Crude Oil Falls After OPEC Delays Decision to Reduce Production

By Alexander Kwiatkowski

Dec. 1 (Bloomberg) -- Crude oil fell below $52 a barrel after the Organization of Petroleum Exporting Countries deferred a decision to reduce output for another two weeks.

OPEC postponed a decision until Dec. 17 while it gauges the impact of a 1.5-million barrel reduction agreed in October. The group will definitely trim output at its next meeting, its secretary general said today. Slowing global growth means demand will be “much lower” than expected a month ago, OPEC said in a statement after the meeting.

“OPEC is not finding buyers for its oil and the economic slowdown is both deeper and more widespread than any of us feared,” said Robert Laughlin, senior broker at MF Global Ltd. in London. OPEC “may well observe in horror as prices fall significantly in coming days.”

Crude oil for January delivery fell as much as $2.93, or 5.4 percent, to $51.50 a barrel in electronic trading on the New York Mercantile Exchange. It was at $51.64 a barrel at 12:44 p.m. in London.

OPEC ministers deferred debate on a second cut in output in as many months during meetings in Cairo on Nov. 29. The group will reduce crude production further when it meets in Oran, Algeria, on Dec. 17, OPEC Secretary General Abdalla el-Badri said. Oil demand is likely to drop further next year, he said.

“For sure there will be action,” at the meeting, el-Badri told reporters in Tehran today, declining to specify the amount of output that may be reduced. “The market is oversupplied,” el-Badri said. “We are seeing the stocks are very high.”

‘Fair’ Price

Prices around $75 a barrel would be “fair” and would support investment in new fields, Saudi Arabian Oil Minister Ali al-Naimi said at the weekend. The global market is oversupplied by more than 2 million barrels a day, Iranian Oil Minister Gholamhossein Nozari said yesterday.

“The Cairo meeting had been downplayed by OPEC, but it did not even produce a common statement and provided no clear hint as to the next line of action,” said Olivier Jakob, managing director of Zug, Switzerland-based Petromatrix.

Brent crude oil for January settlement fell as much as $2.69, or 5 percent, to $50.80 a barrel on London’s ICE Futures Europe exchange today. It was at $51.20 a barrel at 12:23 p.m. local time.

New York oil futures have tumbled 64 percent from their July 11 record of $147.27 a barrel as the U.S., Europe and Japan entered their first simultaneous recession since World War II.

“There was a lot of expectation actually built up despite OPEC always saying they were never going to cut at this meeting,” Simon Wardell, energy research manager at Global Insight Inc. in London, said in a Bloomberg TV. “A lot of people were speculating and we could see prices come down now.”

A report today in the U.S., the world’s largest oil consumer, will probably show manufacturing contracted for a fourth month in November, according to a survey of economists. The forecast decline will take the Institute for Supply Management’s factory index to the lowest in 28 years.

U.S. crude oil inventories jumped 2.3 percent to 320.8 million barrels in the week ended Nov. 21, the most in six months, according to Energy Department data.

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

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Brazilian Real Falls as Global Slump Reduces Local-Asset Demand

By Adriana Brasileiro

Dec. 1 (Bloomberg) -- Brazil’s real slid to a one-week low as record contractions in European and Chinese manufacturing renewed concern the global economic slowdown is deepening, reducing demand for domestic assets.

The real fell 2.8 percent to 2.3735 per dollar at 7:15 a.m. New York time, from 2.3063 on Nov. 28. It touched 2.3790, the weakest level since Nov. 24.

Brazil’s real has dropped 31 percent against the dollar in the past three months, the worst performance among the 16 major currencies tracked by Bloomberg.

The yield on Brazil’s zero-coupon bond due in January 2010 rose three basis points, or 0.03 percentage point, to 14.66 percent, according to Banco Votorantim. The yield on Brazil’s overnight futures contract for January 2010 delivery fell one basis point to 14.47 percent.

An index of European manufacturing based on a survey of purchasing managers by Markit Economics in London dropped to 35.6 last month from 41.1, remaining below the expansion- threshold of 50 for a sixth month. The China Federation of Logistics and Purchasing index fell to a seasonally adjusted 38.8 in November from 44.6 in October.

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

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Yen Strengthens as Manufacturing Slump Weakens Yuan, Ruble

By Bo Nielsen

Dec. 1 (Bloomberg) -- The yen rose against the euro and the dollar as falling stocks and shrinking manufacturing in China and Russia encouraged investors to buy back the Japanese currency at the expense of higher-yielding assets.

The yen rose versus the British pound and New Zealand dollar as reports showed a slump in South Korean exports and a decline in Japanese wages. China’s yuan fell the most in seven weeks as manufacturing contracted by a record, while the ruble slid to a 2 1/2-year low as output shrank more than during the 1998 crisis. Central banks in the U.K., the euro region, Australia and New Zealand are forecast to cut interest rates by as much as 1.5 percentage points this week to stem the slump.

“There’s evidence that the global slowdown is getting deeper,” said Michael Klawitter, a currency strategist with Dresdner Kleinwort in Frankfurt. “Central banks across the globe will converge at extremely low levels and that’s firmly positive for the yen.”

The yen appreciated 1.8 percent to 119.03 per euro at 7:02 a.m. in New York, from 121.22 on Nov. 28. It strengthened 1.7 percent to 93.90 per dollar. The dollar was at $1.2673 per euro from $1.2691. The yen will trade at 116 per euro by the end of this week, Klawitter said.

The Dow Jones Stoxx 600 Index of European shares dropped 3 percent after surging 13 percent last week. Shares in Inpex Corp., Japan’s biggest oil explorer, lost 4.4 percent on speculation China’s contraction in manufacturing will reduce demand for commodities.

The Japanese currency gained 4 percent to 141.03 per pound, the biggest jump since Nov. 12, and 3.6 percent against the Australian dollar.

Japanese Investors

The yen appreciated against all major currencies except South Korea’s won as concern of a global recession prompted domestic investors in Japan to bring back overseas earnings.

“Japanese investors tend to repatriate capital during periods of risk aversion,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney.

Japan’s benchmark interest rate of 0.3 percent compares with 5.25 percent in Australia, 6.5 percent in New Zealand, 3.25 percent in euro-zone and 3 percent in the U.K.

Interest rates will be lowered 1.5 percentage points to 5 percent in New Zealand, to 4.5 percent in Australia, to 2 percent in the U.K. and to 2.75 percent in the euro region this week as central banks move to stem the economic slowdown, according to Bloomberg surveys.

Yuan Declines

“Aggressive rate cuts from the central banks meeting this week are required and will ensure the dollar and yen remain the best-performing currencies over the coming months,” Derek Halpenny, head of currency research at Bank of Tokyo-Mitsubishi in London, wrote in a note to clients today.

China’s purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November, from 44.6 in October, the China Federation of Logistics and Purchasing said today. South Korean exports tumbled 18.3 percent in November from a year earlier.

