Treasury Secretary Disappoints Markets

Daily Forex Fundamentals | Written by Easy Forex | Feb 11 09 01:15 GMT |

U.S. Dollar Trading (USD) the mood darkened considerably yesterday as the much anticipated speech from Geithner failed to deliver and what started as profit taking turned into a rout. Banking stocks were under pressure as Geithner lacked clarity in the direction the new administration will take. Crude Oil closed down -$2.01 ending the New York session at $37.55 per barrel. In US share markets, the Dow Jones fell 381 points or -4.62% and the NASDAQ dropped -66 or -4.2%. Looking ahead, December Trade Balance forecast to improve to -36Bn vs. -40.44Bn previously. The Euro (EUR) came under selling pressure as EUR/JPY sales and a report out of Japan concerning $400bn Russian Bank Debt took hold. The reports were discounted and the pair rallied back above 1.3000 before risk aversion became the dominate force sending the pair crashing lower. Overall the EUR/USD traded with a low of 1.2812 and a high of 1.3074 before closing the day at 1.2875. Looking ahead, January CPI is forecast to -0.5% vs. 0.3% previously. The Japanese Yen (JPY) tracked equities with crosses steadily falling in Asia before dropping sharply in the US session with those stocks falling over 4%. Household Confidence gained slightly to 26.4 vs. 26.2 previously. Overall the USDJPY traded with a low of 90.14 and a high of 91.66 before closing the day around 90.40 in the New York session. The Sterling (GBP) fell back sharply as the GBP/JPY shunted lower. UK December Trade Balance improved to -7.4Bn vs. -8.1Bn previously. GBP has been very volatile in recent months so the 400 pip drop does not necessarily indicate a resumption of Pound weakness. Overall the GDP/USD traded with a low of 1.4458 and a high of 1.4892 before closing the day at 1.4550 in the New York session. Looking ahead, December ILO Unemployment Rate is forecast to rise to 6.3 vs. 6.1. The Unemployment Change in January is forecast to rise to 90k vs. 77.9K previously. The Australian Dollar (AUD) suffered severely as the sentiment changed and US stocks tanked. The recovery in recent weeks has been impressive but the pair gave up over 4% overnight. NAB Business Confidence fell to a record low of -32 in January. Also lower February Consumer Confidence down -4.6%. Overall the AUD/USD traded with a low of 0.6486 and a high of 0.6754 before closing the US session at 0.6540. Gold (XAU) rallied as Financial Risk flared again on banking concerns. Overall trading with a low of USD$891 and high of USD$918 before ending the New York session at USD$915 an ounce. Easy Forex http://www.easy-forex.com Easy-Forex makes no recommendations as to the merits of any financial product referred to in this website, emails or its related websites and the information contained does not take into account your personal objectives, financial situation and needs. Therefore you should consider whether these products are appropriate in view of your objectives, financial situation and needs as well as considering the risks associated in dealing with those products

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Foreign Exchange Market Commentary

Daily Forex Technicals | Written by HY Markets | Feb 11 09 03:43 GMT |

EUR/USD closed higher on Monday due to short covering as it consolidated some of last week's decline. The mid-range close sets the stage for a steady opening on Tuesday. Stochastics and the RSI are turning bullish signalling that a low is in or is near. Closes above the 20-day moving average crossing are needed to confirm that a short-term low has been posted. If it extends this year's decline, fib support crossing is the next downside target. USD/JPY closed lower on Monday as it extends Thursday's decline below the reaction low crossing. The low-range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI are bearish signalling that sideways to lower prices are possible near-term. If it extends this Monday's decline, January's low crossing is the next downside target. Multiple closes above Monday's high crossing are needed to confirm that a short-term low has been posted. GBP/USD closed higher on Monday as it extends last week's rally. The high-range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI remain bullish signalling that sideways to higher prices are possible near-term. If it extends this rally, January's high crossing is the next upside target. Closes below the 20- day moving average crossing are needed to confirm that short-term top has been posted. USD/CHF closed higher on Monday as it extends last Friday's rally. The mid-range close sets the stage for a steady opening on Tuesday. Stochastics and the RSI are bullish signalling that sideways to higher prices are possible near-term. If it extends today's rally, the reaction high crossing is the next upside target. Closes below the 20-day moving average crossing would temper the near-term friendly outlook. HY Markets http://www.hymarkets.com

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Australia’s Westpac February Consumer Confidence (Table)

By Daniel Petrie

Feb. 11 (Bloomberg) -- Following is the table for Australia’s February consumer confidence index from Westpac Banking Corp. and the Melbourne Institute released in Sydney. Beginning February 2007 Westpac has resumed reporting seasonally adjusted figures.

===============================================================================
                               Feb.    Jan.   Dec.   Nov.   Oct.  Sept.  Year
                               2009    2009   2008   2008   2008   2008   Ago
===============================================================================
                              --------------------- MoM% ---------------------
Consumer sentiment             -4.6%   -2.3%   7.6%   4.3% -11.1%   7.0%  -11.9%
Family finances, year ago       1.6%   10.6%   4.6%  -7.8%  -1.0%   3.6%   -8.6%
Family finances, year ahead    -6.2%   -4.8%   5.3%  -0.1%  -5.8%   9.3%  -12.2%
Economy 1 year ahead           -7.6%  -18.3%   5.6%  -1.7% -20.3%  19.5%  -36.6%
Economy 5 years ahead         -16.5%    4.0%  -3.7%  15.8%  -9.1%   8.1%  -17.9%
Buy major household items       5.8%   -3.4%  28.2%  15.8% -19.7%  -3.7%   13.8%
Current conditions              3.9%    2.3%  17.4%   3.5% -11.0%  -0.5%    2.8%
Expectations                  -10.5%   -5.1%   2.1%   4.7% -11.1%  11.7%  -21.0%

===============================================================================
                               Feb.    Jan.   Dec.   Nov.   Oct.  Sept.    Year
                               2009    2009   2008   2008   2008   2008     Ago
===============================================================================
                              --------------------- YoY% ---------------------
Consumer sentiment            -11.9%  -12.8% -18.2% -22.6% -28.9% -20.3%  -12.6%
Family finances, year ago      -8.6%  -23.0% -27.9% -28.0% -24.4% -26.7%   -5.8%
Family finances, year ahead   -12.2%   -7.2%  -1.2% -12.2%  -9.5%  -1.1%   -3.2%
Economy 1 year ahead          -36.6%  -43.6% -42.5% -40.2% -45.0% -30.7%  -28.5%
Economy 5 years ahead         -17.9%    3.8%  -6.6%  -4.5% -19.9% -12.5%    6.5%
Buy major household items      13.8%  -13.0% -10.9% -28.2% -42.6% -28.8%  -25.8%
Current conditions              2.8%  -17.8% -18.7% -28.1% -34.3% -27.9%  -17.2%
Expectations                  -21.0%  -15.6% -17.9% -19.1% -25.4% -15.3%   -9.5%
                              -------------------- Index ---------------------
Consumer sentiment              85.8    89.9   92.0   85.5   82.0   92.2    97.4
Family finances, year ago       83.5    82.2   74.3   71.0   77.0   77.8    91.3
Family finances, year ahead     99.2   105.8  111.1  105.5  105.6  112.1   113.0
Economy 1 year ahead            53.8    58.3   71.4   67.6   68.8   86.3    85.0
Economy 5 years ahead           84.8   101.5   97.6  101.4   87.6   96.4   103.2
Buy major household items      107.6   101.8  105.4   82.2   71.0   88.4    94.6
Current conditions              95.6    92.0   89.9   76.6   74.0   83.1    92.9
===============================================================================
                               Feb.    Jan.   Dec.   Nov.   Oct.  Sept.    Year
                               2009    2009   2008   2008   2008   2008     Ago
===============================================================================
                              -------------------- Index ---------------------
Expectations                    79.3    88.6   93.4   91.5   87.4   98.3   100.4
===============================================================================

