Trichet Faces Biggest Council Split as ECB President

By Simone Meier

April 17 (Bloomberg) -- Jean-Claude Trichet is facing the biggest split on the European Central Bank’s Governing Council in his six years as president.

Months after other central banks cut their key interest rates close to zero and started pumping money into their economies, the ECB’s 22-member council is still divided over whether to follow suit. The stand-off has delayed new measures to stem the euro region’s worst recession since World War II.

“I fear the ECB will be bogged down by internal squabble,” said Ken Wattret, chief euro region economist at BNP Paribas in London. “It seems to be turning into a battle between the activists and those with a more conservative persuasion. It’s the biggest dispute under Trichet.”

His search for consensus is being thwarted by a split so great that three different views have been aired in the past week alone. In one corner, Germany’s Axel Weber has ruled out cutting the ECB’s key rate below 1 percent from 1.25 percent at present and said he doesn’t want to buy debt securities.

In another, Greece’s George Provopoulos and Athanasios Orphanides of Cyprus want to keep open the option of deeper rate reductions and asset purchases to fight the risk of deflation. Between them sits Austria’s Ewald Nowotny. While agreeing with Weber that the main rate shouldn’t go below 1 percent, he argues debt purchases are “sensible.”

‘Very United’

For his part, Trichet denies a split, saying in Tokyo today that “we have a very united Governing Council.”

Nevertheless, the debate prompted the ECB to this month cut its benchmark by less than economists had forecast, by a quarter point to 1.25 percent, and delay a decision on new measures until May. While Trichet has signaled another quarter-point rate cut is likely, he’s declined to comment on what new tools the bank will unveil as officials continue to bicker. “Since it’s taking the ECB so long to agree, I wouldn’t have high hopes of a major surprise at the May meeting,” said Julian Callow, chief European economist at Barclays Capital in London. “Asset purchases are something they’ll have to consider at a later stage. They won’t resolve this dispute before summer.”

Trichet said in Tokyo that “it is important not to create or encourage expectations” about the next rate meeting. The euro extended declines after Trichet’s comments today and fell 0.7 percent to $1.3089.

Opposition

Outright opposition from Weber’s Bundesbank could make it harder for Trichet to negotiate a compromise. Weber represents Europe’s largest economy on the council and a central bank whose inflation-fighting mandate served as a blueprint for the ECB itself.

“He’s a Bundesbank president, he’s very influential,” said Nick Kounis, chief European economist at Fortis in Amsterdam. “I always see his remarks as a very good indication of what happens next.”

Weber said this week that cutting the ECB’s benchmark rate too close to its overnight deposit rate would reduce the incentive for banks to lend to each other, creating the risk of the interbank money market becoming “completely paralyzed.”

While not ruling out the purchase of corporate debt, Weber said it shouldn’t be a priority for an economy that is primarily bank-financed. Instead, he favors extending the maturities of the ECB’s loans to banks from the current six- month limit to ease credit concerns.

Longer-term loans may require the ECB to signal that the benchmark rate won’t drop any further. That’s because banks would be reluctant to borrow for longer terms if they thought they could get money cheaper in the future.

Framework

“It’s necessary that we announce a refinancing framework that can be relied upon for a certain period of time,” Weber said. “That includes the medium-term level for the main refinancing rate.”

There are signs Weber is gaining support. Jose Manuel Gonzalez-Paramo, one of the ECB’s six Executive Board members, said yesterday the margin for a further rate reduction is “very moderate” and excessively low rates have “disadvantages.”

“It’s a done deal” that the ECB will extend the maturities of loans to banks, said Aurelio Maccario, chief euro-area economist at UniCredit MIB in Milan. “However, we fear that this won’t suffice and that eventually the ECB may be forced to expand its balance sheet via an asset-purchase program.”

The Federal Reserve, Bank of England and Bank of Japan have already cut rates close to zero and are buying government and corporate debt. Orphanides, a former Fed economist, has spearheaded the argument for a more expansive monetary policy at the ECB.

Flexible

He said in an April 11 interview that the risks of deflation have “increased somewhat” and the ECB needs to remain “open and flexible” regarding additional policy measures.

ECB Vice President Lucas Papademos has also spoken in support of corporate debt purchases, saying they would “enhance liquidity” and “improve the cost of funding.”

Still, economists say debt purchases would be financed by the 16 national central banks that belong to the euro system, so any losses would end up on their balance sheets. As the biggest central bank in the region, Weber’s Bundesbank would take the lion’s share of the risk.

Trichet’s task is further complicated by the dynamics of the ECB’s decision-making procedures. While Fed Chairman Ben S. Bernanke and Bank of England Governor Mervyn King can use majority voting to settle contentious issues on their boards, the ECB’s consensus-oriented approach forces Trichet to shepherd 21 other policy makers toward a position they can all stomach.

Around the Table

“There must be some agreement and the discussion must go on until everyone around the table is happy with it,” said Laurent Bilke, an economist at Nomura International in London who used to work at the ECB.

The Organization for Economic Cooperation and Development expects the euro-region economy to contract 4.1 percent this year. Inflation slowed to 0.6 percent in March, the lowest on record and less than half the ECB’s 2 percent limit.

“I hope that common sense will prevail and they’ll come up with some asset-purchase program because ultimately, that’s the only way,” BNP’s Wattret said. “Weber’s opinion may be an obstacle, but it’s not an obstacle that can’t be overcome.”

To contact the reporter on this story: Simone Meier in Frankfurt smeier@bloomberg.net

Read more...

China Economy to Rebound as Stimulus Spurs Investment

By Kevin Hamlin

April 17 (Bloomberg) -- China’s economy, the world’s third largest, may rebound this quarter as Premier Wen Jiabao’s 4 trillion yuan ($585 billion) stimulus package cushions the effects of the global recession.

Urban fixed-asset investment surged by almost a third in March and industrial-output growth accelerated, reports accompanying China’s gross domestic product figures showed yesterday. First-quarter GDP grew 6.1 percent, the slowest pace in almost a decade, as exports slumped.

“The economy has gained significant momentum since February,” said Sun Mingchun, an economist at Nomura Holdings Inc. in Hong Kong, who predicts the economy will expand 8 percent this year. “We still expect a V-shaped recovery.”

A pickup in China will contribute “strongly” to growth in the rest of Asia by increasing demand for commodities and products from around the region, according to the World Bank. Wen has cautioned that while the economy is in better-than- expected shape, China is yet to establish a solid foundation for a recovery.

“China has bounced and I think it’s very important,” Barclays Plc President Robert Diamond said in an interview yesterday in New York. “The impact that that can have, if we’re right and we see this continuation in stronger Asian countries, is pretty phenomenal.”

Newman’s Optimism

Barclays Capital raised its estimate for economic growth this year to 7.2 percent from 6.7 percent because of the first- quarter data. UBS AG increased its forecast to as much as 7.5 percent from 6.5 percent previously and Royal Bank of Scotland’s estimate rose to 7 percent from 5 percent.

Merrill Lynch expects second-quarter growth of 7.2 percent, climbing to 8 percent for 2009.

“China got its stimulus plan started months ahead of the U.S. and it’s really working,” said Frank Newman, chairman of Shenzhen Development Bank, who served as a deputy secretary at the U.S. Treasury from 1994 to 1995. “We see a lot of it in action because we are financing it.”

