Morning Forex Overview

Daily Forex Fundamentals | Written by Dukascopy Swiss FX Group | Apr 16 09 07:17 GMT |

Previous session overview The greenback strengthened against most of the major currencies on Wednesday as investors continued to buy the safe-haven U.S. dollar due to persistent worries over the economic recession. The dollar slipped against the yen as China's first quarter growth data failed to match players' last-minute expectations and prompted them to sell the greenback, considered to be riskier than the Japanese unit. The U.S. currency lost more than half a yen to JPY98.92 after China said its gross domestic product rose 6.1% during the January-March period from a year ago - the slowest growth in nearly two decades. Though it was slightly better than the 6.0% growth forecast by economists surveyed by Dow Jones, dealers said currency players had been factoring in a stronger figure in the final hours before the data release. EUR first rallied to USD1.33, then fell to USD1.3170, ending the European session little changed around USD1.3230. ECB's Weber said the policy rate won't be cut below 1.00%, but added any QE measures will be announced in May. The British pound rallied above USD1.5000 against the dollar and touched a multi-month high of USD1.5038 as Royal Institution of Chartered Surveyors showed that the slump in U.K. house prices eased last month after more than a year of declines lured buyers back into the market. The Japanese yen steadied against the US dollar and extended its gains against all of the world's major currencies as reports showed US retail sales and producer prices unexpectedly decreased in March, adding to demand for safety. The Australian dollar was strong late Thursday but well down from its initial session highs after first quarter Chinese economic growth fell short of some bullish market expectations. Against the New Zealand dollar, the Australian dollar remained firm after touching its strongest level since early March at the start of trading Thursday. The Australian dollar was at NZD1.2597 in late trading Market expectation The euro and dollar are both lower against the yen, while the euro dips against its U.S. rival as risk aversion wanes. However, dealers doubt any major moves will emerge in coming hours and predict narrow-range trading and quick profit-taking in the major pairs. EURUSD currently trades around USD1.3185 at writing. Support remains in place to USD1.3170 with a break below to open a deeper move back toward USD1.3150/45. Talk of decent stops below this area, with system and model entry levels also noted should area give way. Below here can expose USD1.3100/1.3090. Resistance seen placed from USD1.3190 through to USD1.3210, stronger USD1.3230. Cable dropped back to an eventual low of USD1.4965 before recovering to USD1.5030/35. Fresh selling emerged to again take rate back to overnight lows but area to USD1.4960 again cushioned the move with rate currently trading back above USD1.5000. Bids remain in place to USD1.4960, with stops noted through USD1.4950. Further demand then noted at USD1.4925/20 ahead of USD1.4900. Resistance seen placed at USD1.5015, more toward USD1.5030 ahead of USD1.5045/50 and stronger area between USD1.5070/80. Stops noted above here and USD1.5130/35 in the background. USDJPY bids in the JPY98.80 area now under pressure as dollar-yen extends the lows into European trade, despite what looks set to be a positive open for European stocks. A break below here can expose a potential deeper correction towards Wednesday's base at JPY98.15. Looking ahead, players will pay attention to U.S. economic indicators and financial firms' earnings reports. Dealers said the greenback could fall substantially on a negative surprise because players have priced in robust figures. If results turn out to be strong, the currency market may not show a big reaction. But in the event of poor results, the greenback could fall below JPY97, analysts said. 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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Is CHF Safe Haven Status at Risk?

Daily Forex Fundamentals | Written by Easy Forex | Apr 16 09 08:43 GMT |

The CHF remains one of the main destinations for safe haven flows during times of risk aversion. Strong CHF is a threat to the Swiss economy and increases the risk of deflation. In mid March, the SNB cut interest rates to record low 0.25%, adopted a quantitative ease and intervened to try to weaken the CHF. SNB has cut interest rates 225 basis points since late 2008. The SNB rate cuts, quantitative ease and intervention is in response to the Swiss economy entering its first recession in six years. The Swiss GDP contracted the most since 2004 in January. The decline in the Swiss economy is attributed to weakening foreign demand as the EU and global economy contracts and the impact of strong CHF on Swiss export sales. The SNB expects the Swiss economy to contract by 2.5 to 3% in 2009. Swiss Bank UBS reported a $2 Billion loss in Q1 and said it will slash 8,700 jobs. The UBS news generates concern about deepening Swiss recession. Risk of deepening Swiss recession may contribute to an erosion of CHF safe haven status. Switzerland also faces the risk of deflation. Swiss CPI fell 0.4% in March. The UK telegraph carried an article written by Ambrose Evans Pritchard warning that Switzerland may be the next country to follow Japan into deflation. According to the article, the SNB can do little to offset the tightening of monetary conditions caused by strong Swiss because Switzerland has a small bond market which will limit the effectiveness of quantitative ease and Swiss interest rates are already near zero. Continued strength of the CHF could lead to increased risk of deflation. Increased risk of Swiss deflation may discourage safe haven flows to the CHF. The UBS news and Swiss deflation risk may force the SNB to take additional action to try and weaken the CHF. The SNB recently announced that Phillip Hildebrand is the new chairman of the SNB. Hildebrand is outspoken in his support of efforts by the SNB to weaken the CHF. Hildebrand's appointment means that the threat of intervention to weaken the CHF will increase in the months ahead. CHF is also vulnerable to attacks on Switzerland's bank secrecy laws. Over the past few months US officials have tried to break through the Swiss bank secrecy laws in search of suspected tax cheaters. The EU commission also expressed concern about Swiss bank secrecy laws. The combination of weakening Swiss economy, expanding banking crisis, falling inflation, threats to Swiss tax haven status and threat of intervention may erode CHF safe haven attraction. This is what happened to the JPY since the start of 2009. JPY safe haven status has been eroding as Japan's economy continues to weaken and inflation continues to fall. BOJ interest rates are near zero and the Bank of Japan has increased its implementation of quantitative ease expanding its purchase of Japanese bonds. CHF price direction and the Swiss economy may follow the path of Japan, making CHF safe haven status at risk. USD/CHF weekly chart shows the CHF in a range of 1.1290-1.1625. The 1.1660 is a 61.8% retracement of the 1.1965 -1.1160 Jan/Mar range. A break of 1.1660 could spark USD/CHF rally to trendline resistance at 1.1800. A break of the 1.1800 could spark a test of 1.2200. By Michael J. Malpede Easy Forex Michael J. Malpede is Chief Market Analyst with Easy-Forex® and has previously been featured on Bloomberg TV, Bloomberg radio, Reuters, MarketWatch, Wall Street Journal, Chicago Tribune, Chicago Sun Times, Toronto Star and Nikkei press. In analyzing the markets, he draws from 29 years of Foreign Exchange Research as a Foreign Exchange Analyst. Please note that Forex trading (OTC Trading) involves substantial risk of loss, and may not be suitable for everyone. This report is provided by Easy- Forex® for informative purposes only. In no way it is a recommendation by Easy-Forex® for you to engage in any trade. It is your sole responsibility and you will have no claims with regards to this report against Easy-Forex®. If you do not agree to this, you are strongly advised not to use this report. Hence, Easy-Forex® shall not be held responsible for any outcome of trading decisions, in regards with this report or similar reports.