Note: Westpac has resumed reporting seasonally adjusted figures, noting that research indicated monthly changes in January were generally significantly larger than monthly changes during the rest of the year. As a result a new methodology has been adopted to filter raw data and is the new consumer sentiment index.

Sources: Westpac Banking Corp., Melbourne Institute

To contact the reporter on this story: Daniel Petrie in Sydney at dpetrie5@bloomberg.net

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Australia’s Home Loans Climb More-Than-Expected 6.4%

By Jacob Greber

Feb. 11 (Bloomberg) -- Australian home-loan approvals rose in December by the most in almost nine years as government handouts and the biggest round of interest-rate cuts in almost two decades spurred first-home buyers.

The number of loans granted to build or buy homes and apartments increased 6.4 percent to 52,974 from November, the biggest gain since May 2000, the statistics bureau said in Sydney today. The gain was almost double the 3.5 percent median estimate of 16 economists surveyed by Bloomberg News.

Approvals rose for a third month as Central bank Governor Glenn Stevens cut the benchmark interest rate to a 45-year low of 3.25 percent to prevent the housing market from collapsing. The construction industry is shrinking, unemployment is rising, business confidence is at a record low, and lenders including Commonwealth Bank of Australia have announced higher provisions for bad debts, adding to signs the nation faces a recession.

“These are the first steps in the right direction,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. “We need to see these sorts of results for another six months to be confident the construction sector will begin to pick up.”

“Policy makers don’t have the option of failing here,” Redican added. “If they don’t get construction off the ground, the economy will be in for a very sharp slump.”

First-Time Buyers

To spur house building, the government in October tripled a grant to first-time buyers of new homes to A$21,000 ($14,000) and doubled the grant for buyers of existing homes to A$14,000. The increased payments are due to remain available until June 30.

First-home buyers accounted for 25.4 percent of loan approvals in December, up from 18.9 percent a year earlier, today’s report showed.

The Australian dollar traded at 65.44 U.S. cents at 12:27 p.m. in Sydney from 65.79 cents before the report was released. The two-year government bond yield rose 1 basis point, or 0.01 percentage point, to 2.71 percent.

Today’s report reflects similar gains in demand for housing in some property markets around the world where prices have fallen.

An index of U.S. pending home sales climbed 6.3 percent in December, the first increase since August, U.K. banks granted 31,000 loans for house purchase, compared with 27,000 in November, and the value of Hong Kong mortgages jumped 22.8 percent, reports showed in the past two weeks.

Variable Mortgages

Governor Stevens said yesterday commercial lenders have passed on about 375 basis points of the central bank’s 400 basis points of reductions since the start of September.

The interest-rate reductions have saved borrowers with an average A$250,000 home loan about A$600 a month. Around 90 percent of property buyers in Australia have variable-rate mortgages.

“The cash flow channel for indebted households is working quite powerfully in our case,” Stevens told a conference in Kuala Lumpur yesterday.

“The question of how people’s appetite to borrow will be expanded by these things of course is another” matter, he said.

Lending by banks to consumers buying houses rose 7.6 percent last year, the weakest growth since 1983, home-building approvals fell in December for a sixth month and property prices tumbled 3.3 percent in 2008, recent reports showed.

Interest Rates

Investors have a 100 percent expectation the Reserve Bank of Australia will cut the overnight cash rate target by 50 basis points on March 3, according to a Credit Suisse Group index based on swaps trading.

The nation’s jobless rate probably rose last month to 4.7 percent, the highest level in more than two years, from 4.5 percent in January, after companies including Macquarie Group Ltd. fired workers, according to the median estimate of 14 economists surveyed by Bloomberg. Jobs figures will be released tomorrow.

There also signs households may be less willing to take on extra debt after the economy expanded just 0.1 percent in the third quarter from the previous three months, the weakest growth since 2000.

An index of consumer confidence declined 4.6 percent in February, according to a Westpac Banking Corp. survey of 1,200 people conducted between Feb. 2 and Feb. 8, and released in Sydney today.

Australia’s construction industry shrank in January for an 11th month.

Bad Debt

Boral Ltd., Australia’s biggest seller of building materials, said today it expects housing starts to tumble 15 percent this year to 135,000.

Commonwealth Bank, the nation’s second-biggest bank, said today bad debts rose almost five-fold in the first half to A$1.6 billion as loans to failed companies including ABC Learning Centres Ltd. soured.

The total value of lending rose 5.9 percent to A$18.6 billion in December, today’s report showed.

Lending to owner-occupiers gained 7.1 percent, while the value of lending to investors who plan to rent or resell homes advanced 2.9 percent.

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

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New Zealand Card Spending Fell for a Third Month

By Tracy Withers

Feb. 11 (Bloomberg) -- New Zealand consumer spending on debit, credit and store cards fell for a third straight month in January, adding to signs that job losses and falling consumer confidence may prolong the nation’s recession.

The value of transactions on electronic cards at retailers declined 0.6 percent from December, led by lower fuel prices, Statistics New Zealand said in a statement released today in Wellington. Spending was the lowest since October 2007, seasonally adjusted.

New Zealand’s economy slumped into a recession in the first quarter of last year and may not start growing until the second half of 2009 amid falling exports and rising unemployment, according to the central bank. Retailers such as Hallenstein Glasson Holdings Ltd. and Kirkcaldie & Stains Ltd. are reporting plunging profits as consumers curb their spending.

“Core spending has flat-lined in recent months, volumes are contracting and the outlook for retailing is yet to show any evidence of life,” said Shamubeel Eaqub, economist at Goldman Sachs JBWere Ltd. in Auckland. “The key risk for retail spending is likely to be the labor market.”

New Zealand’s jobless rate rose to a five-year high of 4.6 percent in the fourth quarter, according to a government report last month. Consumers were more pessimistic about the outlook for the economy, according to a survey by Roy Morgan Research in the two weeks ended Feb. 1.