Economists have been increasing their forecasts since February. The median estimate of 15 surveyed by Bloomberg News before the release of yesterday’s data was for 7.7 percent growth this year, up from 7.2 percent in February.

Nissan Motor Co. said its sales of passenger cars in China rose 36 percent in March from a year earlier as stimulus measures boosted confidence and attracted more buyers into showrooms. Anhui Conch Cement Co., China’s biggest maker of the building material, said this month that sales volume jumped 15 percent in the first quarter from a year earlier.

Wen’s Target

The government has targeted 8 percent economic growth for the year, a level deemed necessary to create enough jobs for its growing population.

The closure of thousands of factories has cost the jobs of millions of migrant workers, raising the risk of social unrest as China approaches the anniversary of the anti-government protests and crackdown in Tiananmen Square in June 1989.

While stimulus measures have started to produce results, China faces faltering export demand, industrial overcapacity, unemployment and weak private investment sentiment, Wen said yesterday. A rebound in industrial-output growth lacks momentum, the premier said.

“Growth may have bottomed out in the first quarter but with private sector and overseas demand still weak, China will not emerge from this downturn as rapidly as it went in,” said Mark Williams, an economist with Capital Economics Ltd. in London.

Profits Decline

Profits earned by industrial companies fell 37 percent in the first two months of the year. Those earnings contributed four times as much to investment as bank lending and government spending combined last year, according to Williams.

“It seems wishful thinking to conclude, as many are, that China is on the cusp of a rapid rebound,” he said.

China’s expansion contrasts with recessions around the world. The Organization for Economic Cooperation and Development predicts 6.3 percent growth for China this year, compared with a 4 percent contraction in the U.S. and a 6.6 percent decline in Japan.

Wen’s stimulus, plus a decision by the central bank to remove lending caps in November, helped new loans jump more than six times to 1.89 trillion yuan in March from a year earlier. The value of new investment projects started in the first quarter increased by 87 percent.

The Shanghai Composite Index of stocks has climbed about 38 percent this year, the second-best performer among 88 indexes tracked by Bloomberg.

“March activity reports and bank-loan data show that the economy is gaining speed heading into the current quarter,” said Frank Gong, head of China research at JPMorgan Chase & Co. in Hong Kong. “Fixed investment is accelerating as major infrastructure projects break ground.”

To contact the reporter on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net;

Read more...

U.S. May Retain Grip on Banks With Warrants After Share Buyback

By Rebecca Christie

April 17 (Bloomberg) -- The Treasury may retain a stake in many U.S. banks even after they buy back the shares the government currently holds.

The government will continue to hold warrants, attached to every capital injection it has made, even after any share buybacks, Treasury officials said. Banks seeking to escape the government’s grip want to retire the warrants -- which give the right to buy stock in the future at a preset price -- at the same time they acquire the government-owned preferred shares.

The officials said the U.S. would give up the warrants only after subsequent talks with appraisers and the banks to agree on a price. As long as the warrants remain, lenders would continue to face some federal constraints, including limits on hiring non-American citizens, the officials said. Lenders would be freed of restrictions on executive pay and dividends, they said.

“When this program was created, everything was done so fast, I don’t think people were contemplating they would be exiting this quickly,” said Diane Casey-Landry, chief operating officer of the American Bankers Association.

Escalating federal demands on the banks have spurred institutions including Goldman Sachs Group Inc. and JPMorgan Chase & Co. to seek an early exit from the Treasury’s rescue program. The warrants issue may be the latest complication in a $700 billion effort to unfreeze credit that has sparked an outcry among both lawmakers and some bankers.

Most of the funds from the Troubled Asset Relief Program distributed so far have been used for buying stakes in financial companies. Warrants apply to all elements of TARP, and officials are still wrestling with how to include them in their plan to finance purchases of distressed assets.

Toxic-Debt Programs

Treasury representatives are working with the Federal Deposit Insurance Corp. and potential participants in the toxic- debt programs on how to apply the warrants requirement.

Lawmakers pressed for warrants in the TARP law enacted in October as a way for taxpayers to benefit from future profits of companies getting help. When exercised, the government can buy newly issued shares from the company at a pre-determined price.

It’s unclear how much the warrants may be worth and valuing them may prove contentious. Bankers said the warrants, under current market conditions, may turn out to be expensive for those looking to exit the rescue programs quickly.

“If you look at the cost of those warrants and turn it into an annual percentage rate, it’s enormous,” said Camden Fine, president of the Independent Community Bankers of America. “It almost makes the Treasury look like a payday lender.”

Goldman Share Sale

Goldman Sachs Chief Financial Officer David Viniar said in an April 14 interview that “there’s a prescribed process for how you do it -- where you propose a price, they accept or not, you negotiate and then you hire appraisers and come up with an agreed-upon valuation.”

“We’ll figure it out, we don’t know” the cost, Viniar said. Goldman Sachs raised $5 billion this week in a share sale in order to help pay back the $10 billion it took from the government in October.

JPMorgan Chief Executive Officer Jamie Dimon said April 16 his firm could repay U.S. government rescue funds “tomorrow.” He called the receipt of the $25 billion in TARP money last year “a scarlet letter.”

JPMorgan spokesman Joseph Evangelisti declined to comment on the warrants.

For the top 19 banks, any TARP repayments will have to wait until after the so-called stress tests conclude, a Treasury official said. U.S. regulators are reviewing the biggest banks to gauge whether they have enough capital to survive a deeper economic slowdown. A Federal Reserve official said yesterday that the results are planned for release May 4.

To repay, a bank must apply to the Treasury. The request then goes to the bank’s regulators, who review the soundness of the institution. If the bank is deemed in good shape, it’s allowed to buy out the government stake.

Some smaller banks are already in the process of repaying their TARP funds. Of the six who have repaid so far, five have outstanding warrants that need to be addressed.

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

Read more...

Yellen Signals Fed’s Decision to Let Lehman Fail Was a Mistake

By Michael McKee and Vivien Lou Chen

April 17 (Bloomberg) -- Federal Reserve Bank of San Francisco President Janet Yellen signaled that it was a mistake to allow Lehman Brothers Holdings Inc. to collapse, saying the firm was “too big to fail” and its bankruptcy caused a “quantum” jump in the magnitude of the financial crisis.

The impact of Lehman’s failure “was devastating,” Yellen said yesterday after a speech in New York. “That’s when this crisis took a quantum leap up in terms of seriousness.”

Lehman was forced into bankruptcy on Sept. 15 after a weekend of negotiations at the Federal Reserve Bank of New York failed to produce a buyer and Fed and Treasury officials decided not to provide the firm with a loan.

Credit markets froze in the days after Lehman’s failure. Commercial paper markets almost ceased functioning as lenders shunned risk and the spread between the London Interbank Offered Rate, a measure of banks’ willingness to lend, and the average rate on overnight swaps rose 360 basis points in two weeks.

Yellen said she disagrees with Fed officials who argued in September that a government bailout of Lehman would encourage excessive risk-taking among investors. She commented in response to an audience question after a speech sponsored by the Levy Economics Institute of Bard College

“Lehman was a systemically important institution,” Yellen said, noting she was “sitting in California” at the time of Fed deliberations and “wasn’t involved in anything having to do with it.”

