Morning Forex Overview

Daily Forex Fundamentals | Written by Dukascopy Swiss FX Group | Mar 12 09 09:03 GMT |

Previous session overview On Wednesday, the dollar retreated sharply against both the euro and the yen. The euro was supported by some strength in equities, while the yen was bolstered by technical factors, analysts said. The Euro broke USD1.28 and closed above the key level in a very bullish day for the single currency. Euro strength was in spite of some very weak data with German January Industrial Orders falling -8% vs. -2.2% forecast. The British pound strengthened against the dollar overnight but most of the gains disappeared in early morning trade. Meanwhile the pound remained near multi-week lows against the euro due to concerns over the UK economy and banking system. The Japanese Yen responded to USD weakness with USDJPY pulling back to JPY97.20 but most of the crosses remained relatively unchanged. The market is decidedly less bullish after the failure at JPY100 last week and stock market movements should again begin to direct movement. The Canadian dollar weakened slightly against the US dollar as oil prices dropped. Oil fell below USD44 a barrel as evidence for global crude demand declined. The Australian dollar was higher against its U.S. counterpart late Thursday as traders continued to take cues from positive Wall Street leads; however the currency still remains stuck within recent ranges in the absence of any clear signals to sell Market expectation The yen is rallying Thursday against the dollar and euro, while the euro-dollar pair is little changed. Traders flash up that Russian names seen providing supply, as rate eases around USD1.2760. Note earlier talk of reported magnetic stops sub USD1.2740. Sterling easing lower, with euro-sterling correcting off its early Europe lows of stg0.9212 back above stg0.9220, with cable easing toward overnight lows at USD1.3823. Bids seen placed between USD1.3825/20, a break to allow for a deeper move toward USD1.3800. Looking ahead, players will pay attention to U.S. economic reports due later in the day, such as weekly jobless claims. If the data turn out to be worse than expected, short-term-focused players may use it as an excuse to sell the greenback to take profits, Hayashi noted. Weekly jobless claims may increase by 645,000, compared with a 639,000 jump a week ago. The euro fell against the dollar and the yen. Dealers said the euro is likely to fall further due to position adjustments, especially against the yen. Dukascopy Swiss FX Group Legal disclaimer and risk disclosure This overview can be used only for informational purposes. Dukascopy SA is not responsible for any losses arising from any investment based on any recommendation, forecast or other information herein contained.

