India Eases Export Credit Rules as Overseas Shipments Slow

By Kartik Goyal

Dec. 6 (Bloomberg) -- India’s central bank today eased rules governing interest rates for loans taken by exporters as a recession in the U.S. and Europe, its biggest markets, damped demand for the nation’s products.

The Reserve Bank of India said interest on overdue bills up to 180 days will be charged at not more than the benchmark prime lending rate minus 2.5 percentage points.

India’s overseas shipments fell in October for the first time in seven years, hurting the profit of exporters reeling under the impact of waning global demand. Easier credit rules, along with the central bank’s interest rate cuts for the third time in less than two months, will help exporters.

“The measure will help reduce the cost of credit to exporters which are facing the most stressful time as demand dries up in the U.S. and other European countries,” said Ajay Sahai, director general of the Federation of Indian Export Organizations.

Exports in October fell 12 percent to $12.8 billion from a year earlier. The last time exports fell was in October 2001, when they declined 7.4 percent, according to data compiled by Bloomberg News.

“Exporters who have drawn bills for shorter maturities and are facing difficulties in realizing the bills on due dates on account of external problems” will benefit, the bank said.

Weakening Growth

The worst financial crisis since the Great Depression has pushed economies from Japan to Europe into a recession, cutting demand for goods made in the Asia-Pacific region. Flagging exports and waning domestic demand are forcing companies in India to cut production, weakening growth in an economy expected by the central bank to expand at the slowest pace in four years.

To spur local demand and shield India’s $1.2 trillion economy from the global slowdown, the central bank today cut its benchmark lending rate to 6.5 percent from 7.5 percent. The bank also cut the reverse repurchase rate at which it borrows overnight to 5 percent from 6 percent.

India’s economy may slow to 7.5 percent in the year to March 31 after expanding 9 percent or more annually in the previous three years, the central bank has said.

“The measures are aimed at reducing downside risks to the slowing economy,” said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd., the local unit of Standard & Poor’s. “The steps announced today are definitely positive.”

Indian companies have also been allowed to buy back foreign- currency convertible bonds. The central bank will consider buyback proposals provided that there is a minimum discount of 25 percent on the book value, the amount of the buyback is limited to $50 million of the redemption value and the resources for buyback are drawn out of a company’s internal accruals, the Reserve Bank said.

“The facility for premature buyback of bonds will help Indian companies to take advantage of the current discounted rates at which their foreign-currency convertible bonds are trading,” the central bank said.

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.

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Deutsche Boerse in NYSE Euronext Talks, Spiegel Says

By Brian Parkin

Dec. 6 (Bloomberg) -- Deutsche Boerse AG, Europe’s largest exchange by market value, is holding merger talks with NYSE Euronext, the world’s largest owner of stock markets, Der Spiegel magazine reported, without citing anyone for the information.

Deutsche Boerse Chief Executive Officer Reto Francioni presented a 13-page merger plan to the Frankfurt-based exchange’s board in late November, the German weekly reported in a pre- release from its next edition. The enlarged company would be led by Francioni and would have an eight-person board and an 18- member directorate, Spiegel said.

“We have nothing to announce and, as a general policy, don’t comment on speculation,” Deutsche Boerse spokesman Ruediger Assion said today in an e-mailed statement to Bloomberg News. Antoinette Darpy, a Paris-based spokeswoman for NYSE Euronext, declined to comment on the report to Bloomberg.

A combination of Deutsche Boerse and New York-based NYSE Euronext would allow the two exchange operators to cut costs as the rout in global stock markets this year has led to a decline in the volume of shares being traded. Alternative trading systems, such as Chi-X Europe Ltd., Bats Trading Inc. and London- based Tuquoise, are also eating into exchanges’ revenues.

Nasdaq OMX Group Inc., which has gained business from NYSE Euronext in the U.S., is also pushing deeper into European equities and U.S. options while sharing technology across different markets to reduce expenses.

Dutch Holding Company

Deutsche Boerse’s own shares have dropped 63 percent this year, valuing the company at 9.8 billion euros ($12.5 billion). That compares with the 48 percent retreat in the Dow Jones Stoxx 600 Index. NYSE Euronext stock has declined 76 percent, valuing the company at $5.7 billion. The S&P 500 Index has fallen 40 percent in 2008.

The two exchange operators would create a Dutch-based holding company as a vehicle for the combination, Spiegel said. The new company would run its share trading from New York and have units in Paris and Frankfurt, the magazine said. The derivatives business would be located in Frankfurt, it said.

Deutsche Boerse is part-owner of Eurex, Europe’s largest futures market and bought New York-based International Securities Exchange Holdings Inc. last year.

Trading Volume Decline

German stock-exchange trades dropped 49 percent to 137.4 billion euros in November from a year earlier, Deutsche Boerse said Dec. 1. A total of 114.5 billion euros was traded on Germany’s Xetra electronic-trading system and on the Frankfurt floor, a 50 decline from last year.

New York-based Nasdaq in February extended its global reach by purchasing Sweden’s OMX AB, which runs bourses in seven European cities including Helsinki and Copenhagen. In September, Nasdaq introduced a trading platform to expand beyond Nordic markets and compete against London Stock Exchange Group Plc, NYSE Euronext and Deutsche Boerse.

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net.

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Peugeot, Renault Offered Subsidy to Boost Sales, Le Monde Says

By Laurence Frost

Dec. 6 (Bloomberg) -- PSA Peugeot Citroen and Renault SA, France’s biggest carmakers, were asked by the government to avoid plant closures in exchange for subsidies to boost car sales, Le Monde reported today.

While Renault repeated Dec. 4 that there was “no question” of closing French factories, Peugeot has resisted giving such a clear commitment, the daily newspaper reported on its Web site, citing an unnamed government official.

The government is pressing the demand in exchange for a 500 million-euro ($630 million) auto-sector stimulus package announced the same day, Le Monde said. The new measures include a 1,000-euro incentive for consumers who scrap old cars and buy new ones, as well as cheap loans for carmakers’ financing arms.

Industry Minister Luc Chatel will meet Peugeot executives Dec. 8 to discuss the industry crisis, the paper said.

To contact the reporter on this story: Laurence Frost in Paris at lfrost4@bloomberg.net

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Ferrovial Calls for Gatwick Airport Bids by Jan. 19, FT Says

By Kim-Mai Cutler

Dec. 6 (Bloomberg) -- Spain’s Grupo Ferrovial SA has asked for bids for London’s Gatwick airport by Jan. 19 in a sale that could command 2 billion pounds, the Financial Times said.

Bidders received an information memorandum about this week the sale, the FT said in a story published today. The Competition Commission, a U.K. regulator, has said it may call for a break up of the company’s monopoly over London’s main airports including Heathrow in the west and Stansted in the northeast.

Four groups have started to form to buy the airport, the FT said. Canadian pension funds, including Ontario Teachers Pension Plan, Canada Pension Plan and U.K.’s 3i venture capital group, are being advised by Macquarie Group Ltd. and Rothschilds. Manchester Airport Plc is also forming a group that may include Borealis, the Canadian infrastructure fund. Dresdner Kleinwort may advise this group.