Yellen, echoing Fed Chairman Ben S. Bernanke and other federal regulators, said government officials need the authority to close down non-bank financial institutions.

‘Orderly Wind-Down’

Congress should “pass legislation that would provide for the orderly wind-down of a non-bank institution,” she said. “I’m sure it would have been used in the case of Lehman,” Yellen said, while declining to label the decision not to rescue Lehman an error.

Without a suitable “tool box,” Fed officials have been forced to improvise throughout the credit crisis.

“Bear Stearns, Lehman, AIG -- these have all been horrendous, miserable situations,” Yellen said. “We’re pushing the envelope of our powers, but we’re choosing to do that because the consequence of failing to do that seem unthinkable.”

Before joining the San Francisco Fed, Yellen served as a member of the Fed’s Board of Governors from 1994 to 1997. She left that post to become Chairman of the White House Council of Economic Advisers under former President Bill Clinton.

Policy Tools

Yellen also said she no longer opposes using the central bank’s policy tools to avert harmful asset-price bubbles similar to the one in U.S. housing this decade.

“Now that we face the tangible and tragic consequences of the bursting of the house price bubble, I think it is time to take another look,” she said in her speech. “What has become patently obvious is that not dealing with certain kinds of bubbles before they get big can have grave consequences.”

Yellen’s remarks make her at least the second Fed official after Gary Stern, of Minneapolis, to rethink the central bank’s hands-off approach toward bubbles, an article of faith during former Chairman Alan Greenspan’s 18-year tenure. The Fed’s low interest-rate targets between 2002 and 2004 were partly to blame for the easy credit and housing-price escalation that led to the current financial crisis, the San Francisco bank president said.

“I would not advocate making it a regular practice to use monetary policy to lean against asset price bubbles,” Yellen said in a speech at the conference. “However, recent experience has made me more open to action. I can now imagine circumstances that would justify leaning against a bubble with tighter monetary policy.”

Long-Held Ideas

While Yellen’s remarks are unlikely to result in immediate monetary-policy changes, they demonstrate how officials are questioning long-held ideas about the Fed’s role in markets. Yellen has led the San Francisco Fed since 2004.

A report yesterday showed that San Francisco Bay Area home prices fell a record 46 percent in March from a year earlier, the 16th month of declines.

Data released this week on employment and other areas of the economy suggest that the U.S. slump is easing. The reports buttress Bernanke’s assessment this week that the “sharp decline” in the economy appears to be moderating.

The economy, in areas such as home sales and consumer confidence, is showing “tentative signs” that the decline is slowing, Bernanke said in an April 14 speech in Atlanta. He added that “a leveling out of economic activity is the first step toward recovery.”

The central bank said in its Beige Book business survey on April 15 that the contraction slowed across several of the biggest regional economies last month, with some industries “stabilizing at a low level.”

“While we’ve seen some tentative signs of improvement in the economic data very recently, it’s still impossible to know how deep the contraction will ultimately be,” said Yellen, 62, who votes on rates this year.

To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net; Michael McKee in New York at mmckee@bloomberg.net;

Read more...

Tokyo Gas Profit Falls as Recession Cuts Fuel Demand

By Takehiko Kumakura and Shigeru Sato

April 17 (Bloomberg) -- Tokyo Gas Co., Japan’s largest natural-gas supplier, said profit fell 3.5 percent in the year ended March 31 as the recession cut fuel demand.

Net income declined to 41 billion yen ($413 million) from 42.49 billion yen a year earlier, the company said in a preliminary earnings statement filed to the stock exchange today. Tokyo Gas is due to announce its final earnings on April 28.

A deepening recession slashed the country’s industrial output and cut into gas demand from manufacturers in Tokyo and surrounding prefectures. Fuel sales volumes likely dropped in the fiscal year ended March, the gas supplier said last month, the first annual decline since 1977.

Full-year revenue rose 13 percent to 1.687 trillion yen, the utility said in today’s statement.

Tokyo Gas imports liquefied natural gas and distributes the fuel by pipeline to about 10 million customers in and around the capital. LNG is natural gas chilled to liquid form for transportation by ship to destinations not connected by pipeline. On arrival, it’s turned back into gas for distribution to power plants, factories and households.

To contact the reporters on this story: Takehiko Kumakura in Tokyo at tkumakura@bloomberg.net; Shigeru Sato in Tokyo at ssato10@bloomberg.net.

Read more...

Oil Set for Biggest Weekly Decline Since February on Recession

By Ben Sharples

April 17 (Bloomberg) -- Crude oil fell, poised for the biggest weekly decline since February, amid forecasts the recession will curb demand at a time when U.S. inventories are already at their highest in almost 19 years.

U.S. crude-oil inventories rose 5.67 million barrels to 366.7 million last week, the highest since September 1990, the Energy Department said April 15. The International Energy Agency reported April 10 that worldwide consumption will shrink by 2.8 percent in 2009 as the global economy contracts.

“The demand outlook continues to look quite bleak,” said Toby Hassall, an analyst at Commodity Warrants Australia Ltd. in Sydney. “The fundamentals of the oil market haven’t really shown any signs of improvement.”

Crude oil for May delivery fell as much as 48 cents, or 1 percent, to $49.50 a barrel, and traded at $49.65 at 2:59 p.m. Singapore time on the New York Mercantile Exchange. Oil has dropped 5 percent this week, set for its sharpest decline since the week ended Feb. 13.

Oil in New York has tumbled 66 percent from a record $147.27 a barrel in July as the recession in major consuming countries curbed fuel demand.

U.S. fuel demand in the first quarter fell to the lowest for the period in 11 years, the American Petroleum Institute said in a monthly report yesterday. Deliveries of petroleum products, a measure of consumption, averaged 19.2 million barrels a day, 3.4 percent less than during the same period in 2008, the industry-funded API said.

Jobless Claims

Oil futures are up 12 percent so far this year. Crude climbed as much as 2.5 percent yesterday after the Labor Department reported that claims decreased by 53,000 to 610,000 in the week ended April 11, the fewest since January. Chinese industrial production expanded by 8.3 percent in March from a year earlier, up from 3.8 percent in the first two months, the statistics bureau said yesterday in Beijing.

“It’s sort of a contest between hope and reality,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “A lot of these numbers that have bounced have bounced from extremely low levels, and so it only makes the markets a little less bearish. It doesn’t necessarily make them bullish.”

The Federal Reserve said in its Beige Book business survey April 15 that economic contractions were slowing or stabilizing in San Francisco, the largest district, as well as in New York, Chicago, Kansas City and Dallas.

‘Badly Calibrated’

The IEA’s forecast is excessive and “badly calibrated,” according to analysts at Barclays Capital. The bank, the Organization of Petroleum Exporting Countries and the U.S. Energy Information Administration predict demand will decline about half as much.

OPEC will load about 22.2 million barrels a day in the four weeks ending May 2, down from 22.8 million a day in the month ended April 4, Oil Movements, the Halifax, England-based tanker- tracker, said yesterday in a report.

OPEC agreed at three meetings last year that the 11 members with quotas would cut output by 4.2 million barrels a day to 24.845 million. The members with production targets, all except Iraq, pumped 25.567 million barrels a day in March, according to a monthly report the organization released April 15.