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Sunrise Market Commentary

Daily Forex Fundamentals | Written by KBC Bank | Mar 12 09 08:33 GMT |

US Treasuries rebound as test support fails Treasuries staged a late session rally, as important technical levels held. The 10-year Note re-opening went well, but not exceptional. Today, the monthly refunding concludes with a 30-year bond re-opening, but also retail sales and claims might be interesting. Rebound Treasuries may continue today. Swiss National Bank, the next to start a quantitative easing policy? Yesterday, German bonds fell further off the highs tested earlier in the week, as equities held on to their strong gains of Tuesday. Overnight gains in US Treasuries and weaker Asian equities however resulted in a higher opening today. We continue to favour a buy-on-dips strategy. First important support is seen at around 122.97. Euro loses ground versus dollar, while yen strengthens against dollar Currency markets still have difficulties to find direction, but USD/JPY entered correction mode and also sterling seems to have re-found its composure (versus euro). Risk aversion might be the theme for today's trading. The Sunrise Headlines US Equities had difficulties to choose their side after the impressive rally on Tuesday. Dow/S&P ended the session slightly higher (+0.06% / 0.024%) led by financials and materials. Today, most Asian stocks trade slightly lower. World Bank President Robert Zoellick said in a newspaper interview that the global economy was on track for its worst recession since the 1930s with output likely to shrink by 1-2% this year. He added that central and eastern European countries were particularly vulnerable urging rich nations to do more to fill the financing gap. The Reserve Bank of New Zealand cut interest rates by 50 basis points to 3.00%, an all-time low and indicated that rates won't be lowered to near-zero and future rate cuts will be smaller. South Korea's central bank decided this morning to keep rates unchanged at 2% , but signaled more rate cuts to come. The government also announced a $4.2 billion package in extra measures to stimulate consumption. Crude oil ($42.97) declined on Wednesday after a US report showed inventories rose more than expected. Today, the calendar contains the German industrial production figures, US retail sales and weekly claims Currencies: Euro Loses Ground Versus Dollar, While Yen Strengthens Against Dollar EUR/USD On Wednesday, global equity markets tried to build on the positive sentiment from Monday. EUR/USD tried a second attempt to regain the 1.2750 area. The price action was again driven by the performance of the equity markets. The Eco data had no impact on currency trading. German factors orders collapsed in January (-8.0% M/M and -37.8 Y/Y!!), but currency markets ignored it completely. So, EUR/USD rebounded from the 1.2650 area at the start of trading in Europe and revisited offers in the 1.2800 area early in US trading. Short-term investors apparently fear some kind of remake from Tuesday's scenario and the move again ran into resistance. However, the euro bears didn't show up to push the pair again down. This set the stage for a late session move higher breaking the 1.28 level and closing at 1.2836, a decent gain from Wednesday's 1.2682 closing value. We are a bit skeptical about this late session break higher and at the time of writing, the pair is again downwardly oriented and trades around 1.2770. It seems that the global market embraces today again the risk aversion theme that is favourable for the dollar at least versus the euro. EUR/USD: disappointing euro performance Support comes in at 1.2790 (reaction low hourly/broken LTMA), at 1.2735/18 (Daily envelope + STMA), at 1.2682 (MTMA), at 1.2610 (Reaction low). Resistance is seen at 1.2870 (week high), at 1.2897/1.2902 (3e target triple top/ Bollinger top), at 1.2991 (Reaction high). The pair is in overbought territory USD/JPY Today, the calendar contains German production data. In the US, the retail sales are in the focus of attention. Recently, even high profile eco data most often only had a limited impact on currency trading. Stock markets and global risk appetite were the drivers for EUR/USD trading. Nevertheless, the US retail sales remain important and it will be interesting to see whether global markets will be able to ignore a negative surprise, if it where to happen. US Treasury secretary Geithner testifies to the senate Budget committee. Global context. Since the start of the year, EUR/USD was on the defensive. Europe was seen more vulnerable to the global crisis and less flexible in addressing the fallout from the financial turmoil. The deterioration of the European government finances and the widening intra-government spreads was seen as an illustration of the intra EMU tensions and fuelled the euro-negative sentiment. On top of that, the euro remained a gauge of global risk aversion. The US story has also been far from brilliant, but the dollar took advantage from its safe haven status. Since mid-January, the EUR/USD decline shifted into a lower gear but any attempt of the euro to regain ground immediately ran into resistance. Mid-February, market fears that the deepening of the crisis in Central and Eastern Europe might cause a new adverse loop for the European economy and its financial sector caused EUR/USD to drop below the 1.27 support. This illustrated the euro skeptic sentiment. A sustained change in the global negative sentiment is needed to give the euro some better downside protection. As long as this context persists, a sustained euro rebound is not evident. Recent euro price action only confirms that a big rebound in EUR/USD is not that evident, even in case of a temporary improvement in investor risk appetite. Nevertheless, the downside in the pair has become better protected (no new ST low at the end of last week). From a technical point of view, the correction from mid December brought EUR/USD again in the previous sideways range (capped by the 1.3300 area). The pair tested several times the 1.2765/00 support area (previous low) and the break of this area deteriorated the ST picture for the single currency and brought the 1.2330 area again in the picture (2008 low). A break below the 1.2330 area would signal more trouble for the single currency. For now this is not our preferred scenario. We remain neutral short-term. Range trading in the 1.2457/1.2992 range is preferred. On Wednesday, USD/JPY corrected lower and that movement continued overnight. There was no particular news item behind the move. The dollar traded weaker across the board. In previous days, it became more and more apparent that the strong USD/JPY rally that brought the pair in less than one month from about 90 to 99.68 was running out of fuel. So profit taking kicked in. Japanese GDP was marginally revised higher but at -3.2% in Q4 of 2008 was of course still a shocker. However, we don't think the revision is behind the rise of the yen overnight. It is still profit taking combined maybe with some sense that the equity rally had run its course, even if recently the yen didn't profit like before from risk aversion. Global context. Looking at the charts, USD/JPY set a reaction low in the 87.15 area in December. Since then, the pair entered calmer waters. The long-term trend in the pair remains negative, but the downtrend ran out of steam below 90.00 area. Recently, the pair even made a decent rebound that accelerated over the previous two weeks. The underlying yen-momentum obviously has weakened. The market questioned the safe haven status of the Japanese currency and grew more worried on the performance of the Japanese economy as faltering exports clouded the eco picture. Over the last two weeks, we had a buy-on-dips approach in this pair. The break above the key 94.65 resistance improved the ST picture further. At the end of last week, the USD/JPY rebound lost momentum, opening the way for a corrective profit taking move. Next important resistance comes in the 100.55/102.20 (04 Nov high)/2nd target double bottom off 94.65). We turned neutral on USD/JPY as we have the impression that this resistance area will be tough to break in a first attempt. A decline below 96.50, under test, would deteriorate the picture (stop loss protection on longs). USD/JPY: in correction mode following strong rally Support stands at 95.99 (today low), at 95.50 (weekly STMA), at 94.94/88 (break-up daily/38% retracement), at 94.24/12 (reaction lows hourly). Resistance comes in at 96.76 (breakdown hourly), at 97.86 (STMA), at 98.09 (daily envelop) and at 98.71 (reaction high hourly) The pair is in neutral territoryu EUR/GBP On Wednesday, EUR/GBP continued to move higher, building out the rebound that started at the end of last week. Regarding the data, the UK trade balance data came out worse than expected. Monthly trade balance data are very volatile and difficult to interpret. However, sterling weakness didn't provide a big support for UK trade, yet. Nevertheless, yesterday's price action still should be considered as follow-through gains on the technical break that occurred on Monday. This break was triggered by the UK banking woes and by the uncertainty on the potential side-effects from the aggressive BOE quantitative easing. With respect, to the latter, the BOE yesterday organized its first reverse Guilt auction to buy UK Gilts. The execution and the announcement of the results of the auction had no visible impact on the intraday EUR/GBP chart. EUR/GBP continued its uptrend and tested bids in the 0.93 area during the US trading session. Later the euro rally shifted into a lower gear and sterling fought back erasing part of the earlier losses. EUR/GBP closed the session at 0.92537, still a gain compared to the 0.9224 close on Tuesday. Today, the UK eco calendar is empty. However, later in the session, BoE Barker speaks about deficits, debts and monetary policy. Overnight, EUR/GBP fell again as global euro weakness was the theme. Also here we would consider the down-move as a correction following a good rally. Global Medium term context. At the start of 2009, EUR/GBP made a forceful correction after the steep gains mid-December. A first rebound ran into resistance in the 0.95 area and another forceful correction even caused the pair to test the high profile support (0.8663 area previous high) but the test was rejected. The subsequent rebound called off the short-term alert in EUR/GBP and made the picture neutral again. From a fundamental/LT point of view, we remained sterling cautious. Until the end of last week, sterling weathered the quantitative easing debate rather well. However, the BoE taking an ever more aggressive approach in its quantitative easing and the growing government involvement in the financial sector apparently get more market attention and have a negative impact on sterling. Over the precious sessions EUR/GBP moved above a downtrend line from the highs and on pair also cleared the more important 0.9085/9130 area, making the technical picture positive for now. In a day-to-day perspective, the EUR/GBP rebound might shift into a lower gear. Nevertheless, we maintain our buy-on-dips approach. The 0.9519 reaction high is the next high profile resistance on the charts EUR/GBP: sterling remains in the defensive, but rally is running out of steam Support stands at 0.92.33/29 (Broken daily Boll Top/daily envelope), at 0.9189 (Reaction low hourly), at 0.9168/50 (STMA/reaction high). Resistance is seen at 0.9301 (week high), at 0.9358 (62% retracement), at 0.9370/83 (daily envelope/Starc top), The pair is in overbought territory. News EMU: another sharp weakening in German factory orders German factory orders surprised again on the downside in January. On a monthly basis, factory orders plunged by 8.0% M/M, while a much softer decline was expected (-2.0% M/M). The December figure was downwardly revised from -6.9% M/M to -7.6% M/M. Looking at the details, weakness was broadly based with a 9.1% M/M decline in capital goods, but also orders for consumer- (-6.7% M/M) and intermediate goods (-6.8% M/M) were extremely weak. On a yearly basis, factory orders are down by a stunning 37.9% Y/Y. This outcome raises expectations GDP will shrink further in the first quarter of 2009, maybe at the same disastrous fast pace as in Q4 2008. Other: UK trade deficit widens due to non-EU demand In the UK, the trade deficit widened to £3585 in January, while the December figure was upwardly revised from -£3611 to -£3248. Looking at the details, exports dropped by 5% M/M, while imports fell by 1% M/M in January. Especially exports to non- European Union countries fell sharply. In the coming months, both imports and exports are forecasted to remain weak Download entire Sunrise Market Commentary Disclaimer: This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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Major Market Movers: Deepening Recession