Citigroup’s Citi Infrastructure Investors, Canada’s Vancouver airport and John Hancock Life Insurance may also bid for the airport.

For Related News:

To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net.

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European 10-Year Bonds Rise for Fifth Week as Slowdown Deepens

By Matthew Brown

Dec. 6 (Bloomberg) -- European government bonds rose for a fifth week as the region’s central bank president said the 15- nation economy will continue to contract into next year as the turmoil in global financial markets persists.

The gains pushed 10-year German bund yields to the lowest level in almost two decades as data showed the economy shrank in the second quarter and German factory output slumped for a second month in October. “Global and euro-area demand are likely to be dampened for a protracted period of time,” European Central Bank President Jean-Claude Trichet said after a 75 basis-point cut to 2.50 percent on Dec. 4.

“The risks to growth are very much on the downside, with inflation expectations diminishing rapidly,” said Nick Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets. “The ECB has further rate cuts in store and in this environment investors really have no other assets to buy. Bond yields will continue to fall.”

The yield on the bund, Europe’s benchmark government security, fell seven basis points to 3.02 percent by 4 p.m. in London yesterday. It slipped to 2.94 percent on Dec. 4, the lowest level since at least January 1989, when Bloomberg began collecting data on the security. The yield dropped 23 basis points in the week. The 3.75 percent bond due January 2019 rose 2.04, or 20.4 euros per 1,000-euro ($1,267) face amount, to 106.23.

The yield on the two-year note declined 12 basis points to 2.07 percent Yields move inversely to bond prices.

Flight-to-Safety

Bonds also gained as stock-market losses and a rise in the cost of insuring corporate debt to a record fueled demand for the safest assets. Equity markets in Europe yesterday extended the week’s losses after a report showed U.S. employers cut jobs last month at the fastest pace in a quarter century. The Dow Jones Stoxx 600 Index of stocks fell more than 8 percent.

Factory orders in Europe’s largest economy, adjusted for seasonal swings and inflation, fell 6.1 percent from September, when they dropped 8.3 percent, the Economy Ministry in Berlin said yesterday. Economists expected a decline of 0.5 percent, the median of 39 forecasts in a Bloomberg survey showed.

Investors should favor 10-year bonds, most sensitive to the outlook for price growth, Stamenkovic said. The yield will drop to 2.75 percent in the coming three months, he predicted.

Inflation will move “in line with price stability over the relevant policy horizon,” Trichet said at a briefing in Brussels after the rate decision.

‘Inflation is Falling’

“We cut interest rates because inflation is falling, which is positive,” fellow policy maker Lorenzo Bini Smaghi told Italy’s RAI broadcaster on Dec. 4. “This cut is in line with falling inflation, which is restoring consumer buying power.”

Bonds surged this year as the U.S. housing slump pushed up the cost of credit globally, causing stocks to tumble. The world’s largest financial companies incurred almost $1 trillion in writedowns and losses since the start of 2007. The recession in Europe’s 15-nation economy is its first in 15 years.

European services shrank at a record pace and retail sales fell more than forecast in November, reports showed Dec. 3. Unemployment in France, the second-largest economy using the euro, rose for the first time in more than two years in the third quarter, Insee, the country’s statistics office, said yesterday.

European bonds handed investors an 8.8 percent return this year, including 3.8 percent in November, the most since at least 1986, according to Merrill Lynch & Co.’s EMU Direct Government index. U.K. gilts paid investors 10.4 percent, while U.S. Treasuries returned 12.3 percent, Merrill indexes showed.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.netMatthew Brown in London on mbrown42@bloomberg.net

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Europe Stocks Fall on Manufacturing, Higher Unemployment Rate

By Michael Patterson

Dec. 6 (Bloomberg) -- European stocks fell this past week, sending the Dow Jones Stoxx 600 Index to its worst December start, after reports showed manufacturing shrank around the world and U.S. companies cut jobs at the fastest pace in 34 years.

StatoilHydro ASA tumbled 18 percent and Xstrata Plc lost 38 percent as concern the global economic slump is deepening sent oil below $42 a barrel and copper to the lowest level since May 2005. ABB Ltd., the largest builder of electricity grids, dropped 12 percent after factory indexes in Europe, Russia, China and South Africa showed record contractions. Infineon Technologies AG, Europe’s second-largest chipmaker, plunged the most in the Stoxx 600 on a forecast that revenue will decline.

The Stoxx 600 retreated 8 percent this week to 189.84, bringing its decline this year to 48 percent. The index erased more than half of a 13 percent rally last week spurred by speculation government stimulus packages and interest-rate cuts would cushion economies from the financial crisis.

“Investors are being blown around in the wind,” 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 only thing that has been consistent is the economic data, and that is horrible. There isn’t really a single piece of good data out there.”

European Central Bank President Jean-Claude Trichet predicted this past week the euro region’s economy will shrink next year. The ECB delivered the biggest interest rate cut in its 10-year history and the Bank of England cut its benchmark rate to the lowest level since 1951. Sweden also lowered borrowing costs by the most since 1992 as central banks around the world struggle to stem job losses and revive credit markets.

National Markets

The Stoxx 600’s drop was the steepest for the first week of December since price data began. The index has posted an average December gain of 2.2 percent during its 21-year history, rising two-thirds of the time, according to monthly data compiled by Bloomberg.

National benchmark indexes fell in all 18 western European markets except Iceland. Germany’s DAX dropped 6.2 percent as Infineon tumbled 49 percent. The U.K.’s FTSE 100 decreased 5.6 percent, led by Xstrata. France’s CAC 40 lost 8.4 percent.

U.S. employers cut 533,000 jobs last month, exceeding all 73 forecasts in a Bloomberg News survey. The unemployment rate rose to 6.7 percent, the highest level since 1993. The figures increased expectations the Federal Reserve will reduce interest rates by at least 0.5 percentage point when policy makers meet this month.

StatoilHydro, Norway’s largest oil and gas company, declined to the lowest level since January 2005 and Xstrata, the Switzerland-based producer of copper and nickel, dropped to a four-year low.

ABB Slides

Crude oil was poised for the biggest weekly drop since the Persian Gulf War in 1991 on concern job losses in the U.S. will hurt demand for fuel. Copper touched the lowest since May 2005 in London trading.

ABB sank 12 percent as manufacturing in the 15 nations sharing the euro contracted by the most on record in November. A purchasing managers’ index dropped to 35.6 from 41.1 in October, remaining below the expansion threshold for a sixth month. That’s the lowest since Markit Economics began the poll in 1998.

The report signaled the euro-region economy’s first recession in 15 years is worsening. Trichet said gross domestic product will shrink around 0.5 percent next year as the financial turmoil takes its toll, the first time the ECB has ever predicted a contraction.

