Asian Market Update

Daily Forex Fundamentals | Written by Trade The News | May 15 09 06:34 GMT |

Japan Machine Orders Recover, but Government Officials Remain Cautious; Rio Tinto Recovers on Bilateral Confirmation of Commitment to Chinalco Deal; New Zealand Retail Sales Take a Tumble as IMF Urges More RBNZ Easing Asian equity markets are tracking Wall St. recovery in the wake of the retail sales selloff the day before, while also cheering improving fundamentals at home. In Tokyo, Nikkei225 entered the final hour trading around session highs just below the 9,260 level, up 1.6%. Earlier, Japan reported machine orders for the month of March beating consensus estimates of -4.6% at -0.4%. On a yearly basis, -22.2% March figure vs estimates of -27.1% was also the highest level for machine order activity since October. In second-tier Japan data, corporate goods price index for April was below estimates of +0.2% at -0.4%, while Y/Y figure came in at a multi-year record low of -3.8% - also missing forecasted -3.0% - in a reminder of the feeble state of consumer inflation. In the prior session, Japan's media speculated that the government would consider raising its economic assessment in May for the first time in over 3 years, however Finance Minister Yosano negated those rumors, suggesting that domestic economy is not on a path of recovery just yet but merely showing signs of a slower decline. In corporate developments, financials and consumer/tech led the broader Nikkei index, with the former awaiting earnings afterhours and the latter responding to better than expected results in the prior session. Sony, Sanyo, and Tokyo Electron were all up 6% and Konica was up 8% at midday break on narrower loss expectations in the current year, as traders reacted to overstated expectations of demand slump. In financials, Mizuho is reportedly considering an equity raise composed of ¥600B in common stock and approximately ¥200B of preferred securities - about 31% of the company's market cap. In Sydney, S&P/ASX traded off session highs but was still up over 1.3% just ahead of close. Miners Rio Tinto and BHP drove the gainers with the former rising 8% on stated joint commitment to Chinalco deal from both sides. Rio Tinto management, who in contrast to shareholder base is seeking to finalize the tie-up, noted there was little reason for recent decline as the company remained committed to the deal. Similar sentiment was subsequently heard from Chinalco VP, who was said to be looking forward to getting the deal passed through regulatory bodies. On a related note, BHP was rumored to help Rio finance its rights offering if it chose not to proceed on Chinalco tie-up. In other Aussie names, Santos continued trading higher in the wake of the A$1.75B institutional share sale, along with US session strength in crude prices. RBA Corbett suggested that domestic economy should be allowed to enter a recession, with excessive stimulus leading to steep global inflation down the line. New Zealand retail sales fell unexpectedly in March, declining 0.4% on headline basis but rising 0.5% minus autos. Q1 ex-inflation retail sales fell 2.9%, the worst decline on record since at least 1995. Earlier, IMF suggested that while the announced stimulus would cushion the economy, additional monetary policy easing below the current 2.5% rate may be warranted. Additionally, PM Key suggested that further RBNZ reductions were possible even as initial "green shoots" in the economy were visible. Elsewhere in Asia, Hong Kong's Chief Executive Tsang implied that the govt may soon downgrade its 2009 GDP forecast. In contrast, South Korea's Finance Minister Yoon said the economy was unlikely to suffer another quarterly contraction, having skirted a recession with a positive Q1 figure after a 5.1% drop in Q4 GDP. In currencies, US dollar drifted before rallying on the heels of a worse than expected GDP from Germany. EUR/USD fell below 1.36 and USD/CHF rose toward 1.1080. Late session risk aversion also lifted Japanese Yen, with USD/JPY falling below 95.60 after trading around 96.20 at best session levels. In commodity FX, NZD was hurt by poor retail sales data, trading down to 0.59 from intraday highs of 0.5985, while AUD/USD traded in a narrower range of 0.7580-0.76, and USD/CAD rose to session highs above 1.1720. Crude oil prices are little changed at the time of writing, after rising by more than 0.50% during the NY session, inline with the increase in US equities. In terms of fundamentals, the IEA, in it its monthly report, lowered its oil demand forecast for the 9th consecutive month, after OPEC did the same thing in its monthly report which was released on 5/13 . The IEA added that in April, global oil supplies rose by 230K bpd and OPEC crude supplies increased by 270K bpd. Spot Gold is little changed and has been range bound ahead of tomorrow's release of US April CPI and March net long-term TIC flow data. Overall gold prices are on track for their second consecutive weekly gain. Trade The News Staff Trade The News, Inc. Legal disclaimer and risk disclosure All information provided by Trade The News (a product of Trade The News, Inc. "referred to as TTN hereafter") is for informational purposes only. Information provided is not meant as investment advice nor is it a recommendation to Buy or Sell securities. Although information is taken from sources deemed reliable, no guarantees or assurances can be made to the accuracy of any information provided. 1. Information can be inaccurate and/or incomplete 2. Information can be mistakenly re-released or be delayed, 3. Information may be incorrect, misread, misinterpreted or misunderstood 4. Human error is a business risk you are willing to assume 5. Technology can crash or be interrupted without notice 6. Trading decisions are the responsibility of traders, not those providing additional information. Trade The News is not liable (financial and/or non-financial) for any losses that may arise from any information provided by TTN. Trading securities involves a high degree of risk, and financial losses can and do occur on a regular basis and are part of the risk of trading and investing.

Read more...

Forex Technical Update

Daily Forex Technicals | Written by India Forex | May 15 09 06:58 GMT |

Rupee: Rupee as expected took the resistance at 50 yesterday and has appreciated 50 paisa (please refer our chart sent yesterday). The bias for rupee prior the election results of being strong has been met, thus we recommend booking profits and squaring off the Dollar shorts in the market. Let the election results decide the rupee direction for initiating the fresh positions on Monday. (USD/INR : 49.49). Neutral to Short Term Bullish. Euro: Euro gained support from the 200-Day EMA at 1.3525 and has risen 100 pips from there. The outlook continues to remains bullish above 1.34, however with the daily and 4-hourly charts getting overbought correction from 1.3790 resistance could be witnessed. Cautious shorts could be considered at those levels, else buy at deeper corrections. (Eur/Usd:1.3637). Bullish above 1.3400. Pound: Cable's fall was restricted around 1.5058 (as expected yesterday) from where it gained momentum and surged close to 200 pips. The 4-hourly charts is overbought with initial resistance remaining at 1.5350 (previous high). Look for opportunities to short around 1.5350 for 80-100 pips. Alternatively, buying at dips around 1.51 could be considered. We expect cable to remain bullish for a short term.(Gbp/Usd: 1.5226). Short Term Bullish Yen: Usd/Jpy pair has broken the 96.00 support and headed lower to 95.10 levels. Although the charts are getting oversold and some upside could be witnessed, sustained trading below 96.00 levels may bring a test of 93.50 levels. Stay cautious. (Usd/Jpy: 95.91). Australian Dollar: Aussie bounced back from 0.7464 low yesterday and is now trading close to 0.7600 levels. The 4-hourly charts are getting overbought. Crucial resistance remains at 0.78 levels which could be considered as an opportunity to initiate shorts for 80-100 pips. (Aud/Usd: 0.7597) Gold: Gold moved in a small range of $8 yesterday. The daily charts are overbought showing slight correction with $910 as support. Initiate longs within $906-910 levels. Bias of gold remains bullish overall. (Gold- 925.42) Dollar Index: Our overall bias for the dollar remains bearish for DX below 83 levels. Thus selling dollars at every up-tick can be considered for the majors (Refer chart on our website). Neutral to Bearish (DI- 82.56) India Forex http://www.indiaforex.in DISCLAIMER These views/ forecasts/ suggestions, though proferred with the best of intentions, are based on our reading of the market at the time of writing. They are subject to change without notice.Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. Those acting in the market on the basis of these are themselves responsible for any profits or losses that might occur, without recourse to us. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved.