Daily Forex Fundamentals | Written by Crown Forex | Mar 12 09 08:10 GMT |

JPMorgan Chase joined Citigroup in announcing that the first two months of this year were profitable and this indeed helped U.S. Equity indices to extend their gains however the ongoing signals which continue to highlight that global growth is falling deeper in recession started to weigh down on stocks this morning and accordingly investors preserved their bearish outlook for global economies. Japan released earlier today their final GDP estimate for fourth quarter, where the world's second largest economy contracted by 3.2 percent following the prior estimate of 3.3 percent and above median estimates of 3.5 percent contraction. The Japanese economy however contracted over an annualized rate of 12.1 percent which was revised from the prior contraction of 12.7 percent, yet still it marked the largest contraction since 1974, the estimate was also better than median estimates of a 13.4 percent annualized contraction. The Swiss National Bank will announce today its interest rate decision, in which the SNB is expected to cut its benchmark interest rates by another 25 basis points to 0.25 percent, the deepening recession amid the worst financial crisis since the Great Depression continues to weigh down on economies all around the globe. Meanwhile the European Central Bank will release its March monthly report, however the ECB is not expected to reveal anything new, as economic conditions continue to worsen amid the ongoing financial crisis, while the euro zone major economies continue to fall deeper in recession especially as global demand is faltering. The euro zone will also release their producer price index for the month of January, PPI is expected to drop 0.2 percent following the prior drop of 1.3 percent reported back in December, while PPI is expected to rise by an annualized 0.5 percent down from the prior rise of 1.8 percent. The euro zone largest economy continues to feel the heat from the financial crisis as the German economy continues to fall deeper in recession, as slowing domestic spending in addition to slowing global demand continue to weigh down on Europe's largest economy. Germany will release today their industrial production index for the month of January, production is expected to have dropped by 3.0 percent following the prior drop of 4.6 percent reported back in December, while industrial production is expected to have dropped by an annualized 15.5 percent following the prior drop of 12.0 percent. The euro zone economy remains under huge pressures as its largest economies continue to suffer the aftermath of the worst financial crisis since the Great Depression, while the ECB was rather rigid compared to other central banks around the globe, especially in regard to monetary policy and specifically interest rates. The ECB was much less aggressive as it remained cautious when it came down to interest rates, however the ECB might find themselves forced to follow the lead of other central banks and we could eventually see interest rates falling in the euro zone down near zero. Moving on across the Ocean, the United States continues to fall deeper in recession amid the worst financial crisis since the Great Depression, however optimism started to emerge over the outlook for the banking sector, after JPMorgan followed the lead of Citigroup in announcing that the first two months of this year were profitable. If banks were able to find their way back to profitability after almost a year and a half of losses and write-downs, which exceeded $1 trillion so far around the world, global economies and specifically the U.S. economy might be able to start recovering, however it's still too soon to judge that the banking sector is on its way to recovery and accordingly it's still too soon to believe a recovery is soon, though this might lead to some sort of stability in financial markets, which could pave the way for the world's largest economy to start growing again. The U.S. will release today their retail sales index for the month of February, retail sales are expected to have dropped by 0.5 percent following the prior rise of 1.0 percent reported back in January, which was supported by the post holiday discount season which lured consumers into seeking bargains. Retail sales that exclude autos are expected to have dropped by 0.1 percent in February after rising by 0.9 percent back in January, affected mainly by tightened credit conditions in addition to rising unemployment and falling home values. The weekly jobless claims are expected to continue showing that the labor market is still suffering from deep weakness, initial jobless claims are expected to rise to 644,000 from the prior estimate of 639,000, while continuing claims are expected to ruse to 5.140 million from the prior estimate of 5.106 million. The labor market continues to weaken as companies continue to lay off workers amid the worst economic conditions since early 1930s, as the unemployment rate surged in February to 8.1 percent which marked the highest in almost 25 years, while companies continued to increase the pace of layoffs in a bid to cut some costs. Finally, the U.S. will release their business inventories for the month of January, the index is expected to drop by 1.0 percent after falling by 1.3 percent in the prior month, while the report should also continue to signal falling sales, as the inventory to sales ratio continues to surge, and that means spare capacity remains high and that further falls in production will follow, which all leads to one conclusion that the recession will continue to deeper for a while… Crown Forex disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.

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FX Technical Analysis

Daily Forex Technicals | Written by Mizuho Corporate Bank | Mar 12 09 07:19 GMT |

EURUSD Comment: Very cautiously probing the top of the downward-sloping 'wedge' formation. Yesterday's close above the trendline and 26-day moving average might add some much-needed bullish momentum, where a weekly close above 1.2965 should help things move up too. Strategy: Buy at 1.2775; stop below 1.2450. Add to longs on a sustained break above 1.2900 for 1.3000 and then 1.3100. Direction of Trade: →↗ Chart Levels: Support Resistance 1.2774 " 1.2872 1.2744 1.29 1.266 1.2965 1.2600* 1.3000* 1.2457* 1.3100* GBPUSD Comment: Redrawing the downward-sloping 'wedge' formation so that prices remain within this extraordinarily long pattern. Be very careful. Strategy: Possibly attempt tiny longs at 1.3835; stop below 1.3500. Short term target 1.4000, eventually 1.4600. Direction of Trade: → Chart Levels: Support Resistance 1.3823 " 1.39 1.374 1.3925 1.369 1.403 1.3655* 1.41 1.3500* 1.4234 USDJPY Comment: Dipping to its lowest level in twelve days in what might just be a tiny 'head-and-shoulders' pattern. This should hopefully form an interim high, setting up forlots more consolidation below the psychological 100.00. We remind that our view over the whole of this year we currently favour very broad sideways moves for the Yen and Yen crosses and the difficulty will be finding the many interim highs and lows. Later this week or this month we shall continue to favour a drop back down towards the 93.00 area. Strategy: Sell at 96.45, adding to 97.00; stop well above 98.25. Add to shorts on a sustained break below 95.85 for 95.00 short term and probably 93.00. Direction of Trade: →↘ Chart Levels: Support Resistance 95.95 " 97 95.5 97.18 95.25 97.46 94.9 97.8 94.25 98.25 EURJPY Comment: Moves to new recent highs in Yen crosses have probably been postponed to next week at the very earliest. Therefore allow for another week or three of consolidation around current levels. Strategy: Attempt small longs at 123.15; stop below 121.50. First target 125.00, then 126.00. Direction of Trade: → Chart Levels: Support Resistance 123.10 " 124.75 122.4 125.07 122 126.07/126.26** 121.73* 127 120.75 128.55* Mizuho Corporate Bank Disclaimer The information contained in this paper is based on or derived from information generally available to the public from sources believed to be reliable. No representation or warranty is made or implied that it is accurate or complete. Any opinions expressed in this paper are subject to change without notice. This paper has been prepared solely for information purposes and if so decided, for private circulation and does not constitute any solicitation to buy or sell any instrument, or to engage in any trading strategy.

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Technical Analysis for Major Currencies