Infineon, New Star

Infineon forecast revenue will drop this fiscal year because of sliding orders from automakers and mobile-phone manufacturers. The company reported a seventh straight loss in its fourth quarter, partly on charges from the Qimonda AG memory-chip unit, which Infineon is struggling to sell.

New Star Asset Management Plc tumbled 87 percent after the London-based fund manager started by John Duffield in 2000 said lenders will take control of the company, which was hurt by a decline in assets under management. New Star plans to delist the stock and leave existing shareholders with a 25 percent.

Tesco Plc added 10 percent. The U.K.’s biggest supermarket company reported third-quarter sales growth that beat analysts’ estimates after introducing a cheaper product range to combat rivals.

Reports on U.S. retail sales, European industrial production and German investor sentiment next week may move markets as investors look for clues on the depth of the economic slowdown.

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

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Deutsche Boerse Said to Be Studying Merger With NYSE Euronext

By Nandini Sukumar

Dec. 6 (Bloomberg) -- Deutsche Boerse AG, Europe’s biggest exchange by market value, is studying a merger offer for NYSE Euronext, operator of the world’s largest stock market, according to four people with direct knowledge of the situation.

The Frankfurt-based exchange commissioned an internal study on the feasibility of combining with its U.S. rival, the people said. Deutsche Boerse Chief Executive Officer Reto Francioni discussed the report with directors at a Nov. 25 board meeting, according to the people, who declined to be named because the study isn’t public. Any plans are at an early stage, they said.

Deutsche Boerse, which runs the Frankfurt stock exchange and is part-owner of Europe’s largest futures market, and NYSE Euronext, the owner of the New York Stock Exchange and markets across Europe, have held merger talks, Der Spiegel magazine reported, without citing anyone. A combination may help the exchanges reduce expenses after their shares declined more than 62 percent this year.

“Certainly it would be easier to cut costs through a merger and certainly there would be an excellent business there,” said Mamoun Tazi, a London-based exchange analyst at MF Global Securities Ltd. Still, “the probability of this happening is low due to a number of reasons, including the German and U.S. regulators,” said Tazi. He rates Deutsche Boerse a “buy.”

Paris, Amsterdam, Brussels

A merger would cement control of Europe’s biggest markets in stocks, options and futures for Deutsche Boerse and unite rivals who battled for months over Paris-based Euronext NV before NYSE Group Inc. received approval in 2007 for a $13 billion takeover. Antitrust concern over Deutsche Boerse’s offer helped NYSE gain control of Euronext, the operator of the Paris, Amsterdam, Brussels and Lisbon stock markets.

Alternative trading systems such as Chi-X Europe Ltd., Bats Trading Inc. and Tuquoise are now eating into revenues for the two exchanges, while Nasdaq OMX Group Inc. has gained business from NYSE Euronext in the U.S.

“We have nothing to announce and, as a general policy, don’t comment on speculation,” Deutsche Boerse spokesman Ruediger Assion said today in an e-mailed statement. “Deutsche Boerse Group is constantly evaluating a multitude of options to enhance the value of the company. This includes frequent contacts with almost every major market participant.”

Antoinette Darpy, a Paris-based spokeswoman for NYSE Euronext, declined to comment.

Previous Bids

Deutsche Boerse has been thwarted in bids to acquire exchanges this decade. Prior to withdrawing its offer for Euronext, it unsuccessfully pursued the London Stock Exchange in 2000 and again in 2004. In August 2004, SWX Group, operator of the Swiss stock exchange, rejected a proposal to start merger talks with Deutsche Boerse. An attempt to join with Borsa Italiana SpA fizzled two years later.

The German exchange acquired New York-based International Securities Exchange Holdings Inc. last year.

The enlarged company would be run by Francioni as chairman and the NYSE’s Duncan Niederauer as chief executive officer, with an eight-person board and an 18-member directorate, Spiegel said. The exchanges would create a Dutch-based holding company as a vehicle for the combination, Spiegel said. The new company would run its share trading from New York and its derivatives business from Frankfurt, it said.

Rout in Stocks

This year’s rout in equities reduced trading on Deutsche Boerse, spurring pressure from shareholders to boost returns. The company’s shares have dropped almost 63 percent this year, valuing Deutsche Boerse at 9.8 billion euros ($12.5 billion). That compares with the 48 percent retreat in the Dow Jones Stoxx 600 Index. NYSE Euronext declined 76 percent, valuing the company at $5.7 billion.

The German bourse has fought over strategy with its two biggest shareholders, New York-based Atticus Capital LLC and London-based Children’s Investment Fund Management LLP. Deutsche Boerse said in October the hedge funds have “repeatedly” called for a breakup of the group. In November, Francioni said third-quarter results were “proof of the stability and sustainability of the business model of Deutsche Boerse.”

The company last month posted third-quarter profit that beat analysts’ estimates as the turmoil in financial markets boosted derivatives trading, offsetting slowing trading volume from equities at the Frankfurt stock exchange and the Xetra electronic trading platform. Deutsche Boerse is also part-owner of Eurex, Europe’s largest futures market.

New York-based Nasdaq in February extended its global reach by purchasing Sweden’s OMX AB, which runs bourses in seven European cities including Helsinki and Copenhagen. In September, Nasdaq introduced a trading platform to expand beyond Nordic markets and compete against London Stock Exchange Group Plc, NYSE Euronext and Deutsche Boerse.

To contact the reporter on this story: Nandini Sukumar in Paris at nsukumar@bloomberg.net.

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Poland’s Tusk Says France May Help Build Nuclear Power Plant

By Katarzyna Klimasinska

Dec. 6 (Bloomberg) -- Poland, which relies on coal for 93 percent of electricity, will probably seek French help to build its first nuclear power plant.

“In 2020 we have to generate part of the energy we now get from coal from other sources, and obviously it can’t be only renewable sources,” Prime Minister Donald Tusk told a press conference in Gdansk today. “As far as nuclear power is concerned, France can be an incredibly attractive partner for us.”

Poland aims to cut the emissions of carbon dioxide, blamed for global warming, as part of a European Union plan to cut greenhouse gases by a fifth in 2020. Atomic power plants are almost carbon- free, according to the International Energy Agency.

Tusk spoke after meeting French President Nicolas Sarkozy, though didn’t give any details of possible cooperation.

To contact the reporter on this story: Katarzyna Klimasinska in Gdansk at kklimasinska@bloomberg.net

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Hungarian Forint Posts Weekly Fall as Industrial Output Slumps

By Ewa Krukowska

Dec. 6 (Bloomberg) -- Hungary’s forint fell last week for the first time since mid-November after industrial output dropped the most in 16 years, raising concern the economy is being hurt by a global slowdown.

The currency was the second-worst performer against the euro of 11 regional emerging-market currencies tracked by Bloomberg after the government said yesterday industrial production dropped 7.2 percent in October from a year earlier. Economists surveyed by Bloomberg had expected a decline of 5.6 percent.