Read more...

Forex Technical Analysis

Daily Forex Technicals | Written by DeltaStock Inc. | May 15 09 06:52 GMT |

EUR/USD Current level-1.3615 EUR/USD is in a broad consolidation, after bottoming at 1.2331 (Oct.28,2008). Technical indicators are neutral, and trading is situated between the 50- and 200-Day SMA, currently projected at 1.3064 and 1.3524. Yesterday's rebound from 1.3525 is just a part of the corrective wave below 1.3740 and there is still potential for one more downswing towards 1.3442-60 before advancing towards 1.3921. Nevertheless, a break above 1.3703 will state that the ranging mode is over and the uptrend is renewed Resistance Support intraday intraweek intraday intraweek 1.3740 1.3740 1.3921 1.4719 1.3590 1.3442 1.3244 1.2328 USD/JPY Current level - 95.89 A short-term bottom has been set at 87.12 and a large consolidation is unfolding since. Trading is situated between the 50- and 200-day SMA, currently projected at 94.12 and 99.36. The negative bias has been sustained and the pair is targeting 93.58 support zone. Immediate resistance on the upside comes at 96.70. Resistance Support intraday intraweek intraday intraweek 97.12 97.90 100.74 107.93 96.03 95.64 93.58 87.12 GBP/USD Current level- 1.5218 The pair is in a broad corrective phase, after bottoming at 1.3506. Trading is situated between the 50- and 200-day SMA, currently projected at 1.4422 and 1.5896. Still in the consolidation below 1.5352, that precedes an advance towards 1.5727. The intraday bias is neutral and will transform in bullish if we see a break above 1.5330. Important support comes at 1.4942. Resistance Support intraday intraweek intraday intraweek 1.5270 1.5370 1.5370 1.5727 1.5059 1.5090 1.4942 1.3103 DeltaStock Inc. - Online Forex & Securities Broker www.deltastock.com RISK DISCLAIMER: These analyses are for information purposes only. They DO NOT post a BUY or SELL recommendation for any of the financial instruments herein analyzed. The information is obtained from generally accessible data sources. The forecasts made are based on technical analysis. However, Delta Stock’s Analyst Dept. also takes into consideration a number of fundamental and macroeconomic factors, which we believe impact the price moves of the observed instruments. Delta Stock Inc. assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person's reliance upon the information on this page. Delta Stock Inc. shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation, losses or unrealized gains that may result. Any information is subject to change without notice.

Read more...

FX Technical Analysis

Daily Forex Technicals | Written by Mizuho Corporate Bank | May 15 09 06:26 GMT |

EURUSD Comment: Consolidating in a neat little range just under this year's highs (1.3801 on the 8th January and 1.3739 on the 19th March). Moving averages are bullish and the 9-day one pushed the Euro higher yesterday so that we formed a small 'spike low' on the daily chart. A weekly close above 1.3800 would add significant bullish momentum. Strategy: Buy at 1.3630, adding to 1.3555; stop below 1.3400. Add to longs on a sustained break above 1.3750 for 1.3800 and then 1.4000. Direction of Trade: →↗ Chart Levels: Support Resistance 1.3618 " 1.367 1.3525 1.37 1.3465 1.3722 1.3400* 1.38 1.33 1.3965 GBPUSD Comment: Little to add as we consolidate fairly neatly above the 9-day moving average which has risen to 1.5148 today. This will hopefully help to push it up towards this year's highs. Another round of buy stops is likely above 1.5500. Strategy: Buy at 1.5225, adding to 1.5150; stop well below 1.5000. Add to longs on a sustained break above 1.5375 for 1.5500 short term and then 1.5725/1.5800. Direction of Trade: →↗ Chart Levels: Support Resistance 1.5205 " 1.5249 1.5148 1.528 1.5059 1.5354/1.5375* 1.4940* 1.5535 1.4875 1.5725 USDJPY Comment: Bouncing from the bottom of a large Ichimoku 'cloud', and so far today capped by the 'neckline' of the irregular 'head-and-shoulders' top. Probably not today but next week we favour another drop and a re-test of the 50% Fibonacci retracement at 94.25 and the March low at 93.55. Strategy: Attempt shorts at 95.90, adding to 96.45; stop above 98.00. Add to shorts below 95.00 for 94.25, possibly 93.55. Direction of Trade: → Chart Levels: Support Resistance 95.79 " 96 95.5 96.2 95.10/95.00* 96.45 94.15 96.7 93.55* 97.5 EURJPY Comment: Bouncing from Fibonacci retracement support but apparently capped at the top of a very large Ichimoku 'cloud'. Chikou Span has dropped below the candles which may help to turn momentum bearish. Next week we favour a drop to the 126.00 area, maybe more. Strategy: Sell at 130.50/131.00; stop above 132.55. Add to shorts on a sustained break below 128.80 for 126.40. Direction of Trade: → Chart Levels: Support Resistance 130.40 " 131.15 129.85 132 128.87* 132.4 127.25 133 126.40/126.10* 134.40/134.85* Mizuho Corporate Bank Disclaimer The information contained in this paper is based on or derived from information generally available to the public from sources believed to be reliable. No representation or warranty is made or implied that it is accurate or complete. Any opinions expressed in this paper are subject to change without notice. This paper has been prepared solely for information purposes and if so decided, for private circulation and does not constitute any solicitation to buy or sell any instrument, or to engage in any trading strategy.

Read more...

Foreign Direct Investment in China Tumbles on Crisis

By Eugene Tang

May 15 (Bloomberg) -- Foreign direct investment in China fell for a seventh month from a year earlier as companies cut spending to weather the world’s worst financial crisis since World War II.

