India Keeps Rate Steady And New Zealand Still Suffers From Lower Exports

Daily Forex Fundamentals | Written by ecPulse.com | Jul 28 09 07:17 GMT |

New Zealand surprised markets today when its trade balance indicated an unexpected deficit during June, after demand on imports increased while exports shrank more than expected, indicating that the worst recession since in more than 30 years is still weakening the economy by hurting companies and households. The trade balance recorded in June a deficit by 417.0 million New Zealand dollars from the previous revised reading of 907.0 million of surplus and the expected 215.0 million surplus; on an annual basis the deficit reached to 3176 million in June from the previous -2973.0 million and the expected -2614 million. Imports rose to 3.62 billion New Zealand dollars in June from the previous 3.10 billion and more than the expected 3.20 billion, since Jetstar Airways Pty made some aircraft orders intending to start a new service; meanwhile, imports rose to 3.20 billion dollars in June, however less than the previous 3.96 billion and the expected 3.40 billion. The rise in imports is not based on the improvement in domestic consumption, which remains weak, therefore hopes were hanged on an increase in demand on exports since China is showing real recovery signs, while many other major economies are showing signs of stability, but this did not happen. As demand on various commodities remain low since the industrial production did not grow enough, therefore companies revenues remain low and this what determines it, then to curb investment and refrain from hiring, since this is only hurting the jobs sector and might keep the unemployment rate elevated. Moving to India, where its central bank kept their interest rate unchanged at 3.25%, just like some other countries like England and Japan; indicating that sharpest round of cuts might be ending, not only because signs of recovery have emerged but also because of fears the fears from inflation. As the Indian central bank raised their inflation expectations for this year which started on 31st of March to 5% from their previous estimations of 4%, due to not only to the rise in food and commodities prices but also because of the government spending plans, which might increase confidence, domestic spending and boost growth. The Indian central bank expects the economy to grow this year by 6.5% from the previous estimations of 5.7%, therefore the central bank should be careful regarding its next monetary policy step, since it might be hurting to the economy to continue cutting rates, while moving to a tighter monetary policy is still too soon since demand on exports and real growth is not seen yet. 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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Technical Analysis for Major Currencies

Daily Forex Technicals | Written by ecPulse.com | Jul 28 09 06:50 GMT |

EURO The EUR/USD pair was able to achieve some bearish movements yesterday but it did not surpass 1.4200, which clearly shows the momentum needed to achieve the previously expected incline. We notice a top forming that may complete a bullish technical pattern with a pivot level at 1.4305, where we expect the pair to achieve an incline on an intraday basis and breach this level to head towards 1.4460; most important targets today, ahead of continuing the upside short term direction, targeting levels near 1.4800. 1.4155 is vital for the expected upside direction to prevail. The trading range for today is among the key support at 1.3850 and the key resistance at 1.4440. The general trend is to the downside as far as 1.4710 remains intact with targets at 1.2120. Support: 1.4215, 1.4155, 1.4075, 1.4035, 1.4005 Resistance: 1.4305, 1.4365, 1.4420, 1.4460, 1.4490 Recommendation: Based on the charts and explanations above our opinion is buying pair from 1.4310 To 1.4460 and stop loss below 1.4215, might be appropriate. GBP The cable continued its attempts to remain above 1.6500; something that gives the pair a good push supporting the expected upside intraday direction. The stochastic continues to pressure the pair to the downside, thus we find instability for the pair's durrent trend. Hence, the pair may fluctuate, again, around 1.6500 to gain enough momentum to support the expected incline for today, where key targets are around 1.6680. 1.6320 remaining intact is vital to keep the pair's upside direction. The trading range for today is among the key support at 1.6155 and the key resistance at 1.6740. The general trend is to the upside as far as 1.4840 remains intact with targets at 1.7100. Support: 1.6490, 1.6455, 1.6380, 1.6300, 1.6210 Resistance: 1.6545, 1.6605, 1.6680, 1.6740, 1.6770 Recommendation: Based on the charts and explanations above our opinion is buying pair from 1.6545 To 1.6680 and stop loss below 1.6455, might be appropriate. JPY The USD/JPY pair succeeded in building a support to base itself on and help in achieving upside targets on the short term direction, where its targets are at 96.75 through remaining above the 61.8% correction at 94.90. From here; we hold our previous predictions as long as the intraday incline continues, and completes the upside short term direction towards the mentioned targets protected by the 100 MA and 200 MA. 93.70 remaining intact is vital for achieving these upside movements. The trading range for today is among the key support at 91.80 and the key resistance at 98.80. The general trend is to the upside as far as 102.60 remains intact with targets at 84.95 and 82.60. Support: 94.90, 94.05, 93.70, 93.40, 92.75 Resistance: 95.65, 96.00, 96.80, 97.55, 98.05 Recommendation: Based on the charts and explanations above our opinion is buying pair from 94.90 To 96.00 and stop loss below 94.05, might be appropriate. CHF The USD/CHF pair continues trading around the key support awaited to be breached at 1.0685, through trading within the minor bearish channel, where its tendency is towards the downside. This trading within the mentioned channel keeps our expectations for the pair's downside movements to remain valid; while we expect for today a bearish intraday trend breaching the key support at 1.0685 to head towards 1.0570, where continuing the bearish pressure and breaching this level will lead to the general direction reversing to the downside. Momentum indicators are currently neutral with the stochastic oscillator showing a negative crossover that supports our predictions for today. 1.0860 remaining intact is vital for chances of bearish movement to prevail. The trading range for today is among the key support at 1.0365 and the key resistance at 1.0980. The general trend is to the upside as far as 1.0570 remains intact with targets at 1.2245. Support: 1.0685, 1.0655, 1.0570, 1.0505, 1.0470 Resistance: 1.0740, 1.0780, 1.0845, 1.0860, 1.0935 Recommendation: Based on the charts and explanations above our opinion is selling pair from 1.0675 To 1.0570 and stop loss above 1.0740, might be appropriate CAD The USD/CAD pair settled around the key support at 1.0785, which indicates a continuing pressure on it in an attempt to breach to the downside, where we still see that the bearish movement is still valid and targeting 1.0660. Momentum indicators are showing oversold signals, whereas the pair is not reacting to these signs where it could wait until it reaches the key target to head further to the downside to 1.0300, so that these indicators would take effect. Chances of a downside movement will prevail if 1.0935 remain intact. The trading range for today is among the key support at 1.425 and the key resistance at 1.1010. The general trend is to the downside as far as 1.1870 remains intact with targets at 1.0300. Support: 1.0785, 1.0725, 1.0700, 1.0660, 1.0615 Resistance: 1.0845, 1.0935, 1.1010, 1.1080, 1.1115 Recommendation: Based on the charts and explanations above our opinion is selling pair from 1.0775 To 1.0660 and stop loss above 1.0845, might be appropriate 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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FX Technical Analysis

