Economic Policy Down-under Turns Stimulative

Daily Forex Fundamentals | Written by Wachovia Corporation | Feb 03 09 15:04 GMT |

The RBA cut its main policy rate by another 100 bps, and the Australian government announced a fiscal stimulus package. These measures should help to limit the severity of the incipient recession down-under. In our view, the Aussie dollar will consolidate over the next few months before moving higher by the end of the year. RBA Slashes Rates and Government Announces Fiscal Package The Reserve Bank of Australia (RBA) cut rates by 100 bps at its regularly scheduled policy meeting today, taking its main policy rate to a 45-year low of 3.25 percent (see top chart). In announcing its rate cut, the RBA pointed to the deterioration in the Australian economic outlook that is due in part to the unfolding global recession. The RBA is mandated by law to keep CPI inflation within a two percent to three percent target range over the "medium term." Inflation rose to 5.0 percent in the third quarter of 2008, but it is now receding and should move even lower in the quarters ahead (see middle chart). Therefore, the RBA judged that "a further sizable reduction in the cash rate was appropriate." The RBA gave no forward guidance but further easing is possible in the months ahead, especially if global economic conditions continue to deteriorate. The Australian government also announced a fiscal stimulus package worth A$42 billion (about US$27 billion) over four years. The package includes tax rebates that will be paid in March and April, which the government hopes will help to stimulate consumer spending in the near-term. There are also tax breaks that businesses can claim for investments made between now and the end of the year. The government will also spend A$15 billion on new and upgraded schools over the next few years. Aussie Dollar Should Consolidate Before Moving Higher Real GDP data for the fourth quarter will not be released until early March, but most monthly indicators suggest the economy weakened significantly at the end of the year. Indeed, the Australian economy has probably slipped into its first recession since the early 1990s. The stimulative measures announced today should help to limit the severity of the downturn. That said, further intensification of the global recession would weigh on Australia’s exports, which could lead to another down-leg down-under. The Australian dollar has dropped about 35 percent versus the greenback since last July as commodity prices have collapsed (see bottom chart). In the near term, the Aussie dollar could drift lower as investors fret about the global economy and its effects on the Australian economy. The Aussie dollar could conceivably fall below the five-year lows set last autumn if weaker-than-expected global economic activity causes commodity prices to decline even further. However, we project that most economies will hit bottom over the summer before beginning a sluggish recovery later this year. As global economic conditions begin to improve, commodity prices should rise, giving a boost to the Aussie dollar at that time. Wachovia Corporation http://www.wachovia.com Disclaimer: The information and opinions herein are for general information use only. Wachovia Corporation and its affiliates, including Wachovia Bank, N.A., do not guarantee their accuracy or completeness, nor does Wachovia Corporation or any of its affiliates, including Wachovia Bank, N.A., assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or any foreign exchange transaction, or as personalized investment advice. Securities and foreign exchange transactions are not FDIC-insured, are not bank-guaranteed, and may lose value.

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Currency Currents

Daily Forex Fundamentals | Written by Black Swan Capital | Feb 03 09 15:00 GMT |

Key News Australia Cuts Key Rate to 45-Year-Low 3.25% as Government Boosts Spending (Bloomberg) Bank of Japan to Buy $11 Billion in Shares Owned by Banks to Boost Capital (Bloomberg) Obama Says FDA Needs 'Complete Review' After Peanut Contamination Failure (Bloomberg) Bank of England Took On $409 Billion of Assets in Emergency Aid to Banks (Bloomberg) Key Reports Due (WSJ): 7:45 a.m. ICSC Chain Store Sales Index For Jan 31: Previous: -1.8%. 8:55 a.m. Redbook Retail Sales Index For Jan 31: Previous: -2.6%. 10:00 a.m. Dec Pending Home Sales: Expected: 0.0%. Previous: -4.0%. 4:30 p.m. Jan 30 API Oil Industry Report 5:00 p.m. ABC/Wash Post Consumer Conf For Jan 31: Previous: -54. Quotable "If fascism does come to America it will indeed take the form of 'smiley-face fascism' - nice fascism." Jonah Goldberg FX Trading - Reserve Bank of Australia Cuts Australia's dollar is little changed since the overnight announcement by the Reserve Bank of Australia to slice another 100 basis points off its benchmark interest rate. Despite the negative, the Aussie is holding on to small gains this morning. It looks as though the big move came in the days prior, expecting a big downward adjustment by the RBA. As we explained to members of our Forex & Currency Futures newsletter on Thursday, January 29: " ... In addition to entering the Australian dollar to play freshly sparked US dollar momentum, the Reserve Bank of New Zealand prompted ComDol exposure. A quick 45 minutes after the FOMC business rushed over the markets, the RBNZ announced a larger-than-expected interest rate cut. They brought their benchmark target rate down to 3.5% from 5%. According to reports, that's the lowest RBNZ rates have been ... ever. Their reason for the change was simple: global recession is impacting their economy adversely and inflation will stabilize easily with comfort/target levels. "The Reserve Bank of Australia steps up to the plate on February 3rd. At the beginning of December they slashed 100 basis points off their benchmark target rate. Sitting at 4.25% now, their economy is likely battling the same deflationary forces as New Zealand is battling. Since august, the RBA has slashed a total of 300 basis points, but the butchering probably won't stop there. We expect a sizeable cut on Tuesday. And there's a good chance the market starts pricing that in now." Based on that alert, our members were able to squeeze out a nice, quick profit in just the three days leading up to the RBA decision. The Aussie seems to be holding ground right now as the markets weigh the other news out of Australia - the Treasury Secretary there announced a stimulus package. About a third of the money is aimed at Australian families while about two-thirds of the funds are proposed to go towards infrastructure. We don't believe the stimulus plan will work any better for Australia than it is here n the states. Especially given the depressing growth we've seen across the Asian-bloc countries. Clearly, traders like the Aussie today. But if fundamentals rule, the Aussie will represent another good selling opportunity again, and maybe soon…stay tuned: 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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BOE Takes 287 Billion Pounds in Liquidity Collateral

By Brian Swint

Feb. 3 (Bloomberg) -- The Bank of England said it accepted collateral with a nominal value of 287 billion pounds ($409 billion) in its emergency lending program for institutions stung by the global financial crisis.

The bank values the securities at 242 billion pounds, a discount of 16 percent as of Jan. 30, when the application deadline expired. It loaned 185 billion pounds in Treasury bills against the collateral, according to a statement by the central bank in London today.

Former U.K. policy Willem Buiter said today that there are still “a lot of dead banks walking” facing losses from the crisis and the global economic slump. The data show how demand soared for liquid funds from the Bank of England, which predicted institutions would seek help worth about 50 billion pounds when it unveiled the swap program last April.

“Just about everybody has had a go at it,” said David Tinsley, an economist at National Australia Bank and a former Bank of England official. “It underlines the need that there has been for a lot of liquidity.”

The bank’s program, known as the Special Liquidity Scheme, was cited by the government as part of a 500 billion-pound rescue package for British banks.

Most collateral was residential mortgage-backed securities or mortgage-covered bonds, and 32 institutions accounting for 80 percent of the balance sheet of those banks that were eligible took part in the program, the statement said.

