Bank of Canada Cuts Overnight Target to 1.5% from 2.25%

Daily Forex Fundamentals | Written by CurrencyThoughts | Dec 09 08 14:43 GMT |

A seventh rate reduction over the past 12 months was announced this morning. Such was the largest move so far and brought the cumulative decline to 300 basis points. Many analysts had expected a drop of 50 bps but bumped up those expectations after a series of out-sized rate cuts last week by other central banks. The six earlier Canadian cuts were reductions of 25 basis points each in December 2007, last January and October 21st and cuts of 50 bps last March, April and October 8th. Officials will probably cut rates further. The statement on October 8th had correctly predicted that "some further monetary stimulus will likely be required to achieve the 2.0% inflation target over the medium term." That wording has been modified but not in a way that implies a greater than even chance that easing has been completed. The new wording states: "the Bank will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve the 2 per cent inflation target over the medium term." The new policy statement claims that Canada has entered a recession, something that was not apparent in October. The world economy has "deteriorated significantly," a global recession has been "deeper than previously anticipated," and financial markets "remain severely strained." Core inflation will have a lower path than assumed in October's semi-annual Monetary Policy Report, which had revised such downward to 1.7% year-on-year in 1H09 from 1.9%, 1.6% in 2H09 from 2.0%, and 1.9% in 2010 from 2.0%. The recession has some mitigating forces, foremost of which is the "depreciation of the Canadian dollar," which edged 0.4% lower after the central bank's announcement and is now trading 28.6% below its November 2007 peak. Officials are clearly unfazed by the currency's slide and, on the contrary, consider such to be appropriate. Also, money markets and credit conditions have responded positively to Canadian liquidity conditions. The 50-basis point premium of Canada's rate target to the target Fed funds rate compares to a 75-bp discount before the Fed began cutting its target in 3Q07. The Fed will be easing again on December 16th by at least 50 bps and very possibly more. The Bank of Canada's first fixed policy announcement date of 2009 will be on January 20th, the same day as the U.S. presidential succession. Canada's central bank will publish an update of its October Policy Report on January 22nd. At this stage, it is likely that the central bank cuts interest rates again next month. Larry Greenberg CurrencyThoughts

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Daily Technical Strategist

Daily Forex Technicals | Written by FXTechstrategy | Dec 09 08 14:34 GMT |

Today's Focus: EURUSD & GBPUSD EURUSD:Broader Range Trading Price Activities Continues To Prevail. GBPUSD: Resumption Of Medium To Longer Term Downtrend Expected. EURUSD While the broader consolidation between the 1.2330 and the 1.3298 levels remains in place, price action Monday saw the pair heading higher and challenging its ST declining trendline originating from the 1.3298 high. As we expect the broader range to break either way to trigger meaningful directional moves, nearer term, an erosion of the mentioned declining trendline will suggest higher prices towards its Nov 25 & 05'08 highs at 1.3081/1.3116 at first and then the 1.3298 level, its Oct 30'08 high. Alternatively, the 1.2814 level, its Nov 19'08 high will be targeted on any downside declines with a break and close below there opening the door for further weakness towards the 1.2330 level, its YTD low where a loss will resume its medium term downtrend towards the 1.2134 level, its .50 Ret (its 0.8231-1.6038 high, monthly chart) and next the 1.1827 level, its Mar'06 low. On the whole, EUR remains biased to the downside while holding within broader range. Support Comments 1.2814 Nov 19'08 high 1.2484 Oct'06 low 1.2330/24 Oct 28'08 low/Jan/April'06 highs 1.2134 .50 Ret (0.8231-1.6038 rally) Resistance Comment 1.3081/1.3116 Nov 25 & 05'08 highs 1.3298 Oct 30'08 high 1.3531 Oct 20'08 high GBPUSD GBP's hammer candle formation continues to increase odds of further corrective recovery off its Dec 04'08 low at 1.4470. It was seen closing higher Monday suggesting that we might see more upside incursions in the days ahead. If that occur, the 1.5250/65 level followed with the 1.5534 level, its Nov 25'08 high will serve as resistance levels. Its daily stochastics which has just turned higher remains supportive of this view. Support on the downside now begins from the 1.4558 level, its Nov 13'08 low with a break of there paving the way for a down move towards the 1.4470 level ahead of the 1.4045 level, its Jan'02 low. All in all,GBP should head back down towards its recent low at 1.4470 and beyond on ending its present corrective bounce. Support Comments 1.4558 Nov 13'08 low 1.4470 Dec 04'08 low 1.4045 Jan'02 low Resistance Comments 1.4837 Oct 2001 high 1.5250/65 Nov 19'08 high/Oct 24'08 low 1.5885 Nov 10'08 high) Mohammed Isah Market Analyst www.fxtechstrategy.com This report is prepared solely for information and data purposes. Opinions, estimates and projections contained herein are the author's own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which the author incur any responsibility. The does not accept any liability whatsoever for any loss arising from any use of this report or its contents. This report is not construed as an offer to sell or solicitation of any offer to buy any of the currencies referred to in this report

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Today's Market Outlook

Daily Forex Technicals | Written by Windsor Brokers Ltd | Dec 09 08 14:00 GMT |

EURUSD Upper rejection at 1.2966, just under 7 week triangle resistance, turns focus lower. Loss of 1.2840/20 completes head and shoulders top, signaling a fresh phase lower and exposing 1.2627 next. Res: 1.2890, 1.2967, 1.3028, 1.3080 Sup: 1.2800, 1.2785, 1.2740, 1.2716 GBPUSD Extends the pullback off 1.5046, yesterday's peak, with lower top left at 1.4956. The latest break under 1.4780 has seen extension to 1.4737 so far. Further correction may try at 1.4710/1.4690, before possible attempt higher, while loss of 1.4660 delays. Res: 1.4956, 1.5010, 1.5050, 1.5070 Sup: 1.4737, 1.4710, 1.4690, 1.4560 USDJPY Extended decline from 97.44, 25 Nov high, to 91.58 on 05 Dec, before correcting higher. A lower top at 93.91 now likely caps for fresh downside extension to 91.58, ahead of 90.87. Res: 93.20, 93.52, 93.90, 94.25 Sup: 92.05, 91.58, 91.35, 90.87 USDCHF Firmed off 1.1925, 04 Dec low, to complete a 2-week bull flag last Friday, with 1.2251 seen so far. Strong reversal to 1.2019 followed, ahead of current attempt higher that reached 1.2177 so far. Further upside will target 1.2298, with extension to 1.2500/1.2600 area not ruled out. 1.2087 offers initial support, ahead of 1.2019, break of which sidelines bulls. Res: 1.2206, 1.2250, 1.2298, 1.2334 Sup: 1.2115, 1.2087, 1.2035, 1.2019 Windsor Brokers Ltd http://www.windsorbrokers.biz The information contained in this document was obtained from sources believed to be reliable, but its accuracy or completeness cannot be guaranteed. Any opinions expressed herein are in good faith, but are subject to change without notice. No liability accepted whatsoever for any direct or consequential loss arising from the use of this document.