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Daily FX Report

Daily Forex Technicals | Written by Varengold Bank | Apr 16 09 08:19 GMT |

Good morning from Germany and welcome again to our Daily FX Report. Unfortunately we have to report bad data and pessimistic concerns from Europe, Asia and the USA. The global financial recession doesn't want to end. However, have a nice day and sunny weather. Markets review The JPY strengthened against 11 of the 16 major currencies, after China said its economy expanded at the slowest pace in almost a decade, which heightened concerns that the global recession may deepen. “It looks like people who had sold the JPY on hopes for better China figures had to buy back the JPY to cover their short positions,” a trader said. China's statistics office reported today that the gross domestic product grew 6.1% in the first quarter compare to last year. This is the weakest grow since December 1999. The JPY rose against the USD before a U.S. report may show today that home construction slowed and initial claims for jobless benefits increased. Yesterday, the EUR touched a two-week low versus the JPY on speculation that today a European Union report could show the region's industrial production dropped by a record pace, which supports the ECB to reduce interest rates. The weak EUR may fall for a second day against the USD while economists estimate the European Union's statistic bureau in Luxembourg will say today that industrial production fell 18% in February from the year before, which would be the biggest decline since the data series began in 1986. The USD/JPY fell to 99.16 after it opened the day at 99.37. The EUR/USD decreased a little to 1.3216. The GBP/USD is performing gains for the 4th day after it touched a high at 1.5068. Technical analysis EUR/JPY Since the end of January the EUR has been moving inside an upward trend channel against the JPY. Now the market is trading very close to the psychological support level of 130 and the lower line of the rally trend channel. Additionally we can indicate a small bearish signal from the MA Oscillator indicator. If the pair breaks both support lines it may start a new bearish trend. AUD/NZD Between the 19th of March and the 14th of April the AUD/NZD was trading stable under the resistance line of 1.2430. But during the past two days the strong AUD gained and broke the middle Bollinger band and crossed its resistance level at 1.2430. That analysis could be a clear indicator for more upward movements towards the upper Bollinger band. Pivot Points - Daily FX Support and Resistance Levels Daily Calendar & Key FX Events Varengold Bank IMPORTANT NOTIFICATION TO BE READ IN CONJUNCTION WITH THE CONTENTS OF THIS DOCUMENT This document is issued and approved by Varengold WPH Bank AG. The document is only intended for market counterparties and intermediate customers who are expected to make their own investment decisions without undue reliance on the information set out within the document. It may not be reproduced or further distributed, in whole or in part, for any purpose. Due to international laws/regulations not all financial instruments/services may be available to all clients. You should have informed yourself about and observe any such restrictions when considering a potential investment decision. This electronic communication and its contents are intended for the recipient only and may contain confidential, non public and/or privileged information. If you have received this electronic communication in error, please advise the sender immediately, and delete it from your system (if permitted by law). Varengold does not warrant the accuracy, completeness or correctness of any information herein or the appropriateness of any transaction. Nothing herein shall be construed as a recommendation or solicitation to purchase or sell any financial product. This communication is for informational urposes only. Any market or other views expressed herein are those of the sender only as of the date indicated and not of Varengold. Varengold reserves the right to consider any order sent electronically as not received unless it is confirmed verbally or through other means.

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Forex Technical Analytics

Daily Forex Technicals | Written by FOREX Ltd | Apr 16 09 08:22 GMT |

CHF The pre-planned breakout variant for buyers has been realized but with a failure in attainment of minimal assumed targets. OsMA trend indicator having marked the activity fall of both parties does not bring in clearness to a choice of planning priorities for today. Hence because of further range movement of the rate, we assume a possibility of rate return to the nearest supports 1.1390/1.1410, where it is recommended to evaluate the activity development of both parties according to the charts of shorter time interval. For short-term buyers’ positions on condition of formation of topping signals the targets will be 1.1450/70, 1.1510/30, 1.1590/1.1620 and/or further breakout variant up to 1.1660/80, 1.1720/40, 1.1800/40. An alternative for sells will be below 1.1300 with the targets 1.1240/60, 1.1160/80, 1.1100/20. GBP The pre-planned long positions from the key supports have been realized with attainment of main assumed targets. OsMA trend indicator having marked the activity fall of both parties with overbought factor generally does not bring in clearness to a choice of planning priorities but gives grounds to presume a possibility of rate return to the channel guiding line “1” as well as to the boundaries of Ichimoku cloud with a risk of situation change in favor of bearish party. Hence another test of the nearest supports 1.4880/1.4900 will be a ground to evaluate the activity of both parties according to the charts of shorter time intervals. For short-term buyers’ positions on condition of formation of topping signals the targets will be 1.4940/60, 1.5020/40, 1.5080/1.5100 and/or further breakout variant up to 1.5140/60, 1.5220/60, 1.5320/40. An alternative for sells will be below 1.4780 with the targets 1.4720/40, 1.4660/80, 1.4580/1.4620. JPY The pre-planned breakout variant for buyers has been realized but with a failure in attainment of minimal assumed target. OsMA trend indicator having marked the considerable rise of bullish activity at the break of key resistance range gives grounds to change planning priorities in favor of buyers. Hence and because of descending direction of indicator chart, we assume a possibility of rate return to supports 98.40/60, where it is recommended to evaluate the activity development of both parties according to the charts of shorter time interval. For long positions on condition of formation of topping signals the targets will be 99.00/20, 9960/80 and/or further breakout variant up to 100.20/40, 100.80/101.00, 101.20/40. An alternative for sells will be above 98.00 with the targets 97.40/60, 96.80/97.00, 96.20/40. EUR The pre-planned buying positions from the key supports have been realized with attainment of minimal assumed target. OsMA trend indicator having marked the tendency of activity fall of both parties does not bring in clearness to a choice of planning priorities for today. Hence and because of chosen strategy based on a possibility of range movement of the rate, we assume a possibility of rate return to the nearest resistance range 1.3220/40, where it is recommended to evaluate the activity development of both parties according to the charts of shorter time interval. For short-term sells on condition of formation of topping signals the targets will be 1.3160/80, 1.3080/1.3100 and/or further breakout variant up to 1.3020/40, 1.2940/60, 1.2820/60. An alternative for buyers will be above 1.3300 with the targets 1.3340/60, 1.3400/20, 1.3480/1.3520. FOREX Ltd www.forexltd.co.uk

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Bernanke Frets as Variable Notes Strip Taxpayers in N.Y., Texas

By Darrell Preston and Michael McDonald

April 16 (Bloomberg) -- Houston’s deputy controller, James Moncur, figured last May the fourth-largest U.S. city escaped the unraveling credit markets by refinancing some of its $1.8 billion of auction-rate bonds.

Instead, Houston wound up paying 15 percent interest on the new securities, not the money-market rates city officials had anticipated. The so-called variable-rate demand notes backfired when investors fled the market in October, forcing the bank that had guaranteed the bonds, Brussels-based Dexia SA, to buy them.