Fed Facility

The U.S. Federal Reserve’s Term Securities Lending Facility, or TSLF, was started in March, a month before the U.K. program, and the Fed said it would auction as much as $200 billion in Treasuries against mortgage-backed debt and other securities. The Fed has yet to disclose how much collateral it has taken onto its books.

Under the British plan, the Bank of England will hold the collateral for up to three years. The swap was limited to securities issued before 2008 and the drawdown period expired last month after being extended in September when Lehman Brothers Holdings Inc. filed for bankruptcy.

Government rescues in the U.S. and Europe won’t be enough to stop more banks from becoming insolvent, Buiter said.

“There is still a lot more to come from the banking sector in the U.K., Europe and the U.S.,” Buiter said at a conference in London. “There are still a lot of dead banks walking who haven’t owned up yet. For the rest of this year we will have more uncovering of financial instability.”

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net

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U.S. Pending Home Resales Rise as Prices, Rates Drop

By Timothy R. Homan

Feb. 3 (Bloomberg) -- More Americans signed contracts to buy previously owned homes in December for the first time in four months, signaling slumping prices may be boosting demand.

The index of pending home resales climbed 6.3 percent to 87.7, the first increase since August, from a revised 82.5 in November, the National Association of Realtors said in a report today in Washington. Pending sales rose in two of four regions.

Record foreclosures are pushing down home values, making homes more affordable for those buyers able to get financing. Still, restrictive lending rules and further price declines are likely to scare away the majority of purchasers, indicating the real-estate recession will persist for a fourth year in 2009.

“Lower prices probably have attracted some buyers,” said David Sloan, a senior economist at 4Cast Inc. in New York, who projected an increase. Still, “the rise may be difficult to sustain.”

Stocks rose following the report, reversing earlier losses, while Treasury securities dropped. The Standard & Poor’s 500 index was up 0.1 percent at 824.89 at 10:28 a.m. in New York. The builder composite index jumped 6.1 percent. The yield on the 10- year note was 2.80 percent, up from 2.72 at the close yesterday.

Economists forecast pending sales to be unchanged in December after an originally reported drop of 4 percent in the prior month, according to the median forecast of 28 economists in a Bloomberg News survey. Estimates ranged from a drop of 5 percent to a 2 percent increase.

Record Vacancies

A record 19 million U.S. houses stood empty at the end of 2008, the U.S. Census Bureau said in a report today. The vacancy rate, the share of empty homes for sale, rose to 2.9 percent in the last quarter, the most in data that goes back to 1956.

The pending purchase report showed resales jumped 13 percent in both the South and Midwest regions. Signed purchase contracts declined 3.7 percent in the West and 1.7 percent in the Northeast.

“The biggest gains were in areas with the biggest improvements in affordability,” Lawrence Yun, the group’s chief economist, said in a statement. The NAR’s affordability index reached a record high in December.

The Realtors group, whose pending sales data go back to January 2001, started publishing the index in March 2005. The gauge was up 2.1 percent from December 2007.

Pending resales are considered a leading indicator because they track contract signings. Closings, which typically occur a month or two later, are tallied in the Realtors’ monthly existing-home sales report. That report for January is scheduled to be released Feb. 25.

December Jump

Purchases of previously owned homes, which account for about 90 percent of the market, climbed 6.5 percent in December from the prior month as foreclosures helped drive median prices down 15 percent from a year earlier.

December sales of new homes, which account for the remainder, dropped to a record low, a report from the Commerce Department showed last week.

The Obama administration is considering giving government guarantees to mortgage holders that modify the terms of their loans to stem the record surge in foreclosures. The proposal, which may also have the taxpayer share in the cost of reducing mortgage payments, is aimed at shielding lenders from default after they loosen loan terms for struggling borrowers.

Lower mortgage rates are already making homes more affordable. The rate on a 30-year fixed mortgage averaged 5.33 percent in December, down from 6.09 percent the previous month, according to data from Freddie Mac.

Still, foreclosures continue to mount. Delinquency filings increased 41 percent in December from a year earlier, RealtyTrac Inc., a seller of default data, said last month.

Prices Drop

Average house prices have fallen by about a quarter from their peaks in mid-2006, according to the S&P/Case-Shiller home price index. Property values in 20 U.S. cities declined 18.2 percent in November from a year earlier, the fastest drop on record, according to a report last week.

The U.S. housing market lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes were worth, according to a report today from Zillow.com. The median estimated home price declined 11.6 percent in 2008 to $192,119 and homeowners lost $1.4 trillion in value in the fourth quarter alone, the Seattle-based real estate data service said.

The slow pace of sales is hurting homebuilders. Ryland Group Inc., based in Calabasas, California, reported its eighth straight quarterly loss on Jan. 28. October and November were “two of the slowest months I’ve ever experienced,” Chief Executive Officer R. Chad Dreier, who has been in the business almost 32 years, said on a conference call with analysts.

Cutting Costs

D.R. Horton Inc., the third-largest U.S. homebuilder by revenue, today reported its smallest loss in five quarters as costs and charges fell faster than revenue.

“Market conditions in the homebuilding industry continued to deteriorate during our first fiscal quarter,” Chairman Donald R. Horton said in the statement. “Rising foreclosures, high inventory levels of both new and existing homes, increasing unemployment, tight credit for homebuyers and eroding consumer confidence” were to blame, he said.

A majority of banks made it tougher for consumers and businesses to get credit in the past three months even as lenders received infusions of taxpayer funds, a Federal Reserve report showed yesterday.

The pain is reverberating beyond builders. DuPont Co., the third-biggest U.S. chemical maker, last week reported a fourth- quarter loss of $629 million.

Profit in the Wilmington, Delaware-based company’s safety and protection business fell 62 percent as sales declined for housing products such as Tyvek weather barrier and Corian countertops. DuPont said it will eliminate 8,000 contractor jobs, twice the target announced in December.

A report from the Commerce Department yesterday showed spending on U.S. private residential construction fell 3.2 percent in December after a 4.1 percent decline the previous month. Last year, spending on home building plummeted a record 27 percent.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Fed Extends Emergency-Loan Programs, Swaps to Oct. 30

By Scott Lanman and Simon Kennedy

Feb. 3 (Bloomberg) -- The Federal Reserve extended its emergency-lending programs and foreign currency-swap lines by six months through Oct. 30, citing “continuing substantial strains in many financial markets.”

The decision applies to five emergency-lending programs that provide funds or Treasury securities to securities brokers, money-market funds and companies that issue commercial paper, along with swap lines with 13 other central banks, the Fed said today in a statement in Washington. The programs had been previously authorized through April 30.

The move signals Fed officials see credit markets in the U.S. and around the world taking longer to repair than previously thought. The lending programs are authorized under a provision allowing loans to non-banks under “unusual and exigent circumstances.” Outstanding loans and swaps under the programs totaled $884 billion as of Jan. 28.

The Fed’s decision applies to the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Money Market Investor Funding Facility, the Primary Dealer Credit Facility and the Term Securities Lending Facility.

The Fed extended currency-swap programs with the central banks of Australia, Brazil, Canada, Denmark, the U.K., the euro region, South Korea, Mexico, New Zealand, Norway, Singapore, Sweden and Switzerland. The Bank of Japan will consider an extension when its policy makers next convene, the Fed said.