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Brazil’s Economy Unexpectedly Quickens in 3rd Quarter

By Joshua Goodman and Andre Soliani

Dec. 9 (Bloomberg) -- Brazil’s economic growth unexpectedly accelerated in the third quarter to the fastest pace in four years, driven by construction, manufacturing and consumer spending.

Gross domestic product jumped 6.8 percent from a year earlier, more than any of the 31 economists in a Bloomberg survey expected, from a revised 6.2 percent increase in the previous three months. Brazil’s $1.3 trillion economy grew 1.8 percent from the second quarter, the national statistics agency said today in Rio de Janeiro.

Latin America’s largest economy has since cooled, with companies slashing jobs and sales forecasts in anticipation of slower demand and tightening credit next year. Morgan Stanley expects the economy to soon enter a technical recession, as defined by two consecutive quarters of negative growth, for the first time since 2003.

“The third-quarter figures don’t reflect what happened to the economy in the past two months, when the credit crunch affected the country,” Roberto Padovani, chief economist at WestLB AG in Sao Paulo, said in a telephone interview. “Growth will probably slow to 2 percent, 2.5 percent next year.”

Yields on Brazil’s interest-rate futures contracts rose as investors bet the strong growth report reduces the chance of a central bank rate cut in the months ahead. The yield on the overnight futures contract for January 2010 delivery rose for the first time in eight days, advancing 15 basis points to 13.27 percent at 7:16 a.m. New York time.

Job Cuts

Brazil’s automobile industry, which contributes 5 percent of GDP, has trimmed 500 jobs since the crisis began and carmakers such as Fiat Spa and General Motors Corp. have given thousands of workers early vacations. To fill the gap left by scarce credit, the federal and state governments have pledged 8 billion reais ($3.2 billion) to the financial arms of carmakers who saw sales plunge 25 percent in November, the biggest drop in five years.

“The third quarter report is on investors’ backburner,” Jankiel Santos, chief economist at Banco Espirito Santo de Investimento SA, said in a phone interview before the report’s release. “Nobody thinks there will be any good economic news in the coming months.”

Even as the economic outlook worsens, annual inflation, at 6.39 percent, remains near the 6.50 percent upper limit of the government’s target band. Given the uncertainty on prices triggered by a three-month, 29 percent slide in the local currency, Brazil’s central bank will leave its benchmark interest rate unchanged at 13.75 percent tomorrow, according to 44 of 46 economists in a Bloomberg survey.

Policy makers will wait until next year to start cutting rates, Padovani said.

To contact the reporter on this story: Joshua Goodman in Rio de Janeiro at jgoodman19@bloomberg.net; Andre Soliani in Brasilia at asoliani@bloomberg.net

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Spain’s ‘Best Generation’ Hit as Boom Turns to Bust

By Emma Ross-Thomas

Dec. 9 (Bloomberg) -- Roberto Frenedoso, a 23-year-old construction worker, has little to do these days except loiter around a square with his friends in Madrid’s Getafe suburb.

Frenedoso and his pals, victims of the country’s economic slump, were in grade school when Spain’s last recession struck in 1993. While a decade-long, property-fueled boom doubled the size of Spain’s economy and fired a generation’s hopes of lasting prosperity, 28 percent of young people are now out of work. That’s about twice the European Union average.

“I had my job, my money, my things, my expectations, now I don’t have anything,” said Frenedoso. He continues to look for a job around Getafe, where the rows of new homes are a reminder of the boom that’s now turned to bust.

Spain, the economy that created more than half the new jobs in the euro region between 2002 and 2005, has been one of Europe’s biggest losers from the global economic slowdown. Unemployment jumped to an EU-high of 11.3 percent in the third quarter and growth contracted for the first time in 15 years.

The European Commission forecasts the jobless rate will rise to 13.8 percent in 2009 and Europe’s fifth-largest economy will contract 0.2 percent after expanding an average 3.8 percent annually over the past decade.

Workers between 15 and 24 years are bearing the brunt of the downturn because they get the most precarious job contracts, making them first to be cut when growth slows.

‘Best Generation’

“Spain is missing out on the best generation it ever had; People have never been so well-educated as we are in terms of languages and computer skills,” said Carlos Aller, 25, an unemployed graphic designer.

Prime Minister Jose Luis Rodriguez Zapatero, whose government said last year that Spain would cope with an end to the property boom, is doing little to help younger workers even after courting them in March’s successful re-election campaign.

While his administration has announced 90 billion euros ($116 billion) of stimulus measures to reverse the economic slide and try to create 300,000 new jobs, none of them are aimed directly at youth.

Spain’s young workers are feeling the unintended consequences of the country’s piecemeal attempts to reform its labor market over the past two decades.

Instead of overhauling the whole system, it left generous protection for established workers in place, while allowing the wide use of temporary contracts for new workers that can be easily and cheaply terminated.

Flexible

The proportion of young people in such work was 63 percent in 2007, compared with 36 percent across the 30-nation Organization for Economic Cooperation and Development.

“The only flexibility companies have is the temporary contracts, so the young people are the first ones to lose their jobs and they’re losing them massively,” said Gayle Allard, vice-rector of the Instituto de Empresa business school in Madrid and an expert in labor markets.

The cost of cutting someone who has worked at a company for 20 years amounts to 56 weeks salary in Spain, compared with 32 in France and 13 in Poland, according to the World Bank’s Doing Business Index.

“All the new contracts they make are temporary, they can fire you when they want,” said Aller, who has never had a permanent job. “People aren’t looking for houses to buy and I guess a lot of people are putting off having a family and that kind of thing.”

Government Report

The average net monthly salary for people under age 29 is 964 euros and only 55 percent of young workers can afford all their costs, according to a government-sponsored report on youth released today.

As well as hurting young people themselves, labor market rules may hobble Spain’s attempts to shift the focus of its economy away from construction and toward more productive industries such as biotechnology and renewable energy.

“Young people are much more apt at working in and promoting research and development,” said Sandalio Gomez, a professor of management at IESE business school.

And the longer they stay out of employment, the harder it will be to get back in, data from the Madrid-based Association of Large Employment Agencies shows.

Ana San Jose, a 21-year-old clerk, is well aware of what her afternoons hanging out in Getafe will cost her.

“All I’m getting experience at is sitting in the square,” she said. “The future’s looking very dark: no house, no money, no kids, nothing.”