Spending at fuel outlets led the declines, while sales of home appliances, electrical goods and other so-called durable items also fell, the statistics agency said.

Transactions excluding fuel, workshop and vehicle sales dropped 0.2 percent from December when they rose 0.2 percent, the agency said.

Hallenstein this month said profit in the six months ended Feb. 1 fell about 40 percent amid slowing sales and narrower profit margins at its clothing stores.

Kirkcaldie & Stains, which owns an upscale department store in the nation’s capital city Wellington, yesterday said profit in the six months to late February will probably plunge 50 percent as sales are about 6 percent less than a year earlier.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

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Sri Lanka Lowers Rates for Second Time in Two Months

By Cherian Thomas

Feb. 11 (Bloomberg) -- Sri Lanka’s central bank lowered its overnight lending rate for the second time in two months to support the island’s economic growth amid a global recession.

The Central Bank of Sri Lanka cut the penal interest rate to 16.5 percent from 17 percent, according to a statement posted on the bank’s Web site today. The repurchase rate was also reduced by a quarter point to 10.25 percent, the statement said.

The Colombo-based bank may cut rates further after Governor Nivard Cabraal said this week that a slowdown in inflation allows for “less tight” monetary policy. Sri Lanka’s inflation has halved since October as oil and other commodity prices plunged due to the global economic slump.

“The retreating inflation will enable monetary authorities to gradually reduce the penal rate,” said Danushka Samarasinghe, research manager at Asia Securities Co. in Colombo. “Sri Lankan interest rates have shown signs of weakening.”

The penal rate now serves as a ceiling on overnight interest rates and as a benchmark rate for other market rates, the central bank said Jan. 12.

Consumer prices in the capital Colombo rose 10.7 percent in January from a year earlier, after increasing 14.4 percent in December, the statistics department said Jan. 30.

‘Single Digit’

“It is expected that inflation will fall to a single digit in February and continue its decline in the coming months,” the central bank said in its statement today. “These interest rate reductions will lead to significant reduction in the cost of borrowing, resulting in economic activity being stimulated.”

To support growth, Sri Lanka in December unveiled a 16 billion rupees ($140 million) stimulus package that includes cutting retail fuel prices and removing some taxes.

The nation’s economic growth slowed to 6.3 percent in the third quarter of 2008 from 7 percent in the previous three-month period as declining overseas demand eroded the nation’s tea, rubber and textile exports.

Still, Cabraal said Feb. 7 Sri Lanka’s economy may expand faster than previously estimated in 2009 as the government adds stimulus measures and prospects of peace spur investment. Growth may be 6 percent this year, more than an earlier forecast of between 5 percent and 5.5 percent, Cabraal told Bloomberg News in Kuala Lumpur.

President Mahinda Rajapaksa on Feb. 4 said the government will decisively defeat the Liberation Tigers of Tamil Eelam rebels within “a few days” and free the South Asian nation from the “dark shadow of terrorism.” The Tamil Tigers have been fighting for 25 years for a separate homeland in the island nation, in a conflict that has killed more than 70,000 people.

The army says it has driven the Tamil Tigers from their main bases into an area of less than 200 square kilometers (77 square miles) in the northeast.

To contact the reporter on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net.

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Australian Consumer Sentiment Falls as More Jobs Lost

By Jacob Greber

Feb. 11 (Bloomberg) -- Australian consumer confidence slumped in February as rising unemployment and falling property prices threaten to push the economy into its first recession in almost two decades.

The sentiment index declined 4.6 percent to 85.8 points, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Feb. 2 and Feb. 8 and released today in Sydney. The index has been below 100 since February 2008, indicating pessimists outnumber optimists.

Today’s survey suggests the central bank’s decision to slash borrowing costs last week to a 45-year low and government plans to spend A$42 billion ($28 billion) on infrastructure and cash handouts to households may not be enough to offset the economic impact of slumping demand for Australia’s commodity exports.

Consumers are “unusually fearful of the future,” said Bill Evans, chief economist at Westpac in Sydney. “This represents a serious challenge for policy” at the central bank.

“Logically it points to consumers saving any excess income” rather than boosting spending, Evans added.

The Australian dollar traded at 65.74 U.S. cents at 10:36 a.m. in Sydney from 65.68 cents before the report was released. The two-year government bond yield was unchanged at 2.7 percent.

Economic Outlook

An index measuring consumers’ expectations about economic conditions over the next 12 months dropped 7.6 percent in February from January, the report showed.

Despite “record largesse” from the government and the central bank, consumer confidence has fallen 7 percent below the level the index was at just before central bank Governor Glenn Stevens began cutting borrowing costs in early September, Westpac said in today’s report.

Stevens and his board have reduced the benchmark interest rate since early September by four percentage points to 3.25 percent.

Slumping consumer confidence echoes a plunge in business sentiment last month to a record low, according to a National Australia Bank Ltd. report published yesterday.

The business confidence index dropped 12 points to minus 32, the lowest level since the series began in 1989, National Australia said.

Rising Unemployment

Commonwealth Bank of Australia, the nation’s second-largest bank, said today that bad debts rose almost five-fold to A$1.6 billion as loans to failed companies including ABC Learning Centres Ltd. soured.

Evidence is mounting that Australia’s economy may be contracting after gross domestic product rose 0.1 percent in the third quarter, the weakest pace in eight years.

The unemployment rate climbed in December to 4.5 percent, the highest level in almost two years, as mining companies, airlines and automakers fired full-time workers.

The jobless rate probably rose last month to 4.7 percent, according to the median estimate of 14 economists surveyed by Bloomberg. Employment figures will be released tomorrow.

Lending by banks to consumers buying houses rose 7.6 percent last year, the weakest growth since 1983, home-building approvals fell in December for a sixth month and property prices tumbled 3.3 percent in 2008, recent reports showed.

BHP Billiton Ltd., the world’s largest mining company, has said it will cut 800 employees and 1,000 contractors from its $2.2 billion Ravensthorpe mine in Western Australia and its Yabulu plant in Queensland.

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

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Russia Economy May Grow 3% in 2009, 2010 Troika’s Osborne Says

By Halia Pavliva

Feb. 11 (Bloomberg) -- Russia’s economy may expand this year and next because demand for oil, the nation’s biggest export earner, will probably pick up and local products will replace some imports, according to Troika Dialog.

Urals crude, Russia’s main export blend, will probably average about $50 a barrel in 2010, compared with $40 forecast for 2009, said Chris Osborne, chief executive officer for Russian brokerage Troika Dialog’s U.S. unit. The country’s $1.7 trillion gross domestic product may grow 3 percent this year, and accelerate above that in 2010, he said.

“As the ruble devalues we should see some import substitution,” Osborne said at a press briefing yesterday at the company’s Manhattan office. “Russia can grow at $40 a barrel, and at $30 a barrel.”