Daily Forex Technicals | Written by Mizuho Corporate Bank | Jul 28 09 06:38 GMT |

EURUSD Comment: Holding well above a large Ichimoku 'cloud' with moving averages decidedly bullish. If the lagging Span manages to hold above the top of the 'triangle' bullish momentum should increase even further for a test of this year's high at 1.4339. Implied volatility should pick up next where traders and investors should note that current consensus opinion is that the US dollar should strengthen over the coming 12 months. Strategy: Buy at 1.4275, adding to 1.4200; stop below 1.4100. Short term target 1.4300/1.4339, a lot more on a sustained break above 1.4375. Direction of Trade: → ↗ Chart Levels: Support Resistance 1.4240 " 1.43 1.42 1.4339* 1.4165 1.4365* 1.4118* 1.443 1.4095 1.453 GBPUSD Comment: Cable is inching fractionally higher and bullish momentum should increase if the Lagging Span manages to hold above the upper edge of the 'triangle' formation. The pound is not overbought and several other currencies look similar. Strategy: Attempt small longs at 1.6550, adding to 1.6450; stop well below 1.6300. First target 1.6600/1.6650 and then this year's high at 1.6745. More later this year. Direction of Trade: →↗ Chart Levels: Support Resistance 1.6490 " 1.656 1.6457 1.6587 1.6382 1.6625 1.63 1.6664 1.6187 1.6745 USDJPY Comment: Stalling against Fibonacci retracement but few clear signs of topping yet. Some stops were triggered on yesterday's blip above last week's high at 95.30. Open interest in the futures market continues to decline and is running at the lowest since 2003. Strategy: Attempt small shorts at 95.15; stop well above 95.40. Add to shorts on a sustained break below 94.40 for 93.25 Direction of Trade: → Chart Levels: Support Resistance 94.59/94.40 " 95.39* 94 95.5 93.85 95.67 93.5 96 93.00* 96.25* EURJPY Comment: Trading at some of the highest levels this year and we shall continue to watch for signs of topping today and all week. Strategy: Possibly attempt tiny shorts at 135.80; stop above 136.25. Add to shorts on a sustained break below 134.00 for 132.00. Direction of Trade: →↘ Chart Levels: Support Resistance 135.00 " 135.88 134.65 136.11 134.25 136.75 133.85 136.9 132.85 137.42 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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Swiss Franc’s Failure to Weaken Shows Demand for Haven, UBS Says

By Justin Carrigan

July 28 (Bloomberg) -- The Swiss franc’s failure to decline is a signal that demand for a refuge in the currency markets remains buoyant, according to UBS AG.