“The forint is hit by the weak production and global worries,” said Ulrich Leuchtmann, head of foreign-exchange research in Frankfurt at Commerzbank AG. “There’s an increased risk of a global recession deeper and longer-lasting than any pessimistic views assumed.”

The forint slumped as much as 2.1 percent to 267.19 per euro, the biggest intraday decline since Nov. 7, and was at 265.64 by late yesterday in Budapest. It lost 2.5 percent in the week.

Output declined for a fifth month as the euro region, which buys 57 percent of Hungarian exports, entered a recession in the third quarter, crimping demand for products assembled in the country such as Audi cars and Nokia phones.

The German economy, Europe’s largest, will shrink the most in 16 years in 2009 as the global recession hits exports, the Bundesbank predicted yesterday.

U.S. Jobless

In the U.S., the Labor Department said yesterday employers eliminated jobs in November at the fastest pace in 34 years and the unemployment rate jumped as the yearlong recession engulfing the world’s largest economy deepened.

Hungary, which was forced to borrow from the International Monetary Fund to avert a default, will see its economy shrinking by 1 percent next year as a result of the global economic decline, according to government estimates.

Prime Minister Ferenc Gyurcsany told a forum in Budapest yesterday that the country’s benchmark interest rate should be lowered from the current 11 percent.

“A lot will now depend on how the central bank reacts,” Leuchtmann said. The “IMF demanded high interest rates and the risk is that if they cut rates the markets will fear there’s not enough adjustment. I wouldn’t be surprised if the forint fell further in such a situation.”

The European Central Bank yesterday cut its benchmark rate by 75 basis points on Dec. 4 and the Bank of England reduced its key rate by 1 percentage point.

The Czech koruna rose 0.1 percent to 25.842 per euro, paring a weekly loss to 1.8 percent. The Slovak koruna was little changed at 30.195 against Europe’s common currency, gaining 0.5 percent in the past week. The Polish zloty slipped 0.1 percent to 3.8883 per euro, declining 2.9 percent in the past five days. The Romanian leu lost 0.4 percent to 3.8563 per euro, for a weekly drop of 1.8 percent.

The Turkish lira dropped 2.7 percent to 1.6053 per dollar, depreciating 2.6 percent in the week.

To contact the reporter on this story: Ewa Krukowska in Warsaw at ekrukowska@bloomberg.net

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Serbian Cabinet Approves ’09 Budget With Deficit at 1.5% of GDP

By Aleksandra Nenadovic

Dec. 6 (Bloomberg) -- The Serbian government adopted a draft 2009 budget that projects a deficit equivalent to 1.5 percent of gross domestic product, in line with recommendations from the International Monetary Fund and narrower than this year.

“The government has adopted a budget that makes no one happy,” Finance MinisterDiana Dragutinovic said at the press conference in Belgrade today. “This is a restrictive budget, and the government has acted responsibly.”

GDP growth is forecast at 3.5 percent, about half the pace of 2008. Inflation is projected at 8 percent, or 1.5 percentage points less than this year. The budget deficit this year is predicted to be 2.7 percent of GDP.

The cabinet’s approval came after a month-long delay, as the parties in Mirko Cvetkovic coalition government argued over distribution of cuts through ministries.

Parliament is scheduled to debate the proposed budget in the coming week.

The draft budget projects the current account deficit at 16.3 percent of GDP in 2009, 2.2 percentage points less than in 2008. State revenue is projected at 698.7 billion dinars ($10.2 billion) and expenditure at 748.3 billion dinars.

Serbia secured a $516 million standby loan on Nov. 14 from the International Monetary Fund, the fourth eastern European nation to tap the institution for funds, to help stabilize the economy during the global financial crisis.

The IMF warned that government overspending may push the current-account deficit in 2008 above 18 percent of GDP, which it must cover through increased borrowing.

To contact the reporter on this story: Aleksandra Nenadovic in Belgrade at anenadovic@bloomberg.net.

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Qantas, British Airways Heads to Meet in Hong Kong, Review Says

By Jesse Riseborough

Dec. 6 (Bloomberg) -- Qantas Airways Ltd. Chief Executive Officer Alan Joyce and British Airways Plc counterpart Willie Walsh will meet in Hong Kong this weekend for talks on a potential merger, the Australian Financial Review reported.

The outcome of their discussions will be put before the boards of both companies to determine whether the merger should proceed, the paper said, without citing anybody.

Qantas advisers, Macquarie Group Ltd. and Greenhill & Co., will resume talks with British Airways advisers UBS AG after the Christmas break to complete an appropriate merger ratio, the paper said.

To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net

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Newcastle Coal Price Drops for a Fourth Week Amid Demand Slump

By Jesse Riseborough

Dec. 6 (Bloomberg) -- Power station coal prices at Australia’s Newcastle port, a benchmark for Asia, dropped for a fourth week, declining to the lowest in almost 14 months as demand from utilities weakened.

The weekly index for power-station coal prices at the New South Wales port fell $2.10, or 2.7 percent, to $76.09 a metric ton in the week ended yesterday, according to the globalCOAL NEWC Index. That’s the lowest price since Oct. 19, 2007, and a 61 percent decline from a July record.

Contract prices for the fuel, at a record $125 a ton this year, may drop next year as power demand falls on the global recession, Merrill Lynch & Co. analysts said. Xstrata Plc, the world’s largest shipper of power-station coal and BHP Billiton Ltd. are among companies that ship coal through Newcastle.

Merrill Lynch cut its forecast for 2009 contract prices, for the year starting April 1, by 38 percent to $80 a ton, analysts led by Sydney-based Vicky Binns said in a report dated yesterday. The monthly globalCOAL index fell 15 percent to $91.36 a ton in November, from $106.92 the previous month.

“Adding downward pressure on Newcastle thermal coal prices is that producers selling thermal coal into spot markets may be willing to take a hit on prices so as not to lose port allocations for 2009,” Merrill said. “Previous capacity allocation systems at Newcastle have used historical shipping performance in determining forward capacity allocations.”

To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net

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ANZ Cuts 800 Workers, 2% of Workforce, on Economic Downturn

By Jesse Riseborough

Dec. 6 (Bloomberg) -- Australia & New Zealand Banking Group Ltd., the nation’s fourth-largest, will cut 800 workers, or 2 percent of its workforce, amid a global economic downturn.

Chief Executive Officer Mike Smith told staff at a briefing yesterday of the job losses, Kevin Foley, a spokesman for Melbourne-based ANZ, said today by telephone. ANZ said on Nov. 14 that more than 500 jobs would be cut to cushion the company from the impact of the global credit crisis.

“It’s to reduce the numbers of middle-management employees,” Foley said. Staff in branches who dealt directly with customers and those in call centers “are largely unaffected,” he said.

Royal Bank of Scotland Plc is also cutting between 120 and 150 workers from the Australian unit of ABN Amro Holding NV, which it acquired this year, the Australian Financial Review said today.

