Stocks AND Dollar to Rally in the First Half? Keep Hope Alive

Daily Forex Fundamentals | Written by Black Swan Capital | Jan 06 09 14:25 GMT |

Currency Currents

Key News

• Obama Is Said to Favor About $775 Billion for U.S. Economic Stimulus Plan (Bloomberg)
• Dollar Rally Fizzles in Emerging Markets as Fed Awakens Appetite for Risk (Bloomberg) ... [Editor's note: Are you sure?]
• European Inflation Slows, Increasing Scope for ECB to Lower Interest Rates (Bloomberg)
• EPA 'Cow Tax' Could Charge $175 per Dairy Cow to Curb Greenhouse Gases (Business and Media Institute)

Key Reports Due (WSJ):

• 7:45 a.m. ICSC Chain Store Sales Index For Jan 3: Previous: -0.5%.
• 8:55 a.m. Redbook Retail Sales Index For Jan 3: Previous: -0.5%.
• 10:00 a.m. Dec Non-Manufacturing Index: Expected: 37. Previous: 37.3.
• 10:00 a.m. Nov Pending Home Sales: Expected: 0.4%. Previous: -0.7%.
• 10:00 a.m. Nov Factory Orders: Expected: -2.2%. Previous: -5.1%.
• 2:00 p.m. Dec FOMC Minutes
• 5:00 p.m. ABC/Wash Post Consumer Conf For Jan 3: Previous: -49.

Quotable

"If you can count your money, you don't have a billion dollars."

J. Paul Getty

FX Trading - Stocks AND Dollar to Rally in the First Half? Keep Hope Alive

So was it Obama yesterday? Was it his words that sent the US dollar chugging higher? Did stocks rally sharply on Friday in anticipation of Obama?

So it goes, Obama's newest proposal to drag the US economy out of the ditch it's in went above and beyond the plans he'd been expected to unroll. The larger-than- anticipated amount of "stimulus" taking the form of tax cuts seemed to have caught many off their guard.

Of course, he's still got big plans for creating new jobs, etc. And this is said to be causing the US dollar and US stock markets to rally because, hey, recovery is now right around the corner ... right?

Careful.

I'm in agreement that recovery will be a boon to the US dollar's performance this year. Now, I don't think we're at a point when recovery is so close we can taste it. But I do think the growth differential between the US and competing economies will eventually improve for the buck as the US becomes the first to lift its head and creep out of the muck.

Could this potential have started the dollar off on the right foot this week? Sure.

But what about stocks? I wonder if it's not too soon to start thinking a recovery 6-12 months (or more) down the road is good enough to drive share prices higher. Sure, I'm a believer that markets tend to lead major economic turning points. But you've got to think it'll still be a while before the earnings and employment picture even stabilizes.
There's been a pretty serious negative correlation between the US dollar and stocks (risk-taking assets.) The US dollar can rally NOW because foreign exchange trading is a relative game -- the fundamentals of one currency versus the fundamentals of another.

With stocks though, there's not really a lesser-of-two-evils ... the relative game idea doesn't really apply when we're talking about companies within a single economy. Of course some companies are better off than others during in this environment, but when the current is moving heavily in one direction it doesn't make a whole lot of sense trying to fight it.

So are the risk-appetite and negative correlation trends to be thrown out the window? My best guess would be "No, not yet." I believe the US dollar will test its November 2008 high in the next month or two. If stocks don't roll over to test their November 2008 lows simultaneously or soon thereafter (or vice versa and I'm completely wrong), then it may very well be time to jettison risk-aversion theme and put all the chips on a US recovery.

Of course, by the end of this month Obama won't just be a President-Elect anymore. Things could change quickly at that point - for better or for worse.

Jack Crooks
Black Swan Capital
http://www.blackswantrading.com

Black Swan Capital's Currency Snapshot is strictly an informational publication and does not provide individual, customized investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed disclaimer can be found at http://www.blackswantrading.com/disclaimer.html

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Daily Technical Strategist

Daily Forex Technicals | Written by FXTechstrategy | Jan 06 09 13:26 GMT |

Today's Focus: EURUSD & USDJPY

• EURUSD: Extends Its Corrective Decline Off The 1.4719 Level, Aims At The 1.3298 Level.
• USDJPY: Corrective Upmove Eyes The 93.56 Level.

EURUSD

A build up on Friday losses saw the pair cutting through the 1.3882/1.3900 area, its Sept 11'08 high/.618 Ret and the 1.3785 level, its Oct 09'08 high to close lower Monday at 1.3637.It was seen weakening sharply in early morning trading today opening up downside risk towards the 1.3298 level, its Dec 11'08 high/former range top. The daily and weekly RSI are bearish and pointing lower suggesting further downside weakness. This said level is envisaged to provide respite for the pair‘s current slide and trigger consolidation to corrective upside recovery. The level preserves EUR's short term uptrend activated at the 1.2423 level on Nov 20'08 and a loss of there will reverse the said ST uptrend and bring additional losses towards the 1.3081 level, its Nov 25'08 high. Initial resistance is located at the 1.3531 level, its Oct 20'08 high followed by the 1.3785 level, its Oct 09'08 high and the 1.3882/1.3900 area, its Sept 11'08 high/.618 Ret. Above these levels are required to signal a move towards the 1.4363 and the 1.4719 levels, representing its Dec 18 & 29'08 highs. On the whole, losses of key support levels have now opened up downside risk towards the 1.3298 level.

Support	Comments
1.3298	Dec 11'08 high/former range top
1.3081	Nov 25'08 high
1.3785	Oct 09'08 high
Resistance	Comments
1.3531	Oct 20'08 high
1.3785	Oct 09'08 high
1.3882/1.3900	Sept 11'08 high/.618 Ret.

USDJPY

The pair followed through to the upside on its Friday gains yesterday trading within 7 pips from its Nov 20'08 low at 93.56.We continue to see this level or even the 93.90 level, its Dec 08'08 high limiting upside gains and turning the pair lower in line with its medium term bearishness. Further out, another resistance level lies at the 96.35/95.75 level, its Oct 31'08/Mar'08.its daily stochastics is bullish to overbought. Downside target resides at the 90.91 level, its Oct 24'08 low with a loss of there opening the door for declines towards the 88.34 level, its Dec 12'08 low and the 87.13 level, its Dec 17'08 and later the 86.52 level, its 1.618 Fib Ext.On the whole, although the pair is now undergoing a correction, its overall medium term bearish tone remains in place.

Support	Comments
90.91	Oct 24'08 low
88.34	YTD/Hammer lows
87.13	YTD low
Resistance	Comments
93.56	Nov 20'08 low
96.35/95.75	Oct 31'08/Mar'08
97.43	Nov 24'08 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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China Sees Rising Threat From Abnormal Capital Flows

By Li Yanping

Jan. 6 (Bloomberg) -- China’s central bank and foreign- exchange regulator today warned of rising risks to the nation from “abnormal” capital flows caused by the worst financial crisis since the Great Depression.

“Due to the world economic recession and financial turbulence, the abnormal movement of cross-border capital will bring potential risks,” the State Administration of Foreign Exchange said in a statement on its Web site. “The direction that the flows will take is largely uncertain.”