Daily Forex Technicals | Written by Crown Forex | Mar 12 09 07:37 GMT |

EURO Morning Report The pair inclined sharply yesterday to breach the key resistance for the downside channel and the minor upside channel as seen in the above picture. On the intraday, the pair may continue to incline if the breach of the 1.2835 level has been confirmed with a four hour close above it. Momentum indicators show the pair being overbought which may result in a downside correction towards 1.2790 - 1.2835 before confirming the upside direction that will target 1.3030 - 1.3090. However, a close below 1.2835 will reverse the trend to 1.2650 (the key support for the ascending channel) The trading range for today is among the key support at 1.2300 and the key resistance at 1.3090 The general trend is to the downside as far as 1.4710 remains intact with targets at 1.2220 and 1.2120 Support: 1.2790, 1.2735, 1.2660, 1.2600, 1.2575 Resistance: 1.2835, 1.2910, 1.2945, 1.2985, 1.3070 Recommendation: According to our analysis, we believe its good to buy the pair with an hourly close above 1.2835 with targets at 1.2985 and stop loss with a four hour close below 1.2735 GBP Morning Report The pair continued to rise towards 1.3885 several times in an attempt to breach it. The intraday trend remains unclear due to mixed trading within the 1.3820 and 1.3900 levels yet we could witness slight declines as momentum indicators show the pair being overbought alongside negative signs on the stochastic indicator. The next target for the pair is at 1.3825 and 1.3770 where reaching the latter may form a bullish technical pattern. The intraday trend will be confirmed with a four hour close concerning the 1.3885 level. The trading range for today is among the key support at 1.3545 and the key resistance at 1.4540 The general trend is to the downside as far as 1.5270 remains intact with targets at 1.3500 and 1.2960 Support: 1.3825, 1.3770, 1.3725, 1.3660, 1.3610 Resistance: 1.3885, 1.3900, 1.3950, 1.4000, 1.4055 Recommendation: According to our analysis, we believ its good to sell the pair with an hourly close below 1.3825 with targets at 1.3725 and stop loss with a four hour close above 1.3900 JPY Morning Report After movements within the ascending channel, the pair breached the bearish technical target to reach the complete targets. We expect an upside correction to take the pair to 97.40 and 97.95 in an attempt to retest the broken levels before confirming the short term trend which we still believe is to the downside towards 94.10 and 93.45. The intraday trend is to the upside as far as 95.90 remains intact The trading range for today is among the key support at 94.10 and the key resistance at 101.70 The general trend is to the downside as far as 102.10 remains intact with targets at 84.95 and 82.60 Support: 95.90, 95.10, 94.30, 94.10, 93.45 Resistance: 96.55, 97.05, 97.40, 97.95, 98.70 Recommendation: According to our analysis, we believe its good to buy the pair above 96.55 with targets at 97.40 and stop loss with a four hour close below 95.90 CHF Morning Report The expected decline towards 1.1490 occurred yet trading is currently around the key support near 1.1540. The several breaks of this level makes it hard to depend on it as a strong level and therefore we need a daily close to confirm the breach which may take the pair to 1.1405 and 1.1300. The 61.8% and 76.4% Fibonacci corrections are the pivot levels where a four hour close above them will reverse the trend to the upside towards 1.1840. Today's close below 1.1540 will take the short term targets towards 1.1300 and 1.1125 The trading range for today is among the key support at 1.1300 and the key resistance at 1.1880 The general trend is to the upside as far as 1.0570 remains intact with targets at 1.1840 and 1.2055 Support: 1.1540, 1.1490, 1.1430, 1.1390, 1.1300 Resistance: 1.1600, 1.1630, 1.1665, 1.1730, 1.1790 Recommendation: According to our analysis, we believe its good to sell the pair below 1.1540 with targets at 1.1430 and stop loss with a four hour close above 1.1630 CAD Morning Report The pair declined in an attempt to breach the neckline for the technical pattern identified at 1.2770 yet failed to close below it resulting in a rebound to the upside within a minor ascending channel with a support at 1.2865 and resistance at 1.3165. The intraday trend is to the upside to complete the short term target at 1.3380. This remains as far as 1.2770 remains intact The trading range for today is among the key support at 1.2520 and the key resistance at 1.3360 The general trend is to the upside as far as 1.1780 remains intact with targets at 1.3165 and 1.3380 Support: 1.2865, 1.2790, 1.2770, 1.2720, 1.2660 Resistance: 1.2970, 1.3020, 1.3045, 1.3100, 1.3115 Recommendation: According to our analysis, we believe its good to buy the pair abive 1.2865 with targets at 1.3020 and stop loss with a four hour close below 1.2770 Crown Forex disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.

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U.S. Retail Sales Probably Fell in February as Payrolls Dropped

By Shobhana Chandra

March 12 (Bloomberg) -- Retail sales in the U.S. probably fell in February for the seventh time in eight months as soaring job losses forced consumers to pull back, economists said before a government report today.

Purchases dropped 0.5 percent following a 1 percent gain in January, according to the median estimate of 77 economists in a Bloomberg News survey. Excluding automobiles, sales likely decreased 0.1 percent.

Car dealers and department stores such as Macy’s Inc. and J.C. Penney Co. may keep losing sales as Americans turn to discounters like Wal-Mart Stores Inc. during the worst financial crisis in seven decades. The deepening recession means it may take more than the Obama administration’s current stimulus and foreclosure plans to revive the economy.

“Household finances have been hit pretty hard,” said Adam York, an economist at Wachovia Corp. in Charlotte, North Carolina. “A lot of consumers are just frozen by the current situation, and don’t want to make any big purchases. It’ll lead to prolonged weakness in the economy.”

The Commerce Department’s retail sales report is due at 8:30 a.m. in Washington. Forecasts in the Bloomberg survey ranged from a gain of 1 percent to a decline of 1.5 percent.

Also at 8:30 a.m., Labor Department figures may show more than 600,000 Americans filed claims for unemployment benefits for a sixth straight week, the worst performance since 1982, economists predict.

Deepening Slump

The world’s largest economy will shrink 2.5 percent this year, the most since 1946, according to a Bloomberg survey taken from March 2 to March 9. Consumer spending, which accounts for 70 percent of the economy, will likely fall at a 1.7 percent annual pace this quarter and decline 0.7 percent from April to June.

Economists also projected the jobless rate will climb to 9.4 percent by the end of the year and remain elevated through 2011, one reason for the gloomy outlook on spending.

Employers cut 651,000 jobs in February and the unemployment rate jumped to 8.1 percent, the highest level since December 1983, Labor reported last week. President Barack Obama’s stimulus plan aims to create or save 3.5 million jobs, while the economy has already lost 4.4 million jobs since the recession began in December 2007.

The economic crisis is “unlike anything we’ve seen in our time,” Obama said in a March 10 speech in Washington.

Demand for automobiles continues to plummet. Auto industry sales in February fell to the lowest level since 1981, led by a 53 percent plunge at General Motors Corp., which is surviving with the help of government loans.

Losing Sales

Retailers reporting sales declines included Macy’s and J.C. Penney, clothing chains Gap Inc. and Abercrombie & Fitch Co., and luxury sellers Nordstrom Inc. and Neiman Marcus Group Inc.

The rest of the year will be “very difficult,” Dallas-based Neiman’s Chief Executive Burton Tansky said in a conference call with analysts yesterday. The retailer is canceling orders, returning goods to vendors and cutting expenses, Tansky said.

One exception is Wal-Mart, the world’s largest retailer, which had a 5.1 percent gain in February sales at stores open at least a year. Consumers, trying to make ends meet as job losses mount, are being drawn to its lower prices on groceries, fuel and electronics.

                         Bloomberg Survey

================================================================
                           Retail   Retail  Initial Business
                            Sales ex-autos   Claims     Inv.
                             MOM%     MOM%   ,000’s     MOM%
================================================================