To contact the reporter for this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net

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BHP May Cut Ore Output 25% on Demand, Merrill Says

By Jesse Riseborough

Dec. 6 (Bloomberg) -- BHP Billiton Ltd., the world’s largest mining company, may need to cut iron ore production by about a quarter next year as a slump in global steel output curbs demand for the raw material, Merrill Lynch & Co. said.

BHP, the world’s third-biggest iron ore producer, may curb output from mines in Western Australia by 30 million metric tons amid a slump in prices, Merrill Lynch analysts led by Sydney- based Vicky Binns said in a report dated yesterday. Output this year may be cut by 4 million tons, the report said.

The global financial crisis has reduced demand for steel, forcing mills in Asia, Europe and North America to slash output, curbing the need for ore. Cia. Vale do Rio Doce and Rio Tinto Group, the world’s two biggest producers of the ore, have already cut output, while BHP has yet to announce a reduction.

“After four very tight years, the iron ore market is now in oversupply on our forecasts, driven there primarily by a collapse in steel production,” Merrill said. Global iron ore demand will fall 1.1 percent next year, according to Merrill Lynch, down from an earlier forecast for a 6.3 percent gain.

Boost Capacity

BHP produced 122 million tons of iron ore last fiscal year and has flagged plans to boost capacity in Western Australia to 300 million tons by 2015. The Melbourne-based company last month approved a $4.8 billion expansion of its operations in the state, increasing capacity to 205 million tons by the second half of the 2011 calendar year.

BHP may cut output of iron ore from its mines in Western Australia by 17 percent this year, Macquarie Group Ltd. analysts said in a Nov. 18 report. The company said last month that customers had requested a deferral of iron ore shipments equal to 5 percent of its budget for 2008.

Contract prices for iron ore may decline 20 percent, to about $73 a ton for benchmark Australian ore, in the year starting April 1, Merrill Lynch said. That’s down from its earlier forecast for prices to remain unchanged at a record $92 a ton.

Commodity prices plunged to their lowest in more than six years yesterday on concern the deepening global recession will cut demand. The Reuters/Jefferies CRB Index of 19 raw materials, including oil, copper and corn, is headed for the biggest annual drop since its debut in 1956 after plunging 56 percent from a July record.

Mining Index

The slump has led to a 69 percent decline in the Bloomberg World Mining Index of 162 global stocks this year. BHP’s shares in Australia have dropped 35 percent this year, closing yesterday at A$26.15 after losing 4.9 percent.

“The problem for commodities at the moment is the complete lack of visibility on current quarter and 2009 actual demand and real consumption,” Macquarie analysts led by Jim Lennon said in a report e-mailed today. “The collapse in demand in the current quarter has been easily the largest anyone in all the industries we cover can recall, and we speak to some old people.”

Merrill Lynch slashed its forecasts for metals and bulk commodities, iron ore and coal. Copper may average $1.80 a pounce next year, down 20 percent from an earlier forecast, aluminum 88 cents a pound, down 20 percent, zinc 58 cents a pound, down 13 percent, and gold $897 an ounce, a 12 percent decline.

The medium- to longer-term outlook for the mining sector was positive as demand for commodities from China continued, Merrill said. “If investors can handle the volatility and are prepared to look more long term, then the next three-to-six months will offer great opportunity,” the report said.

To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net

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Australian Treasurer, Trade Minister Head to China for Talks

By Jesse Riseborough

Dec. 6 (Bloomberg) -- Australian Treasurer Wayne Swan and Trade Minister Simon Crean departed for China today for talks on growing commerce between the two nations and the response to turmoil in global economies.

Swan and Crean will meet senior officials in Beijing including Zhang Ping, the head of China’s National Development and Reform Commission, and Commerce Minister Chen Deming, according to an joint e-mailed statement from the treasurer and trade minister today.

“The purpose of the trip is to discuss our growing investment and trade relationship,” the statement said. “Ministers will also discuss the international response to the global financial crisis, and the role of G20.”

China was Australia’s largest trade partner in 2007 with two-way trade in goods and services totaling A$58 billion ($37 billion), the statement said.

To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net

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Nanjing’s Chairman Says Steel Prices Have Bottomed

By Helen Yuan and Lee Spears

Dec. 6 (Bloomberg) -- Nanjing Iron & Steel United Co., the Chinese steelmaker part-owned by billionaire Guo Guangchang, said steel prices in the world’s biggest user of the alloy have bottomed and output may recover on the state’s stimulus package.

Lower raw-material prices will allow producers to raise output, Chairman Yang Siming said today in an interview in Shanghai, where he’s attending an industry conference. “Next year, our construction-steel sales will benefit from the government’s plan to boost infrastructure investment.”

China last month announced a 4 trillion yuan ($584 billion) stimulus package to revive growth in the world’s fourth-largest economy. All Chinese steelmakers were unprofitable in October after demand from manufacturers plunged, according to the China Iron & Steel Association.

“The steel market will lead other industries in recovering under the government’s stimulus plan,” Qi Xiangdong, the association’s vice chairman, told the Shanghai conference. The industry group represents most of China’s large state-owned steel mills, including Baosteel Group Corp., the largest mill.

“Steel prices have bottomed,” Nanjing’s Yang said in the interview. The company’s production this month would recover to October’s level after four months of declines, he said, without giving figures.

Yang’s comments echo remarks yesterday from Lakshmi Mittal, chief executive officer of the world’s largest steelmaker, who said steel demand may rebound next year and the company wouldn’t deepen output cuts. ArcelorMittal has reduced output by about a third and slashed staff to cope with the global recession.

Prices Gain

Steel prices in China have risen for three straight weeks, gaining 2.4 percent this week to 3,681 yuan ($538) a ton after plunging as much as 45 percent from a June 5 record, according to data from Beijing Antaike Information Development Co.

The Nanjing, eastern China-based steelmaker had profit of 50 million yuan ($7.3 million) in October after cutting output, while the industry in China booked a collective loss, Yang said. China’s mills cut output by 10 percent in August, 30 percent in September and October, and 40 percent in November, he said.

Nanjing Steel has asked iron-ore suppliers including BHP Billiton Ltd., Rio Tinto Plc and Cia Vale do Rio Doce to slow deliveries, Chairman Yang said. About 70 percent of the ore bought by the mill is used to fill long-term contracts, he said.

China’s economy grew 9 percent in the third quarter, the slowest pace in 5 years, because of a slump in property and export demand. Government investment in the fourth quarter on railways will create demand for 1.6 million metric tons of steel and 10 million tons of cement, and provide 500,000 jobs, the National Development and Reform Commission said on Dec. 1.

China’s 71 largest steelmakers posted a combined loss of 5.8 billion yuan in October, the first time the entire industry has been money-losing, according to the China Iron & Steel Association. Baosteel Group is facing its “most difficult” period since its founding 30 years ago, General Manager He Wenbo said last month.

