Asia Stocks Rise on Falling U.S. Jobless Claims, Auto Upgrades

By Patrick Rial and Masaki Kondo

April 10 (Bloomberg) -- Asian stocks rose to a three-month high after a drop in U.S. jobless claims boosted confidence the global recession is easing and brokerages upgraded carmakers.

Samsung Electronics Co., Asia’s biggest maker of chips, flat screens and mobile phones, rose 4 percent. Isuzu Motors Ltd. jumped 12 percent after Morgan Stanley upgraded the truckmaker and Nomura Holdings Inc. raised its stance on Japan’s auto sector. Sumitomo Mitsui sank 14 percent after posting its biggest loss in six years. Benchmarks reversed losses in the afternoon after the Wall Street Journal said Goldman Sachs Group Inc. will sell shares to repay a government loan.

The MSCI Asia Pacific Index followed global stocks into a fifth-straight weekly gain, adding 0.5 percent to 87.91 as of 6:20 p.m. in Tokyo, the highest since Jan. 12. More than two shares rose for each that retreated on the benchmark.

“The market has started to reflect a possible recovery as there are signs the global economy is bottoming out,” said Masaru Hamasaki, a senior strategist at Toyota Asset Management Co., which oversees about $3.3 billion. “Banks are still suffering from losses on their stockholdings and selling new shares to bolster their capital emphasizes the negative aspect of having to raise more money.”

MSCI’s Asian gauge is set for a 1.4 percent increase in the past five days, a fifth weekly gain that’s the longest winning streak since February 2007. The MSCI World index has risen 0.7 percent this week.

Expanded Stimulus

Japan’s Nikkei 225 Stock Average swung between gains and losses before closing 0.5 percent higher. South Korea’s Kospi index advanced 1.5 percent, China’s Shanghai Composite Index jumped 2.7 percent to an eight-month high, while the Vietnam Stock Index posted the region’s largest advance of 4.3 percent. Markets in Australia, New Zealand, Singapore and Hong Kong are closed today for holidays.

Jiangxi Copper Co., China’s biggest producer of the metal, rallied 10 percent after prices for the metal rose to the highest in five months. Cathay Financial Holding Co. climbed 4.6 percent after Taiwan’s biggest listed financial-services company swung to a net profit in the first quarter.

MSCI’s Asian gauge has rallied 25 percent from a five-year low on March 9 as governments and central banks expanded measures to alleviate the global recession. Japanese Prime Minister Taro Aso is expected to unveil today a $154 billion spending plan to revive growth, his third stimulus plan since taking office last September. The Bank of Korea kept its benchmark rate unchanged yesterday saying there are signs the economy’s deepest contraction in more than a decade may be abating.

Jobless Claims

U.S. first-time claims for unemployment insurance fell by 20,000 to 654,000 in the week to April 4, the Labor Department reported yesterday. That was lower than the 660,000 level economists had estimated.

Samsung Electronics rose 4 percent to 603,000 won. Sony, the world’s No. 2 electronics maker, added 4.2 percent to 2,585 yen. AU Optronics Corp., the world’s third-biggest maker of liquid-crystal displays, jumped 6.6 percent to NT$32.40. The flat-panel display industry may have entered a strong recovery as prices are climbing in April, the Commercial Times said today, citing industry researcher DisplaySearch.

LG Display Co. rose 2.6 percent to 32,100 won after the Seoul Economic Daily said the world’s second-largest maker of LCDs is in talks to sell panels to Sony Corp.

Isuzu rallied 12 percent to 155 yen, the highest since Nov. 11. Noriaki Hirakata at Morgan Stanley lifted the stock to “overweight” from “equal-weight,” citing better-than- expected sales in markets such as China and Indonesia.

U.S. Market

Nissan Motor Co., Japan’s No. 3 automaker, gained 4.9 percent to 511 yen, while Fuji Heavy Industries Ltd., the maker of Subaru cars, rose 5.5 percent to 405 yen after Nomura lifted both stocks to “buy.”

The U.S. auto market looks to be bottoming, while government plans to provide subsidies for new cars should also help sales, Nomura’s Shinya Naruse wrote in a report. Naruse lifted Japan’s auto industry to “neutral” from “bearish.”

Japanese banks dropped after Sumitomo Mitsui, the nation’s No. 3 listed lender, posted a loss of 390 billion yen ($3.88 billion) in the year to March 31. Analysts had expected a profit. To shore up capital, the company prepared to sell as much as 800 billion yen of common shares.

The shares plunged 14 percent to 3,110 yen, leading declines on the MSCI World Index. Mizuho Financial Group Inc., Japan’s second-biggest list bank, sank 9.6 percent to 198 yen, the sharpest drop since Oct. 27.

Copper Prices

Goldman Sachs, the investment bank that became a commercial lender last year, is considering selling several billion dollars worth of new shares to pay back a $10 billion government loan, the Wall Street Journal reported. The shares have more than doubled since a low in November. Investors are in favor of the loan repayment, according to the report.

Jiangxi Copper soared 10 percent to 25.72 yuan. Tongling Nonferrous Metals Group Co., China’s second-biggest copper producer, climbed 8.6 percent to 16.06 yuan. Copper futures for May delivery increased 3.6 percent to $2.071 a pound in New York.

Nippon Mining Holdings Inc., Japan’s biggest producer, jumped 7 percent to 446 yen, the highest since Sept. 29. The Tokyo-based smelter probably posted a loss of 42 billion yen for the year ended March, better than the 57 billion-yen loss projected by the company in February, the Nikkei newspaper reported.

Cathay Financial climbed 4.6 percent to NT$35.50. The company swung to a profit of NT$4.98 billion ($147.5 million) in the first quarter after a loss the year earlier.

Haseko Corp. soared 17 percent to 63 yen in Tokyo, leading gains on the MSCI World gauge. Credit Suisse Group AG raised its rating on the Japanese general contractor, citing declining inventory of condominiums and better credit conditions.

To contact the reporters for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

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Return of Stock Bulls Signals Time to Sell: Technical Analysis

By Patrick Rial

April 10 (Bloomberg) -- Investors turned optimistic for the third time since the credit crisis started last year, gauges of sentiment among individual investors in the U.S. show, a pattern that Helmsman Global Trading says is a signal to sell.

The difference between the American Association of Individual Investors Bull Index and Bear Index surged to 5.6 as of April 2. When the reading rose to 11.5 in November and 13.6 in January it coincided with the end of “bear-market rallies” of at least 21 percent by the MSCI World Index.

“What that’s going to show is that people always want to look at the glass as if it is half full,” said Martin Marnick, head of trading at Helmsman Global Trading Ltd. in Hong Kong. “Using common sense you know what that general trend is. We’re in a recession and this is not the start of a bull market.”

The spread, which has fluctuated between 63 and minus 54 in the past two decades, has climbed above 5 in only three periods since the collapse of Lehman Brothers Holdings Inc. in September. It retreated to minus 8.6 according to data released yesterday.

The AAII gauges are compiled from weekly polls and track whether U.S. individual investors believe the market will rise, fall, or remain unchanged in the next six months. A negative number in the bull-bear spread indicates pessimists outnumber optimists.

The reading fell to as low as negative 51 on March 5, a level not seen since October 1990, when the MSCI World was at the end of a 10-month bear market that erased 26 percent of its value. The MSCI benchmark dropped 59 percent from its October 2007 high to a 13-year low on March 9. It has since rallied 22 percent.