Date of Release              03/12    03/12    03/12    03/12
Observation Period            Feb.     Feb.      Mar     Jan.
----------------------------------------------------------------
Median                       -0.5%    -0.1%      644    -1.0%
Average                      -0.4%    -0.1%      642    -1.0%
High Forecast                 1.0%     0.9%      660    -0.6%
Low Forecast                 -1.5%    -1.3%      610    -1.5%
Number of Participants          77       73       45       49
Previous                      1.0%     0.9%      639    -1.3%
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4CAST Ltd.                    1.0%     0.9%      645    -1.0%
Action Economics             -0.7%    -0.6%      655    -1.0%
AIG Investments               0.2%     0.6%     ---     -0.8%
Aletti Gestielle SGR         -0.5%     0.0%      650    -0.9%
Ameriprise Financial Inc     -0.6%    -0.2%      640    -1.0%
Argus Research Corp.         -0.2%     0.2%     ---     -0.7%
Bank of Tokyo- Mitsubishi     0.2%     0.7%      650    -0.8%
Bantleon Bank AG             -0.5%    -0.1%     ---      ---
Barclays Capital             -0.3%     0.1%      645    -1.1%
BBVA                         -0.7%    -0.4%      627    -1.2%
BMO Capital Markets          -0.5%    -0.3%      650    -1.2%
BNP Paribas                  -0.5%     0.4%      644    -0.6%
Briefing.com                 -0.3%    -0.1%      640    -1.1%
Calyon                       -0.2%    -0.1%     ---     -1.0%
Castlestone Management LT    -0.9%    -0.1%      660     ---
CIBC World Markets           -0.2%     0.3%     ---      ---
Citi                         -0.7%    -0.3%      635    -1.3%
ClearView Economics          -0.5%    -0.1%     ---     -0.8%
Commerzbank AG               -0.5%    -0.4%     ---     -1.3%
Credit Suisse                -0.5%     0.0%      635    -1.0%
Daiwa Securities America     -0.4%     0.0%     ---     -1.0%
Danske Bank                   0.0%     0.3%     ---      ---
DekaBank                     -0.4%     0.4%     ---     -1.1%
Desjardins Group             -0.7%    -0.5%      640    -1.2%
Deutsche Bank Securities     -0.3%    -0.2%      655    -1.1%
Deutsche Postbank AG         -0.7%    -0.4%     ---      ---
DZ Bank                      -0.2%    -0.1%     ---      ---
First Trust Advisors         -0.3%     0.3%      635    -0.8%
Fortis                       -0.2%     ---      ---     -1.0%
FTN Financial                -0.7%    -0.9%     ---      ---
Goldman, Sachs & Co.         -0.7%     0.0%     ---      ---
Helaba                       -0.2%     0.4%      630    -1.2%
Herrmann Forecasting         -0.3%     0.0%      636    -1.1%
High Frequency Economics     -0.5%    -0.3%      650    -0.8%
HSBC Markets                 -0.3%     0.2%      630    -0.9%
IDEAglobal                   -0.8%    -0.6%      645    -0.9%
IHS Global Insight            0.1%     0.5%     ---      ---
Informa Global Markets       -0.4%     0.4%      650    -0.8%
ING Financial Markets        -1.5%     ---      ---      ---
Insight Economics            -0.6%    -0.3%      650    -0.7%
Intesa-SanPaulo              -0.2%     0.2%     ---      ---
J.P. Morgan Chase            -0.8%    -0.1%      650    -1.2%
Janney Montgomery Scott L    -0.4%     0.4%     ---     -1.1%
JPMorgan’s Private Wealth     0.9%     0.8%      630    -1.2%
Landesbank Berlin            -0.9%    -0.6%      630    -1.5%
Lloyds TSB                   -0.6%    -0.3%      610    -1.3%
Maria Fiorini Ramirez Inc     0.0%     0.0%      645     ---
Merrill Lynch                -0.5%    -0.3%      650    -1.0%
MFC Global Investment Man    -0.8%    -0.5%      625    -1.5%
Moody’s Economy.com          -0.2%     0.3%      645    -0.9%
Morgan Keegan & Co.           0.0%     0.3%     ---     -0.7%
Morgan Stanley & Co.          0.0%     0.4%     ---      ---
National Bank Financial      -0.7%    -0.3%     ---      ---
Natixis                      -0.6%    -0.4%     ---      ---
Newedge                      -0.5%    -0.1%     ---      ---
Nomura Securities Intl.      -1.5%    -0.6%     ---      ---
Nord/LB                      -1.0%    -0.3%      630     ---
PNC Bank                     -0.5%    -0.3%     ---     -1.0%
Raymond James                 0.0%     0.2%      640     ---
RBC Capital Markets          -0.8%    -0.6%     ---      ---
RBS Greenwich Capital        -0.7%    -0.2%      630    -0.9%
Ried, Thunberg & Co.          0.0%     0.3%      640    -1.1%
Schneider Foreign Exchang    -1.1%    -1.3%      635    -0.8%
Scotia Capital               -0.5%    -0.3%      650     ---
Societe Generale              0.0%     0.3%     ---      ---
Standard Chartered           -0.8%    -0.6%     ---      ---
Stone & McCarthy Research    -0.5%     0.1%      640    -0.7%
TD Securities                 0.1%     0.3%      650     ---
Thomson Reuters/IFR          -0.5%    -0.3%      650    -1.1%
Tullett Prebon               -0.7%     ---       645     ---
Unicredit MIB                -0.7%     ---       640     ---
University of Maryland       -1.0%    -0.2%     ---     -1.2%
Wachovia Corp.               -0.7%     0.7%     ---      ---
Wells Fargo & Co.            -0.7%    -0.6%      655    -1.2%
WestLB AG                    -0.4%    -0.3%     ---      ---
Westpac Banking Co.          -0.5%    -0.2%      660    -1.1%
Wrightson Associates          0.0%     0.4%      640    -1.2%
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To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

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SNB May Cut Rates, Opening Door for Other Tools

By Joshua Gallu

March 12 (Bloomberg) -- The Swiss central bank may cut its interest rate to the lowest level since 2004 today, bringing it closer to using unorthodox measures to revive the economy.

The Swiss National Bank will lower its main lending rate to 0.25 percent from 0.5 percent, according to the median of 15 economists in a Bloomberg News survey. That would be on top of the 225 basis points of cuts since early October. The decision is due at 2 p.m. in Zurich and the SNB will release a statement.

Policy makers from London to Washington are reaching for new tools to reverse deepening recessions after cutting rates close to zero. Switzerland is facing its worst slump since 1982 and the central bank says it’s ready to respond by purchasing bonds or intervening in markets to weaken the Swiss franc.

“If the situation deteriorates further, I have no doubt that they won’t hesitate” to embrace new policy measures, said Martin Gueth, an economist at Landesbank Baden-Wuerttemburg in Stuttgart. “Unconventional means are becoming increasingly important.”

A reduction to 0.25 percent would take the SNB’s main rate target to the lowest since the current policy regime started in 2000. The bank targets the three-month Libor rate for francs.

Switzerland’s economy is shrinking faster than the SNB estimated in its last round of forecasts in December, Governing Board member Thomas Jordan said last month. UBS AG, Switzerland’s biggest bank, yesterday posted a 20.9 billion Swiss franc ($18 billion) loss for 2008, more than initially reported, and said it remains “extremely cautious” about the outlook for this year.

New Tools

Other central banks have already started implementing new policy tools to reverse deepening recessions after exhausting conventional measures. The Bank of England is printing money to buy government bonds in a bid to ward off deflation. The U.S. Federal Reserve is buying assets and the Bank of Japan earlier this month bought corporate bonds from lenders for the first time.

“The SNB is certainly next in line for such moves,” said Jan Amrit Poser, chief economist at Bank Sarasin in Zurich. “The SNB probably needs to do more. It’s game over for conventional monetary policy.”

SNB Vice-President Philipp Hildebrand said Jan. 21 the central bank could intervene in currency markets at fixed exchange rates if necessary to prevent a renewed appreciation of the franc.

Franc Gains

The Swiss currency has gained more than 8 percent in the past six months against the euro, adding to companies’ pains by making their products less competitive in the 16-nation euro region, which accounts for more than half of Swiss exports. The franc rose 0.1 percent to 1.4785 per euro as of 8:52 a.m. in Zurich. Against the dollar, it was 0.4 percent lower at 1.1575.

Sika AG, Europe’s biggest maker of chemicals used in construction, said last month that fourth-quarter sales fell 6.5 percent, hurt by the franc’s appreciation and weaker demand from the construction and auto industry. Currency moves helped prompt Syngenta AG, the world’s biggest maker of pesticides, to cut its 2009 profit target.