Investment dropped 22.5 percent to $5.89 billion in April, the commerce ministry said at a briefing in Beijing today. That compares with a 9.5 percent decline in March. For the first four months of this year, spending fell 21 percent to $27.67 billion.

Premier Wen Jiabao’s 4 trillion yuan ($586 billion) stimulus plan may counter weaker investment by Chinese and foreign companies and revive the world’s third-biggest economy. Spending on factories and property surged 30.5 percent in the first four months and new lending climbed to a record, data this week showed.

“This is a reflection of multinational companies around the world tightening their belts,” said David Cohen, an economist with Action Economics in Singapore. “The weakness is being offset by the fiscal stimulus measures of the Chinese government.”

Businesses that are partly or entirely foreign owned account for 30 percent of industrial output, 55 percent of trade and 11 percent of urban jobs, according to the commerce ministry.

“The decline is in line with the global economic crisis, showing the effect of the world recession on investments,” commerce ministry spokesman Yao Jian said at a briefing in Beijing.

Currency Gains

Besides the credit crunch, investors’ reduced expectations for the yuan to appreciate are discouraging inflows of capital, according to Wang Tao, an economist at UBS AG in Beijing. She expects “smaller but sizable foreign direct investment inflows in 2009, with a continued rise in Chinese investment abroad.”

The government has stalled gains by the currency against the dollar since July last year, aiding exporters of toys, clothes and electronics after global demand collapsed.

China recorded a 40.6 percent drop in new registrations by foreign companies in the first quarter from a year earlier, the State Administration for Industry and Commerce said in a report released this week.

Not all companies are holding back on investment as the government spurs demand by providing subsidies for purchases of vehicles and home appliances.

Volkswagen AG, the biggest overseas carmaker in China, and its local partner, China FAW Group Corp., will invest 550 million euros ($737 million) expanding capacity at a plant in western Chengdu city, the Chinese automaker said May 8. China’s vehicle sales have topped those in the U.S. this year.

To contact the reporter on this story: Eugene Tang in Beijing at eugenetang@bloomberg.net

Read more...

U.S. Regulators Clash Over Holding Bank Management to Account

By Craig Torres

May 15 (Bloomberg) -- U.S. regulators are arguing over how much influence the government should wield over bank management, pitting taxpayer protection against concern at roiling fragile financial markets.

The clash intensified as supervisors completed last week’s stress test results on the biggest U.S. banks. Federal Deposit Insurance Corp. officials sought to make top executives and boards of directors of 10 banks accountable for raising more capital by November. The Federal Reserve insisted that managers’ fates be left to boards and shareholders.

While a compromise left the matter to the companies, FDIC Chairman Sheila Bair signaled the debate isn’t done, issuing a statement May 7 that she looked forward to reviewing “corporate governance structures” with the Fed.

The exchanges are a contrast with the clear line the U.S. has taken in other industries -- the heads of General Motors Corp., American International Group Inc., Fannie Mae and Freddie Mac were all removed -- and raises questions about regulators’ handling of the financial rescue.

“It is very clear that we have a special class of corporate citizens,” said Joshua Rosner, managing director at Graham Fisher & Co., a New York research firm. “Banks get special treatment, but we don’t hold them to a higher standard.”

Senate Hearing

Lawmakers may question why bank managers aren’t being held to account by officials when the Senate Banking Committee holds a hearing with Treasury Secretary Timothy Geithner on the financial-rescue efforts May 20.

Geithner said at the conclusion of the stress tests May 7 that any financial firm needing “significant” government aid in future will be subject to a Treasury evaluation on “whether existing board and management are strong enough.”

The commercial bank that’s received the most federal-rescue money is Citigroup Inc., where Chief Executive Officer Vikram Pandit and nine of the bank’s 14 board members remain in office. The New York-based lender received $50 billion in pledges of taxpayer funds last year, with a portfolio of about $301 billion of its assets guaranteed.

Citigroup, the third-largest bank by assets, paid dividends every quarter last year, and reported losses every quarter. It wasn’t until February that the Fed re-stated “guidance” on “prudent” dividend policy. The government stress tests said Citigroup needs to raise $5.5 billion as a capital buffer to support lending even if the economy worsens.

Lewis Stays

Bank of America Corp. received the second-biggest tally of taxpayer commitments among banks so far, at $45 billion. The Charlotte, North Carolina-based bank’s CEO, Ken Lewis, remains at the helm, even after shareholders stripped him of his board chairmanship in a vote last month.

“The boards of the banks were pathetic,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “But the solution is investors in those institutions to force changes, not the government.”

The U.S. government oversees about $200 billion in investments in banks through the taxpayer-funded Troubled Asset Relief Program or TARP. Regulators’ review of the 19 largest institutions found that 10 banks needed to raise a $74.6 billion capital buffer against the risk of a worsening downturn. They set a deadline of November 9 for obtaining that reserve.

The Fed published the results of the three-month review of the 19 banks May 7, and agency heads issued individual written remarks that differed from their joint statement.

Bernanke, Dugan

Federal Reserve Chairman Ben S. Bernanke and Comptroller of the Currency John Dugan focused on the strength of the banking system and didn’t mention management or corporate governance in their statements.

Bair said she looked forward to helping review “corporate governance structures to ensure that institutions that require higher capital buffers take appropriate steps such as conserving cash, issuing new equity, converting existing capital securities, and selling assets and non-core business lines.”

Bair’s position is unique among regulators because her agency has the most at stake. The agency has guaranteed some $342 billion of debt issued by banks, insures about $4.7 trillion of bank deposits, and is responsible for managing banks in receivership.

Agreed Language

In their May 7 joint statement, the U.S. financial regulators said that the banks “will need to review their existing management and Board in order to assure that the leadership of the firm has sufficient expertise and ability to manage” their challenges.

While financial shares soared as the results of the stress tests were released last week, some investors remain concerned at the government’s role in bank management.

Officials still lack a single, coherent framework and it’s “very disconcerting,” said Richard Schlanger, a portfolio manager at Pioneer Investment Management USA Inc. in Boston, who helps manage $13 billion. Government action “is a wild card.”

In the case of GM, the Obama administration ousted CEO Rick Wagoner in March as the automaker’s reliance on Treasury loans deepened. When the former Bush administration in September seized Fannie Mae and Freddie Mac, the federally chartered housing finance companies, chief executives Daniel Mudd and Richard Syron were also removed.

AIG, the insurer that required a rescue in September after it made bad bets on credit derivatives, agreed to replace Robert Willumstad after its bailout.

“It is a very delicate balancing act,” said Kevin Petrasic, former special counsel at the Office of Thrift Supervision who is now an attorney at Paul Hastings in Washington. “You don’t want to usurp the rights of shareholders or the direction the institution is heading. You do want the government to step in and protect the taxpayer.”

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net

Read more...