“The behaviour of the franc is worth watching,” a team of UBS analysts led by Zurich-based chief currency strategist Mansoor Mohi-uddin wrote in a note yesterday. “Despite massive Swiss National Bank intervention, the franc has hardly weakened, signaling that for all the recent bullishness of global markets, there remains plenty of distressed demand for safe-haven assets like the franc within Europe.”

The franc was at 1.0684 per dollar as of 7:45 a.m. in Zurich, little changed this year. It was at 1.5249 against the euro, for a 2.1 percent decline on the year.

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

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Standard Chartered Raises Pound Forecast Versus U.S. Dollar

By Candice Zachariahs

July 28 (Bloomberg) -- The pound will strengthen against the U.S. dollar through year-end, Standard Chartered Plc said.

The U.S. currency is in a “multi-year downtrend,” wrote analysts led by Callum Henderson, head of currency strategy at Standard Chartered in Singapore. The pound will buy $1.70 in the third quarter and $1.75 over the following three months, the bank said, revising its June 26 forecasts for $1.66 and $1.70, respectively, according to Bloomberg News data.

The pound slipped 0.1 percent to $1.6472 as of 10:26 a.m. in Tokyo from $1.6488 yesterday.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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British Pound Extends Gains Against U.S. Dollar, Japanese Yen

By Daniel Tilles

July 28 (Bloomberg) -- The pound extended gains against the dollar and the yen.

The British currency rose 0.3 percent to $1.6540 as of 7:09 a.m. in London. Against the yen, the pound advanced 0.3 percent to 157.33.

To contact the reporter on this story: Daniel Tilles in London at dtilles@bloomberg.net

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Morgan Stanley Recommends Selling Dollar Against Euro, Krone

By Candice Zachariahs

July 28 (Bloomberg) -- Investors should sell the dollar against the euro, Norwegian krone and Canadian currency as the global outlook improves, Morgan Stanley said.

The bank advised investors to bet on further declines in the dollar if its weakens beyond $1.4340 versus the euro or drops below C$1.0750. Morgan Stanley also suggested buying Norway’s krone if the Scandinavian currency strengthens past 6.1180 against the dollar.

“As the outlook continues to improve, we believe that currencies with strongest ties to the global growth cycle will outperform at the expense of U.S. dollar,” Yilin Nie, a currency strategist at Morgan Stanley in New York, wrote in a note to clients yesterday. “U.S. dollar weakness may gain momentum.”

The dollar has fallen against 14 of the 16 major currencies this month, losing 1.5 percent against the euro, 3.9 percent versus the krone and 7 percent against the Canadian dollar.

The greenback was little changed at $1.4240 per euro as of 12:40 p.m. in Tokyo from $1.4232 yesterday when it fell to $1.4298, the weakest since June 3. The dollar traded at C$1.0809 from C$1.0812 and bought 6.1834 per krone from 6.1882.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.

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Colombia Peso Set to Drop as Rally Prompts Central Bank Concern

By Andrea Jaramillo

July 28 (Bloomberg) -- Colombia’s peso, the world’s best- performing currency in the past four months, will weaken by year-end as the central bank’s commitment to “carefully monitor” the rally discourages investors from betting on further gains, Barclays Plc and RBC Capital Markets said.

The peso has surged 25 percent against the dollar since March 27, the biggest gain among the 176 currencies tracked by Bloomberg, as a jump in oil, the country’s top export, and rising demand for higher-yielding assets lured international investment to Latin America’s fifth-largest economy.

Policy makers said July 24 they were “aware of the risks associated with the peso’s appreciation” after it strengthened more than they expected. Agriculture Minister Andres Fernandez and exporters such as coffee growers are urging Banco de la Republica to buy dollars to weaken the peso.

The central bank’s “verbal intervention will put an end to the peso’s appreciating trend,” said Jimena Zuniga, a Latin America economist at Barclays in New York. The comments “will cause some concern with investors,” she said.

Zuniga forecasts the peso will slide 5 percent to 2,100 per U.S. dollar by yearend, from 1,994.52 yesterday. Paul Biszko, an emerging-markets strategist with RBC Capital Markets in Toronto, predicts the peso will drop to as low as 2,250 in the third quarter and end the year at 2,150.

The central bank’s attempt to reverse the peso’s gains may fail as rising crude oil prices propel the currency further, said Win Thin, a senior currency strategist at Brown Brothers Harriman & Co. He forecasts the peso may rise to 1,850 by yearend.