West Texas Intermediate crude oil, the U.S. benchmark, will average $45 a barrel in 2009, according to a report from Moody’s Investors Service. That’s down from the rating company’s previous estimate that prices would average $50 this year. WTI is forecast to average $50 in 2010, down from a previous forecast of $55.

“There’s potential for oil prices to slide off the current plateau and fall back to perhaps a number like $40 a barrel, just because inventories are at such an elevated level and may not have peaked yet,” Citi Futures’ Evans said.

Brent crude oil for June settlement was at $53 a barrel, down 6 cents, at 3 p.m. Singapore time on London’s ICE Futures Europe exchange.

To contact the reporter on this story: Ben Sharples in Melbourne bsharples@bloomberg.net

Read more...

India’s Rupee May Advance to 47 in Six Months, Barclays Says

By Anoop Agrawal

April 17 (Bloomberg) -- India’s rupee may strengthen almost 6 percent to reach 47 a dollar in six months on better prospects for global growth and an increase in foreign investment, according to Barclays Plc.

Asia’s third-biggest economy may see a recovery in the three months ending Dec. 31, after the growth rate reaches a “bottom” in the prior quarter, helping the nation post a balance of payments surplus in the second half of the year, Sailesh Jha, an economist at the world’s third-largest currency trader, wrote in a research report dated yesterday. He had forecast last month that the rupee would drop to a record-low 56 by end-June.

“In our view, the government believes that the worst of the slowdown in growth is over,” Singapore-based Jha wrote. “The risks to our growth forecast are tilted to the upside versus our previous assessment of risks to the downside.”

The rupee traded at 49.77 per dollar as of 10:34 a.m. in Mumbai, according to data compiled by Bloomberg. It has rallied 5 percent since touching a record low of 52.185 on March 3.

The median estimate of 25 strategists surveyed by Bloomberg News is for the rupee to weaken to 50 by end-September and to reach 48.98 by the end of the year.

Barclays maintained its growth forecast for India at 4 percent in the fiscal year that started April 1. The economy expanded 5.3 percent in the three months through Dec. 31, the slowest pace in six years. Growth in the year that ended March 31 may have dipped below the government’s target of 7 percent, Prime Minister Manmohan Singh said March 13.

End of Cycle

The Reserve Bank of India will keep interest rates unchanged on April 21, Jha predicted, adding that the cycle of reductions may be approaching an end. Governor Duvvuri Subbarao has slashed the benchmark overnight lending rate, or repurchase rate, five times since mid-October to 5 percent, the lowest level since it was introduced in 2000.

The central bank will also leave the proportion of cash lenders must set aside to cover deposits unchanged, Jha said.

Indian equity purchases by foreign funds exceeded sales by $766 million this month through April 15, five times their net purchases in all of March, according to data from the stock market regulator.

The deficit in India’s balance of payments widened to a record $17.9 billion in the three months to Dec. 31, compared with a shortfall of $4.7 billion the previous quarter.

To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.

Read more...

Thai Baht Falls Amid Political Turmoil, Economic Contraction

By Shanthy Nambiar

April 17 (Bloomberg) -- Thailand’s baht fell as the government maintained a state of emergency for a sixth day and global funds sold the nation’s assets on concern the political turmoil with deepen.

The currency has slid 1.5 percent in the past three months, the second-worst performance among the 10 most-active Asian currencies excluding the yen, as protests undermined the government’s ability to counter the economic slump. Fitch Ratings and Standard & Poor’s cut the nation’s debt ratings this week. Sondhi Limthongkul, the Thai media owner whose protest group helped oust three prime ministers, was shot and wounded in an assassination attempt today.

“Recent events have just reaffirmed our bearish view on the baht,” said Usara Wilaipich, a Bangkok-based economist at Standard Chartered Bank Plc. “The risk for the gross domestic product is still on the downside.”

The baht weakened 0.2 percent to 35.44 per dollar as of 11:48 a.m. in Bangkok, and was little changed from last week, according to data compiled by Bloomberg. It may decline to 37 by the end of June, Usara said.

The currency may retreat to 36.5 by the end of this year, according to the median estimate of 18 analysts in a Bloomberg News survey.

Fitch lowered its rating for Thai foreign-currency debt yesterday by one level to BBB, the second-lowest investment grade, the first downgrade since the 1997-1998 Asian financial crisis. Standard & Poor’s Ratings Services earlier this week trimmed the local-currency rating by one level to A-.

Assassination Attempt

Troops broke up violent demonstrations in Bangkok this week, ending a siege of the premier’s office and leaving two dead and 135 people injured. Sondhi, a supporter of Prime Minister Abhisit Vejjajiva, leads opposition to the return of former Thai leader Thaksin Shinawatra, now living in exile.

“The inability of successive governments to resolve disruptive civil unrest” has led to a deterioration in Thailand’s creditworthiness, Vincent Ho, an associate director in Fitch’s sovereign group, said yesterday.

Global funds sold 2.7 billion baht ($76 million) more Thai stocks than they bought yesterday, the most since Sept. 4, according to stock exchange data.

Thailand’s economy may contract between 4.5 percent and 5 percent this year, more than an earlier forecast, the Nation reported, citing Finance Minister Korn Chatikavanij. Korn had earlier said the economy may shrink 3 percent in 2009.

“We could see negative GDP growth every quarter,” said Standard Chartered’s Usara, who expects the economy to shrink 3.5 percent this year.

Consumer confidence fell in March to the lowest level in more than seven years, the University of the Thai Chamber of Commerce said on April 9.

To contact the reporters on this story: Shanthy Nambiar in Bangkok at snambiar1@bloomberg.net.

Read more...

Euro to Fall to $1.30 in Month on Late Europe Recovery, UBS Says

By Justin Carrigan

April 17 (Bloomberg) -- The euro will trade at $1.30 in a month as the recovery in the 16-nation currency region lags behind that of the U.S., according to UBS AG.

“Traditionally, the U.S. economy picked up ahead of the U.K., Asia and the eurozone,” a team of UBS strategists including Gareth Berry in London wrote in an e-mailed report today. “Accordingly, we would favour to be long the dollar and pound against the eruo. The euro is struggling despite resilience in risk appetite.”

The euro was at $1.3096 as of 7:27 a.m. in London today.

To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net

Read more...

Korean Won Headed for Sixth Weekly Gain as Economic Woes Ease

By Kim Kyoungwha

April 17 (Bloomberg) -- South Korea’s won was headed for a sixth weekly gain, its best winning streak in 18 months, on optimism record-low borrowing costs and government stimulus plans will help salvage an economy on the brink of recession.

The currency has gained 4.1 percent versus the dollar so far this month, after surging 11 percent in March, as signs a global recession is abating bolster demand for emerging-market assets. Sales at the nation’s major department stores rose in March on purchases of luxury goods, food and cosmetics, a government report showed today.

“Overall the won’s uptrend is valid though the pace of gains may not be as fast as last month,” said Jo Hyun Suk, a currency dealer with Korea Exchange Bank in Seoul. “Demand and supply of dollars are well balanced as exporters settle deals around mid-1,300, while importers buy on dips in the dollar.”