“This was like round two of the great financial crisis of 2008,” Moncur, 56, said. “We were under the impression we had taken care of the problem.”

The $479 billion market for the securities, whose rates are typically reset by banks every day or week, is turning into a quagmire for local officials who embraced a financing strategy they didn’t fully understand. Federal Reserve Chairman Ben S. Bernanke said last month that U.S. taxpayers may wind up as the buyers of last resort for the debt, known as VRDNs.

“A large volume” of variable-rate demand notes were forced back to banks and “exposed the vulnerabilities of the VRDN market, raising questions about the desirability of its continuation as a significant vehicle for municipal finance,” Bernanke said in a March 31 letter to Representative James Moran, a Virginia Democrat.

Auction-Rate Collapse

VRDNs, like auction-rate bonds, offer borrowers short-term interest costs on longer-term debt because rates on the notes are reset at regular intervals. Auction-rate securities fell apart in February 2008 when bankers who had provided support for two decades abandoned the market, stranding investors with notes they couldn’t sell and borrowers with annualized interest as high as 20 percent.

Dozens of local governments sold VRDNs to pay off their auction-rate obligations. Lower-rated borrowers in the variable- rate market are required to have a guarantor, called a credit facility provider, who promises to buy bonds investors don’t want. Interest rates are set by banks at a level they expect investors will accept.

The market lost favor among municipalities this year as costs to guarantee the bonds increased and issuers incurred unexpected charges to get out of their privately negotiated transactions.

Sales of tax-exempt debt with variable interest rates plummeted 55 percent to $9.6 billion in the first three months of the year, according to data compiled by Bloomberg. New issues dropped even as the average weekly rate on the securities fell below 1 percent, to as low as 0.48 percent on Feb. 4.

Rising Guarantee Cost

Houston agreed to pay the 15 percent annual rate for 60 days, Moncur said. Harris County, Texas, later bought $118 million of the city’s taxable VRDNs and the rate is currently 6.9 percent, he said. Houston is the Harris County seat.

Banks, reeling from almost $1.3 trillion in credit market losses since the start of 2007, raised the cost for providing guarantees as much as 10-fold, Concord, Massachusetts-based Municipal Market Advisors said in January.

Some borrowers that want to refinance VRDNs are stuck since the bonds are “often paired with interest-rate swaps that would be quite costly to unwind because many of the swaps are now underwater,” Bernanke said.

Municipalities use swaps -- private agreements in which a borrower and another party agree to exchange interest rates -- to create fixed-rate obligations by joining them with variable- rate debt. If the arrangements go awry, issuers have to pay fees to terminate the contracts.

The New York State Dormitory Authority wound up paying bankers $26.8 million to get out of $390 million of VRDNs last month, after Dexia increased the fees for its letter of credit to 0.5 percent from 0.27 percent and interest rates on the bonds rose as high as 8.48 percent, according to public disclosures.

Negotiated Rates

Besides the cancellation fee, the dormitory authority paid $2.76 million to underwriters led by Goldman Sachs Group Inc. to sell about $500 million of new bonds.

As with all variable-rate notes and swaps, terms of the sale were set in negotiations with underwriters, not through competitive bidding. When fees from the new debt are added to interest, the total financing cost was 6.11 percent, according to Marc Violette, a Dormitory Authority spokesman.

The yield on the Bond Buyer 20 index of interest costs on 20-year general obligation bonds averaged 4.96 percent for the past year. The new dormitory bonds, like the old, were backed by state appropriations and financed the construction of mental health facilities.

Borrowers in the $2.69 trillion market for state and local government debt increased swap agreements while abandoning sales of bonds through competitive bidding.

Competitive Sales

Competitive sales reduce interest costs on municipal debt from 0.17 percentage point to 0.48 percentage point, according to a study by Mark D. Robbins, an associate professor at the University of Connecticut in West Hartford, and Bill Simonsen, a professor at the institution. The survey, titled “Persistent Underwriter Use and the Cost of Borrowing,” was published in the winter 2008 issue of the Municipal Finance Journal.

VRDN fees may increase because banks don’t want to risk being forced to buy bonds that investors shun, said Michael Marz, vice chairman of First Southwest Co. in Dallas, the third- largest financial adviser to state and local governments.

Most variable-rate debt requires a bank guarantee to be eligible for sale to money market funds, and banks are only willing to back the highest-rated credits, said George Friedlander, a municipal market analyst at Citigroup Inc., in an April 3 report.

Lower-Rated Jurisdictions

Local governments with credit ratings above A- can obtain letters of credit, while those with lower grades are struggling, said Michael Decker, co-chief executive officer of Alexandria, Virginia-based Regional Bond Dealers Association, which represents about 20 securities dealers and underwriters, most based outside New York.

Mendocino County, California, was rejected for a $26 million loan in a pool of borrowers seeking short-term funding for operating expenses because its rating was too low for the bank backing the debt, said Shari Schapmire, the county treasurer. Mendocino, which has an A- rating from Standard & Poor’s, may have to pay $750,000 more to get the money on its own, which may force officials to trim some of the government’s 1,400 workers, she said.

Variable-rate borrowers “are experiencing substantial increases” in costs, said Bernanke in his letter. The market for municipal variable-rate debt “appears to be under more stress” because investors have been putting their bonds back to the guarantor bank, he said.

Federal Aid

State and local governments have asked the U.S. government to provide guarantees for VRDNs as costs of bank assurances rise. U.S. Representative Barney Frank’s Financial Services Committee is writing legislation to help create a new backstop.

Houston’s decision to convert to variable-rate debt has drawn criticism from Councilman Peter Brown, who said officials shouldn’t have agreed to floating-rate debt with a 15 percent penalty rate, given the turmoil in financial markets.

“The city ended up holding the bag,” said Brown, who is running for mayor. “We should have been smarter so we were not put into this position.”

To contact the reporters on this story: Darrell Preston in Dallas at dpreston@bloomberg.net; Michael McDonald in Boston at mmcdonald10@bloomberg.net.

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Europe Industrial Output Drops 18.4%, Most on Record

By Jurjen van de Pol

April 16 (Bloomberg) -- Industrial production in Europe contracted by the most on record in February as the deepening global recession curtailed demand for manufactured goods around the world.

Output in the euro region fell 18.4 percent from the year- earlier month, the biggest drop since the data series began in 1986, after a revised 16 percent decline in January, the European Union’s statistics office in Luxembourg said today. Economists expected production to fall 18 percent in February, according to the median of 16 estimates in a Bloomberg survey. Inflation slowed in March to 0.6 percent, a record low, the office said in a separate report.

Factories across the 16-nation euro zone are cutting output and firing workers as companies cope with the worst global slump in 60 years. China’s economy, the world’s third-largest, grew at the slowest pace in almost a decade in the first quarter, the government said today. The Organization for Economic Cooperation and Development said last week that its data indicate the world economy is in a “deep slowdown.”