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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German December Investor Sentiment Unexpectedly Rises

By Simone Meier

Dec. 9 (Bloomberg) -- German investor confidence unexpectedly rose for a second month in December after the European Central Bank cut interest rates by an unprecedented amount and the government announced measures to bolster Europe’s largest economy.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations increased to minus 45.2 from minus 53.5 in November. Economists expected a drop to minus 57, according to the median of 38 forecasts in a Bloomberg News survey. The index reached minus 63.9 in July, the lowest since it was first compiled in December 1991.

The ZEW report bucks the trend of recent data showing Germany’s economy is contracting after the global credit crisis eroded exports and wiped 42 percent from the DAX share index this year. German lawmakers on Dec. 5 passed the government’s 32 billion-euro ($41 billion) stimulus plan, a day after the ECB cut its key rate by 75 basis points to 2.5 percent.

The measures, combined with falling oil prices and a weaker euro, “seem to have offset increased fears of a global recession,” said Carsten Brzeski, an economist at ING Group in Brussels. Still, “the German economy is in the middle of a severe recession with no quick end in sight.”

Oil Drop

ZEW said its gauge of the current situation slumped to minus 64.5 from minus 50.4 in November. While the DAX dropped to a three-year low last month, it’s gained 2.7 percent since ZEW started its survey on Nov. 24.

“The level is still very low,” Sandra Schmidt, an economist at ZEW, said in an interview with Bloomberg Television. “The improvement in sentiment merely shows that investors don’t expect things to get any worse.”

Crude oil prices have declined 54 percent this year, easing companies’ cost pressure, and the euro has shed 12 percent against the dollar over the same period, making exports more affordable abroad.

Audi AG, Volkswagen AG’s luxury-car brand, yesterday reported a gain in November deliveries. Vossloh AG, Germany’s largest supplier of concrete railroad ties, said on Dec. 4 it’s targeting growth in sales and operating profit in the next two years and expects to meets its goals for 2008.

“The good news is that ZEW, which is an indicator from one of the five major institutes in Germany, has a positive change against all expectations,” ECB Executive Board member Lorenzo Bini Smaghi told reporters at an event in Beijing today. “It’s a volatile indicator, but it’s in a positive direction.”

‘Sober Up’

Rising investor confidence still “doesn’t make sense,” said Christoph Rieger, an economist at Dresdner Kleinwort in Frankfurt. “A deep, long recession is just starting. They should sober up.”

The Bundesbank said last week that Germany’s economy is likely to shrink for a third straight quarter in the three months through December and will contract 0.8 percent next year. That would be the worst performance since 1993.

German business confidence slumped to the lowest level in almost 16 years in November and factory orders plunged 6.1 percent in October from September. German exports declined 0.5 percent in October from the previous month.

“The current crisis is breaking every record in a negative sense,” said Jens Kramer, an economist at NordLB in Hannover, Germany. “A lot will depend on to what extent the government measures will show an impact” on the economy.

‘Tough Times’

MAN AG, Europe’s third-largest truck maker, said on Dec. 3 it is bracing for a “very difficult” 2009. BASF SE, the world’s largest chemicals company, on Nov. 19 lowered full-year profit targets for a second time, saying demand has dropped “significantly” since the end of October.

“Customers in the automotive industry have canceled orders at short notice,” Chief Executive Officer Juergen Hambrecht said that day. “BASF is preparing for tough times.”

The economy of the 15 euro nations may shrink around 0.5 percent in 2009, the ECB said last week. ECB President Jean- Claude Trichet said yesterday the economy may start to gradually recover in the second half of next year.

Council member Ewald Nowotny said in an interview on Dec. 5 that the Frankfurt-based central bank is in a wait-and-see mode, signaling it won’t necessarily cut rates further next month as investors expect.

“The situation is open,” Nowotny, who is also head of Austria’s central bank, said. “We’ll observe how things are working, what’s happening, and then we’ll see.”

To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net.

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Russian Third-Quarter Growth Slows as Crisis Spreads

By Alex Nicholson

Dec. 9 (Bloomberg) -- Russia’s economy expanded in the third quarter at the slowest pace in three years as the spreading global financial crisis choked investments and put the brakes on retail and construction growth.

Gross domestic product grew 6.2 percent, compared with 7.5 percent in the previous quarter, the Moscow-based Federal Statistics Service said in an e-mail. The median forecast of 10 economists surveyed by Bloomberg was for growth of 6.8 percent.

Russia’s economy is faltering more than China and India, two other emerging markets, and may go into recession next year after Urals crude tumbled 70 percent from a July record of $142.5 per barrel and investors withdrew $190 billion since August, BNP Paribas SA estimates. Standard & Poor’s cut Russia’s long-term debt rating for the first time in nine years yesterday, citing the outflows and a “rapid depletion” of currency reserves.

“Russia is much more dependent on commodity revenues,” said Chris Weafer, a chief strategist at UralSib Financial Corp. in Moscow. “Its economy is the least diversified.”

The economy, which has averaged over 7 percent growth since 2000, is stumbling, even as the government deploys a $200 billion emergency bailout package. A seizure on global credit markets is cutting companies’ access to funding and curbing demand for energy and metals.

Construction, Retail

Construction growth slowed to 9.3 percent in the quarter from an annual 18.7 percent in the previous three months. Retail sales growth slowed to 8.4 percent from 11.7 percent in the previous period. Investments grew an annual 7.9 percent in August, in the middle of the quarter, the lowest rate since February 2006.

The Economy Ministry has a forecast of 6.8 percent to 7 percent growth this year, implying 5 percent growth in the fourth quarter, Weafer said.

“The way things are looking right now, that’s optimistic,” he said.

Russia’s Micex Index of shares fell 1.17 percent by 2:23 p.m. to 611.05.

“This kind of number suggests that the effect of the crisis already started to appear in September and, it was stronger than we thought,” said Vladimir Osakovsky, the chief economist at UniCredit bank in Moscow. He had predicted growth of 6.5 percent for the quarter.

New Lows

Manufacturing shrank more in November than during the 1998 financial collapse as the current global crisis drove output and new orders to record lows and companies cut jobs, VTB Bank Europe said at the start of this month.

Industrial production in October grew at the slowest annual pace since the Federal Statistics Service changed its methodology at the start of 2003. The unemployment rate rose to 6.1 percent from 5.3 percent in September. That rate will rise further next year to between 10 percent and 11 percent, said VTB Capital in a report.

“What began as a financial crisis became an economic one before our eyes,” Prime Minister Vladimir Putin said at the Nov. 20 congress of his United Russia party in Moscow. “In the current situation, we must be prepared for structural changes in the labor market.”

Ford Motor Co. said yesterday that it will close its factory near St. Petersburg, Russia, between Dec. 24 and Jan. 21 to reduce output amid falling demand for automobiles. Ford, the first international automaker to produce cars in Russia since the fall of the Soviet Union in 1991, will pay workers affected by the production halt two-thirds of their salaries, the company said.

