would likely ``compromise'' Saudi Aramco's ability to sell oil to customers in the U.S. and Europe, Jenkins said.

``Even if you've got to spend quite a lot of money, it's going to be a worthwhile investment if the alternative is you can't sell the oil as readily as you would otherwise aim to do,'' he said.

To contact the reporter on this story: Caroline Alexander in London at calexander1@bloomberg.net.

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Petro-Canada Postpones C$25.3 Billion Fort Hills Oil-Sands Mine

By Jim Polson

Nov. 17 (Bloomberg) -- Petro-Canada, the country's third- largest oil company, said it delayed to next year a decision whether to mine oil sands at the proposed C$25.3 billion ($20.6 billion) Fort Hills project in northeastern Alberta because of rising costs and falling oil prices.

Plans for an upgrader, which would convert the tar-like bitumen into oil suitable for refining, are on hold, the Calgary-based company said in a statement today. Petro-Canada and partners Teck Cominco Ltd. and UTS Energy Corp. said they're ``committed to retention of the leases'' and are in talks with the Alberta government on the current lease term.

Energy companies including Royal Dutch Shell Plc and EnCana Corp. are reducing plans to extract bitumen, the tar-like raw material used for crude, as oil prices plummet. Oil futures traded in New York have tumbled about 61 percent since July to a low of $54.67 a barrel on Nov. 13.

``We're giving ourselves some breathing room on the project schedule so we can take advantage of a softening market to reduce costs,'' Ron Brenneman, chief executive officer of Petro- Canada, said in the statement.

The total cost of the Fort Hills project was pegged at C$25.3 billion and the cost of the upgrader at C$10 billion to C$12.5 billion, UTS said in a statement on Nov. 5. Canadian oil sands are the world's biggest energy reserves outside Saudi Arabia, according to the Canadian Association of Petroleum Producers.

``The writing had been on the wall for the upgrader,'' said Jim Hall, who oversees about C$1 billion at Mawer Investment Management in Calgary, including 116,000 Petro-Canada shares. ``It would have been a marginal project at $120 or $130 oil, so at $60, it's a non-starter.''

Investments Cut

Brenneman had said on an Oct. 23 earnings conference call that the company may buy an upgrader rather than build one.

In June, the Canadian Association of Petroleum Producers said companies would spend C$126 billion over the next five years on pipelines, mines and upgrading plants as record oil prices made the Canadian reserves in Alberta lucrative. The figure has now been chopped to about C$80 billion, Greg Stringham, an association vice president, said in a Nov. 7 interview.

Teck has plunged 85 percent since July 11 on concern the Vancouver-based miner won't be able to repay $9.8 billion of debt used to finance last month's acquisition of Fording Canadian Coal Trust.

``Petro-Canada's partners don't have a lot of financial room to maneuver,'' Hall said.

Petro-Canada holds a 60 percent stake in the Fort Hills project, and Calgary-based UTS Energy and Teck each have 20 percent. The project had expected production of 280,000 barrels of crude a day by 2015.

Imperial Oil Ltd., about 70 percent-owned Exxon Mobil Corp., is Canada's largest oil company by 2007 sales, followed by EnCana.

(Petro-Canada will hold a conference call to discus the Fort Hills project at 10 a.m. New York time, accessible on the company Web site at http://www.petro- canada.ca/en/investors/93.aspx.)

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

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Total Plans $15 Billion in Takeovers, Citigroup Says

By Eduard Gismatullin

Nov. 17 (Bloomberg) -- Total SA, France's largest oil company, is targeting $5 billion to $15 billion in acquisitions, possibly in the U.S. and Australia, Citigroup Inc. said.

``Australia and U.S. `tight gas' appear of interest,'' David Thomas, a London-based analyst at Citigroup, wrote today in an e-mailed report, referring to deposits of natural gas trapped in underground rock formations.

The company ``will not do a hostile acquisition and get into a bidding war'' and ``worries about possible development costs levels'' of U.S. tight-gas assets, Thomas wrote.

Total, Eni SpA, Woodside Petroleum Ltd. and Australian Worldwide Exploration Ltd. may be among companies interested in bidding today for Coogee Resources Ltd., the Australian Financial Review said, without citing anyone.

The Paris-based company also cut crude production in Angola and United Arab Emirates because of the Organization Petroleum Exporting Countries limitations, Thomas wrote, citing a company presentation during the trip to the United Arab Emirates.

Total had to reduce output by 14,000 barrels a day in each country, or more than 1 percent of the company's combined production, Citigroup said.