“Foreign exchange intervention is a distinct possibility,” Poser said. “You could alleviate some of the pressure on exporters and reduce the probability of imported deflation.”

Price pressures have evaporated in recent months after the cost of oil dropped around 70 percent from its July record, the franc surged and domestic demand weakened. Swiss inflation may be negative for “a couple quarters” and a prolonged period of price declines “cannot be excluded,” SNB chief economist Ulrich Kohli said this week.

Swiss leading indicators dropped to a record low last month as manufacturing shrank at the fastest pace since at least 1995.

“Inflation is low, the franc is strong and the economy is in recession,” said Ralf Wiedenmann, chief economist at Vontobel Asset Management Ltd. in Zurich. “If lower interest rates aren’t enough, they’ll take other measures.”

To contact the reporter on this story: Joshua Gallu in Zurich jgallu@bloomberg.net

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BOJ Buys 112 Million Yen in Stocks, Fraction of Amount on Offer

By Mayumi Otsuma

March 12 (Bloomberg) -- The Bank of Japan bought 112 million yen ($1.3 million) in stocks from lenders, a fraction of the amount it set aside last month to help financial institutions offload their shareholdings.

The purchases amount to 0.01 percent of the 1 trillion yen of shares it plans to buy until April 2010 to stem a decline in banks’ capital as the stock market slumps, according to data released by the central bank today.

The Bank of Japan commenced the program on Feb. 23 to help banks lend more to businesses strapped for cash amid a deepening recession. Still, economists say lenders are reluctant to reduce their share portfolios and realize losses in a stock market that has fallen 43 percent in the past year.

“If commercial banks sell shares at the current prices, they have to realize a large amount of losses, which is discouraging them from using the program,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “This stock-purchasing program does offer a meaningful safety net, but it may be hard to expect it to have a huge effect.”

The central bank also started buying commercial paper and corporate bonds this year, and last December began accepting lower-grade securities as collateral for loans to banks. Shinke said those efforts may be more successful in lowering borrowing costs for businesses.

The spread on three-month commercial paper issued by companies rated A1 against government financing bills of the same maturity narrowed to 32 basis points yesterday from 141 before the bank’s Dec. 19 announcement that it will buy the debt. It’s still higher than the 12.5 basis points in September.

The central bank is ready to expand the programs to shore up the economy if necessary, Deputy Governor Hirohide Yamaguchi said in an interview last week.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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Geithner Said to Push G-7 to Ease Criticism of China Policy

By Rebecca Christie and Michael Forsythe

March 12 (Bloomberg) -- Treasury Secretary Timothy Geithner pushed Group of Seven officials to soften criticism of China last month after his accusation that the nation was “manipulating” the yuan strained ties with the U.S.’s second- biggest trading partner, said a person briefed on the matter.

G-7 finance ministers and central bankers on Feb. 14 welcomed “China’s fiscal measures and continued commitment to move to a more flexible exchange rate.” By contrast, the group in April 2008 pressed for “accelerated appreciation” of the yuan.

Geithner’s behind-the-scenes effort came just weeks after he publicly accused China of “manipulating” its currency during his Senate confirmation hearings, drawing criticism from the Chinese. Donald Straszheim, a former Merrill Lynch & Co. chief economist, said the G-7 shift may signal the U.S. Treasury won’t label China a manipulator in a report due April.

“I would be very surprised if we would bring up the currency manipulator terminology again any time soon,” said Straszhiem, who heads Straszheim Global Advisors Inc. in Los Angeles. “I think it would be a mistake and I don’t think they’ll do that.”

The G-7 made its statement even after the appreciation of the renminbi stalled last year as China’s economy began to suffer the impact of the global economic slowdown. Treasury spokeswoman Heather Wong was not immediately available for comment.

Flurry of Calls

Geithner’s move to tone down the G-7 statement came amid a flurry of phone calls and meetings he had with Chinese officials, including Vice Premier Wang Qishan and Finance Minister Xie Xuren, according to details of Geithner’s schedule provided by the administration.

“Geithner’s change of attitude showed that he’s paying more attention to China’s effort in reforming its currency over the past few years,” said Peng Xingyun, a senior international finance researcher at the Chinese Academy of Social Sciences, a government-backed institute in Beijing.

China is the biggest foreign owner of U.S. Treasuries, holding $696.2 billion at the end of December, according to Treasury Department figures.

The yuan was little changed at 6.8393 a dollar as of 12:08 p.m. in Shanghai. China’s currency has traded between 6.81 and 6.89 a dollar since mid-2008.

London Summit

Geithner will meet with Xie tomorrow in the U.K. as part of sessions with finance ministers from 20 of the world’s industrial and developing nations. The G-20 meeting will lay the groundwork for a leaders’ summit on April 2 in London.

Yesterday, Geithner prepared for the upcoming summit in a Washington meeting with Yang Jiechi, China’s foreign minister. A U.S. administration official said Geithner and Yang discussed their governments’ efforts to jump-start their economies, as well as strategies to cooperate at the meetings this weekend and press for broader coordination of fiscal stimulus measures.

Geithner, 47, also called on China to support a new U.S. proposal to expand the International Monetary Fund’s supplementary borrowing program by about $500 billion. China already has pledged “substantial support” to the fund, he said.

“We very much hope they’d be willing and interested to be part of this,” Geithner told reporters yesterday.

President Barack Obama and Chinese President Hu Jintao are preparing to announce in April the new shape of regular high- level talks between the U.S. and China. The previous administration held twice-yearly meetings led by former Treasury Secretary Henry Paulson.

To contact the reporters on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net; Michael Forsythe in Washington at mforsythe@bloomberg.net.

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India Posts 1st Back-to-Back Output Fall in 16 Years

By Kartik Goyal

March 12 (Bloomberg) -- India posted its first back-to-back decline in industrial production in 16 years, suggesting tax cuts and lower interest rates are yet to resuscitate demand in an economy faced with the worst slowdown since 2003.

Output at factories, utilities and mines fell 0.5 percent in January from a year earlier after a revised 0.6 percent drop in December, the Central Statistical Organization said in New Delhi today. Economists expected a 0.9 percent contraction.

Factory output in India is being pummeled as the global recession cuts demand for exports and job losses hurt consumer spending. Prime Minister Manmohan Singh has reduced taxes on consumer products and the central bank slashed interest rates to a record low to revive an economy that some analysts fear may slow further as elections in April and May stymie policymaking in the world’s biggest democracy.

India’s industrial sector may “remain firmly in the doldrums for some months yet as the veritable collapse in external demand continues to take its toll,” said Robert Prior- Wandesforde, an economist at HSBC Holdings Plc in Singapore. “It won’t be until the third quarter of calendar 2009 that production is likely to begin to show a meaningful turn.”

Shares pared gains after today’s report. India’s benchmark stock market index fell 0.7 percent to 8,300 from 8,360 before the data was released. The measure has declined 15.47 percent this year, extending 2008’s 53 percent drop, on concern the slowdown in demand will crimp profits of local companies.

Global Recession

Worldwide industrial production this year is expected to be as much as 15 percent lower than in 2008 and the global economy is likely to shrink for the first time since World War II, the World Bank said March 9.

