TD Securities’ Australian Monthly Inflation Gauge Climbs 0.8%

By Jacob Greber

Feb. 2 (Bloomberg) -- An index measuring Australian inflation rose in January as prices for drugs, utilities, public transport and domestic holiday travel climbed.

Consumer prices rose 0.8 percent from December, when they declined 0.2 percent, according to the monthly gauge released by TD Securities Ltd. and the Melbourne Institute in Sydney today. Prices increased 2.7 percent from a year earlier, after climbing an annual 2.2 percent in December.

Today’s report suggests inflation pressures remain, even though the economy may already be in its first recession since 1991 and as the deepening global slowdown cuts prices of commodities from oil to copper. Reserve Bank Governor Glenn Stevens will reduce the benchmark interest rate tomorrow to the lowest level since the 1960s, economists forecast.

“While the 0.8 percent increase in the inflation gauge is superficially high, we would need to see several more months of large price rises to be concerned about a rekindling of inflation pressure,” said Joshua Williamson, a senior strategist at TD Securities in Sydney.

The January increase, partially driven by “one-off” gains in public transport fees, is “unlikely to discourage the central bank from cutting the cash rate by 100 basis points,” Williamson said.

Governor Stevens and his board will reduce the benchmark rate by one percentage point to 3.25 percent when they meet tomorrow, according to 11 of 20 economists surveyed by Bloomberg News late last week. The rest expect a three-quarter point cut.

Business Investment

“The increasing severity of the global recession, the pending collapse in business investment in Australia and prospects for further price moderation strongly suggest that tomorrow’s rate cut will not be the last,” Williamson said.

Australian manufacturing contracted for an eighth month in January as companies received fewer orders and fired workers, Australian Industry Group and PricewaterhouseCoopers said today.

The performance of manufacturing index rose 2.9 points to 36.6 from December, according to AIG. A reading below 50 signals manufacturing is shrinking.

The biggest decrease in the inflation index came from falling prices for drinks, snack foods, bread and computer equipment, today’s report showed. The price of fuel was 0.4 percent higher in January, paring its annual decline to 26 percent. Rents rose 1.5 percent in January and 15 percent from a year earlier.

Official Gauge

The government releases its official first-quarter inflation report, the consumer prices index, on April 22. Annual inflation slowed to 3.7 percent in the fourth quarter from 5 percent in the previous three months.

Stevens forecast in December that slower economic growth will bring annual inflation back within his target range of between 2 percent and 3 percent this year.

The Melbourne Institute is a research unit of Melbourne University and TD Securities is a division of Toronto-Dominion Bank, one of Canada’s largest lenders. The monthly inflation index measures the prices of 1,000 goods and services.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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London Luxury Home Prices Have Second-Biggest Drop on Record

By Peter Woodifield

Feb. 2 (Bloomberg) -- London luxury home prices had the second-biggest decline on record in January as would-be buyers struggled to secure mortgages from banks hurt by the global financial crisis.

The average value of homes costing more than 1 million pounds ($1.4 million) in London’s most expensive neighborhoods fell 3.7 percent from a month earlier, Knight Frank LLP said in an e-mailed statement Jan. 31. In the past 12 months, prices have slumped 21 percent, the biggest annualized drop recorded by Knight Frank.

“The sudden restriction of mortgage finance” was the main cause of the market’s decline last year, Liam Bailey, head of residential research at London-based Knight Frank, said in the statement. “This factor is continuing to cause problems for the housing market and the wider economy.”

The cost of buying a luxury home in the U.K. capital has fallen for 10 straight months, declining 21 percent since the market’s peak in March. The biggest drop since the broker started the survey in 1976 was 3.9 percent, recorded in October.

Financial-services companies in London may cut as many as 60,000 jobs by the end of 2010, according to research firm Oxford Economics. As a result, the market won’t rebound soon, Knight Frank said.

“Price falls should begin to level out towards the end of 2009, although 2010 is likely to see prices move sideways at best,” said Bailey. Knight Frank now expects prices to fall as much as 35 percent from their peak, compared with its previous estimate of 30 percent.

Buyers Looking

The drop in prices has attracted more potential buyers. The fall in the pound against the dollar and the euro is prompting international buyers to look at London properties. Viewing levels last month were 65 percent higher than a year earlier, while the number of international buyers registering with a broker in January was 35 percent more than the year before.

The neighborhoods attracting the biggest increase in interest last month were Mayfair, Knightsbridge, Belgravia and Chelsea, said Knight Frank.

“If the weakness of Sterling continues, it will help to bolster demand from the foreign super-rich, partially compensating for the reduced earning ability of many City-based buyers,” said Bailey.

Prices Fall

The pound has fallen 28 percent against the dollar in the past year and 14 percent against the euro in the past year.

House prices across the U.K. fell 1.3 percent in January from the previous month and about 17 percent on an annual basis, Nationwide Building Society, the U.K.’s largest customer-owned mortgage lender, said Jan. 29. The report covered all types of homes.

While the biggest drop in values has been in properties costing as much as 2.5 million pounds, homes costing more than 10 million pounds have lost 20 percent in value since September.

In November, Richard Cutt, head of Knight Frank’s Mayfair agency, sold a modernized, 7,321 square foot house near Grosvenor Square to a Middle East buyer for 15 million pounds, 25 percent less than the original asking price.

Hamptons Slides

A property costing 100,000 pounds in 1976 when Knight Frank started its index, peaked in value at 3.99 million pounds in March. By the end of last month it was worth 3.13 million pounds, the equivalent of losing about 2,810 pounds in value every day over the intervening 10 months.

London isn’t the only prime residential property market to lose value because of the financial crisis. In the Hamptons, the New York seaside resort favored by financiers and celebrities, median prices were 14 percent lower at $690,000 in January than a year earlier, according to New York property appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate.

In Manhattan the average price of luxury apartments fell 3.2 percent in the fourth quarter, Jonathan Miller said in an interview. That compared with average quarterly gain of 13 percent since he started compiling data in 2001, said Miller.

London-based Knight Frank compiles its monthly index from estimated values of properties in the Mayfair, St John’s Wood, Regent’s Park, Kensington, Notting Hill, Chelsea, Knightsbridge, Belgravia and the South Bank neighborhoods of London.

To contact the reporter on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net.