“Demand for euro-zone exports is falling through the floor,” said Dominic Bryant, an economist at BNP Paribas in London. “We expect the European Central Bank to cut rates to 1 percent and that will be their floor in the near term as they are going to announce other measures” to spur lending and revive growth.

This Year

The European economy may shrink as much as 4.1 percent this year, the OECD forecast on March 31. All 30 economies in the OECD, which doesn’t include China, will be in a recession by year end, the Paris-based organization said.

The euro extended declines against the dollar after the data’s release. The single currency fell to $1.3156 at 10:25 a.m. in London, down 0.5 percent on the day.

ASML Holding NV, Europe’s largest maker of semiconductor equipment, yesterday reported a first-quarter loss as sales plunged 80 percent. In December, the Veldhoven, Netherlands- based company said it would cut about 1,000 jobs and temporarily shut production facilities in the first and second quarters.

Rohwedder AG, a Bermatingen, Germany-based maker of robots and testing equipment, said on April 14 that its full-year loss widened because of the “the enormous repercussions of the global economic crisis” on investments in the automotive and telecommunications industries.

Unconventional Measures

Falling industrial output adds to pressure on the ECB to use more unconventional measures to revive the credit markets and boost the economy as it runs out of room to reduce interest rates. The Frankfurt-based central bank has cut the benchmark rate to a record low of 1.25 percent and ECB President Jean- Claude Trichet signaled another quarter-percentage-point cut is likely next month.

ECB council member Axel Weber said yesterday he is against lowering the key rate below 1 percent and would prefer not to buy corporate debt, suggesting policy makers are split over how to haul Europe out of the recession. Council members George Provopoulos from Greece and Athanasios Orphanides of Cyprus have both indicated they may support cutting the benchmark below 1 percent and purchasing debt securities.

Orphanides said in an April 11 interview that the ECB may have to continue easing monetary policy beyond next month because “the risk of deflation had increased somewhat in the past few months.”

‘Stark Reminder’

Today’s report confirmed that inflation in March slowed to 0.6 percent, the lowest rate since the euro-area data were first compiled in 1996. The ECB, which aims to keep the inflation rate just below 2 percent, last month predicted annual price gains would average 0.4 percent this year and 1 percent in 2010.

The data “are a stark reminder that the downward trend in euro-zone inflation is firmly established,” said Martin van Vliet, an economist at ING Groep NV in Amsterdam. “Further unconventional policy easing by the ECB is needed to counter the threat of a prolonged period of below-target inflation.”

To contact the reporter on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net

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London’s Smoky Outskirts Probed for Moving CO2 to Sea

By Alex Morales and Paul Dobson

April 16 (Bloomberg) -- National Grid Plc is investigating piping carbon-dioxide emissions from power plants and refineries near London and in northern England to undersea storage sites so the gas won’t add to global warming.

The manager of Britain’s natural gas-delivery network found the Thames Estuary near London and the northern Teesside industrial hub may be suitable to lay new pipelines to move the greenhouse gas toward depleted offshore wells, Director of Network Operations Chris Train said in an interview.

The U.S. and Europe together have earmarked as much as $14 billion in aid to develop technology to trap and bury the waste gas for eons, which in the London area may benefit utilities E.ON AG and RWE AG and refinery operator Petroplus Holding AG.

“What we’ll probably see is something arranged around clusters” of industrial polluters to remove their CO2, Train said by telephone. That’s more feasible than building a national infrastructure, he said.

Pilot projects have developed slowly because of potential gas-transport costs. London-based National Grid is expanding its range of possible routes beyond Scotland and Humberside, banking on government support and its own unique position of already operating 4,600 miles of gas pipelines in Britain.

Saving Polluters Money

A carbon-capture system might help the government as well as industrial polluters to meet international greenhouse-gas agreements without having to buy emissions permits from traders.

The Thames river area near the country’s financial capital is home to large producers of greenhouse gases.

Duesseldorf-based E.ON, Germany’s largest utility, has drawn up plans for carbon capture at a new coal-burning power plant at Kingsnorth, just south of the Thames river. RWE AG’s Npower unit runs a coal-fired power station on the banks of the Thames. Petroplus has refineries by the Thames and on Teesside.

Train declined to name companies National Grid has spoken with about the plans, beyond saying “we are talking with parties in both those areas” of England. “It’s pretty embryonic at this stage.”

Carbon capture and storage, commonly called CCS, will contribute a maximum of 10 percent of emission reductions needed globally in 2020 under expected greenhouse-gas trading programs, or 240 million metric tons of gas, New Carbon Finance, a London- based research company, estimated last month.

‘High Cost’

“The role of CCS will only be minor given the relative high cost of doing CCS projects prior to 2020,” said Milo Sjardin, an analyst in New York for the firm. The rest of the reductions would come from increased fuel efficiency at factories, fuel switching and other abatement efforts, he said.

National Grid, which earns a regulated rate of return on its energy networks, is an “ideal” candidate to move the gas around Britain, provided the government set rules that enable companies to make money by helping bury CO2, Train said.

“One of the barriers for the development of carbon capture to date is having the right incentive framework in place,” he said. While National Grid’s focus is land-based pipes, “if it meant developing a project, we wouldn’t shy away from doing the offshore” leg of the transportation too, Train said.

The company is vying to control the transportation side of the unproven technology, which the International Energy Agency has said will be vital to meet the United Nations’ goal of cutting greenhouse-gas output 50 percent by mid-century.

“It’s still a technology that’s at the beginning of its development,” Mark Freshney, a London-based analyst at Credit Suisse Group, said today in a telephone interview. “It’s 10 years away. It’s not a big value-driver today.”

$3 Billion Plan

National Grid said in February it was drawing up plans for a 2-billion pound ($3 billion) network of carbon-dioxide pipes in the Humber area of northeast England. Last week, the energy regulator, Ofgem, began a public consultation to investigate the viability of National Grid plans to turn over 300 kilometers (186 miles) of natural gas pipes in Scotland to transport CO2.

“There’s a number of areas that also have similar opportunities,” including the Thames Gateway, and Teesside, “which is more refinery-based,” Train said. “There are the economies of scale and opportunity that are afforded by the clustering of coal-fired plants.”

The company is studying converting existing natural gas pipes for CO2 transportation, as in Scotland, and to build new networks, such as in the Humber area. So long as the government introduces clear rules, construction of pipes can start “quite quickly,” Train said.

To contact the reporter on this story: Alex Morales in London at amorales2@bloomberg.net. Paul Dobson in London at pdobson2@bloomberg.net

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Philippines Cuts Rate to 17-Year Low as Exports, Growth Falter

By Clarissa Batino and Karl Lester M. Yap

April 16 (Bloomberg) -- The Philippine central bank cut its benchmark interest rate to a 17-year low to prop up an economy battered by falling exports amid the global recession.

Bangko Sentral ng Pilipinas reduced the rate it pays lenders for overnight deposits a quarter of a percentage point to 4.5 percent, Governor Amando Tetangco said in a briefing today. The decision was expected by 10 of 12 economists in a Bloomberg News survey. The rate is the lowest since May 1992.