Russian Finance Minister Alexei Kudrin reiterated on Feb. 4 that the economy may stagnate this year after Urals crude slumped 69 percent from a July record and the global credit crisis pushed up borrowing costs. The ruble slumped 36 percent against the dollar-euro basket since August as oil price fell.

Nouriel Roubini, the New York University professor who forecast the U.S. recession two years ago, said on Feb. 4 that the Russian economy may contract by 3 percent or 4 percent this year. Russia is the world’s biggest energy exporter.

The economy expanded 5.6 percent in 2008, the slowest pace since at least 2004. Russian GDP will contract 0.7 percent this year and grow 3.15 percent in 2010, according to the median estimate of 13 economists surveyed by Bloomberg.

Russia’s economy last shrunk in 1998 as the government defaulted on $40 billion of debt and the currency tumbled.

Urals crude had surged more than 10-fold since 1998 to $104.72 a barrel in April 2008, helping the economy expand more than 6 percent every quarter between mid-2005 and September last year.

Russian stocks may “outperform quite a few markets” this year should global equities stabilize, said Osborne, who recommended investors buy OAO Lukoil. Russia’s dollar-denominated RTS stock index is down 4.6 percent this year after tumbling 72.4 percent in 2008. Moscow-based Lukoil has climbed 12.8 percent this year.

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net.

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Titanic Sails Again to Sink Deck-Chair Economy: William Pesek

Commentary by William Pesek

Feb. 11 (Bloomberg) -- NEC Corp. started a trend that will forever change Japan.

The nation’s largest personal-computer maker on Jan. 30 said it will fire more than 20,000 employees. That announcement would have been shocking enough had it not opened the floodgates. Since then, Panasonic Corp. said it will cut 15,000 jobs. Nissan Motor Co. is cutting 20,000.

Even during the darkest days of the 1990s -- deflation, bank failures, public bailouts -- companies avoided mass layoffs. NEC’s precedent seems to have made it fashionable to do just that. What’s next? Sony Corp. firing 50,000?

The psychological blow to Japan’s already skeptical consumers is sure to deepen the recession at a speed few thought remotely possible just two months ago.

“Japan’s recent economic decline is faster than that of the U.S., which has been experiencing the worst financial crisis in a century,” Kazuo Momma, head of research and statistics at the Bank of Japan, said in Tokyo on Feb. 9.

Momma said the world’s second-largest economy may have shrunk at an “unimaginable” speed last quarter. Gross domestic product fell at an annual 11.7 percent pace in the fourth quarter of 2008, according to the median estimate of 23 economists surveyed by Bloomberg News. That would be the steepest decline since 1974.

Like the Titanic

There would be only one way to describe such a figure: Wow! Remember Japan was supposed to avoid the worst of the global credit crisis. Its cash-rich banks were expected to help recapitalize Wall Street. Its companies were set to go on a merger-and-acquisitions tear.

Now, prospects for Japan are sinking like, well, the Titanic. That’s Yoshimi Watanabe’s word, not mine, but in some ways it’s an apt description of where Japan finds itself.

The former financial-services minister is referring to the ruling Liberal Democratic Party, and Prime Minister Taro Aso’s stubborn refusal to resign or call an election. Aso’s approval ratings are below 20 percent, and sinking.

“The LDP is like the Titanic heading into a huge iceberg that is the general election,” Watanabe told reporters in Tokyo on Feb. 9.

It’s the latest Titanic analogy to be applied to Japan. Many articulated the futility of Japan’s efforts to boost growth over the last 10 years as being akin to rearranging the deck chairs on an ill-fated ocean liner. Massive public-works spending and zero interest rates didn’t revitalize growth. It took an export boom to do it.

Change Needed

As Japan enters its worst slump since World War II, it does so with a dearth of leadership or fresh ideas. Whether you support them or not, U.S. President Barack Obama and Treasury Secretary Timothy Geithner see the world and economics differently than predecessors George W. Bush and Henry Paulson. Change is undoubtedly afoot in America.

Japan desperately needs a change of leadership with fresh ideas. Yet opposition leaders aren’t offering new policy direction for a nation in complete political drift. A few years ago, this gridlock wasn’t considered a problem. The recovery that began in 2002 convinced politicians that their job was done.

Efforts to trim the biggest public debt in the industrial world -- the Organization for Economic Cooperation and Development puts it at more than 170 percent of GDP -- never took off. Neither did plans to enhance national competitiveness, raise productivity, increase entrepreneurship or grapple with the mismatch of a rapidly aging population and a declining birthrate.

Exports Sputter

As a result, Japan’s growth in the 2000s didn’t fatten paychecks. As the key driver -- exports -- sputtered, its $4.4 trillion economy ground to a halt. Japan is left with dying trade prospects, sliding household spending and banks weighed down by the weak stock market.

And then there’s the yen. Toyota Motor Corp., the largest carmaker, said its loss this year may be three times earlier estimates as car sales in the U.S. and Japan plunge and the yen’s gains erode earnings. The yen’s 17 percent surge against the dollar and 18 percent jump against the euro in the last quarter of 2008 are hammering corporate Japan.

How bad things could get in Japan always requires perspective. About $15 trillion of household savings may be a cushion that economies as diverse as the U.S. and Indonesia don’t have. Japan’s government also has shown an aptitude for getting its 127 million people through slumps. Like the RMS Titanic in 1912, many see Japan as unsinkable.

Out of Work

Recent layoffs are sure to be followed by other huge job-cut announcements. Japan’s lifetime employment system is being replaced by more-flexible work contracts. This recession will be unprecedented in terms of how quickly workers find themselves jobless. Japan’s unemployment safety net is more patchwork than cohesive national strategy.

It’s not clear the government understands how bad things could get. Take Economic and Fiscal Policy Minister Kaoru Yosano, who on Feb. 8 said the economy was probably “pretty bad” last quarter. Pretty bad? Yosano may want to check with labor unions, which expect a spike in homelessness and suicide numbers as companies shed tens of thousands of workers.

Japan’s economy is taking on more water by the day. This is no time to rearrange deck chairs.

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

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

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Commodity Prices Likely Bottomed, West Australia Says

By Jason Scott and Madelene Pearson

Feb. 11 (Bloomberg) -- Commodity prices, down 62 percent from last year’s record, have probably bottomed as mining companies cut production and stockpiles decrease, said Colin Barnett, premier of Western Australia state.

“There’s some evidence that volume is starting to increase again and prices are starting to edge up,” Barnett, 58, said in an interview in Perth. The state produces 15 percent of the world’s iron ore and nickel, and 10 percent of its gold, he said.

Western Australia accounts for more than half of the nation’s exports to China, where the government’s 4 trillion yuan ($585 billion) spending plan is boosting demand for steel and iron ore. Developing Asian economies will probably expand 5.5 percent this year, according to the International Monetary Fund, as the U.S., Japan and the euro zone combat the first simultaneous recessions since World War II.

“China will lead Western Australia out of this because they still need the resources we’ve got,” said Peter Kenyon, professor of economic policy at Curtin University’s Graduate School of Business. “Whether it’s one year or three, it’s too early to call. The premier’s comments sound pretty optimistic.”