Recession Forecast

Russian billionaire Alexander Lebedev yesterday said the economy of the world’s biggest energy exporter will “definitely” be in recession next year and it is “quite possible” it may contract by as much as 10 percent as oil fell below the $70-a- barrel average needed to balance the 2009 budget.

Growth in China’s booming economy, which expanded by 9.9 percent a year for three decades, may slow to 7.3 percent in 2009, says China International Capital Corp., a Beijing investment bank. China’s economy grew 9 percent in the third quarter, the slowest pace in five years.

Growth in India may drop to 6.5 percent in 2009 from 9 percent in the year ended March 30, according to CLSA Asia-Pacific Markets, part of the French bank Credit Agricole SA. Growth in the third quarter was 7.6 percent, the least since December 2004.

“Its now very evident that the slowdown has extended into the small and medium enterprises and the broader economy,” UralSib’s Weafer said. “The biggest problem is that they just can’t access credit, and end-user customers are more inclined to keep their money in foreign currency, at home, under the mattress.”

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

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Bank of Canada Cuts Lending Rate to Lowest Since 1958

By Greg Quinn

Dec. 9 (Bloomberg) -- The Bank of Canada lowered its benchmark interest rate by more than anticipated to a half- century low and signaled more action may be needed as economic growth sputters amid a “broader and deeper” global slump.

Governor Mark Carney and his rate-setting panel slashed the target rate for overnight loans between commercial banks by three-quarters of a point to 1.5 percent, the lowest since 1958. Two of 23 economists surveyed by Bloomberg predicted the move, with 20 calling for a half-point cut and one calling for a quarter point.

Canada’s economy “is now entering a recession,” the central bank said in a statement from Ottawa today, the first time it has made that assessment outright. “The Bank will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required.”

Since Carney said Nov. 19 that a recession was a possibility, reports have shown employment fell by 70,600 in November and housing starts on an annualized basis plunged 19 percent. Meanwhile, manufacturers such as General Motors Corp. are scaling back operations in Ontario, Canada’s industrial heartland, and lower commodity prices are paring investment in the western province of Alberta’s oil fields.

One More?

“They are indicating that if the economic data warrants it they are prepared to move further, but they would need to see a worsening of economic conditions,” said Paul Ferley, assistant chief economist at Royal Bank of Canada in Toronto, the country’s biggest lender.

The Canadian dollar weakened 1.6 percent to C$1.2708 per U.S. dollar at 9:17 a.m. in Toronto from C$1.2504 late yesterday.

The European Central Bank trimmed its main rate by three- quarters of a point to 2.5 percent on Dec. 4, the biggest reduction in its 10-year history. The Bank of England that day chopped its rate by one percentage point to 2 percent. Canada’s decision comes a week before the U.S. Federal Reserve’s next meeting, followed by the Bank of Japan two days later.

Carney’s rate cut today was the Bank of Canada’s biggest since October 2001. He had already surprised economists with his decisions four times this year including twice in October.

Canada’s rate was 4.5 percent at the start of last December. Policy makers haven’t cut the rate below their 2 percent inflation target since that benchmark was established in 1993.

Global Recession

The International Monetary Fund sees recessions next year in the U.S., Japan and the euro area, and economists in a separate Bloomberg survey say Canada will follow suit.

Economic growth will shrink at a 1.2 percent annualized pace for the October-through-December period and at a 0.5 percent rate in the first quarter of 2009, according to the median of 10 estimates gathered by Bloomberg News Nov. 6-12.

The Bank of Canada today didn’t lay out a detailed growth forecast. Policy makers said waning expansion means their measure of so-called core inflation will be slower than they predicted in an October report. The central bank said then that inflation excluding eight volatile items would slow to a 1.6 percent year-over-year pace in the second half of 2009.

Canada sends three-quarters of its exports to the U.S., where a global credit squeeze spurred by the subprime mortgage meltdown is sapping demand for shipments of automobiles and lumber.

‘Nervousness’

Still, signs of weakness have spread beyond exports to the domestic spending that propped up the economy for much of this decade.

“There certainly is a nervousness,” George Fraser, president of Fraser & Hoyt, a company offering insurance and travel services, said in Pictou, Nova Scotia. “People aren’t going to be spending the way we have.”

Before the drops in employment and housing starts, home sales fell 14 percent in October from September, the biggest 1- month decline since 1994.

Canadian banks, rated the soundest in the world by the World Economic Forum, are reluctant to lend after the worst financial malaise since the Great Depression toppled institutions such as Lehman Brothers Holdings Inc. in the U.S. and Fortis in Europe.

The Bank of Canada stimulus comes as government aid for the economy is on hold until Parliament re-opens in January. Prime Minister Stephen Harper last week “prorogued” or shut down the country’s legislature for seven weeks in a bid to stave off a challenge from opposition parties seeking to bring down his government. The opposition proposed to form a coalition government to speed up an economic stimulus package.

The record low for Canada’s key rate was 1.12 percent in 1958, a time when it was based on treasury yields rather than actions by policy makers.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.

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UN Climate Chief Says Comprehensive Treaty May Not Come by 2009

By Alex Morales

Dec. 9 (Bloomberg) -- The top United Nations climate change official said international talks are not progressing fast enough to produce a “comprehensive” treaty by the end of next year to stem global warming.

Too many issues remain unresolved, said Yvo de Boer, executive secretary of the UN Framework Convention on Climate Change, during a meeting with reporters at international talks on global warming in Poznan, Poland.

Delegates from about 190 nations have gathered in the Polish city until Dec. 12 to negotiate a new treaty to trim greenhouse- gas emissions and fight climate change. They planned to sign a final agreement at a conference in Copenhagen next December.

“We’re working under a very tight timeline,” de Boer said. “I don’t think that (considering) where we are now that we are going to be able to produce a fully elaborate and comprehensive agreement in Copenhagen.” Still, he said some kind of an accord could be produced that is acceptable to nations and be ratified.

In Poznan, delegates are working to produce a “shared vision” that will frame the eventual treaty text. That blueprint is unlikely to include any firm commitments on greenhouse-gas cuts from developed nations, U.S. delegation chief Harlan Watson said last week.

Developing nations have called for the industrialized world to act first, as they are the largest historical emitters.

Delegates are also discussing issues including how to channel funds to poor countries to help them adapt to the effects of climate change, how to reward nations for avoiding emissions from deforestation and how to bring clean-energy technologies such as wind and solar power to the developing world.

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

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Q-Cells Leads Solar Stocks Lower on Reduced Forecast

By Nicholas Comfort

Dec. 9 (Bloomberg) -- Q-Cells SE, Germany’s largest solar company, led solar stocks lower in Frankfurt trading after cutting its 2008 and 2009 earnings outlook as customers delayed orders on slowing economic growth and tighter financing.