Peso to Extend Rally

“Oil is higher, commodities are higher, risk appetite is coming back and people like emerging markets, so the Colombian peso and other emerging market currencies can see values go up toward the end of the year,” Thin said.

Crude oil has jumped 53 percent this year to $68.02 a barrel on the New York Mercantile Exchange. The peso fell 0.5 percent to 1,994.52 yesterday.

Rising political tension with neighboring Venezuela and Ecuador may also derail the Colombian’s peso rally, said Fernando Losada, an economist at Deutsche Bank Securities Inc. in New York.

Venezuelan President Hugo Chavez said July 23 his government may curb commercial ties with Colombia after President Alvaro Uribe announced plans to allow the U.S. to use its air bases for anti-narcotics combat missions. Venezuela is Colombia’s second-biggest trading partner.

‘Commercial War’

Ecuadorean President Rafael Correa this month imposed tariffs on Colombian goods including meat, clothing and machinery, saying the depreciation of the peso earlier this year hurt his country’s economy. Ecuador, Colombia’s third-largest trade partner, uses the U.S. dollar as its currency. Venezuela and Ecuador account for about 20 percent of Colombia’s exports, according to Deutsche Bank.

“The commercial war between Colombia and Ecuador has already started,” Losada said in comments sent by e-mail. If Chavez follows through on a threat to replace Colombian imports with those from other countries, “the impact on the peso could be important,” he said.

Deutsche Bank estimates the peso will weaken to 2,200 in six months, according to a report yesterday.

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

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Ace Sells Equities, Purchases Corporate Debt, U.S. Treasuries

By Jamie McGee

July 28 (Bloomberg) -- Ace Ltd., the Zurich-based insurer and reinsurer with operations in more than 50 countries, said it sold equities in the second quarter as markets rebounded, then purchased corporate debt and U.S. Treasuries.

“With a strong recovery in global equity markets, we also liquidated the majority of our publicly traded equity holdings and invested the proceeds in higher-yielding corporate bonds,” Chief Operating Officer Philip Bancroft said yesterday in a conference call. “The shifts in asset allocation will, with all else being equal, increase book yield and investment income.”

Ace announced yesterday that second-quarter net income declined 28 percent from a year earlier as the value of its investments fell. Insurers have posted more than $200 billion in writedowns and unrealized losses tied to the collapse of the U.S. housing market since the beginning of 2007.

Cash investments were cut by about $1.8 billion in the period, Ace said on the call. The company spent proceeds from equities sales and bought mostly corporate debt, U.S. Treasuries and high-grade mortgages.

Ace, which moved its headquarters to Zurich from Bermuda, has fallen less than 1 percent in New York Stock Exchange composite trading in the past year compared with the 22 percent drop of the 77-company Bloomberg World Insurance Index. The Standard & Poor’s 500 Index has gained 8.7 percent this year while the Dow Jones Industrial Average rose 3.8 percent.

Second-quarter net income dropped to $535 million, or $1.58 a share, from $746 million, or $2.18, Ace said. Profit excluding some investment results was $2.09 a share, beating the $1.96 average estimate of 15 analysts surveyed by Bloomberg.

Plane Crashes

The June 1 Air France crash, which killed 228 people flying to Paris from Rio de Janeiro, contributed to a 37 percent decline in accident and health earnings, Chief Executive Officer Evan Greenberg said in the conference call. Accident and health fell to $87 million from $138 million a year earlier, Ace said.

“We had some one-time good guys last year in the second quarter, and we had some one-time bad guys in the quarter this year that were related to losses,” Greenberg said. “One example is the Air France crash.”

Ace was the lead insurer for the Yemenia Airways Inc. plane that crashed on June 30 with 153 people aboard, according to Insurance Insider. The Yemenia and Air France losses will contribute to what may be the most expensive month for the airline-insurance industry except for September 2001, Aon Corp., the biggest insurance broker, wrote in a July 6 report. Ace spokesman Stephen Wasdick declined to comment on Yemenia.

Corporate Debt

Ace’s net income includes a $171 million loss on the value of holdings including stocks and high-yield corporate debt. That compares with an $8 million investment gain a year earlier. Ace’s book value, a measure of assets minus liabilities, climbed 12 percent from the first quarter to $49.27 as other holdings posted gains that didn’t count toward earnings.

Junk-rated debt returned 23.2 percent in the second quarter, its best ever performance, according to Merrill Lynch & Co.’s High Yield Master II index.

“Our investment portfolio continues to be predominately invested in publicly traded, investment-grade fixed-income securities,” Bancroft said. The average credit rating is AA with more than one half invested in AAA securities, he said.

About 90 percent of the insurer’s $43 billion investment portfolio is in fixed-income holdings including securities backed by residential and commercial mortgages and debt issued by General Electric Co., JPMorgan Chase & Co. and Bank of America Corp.