Barnett’s forecast tallies with a prediction from investor Jim Rogers, who has said supply cutbacks will pave the way for a rebound in prices. The supply of everything is going to be in “even worse shape coming out of this,” Rogers said in December.

China’s Stimulus

China, which buys more than 50 percent of Australia’s iron ore exports, has cut the key lending rate five times since September to help boost the world’s third-largest economy. The benchmark stock index climbed to a four-month high on Feb. 9, making the nation’s stocks the world’s best performers this year.

“Asia will continue to grow,” said Barnett, a former resources minister in the state. “The fundamentals of Asia haven’t changed and the Western Australian economy” is heavily entwined with the region, he said yesterday.

The Baltic Dry Index, a measure of commodity-shipping costs has more than doubled this year. Iron ore is recovering from a three-year low, with prices for immediate delivery to China adding 33 percent since October to $84.50 a metric ton.

Raw material prices, measured by the Standard & Poor’s GSCI Index of 24 commodities, plunged from a high reached on July 3 as the global economy slowed. That slump has already taken a toll on Western Australia’s economy as BHP Billiton Ltd., the world’s biggest mining company, closed its $2.2 billion Ravensthorpe nickel mine in the state last month.

Rio Tinto Group, the world’s third-largest miner, halted iron ore mines in the state over Christmas, slashing targeted output 10 percent last year. It may slow or defer $3.9 billion of iron ore expansions in Western Australia, according to UBS AG.

‘Bad News’

“There’s probably been the loss of about 5,000 to 6,000 jobs in the mining industry” in Western Australia, Barnett said. “Most of the bad news for Western Australia will be in the first half of this year. Unemployment will edge up, but remain significantly below the national average.”

There are also signs that the decline in the Australian dollar, which fell 28 percent against the U.S. currency in the past 12 months, will boost investment, Barnett said.

A “small but steady procession of companies looking at major new projects or expansions” has been evident in the past few weeks as the slump in the Australian dollar and commodity prices eases construction and wage costs for companies working in U.S. dollars, he said, without identifying anyone.

The Australian dollar “is a bit low,” he said. “I don’t want it to go higher but I think its true value is 70 to 75 cents because people are undervaluing commodities.” The currency traded at 66.85 U.S. cents Feb. 10.

Western Australia provides more than a third of Australia’s exports to Japan and more than half of those to China, the country’s top two customers, Barnett said.

To contact the reporters on this story: Jason Scott in Perth at Jscott14@bloomberg.net; Madelene Pearson in Melbourne on mpearson1@bloomberg.net

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West Australia Premier to Meet Inpex in Japan on Gas Plant Site

By Jason Scott and Madelene Pearson

Feb. 11 (Bloomberg) -- Western Australia’s Premier Colin Barnett will meet Inpex Corp., Japan’s largest oil explorer, next week in a bid to win back a proposed $20 billion liquefied natural gas project from the neighboring Northern Territory.

“I’m trying to encourage Inpex to have a rethink,” Barnett said in an interview. “I’m going to Japan next week.”

Inpex picked Darwin to build the plant as Western Australia didn’t have a site, and the Japanese company’s proposal of the Maret Islands off the state drew opposition from environmental groups. Inpex and partner Total SA will decide whether to build the Ichthys project late in 2009 or early 2010.

The plant in Darwin would be about 800 kilometers (500 miles) from the offshore gas site. Barnett in December announced plans to build a liquefied natural gas production hub at James Price Point, less than half that distance, in the state’s far northwest Kimberley region.

“We believe they would save in the order of A$1 billion by bringing their LNG to James Price Point rather than Darwin,” Barnett said in Perth yesterday.

To contact the reporter on this story: Jason Scott in Perth at Jscott14@bloomberg.net; To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net

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Qatargas 4 LNG Start Up Delayed By at Least One Year, BASF Says

By Ayesha Daya

Feb. 11 (Bloomberg) -- Qatar, the world’s biggest exporter of liquefied natural gas, and Royal Dutch Shell Plc, will probably delay the start of their Qatargas 4 LNG project by at least a year until 2011, an official working on the project said.

“Qatargas 4 won’t be ready before 2011 or 2012,” Nawid Kashani-Shirazi, senior process manager of gas treatment at BASF SE, which is handling process technology licensing for parts of the plant, said in an interview in Abu Dhabi yesterday.

Qatar is building a series of gas export facilities, the biggest of their kind, that are all suffering delays as the nation considers the demands on its gas fields and the cost of building complex projects simultaneously.

“Qatargas 2 has been in commissioning phase for the past two months, and the first drop of LNG is expected this month, and Qatargas 3 is planned to start sometime in the first half of next year,” Kashani-Shirazi said, while attending The Energy Exchange’s Gas Arabia conference.

State-run Qatar Petroleum is the majority shareholder in four projects operated by Qatargas Operating Co. in partnership with various foreign oil companies. The 7.8 million tons-a-year Qatargas 4 facility, in partnership with Shell, was expected to begin supplying LNG to the U.S., Europe, China and Dubai at the end of the decade, according to its owners.

The first project, Qatargas 1, has been in operation since 1996, consisting of three production units, or trains.

The next, Qatargas 2, is building two trains in partnership with Exxon Mobil Corp. and Total SA. It was scheduled to start in 2008 and faced contracting delays, Saad Sherida Al Kaabi, the head of gas ventures at state-owned Qatar Petroleum, said last month.

Labor, Equipment

A shortage of labor and equipment is stalling work. Shell’s nearby Pearl project, which is building a facility to turn gas into liquid fuels, employs 40,000 construction workers alone.

Qatargas 3, a venture between Qatar Petroleum and ConocoPhillips due to start late this year, was postponed to 2010 because of industry shortages, Ryan Lance, Conoco’s president of exploration and production, said last November.

Shell Chief Financial Officer Peter Voser said on a Jan. 29 conference call that Qatargas 4 was “within the kind of framework we have set ourselves, both in terms of budget and timing.”

“The schedule is broadly in line with the timings discussed at the time of launch in 2005,” Shell spokeswoman Kirsten Smart said by phone from The Hague yesterday when asked about Qatargas 4. “Supplies are expected to commence at the end of the decade.”

Qatar Petroleum officials couldn’t immediately be reached for comment by phone. BASF, the world’s largest chemical company, is based in Ludwigshafen, Germany.

To contact the reporter on this story: Ayesha Daya in Abu Dhabi at adaya1@bloomberg.net

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Reliance Power’s Plants Face Delay as Credit Crunch Slows Loans

By Archana Chaudhary

Feb. 11 (Bloomberg) -- Reliance Power Ltd., the utility that sold shares in India’s biggest initial public offering last year, may face delays in building its largest coal-fired plants as the global credit crunch holds up loan approvals.

“The lead time for getting loans has increased,” Chief Executive Officer Jayarama Chalasani said by telephone in Mumbai.