Q-Cells fell as much as 9.29 euros, or 34 percent, to 18.01 euros, the biggest drop since it sold shares in 2005, and was at 20.66 euros as of 3:34 p.m. local time, valuing the company at 2.33 billion euros ($2.98 billion). Solarworld AG fell 7.1 percent and SMA Solar Technology AG slumped 16 percent.

Q-Cells slashed its profit and revenue forecast for this year as customers told the solar cell maker over the last week that they need to delay deliveries until 2009 because of a lack of funds, Chief Executive Officer Charles Anton Milner said.

Solar power plant operators and panel makers are trimming demand for the solar cells as banks have become more reluctant to fund projects, said Dieter Furniere, an analyst at Dexia Securities. Q-Cells, which raised its forecasts last month, said today it will cut output and expects the weaker demand to continue into next year.

“This will be seen very negatively, as Q-Cells is seen as the most resilient” among its competitors, said Furniere, who rates the stock “neutral”. “Everybody is lacking money.”

Halting Plants

The company will halt its plants through Christmas and New Year until the second week of January, Milner said on a conference call. The shutdowns will be used to perform maintenance and work off employee overtime, he said.

Output will grow by less than the company had previously forecast in 2009 and revenue will miss anticipated growth rates, the company said earlier today in a statement.

Q-Cells will cut costs by laying off temporary workers, Chief Financial Officer Hartmut Schuening said on the call. The company is “very flexible” because about 20 percent of its employees are on temporary contracts. The company will also stop hiring over the “next few months,” according to the CEO.

Other cost cutting measures include a slower timetable for the start-up of a Malaysian plant in the second half of next year, Schuening said. This program should keep profit margins “healthy,” Milner said, without specifying how profitable the company will be next year.

With the exception of delays, the company is sticking to its 500 million-euro spending plan for 2009, according to Milner. The company also makes thinfilm for solar products.

Falling Prices

The cut in this year’s forecast is also because of falling prices in the fourth quarter, Milner said. Prices will also decline in the first half and recover once access to funding begins to stoke demand, he said. That may happen at the end of the second quarter, propelling prices up by more than 8 percent in 2009, he said.

The company’s competitors are “weak and weakening” and a consolidation should benefit the industry, Milner said. While he didn’t rule out making acquisitions to expand capacity, purchases aren’t a priority, he said.

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

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EDF to Expand in U.S. Even If Constellation Bid Fails

By Tara Patel

Dec. 9 (Bloomberg) -- Electricite de France SA, Europe’s biggest power producer, plans to expand nuclear operations in the U.S. even if an offer to buy half the atomic business of Constellation Energy Group Inc. is rejected.

“Even if it fails we are determined to play a role in nuclear renewal in the U.S.,” Chief Executive Officer Pierre Gadonneix said today in an interview with BFM radio. “The U.S. doesn’t have a choice; they will have to renew the nuclear industry” to ensure security of energy supply and reduce carbon emissions, he said.

EDF offered to buy a 50 percent interest in Constellation’s nuclear plants for $4.5 billion on Dec. 3. Warren Buffett’s MidAmerican Energy Holdings Inc. has agreed to pay $4.7 billion for the whole company. Constellation will begin talks with EDF, the Baltimore-based utility said yesterday, adding that the board hasn’t changed its recommendation that shareholders vote for the MidAmerican deal in a special meeting on Dec. 23.

“We were expecting this news,” Gadonneix said. “It’s part of the normal process. I don’t know what the opinion of Constellation’s board or investors will be. We think our offer is good for Constellation, and for EDF it is coherent with our strategy.”

EDF rose as much as 2.9 percent in Paris trading and was at 38.88 euros, up 1.5 percent, as of 2:34 p.m. local time, trimming its decline this year to 52 percent. Constellation climbed 57 cents to $28.15 in New York yesterday.

‘Consolidate Partnership’

EDF’s development of so-called Evolutionary Power Reactors in the U.S. “will go through our venture with Constellation,” Gadonneix said. “We want to consolidate this partnership so it can play a major role in the restart of nuclear in the U.S. with EPRs.”

The French company already owns 9.5 percent of Constellation. The two utilities created a 50-50 joint venture last year, called Unistar Nuclear Energy LLC, to develop reactors in North America using Areva SA’s EPR design. Areva, the world’s biggest reactor builder, and Constellation have started the licensing process for four EPRs in the U.S.

“We aren’t excluding any solution,” Gadonneix said when asked whether plans for EPR development would change should Buffett acquire Constellation. “Our priority is to develop EPRs,” he added.

EDF, the Paris-based owner of 58 reactors in France, is developing its first EPR in Flamanville, Normandy, and intends to operate 10 around the world by 2020 including two in China and four in the U.K., where the utility is taking over British Energy Group Plc.

EDF’s Constellation offer is for a 50-50 joint venture, which would own the U.S. company’s five American reactors. Constellation has 3,869 megawatts of nuclear assets and 6,595 megawatts of non-atomic facilities.

The EDF offer is “low risk” because it’s for power- producing assets, Gadonneix said.

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

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Imperial Energy Confirms ONGC Is Offering 1,250 Pence

By Stephen Bierman and Kartik Goyal

Dec. 9 (Bloomberg) -- Imperial Energy Plc, the U.K.-based explorer operating in Siberia, confirmed that Oil & Natural Gas Corp. will go ahead with its bid priced at 1,250 pence a share in cash, the same amount it offered in August.

The transaction values the company’s ordinary shares at about 1.3 billion pounds ($1.9 billion), Imperial Energy said in a letter to shareholders today.

Oil has dropped 63 percent since the New Delhi-based explorer offered to buy Imperial Energy. If completed, the deal would be ONGC’s biggest acquisition, giving it access to Russian reserves and securing energy assets overseas to counter dwindling output at home.

ONGC Chairman R.S. Sharma has justified the proposed transaction, saying oil will rebound to $100 a barrel, more than twice the current level. Crude traded at $43.05 on the New York Mercantile Exchange at 1:34 p.m. London time, compared with $116.27 on Aug. 26, when ONGC agreed to buy Imperial.

The Indian company, the producer of almost 25 percent of the crude used by Asia’s third-largest energy consumer, plans to obtain the equivalent of 60 million metric tons of oil, or 1 1/2 times India’s output, from overseas by 2025.

Imperial Energy jumped as much as 20 percent to 1,024 pence today and traded 139 pence higher at 989 pence in London as of 1:58 p.m. local time. Today’s rebound followed a 17 percent decline yesterday on news ONGC had sought to postpone the deadline for filing its offer. ONGC was not trading in India because of a public holiday.