The Organization for Economic Cooperation and Development said on March 27 its 30 members are likely to see their economies contract by 4.2 percent this year.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.

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U.S. Stocks Gain, Capping Biggest Jump Since 1933 as Banks Rise

By Eric Martin and Lynn Thomasson

April 10 (Bloomberg) -- U.S. stocks rose for a fifth week, capping the steepest rally since 1933, as Wells Fargo & Co.’s higher-than-estimated earnings and speculation banks will pass government stress tests spurred optimism that the industry’s slump is ending.

Bank of America Corp., American Express Co. and JPMorgan Chase & Co. helped drive a gauge of 80 financial companies in the Standard & Poor’s 500 Index to a 9.4 percent advance. Wells Fargo surged 20 percent after reporting record first-quarter profit. Lincoln National Corp. and Principal Financial Group Inc. jumped at least 37 percent as the Treasury considered bailouts for life insurers.

“This was a really, really positive start to the earnings season,” Hugh Johnson, who oversees $750 million as chairman of Johnson Illington Advisors in Albany, New York, told Bloomberg Television. “Banks are not going to be forced to take the kind of write-offs they had to take in prior quarters.”

The S&P 500 gained 1.7 percent to 856.56. It has soared 27 percent since March 9, the most in 23 days since the Great Depression, according to Howard Silverblatt, an analyst at S&P. The Dow Jones Industrial Average added 0.8 percent to 8,083.38 this week. U.S. exchanges are closed today for Good Friday.

The S&P 500 has rebounded off the 12-year low reached a month ago as Citigroup Inc., Bank of America and JPMorgan said they made money at the start of 2009. Treasury Secretary Timothy Geithner spurred a 7.1 percent rally, the fourth-biggest gain since the 1930s, on March 23 after announcing a plan aimed at financing as much as $1 trillion in purchases of illiquid real- estate assets from banks. The index is now down 5.2 percent year to date after plunging 25 percent as of March 9.

Wal-Mart, Soros

Wal-Mart Stores Inc. retreated 5.8 percent, limiting the market’s advance this week, after the world’s biggest retailer reported March sales that increased less than analysts estimated. Sun Microsystems Inc. plunged 21 percent after takeover talks with International Business Machines Corp. failed. Investors from billionaire hedge-manager George Soros to Marc Faber predicted the rebound in equities will falter.

Wells Fargo jumped 20 percent to $19.61. Net income rose about 50 percent from $2 billion a year earlier. Per-share profit equaled about 55 cents, more than double the average estimate of analysts surveyed by Bloomberg. The acquisition of Wachovia Corp., whose overdue home loans helped cut Wells Fargo’s stock price in half this year, is exceeding expectations, the company said.

Bank Stress Test

Citigroup gained 6.7 percent to $3.04, JPMorgan climbed 12 percent to $32.75, American Express rose 23 percent to $18.83 and Bank of America advanced 26 percent to $9.55. The New York Times said all 19 banks examined by the government will pass a review to determine their viability should the recession deepen.

The S&P 500 Banks Index jumped 25 percent yesterday, the most since its creation in 1989, following Wells Fargo’s report.

“Investors believe we can’t get anywhere without our financial system leading the way,” said Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, which oversees $60 billion. “They’re looking for any indication things are on the mend.”

Lincoln National advanced 51 percent to $10.40 and Principal Financial gained 37 percent to $14.47. The U.S. Treasury said life insurers that have bank or thrift holding companies are eligible for capital infusions from Troubled Asset Relief Program funds and applications are under review.

Centex Corp. surged 12 percent to $9.48 as Pulte Homes Inc. said it will buy the company in a $1.3 billion stock deal to create the nation’s largest homebuilder. Pulte dropped 12 percent to $10.11.

Takeover Speculation

Textron Inc. gained the most in the S&P 500, soaring 83 percent to $13.56 on speculation it will be acquired. Kuwait’s Al-Watan newspaper reported a United Arab Emirates group is preparing to buy the maker of Cessna aircraft and Bell helicopters for $21 a share.

Bed Bath & Beyond Inc. rallied 13 percent to $31.09 after the largest U.S. home-furnishings retailer said fourth-quarter profit beat the average analyst projection by 26 percent.

Profits at S&P 500 companies probably fell 38 percent on average in the first quarter, according to analysts’ estimates compiled by Bloomberg. The stretch of quarterly declines is the longest since at least the Great Depression, data compiled by S&P and Bloomberg show.

Missing Estimates

Earnings may drop 31 percent in the second quarter and 18 percent in the next before gaining 74 percent in the last three months of the year, analysts predict. Banks are projected to account for all of the rebound in the final quarter. Without financial companies, the gain turns into a 5 percent decline, the data show.

Wal-Mart fell 5.8 percent to $50.66 for the steepest decline in the Dow average. The world’s largest retailer said revenue from U.S. stores open at least a year advanced 1.4 percent in the five weeks ended April 3. That missed the 3.2 percent average estimate compiled by Retail Metrics Inc.

The highest U.S. unemployment since 1983 has forced consumers to restrain spending. The number of Americans filing first-time claims for unemployment insurance exceeded 600,000 for a 10th straight week. The total collecting benefits rose to a record in a sign that the labor market remains weak.

The U.S. stock rally will sputter because the economic downturn hasn’t been reversed, said Soros, whose Quantum Endowment Fund rose 8 percent last year, compared with the average 19 percent decline of hedge funds tracked by Chicago- based Hedge Fund Research Inc.

Unlike Other Crises

“This isn’t a financial crisis like all the other financial crises that we have experienced in our lifetime,” Soros said in an interview with Bloomberg Television.

Faber, who forecast a gain in U.S. stocks on March 9, said this week that the S&P 500 may decline to about 750 before rebounding after July.

Sun dropped 21 percent to $6.68. Chief Executive Officer Jonathan Schwartz and the board, including co-founder Scott McNealy, unanimously rejected a buyout offer from IBM last weekend that valued Sun at about $7 billion, according to a person familiar with the matter. The talks have gone quiet for now, the person said. IBM lost 0.5 percent to $101.70.

Reports next week will probably show sales at retailers rose in March as tax refunds put more money in consumers’ pockets and car dealers boosted incentives to clear unwanted stockpiles, according to economists surveyed by Bloomberg. Data may also show factory output kept slumping last month and inflation cooled.

Citigroup, General Electric Co., Goldman Sachs Group Inc., Google Inc., Intel Corp. and JPMorgan are among 31 companies scheduled to announce quarterly results.

To contact the reporters on this story: Eric Martin in New York at emartin21@bloomberg.net; Lynn Thomasson in New York at lthomasson@bloomberg.net.

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Dollar Strong Ahead of Easter...