Japan Machinery Orders Fell 1.3% in March as Factories Sat Idle

By Jason Clenfield

May 15 (Bloomberg) -- Orders for Japanese machinery resumed falling in March, a sign that managers remain wary of upgrading factories and equipment before an economic recovery takes hold.

Bookings, an indicator of capital investment in the next three to six months, fell 1.3 percent from February, when they gained a revised 0.6 percent, the Cabinet Office said today in Tokyo. Economists surveyed predicted a 4.6 percent drop.

Although Japan’s worst recession since World War II probably bottomed last quarter, the collapse in global demand has forced manufacturers to cut production by more than a third from last year’s peak. With factory lines sitting idle and profits falling, companies have little reason to invest in new equipment, spending that accounts for about 16 percent of the world’s second-largest economy.

“The economy is still in bad shape,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “Companies are still reluctant to make new investments.”

The Nikkei 225 Stock Average climbed 1.7 percent 2:38 p.m. in Tokyo. The yen traded at 95.81 versus the dollar from 96.10 before the report.

From a year earlier, orders fell 22.2 percent in March compared with 30.1 percent in February. The Cabinet Office said the “pace of declines has eased,” changing the wording of its assessment from “the orders trend continues to decline.”

Bookings from abroad, which aren’t included in the headline number, jumped 46.4 percent, the third-biggest monthly gain on record. The Cabinet Office doesn’t give any information about the geographic origin of the orders, though an official said China is likely to have been a source of demand.

Record Contraction

Analysts predict a government report next week will show the economy shrank at an annual 16.2 percent pace last quarter, the worst showing since records started in 1955 and the fourth contraction in a row.

Data released in the past month suggest gross domestic product may rise this quarter, albeit building from a low point.

Confidence among merchants and small businesses improved in April. Exports increased in March from a month earlier, and factory production rose for the first time in six months. Bank of Japan Governor Masaaki Shirakawa said this week that the gain in output shows the economy is “leveling out.”

“There’s been some good news, which is encouraging,” Finance Minister Kaoru Yosano said in Tokyo today. “But it’s too early to say” that the nation is on a recovery track, he added.

Low Levels

Even after showing signs of stabilizing, exports remain at little more than half of last year’s levels. Only about half the nation’s productive capacity is being used. That puts pressure on companies to cut costs and delay investments.

“Companies don’t see demand coming back,” said Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo. “We’re not going back to the old levels of growth.”

Toyota Motor Corp. estimates it will sell only 7.3 million vehicles this year, less than the 10 million it has the capacity to build. The company, which forecasts its second year of losses, said this week that it will idle three of 11 production lines at one of its domestic engine plants.

Hitachi Ltd., which last year suffered a record 787 billion yen loss, said it will try to wring 500 billion yen worth of cost savings from its operations this year. That will mean consolidation of production lines at its chip-making unit, reduced research spending and wage cuts.

Companies are getting some relief from a decline in raw- material costs, a separate report showed today. Producer prices, the costs businesses pay for energy and raw materials, tumbled 3.8 percent in April from a year earlier, the biggest slide in 22 years, the Bank of Japan said.

“The economy may hit bottom in the first half of this year,” said RBS’s Nishioka. “But any recovery will probably be very slow.”

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

Read more...

Yen May Extend Drop as Stock Gains Spur Higher-Yield Demand

By Oliver Biggadike and Ye Xie

May 15 (Bloomberg) -- The yen may extend its drop against the euro as a gain in stocks encouraged investors to buy higher- yielding assets funded with Japan’s currency.

The dollar fell yesterday against the currencies of six major U.S. trading partners on reduced demand for the greenback’s safety. The Swiss franc was little changed against the euro after a central bank governing board member said policy makers want to prevent gains in the franc.

“The correlation between the equity market and the currency market is intact,” said Vassili Serebriakov, a strategist at Wells Fargo & Co. in New York. “A bounce in stocks means a weaker U.S. dollar and a weaker yen. The market is driven by hope.”

The euro traded at 130.70 yen at 6:38 a.m. in Tokyo, after gaining 0.8 percent yesterday. The dollar was at 95.85 yen following a 0.5 percent increase. The euro traded at $1.3636 after advancing 0.3 percent.

The Dollar Index, which the ICE uses to track the U.S. currency against the euro, yen, pound, franc, Canadian dollar and Swedish krona, fell 0.3 percent to 82.28 on reduced demand for safety after earlier rising as much as 0.4 percent.

Japan’s currency depreciated 2 percent to 45.99 against the Brazilian real and 1.5 percent to 7.25 versus Mexico’s peso as a drop in a gauge of currency volatility reduced the risk of losses in carry trades. JPMorgan Chase & Co.’s index of investor expectations for currency swings, known as implied volatility, fell to 14.38 percent yesterday, from 14.56 percent on May 13.

Carry Trades

Currency fluctuations can wipe out gains in carry trades, in which investors borrow funds in a country with low interest rates and buy assets where they expect to earn a higher return. Japan’s target lending rate of 0.1 percent compares with 10.25 percent in Brazil and 6 percent in Mexico.

The Standard & Poor’s 500 Index climbed 1 percent yesterday even after a U.S. government report showed first-time claims for unemployment insurance rose more than economists forecast.

“The fact that there’s no reaction in the market to negative news is a fairly robust signal that there are not a lot of people willing to be very bearish,” said Sebastien Galy, a currency strategist at BNP Paribas Securities SA in New York. “It’s a positive signal for risk taking.”

Initial jobless claims increased to 637,000 in the seven days ended May 9 from 605,000 a week earlier, the Labor Department reported. The median forecast of 38 economists surveyed by Bloomberg was for an advance to 610,000.

Best Refuge

The yen may reverse this year’s decline against the dollar as it succeeds the greenback as the best refuge from the financial crisis, according to TD Securities Ltd.

The U.S. currency will probably fall to 92 yen by the end of the year as the link between the dollar and risk aversion deteriorates, wrote analysts led by Stephen Koukoulas, London- based head of global foreign exchange and fixed income at TD.

“The U.S. dollar’s cozy relationship with risk aversion is at risk itself,” the analysts wrote. The yen “has a chance at establishing its credentials as the refuge of choice,” they added.

The dollar may gain versus major counterparts as evidence of improvement in the global economy leads investors to buy U.S. stocks, according to UBS AG, the second-biggest currency trader.

“If the U.S. should lead the global economy out of the downturn, we would think that would actually favor the dollar,” said Brian Kim, a currency strategist at UBS in Stamford, Connecticut.

The franc traded at 1.5053 versus the euro yesterday after Thomas Jordan, a Swiss National Bank governing board member, said in an interview with the broadcaster SF Info that policy makers still aim to prevent a further appreciation of the currency to support the economy. The franc hasn’t strengthened beyond 1.5 per euro since March 12, when the central bank began buying foreign currencies to stem its gain.