To contact the reporter on this story: Jamie McGee in New York at jmcgee8@bloomberg.net

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High-Frequency Traders Say Speed Works to Everyone’s Advantage

By Edgar Ortega, Jeff Kearns and Eric Martin

July 28 (Bloomberg) -- Frank Troise, the head of electronic equity trading products at Barclays Plc, says using computers to execute orders in milliseconds is no different than brokers jockeying for position years ago on the floor of the New York Stock Exchange.

“This has been going on for quite awhile, and it’s now at a fever pitch,” says Troise, 43, who is based in New York. “There’s always been an advantage to executing with speed.”

Policymakers are asking whether that advantage has become too great for so-called high-frequency traders, whose programs buy and sell shares up to 1,000 times faster than the blink of an eye. Defenders say the competition for profits that gave rise to today’s rapid-fire execution has roots that span decades and has helped reduce costs for investors.

About 46 percent of daily volume is handled through high- frequency strategies, according to estimates by NYSE Euronext, the world’s largest owner of stock exchanges. The transactions are made by about 400 of the 20,000 firms trading stocks in the U.S., according to Tabb Group LLC, a New York-based financial services consultant. Each makes bets in hundredths of a second to exploit tiny price swings in equities and discrepancies in futures, options and exchange-traded funds.

The firms compete for $21.8 billion in annual profits, according to Tabb. Among the largest are hedge funds Citadel Investment Group LLC, D.E. Shaw & Co. and Renaissance Technologies Corp., as well as the automated brokerages Getco LLC, Hudson River Trading LLC and Wolverine Trading LLC. Rapid- fire strategies helped equity volume more than double in the U.S. since 2006 to a record 10.8 billion shares a day last year, Nasdaq OMX Group Inc. data show.

Market Patterns

High-frequency programs look for patterns in securities markets. A typical strategy is based on the likelihood that a stock that rose over the past 20 hours will pare its gain, said Irene Aldridge, managing partner at Toronto-based Able Alpha Trading Ltd., a high-speed proprietary trading firm. Others sift through thousands of quotes to calculate the probability of a shift in the market.

“There’s a lot of brainpower involved in this,” said Aldridge, whose book “High-Frequency Trading: A Practical Guide to Algorithmic Strategies and Trading Systems” is scheduled for publication in January 2010. “It’s profitable if you can capture a few basis points and do it a few times a day, and markets have evolved to support this.”

Penny Increments

U.S. equity exchanges have catered to such clients since at least 1997, when the NYSE ended its century-old practice of quoting stocks in eighths of a dollar. It shifted to penny increments in 2000. That eroded earnings for NYSE and Nasdaq market makers, who profit from the difference between bids and offers. For investors, it helped reduce trading costs.

The exchanges sought to compensate for the lost business by paying rebates to high-frequency brokerages that buy shares at the best public prices. Exchanges have also overhauled their trading systems to cut transactions times and rent space in data centers so it takes less time to transmit information to buyers and sellers. Bats Global Markets processes orders in less than 400 microseconds, or 0.0004 second, which is about 1,000 times faster than humans blink their eyes.

As the strategies increased in speed, it became impossible for investors without advanced computer systems to get fair prices, according to some market participants. Firms handling large trades complained that brokers using complex algorithms fire off hundreds of orders and immediately cancel them in an effort to trick them into revealing plans to buy or sell.

Higher Volatility

“If you’re trying to buy a big block of stock, the algorithms notice,” said Bart Barnett, head of equity trading at Morgan Keegan & Co. in Memphis, Tennessee. “It increases volatility and has an adverse effect on the prices customers get on stocks.”

New York’s Charles Schumer, the third-ranking Senate Democrat, asked the Securities and Exchange Commission on July 24 to ban a practice in which some exchanges hold orders for a split-second before publishing them on competing platforms. Schumer said so-called flash orders are used by “sophisticated high-frequency traders” to get an edge.

At Bats, the third-largest U.S. stock exchange, about half of its customers use flash orders, Chief Executive Officer Joe Ratterman said in an interview yesterday. The system is open to everyone and allows brokers to submit prices that are more competitive because the delay gives them a way to anticipate moves in the market, he said.

Waiting for Orders

Ratterman said the danger of flash trades is that brokers may grow reluctant to post publicly accessible quotes, opting instead to wait for flashed orders. That doesn’t mean the deck is stacked against small investors, he said.

“The idea of haves and have-nots is just crazy to me,” Ratterman said. “Every firm in the U.S. has the ability to invest in the same way that every successful trading firm has done. Trading by definition is a competitive business.”