The Mumbai-based company is 25 billion rupees short of the 145 billion rupees ($3 billion) it needs to borrow for its first 4,000 megawatt plant at Sasan in central India, Chalasani said in an interview. Reliance Power expects to raise funds for a similar plant at Krishnapatnam in the south by June, he said.

Reliance Power, controlled by billionaire Anil Ambani, sought to borrow $4 billion overseas for the projects by December and was forced to seek rupee loans instead after banks led by Standard Chartered Plc asked for more time to study proposals. A dispute over the supply of natural gas has stalled the utility’s largest plant in northern India and contributed to the 56 percent slump in its shares since they started trading a year earlier.

“The delay in raising funds may hurt Sasan’s completion schedule,” said Abhineet Anand, Mumbai-based analyst at Antique Broking Ltd. “The timing of raising funds is key to Sasan and other large Indian power projects.”

The company, which is yet to start producing power, has borrowed 120 billion rupees for Sasan from a group of 12 banks led by the State Bank of India and expects to get the rest by the end of this month, Chalasani said. Work on the plant in Madhya Pradesh state has already started to ensure that loan delays don’t affect the completion schedule, he said.

Overseas Loans

The rupee debt will be repaid when the company secures dollar-denominated loans from overseas banks, the CEO said. Reliance Power has appointed Standard Chartered as lead banker and China Development Bank Corp. for the overseas borrowings.

The overseas loan for Sasan was delayed because it is “the largest to be raised on a project-finance basis,” Chalasani said yesterday. “Banks, therefore, need more time to examine the expense side of the business including mining technology and capital and operating expenses. This is much more complicated and is completely different from financing any other power project.”

He declined to give a timeline for obtaining overseas loans.

The first phase of the Sasan project is scheduled to be completed by December 2011 and the second by March 2013. The Krishnapatnam plant in Andhra Pradesh is due to start in 2013.

The company was the lowest bidder for a similar-sized project at Tilaiya in the eastern state of Jharkhand, which is yet to be awarded by the federal Power Ministry. Each project may cost as much as 200 billion rupees, Chairman Ambani said Sept. 23.

Ultra Mega Projects

The three coal-fired plants are among the 12 so-called ultra mega power projects that the government is auctioning to help increase India’s generation capacity by 33 percent.

Reliance Power spent 26.86 billion rupees from the proceeds of last year’s share sale on the Sasan and Krishnapatnam plants and on other smaller projects as of Dec. 31, the company said in a Jan. 22 statement to the Bombay Stock Exchange.

“They will have to ensure that fund raising shouldn’t disturb project schedules,” said Mahesh Patil, who helps manage an equivalent of $8.8 billion at Birla Sunlife Asset Management in Mumbai.

Reliance Power’s 7,480-megawatt, gas-fired station at Dadri in Uttar Pradesh has been stalled because of a gas-supply dispute with Reliance Industries Ltd., India’s biggest company by market value, controlled by Anil Ambani’s estranged brother, Mukesh.

Gas Dispute

The dispute arose after the brothers split the Reliance group in 2005 following a family feud. Reliance Industries, an energy explorer and oil refiner, sought prices higher than contracted levels for gas to be sold to Reliance Natural Resources Ltd., which is controlled by Anil Ambani and procures fuel for his group’s power projects.

The Bombay High Court, which banned gas sales from Reliance Industries’ field in June 2007, temporarily lifted the restriction on Jan. 30. The fuel can now be supplied to customers other than Reliance Natural and state-owned NTPC Ltd.

Reliance Power raised $3 billion in India’s biggest share sale in February last year to help fund its $28 billion plan to build power plants. The company will install 28,200 megawatts, or 19 percent of India’s current capacity, in five years, according to proposals announced during the share sale.

The IPO attracted $189 billion of bids and shares were sold at as much as 450 rupees apiece. The stock fell as much as 21 percent on its Feb. 11 trading debut, prompting Reliance Power to give investors free shares to compensate them for the loss.

Investors got three free shares for every five held on May 30. The bonus issue reduced the cost of acquiring Reliance Power shares to 269 rupees for individual investors, 40 percent lower than the IPO price of 430 rupees. For large shareholders, who paid 450 rupees a share, the rate fell to 281 rupees a share.

No free shares were given to Ambani or the founder group. The stock closed at 103.25 rupees in Mumbai yesterday.

To contact the reporter on this story: Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net.

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Australia Dollar to Benefit on Yen Drop, China Rally, BNP Says

By Candice Zachariahs

Feb. 11 (Bloomberg) -- The Australian dollar should “benefit most” as the yen is set to weaken and China’s economy may be heading for an early rebound, BNP Paribas SA said.

Japan’s economy may have shrunk 12 percent in the fourth quarter, France’s largest bank said yesterday in a note to clients. China’s money supply grew 18.4 percent in January, according to a Bloomberg News survey of economists, aiding government efforts to boost growth.

“The trigger of the anticipated yen decline may well be related to Japan being at risk of moving into a depression,” foreign-exchange analysts led by London-based Hans-Guenter Redeker wrote in a report. “If we are correct in our interpretation concerning Japan and China, the Australian dollar should benefit most.”

Australia’s currency fell 1.5 percent to 65.82 U.S. cents as of 11:35 a.m. in Sydney from 66.85 cents late in Asia yesterday. It has slumped 5 percent this year.

The Australian dollar dropped 21 percent in 2008 as commodity prices fell and investors unwound so-called carry trades, where borrowings in low-cost countries such as Japan are invested in higher-yielding assets. Raw materials account for 60 percent of Australia’s exports and benchmark interest rates are at 3.25 percent, compared with 0.1 percent in Japan.

The yen may also slide as Japan buys its own currency ahead of the financial year-end in March to aid businesses hurt by the yen’s 22 percent advance against the greenback over the past six months, the bank said.

“Given the yen long positioning, the impact on yen crosses may be quite significant,” BNP analysts said. A long position is a bet an asset will gain.

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

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Asian Currencies Decline, Led by Korean Won, on Risk Aversion

By Judy Chen

Feb. 11 (Bloomberg) -- Asian currencies declined, led by South Korea’s won, on speculation that the U.S. bank rescue plan will fail to end the global financial crisis, sapping demand for emerging-market investments.

The Malaysian ringgit, the Philippine peso and the Taiwan dollar also dropped against the greenback after the Standard & Poor’s 500 Index of U.S. equities slipped by the most in three weeks. The Korean currency weakened to the lowest in two months, extending this year’s loss to 10 percent, as the Kospi index tumbled 2.6 percent.

“Asian currencies will be under pressure against the U.S. dollar given a sharp increase in safe-haven demand following the disappointment in the equity market,” said Sean Callow, a Sydney-based currency strategist at Westpac Banking Corp., Australia’s biggest lender by market value.