To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net

Read more...

German Economy Shrank at Record Pace in First Quarter

By Jana Randow

May 15 (Bloomberg) -- The German economy contracted more than forecast in the first quarter, slumping the most in at least four decades after the global financial crisis crippled exports and investment.

Gross domestic product plunged a seasonally adjusted 3.8 percent from the fourth quarter, when it fell 2.2 percent, the Federal Statistics Office in Wiesbaden said today. That’s the steepest drop since quarterly data were first compiled in 1970 and compares with the 3 percent decline predicted by economists in a Bloomberg News survey. It also marks an unprecedented fourth successive quarterly contraction.

The euro fell a quarter of a cent on the news to $1.3592.

Chancellor Angela Merkel’s government, which predicts the economy will contract 6 percent this year, is spending 82 billion euros ($112 billion) to haul Germany out of its worst recession since World War II. Some indicators have shown first signs of stabilization, with manufacturing orders rising for the first time in seven months in March and business confidence rebounding from a 26-year low in April.

Today’s report “was dramatically worse than expected,” said Joerg Lueschow, an economist at WestLB in Duesseldorf. “We can only hope that the improvement in sentiment wasn’t a mirage but a sign of stabilization and recovery.”

Exports, Investment

The first-quarter slump was led by a decline in exports and investment, the statistics office said. Consumer and government spending rose “slightly” in the quarter, it said. In the year, the economy shrank 6.9 percent when adjusted for the number of working days.

“The main pillars of the economy have continued to weaken,” said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. “It could mean that GDP will be weaker than expected in other countries. The risk for euro-region GDP figures is pointing significantly downward.”

Spain’s economy contracted 1.8 percent in the first three months of the year, the country’s statistics office said yesterday. In France, the economy shrank 1.2 percent. Eurostat, the European Union’s statistics arm in Luxembourg, publishes first-quarter data for the entire 16-nation euro region at 11 a.m. Economists forecast a 2 percent contraction.

Grounds for Optimism?

“I believe there are some grounds for being optimistic that the pace of decline in economic activity will decelerate markedly in the months ahead,” Bundesbank President Axel Weber said this week. “However, it is certainly not advisable to be overly optimistic that the recovery process is safely on track. This will most likely be a gradual process.”

European confidence in the economic outlook increased for the first time in 11 months in April and the recession in the region’s manufacturing industry eased for a second month. German exports unexpectedly rose in March and industrial production held steady, ending a six-month slump and adding to signs that the worst may be over.

Still, Siemens Chief Executive Officer Peter Loescher said on April 29 he sees no sign of the economic recovery needed to spur manufacturing demand. Orders declined 11 percent to 20.9 billion euros, the company said. Europe’s largest engineering company reported a bigger-than-expected jump in earnings after accelerating its cost-cutting program.

Job Losses

Linde AG, the world’s second-biggest maker of industrial gases, said on May 5 it will cut about 3,000 jobs this year and it’s no longer counting on increasing 2009 profit and sales. At BASF SE, the world’s biggest chemical company, job cuts are being extended to 2,000 and a total 7,000 workers are being put on shorter hours.

German unemployment rose for a sixth straight month in April, pushing the jobless rate to a 16-month high of 8.3 percent.

The European Central Bank cut its benchmark interest rate to a record-low 1 percent last week and said that’s not necessarily its lowest level. President Jean-Claude Trichet also announced the ECB will buy 60 billion euros of covered bonds, securities backed by mortgages and public-sector loans, in an attempt to free up credit.

The International Monetary Fund expects the euro-area economy to shrink 4.2 percent this year and 0.4 percent in 2010.

“It will probably take several years before we completely make up for the contraction of the past quarters,” said Simon Junker, an economist at Commerzbank AG in Frankfurt. “We tend to reach for signs of hope. They’re there, but that doesn’t mean that we’ll immediately begin to grow strongly.”

The statistics office revised the fourth-quarter contraction to 2.2 percent from 2.1 percent. It will publish a detailed breakdown for the first quarter on May 26.

To contact the reporter on this story: Jana Randow in Frankfurt jrandow@bloomberg.net.

Read more...

Crude Oil Is Little Changed on Concern Fuel Demand May Decline

By Christian Schmollinger

May 15 (Bloomberg) -- Crude oil was little changed after retreating from a six-month high of $60 a barrel this week on concern the global economic recovery may falter.

Oil gave back its earlier gains after a report on May 13 showed a weaker-than-expected drop in U.S. retail sales, raising concern that the recession may be prolonged. Crude also slid as the International Energy Agency yesterday forecast the biggest contraction in world oil use since 1981.

“We’re definitely not out of the woods yet on this economic recession,” said Anthony Nunan, an assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “Fuel demand is bad and the IEA report really drove that home.”

Crude oil for June delivery was at $58.65 a barrel, up 3 cents, in after-hours electronic trading on the New York Mercantile Exchange at 2:16 p.m. in Singapore. Oil reached $60.08 on May 12, the highest intraday price since Nov. 11.

Prices fell to $56.55 yesterday, a four-day low, after the IEA report and rebounded to close at $58.62 a barrel as U.S. stocks advanced on a decline in bank borrowing and better-than- estimated earnings at computer software maker CA Inc.

Oil futures are little changed this week after falling on May 13 as weaker-than-expected retail data in the U.S. caused investors to sell equities. The same day, an Energy Department report showed U.S. crude-oil supplies fell 4.63 million barrels to 370.6 million in the week ended May 8, the first drop since February. The decline left inventories 18 percent higher than the five-year average for the week.

Fuel Consumption

Total U.S. daily fuel demand averaged 18.2 million barrels in the four weeks ended May 8, down 7.9 percent from a year earlier, the Energy Department report showed. Gasoline demand averaged 9 million barrels in the same period, down 1.2 percent from a year earlier.

The IEA cut its 2009 demand estimate to 83.2 million barrels a day this year, down 3 percent from 2008. That’s 230,000 barrels a day lower than last month’s forecast. OPEC and the U.S. Energy Department reduced their 2009 outlooks this week.

Brent crude oil for July settlement was at $58.50 a barrel, down 9 cents, on London’s ICE Futures Europe exchange at 2:12 p.m. Singapore time. It rose 47 cents, or 0.8 percent, to $58.59 a barrel yesterday. The June contract, which expired yesterday, fell 65 cents, or 1.1 percent, to $56.69 a barrel.

Crude oil futures may decline next week as the global recession saps fuel demand and bolsters U.S. inventories that are near the highest since 1990.

Eighteen of 30 analysts surveyed by Bloomberg News, or 60 percent, said futures will fall through May 22. It was the most bearish response since June 2008. Six respondents, or 20 percent, forecast that oil prices will rise and six said the market will be little changed. Last week, 43 percent of analysts said prices would decline.