The yuan traded at 6.8816 per dollar, from 6.8346 at the end of last week. U.S. Treasury Secretary Henry Paulson visits Beijing for trade talks in three days’ time.

A recession in Japan deepened last month as manufacturers planned the sharpest production cuts in 35 years and consumers cut spending. Monthly wages, including overtime and bonuses, fell 0.1 percent in October to 274,751 yen ($2,883) from a year earlier, the Labor Ministry said in Tokyo.

The Bank of Japan will hold an emergency meeting this week to consider accepting a broader range of collateral from lenders as a way to help companies obtain funding, public broadcaster NHK said without citing anyone.

Nonfarm Payrolls

The dollar fell against the yen before U.S. reports this week that economists predict will show manufacturing shrank and employers cut jobs by the most since 2001.

U.S. nonfarm payrolls slid by 320,000 in November following a decline of 240,000 the previous month, according to a Bloomberg News survey before the Labor Department’s Dec. 5 report. The jobless rate may have jumped to 6.8 percent, the highest level since 1993, a separate Bloomberg survey showed.

“People may look more closely at the U.S. economy, so there’s some scope for dollar depreciation,” said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest publicly listed lender. “Higher-yielding currencies are losing their appeal because the interest-rate differential isn’t working in their favor.”

Record Two-Year Yield

The Institute for Supply Management may say manufacturing contracted in November for a fourth month, according to another Bloomberg survey. The Tempe, Arizona-based Institute releases the data at 10 a.m. in New York.

The dollar still rose against all but three of the world’s most-traded currencies as investors sold higher-risk holdings for U.S. assets such as Treasuries. Gains for U.S. notes today drove the yield on the benchmark two-year security to an all- time low of 0.949 percent.

The euro declined against the dollar and the yen after a report last week showed the inflation rate dropped to 2.1 percent in November from 3.2 percent the previous month, giving policy makers more room to lower borrowing costs when they meet Dec. 4. Retail sales dropped 0.4 percent in October from the prior month, after a 0.2 percent decline in September, a separate Bloomberg survey shows. The report is due Dec. 3.

“European data continue to deteriorate at an increasingly rapid pace and the recent easing of inflation pressures means there is scope for a bold cut by the ECB,” said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. “For euro-dollar, this suggests a visit to the recent lows of between $1.2300 and $1.2400 is likely.”

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

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Gold Falls in London as Dollar Strengthens, Crude Oil Declines

By Chanyaporn Chanjaroen

Dec. 1 (Bloomberg) -- Gold fell for the first time in three trading sessions in London as the dollar strengthened and crude oil declined, diminishing the appeal of the metal as a hedge against weakness in the U.S. currency. Platinum also plunged.

The dollar index, measuring the currency against six counterparts, rose for a second consecutive session. The relationship between gold and the euro-dollar exchange rate has strengthened this year, with a correlation of 0.6, compared with 0.53 a year earlier. A reading of 1 would mean they move in lockstep. Oil fell after OPEC deferred a decision on output.

Gold for immediate delivery dropped $25.62, or 3.1 percent, to $792.43 an ounce as of midday in London. The metal advanced 13 percent in November, the most since 1999. February futures fell $25.50, or 3.1 percent, to $793.50 in electronic trading on the Comex division of the New York Mercantile Exchange.

“The dollar appreciation weighed down on gold,” said Bayram Dincer, a commodity analyst at Dresdner Bank AG in Zurich. “It also traded in relation to the crude-oil news over the weekend as investors liquidated positions in oil and gold together.”

Gold fell to $795.50 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $814.50 at the previous afternoon fixing.

Hedge-fund managers and other large speculators increased their net-long positions in New York gold futures in the week ended Nov. 18, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 64,829 contracts on Comex. Net-long positions rose by 870 contracts, or 1 percent, from a week earlier.

Gold ETF

Gold in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, was unchanged at 758.12 metric tons, according to data on the company’s Web site. The fund was at a record 770.64 tons on Oct. 13, overtaking Japan as the world’s seventh-largest holder of gold.

Among other metals for immediate delivery, silver fell 3.6 percent to $9.9338 an ounce. Platinum lost $65.75, or 7.5 percent, to $815.75 and palladium was $8.50, or 4.5 percent, lower at $182.

Platinum has declined 46 percent this year as car makers, the biggest users of the metal, cut production of vehicles.

Toyota Motor Corp. and Nissan Motor Co. led the biggest drop in Japan’s auto sales in 34 years as the country’s recession and wage cuts damped demand.

Sales of cars, trucks and buses, excluding minicars, fell 27 percent to 215,783 in November, the Japan Automobile Dealers Association said in a statement today. Sales dropped 28 percent at Toyota, Japan’s largest automaker, and 30 percent at Nissan. Domestic sales for South Korea’s five automakers dropped to the lowest in more than three years.

Automakers account for more than half of global platinum consumption, according to estimates by Johnson Matthey Plc, a London-based metals refiner, trader and researcher. The figures take recycling into account.

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

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European, Asian Stocks Fall on Economy; U.S. Index Futures Drop

By Michael Patterson

Dec. 1 (Bloomberg) -- Stocks in Europe and Asia dropped, sending the MSCI World Index to its first retreat in seven days, as record declines in European and Chinese manufacturing signaled the global economic slump is worsening. U.S. index futures fell.

ArcelorMittal, the world’s biggest steelmaker, decreased 7.8 percent. Barclays Plc, the U.K.’s second-largest bank, slipped 4.5 percent as an industry report showed U.K. house prices sank to the lowest level since January 2006. Mitsubishi Estate Co., Japan’s second-biggest property developer, lost 5.6 percent after the failure of homebuilder Morimoto Co.

“The situation is bad and it’s getting worse” for the global economy, Roger Nightingale, who helps oversee about $1.1 billion as a London-based strategist at Pointon York Ltd., said in an interview on Bloomberg Television. “The good news is that the authorities seem to have noticed.”

The MSCI World declined 1.1 percent to 883.58 at 12:26 p.m. in London. The benchmark index for 23 developed markets had its biggest advance on record last week as investors speculated stimulus packages and interest-rate cuts in Europe, the U.S. and China will help shore up the economy and stabilize markets.

Europe’s Dow Jones Stoxx 600 Index lost 2.9 percent today and the MSCI Asia Pacific Index slipped 0.1 percent. Standard & Poor’s 500 Index futures dropped 2.3 percent before a report that may show U.S. manufacturing contracted at the fastest pace in 26 years. General Electric Co., the world’s biggest maker of power plant turbines, fell 1.1 percent in early trading.

Russia’s Micex index led declines in the world’s 20 biggest markets, retreating 4.2 percent. The nation’s manufacturing shrank more in November than during the 1998 financial collapse as output and new orders fell to record lows and companies cut jobs, VTB Bank Europe said today.