The won rose 0.3 percent to 1,328.37 per dollar as of 1:17 p.m. in Seoul, according to data compiled by Bloomberg. It touched a three-month high of 1,298.05 on April 10 and gained 0.3 percent this week.

The currency has also been supported by global funds’ purchases of local stocks. Overseas investors bought more shares than they sold on all but three days so far this month, according to Korea Exchange.

Investors pumped more money into emerging-market equities for a sixth straight week, adding $1.7 billion net through April 15 as they sought higher returns, according to Cambridge, Massachusetts-based EPFR Global, a research company that tracks $11 trillion of funds.

Sales at the nation’s three biggest department-store chains increased 4.5 percent from a year earlier, rebounding from a 0.3 percent decline in February, the Ministry of Knowledge Economy said in an e-mailed statement today.

Bonds Fall

The government’s benchmark five-year bonds declined for a second day on speculation yields near a four-week low will cool demand for the securities. The yield this week reached its lowest since March 24 after the finance ministry sold 2.83 trillion won ($2.1 billion) of the securities.

The yield on the 4.75 percent note due in March 2014 rose two basis points to 4.47 percent, according to Korea Exchange. The three-year yield added three basis points to 3.82 percent.

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

Read more...

Asia Currencies Rise This Week, Led by Rupiah, on Recovery Hope

By Kim Kyoungwha

April 17 (Bloomberg) -- Asian currencies gained this week, led by the Indonesian rupiah, as signs a global recession is easing whetted investors’ risk appetite, helping draw funds to emerging markets.

The rupiah surged 5.5 percent this week, its best performance this year, as polls suggesting President Susilo Bambang Yudhoyono will be re-elected bolstered demand for Indonesian assets. The MSCI Asia Pacific index of regional shares advanced after reports showed industrial production and investment picked up last month in China, the region’s second- biggest economy.

“I think there’s some reason for optimism, with an economic trough possibly reached,” said Naomi Fink, a senior currency analyst with Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. “In Asia, China’s March data was one hopeful signal.”

The rupiah traded at 10,720 per dollar as of 10:15 a.m. in Jakarta, compared with 10,725 yesterday and 11,310 at the end of last week. Singapore’s dollar rose 1.3 percent this week to S$1.4974 and the Malaysian riggit rose 0.4 percent to 3.6022.

Urban fixed-asset investment in China surged by almost a third in March and industrial-output growth accelerated, reports showed yesterday, boding well for growth in the rest of Asia. First-quarter GDP grew 6.1 percent, the slowest pace in almost a decade, as exports slumped.

Fund Inflows

The rupiah is the only gainer this year among Asia’s 10 most-traded currencies after Yudhoyono, who plans to stand for re-election in July, won the support of more than half of respondents in a poll following parliamentary elections last week. Indonesia yesterday raised $650 million from its first- ever international sale of Islamic dollar bonds, attracting orders for more than six times the debt on offer.

Investors pumped more money into emerging-market equities for a sixth straight week, adding to evidence risk aversion among global funds is receding. They bought a net $1.7 billion in the week through April 15, according to Cambridge, Massachusetts-based EPFR Global, a research company that tracks $11 trillion of funds worldwide.

The yen declined to 99.49 a dollar from 99.27 yesterday in New York, while the dollar traded at $1.3122 per euro versus $1.3186.

Singapore’s dollar rose this week on prospects the Monetary Authority of Singapore won’t seek devaluation after it said it sees no reason for “any undue weakening” of the city-state’s currency. The local dollar traded at S$1.4981 against the greenback, versus S$1.5138 last week.

‘Uptrend Valid’

South Korea’s won was headed for a sixth weekly gain, its best winning streak in 18 months, on optimism record-low borrowing costs and government stimulus plans will help salvage an economy on the brink of recession.

The currency has gained 4.1 percent versus the dollar so far this month, after surging 11 percent in March, as signs a global recession is abating bolster demand for emerging-market assets. Sales at the nation’s major department stores rose in March on purchases of luxury goods, food and cosmetics, a government report showed today.

“Overall the won’s uptrend is valid though the pace of gains may not be as fast as last month,” said Jo Hyun Suk, a currency dealer with Korea Exchange Bank in Seoul. “Demand and supply of dollars are well balanced as exporters settle deals around mid-1,300, while importers buy on dips in the dollar.”

The won rose 0.3 percent this week to 1,328.35 in Seoul, according to data compiled by Bloomberg. It touched a three- month high of 1,298.05 on April 10.

Elsewhere, the Philippine peso climbed 0.5 percent to 47.772 against the U.S. currency. Taiwan’s dollar was little changed at NT$33.80, compared with NT$33.795 on April 10, and the Thai baht traded at 35.42 per dollar versus 35.40.

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

Read more...

Yuan Forwards Set for Second Weekly Loss; Bonds Little Changed

By John Liu

April 17 (Bloomberg) -- Yuan forwards headed for a second weekly loss on speculation the central bank will keep the currency from rising to support exports after economic growth slumped to a nine-year low. Bonds were little changed.

Premier Wen Jiabao said on April 15 that his government has no room for “blind optimism” about the country’s economic situation, according to a statement on the Web site of the State Council yesterday. A report from China’s statistics bureau showed growth cooled to a 6.1 percent pace in the first quarter, while urban fixed-asset investment and industrial output rose.

“It’s too early to say the economy has turned around,” said Liu Xin, a Hong Kong-based currency analyst at Bank of Communications Ltd., China’s fifth-largest lender. “Yuan forwards will stay mostly rangebound, after a rally in March.”

Twelve-month non-deliverable forwards contracts dropped 0.22 percent this week to 6.7610 per dollar as of 11:37 a.m. Shanghai time, from 6.7460 on April 10, according to data compiled by Bloomberg. In the spot market, the currency traded at 6.8332, little changed from 6.8336 a week ago, according to the China Foreign Exchange Trade System.

The foundation for an economic recovery in China is not solid, Premier Wen said at a State Council meeting on April 15. The impact of the financial crisis on China is still deepening and the rebound in industrial production lacks momentum, he said.

Forwards are agreements in which assets are bought and sold at current prices for settlement at a later-specified time and date. Non-deliverable forwards are settled in dollars rather than the underlying asset.

Bonds Little Changed

China’s government bonds were little changed this week as concern record bank lending will fuel inflation kept gains in check.

“Bonds will remain little changed for some time,” said Pang Aihua, a fixed income analyst in Beijing at China Citic Bank Co., a unit of China’s biggest state investment company. “We don’t know when the economy will really rebound, and at the same time the tremendous liquidity adds to inflation risks.”

New lending by Chinese banks jumped more than sixfold last month from a year earlier to 1.89 trillion yuan ($277 billion), and M2, the broadest measure of money supply, grew 25.5 percent, the central bank said April 11.

The yield on the 1.77 percent treasury note due December 2013 was at 2.40 percent. The price of the security was 97.25 per 100 yuan face amount, according to the Interbank Bond Market. A basis point is 0.01 percentage point.

To contact the reporters on this story: John Liu in Shanghai at jliu42@bloomberg.net.

Read more...

U.K. Pound Declines Against U.S. Dollar, Advances Versus Euro

By Neil Maclucas

April 17 (Bloomberg) -- The U.K. pound dropped for a second day against the U.S. dollar.