Daily Forex Fundamentals | Written by Lena Manousarides | Apr 10 09 00:26 GMT |

The week is almost over, with markets trading on a positive note since early yesterday and the Asian session seeing stocks move above 300 points, after the Bank of Japan unveiled its new stimulus plan which is intended to revive their deteriorating economy. Investors across the globe were more positive about the economic outlook today, after better than expected company earnings and a general feeling that the economic crisis is starting to ease off! However, this mood could easily change next week, as tomorrow the markets are closed and traders are in an Easter holiday mood. The EUR/USD failed to break its important resistance level of 1.3330, and retraced all the way down towards 1.31. Traders are taking their profits and exit their positions ahead of a long weekend; hence we are seeing the euro slide despite risk appetite returning to the markets. The next level to watch is 1.31 ahead of 1.3080. Important economic releases filled the calendar today, with the BOE rate decision top of the list. The outcome was very much as expected, the bank left its rates unchanged after it had cut them heavily in the earlier months, down towards 0%. The pound did not seem to be affected in any way after the news, however towards London's closing we see pound losing against the dollar as traders exit their positions for the long weekend. Traders hate a weekend with open positions praying on their minds, especially as the risk is bigger than ever now, therefore we saw a big retracement of today's gains in all related pairs. With markets being closed tomorrow for Good Friday, it will be interesting to watch for any choppy action, due mainly to thin trading conditions. Let's not forget in past years that the absence of market players provides extreme action for dollar related pairs and due to the current fragile market conditions, we may see this happening once again. Things to watch for the coming days will be 1.3050 ahead of 1.30 for EUR/USD and as the latter level is psychological important level, if it gives way, then the pair looks doomed for another go at 1.25. Also for GBP/USD we have 1.45 as a good support level and that has to hold if another go towards 1.50 has a chance during the coming days. Let's all have a wonderful long weekend and try to forget the current economic turmoil, and have in mind that no matter how gloomy market outlook seems, the best way to go is to avoid long term positions, as things can change on a daily basis, so 'get in and get out' should be our current motto! Lena Manousarides Independent Market Analyst and Professional Trader Email: manousarides@yahoo.comThis email address is being protected from spam bots, you need Javascript enabled to view it Lena Manousarides is a professional Trader and an independent Market Analyst, who pioneers in Fx trading in Athens, Greece. After several years of professional trading in the Forex Market, Lena formerly worked with FXGreece as a Market Analyst, writing articles on a daily basis, using fundamental and technical analysis. She also writes for several major financial newspapers in Greece and is in the process of becoming professional Commodity Trading Advisor.

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Daily Forex Fundamentals | Written by Lena Manousarides | Apr 10 09 00:26 GMT |

Dollar Strong Ahead of Easter... The week is almost over, with markets trading on a positive note since early yesterday and the Asian session seeing stocks move above 300 points, after the Bank of Japan unveiled its new stimulus plan which is intended to revive their deteriorating economy. Investors across the globe were more positive about the economic outlook today, after better than expected company earnings and a general feeling that the economic crisis is starting to ease off! However, this mood could easily change next week, as tomorrow the markets are closed and traders are in an Easter holiday mood. The EUR/USD failed to break its important resistance level of 1.3330, and retraced all the way down towards 1.31. Traders are taking their profits and exit their positions ahead of a long weekend; hence we are seeing the euro slide despite risk appetite returning to the markets. The next level to watch is 1.31 ahead of 1.3080. Important economic releases filled the calendar today, with the BOE rate decision top of the list. The outcome was very much as expected, the bank left its rates unchanged after it had cut them heavily in the earlier months, down towards 0%. The pound did not seem to be affected in any way after the news, however towards London's closing we see pound losing against the dollar as traders exit their positions for the long weekend. Traders hate a weekend with open positions praying on their minds, especially as the risk is bigger than ever now, therefore we saw a big retracement of today's gains in all related pairs. With markets being closed tomorrow for Good Friday, it will be interesting to watch for any choppy action, due mainly to thin trading conditions. Let's not forget in past years that the absence of market players provides extreme action for dollar related pairs and due to the current fragile market conditions, we may see this happening once again. Things to watch for the coming days will be 1.3050 ahead of 1.30 for EUR/USD and as the latter level is psychological important level, if it gives way, then the pair looks doomed for another go at 1.25. Also for GBP/USD we have 1.45 as a good support level and that has to hold if another go towards 1.50 has a chance during the coming days. Let's all have a wonderful long weekend and try to forget the current economic turmoil, and have in mind that no matter how gloomy market outlook seems, the best way to go is to avoid long term positions, as things can change on a daily basis, so 'get in and get out' should be our current motto! Lena Manousarides Independent Market Analyst and Professional Trader Email: manousarides@yahoo.comThis email address is being protected from spam bots, you need Javascript enabled to view it Lena Manousarides is a professional Trader and an independent Market Analyst, who pioneers in Fx trading in Athens, Greece. After several years of professional trading in the Forex Market, Lena formerly worked with FXGreece as a Market Analyst, writing articles on a daily basis, using fundamental and technical analysis. She also writes for several major financial newspapers in Greece and is in the process of becoming professional Commodity Trading Advisor.

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New York Session Recap

Daily Forex Fundamentals | Written by Forex.com | Apr 10 09 00:16 GMT |

The NY session was dominated by positive bank earnings news that elicited a stellar rally in shares ahead of the long holiday weekend. One of the major US banks announced 1Q earnings projections that doubled what analysts had expected and this sent equities flying. The S&P jumped +3.8% in the session and closed solidly above 850, what is now short-term support. What was interesting is that other markets did not follow this risk taking reaction closely. Gold barely budged and was sitting just -$1.50 lower by 879/880 near the session close. US Treasuries also sold off just modestly with the 10-year yield adding 6bps to 2.92% and the 2-year up 2bps to 0.95%. This lack of follow-through in other assets makes the equity rally seem dubious to say the least. Currencies were also very atypical in their reaction to higher equities. EUR/USD sank more than -90 pips to 1.3160 and about 30 pips off the intraday lows. The 1.3110/00 area looks like the next pivotal level here in terms of support and things could get uglier below there. The yen crosses were a mixed bag with dollar strength helping USD/JPY add 20 pips to 100.40 while EUR/JPY shed about -60 points into the 132.00/10 zone. Commodity currencies caught a nice bid as oil followed stocks higher. USD/CAD dropped more than -70 pips to 1.2240/50 and remains a hair above the critical 1.22 support zone. AUD/USD meanwhile added 70 pips and was trading just below 0.72 ahead of the NY close. Upcoming Economic Data Releases (Asia Session) prior expected 4/9 23:50 JN BoJ Monetary Policy Meeting Minutes for March 4/9 23:50 JN Japan Money Stock M3 YoY MAR 1.10% 1.20% 4/9 23:50 JN Japan Money Stock M2 YoY MAR 2.10% 2.20% 4/9 23:50 JN Bank Lending Banks Adjust YoY MAR 4.40% - - 4/9 23:50 JN Bank Lending incl Trusts(YoY) MAR 3.50% - - 4/9 23:50 JN Bank Lending Banks ex-Trust Y% MAR 3.80% - - Forex.com http://www.forex.com DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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BOJ Warned of Market ‘Stress’ Beyond Fiscal Year End

By Mayumi Otsuma

April 10 (Bloomberg) -- The Bank of Japan increased its purchases of government bonds last month because financial markets would remain “under stress” beyond the fiscal year end, minutes show.

“The bank should increase such purchases as much as possible” to show its “firm intention” to ensure markets are stable beyond the fiscal year end, according to minutes of the March 17-18 meeting released today in Tokyo. Japan’s fiscal year ended on March 31.

The central bank expanded its monthly government bond purchases from lenders to 1.8 trillion yen from 1.4 trillion yen at the meeting. Since it cut the key interest rate to 0.1 percent in December, the bank has also been buying corporate debt and stocks to prevent a credit crunch from worsening the recession. This week it decided to accept local and central government debt sold directly to lenders as collateral.