National Markets

National benchmark indexes decreased in all 18 western European markets except Ireland. The FTSE 100 dropped 2.5 percent as BP Plc declined with oil prices. Germany’s DAX lost 3.2 percent after ThyssenKrupp AG dropped for the first time in seven days. France’s CAC 40 slipped 2.6 percent.

ArcelorMittal, the world’s biggest steelmaker, sank 7.8 percent to 17.27 euros following a 34 percent gain last week. ThyssenKrupp, Germany’s largest steelmaker, retreated 4.8 percent to 15.20 euros.

China’s Purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November from 44.6 in October, the China Federation of Logistics and Purchasing said today in an e-mailed statement. A second PMI, released by CLSA Asia-Pacific Markets, also showed a record contraction.

Record Low

A European manufacturing index based on a survey of purchasing managers by Markit Economics dropped to 35.6 from 41.1 in October, remaining below the expansion-threshold of 50 for a sixth month. That’s the lowest since the survey began in 1998 and less than an initial estimate of 36.2 published on Nov. 21.

U.K. manufacturing shrank at the fastest pace in at least 16 years in November, a separate report showed.

“Investors still think the earnings outlook is going to get worse before it gets better,” said Mark Bon, a London-based fund manager who helps oversee about $750 million at Canada Life Ltd. “There is little short-term prospect for a turnaround” in the economy, he said.

Barclays dropped 4.5 percent to 161.8 pence following last week’s 27 percent climb. Lloyds TSB, which is buying HBOS Plc to become Britain’s biggest mortgage lender, declined 2.9 percent to 163.2 pence.

The average cost of a home in England and Wales fell 8.1 percent in the past 12 months to 161,400 pounds ($248,000), London-based Hometrack Ltd. said. Values declined 1.1 percent on the month, compared with a 1.3 percent drop in October. U.K. mortgage approvals matched the lowest since at least 1999 in October, the Bank of England said.

Money Rates Rise

The London interbank offered rate, or Libor, that banks say they charge each other for three-month loans in dollars rose for a third day. The rate climbed less than half a basis point to 2.22 percent, according to British Bankers’ Association data. The overnight rate dropped seven basis points to 1.09 percent, nine basis points above the Federal Reserve’s target.

Asia money-market rates rose, with the Tokyo three-month interbank offered rate, or Tibor, extending the longest stretch of gains in more than a year. Hong Kong’s equivalent rate, Hibor, had the steepest increase since Nov. 13.

Mitsubishi Estate, which owns office buildings in Tokyo’s main business district, fell 5.6 percent to 1,341 yen.

Morimoto filed for protection from creditors on Nov. 28 with 162 billion yen ($1.7 billion) of debt, nine months after its initial public offering. The bankruptcy, Japan’s second- biggest this year, drove corporate failures of listed companies to the highest level since World War II, according to research company Teikoku Databank Ltd.

New Star Tumbles

New Star Asset Management Group Ltd., the U.K. fund company founded by John Duffield, tumbled 59 percent to 5.8 pence after market authorities rejected its request to temporarily suspend the stock. New Star was seeking the suspension pending the conclusion of “advanced and constructive talks” with lenders, it said in a statement.

BP, Europe’s second-largest oil company, declined 2.1 percent to 515.5 pence. Eni SpA, Italy’s biggest oil company, dropped 3.2 percent to 17.16 euros.

Crude oil for January delivery fell as much as 4.3 percent to $52.08 a barrel in New York after the Organization of Petroleum Exporting Countries deferred for another two weeks a decision to reduce output.

Slowing global growth means demand will be “much lower” than expected a month ago, OPEC said after the group’s Nov. 29 meeting in Cairo. Another cut on Dec. 17 may not be needed if member states enacted 80 percent of the 1.5 million barrel-a-day reduction agreed in October, Al Hayat reported, citing Saudi Arabia’s Oil Minister Ali al-Naimi.

Economy Watch

October retail sales in Germany, adjusted for inflation and seasonal swings, dropped 1.6 percent from September, when they declined a revised 1 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 0.5 percent, the median of 34 estimates in a Bloomberg News survey showed.

European Central Bank policy makers, convening in Brussels on Dec. 4, will probably cut their benchmark lending rate by 50 basis points to 2.75 percent, the median of 53 economist forecasts in a Bloomberg News survey shows.

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

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Rosneft Net Income Falls 20% From Last Quarter, Beats Estimates

By Greg Walters

Dec. 1 (Bloomberg) -- OAO Rosneft, Russia’s largest oil producer, posted a 20 percent drop in third-quarter profit compared with the previous three months as crude prices fell and export tariffs rose.

Net income slid to $3.47 billion from $4.31 billion in the second quarter, the Moscow-based company said today in an e- mailed statement. That beat the median estimate of $2.68 billion from a Bloomberg survey of 10 analysts. Rosneft earned $1.93 billion in the third quarter of last year.

“Next year will be all about how companies react to a collapse in commodity prices, and the first indicator is the third-quarter results,” Artyom Konchin, an oil and gas analyst at UniCredit Aton in Moscow, said before the figures were released.

Urals crude, Russia’s export blend, rose to a record $142.50 a barrel in July before sliding 33 percent by the end of September. The average third-quarter Urals price of $113.48 a barrel was 58 percent higher than the same period last year, and 3.7 percent lower than in the second quarter.

Russia raised the oil export duty to $495.90 a metric ton on Aug. 1 from $398.10, following rising crude prices in previous months. The rate increase hurt oil companies’ earnings when price gains subsequently reversed.

State-run Rosneft grew from a second-tier oil company into Russia’s leading producer after buying up assets belonging to OAO Yukos Oil Co., which collapsed under back-tax claims of more than $30 billion. Rosneft borrowed $22 billion last year to bid for Yukos assets sold at auction.

The company began consolidating Yukos’s former production units Tomskneft and Samaraneftegaz in May 2007, and agreed to sell half of Tomskneft in December to Russian oil producer OAO Gazprom Neft.

To contact the reporter on this story: Greg Walters in Moscow at gwalters1@bloomberg.net

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U.S. Stock Futures Retreat; GE, Lockheed, ConocoPhillips Fall

By Adam Haigh

Dec. 1 (Bloomberg) -- U.S. stock futures declined, indicating the Standard & Poor’s 500 Index may snap a five-day gain, as investors speculated reports today will signal a further deterioration of the economy.

General Electric Co. and Lockheed Martin Corp. dropped at least 1 percent in Germany before figures from the Institute for Supply Management that may show manufacturing contracted in November at the fastest pace in 26 years. ConocoPhillips led energy producer lower as crude oil slid in New York. Freeport- McMoRan Copper & Gold Inc. retreated 1.2 percent after manufacturing in China shrank by the most on record, dragging down copper prices.

Futures on the S&P 500 expiring in December sank 20.2 to 875.1 at 7:07 a.m. in New York. The index had its biggest weekly gain in more than 30 years last week after the government agreed to protect Citigroup Inc. from further losses and automakers weighed cutting costs to win federal aid. Dow Jones Industrial Average futures today fell 164 to 8,657. Nasdaq-100 Index futures declined 25 to 1,161.