Russian Rules

The plan to buy Imperial cleared two sets of Russian regulatory conditions in November, approvals for which were needed by June 30, 2009, according to the Aug. 26 offer document. The approvals by the Federal Anti-Monopoly Service were for transactions involving companies controlled by a foreign state and takeovers under the competition law.

The Imperial agreement is the first to get the approvals after Russia passed laws earlier this year potentially limiting foreign access to its natural resources. ONGC Videsh Ltd. is the unit of ONGC bidding for Imperial Energy.

To contact the reporter on this story: Stephen Bierman in Moscow at Sbierman1@bloomberg.netKartik Goyal in New Delhi at kgoyal@bloomberg.net

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Pound Declines as U.K. House Sales Tumble to Lowest Since 1978

By Gavin Finch

Dec. 9 (Bloomberg) -- The pound dropped against the dollar and the euro after an industry report showed sales of U.K. homes slipped to the lowest level since at least 1978 as the economy plunged deeper into a recession.

The pound snapped a two-day gain against the U.S. currency as separate data showed retail sales fell in two consecutive months for the first time since at least 1995. The Bank of England last week cut its key interest rate to 2 percent, the lowest level in half a century. Traders are raising bets policy makers will lower it more than a quarter point in January.

“It’s going to be a pretty bleak” end of year, said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp. which holds $23 trillion as the world’s largest custodian of financial assets. “Sterling weakness will continue to kick in because rates here will be cut more dramatically.”

The U.K. currency weakened as much as 1.6 percent to $1.4679 and was at $1.4693 by 2:32 p.m. in London. It depreciated as much as 0.5 percent to 87.29 pence per euro, from 86.89 yesterday, when it traded at an all-time low of 87.39 pence. The pound will weaken to 90 pence in coming weeks, Derrick predicted.

Real-estate agents and surveyors sold an average of 10.6 homes a month each in the quarter through November, the least since the series began three decades ago, the Royal Institution of Chartered Surveyors said. Sales at retail stores open at least 12 months fell 2.6 percent in November from a year earlier, the British Retail Consortium said. That’s the first back-to-back annual decline since the survey began 13 years ago.

U.K. Manufacturing

The pound stayed lower after the Office for National Statistics said factory production dropped almost three times as much as economists forecast in October, extending its worst contraction since 1980. Manufacturing output fell 1.4 percent from September, the ONS said.

Britain’s currency lost more than a quarter of its value versus the dollar this year, the steepest annual drop since at least 1972, as the deteriorating economy persuaded policy makers to pare their benchmark rate to the lowest level since 1951.

A Credit Suisse Group AG derivatives index signaled traders are betting the central bank will cut the rate by at least a further 25 basis points on Jan. 8.

U.K. Versus McDonald’s

Government bonds rose, with the yield on the two-year gilt slipping nine basis points to 1.86 percent. The 4.75 percent security due June 2010 climbed 0.12, or 1.2 pounds per 1,000- pound ($1,470) face amount, to 104.24. The yield on the 10-year gilt fell four basis points to 3.54 percent. Yields move inversely to bond prices.

Investing in U.K. government debt is almost twice as risky as buying bonds sold by McDonald’s Corp., based on prices in the credit-default swap market. The cost of protecting against a default on gilts became more expensive on Sept. 29, when the pound suffered its biggest one-day loss against the dollar in 16 years after the government took control of British mortgage lender Bradford & Bingley Plc.

The U.K. sold 1.25 billion pounds today of inflation-linked government bonds maturing in 2032. The auction attracted 1.58 times more bids than the securities offered, compared with 2.49 times at a sale of the same notes in October.

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

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Canadian Dollar Falls as Central Bank Cuts Borrowing Costs

By Chris Fournier

Dec. 9 (Bloomberg) -- Canada’s currency declined after the central bank reduced its target lending rate by more than anticipated to a half-century low and signaled more action may be needed to spur economic growth.

Policy makers lowered borrowing costs by 75 basis points to 1.50 percent, the Ottawa-based central bank said in a statement today. Economists predicted the half-point reduction, according to the median of 23 estimates in a Bloomberg survey.

“Given that the market had partially priced in a 75 basis- point reduction, I think the impact on currency would be muted,” said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. “In the case of Canada, the impact for the economy would be positive and ultimately for the currency, a mild positive.”

The Canadian dollar weakened as much as 1.5 percent to C$1.2693 per U.S. dollar in Toronto at 9:07 a.m., from C$1.2502 yesterday. One Canadian dollar buys 78.70 U.S. cents.

The loonie has lost 19 percent in six months as the global recession reduced demand for commodities, which generate about half of the export revenue of the world’s eighth-largest economy. Crude oil prices have dropped by half in 12 months.

Employers cut 70,600 jobs in November, almost triple economists’ projections, Statistics Canada reported Dec. 5. Canadian new-home starts fell more than economists forecast last month, a separate report showed yesterday.

The European Central Bank cut its main refinancing rate by 0.75 percentage point to 2.5 percent on Dec. 4, the biggest reduction in its 10-year history. The Bank of England that day lowered its rate by one percentage point to 2 percent. Canada’s decision comes one week before the U.S. Federal Reserve’s next meeting, followed by the Bank of Japan.

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

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Real Drop Quickens as Brazil Interest Rate Cut Looms

By Jamie McGee and Francisco Marcelino

Dec. 9 (Bloomberg) -- The Brazilian real’s four-month, 36 percent tumble is prompting Brown Brothers Harriman & Co. and Standard Chartered Bank to abandon calls for an early 2009 rebound and predict further declines.

The real may fall as much as 9 percent by year-end to 2.75 per dollar, said Win Thin, a senior currency strategist at New York-based Brown Brothers, which manages $42 billion. Standard Chartered, the U.K. bank that makes most of its profit from emerging markets, revised its first-quarter forecast last week to 2.7 from 2.15.

The best-performing emerging-market currency the previous four years is weakening faster than analysts had forecast as economic growth slows and the global credit crisis dries up demand for debt linked to the nation’s 13.75 percent benchmark interest rate. Recessions in the U.S., Europe and Japan reduced dollar revenue from Brazil’s biggest exports -- commodities such as soybeans, iron ore and sugar.

“I’m shocked; if anyone tells you they weren’t, they are lying,” said Thin, who previously forecast the real at 2.25 by year-end. “I’ve pretty much thrown in the towel. It’s unfortunate. Brazil is a great story.”

The real fell 0.9 percent to 2.5352 per dollar at 6:52 a.m. New York time. Yesterday, the currency dropped 3.2 percent to 2.5127 after sinking 5 percent last week as economic reports showed growth is faltering and traders increased bets the central bank will lower interest rates as soon as tomorrow. The real is the worst performer among the 16 most-traded currencies the past four months, according to data compiled by Bloomberg.