Falling interest rates and a halt in gains by the yuan against the dollar have brought the risk of an exodus of cash from China as investors seek better returns elsewhere. The nation’s foreign-exchange reserves, the world’s largest, fell for the first time in five years because of the crisis, a government official, Cai Qiusheng, said last month.

“Their reserves are so large that they could offset any outflows fairly easily,” said Mark Williams, an economist at Capital Economics Ltd. in London.

China’s currency reserves stood at $1.9 trillion at the end of September. The role of that stockpile as “the last protection” against economic risks must be preserved, the currency regulator said, saying that it will improve the management of the money.

China will set up an early-alert system for monitoring capital flows and “further improve the emergency protection system” for the international balance of payments, the regulator said.

The nation will step up oversight of individuals moving money in and out of the country, the central bank said in a separate statement today. It will also strengthen scrutiny of trade payments to make sure they’re genuine and study measures to tackle “abnormal changes” in the balance of payments, it said.

The two agencies issued the statements after their annual work conference ended today.

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

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Fed Focuses on Consumer, Corporate Loan Rate Spreads

By Craig Torres

Jan. 6 (Bloomberg) -- Federal Reserve officials are focused on driving down the spreads between U.S. Treasury yields and consumer and corporate loans, after cutting the main interest rate to almost zero failed to revive lending.

Credit costs for households and businesses haven’t followed yields on government debt lower. Fifteen-year fixed-rate mortgages were at 5.06 percent last week, 2.59 percentage points above 10-year Treasury yields; the spread averaged 0.88 point in 2003, when the Fed slashed rates to 1 percent.

Chairman Ben S. Bernanke sees the thawing of frozen credit markets as critical to a recovery, and is determined to try to prevent a second wave of credit distress as the U.S. weathers bad economic news over the next two quarters. The Fed is now looking at ways to revive lending by using its balance sheet to hold loans and bonds that investors don’t want.

“Investors in general don’t want to take on the risk,” said Richard Schlanger, who helps manage $15 billion in fixed income securities at Pioneer Investments in Boston. “It is going to reach the point where the Fed will intervene again.”

One of the options under consideration: reviving the asset- purchase plan originally envisaged under the $700 billion Troubled Asset Relief Program run by the Treasury. The purchases could be combined with fresh injections of capital into banks, and the use of TARP money to help struggling home owners avoid foreclosure.

Obama Team

President-elect Barack Obama’s transition team and central bank officials have discussed such a strategy. Obama, who has advocated a broad-based approach to tackling the issue, takes office Jan. 20. He has picked New York Fed President Timothy Geithner as his Treasury chief, with former Treasury Secretary Lawrence Summers as White House economics director.

The Fed may today offer further insight into officials’ deliberations last month on shifting to using the amount and type of debt the central bank buys as the main tool of monetary policy. Minutes of the Dec. 16 Federal Open Market Committee meeting are scheduled for release at 2 p.m. in Washington.

At that session, the FOMC reduced its target rate for overnight loans between banks to zero to 0.25 percent, the lowest level on record. The panel also indicated readiness to expand programs to alleviate the credit crunch, or set up new ones, such as direct purchases of Treasuries.

Mortgage Bonds

The Fed yesterday began a frontal attack to drive down home- loan costs, buying mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae. The effort was part of a $600 billion plan, which also includes purchases of Fannie and Freddie bonds.

Mortgage rates “should be in the low 4s right now based on Fed rates,” said Ben Fox, executive vice president of Premier Mortgage Co. in Fairfax, Virginia. “They are not even close.”

Even after a $1.34 trillion increase in assets on the Fed’s balance sheet last year, private borrowing costs remain at unusually high spreads over U.S. Treasury benchmarks.

Gauges of corporate borrowing costs, which reached record levels in the fourth quarter of 2008, remain three to five times their long-run averages.

The spread on investment-grade corporate bonds is 6.03 percentage points, down from a record 6.56 percentage points on Dec. 5, Merrill Lynch & Co. data show. That compares with an average of 1.23 percentage points in the previous decade.

Treasury Yields

Yields on benchmark 10-year Treasuries have slid since the start of the crisis, to 2.57 percent at 9:05 a.m. in New York from 5.02 percent in mid-2007. The yields were up for a fourth day today ahead of the government’s sale of $54 billion in notes this week.

The rate on three-month dollar loans between banks has also dropped, reaching 1.41 percent today. The three-month London interbank offered rate was at 5.36 percent in mid-2007.

“With the likelihood that the worst news is ahead of us -- as far as the economy, corporate earnings and bankruptcies -- investors are hard-pressed to take on more portfolio risk at this time,” said Keith Wirtz, Cincinnati-based chief investment officer at Fifth Third Asset Management, which manages about $21 billion.

Financial companies around the world have already logged $1.1 trillion in losses and writedowns since the subprime mortgage crisis roiled markets from August 2007. A deteriorating economy means that figure is likely to keep rising.

Estimated Contraction

Macroeconomic Advisers LLC, a St. Louis forecasting firm, estimates the economy contracted at a 5.5 percent annual rate in the fourth quarter, the worst performance since 1982.

Laurence Meyer, a former Fed governor and a founder of Macroeconomic Advisors, said purchases of longer-term Treasuries by the Fed would help keep yields down even as the Obama administration implements its planned fiscal stimulus.

The economic recovery package may be at least $800 billion. Obama “indicated that there’s at least 20 economists that he’s talked with, and all but one of those believe it should be from $800 billion to $1.2 trillion or $1.3 trillion,” Senate Majority Leader Harry Reid said after meeting with Obama yesterday.

“The Fed will want to make monetary policy as potent as it possibly can be” by holding down long-term yields, Meyer said. “I certainly don’t think the Fed is done.”

Among other options for the Fed are expanding its planned $200 billion program to finance new securities backed by credit- card, automobile and student loans. That effort, supported with TARP money, is scheduled to start in early February, and the central bank has said it could be widened to include commercial mortgage-backed securities.

TARP Scenarios

Another scenario is using the TARP to remove toxic assets from banks’ balance sheets. The Treasury, possibly in combination with the Fed, could buy the securities, insure them on banks’ balance sheets -- as officials did with Citigroup Inc. in November -- or set up a so-called bad bank to take on the investments.

One challenge: the amount of purchases required to clear the securities would be so big that it could dwarf the remaining TARP funds, which are now less than $350 billion.

Treasury Secretary Henry Paulson originally envisaged using the $700 billion authorized by Congress under the TARP in October to buy troubled assets. He quickly shelved that plan as the crisis intensified, instead opting to directly put capital into the banks in exchange for preferred shares and warrants.

The Washington-based Institute of International Finance, which represents the world’s largest commercial and investment banks, has called for revival of the asset purchase plan, arguing that it would help restore the health of the financial system.

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net

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Dow to Take Action Against Kuwait on Halted Venture

By Jack Kaskey

Jan. 6 (Bloomberg) -- Dow Chemical Co., the largest U.S. chemical maker, plans to pursue legal options against Kuwait for canceling a joint venture agreement and will seek a new partner to invest in its basic-plastics business.

