Asian Market Update

Daily Forex Fundamentals | Written by Trade The News | Jun 04 09 06:40 GMT |

Australia Prints First Trade Deficit in 9 Months as Officials Continue to Downplay GDP Surprise; Asian Markets Track US Risk Aversion Lower; Euro, Sterling Consolidate ahead of Central Bank Decisions Asian equities are trading weaker across the board entering the final hour of the session as caution from Fed Chairman Bernanke and continued malaise in US employment seeped into Far East investor sentiment. Nikkei225 was off by 0.5% just below 9,700, with downside also driven by poor Q1 capital spending data. In Sydney, S&P/ASX fell over 2% on surprising decline in Australia's Terms of Trade and general weakness in commodities amid broad dollar bounce higher. Hong Kong's Hang Seng led the regional decliners with a 2.4% slide, as China's markets were seen particularly impacted by the shock of uncertain demand conditions evidenced by Aussie trade data. Meanwhile, Korea Kospi also continued to underperform, shedding 2% on the session with Financials leading the slide after prior session's equity offering rumors from the sector. Australia's April Trade Balance was the key economic event in the session as terms of trade unexpectedly fell by A$91M against estimates of a surplus of A$1.7B - the first deficit since July of 2008. Notably, the decline was an indictment of external demand as exports fell 11% m/m while imports contracted 2%. Sobering economic data from Australia was also supplemented by officials continuing to downplay prior session's better than expected Q1 GDP. Finance Minister Tanner noted the economy was still in a serious downturn and further negative quarters of GDP were still possible, suggesting the threat of recession still hung above domestic economy as it struggled with downward pressure from labor market. Treasurer Swan saw business investment drying up while also warning about a future with lower trend growth than the economy has recently experienced. RBA Governor Stevens was also hardly hawkish, offering additional scope for further policy easing if warranted by deteriorating conditions. Specifically, Stevens cautioned about tight household credit lending and rising unemployment weighing on consumption, forecasting downbeat prospects for the 2nd quarter. On the upside, Stevens did reflect on improving residential investment and reawakened activity in mining picking up on deferred projects. In Aussie share-specific developments, Rio Tinto officials were rumored to be in talks with Chinalco Chairman visiting Australia for possible revision of the deal ahead of the May 15th decision deadline. In Tokyo, auto sector news directed attention toward fuel efficiency with both Mitsubishi and Fuji Heavy announcing plans to showcase a plug-in electric vehicle in coming weeks. Meanwhile, hybrids remained at the top of the best-seller list as new model of Prius replaced Honda's insight as Japan's most widely purchased car in May. In other corporate developments in Tokyo, Japanese press speculated that Nippon Steel earnings may reach a bottom in the current quarter, outperforming broader market going forward. Japan's Q1 Capital expenditure figures registered the worst y/y decline on record at -25.3% but did beat estimates of -30.0% expected. Bank of Japan's Shirakawa urged fiscal discipline to contain the rise in yields, warning that central bank's buying of debt is not intended to monetize fiscal debt. In other notable news from the Asia, Fitch was somewhat downbeat on the overall region, suggesting that growth is still dependent on demand for China's exports and "desperately" requires revived US and EU consumer markets. In South Korea, the Finance Ministry provided an outlook on department store sales and current account for May, forecasting the former rising 5.4% v 2.8% prior and Current Account above $4B v prior $4.28B. In currencies, the greenback consolidated gains made over the course of US session, briefly testing the upside of 1.42 against EUR and bouncing from 1.62 handle against Sterling. Commodity currencies were also firmer late in the session as AUD recovered above 0.80 and USD/CAD declined below 1.11 toward session lows of 1.1075. Japanese Yen was slightly weaker in line with more muted risk aversion, falling to 136.50 against EUR and 96.30's against USD - close to intra-day USD/JPY high in US hours. Commodity rebound was slightly more elusive, with crude remaining just above $66 and gold failing to recoup $970 handle. 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. 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Forex Market Update: Bernanke's Testimony Causes Pause For Thought, USD Looks Set For A Period Of Correction