Spokesman Kevin Church on Nov. 7 said Total had to cut extraction in Angola so the African country could comply with OPEC policy. The group agreed to cut production by 1.5 million barrels a day at a meeting last month. Angola cut production by 99,000 barrels from Nov. 1 to comply with the reduction.

In late 2009 or early 2010, Total expects to receive approval from the Angolan government to develop the deepwater Block 32, Citigroup said. The first project phase will target resources of about 600 million barrels of oil equivalent, according to Thomas.

-- With reporting by Tara Patel in Paris. Editors: John Buckley, Jonas Bergman

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

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Eni Delays Goliat Field Start-Up by One Year to 2013

By Vibeke Laroi

Nov. 17 (Bloomberg) -- Eni SpA, Italy's largest oil company, said output from Goliat field in the Barents Sea will be delayed by one year to 2013 because the company can't begin necessary purchases in time for the planned start-up.

``Production will start in 2013 instead of 2012,'' Jone Stangeland, spokesman for Eni in Norway, said by telephone today. ``The main reason is we can't get pre-investment commitments until the plan for development and operation is approved by the Norwegian parliament.''

Parliament is expected to approve the plan to develop and operate the oil discovery sometime during the spring session, Stangeland said. This won't give Eni enough time to start production by 2012, he said, adding that the start of drilling will also be delayed by a year to 2011.

Eni plans to submit its development and production plan in the first quarter of next year after making a final decision on a platform in the fourth quarter of this year, he said. The company expects to select a platform made by Aker Solutions ASA or Sevan Marine ASA, he said.

``Goliat is a key project for Eni, and we are working extensively with our partner to start production from Goliat as soon as possible following the government's approval of the plan of development,'' an Eni spokeswoman in Rome, who declined to be identified by name, said in an e-mailed comment.

Goliat, the first oil development in the Barents Sea, is estimated to contain 27.5 million standard cubic meters of oil and 3.1 billion standard cubic meters of gas, according data last year from the Norwegian Petroleum Directorate

Eni is the operator at Goliat with a 65 percent stake. StatoilHydro ASA holds 20 percent and Det Norske Oljeselskap ASA has 15 percent. Det Norske last month agreed to sell its stake to StatoilHydro, with effect from the start of next year.

To contact the reporter on this story: Vibeke Laroi in Oslo at vlaroi@bloomberg.net

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Ruble Weakens Against Basket as Oil, Equities, Bonds Decline

By Emma O'Brien

Nov. 17 (Bloomberg) -- The ruble weakened against the central bank's dollar-euro basket as oil, Russia's biggest export earner, declined and stocks dropped for a fourth day.

The currency fell against the euro and pared gains against the dollar as Urals crude, the nation's export oil blend, slid for a second day to $48.32 a barrel, an almost two-year low. Russia's Micex index of 30 stocks lost 3.8 percent, while the dollar-denominated RTS index lost 3.2 percent.

``I expect further downward movement in the ruble,'' said Evgeniy Nadorshin, a senior economist in Moscow at Trust Investment Bank. ``Russia and emerging-market Europe are in a difficult position right now.''

Against the euro, the currency slipped 0.5 percent to 34.6857 by 2:25 p.m. in Moscow, from 34.5028 on Nov. 14. The ruble swung between gains and losses versus the dollar, recently trading 0.1 percent lower at 27.3980.

Bank Rossii, Russia's central bank, sold foreign-currency reserves to prevent the ruble from weakening against the basket. The basket is made up of about 55 percent dollars and 45 percent euros and is used to limit the effect of ruble swings on the competitiveness of Russian exports.

The currency weakened 0.4 percent to 30.6878 against the basket, after earlier falling as much as 0.5 percent to 30.7235, the weakest end of the basket's trading band, which policy makers expanded by 1 percent last week. Bank Rossii sold $15 billion of reserves in the week to Nov. 14 to arrest the ruble's decline, Nadorshin said.

Ruble Forecasts

The central bank expanded the trading band Nov. 11 as banks including Citigroup Inc., Goldman Sachs Group Inc. and Troika Dialog, Russia's oldest investment bank, said policy makers would have to let the ruble fall as the declining price of oil erodes the $91.2 billion current-account surplus.

``The weakening oil price is the main drag on sentiment,'' Chris Weafer, chief strategist in Moscow at UralSib Financial Corp., wrote in an e-mail to clients today.

Goldman is predicting a drop of as much as 18 percent against the basket over the next year.