The pound slipped to $1.4875 by 6:09 a.m. in London, from $1.4925 yesterday. It strengthened to 88.02 pence per euro, from 88.31 pence.

To contact the reporter on this story: Neil Maclucas in Zurich at nmaclucas@bloomberg.net

Read more...

Australia, N.Z. Dollars Decline on Week as Recession May Deepen

By Patricia Lui and Garfield Reynolds

April 17 (Bloomberg) -- The Australian and New Zealand dollars weakened, heading for their biggest weekly drop against the yen in two months as slower growth in China revived concerns the global recession may deepen.

The currencies declined against the greenback as U.S. housing starts fell more than economists expected and a record number of people collected U.S. jobless benefits, eroding demand for high-yield assets. They extended declines after European Central Bank President Jean- Claude Trichet said the central bank must do everything possible to restore confidence, signaling further interest-rate cuts.

“The U.S. earnings season started off pretty strongly but the biggest drag on the Australian and New Zealand dollars this week was China’s GDP,” said David Forrester, a strategist at Barclays Capital in Singapore. “There’s quite a bit of yen cross unwinding in both currencies as we are running into a big week next week for U.S. earnings especially non-financial earnings. People are scaling back and taking some profit.”

Australia’s dollar slid to 71.51 yen as of 3 p.m. in Sydney, down 0.8 percent from the end of last week, the biggest drop since the week ended Feb. 13. It declined to 71.89 U.S. cents from 72.06 cents yesterday. New Zealand’s currency dropped 2.8 percent this week to 56.83 yen, the largest slump since Jan. 23. It was trading at 57.16 U.S. cents from 57.28 cents yesterday and 58.35 cents on April 10.

The Australian currency headed for its first weekly decline against the U.S. dollar since February, declining 0.1 percent.

Kiwi More Pressured

New Zealand’s non-tradable inflation, a measure of prices not influenced by currency fluctuations and fuel, rose 0.7 percent in the three months to Dec. 31, the least in five quarters.

“The kiwi faces more pressure due to expectations that the Reserve Bank of New Zealand will embark on more aggressive policy easing,” Forrester said.

Consumer prices rose 3 percent in the year ended March 31, Statistics New Zealand said in Wellington today. Inflation slowed from 3.4 percent in the year to December and matched the median estimate in a Bloomberg News survey of nine economists. From the fourth quarter, prices rose 0.3 percent.

“New Zealand inflation should still be on the Reserve Bank’s radar so further rate cuts will come at a slower pace,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “There may also be concerns that Australia’s underlying inflation is going to remain stronger than some are expecting.”

‘Severe Recession’

The “severe” global recession will last throughout 2009, Pacific Investment Management Co. said in a report on its Web site on the outlook for markets in the second quarter. Newport Beach, California-based Pimco is manager of the world’s biggest bond fund.

Australia’s dollar may trade between 72 and 72.5 U.S. cents while New Zealand’s is likely to hover around 57.40 to 57.50 U.S. cents, Carr said.

U.S. housing starts fell 11 percent to a 510,000 annual rate, lower than estimated by economists surveyed, the Commerce Department said yesterday. The number of people collecting U.S. benefits jumped to a record 6.02 million in the week to April 5, according to a Labor Department report.

“The latest release questions the belief that a strong bottom is forming in the U.S. housing sector, leave alone expectations of a recovery in the near future,” Matthew Strauss, senior currency strategist in Toronto at RBC Capital Markets, wrote in a research note yesterday. The Australian and New Zealand dollars “underperformed during the last 24 hours after disappointing Chinese GDP data.”

Australian Bonds

Australian government bonds fell for the first time in three days, pushing the 10-year yield up one basis point, or 0.01 percentage point, to 4.52 percent. The price of the 5.25 percent security due in March 2019 slid 0.08, or 80 Australian cents per A$1,000 face value, to 105.81, Bloomberg data show.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, advanced to 3.68 percent from 3.64 percent yesterday.

To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.netGarfield Reynolds in Sydney at greynolds1@bloomberg.net.

Read more...

Euro Weakens After Trichet Says ECB Must Do Everything Possible

By Ron Harui

April 17 (Bloomberg) -- The euro fell to a one-month low against the dollar after European Central Bank President Jean- Claude Trichet said the central bank must do everything possible to boost confidence, signaling he may cut interest rates further.

The Dollar Index rose for a fourth day before a U.S. report today that may show consumer confidence in the world’s largest economy increased for a second month, adding to evidence its recession may be easing. South Korea’s won headed for a sixth weekly advance, its longest winning streak in 18 months, on optimism record-low borrowing costs and government stimulus plans will help encourage economic growth.

“Economies around the world, particularly Europe, are still in a recession,” said Yuji Saito, head of the foreign- exchange group in Tokyo at Societe Generale SA, France’s third- largest bank. “ECB officials are increasing their rhetoric that they’ll cut rates. The bias for the euro is to the downside.”

The euro dropped to $1.3092 as of 7:27 a.m. in London from $1.3186 in New York yesterday. It fell as low as $1.3068, the weakest since March 18, and was set for a second weekly loss. The currency slid to 130.27 yen from 130.90 yen. The dollar was at 99.51 yen from 99.27 yen, poised for a second weekly loss.

The won gained 0.1 percent this week to 1,332 per dollar, according to Seoul Money Brokerage Services. It touched a three- month high of 1,298.05 on April 10 and was little changed today.

Trichet also said in a speech in Tokyo today that any uncertainty about the direction of policy will postpone a recovery in the 16-nation region’s economy, damping speculation there is policy disagreement within the central bank.

‘Ambiguity’

“Any ambiguity in our medium-term policy direction would delay the return of sustainable prosperity, because that would undermine confidence, which is the most precious ingredient in the present circumstances,” Trichet said.

ECB council member Axel Weber said April 15 the bank shouldn’t cut rates below 1 percent, putting him at odds with policy makers who say borrowing costs must fall close to zero. Council members George Provopoulos from Greece and Athanasios Orphanides of Cyprus have indicated they may support cutting the 1.25 percent target rate below 1 percent and purchasing debt to pump money into the economy.

The ECB will lower its benchmark rate by a quarter- percentage point to 1 percent at its May 7 meeting, according to a Bloomberg News survey of economists.

The yen fell against eight of the 10 most-traded Asian currencies outside Japan on speculation a gain in stocks will spur investors to purchase riskier assets. The MSCI Asia-Pacific Index of regional shares rose 0.8 percent and the Nikkei 225 Stock Average climbed 1.7 percent.

‘Fear Gauge’

The VIX index, a measure of market volatility known as Wall Street’s “fear gauge,” fell as low as 34.88 yesterday, the least since Sept. 26, indicating traders are becoming more confident about stock market advances.

“When investors are in the mood to take on risk, they sell the yen and the dollar,” said Michiyoshi Kato, senior vice president of foreign-currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest bank by assets.

The Dollar Index advanced before the Reuters/University of Michigan preliminary index of consumer sentiment is released today. Sentiment increased to 58.5 in April from 57.3 in March, according to a Bloomberg survey of economists.

Initial jobless claims in the U.S. fell by 53,000 to 610,000 in the week ended April 11, the fewest since January, the Labor Department said yesterday in Washington.