“There has been a horrible destruction of value,” said Charles Mackinnon, chief investment officer at Thurleigh Investment Managers LLP in London. “This is a new world. There is opportunity for further significant falls,” he told Bloomberg Television.

The S&P 500 is down 39 percent this year as credit losses and writedowns at the world’s largest financial firms approach $1 trillion and economists increasingly forecast that the U.S. recession will be one of the most severe in the postwar era.

Today will be the first full day of trading following the Thanksgiving holiday Nov. 27 and a shorter session Nov. 28.

Annual Loss

As the S&P 500 heads for its worst performance since 1931 the best money managers say Swiss industrial companies, Texas oil drillers and Japanese robot makers are too cheap to pass up. Fund managers Phillip Davidson, Stephen Docherty and Eric Cinnamond say they are all taking advantage by buying shares they say were unfairly punished.

GE, the world’s biggest maker of power-generation equipment, slid 1.4 percent to $16.93 in Germany. Lockheed, the largest defense company, declined 1.7 percent to $75.79.

The ISM manufacturing index dropped to 37 last month, the lowest level since 1982, from 38.9 in October, according to the median estimate in a Bloomberg News survey. A reading of 50 is the dividing line between expansion and contraction.

‘Much Lower’

ConocoPhillips lost 1.4 percent to $51.76 in German trading, while Exxon Mobil Corp. slipped 1.1 percent to $79.27. Crude oil for January delivery declined as much as 4.9 percent to $51.78 a barrel in New York.

Slowing global growth means demand will be “much lower” than expected a month ago, the Organization of Petroleum Exporting Countries said after its Nov. 29 meeting in Cairo, deferring a decision to reduce output for another two weeks.

Freeport-McMoRan, the world’s largest publicly traded producer of copper and molybdenum, retreated 1.2 percent to $23.70 in German trading.

Copper fell for a second day in Shanghai after China’s contraction in manufacturing signaled the growing risk of a slump in the world’s biggest consumer of the metal.

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

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FTSE slides as demand worries hit commodities

* FTSE 100 falls 1.2 percent

* Commodity stocks fall as metals, oil prices dip

* Banks fall, pressured by sliding UK property market

By Simon Falush

LONDON, Dec 1 (Reuters) - Britain's leading share index fell 1.2 percent in early trade on Monday as demand worries dented commodity prices, dragging down miners and energy stocks, while more signs of a sickly property market dented banks.

By 0843 GMT the FTSE 100 .FTSE fell 52.66 points to 4,235.35 after gaining 1.5 percent on Friday and 13.4 percent on the week, its best ever weekly performance.

The retreat in UK shares followed a dip in Asian stocks which ended a six-day winning streak, as the recent recovery in risk appetite from global investors appeared to run out of steam as fears on the state of the economy returned to the surface.

Fears of slowing demand hit commodity stocks with miners the heaviest losers on the benchmark index.

Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz) slid 4.9 percent after it suspended more ferrochrome production due to weak market conditions while Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz) fell 4.2 percent, and Antofagasta (ANTO.L: Quote, Profile, Research, Stock Buzz) lost 2.6 percent.

"There is little or no good news for equity investors frankly," said Peter Dixon, UK economist at Commerzbank.

However, he said that equity prices were unlikely to fall significantly further.

"A lot of the bad news is priced in, and although we're seeing the worst recession for 30 years, I think equities look oversold so I don't think we'll necessarily post new lows."

OIL SLIDES

Oil prices slid more than $2 CLc1 to $52 after producer cartel OPEC decided to delay a decision on a third supply cut to its next meeting in December as economic woes squeeze oil demand.

Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz) fell 1.2 percent, BP (BP.L: Quote, Profile, Research, Stock Buzz) fell 1.9 percent and Cairn Energy (CNE.L: Quote, Profile, Research, Stock Buzz) slid 0.3 percent.

Banks were under pressure as fears of the health of the sickly UK housing market added further pressure to the beleaguered sector.

House prices in England and Wales fell by 1.1 percent in November to take them 8.1 percent lower on a year ago, property consultancy Hometrack said in its monthly survey.

Barclays (BARC.L: Quote, Profile, Research, Stock Buzz) fell 4 percent, Standard Chartered (STAN.L: Quote, Profile, Research, Stock Buzz) lost 0.4 percent and HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz) dell 0.7 percent.

Meanwhile, the outlook for British manufacturers has deteriorated significantly over the last quarter, a survey carried out by the Engineering Employers Federation showed on Monday, warning conditions in 2009 are set to be some of the toughest for two decades.

Further, heavy discounting by Britain's retailers has failed to boost shopper numbers and the rate of business failures in the industry is accelerating, surveys by researchers Experian showed.

Kingfisher KGFL.L, Marks & Spencer (MKS.L: Quote, Profile, Research, Stock Buzz) and Next (NXT.L: Quote, Profile, Research, Stock Buzz) fell between 2.6 and 3.9 percent.

The deteriorating economic environment has put pressure on global central banks to ease monetary policy.

Investors will eye interest rate decisions this week from both the Bank of England and the European Central Bank, with both expected to deliver further easing in monetary policy on Thursday. (Editing by Victoria Bryan)

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HK shares at 3-wk high as properties, metals rally

* HK shares rise for fifth straight session

* Properties rally on rate cuts

* Metal stocks higher on Yunnan stockpile plan

(Updates to close)

By Jun Ebias

HONG KONG, Dec 1 (Reuters) - Hong Kong shares rose 1.6 percent to a three-week high on Monday, as property stocks gained on hopes of better sales, while news that China's Yunnan province would buy 1 million tonnes of base metals lifted metal stocks.

Jiangxi Copper (0358.HK: Quote, Profile, Research, Stock Buzz) surged 8.2 percent, Aluminun Corp of China (2600.HK: Quote, Profile, Research, Stock Buzz) rose 4.5 percent, while Maanshan Iron (0323.HK: Quote, Profile, Research, Stock Buzz) jumped 8.3 percent.

A report on the Ministry of Land and Resources's website said Yunnan would build a stockpile of copper, aluminum and other base metals to help smelters in the region. [ID:nHKG1779521].

"Metal stocks will be getting a lot of support from the government," said Benjamin Collett, head of hedge fund sales at SMBC Co. "China will be spending a lot of money on infrastructure and that will require a lot of raw materials."

Hong Kong developer Sino Land (0083.HK: Quote, Profile, Research, Stock Buzz) rose 7.7 percent, while Hong Kong's top developer, Sun Hung Kai Properties (0016.HK: Quote, Profile, Research, Stock Buzz), gained 1.5 percent.

A Sun Hung Kai spokesperson said on Monday the company had sold more than 200 units in its Peak One luxury residential development in Shatin at the weekend at an average of HK$7,300-7,500 a square foot. It also sold more than 300 units of its La Grove project in Yuen Long in the New Territories.