The won slid as much as 2.6 percent to 1,420, the weakest since Dec. 10, before trading at 1,399.10 per dollar as of 10:03 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. The Malaysia ringgit dropped 0.6 percent to 3.6098. The Philippine peso declined 0.3 percent to 47.025 and the Taiwan dollar fell 0.1 percent to 34.035.

The S&P 500 Index dropped 4.9 percent as investors expressed concern about a lack of specifics on plans for addressing the distressed assets choking banks’ balance sheets.

Malaysian Ringgit

The Malaysian ringgit headed for the biggest drop in three weeks as economists forecast manufacturers idled more factories as exports extended a slump into December because economies contracted in Singapore, the U.S. and Japan.

Industrial production fell for a fourth month in December by 10.7 percent from a year earlier, the most since at least 2002, according to a Bloomberg News survey before a statistics department report at 12:01 p.m. in Kuala Lumpur today.

The trade ministry may say tomorrow exports declined for a third month by 9 percent in December, the biggest drop since February 2002, a separate survey showed.

“The weakness in production is the slump in external demand and we don’t expect demand in the U.S. to come back until the fourth quarter,” said Nikhilesh Bhattacharyya, an economist in Sydney at Moody’s Economy.com. “Emerging-market currencies can still depreciate until we see some kind of traction in economic recovery.”

To contact the reporter on this story: Judy Chen in Shanghai at xchen45@bloomberg.net;

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Australian, New Zealand Dollars Slide on U.S. Rescue Concerns

By Candice Zachariahs

Feb. 11 (Bloomberg) -- The Australian and New Zealand dollars slumped the most in a month against the Japanese yen as U.S. equities slid, damping demand for higher-yielding assets.

The currencies fell versus the U.S. dollar after Treasury Secretary Timothy Geithner pledged government financing for as much as $2 trillion of efforts to spur new lending. Australian consumer confidence slumped in February, a report showed today.

“There’s broad brush strokes and good-feeling words, but the reality that you need a plan like this is not good for markets and not good for holding risk,” said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. The Australian dollar will find support at 64.70 U.S. cents and New Zealand’s at 51.69 cents, he said.

Australia’s currency slid for a second day, falling 1.7 percent to 65.71 U.S. cents as of 10:40 a.m. in Sydney from 66.85 cents late in Asia yesterday. The currency declined as much as 4.1 percent to 58.46 yen, the biggest drop since Jan. 8, before trading at 59.40 yen.

New Zealand’s dollar slipped 2.1 percent to 52.40 U.S. cents from 53.51 in Asia yesterday. It bought 47.37 yen from 48.82.

Currency movements in Asia may be volatile as a national holiday in Japan reduces liquidity, Sinton said.

The Standard & Poor’s 500 Index dropped the most since President Barack Obama’s inauguration on concern the plan won’t stop an extended recession in the world’s largest economy.

Benchmark interest rates of 3.25 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. attract investors to the South Pacific nations’ assets. The risk in such trades is that currency market moves will erase profits.

Australian Sentiment

A sentiment index in Australia declined 4.6 percent to 85.8 points, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Feb. 2 and Feb. 8 and released today in Sydney. The index has held below 100 since February 2008, indicating pessimists outnumber optimists, as rising unemployment and falling property prices sap household confidence.

Reserve Bank of Australia Governor Glenn Stevens yesterday said a worldwide retreat from risk-taking would be “even more damaging than what we have seen to date,” in a speech in Kuala Lumpur, Malaysia. “The problem in the next couple of years will not be too many cross-border capital flows, but too few; not too much risk-taking, but too little,” he said.

The RBA lowered borrowing costs to a 45-year low this month in an effort to boost domestic demand while the Australian government announced a A$42 billion ($28 billion) stimulus package.

Bond Sales

Australia sold A$601 million of 2013 bonds at a weighted average yield of 3.46 percent today in the second auction of its expanded borrowing program to raise as much as A$24 billion in five months.

Buyers bid for 2.6 times the amount offered in the sale of 6.5 percent bonds, the Australian Office of Financial Management said today. That matched the so-called bid-to-cover ratio at the Feb. 6 sale of April 2015 securities.

Australian government bonds rose for a third day with the yield on the 10-year note falling six basis points, or 0.06 percentage point, to 4.28 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 advanced 0.496, or A$4.96 per A$1,000 face amount, to 107.885.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.36 percent from 3.48 yesterday.

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

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Dollar, Yen Gain a Second Day on Concern U.S. Plan Will Fail

By Ron Harui

Feb. 11 (Bloomberg) -- The dollar and the yen rose for a second day against the euro on speculation the U.S. government’s bank rescue plan will fail to revive lending, boosting demand for the two currencies as a haven.

The yen gained versus South Korea’s won and Sweden’s krona on the prospect investors will sell higher-yielding assets after Treasury Secretary Timothy Geithner pledged as much as $2 trillion in financing without providing details on how he will help banks cope with toxic assets. The euro also fell before a report tomorrow that may show European industrial production fell the most in almost 23 years.

“The plan is not the quick fix investors were hoping for, so there’s obvious disappointment,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Risk aversion will probably spur them to seek the relative safety of the dollar and the yen in the near term.”

The dollar rose to $1.2874 per euro as of 10:55 a.m. in Singapore, after gaining 0.7 percent yesterday. The yen climbed to 116.32 per euro after appreciating 1.8 percent, the first advance in four days. Japan’s currency traded at 90.35 per dollar from 90.47.

Trading may be subdued today because of a public holiday in Japan, Hampton said.

The yen advanced 0.9 percent to 15.42456 against the won and strengthened 0.5 percent to 10.916 versus the krona. Japan’s benchmark interest rate of 0.1 percent compares with 2.5 percent in South Korea and 2 percent in Sweden, encouraging investors to borrow in yen and invest in assets elsewhere.

Stocks Fall

Asian stocks fell for a second day, with the MSCI Asia- Pacific excluding Japan Index tumbling 2.4 percent. U.S. shares slid yesterday as the Standard & Poor’s 500 Index lost 4.9 percent, the most since President Barack Obama was inaugurated, on concern the government’s bank rescue won’t work.

Implied volatility on one-month euro-yen options rose to 26.3 percent from 26.2 percent, indicating the risk remains high of exchange-rate fluctuations that can erode profit on so-called carry trades. The level was 13.9 percent a year ago.

The U.S. Treasury is creating a Public-Private Investment fund, with an initial capacity of $500 billion that may grow to $1 trillion, to provide financing for private investors to buy distressed securities, Geithner said in Washington yesterday.

The pound weakened versus 10 of the 16 most-active currencies today. Sterling declined 0.2 percent to $1.4511, and dropped 0.3 percent to 131.17 yen.

Gains Reversed

“A number of currencies have benefited in recent days from anticipation that a bad bank structure would put a floor under U.S. asset prices,” Daniel Katzive, a senior currency strategist in New York at Credit Suisse Group, wrote in a research note yesterday. “A primary beneficiary of bad bank anticipation has been the British pound, and the lack of a convincing plan at this time should result in a reversal of recent pound gains.”