‘Long’ Dollar

“Traditionally, the U.S. economy picked up ahead of the U.K., Asia and the euro zone,” Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut, wrote in a research note yesterday. “Accordingly, we would favor to be long the U.S. dollar and the British pound against the euro.” A long position is a bet that an asset will rise.

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, rose 0.6 percent to 85.744.

South Korea’s currency has gained 4 percent versus the dollar this month, after surging 11 percent in March, as signs the global recession is abating bolster demand for emerging- market assets.

“Overall the won’s uptrend is valid though the pace of gains may not be as fast as last month,” said Jo Hyun Suk, a currency dealer with Korea Exchange Bank in Seoul. “Demand and supply of dollars are well balanced as exporters settle deals around mid-1,300, while importers buy on dips in the dollar.”

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

Read more...

Indonesian Coffee, Coal Production May Drop on Prolonged Rains

By Naila Firdausi

April 17 (Bloomberg) -- Western parts of Indonesia may experience a prolonged wet season in the second quarter of this year, potentially reducing coffee yields and cutting coal production, the weather office said.

Most parts of Sumatra, a coffee and coal-producing region, and Kalimantan, the biggest coal supplier along with Sumatra, have recorded higher first-quarter rainfall than last year.

“Sumatra will likely continue to be wet” this quarter, with a shorter than usual dry season later this year, said Soetamto, head of climatology and air-quality analysis at Indonesia’s Meteorology and Geophysics Agency.

Higher rainfall this year has already resulted in lower coal and coffee production in Indonesia, the world’s largest exporter of thermal coal and Asia’s second-biggest coffee grower.

First-quarter production at PT Berau Coal in East Kalimantan was 3 million metric tons, 90 percent of the target, partly because of rains, said Berau’s President Director Bob Kamandanu. “In the second quarter, we’ll likely only mine 3.3 million tons of the 4.3 million-ton target,” he said in a phone interview in Jakarta. “We’ll boost output in the second half to meet our target of 14.7 million tons for this year.”

Last month, Association of Indonesian Coffee Exporters Chairman Hassan Widjaja cut the country’s estimated coffee output by 20 percent to 320,000 metric tons after rains affected crops in Sumatra.

El Nino Phenomenon

While western Indonesia receives heavier rains, precipitation in eastern provinces, including the biggest rice producer Java, has been the same as last year, the office said.

“We see weak indications of an El Nino forming in August, which may affect Papua and Maluku,” Soetamto said. “In the equatorial Pacific there is a weak warming trend, which could suggest El Nino. We’re monitoring this indication to see if it’s getting stronger.”

The El Nino weather pattern typically results in droughts in Indonesia. If it strengthens and affects wider areas of the country, it may delay the beginning of the rice-planting season, the staple crop for Indonesia’s 243 million people.

To contact the reporters on this story: Naila Firdausi in Jakarta at nfirdausi@bloomberg.net

Read more...

Kagara Says Received Approaches for Sale of IPO Gold Assets

By Jesse Riseborough

April 17 (Bloomberg) -- Kagara Ltd., an Australian zinc and copper producer, has received approaches for its gold assets that are being readied for a A$150 million ($108 million) initial share sale in July to help reduce debt.

“We are not just confining ourselves to the IPO route,” Joe Treacy, a director with Perth-based Kagara, said today in an interview. “We’ve also had quite a lot of expressions of interests from other companies who are in the gold space looking for gold assets.”

Kagara is divesting the gold assets to help repay A$150 million of debt and is in refinancing talks with lenders, Treacy said. Rio Tinto Group and Alcoa Inc. are among global mining companies selling shares, bonds or assets to trim debt and boost cash as the global recession crimps demand, cuts metals prices and slashes earnings.

“We will be guided at the end of the day by what the market can bear,” Treacy said. “At the end of the day, we will weigh up all those options.”

Kagara jumped to a six-month high in Sydney trading, gaining 14 percent to 98 cents at 3:16 p.m. Sydney time on the Australian stock exchange. The stock has more than doubled this month and has a market value of A$250 million.

“We are not seeing anything unusual” on the share register, Treacy said. This month’s rebound in copper and zinc prices has also boosted the stock, he said.

To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net

Read more...

Japan, Australia Futures Climb on U.S. Earnings, Jobless Claims

By Patrick Rial

April 17 (Bloomberg) -- Japanese and Australian stock futures advanced as earnings from JPMorgan Chase & Co. and falling U.S. jobless claims lifted confidence the global recession is easing.

U.S.-traded receipts of Nomura Holdings Inc., Japan’s biggest brokerage, gained 3.4 percent from the closing share price in Tokyo yesterday. Canon Inc., the world’s largest seller of cameras, added 2.7 percent. Woodside Petroleum Ltd., Australia’s No. 2 oil and gas producer, gained 1.5 percent in U.S. trading after crude prices climbed.

Futures on Japan’s Nikkei 225 Stock Average expiring in June finished at 8,890 in Chicago, up from 8,750 in Osaka and 8,770 in Singapore. In New York, the Standard & Poor’s 500 Index jumped 1.6 percent led by technology companies.

“We’re likely to follow the strength of the U.S. market today,” Hiroaki Hiwada, strategist at Tokyo-based Toyo Securities Co., said in an interview with Bloomberg Television. “Next week we’ll see a variety of earnings releases, and that will color the market’s tone.

Futures on Australia’s S&P/ASX 200 Index added 1.1 percent to 3,827 in Sydney. New Zealand’s NZX 50 Index climbed 0.3 percent in Wellington.

The MSCI Asia Pacific Index has rallied 26 percent from a more than five-year low reached on March 9. Earnings estimates for companies included in the benchmark have started to rise from this month after a year of falling forecasts. This week, the benchmark has added 1.1 percent for a sixth-consecutive gain. That’s the longest winning streak since December 2006.

Nokia, Google

JPMorgan, the second-largest U.S. bank by assets, yesterday reported a 10 percent decline in first-quarter earnings to $2.14 billion, or 40 cents a share. That beat the average estimate of analysts surveyed by Bloomberg.

The Labor Department reported that new jobless claims decreased by 53,000 to 610,000 in the week ended April 11, the fewest since January. Crude oil for May delivery rose 1.5 percent to $49.98 a barrel in New York.

Nokia Oyj, the world’s biggest maker of mobile phones, sparked an advance by technology companies after saying demand was stabilizing. Google Inc., the world’s most popular search engine, said first-quarter profit rose 8.9 percent, exceeding analysts’ estimates.

Toshiba Corp., Japan’s largest chipmaker, is likely to see a narrower loss than currently forecast, the Nikkei newspaper reported, as chip prices have stabilized.

Nippon Yusen K.K., Japan’s biggest shipping line, and its peers may get a boost after the Baltic Dry Index, a measure of commodity-shipping costs, rose for a fourth day. The index climbed to the highest since March 31, led by a jump in rates to hire panamax vessels that haul iron ore and grains.

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

Read more...

China Economy to Rebound as Stimulus Spurs Investment

By Kevin Hamlin

April 17 (Bloomberg) -- China’s economy, the world’s third largest, may rebound this quarter as Premier When Jiabao’s 4 trillion yuan ($585 billion) stimulus package cushions the effects of the global recession.