Other parties have approached Dow about acquiring an interest in the unit, the world’s largest maker of polyethylene plastic, Midland, Michigan-based Dow said today in an e-mailed statement. Dow said it will establish a formal process for securing a new venture and didn’t name the interested parties.

Chief Executive Officer Andrew Liveris is trying to salvage his plan to gain access to low-cost raw materials and add more- profitable product lines after Kuwait last month canceled the venture, depriving Dow of cash it planned to use to acquire Rohm & Haas Co.

“We were shocked by this news, and this was completely unexpected given the approvals already received and the behavior, actions and words from our partners,” Liveris, 54, said in the statement.

Dow agreed in July to buy Rohm & Haas for $15.4 billion and assume $3.4 billion of debt.

Philadelphia-based Rohm & Haas fell 94 cents, or 1.5 percent, to $63.82 yesterday in New York Stock Exchange composite trading. Dow Chemical dropped 36 cents, or 2.3 percent, to $15.05. Rohm & Haas rose 16 percent last year, and Dow tumbled 62 percent.

Standard & Poor’s and Moody’s Investors Service both downgraded Dow on Dec. 29 after the Kuwait deal collapsed. Dow would have gotten about $7 billion after taxes from Kuwait’s investment.

Buffett Investment

Dow had also planned to use a $13 billion bridge loan, a $3 billion equity investment by Warren Buffett’s Berkshire Hathaway Inc. and a $1 billion investment by the Kuwait Investment Authority to pay for Rohm & Haas. Dow needed only about $5 billion of the bridge loan with the Kuwait proceeds, Chief Financial Officer Geoffery Merszei said in October.

Kuwait’s state-owned Petrochemical Industries Co. was to buy a 50 percent stake in Dow plants and technology used to make commodity plastics and other products.

Dow said today it still is prepared to complete the venture with Kuwait immediately.

To contact the reporter on this story: Jack Kaskey in New York at jkaskey@bloomberg.net.

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Russian Dispute With Ukraine Worsens, Hitting Europe

By Daryna Krasnolutska and Rachel Graham

Jan. 6 (Bloomberg) -- Russia’s natural gas dispute with Ukraine worsened, shutting off fuel shipments to Europe for the first time in three years and driving energy prices higher.

Russia and Ukraine blamed each other for the cuts as gas shipments from OAO Gazprom through Ukraine plummeted and deliveries to the Balkans were halted at the Romanian border.

The dispute, a repetition of a 2006 conflict, caused U.K. gas for immediate delivery to jump as much as 18 percent and led Bulgaria to call for emergency limits on fuel use. Three years ago Russia turned off all Ukrainian gas exports for three days, causing volumes to fall in the European Union, while it also cut shipments by 50 percent in March during a spat over debt.

“Gazprom does not have much of a pressure mechanism left except for further cuts,” Eugen Weinberg, senior commodity analyst at Commerzbank AG in Frankfurt, told Bloomberg Television. He said Ukraine is in a “comfortable” position. “Their gas reserves are enough for them to keep functioning.”

Gazprom Deputy Chief Executive Officer Alexander Medvedev told Bloomberg Television that Ukraine shut three export pipelines and said “unilateral action of the Ukrainians” caused the shortfall. NAK Naftogaz Ukrainy spokesman Valentyn Zemlyanskyi said Gazprom cut shipments to Europe through Ukraine to 74 million cubic meters, compared with about 300 million normally.

Bulgarian Supplies

The moves came after Russia and Ukraine agreed yesterday to resume talks on their dispute and as Gazprom warned that Ukraine risks amassing a debt of “billions of dollars” if the conflict continues. Russia, which supplies a quarter of Europe’s gas, cut shipments to Ukraine on Jan. 1. Naftogaz Chief Executive Officer Oleh Dubina said he would travel to Moscow on Jan. 8 for talks on the dispute.

Russian gas flows to Bulgaria, Turkey, Greece and Macedonia were halted at the Ukrainian-Romanian border, Bulgaria’s Energy and Economy Ministry said.

Gas shipments at the Ukraine-Romanian border were stopped at 3:30 a.m. today, the Bulgarian ministry said. Gazprom pumps 17.8 billion cubic meters of gas a year through Bulgaria to the four countries under a 30-year contract signed in 2006. Bulgaria consumes about 3.5 billion cubic meters of that volume.

Bulgaria raised supplies from its only gas storage facility at Chiren today to 4.3 million cubic meters and called for emergency measures, the ministry said. Russian gas flows through Ukraine and then Romania to the southern Balkan states.

German Cuts

U.K natural gas for immediate delivery gained 18 percent to 70 pence a therm, a two-month high, as of 10:11 a.m. London time, according to broker Spectron Group Ltd. That’s equal to $10.29 a million British thermal units. A therm is 100,000 Btus. Gas for tomorrow climbed 14 percent to 69 pence. Gas for delivery tomorrow jumped 15 percent, also to 70 pence a therm.

Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, predicted the dispute will be resolved by Friday while saying in a phone interview a resolution is “unlikely” before then because of a national holiday in Russia.

E.ON Ruhrgas AG, the natural gas unit of Germany’s biggest utility, said it would experience “significant” cuts in gas deliveries, with Russian supplies piped through Ukraine forecast to fall to zero at the Waidhaus gas transit point on the German- Czech border in the course of the day.

Austrian Shortfall

The utility said it would still be able supply clients as it sourced the fuel from and through other countries. Germany’s BDEW energy industry group said today that the same is true of its rivals. Russia, which supplies a quarter of Europe’s gas, cut shipments to Ukraine on Jan. 1.

“Our options will also reach their limits if these drastic supply cuts continue and temperatures stay at their very low level,” Bernhard Reutersberg, Chief Executive Officer of E.ON Ruhrgas, said in a statement.

OMV AG, central Europe’s biggest oil company, reported a “significant” cut in Russian gas supplies today. It said Russia warned overnight of a 30 percent to 40 percent reduction in supplies to the Baumgarten hub today, and further cuts in the early hours of this morning meant 10 percent of Russian gas was being delivered. It said supplies to Austrian customers were unaffected for now.

Czech Prime Minister Mirek Topolanek said a dispute between Russia and Ukraine on gas prices is becoming “more serious” and the effects are spreading across Europe.

Romanian Flows

Other countries can’t be “held hostage” by Russia over gas supplies, Topolanek told reporters in Prague today. Ukraine may have to compromise on gas fees in the disagreement, he added. The Czech Republic holds the EU’s rotating presidency for the first six months of the year.

“Ukraine is trying to raise stakes as highly and as quickly as possible to force the EU to the negotiating table,” Chris Weafer, chief strategist at UralSib Financial Corp., said by phone from London. “It would suit both Ukraine and Russia to have the EU as a mediator.”

Russian gas deliveries to Romania fell 65 percent, with supplies through the Isaccea 2 entry point cut entirely at 3:05 a.m. today, Romanian Economy Minister Adriean Videanu told reporters in Bucharest. The country also gets gas from a second entry point.