Swaps Value Rises

The dollar value of outstanding swaps has risen more than sevenfold since the Lehman Brothers Holdings Inc. bankruptcy in September, to $465.7 billion as of Jan. 28.

The expiration date of the Fed’s Term Asset-Backed Securities Loan Facility, a program set to start this month to prop up markets for consumer and business loans, remains Dec. 31, the central bank said. The Term Auction Facility, which lets commercial banks bid for loans, doesn’t have an expiration date.

In December, the Fed cut its main interest rate almost to zero and shifted policy to the size and composition of the central bank’s balance sheet, whose assets have more than doubled to $1.93 trillion over the past year.

It’s the fourth extension of the currency swaps since the Fed began dispatching dollars around the world more quickly in December 2007. Under the arrangement, the Fed sends dollars abroad so that other central banks can auction them in their own markets.

Libor Rate

The cost of borrowing in dollars yesterday rose to the highest level in more than three weeks as banks continued to balk at making loans. The London interbank offered rate, or Libor, that banks say they charge each other for three-month loans, climbed to 1.23 percent today from 1.08 percent on Jan. 14, the British Bankers’ Association said.

Last week, the Fed reported for the first time the amount of currency swaps with other central banks after previously listing them as “other assets” on its balance sheet. The swaps had risen by $2.88 billion to $465.7 billion over the previous week, it said.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; Simon Kennedy in Paris at skennedy4@bloomberg.net.

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BP, Dow Chemical Post Quarterly Loss as Recession Cuts Demand

By Eduard Gismatullin and Jack Kaskey

Feb. 3 (Bloomberg) -- BP Plc, Europe’s second-biggest oil company, and Dow Chemical Co., the largest U.S. chemical maker, reported fourth-quarter losses as the recession drove oil lower and slashed demand for plastics and industrial projects.

BP had its first quarterly loss in seven years, a shortfall of $3.3 billion after net income of $4.4 billion a year earlier. Dow Chemical lost $1.55 billion after a $472 million profit.

Oil and chemical companies are battling the worst downturn since the Great Depression. BP’s Chief Executive Officer Tony Hayward warned the next year will be tough and forecast weaker oil demand, while Dow Chemical CEO Andrew Liveris said his company has been hurt by a “global economic crisis” and is planning on the recession lasting throughout 2009.

“The environment is very challenging.” Ian Henderson, who manages $7 billion in natural-resource assets at JPMorgan Chase & Co.’s asset management unit in London, said today in a Bloomberg TV interview.

BP’s loss, following a record plunge in crude prices, was 18 cents a share, compared with earnings of 23 cents a share a year earlier. Excluding one-time items and gains or losses from inventories, earnings missed analyst estimates.

Hayward is adding production and refining capacity to boost BP’s earnings, which have lagged behind rivals such as Exxon Mobil Corp. and Royal Dutch Shell Plc. Shell posted its first quarterly loss in 10 years last week of $2.81 billion after lower oil prices reduced earnings from exploration and production and the value of inventories fell.

Thunder Horse

BP’s output rose for the first time in three years as new projects, including the Thunder Horse field in the Gulf of Mexico, were ramped up. Refining availability jumped to a three- year high after the return of BP’s two biggest U.S. refineries.

Excluding one-time items and gains or losses from inventories, profit was $2.6 billion. That missed the $3 billion median estimate of 10 analysts surveyed by Bloomberg News.

BP fell as much as 4.8 percent to 461.5 pence and traded down 2.9 percent at 470.5 as of 1:30 p.m. in London. The shares have lost about 13 percent since crude futures plunged from a record $147.27 a barrel in July. Shell, its larger rival, is down 12 percent in the same period.

Dow Chemicals’ unexpected net loss of $1.68 a share compares with earnings of 49 cents a share a year earlier, the Midland, Michigan-based company said today in a statement. Excluding certain items, it had a loss of 62 cents a share. The average estimate of 11 analysts surveyed by Bloomberg was for profit of 8 cents. Sales dropped 23 percent to $10.9 billion.

Earnings Outlook

“It’s a very nasty set of results,” said Hassan Ahmed, a New York-based analyst at HSBC Securities. “Everyone says January has been tracking December, so you can make a valid case that the first quarter could be far worse than the fourth quarter.” He rates the shares “overweight.”

Dow Chemical fell 74 cents, or 6.7 percent, to $10.31 as of 6:47 a.m. in trading before the official opening of the New York Stock Exchange.

Fourth-quarter net income included $1.06 a share in charges for items including restructuring, goodwill impairment and expenses related to the company’s $15.4 billion takeover of Rohm & Haas Co. and a canceled petrochemicals venture with Kuwait. Dow didn’t provide an update on the status of the merger, which is now the subject of a court case in Delaware.

The revenue decline included a 17 percent drop in sales volumes and a 6 percent drop in global prices, Dow said. Demand declined in all segments and in all regions. Prices dropped 15 percent in the basic-plastics unit and 6 percent in basic chemicals.

Demand Destruction

Dow ran its plants at 44 percent of capacity in December, the lowest ever, and at 64 percent for the full quarter.

“With a global economic crisis unfolding during the quarter, we responded with speed and urgency to get ahead of the demand destruction that continued to accelerate as we approached the end of the year,” Liveris said in the statement.

Dow in December said it is eliminating about 5,000 jobs, or 11 percent of the global workforce, permanently closing 20 facilities and idling 180 plants. Dow’s contractor workforce is being cut by 6,000 globally.

The U.S. economy, the world’s largest, may contract at a 5.5 percent annual pace this quarter after declining at a 3.8 percent rate in the last three months of 2008, according to a forecast by economists at Morgan Stanley in New York. Last quarter’s drop was the biggest since 1982.

Global Downturn

The U.S., Japan and Europe are simultaneously in a recession for the first time since World War II. The International Monetary Fund last week projected global growth this year at 0.5 percent and said losses from the credit crisis will total $2.2 trillion.

ConocoPhillips, the third-largest U.S. oil producer, posted its biggest loss on record on Jan. 28 after the collapse in energy prices dragged down the value of acquired assets. Earnings exceeded analyst estimates on increased output.

ConocoPhillips, based in Houston, reported its fourth- quarter net loss was $31.8 billion, or $21.37 a share, compared with profit of $4.37 billion, or $2.71, a year earlier. Excluding such items as $34 billion in costs recorded to reflect a drop in asset values, per-share profit was $1.28, 4 cents above the average of analyst estimates compiled by Bloomberg.

Exxon Mobil Corp., the biggest U.S. oil company, reported fourth-quarter earnings Jan. 30 of $7.82 billion, beating analyst estimates as higher refining profit softened the impact of falling oil prices.

Chevron Corp., based in San Ramon, California, said the same day its profit rose less than 1 percent to $4.9 billion. Excluding a gain on an asset exchange, profit was about $2.14 a share, 32 cents higher than analysts estimated.

-- With reporting by Mark Barton in London and Bob Willis in Washington. Editors: Guy Collins, Stephen Cunningham

To contact the reporters on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net; To contact the reporter on this story: Jack Kaskey in New York at jkaskey@bloomberg.net.