The government today trimmed its 2009 growth forecast to the slowest in eight years as shipments by manufacturers such as Texas Instruments Inc. tumble. Inflation has halved from a 16- year high of 12.4 percent in August, allowing the central bank to cut borrowing costs by a total 1.5 percentage points since mid-December.

“There’s a need to address growth first then keep policy nimble enough to address potential risks to price stability,” said Vishnu Varathan, an economist at Forecast Singapore Pte. “There’s potential for a greater pullback in growth. Exports have fallen phenomenally.”

Philippine economic growth may have slowed to a range of 2.1 percent to 3.1 percent in the first quarter, Economic Planning Undersecretary Augusto Santos said yesterday. That would be the weakest in more than seven years.

Exports in February shrank 39.1 percent from a year earlier, declining for a fifth month, the statistics office said in Manila today. Overseas sales, which make up about 38 percent of the economy, plunged a record 40.6 percent in January, according to Bloomberg data going back to 1981.

Economic Targets

Economic managers cut the 2009 gross domestic product growth target to a range of 3.1 percent to 4.1 percent from the previous estimate of 3.7 percent to 4.4 percent, Budget Undersecretary Laura Pascua said in Manila today.

The government also trimmed predictions for exports and widened the budget-deficit forecast to as much as 199.2 billion pesos ($4.2 billion) from the previous 177.2 billion-peso ceiling, she said. The state’s planned 2009 domestic debt sales will increase to 463.1 billion pesos to fund the shortfall, Finance Undersecretary Gil Beltran said.

Asian policy makers have unveiled stimulus packages worth more than $950 billion and lowered borrowing costs to revive growth as the global slump pushed Japan, Singapore and Taiwan into recession.

Neighboring Indonesia earlier this month reduced its benchmark interest rate to 7.5 percent and said it has scope to ease policy further. Thailand last week reduced borrowing costs to 1.25 percent, the lowest level since July 2004.

Lower borrowing costs are enabling SM Investments Corp., owner of the Philippines’ biggest retailer and largest lender by assets, and San Miguel Brewery Inc. to raise funds amid the global credit crunch.

To contact the reporter on this story: Clarissa Batino in Manila at cbatino@bloomberg.net.

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Woodside Picks Kimberley for LNG, Will Lobby Partners

By Angela Macdonald-Smith and Jesse Riseborough

April 16 (Bloomberg) -- Woodside Petroleum Ltd., Australia’s second-biggest oil and gas producer, picked a site on the far northwest coast for its Browse LNG project and said it would “strongly” urge its partners to agree to the location.

Woodside’s decision, which follows an A$1.5 billion ($1.1 billion) agreement reached yesterday with Aboriginal groups, means Japan’s Inpex Corp. will have to reassess its choice of Darwin for its $20 billion Ichthys liquefied natural gas project, Western Australian Premier Colin Barnett said today. Inpex remains committed to Darwin, President Naoki Kuroda said.

The Browse and Ichthys fields are among untapped gas deposits off Australia’s undeveloped Kimberley coast, where more than a third of the nation’s known offshore gas is located. The agreement reached late yesterday between Woodside, Western Australia and Aboriginal groups may allow for the development of an onshore LNG hub that could be used by several ventures.

“There’s a lot of water to flow under the bridge before LNG starts to be shipped out from that site,” said Peter Strachan, an analyst at Perth-based StockAnalysis. “The other Browse LNG parties would have to take a close look at it, while Inpex is already making plans to move their gas into Darwin harbor.”

Woodside’s Browse LNG partners, which include BP Plc and Chevron Corp., are still studying other options for the location of the onshore plant, including piping gas more than 800 kilometers (497 miles) south to existing plants at Karratha, the Perth-based company said today in a statement to the Australian stock exchange.

PetroChina, CPC

The partners may make a decision “possibly within weeks” on where to process Browse gas, Woodside Chief Executive Officer Don Voelte told reporters in Perth.

“We will have to take them through the economics and have to take them through our position on these issues,” Voelte said. “We are talking tens of billions of dollars here.”

Woodside, which has an initial agreement to sell Browse LNG to PetroChina Co. and Taiwan’s CPC Ltd., may start shipments in 2015, he said. Details of Woodside’s share of the compensation package for Aboriginal groups are confidential, Barnett said.

Inpex and partner Total SA last year decided to take gas from their Ichthys field about 850 kilometers east to Darwin for processing after an earlier plan to build a plant in the Kimberley region met opposition from environmental and Aboriginal groups.

‘Open Invitation’

Inpex and its partner face an “interesting scenario” on where to build their plant, Barnett said. The hub site at James Price Point is less than half the distance from the Ichthys field than Darwin in the neighboring Northern Territory.

Woodside has an “open invitation” to Inpex to come back and build its plant at the hub site, where companies could share jetties, storage tanks and power plants, Voelte said.

“If they stay in Darwin, fine, we will build along until there are other projects that come along,” he said.

Royal Dutch Shell Plc, which said last year it was studying using a floating plant at its Prelude field in the Browse Basin, still views that as the preferred option while backing the hub idea, the company’s Australian unit said in an e-mailed response to questions.

“Shell supports the concept of a hub rather than a plethora of development sites, and believes floating LNG technology will complement the Kimberley LNG precinct,” it said. Shell also has a stake in Woodside’s venture.

Yesterday’s accord allows cultural and environmental studies to take place before a final agreement for the hub is given by Aboriginal groups at the year-end, said the Kimberley Land Council, which represents the communities. There are “a multitude of very serious environmental considerations yet to be addressed” before the complex can go ahead, The Wilderness Society said in a statement.

LNG is gas that chilled to liquid form for transportation by tanker to destinations not connected by pipeline.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.netJesse Riseborough in Perth at jriseborough@bloomberg.net

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Cnooc Group Joins InterOil in Papua New Guinea LNG

By Angela Macdonald-Smith

April 16 (Bloomberg) -- China National Offshore Oil Corp., the country’s biggest offshore petroleum explorer, agreed to work with InterOil Corp. on a proposed liquefied natural gas project in Papua New Guinea.

The initial accord commits the Chinese company, InterOil and the Papua New Guinea-owned Petromin PNG Holdings Ltd. to agreeing commercial terms for the financing of the government’s stake in the project, Petromin said today in an e-mailed statement.

Papua New Guinea granted initial approvals last month for the Pacific nation’s second LNG project, which would follow a plant proposed by an Exxon Mobil Corp.-led venture. InterOil hired BNP Paribas Capital (Singapore) Ltd. and ABN Amro Corporate Finance Australia Ltd. in March to advise on the sale of interests in the LNG project and associated gas fields to strategic partners.

“Both InterOil and Petromin have commenced discussions with a number of major oil and gas companies to bring in a strategic partner to the InterOil project who will underwrite the project,” Petromin Managing Director Joshua Kalinoe said in the statement. “The heads of agreement now allows China National Oil to participate in that process.”