To contact the reporters on this story: Lee Spears in Beijing at lspears2@bloomberg.net; Helen Yuan in Shanghai at hyuan@bloomberg.net

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Pakistan May Miss Growth Target, Inflation May Be 22%, SBP Says

By Farhan Sharif

Dec. 6 (Bloomberg) -- Pakistan’s central bank said the nation’s economy may miss growth targets and inflation may rise as high as 22 percent.

The State Bank of Pakistan, in an annual report today, said the economic growth rate during fiscal year the fiscal year that is about to end is expected to be around 3.5 percent to 4.5 percent compared with a target of 5.8 percent.

Pakistan’s economy may expand as little as 3 percent this fiscal year in response to a “tightening” of economic policies and slowing growth among the nation’s trading partners, the International Monetary Fund said in a statement this week. That would be the slowest pace since 2000, when South Asia’s second- largest economy grew 2 percent.

In order to secure an IMF loan, Pakistan’s government and central bank have agreed to eliminate electricity subsidies by the end of June 2009 and to continue to adjust fuel prices to reflect international prices. That should reduce the budget deficit as a proportion of gross domestic product to 3.3 percent by 2009-10 from 4.2 percent in 2008-09 and 7.4 percent this year, the IMF said.

Pakistan was forced to turn to the IMF for a bailout after its foreign reserves shrunk 75 percent in a year to $3.45 billion.

To contact the reporters on this story: Farhan Sharif in Karachi, Pakistan, at fsharif2@bloomberg.net.

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Asian Currencies: Taiwan Dollar, Yuan Drop on Slowdown, Stocks

By David Yong

Dec. 6 (Bloomberg) -- Asian currencies fell this week, led by Taiwan’s dollar and the Chinese yuan, after reports showed exports in the region slumped because of recessions in the U.S., Europe and Japan.

Eight of the region’s 10 most-traded currencies excluding the yen dropped this week as investors became net sellers of shares from South Korea, Thailand and the Philippines. The Korean won, Malaysia’s ringgit and Singapore’s dollar fell after manufacturing in China, the fastest-growing major economy, shrank by the most on record, damping regional trade outlook.

“Attention has been on the trade numbers” and that is likely to see the Taiwan dollar weaken further, said Maya Pinto, an economist at IDEAglobal in Singapore. “We’ve seen foreigners exiting the stock market in the past three session.”

Taiwan’s dollar declined 0.8 percent to NT$33.549, according to Taipei Forex Inc., after reaching NT$33.612, the weakest level since Oct. 28. The yuan’s five-day 0.7 percent drop to 6.8812 is the steepest since a dollar peg was scrapped in July 2005. The ringgit fell 0.4 percent to 3.6350, near the lowest in more than two years.

Taiwan’s exports dropped 12.4 percent in November from a year earlier, the most since February 2002, according to a Bloomberg News survey of economists before the Ministry of Finance report on Dec. 8.

Cutting Forecasts

Taiwan Semiconductor Manufacturing Co., the largest producer of chips designed by other companies, on Dec. 1 cut sales and profit forecasts for this quarter, while rival United Microelectronics Corp. yesterday asked employees not to forgo vacations for pay to save costs.

The Chinese yuan posted a weekly decline on speculation Treasury Secretary Henry Paulson’s calls for a stronger currency won’t stop China from weakening it to support exporters. Manufacturing in Asia’s second-largest economy shrank by the most on record and export orders plunged, the China Federation of Logistics and Purchasing said on Dec. 1.

Korea’s won lost 0.4 percent to 1,475.50 per dollar, extending a four-month slide as overseas investors pulled $37 billion out of local shares this year, according to Bloomberg data. Banks and companies sought more dollars to repay overseas debt amid a funding squeeze.

“Concerns over a shortage of dollars remain, with the funding difficulties at banks not showing any sign of thawing,” said Park June Geun, a currency dealer in Seoul at BNP Paribas, Europe’s third-largest bank by market value.

Korea’s one-year cross-currency swap rate was below zero for a record 12th day signaling demand for dollars. The swap, which should be positive for lending won because of higher benchmark interest rates, reached a record minus 0.7 on Dec. 4 versus an average of 3.3 percent in the five years before July 2007 when the global credit crunch began.

Slower Recovery

Malaysia’s ringgit added to four months of decline after the government on Dec. 4 said exports slumped 2.6 percent in October, the first decline since July 2007.

“If all the stimulus plans don’t kick in fast enough, recovery may take longer than expected in 2010,” said Wan Suhaimi Saidi, an economist at Kenanga Investment Bank Bhd. in Kuala Lumpur. “The bias will be for more rate cuts and that will likely have some impact on the ringgit.”

Bank Negara Malaysia lowered its overnight policy rate to 3.25 percent on Nov. 24, after holding it at 3.5 percent in 20 meetings since April 2006, citing exports slowdown and rising unemployment risks. Policy makers next meet on Jan. 21.

Rupiah Rallies

Indonesia’s rupiah capped its best week in more than seven years, rising 3.4 percent to 11,705 a dollar, on speculation a surprise central-bank cut in borrowing costs on Dec. 4 will revive appetite for the nation’s securities.

Bank Indonesia lowered its benchmark reference rate for bill sales to 9.25 percent from 9.5 percent to shield Southeast Asia’s biggest economy from the global recession. The central bank slashed its growth forecast for 2009 to 4.5 percent, the slowest in seven years.

Elsewhere, Thailand’s baht dropped 0.4 percent this week to 35.65 a dollar, Singapore’s dollar weakened 0.9 percent to S$1.5225 and the Philippine peso weakened 0.3 percent to 49.08. The Vietnamese dong was little changed at 16,978.50.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.

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Asian Stocks Fall This Week as Recession Deepens, Oil Plunges

By Chua Kong Ho

Dec. 6 (Bloomberg) -- Asian stocks fell this week as the deepening global recession slashed consumer demand, driving commodity prices lower and dragging down materials companies and oil drillers.

BHP Billiton Ltd., the world’s biggest mining company, dropped 16 percent after oil fell more than $100 a barrel from its record in July and copper prices slumped. Honda Motor Co. sank 21 percent as November U.S. sales plunged the most since 1981. Surfwear maker Billabong International Ltd. tumbled 25 percent in Sydney after cutting its earnings forecast as its U.S. customers deferred deliveries amid the economic contraction.

“The world is in recession and earnings will fall next year for most companies the world over, including Asia,” said Hugh Young, managing director at Aberdeen Asset Management Ltd. in Singapore, overseeing about $45 billion. “Asia is in pretty good shape for surviving, not in great shape for growing.”

The MSCI Asia Pacific Index fell 3.8 percent to 79.52 this week. Raw-materials producers had the biggest percentage decline among the 10 industry groups.

MSCI’s Asian index has plunged 50 percent in 2008 as global financial companies’ losses and writedowns from the collapse of the U.S. subprime-mortgage market neared $1 trillion. Shares on the MSCI gauge are now valued at 9.7 times trailing earnings after falling to as low as 8.2 times last month. That’s half the 19.5 times on Nov. 11 last year, when the measure hit a peak of 172.32. Prior to the current market turmoil, the price-earnings ratio never dropped below 10, according to Bloomberg data.