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Mexican Peso Trades Near Record Low on Economic Growth Concerns

By Valerie Rota

Feb. 3 (Bloomberg) -- Mexico’s peso fell to near a record low on mounting concern the slumping U.S. economy will further curb export demand and trim investment flows to Latin America’s second-biggest economy.

The peso declined 0.6 percent to 14.5053 per U.S. dollar at 9:40 a.m. New York time. It touched 14.5739 yesterday, its weakest ever. Mexico’s currency has tumbled 32 percent over the past six months, the second-worst performance among the world’s major currencies after Brazil’s real.

Yields on Mexico’s 10 percent bond due December 2024 advanced for a seventh trading day to a one-month high. The yield on the benchmark security rose two basis points, or 0.02 percentage point, to 7.99 percent. The bond’s price fell 0.18 centavo to 117.99 centavos per peso, according to Banco Santander SA.

To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net.

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Goldman Sachs Says U.K. Is No ‘Reykjavik-on-Thames’

By Matthew Brown and Gavin Finch

Feb. 3 (Bloomberg) -- Investors should be wary of betting the U.K. will have a currency crisis similar to that experienced in Iceland, according to Jim O’Neill, chief economist at Goldman Sachs Group Inc.

“The pound is very cheap for the first time in our professional history,” O’Neill said today at a foreign-exchange seminar in London. “You need to make sure that the U.K. is Reykjavik-on-Thames before you bet against the pound.”

Iceland’s krona slid 46 percent against the euro last year after the collapse of the banking system prompted investors to pull their holdings and forced the government to seek an International Monetary Fund bailout. The pound tumbled 23 percent versus Europe’s single currency over the same period. It’s 6 percent higher against the euro this year.

The pound will strengthen to 81 pence per euro in three months and climb to 78 pence per euro within 12 months, Goldman forecast. Against the dollar, it will rally to $1.60 in three months and $1.86 in 12 months, according to Goldman.

Much of the weakness of the U.K. economy and banking system has already been priced into the value of the pound, Goldman analysts including O’Neill said in December. The dollar will weaken against the pound as the U.S. trade deficit fails to shrink and the Federal Reserve buys Treasuries, stoking concern inflation will rise, they said.

The U.K. currency fell to 90.24 pence per euro as of 12:40 p.m. in London, from 90.03 yesterday, and was little changed at $1.4230.

The median estimate of 46 strategists surveyed by Bloomberg is for the U.K. currency to trade at $1.43 by the end of June, and $1.52 by Dec. 31.

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

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Argentine Peso Declines to Six-Year Low; Chile Bond Yields Drop

By Drew Benson

Feb. 3 (Bloomberg) -- Argentina’s peso slid to the lowest in more than six years as dollar inflows from cereal exporters dried up amid the country’s worst drought in half a century.

The peso dropped 0.2 percent to 3.4963 per dollar at 9:25 a.m. New York time, from 3.4903 yesterday. The currency touched 3.497, its weakest since Dec. 17, 2002.

“There is plenty of demand for dollars, but the supply is down since this year’s grain harvest isn’t as good due to the drought,” said Gustavo Quintana, a currency trader with Lopez Leon Brokers in Buenos Aires. Quintana forecasts the peso sliding to 3.5 per dollar by the end of the month.

The yield on Argentina’s inflation-linked peso bonds due in December 2033 rose six basis points, or 0.06 percentage point, to 16.78 percent, according to Bloomberg prices.

Chilean bond yields dropped to their lowest in eight months amid forecasts the central bank will cut its key lending rate by another full percentage point next week.

The central bank will lower rates to 6.25 percent from 7.25 percent, according to the median estimate of seven economists surveyed by Bloomberg News. Policy makers unexpectedly cut the overnight rate by a full percentage point on Jan. 8 after prices fell in December at the fastest pace since 1966.

The yield for a basket of five-year peso bonds in inflation- linked currency units, known as unidades de fomento, dropped two basis points to 2.56 percent, its lowest since May 23, according to Bloomberg composite prices.

Chile’s peso climbed for the first time in four days, rising 0.4 percent to 623.75 per dollar, from 626.25 yesterday.

To contact the reporter on this story: Drew Benson in Buenos Aires at Abenson9@bloomberg.net

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Fed Extends Emergency-Loan Programs, Currency Swaps to Oct. 30

By Scott Lanman and Simon Kennedy

Feb. 3 (Bloomberg) -- The Federal Reserve extended its emergency-lending programs and foreign currency-swap lines by six months through Oct. 30, citing “continuing substantial strains in many financial markets.”

The decision applies to five emergency-lending programs that provide funds or Treasury securities to securities brokers, money-market funds and companies that issue commercial paper, along with swap lines with 13 other central banks, the Fed said today in a statement in Washington. The programs had been previously authorized through April 30.

The move signals Fed officials see credit markets in the U.S. and around the world taking longer to repair than previously thought. The lending programs are authorized under a provision allowing loans to non-banks under “unusual and exigent circumstances.” Outstanding loans and swaps under the programs totaled $884 billion as of Jan. 28.

The Fed’s decision applies to the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Money Market Investor Funding Facility, the Primary Dealer Credit Facility and the Term Securities Lending Facility.

The Fed extended currency-swap programs with the central banks of Australia, Brazil, Canada, Denmark, the U.K., the euro region, South Korea, Mexico, New Zealand, Norway, Singapore, Sweden and Switzerland. The Bank of Japan will consider an extension when its policy makers next convene, the Fed said.

The dollar value of outstanding swaps has risen more than sevenfold since the Lehman Brothers Holdings Inc. bankruptcy in September, to $465.7 billion as of Jan. 28.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; Simon Kennedy in Paris at skennedy4@bloomberg.net.

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Hungarian Forint Weakens to Record on Recession, Risk Aversion

By Ewa Krukowska

Feb. 3 (Bloomberg) -- The Hungarian forint tumbled to a record low against the euro as risk aversion spread and concern deepened the economic slowdown will worsen.

The forint extended this year’s decline to 11.4 percent, the second-biggest drop among emerging-market currencies tracked by Bloomberg, as Hungary heads towards its worst recession in 15 years. The country was the first European Union member to seek international aid to avert a default last year, prompting a 20 billion-euro ($26 billion) emergency loan from the International Monetary Fund, the World Bank and the European Union.

“The forint is being dragged down by negative regional news,” said Nigel Rendell, senior emerging-markets strategist at RBC Capital Markets in London. “The weakening of the Russian ruble and the bank nationalization in Kazakhstan are weighing on the markets. They “may test the resolve of the central bank in Hungary” and in Russia, he said.

The forint dropped as much as 1.5 percent to 300.37 against the euro and was at 299.60 at 12:54 p.m. in Budapest. It earlier broke through the key 300 per euro level, where option barriers were set, according to BNP Paribas.

The level at which the forint is trading is of “extreme concern,” Prime Minister Ferenc Gyurcsany said yesterday after a meeting with central bank President Andras Simor.

The Polish zloty declined 1.6 percent to 4.5561 per euro, trading at a 4 1/2-year low, and the Czech koruna fell 0.6 percent to 28.445 per euro, the weakest since July 2007.