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Davos Dreams of Global Cooperation Face Protectionist Schisms

By Christine Harper

Feb. 2 (Bloomberg) -- As world leaders in Davos called last week for international cooperation to tackle the financial and economic crisis, businessmen were complaining that the stress is only aggravating national divides.

The financial industry’s effort to reduce risks from credit- default swaps is being held up because of regional competition, NYSE Euronext Chief Executive Officer Duncan Niederauer said. A mechanism set up by the London Clearing House has met resistance from banks and authorities in continental Europe, he said.

“The solution we’ve established for a very legitimate clearing house is somehow not acceptable to the continent because it’s not in the eurozone,” Niederauer told a lunch gathering hosted by Credit Suisse Group AG on Jan. 30. “It all seems like nonsense to me. We should think about trying to solve the problem, not playing politics here.”

British Prime Minister Gordon Brown and German Chancellor Angela Merkel were among leaders at the World Economic Forum in Davos, Switzerland, who said countries should work together on common economic policies and regulatory standards. Many, including French Finance Minister Christine Lagarde, talked about the need to find common proposals ahead of the Group of 20 meetings scheduled to take place in April in London.

Merkel said the financial industry needs “clear-cut rules worldwide” and “a charter for the global economic order” that could lead to the creation of a United Nations economic council. She criticized “unfettered capitalism” and called for vigilance against protectionism, noting that she’s “very wary” of government aid for U.S. automakers.

‘Bigger Problem’

Brown warned that a “bigger problem” than trade protectionism is the threat of financial protectionism, in which banks repatriate capital from abroad, especially from emerging markets, to satisfy government terms for emergency assistance. The Institute of International Finance predicted capital flows to emerging markets would slow to $165 billion in 2009 from a record $929 billion two years ago.

“What you’re seeing is a form of financial protectionism where banks retreat to their home base,” Brown said in Davos. “The tendency at the moment will be to either retreat into protectionism or retreat into doing nothing.”

Lagarde said at a Jan. 31 press conference in Davos that bank bailouts and fiscal stimulus plans are “implicit protectionism.”

Brown’s government led a bailout of British banks, including Edinburgh-based Royal Bank of Scotland Group Plc, which he accused of taking “irresponsible risks.” In return for taxpayer funds, banks have been required to maintain lending at 2007 levels to offset a withdrawal of loans from foreign banks.

Rise in Protectionism

Gary Cohn, co-president of New York-based Goldman Sachs Group Inc., said he’s concerned about an increase in protectionism in industries like banking and automobile manufacturing that have been supported by taxpayer money.

“Are the U.K. financial institutions going to lend money to other corporations in other countries and withstand the loss?” Cohn said. “I don’t know what the answers are, but it’s definitely an interesting question.”

Rupert Murdoch, chairman of News Corp., said at a panel discussion in Davos that he too was concerned about protectionism.

“A leading French industrialist told me how the government there, the President there, says ‘I understand you have to make savings in France, but don’t fire anyone in France,’” Murdoch said. “There’s been a very dangerous move towards protectionism in many places.”

‘National Treasures’

Niederauer also said a recent effort by New York-based NYSE Euronext to eliminate jobs in Europe to lower costs ran into resistance by regulators.

“There’s only so much that I can globalize, and that has been really apparent to me in the recent crisis,” Niederauer said. “It turns out that regulators think exchanges are national assets, if not national treasures, and they’re strategic and they’re to be protected.”

Reaching common standards for bank capital requirements and similar regulatory issues will be possible even if there are signs of financial protectionism, said Adair Turner, chairman of the U.K.’s Financial Services Authority.

“There are going to be major breakthroughs on things like how do we deal with general provisions in banks,” Turner said in an interview in Davos. “It doesn’t help us out of what we’re in now, but makes it more robust so we don’t do it again in 10 years’ time.”

Indian Farmers

Peter Sutherland, chairman of London-based BP Plc, issued an exasperated plea in Davos for politicians to set aside their domestic interests and reach a new world trade agreement.

“The world badly needs a confidence boost,” Sutherland said. “It also needs an antidote to the protectionism, which is already evident in responses to the global slowdown. It’s undermining confidence that the global economic community can’t get its act together.”

Sutherland said the U.S. and India were responsible for holding up efforts on a new trade agreement. Yet in the same room the previous day, an Indian businessman said his country’s economy was benefiting from its protected status.

“The real strength that India has is that one major sector of its economy is truly decoupled from the rest of the world, and that’s Indian agriculture,” said Anand Mahindra, vice chairman of Mahindra & Mahindra Ltd., India’s largest maker of sport- utility vehicles and tractors.

“We never moved quickly enough on banking reforms, we were criticized for that, but that’s precisely why our banking sector is well insulated today and has some of the highest capital adequacy ratios,” Mahindra said. “We were always behind in the export game, which is why it’s only 20 percent of GDP. That means we are not suffering any severe whiplash from markets melting down.”

To contact the reporter on this story: Christine Harper in New York on charper@bloomberg.net.

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Australia’s January Manufacturing Index Shrinks for Eight Month

By Jacob Greber

Feb. 2 (Bloomberg) -- Australian manufacturing contracted for an eighth month in January as companies received fewer orders and fired workers.

The performance of manufacturing index rose 2.9 points to 36.6 from December, the Australian Industry Group and PricewaterhouseCoopers said in a report released in Canberra today. A reading below 50 signals manufacturing is shrinking.

Today’s report adds to signs Australia’s economy may follow the U.S., Europe and Japan into a recession, after expanding in the third quarter at the weakest pace in eight years. Central bank Governor Glenn Stevens will cut the benchmark interest rate tomorrow to the lowest level since the 1960s, economists forecast.

“Ongoing falls in new orders in particular highlight the challenging conditions manufacturers are facing in the early months” of this year, said Heather Ridout, chief executive officer of the Australian Industry Group.

“Businesses are working on reduced inventories, leading to lower production and consequently putting further pressure on employment.”

Manufacturing accounts for 10 percent of gross domestic product and employs one tenth of the workforce. Australia’s jobless rate rose to a two-year high of 4.5 percent in December.

Central bank policy makers will reduce the benchmark rate by one percentage point to 3.25 percent when they meet tomorrow, according to 11 of 20 economists surveyed by Bloomberg News last week. The rest expect a three-quarter point reduction.

“Business will be looking for a further significant cut in interest rates this week, Ridout said.