Croatia’s supply of natural gas from Russia via Ukraine was halted this morning, following an 18 percent drop in deliveries yesterday, according to Croatian national broadcaster HRT, which cited officials at energy company Ina Industrija Nafte d.d.

Gazprom Demands

Russian natural gas supply to Italy is decreasing, an official at Italy’s Industry Ministry said today. The ministry can’t yet estimate by how much deliveries have been reduced.

Gas stockpiling in Italy is near maximum levels, at above 90 percent, and the country has arranged measures to increase supply from other countries including Libya, Algeria, the Netherlands and U.K., the Rome-based official said.

BH-Gas, Bosnia-Herzegovina’s state-owned natural-gas company, said supplies of the fuel from Russia are 25 percent below normal levels. Russian deliveries to Serbia have also dropped by the same amount, Almir Becarovic, director of BH-Gas, said today by telephone from Sarajevo.

Gazprom Chief Executive Officer Alexei Miller told Russian Prime Minister Vladimir Putin in a meeting yesterday that Gazprom intended to reduce gas deliveries to the Ukraine border and said it would buy gas on the market to ensure European customers were supplied. Ukraine denies siphoning the fuel, saying some is needed to keep pipelines operating.

EU ‘Mission’

“If this continues then the debt will soon come to billions of dollars,” Miller said. Gazprom says it is still owed $614 million for 2008 supplies, even after it receives a $1.5 billion payment in transit, a claim Ukraine rejects.

Gazprom raised its demands on Jan. 4 as Miller cited a possible price of $450 per 1,000 cubic meters for deliveries to Ukraine this month, reflecting the average price in countries bordering Russia’s neighbor. Ukraine paid $179.50 for its Russian gas last year and says $201 would be fair in 2009.

The European Union sought to help defuse the conflict, sending a delegation headed by Czech Industry Minister Martin Riman for talks with Ukrainian officials.

“We have a mission in the region,” European Commission President Jose Manuel Barroso told reporters yesterday in Lisbon. “I hope the situation will be resolved.”

The EU delegation met Ukrainian Energy Minister Yuriy Prodan, Naftogaz’s Dubina and presidential advisers today.

There were “no warnings” from the Russian side on cutting deliveries, Dubina said at a press conference in Kiev. “They probably decided to stop deliveries to Europe via Ukraine completely.” He said Ukraine urged the EU to mediate in talks.

Medvedev was due to travel to Berlin to meet German Economy Minister Michael Glos at 3 p.m. local time today, according to the German Economy Ministry. Medvedev would then meet a Czech- led EU delegation at 5 p.m., the Czech EU presidency said in a statement.

To contact the reporters on this story: Daryna Krasnolutska in Kiev on dkrasnolutsk@bloomberg.net; Rachel Graham in London on graham13@bloomberg.net

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Ukraine Says Gazprom May Cut All Gas Flows to Europe

By Kateryna Choursina and Daryna Krasnolutska

Jan. 6 (Bloomberg) -- OAO Gazprom, Russia’s gas-export monopoly, reduced deliveries to Europe via Ukraine by more than 75 percent and may cut supplies “completely,” said Oleh Dubina, the chief executive officer at Ukraine’s state energy company.

Gazprom cut daily supplies destined for Europe at 3 a.m. today, the Kiev-based NAK Naftogaz Ukrainy said in an e-mailed statement. Russia reduced deliveries to 92 million cubic meters of gas as of 6 a.m. and cut it further to 73.8 million at 10 a.m. in Kiev, compared with 314.6 million yesterday, according to Naftogaz.

“There were no warnings from the Russian side on cutting deliveries,” Dubina said today at a press conference in Kiev. “They probably decided to stop deliveries to Europe via Ukraine completely.”

Russia supplies a quarter of Europe’s gas, 80 percent of which is shipped through Ukraine. It’s locked in a dispute with Ukraine over supply and pricing, which prompted Gazprom to cut off deliveries to its western neighbor on Jan. 1. Both sides blame each other for today’s supply cuts. A similar conflict interrupted supplies to Europe in 2006.

Gazprom Deputy Chief Executive Officer Alexander Medvedev told reporters in London today that it was a unilateral decision by Ukraine to shut down three gas export pipelines and that the Russian exporter is a “hostage” to Ukraine’s “irresponsible behavior.”

Gas-Siphoning Accusation

Alexei Miller, Gazprom’s chief executive officer, told Russian Prime Minister Vladimir Putin yesterday that the company intends to reduce gas deliveries to the Ukrainian border by 65.3 million cubic meters a day to 221.8 million cubic meters, equivalent to the amount it says Ukraine has taken out of the system. Ukraine denies siphoning the fuel, saying some is needed to keep pipelines operating.

“Russian accusation of Ukraine’s stealing the gas is groundless,” said Fuel and Energy Minister Yuriy Prodan today at the same press conference.

Russian supplies to Turkey, Bulgaria, Greece, Croatia, Romania and Macedonia were halted at the Ukrainian-Romanian border today, while deliveries to Austria, Italy, the Czech Republic and Bosnia declined.

Ukraine urged the European Union to mediate talks with Russia, Dubina said. The EU has said the reduction of Russian gas supplies to some of its member countries is “completely unacceptable.”

Medvedev said Russia supplied about 225 million cubic meters of gas to the Ukrainian border yesterday and tried to supply the same quantity today though only 40 million cubic meters was able to reach European customers.

To contact the reporter on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.netKateryna Choursina in Kiev kchoursina@bloomberg.net

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Brazil’s Real Climbs to 2-Month High as Global Stocks Increase

By Drew Benson

Jan. 6 (Bloomberg) -- Brazil’s real rose to the highest in almost two months as a rally in global stocks boosted investor appetite for the nation’s higher-yielding assets.

The currency gained for a second day as the price of soybeans, the nation’s top agricultural export, climbed to a three-month high.

The real jumped 2.2 percent to 2.1883 per dollar at 7:25 a.m. New York time, from 2.2372 yesterday. It touched 2.1591 per dollar, its strongest since Nov. 10.

“It’s attractive for people with an appetite for risk, at least a calculated risk with Brazil’s conditions right now,” said Reginaldo Galhardo, currency trading manager at Treviso Corretora de Cambio in Sao Paulo. He forecasts the real will reach 2.1 per dollar this month.

The real’s climb came as the government reported that industrial output during November plunged 6.2 percent from the same period a year ago, the most in seven years, as the global credit crunch sapped demand for products from computers to cars.

European stocks gained for a sixth day and U.S. equity-index futures advanced as speculation grew that government stimulus measures will revitalize the global economy.

Soybeans climbed on speculation higher oil prices will increase demand for grains as a source of alternative fuel and concern that warm, dry weather will damage crops in South America.

The yield on Brazil’s overnight futures contract for January 2010 declined 11 basis points, or 0.11 percentage point, to 11.95 percent.

The yield on Brazil’s zero-coupon local-currency bonds due January 2010 fell seven basis points to 12.04 percent.