“When they look at eastern Europe, people see problems with current-account deficits, banking systems and rapidly slowing growth, or even recession in some countries,” Rendell said. “Everything’s going in one direction and further currency weakness seems almost inevitable.”

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

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Copper Rises on Speculation U.S. Stimulus Plan Will Spur Demand

By Millie Munshi

Feb. 3 (Bloomberg) -- Copper prices jumped the most in a week on speculation that government spending plans in the U.S. and China will spur economic growth and boost demand for the metal used in pipes and wires.

China, the world’s biggest copper user, started investing a second part of a 4 trillion yuan ($580 billion) stimulus plan and may enact another to boost petroleum industries. In the U.S. Senate, debate began yesterday on an estimated $885 billion spending plan supported by President Barack Obama. Copper rose 4.1 percent in January on speculation that demand will revive.

Copper gained as traders “await the outcome of whatever impact the combined economic stimulus packages of China” and the U.S. will have, Alex Heath, the head of industrial metals at RBC Capital Markets in London, said today in a report. “The momentum does look to be favoring further gains.”

Copper futures for March delivery surged 5.85 cents, or 4.1 percent, to $1.4895 a pound at 9:22 a.m. on the New York Mercantile Exchange’s Comex division. A close at that price would be the biggest advance for a most-active contract since Jan. 26. The January gain was copper’s first monthly advance since June.

On the London Metal Exchange, copper for delivery in three months jumped $125, or 3.9 percent, to $3,300 a metric ton ($1.50 a pound). The price reached a record $8,940 on July 2.

To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net

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Gold Rises as Investors Seek Store of Value; Silver Declines

By Pham-Duy Nguyen

Feb. 3 (Bloomberg) -- Gold rose on speculation investors will seek a store of value in precious metals as the economy weakens and other financial assets falter. Silver declined.

Gold rallied 5 percent last month as the Standard & Poor’s 500 Index lost 8.6 percent and the Reuters/Jefferies CRB Index of 19 raw materials shed 4 percent. Investment in the SPDR Gold Trust, the biggest exchange-traded fund, or ETF, backed by bullion, rose to a record 853.4 metric tons yesterday.

“Rapidly growing ETF holdings are a clear sign of safe- haven buying of gold,” said John Reade, a UBS AG analyst in London. “This is the dominant factor in the gold market at present.”

Gold futures for April delivery rose $3.50, or 0.4 percent, to $910.20 an ounce at 9 a.m. on the New York Mercantile Exchange’s Comex division.

Silver futures for March delivery fell 3.5 cents, or 0.3 percent, to $12.38 an ounce. The metal slumped 24 percent in 2008 while gold gained 5.5 percent.

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

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Corn, Wheat Drop on Speculation Slower Growth to Sap Demand

By William Bi and Rudy Ruitenberg

Feb. 3 (Bloomberg) -- Corn, soybeans and wheat declined on speculation that a deteriorating world economy will sap demand for the crops used in food, animal feed and fuel.

“Concerns about the global recession have overshadowed the sector’s own fundamentals,” Chen Baomin, an analyst at Jilin Grain Group Co., by phone from Changchun, China. “In time we shall see the agricultural commodities return to rallying.”

Corn for March delivery fell 3.5 cents, or 0.9 percent, to $3.67 a bushel in electronic trading on the Chicago Board of Trade, as of 1:32 p.m. in London. Soybeans slipped 11.5 cents, or 1.2 percent, to $9.48 a bushel and wheat dropped 3 cents, or 0.5 percent, to $5.6075 a bushel.

Milling wheat for March delivery fell 1.50 euros, or 1 percent, to 147.25 euros a metric ton on the Euronext exchange in Paris. Japan, Asia’s largest wheat importer, is seeking to buy 128,000 tons of milling wheat from the U.S., Canada and Australia at a tender on Feb. 5. That’s the smallest amount in a month.

To contact the reporter on this story: William Bi in Beijing at wbi@bloomberg.net; Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net.

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Crude Oil Rises After OPEC Cut Output in January to Avoid Glut

By Mark Shenk

Feb. 3 (Bloomberg) -- Crude oil rose on speculation that reduced OPEC production in January will curb surplus global inventories and bolster prices.

OPEC production averaged 28.57 million barrels a day last month, down 3.5 percent from December, according to a Bloomberg News survey of oil companies, producers and analysts. The United Arab Emirates and Qatar plan to extend reductions in crude oil shipments in March, according to refiners.

“It looks like OPEC made substantial cuts,” said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. “They still have a long way to go but it appears the market is inclined to give OPEC the benefit of the doubt.”

Crude oil for March delivery rose 33 cents, or 0.8 percent, to $40.41 a barrel at 9:10 a.m. on the New York Mercantile Exchange. Futures touched $39.65, the lowest since Jan. 20. Prices are down 9.4 percent this year and are 55 percent lower than a year ago.

The Organization of Petroleum Exporting Countries, responsible for more than 40 percent of global oil supply, agreed on Dec. 17 in Oran, Algeria, to lower production as oil prices headed for their first annual decline since 2001.

OPEC members with output quotas, all except Iraq, pumped 26.2 million barrels a day, 1.36 million more than their target of 24.85 million barrels a day.

U.A.E. and Qatar

The U.A.E. and Qatar plan to reduce their crude oil shipments to Asia in March in line with OPEC cuts, said refiners who received notices from suppliers.

State-owned Qatar Petroleum will slash supplies of its Marine grade sold under long-term contracts by 15 percent, following a 6 percent cut in February, said the refinery officials in Singapore, China, Japan and South Korea, who asked not to be named, citing confidentiality agreements.

Abu Dhabi National Oil Co., the Emirates’ state-owned producer, will cut supplies of Murban oil by 10 percent after a 15 percent reduction in February, said the officials. Shipments of Upper Zakum grade will be reduced by 15 percent, Umm Shaif by 10 percent and Lower Zakum by 10 percent, similar to cuts in volume last month.

The price of West Texas Intermediate crude oil, the basis for futures traded on Nymex, will average $35 a barrel this year, Morgan Stanley said. Crude will rise to average $55 a barrel in 2010 and $85 a barrel in 2011, analysts led by Hussein Allidina said in the Feb. 2 report.

“We keep testing the $40 area and have been unable to make a decisive breakthrough,” said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut. “The market has either found a bottom or we will see the dam burst and prices will tumble.”

Brent crude oil for March settlement rose 66 cents, or 1.5 percent, to $44.48 a barrel on London’s ICE Futures Europe exchange.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

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LSE Will Press On With ‘Dark Pool’ Without Partner

By Nandini Sukumar

Feb. 3 (Bloomberg) -- London Stock Exchange Group Plc will push ahead with its delayed Baikal pan-European trading system alone after previous partner Lehman Brothers Holdings Inc. went bankrupt.

LSE will now take sole responsibility for Baikal, LSE spokesman Patrick Humphris said today, though the exchange will look for “strategic investors” in the long term. The so-called dark pool, named after the world’s deepest lake, will match orders anonymously and won’t publish quotes.

Baikal is part of LSE’s response to competition from Turquoise, Chi-X Europe Ltd., Bats Trading Inc. and Nasdaq OMX Group Inc., who want to wrest market share from traditional bourses. The system’s start date was pushed back from the first quarter of 2009 to the second quarter after Lehman filed for bankruptcy in September. LSE said today that Baikal will go live “later this year.”