"Developers are supported by lower mortgage rates at banks, providing a short-term stimulus for property sales," said Castor Pang, strategist at Sun Hung Kai Financial.

The benchmark Hang Seng Index .HSI closed the session up 220.60 points at 14,108.84, led by a 2.3 percent rise in China Mobile (0941.HK: Quote, Profile, Research, Stock Buzz).

A total of HK$43.9 billion ($5.6 billion) worth of shares were traded, up from HK$42.4 billion on Friday.

Foxconn International Holdings (2038.HK: Quote, Profile, Research, Stock Buzz), which makes handsets for Nokia, rose 8.5 percent, buoyed by higher consumer spending in the U.S. over the weekend. [ID:nN30476271]

Chinese lenders gained on hopes that lower interest rates in the mainland would spur the domestic economy and help sustain demand for loans and other financial services.

China's top lender, ICBC (1398.HK: Quote, Profile, Research, Stock Buzz), rose nearly 4 percent, while China Construction Bank (0939.HK: Quote, Profile, Research, Stock Buzz) gained 4.7 percent.

The Chinese central bank last week made its deepest rate cut in a decade to stimulate domestic demand. China also announced this month a plan to build affordable homes as part of a $586 billion package to stimulate the economy.

China Overseas Land (0688.HK: Quote, Profile, Research, Stock Buzz) rallied 9.6 percent, while R&F Properties (2777.HK: Quote, Profile, Research, Stock Buzz) surged 12.8 percent, and China Resources Land (1109.HK: Quote, Profile, Research, Stock Buzz) soared 9.7 percent.

The China Enterprise Index of top locally listed mainland Chinese firms .HSCE rose 2.6 percent to 7,391.69.

Bourse operator Hong Kong Exchanges & Clearing (0388.HK: Quote, Profile, Research, Stock Buzz) rallied 4.9 percent on optimism that the local stock market may sustain last week's 9.7 percent gain.

But TVB (0511.HK: Quote, Profile, Research, Stock Buzz) bucked the broad market trend to fall 2.8 percent. Its general manager, Stephen Chan, was quoted by local radio station RTHK as saying the TV station planned to lay off 212 employees. (Additional reporting by Donny Kwok; Editing by Anne Marie Roantree)

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French aide urges EU to suspend state aid rules

PARIS, Dec 1 (Reuters) - The European Union should suspend its rules on state aid to help countries deal with the global financial crisis, a French presidential aide said in comments published on Monday.

Paris wants to shore up the capital positions of its banks under a plan that is being reviewed by the European Commission to ensure it does not give the French banks an unfair advantage over competitors in breach of EU competition rules.

France, home to some of Europe's biggest carmakers, has also promised to help the ailing auto industry. circumstances called for special measures.

Asked if the EU should suspend its rules on state aid, Henri Guaino, a senior adviser to President Nicolas Sarkozy, told business newspaper La Tribune in an interview: "We need exceptional rules for an exceptional situation."

"But the European countries must coordinate with each other to avoid each country's policies harming the others," he said.

The Financial Times newspaper reported on Saturday the European Commission, the EU's executive, was demanding the banks reduce their lending in return for state support. The Commission denied blocking the plan and said it was working with Paris to secure approval as soon as possible.

Paris announced in October it would lend 10.5 billion euros ($13.59 billion) to the six top French lenders before the end of this year to prop up their capital reserves following a freeze in global interbank markets.

Paris has said that without state support, lenders would have shored up their capital positions by reducing loans, which would have dealt a new blow to the euro zone's second-biggest economy.

Asked what measures could be taken to counter the economic downturn, Guaino said a cut in value-added tax could be useful but needed to be approved by all 27 EU member states to work.

He also called for a shake-up of the car industry.

"We need a real industrial policy for the automobile sector, to handle the transition to new means of transport -- the clean car, the electric car. And that will undoubtedly raise the issue of European competition policy and the state aid system," Guaino said.

Guaino favoured the European Central Bank cutting interest rates but he did not say when he thought it should do so. (Reporting by Francois Murphy, Editing by Timothy Heritage)

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POll-Euro zone factory PMI at record low, prices ease

** This data is protected by copyright - please see

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By Jonathan Cable

LONDON, Dec 1 (Reuters) - Euro zone manufacturing activity sank to a record survey low in November, below an already dire flash reading and the outlook remains grim, private sector data showed on Monday.

The gloomy news on output was accompanied by data showing inflationary pressures fell rapidly, opening the door for the European Central Bank to cut interest rates again, as it is widely expected to do when it meets on Thursday. [ECB/INT]

The Markit Eurozone Purchasing Managers Index (PMI) for the manufacturing sector slumped to 35.6 in November, a low not seen in the survey's 11-year history and well below the 36.2 flash estimate and economists' forecasts. It is considerably below the 50.0 mark that separates growth from contraction and the outlook is far from rosy with output, new orders and backlogs of work at record lows, as were PMI indexes for all four of the biggest euro zone countries.

"The PMI is consistent with industrial production falling 8 percent on a year ago in November, which would be the sharpest downturn for at least 20 years," said Chris Williamson, chief economist at data compiler Markit.

The euro zone was officially declared in recession this month following a second quarterly contraction in economic output. Analysts do not see the economy growing again until the third quarter next year -- and then only marginally. [ECILT/EU]

Companies are now cutting payrolls aggressively given this is the sixth straight month the PMI has shown contracting activity. The employment index dropped to a new record low of 41.0. On Friday, Eurostat said unemployment in the euro zone had climbed to a near two-year high of 7.7 percent in October.

However, input price pressures falling to a seven-year low and the output price index sinking to a level not seen since July 2003 will strengthen expectations for a substantial interest rate cut by the European Central Bank on Thursday.

Data released on Friday showed inflation across the 15 nation bloc plunged to 2.1 percent in November, only just above the central bank's two percent target ceiling, following a sharp decline in oil prices.

Industrial activity declined across the region, with Germany, the bloc's largest economy, posting a drop to a record-low 35.7 while France's fell to a record low of 37.3. Italian and Spanish manufacturing activity also sank to record lows at 34.9 and 29.4 respectively. "No countries have been left unaffected by the growing impact of the financial crisis on the real economy, with manufacturing output falling at survey record rates in all euro zone nations as both export and domestic demand has collapsed," Williamson said.

FOR TEXT OF EUROZONE PMI SURVEY...........[ID:nLR633399]

FOR FULL MANUFACTURING PMI DATA................

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**Index copyright and database rights owned by Markit: unlicensed copying strictly prohibited** (Editing by Stephen Nisbet)

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Kuwait, Dow to reduce value of JV to $16 bln-paper

KUWAIT, Dec 1 (Reuters) - Kuwait wants to reduce the value of a proposed $19 billion petrochemicals joint venture with U.S. firm Dow Chemical (DOW.N: Quote, Profile, Research, Stock Buzz) to $16 billion, a Kuwaiti newspaper said on Monday.