The policy board seems to be “scraping the bottom of the barrel in terms of assets that can be added to the list,” said Julian Jessop, chief international economist at Capital Economics Ltd. in London.

Bank of Japan officials said it was possible to increase the monthly government bond purchases by 400 billion yen, the minutes showed. The officials added that the central bank would reach its self-imposed limit for the purchases in several years if they continued at the current pace.

Bond-Buying Rule

Japan’s central bank has a rule of preventing its sovereign bond holdings from exceeding the amount of bank notes circulating in the economy. One board member said the bank may be able to increase the purchases by 5 trillion yen each year, according to the minutes.

Some members said competition among retailers and weakening consumer spending “might exert further downward pressure on prices.” One said the bank should pay attention to the risk that inflation accelerates once the global economy begins to recover.

Japan’s consumer prices excluding fresh food were unchanged in January and February, and board members have said they will start falling in coming months.

Many members said there were signs that industrial production was “leveling out” after plunging in response to a collapse in exports since last quarter. Companies planned to increase output in March and April to replenish inventories, a Trade Ministry survey showed last month.

Production Risk

Still, some members said that the board should pay attention to the risk that production will deteriorate further because of weak global demand.

Governor Masaaki Shirakawa said yesterday that the world’s second-largest economy has worsened since the board released growth forecasts in January, signaling a downgrade is likely when new projections are due on April 30. Policy makers have predicted a 2 percent contraction for the year started April 1, the steepest drop in the postwar period.

“Falling profits will definitely damp capital investment and consumer spending from now, and we can’t find any reasons to be optimistic about the outlook,” said Mari Iwashita, chief market economist at Daiwa Securities SMBC Co. in Tokyo. “We expect GDP to shrink about 4 percent this fiscal year.”

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

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BOK Signals Steepest Rate Cuts in a Decade May End

By Seyoon Kim

April 10 (Bloomberg) -- The Bank of Korea’s most aggressive round of interest-rate cuts in a decade may be coming to an end.

Governor Lee Seong Tae and his fellow policy makers kept the benchmark rate unchanged yesterday for a second month, saying there are signs the economy’s deepest contraction in more than a decade may be abating.

Lee said yesterday the pace of South Korea’s economic slowdown had “moderated significantly” since the bank’s February meeting. Factory output gained for a second month in February and manufacturer confidence rose to a five-month high.

“We see no need for further rate cuts,” said Kwon Young Sun, an economist at Nomura International Ltd. in Hong Kong. “The Bank of Korea will have to focus more on controlling excess liquidity and asset inflation, which may become a problem in the aftermath of lower rates and extra spending.”

The government on March 24 unveiled plans to spend 17.7 trillion won ($13 billion) on cash handouts, cheap loans and job training to revive an economy that contracted in the fourth quarter by the most since 1998.

“We expect the Bank of Korea to pause in their next meeting as well,” Kwon Goohoon, an economist at Goldman Sachs Group Inc. in Seoul, said in a note.

Goldman’s Kwon said there could still be a 50 basis-point interest-rate cut later in the year though recent indicators and the central bank statement indicate that “the odds are somewhat lower than before.”

Slowdown Moderates

“Although domestic economic activity has not yet been able to pull out of its downturn, some indicators point to the moderation of the abrupt slowdown,” the central bank said. “There are signs that production activity in the manufacturing and services sectors is improving slightly.”

The bank revised its forecasts today, saying the economy will shrink 2.4 percent in 2009. In December it had predicted a 2 percent expansion.

“An economic recovery will be very slow,” Kim Jae Chun, director general at the central bank, told reporters in Seoul today. Kim said inflation will slow to a “2 percent level” from May, after consumer prices rose 3.9 percent in March.

The central bank’s new growth estimate compares with the economic contraction of 6.9 percent in 1998 at the height of the Asian financial crisis. The following year the economy expanded 9.5 percent.

Better Than 1998

“The economic situation is better than it was in 1998, when large conglomerates collapsed with massive job losses,” said Go You Sun, an economist at Daewoo Securities Co. in Seoul. “Exports and domestic demand remain weak mainly due to the global recession, but there’s hope things will turn around and that the policy steps already taken will help as well.”

Central banks across Asia have slashed borrowing costs and governments excluding Japan have unveiled more than $710 billion in increased spending, tax cuts and cash handouts.

Japan’s ruling Liberal Democratic Party yesterday proposed the government implement a 15.4 trillion yen ($154 billion) stimulus package, which would bring total extra spending since October to 25 trillion yen.

The Kospi stock index climbed 1.7 percent to 1,338.57 at 9:50 a.m. in Seoul, extending this year’s gains to 19 percent. The won, which was Asia’s worst performer last year, has risen 15 percent in the past month, making it the region’s best- performing currency.

Lee said yesterday he kept the door “open” for policy makers to add to the 3.25 percentage points in interest-rate cuts since early October.

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

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Japan’s Yen, Chinese Yuan, Thailand Baht: Asia Currency Preview

By Carmen Ng

April 10 (Bloomberg) -- The following events and economic reports may influence trading in Asian currencies today. Exchange rates are from the previous session.

Financial markets in Hong Kong, India, Indonesia, the Philippines and Singapore are closed for a public holiday.

Japan’s yen: Chief Cabinet Secretary Takeo Kawamura and Finance, Economic and Fiscal Policy Minister Kaoru Yosano will hold media briefings after a cabinet meeting in the morning. Kawamura will address reporters again at 4 p.m. in Tokyo.

The Bank of Japan will publish minutes of its March 17-18 meeting at 8:50 a.m. in Tokyo. It will also release at the same time March bank lending data.

The yen was at 100.19 a dollar at 7:52 a.m. in New York.

China’s yuan: A government report as early as today may show the trade surplus swelled to $12.1 billion in March from $4.8 billion the previous month, according to a Bloomberg News survey. Exports probably dropped 20 percent and imports fell 22 percent last month, the survey showed.

The yuan was at 6.8347.

Thai baht: The Bank of Thailand will today report foreign- exchange reserves holdings and forward contracts as of April 13.

The baht was at 35.43.

To contact the reporter on this story: Carmen Ng in Hong Kong at cng98@bloomberg.net

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Korean Won Headed for Fifth Weekly Gain, Longest Run Since 2007

By Kim Kyoungwha

April 10 (Bloomberg) -- South Korea’s won headed for a fifth weekly advance, the longest winning streak since September 2007, on speculation record-low borrowing costs and government stimulus will revive an economy on the brink of recession.

The currency rose 15 percent against the dollar in the past month, Asia’s best performance. Bank of Korea Governor Lee Seong Tae said yesterday the pace of the nation’s economic slowdown has “moderated significantly.” The economy will shrink 2.4 percent this year, the first contraction since 1998, before expanding 3.5 percent in 2010, the central bank said today.

“The market is pricing in a mild change in the view of the economy,” said Kim Sung Soon, a currency dealer with Industrial Bank of Korea in Seoul. “It’s notable that offshore players are offloading dollars, though dividend payments to foreigners may curb gains in the won.”

The won strengthened 0.4 percent to 1,317.50 per dollar as of 9:38 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. The Kospi stock index climbed 2 percent following a 4.3 percent gain yesterday that was its best performance in 10 weeks.

A 1.8 percent gain in the won this week was also supported by the government’s $3 billion sale of global bonds yesterday. Proceeds from Korea’s first international bond issuance in three years will be used to support a currency that tumbled 26 percent against the dollar in the past year.