Should ``the situation with the current-account balance change fundamentally and the oil price drop becomes a long-term factor, then some additional lowering of the ruble rate is possible,'' Arkady Dvorkovich, President Dmitry Medvedev's economic adviser, said at a meeting of the Group of 20 nations in Washington. ``But there will be no sharp, one-time devaluation or sharp fluctuations on the currency market. We will not let this happen.''

Tax Payments

The ruble will probably strengthen against the dollar this week as banks seek to make about 100 billion rubles (3.7 billion) in excise and social tax payments and to repay loans of as much as 800 billion rubles to the government, said Mikhail Galkin, head of fixed-income research at MDM Bank in Moscow.

``There will be a shortage of rubles,'' he said, adding the taxation payments due today had helped the currency rise earlier as much as 0.4 percent against the dollar. The average interest rate Russian banks charge to lend money to each other overnight, or MosPrime rate, surged to a record 22.67 percent today.

Russia's 7.5 percent bond due 2030 dropped, pushing the yield 3 basis points higher to 10.60 percent. The 8.25 percent note maturing 2010 yielded 6.39 percent, up 15 points. Bond yields move inversely to their prices. The Micex index of Russian corporate debt rose 0.2 percent.

To contact the reporter on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.net

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Canadian Dollar Increases as the U.S. Currency Depreciates

By Chris Fournier

Nov. 17 (Bloomberg) -- Canada's currency advanced as the U.S. dollar weakened against most major currencies.

``We've seen a little bit of a pullback in the U.S. dollar generally,'' said Steven Barrow, a currency strategist at Standard Bank Plc in London. ``Commodity currencies are doing a bit better against the U.S. dollar. With liquidity being pretty poor, it doesn't take much to move the market these days.''

The Canadian dollar climbed as much as 1.1 percent to C$1.2233 per U.S. dollar, from C$1.2372 on Nov. 14. It traded at C$1.2278 at 8:18 a.m. in Toronto. One Canadian dollar buys 81.45 U.S. cents.

The loonie, as Canada's dollar is known for the aquatic bird on the one-dollar coin, on Oct. 28 hit a four-year low of C$1.3017. It rebounded to C$1.1464 on Nov. 5.

Barrow predicts the Canadian dollar will weaken to C$1.30 within three months. Canada relies on commodities for about a third of its export revenue. The U.S. is Canada's largest trading partner.

The U.S. dollar fell against 11 of the 16 most-actively traded currencies. New Zealand's dollar and South Africa's rand rose 0.5 percent against the greenback while the Australian currency gained 0.3 percent.

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

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Latin America Currencies: Chilean Peso Drops to Two-Week Low

By Drew Benson

Nov. 17 (Bloomberg) -- Chile's peso fell to a two-week low as investor aversion to higher-yielding emerging markets increased after Japan entered into a recession.

Chile's peso dropped for the first time in four days, sliding 1.3 percent to 646.75 per dollar at 7:50 a.m. in New York, from 638.27 on Nov. 17. The peso touched 648.50, its weakest level since Nov. 4.

To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net

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Brazil's Real Falls on Bets Global Recession to Cut Investment

By Adriana Brasileiro

Nov. 17 (Bloomberg) -- Brazil's real fell as Japan joined countries slipping into a recession, increasing bets investment into Latin America's biggest economy will drop.

``Investors are very cautious because we aren't really sure how deep the economic slump will be,'' said Hideaki Iha, a currency trader at Fair Corretora in Sao Paulo. ``We do know global market liquidity will be severely reduced.''

The real declined 2.2 percent to 2.2910 per dollar at 7:26 a.m. New York time, from 2.2415 on Nov. 14. Brazil's currency has depreciated 28 percent in the past three months, the worst performance among the 16 major currencies tracked by Bloomberg.

Brazil had net foreign currency outflows of $4.6 billion in October, compared with net foreign inflows of $2.8 billion in September.

Japan's economy, the world's second largest, fell last quarter into its first recession since 2001, a report showed. The British economy will contract next year by the most since 1980. The U.S. has entered a recession that will last into next year, according to a survey taken by the National Association for Business Economics.

The yield on Brazil's overnight futures contract for January 2009 delivery fell 10 basis points, or 0.1 percentage point, to 13.55 percent. The yield on Brazil's zero-coupon bond due in January 2010 dropped 6 basis points to 15.19 percent, according to Banco Votorantim.

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

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Gold May Gain for Third Straight Week as Dollar Rally Stalls

By Pham-Duy Nguyen

Nov. 17 (Bloomberg) -- Gold may gain for the third straight week on speculation the dollar's rally will stall, boosting the appeal of the precious metal as an alternative investment.