Kalinoe didn’t say whether China National, the Beijing- based parent of Hong Kong-listed Cnooc Ltd., would have a stake in the project. The venture would cost about $5 billion for a plant producing about 3.5 million metric tons a year of LNG, with shipments due to start in 2014, InterOil said last month.

Cnooc Group spokesman Li Shiqiang and Xiao Zongwei, who speaks for the listed unit, said they weren’t aware of the agreement.

The accord was signed yesterday in Beijing after talks between Chinese Premier Wen Jiabao and Papua New Guinea Prime Minister Michael Somare, Petromin said.

LNG is natural gas chilled to liquid form for transportation by tanker to destinations not connected by pipeline.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net

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Philippine Peso Near Two-Month High on Remittances; Bonds Fall

By Karl Lester M. Yap

April 16 (Bloomberg) -- The Philippine peso climbed to the highest level in two months after a report yesterday showed growth in remittances accelerated from a five-year low in February. Government bonds declined.

The peso also gained on speculation economic growth will be stoked by a central bank rate cut. After the close of local currency trading, policy makers reduced borrowing costs by a quarter-percentage point to a 17-year low of 4.5 percent, as predicted by 11 of 12 economists surveyed by Bloomberg News. Exports fell for a fifth month in February, a National Statistics Office report showed today.

“The increase in remittances was unexpected and should cushion pressure on the local currency,” said Lito Biacora, vice president for treasury at Bank of the Philippine Islands in Manila. “Expectations of a 25-basis-point rate cut are also priced in and it should boost economic growth considering inflationary pressures are very limited.”

The local currency advanced 0.2 percent to 47.72 per dollar at the close of trade in Manila, according to Tullett Prebon Plc. It touched 47.61, the highest since Feb. 17.

Inflation has halved from a 16-year high of 12.4 percent reached in August, allowing the central bank to slash interest rates in the past three meetings since December.

Money sent home by Filipinos working abroad as nurses, engineers and housekeepers increased 4.9 percent in February from a year earlier to $1.32 billion, after rising 0.1 percent the previous month, a central bank report showed yesterday. The inflows account for a 10th of the $144 billion economy and are the nation’s largest source of foreign exchange after exports.

Overseas sales plunged 39 percent from a year earlier after dropping 40.6 percent in January.

Bonds Slip

Four-year bonds fell, ending seven days of gains, after the government today said it will increase 2009 domestic debt sales to 463 billion pesos ($9.7 billion) to fund its widening budget deficit. It had earlier planned to borrow 442 billion pesos locally.

The yield on the 12.75 percent bond due March 2013 rose two basis points to 6.19 percent, according to the 11:15 a.m. fixing at Philippine Dealing & Exchange Corp. The price of the note dropped 0.11, or 11 pesos per 10,000 pesos face amount, to 122.63. A basis point is 0.01 percentage point.

The government raised its budget deficit target to 199.2 billion pesos from 177.2 billion pesos estimated in February. It also cut its 2009 economic growth forecast to a range of 3.1 percent to 4.1 percent, from an earlier prediction of 3.7 percent to 4.4 percent.

To contact the reporter for this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net.

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Asian Currencies Gain, Led by Rupiah, Won, as Fund Inflows Rise

By Kim Kyoungwha

April 16 (Bloomberg) -- Asian currencies rose, led by the Indonesian rupiah and South Korea’s won, as optimism a global recession is easing bolstered demand for emerging-market assets.

Seven out of the region’s 10 most-traded currencies outside of Japan climbed and stocks rallied after the Federal Reserve said the pace of contraction slowed in several of the nation’s biggest regional economies last month. Currencies and stocks pared gains after China reported today that its economy expanded at the slowest pace in almost a decade in the first quarter.

“There was a good bid tone to regional currencies on some momentum to the view that the first quarter may have represented a trough in the real data,” said Dwyfor Evans, a currency strategist with State Street Global Markets in Hong Kong. “However, when there are renewed concerns over corporate earnings or other numbers, the market can swing very quickly.”

The rupiah strengthened 1.3 percent to 10,750 per dollar as of 3:52 p.m. in Jakarta and the won rose 0.5 percent to 1,332.10, nearing a three-month high, ,according to data compiled by Bloomberg. The MSCI Asia Pacific index of regional shares climbed 0.3 percent, after rising as much as 2.2 percent.

Indonesia’s currency extended a week-long rally on speculation the nation’s commodity exports and the prospect of the government being re-elected will help the economy recover from a global slump.

Indonesia Bond Sale

The currency was also buoyed as Indonesia’s offering of $650 million in Islamic bonds attracted orders for more than six times the amount planned. The rupiah is leading gains this month among Asia’s 10 most-active currencies, the Jakarta Composite Index of stocks has rallied over 13 percent so far in April, already beating the rise in March, and the country’s local-currency bonds are outperforming the rest of the region.

“We think the economic growth will improve as commodity prices find a floor, while the elections are likely to be peaceful as well, and we already saw that with the parliamentary elections,” Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore, said in an interview on Bloomberg Television. “We’ve had an overweight rating on the rupiah since March.”

The Jakarta Composite Index rose 1.4 percent, a fourth day of gains, while foreign investors bought $138 million more Indonesian equities than they sold this month.

China Economy Slows

China’s economy expanded 6.1 percent in the first quarter from a year earlier, after a 6.8 percent gain in the final quarter of 2008, the statistics bureau said in Beijing. The figure was below the 6.2 percent median estimate of 13 economists surveyed by Bloomberg News.

Five of 12 Fed district banks “noted a moderation in the pace of decline,” the U.S. central bank said yesterday in its Beige Book business survey, published two weeks before officials meet in Washington to set monetary policy.

China’s economy shows signs that Premier Wen Jiabao’s 4 trillion yuan ($585 billion) stimulus plan is working, fueling a surge in bank lending and spurring the Shanghai Composite Index to an eight-month high. Growth in investment and industrial output accelerated in March and incomes grew in the first quarter, today’s report showed.

China’s non-deliverable forwards showed the yuan will rise to 6.7580 per dollar in a year, compared with 6.8323 in the spot market, after the release of first-quarter growth. Today’s report coincides with a statement from U.S. Treasury Secretary Timothy Geithner that China isn’t a currency manipulator.

Yen Gains

“Retail sales and fixed asset investments are growing very fast, a huge success of the government in a quick implementation of fiscal stimulus,” said Dairusz Kowalczyk, a currency strategist with SJS Markets Ltd. in Hong Kong. Growth will accelerate to 7.5 percent this quarter, a Bloomberg survey showed.

The yen rose to a two-week high against the euro, as China’s growth data damped demand for higher-yielding assets. The yen climbed to 129.93 per euro in London from 131.44 in New York yesterday. It gained to 98.64 to the dollar from 99.37 yen.

The Korean currency extended its gain over the past month to 6.6 percent. Overseas investors bought more Korean shares than they sold today, helping lift the Kospi stock Index as much as 2.9 percent before closing up 0.3 percent.