Daily Forex Fundamentals | Written by Saxo Bank | Jun 04 09 06:17 GMT |

All eyes on the procession of central bank decisions today; no change in rates seen, but focus on QE headlines HEADLINES EU May Services PMI out at 44.8 vs. 44.7 expected and 44.7 prior EU May Composite PMI out at 44.0 vs. 43.9 expected and 43.9 prior UK May Services PMI out at 51.7 vs. 49.5 expected and 48.7 prior EU Q1 Euro-zone GDP revised lower to -4.8% y/y from -4.6% prior; q/q unchanged at -2.5% EU Apr. Euro-zone PPI out at -1.0%m/m, -4.6% y/y vs. -0.8%, -4.5% expected and -0.7%, -2.9% prior US May ADP Employment Change out at -532k vs. -525k expected and revised -545k prior US May ISM Non-manufacturing Index out at 44.0 vs. 45.0 expected and 43.7 prior US Apr. Factory Orders out at +0.7% vs. +0.9% expected and revised -1.9% prior JP Q1 Capital Spending out at -25.3% vs. -30.0% expected and -17.3% prior AU Apr. Trade Balance out at –A$91 mln vs. +A$1.7 bln expected and revised +A$2.3 bln prior THEMES TO WATCH - UPCOMING SESSION UK Halifax House Prices (0800) EU Euro-zone retail sales (0900) UK BOE Rate Announcement (1100) EU ECB Rate Announcement (1145) US Fed's Pianalto speaks (1150) US Fed's Dudley speaks (1225) CA Building Permits (1230) US Initial/Continuing Jobless Claims (1230) US Non-farm Productivity (1230) US Unit labour Costs (1230) US Fed's Bernanke speaks at Fed conference (1245) CA Bank of Canada Rate Announcement (1300) CA Ivey PMI (1400) EU ECB's Gonzalez-Paramo speaks (1450) Market Comments Fed Chairman Ben Bernanke's testimony before the House Budget Committee erred on the side of caution, stating that although the pace of economic contraction appears to be slowing and latest data suggesting the US consumer is gradually becoming more optimistic, there were still obstacles in the way of an economic rebound. These included a weak labour market, 'still tight' credit conditions and the psychological impact of equity and housing losses sustained by households over the last two years. He saw businesses still remaining 'very cautious' and still looking to trim staff and capital expenditure budgets. On fiscal issues he said that the federal budget would widen substantially this year, with the debt-to-GDP ratio set to reach 70% in 2011 from around 40% before the crisis began. He warned that there was a need to demonstrate a strong commitment to fiscal sustainability in the longer term, otherwise the US would have neither financial stability nor healthy economic growth. He attributed the recent rise in longer-term Treasury yields to growing concerns about large deficits, though some of the rise could be seen as reflecting a greater optimism about the economic outlook or related to technical factors (ie the hedging of mortgage portfolios). In the Q&A session, he outlined that the Fed had an exit strategy for its recent easing policy and reduce its balance sheet when appropriate. When asked if the Fed plans to 'monetize the debt', he assured that the Fed had no intention of doing so and when the Fed had completed its current Treasury-buying program it would reduce its holdings of Treasuries. Towards the end of his testimony he commented that the dollar does not face any risk of losing its reserve status in the foreseeable future. This theme had been a market-mover earlier in the session when officials from India, Japan and South Korea said there were no alternatives to the USD as a reserve currency. This gave the greenback a boost in early trade and set the tone for a dollar recovery for the rest of the session. Mornings reports in Asia that Malaysia and China were considering shifting bilateral trade settlement to their own respective currencies rather than the dollar were ignored to a large extent, and the dollar preserved its higher levels. Central bank meetings are all the rage today, with rate announcements from the BOE, ECB and ,later, the Bank of Canada. None of the meetings are expected to result in any rate cuts, though the ECB meeting is the one that has most potential to surprise. The BOE announcement will likely concentrate on its quantitative easing measures (recall last month the BOE upped the scale of its planned asset purchases to GBP125 bln from GBP75 bln). The downbeat inflation report for May could hint that the BOE will reveal another increase in its quantitative easing policy. This should be seen as another negative for GBP, piling on the pressure from the heavy sell-off yesterday. Watch also for news from the ECB as to whether they have been able to iron out a non-conventional program of measures to stimulate the economy. With eyes switching to Friday's non-farm payroll release, yesterday's ADP private hiring report has given us the first input for the data. While the headline number for May was not too far from expectations (-532k vs. -525k expected), there was a hefty downward revision to Aprils data to -545k from -491k initially. Initial jobless claims are next on the agenda this evening and consensus is for a barely changed number of 620k to May 31 compared to 623k the previous week Analysis Disclosure & Disclaimer SaxBank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by SaxBank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis dnot occur as anticipated. SaxBank utilizes financial information providers and information from such providers may form the basis for an analysis. SaxBank accepts nresponsibility for the accuracy or completeness of any information herein contained. Any recommendations and other comments in SaxBanks analysis derive from objective fundamental macreconomical and company specific calculations, statistical and technical analysis, and subjective general market assessment. If an analysis contains recommendations tbuy or sell a specific financial instrument, such recommendation should be seen as SaxBanks opinion that the specific instrument will respectively outperform the relevant market or underperform compared tthe market. SaxBanks recommendations should statistically correspond tan even distribution between buy and sell recommendations. The recommendations may expire promptly due tmarket volatility and in general, SaxBank does not anticipate its recommendations tbe valid more than one month. An analysis will be updated if and only if a market development or other issues relevant tthe analysis render a new analysis on the same topic relevant. SaxBanks analysis does not cover any specific financial product over time but only products which SaxBanks strategy team finds it important tcover at any given point in time. In order tprevent conflicts of interest, SaxBank has established appropriate business procedures, incl. procedures applicable tresearch and analysis tensure objective research reports. SaxBanks research reports have not been discussed with the parties, e.g. issuers of securities, mentioned in the analysis. SaxBank is under supervision by the Danish Financial Supervisory Authority. SaxBank does not engage in corporate finance activities and accordingly, SaxBanks employees, incl. the persons responsible for an analysis, dnot receive remuneration associated with investment banking transactions.

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Asia Session Recap

Daily Forex Fundamentals | Written by Forex.com | Jun 04 09 05:43 GMT |

The US Dollar struggled to hold onto earlier overnight gains that were made after some poor data and lower equities poured cold water on the risk trade. The oversold Greenback was given a boost in New York trading as optimism waned with ADP employment data showing over 500,000 jobs lost for May. The EUR/USD dropped from its lofty heights of 1.4338 to hit bottom just under 1.4110 prior to the Asia morning open. The pair entered Asia close to 1.4160 and after a high of 1.4192 and a subsequent low of 1.4136, the pair graciously exited the session right where it began. The trading this session was relatively calm ahead of the slew of central bank decisions on deck for tomorrow from the European Central Bank, Bank of England and the Bank of Canada. Although all central banks are expected the keep rates unchanged, with ECB at 1.00%, BOE at 0.50% and finally the BOC at 0.25%, traders will nonetheless be on the lookout for any signals for future moves from the banks. The Yen lost favor in Asia, dropping against both the Dollar as well as the Euro. USD/JPY began the Asian trade day near 96.00 and broke above 96.35 before settling near 96.15 prior to the London open. EUR/JPY opened near 135.90 and after a 135.57 low and a high of 136.63 closed the session 40 pips of that aforementioned high. South of Japan, both the Aussie and Kiwi dollars tried to bounce back from yesterday’s massive losses, the AUD/USD to the tune of almost 2%, but looked to stay unchanged for the trade day. RBA Governor Glenn Stevens set the stage in a speech where he stated that the possibility for further easing was a strong possibility. Upcoming Economic Data Releases (London Session): 6/4/2009 6:45 FR ILO Unemployment Rate 1Q 8.20% 8.60% 6/4/2009 6:45 FR ILO Mainland Unemployment Rate 1Q 7.80% 8.00% 6/4/2009 6:45 FR Mainland Unemp. Change (000s) 1Q 187K - - 6/4/2009 9:00 EC Euro-Zone Retail Sales (MoM) APR -0.60% 0.20% 6/4/2009 9:00 EC Euro-Zone Retail Sales (YoY) APR -4.20% -2.80% 6/4/2009 UK New Car Registrations (YoY) MAY -24.00% - - 6/4/2009 11:00 UK BOE ANNOUNCES RATES 4-Jun 0.50% 0.50% 6/4/2009 11:45 EC ECB Announces Interest Rates 4-Jun 1.00% 1.00% Forex.com http://www.forex.com DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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FX Technical Analysis

Daily Forex Technicals | Written by Mizuho Corporate Bank | Jun 04 09 06:28 GMT |