The manufacturing survey, which is similar to the U.S. ISM index, asked more than 200 companies about production, new orders, deliveries, inventories and employment.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Japan Companies ‘Crying Out’ for Action on Yen, Keidanren Says

By Toru Fujioka and Yoshinori Eki

Feb. 2 (Bloomberg) -- Japanese companies are “crying out” for the government to sell the yen, whose strength is deepening the worst recession since 1945, an official at the nation’s largest business lobby said.

“The yen is the most critical problem for exporters,” Masakazu Kubota, a managing director at Keidanren, said in an interview in Tokyo on Jan. 30. “Whether the government does it alone or in cooperation with others, they should do something about the yen,” he said. “Industry is crying out for it.”

Japan’s currency is trading near a 13-year high against the dollar, cutting the value of overseas sales at a time when exports are collapsing. Companies from Hitachi Ltd. to NEC Corp. are forecasting losses and firing workers, worsening a downturn the central bank forecasts will be the sharpest in the postwar era.

The yen traded at 89.76 per dollar at 10:16 a.m. in Tokyo from 89.92 late Jan. 30. The currency has risen 19 percent in the past year and reached 87.13 last month, the highest since July 1995.

Exporters need “the yen to be somewhere between 100 and 110,” Kubota, 55, said. “Japan’s entire economy is heavily dependent on automakers and consumer-electronics makers.”

Exports fell an unprecedented 35 percent in December from a year earlier, prompting companies to cut production at a record pace, reports showed last month.

Campaigning

Manufacturers are campaigning for the government to step into the foreign-exchange market, which it hasn’t done for almost five years. The Finance Ministry sold 14.8 trillion yen ($165 billion) in the first three months of 2004, when the currency traded around 103 per dollar.

“I want the government to call for intervention with other nations” if the yen’s appreciation continues, Fujio Mitarai, chairman of Keidanren, said on Jan. 13. Honda Motor Co. President Takeo Fukui also asked for action in December.

Honda cut its full-year profit forecast 57 percent last week and based its earnings on 96 yen to the dollar, compared with 113 a year ago. Every 1 yen gain against the dollar reduces Honda’s annual operating profit by 18 billion yen, the automaker estimates.

Hitachi last week forecast a record 700 billion yen annual loss, the biggest projection by an Asian electronics maker this year. NEC, Japan’s largest personal-computer maker, will eliminate more than 20,000 employees as it forecasts its first loss in three years, the company said on Jan. 30.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

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Aso Risks Deeper Japan Recession by Delaying Vote He May Lose

By Toru Fujioka

Feb. 2 (Bloomberg) -- Prime Minister Taro Aso risks deepening Japan’s recession in order to delay an election he’s likely to lose.

Aso, whose approval rating has sunk below 20 percent after less than five months in office, refuses to bow to pressure from the opposition to call the election ahead of the legally required Sept. 10 date. The resulting political paralysis is stalling the 10 trillion-yen ($110 billion) stimulus plan he has promised to restore economic growth.

Delayed recovery may hasten the nation’s decline as a regional and global economic power. Already, Japan is being eclipsed in east Asia by the ascent of China, whose economy overtook Germany’s to become the world’s third largest in 2007, according to revised official figures published last month.

“A tsunami is coming and we need effective economic stimulus from the government,” says Tsuneo Watanabe, a Tokyo- based adjunct fellow with the Center for Strategic and International Studies in Washington. “By clinging to power,” Aso, 68, and his Liberal Democratic Party are “making it harder for ordinary people to cope with this severe downturn.”

With its key interest rate already close to zero, the Bank of Japan can’t offer much help, leaving the world’s second- largest economy with little defense against the recession, which the central bank predicts will be the worst since World War II.

Political Gridlock

Gridlock in Japan contrasts with the urgency of politicians in the U.S., China and Germany. President Barack Obama’s pledge of “bold and swift” action to help the U.S. economy was followed a week later by the passage of an $819 billion package by the House of Representatives. China proposes 4 trillion yuan ($585 billion) of economic-stimulus expenditures, and Germany plans to fund spending and tax cuts with record borrowing.

“Japan’s fiscal policy is not just going to lag everywhere else in Asia, it’s going to lag behind everywhere in the world,” says Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “In the absence of a general election, the ability of Japan to put in a timely, significant, effective policy response is clearly very low.”

Forecasts last week from the International Monetary Fund suggest Japan is sinking faster than most of the other major industrialized nations. The IMF’s latest World Economic Outlook estimates Japan’s economy will shrink 2.6 percent this year, compared with the 0.2 percent contraction forecast in November. Only the United Kingdom, projected to decline 2.8 percent, has a worse outlook for 2009.

Fired Workers

Statistics published Jan. 30 showed Japan’s decline steepened. Industrial production fell by a record 9.6 percent in December from November, unemployment rose the most in 41 years and household spending slid 4.6 percent.

NEC Corp., Japan’s largest personal computer maker, said Jan. 30 it will cut more than 20,000 workers; Hitachi Ltd., a maker of DVD recorders and industrial machinery, predicted a record 700 billion-yen loss; and Honda Motor Co. cut its full- year profit forecast 57 percent.

“Japan is a rich and powerful country but risks stagnating because it may fail to take the necessary steps to help itself,” says Nouriel Roubini, economics professor at New York University’s Stern School of Business, who was among the first to predict the global financial crisis.

Measured by wealth per person, Japan slid to 18th among the 30 members of the Organization for Economic Cooperation and Development in 2006, according to the government’s Cabinet Office. The nation ranked last among Group of Seven economies as a destination for foreign direct investment in 2007, according to an OECD study.

Nothing for G-20

Japan’s lackluster response to the recession may leave it with nothing to offer at the Group of 20 leadership summit in London in April, Economic and Fiscal Policy Minister Kaoru Yosano said Jan. 29.

“We have to ask ourselves whether we’ll be able to push our chests out and explain what we’ve done,” Yosano said in an interview with Nippon BS Broadcasting Corp.

On Sept. 22, a week after the bankruptcy of Lehman Brothers Holdings Inc. sparked a worldwide credit shortage and stock- market slump, Aso became the third leader in two years of the ruling LDP, which has dominated Japanese politics for half a century.

Candidates rented campaign offices at the same time, expecting Aso to call an early election to capitalize on a honeymoon period with voters. But the new leader’s popularity proved short-lived after a series of gaffes, including remarks that doctors lack common sense and mothers need to be disciplined more than their children. Hints of elections were soon replaced by Aso’s declarations that saving the economy was his No. 1 priority.