“The movements in the currency market are a simple reflection of stock moves these days,” said Ko Yun Jin, a foreign-exchange dealer with Kookmin Bank in Seoul. “Exporters are willing to settle deals on the dollar’s highs, while there’s demand for the greenback from dividend payments.”

Stock Inflows

Malaysia’s ringgit rose to a one-week high of 3.5829 versus the greenback before trading 0.2 percent higher at 3.6012 in Kuala Lumpur.

Investors pumped more money into emerging-market equities for a fifth straight week, adding a net $2.2 billion through April 8 as they sought higher returns, according to Cambridge, Massachusetts-based EPFR Global, a research company that tracks $11 trillion of funds.

“Investors are getting back their confidence because all those stimulus efforts may already be showing early results,” said Irwaan Iskandar Abrahim, who helps manage $134 million at ASM Investment Services Bhd. in Kuala Lumpur. “That should support stocks and the ringgit.”

Thailand’s baht rose to a one-week high on optimism political stability will return after the government quelled street protests and the state of emergency in the capital Bangkok entered its fifth day.

Thai Unrest

The currency resumed trading onshore after a three-day national holiday during which protesters laid siege to Government House seeking to bring down the four-month old government of Prime Minister Abhisit Vejjajiva. The emergency decree will be lifted when the authorities can guarantee safety, Abhisit said today. Fitch Ratings lowered the nation’s credit-ratings today, citing the unrest, following Standard & Poor’s rating adjustment yesterday.

“The baht has recovered lost ground because the situation was resolved very quickly, at least for now,” said Apichart Suratanasurang, a currency trader at BankThai Pcl in Bangkok. “What has happened, however, only worsened the situation as economic conditions are already deteriorating.”

The baht traded at 35.38 per dollar versus 35.40 on April 10, according to data compiled by Bloomberg. It earlier reached 35.33, the highest level since April 7.

Elsewhere, the Singapore dollar rose 0.2 percent to S$1.4989 against the U.S. currency and the Philippine peso climbed 0.2 percent to 47.72. Taiwan’s dollar was little changed at NT$33.80 and the yuan traded at 6.8324 from 6.8322 yesterday.

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

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Pound Makes U.K. No ‘Basket Case’ as Brown Trails

By Matthew Brown and Gavin Finch

April 16 (Bloomberg) -- The pound’s rally to $1.50 for the first time in three months shows financial markets are growing more confident in Gordon Brown even as he has yet to benefit in the polls during Britain’s worst recession since 1984.

The currency rebounded 2.2 percent versus the dollar this year to as high as $1.5068 today, and strengthened 8.5 percent against the euro. Nationwide polls show Brown’s Labour Party trailed the Conservatives, led by David Cameron, for the past year. Now, investors are betting the U.K.’s $2.7 trillion economy will be among the first to recover from the global slump.

“At the margins, it takes a lot of pressure off Gordon,” said Stewart Robertson, an economist at Aviva Investors in London, which manages about $230 billion in assets. “Getting headlines for plummeting currencies off the front pages is good, as there’s less talk of the U.K. being a basket case.”

The pound was last year’s worst-performing currency except for the South African rand, declining 26 percent against the dollar and 23 percent versus the euro. More than 2 million British citizens are unemployed. House prices have fallen 17 percent in 12 months. Gross domestic product contracted 1.6 percent in the last quarter of 2008, after 63 consecutive quarters of growth through March last year.

Voter confidence in Labour, led by Brown, 58, fell to 30 percent, compared with 43 percent for Cameron’s Conservatives, according to a Populus Ltd. survey on April 6. The poll, with a 2.5 point margin of error, showed the Conservatives extended their lead from 1 point in November. U.K. parliamentary rules require Brown to call a general election by June next year.

Home Prices

The pound rose to the highest level against the dollar since Jan. 12 after a report yesterday by the Royal Institution of Chartered Surveyors showed the slump in house prices eased in March. It was at $1.4899 and 88.19 pence per euro by 10:31 a.m. in London. The currency traded at 87.867 pence per euro yesterday, the strongest level since Feb. 24.

“There’s so much bad news priced into the pound that any good news gives the market a great reason to buy,” said Daragh Maher, the deputy head of global currency strategy in London at Calyon, the investment-banking arm of Credit Agricole SA. “We’re seeing some green shoots in the U.K. housing market,” which may drive the pound to 83 pence per euro in the coming months, he said.

Futures Bets

Speculation in the futures market that the pound will fall against the dollar increased in the last two weeks, with so- called net short positions rising to 34,462 on April 7 from 30,746 March 24, according to data from the Washington-based Commodity Futures Trading Commission.

The pound will fall to $1.45 and to 91 pence versus the euro by the end of the second quarter, according to the median estimates in Bloomberg surveys of at least 35 analysts.

Betting on pound gains is “definitely not a crowded trade,” said David Woo, global head of foreign-exchange strategy in London at Barclays Plc, who predicts the currency will strengthen to 80 pence per euro this year. “If you look at the data from the CFTC, the market still doesn’t have the position on sterling.”

Technical analysts, who use historic trading patters to predict future prices, suggest the pound will continue to advance. The currency has been trading above its 100-day moving average against the euro since April 7, the first time it broke through that level since Nov. 3, according to data compiled by Bloomberg.

Breaking Levels

“Euro-sterling has rammed through all of the technical levels,” said David Powell, a currency strategist in London at Merrill Lynch & Co. “Support was created by the 100-day moving average, but we’ve just gone right through there.”

Fibonacci charts show the pound may struggle to hold its gains unless it surpasses $1.5074. It almost reached that level three times since falling to a low of $1.3503 on Jan. 23.

Britain’s economy will shrink less than the U.S. and Europe this year, the Organization for Economic Cooperation and Development said on March 31. The U.K. will contract 3.7 percent, compared with 4.1 percent in the 16-nation euro-region and 4 percent in America, the Paris-based OECD said.

Brown’s government plans to sell at least 147.9 billion pounds ($195 billion) of debt in the fiscal year ending March 2010 to revive the economy, Europe’s second-largest. It sold an unprecedented 146.4 billion pounds of securities last year. The sales are helping finance a 25.6 billion-pound program of tax cuts and spending increases over the next two years. Brown has pledged 40 billion pounds to recapitalize banks and hundreds of billions of pounds in loan guarantees.

‘The Right Measures’

“On the financial sector, he’s put in place the right measures before any other country,” said Nick Kounis, an economist at Fortis Bank NV in Amsterdam and a former U.K. Treasury official. “Where he doesn’t rate highly is fiscal policy. The U.K. was in a very bad state when it entered the recession with a large deficit.”

Britain will have a deficit of 9.5 percent of gross domestic product in 2009, the most in the Group of Seven, according to the International Monetary Fund. The Washington- based lender forecast shortfalls of 7.7 percent in the U.S., 8.1 percent in Japan and 4 percent in Germany, according to estimates last month.

“History will reveal 2009/2010 as the time to buy cheap,” Neil Jones, the head of European hedge fund sales at Mizuho Corporate Bank in London said in a note yesterday. “We will look back on this era and say, ‘I should have loaded up on property, companies and stocks.’”