Dow and Kuwait Petroleum Corp (KPC) said last week that they were still in negotiations concerning the deal. The comments came after state news agency KUNA quoted KPC Chief Executive Saad al-Shuwaib as saying the deal was under review due to the global financial crisis.

The Kuwait Times daily quoted a source close to the talks as saying that Kuwait wanted to revalue the deal to $16 billion and contribute about $8 billion to the project. The deal is expected to be finalised this week.

KPC could not be immediately reached for comment.

Under the previous arrangement, KPC's Petrochemical Industries Co was meant to pay Dow $9.5 billion to contribute five of the U.S. company's units to the 50-50 joint venture.

The new entity is expected to produce chemicals used in products ranging from plastic bottles and compact discs to computers and agricultural compounds.

Dow and other chemical-makers around the globe are facing one of the worst slumps ever in chemical demand, with a looming recession in most developed countries and a sharp slowdown in emerging economies that have been the main drivers of revenue growth for the sector in recent quarters. (Reporting by Ulf Laessing; Editing by Lin Noueihed)

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Goldman sets guidance on FDIC-backed issue -IFR

LONDON, Dec 1 (Reuters) - Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) has set guidance on a planned three-year euro benchmark debt issue that will be guaranteed by the Federal Deposit Insurance Corp (FDIC), IFR said on Monday, citing sources.

Guidance talk on the self-led deal was cited by IFR, a Thomson Reuters publication, at mid-swaps plus 45 to 50 basis points.

(Reporting by Natalie Harrison)

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European shares fall in early trade; banks, miners drop

LONDON, Dec 1 (Reuters) - European shares opened lower on Monday, after a strong rally last week, with banks and miners falling.

At 0807 GMT the FTSEurofirst 300 index of top European shares was down 0.8 percent at 855.03 points. It gained 13.3 percent last week, but has lost more than 42 percent this year, hurt by a credit crisis and several major economies going into recession.

BNP Paribas (BNPP.PA: Quote, Profile, Research, Stock Buzz), Barclays (BARC.L: Quote, Profile, Research, Stock Buzz) and UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) were down between 2.7 and 5 percent.

UK consumer credit figures are among the data due later in the session.

"There's a lot of data, but it's not going to be much better," said Bernard McAlinden, investment strategist NCB Stockbrokers.

"We think the market will go higher but it won't be because of anything in the data. It's a question of when the markets can start ignoring the bad economic news and take the view that things will get better. Our view is that the stimulus packages will work."

Across Europe Britain's FTSE 100 .FTSE, Germany's DAX .GDAXI and France's CAC-40 .FCHI were down between 0.4 and 0.7 percent. Japan's Nikkei .N225 closed 1.4 percent lower. (Reporting by Brian Gorman; Editing by Greg Mahlich)

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Nikkei down in lacklustre trade, weighed by yen

* Nikkei down on profit-taking after 7.6 pct rise last week

* Trade thin, attention on U.S. jobs data, Big 3 plans

* Lagging start to U.S. Christmas sales weighs on market

* Yen edges up on dollar, euro but off earlier highs (Adds stocks, details)

By Elaine Lies

TOKYO, Dec 1 (Reuters) - Japan's Nikkei average lost 1.4 percent on Monday, with high tech shares such as Advantest Corp (6857.T: Quote, Profile, Research, Stock Buzz) down on profit-taking as trade thinned on investor fears about U.S. jobs data due out later this week.

Honda Motor Co (7267.T: Quote, Profile, Research, Stock Buzz) shed 2.9 percent after a top executive at the car maker said it would have a tough time meeting its lowered annual profit forecasts due to an increasingly severe sales environment. [ID:nT186150] Market players said that few investors were willing to brave this week's uncertainties, including a raft of U.S. indicators culminating in jobless figures on Friday. There is also speculation over whether the struggling Big Three U.S. automakers will win government financial support. "With potential bombshells like these ahead, nobody wants to buy now, even though this might be a good time to do so," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

"World market moves these days all centre on what happens on Wall Street, and these issues -- the jobless data and Big Three plans -- have the potential to provoke large share moves."

Early results from the Black Friday weekend marking the start of the Christmas shopping season in the United States showed that sales grew in shops and online, fuelled by repeat trips and deep discounts.

But an early rush is unlikely to save what is shaping up to be a bleak sales season, analysts said. [ID:nN30476271]

"The bad start to the season might not have much direct impact on Japanese companies, but there's no question that it contributes to poor sentiment," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.

The benchmark Nikkei .N225 shed 115.05 points to 8,397.22, while the broader Topix .TOPX lost 0.9 percent to 827.47 in extremely thin trade.

Market players noted that activity has fallen off in the wake of holiday and shortened sessions in the United States late last week, with a lack of major Japanese company news for the weeks ahead also inhibiting activity.

"There's very few factors to trade on right now, but then in January there could be a lot of downward revisions by Japanese companies," said Yamagishi to explain the lack of active buying.

TECH TROUBLES

The yen is seen edging higher over the longer term, and this too will serve to limit gains by the Nikkei, which is heavily weighted towards exporters. The dollar was fetching 95.20 yen in late Tokyo trade

Some of the hardest hit stocks on Monday were high tech shares which had risen last week, as investors moved to lock in profits.

Advantest shed 3.1 percent to 1,204 yen, while industrial robot maker Fanuc (6954.T: Quote, Profile, Research, Stock Buzz) lost 2 percent to 5,770 yen and Kyocera Corp (6971.T: Quote, Profile, Research, Stock Buzz) fell 1.7 percent to 5,860 yen.

There was more bad news for Japanese automakers, hit hard by the slowing overseas economies.

Automobile sales in Japan, excluding 660cc minivehicles, fell 27.3 percent in November from a year earlier to 215,783 vehicles, the Japan Automobile Dealers Association said on Monday.

Honda slid to 2,025 yen and Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) fell 1.8 percent to 2,945 yen. Suzuki Motor Corp (7269.T: Quote, Profile, Research, Stock Buzz) lost 8.1 percent to 1,183 yen.

But NTT DoCoMo Inc (9437.T: Quote, Profile, Research, Stock Buzz) bucked the general trend after the Nikkei business daily reported that Carlyle-controlled [CYL.UL] firm Willcom Inc will launch low-priced mobile data services using DoCoMo's network in early 2009 under an arrangement called mobile virtual network operator.

Brokerages Credit Suisse and UBS hiked their earnings forecasts for the company, with Credit Suisse analyst Hitoshi Hayakawa saying a bigger-than-expected fall in mobile phone sales is likely to reduce subsidy costs and boost DoCoMo's profit.

NTT DoCoMo gained 3.7 percent to 164,100 yen. Trade fell off, with 1.51 billion shares changing hands on the Tokyo exchange's first section compared with last week's daily average of 1.84 billion.