EURUSD Comment: Reversing Tuesday's gains, doing wonders for the overbought situation. Two-way price action should help to push implied volatility higher. Expect consolidation under yesterday's high at 1.4339 today and maybe Friday too. Strategy: Attempt small longs at 1.4175; stop well below 1.4000. Short term target 1.4330/1.4360, then a lot more with a first measured target at 1.4545. Direction of Trade: →↗ Chart Levels: Support Resistance 1.4100 " 1.4192 1.4065* 1.425 1.4 1.4339* 1.3925 1.443 1.3845 1.4545 GBPUSD Comment: Stopping exactly at the bottom edge of the weekly Ichimoku 'cloud' and should hold below here today and tomorrow, maybe next week too. However, the 9-day moving average at 1.6221 might limit the downside this morning. Strategy: Attempt small longs at 1.6275; stop below 1.6000. First target 1.6500 Direction of Trade: →↗ Chart Levels: Support Resistance 1.6210 " 1.6345 1.6085 1.641 1.6115 1.65 1.6000* 1.66 1.5855 1.6664 USDJPY Comment: Obviously prices cannot hold inside the current range for ever, and we continue to feel that the Ichimoku 'cloud' should eventually force it lower. Expect even more of the same today as the Yen looks for direction. Strategy: Attempt small shorts at 96.10/96.35; stop above 97.35. First target 95.00, adding to shorts below 94.40 for 94.00 and then 93.65. Direction of Trade: → Chart Levels: Support Resistance 95.83 " 96.37/96.43 95.33 96.65 95 97 94.42* 97.24* 93.55* 97.55 EURJPY Comment: Blipping to new a high for this year at 138.02, above April's at 137.42, and forming a poor version of a 'bearish engulfing' candle yesterday. This suggests Yen crosses will hold below yesterday's highs today and tomorrow, maybe even throughout the month of June. In other words, still very difficult trying to establish where the daily ranges will be. Strategy: Attempt shorts at 136.40, adding to 137.00; stop above 138.15 Short term target 134.00. Direction of Trade: → Chart Levels: Support Resistance 135.55 " 136.64 135.29 137.45* 134.75 138.02* 133.89 138.57 132.50* 139 Mizuho Corporate Bank Disclaimer The information contained in this paper is based on or derived from information generally available to the public from sources believed to be reliable. No representation or warranty is made or implied that it is accurate or complete. Any opinions expressed in this paper are subject to change without notice. This paper has been prepared solely for information purposes and if so decided, for private circulation and does not constitute any solicitation to buy or sell any instrument, or to engage in any trading strategy.

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Technical Analysis for Major Currencies

Daily Forex Technicals | Written by ecPulse.com | Jun 04 09 06:47 GMT |

EURO The pair was incapable of setting a breach for the minor resistance level yesterday and declined strongly presenting focal support at 1.4105. The positive momentum shown on indicators might push the pair to the upside which might reach 1.4225-45 from where the pair might indulge in a new intraday downside move to breach the mentioned support level at 1.4105 which in role might drive the pair towards 1.3900, noting that despite this downside move the short-term trend continues to the upside. It is of the essence to pay attention to fundamentals from the euro area today especially as we await the ECB's rate decision. The trading range for today is at the key support at 1.4105 and the key resistance at 1.4620. The general trend is to the downside as far as 1.4710 remains intact with targets at 1.2120. Support: 1.4105, 1.4080, 1.4030, 1.3980, 1.3945 Resistance: 1.4180, 1.4225, 1.4245, 1.4320, 1.4395 Recommendation: According to our analysis, sell the pair below 1.4105 with targets at 1.3900, stop loss with four-hour closing above 1.4180 GBP The dollar recouped much of its acquired losses versus Sterling, as the pair plummeted yesterday by more than 400 pips reaching the minor support level for the ascending channel at 1.6255. We can see that the pair is destined for further losses by the clear continuation negative slope which was seen after the pair set the resistance level for the upside channel, and the chance is open for the pair to decline towards the channel's support level at 1.5700 where the upside wave remains valid as far as this level remains intact. We await the BoE's rate decision today at 11:00 GMT which might cause heightened volatility and fluctuations for the pair. The trading range for today is among the key support at 1.5700 and the key resistance at 1.6475. The general trend is to the upside as far as 1.4840 remains intact with targets at 1.4840 and 1.6600. Support: 1.6175, 1.6105, 1.6075, 1.6015, 1.4975 Resistance: 1.6270, 1.6320, 1.6360, 1.6430, 1.6475 Recommendation: According to our analysis, sell the pair below 1.6175 with targets interlude at 1.6075 and 1.5975, stop loss with four-hour closing above 1.6270 JPY The pair continued the mixed trading within the ends of a Symmetric Triangular Technical Model, where its ends are tightening gradually and breaching any of those ends will accelerate the pair's move which we expect is to be a breach for the resistance level at 96.35 driving the pair to the upside towards the critical resistance level at 97.60. The short-term trend continues to the downside shall the mentioned resistance level remain intact. The trading range for today is among the key support at 91.90 and the key resistance at 99.40. The general trend is to the downside as far as 102.60 remains intact with targets at 84.95 and 82.60. Support: 95.90, 95.35, 94.75, 94.50, 94.10 Resistance: 96.35, 96.55, 97.40, 97.70, 98.10 Recommendation: According to our analysis, buy the pair above 96.35 with targets at 97.60, stop loss with four-hour closing below 95.35 CHF The pair managed to reach the long awaited resistance level at 1.0745 to rebound to the downside in a correctional move towards the 50% correction at 1.0675. Negative momentum is seen on indicators which might pressure the pair to extend the intraday downside move which might reach 1.0625-1.0615 and might then revert to the upside in attempts to breach the mentioned 1.0745 resistance level targeting 1.0930 levels within its trading within the current major downside channel. The short-term trend remains to the downside as far as 1.0930 resistance level remains intact. The trading range for today is among the key support at 1.0450 and the key resistance at 1.0930. The general trend is to the upside as far as 1.0570 remains intact with targets at 1.2245. Support: 1.0625, 1.0555, 1.0500, 1.0470, 1.0450 Resistance: 1.0690, 1.0745, 1.0800, 1.0820, 1.0860 Recommendation: According to our analysis, buy the pair above 1.0625 with target at 1.0745, stop loss with four-hour closing below 1.0555 CAD The pair rushed to the upside in yesterday's trading setting more than 300 pips incline after breaching the resistance level at 1.0970 easily setting the target for this breakout near 1.1550. According to the minor image we can notice a bearish harmonic pattern where we await the intraday decline confirmation with the coming candlestick's bearish closing, as we see the pair can indulge in a downside correction for yesterday's upside wave that might extend towards 1.0970 before reverting to the upside in an attempt to reach the downside channel's major resistance at 1.1310. The short-term trend continues to the downside was far as the latter mentioned resistance level is intact. The trading range for today is among the key support at 1.0780 and the key resistance at 1.1335. The general trend is to the downside as far as 1.1870 remains intact with targets at 1.0300. Support: 1.1085, 1.1015, 1.0970, 1.0930, 1.0880 Resistance: 1.1150, 1.1195, 1.1230, 1.1255, 1.1310 Recommendation: According to our analysis, sell the pair below 1.1085 with targets at 1.0970, stop loss with four-hour closing above 1.1185 Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk

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Australia Unexpectedly Posted Trade Deficit in April

By Svenja O’Donnell

June 4 (Bloomberg) -- The Bank of England may keep up the pace of bond purchases today as officials weigh whether they are already printing enough money to revive the British economy.