Baikal today named Mark Ryland, formerly chief operating officer of the Swiss exchange’s SWX Europe unit, as chief technology officer. Ryland’s appointment completes the senior management of Baikal, LSE said today in an e-mailed statement. Ryland also worked at Merrill Lynch & Co. and HSBC Holdings Plc.

LSE fell 7.2 percent to 422.75 pence at 1:40 p.m. in London trading, a fourth straight day of declines. The stock has declined 17 percent this year.

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

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U.A.E. Shares Drop on Morgan Stanley Report; Kuwait Index Rises

By Zainab Fattah

Feb. 3 (Bloomberg) -- United Arab Emirates shares declined, sending Dubai’s index to its lowest in 4 1/2 years, after Morgan Stanley said property prices “fell off a cliff” as banks cut lending and speculators withdrew from the market because of the global economic crisis.

Emaar Properties PJSC, the country’s biggest real-estate company, dropped to its lowest in almost five years, Sorouh Real Estate PJSC slid for a fourth day and Aldar Properties PJSC closed at a record low. Property prices in Dubai have slumped 25 percent from the market’s peak in September, while Abu Dhabi prices have declined 20 percent, Morgan Stanley said in a report received yesterday. National Bank of Abu Dhabi PJSC fell after reporting a 34 percent drop in quarterly profit.

The Dubai Financial Market General Index retreated 1.3 percent to 1,454.33, its lowest close since June 2004. The Abu Dhabi Securities Exchange General Index lost 2.2 percent, bringing the four-day retreat to 5.1 percent.

“There was a lot of borrowing to finance real-estate developments and infrastructure projects,” said Eric Swats, head of asset management at Rasmala Investments, which has $1.2 billion under management. “That combined with a drop of revenue for the governments through the decline in oil prices is having a knock-on effect which is making it worse than it is in other parts of the world.”

Real-Estate Prices

Crude oil for March traded at $40.08 a barrel in after-hours electronic trading on the New York Mercantile Exchange. Prices are down 55 percent in the past 12 months. Oil and gas contributed 37 percent to the U.A.E.’s gross domestic product in 2006, according to data compiled by Bloomberg.

Moody’s Investors Service placed six government-owned companies in Dubai, including Emaar and DP World Ltd., under review for possible rating downgrades as the economy slows.

Emaar dropped 5.9 percent to 1.77 dirhams, its lowest since May 2004. The developer will be most affected by the drop in property prices because two of its projects, Burj Dubai and Old Town, have “taken the biggest hit since the peak,” the Morgan Stanley report said.

Sorouh, Abu Dhabi’s largest developer by market value, lost 7.8 percent, dropping to a February 2007 low of 2.37 dirhams, and Aldar, the emirate’s No. 2, retreated 6.9 percent to 2.17 dirhams, the lowest close on record.

Earnings Drop

Abu Dhabi’s housing shortage hasn’t helped sustain prices as speculators exited the market and financing became scares, Morgan Stanley said. Banks including HSBC Holdings Plc and Lloyds TSB Group Plc clamped down on mortgages in the last quarter.

National Bank of Abu Dhabi slid 5.5 percent to 7.6 dirhams, bringing the three-day decline to 12 percent. The U.A.E.’s second- biggest bank by assets said fourth-quarter profit fell to 492 million dirhams ($134 million) as it boosted provisions for possible loan defaults and said it expects a “difficult” 2009.

DP World, the world’s fourth-biggest port operator, lost 4.2 percent to 23 cents, its lowest close since listing in 2007.

Kuwait’s benchmark index advanced after the cabinet approved the “principles” of a stimulus package to bolster the country’s financial institutions.

The Kuwait Stock Exchange Index increased 1.9 percent to 6,957.7, its biggest gain since Dec. 23. The Kuwait Banking Index rose 2.2 percent, bringing the advance in February to 3 percent.

Kuwait’s Climb

“The talk of the bailout plan is driving the market,” said Ali Taqi, director of asset management at AT Capital Management Ltd. in Dubai. “But its scope and terms will determine the actual impact it may have on troubled investment companies.”

The cabinet “asked its economic team to present the bill in its final form in light of the remarks and the amendments that were discussed,” a government statement said. No other details were provided and the statement did not say what the amendments were.

Boubyan Bank KSC added 6.8 percent to 395 fils. The Kuwaiti Islamic lender announced the resignation of its board, effective once a new board has been selected. Global Investment House KSCC, Kuwait’s biggest investment bank by assets, climbed 8.2 percent, the most since December 2006, to 106 fils. Gulf Finance House EC, Bahrain’s biggest Islamic investment bank by market value, jumped 7.4 percent to 290 fils.

Saudi Arabia’s Tadawul All Share Index added 1.3 percent, ending two days of declines. Oman’s Muscat Securities Market 30 Index lost 2 percent and Qatar’s Doha Securities Market Index decreased 1.1 percent. The Bahrain All Share Index slipped 0.7 percent.

To contact the reporter on this story: Zainab Fattah in Dubai on zfattah@bloomberg.net

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European Stocks Climb; Vodafone, Drugmakers Lead the Advance

By Daniela Silberstein

Feb. 3 (Bloomberg) -- European stocks climbed as better- than-estimated results from Vodafone Group Plc and Merck & Co. lifted telecommunications and health-care shares, overshadowing BP Plc’s first quarterly loss in seven years.

Vodafone, the world’s largest mobile-phone company, added 7.1 percent after third-quarter sales climbed 14 percent on a weaker pound and higher revenue in India. BP, Europe’s second- biggest oil company, sank 1.7 percent after reporting a $3.3 billion loss.

The Dow Jones Stoxx 600 Index added 0.9 percent to 188.02 at 2:18 p.m., rebounding from its biggest loss in two weeks. The regional measure traded at 9 times the earnings of its companies last month, the second-cheapest level since at least 2002, monthly data compiled by Bloomberg show.

“The valuations in the market are relatively attractive if you look at equities,” said Lucy MacDonald, London-based chief investment officer of global equities at RCM UK Ltd., which has about $100 billion under management. “However, the growth environment is still very challenging.”

The Stoxx 600 has dropped 5.2 percent in 2009 as earnings at the 141 companies in western Europe that have posted results this reporting season shrank 40 percent on average, Bloomberg data show. Analysts project a 1.6 percent drop in profits for companies in the Stoxx 600 this year following a 20 percent slump in 2008, the data indicate.

National benchmark indexes rose in all 18 western European markets except Luxembourg, Finland and Ireland. Germany’s DAX and the U.K.’s FTSE 100 gained 0.9 percent. France’s CAC 40 added 0.7 percent.

Global Economy

Global growth will almost grind to a halt this year, the International Monetary Fund said last week. South Korea’s finance ministry said today the IMF expects the country’s economy to contract this year for the first time in 10 years.

A report today may show the number of Americans signing contracts to buy previously owned homes held at a record low. The U.S. housing market lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes were worth as the economy went into recession, according to Zillow.com, a Seattle-based real estate data service.