Data in the past two weeks suggests the economy may be improving. A government report showed factory output in February had its biggest monthly gain since 1987 and a central bank survey showed manufacturers’ were the least pessimistic in five months.

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

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Fast Retailing, Sumitomo Mitsui, Tsumura: Japan Equity Preview

By Akiko Ikeda

April 10 (Bloomberg) -- The following companies may have unusual price changes in Japanese trading today. Stock symbols are in parentheses, and share prices are from the previous close. The information in each item was released after markets shut, unless stated otherwise.

Chubu Steel Plate Co. (5461 JN): The maker of steel plates will take a charge of 1.35 billion yen ($13.5 million) on devalued stockholdings for the year ended March 31. The company is assessing the impact of the charge on its earnings. The stock slid 0.4 percent to 576 yen.

Denyo Co. (6517 JT): The welding machine maker said it will spend as much as 300 million yen to buy back up to 1.25 percent of its outstanding shares from April 13 through August 31. The stock gained 3 percent to 648 yen.

Fast Retailing Co. (9983 JT): Japan’s biggest clothing retailer’s first-half net income increased 24 percent to 35.6 billion yen on a 13 percent gain in sales, buoyed by strong sales of winter clothes and store openings. The stock rose 2 percent to 11,630 yen.

Hikari Tsushin Inc. (9435 JT): The mobile telecommunication subscription agency said it will form a venture with Japan Best Rescue System Co. (2453 JT) to provide mobile content services. Hikari Tsushin gained 1.2 percent to 2,075 yen. Japan Best Rescue System was unchanged at 35,600 yen.

Meisei Electric Co. (6709 JT): The maker of unmanned weather observation systems said in a preliminary earnings statement its full-year net income rose to 500 million yen from 122 million yen a year ago, beating its forecast of 238 million yen profit. The company said an increase in sales of equipment for aviation meteorology and air traffic control as well as cost cuts contributed to the profit gain. The stock jumped 19 percent to 113 yen.

Misumi Group Inc. (9962 JT): The mail-order distributor of precision machinery parts said full-year net income totaled 5.3 billion yen, missing its forecast by 36 percent. It cited output cuts among automakers and electronics makers and weak capital spending. The company earned a 9.7 billion yen profit a year earlier. Misumi reduced the planned yearend dividend to 3 yen from 9 yen, because of the weak earnings. Separately, the company projected its operating profit for the year ending in March 2010 will be about 5 billion yen, down from the company’s outlook of a 10.5 billion profit for the year just ended. The stock advanced 4.4 percent to 1,372 yen.

Mitsubishi Chemical Holdings Corp. (4188 JT): The chemical maker will withdraw from polystyrene and PVC plastic businesses as early as this year, the Nikkei newspaper reported, without saying where it obtained the information. The company will sell its 27.5 percent stake in its polystyrene business for as much as 3 billion yen to Asahi Kasei Chemicals Corp. (ASHKCZ JP) and Idemitsu Kosan Co. (5019 JT), the venture partners. Mitsubishi Chemical is also in talks with Toagosei Co. (4045 JT) to dissolve their PVC venture, the report said. Mitsubishi Chemical rallied 4.5 percent to 375 yen. Idemitsu rose 2.1 percent to 7,770 yen. Toagosei advanced 4.2 percent to 248 yen.

Nippon Mining Holdings Inc. (5016 JT): Japan’s sixth- biggest oil refiner may beat its net loss forecast because of a rule change making dividend payments from overseas units exempt of tax, Nikkei English News said, without citing anyone. The company may post a net loss of 42 billion yen for the year ended last month, better than its 57 billion yen loss forecast in February, the report said. The stock gained 2.2 percent to 417 yen.

Onward Holdings Co. (8016 JT): The apparel maker said it expects to earn 3.6 billion yen in full-year net income, recovering from a net loss of 30.9 billion yen in the year ended Feb. 28. That loss was wider than its forecast of a 16.9 billion yen loss because of goodwill depreciation and impairment losses on fixed assets. Onward had a profit of 12.2 billion yen a year earlier. The stock rose 2.8 percent to 704 yen.

Seven & I Holdings Co. (3382 JT): Japan’s largest retailer forecast profit will rise 33 percent this year, less than analyst estimates. Net income may be 123 billion yen in the 12 months ending February 2010, up from 92.3 billion yen last year, the company said in a statement. That compares with the 140 billion yen median estimate of 15 analysts surveyed by Bloomberg. The stock added 1.8 percent to 2,310 yen.

Sharp Corp. (6753 JT) and Pioneer Corp. (6773 JT): The electronics makers said they reached an agreement to form a venture to manufacture and market optical disk drives, recorders and players. They aim to start operations by Oct. 1. Sharp surged 11 percent to 900 yen. Pioneer soared 19 percent to 230 yen.

Shinkin Central Bank (8421 JT): The lender will book a 2.09 billion yen charge for the year ended March 31 on devalued securities holdings. The bank’s net loss for the period amounted to 1.84 billion yen, wider than its earlier projection of a 370 million yen deficit, according to a preliminary earnings statement. It plans to cut board members’ salaries as much as 50 percent for a year. The stock slid 0.4 percent to 247,000 yen.

Showa Denko K.K. (4004 JT) and Marubeni Corp. (8002 JT): The chemical products maker and the trading company will form a venture with an Indonesian metal mining company to produce alumina in Indonesia, investing about 30 billion yen, the Nikkei newspaper reported, without saying where it got the information. They plan to start operations in 2013, according to the report. Showa Denko jumped 6.9 percent to 140 yen. Marubeni rallied 5 percent to 358 yen.

Star Micronics Co. (7718 JT): The maker of electronic buzzers and card readers forecast it will have a 3.5 billion yen net loss in the year ending Feb. 28, compared with a profit of 4.34 billion yen in the year just ended. Profit in the latest period was 46 percent lower than a year earlier because of weak capital spending as well as impairment losses on fixed assets. The stock added 2.5 percent to 970 yen.

Sumitomo Mitsui Financial Group Inc. (8316 JT): Japan’s second-biggest bank by market value plans to sell as much as 800 billion yen of shares to restore capital after posting its first annual loss in four years. The bank posted a net loss of 390 billion yen in the 12 months ended March 31, according to a filing to the finance ministry. The stock rallied 5.3 percent to 3,610 yen.

Tokuyama Corp. (4043 JT): The industrial-chemical maker had a net loss of 6 billion yen in the year ended March 31, compared with its forecast of a 500 million yen profit, according to a preliminary earnings statement. The company cited a bigger-than- expected drop in demand and delays in a planned share sale for the loss. Tokuyama earned 18.9 billion yen in profit a year ago. The stock rallied 4.2 percent to 666 yen.

Tokyo Electric Power Co. (9501 JT): The utility may restart as early as this month a nuclear power plant that was damaged by a 2007 earthquake, Nikkei English News reported, without specifying how it obtained the information. The stock slid 0.8 percent to 2,440 yen.

Toyota Motor Corp. (7203 JT): The automaker expects its 2009 global car sales to drop 20 percent, Kyodo News reported, citing unidentified people close to the situation. Toyota projected sales of 6.35 million units to 6.48 million units on a consolidated basis, the lowest since 2003, according to Kyodo. The stock rose 4.3 percent to 3,910 yen.