People’s Mandate

Aso told the parliament on Jan. 29 that he “will seek the people’s mandate at the appropriate time.” At the World Economic Forum in Davos, Switzerland, on Jan. 31, he said he intends “to work in collaboration with these leaders in order to make this year the year of the world economic revival.”

On Oct. 30, Aso unveiled a stimulus package with cash handouts of 12,000 yen ($134) for each resident. The proposal failed to impress voters and riled lawmakers, including some from his own party. Former Cabinet minister Yoshimi Watanabe quit the LDP on Jan. 13, saying the cash would be better spent helping local governments support the needy.

“The policy response remains badly focused and inadequate to deal with the scale of the demand shock hitting the economy,” says Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo.

Some 74 percent of respondents in a Mainichi newspaper survey published Jan. 26 oppose the handouts. The same survey showed the premier’s public-approval rating fell to 19 percent from 45 percent when he became leader.

Biggest Obstacle

Investors are also losing faith. They see Aso’s administration as the biggest obstacle to a stock-market recovery this year, according to a Nomura Securities Co. survey published Jan. 6. The Nikkei 225 Stock Average lost a record 42 percent in 2008 and is down 9.8 percent this year.

“Investors didn’t expect much from Aso and were still disappointed,” says Yoshinori Nagano, a senior strategist at Daiwa Asset Management Co. in Tokyo. “They’re sick of the political games.”

Some analysts say it’s unfair to blame Aso for the stalemate or for economic woes that stem from the financial crisis in the U.S. Japan’s ability to spend its way out of the recession is also constrained by its public debt. The OECD estimates the burden stands at more than 170 percent of gross domestic product, the biggest in the industrial world.

“We aren’t seeing a lot of cooperative action on the part of the two largest parties,” says Robert Feldman, head of economic research at Morgan Stanley in Tokyo. “It’s far too simplistic to blame any single individual for the troubles of the economy.”

Voters may be less forgiving.

“Aso just doesn’t get how tough it is for us right now,” says Shunichi Takimoto, a taxi driver in Tokyo. “The LDP should lose the next election and it should happen as soon as possible.”

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

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Australian Investment Projects Drop for First Time Since 2004

By Gemma Daley

Feb. 2 (Bloomberg) -- Planned investment in Australia dropped for the first time in four years as mining companies scaled back production because of the global economic slowdown, Access Economics said.

The total value of planned investment projects fell 5.8 percent to A$607.2 billion ($392 billion) in the fourth quarter from A$644.4 billion in the previous three months, according to a report by the Canberra-based research company.

Shrinking investment adds to signs the nation is headed for its first recession since 1991 and increases pressure on the central bank to lower interest rates as much as 1 percentage point tomorrow. Miners BHP Billiton Ltd. and Rio Tinto Group are among companies that are cutting spending and firing workers in Australia as worldwide demand for commodities falters.

“The downturn will affect most parts of the Australian economy, with business investment no exception,” Access Economics said in the report e-mailed to Bloomberg. “Project deferrals are starting to mount up.”

It was the first drop in Access’s measure of planned investment since the fourth quarter of 2004, and the biggest decline since the company began keeping records in 2001.

The indicator includes both government and corporate investment and covers more than 2,600 projects, each worth at least A$5 million, that are under construction or in planning across the nation.

Plans Shelved

Projects that have been shelved over the past few months include Royal Dutch Shell Plc and Anglo American Plc delaying a A$5 billion development in Victoria state to convert coal to clean fuels. Alcoa Inc. suspended in November the planned expansion of its Wagerup alumina refinery in Western Australia because of weaker demand.

“We expect more such announcements over the coming months,” Access said. “The result is likely to be a sharp fall in business investment over the next couple of years.”

BHP Billiton closed the $2.2 billion Ravensthorpe nickel mine in Western Australia because of declining prices.

Lending to the nation’s businesses tumbled 1.1 percent in December from the previous month, the biggest drop since 1992, the central bank reported last week. The jobless rate climbed to a two-year high of 4.5 percent in December.

All 20 economists surveyed by Bloomberg News expect the central bank will cut borrowing costs by at least three-quarters of a percentage point tomorrow. About half of those predict a 1 point reduction in the benchmark rate to 3.25 percent.

To contact the reporter on this story: Gemma Daley in Canberra at gdaley@bloomberg.net

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South Korea’s January Exports Decline by Record 32.8%

By William Sim

Feb. 2 (Bloomberg) -- South Korea’s exports tumbled by a record 32.8 percent in January, foreshadowing a deepening slump in Asia’s export-driven economies.

Shipments fell by the most since figures were first compiled in 1957, and at almost twice the pace of December’s 17.9 percent decline, the Ministry of Knowledge Economy said in Gwacheon today. The trade report is among the region’s first economic indicators for January.

Faltering exports suggest the economy is headed for its first recession since the Asian financial crisis a decade ago and increases pressure on policy makers to accelerate stimulus measures and interest-rate cuts. South Korea’s Posco, Asia’s third-largest steelmaker, will extend production cuts for a third month in February, spokeswoman Ko Min Jin said today.

“We can’t escape the global recession,” said Chun Chong Woo, an economist at Standard Chartered First Bank Korea Ltd. in Seoul. “Policy makers need to take more steps to protect the economy from the global shock.”

The median estimate was for a 29.1 percent export drop, according to a Bloomberg survey of economists. Imports fell 32.1 percent, and the trade deficit was $2.97 billion in January.

Korea’s won, the region’s worst performing currency last year, slipped 0.9 percent to 1,392.5 per dollar at 10 a.m. in Seoul. The Kospi share index gained 0.5 percent to 1,167.7.

The MSCI Asia-Pacific Index lost 1.8 percent to 81.59 as of 9:54 a.m. in Tokyo. Four stocks declined for each that advanced.

Regional Decline

Evidence of the region’s deepening slump is mounting.

Planned investment in Australia dropped last quarter for the first time in four years as mining companies scaled back production amid tumbling commodity prices, research-company Access Economics reported today.

Japanese manufacturers, including NEC Corp. and Hitachi Ltd., announced at least 30,000 job cuts on Jan. 30. Factory production in Asia’s largest economy slumped an unprecedented 9.6 percent in December from the previous month.

Global airport freight traffic decreased 19.7 percent in December from a year earlier, the Geneva-based Airports Council International reported Jan. 30. Freight passing through airports in Asia Pacific tumbled 23.4 percent last month.