Ben Townson of New York-based BlackBox Group, which uses high-frequency strategies and specializes in algorithmic trading, says “natural abilities and skills” determine who makes money, not computers.

“You can throw a lot of money at technology, but if you don’t take the time to study your trades, it doesn’t matter,” Townson said. “We’ve built a racecar that is optimized for driving fast. Is that an advantage? Yes. Is it an unfair advantage? No.”

To contact the reporters on this story: Edgar Ortega in New York at ebarrales@bloomberg.net; Jeff Kearns in New York at jkearns3@bloomberg.net; Eric Martin in New York at emartin21@bloomberg.net.

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U.S. Assures ‘Concerned’ China It Will Shrink Deficit

By Rob Delaney and Rebecca Christie

July 28 (Bloomberg) -- Treasury Secretary Timothy Geithner pledged to rein in the U.S. deficit as China underscored concern about preserving the value of its $801.5 billion of Treasury holdings.

The U.S. will ensure a “sustainable” deficit by 2013, Geithner said at the beginning of the first round of Strategic and Economic Dialogue talks under President Barack Obama in Washington. China is “concerned about the security of our financial assets,” Assistant Finance Minister Zhu Guangyao said.

In a shift from meetings under the Bush administration, officials indicated there were few signs of tension over the value of China’s yuan, which U.S. lawmakers have labeled as artificially cheap and an aid to Chinese exports. That may be because the “best idea is just to keep the yuan-dollar rate stable” given U.S. need for Chinese demand for Treasuries, said Ronald McKinnon, a professor of economics at Stanford University.

“The Chinese are trapped with supporting the value of the dollar,” McKinnon said in a telephone interview from Stanford, California. “If they withdrew from the market, there’s a big appreciation” of the yuan as a result that would send China’s exports down, he said.

China’s Reserves

The new focus on the deficit and Treasuries reflects the legacy of China’s record trade surpluses and its accumulation of dollars as a result of holding down the yuan. Chinese foreign- exchange reserves surpassed $2 trillion for the first time in the second quarter, and its holdings of Treasuries reached $801.5 billion in May, about 100 percent more than at the start of 2007.

Geithner is co-hosting the SED talks with Secretary of State Hillary Clinton. Vice Premier Wang Qishan and Dai Bingguo, a state councilor, are attending for China.

Obama said in a speech opening the meetings he wants to engage China in cooperation on a range of issues, beyond acting together to stimulate a global economic recovery.

“We must also be united in preventing Iran from acquiring a nuclear weapon,” Obama said. He cited nuclear proliferation, terrorism, piracy, global pandemics, climate change and civil war as other common threats facing the two countries. In her sessions, Clinton addressed both the Iranian and North Korean nuclear programs.

‘Fragile’ Recoveries

The Obama administration has expanded the talks that began under President George W. Bush, chaired by then Treasury Secretary Henry Paulson. Paulson, a former Goldman Sachs Group Inc. chief executive officer, pressed for a more market-set exchange rate and greater access for international financial firms to the country.

The two sides agreed yesterday that each nation shouldn’t withdraw economic stimulus measures “too soon because the recoveries are still very fragile,” David Loevinger, the U.S. Treasury’s senior coordinator for China affairs, said on a conference call with reporters.

“We talked about China’s exchange-rate policy” and Chinese officials “talked about their desire to reform the international monetary system,” Loevinger said, without offering specifics. Chinese policy makers have said they favor an eventual shift in the global currency reserve system away from the dollar, suggesting wider use of an International Monetary Fund unit of account.

Currency Policies

Zhang Xiaoqiang, vice chairman of the National Development and Reform Commission, told reporters yesterday that “compared with previous meetings” between Chinese and U.S. officials, “the U.S. side doesn’t lay as much emphasis on renminbi exchange-rate reform and opening of capital markets.” The yuan is a denomination of the renminbi.

The yuan will continue to move “according to the will of the Chinese government” and the talks won’t alter existing currency policies, Kirby Daley, a strategist at Newedge Group in Hong Kong told Bloomberg Television today.

The yuan has hovered around 6.83 per dollar since July last year. The currency has gained 21 percent since China lifted a strict peg to the dollar in July 2005.

Zhu, the assistant finance minister, also said China favors a “stable” dollar, indicating one source of concern is any collapse in the value of the U.S. currency. The dollar has dropped about 3.5 percent against the currencies of major trading partners this year, according to a Federal Reserve index, and has depreciated about 18 percent in the past eight years.

Bernanke, Summers

“We hope that the economy and financial markets remain stable and that the exchange rate of the U.S. dollar, which is a major international currency, remains stable,” Zhu said yesterday. “That’s why we’re focusing on the security of China’s investment in the U.S.”