Three-per-Dollar

The currency will end the year at 2.27 per dollar and strengthen to 2.2 by the end of 2009, according to the median estimate in a central bank survey of about 100 economists published yesterday. Thin said the currency is unlikely to recover until the second half of 2009 at the earliest, breaking from his previous prediction of a first- quarter turnaround.

“We underappreciated how strong the demand for dollars would be,” said Douglas Smith, chief Americas economist at Standard Chartered in New York, who expects the real to begin rallying as soon as the second quarter as commodities rebound.

A slide in the real to 3 per dollar over the next two months has become “more probable” than a rebound to 2, said Mario Cebrian, head of foreign-exchange trading at Banco Fibra SA in Sao Paulo. The real hasn’t traded at 3- per-dollar in more than four years.

“The economic fundamentals have changed,” Cebrian said.

Recession

Brazil, Latin America’s largest economy, expanded 6.8 percent in the third quarter from the year-earlier period, surprising 31 economists who estimated growth of 5.8 percent in a Bloomberg survey. The economy grew at the fastest pace in four years as investments and consumer spending remained strong before the global financial crisis dried up local credit lines, the government said today.

The economy now may be heading toward a recession as the global slump deepens, Morgan Stanley said in a report last week. Economic growth will ease to 2.5 percent next year, the slowest pace since 2003, from 5.2 percent in 2008, according to the latest central bank survey.

“The numbers, not just in the U.S., but everywhere, are terrible,” Thin said.

Brazilian industrial output growth slowed to 0.8 percent in October from 9.8 percent in September, government data showed last week. The monthly inflation rate fell to 0.36 percent in November, lower than all 40 forecasts in a Bloomberg survey, as consumer demand weakened.

Commodities Rout

Commodities, which account for about two-thirds of Brazilian exports, plunged for the fourth week in five last week, with the UBS Bloomberg Constant Maturity Commodity Index declining 14 percent to a three-year low. The index rose 4.5 percent yesterday, paring its tumble from a July 2 record high to 52 percent.

Faster Slide

The real’s slide has accelerated as traders stepped up bets that the central bank will cut interest rates to shore up growth. The yield on Brazil’s overnight futures contract for January 2010 delivery fell 20 basis points yesterday to 13.12 percent after sinking 1.16 percentage points last week.

The futures rate is at the lowest level since April 4 and is 63 basis points, or 0.63 percentage point, below the central bank’s 13.75 percent overnight rate.

Even after policy makers stemmed the real’s decline on Dec. 5 by buying an undisclosed amount of reais at auctions and selling $1.36 billion of currency swaps, CM Capital Markets’ Tony Volpon said policy makers could be doing more.

Brazil’s central bank has access to a $30 billion credit line that the Federal Reserve made available in October to help shore up the currency.

As of Dec. 5, the central bank had $207.5 billion of foreign reserves, within $2 billion of a record high reached Sept. 18. The bank bought $6.7 billion worth of reais in the foreign-exchange market from the outset of the credit crisis through the end of November, bank President Henrique Meirelles said last week.

Central Bank

“The central bank is inexplicably not using reserves as aggressively as they should,” said Volpon, chief strategist at CM Capital Markets in Sao Paulo.

The bank announced yesterday a plan to sell as much as another $4 billion of currency swap contracts today. Policy makers will keep the overnight rate at 13.75 percent at a two-day meeting that begins today, according to 41 of 43 economists surveyed by Bloomberg. The other two forecast a reduction.

The central bank has held the rate since September, after increasing it four times this year. The bank will cut the rate to 13.25 percent by the end of 2009, according to the median of 11 forecasts in a Bloomberg survey.

Thin predicts policy makers will lower the rate to as low as 11.25 percent next year.

To contact the reporter on this story: Jamie McGee in New York at jmcgee8@bloomberg.netFrancisco Marcelino in Sao Paulo at mdeoliveira@bloomberg.net

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Yen, Dollar Advance Against Euro on Signs of Economic Slump

By Ye Xie and Kim-Mai Cutler

Dec. 9 (Bloomberg) -- The yen and the dollar rose versus the euro as European reports showed the global economic slump deepened, increasing the haven appeal of the currencies.

The euro weakened as an index showed German investors became more pessimistic this month about current economic conditions. The pound tumbled as U.K. home sales fell to the lowest level since at least 1978 and factory production dropped almost three times as much as economists forecast in October.

“We’ve had another round of disappointing fundamental data worldwide,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “When global growth weakens, that tends to be positive for the yen.”

The yen appreciated 1.2 percent to 118.86 per euro at 9:48 a.m. in New York, from 120.26 yesterday. Against the dollar, the yen strengthened 0.3 percent to 92.54 from 92.82. The euro slid 0.9 percent to $1.2850 from $1.2963. The yen may gain to 90 per dollar in three months, according to Serebriakov.

Australia’s dollar fell 1.5 percent to 65.54 U.S. cents. It also slid 1.6 percent to 60.71 yen. National Australia Bank Ltd. said its sentiment index for November fell one point to minus 30, the lowest level since the series began in 1989.

The dollar declined against the yen on speculation the U.S. housing slump will extend into a fourth year. An index of pending home resales fell 3 percent in October after dropping 4.6 percent in the prior month, according to the median forecast of 34 economists in a Bloomberg News survey. The National Association of Realtors will release the data at 10 a.m. in Washington.

Yen’s Gains

The yen has gained this year against all 178 currencies tracked by Bloomberg News as central banks lowered interest rates to revive their economies, prompting investors to unwind carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan’s 0.3 percent rate is the lowest among developed nations.

Japan’s currency advanced 21 percent versus the dollar, 37 percent against the euro and 71 percent against New Zealand’s dollar. It’s on pace for its first annual gain against the Brazil’s real, the euro and New Zealand’s dollar in at least six years.

Implied volatility on one-month euro-yen options rose to 49.62 percent on Oct. 27, the highest level since Bloomberg began tracking the data in 1999, prompting Stephen Jen, global head of currency research at Morgan Stanley in London, to suggest governments may intervene to prevent currencies from appreciating too quickly.

Sony’s Job Cuts

The stronger yen has eroded Japanese exporters’ revenue. Sony Corp, the world’s second-biggest consumer-electronics maker, said on Oct. 23 that net income will probably drop 59 percent in the year ending March 31. It said today plans to eliminate 16,000 jobs in the largest reduction announced by a Japanese company since the credit crunch drove the world into recession.

The euro fell against the dollar today as the ZEW Center for European Economic Research in Mannheim said investors became more pessimistic about current conditions, with an index of sentiment slumping to minus 64.5 from minus 50.4. German investor confidence unexpectedly rose in December, a separate index showed.

The European Central Bank cut its main refinancing rate 0.75 percentage point on Dec. 4 to 2.5 percent, the single deepest cut in its benchmark interest rate in history. ECB forecasts published last week show the euro-region economy will shrink about 0.5 percent next year, which would be its first full-year contraction since 1993.