Governor Mervyn King’s forecasts last month showed it needs to spend 125 billion pounds ($207 billion) of newly printed money in U.K. debt markets to fight off the recession. Policy makers will still refrain from expanding that plan in their decision at 12 p.m. today in London, according to all but 37 of 40 economists in a Bloomberg News survey.

Service industries expanded for the first time in a year last month and Nationwide Building Society’s house price index unexpectedly jumped, stoking optimism the recession is past its worst. While Deputy Governor Charles Bean and other officials are discussing how the bank might exit its bond purchases, King still says it will “take time” for the economy to heal.

“There’s no way they want to say we’re out of the woods,” said Stewart Robertson, an economist at Aviva Investors in London, which manages about $230 billion in assets. “Things are moving slowly in the right direction but they’ll be cautious. They won’t be in a rush to do anything, let alone cut the facility back.”

The Bank of England will also keep its benchmark interest rate at a record low of 0.5 percent at today’s meeting, according to all 62 economists in a Bloomberg survey. The European Central Bank will keep its rate at 1 percent today, according to the median of 54 economists’ forecasts.

Government Turmoil

Turmoil in Prime Minister Gordon Brown’s government has overshadowed the bank’s decision as doubt grows on whether Chancellor of the Exchequer Alistair Darling will keep his job managing the economy. Four ministers have resigned from Brown’s Cabinet this week, and he twice sidestepped questions on Darling’s future in Parliament yesterday.

Consumers have still become more hopeful that Britain will emerge from the worst recession since World War II, with Nationwide’s confidence index rising to a six-month high. Markit’s surveys of services, construction and manufacturing all rose last month, and Nationwide says house prices jumped 1.2 percent, the most since 2007.

Kingfisher Plc, Europe’s largest home-improvement retailer, said on June 2 that first-quarter profit rose more than expected on a rebound in same-store sales at its U.K. B&Q chain.

“Green shoots are blossoming,” said Alan Clarke, an economist at BNP Paribas SA in London. “Still, the Bank of England don’t want to go and get ahead of themselves. Unemployment will continue to rise, and that will put downward pressure on inflation, which is what the bank targets.”

‘Early Days’

David Blanchflower, who left the rate-setting panel last week, said on June 1 that it is still “early days” to gauge whether the bank’s policies are having an effect and predicted jobless claims may keep rising by 100,000 per month. Lloyds Banking Group Plc, Britain’s biggest mortgage bank, said yesterday it will eliminate 510 additional jobs in the U.K.

The Monetary Policy Committee said last month that there was “uncertainty” about the impact of the bond plan so far. Some policy makers favored spending the full authorized total of 150 billion pounds, though they said there was “no pressing need” to do so immediately. The panel also said it will seek permission to print even more money than the maximum if needed.

Rising bond yields have muted its impact as investors demand higher returns amid a surge in government borrowing. Yesterday, the yield on the 10-year U.K. government bond was at 3.79 percent, 11 basis points higher than on May 7, the date of the bank’s last meeting. It fell as low as 2.95 percent on March 13 following the bank’s announcement to start purchasing gilts.

‘Tricky Judgment’

The bank faces a “tricky judgment” on when to exit the money-printing plan, which will be guided by the bank’s target for consumer prices, Bean said on May 22. Inflation may not reach the 2 percent goal within three years on the current spending plan, and the economy faces a “slow and protracted recovery,” King said on May 13.

Bean also predicted that the supply of credit will “remain impaired for some while” because banks don’t feel secure enough to lend normally. British manufacturers are still seeing an increase in the cost of borrowing and no improvement in access to financing, the EEF lobby group said in a survey today.

“Credit conditions are still pretty tight,” said Neville Hill, an economist at Credit Suisse Group in London and a former U.K. Treasury official. “I expect nothing from the bank now, but the risks are they’ll still feel the need to do something next month.”

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net.

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South Korea Says ‘Too Early’ for Optimism on Economic Recovery

By Seyoon Kim

June 4 (Bloomberg) -- South Korea’s government said it’s “too early” to be too optimistic about the economic outlook, as the economy faces a number of uncertainties including the global financial-market unrest.

“The local economy is continuing its recovery trend and the global economic slump is showing signs of easing,” the finance ministry said in a monthly economic outlook report from Gwacheon today. “Still, it’s too early to be optimistic about the economic outlook as there are uncertainties in the global markets, concerns about rising oil and the recovery is weak.”

Reports earlier this week showed South Korea’s exports slumped at the fastest pace in four months in May as demand from the U.S., Japan and China weakened. The decline in exports was the seventh in a row, extending the longest slump since 2002.

At the same time, there are signs that the worst of the slump may be over, both for South Korea as well as its biggest Asian trading partners. Factory production gained for a fourth month in April, manufacturers’ confidence climbed to an eight- month high and consumer confidence rose to the highest in almost two years.

The $929 billion economy avoided a technical recession in the first three months of this year, helped by record-low interest rates and government stimulus. South Korea’s economy grew 0.1 percent in the first quarter, rebounding from a 5.1 percent contraction in the previous three months.

The government said it will maintain an “expansionary macroeconomic policy” including the extra spending. South Korea probably posted a current account surplus of more than $4 billion in May, the ministry said today.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net

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Australia’s Unexpected Expansion May Mask Weakness

By Victoria Batchelor and Jacob Greber

June 4 (Bloomberg) -- Australia’s unexpected economic growth last quarter, driven by government cash handouts and record interest-rate cuts that fueled consumer spending, may mask a bleaker picture.

Gross domestic product rose 0.4 percent from the previous three months, the statistics bureau reported yesterday in Sydney, buoyed by the government doling out A$12 billion ($9.9 billion) to lower-income earners. Prime Minister Kevin Rudd said without the payments, the economy would have shrunk about 0.2 percent.