South Korea’s industrial production fell by a record in December as Hyundai Motor Co., Hynix Semiconductor Inc. and LG Display Co. reduced output to cope with sagging demand.

“Things are getting worse as the global recession spills over to China and other emerging economies,” said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul.

Sales to China

Exports to China, the nation’s biggest overseas market, tumbled 32.2 percent during the first 20 days of January, today’s report showed.

Shipments to the U.S. declined 21.5 percent, exports to the Europe Union plunged 46.9 percent and sales to Latin America dropped 36 percent. Exports to the Middle East fell 7.5 percent.

South Korea has allocated about 140 trillion won ($101 billion) in extra liquidity, tax cuts and spending, and the central bank has reduced interest rates to a record low.

The global economy will expand 0.5 percent this year, the weakest gain in the postwar era as more than $2 trillion of bad assets from the U.S. help sink economies from Russia to the U.K., the International Monetary Fund said on Jan. 28.

South Korea’s exports of semiconductors plunged 47 percent in January from a year earlier, and those of automobiles declined 55 percent. Sales of ships rose 20 percent.

Corporate Losses

Samsung Electronics Co., the world’s largest maker of memory chips, liquid-crystal displays and televisions, reported last week its first quarterly loss as the global recession drove down prices.

Confidence among South Korean manufacturers remained close to a record low, a central bank index showed last week.

A report today may show consumer prices rose by the least in 10 months in January, giving the Bank of Korea room to lower borrowing costs further to spur growth, according to a Bloomberg survey of economists.

The central bank cut its rate to a record 2.5 percent on Jan. 9, the fifth reduction since October. The bank has signaled it’s ready to act again when the board meets on Feb. 12.

Households, struggling with record debt, are losing confidence as unemployment rises and as falling stock and property prices reduce their wealth. Employment dropped in December for the first time since October 2003.

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.

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Japan’s Economy Is Killing Far Too Many Japanese: William Pesek

Commentary by William Pesek

Feb. 2 (Bloomberg) -- Ask a group of expatriates in Tokyo which foreign word is used most in Japanese and many will guess “beer,” “ciao” or “OK.”

Not even close. The answer, according to Japan’s cultural affairs agency, is “stress.” Some 98.5 percent of Japanese responding to an August survey, had seen, heard or used the word commonly pronounced “sutoresu” in their native language.

It takes but a split second to realize the logic in this being Japan’s most identified loanword. This is, after all, the home of “karoshi,” or death from overwork. Japan also is a place that consistently logs more than 30,000 suicides a year, many of which are tied to economic worries.

The concept of dying from working too many hours wasn’t invented in Japan, yet its workaholic ways result in a shockingly high incidence for a developed nation. While reliable data are hard to collate, lawyers estimate there are at least 10,000 work- related deaths each year.

That number might skyrocket as the global credit crisis visits Asia’s biggest economy.

“Karoshi will likely pick up again,” says Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo.

Japan’s outlook is worsening by the day. Factory output fell a record 9.6 percent in December. Unemployment had its biggest jump in 41 years and household spending slid 4.6 percent, a 10th month of declines. NEC Corp., Japan’s largest personal-computer maker, is cutting more than 20,000 jobs. The risk of a deep, multiyear recession is growing.

It’s Different

Yet this contraction is different. Schulz says efforts to dismantle Japan’s lifetime employment system have left a third of the workforce with flexible contracts. That means corporations have a tool that they didn’t have a decade ago to adjust to the recession: firing workers.

Japanese firms have moved with unprecedented speed to do just that, starting with the growing ranks of temporary staffers. Fast- rising joblessness in an economy unaccustomed to it means greater stress for more than just those out of work.

“It is worrying to see firms cut temporary workers, ostensibly expecting existing full-time staff to cover the shortage,” says Naomi Fink, Japan strategist at Bank of Tokyo- Mitsubishi UFJ Ltd.

Stressed Workers

There’s a national karoshi hotline, a self-help book to guide the overworked and a law that compensates families of victims, who are almost always men. Japan had the highest rate of employees suffering work-related health problems in a recent study by Kelly Services.

The Troy, Michigan-based recruitment firm questioned 115,000 people in 33 countries. The survey found that as many as three in five Japanese claimed they had been ill or felt unhealthy because of workplace conditions. That was markedly higher than the global average of 19 percent.

A political vacuum in Tokyo isn’t inspiring great confidence that things will improve. Prime Minister Taro Aso’s approval ratings are below 20 percent, and Japan’s main opposition party’s economic ideas are underwhelming, at best. And Japanese know things are bad when even the vaunted Toyota Motor Corp. is forecasting its first loss in 71 years.

The automaker also has been the subject of some unflattering headlines. In November, for example, a court in central Japan ruled in favor of the wife of a 30-year-old Toyota employee alleged to have died from overwork. The government was ordered to pay compensation.

Fabled Salaryman

Karoshi cases are difficult to prove and often go unreported. Business organizations such as Keidanren are calling on companies to offer more flexible schedules to reduce overwork and increase the national birthrate. Corporate executives and the government need to do more to drag Japan’s fabled salaryman from his desk.

This issue isn’t likely to receive the attention it deserves. Aso’s Liberal Democratic Party is preoccupied with staying in power. More energy needs to go into reducing the burden on workers who clock some of the longest hours in the developed world. Much of the overtime worked goes unreported. Vacation days often go untaken.

The key, Fink says, is to increase the productivity of Japan’s workforce. That’s easier said than done. The Organization for Economic Cooperation and Development says labor productivity per hour worked in Japan is 30 percent the U.S. level.

Killer Year

“If employers lay off to cut costs without raising productivity, karoshi might become an issue,” Fink says.

One also can’t rule out even higher suicide rates, not only in Japan, but also in South Korea and Hong Kong. Psychiatrist Shu- sen Chang of the U.K.’s University of Bristol says the current turmoil in markets risks creating a new wave of suicides, particularly among working-age men.

A Japanese hotline for people considering suicide is stretched to the limit, with the economic crisis thought to be worsening the problem, its director, Yukio Saito, told the Daily Telegraph this month. Even before Japan’s recession deepened in December, Telephone Lifeline was handling 700,000 calls a year.

It’s clear that Japan needs to end its candle-burning corporate culture. It’s less clear how to achieve a better work- life balance as the economy is plunging.