Urban fixed-asset investment surged by almost a third in March and industrial-output growth accelerated, reports accompanying China’s gross domestic product figures showed yesterday. First-quarter GDP grew 6.1 percent, the slowest pace in almost a decade, as exports slumped.

“The economy has gained significant momentum since February,” said Sun Mingchun, an economist at Nomura Holdings Inc. in Hong Kong, who predicts the economy will expand 8 percent this year. “We still expect a V-shaped recovery.”

A pickup in China will contribute “strongly” to growth in the rest of Asia by increasing demand for commodities and products from around the region, according to the World Bank. Wen has cautioned that while the economy is in better-than- expected shape, China is yet to establish a solid foundation for a recovery.

“China has bounced and I think it’s very important,” Barclays Plc President Robert Diamond said in an interview yesterday in New York. “The impact that that can have, if we’re right and we see this continuation in stronger Asian countries, is pretty phenomenal.”

UBS AG yesterday raised its estimate for economic growth this year to as much as 7.5 percent from 6.5 percent previously and Royal Bank of Scotland increased its estimate to 7 percent from 5 percent. Merrill Lynch expects second-quarter growth of 7.2 percent, climbing to 8 percent for 2009.

Newman’s Optimism

“China got its stimulus plan started months ahead of the U.S. and it’s really working,” said Frank Newman, chairman of Shenzhen Development Bank, who served as a deputy secretary at the U.S. Treasury from 1994 to 1995. “We see a lot of it in action because we are financing it.”

Economists have been increasing their forecasts since February. The median estimate of 15 surveyed by Bloomberg News before the release of yesterday’s data was for 7.7 percent growth this year, up from 7.2 percent in February.

Nissan Motor Co. said its sales of passenger cars in China rose 36 percent in March from a year earlier as stimulus measures boosted confidence and attracted more buyers into showrooms. Anhui Conch Cement Co., China’s biggest maker of the building material, said this month that sales volume jumped 15 percent in the first quarter from a year earlier.

Wen’s Target

The government has targeted 8 percent economic growth for the year, a level deemed necessary to create enough jobs for its growing population.

The closure of thousands of factories has cost the jobs of millions of migrant workers, raising the risk of social unrest as China approaches the anniversary of the anti-government protests and crackdown in Tiananmen Square in June 1989.

While stimulus measures have started to produce results, China faces faltering export demand, industrial overcapacity, unemployment and weak private investment sentiment, Wen said yesterday. A rebound in industrial-output growth lacks momentum, the premier said.

“Growth may have bottomed out in the first quarter but with private sector and overseas demand still weak, China will not emerge from this downturn as rapidly as it went in,” said Mark Williams, an economist with Capital Economics Ltd. in London.

Profits Decline

Profits earned by industrial companies fell 37 percent in the first two months of the year. Those earnings contributed four times as much to investment as bank lending and government spending combined last year, according to Williams.

“It seems wishful thinking to conclude, as many are, that China is on the cusp of a rapid rebound,” he said.

China’s expansion contrasts with recessions around the world. The Organization for Economic Cooperation and Development predicts 6.3 percent growth for China this year, compared with a 4 percent contraction in the U.S. and a 6.6 percent decline in Japan.

Wen’s stimulus, plus a decision by the central bank to remove lending caps in November, helped new loans jump more than six times to 1.89 trillion yuan in March from a year earlier. The value of new investment projects started in the first quarter increased by 87 percent.

“March activity reports and bank-loan data show that the economy is gaining speed heading into the current quarter,” said Frank Gong, head of China research at JPMorgan Chase & Co. in Hong Kong. “Fixed investment is accelerating as major infrastructure projects break ground.”

To contact the reporter on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net;

Read more...

Oil Falls Amid High U.S. Stockpiles, Forecasts of Weaker Demand

By Margot Habiby and Mark Shenk

April 17 (Bloomberg) -- Crude oil fell and was poised for its biggest weekly decline since February, amid forecasts the recession will curb demand at a time when U.S. inventories are already at their highest in almost 19 years.

U.S. crude-oil inventories rose 5.67 million barrels to 366.7 million last week, the highest since September 1990, an Energy Department report showed April 15. The International Energy Agency reported on April 10 that worldwide consumption will shrink by 2.8 percent in 2009 as the global economy contracts by 1.4 percent.

“I think there’s potential for oil prices to slide off the current plateau and fall back to perhaps a number like $40 a barrel, just because inventories are at such an elevated level and may not have peaked yet,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York.

Crude oil for May delivery fell as much as 48 cents, or 1 percent, to $49.50 a barrel and was at $49.74 at 9:19 a.m. Sydney time on the New York Mercantile Exchange. Oil has dropped 5 percent this week, poised for its sharpest decline since the week ended Feb. 13.

Oil in New York has tumbled 66 percent from a record $147.27 in July as the recession in major consuming countries curbed fuel demand.

U.S. fuel demand in the first quarter fell to the lowest for the period in 11 years, the American Petroleum Institute said in a monthly report yesterday. Deliveries of petroleum products, a measure of consumption, averaged 19.2 million barrels a day, 3.4 percent less than during the same period in 2008, the industry-funded API said.

Jobless Claims

Prices are up 12 percent so far this year and rose 73 cents, or 1.5 percent, yesterday to settle at $49.98 a barrel.

Oil climbed as much as 2.5 percent after the Labor Department reported that claims decreased by 53,000 to 610,000 in the week ended April 11, the fewest since January. Chinese industrial production expanded by 8.3 percent in March from a year earlier, up from 3.8 percent in the first two months, the statistics bureau said yesterday in Beijing.

“It’s sort of a contest between hope and reality,” Citi Futures’ Evans said. “A lot of these numbers that have bounced have bounced from extremely low levels, and so it only makes the markets a little less bearish. It doesn’t necessarily make them bullish.”

The Federal Reserve said in its Beige Book business survey April 15 that economic contractions were slowing or stabilizing in San Francisco, the largest district, as well as in New York, Chicago, Kansas City and Dallas.

‘Badly Calibrated’

The IEA’s forecast is excessive and “badly calibrated,” according to analysts at Barclays Capital. The bank, the Organization of Petroleum Exporting Countries and the U.S. Energy Information Administration predict demand will decline about half as much.

OPEC will load about 22.2 million barrels a day in the four weeks ending May 2, down from 22.8 million a day in the month ended April 4, Oil Movements, the Halifax, England-based tanker- tracker, said yesterday in a report.

OPEC agreed at three meetings last year that the 11 members with quotas would cut output by 4.2 million barrels a day to 24.845 million. The members with production targets, all except Iraq, pumped 25.567 million barrels a day in March, according to a monthly report the organization released April 15.

“Trying to guess the oil price is difficult,” Iain Conn, BP’s head of refining and marketing, said in an interview in London yesterday. “It’s about a race between demand and OPEC discipline. I believe it is perfectly reasonable to assume that we will see the moderate oil prices we see today for some time.”

West Texas Intermediate crude oil, the U.S. benchmark, will average $45 a barrel in 2009, according to a report from Moody’s Investors Service. That’s down from the rating company’s previous estimate that prices would average $50 this year. WTI is forecast to average $50 in 2010, down from a previous forecast of $55.

Brent crude oil for June settlement rose 62 cents, or 1.2 percent, to $53.06 a barrel on London’s ICE Futures Europe exchange.

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

Read more...