Not so positive was a measure of corporate investment, which showed outlays on machinery and equipment tumbled by the most since the economy was last in a recession in 1991. Miners BHP Billiton Ltd. and Rio Tinto Group have cut spending, fired workers and closed mines in Australia as the worst global slump since the Great Depression curbs demand for commodities.

“Australia has been lucky so far, but that good fortune appears set to evaporate when examining the underlying data,” said Robert Cunneen, Sydney-based senior economist at AMP Capital Investors, which manages about $95 billion. “There was an ominous warning sign that business investment is in rapid decline.”

Exports tumbled 11.3 percent in April from March, the biggest drop since July 1997, on a decline in shipments of coal, iron ore and wheat, the statistics bureau said today.

Boom Ends

Rio Tinto has slashed its global spending by $5 billion to $4 billion this year and BHP shut its $2.2 billion Ravensthorpe nickel mine in Western Australia.

The West Australian state economy, home to a mining boom that helped drive the nation’s expansion over the past decade, contracted 2.3 percent in the first quarter from the previous three months, the first decline since the fourth quarter of 2000, yesterday’s report showed.

“Despite the positive GDP result, the data provide clear evidence that the global recession is hitting the Australian economy,” Treasurer Wayne Swan told reporters in Canberra. “The collapse in business investment” may threaten Australia for some time to come, he said.

Production in the mining industry fell 1.5 percent in the first quarter, manufacturing slipped 3.3 percent and construction dropped 3.3 percent.

As companies pared spending, imports fell 7 percent, the GDP report showed.

‘Long, Hard Slog’

The fall in imports “suggests that domestic demand remained very weak,” said Heather Ridout, chief executive of Australian Industry Group, an organization representing businesses. “We still face a long, hard slog to restore our economic health.”

Imports of intermediate goods, which include fuel and raw materials, plunged 10.3 percent in the quarter. Imports of capital goods, including trucks and machinery, slipped 7.1 percent.

“There is no guarantee that GDP won’t fall in future,” Rudd said yesterday. “Regrettably the unemployment rate will go up. The global recession is out there and unfolding. Difficulties and obstacles lie ahead.”

The jobless rate reached 5.7 percent in March, the highest level since 2004, before falling to 5.4 percent in April. The government said in last month’s budget unemployment will climb to 8.5 percent, which would be the worst reading since 1997, as the jobless queue swells to 1 million within two years.

“When the unemployment rate skyrockets to 8 percent by early next year or sooner, it will feel like a recession to many,” said Annette Beacher, a senior strategist at TD Securities Ltd. in Sydney.

Interest Rates

Reserve Bank of Australia Governor Glenn Stevens, who left the benchmark interest rate unchanged at a 49-year low of 3 percent this week, noted that factory usage will keeping falling as “companies postpone investment plans and seek to reduce leverage in an environment of tighter lending standards.”

Australia has scope to cut interest rates further if needed, he said on June 2.

Spending by businesses on machinery and equipment tumbled 9.6 percent in the first quarter, the biggest plunge since March 1991, the GDP report showed.

Non-residential construction fell 4.3 percent, the biggest drop since September 2003. Total business investment decreased 6.1 percent, the worst slump since the final quarter of 2000.

To make up for the shortfall in investment, the government last month unveiled a A$22 billion program of spending on roads, rails, ports, hospitals and schools.

“That really kicks in from about mid year,” Swan said yesterday. “It’s in that vital area of direct investment: in shovel-ready projects plus those over the longer term.”

“What the cash payments to consumers have done is filled the gap that was caused when the global economy contracted sharply and demand fell through the floor,” he said. “There is very significant stimulus still to come” from the infrastructure program.

To contact the reporters for this story: Jacob Greber in Sydney at jgreber@bloomberg.net; Victoria Batchelor in Sydney at vbatchelor@bloomberg.net.

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Japan Companies Cut Spending by Record; Profits Slump

By Keiko Ujikane

June 4 (Bloomberg) -- Japanese companies cut spending at the fastest pace in 54 years as a slump in global demand eroded profits, leaving less money for plant and equipment.

Capital spending excluding software fell 25.4 percent in the three months ended March 31 from a year earlier, the largest drop since the government began the survey in 1955, the Ministry of Finance said today in Tokyo. Profits tumbled a record 69 percent.

Manufacturers from Panasonic Corp. to Konica Minolta Holdings Inc. have cut jobs and are closing factories or scaling back spending plans amid an unprecedented decline in exports. Still, production and shipments abroad have picked up since last quarter, and companies will gradually start to increase spending later this year, said economist Kyohei Morita.

“Capital investment will probably return to growth from the third quarter, albeit slowly,” said Morita, chief Japan economist at Barclays Capital in Tokyo. “The main driver will be exports, especially to China.”

The yield on Japan’s 10-year bond fell 2.5 basis points to 1.52 percent at 1:20 p.m. in Tokyo. The Nikkei 225 Stock Average lost 0.5 percent, paring this year’s gains to 9 percent.

The government will use today’s report to revise gross domestic product on June 11. Preliminary figures showed the world’s second-largest economy shrank at a record 15.2 percent annual pace last quarter, and analysts predicted little change to that figure.

Revised GDP

Morita said GDP probably fell 14.5 percent, still the worst-ever contraction. Junko Nishioka, an economist at Royal Bank of Scotland Group Plc in Tokyo, predicted 15 percent, and Hiroshi Shiraishi of BNP Paribas SA said a “major” revision was unlikely.

Last quarter probably represented the worst of Japan’s deepest postwar recession. Finance Minister Kaoru Yosano said yesterday that the economy will probably resume growing this quarter, echoing a prediction made by Bank of Japan Governor Masaaki Shirakawa last month.

Industrial production climbed at the fastest pace in 56 years in April from March as companies made more cars and electronics to replenish stockpiles they ran down during the worst of the export slump. Exports rose for a second month.

Even after the increases, output and exports remain down by more than 30 percent from a year earlier, and the recession is spreading to consumers as companies cut jobs and paychecks. The unemployment rate climbed to a five-year high in April, when wages fell for an 11th month.

‘Subdued’ Growth

“We have to assume economic growth will be subdued for a considerable period after the boost from inventory reductions wanes,” said BNP’s Shiraishi.

Panasonic, the world’s largest maker of plasma televisions, said last month it plans to close about 20 factories this year and proceed with the 15,000 job cuts announced in February. The company may delay the start of a chipmaking plant in Toyama, northwest of Tokyo, Kyodo News reported today.

Konica Minolta, a maker of film used in liquid-crystal displays, said this week that it will eliminate jobs and reduce spending on research to help save 33 billion yen ($345 million) in costs this year.