Tsumura & Co. (4540 JT): The drugmaker’s operating profit may rise 14 percent to 19 billion yen for the year that began this month, the Nikkei newspaper said. Sales at the Tokyo-based company, which makes herbal medicines, may gain 3 percent to 93 billion yen, the report said. The stock fell 1.8 percent to 2,515 yen.

Uny Co. (8270 JT): The department store chain said it expects its full-year net income will decline 12 percent to 4.7 billion yen. Profit in the year ended Feb. 20 jumped to 5.34 billion yen from 377 million yen a year earlier, helped by a merger with U Store Co. (9859 JP). The stock added 1.2 percent to 820 yen.

To contact the reporter on this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net.

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Dollar Strengthens on Speculation U.S. Economy Is Improving

By Ron Harui

April 10 (Bloomberg) -- The dollar rose against the euro, heading for the biggest weekly gain in three months, on speculation investors are shifting funds to U.S. securities on signs the world’s biggest economy is improving.

The dollar gained versus 15 of the 16 most-traded currencies after a government report showed the U.S. trade deficit narrowed in February to the lowest level in nine years. U.S. bank shares surged yesterday after Wells Fargo & Co., the second-biggest U.S. home lender, reported a record first-quarter profit that beat the most optimistic Wall Street estimates.

“Wells Fargo’s results augur well for U.S. banks’ earnings and point to an easing in the financial crisis,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The dollar is likely to be bought.”

The dollar climbed to $1.3129 per euro as of 9:06 a.m. in Tokyo from $1.3169 in New York yesterday. It earlier touched $1.3090, the strongest level since March 18. The dollar rose to $1.4640 versus the pound from $1.4680, and advanced to 100.67 yen from 100.42. The yen was at 132.17 per euro from 132.24.

The greenback has risen 2.8 percent against the European currency this week, the most since the period ended Jan. 9.

Currency movements may be volatile in Asia as the Easter holiday in the region reduces liquidity, Ishikawa said.

“Wow...Wow...Wow,” Citigroup Inc. technical analysts Tom Fitzpatrick and Shyam Devani wrote in a report sent to clients yesterday. The improving trade deficit “dynamic could be extremely dollar positive.”

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

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Fed’s Stern Says Recovery May ‘Not Be Too Far Off’

By Vivien Lou Chen

April 9 (Bloomberg) -- Federal Reserve Bank of Minneapolis President Gary Stern said that while “appreciable strains” remain in credit markets, the resumption of U.S. economic growth “should not be too far off.”

“While it is still far too early to fully tally results, there has been progress and I anticipate more to come,” Stern, 64, said in a speech today in Sioux Falls, South Dakota.

The remarks came as stocks rallied worldwide today as better-than-estimated earnings at Wells Fargo & Co. boosted confidence in the financial system and speculation that American banks will pass government stress tests. Richard Fisher, president of the Dallas Fed bank, said yesterday that he’s also confident the central bank’s policies will expedite a recovery.

“While conditions in credit markets have improved over the past several months, in general appreciable strains persist,” Stern, the Fed’s longest-serving policy maker and an outspoken critic of bank bailouts, said during the speech at the South Dakota Economic Summit. Unless financial conditions improve, “such market failures threaten to prolong the recession.”

Still, “a resumption of growth should not be too far off” and “the initial stage of the recovery seems likely to be subdued,” he said. The $787 billion stimulus package signed by President Barack Obama in February is about the right size and should help the recovery, Stern said in response to questions after the speech.

Meeting Minutes

Minutes of the Fed’s last meeting in March show that policy makers feared the economy might fall into a self-reinforcing cycle of rising unemployment and slumping business and consumer spending, making credit tighter.

The conclusion prompted the Federal Open Market Committee to boost its open-market purchases of bonds by $1.15 trillion, continuing an unprecedented increase in money supplied to the economy.

The threat of deflation should diminish as growth resumes around mid-2010 and beyond, and “there is ample time to withdraw excess liquidity as appropriate,” Stern said.

Stern has led the Fed Bank of Minneapolis since 1985 and is the only member of the Federal Open Market Committee to serve with three central-bank chairmen: Ben S. Bernanke, Alan Greenspan, and Paul Volcker. He announced his retirement plans on April 2, saying he plans to leave within months.

The Minneapolis Fed is one of a dozen regional banks in the Fed system. Each year, four regional Fed presidents participate as on a rotating basis as voting members of the policy-setting FOMC, joining Bernanke, Fed governors and the president of the New York Fed. Stern does not vote on rates this year.

To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

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U.S. Initial Jobless Claims Fell to 654,000 Last Week

By Courtney Schlisserman

April 9 (Bloomberg) -- The number of Americans filing first-time claims for unemployment insurance exceeded 600,000 for a 10th straight week and the total collecting benefits increased to a record, signs the labor market remains weak.

First-time jobless claims fell by 20,000 to 654,000 in the week ended April 4, from a revised 674,000 a week earlier that was the highest since 1982, the Labor Department said today in Washington. The number of people staying on benefit rolls rose to a record 5.84 million in the prior week.

Companies ranging from retailer Neiman Marcus Group Inc. to farm-equipment maker Deere & Co. are still trimming payrolls to cut costs as sales and profits slump. The U.S. lost more than 650,000 jobs for a record fourth straight month in March, threatening to reverse January-February gains in the spending that accounts for almost 70 percent of economic growth.

“It is not improvement or strength, but at the very least it appears things are not getting worse,” Guy LeBas, chief economist at Janney Montgomery Scott LLC in Philadelphia, said in an interview with Bloomberg Television.

Another government report showed the U.S. trade deficit in February unexpectedly narrowed to the lowest level in nine years. The gap shrank 28 percent, the biggest drop since October 1996, to $26 billion from a revised $36.2 billion in January, the Commerce Department said today in Washington. Imports dropped 5.1 percent, leading to declines in the deficits with Japan and China, and exports climbed from a two-year low.

Stock Futures Rise

Stock-index futures extended earlier gains after the report, with futures on the Standard & Poor’s 500 Index up 2.3 percent at 9:05 a.m. in New York. Treasuries were lower, driving up yields. The benchmark 10-year note yielded 2.91 percent, up 6 basis points from yesterday.

Economists projected initial claims would fall to 660,000 last week from an initially reported 669,000 the prior week, according to the median of 45 forecasts in a Bloomberg News survey. Estimates ranged from 645,000 to 700,000.

The U.S. lost 663,000 jobs last month, the Labor Department said April 3, and the unemployment rate jumped to 8.5 percent, the highest level since 1983.

Today’s report showed the four-week moving average of initial claims, a less volatile measure, fell to 657,250 from 658,000.

Jobless Rate

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, increased to a 26-year high of 4.4 percent in the week ended March 28, from 4.3 percent a week earlier. These data are reported with a one-week lag.

Initial claims reflect weekly firings and tend to rise as job growth slows.

Twenty-four states and territories reported an increase in new claims for the week ended March 28, while 29 reported a decrease.

The recession that started in December 2007 has already cost about 5.1 million Americans their jobs, making it the biggest employment slump of the postwar era.

Deere, the world’s largest manufacturer of agricultural equipment, said yesterday it is laying off indefinitely 160 workers at its plant in Des Moines, Iowa, because of declining demand for planting and harvesting machines. The company furloughed 325 workers at two other factories last month after the global recession reduced demand for heavy machinery.