Vodafone climbed 7.1 percent to 137.25 pence. Sales in the three months ended Dec. 31 rose to 10.47 billion pounds ($14.9 billion) from 9.16 billion pounds a year earlier. The average estimate of six analysts surveyed by Bloomberg was for 10.29 billion pounds.

Telecom Italia SpA, Italy’s biggest phone company, surged 5 percent to 1 euro. Deutsche Telekom AG, Europe’s largest, advanced 3.8 percent to 9.88 euros.

Novartis AG, Switzerland’s second-largest drugmaker, added 2.1 percent to 48.46 francs as Merck reported a profit of $1.64 billion, after a loss a year earlier. Savings from firing workers and closing plants offset sales declines for the bone- strengthening drug Fosamax.

BP slid 1.7 percent to 476.5 pence. Excluding one-time items and gains or losses from inventories, the company’s earnings missed analysts’ estimates as the global recession spurred a record plunge in crude prices.

To contact the reporter on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net.

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Precision Drilling, TransCanada: Canadian Equity

By Cristina Alesci

Feb. 3 (Bloomberg) -- Shares of the following companies may have unusual fluctuations in Canadian trading today. Stock symbols are in parentheses and prices are from the previous close.

The Standard & Poor’s/TSX Composite Index dropped 0.8 percent to 8,624.83 in Toronto.

Precision Drilling Trust (PD-U CN): UBS AG initiated coverage of Canada’s largest oil and gas drilling company with a “buy” rating and a 12-month share-price estimate of C$9.00. Precision fell 15 percent to C$5.27.

Softchoice Corp. (SO CN): The marketer of other companies’ software was raised to “outperform” from “market perform” by Raymond James. Softchoice rose 5.8 percent to C$2.75.

TransCanada Corp. (TRP CN): The owner of Canada’s largest pipeline system is scheduled to report fourth-quarter results. The company earned 55 Canadian cents a share, according to the average estimate of 11 analysts surveyed by Bloomberg. The shares gained 1.2 percent to C$33.39.

To contact the reporter on this story: Cristina Alesci in New York at Calesci2@bloomberg.net.

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Brazilian Stocks Gain on Stimulus Plan, Rate Cuts; Ipsa Rises

By Paulo Winterstein

Feb. 3 (Bloomberg) -- Brazilian stocks gained for the first time in four days on speculation economic stimulus measures globally and interest-rate cuts at home will boost demand for commodities.

Petroleo Brasileiro SA rose 1.7 percent after the Financial Times said the state-controlled oil company is in talks with the U.S. and Chinese governments to help finance development of its reserves. Steelmaker Cia. Siderurgica Nacional SA and miner Cia. Vale do Rio Doce climbed after metals advanced in London.

“Some industries have already priced in a very negative outlook,” said Roni Lacerda, who helps manage the equivalent of $624 million at Mercatto Gestao de Recursos in Rio de Janeiro. “In the mining sector you see some positive signs -- even as the environment points to a very difficult year -- such as signs of falling ore stockpiles in China, recovering prices and freight prices rebounding.”

The Bovespa rose 154.19, or 0.4 percent to 38,820.63 at 8:19 a.m. New York time. Chile’s Ipsa was little changed, gaining 0.1 percent. The MSCI Emerging Markets Index added 1 percent.

China, the world’s second-biggest energy consumer, may enact a stimulus plan for the oil refining and petrochemicals industry before a gathering of the country’s legislature to help spur the slowing economy, an official said. In the U.S., the Obama administration is considering government guarantees for home loans modified by their servicers, seeking to stem the record surge of foreclosures that’s hammering U.S. property values.

Petrobras, as the Rio de Janeiro-based oil company is known, has had talks with the U.S. and Chinese governments, among others, for help in financing the development of its oil reserves, the Financial Times reported, citing Chief Executive Officer Jose Sergio Gabrielli de Azevedo. Petrobras rose 1.7 percent to 25.10 reais.

Rate Outlook

Brazil’s central bank may cut rates more aggressively than previously forecast after industrial production plunged the most in 17 years in December.

Industrial output shrank 14.5 percent in December from the same month a year earlier, the national statistics agency IBGE said in Rio de Janeiro. The result was greater than the median forecast of a 10.3 percent drop in a Bloomberg survey of 22 economists.

Brazil’s benchmark interest rate will fall to 10.75 percent by the end of the year from 12.75 percent currently, compared with a forecast of 11 percent a week ago, economists in a weekly central bank survey published yesterday showed. The rate will end 2010 at 10.50 percent compared with a forecast of 10.75 percent a week earlier.

“Some stocks haven’t responded yet to the decline in the interest rate curve,” said Lacerda.

CSN, as Brazil’s third-biggest steelmaker is known, rose 1.1 percent to 35.59 reais. The Rio de Janeiro-based company is the “best prepared steelmaker in the region to endure” a global slowdown, analyst Francisco Schumacher wrote.

Vale, the world’s biggest iron-ore producer and second- biggest nickel producer, rose 1.1 percent to 28.06 reais. Nickel gained for a second day, adding 1 percent in London trading.

To contact the reporters on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.

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US Data Helps Firm Risk Sentiment

Daily Forex Fundamentals | Written by AC-Markets | Feb 03 09 09:34 GMT |

Market Brief The Usd was weaker in the Asian session as yesterday's US data release surprised to the upside and support risk taking. The EurUsd traded from 1.2820 to 1.2914, while the UsdJpy was range bound between 89.30 and 89.98. US manufacturing ISM came in at 35.6 vs. 32.5 exp, prior reading 32.4, an inevitable correction from a very low and unwarranted level. However, as all the numbers are still in contraction territory and most components declining, we see improvement in risk appetite to be short lived. Asian regional indexes are mixed, with the Nikkei down slightly, but Shanghai gaining 2.44%. Currently European stocks are broadly higher. The RBA cut the cash rate 100bpts to 3.25% today. This easing was less clear cut and dry, with Bloomberg poll split between 100bpt cut and 75bpt cut. Also in Australia, the Government today announced its 2nd emergency fiscal package entitled the " Nation Building and Jobs Plan" estimated at roughly of 2% of GDP in 2009. The trade balance printed a surplus of $589m in Dec, a marked deterioration on the $979m surplus in November and significantly worst then the market had anticipated. We expect the RBA to continue easing with another 75bp worth of cuts in 2009. With a sizable current account deficit to financein the midst of deteriorating terms of trade, Australia is positioned to see a negative FX reaction to looser monetary policy. We expect AudUsd to retest trend lows. ACM FOREX Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