“Nobody’s building new factories,” said Jesper Koll, chief executive officer of hedge fund adviser TRJ Tantallon Research Japan. “Capital formation is unlikely to be a driver of growth in the foreseeable future.”

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

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Stevens Says RBA Must Be Cautious About Rate Cuts

By Jacob Greber

June 4 (Bloomberg) -- Australian central bank Governor Glenn Stevens said policy makers must be cautious about cutting interest rates too far because that may encourage some borrowers into debt they can’t afford.

“It is the intention of current monetary policy settings to lower debt-servicing costs, assist efforts to reduce leverage and support demand,” Stevens told a conference in Townsville, Australia, today. “It would be counterproductive, though, if further reductions in interest rates induced a large number of marginal borrowers into debts they could service only at unusually low interest rates.”

Stevens, who said the bank has scope to cut rates if needed, added that “picking cyclical turning points is notoriously hard.” The governor left the benchmark rate unchanged at a 49- year low of 3 percent this week ahead of a report that showed Australia’s economy is one of only a few, including China and India, that grew in the first quarter.

“There’s a warning tone that they are reluctant to cut rates much further,” said Su-Lin Ong, a senior economist at RBC Capital Markets in Sydney.

Australia’s “smaller downturn than most countries” reflects the nation’s limited exposure to “financial excesses that have been the problem in some other countries, as well as the good fortune of our position in relation to China,” Stevens said.

Economy ‘Subdued’

Gross domestic product unexpectedly rose 0.4 percent in the first quarter from the previous three months as consumer spending and exports helped it skirt a recession, a report showed yesterday.

There are signs that the economy has remained “subdued” during the current quarter amid a rapid decline in business spending, Stevens said.

A report last month showed business investment tumbled last quarter at the fastest pace on record.

“The rapid decline in business investment is almost certainly continuing,” Stevens said.

And while consumer spending has “held up quite well so far,” it may weaken in coming months as rising unemployment “starts to weigh on incomes and willingness to spend,” he added.

‘Well Placed’

“On the other hand, we are likely to see significant growth in public spending over the year ahead, reflecting fiscal policy decisions.

“Overall, then, our expectation remains that the economy will be well placed for expansion towards the end of this year.”

To spur an economy that unexpectedly contracted in the fourth quarter for the first time in eight years, Stevens cut borrowing costs by a record 4.25 percentage points between September and April.

Stevens today reiterated that weaker growth and slower inflation give policy makers “some scope” to reduce borrowing costs further if it helps secure “a durable upswing.”

“The emphasis on ‘durable’ is important,” he said.

Australia’s dollar was little changed after Stevens speech, after dropping yesterday by the most in six weeks. The currency traded at 80.11 U.S. cents as of 1:03 p.m. in Sydney from 80.08 cents in New York yesterday, when it touched 79.33 cents in the biggest slide since April 20.

Investors expect Australia’s overnight cash rate target will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading.

Traders forecast the benchmark will be 16 basis points higher in 12 months, the index showed at 1:01 p.m. in Sydney. At the start of May, they tipped a 37 basis points of cuts.

To contact the reporter for this story: Jacob Greber in Townsville at jgreber@bloomberg.net

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Oil Trades Near $66 After Falling on Supply Gain, Fuel Demand

By Ben Sharples and Ann Koh

June 4 (Bloomberg) -- Crude oil was little changed near $66 a barrel after falling the most in two weeks yesterday as a government report showed that U.S. supplies unexpectedly increased when fuel consumption plunged to a 10-year low.

Fuel demand in the world’s largest energy user fell 900,000 barrels to 17.7 million barrels a day last week, the biggest drop since Jan. 9, the report showed. Gasoline consumption slipped 518,000 barrels to 9.02 million, the biggest decline since January 2005.

“There was a demand increase prior to the Memorial Day holiday last week, after which demand dropped,” Victor Shum, a senior principal at Purvin & Gertz Inc., said in Singapore. “That’s not a good sign as we’re in the beginning of the driving season.”

Crude oil for July delivery was at $66.28 a barrel, down 16 cents, on the New York Mercantile Exchange at 11:07 a.m. in Singapore after falling as much as 20 cents, or 0.3 percent. Yesterday, the contract fell $2.43, or 3.5 percent, to settle at $66.12 a barrel, the biggest decline since May 15.

U.S. gasoline stockpiles fell 215,000 barrels to 203.2 million last week, the report showed. A 650,000-barrel increase was forecast in the Bloomberg News survey.

The peak U.S. gasoline demand period lasts from late May’s Memorial Day holiday until Labor Day in early September as Americans take to the highways for vacations.

U.S. Stockpiles

Crude inventories climbed 2.9 million barrels to 366 million in the week ended May 29, according to the Energy Department. The gain occurred as imports surged 9.9 percent and refineries increased operating rates to the highest level in six months. Fuel demand fell to the lowest since May 1999.

The Energy Department report was forecast to show that crude-oil stockpiles fell 1.5 million barrels, according to the median of 15 estimates by analysts surveyed by Bloomberg News.

“An increase in inventory levels and oil imports helped push the price lower,” said Mike Sander, an investment adviser at Sander Capital Advisors Inc. in Seattle. “Technically oil cannot go up forever, so at some point there has to be a pull back in the marketplace.”

Prices jumped $7.53 between May 21 and June 1, the longest rally in a year, amid a weaker dollar and signs of recovery in the global economy.

Bernanke’s Comments

Oil also fell as the dollar gained yesterday, reducing investor interest in commodities as an inflation hedge. The Dollar Index yesterday rose by the most in more than four months as Federal Reserve Chairman Ben S. Bernanke said the Federal Reserve won’t finance government spending over the long term.

“Chairman Bernanke’s sober words helped drop the S&P 500 by over 2 percent at times during the day, helping put pressure on oil to trade lower,” Sander said. The S&P 500 declined 1.4 percent and the Dow Jones Industrial Average 0.8 percent.

The MSCI Asia Pacific Index fell 0.7 percent to 104 as of 10:04 a.m. in Tokyo, ending a four-day, 4.6 percent advance.

Gasoline for July delivery fell as much as 0.76 cents to $1.8940 a gallon on the New York Mercantile Exchange. It was at $1.906 a gallon at 9:46 a.m. in Singapore.

Refineries operated at 86.3 percent of capacity, up 1.2 percentage points from the previous week and the highest since the week ended Dec. 5, the report showed.

In addition to supplies on land, traders have kept as much as 100 million barrels of crude oil on tankers. BP Plc, Royal Dutch Shell Plc and Hess Corp. were among oil companies whose first-quarter earnings were boosted by storing crude in tankers. By anchoring vessels offshore, companies were able to profit from the so-called contango, in which oil contracts for delivery in the future are more expensive than near-term supply.