Weaker Pound

The pound fell 1.6 percent to $1.4683 after the Office for National Statistics said today in London that factory production slid 1.4 percent, the eighth monthly drop and the longest streak of declines since the 1980 recession, when Margaret Thatcher was prime minister.

Home sales tumbled to the lowest level in three decades, the Royal Institution of Chartered Surveyors said.

The Bank of England last week cut its benchmark interest rate to 2 percent, the lowest in half a century, as policy makers sought to prevent deflation from taking hold. The economy contracted 0.5 percent in the third quarter, after zero growth in the second.

“Sterling can lose more ground against the dollar,” said Thomas Harr, a senior currency strategist in Singapore at Standard Chartered Plc, the U.K. bank that gets most of its profit from Asia. “The outlook for the British economy looks pretty horrible. We think the BOE will cut rates quite dramatically.”

BOE Rate

The pound may fall as low as $1.35 in the first quarter as the Bank of England lowers its benchmark rate to 0.5 percent, Harr forecast.

The dollar has gained 35 percent versus the pound this year and 14 percent against the euro as the credit-market seizure and $980 billion of losses on mortgage-related securities worldwide led investors to repatriate overseas investment to the U.S. and seek shelter in the Treasuries.

Demand for U.S. government bonds pushed the yield on the 10-year note to 2.505 percent on Dec. 5, the lowest since at least 1962, when the Federal Reserve’s daily records began.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net

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Gold, Silver Fall for 4th Time in Five Sessions on Dollar Rally

By Pham-Duy Nguyen

Dec. 9 (Bloomberg) -- Gold and silver prices fell for the fourth time in five sessions as the dollar rallied, eroding the appeal of the precious metals as alternative investments.

The dollar rose as much as 1.1 percent against a weighted basket of six major currencies after dropping 1.8 percent yesterday. Gold is headed for the first annual decline since 2000, while the greenback is poised for the first gain in three years.

“Gold is being pushed back and forth by the dollar,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. “The capital is not in the gold market now.”

Gold futures for February delivery dropped $4.50, or 0.6 percent, to $764.80 an ounce at 9:08 a.m. on the Comex division of the New York Mercantile Exchange. The price climbed 2.3 percent yesterday after slumping 8.2 percent last week.

Silver futures for March delivery dropped 22.5 cents, or 2.3 percent, to $9.75 an ounce. The metal jumped 5.8 percent yesterday after sliding 7.8 percent last week.

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

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Crude Oil Futures Decline Amid Signs Recession May Deepen

By Grant Smith

Dec. 9 (Bloomberg) -- Crude oil declined amid signs the global recession may be deeper than anticipated, limiting demand for fuels.

The economy in Japan, the world’s second-largest oil importer, contracted 1.8 percent in the third quarter, more than the government originally estimated, the Cabinet Office said today. The Organization of Petroleum Exporting Countries, controller of 40 percent of global oil supplies, is due to meet in eight days.

“As the economic downturn persists, demand for oil deteriorates on what appears like a daily basis,” said Rob Laughlin, senior broker at MF Global Ltd. in London. “OPEC will have to make a significant cut next week.”

Crude oil for January delivery fell as much as 70 cents, 1.6 percent, to $43.01 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $43.05 at 1:34 p.m. London time.

Yesterday, futures gained $2.90, or 7.1 percent, to $43.71 a barrel. Prices have fallen 70 percent since reaching a record $147.27 a barrel on July 11 as the recession deepens.

Last week, oil had the biggest fall since 1991 and metal prices slumped after economic data showed the recession is getting worse. The U.S. economy lost 533,000 jobs in November, bringing job losses this year to 1.91 million.

Brent crude oil for January settlement fell as much as 82 cents, or 1.9 percent, to $42.60 a barrel on London’s ICE Futures Europe exchange. It was at $42.65 a barrel at 1:52 p.m. London time.

Saudi Overproduction

The Organization of Petroleum Exporting Countries should make a “substantial” output cut when it meets in Algeria on Dec. 17, Libya’s top oil official, Shokri Ghanem, said yesterday. OPECagreed to cut daily output 1.5 million barrels in October as prices slumped and inventories rose.

“The base case cut is 2 million barrels, but I don’t think it’s going to surprise anyone, so if they want to shock the market, then 3 million would have to be required,” said Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd. in Melbourne. “But that response may be short-lived because they’ll want to see some compliance.”

Saudi Arabia, the world’s largest crude oil exporter, is furthest from meeting OPEC quotas, helping to dull the impact of the cartel’s policy. The country is producing at 107 percent of its limit, according to Bloomberg estimates. That’s more than Kuwait, Iran, Venezuela or the United Arab Emirates.

Saudi Arabia has started to trim oil exports. State oil company Saudi Aramco will reduce shipments to Japanese refiners including Nippon Oil Corp., Idemitsu Kosan Co. and Cosmo Oil Co. by 7 to 10 percent in January from levels agreed under annual contracts, said officials at two refineries who received notices yesterday from the company.

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

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Iceland’s Benchmark Index Slumps as Straumur Resumes Trading

By Niklas Magnusson

Dec. 9 (Bloomberg) -- Iceland’s benchmark index slumped after Straumur-Burdaras Investment Bank hf, the only one of Iceland’s four largest banks left standing amid the Atlantic island’s financial crisis, and Exista hf resumed trading.

The OMX Iceland ICEX 15 dropped 261.79, or 40 percent, to 398.26 as of 1:46 p.m. Icelandic time as Straumur slumped 58 percent to 2.98 kronur and financial services firm Exista plunged 97 percent to 0.12 krona. Only ten members remain on ICEX 15 index after two of the largest banks were de-listed.

Straumur and Exista were suspended from trading on Oct. 6 along with Kaupthing Bank hf, Landsbanki Islands hf and Glitnir Banki hf, the island’s three largest lenders. That week Icelandic authorities seized the three banks, which made up 76 percent of the weighting in the ICEX 15 the week before the suspension of trading, after they collapsed under the weight of their debt.

“Trading of these financial instruments was suspended in order to protect investors and the orderly functioning of the market, due to extraordinary circumstances on financial markets,” Iceland’s regulator said late yesterday as it announced Straumur and Exista would start trading again.

Landsbanki and Glitnir shares have been de-listed from the Reykjavik stock exchange and while Kaupthing Bank remains in the index, its shares are still suspended from trade.

Exista, formerly Kaupthing’s largest shareholder, reported a third-quarter net loss of 87.8 million euros ($113 million) last month after the value of its assets fell. Straumur posted a loss of 149 million euros in the period after it lost money on trading and loans. The company said on Dec. 5 it secured 133 million euros in financing, making the investment bank “confident” it could meet all future obligations.

To contact the reporter on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net.

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