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




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British Pound Rises Against Euro; Rate Cuts May Revive Growth

By Matthew Brown and Gavin Finch

Jan. 6 (Bloomberg) -- The pound rose against the euro for a second day, trading close to 91 pence for the first time in almost three weeks, on speculation interest-rate cuts will revive the economy faster than in the common-currency region.

The British currency also gained versus the yen and the Swiss franc as the FTSE 100 index of leading U.K. shares climbed for a sixth day. Debenhams Plc, Britain’s second-largest department-store company, increased the most in more than 2 1/2 years in London trading after saying a decline in sales eased.

“Oversold sterling is getting a bit of a bounce,” said Jeremy Stretch, a senior currency strategist at Rabobank International in London. “The markets are waking up and realizing that the eurozone garden is not particularly rosy.”

The pound advanced 1.5 percent against the euro to 91.40 pence as of 12:02 p.m. in London, adding to yesterday’s 3.2 percent gain, which was the largest since the creation of the single currency in 1999.

The pound slid 23 percent against the European currency last year, its biggest decline since the euro came into existence, as the Bank of England cut rates faster than the European Central Bank and the British economy entered its first recession in 17 years.

Europe’s inflation rate fell 0.5 percentage point to 1.6 percent in December, the lowest in more than two years as oil prices plunged and consumer spending slumped, increasing the scope for the ECB to reduce borrowing costs further.

Recession Deepens

The region’s manufacturing and service industries contracted for a seventh month in December as the economy slid deeper into a recession. A composite index of both industries dropped to 38.2, the lowest since the survey began in 1998, from 38.9 in November.

The pound may still fall to parity with the euro as the Bank of England cuts interest rates at a quicker pace than the European Central Bank does, according to Richard McGuire, a senior fixed-income strategist in London at Royal Bank of Canada, the country’s biggest lender.

“We think U.K. rates will fall to 0.5 percent as early as next month, which should weigh on the pound,” McGuire said. “Meanwhile the ECB is expected to pursue a comparatively gradualist approach to policy easing.”

U.K. services from restaurants to airlines shrank at close to the fastest pace in at least a dozen years and house prices fell by the most since 1991, data indicated today, suggesting that the recession is intensifying.

‘Flight to Quality’

An index based on a survey of about 700 service companies by the Chartered Institute of Purchasing and Supply was at 40.2 in December, compared with November’s 40.1, which was the lowest since the gauge began in 1996, Markit said today. The average price of a home fell an annual 15.9 percent in December, Nationwide Building Society said in a separate report.

U.K. government bonds fell, pushing the yield on the 10-year gilt up four basis points to 3.19. The 5 percent security due March 2018 fell 0.34, or 3.0 pounds per 1,000 pounds ($1,462) face amount, to 114.28. The two-year gilt yield fell five basis points to 1.78 percent.

“We have very serious doubts over whether this will amount to anything more than a short term pause in the ongoing flight to quality as the global economy continues to unravel,” said John Wraith, head of sterling rate product development at Royal Bank of Canada in London. “With yields having fallen so far in such a short space of time over recent months, the correction could easily go a lot further over the days ahead without threatening any medium term chart patterns.”

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

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Euro Falls to Three-Week Low on Speculation ECB Will Cut Rates

By Ye Xie and Anchalee Worrachate

Jan. 6 (Bloomberg) -- The euro fell to a three-week low against the dollar on speculation slowing inflation will prompt the European Central Bank to cut interest rates more than forecast.

The common currency had a record two-day loss versus the pound and dropped against the yen as derivatives trading showed investors are betting the ECB will cut its key rate by at least 25 basis points next week. The dollar advanced against yen and the Swiss franc after U.S. President-elect Barack Obama was said to favor an economic stimulus package of about $775 billion.

“The market comes to the start of the New Year, increasingly thinking the ECB is in a position to cut interest rates further,” said Tom Fitzpatrick, chief technical strategist at Citigroup Global Markets Inc. in New York. “Interest-rate differentials are moving in favor of the U.S. The bias is toward a stronger dollar.”

The euro fell 1.9 percent to $1.3381 at 8:52 a.m. in New York, from $1.3635 yesterday. It earlier touched $1.3313, the lowest level since Dec. 12. The euro declined 0.8 percent to 126.24 yen, from 127.31. The dollar rose 1 percent to 94.36 yen from 93.44 yen, and touched 94.25 yen, the highest level since Dec. 1.

The yen fell 2.3 percent against Brazil’s real and 1.6 percent versus Mexico’s peso on speculation investors may resume carry trade where they borrow from low-interest-rate countries to buy higher-yielding assets elsewhere.

European Inflation

The currency gained 29 percent against the euro last year as $1 trillion in losses on mortgage-related securities worldwide prompted Japanese investors to shun higher-yielding overseas assets.

The yen’s real effective exchange rate, a measure of its value against the currencies of 15 of Japan’s trading partners after adjustment for inflation, rose 5.1 percent in December from a month earlier to the highest level since November 2001, the Bank of Japan said today in Tokyo.

Europe’s single currency fell 1.3 percent to 91.51 pence. It has lost 4.3 percent this week, the biggest two-day losses since the European currency’s debut a decade ago. Inflation in the euro area slowed to 1.6 percent last month, the European Union’s statistics office in Luxembourg said today. That was less than the 1.8 percent predicted in a median forecast of 28 economists surveyed by Bloomberg. The rate fell to 2.1 percent in November from 3.2 percent the previous month, the biggest reduction since at least 1991.

‘Economic Fundamentals’

“Poor economic fundamentals in euroland warrant further rate cuts from the ECB,” said Paresh Upadhyaya, who helps manage $50 billion in currency assets as a senior vice president at Putnam Investments LLC in Boston. The euro may fall to $1.30 in three months, Upadhyaya said.

At 0.84 percent, the two-year U.S. Treasury yield was 0.88 percentage point lower than the same-maturity German bund. The gap has narrowed from 1.22 at the beginning of December, making the U.S. securities more attractive.

The ECB cut interest rates by 1.75 percentage points since early October to 2.5 percent as the region entered a recession. Policy makers will lower the main rate by at least 25 basis points at the next meeting on Jan. 15, according to a Credit Suisse Group AG gauge of probability, based on overnight index- swap rates.

ECB council member Vitor Constancio said policy makers are prepared to cut interest rates if necessary to keep inflation on target. He said in a speech in Lisbon yesterday that if price growth slows too much below the central bank’s goal of just below 2 percent “we can be certain that European monetary policy will respond with interest-rate reductions.”

Dollar Index

Economists in a Bloomberg survey predicted the central bank will lower borrowing costs to 1.5 percent by the second quarter of next year.

Obama told House Speaker Nancy Pelosi yesterday that he favors a U.S. economic stimulus plan of about $775 billion, a Democratic aide said. The president-elect, who is due to deliver a speech on the economy on Jan. 8, met with congressional leaders from both parties at the Capitol to help win support for a two-year plan to tackle the nation’s recession.

The Dollar Index traded on ICE futures, which tracks the greenback against six of U.S. major trading partners, touched 84.023, the highest since Dec. 12.

The U.S. currency climbed 1.2 percent to 1.1231 Swiss francs today. It also gained versus some emerging market currencies, rising 0.3 percent versus the South African rand and 0.7 percent against the Polish zloty.