Brent crude for July delivery was at $66.18 a barrel, up 30 cents, on London’s ICE Futures Europe exchange at 11:07 a.m. in Singapore. It dropped $2.29, or 3.4 percent, to end yesterday’s session at $65.88 a barrel, the biggest decline since April 20.

To contact the reporters on this story: Ben Sharples in Melbourne bsharples@bloomberg.net; Ann Koh in Singapore at akoh15@bloomberg.net.

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Yen Drops After Japanese Increase Purchases of Overseas Bonds

By Theresa Barraclough and Yasuhiko Seki

June 4 (Bloomberg) -- The yen weakened for a second day versus the dollar and declined against the euro after a report showed Japanese investors increased purchases of overseas assets.

The yen fell versus 13 of the 16 most-active currencies after the Ministry of Finance said Japanese bought 982 billion yen ($10.2 billion) more overseas bonds than they sold last week, the largest net purchase in a month. Asian currencies declined, led by the Taiwan dollar and Indonesian rupiah, as regional stocks dropped after U.S. reports showed companies cut more workers and the spending by Japanese companies slumped.

“Japanese investors are beginning to get an appetite for foreign investment, which is weighing on the yen,” said David Forrester, a strategist in Singapore at Barclays Capital, a unit of the U.K.’s third-biggest bank. “They will continue to increase their exporting of capital and we expect the yen to be one of the worst performers in the next six months.”

The yen declined to 136.24 per euro as of 12:56 p.m. in Tokyo, from 135.93 in New York yesterday when it gained 0.8 percent. The yen dropped to 96.09 per dollar from 95.99. The U.S. currency traded at $1.4176 per euro from $1.4162.

Japan’s currency may fall to as low as 98 against the dollar over the next year, Forrester said.

The Taiwan dollar dropped 0.6 percent to NT$32.686 against the U.S. currency, the Philippine peso slipped 0.4 percent to 47.38 and Indonesia’s rupiah lost 0.4 percent to 10,150.

Taiwan Dollar

Taiwan’s currency dropped the most in eight weeks as concern the global economic recovery is faltering prompted investors to cut their holdings of emerging-market assets.

The MSCI Asia Pacific Index of regional shares slumped 1.7 percent, ending four days of gains, and the Nikkei 225 Stock Average fell 0.3 percent.

ADP Employer Services yesterday reported U.S. companies cut an additional 532,000 jobs last month as the labor market showed little signs of improving. Japanese capital spending excluding software fell 25.4 percent in the three months ended March 31 from a year earlier, compared with an 18.1 percent decline during the previous quarter, the Ministry of Finance said today in Tokyo.

“U.S. data was not particularly favorable” and that is hurting Asian currencies, said Craig Chan, a strategist at Nomura Singapore Ltd., a unit of Japan’s largest brokerage.

ECB Meeting

The euro was little changed against the dollar on speculation European Central Bank policy makers meeting today will take further steps to keep down borrowing costs in the 16- nation region as optimism over the global recovery wanes.

“The financial market has become overly optimistic about the global economy,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. There should be some “profit-taking ahead of the central bank meeting.”

ECB policy makers will hold the main refinancing rate at 1 percent at the meeting, according to the median forecast of economists surveyed by Bloomberg News.

The ECB said last month it would buy 60 billion euros ($85 billion) of covered bonds, debt issued by banks and backed by mortgages or public-sector loans.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net; Yasuhiko Seki in Tokyo at Yseki5@bloomberg.net.

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China Seeks Smaller Australian Resources Stakes, Lawyer Says

By John Duce

June 4 (Bloomberg) -- China’s state-owned companies seeking mining and energy acquisitions in Australia are opting for smaller stakes because of opposition to Chinese control of resources, a lawyer and an analyst said.

Three Chinese buyers submitted proposals to buy up to 40 percent stakes in Australian resources producers in recent weeks rather than attempting to take control, said James Philips, a mergers and acquisition lawyer at Minter Ellison. Australian opposition prompted China Minmetals Group to scale down its offer for OZ Minerals Ltd. in March.

Chinese companies attempting to buy Australian resources assets include Aluminum Corp. of China’s proposed $19.5 billion investment in Rio Tinto Group, which has yet to be approved by regulators. Some 57 percent of Australians said Chinese mining investments should be resisted because the nation’s interests would be “better served” with local ownership, according to a poll of 890 people conducted by Essential Research in April.

“I think there has been a change of tack recently by some Chinese companies,” said Peter Arden, a resource analyst at Ord Minett Ltd. based in Melbourne. “They are most interested in getting their hands on the resources and making sure that they are at the table.”

Deals approved by the Australian authorities when Chinese companies seek minority rather than majority stakes include Hunan Valin Iron & Steel Group’s successful purchase of 16.5 percent of Fortescue Metals Group Ltd. in April, according to data from Minter Ellison.

Western Mining

Western Mining Co., China’s second-largest producer of lead concentrate, was also allowed to take a 10 percent stake in Australian mineral explorer FerrAus Ltd. last year.

China Minmetals’ $1.2 billion offer for OZ Minerals’ resources was approved this month after the Chinese metal trader excluded some assets from its acquisition proposal. The revised bid excludes the Prominent Hill copper and gold mine in Australia, the Martabe operation in Indonesia and stakes in some publicly traded companies, Melbourne-based OZ Minerals, the world’s second-biggest zinc mining company, said on March 31.

“I’m sure initially some advisers said don’t be too aggressive,” Philips said in an interview in Hong Kong. “I assume that as I am seeing transactions now structured in the way I described, it’s in part because companies learned from some of the experience they have had in the Australian and international market. Perhaps a less-assertive approach might be more conducive to long-term success,” said Philips, who advises Chinese and Australian companies in acquisition talks.

Opposition to Chinese investment helped block Cnooc Ltd.’s $18.5 billion bid for El Segundo, California-based Unocal Corp. and Haier Group Corp.’s offer for U.S. appliance maker Maytag Corp. in 2005.

Cnooc’s Strategy

Fu Chengyu, Cnooc’s chairman, said on April 19 his company, China’s biggest offshore oil producer, has ruled out overseas takeovers during the global economic slowdown because of rising protectionism. Joint ventures and partnerships overseas are the most productive ways of developing resources abroad, he said.

Chinese companies are attracted to Australia because of its stable political climate and legal framework and won’t be deterred from investing by regulatory restrictions, said Philips. About 70 Chinese investments totaling some A$30 billion ($25 billion) have been approved in Australia since 2007, he said.