For Japan’s economy, the year ahead could be a killer -- in more ways than one.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net

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Billionaire Firtash Proposes Gas Group for Russia, Ukraine, EU

By Halia Pavliva and Daryna Krasnolutska

Feb. 2 (Bloomberg) -- Ukraine should set up a joint venture with Russia’s OAO Gazprom and European companies including E.ON AG and GDF Suez SA to guarantee gas supplies after last month’s dispute, according to Ukrainian billionaire Dmitry Firtash.

Russian, Ukrainian and European investors would each own one third of the company, Firtash said in a Bloomberg Television interview on Jan. 31 in Kiev. He controls 45 percent of Swiss- registered RosUkrEnergo AG, the sole importer of gas to Ukraine since 2006, while his business partner has 5 percent and Gazprom 50 percent.

Gas supplies from Russia via Ukraine to Europe halted for almost two weeks last month amid a spat over prices and transit fees. Russian Prime Minister Vladimir Putin said under an accord signed by the two governments on Jan. 19, that middlemen in the trade will be eliminated.

“I am convinced that such a consortium should be set up,” Firtash said. “Taking into account that Russian gas goes to Europe, companies such as Germany’s E.ON, Gaz de France and Wingas should be interested.”

Under Firtash’s proposal, Ukraine’s contribution to the venture would be its pipelines, which transport one quarter of the European Union’s annual gas consumption, and which he said may be worth about $20 billion. He said Gazprom should pledge gas fields producing 50 billion cubic meters a year over 25 years, while European companies should invest cash.

Gas Assets

Sergei Kupriyanov, a spokesman for Gazprom, could not be reached for immediate comment when called on his mobile phone outside office hours yesterday. E.ON spokesman Jens Schreiber said he couldn’t comment on its Ruhrgas unit, while Ruhrgas spokesman Helmut Roloff didn’t respond to a message left on his cell phone. GDF Suez spokeswoman Armelle Dillar declined to comment.

Firtash, 43, has a net worth estimated at $3.8 billion, according to Polish magazine Wprost, and has businesses mainly in energy, chemicals and pipeline construction. He consolidated his assets in holding company Group Dmitry Firtash, or GDF, in June 2007.

He made his fortune over the past 15 years, moving to Moscow in the early 1990s and securing his first gas deal with Turkmenistan in 1993 in exchange for food supplies. RosUkrEnergo was set up in 2004 by “top Russian and Ukrainian politicians” to import Central Asian gas into Ukraine, according to its Web site, and has been Ukraine’s monopoly gas supplier since 2006.

Gas Flows

Normal gas flows to parts of Eastern Europe still have not been restored in full since early January, following the disruption which caused shortages in 20 EU countries.

Timoshenko said Ukraine purchased 11 billion cubic meters of gas, which belonged to RosUkrEnergo and is in Ukrainian storage facilities, for $153.90 per 1,000 cubic meters following the accord with Russia. Firtash is challenging that, saying RosUkrEnergo made no sale to the government and the gas is contracted for delivery to Poland, Romania and Hungary.

Polskie Gornictwo Naftowe i Gazownictwo SA, Poland’s gas monopoly, has reported receiving only 76 percent of volumes ordered from Russia and other former Soviet countries because of the dispute.

Second Dispute

RosUkrEnergo has filed lawsuits in courts in Switzerland and Sweden claiming the gas back, according to Firtash, and is seeking several hundred million dollars in compensation. In the meantime, it expects to restore full supplies to its consumers in Eastern Europe “within the next two to three weeks,” and is in talks to borrow gas from Gazprom, he said.

“Our gas would allow Timoshenko’s government to reduce prices for Ukraine’s domestic consumption by about $40 per 1,000 cubic meters, to average between $240 and $250 per 1,000 cubic meters this year,” Firtash said. “Ukraine is unable to pay that high price.”

Naftogaz spokesmen Valentyn Zemlyanskyi and Ilya Savvin could not immediately be reached on their mobile phones outside business hours yesterday.

The third investor in RosUkrEnergo, alongside Gazprom and Firtash, is Ivan Fursin, a long-time business partner of Firtash, who controls 5 percent of the trading company.

Gas Partnership

Ukraine depends on imported fuel for 70 percent of its needs, and last month’s dispute with Russia was the second in three years. In January 2006 Gazprom’s gas shipments to Ukraine were cut for three days, leading to shortages in EU countries, including Hungary and Austria.

Firtash’s proposal for a joint venture involving European companies echoes an idea which was under discussion during the last month’s dispute.

Putin met representatives of GDF Suez, E.ON Ruhrgas AG and Eni SpA in Berlin on Jan. 16 to persuade them to form a group that would buy gas needed to permit Ukraine’s pipeline system to operate.

Eni at that time backed Putin’s initiative, which was designed to meet short-term conditions demanded by Naftogaz and Gazprom to complete bilateral accords. Russian Deputy Prime Minister Igor Sechin said E.ON Ruhrgas, BASF SE’s Wingas and GDF Suez were also backing the idea of a gas partnership, while E.ON Ruhrgas, Germany’s biggest gas provider, said more talks were needed.

Chemical Companies

The conclusion of an accord signed between Russia and Ukraine three days later made an interim solution unnecessary.

Firtash, whose comments this weekend revive the idea in a longer-term form, also owns companies including Hungarian gas trader Emfesz Kft, Vienna-registered Zangas Hoch-und Tiefbau GmbH, which repairs and builds pipelines, and OSTCHEM Holding AG, which controls chemical companies, according to GDF’s Web site. He additionally has real estate assets.

Firtash said Nov. 7 he plans also to acquire a majority stake in VAT Bank Nadra, Ukraine’s seventh-biggest bank by assets, to diversify and expand his business.

Firtash was born in the village of Bohdanivka, in western Ukraine, the only child of a driving instructor and an accountant at a local sugar beet processing plant. He graduated from Donetsk technical school in 1984, served in the army and then worked as a fireman in Chernivtsi before moving to Moscow and sealing his first gas deal.

To contact the reporter on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.netHalia Pavliva in Kiev via New York newsroom at Or hpavliva@bloomberg.net

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Crude Oil Rises on OPEC Output Concern, U.S. Stimulus Program

By Gavin Evans

Feb. 2 (Bloomberg) -- Crude oil rose a second day in New York on speculation output cuts and government stimulus plans will slow rising oil and fuel stockpiles.