Emerging-market currencies are poised for further losses as recessions force wealthier nations to rein in overseas investment, according to Morgan Stanley.

Emerging Markets

One-third of the world’s wealth has been wiped out by the financial crisis and this will have a lasting effect on global consumption, wrote London-based Stephen Jen, chief strategist for emerging markets in the bank’s sales and trading arm. Foreign direct investment in the developing nations of Asia, Europe and Latin America is already starting to cool, he said.

Dresdner Kleinwort said the dollar’s strength was driven partly by a “seasonal pattern.”

“Over the past 10 years, the dollar index had a positive return in January in 71 percent of all cases,” said Michael Klawitter, a currency strategist at Dresdner Kleinwort in Frankfurt. “January or the first quarter is by far the best period for the dollar.” The euro will fall below $1.30 in the “coming weeks,” Dresdner said.

The euro may fall 5.6 percent to 87.50 British pence over the next three months, Standard Chartered Plc forecast, citing technical charts that predict price movements. The euro last traded at 91.29 pence from 92.74 pence.

Daily momentum indicators such as the relative strength index and the stochastic oscillator charts are “turning bearish, favoring downside retracement,” Callum Henderson, head of global currency strategy at Standard Chartered in Singapore, wrote in a research note today.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

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White Sugar Climbs to 6-Week High as Brazil May Slow Shipments

By Claudia Carpenter

Jan. 6 (Bloomberg) -- White sugar climbed to a six-week high in London as gains in the real currency in Brazil, the world’s largest exporter and producer, may discourage shipments.

The real has jumped 8.7 percent since Dec. 29. Exporters may reduce shipments because the strengthening real means they earn less when converting dollar-priced sugar into their local currency. Growers in India and Thailand are also reducing production of the sweetener.

“We keep getting fairly supportive fundamental stories,” said Nick Hungate, a trader at Rabobank International in London. “The Brazilian real is rallying. It looks like Thailand’s crop is down and there’s talk the Indian crop is lower.”

White, or refined, sugar for March delivery rose as much as $6.80, or 2.1 percent, to $334.60 a metric ton, the highest since Nov. 19. It was at $333.10, up $5.30, a ton as of 11:22 a.m. in London on the Liffe exchange. Prices are up 5.2 percent this year.

The Brazilian real was the biggest gainer against the U.S. dollar among 16 currencies yesterday, rising as much as 3.8 percent. It climbed another 1.7 percent today.

Signs of increased production in Brazil contributed to lower sugar prices for the last four months. Output in the biggest growing region in Brazil climbed 52 percent in the second half of November compared with a year earlier, Brazil industry group Unica industry group reported last month.

Thailand produced 312,916 tons of white sugar and 777,045 tons of raw sugar in the Nov. 26 to Dec. 31 period, the Office of the Cane and Sugar Board said on its Web site. The combined output compares with 1.15 million tons last year when the crushing period began Nov. 23.

Indian Crop

India’s crop may be 20 million tons in the year-ended Sept. 30, down from 26.4 million a year ago, Farm Minister Sharad Pawar said last month. The total may be as low as 18 million, Hungate said.

Robusta coffee for March delivery rose $10, or 0.6 percent, to $1,580 a ton. Production in Vietnam, the world’s biggest grower of robusta beans, will be 3.3 percent less than forecast in November after rains slowed the harvest, F.O. Licht said.

Output will be 20.2 million bags, down from a previous estimate of 20.9 million bags, F.O. Licht analyst Stefan Uhlenbrock said in an interview today from Ratzeburg, Germany.

Cocoa for March delivery fell 13 pounds, or 0.7 percent, to 1,789 pounds ($2,618) a ton.

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



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Gold Drops for 4th Day in London as Stronger Dollar Cuts Demand

By Nicholas Larkin

Jan. 6 (Bloomberg) -- Gold dropped for a fourth day in London as the dollar rose to a three-week high against the euro, reducing the metal’s appeal as an alternative investment.

The euro weakened as Europe’s inflation rate fell to the lowest in more than two years in December, giving the European Central Bank more room to lower interest rates. The dollar gained for a fifth day against a basket of currencies after U.S. President-elect Barack Obama said he favors a stimulus package of about $775 billion. Gold typically moves in the opposite direction to the U.S. currency.

“The metal has been under pressure again this morning on the back of further dollar strength,” James Moore, an analyst at TheBullionDesk.com in London, wrote in a report. “Given the likely short-term strength of the greenback, gold is likely to remain on the defensive.”

Gold for immediate delivery fell $17.10, or 2 percent, to $842.40 an ounce by 12:37 p.m. in London. February futures dropped $15, or 1.8 percent, to $842.80 in electronic trading on the Comex division of the New York Mercantile Exchange.

The metal declined to $844 in the morning “fixing” in London, used by some mining companies to sell production, from $853.50 at the afternoon fixing yesterday. Bullion is down 4.5 percent in London this year after a 5.8 percent increase in 2008, a record eighth annual advance.

“Limited physical related buying exists on dips as demand continues to decline as prices spike towards $900 an ounce,” said Emanuel Georgouras, a precious metals trader at Marex Financial Ltd. in London.

Gold Sales

Bullion sales in Dubai fell 15 percent last month from a year earlier as higher prices and the slowing economy deterred buyers, said Tawhid Abdullah, managing director of the Dubai Gold and Jewellery Group. Prices may fluctuate between $750 and $850 an ounce this year, he said.

Gold sales by funds tracking commodity indexes may reach $877 million this month, reflecting annual reweightings in benchmarks, JPMorgan Securities Ltd. said in a Jan. 2 report. The holding reductions “mandates sizeable liquidation in gold that may last a day or two more,” U.S. economist Dennis Gartman wrote in his daily Gartman Letter today.

Gold’s losses may be limited after oil rose as much as 3.4 percent to $50.47 a barrel in New York as Kuwait and Qatar indicated they will implement supply cuts announced by OPEC last month. Some investors buy gold as a hedge against inflation.

“Crude oil prices have been steadily creeping back into precious metal investors’ radar,” Manqoba Madinane, a commodity analyst at Standard Bank Group Ltd. in Johannesburg, wrote in a report.

Auto Slump

Amongst other metals for immediate delivery in London, silver slipped 3.3 percent to $10.89 an ounce. Platinum declined $6, or 0.6 percent, to $943 an ounce and palladium was 3 percent higher at $190 an ounce.

Auto sales in the U.S., the world’s biggest market for cars and light trucks, plunged 36 percent in December, dragging the industry’s annual volume to a 16-year low as the recession ravaged demand. Vehicle sales in China, Europe and Japan have also slumped.

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

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



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Oil Rises to 5-Week High Above $50 on OPEC Cuts, Russia Dispute

By Grant Smith

Jan. 6 (Bloomberg) -- Crude oil rose to a five-week high above $50 as Kuwait and Qatar indicated they will implement supply cuts announced by OPEC last month, and a dispute between Russia and Ukraine reduced natural gas shipments to Europe.