Eleven of 23 traders, investors and analysts surveyed from Mumbai to Chicago on Nov. 13 and Nov. 14 advised buying gold, which rose 1.1 percent last week to $742.50 an ounce in New York. Six said to sell, and six were neutral.

In October, gold plunged 18 percent, the most since March 1980, as the dollar rose 7.8 percent against a weighted basket of six major currencies. Gold is priced in dollars and often moves inversely to the currency.

Most analysts surveyed on Nov. 6 and Nov. 7 anticipated gold's gains last week. The survey has forecast prices accurately in 141 of 237 weeks, or 59 percent of the time.

Last week's survey results: Bullish: 11 Bearish: 6 Neutral: 6

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

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Aluminum Falls to Three-Year Low as China May Ship More Metal

By Claudia Carpenter

Nov. 17 (Bloomberg) -- Aluminum fell to a three-year low and copper declined in London on speculation more metal will be shipped out of China, adding to global supplies as demand falters. Zinc also fell.

China will lower the tariff on some aluminum to 5 percent from 15 percent as of Dec. 1, the Ministry of Finance said Nov. 14. Shipping costs, measured by the Baltic Dry Index, have plunged more than 90 percent since the end of May.

``This allows China to compete on price with producers globally and of course what will happen in this environment, prices will fall,'' said Daniel Brebner, an analyst at UBS AG in London. ``The key issue is that freight rates have declined. It allows for greater competition by manufacturers and producers in various parts of the world.''

Aluminum for delivery in three months fell $38, or 2 percent, to $1,890 a metric ton as of 10:33 a.m. on the London Metal Exchange and earlier dropped to $1,888, the lowest since Oct. 21, 2005. Copper slid $124, or 3.3 percent, to $3,696 a ton.

China will restore tax rebates on some copper and other industrial metal exports by early next year, the China Nonferrous Metals Industry Association said last week.

Copper has dropped 45 percent and aluminum has fallen 22 percent this year as some economies, including Germany and Japan, entered a recession and the dollar climbed, raising costs for buyers using other currencies.

The economy in Japan, the world's fourth-largest copper consumer after China, the U.S. and Germany, contracted 0.4 percent in the third quarter and 3.7 percent in the second quarter, its first recession since 2001.

More to Go

Copper ``has further to fall than the other base metals,'' Brebner wrote in a report e-mailed today. ``Cutbacks in aluminum are occurring and the price has fallen a long way whereas copper can fall further and we have yet to hear of any meaningful cutbacks in copper supply.''

Aluminum cutbacks in 2009 equal 7.1 percent of 2007 output compared with 0.5 percent for copper mining, according to the report.

Codelco, the world's largest copper miner, may have to lower its premium for metal sold next year in Europe below $80 a ton ``given the lack of demand,'' Brebner wrote. The company reduced the surcharge to $80 from $115 a ton in October.

It cut the fee last week for sales to South Korea and Japan by more than 30 percent to $64 and $65 a ton respectively, according to industry executives.

Aluminum will bottom next year at an average $1,700 a ton, 35 percent lower than this year, while copper's average will drop 59 percent to $2,900 from $6,900 this year, according to the report.

Among other metals for delivery in three months, lead dropped $25 to $1,320 a ton, zinc fell $25 to $1,175 a ton and tin declined $200 to $13,700 a ton. Nickel fell $254 to $10,746 a ton.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net or ccarpenter2@bloomberg.net

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Gold Declines for First Time in Three Days in London Trading

By Nicholas Larkin

Nov. 17 (Bloomberg) -- Gold fell in London for the first time in three days, reversing gains earlier today.

Gold for immediate delivery declined $2.13, or 0.3 percent, to $739.97 an ounce by 1:24 p.m. in London after earlier gaining as much as 0.8 percent. December futures were $5, or 0.7 percent, lower at $737.50 an ounce in electronic trading on the Comex division of the New York Mercantile Exchange.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

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Japan Stocks Rise, Led by Drug, Rail Companies; Developers Drop

By Masaki Kondo

Nov. 17 (Bloomberg) -- Japan stocks rose, led by drug and rail companies, after the nation's slip into recession lifted demand for companies relatively insulated against a slowdown, and oil's drop boosted the profit prospects of manufacturers.