Declining stocks outpaced advancing ones by more than 2 to 1.

(Editing by Sophie Hardach)

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Swiss Manufacturing Drops to Record Low as Global Growth Stalls

By Joshua Gallu

Dec. 1 (Bloomberg) -- A gauge of Swiss manufacturing dropped the most ever to a record low in November as companies cut back production amid stalling global growth.

The SVME purchasing managers’ index fell to 35.2 from 47 in October, Credit Suisse Group AG said today. That’s the sharpest fall and lowest level since the survey began in 1995. Economists expected the index to drop to 45.6, the median of 14 forecasts in a Bloomberg News survey showed. A reading below 50 signifies contraction.

Switzerland’s industrial sector may continue to shrink in the coming months as the world economy slides toward a recession, cutting into orders of products like auto parts and cement. Georg Fischer AG, Europe’s largest maker of iron castings for cars, may have two “tough” years ahead as the auto industry struggles with its worst slump since World War II, Chief Executive Officer Yves Serra said on Nov. 24.

“The manufacturing sector is paralyzed by the financial- market crisis,” said Claude Maurer, an economist at Credit Suisse Group in Zurich who is responsible for the survey. “Nobody knows what the financial crisis will do to the real economy, and as long as this uncertainty is in place, manufacturers won’t do anything.”

Swiss leading indicators dropped to the lowest level in more than five years last month and unemployment increased. Straumann Holding AG, the world’s second-biggest maker of dental implants, said it will reduce workers’ hours for an unspecified period to adjust production to slowing growth rates.

Trading Partners

Exports are declining as some of Switzerland’s main trading partners such as Germany and the U.K. face shrinking economic growth. At the same time, a 7.7 percent gain in the franc against the euro this year is making Swiss products less competitive in their biggest export market.

A measure of order backlogs posted a fourth straight month of contraction, falling to a record low 29.9, today’s report showed. Output dropped to 27.7 from 49 the previous month, the sharpest fall and lowest level since the survey began.

Switzerland’s economy probably contracted in the third quarter and may shrink next year, Swiss National Bank President Jean-Pierre Roth said on Nov. 24. The SNB has cut 175 basis points from its main rate since the beginning of October.

To contact the reporter on this story: Joshua Gallu in Zurich at jgallu@bloomberg.net

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India’s Prime Minister Singh Takes Finance Portfolio

By Cherian Thomas and Kevin Hamlin

Dec. 1 (Bloomberg) -- Prime Minister Manmohan Singh, who opened up India to foreign investors as finance minister in the early 1990s, must now shield the economy from the effect of terror attacks and a global recession.

Singh, 76, took over the government’s top economic job yesterday after shifting Finance Minister Palaniappan Chidambaram to the home ministry to tackle the threat of terrorism in the wake of shootings and bombings in Mumbai. Elections due by May will make Singh’s task even harder.

India’s economy, which grew last quarter at the slowest pace since 2004, is suffering as a credit crunch curtails bank lending and a global slump hits exports. The worst terrorist attack in 15 years may also spook overseas investors, who have sold a record $13.5 billion of Indian equities this year.

“If there is one man who has more credibility in economics and finance even than Chidambaram then it is Prime Minister Singh,” said Robert Prior-Wandesforde, a senior economist at HSBC Holdings Plc in Singapore. “It’s a clever decision.”

Singh, who served as central bank chief from 1982 to 1985, has taken a hands-on approach to economic policy since becoming prime minister in May 2004. In October he summoned Reserve Bank of India Governor Duvvuri Subbarao to discuss the fallout of the global financial turmoil on India. Less than a week later, Subbarao cut interest rates for the first time since 2004.

‘License-Permit Raj’

As finance minister from 1991 to 1996, Singh lowered import tariffs, allowed non-Indian companies such as Ford Motor Co. to set up manufacturing plants and removed the so-called “license- permit Raj,” or regulations requiring government authorization for new factories.

“The prime minister started economic reforms in India and he knows how to steer the economy in these times,” said Saugata Bhattacharya, an economist at Axis Bank Ltd. in Mumbai.

India’s stock and bond markets, which were shut the day after the terror attacks on Nov. 26, advanced today for the second day on optimism the assault won’t derail economic growth. The key Sensitive index rose 2.1 percent to 9280.68 at 10:05 a.m. in Mumbai, while the 10-year government bond yield fell 5 basis points to 7.02 percent. The rupee strengthened 0.03 percent to 50.0900 per dollar.

Singh told investors Nov. 21 that his government will use all instruments including the exchange rate, fiscal and monetary policies and public spending to combat the effects of the global economic downturn.

Credit Crunch

Chidambaram, appointed finance minister in 2004, consulted the prime minister before announcing important policy steps. Chidambaram was in the process of unveiling measures to help the textile, automobile and gems and jewelry industries, hurt by the credit crunch and global recession.

Economic growth in the year to March 31 will slow to between 7 percent and 8 percent before rebounding to 9 percent in the following year, according to Chidambaram. He said Nov. 28 that the effects of the terrorist attack would be short term and India would “overcome” the negative business sentiment caused by the assault on Mumbai.

Singh, one of the leaders who attended the Group of 20 nations meeting in Washington Nov. 14-15 on the global crisis, may be able to push through reforms faster than Chidambaram as he wouldn’t need to negotiate inter-ministry hurdles.

Singh, an Oxford-educated economist, entered active politics in 1991 when he was unexpectedly chosen as finance minister by then Prime Minister P.V. Narasimha Rao. With India facing a balance of payments crisis, Rao and Singh set about freeing the economy of its socialist-era shackles.

Faster Growth

The reforms within a decade catapulted India from the so- called “Hindu rate of growth” of about 3.5 percent to the fastest-growing major economy in the world after China.

Having taken over from Chidambaram, who has overseen record average growth of 8.9 percent since 2004, Singh needs to prevent the economy from slumping in a nation where three-quarters of the population survives on les than $2 a day.

Growth in the $1.2 trillion has already slowed for two straight quarters, with the 7.6 percent pace of expansion in the three months to Sept. 30 the weakest in four years.

India’s exports fell for the first time in seven years in October, according to Trade Secretary Gopal K. Pillai, as the U.S., Europe and Japan fell into a recession in the third quarter. Textile exporters may cut about 500,000 jobs by April, according to India’s textile ministry.

Other Portfolios

Singh, who also holds seven other portfolios including coal, space and environment, may rely on Montek Singh Ahluwalia, deputy chairman of the Planning Commission, to assist him on the finance portfolio, The Financial Express reported today.

Yesterday’s cabinet reshuffle came after the terrorist attacks in Mumbai last week left 195 people dead. About 300 people have died this year in India from bombs explosions in markets, mosques, bus stations and theaters.

“With Singh taking over at the finance ministry, there shouldn’t be any problem,” said David Cohen, director of Asian forecasting at Action Economics in Singapore. “Shoring up investor confidence shaken by the attacks is now one of India’s biggest economic challenges. In that sense Chidambaram is continuing his finance ministry work in another portfolio.”