Overseas buyers need approval from the government to own 15 percent or more of an Australian company. Stakes acquired by foreign state-owned companies must be agreed by regulators, said Philips.

Australia is the world’s biggest shipper of coal and iron ore and China bought 44 percent of the country’s mineral exports last year. China, whose $1.95 trillion in currency reserves are the world’s largest, is buying resources to take advantage of falling commodity prices after a six-year boom ended in July last year. The country is the world’s biggest metals consumer.

“China needs access to raw materials and from the Australian end it’s welcome because it needs capital to develop projects,” Philips said. “My expectation is that investment will continue to flow.”

To contact the reporter on this story: John Duce in Hong Kong at Jduce1@bloomberg.net

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Copper in Shanghai Drops First Session in Five on Demand

By Bloomberg News

June 4 (Bloomberg) -- Copper futures in Shanghai dropped for the first time in five sessions on speculation that the recent rally in prices may reduce demand and as a rising dollar eroded the appeal of commodities as an inflation hedge.

The U.S. Dollar Index, a six-currency measure, jumped 1.4 percent yesterday after touching 78.334 on June 2, the lowest level this year. Rio Tinto Group, the world’s third-biggest mining company, said copper may reverse recent gains in the next nine months as the recession creates an “uncertain” outlook.

“Base metals and energy commodities are trading rich relative to fundamentals” despite the “positive surprises to economic indicators” recently, said Tobias Merath, analyst at Credit Suisse, in a report today.

September-delivery copper on the Shanghai Futures Exchange fell as much as 3.8 percent today to 39,180 yuan ($5,736) a metric ton before trading 2.8 percent lower at 39,590 yuan at 10:07 a.m. local time. Before today, the contract had gained 9.5 percent this week.

On the London Metal Exchange, three-month copper was little changed at $4,918 after slumping 2.6 percent yesterday. The U.S. dollar index was little changed at 79.446. The dollar is poised to reverse declines because the outlook for inflation is being exaggerated, Banc of America-Merrill Lynch said in a report.

The metal also fell after a private report showed companies in the U.S. cut an estimated 532,000 workers from payrolls in May, signaling the labor market is still weak. Economists forecast the ADP Employer Services report would show a decline of 525,000 jobs, based on the median of 28 estimates in a Bloomberg News survey.

Among other LME metals for three-month delivery, aluminum fell 0.6 percent to $1,475 a ton, nickel slid 1.8 percent to $13,950 a ton and lead lost 0.6 percent to $1,600 a ton. Zinc added 0.7 percent to $1,545 a ton, and tin hadn’t traded by 10:05 a.m. in Shanghai

--Feiwen Rong, Richard Dobson. Editors: Richard Dobson, Wendy Pugh.

To contact Bloomberg News staff for this story: Feiwen Rong in Shanghai at +86-21-6104-7051 or frong2@bloomberg.net

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Gold Rallies After Declining by Most in Two Months on Dollar

By Jason Scott

June 4 (Bloomberg) -- Gold advanced, after dropping by the most in almost two months yesterday, as a decline in the dollar increased demand for the metal as an alternative investment.

Bullion rose as much as 0.6 percent as a recovery in the currency stalled. The U.S. Dollar Index, a six-currency gauge of the greenback’s value, closed up 1.4 percent yesterday, the biggest jump in more than four months. Gold typically moves in the opposite direction to the dollar.

“The U.S dollar has just dropped a little bit today but nothing too significant and the gold price has risen in reflection of that,” Jamie Spiteri, head dealer at Shaw Stockbroking Ltd. in Sydney, said in a phone interview today.

Gold for immediate delivery advanced 0.5 percent to $967.56 an ounce at 10:04 a.m. in Singapore, trading in a range between $961.92 and $968.80. The metal closed down 1.9 percent yesterday, the largest drop since April 6.

“I suspect that today it will hover at around that $965 level,” Spiteri said. “I can’t see it reaching $1,000 this week, but it’s not too far away,” he said.

Silver for immediate delivery increased 0.4 percent to $15.41 an ounce after tumbling 3.9 percent yesterday.

The dollar traded at $1.4172 per euro from $1.4162. The U.S. currency advanced for the first time in five sessions yesterday on speculation that an economic recovery will be too weak to sustain gains in higher-yielding assets such as equities, encouraging demand for safety. The U.S. Dollar Index fell as much as 0.3 percent today.

Outpacing Gold

Silver has outpaced gold this year. An ounce of gold now buys about 62.8 ounces of silver, according to data compiled by Bloomberg. This is down from a high of 84.4 on Oct. 10, which was the most since March 1995.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, yesterday decreased 1.53 metric tons to 1,132.50 tons, dropping from a record 1,134.03 tons, the company’s Web site showed.

Gold for August delivery, the most-active contract on the Comex division of the New York Mercantile Exchange, was trading at $969.30. The contract reached $990.20 on June 1, the highest since Feb. 24.

Among other precious metals for immediate delivery, platinum fell 0.2 percent to $1,236.75 an ounce. Palladium, down 2.9 percent yesterday, fell 0.6 percent to $242 an ounce.

To contact the reporter on this story: Jason Scott in Perth at Jscott14@bloomberg.net

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OZ Minerals Hasn’t Had Offer ‘Superior’ to Minmetals

By Jesse Riseborough

June 4 (Bloomberg) -- OZ Minerals Ltd., the Australian mining company trying to refinance A$1.1 billion ($882 million) debt, said it hasn’t had a better rescue offer than China Minmetals Group’s $1.2 billion bid to buy most of its assets.

“OZ Minerals has not received a recapitalization proposal which it considers to be a superior alternative to the China Minmetals transaction,” the Melbourne-based company said today in a statement to the Australian stock exchange.

The company may receive a $1.2 billion recapitalization proposal from Royal Bank of Canada and RFC Group today, the Australian Financial Review said today without citing anyone. The plan involves 20 Australian and international investors providing $1 billion from convertible bonds and new equity, the newspaper said. An international bank may also provide a $200 million working capital facility, the report said.

Minmetals, China’s biggest metals trader, is seeking to complete the purchase of OZ Minerals assets next month, giving it control of the world’s second-biggest zinc mine and supplies of copper, gold and nickel. OZ Minerals agreed to the sale in April after the Australian government rejected a full takeover bid by Minmetals.

OZ Minerals fell 3.9 percent to 86.5 cents at 11:37 a.m. Sydney time. OZ Minerals shareholders are due to vote on the Minmetals proposal on June 11 and the company is seeking to complete the sale by June 18.

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

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