Kuwait and Qatar plan to cut oil shipments to Asia starting in January, refinery officials in the region said today, after the Organization of Petroleum Exporting Countries agreed on a record output reduction on Dec. 17. OAO Gazprom cut gas shipments to Europe through Ukraine to less than one third of normal levels, a NAK Naftogaz Ukrainy spokesman said.

“The focus is shifting from demand to supply again,” said Eugen Weinberg, a Commerzbank AG analyst in Frankfurt. “We know demand is going to be very weak, but cuts from OPEC and the latest geopolitical risk will compensate.”

Oil for February delivery gained as much as $1.66, or 3.4 percent, to $50.47 a barrel in electronic trading on the New York Mercantile Exchange. That’s the highest since Dec. 1. It was at $50.03 at 1:23 p.m. London time.

Brent crude oil for February settlement climbed as much as $2.24, or 4.5 percent, to $51.86 a barrel on London’s ICE Futures Europe exchange, also the highest since Dec. 1. The contract traded at $51.37 a barrel at 1:23 p.m.

“Russia continues to play hardball with Ukraine on the natural gas contract,” said Olivier Jakob, managing director of Petromatrix Gmbh in Zug, Switzerland. “If a solution for a return to normality is not found very quickly, this should result in incremental demand on fuel oil, naphtha, heating oil to substitute for the missing natural gas.”

Gaza Conflict

Oil also advanced as the conflict between the Israeli army and Hamas reached its 11th day, with pitched battles in the Gaza Strip. Iran, the second-largest producer in OPEC and a supporter of Hamas, has called for a suspension of crude exports to allies of Israel.

OPEC decided to cut production by 4.2 million barrels a day from September levels at a Dec. 17 meeting in Algeria in response to tumbling prices, which last year had a record drop of 54 percent.

Kuwait, OPEC’s third-largest producer in November, will reduce shipments of oil sold under long-term contracts by 5 percent starting Jan. 22, said refinery officials. Qatar, the group’s second-smallest producer, will slash cargoes by as much as 6 percent in February, compared with 5 percent in January.

The U.S. Energy Department is scheduled to release its weekly report at 10:30 a.m. tomorrow in Washington.

U.S. crude stockpiles probably increased 1 million barrels in the week ended Jan. 2, from 318.7 million the week before, according to the median of seven analyst estimates.

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

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European Stocks Gain for Sixth Day; U.S. Index Futures Advance

By Adam Haigh

Jan. 6 (Bloomberg) -- European stocks rallied for a sixth straight day and U.S. index futures climbed on speculation that government stimulus packages and interest-rate cuts will revive the global economy.

Next Plc, the U.K.’s second-largest clothes retailer, jumped 15 percent after maintaining its full-year profit forecast. Rio Tinto Group, the world’s third-biggest mining company, advanced 8.2 percent as copper rose to a one-month high in London. Samsung Electronics Co., the largest maker of computer memory, increased 4.6 percent in Seoul after benchmark chip prices surged to a six- week high.

Europe’s Dow Jones Stoxx 600 Index has rebounded 17 percent since Nov. 21 as investors speculated that U.S. President-elect Barack Obama will boost the world’s biggest economy with tax cuts. The Federal Reserve has slashed interest rates to as low as zero percent, while the European Central Bank has scope to reduce borrowing costs further after the region’s inflation rate fell to the lowest in more than two years.

“Equities now appear to be regaining a bit of confidence,” said Roger Nightingale, who helps oversee about $1.1 billion as a London-based strategist at Pointon York Ltd. “What is important is what the Fed and central banks are doing. What they have done is create liquidity,” he told Bloomberg Television.

The Stoxx 600 added 2.1 percent to 213.26 at 1:12 p.m. in London. More than five shares rose for every four that fell in the MSCI Asia Pacific Index, which slipped 0.1 percent.

S&P 500 Futures

Futures on the Standard & Poor’s 500 Index increased 0.9 percent. The benchmark index for American equities fell for the first time in four days yesterday on concern that a slump in corporate profits will stretch into 2009.

The U.K.’s FTSE 100 advanced 1.5 percent today as Xstrata Plc climbed, while Germany’s DAX rose 1.7 percent. Japan’s Nikkei 225 Stock Average rallied for a sixth day, gaining 0.4 percent as a weaker yen improved the earnings outlook for Sony Corp.

Global stocks rebounded this year after $1 trillion in credit losses and writedowns at financial firms and the first simultaneous recessions in the U.S., Europe and Japan since World War II sent the MSCI World Index to a 42 percent slump in 2008.

Obama told House Speaker Nancy Pelosi he favors a price tag of about $775 billion for the U.S. economic stimulus plan, according to a Democratic aide. Fed officials are focused on driving down the spreads between U.S. Treasury yields and consumer and corporate loans, after cutting the main interest rate to almost zero failed to revive lending.

Federal Reserve, ECB

Fed Chairman Ben S. Bernanke sees the thawing of frozen credit markets as critical to a recovery, and is determined to try to prevent a second wave of credit distress as the U.S. weathers bad economic news over the next two quarters.

Consumer-price inflation in the euro area slowed to 1.6 percent in December, moving below the ECB’s 2 percent ceiling for the first time since August 2007. Slowing inflation may prompt the ECB to extend a series of interest-rate cuts that already has seen its key rate fall by 1.75 percentage points since early October, council member Vitor Constancio said yesterday.

U.K. retailer Next said its full-year profit forecast remains “in line” with analysts’ estimates after resisting price cuts before the Christmas holiday and clearing inventory from its stores faster than last year. The Leicester, England- based company surged 15 percent to 1,256 pence.

Debenhams Plc, the second-largest U.K. department-store company, soared 27 percent to 36.25 pence after a sales drop slowed on demand for exclusive fashions and debt declined.

U.K. Retailers

British retailers are grappling with a slump in spending as the recession deepens and unemployment rises. U.K. house prices had the biggest drop since at least 1991 last year and consumer confidence slid to the lowest since at least 2004 in December, Nationwide Building Society said today.

In the U.S., reports today may show service industries shrank in December at the fastest pace on record, fewer Americans signed contracts to buy existing homes in November and factory orders fell, according to economists’ estimates.

Rio Tinto added 8.2 percent to 1,876 pence. Xstrata, the world’s fourth-largest copper producer, gained 9.7 percent to 869.5 pence. Copper rallied 6.1 percent in London.

Samsung climbed 4.6 percent to 498,000 won. Hynix Semiconductor Inc., the world’s second-largest computer-memory maker, increased 2.4 percent to 7,390 won.

Prices of the benchmark dynamic random access memory chips rose 1.3 percent, adding to yesterday’s 5.5 percent surge, to the highest since Nov. 21, according to Dramexchange Technology Inc., Asia’s biggest spot market for chips. The benchmark price plunged 62 percent last year.

Sony, Canon

Sony, which gets a quarter of its sales from the U.S., climbed 7.6 percent to 2,120 yen. Canon Inc., which gets a third of its sales from the Americas, added 5 percent to 2,970 yen.