To contact the reporter on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net.

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German Retail Sales Drop as Recession Damps Spending

By Jana Randow

Dec. 1 (Bloomberg) -- Retail sales in Germany, Europe’s largest economy, unexpectedly fell in October as the fallout from the global financial crisis damped household spending.

Sales, adjusted for inflation and seasonal swings, dropped 1.6 percent from September, when they declined a revised 1 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 0.5 percent, the median of 34 estimates in a Bloomberg News survey showed.

The German economy fell into the worst recession in 12 years in the third quarter and sentiment in the retail industry dropped to the lowest level in more than three years. A Bloomberg survey of purchasing managers showed retail sales contracted for a sixth month. Still, Germany’s HDE retail federation has said there is no reason to give up on sales over the Christmas holiday period.

“It’s certainly a bigger drop than we had forecast,” said Simon Junker, an economist at Commerzbank Bank AG in Frankfurt, who had predicted a 0.5 percent decline. “At the same time, it’s not surprising; consumers have had nothing but bad news since September. I wouldn’t be overly hopeful for a pick-up in spending.”

From a year earlier, retail sales fell 1.5 percent, today’s report showed. The statistics office revised the September month- on-month figure from an initially reported 2.3 percent drop.

Bleak Outlook

The German economy contracted 0.5 percent in the third quarter. Bundesbank President Axel Weber predicted on Nov. 26 that the economy will probably shrink in the fourth quarter and remain in a recession next year. Business confidence deteriorated in November to the lowest level in more than 15 years, a survey by the European Commission showed.

“Despite the financial crisis, recession and bad tidings from other sectors, the retail industry has good reason not to give up on Christmas sales,” HDE President Josef Sanktjohanser said on Nov. 27.

German consumer confidence rose as slowing inflation left households with more to spend, market research firm GfK AG said Nov. 25.

The cost of oil has dropped 63 percent from a record $147 in July, damping price pressure. German inflation slowed to 1.5 percent in November from 2.5 percent, a first estimate by the Federal Statistics Office showed last week. That is the biggest decline in the annual rate since at least 1996.

“It seems the retail industry is sweet-talking the situation,” said Philipp Jaeger, an economist at DZ Bank AG in Frankfurt. “Consumers should have noticed by now in which direction the economy is developing, and unemployment will begin to creep up in the next month or two.”

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

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Bank of Japan to Hold Board Meeting at 1 p.m. Tomorrow

By Mayumi Otsuma

Dec. 1 (Bloomberg) -- The Bank of Japan will hold an emergency board meeting at 1 p.m. in Tokyo tomorrow to discuss measures to help companies obtain funds.

Governor Masaaki Shirakawa will speak to reporters at 3:30 p.m., the central bank said in a statement on its Web site.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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Russia Manufacturing PMI Drops to Lowest on Record

By Alex Nicholson

Dec. 1 (Bloomberg) -- Russian manufacturing shrank more in November than during the 1998 financial collapse as the global economic crisis drove output and new orders to record lows and companies cut jobs, VTB Bank Europe said.

VTB’s Purchasing Managers’ Index fell for a fourth month to 39.8, its lowest level, from 46.4 in October, the bank said in an e-mailed statement today. The previous low was 43.2 in September 1998, a month after the government’s ruble devaluation and default on $40 billion of debt. A figure above 50 means growth, below 50 a contraction. The bank surveyed 300 purchasing executives.

“The sense of doom and gloom was only deepening,” in November, Tatiana Orlova an economist in Moscow at ING Group NV said by telephone. “The mood isn’t getting any better.”

Industrial production has slumped and unemployment is rising as declining commodities prices and the seizure of credit markets prompt an outflow of capital. Investors withdrew $190 billion from the country since August, BNP Paribas SA estimates, as oil fell below the $70-a-barrel average needed to balance the 2009 budget.

“Driving the rapid contraction of the manufacturing sector in November was a record fall in incoming new work,” the bank said in the statement. New export contracts tumbled because of “fallout from the global financial crisis.”

Lower Ruble

The ruble, which the central bank manages against a basket of dollars and euros, weakened 0.1 percent to 27.9438 per dollar by 11:11 a.m. in Moscow, from 27.9231 on Nov. 28. Against the euro, it was little changed at 35.4468, from 35.4379. The benchmark Micex stock index, fell 0.21 percent to 610.04 at 11:12 a.m.

Russian economic growth, which Prime Minister Vladimir Putin touted as a major achievement before stepping down as president in May after eight years, will slow to 3 percent next year from an average of 7 percent a year since 1999, the World Bank estimates. The economy grew 8.1 percent in 2007.

Adding to evidence that recessions in the U.S., Europe and Japan are dragging down the world’s fastest-growing economies, China’s manufacturing also shrank by the most on record in November as export orders plunged.

OAO Severstal, Russia’s largest steelmaker, shut down a blast furnace that supplied 13 percent of the pig iron produced at its main Russian factory because of its age and as global steel demand weakens, the company said on Nov. 28.

Slowing Output

Industrial production in October grew at the slowest annual pace since the Federal Statistics Service changed its methodology at the start of 2003, according to revised data. Unemployment rose to 6.1 percent from 5.3 percent in September.

“Sharp falls in output were also accompanied by a substantial decline in employment,” said Dmitri Fedotkin, an economist at VTB Research, in the report.

OAO Magnitogorsk Iron & Steel, the third-largest Russian steel company, and OAO Razgulay Group, a Russian grain and sugar producer, have said they will shed staff and may decrease wages for some remaining workers.

“What began as a financial crisis became an economic one before our eyes,” Putin said at the Nov. 20 congress of his United Russia party in Moscow.

About 1,070 Russian companies have already announced plans to cut approximately 45,000 jobs, Rossiyskaya Gazeta, the government’s official newspaper, said on Nov. 14, citing the Health and Social Development Ministry’s estimates. The reductions have affected the finance and automobile industries, construction and tourism companies and some manufacturing workers, the paper said.

“The economic pain is shifting to the man on the street,” said Maxim Oreshkin, head of research at OAO Rosbank, in a telephone interview. Oreshkin said he expected the consumer sector would contract in the first quarter of 2009 as the impact of layoffs works its way into consumer spending.

Manufacturing Prices

In November, prices that manufacturers pay declined for the first time in a decade, while the prices they charge dropped for the first time in the survey’s history.

“Reflecting the rapid deterioration in the activity profile and weakening commodity prices, inflationary pressures eased significantly,” Fedotkin said.

The annual inflation rate reached 14.2 percent last month, compared with the government’s official year-end forecast of 11.8 percent.

The PMI is derived from indexes which measure changes in output, orders, employment, suppliers’ delivery times and stocks, according to VTB.

To contact the reporter on this story: Alex Nicholson in Moscow at anicholson6@bloomberg.net.

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