The U.S. delegation included Fed Chairman Ben S. Bernanke, White House National Economic Council Director Lawrence Summers and Peter Orszag, Obama’s budget director.

Obama’s advisers told Chinese officials that the administration’s record $787 billion fiscal stimulus was necessary to get the economy out of its worst recession in half a century. Loevinger added that the deficit, which is on course to reach $1.8 trillion this year, will be made “sustainable” in part through future spending cuts and an overhaul of health care.

Geithner, in his opening remarks, reiterated the U.S. call for China to shift toward relying on domestic demand for growth rather than exports.

“They have to build more of a domestic spending society,” U.S. Trade Representative Ron Kirk said in an interview with Bloomberg Television. If they do, “software, movies and the creative arts will be a great market for the United States.”

To contact the reporter on this story: Rob Delaney in Washington at robdelaney@bloomberg.net; Rebecca Christie in Washington at Rchristie4@bloomberg.net;

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Home Prices in Major U.S. Cities Probably Fell at Slower Pace

By Courtney Schlisserman

July 28 (Bloomberg) -- Home prices in 20 major U.S. metropolitan areas probably fell at a slower pace in May, another sign the market is stabilizing, economists said ahead of a report today.

The S&P/Case-Shiller home-price index fell 17.9 percent from a year earlier following an 18.1 percent drop in April, according to the median of 32 forecasts in a Bloomberg News survey. Another report may show consumer confidence fell in July for a second month.

Price declines may keep moderating as demand steadies and distressed properties account for a smaller share of transactions. Even so, rising unemployment, stagnant confidence and the loss of wealth caused in part by the drop in property values mean a rebound may be slow to take hold.

“The housing market looks like it has found a floor and we may be on the way to some kind of gradual improvement,” said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio. “Sellers are definitely getting more realistic about what they can get for their houses.”

The S&P/Case-Shiller index is due at 9 a.m. New York-time. Estimates ranged from declines of 17.5 percent to 18.3 percent.

The measure dropped 19 percent in the year ended in January, the most since records began in 2001.

At 10 a.m., a report from the New York-based Conference Board may show its consumer confidence index edged down to 49 from 49.3 in June. Estimates ranged from 44 to 56. The measure reached an eight-month high in May.

The home-price figures aren’t adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.

Other Measures

The report would buttress other measures that have shown a deceleration in price declines. The Federal Housing Finance Agency said last week that its purchase-only price index was down 5.6 percent in May from a year earlier, the smallest annual drop in 10 months.

The FHFA index is a national measure that tracks houses bought with mortgages purchased by Fannie Mae or Freddie Mac and excludes many of the foreclosure sales and properties bought with non-conventional mortgages. In addition to being limited to 20 areas, the S&P/Case-Shiller report also includes distressed properties and those bought with non-conventional loans such as jumbo mortgages.

“There isn’t one perfect house-price number, you want to look for consistency across all of them,” said Jonathan Basile, an economist at Credit Suisse Holdings Group Inc. in New York. “When you’re looking for a turn, you want to see all of them start to turn.”

Shares Improve

Homebuilder shares have risen over the last two weeks on signs the market may be stabilizing. The Standard & Poor’s Supercomposite Homebuilding Index rose 4.4 percent yesterday to close at 254.38, the highest level since May 5.

Foreclosure filings reached a record in the first half of the year, providing competition for homebuilders and pushing down the value of homes. Even so, figures from the National Association of Realtors show the share of distressed property sales may be easing.

The share of homes sold as foreclosures or otherwise distressed properties fell to about 31 percent in June, down from 45 percent to 50 percent seen earlier this year, the real- estate agents’ group said last week.

Combined sales of new and existing homes in June reached the highest level in eight months, according to figures from NAR and the Commerce Department.

More Unemployment

Purchases are unlikely to rebound quickly as rising unemployment, which economists surveyed by Bloomberg forecast will top 10 percent by early 2010, threatens to scare away some buyers.

Declines in home prices and stocks cut household net worth by $13.9 trillion through the first quarter, according to figures from the Federal Reserve. The need to rebuild tattered finances has prompted Americans to limit spending and boost savings.

“We are preparing for this recovery to take a while to pick up steam,” Frits van Paasschen, chief executive officer of Starwood Hotels & Resorts Worldwide Inc., said in a conference call with analysts last week. The third-largest U.S. lodging company’s second-quarter earnings beat analysts’ estimates.