U.S. Recession

The U.S. entered a recession in December 2007, the National Bureau of Economic Research, a private, non-profit panel of economists that dates American business cycles, said Dec. 1. A government report said the number of Americans receiving jobless benefits in the week ended Nov. 22 jumped to the most since December 1982. A separate report showed orders at U.S. factories in October sank the most since July 2000.

Central banks worldwide stepped up efforts to arrest the economic slowdown. The European Central Bank cut its main refinancing rate by 75 basis points, the most in its 10-year history, while the Bank of England cut its benchmark rate to 2 percent, the lowest level since 1951. The Swedish and Danish central banks also lowered their key rates. The Bank of Korea said it would make a one-time interest payment on central bank reserves and buy more securities.

Japan’s Nikkei 225 Stock Average dropped 7 percent to 7,917.51. Australia’s S&P/ASX 200 Index retreated 6.8 percent. Most markets in Asia fell this week.

BHP declined 16 percent to A$26.15. Inpex Corp., Japan’s largest explorer, sank 14 percent to 529,000 yen. Woodside Petroleum Ltd., Australia’s second-biggest oil producer, retreated 16 percent to A$30.46.

Commodities Retreat

Crude oil has dropped from a peak of $147.27 on July 11 to $41.65 a barrel on the New York Mercantile Exchange. Oil prices may slide below $25 a barrel next year if the global recession spills over into China, Francisco Blanch, a London-based analyst at Merrill Lynch, said Dec. 4.

A measure of six metals traded on the London Metal Exchange, including copper and zinc, fell 14.8 percent this week.

“We’re in an environment where demand is coming off, and that’s putting commodities under pressure,” said Matt Riordan, who helps manage $3 billion at Paradise Investment Management in Sydney. “Things have been slowing down pretty sharply.”

Rio Tinto Group, the third-largest mining company, tumbled 31 percent to A$32, the biggest percentage decline on MSCI’s Asian gauge, on concern it may have difficulty refinancing debt due next year. The company plans to close its iron-ore mines in Western Australia for 12 days as part of an earlier decision to reduce output.

Vehicle Sales

Honda, Japan’s No. 2 automaker, fell 21 percent to 1,653 yen. The carmaker withdrew from Formula One racing, cutting at least 20 billion yen ($216 million) in costs, after its U.S. vehicle sales plunged 32 percent in November.

Toyota Motor Corp. dropped 12 percent to 2,650 yen. Bridgestone Corp., the world’s largest tiremaker, dropped 14 percent to 1,376 yen.

General Motors Corp. Chef Executive Rick Wagoner told lawmakers he would accept strict conditions for a U.S. loan to stay afloat, including a promise to return the money and file for bankruptcy if his company doesn’t fulfill the terms.

Sack Workers

“Regardless of whether the U.S. automakers go bankrupt or stay afloat, they’ll have to sack workers,” said Yoshinori Nagano, a senior strategist at Daiwa Asset Management Co., which manages about $96 billion in Tokyo. “Should the companies collapse, it may trigger a series of business failures and worsen an already weakened U.S. economy.”

Billabong declined 25 percent to A$7.94. The U.S. recession has accelerated a slowdown in demand for clothing and surfing accessories, causing earnings per share to fall in the six months ending December, the Gold Coast, Australia-based company said Dec 4.

Indonesia’s PT Bumi Resources, Asia’s biggest exporter of power-station coal, slumped 25 percent to 760 rupiah after the country’s stock exchange said the company should use internal funds to fund a repurchase of its shares, instead of selling debt.

To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net

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BHP May Cut Ore Output 25% on Demand, Merrill Says

By Jesse Riseborough

Dec. 6 (Bloomberg) -- BHP Billiton Ltd., the world’s largest mining company, may need to cut iron ore production by about a quarter next year as a slump in global steel output curbs demand for the raw material, Merrill Lynch & Co. said.

BHP, the world’s third-biggest iron ore producer, may curb output from mines in Western Australia by 30 million metric tons amid a slump in prices, Merrill Lynch analysts led by Sydney- based Vicky Binns said in a report dated yesterday. Output this year may be cut by 4 million tons, the report said.

The global financial crisis has reduced demand for steel, forcing mills in Asia, Europe and North America to slash output, curbing the need for ore. Cia. Vale do Rio Doce and Rio Tinto Group, the world’s two biggest producers of the ore, have already cut output, while BHP has yet to announce a reduction.

“After four very tight years, the iron ore market is now in oversupply on our forecasts, driven there primarily by a collapse in steel production,” Merrill said. Global iron ore demand will fall 1.1 percent next year, according to Merrill Lynch, down from an earlier forecast for a 6.3 percent gain.

Boost Capacity

BHP produced 122 million tons of iron ore last fiscal year and has flagged plans to boost capacity in Western Australia to 300 million tons by 2015. The Melbourne-based company last month approved a $4.8 billion expansion of its operations in the state, increasing capacity to 205 million tons by the second half of the 2011 calendar year.

BHP may cut output of iron ore from its mines in Western Australia by 17 percent this year, Macquarie Group Ltd. analysts said in a Nov. 18 report. The company said last month that customers had requested a deferral of iron ore shipments equal to 5 percent of its budget for 2008.

Contract prices for iron ore may decline 20 percent, to about $73 a ton for benchmark Australian ore, in the year starting April 1, Merrill Lynch said. That’s down from its earlier forecast for prices to remain unchanged at a record $92 a ton.

Commodity prices plunged to their lowest in more than six years yesterday on concern the deepening global recession will cut demand. The Reuters/Jefferies CRB Index of 19 raw materials, including oil, copper and corn, is headed for the biggest annual drop since its debut in 1956 after plunging 56 percent from a July record.

Mining Index

The slump has led to a 69 percent decline in the Bloomberg World Mining Index of 162 global stocks this year. BHP’s shares in Australia have dropped 35 percent this year, closing yesterday at A$26.15 after losing 4.9 percent.

“The problem for commodities at the moment is the complete lack of visibility on current quarter and 2009 actual demand and real consumption,” Macquarie analysts led by Jim Lennon said in a report e-mailed today. “The collapse in demand in the current quarter has been easily the largest anyone in all the industries we cover can recall, and we speak to some old people.”

Merrill Lynch slashed its forecasts for metals and bulk commodities, iron ore and coal. Copper may average $1.80 a pounce next year, down 20 percent from an earlier forecast, aluminum 88 cents a pound, down 20 percent, zinc 58 cents a pound, down 13 percent, and gold $897 an ounce, a 12 percent decline.

The medium- to longer-term outlook for the mining sector was positive as demand for commodities from China continued, Merrill said. “If investors can handle the volatility and are prepared to look more long term, then the next three-to-six months will offer great opportunity,” the report said.