Venezuela, the sixth-largest producer in OPEC, would support further output cuts by the group to prevent a glut in an already over-supplied market, Energy Minister Rafael Ramirez said yesterday. The U.S. economy, the world’s largest oil user, is “in for a tough several months” before a recovery takes hold, President Barack Obama told NBC yesterday.

“It’s all about expectations,” said Toby Hassall, research analyst at Commodity Warrants Australia Pty in Sydney. “There is some expectation that the Obama stimulus package will kick-start things in the U.S., and that will help the global economy.”

Crude oil for March delivery rose as much as 63 cents, or 1.5 percent, to $42.31 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $41.94 at 8:52 a.m. in Singapore.

The contract gained 0.6 percent to $41.68 on Jan. 30 as the threat of refinery strikes in the U.S. helped push gasoline futures to an 11-week high and the Commerce Department reported a smaller-than-expected contraction in the U.S. economy in the fourth quarter.

Brent crude oil for March settlement rose 32 cents, or 0.7 percent, to $46.20 a barrel on London’s ICE Futures Europe exchange. It gained 1.1 percent to $45.88 a barrel on Jan. 30.

New York futures fell 10 percent last week and are down 72 percent from the record $147.27 a barrel reached July 11. Prices reached $32.40 on Dec. 19, a four-year low for the front-month contract.

OPEC Cuts

The Organization of Petroleum Exporting Countries accounts for about 40 percent of global oil supplies and last month agreed to reduce output by 2.46 million barrels a day, or 9 percent, starting Jan. 1 to stem the slide in prices.

Members are complying “100 percent” with the new quota which is starting to bring stability to the market, Ramirez told reporters in Caracas. Still, demand has continued to contract since the new ceiling was set and Venezuela would support any additional output cuts sought, he said.

Gasoline for March delivery was barely changed at $1.2690 a gallon on Nymex after earlier falling as much as 0.12 cent. It gained 2 percent to $1.2687 on Jan. 30.

Talks to prevent a strike at 86 U.S. refineries were extended by 24 hours yesterday after unions reported “sufficient progress” to continue negotiations.

Heating oil for March delivery fell 1 percent to $1.44 a gallon. The contract rose 1.8 percent on Jan. 30.

Cold temperatures mid-week will push New York heating demand 8 percent above average this week, Meteorlogix LLC said in a forecast yesterday.

The global slump has overshadowed the usual seasonal demand influence of the northern hemisphere winter, Commodity Warrants’ Hassall said.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net

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Korea Won Declines for a Third Day on Record Drop in Exports

By Kim Kyoungwha

Feb. 2 (Bloomberg) -- South Korea’s won dropped for a third day against the dollar as the government reported a record plunge in exports for January, foreshadowing a deepening slump in Asia’s export-driven economies.

The Korean currency shed 8.8 percent last month, its worst start to a year since at least 1991, on speculation tighter global credit markets and falling overseas sales will curb the supply of dollars needed to meet payments on imports and foreign debt. Exports last month slumped 32.8 percent from a year earlier, the most since figures were first compiled in 1957, the Ministry of Knowledge Economy said today.

“The deterioration in exports is far beyond what the markets had expected,” said Oh Suk Tae, an economist with Citigroup Inc in Seoul. “The won remains under the pressure unless exports show a recovery.”

The won fell 0.9 percent to 1,392.10 per dollar as of 10:15 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. It reached 1,399.10 on Jan. 28, the lowest in seven weeks.

Sliding overseas sales are helping drag South Korea’s economy into what would be its first recession since the Asian financial crisis a decade ago. Industrial production plunged by a record 18.6 percent in December as Hyundai Motor Co., Hynix Semiconductor Inc. and LG Display Co. reduced output to cope with sagging demand.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net.

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Yen Rises a Third Day on Speculation Global Slowdown Worsening

By Ron Harui and Stanley White

Feb. 2 (Bloomberg) -- The yen rose for a third day against the dollar and the euro before a U.S. report that economists estimate will show manufacturing fell to the lowest level since 1980, adding to signs a global slowdown is worsening.

The yen also advanced for a third day versus the Australian and New Zealand dollars on speculation Japanese companies will bring home their overseas earnings before the fiscal year ends next month. The euro slid to the weakest in almost two months versus the greenback and the British pound fell the most in 10 days on concern policy makers in the 16-nation region and the U.K. will cut interest rates as economic growth stalls.

“The yen is likely to be the strongest currency for some time,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “There isn’t much that’s positive about the economic outlook. Investor flows back into the yen are likely to pick up pace.”

The yen advanced to 89.80 per dollar as of 10:07 a.m. in Tokyo from 89.92 late in New York on Jan. 30. Against the euro, Japan’s currency gained to 114.43 from 115.23. The euro fell to $1.2742 from $1.2813. The pound declined 0.8 percent to $1.4424 from $1.4540. The yen may appreciate to 89.15 versus the dollar and the euro may weaken to $1.2675 today, Soma said.

Against the yen, Australia’s dollar fell 0.5 percent to 57.03, New Zealand’s dollar declined 0.5 percent to 45.61 from late in New York on Jan. 30. The MSCI Asia-Pacific Index of regional shares slid 1.5 percent and the Nikkei 225 Stock Average slipped 1.9 percent.

Bets on Yen

Futures traders increased bets the yen will strengthen against the dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so-called net longs -- was 49,007 on Jan. 27, compared with net longs of 47,090 a week earlier.

The Institute for Supply Management’s factory index, due today, fell to 32.5 in January from a revised reading of 32.9 the prior month, according to a Bloomberg News survey of economists. A reading of 50 is the dividing line between growth and contraction.

The yen also strengthened versus all of the 16 most-active currencies today on speculation Japanese investors will bring home cash to settle accounts before the nation’s fiscal year-end on March 31.

The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock-market price changes that is used as a measure of risk aversion, gained for a second day, rising 5.2 percent to 44.84 on Jan. 30.

‘Repatriate Capital’

“Japanese investors tend to repatriate capital during periods of heightened risk aversion,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “The yen could retest the record high of 55 against Australia’s dollar this week.”

The Reserve Bank of Australia will cut its benchmark interest rate by 1 percentage point to 3.25 percent at a meeting tomorrow, the lowest level since 1964, according to a Bloomberg survey of economists.

The pound fell against the dollar for the first time in more than a week on speculation the Bank of England will trim borrowing costs to combat a recession.