India isn’t the only Asian nation suffering from weaker overseas demand. Japan’s industrial production fell 30.8 percent in January from a year earlier and factory output in Singapore plunged 29.1 percent.

Exports from India fell the most in a decade in January amid the global economic slump. Merchandise shipments dropped 16 percent to $12.38 billion, the fourth straight monthly fall.

India’s economy may not achieve its 7 percent growth target for the year to March 31, 2009, central bank Governor Duvvuri Subbarao told Nikkei English News in an interview. The $1.2 trillion economy grew 5.3 percent in the three months to Dec. 31, the weakest expansion since the last quarter of 2003.

Manufacturing, Mining

The pace of economic growth may weaken to 6.4 percent next fiscal year, said Sonal Varma, an economist with Nomura International Plc in Mumbai.

Manufacturing, which accounts for about 80 percent of India’s total output, fell 0.8 percent in January, compared with a 1 percent fall in December, today’s report showed. Mining dropped 0.4 percent, compared with 1.8 percent in the previous month, while electricity production rose 1.8 percent from a 1.6 percent gain. Basis-goods production fell 1 percent.

To help bolster growth in South Asia’s biggest economy, the central bank last week cut the key overnight lending rate for lenders for the fifth time since October. The bank reduced its key repurchase rate to an all-time low of 5 percent from 5.5 percent. The bank has cut the rate by 400 basis points.

The central bank has been able to reduce borrowing costs as inflation is slowing. India’s benchmark wholesale-price index eased to 2.43 percent in the week to Feb. 28, according to a separate report today. That’s the lowest in more than six years.

Stimulus Packages

Prime Minister Singh’s government has also announced three stimulus packages since December. Initiatives have included tax cuts on consumer products and services and higher spending on roads, ports and utilities.

Acting Finance Minister Pranab Mukherjee on Feb. 24 lowered excise duty to 8 percent from 10 percent and the service tax to 10 percent from 12 percent. He extended a 4 percentage point reduction in central value-added tax announced in December to beyond March 31.

Faltering sales are forcing companies such as Honda Motor Co. and Hyundai Motor Co. to idle plants and fire workers. Honda has reduced Indian output by half since the beginning of the year and cut about 1,000 temporary jobs since August, the Press Trust of India reported Feb. 27.

Falling exports may cause about 10 million job losses by March, according to estimates from the Federation of Indian Export Organisations, a lobby group. Exporters have already sacked 1 million workers, Trade Secretary Gopal K. Pillai said.

India’s car sales declined for four consecutive months starting in October as the slowest economic expansion since 2003 reduced new jobs.

Still, excise-duty cuts, lower loan rates and higher spending by the government on roads, ports and utilities may help revive demand in the coming months, said Dilip Chenoy, director general of the Society of Indian Automobile Manufacturers. “It’s too early to predict a reversal in trend,” he said.

India’s passenger-car sales climbed for the first time in five months in February as lower auto-loan rates spurred demand for Maruti Suzuki India Ltd. and Hyundai Motor Co. vehicles.

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.

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South Korea Unexpectedly Keeps Rate at Record-Low 2%

By Seyoon Kim

March 12 (Bloomberg) -- The Bank of Korea unexpectedly kept its interest rate unchanged at a record-low 2 percent today, ending the nation’s most aggressive policy easing in a decade.

“We have lowered the benchmark interest rate at a rapid pace in a short period,” Governor Lee Seong Tae said in Seoul. “We’ll be monitoring the effects of the previous steps.”

South Korea’s currency and shares declined after the central bank said the economy is likely to remain in a recession amid “persistent weakness” in local and overseas demand. Lee has pared rates by 3.25 percentage points since Oct. 9 and Finance Minister Yoon Jeung Hyun plans to unveil an additional stimulus package this month to add to 51 trillion won ($34.7 billion) in tax cuts, handouts and infrastructure spending.

“They’ve cut very aggressively and are now taking a breather, but it is hardly a response to any better data,” said Jan Lambregts, head of Asian research at Rabobank International in Hong Kong. “I expect in the months to come that they will pick it up again. Many Asian central banks are going to cut rates close to zero percent.”

Just three of 15 economists surveyed by Bloomberg expected today’s decision with the remainder predicting a cut. The six reductions since early October are the most aggressive easing since the Bank of Korea began setting a policy rate a decade ago.

The Kospi stock index fell 1.5 percent to 1,111.01 after the decision, snapping three days of gains and increasing its loss over the past year to 33 percent. Korea’s won dropped 1.1 percent to 1,486.7 per dollar as of 1:18 p.m. in Seoul after last week reaching an 11-year low of 1,597.

Tumbling Currency

“The Bank of Korea probably felt pressure to keep rates unchanged as lower interest rates can prompt investors to take more money out of the country, weakening the won further,” said David Kim, head of research at Taurus Investment Securities Co. in Seoul.

A falling won, Asia’s worst-performing currency in 2009, increases the cost of financing offshore loans for Korean companies and could fan inflation by pushing up import prices.

South Korea’s pause in easing follows the Reserve Bank of Australia, which last week left its rate unchanged for the first time in seven months. New Zealand central bank Governor Alan Bollard said today he would reduce the pace of rate cuts in future after 5.25 percentage points of easing since July.

Government Spending

South Korea’s government said today it will provide cash, loans, school fees and other financial incentives valued at 6 trillion won to help those on lower incomes cope with rising unemployment. The aid package will use funds from the extra budget being proposed this month, the finance ministry said.

Bank of Korea Governor Lee said he expects the government to propose “a significant” extra spending package, financed through bond sales. The central bank will watch the effect of debt sales on financial markets as it decides whether to purchase bonds, he added.

“The Korean economy is likely to remain in recession due to the persistent weakness of both domestic and overseas demand,” the central bank said today.

The World Bank this week forecast the global economy will shrink in 2009 for the first time since World War II and that trade will fall by the most in eight decades.

Exports of cars, ships, mobile phones and other goods, which make up more than 60 percent of South Korea’s gross domestic product, fell 17.1 percent in February.

Bank Aid

As well as boosting spending, South Korea has been widening efforts to aid banks by injecting $39 billion into the financial system to thaw credit markets, setting up a 20 trillion won fund to replenish bank capital as bad loans increase, and establishing another fund to buy distressed corporate bonds.

Bank profits almost halved last year on provisions for loans to struggling developers and shipbuilders. Kookmin Bank, the nation’s largest lender, posted its first loss in four years in the fourth quarter.

“Both the central bank and the government should continue to do what they can to help the economy,” said Ryu Seung Sun, an economist at HMC Investment Securities Co. in Seoul. “There are global efforts to prop up economies. South Korea shouldn’t exclude itself from the moves.”

Asia’s fourth-largest economy contracted 3.4 percent last quarter, the first decline in 11 years, as exports to the U.S., Europe and China dropped. Goldman Sachs Group Inc. this week forecast the economy will shrink 4.5 percent in 2009.

South Korea lost 103,000 jobs in January, the biggest decline since September 2003. Genworth Financial Inc. announced last month the closure of its South Korean business as it cuts costs globally. Industrial production plunged a record 25.6 percent in January.

LG Electronics Inc., the world’s third-largest maker of mobile phones, says industry shipments will fall more than previously expected in 2009. Hyundai Heavy Industries Co., the world’s largest shipbuilder, said last month that orders dropped 54 percent in January from a year earlier.