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

Read more...

Copper in Shanghai on Track for First Weekly Decline in Three

By Glenys Sim

May 15 (Bloomberg) -- Copper futures in Shanghai headed for the first weekly loss in three after weaker-than-expected economic data in the U.S. and China, the largest users of the metal, spurred concern the global recession may be protracted.

Futures are down 6.6 percent this week as China’s industrial production and U.S. retail sales came in below forecasts. China’s copper imports reached a record last month even as the country’s export slump deepened, raising concern supply may outpace consumption.

“The data showed that the tug-of-war between the slowdown of China’s exports and the increase in fixed asset investment continued to drag the Chinese economy in opposite directions,” Na Liu, analyst at Scotia Capital, wrote in a report e-mailed today.

Copper for August delivery on the Shanghai Futures Exchange, the most active contract, rose as much as 2.2 percent to 36,280 yuan ($5,316) a metric ton, and traded at 35,820 yuan at 11:12 a.m. in Singapore.

Copper for three-month delivery on the London Metal Exchange gained as much as 0.9 percent to $4,484 a ton, before trading 0.1 percent lower at $4,440. That’s a 5.2 percent decline for the week.

“As the two forces offset each other, China’s industrial production growth remained stalled, but at the same time, China’s commodity imports surged,” said Liu. “This is partially because economic growth driven by investment is a lot more commodity-intensive than growth driven by exports.”

Among other LME-traded metals, aluminum and zinc were little changed at $1,533 a ton and $1,503 a ton respectively. Nickel fell 1.1 percent to $12,410 a ton, while tin gained 0.4 percent to $13,650. Lead hadn’t traded as of 11:15 a.m. in Singapore.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

Read more...

Copper Base Signals Rise, StanChart Says: Technical Analysis

By Glenys Sim

May 15 (Bloomberg) -- Copper may rise to levels not seen since October in the month ahead, as the metal forms a U-shaped base, Standard Chartered Bank said, citing trading patterns.

The 50-week momentum indicator continues to turn higher and supports a rising copper market, as does the sustained push above the 13-week moving average, London-based David Barclay, the bank’s commodity strategist, wrote in a report yesterday. The 14-day stochastic indicator and MACD lines are also signaling a “buy,” he said.

Copper for delivery in three months on the London Metal Exchange has jumped 45 percent this year, and traded at $4,460 at 8:31 a.m. Singapore time.

“Copper prices are still struggling to clear resistance at $4,925 a ton, but a climb to $5,156 a ton remains favored over the coming month,” wrote Barclay. This is a 38.2 percent retracement of the fall from the 2008 high, he said, based on a series of numbers known as the Fibonacci sequence. After this, copper may target the 50 percent retracement objective of $5,878 a ton, he added.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break of a so-called ‘level of resistance’ indicates a price may move to the next level, while a failure indicates a trend may stall. Sell orders may be clustered at resistance levels.

A long term pullback to the 50-week moving average of $5,247.31 a ton is still expected on this bull cycle, said Barclay. Holding above support at $4,158 a ton is now “critical” to avoid a slump to the March 30 low of $3,886.25 a ton and lower, he added.

“Resistance to watch above $4,925 a ton is placed at $5,615 a ton, the 14 October 2008 high,” wrote Barclay. “Pressure below $3,886 a ton would call this into question though, making chart support important to hold on this current pullback.”

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

Read more...

Platinum Heads for Weekly Drop as Auto Industry Slump Persists

By Glenys Sim

May 15 (Bloomberg) -- Platinum headed for a weekly drop as a continued slump in the auto industry cuts demand for the metal used to make catalytic converters.

General Motors Corp. Chief Executive Officer Fritz Henderson said in a Bloomberg Television interview that bankruptcy is “probable.” Chrysler LLC is seeking to cancel 789 car-dealership agreements, according to its bankruptcy proceeding filing.

“The poor outlook for U.S. auto demand has been a significant factor in platinum group metal price weakness,” said James Steel, an analyst at HSBC Securities in New York.

Platinum for immediate delivery gained 0.7 percent to $1,122.75 an ounce at 9:09 a.m. Singapore time, paring the weekly drop to 2.4 percent. Palladium fell 0.6 percent to $224.50 an ounce. About half of platinum and palladium use is for auto parts, according to Johnson Matthey Plc, a London-based researcher and metal refiner.

“Although platinum group metal producers have responded to poor auto catalyst and industrial demand by cutting production, it may be difficult for them to rally until global auto demand stabilizes,” said Steel.

Still, platinum increased today alongside gains in equities. The benchmark MSCI Asia Pacific Index rose 1.1 percent at 9:21 a.m. Singapore time after Sony Corp. forecast a smaller loss than analysts expected, borrowing costs for banks plunged, and U.S. insurers were said to receive government funds. Some investors follow equity market moves as a gauge of economic growth.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

Read more...

Soybeans Head for Third Weekly Gain as Demand Cuts U.S. Supply

By Jae Hur

May 15 (Bloomberg) -- Soybeans climbed, heading for a third weekly gain, on speculation that increased global demand may further reduce inventories in the U.S., the world’s biggest grower and exporter of the crop.

Soybean-export sales in the four weeks ended May 7 were more than double the year-earlier period, the U.S. Department of Agriculture said yesterday. Sales of soybean meal, an animal feed, jumped 92 percent last week, it said. The oilseed has advanced 3.8 percent this week in Chicago.

“The rally in beans is providing spillover strength to both wheat and corn prices,” said Toby Hassall, an analyst at Commodity Warrants Australia Pty in Sydney. “The price mechanism is rationing dwindling supplies of beans to hungry importers.”

Soybeans for July delivery gained 0.2 percent to $11.4975 a bushel in electronic trading on the Chicago Board of Trade at 10:07 a.m. in Seoul. The price yesterday touched $11.48, the highest since Sept. 29.

Inventories of soybeans on Aug. 31, before this year’s harvest, will drop to 130 million bushels from 205 million bushels a year earlier, the USDA said May 12. Corn reserves on Aug. 31, 2010, will fall to 1.145 billion bushels, down 28 percent from a revised 1.6 billion projected for this year.

Corn for July delivery declined 0.2 percent to $4.275 a bushel. The grain is still on track to rise for a third week, gaining 1.7 percent before today. The price reached $4.34 on May 13, the highest since Oct. 9.

“A window of more favourable weather in the Midwest next week would take some of the yield-premium out of corn prices,” Hassall said.

July-delivery wheat was little changed at $5.9325 a bushel. The price has dropped 2.9 percent this year on increased global production and declining demand for U.S. grain.

To contact the reporter for this story: Jae Hur in Seoul at jhur1@bloomberg.net

Read more...