The U.K. central bank will lower rates by half a percentage point to 1 percent when it announces a policy decision on Feb. 5, according to a separate Bloomberg survey.

Home Prices

Luxury home prices in London fell 3.7 percent from a month earlier, the second-biggest decline on record, Knight Frank LLP said in an e-mailed statement Jan. 31. In the past 12 months, prices have slumped 21 percent, the biggest annualized drop recorded by the property consultancy, as a housing slump rippled through the economy.

“Traders are looking for the chance to sell the pound,” said Saburo Matsumoto, senior manager in Tokyo of foreign- exchange sales at Sumitomo Trust & Banking Co., Japan’s fifth- largest bank by market value. “There’s no denying that U.K. rates are headed lower.”

Sterling may decline to $1.40 in the next few days, he said.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net.

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Australian, New Zealand Dollars Slip Ahead of Central Bank Meet

By Candice Zachariahs

Feb. 2 (Bloomberg) -- The Australian dollar fell to the lowest in two months on expectations among economists that the central bank will cut interest rates to the lowest since at least 1964 and after stocks closed lower in the U.S. last week.

New Zealand’s currency traded at its weakest in six years after U.S. stocks fell for a fourth straight week, capping the market’s worst January retreat. The Reserve Bank of Australia is likely to cut its benchmark rate 1 percentage point to 3.25 percent, the cheapest benchmark rate since 1964, according to the median forecast of 20 economists surveyed by Bloomberg News.

“There will be a very close focus on the size of the cut and also whether there’s any hint in the statement of how low the central bank is likely to go,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “We are going to start the week on a negative tone and the RBA may reinforce that with a 100 basis point cut.”

Australia’s currency slid 0.4 percent to 63.51 U.S. cents as of 8:22 a.m. in Sydney from 63.76 cents late last week in New York. The currency traded as low as 63.42 cents, the lowest since Dec. 2. It fell 0.3 percent to 57.18 yen.

New Zealand’s dollar declined 0.3 percent to 50.77 U.S. cents from 50.92 in New York. It bought 45.68 yen from 45.72.

Benchmark interest rates are 4.25 percent in Australia and 3.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero percent in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

Data this week

Declines in the Australian dollar may be limited as retail sales probably grew 0.3 percent in December, according to a Bloomberg News survey of 12 economists. The Bureau of Statistics will release the report at 11:30 a.m. on Feb. 4.

The currency may trade down to 62.90 U.S. cents before getting a “bounce” mid-week as retail sales data shows “the Australian economy finishing the year with a bit of resilience in huge contrast to what we’ve seen in the rest of the world,” Callow said.

Futures traders decreased their bets that the Australian dollar will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a fall in the Australian dollar compared with those on a gain -- so-called net shorts -- was 3,415 on Jan. 27, compared with net shorts of 6,115 a week earlier.

Reports this week in the U.S. are expected to show the jobless rate probably jumped in January to the highest level in 16 years, while the manufacturing and service industries fell further.

Unemployment climbed to 7.5 percent, and payrolls fell by 530,000, the 13th consecutive decrease, according to a Bloomberg News survey ahead of Labor Department figures Feb. 6. Other reports may show manufacturing, services and housing shrank further, signaling more firings ahead.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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N.Z. Dollar May Slide 20% to Record Low on Rate Cuts, RBC Says

By Candice Zachariahs

Feb. 2 (Bloomberg) -- The New Zealand dollar may plunge more than 20 percent to a record low as the central bank cuts interest rates and the global slowdown saps investor appetite for riskier assets, RBC Capital Markets said.

The currency may weaken to an all-time low of 38.98 cents in coming months, said Sue Trinh, a senior currency strategist at RBC Capital Markets, a unit of Royal Bank of Canada. Reserve Bank of New Zealand Governor Alan Bollard lowered the official cash rate to 3.5 percent last week, the lowest ever, and said there is room for further reductions to steer the economy out of a deepening recession.

“A move to all-time lows of 38.98 cents in coming months can no longer be ruled out,” Sydney-based Trinh said, confirming the contents of a research note today. “The New Zealand dollar is most vulnerable to dwindling appetite from offshore investors and the risk of persistent capital outflow in the coming year will likely see our 43-cent target by mid-2009 achieved earlier.”

New Zealand’s dollar fell 0.1 percent to 50.85 U.S. cents as of 1:10 p.m. in Wellington, from late in New York last week. The currency traded at 39 cents in October 2000, the lowest since at least 1971, according to Bloomberg News records.

The central bank’s 4.75 percentage points of rate cuts since July has lowered the extra yield offered by the nation’s three-year bonds over similar-maturity Japanese debt to 2.85 percent last week, the narrowest since 1994.

The currency will extend January’s 12 percent loss against the U.S. currency as NZ$15 billion ($7.63 billion) of New Zealand dollar bonds issued in Japan and through global issues, so-called uridashi and eurokiwis, mature this year, Trinh wrote in the note. “We anticipate the largest net negative issuance in history.”

‘Bearish Impact”

International investors hold 73.6 percent of the New Zealand government bond market, according to RBC Capital. “For every 0.1 percentage point decline in foreign ownership, there will be a disproportionately bearish impact on the New Zealand dollar,” Trinh wrote.

Standard & Poor’s lowered its foreign-currency credit- rating outlook for the nation on Jan. 13, citing concern the nation’s current-account deficit and overseas debt will curb growth and investment.

Interest rates in New Zealand will fall to a low of 2.5 percent by the second quarter, RBC Capital said. The benchmark rate is 0.1 percent in Japan and as low as zero percent in the U.S., a record low.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.

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Gold May Rise for Third Week on Demand for Cash Alternative

By Pham-Duy Nguyen

Feb. 2 (Bloomberg) -- Gold may rise for a third straight week on speculation that demand for an alterative to cash will spark purchases of the precious metal.

Twenty-two of 31 traders, investors and analysts surveyed from Mumbai to Chicago on Jan. 29 and Jan. 30 advised buying gold, which rose 3.4 percent last week to $928.40 an ounce in New York. Eight said to sell, and one was neutral.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, reached a record 843.6 metric tons on Jan. 29. The metal gained 5 percent in January.

Traders surveyed on Jan. 22 and Jan. 23 anticipated gold’s advance last week. The survey has forecast prices accurately in 147 of 247 weeks, or 60 percent of the time.

Last week’s survey results: Bullish: 22 Bearish: 8 Neutral: 1

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

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