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

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Yen Gains as China’s Slowing Growth Adds to Recession Concern

By Anchalee Worrachate and Ron Harui

April 16 (Bloomberg) -- The yen climbed to the highest level in two weeks against the euro after a government report showing China’s economy expanded at the slowest pace in almost a decade damped demand for higher-yielding assets.

The euro also slid versus the U.S. currency on concern a split among the region’s central bankers will hamper efforts to revive the economy. The yen rose against the dollar before U.S. reports today that may show home construction slowed and initial claims for jobless benefits increased. New Zealand’s dollar fell for a third day after the Organization for Economic Cooperation and Development said the country needs lower interest rates.

“Some people bought the yen on the back of the Chinese growth data which they find disappointing because it’s at the level that is unlikely to allow employment to grow,” said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp., the world’s biggest custodian of financial assets. “But longer term, I’m a yen bear. My general feeling is that the worst is perhaps behind us.”

The yen strengthened to 129.86 per euro as of 10:28 a.m. in London, from 131.44 in New York yesterday, after climbing to 129.68 yen, the highest level since March 31. Japan’s currency appreciated to 98.72 against the dollar, from 99.37. The euro declined to $1.3145, from $1.3227.

China’s Economy

China’s gross domestic product grew 6.1 percent in the first quarter from a year earlier, the weakest since the fourth quarter of 1999, the statistics bureau said today in Beijing. The median estimate of economists surveyed by Bloomberg was for 6.2 percent growth.

“There are lingering concerns that economies worldwide will take time to emerge from recession,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The yen may be bought. The dollar also is perceived as a ‘safe-haven’ currency and we may see some buying.”

New Zealand’s dollar weakened to 56.89 U.S. cents, from 58.12 cents, and dropped to 56.14 yen, from 57.73. Australia’s dollar fell 2.3 percent to 70.79 yen. China’s yuan traded at 6.8326 per dollar in Shanghai, from 6.8322 yesterday, according to the China Foreign Exchange Trade System.

U.S. Treasury Secretary Timothy Geithner yesterday refrained from labeling China as a currency manipulator in the department’s first semiannual report on foreign-exchange policies since he became secretary. He backtracked from an assertion he made during his confirmation hearings in January.

The yen was also bolstered as Asian stocks pared their advance. The Nikkei 225 Stock Average trimmed gains to 0.1 percent after earlier rising as much as 3.3 percent. The MSCI Asia-Pacific Index of regional shares increased 0.2 percent, down from as much as 2.2 percent earlier.

Euro Weakens

The euro fell for a third day against the dollar.

European Central Bank “fissures are highly damaging to sentiment,” currency strategists including London-based Gareth Berry at UBS AG, the world’s second-biggest foreign-exchange trader, said in a report today. “It appears that the key members of the Governing Council remain disconnected with market perception and this is already affecting the euro’s performance.”

ECB council member Axel Weber said yesterday the bank shouldn’t reduce its benchmark interest rate below 1 percent, from 1.25 percent now, putting him at odds with policy makers who say borrowing costs must fall to near zero. The OECD forecast March 31 that Europe’s economy will shrink 4.1 percent this year, compared with 4 percent in the U.S.

The euro stayed lower after a government report today showed industrial production sank 18.4 percent in February from a year earlier, the biggest decline since the data series began in 1986. Economists expected output to fall 18 percent.

Rate Bets

Investors raised bets the ECB will reduce its key interest rate at its May 7 meeting. The implied yield on the three-month Euribor interest-rate futures contract for June delivery fell to 1.26 percent today from 1.28 percent a week earlier.

The ECB will unveil a package of new measures next month to rescue the economy, Weber said in Hamburg yesterday.

“The euro may continue to be weighed down by prospects for further rate cuts and unconventional monetary easing policies,” Emmanuel Ng, a Singapore-based economist at Oversea-Chinese Banking Corp., wrote in a research note today.

Benchmark rates are 1.25 percent in the euro area and 3 percent in Australia and in New Zealand, making assets in Europe and the South Pacific nations attractive to international investors seeking higher returns. Japan’s benchmark is 0.1 percent and the U.S. rate is between zero and 0.25 percent.

OECD Report

New Zealand’s central bank should cut rates to as low as 2 percent to help the economy recover from a recession, the OECD said in its Economic Survey of New Zealand released today.

“The Reserve Bank still has room to go further in responding to deteriorating economic conditions,” the OECD said. “The much-improved inflation outlook allows scope for further easing.”

The pound fell 0.8 percent to $1.4873 today, snapping a three-day gain. The British currency rallied yesterday to $1.50 for the first time in three months, showing financial markets are growing more confident in Gordon Brown even as the U.K. prime minister is yet to benefit in the polls during Britain’s worst recession since 1984.

The currency rebounded 2 percent versus the dollar this year to as high as $1.5068 earlier today. It strengthened 8.4 percent against the euro in 2009. Polls show Brown’s Labour Party trailed the Conservatives, led by David Cameron, for the past year.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachte@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net

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Rubber Nears Five-Month High as Weakening Yen Increases Appeal

By Aya Takada

April 16 (Bloomberg) -- Rubber advanced for a second day as a weaker Japanese currency boosted the appeal of yen-denominated contracts for the commodity traded globally in dollars.

Prices gained as much as 0.8 percent to 178.2 yen a kilogram in Tokyo, close to the five-month peak of 179.7 yen ($1,808 a metric ton) reached April 13. The yen declined from yesterday’s high of 98.15 per dollar on speculation gains in global equities will increase investor appetite for higher- yielding assets.

“The currency market gave the most support to rubber futures,” Takaki Shigemoto, an analyst at Tokyo-based commodity broker Okachi & Co., said today by phone.

Rubber for September delivery, the most-active contract, added 0.4 percent to 177.5 yen a kilogram on the Tokyo Commodity Exchange at the 11:00 a.m. local break.

Gains in futures were limited as buyers in China, the world’s largest user, slowed raw material purchases on higher prices, Shigemoto said. Shippers in Thailand, the world’s biggest exporter, offered RSS-3 grade rubber for May shipment at $1.72 a kilogram today, up from $1.69 a week earlier, he said.

China’s gross domestic product grew at the slowest pace in almost 10 years, hit by collapsing exports, the statistics bureau said in Beijing today. GDP expanded 6.1 percent in the first quarter from a year earlier, after a 6.8 percent gain in the previous three months.

Rubber futures have gained 16 percent this month as China increased purchases to meet demand from tire makers. China’s natural rubber imports reached 190,000 tons in March, compared with 180,000 tons in the first two months of this year.

China’s passenger car sales increased 10 percent in March from a year ago to a record 772,400 as the government began giving out 5 billion yuan ($732 million) in subsidies to help rural residents buy vans and light trucks.

September-delivery rubber on the Shanghai Futures Exchange, the most-active contract, added 1.2 percent to 15,505 yuan a ton at 10:45 a.m. local time.

For Related News and Information:

To contact the reporter on this story: Aya Takada in Tokyo atakada2@bloomberg.net.

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