Gold on Track for Second Weekly Rise on Dollar, Equity Decline

By Glenys Sim

May 15 (Bloomberg) -- Gold headed for a second weekly gain as the dollar extended its decline and global stocks were poised for their first weekly slump in ten, boosting demand for haven investments.

Bullion, little changed today, is up 1.1 percent this week as the Dollar Index, which tracks the greenback against six major currencies, headed for a fourth weekly loss. The MSCI World Index rose 0.4 percent today, taking its loss for the week to 3 percent.

“Investor sentiment remains positive,” Barclays Capital analysts led by Gayle Berry said in an e-mailed report today. “Beyond short-term corrections, a weaker dollar and expectations for a build in inflation are likely to spur investors to increase their exposure to gold.”

Gold for immediate delivery was at $926.92 an ounce at 2:18 p.m. in Singapore. The metal climbed to $930.90 an ounce May 13, the highest since April 1. Silver was unchanged at $14.06 an ounce, a gain of 0.4 percent this week.

The dollar traded at $1.3595 to the euro, from $1.3639 yesterday. A report later today may show the European Union’s economy shrank 2 percent in the first quarter, the fastest contraction in at least 13 years, according to a Bloomberg News survey of economists.

Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, stood unchanged at 1,105.62 metric tons yesterday. They rose the day before for the first time since April 9, according to the company’s Web site.

“In the near term, a lack of fresh investor interest is likely to stem upward momentum” and gold will likely average $925 an ounce for the second quarter, Berry said.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

Read more...

Japan Stocks Advance on Sony Forecast, Bank Borrowing Costs

By Masaki Kondo

May 15 (Bloomberg) -- Japanese stocks climbed, paring a decline on the week, after Sony Corp. forecast a smaller loss than analysts had expected and borrowing costs for banks dropped the most in eight weeks.

Sony, the world’s No. 2 electronics maker, jumped 7.1 percent after saying it will more close factories as part of its restructuring. Sumitomo Mitsui Financial Group Inc. added 6.8 percent as the London Interbank Offer Rate fell three basis points, the most since March 19. Mitsui O.S.K. Lines Ltd., Japan’s second-largest shipping line, advanced 2.7 percent as commodity-shipping fees rose to a seven-month high.

“Optimism lifts the market, and the gain in equities further lifts optimism,” said Kiyoshi Ishigane, a senior strategist at Mitsubishi UFJ Asset Management Co., which oversees the equivalent of $61 billion in Tokyo. “Like a drunkard waking up with a hangover, investors will eventually be hit with the reality that things haven’t improved overnight.”

The Nikkei 225 Stock Average climbed 171.29, or 1.9 percent, to close at 9,265.02 in Tokyo. The broader Topix index rose 18.99, or 2.2 percent, to 881.65. For the week, the Nikkei lost 1.8 percent, while the Topix declined 1.5 percent.

The Topix has risen 26 percent from a 25-year low on March 12 on signs government and central bank efforts to ease the global recession are taking effect. Orders for Japanese machinery, which unexpectedly gained in February, dropped 1.3 percent in March from the previous month, the Cabinet Office said today. Economists had predicted a 4.6 percent decline.

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

Read more...

Barclays, Irish Life, ITV, Rio: U.K., Irish Equity Preview

By Jonathan Browning

May 15 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in U.K. and Irish markets today. Stock symbols are in parentheses and prices are from the last market close.

The benchmark FTSE 100 Index rose 31.21, or 0.7 percent, to 4,362.58. The FTSE All-Share Index rose 0.7 percent, and Ireland’s ISEQ Index rose 2.6. percent.

Barclays Plc (BARC LN): The U.K.’s third-biggest bank is in talks to sell its Barclays Global Investors asset management unit to potential buyers including BlackRock Inc. and Bank of New York Mellon Corp., according to people with knowledge of the matter. The shares rose 10.25 pence, or 4.2 percent, to 253 pence.

Clipper Windpower Plc (CWP LN): The U.K. turbine maker and operator is scheduled to publish earnings. The shares rose 7.5 pence, or 6.3 percent, to 126 pence.

Irish Life & Permanent Plc (IPM ID): Ireland’s biggest mortgage lender is scheduled to publish a trading statement. The shares rose 24.8 cents, or 11.3 percent, to 2.448 euros.

ITV Plc (ITV LN): The U.K.’s biggest commercial broadcaster hired U.S. executive search firm Russell Reynolds Associates to find a replacement for Executive Chairman Michael Grade, the Financial Times reported. The shares fell 1.5 pence, or 4.6 percent, to 31 pence.

Ladbrokes Plc (LAD LN): The owner of more than 2,300 U.K. and Irish betting shops is scheduled to publish a trading statement. The stock rose 4.75 pence, or 2.2 percent, to 224.75 pence.

Lancashire Holdings Ltd. (LRE LN): The marine and energy insurer founded in 2005 is scheduled to report first-quarter results. The shares rose 2.25 pence, or 0.5 percent, to 473.25 pence.

Rio Tinto Plc (RIO LN): The world’s third-largest mining company said it remains committed to a proposed $19.5 billion investment accord with Aluminum Corp. of China. The shares rose 91 pence, or 3.64 percent, to 2,594 pence.

UTV Media Plc (UTV LN): Northern Ireland’s biggest broadcaster is scheduled to publish a trading statement. The shares fell 3 pence, or 5.6 percent, to 56.5 pence.

To contact the reporters on this story: Jonathan Browning in London jbrowning9@bloomberg.net

Read more...

Arcandor, Beate Uhse, Linde, Volkswagen: German Equity Preview

By Tony Czuczka

May 15 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in Germany. Stock symbols are in parentheses, and share prices are from the previous close.

The X-DAX Index rose 0.3 percent to 4,738.42. The measure, derived from trading in DAX Index futures, provides an estimate of Germany’s benchmark index. The DAX rose 0.2 percent to 4,738.47.

Arcandor AG (ARO GY): The retailer’s banks plan to ask the German government for as much as 700 million euros ($954 million) in loan guarantees, a person with knowledge of the situation said. The shares fell 0.5 percent to 1.93 euros.

Beate Uhse AG (USE GY): The operator of Europe’s largest chain of sex shops is scheduled to release first-quarter results. The share rose 1.3 percent to 78 euro cents.

Linde AG (LIN GY): The world’s second-biggest maker of industrial gases plans to cut about 3,000 jobs this year and is no longer counting on increasing 2009 profit and sales. Linde is holding its annual shareholder meeting. The shares rose 0.73 percent to 59.42 euros.

Medion AG (MDN GY): The consumer electronics company that makes two thirds of its revenue in Germany plans to announce first-quarter results. The company forecast in March that revenue will fell in the first half of 2009 as the recession hurts demand for televisions and DVD players. The shares fell 0.2 percent to 6.54 euros.

MVV Energie AG (MVV1 GY): The operator of seven local German utilities plans to release second-quarter results. Mannheim-based MVV said in January it expected revenue to rise this fiscal year. The shares rose 0.42 percent to 31.15 euros.