Daiichi Sankyo Co., Japan's third-biggest drugmaker surged 5.4 percent, while West Japan Railway Co. gained 6 percent. Oji Paper Co., the nation's biggest user of high-sulfur fuel oil, added 2.4 percent after crude fell a second day. GS Yuasa Corp. surged 15 percent after the maker of batteries and lighting equipment reported a first-half profit gain. Mitsubishi Estate Co. tumbled 5.4 percent after the Nikkei newspaper said rents for Tokyo offices fell for the first time in six years.

The Nikkei 225 Stock Average rose 60.19, or 0.7 percent, to close at 8,522.58 in Tokyo, after losing as much as 2.9 percent and rising 3.6 percent. The broader Topix index added 3.58, or 0.4 percent, to 850.49, paring this year's slump to 42 percent. The total value of stocks traded on the Tokyo bourse was the lowest level since Sept. 1.

``Shares are so cheap that investors are wanting to get back into stocks,'' said Mitsushige Akino, who oversees about $468 million at Tokyo-based Ichiyoshi Investment Management Co. ``Looking past companies with low earnings hopes and those that depend on deteriorating overseas demand, the remaining choice is defensive stocks.''

Japan's gross domestic product dropped an annualized 0.4 percent in the third quarter, the Cabinet Office said before markets opened, confirming the economy entered a recession. Economists had estimated a 0.1 percent gain. The International Monetary Fund said on Nov. 7 the U.S., Europe and Japan may have their first simultaneous recession in the post-World War II era.

Dwindling Confidence

Consumer confidence in the U.S., Europe and Japan is at the lowest in at least 15 years, while costs to dispose of bad loans have prompted banks to tighten credit and hoard cash. Japanese businesses that have reported first-half results in the past month posted a combined 31 percent drop in net income, according to Bloomberg data.

Daiichi Sankyo gained 5.4 percent to 1,964 yen, carrying a gauge of drugmakers 2.4 percent higher, the steepest jump in a week. Rival Tsumura & Co. rose 3.4 percent to 3,050 yen, while Takeda Pharmaceutical Co., Japan's biggest drugmaker, added 2.8 percent to 4,820 yen.

West Japan Railway, the country's No. 3 train operator by value, rose 6 percent to 423,000 yen, and bigger rival Central Japan Railway Co. climbed 5.9 percent to 820,000 yen. Osaka Gas Co., the nation's No. 2 distributor of the fuel, climbed 5.4 percent to 374 yen.

Papermakers Gain

Oil prices dropped for a second day, giving a boost to manufacturers with high fuel expenses. Oji Paper added 2.4 percent to 435 yen, and smaller rival Mitsubishi Paper Mills Ltd. rose 6.7 percent to 160 yen. Tokai Rubber Industries Ltd. climbed 3.6 percent to 905 yen.

Crude fell as much as 2.5 percent to $55.60 a barrel today, and has lost almost two-thirds of its value since a record on July 11. Japanese papermakers forecast a combined 95 percent jump in full-year net income, in contrast to a 53 percent decline projected by automakers and a 38 percent slide by electronics manufacturers, according to Shinko Research Institute Co.

``If we see prices for raw materials such as oil stabilize around these levels, that's going to provide a big boost for companies, as well as consumers' wallets,'' said Masaru Hamasaki, senior strategist at Toyota Asset Management Co. in Tokyo, which manages about $15 billion. ``We could see corporate earnings climb double digits in the second half of next year, largely due to lower input costs.''

Developers Slump

GS Yuasa surged 15 percent to 390 yen, making it the biggest winner on the Nikkei. Higher pricing and lower material costs helped the company reverse its first-half earnings to profit from a loss a year earlier, the company said on Nov. 14.

Mitsubishi Estate, Japan's second-biggest developer, dived 5.4 percent to 1,396 yen, and market leader Mitsui Fudosan Co. sank 5.2 percent to 1,383 yen. Daiwa System Co., which develops commercial buildings, plunged 20 percent to 190 yen, the sharpest decline since it listed on the bourse in April 2005. The company reversed its annual profit forecast to a loss, citing a slowdown in sales and the falling value of its inventory.

Building owners are lowering rents for new office buildings in Tokyo as an economic slowdown prevents tenants from expanding operations or moving to new facilities, the Nikkei said today, citing its own survey. On Nov. 14, Dix Kuroki Co. filed for bankruptcy, the 21st listed property-related company to fail in Japan this year, citing tighter lending from banks.

``Banks are increasingly reluctant to lend money to developers as slumps are spreading beyond the real estate sector, reducing lenders' appetite to take risk,'' said Ichiyoshi's Akino.

Nikkei futures expiring in December gained 0.1 percent to 8,490 in Osaka and dipped 0.8 percent to 8,450 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

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