The yen depreciated against the dollar to as much as 93.60, the weakest level since Dec. 8, from 92.03 at the 11 a.m. close of stock trading in Tokyo yesterday. A 1 yen change against the dollar alters Canon’s annual operating profit by 2.6 billion yen ($28 million), the company said in October.

Volkswagen AG surged 15 percent to 293.8 euros after Porsche SE said yesterday it will boost its stake in Europe’s biggest carmaker to more than 50 percent.

Logitech International SA fell 4.2 percent to 17.25 Swiss francs as the world’s largest maker of computer mice withdrew its fiscal 2009 financial targets and said it will cut 15 percent of its salaried workforce because of the deepening global recession.

Metro AG, Germany’s largest retailer, slid 2.7 percent to 29.36 euros after Merrill Lynch & Co. cut its recommendation on the shares to “underperform” from “buy.”

Short-Selling Ban

Royal Bank of Scotland Group Plc declined 2.1 percent to 51.4 pence. The U.K.’s financial regulator said yesterday that RBS and 33 other British financial companies will no longer have protection from short-selling. The temporary ban, introduced in September after politicians and investors blamed the practice for market instability, will expire on Jan. 16, the Financial Services Authority said, adding that it could be reintroduced without consultation if necessary.

An index of companies that the FSA prohibited hedge funds and other investors from shorting declined three times more than the broader FTSE All-Share Index since the ban was instituted on Sept. 18, data compiled by Bloomberg show.

The benchmark index for European options, the VStoxx Index, fell to the lowest level since September, losing 5.2 percent to 39.13. The gauge, which measures the cost of using options as insurance against declines in the Euro Stoxx 50 Index, climbed to 87.51 in October, the highest since at least 2001.

TED Spread

Concern that global stock losses will deepen remains elevated even after falling from record levels in October and November. The Chicago Board Options Exchange Volatility Index, which measures price swings in the S&P 500, has surged 74 percent since the start of 2008 to 39.08.

The difference between what the U.S. government and banks pay to borrow for three months, the so-called TED Spread, is about three times higher than before credit markets started freezing in August 2007, data compiled by Bloomberg show.

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

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Merrill’s McCann Quits After Bank of America Purchase

By Josh Fineman and David Mildenberg

Jan. 6 (Bloomberg) -- Merrill Lynch & Co. brokerage head Bob McCann plans to leave the company less than a week after Bank of America Corp. completed its acquisition of the securities firm.

McCann, 50, a 26-year veteran of New York-based Merrill, was head of the brokerage unit since 2003. He announced his departure yesterday in an internal memo from John Thain, head of Bank of America’s investment-banking and wealth-management business. Spokeswoman Selena Morris confirmed the memo.

Bank of America Chief Executive Officer Kenneth Lewis called Merrill’s brokerage the “crown jewel” of the company when the deal was announced in September. Since then he has worked to try to prevent Merrill brokers from quitting. The 16,850-broker unit outperformed Merrill’s investment-banking and money-losing trading businesses last year.

“This is going to create a lot of shock waves,” said Mindy Diamond, CEO of Diamond Consultants in Chester, New Jersey. “This may accelerate the decisions of those who have taken a wait-and-see attitude. BofA and Thain have been saying that Merrill will be operated somewhat autonomously, but the brokers have been skeptical of that. McCann’s departure will definitely upset a lot of people.”

Bank of America was down 4 cents in German trading today at $13.94. The shares declined 65 percent during the past 12 months, compared with the 48 percent drop of the 24-member KBW Bank Index.

After more than $50 billion of losses and writedowns tied to the collapse of the U.S. subprime mortgage market, Merrill agreed in September to be bought by Charlotte, North Carolina-based Bank of America, the third-biggest U.S. bank by market value. During the same weekend, New York-based securities firm Lehman Brothers Holdings Inc. went bankrupt.

‘The Right Time’

“After much reflection and deliberation, I have decided that this is the right time for me to move on,” McCann told Thain in the memo. McCann didn’t immediately respond to a message left on his mobile phone seeking comment.

McCann was named head of the combined firm’s brokerage unit in October following the takeover, a decision made to convince Merrill brokers to stay with the firm, analysts and executive recruiters said. At the time of McCann’s appointment, Bank of America said the leader of global wealth and investment management would be named later.

Merrill said in November that 99 percent of its top-selling brokers agreed to sign a retention package. More than 6,200 brokers accepted Bank of America’s offer, including 99.3 percent of those who generated annual revenue of more than $1.75 million, McCann said at the time.

Disenfranchised Brokers

“It’s pretty gratifying to all of us,” McCann said in a Nov. 14 interview. “We did a good job of putting together a transition award package that was fair and appropriate.”

The retention package didn’t satisfy all Merrill brokers.

“There are a lot of disenfranchised Merrill Lynch advisers,” Diamond said. “Many of those who are under $500,000 think they are getting screwed by the retention package.”

McCann, who grew up outside Pittsburgh, joined Merrill in 1982 as an equity salesman. He ran the firm’s institutional sales division and its equities business before a 16-month stint as head of the research division. In 2003, he left the firm to take a job as vice chairman of Axa Financial Inc., only to return to Merrill six months later.

“Bobby McCann has been a wonderful mentor over the years to countless people on Wall Street,” said Diane Garnick, a former Merrill equity derivatives analyst who now helps oversee about $400 billion as an investment strategist at Invesco Ltd. “His legacy is all of these people that grew up under the family of Merrill.”

Bank of America has announced plans to cut 30,000 to 35,000 positions in the next three years because of the merger with Merrill and a weak U.S. economy.

To contact the reporters on this story: Josh Fineman in New York at jfineman@bloomberg.net; David Mildenberg in Charlotte at dmildenberg@bloomberg.net

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Fairfax Financial, Rogers, Royal Bank: Canadian Equity Preview

By Elizabeth Stanton

Jan. 6 (Bloomberg) -- Shares of the following companies may have unusual fluctuations in Canadian trading. Stock symbols are in parentheses.

The Standard & Poor’s/TSX Composite Index yesterday rose 0.6 percent to 9,285.51, the highest since Nov. 13. The main benchmark for Canadian stocks fell 35 percent in 2008, its steepest annual drop since 1931.

Fairfax Financial Holdings Ltd. (FFH CN): The owner of Canadian and U.S. insurers declared an annual dividend of $8 a share, compared with $5 last year. Dividends are influenced by the company’s current operating results and cash position and aren’t indicative of future payouts, the company said in a statement on Market Wire. The shares fell C$16.47 to C$363.03 in regular trading yesterday.

Rogers Communications Inc. (RCI/B CN): Canada’s largest mobile-phone carrier said it added 199,000 wireless subscribers in the fourth quarter. The company activated about 130,000 iPhone 3G devices during the quarter, according to a statement on PR Newswire. The shares fell 26 cents to C$37.19 yesterday.

Royal Bank of Canada (RY CN): The country’s largest bank agreed to sell C$200 million ($168 million) of preferred shares to boost regulatory capital. Royal Bank will issue 8 million shares at C$25 per share, with an initial annual dividend of 6.25 percent, the Toronto-based bank said today in a Canada NewsWire release. The shares rose 26 cents to $37.21 yesterday.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net



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