21% Cut

Olympic Steel Inc., a processor and distributor of industrial metal, said April 6 it has reduced its workforce by 21 percent from “peak” 2008 levels and cut wages by as much as 10 percent as demand for steel declines.

The economy contracted at a 6.3 percent pace in the fourth quarter, the worst performance since 1982, and should the recession continue through the end of April it would be the longest in seven decades.

The $787-billion stimulus plan that President Barack Obama signed into law in February included tax cuts and spending on infrastructure projects that Obama has said will save or create 3.5 million jobs. Restoring the economy is his “No. 1 task,” Obama said April 3 at a town-hall meeting in Strasbourg, France.

Reports for January and February indicated consumer spending had started to stabilize and companies were able to reduce inventories. Personal spending rose 0.2 percent in February and 1 percent in January, the Commerce Department said March 27.

Even so, retailer Neiman Marcus on April 7 said it fired 130 workers. The company has eliminated 955 positions so far this year including those announced this week, Ginger Reeder, a spokeswoman, said in an interview. The company in February reported a 23 percent drop in fiscal second-quarter sales at stores open at least a year.

To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net

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TARP Recipients Will Be Required to Modify Loans

By Dawn Kopecki

April 9 (Bloomberg) -- U.S. banks receiving federal aid through the Troubled Asset Relief Program will be required to modify mortgages for borrowers under the Obama administration’s Making Home Affordable initiative, Housing and Urban Development Secretary Shaun Donovan said.

“We’re also going to require as a condition of participation in TARP going forward that banks do participate in this plan,” Donovan said in an interview on Bloomberg television today.

Since President Barack Obama announced his plan in February to help refinance or modify loans for as many as 9 million borrowers, refinancings have risen 88 percent and mortgage rates have dropped to record lows, Donovan said. Mortgage applications in the U.S. rose last week to the highest level in three months, according to the Mortgage Bankers Association.

“We’re certainly seeing some early good news,” Donovan said. “It’s a sign that the administration’s plan is working.”

The U.S. Treasury has so far doled out $328.4 billion from its $700 billion TARP fund to recapitalize banks.

The average rate on a 30-year home loan fell to a record low 4.78 percent in the week ended April 2, according to data tracked by Freddie Mac, the McLean, Virginia-based mortgage buyer. The rate increased to 4.87 percent in the most recent week.

To contact the reporter on this story: Romaine Bostick in Washington at rbostick@bloomberg.net.

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U.S. Economy: Trade Gap Narrows to Nine-Year Low

By Timothy R. Homan

April 9 (Bloomberg) -- The U.S. trade deficit tumbled in February to the lowest level in nine years as collapsing demand from consumers and companies reverberated around the globe.

The gap narrowed to $26 billion, less than anticipated, from a revised $36.2 billion in January, the Commerce Department said today in Washington. Imports plunged for a seventh consecutive month, leading to declines in the deficits with Japan and China, while exports climbed from a two-year low.

The shrinking deficit is another piece of evidence that the U.S. economic slide eased in the first quarter; Morgan Stanley economists now project gross domestic product dropped at a 5 percent annual pace, less than their previous forecast of 5.9 percent. At the same time, dwindling demand for imports may be bad news for nations that depend on American consumers for their own growth.

“It’s an indication of the extent to which we’ve been passing on some of our demand decline to the rest of the world,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “That is why we’ve seen such disastrous declines in growth numbers in Asia. They have been relying on U.S. spending, and U.S. spending just isn’t there any more.”

Separate figures from the Labor Department today showed the cost of goods imported into the U.S. in March rose less than forecast as companies in China and Japan cut prices to stem the slump in overseas sales. Other figures from Labor showed the number of Americans filing first-time claims for unemployment insurance exceeded 600,000 for a 10th consecutive week.

Stocks Jump

Stocks rallied, propelled by better-than-estimated earnings at Wells Fargo & Co. The Standard & Poor’s 500 index was up 2.6 percent at 846.85 at 11:03 a.m. in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 2.92 percent from 2.86 percent late yesterday.

The trade gap was smaller than the lowest estimate of economists surveyed by Bloomberg News. The median of 70 projections called for an unchanged reading at $36 billion. Forecasts ranged from deficits of $30 billion to $38.9 billion.

February’s gap was the smallest since November 1999.

Imports fell 5.1 percent to $152.7 billion, the lowest since September 2004. Demand for foreign-made cars slumped to the lowest level since October 1996, as purchases of Japanese autos were cut almost in half. The trade gap with Japan was the smallest since 1984.

American demand for imported consumer goods other than automobiles fell by $1.4 billion in February as purchases of toys, furniture, clothing, appliances and televisions all declined.

Gap With China

The trade gap with China decreased to $14.2 billion, the smallest in three years.

The cost of goods imported into the U.S. climbed 0.5 percent in March, reflecting an 11 percent jump in petroleum, the report from Labor showed. Excluding oil, prices fell 0.7 percent for a third consecutive month as goods from China cost 0.6 percent less and those from Japan fell 0.1 percent.

“What’s bad news for Asia is good news for the American economy,” said David Sloan, a senior economist at 4Cast Inc. in New York. “We are seeing Asian exports fall off a cliff.”

U.S. exports climbed 1.6 percent to $126.8 billion as sales of pharmaceutical supplies, autos and telecommunications equipment improved, today’s trade report showed.

Waning Support

Federal Reserve officials last month said, “it was widely agreed that exports were not likely to be a source of support for U.S. economic activity in the near term,” according to minutes of the March 17-18 meeting released yesterday. “Several participants said that the degree and pervasiveness of the decline in foreign economic activity was one of the most notable developments since the January meeting,” the minutes showed.

Forecasts are calling for a decline in global trade, sapping overseas demand for American-made goods. The World Bank last month projected trade will fall 6.1 percent worldwide. Earlier in March the World Trade Organization predicted a 9 percent drop.

After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit dropped to $35.6 billion, the lowest level since May 2001. The economy shrank at a 6.3 percent rate in the last three months of 2008, the most since 1982.

Weak sales are contributing to job cuts as firms rein in labor costs to weather the recession, now in its second year. 3M Co., the maker of more than 55,000 products from Post-it Notes to electronic road signs, said it cut 1,200 workers, or about 1.5 percent of its workforce, from its payrolls in the first quarter.

Employers cut 663,000 workers from payrolls in March, and the jobless rate surged to 8.5 percent, the highest level in more than a quarter century, the Labor Department reported last week.

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

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Nowotny Says Taking Rate Below 1% Open for Discussion

By Jana Randow and Christian Vits

April 9 (Bloomberg) -- European Central Bank council member Ewald Nowotny said cutting the benchmark rate below 1 percent is still open for debate and it would be “sensible” for the bank to buy corporate debt.

“It’s my personal opinion that the benchmark rate should not go below 1 percent, but this is a point that’s open for discussion,” Nowotny, who heads Austria’s central bank, said in a telephone interview from Vienna late yesterday. The purchase of commercial paper and corporate bonds is “a sensible and efficient measure,” Nowotny said, adding it may not be introduced immediately because it would take time to prepare.

The comments suggest the ECB council is split over the best way forward amid signs the euro-region economy is slipping deeper into recession. While Germany’s Axel Weber has signaled he’s opposed to buying corporate debt and doesn’t want to take the benchmark rate below 1 percent, Greece’s George Provopoulos this week indicated both remain options.