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Forex Technical Update

Daily Forex Technicals | Written by India Forex | Feb 03 09 08:48 GMT |

Euro: Euro bounced back strongly from the lows of 1.2706 in yesterday's session to touch 1.29 levels. Currently trading around 1.29, the hourly & 4-hourly charts are getting overbought. Immediate resistance comes at 1.2915 (100 Hourly EMA) and then at 1.2945 (38.2% Retracement of the recent fall) where shorts can be initiated for intraday 80-90 pips. The daily charts are reaching the oversold region so avoid holding short positions. (Eur/Usd:1.2901). Pound: Cable witnessed yet another volatile trading session yesterday as it fell more than 400 pips from the highs of 1.4468 and recovered to close at 1.4230. The hourly and 4-hourly charts are showing little upside while the daily chart is indicating strong selling bias for the currency. The overall bias remains weak with BOE expected to cut benchmark interest rates by another 50 bps on Thursday. Resistance comes at 1.4308 (100 4-hourly EMA), thus shorts around 1.4280 can be initiated for 100 pips. (Gbp/Usd: 1.4360) Yen: The Dollar-Yen pair has been trading within a small range holding below the 21 Daily EMA strongly. Currently trading at 89.70, the hourly and 4-hourly charts indicate a downside for the pair. Resistance holds at 90.00 levels (21 Daily EMA & 38.2% Retracement) whereas downside could be curbed around 87.12 Break-out of the range would determine the direction for the paur. Avoid initiating positions in this pair now. (Usd/Jpy: 89.69) Rupee: The local unit recouped some of its loses on Friday as the local stocks gained some momentum. It closed 10 paisa stronger as compared to its Thursday's close of 49.97/98. Today morning it opened higher at 49 levels and the government is restricting the rupee fall around the important resistance of 49.30. The one-month offshore NDF rate quoted at 49.28/38 levels which shows the outlook for for the local unit remains bearish in the near term. (USD/INR:49.01) Swiss Franc: Usd/Chf pair surged higher to 1.1683 levels while it closed lower near the 21 4-hourly EMA (1.1576). Major charts are indicating an upside thus longs can be considered for intraday 80 pips around the same support level (1.1580). Downside could be curbed at 1.1560 levels (100 hourly EMA). (Usd/Chf:1.1617). Australian Dollar : Aussie fell to the lows of 0.6248 levels however rebounded to close around 0.63 levels. It tested the 0.64 levels in the early trade today on the back of another stimulus package by the Australian Government. The benchmark interest rate was reduced by 100 bps today by the RBA. The hourly charts have corrected in the overbought region while the 4-hourly charts are moving upward. Shorts can be initiated around 0.6435 (100 hourly EMA) for 80 – 90 pips. (Aud/Usd-0.6370) Gold: Gold moved within a wide range of $24 in yesterday's session touching the lows of $901.05. The 4-hourly charts, however, are reaching oversold region with immediate support coming in at $873 (21 Daily EMA). Long positions can be considered around $875 - $880 (cluster support) for intraday $10-$15. (Gold: $907.15) Dollar index: Dollar Index is trading just below the 87 levels with stochastics neutrally poised at 70.65% before reaching the over-bought region. India Forex http://www.indiaforex.in DISCLAIMER These views/ forecasts/ suggestions, though proferred with the best of intentions, are based on our reading of the market at the time of writing. They are subject to change without notice.Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. Those acting in the market on the basis of these are themselves responsible for any profits or losses that might occur, without recourse to us. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved.

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Obama Foreclosure-Relief Plan May Guarantee Rewritten Loans

By Alison Vekshin

Feb. 3 (Bloomberg) -- The Obama administration is considering government guarantees for home loans modified by their servicers, seeking to stem the record surge of foreclosures that’s hammering U.S. property values.

The proposal, which may also have the taxpayer share in the cost of reducing mortgage payments, is aimed at shielding lenders from default after they loosen loan terms for struggling borrowers. Comptroller of the Currency John Dugan, who regulates national banks, said yesterday that “working out the details of it is still something that’s ongoing.”

“We need to help more people stay in their homes” through helping mortgage lenders make more loan modifications, James Lockhart, director of the Federal Housing Finance Agency, said in an interview with Bloomberg Television yesterday. “I’m pleased that the new administration is starting to work on that area.”

President Barack Obama’s team is preparing the biggest effort yet to arrest foreclosures, part of a three-pronged attack on the financial crisis that also aims at restarting business and consumer lending and overhauling regulation. As banks dump on the market the properties acquired through borrower defaults, they are contributing to the biggest slide in property values since the Great Depression.

Bailout Plan

Top officials continued their series of meetings yesterday as they examine options for the next phase of the government’s financial-industry bailout. The biggest challenge is finding a way to value banks’ toxic assets so that the government can buy or insure them while providing some limit to taxpayer losses, Dugan said. An announcement on the strategy may come early next week, an administration aide said.

Treasury Secretary Timothy Geithner gathered with Dugan, Federal Reserve Chairman Ben S. Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair. Geithner and White House economics director Lawrence Summers also met with House Financial Services Committee Chairman Barney Frank.

The proposal to guarantee modified mortgages is a variation of an idea backed by the FDIC. The administration plans to spend as much as $100 billion of the second $350 billion instalment of the Treasury’s financial-bailout fund on home-loan initiatives.

Some 1.5 million foreclosures might be prevented this year in a program that would pay servicers $1,000 to modify a troubled loan by reducing the interest rate, forgiving a portion of the principal or extending the repayment plan, Bair has estimated. The government would then absorb as much as 50 percent of any loss if the rewritten loan defaults again.

Protection for Taxpayer

Dugan said in an interview yesterday in Washington that the approach should include a provision that would delay a government guarantee for a modified mortgage for a set period of time to ensure that the loan is sustainable.

“It is really important that when you have a modified loan that the payment become affordable to the homeowner,” Dugan said. “You wouldn’t want the government to be on the hook for someone who borrowed a lot more in credit-card debt, or what have you, and then couldn’t make their payments.”

Meanwhile, Treasury aides have approached Wall Street firms to gauge their appetite for participating in a so-called aggregator bank designed to remove toxic assets clogging banks’ balance sheets. They are also asking how a pricing model for the investments should be set up, financial-services industry officials said on condition of anonymity.

Compensation Limits

The administration is planning to outline stepped-up executive pay and dividend restrictions for companies that receive “exceptional” government aid later this week, helping to lay the groundwork for further help. Obama last week criticized the payment of Wall Street bonuses while the industry was receiving taxpayer funds as “shameful.”

Larger firms will see bans on severance payments for the top five executives and limits on their bonus pools, along with 50 senior officers, to 60 percent of 2007 level, according to the Treasury. The department also requires that major expenses, like aircraft or conferences in exotic locales, get prior government approval.

Obama yesterday warned that further bank failures are likely. Lenders are “going to have to write down those losses,” he also said in an interview on NBC’s Today show.

Six banks have collapsed already in 2009, and the failures are putting pressure on the FDIC’s deposit-guarantee fund. The agency is seeking power to charge fees to bank holding companies, in legislation to be taken up by the House Financial Services Committee. The bill would also boost the FDIC’s credit line with the Treasury to $100 billion from $30 billion.

‘Stressed’ Homeowners

Obama directed his staff to work with Congress on “smart, aggressive policies to reduce the number of preventable foreclosures by helping to reduce mortgage payments for economically stressed but responsible homeowners,” Summers, who is helping to craft Obama’s strategy, wrote in a Jan. 12 letter to congressional leaders.

Another mortgage approach being considered would have the government provide an incentive for servicers to rewrite loans by sharing the cost of the modification.

Under that proposal, the companies would negotiate with borrowers to cut their monthly payment to represent a smaller proportion of their income, for example 38 percent. The government then would pay the cost of cutting the payment even further, to 31 percent of income.

Bernanke in December said that while such an option might “pose a greater operational burden on the government” than the FDIC plan, it could “leverage” modification efforts now under way.

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.

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