To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net

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U.S., China See Doha Round Completed This Year, USDA Chief Says

By Richard Dobson

Dec. 6 (Bloomberg) -- The U.S. and China are confident that the seven-year Doha round of global trade talks can be completed by the end of this year, U.S. Agriculture Secretary Ed Schafer said.

“Both China and the U.S. remain confident that a successful round can be completed here in the next few weeks,” Schafer told reporters today in Shanghai. Schafer attended the Strategic Economic Dialogue between the U.S. and China in Beijing that ended yesterday.

World Trade Organization negotiators have been trying to reach an agreement since 2001 to cut agriculture subsidies and tariffs on industrial goods. WTO Director General Pascal Lamy has said he is considering calling a ministerial meeting of the group in the second week of December to complete the talks.

“The U.S. is prepared to make the appropriate commitments on subsidies for the Doha round, but those commitments must come with increased market access for our products in other countries around the world,” Schafer said.

China’s Commerce Minister Chen Deming said on Dec. 4 that an agreement had been reached with the U.S. to push forward on completion of the Doha trade round by the end of December, according to the Xinhua News Agency.

Chen said he hoped the U.S. would also show flexibility and noted that while the U.S. was concerned with agriculture and non- agricultural market access issues, China hoped for more focus on concerns of developing countries, Xinhua reported.

Trade Barriers

The last attempt to get an outline of a new global trade agreement in July broke down as the U.S. faced off against India and China over their demands that developing nations be allowed to erect new barriers to agricultural imports.

“I seriously doubt it can be completed,” said Andy Xie, founder of Rosetta Stone Advisors in Shanghai and formerly Morgan Stanley’s chief Asia economist. “I don’t think the developed economies can make enough compromises on agriculture subsidies for the emerging economies to get on side.”

Lamy said Nov. 29 he would make a decision within a week on whether to call a three-day meeting between Dec. 10 and Dec. 19.

At the completion of the Strategic Economic Dialogue yesterday, China and the U.S. pledged $20 billion to fund trade and agreed to deepen financial ties, stepping up efforts to counter the credit crisis in their final economic talks before President-elect Barack Obama takes office Jan. 20.

To contact the reporter on this story: Richard Dobson in Shanghai at Rdobson4@bloomberg.net

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India Cuts Interest Rates After Terrorist Attacks

By Cherian Thomas and Anoop Agrawal

Dec. 6 (Bloomberg) -- India’s central bank cut interest rates for the third time in less than two months after last week’s terror attacks shook investor confidence in an economy already weakened by a global recession.

The Reserve Bank of India reduced its repurchase rate to 6.5 percent from 7.5 percent, Governor Duvvuri Subbarao told reporters in Mumbai. The bank also cut the reverse repurchase rate at which it borrows overnight to 5 percent from 6 percent. The cut in the reverse repurchase rate was the first since 2003.

Companies including Merck KGaA, Daiichi Sankyo Co., GlaxoSmithKline Plc and Sanofi-Aventis SA have halted business trips to India after terrorists attacked luxury hotels in the financial capital of Mumbai on Nov. 26 and killed 163 people. The tragedy came as India’s economy faces its weakest economic expansion in six years, dragged down by the global recession.

“The downside risks to growth have increased after the terror attacks,” said N.R. Bhanumurthy, an economist at the Institute of Economic Growth in New Delhi. “We expect the central bank to loosen monetary policy further.”

The government will also announce a fiscal stimulus package to support industries, Commerce Minister Kamal Nath said yesterday. India may unveil a 750 billion rupee ($15 billion) plan to boost growth, the Economic Times reported Dec. 4, without saying where it got the information. The announcement may be made tomorrow, according to the Press Trust of India.

Industry Funding

Lower interest rates will allow Indian companies to turn to local banks for funding rather than rely on lenders in the U.S. and Europe, where a credit crunch has dried up money. Forty percent of Indian industry’s funding in the year ended March 31 came from borrowings from abroad and the sale of new shares in the stock market, according to Tehmina Khan, international economist at Capital Economics Ltd. in London.

India’s financial markets are closed today. Bonds gained for a fourth week at the end of trading yesterday, pushing yields to 6.76 percent, the lowest level since April 2005, on speculation slowing inflation will prompt the central bank to reduce borrowing costs.

Today’s move by Subbarao was made easier after the government reduced fuel prices yesterday by as much as 10 percent, which may further drive down inflation from the current seven- month low of 8.40 percent.

“We think much will depend on the government’s approach in dealing with terrorism” to remove the negative business sentiment, said Rajeev Malik, regional economist at Macquarie Group Ltd. in Singapore.

Tackling Terrorism

Prime Minister Manmohan Singh this week moved Palaniappan Chidambaram, one of his most able ministers who oversaw record average economic growth of 8.9 percent since 2004, to the home portfolio from the finance ministry to tackle the threat of terrorism.

Singh, who opened up India to foreign investors as finance minister in the early 1990s, has taken charge of the finance portfolio. He said Nov. 30 that India will establish four more hubs for its elite National Security Guards to be stationed in various metropolitan cities and frame laws to set up a federal investigative agency.

Singh’s government, which hasn’t revised its growth forecast since last month’s Mumbai assault, expects the economy to slow to as much as 7 percent in the year to March 31, the weakest pace since 2003. Subbarao said today that the “moderation in growth will be more than anticipated.”

He said the central bank will provide 70 billion rupees of refinance credit to small and medium industries and is working on a 40 billion rupee refinance plan for mortgage companies.

Growth, Inflation

India’s economic expansion is slowing due to a decline in exports and investments from abroad, as well as interest-rate increases earlier this year to control inflation that accelerated to a 16-year high in August.

The government wants lower borrowing costs to push growth back up to around 9 percent, a pace it says needs to be sustained to reduce poverty. The World Bank estimates 76 percent of India’s 1.2 billion people live on less than $2 a day.

Governor Subbarao presided over India’s first rate reduction in four years on Oct. 20, reversing the tight policy stance the central bank had followed since 2004, as he prioritized growth over fighting inflation.

Today’s move by the central bank came after non-state lenders including ICICI Bank Ltd. said they wanted a looser monetary policy before they start to cut their lending rates. Only state-run banks, which control half the assets in India’s banking sector, have lowered their prime lending rates following the reduction in central bank rates so far.

Stocks, Vehicle Sales

India’s consumers, who account for 60 percent of the economy, are also spending less in response to a declining stock market. The benchmark Sensitive Index has dropped 56 percent this year as overseas investors sold a record $13.5 billion of equities. Foreign lenders are shying from emerging markets like India as the U.S., Japan and Europe succumb to recession.

Industrial production, which makes up a quarter of India’s $1.2 trillion economy, may drop in October for the first time in at least 14 years. Motor vehicle sales sank 14 percent in October. The industrial output data will be announced on Dec. 12.

“Historically, there has been a close relationship between the output of consumer durables and motor vehicle sales,” said Robert Prior-Wandesforde, senior Asian economist at HSBC Group Plc in Singapore. “The case for further policy rate cuts is building up strongly.”

To contact the reporters on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net; Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.

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