The U.S. Senate voted 61-37 to approve a separate $838 billion economic stimulus package yesterday, clearing the way for negotiations with the House over a compromise plan lawmakers said they want to send to President Barack Obama quickly.

The euro declined on speculation industrial output in the region dropped by the most since January 1986 when Bloomberg began compiling the data, backing the case for the European Central Bank to cut interest rates.

‘Weakening Trend’

“Growth conditions will remain in a clear weakening trend,” Ashley Davies, a currency strategist in Singapore at UBS AG, the world’s second-largest foreign-exchange trader, wrote in a research note today. “We remain of the view that the single currency will remain in a broad downtrend, in particular versus the dollar.”

The European Union’s statistics office may say tomorrow that industrial production fell 9.5 percent in December from a year earlier, after a 7.7 percent decline in November, according to a Bloomberg News survey of economists.

Investors added to bets the ECB will lower borrowing costs from 2 percent at its March 5 meeting. The yield on the three- month Euribor interest rate futures contract due in March fell to 1.745 percent yesterday from 1.855 percent a week earlier.

The euro weakened versus 13 of the 16 major currencies on concern the financial turmoil in Europe will worsen. Poland may introduce as early as next month a regulation canceling some currency option transactions, Economy Ministry Waldemar Pawlak said in Warsaw yesterday.

Polish companies lost on contracts designed to protect them from a strengthening zloty, when expectations of convergence with the euro reversed last year because of a slump in the economy. Regulators almost tripled their estimate of companies’ potential losses to as much as 15 billion zloty ($4.34 billion).

“There is talk of various issues” in Poland, said John Horner, a currency strategist in Sydney at Deutsche Bank AG, the world’s biggest foreign-exchange trader. “The euro is likely to remain under some pressure.”

Poland’s zloty traded at 3.5299 against the dollar from 3.5255 yesterday, and was at 4.5499 per euro from 4.5525.

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net.

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West Australia May Allow GM Canola Production After Trials

By Madelene Pearson and Jason Scott

Feb. 11 (Bloomberg) -- Western Australia, the nation’s largest grain growing state, may start commercial production of genetically modified canola as long as trials are successful, state Premier Colin Barnett said.

The state approved its first commercial trials of so-called GM canola last year and will allow them to go ahead on 1,000 hectares (2,470 acres), involving 20 farms in 2009.

“If the trials are conducted successfully and show that you can stop contamination for those that want to remain GM-free, and I think that will be demonstrated that it can be done, then I would expect GM canola would be in production,” Barnett said in an interview in Perth. The likelihood of commercial scale development in the state is “very strong”, he said.

Australia, the world’s third-largest canola exporter, began growing GM canola in the most recent harvest after bans on the crop were lifted in Victoria and New South Wales. An easing of state bans on GM canola paves the way for Monsanto Co. and Bayer AG to expand seed sales.

The bulk of local farmers are supportive, Barnett said.

“There are some concerns and there will always be a group that will object to GM products,” he said. “West Australians are basically large farmers, broad-acre farmers, and to remain competitive they will need to use GM strains.”

To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net; Madelene Pearson in Melbourne on mpearson1@bloomberg.net

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Oil Rises as Stimulus Plan Passage May Lead to Fuel Demand Gain

By Christian Schmollinger

Feb. 11 (Bloomberg) -- Crude oil rose in New York, partly retracing yesterday’s 5.1 percent loss, as the U.S. Senate passed an economic stimulus plan, raising expectations for increases in fuel demand.

The Senate plan provides more than $500 billion in new spending that supporters call critical to preventing the world’s largest oil user from sinking deeper into a recession. Saudi Arabia, the biggest global producer, will more than double its spare capacity by mid-year, Oil Minister Ali al-Naimi said at a conference in Houston.

“There’s a lot of wishful thinking that this stimulus package is going to come to the rescue and that’s driven prices higher,” said Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne. “We’ve been seeing some big numbers in the past weeks on the inventories, around 6 or 7 million barrels, and I wouldn’t be surprised if we see something similar.”

Crude oil for March delivery rose as much as 67 cents, or 1.8 percent, to $38.22 a barrel on the New York Mercantile Exchange. It was at $37.89 a barrel at 11:10 a.m. Singapore time.

Yesterday, crude oil for March delivery fell $2.01 to $37.55 a barrel in New York, the lowest settlement since Jan. 16. It was the biggest drop since Jan. 27. Oil is down 15 percent this year and has declined 60 percent from a year ago.

Oil dropped yesterday on skepticism over the government’s plan to bailout banks and on expectations a report today will show inventories climbed.

The Senate approval clears the way for negotiations with the House over a compromise plan that President Barack Obama wants lawmakers to send to him within days. Only three Republicans voted for the plan and divisions remain on the package’s size.

Saudi Capacity

The new capacity will come from the kingdom’s Khurais project, which will bring on stream 1.2 million barrels a day of oil, more than the production of OPEC nations Qatar or Ecuador, al-Naimi told the Cambridge Energy Research Associates conference in Houston late yesterday.

“The most powerful tool we have for achieving a balanced market is our maintenance of spare production capacity,” he said. “Such capacity has helped to counter market volatility.”

Khurais, with a reserve of 27 billion barrels, began producing in the 1960s and was mothballed by Saudi Aramco in the early 1990s, Amin al-Nasser, senior vice president of exploration and production at Saudi Aramco, said last year. It is a satellite of the Ghawar field, the world’s biggest.

Oil prices, which soared as high as $147.27 a barrel on the New York Mercantile Exchange in July, were “unsustainable,” al- Naimi said. He blamed the rally in part on market speculators. From a fundamental standpoint, prices will be “just as unsustainable” at current low levels as they were at the “stratospherically high levels experienced last year,” he said.

API Supplies

The industry-funded American Petroleum Institute reported that U.S. supplies declined 2 million barrels to 344.3 million last week. The API published its weekly report on oil inventories at 4:30 p.m. in Washington yesterday.

Energy Department figures, to be released at 10:30 a.m. in Washington today, may show that crude-oil stockpiles increased 2.75 million barrels in the week ended Feb. 6 from 346.1 million the week before, according to the median of 14 analyst estimates. It would be the 18th gain in 20 weeks. All of the analysts said supplies rose.

Gasoline stockpiles gained 500,000 barrels from 220.2 million, according to the survey. Supplies of distillate fuel, a category that includes heating oil and diesel, probably fell 1.5 million barrels from 142.6 million.

Brent crude oil for March settlement climbed as much as 50 cents, or 1.1 percent, to $45.11 a barrel on London’s ICE Futures Europe exchange. It was at $44.73 at 11:08 a.m. Singapore time.

The contract yesterday fell $1.41, or 3.1 percent, to end the session at $44.61 a barrel. Brent futures closed at a $7.06 premium to West Texas Intermediate, the grade that’s traded in New York.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net

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