SMA Solar Technology AG (S92 GY): The German company that supplied solar power equipment to the Vatican is due to release first-quarter results. Sales fell by as much as 35 percent in the first quarter, board member Pierre-Pascal Urbon said on March 31. The shares were unchanged at 50 euros.

Volkswagen AG (VOW GY): Volkswagen AG, Europe’s largest carmaker, aims to double its U.S. market share in three to five years by targeting consumers seeking cars that use less fuel, the company’s U.S. chief executive officer said today. The shares fell 0.9 percent to 222.49 euros.

To contact the reporter on this story: Tony Czuczka in Berlin at at aczuczka@bloomberg.net

Read more...

Asian Stocks Advance on Sony, Borrowing Costs; Komatsu Gains

By Patrick Rial and Masaki Kondo

May 15 (Bloomberg) -- Asian stocks climbed, paring the MSCI Asia Pacific Index’s first weekly decline in three weeks, after Sony Corp. forecast a smaller loss than analysts expected and Japanese machine orders fell less than estimated.

Sony, the world’s No. 2 maker of consumer electronics, jumped 6 percent after saying it will close factories as part of restructuring efforts. Komatsu Ltd., Asia’s biggest maker of earthmovers, jumped 3.2 percent in Tokyo as machine orders from abroad surged the most on record. HSBC Holdings Plc, Europe’s largest lender by market value, rose 3.9 percent and Tokio Marine Holdings Inc., gained 5 percent on optimism a government bailout of U.S. insurers will ease the credit crunch.

The MSCI Asia Pacific Index rose 1.8 percent to 97.00 as of 2:34 p.m. in Tokyo. It declined 1 percent in the past five days, the first weekly drop since the period ended April 24, as the most expensive valuations since 2004 raised concern a two-month stock rally had outpaced earnings prospects.

“Optimism lifts the market, and the gain in equities further lifts optimism,” said Kiyoshi Ishigane, a senior strategist a Mitsubishi UFJ Asset Management Co., which oversees the equivalent of $61 billion in Tokyo. “Investors will eventually be hit with the reality that things haven’t improved overnight.”

Japan’s Nikkei 225 Stock Average gained 1.7 percent to 9,249.86. All markets in Asia rose except China.

Tokyo Electron Ltd. climbed 7.1 percent after saying orders for semiconductor equipment will rise this quarter. Rio Tinto Group, the world’s third-largest mining company, surged 7.6 percent in Sydney after saying it remains committed to a $19.5 billion investment from Aluminum Corp. of China. Singapore Airlines Ltd., the world’s second-biggest carrier by market value, gained 2.1 percent on plans to spin off a unit.

Sony Earnings

Futures on the Standard & Poor’s 500 Index added 0.1 percent. The benchmark rose 1 percent yesterday, snapping a three-day losing streak, as declining funding costs boosted bank shares. CA Inc., the world’s second-largest maker of software for mainframe computers, led gains by technology companies after reporting earnings that beat analyst estimates.

The MSCI Asia Pacific Index has climbed 37 percent from a five-year low on March 9 amid speculation the worst of the financial crisis has passed. Shares on the gauge are valued at 32 times trailing earnings, the highest level since 2004, according to data compiled by Bloomberg.

Sony jumped 6 percent to 2,545. The company forecast yesterday it will post a 110 billion yen ($1.1 billion) operating loss this year, better than the median 135.6 billion yen loss estimate in a Bloomberg survey of nine analysts.

The company also said it will close a further five factories in addition to three that have already been announced as part of the company’s restructuring plan.

Borrowing Costs

Hitoshi Kuriyama, an analyst at Merrill Lynch & Co., lifted his price target on Sony by 200 yen to 2,800 because the company “is making steady progress with structural changes and ramping up new business models,” according to a report.

Komatsu jumped 3.2 percent to 1,346 yen, while rival Hitachi Construction Machinery Co. added 1.3 percent to 1,497 yen. Daikin Industries Ltd., a maker of industrial air conditioners, jumped 2.4 percent to 2,840 yen.

Machine orders, an indicator of capital investment in the next three to six months, fell 1.3 percent from February, when they gained a revised 0.6 percent, Japan’s Cabinet Office said today. Economists surveyed predicted a 4.6 percent drop. Bookings from abroad jumped 46.4 percent, the biggest monthly gain on record.

Tokyo Electron

Tokyo Electron, the world’s second-largest supplier of semiconductor production equipment, rallied 7.1 percent to 4,370 yen after saying orders are likely to rise this quarter.

HSBC added 3.9 percent to HK$64.80 on optimism central bank efforts to unlock credit markets are bearing fruit. Mitsubishi UFJ Financial Group Inc., Japan’s biggest publicly traded lender by value, added 5.1 percent to 618 yen. Tokio Marine gained 5 percent to 2,950 yen.

The three-month London interbank offered rate, or Libor, for dollar-denominated loans fell almost three basis points to 0.85 percent yesterday, according to the British Bankers’ Association.

The rate surged as high as 4.8 percent in October in the aftermath of the collapse of Lehman Brothers Holdings Inc. as banks became reluctant to lend to each other amid collapsing financial markets.

Policies ‘Mobilized’

“The drop in Libor is an indication that government policies are being effectively mobilized, and are fueling expectations for a rebound in financial shares,” said Takero Inaizumi, a manager at Mizuho Investors Securities Co. in Tokyo.

The U.S. government approved six insurers for bailout funds from the Troubled Asset Relief Program after investment declines eroded capital across the industry, according to the companies and Andrew Williams, a spokesman for the Treasury.

The bailouts are part of a series of global efforts to alleviate the credit crisis, which has caused losses of more than $1.4 trillion at the biggest banks, insurers and brokerages.

Rio surged 7.6 percent to A$61.95. The company has agreed to sell $7.2 billion of convertible bonds and stakes in projects worth $12.3 billion to Aluminum Corp. and said it remains committed to the deal in a response to a query from the Australian Stock Exchange. The statement helped quell speculation Rio will be forced to boost its capital base with a share sale that would dilute the value of existing stock.

Singapore Air Divestiture

Singapore Airlines gained 2.1 percent to S$11.84 after saying it plans to divest its Singapore Airport Terminal Services Ltd. unit in a stock distribution to shareholders.

“Focusing on their core business is the right thing to do now,” said Christopher Wong, a fund manager at Aberdeen Asset Management Asia Ltd. in Singapore, which oversees $20 billion. “The whole aviation business is going through a very tough period.”

Sumitomo Electric Industries Ltd., which makes electrical wires and cables, soared 11 percent to 1,005. Net income for the year ended in March beat its forecast by 72 percent as a tax code change on overseas dividends lifted profits.

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

Read more...