The euro dropped more than half a cent to $1.3268 after Nowonty’s comments were published. The ECB’s key rate is currently at 1.25 percent.

“All the Governing Council so far appears to have agreed upon is that there could be a 25 basis point cut in May,” said Julian Callow, chief European economist at Barclays Capital in London. “They have clearly not yet determined whether that would then mark the low for the refinancing rate or not.”

New Measures

The ECB this month cut the rate by a quarter point, less than economists forecast, and delayed a decision on new tools until May. The Federal Reserve, Bank of England and Bank of Japan are already pumping money into their economies by buying government and corporate debt.

The Bank of England today left its benchmark interest rate at 0.5 percent and said it will keep buying government bonds to fight the deepest recession in a generation.

“If you’re aiming at intensifying credit supply, measures which focus directly on credit supply are of interest,” Nowotny said. “For example the purchase of commercial paper, corporate bonds and similar things.”

Still, he said this would “take longer to prepare” than offering banks longer-term loans to ease credit tensions. The ECB currently lends banks as much as they want at the prevailing benchmark rate for up to six months.

‘Need for Speed’

Lengthening maturities is “the best option” as far as speed of implementation is concerned, Nowonty said. “That means going beyond the current six months to an extension of, for example, 12 months. That’s something that can be implemented immediately and takes effect promptly.”

The comments are “helpfully transparent on the evolution of unconventional policy measures,” said Ken Wattret, an economist at BNP Paribas in London. “In short, if there’s a need for speed, then repo maturity extensions are the best option.”

Longer loans pose some complications. Banks may not take up the offer unless the ECB signals rate cuts are at an end, and securing cheap money for a year may distort efforts to raise borrowing costs once an economic recovery sets in.

“I would happily accept this problem if indeed the economic recovery comes faster than expected,” Nowotny said. “I think our task is currently to fight the worst economic slump in the post-War period with all available tools. If an improvement becomes apparent, I’d be happy about it.”

Legitimate Pessimism

The Organization for Economic Cooperation and Development predicts the euro-region economy will shrink 4.1 percent this year. By comparison, the ECB on March 5 projected a 2.7 percent contraction.

While Nowotny said the OECD’s forecast is a “pessimistic assessment,” he added: “Regrettably, I’m aware that pessimism in the past was often legitimate.”

He expects inflation to remain below the ECB’s 2 percent limit “over the medium term,” giving the bank room to keep interest rates at historically low levels for some time.

“In a situation like the current one” an expansionary monetary policy “is absolutely necessary,” Nowotny said. “If the recovery is very weak we have to continue to follow an expansive path with both monetary and fiscal policy.”

Weber said March 10 that 1 percent would be his “bottom line” for the ECB’s benchmark rate, while Provopoulos in an April 6 interview said he doesn’t consider 1 percent to be “a threshold.” The Greek Central Bank later issued a statement saying the remark was “inaccurate” and that Provopoulos’s view was the benchmark “could go down from the present level, although in a very measured way.”

When asked about the debate on the council, Nowotny said: “You can’t say we’re divided, rather it’s a discussion we will have. In the past, the decisions in the Governing Council were always consensual. I don’t expect that this will change in the future.”

To contact the reporters on this story: Jana Randow in Frankfurt jrandow@bloomberg.net; Christian Vits in Frankfurt cvits@bloomberg.net

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BOE Leaves Rate at 0.5%, Continues Pace of Bond Plan

By Brian Swint

April 9 (Bloomberg) -- The Bank of England left the benchmark interest rate unchanged and said it will keep buying government bonds to fight the deepest recession in a generation.

The nine-member Monetary Policy Committee, led by Governor Mervyn King, kept the main rate at 0.5 percent, the lowest since the bank was founded in 1694, as predicted by 60 of 62 economists in a Bloomberg News survey. The panel also agreed to continue the three-month program to purchase 75 billion pounds ($110 billion) of assets to bolster the economy, the bank said.

“The committee noted that since its previous meeting a total of just over 26 billion pounds of asset purchases had been made and that it would take a further two months to complete that program,” the Bank of England said in a statement.

The U.K. economy is shrinking at the fastest pace since 1980, threatening to push inflation below the Bank of England’s 2 percent target and eventually stoke deflation. While Chief Economist Spencer Dale says growth may return at the end of the year, investors have called on King to keep up the pace of bond purchases to push down yields and ease credit markets.

This month’s meeting is “a stocktaking exercise to see how the purchases are going and see the impact on yields,” said Grant Lewis, head of fixed income research at Daiwa Securities in London. “Rates are as low as they’re going to go. When we get closer to spending the 75 billion, then we’ll think about what happens next if it doesn’t have the desired effect.”

Doubts

The pound was little changed after the statement and traded at $1.4648 at 12:17 p.m. in London.

King stoked doubts about his intentions when he indicated March 24 that officials may not spend all the money available to them. The yield on the 10-year gilt, which dropped to the lowest in at least 20 years after the plan was originally unveiled last month, has since risen about 0.4 percentage point to 3.32 percent. The yield was little changed after today’s decision.

“It was a missed opportunity,” said Alan Clarke, an economist at BNP Paribas SA in London. “We’ve run out of interest rate ammunition, and it would have been a cheap and easy way to intervene verbally and get gilt yields down. It’s a bit disappointing.”

The Bank of England’s plan was hailed as a model for other central banks to follow when it was announced on March 5. Today’s decision was the first since so-called quantitative easing began.

Global Rates

The Federal Reserve kept its benchmark at a range of zero to 0.25 percent on March 18. The European Central Bank last week cut its rate a quarter-point to 1.25 percent.

ECB council member Ewald Nowotny said in an interview that cutting the benchmark rate below 1 percent is still “open for discussion,” though he said didn’t favor doing so. He also said it would be “sensible” for the bank to buy corporate debt.

Recent reports have indicated that the economy’s downward spiral is slowing. A gauge of services industries rose to a six- month high in March and Nationwide Building Society’s measure of house prices climbed for the first time in more than a year. The Bank of England has also said that financial institutions expect credit conditions to ease.

There are “some encouraging signs” that the bond-purchase program is smoothing access to loans, and the economy should show “signs of recovery” around the turn of the year, Dale said on March 27. At the same time, “near-term prospects are bleak.”

GDP Drop

U.K. unemployment jumped the most since 1971 in February and the National Institute of Economic and Social Research estimates gross domestic product dropped 1.5 percent in the first quarter. That follows a 1.6 percent fourth-quarter contraction, the biggest since 1980.

Michael Page International Plc, the U.K.’s second-largest recruitment company, said on April 7 that first-quarter profit slumped 32 percent as the pace of layoffs increased. Laura Ashley Holdings Plc, the U.K. furnishings and clothes chain known for floral patterns, said March 31 annual profit fell 49 percent as Britons spent less to furnish their homes.

King said March 24 he expects inflation, which accelerated to 3.2 percent in February, to resume its “sharp” slowdown. The bank two months ago forecast that the inflation rate will fall to 0.3 percent in 2011.

U.K. producer prices increased 2 percent in March, the slowest annual pace in 20 months, the statistics office said today.

“I can see interest rates staying very low until the end of next year,” said Jonathan Loynes, an economist at Capital Economics in London. “They don’t have much evidence yet to decide if they’re doing too much or too little. The next important decision is when the 75 billion runs out.”

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

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