To contact the reporter on this story: Seyoon Kim in Seoul at Skim7@bloomberg.net

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China Industrial-Output Growth Slows as Exports Slide

By Li Yanping

March 12 (Bloomberg) -- China’s industrial-production growth slowed in the first two months of the year as exports slid at a record pace. Bank lending jumped as the nation’s 4 trillion ($585 billion) stimulus began to take effect.

Output rose 3.8 percent in January and February from a year earlier, slowing from a 5.7 percent increase in December, the statistics bureau said today. New lending quadrupled in February to 1.07 trillion yuan from a year earlier, the central bank said.

“The export engine has died: China is in a ‘help themselves’ mode, pump-priming like crazy to increase fixed- asset investment and keep retail spending going,” said Joseph Tan, chief Asian economist at Credit Suisse Private Bank in Singapore. “I think they’re going to pull it off.”

Premier Wen Jiabao is aiming to achieve 8 percent economic growth this year through tax cuts and spending on roads, railways and houses. The surge in loans and a more-than- estimated 26.5 percent jump in urban fixed-asset investment in January and February may foreshadow a rebound in industrial- output growth.

The Shanghai Composite Index closed 0.2 percent lower, paring its gain this year to 17 percent. The yuan traded at 6.8393 against the dollar as of 3:14 p.m. in Shanghai, from 6.8404 yesterday.

Industrial production rose 11 percent in February alone, buoyed by extra working days in the month compared with a year earlier because of the timing of the Lunar New Year holiday.

Outlook for Output

“There is no doubt that industrial output will continue to recover, boosted by the strong growth in investment and bank loans,” said Lu Zhengwei, a Shanghai-based economist at Industrial Bank Co. He said concerns remained about whether stimulus projects alone could sustain the economy if exports keep deteriorating.

The government faces rising unemployment, falling house prices and the risk of an increase in soured loans.

Exports declined a record 25.7 percent in February, consumer prices fell for the first time in six years, and a report today showed retail sales grew at the slowest pace in two years in the first two months.

Parkson Retail Group Ltd., a Beijing-based department-store chain, said last month that profit growth slowed in 2008 and this year will be “very challenging.”

Real-Estate Spending

Spending on real-estate development grew only 1 percent in the first two months from a year earlier as home prices fell, figures showed yesterday.

Among more upbeat indicators, banks have responded to calls by the government to support the spending package, helping the broadest measure of money supply to climb at the fastest pace in more than five years in February.

“The strong credit and money growth bodes well for a policy-driven V-shaped recovery by mid-year, making China the first to recover among major economies,” said Wang Qing, Hong Kong-based chief China economist at Morgan Stanley.

Still, rapid loan growth may not continue and the surge raises the risk of defaults and the poor allocation of funds, said Jing Ulrich, head of China equities at JPMorgan Chase & Co. in Hong Kong.

The world is looking to see if China’s growth can support commodity prices and sustain demand for the products of its Asian neighbors. Benchmark steel prices in China surged 46 percent between November and February and iron-ore imports by the world’s largest buyer of the steelmaking ingredient gained 22 percent last month.

Construction Equipment

China’s construction equipment sales may jump 20 percent in the second half as orders recover on the government stimulus, Lonking Holdings Ltd., the nation’s biggest maker of four- wheeled earthmovers, said this week.

China’s vehicle sales surged 25 percent in February after the government cut taxes on some models. General Motors Corp. has raised its forecast for the auto industry’s sales growth in China this year to as much as 10 percent from less than 3 percent.

Gross domestic product grew 6.8 percent in the fourth quarter, the least since 2001, with industrial production expanding 5.4 percent in November, the weakest pace in almost a decade. The International Monetary Fund expects the economy to grow 6.7 percent this year, the smallest gain since 1990.

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

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Japan Economy Shrank at 12.1% Pace Last Quarter on Export Slide

By Jason Clenfield

March 12 (Bloomberg) -- Japan’s economy contracted at the fastest pace since 1974 last quarter as exports, output and business spending collapsed.

Gross domestic product shrank an annualized 12.1 percent in the three months ended Dec. 31, less than the 12.7 percent reported last month, the Cabinet Office said today in Tokyo. The median estimate of economists was for a 13.4 percent decline.

Factory output and overseas shipments plunged by records in January and Toyota Motor Corp., Japan’s biggest automaker, will cut production by more than half this quarter. Real-estate company Pacific Holdings Co. filed for bankruptcy this week, becoming the 12th publicly traded firm to fail this year.

“Japan’s economy is falling off a cliff,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo, who correctly forecast the size of the contraction. “The revision to GDP doesn’t change our basic assessment.”

The Nikkei 225 Stock Average fell 2.4 percent, paring yesterday’s 4.6 percent gain, while the broader Topix index tumbled to a 25-year low. The yen traded at 96.46 against the dollar at 3:08 p.m. in Tokyo compared with 97.41 before the report was published.

The economy contracted 3.2 percent from the third quarter, compared with the initial estimate of a 3.3 percent drop. The revision reflected a higher-than-expected gain in inventories, which added 0.5 percentage point to GDP compared with the initial estimate of a 0.4 point contribution.

Company Losses

Companies including Toyota and Sharp Corp. are forecasting their first losses in decades. Nissan Motor Corp. said last month it plans to eliminate 20,000 jobs.

First-quarter GDP will be “severe,” Finance Minister Kaoru Yosano said in parliament today. “I’m concerned that a steep decline in production will lead to a significant adjustment in the labor force,” he said.

Political gridlock has slowed Prime Minister Taro Aso’s efforts to stimulate spending, pushing his approval rating close to 10 percent ahead of elections that must be called by September. Parliament last week passed bills authorizing cash payments of at least 12,000 yen ($122) to consumers, four months after Aso pledged the money. Lawmakers are calling for more fiscal stimulus as the slump deepens.

“In the face of this unprecedented crisis, bolder economic stimulus measures should be undertaken as soon as possible,” a ruling Liberal Democratic Party group headed by lawmaker Kotaro Tamura said yesterday.

Credit Crunch

Policy makers are also trying to counter a credit crunch that has made it more costly to borrow and caused corporate bankruptcies to rise for the past nine months.

The Financial Services Agency said this week it will start to audit banks next month to make sure they lend. The government is offering to help buy stock holdings from banks and to acquire stakes in lenders to aid loan growth. It’s also channeling funds to state-run lenders to aid companies.

“Not just automakers, but electrical and chip companies, and also other manufacturers, are coming to us in large numbers,” Hiroshi Watanabe, chief executive officer of the Japan Bank for International Cooperation, said in a March 10 interview. As part of a government program, the Tokyo-based bank is lending to “essentially blue-chip firms that are having trouble with cash flow,” he said.

Emergency Loans

JBIC has received requests for emergency loans totaling as much as $40 billion since the end of 2008, almost four times its original budget for the year that ends March 31, Watanabe said. Meanwhile, the Bank of Japan has lowered its key interest rate to 0.1 percent and is buying commercial paper and corporate bonds from banks to unclog debt markets.

Meanwhile, there are signs that companies are getting rid of inventories they built up last quarter. Nissan plans to raise domestic production this month and Toyota said it will increase manufacturing in May as it unveils new models.

“The implication is that production and export cuts of this scale should burn through inventories reasonably quickly and allow a pickup in the second quarter -- albeit still at much lower levels than a year ago,” said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo.

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net

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