                        Bloomberg Survey

================================================================
                        Case Shil Consumer
                          Monthly     Conf
                             YOY%    Index
================================================================

Date of Release              07/28    07/28
Observation Period             May     July
----------------------------------------------------------------
Median                      -17.9%     49.0
Average                     -17.8%     49.1
High Forecast               -17.5%     56.0
Low Forecast                -18.3%     44.0
Number of Participants          32       67
Previous                    -18.1%     49.3
----------------------------------------------------------------
4CAST Ltd.                  -17.7%     46.0
Action Economics            -17.8%     44.0
AIG Investments             -17.5%     44.0
Aletti Gestielle SGR          ---      45.0
Ameriprise Financial Inc      ---      50.8
Argus Research Corp.          ---      52.0
Banesto                     -17.9%     48.4
Bank of Tokyo- Mitsubishi     ---      48.4
Barclays Capital            -17.9%     50.0
BBVA                        -17.9%     50.2
BMO Capital Markets         -17.9%     52.0
BNP Paribas                   ---      47.0
Briefing.com                  ---      49.0
C I T I C Securities        -18.0%     49.0
Calyon                        ---      46.5
Capital Economics           -17.9%     50.0
ClearView Economics         -18.0%     54.0
Commerzbank AG              -18.0%     46.5
Credit Suisse                 ---      47.0
Daiwa Securities America      ---      52.0
Danske Bank                   ---      48.4
DekaBank                      ---      50.0
Desjardins Group            -17.9%     48.5
Deutsche Bank Securities      ---      49.5
DZ Bank                     -17.8%     47.0
Exane                         ---      51.0
First Trust Advisors          ---      49.0
Fortis                      -17.7%     50.0
Goldman, Sachs & Co.          ---      50.0
Helaba                        ---      49.0
Herrmann Forecasting        -17.7%     50.6
HSBC Markets                -17.7%     49.0
IDEAglobal                  -17.8%     48.0
IHS Global Insight            ---      47.0
Informa Global Markets        ---      48.2
ING Financial Markets       -17.8%     49.7
Insight Economics           -17.5%     51.5
Intesa-SanPaulo               ---      47.0
J.P. Morgan Chase           -17.5%     55.0
Janney Montgomery Scott L   -18.1%     48.0
Johnson Illington Advisor     ---      44.5
JPMorgan’s Private Wealth     ---      49.2
Landesbank Berlin             ---      46.5
Landesbank BW               -17.9%     48.5
Merrill Lynch/BAS           -18.3%     52.0
MFC Global Investment Man     ---      48.0
Moody’s Economy.com           ---      49.0
Morgan Stanley & Co.          ---      50.0
Natixis                     -17.9%     53.0
Newedge                       ---      48.0
Nord/LB                       ---      47.0
Raymond James                 ---      53.0
RBS Securities Inc.           ---      48.0
Ried, Thunberg & Co.        -17.8%     50.0
Schneider Foreign Exchang     ---      47.0
Scotia Capital              -17.9%     50.0
Societe Generale              ---      49.0
Standard Chartered          -17.9%     47.5
Stone & McCarthy Research     ---      47.5
TD Securities               -17.5%     56.0
Thomson Reuters/IFR           ---      51.6
UniCredit Research          -17.6%     46.0
Union Investment              ---      50.3
University of Maryland      -17.9%     49.3
Wells Fargo & Co.             ---      47.8
WestLB AG                   -17.9%     52.0
Westpac Banking Co.         -17.7%     ---
Wrightson Associates          ---      50.0
================================================================

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

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Palm Oil Gains on Optimism Chinese Demand Steady Amid Recovery

By Claire Leow

July 28 (Bloomberg) -- Palm oil futures climbed on optimism a global economic recovery will sustain export demand, led by orders from China, the largest consumer.

“Our China team expects China’s consumption to remain strong from the second half of 2009 onwards,” a UOB Kay Hian (Malaysia) Holdings Sdn. report said. “China’s demand for edible oils grew at 10-year compounded annual growth rate of 9.5 percent on the back of the population growth and urbanization.”

Palm oil for October delivery gained as much as 1.4 percent to 2,127 ringgit ($604) a metric ton on the Malaysia Derivatives Exchange and was up 1 percent at 2,118 ringgit a ton at the 12:30 p.m. trading break.

Prices may hold at these levels, Sabri Ahmad, chairman of the Malaysian Palm Oil Board, said in Kuala Lumpur today.

Exports from Malaysia, the second-largest producer, are poised to gain for a third month in July. Shipments rose to 1.085 million tons in the first 25 days of July, 10 percent higher than the same period in June, independent cargo surveyor Societe Generale de Surveillance estimated.

A six-month rally in palm oil futures ended in May and prices have fallen about 24 percent from an intraday high of 2,799 ringgit a ton on May 13, trimming this year’s gain to 25 percent.

Demand typically peaks at this time of the year as orders grow ahead of major festivals across Asia and the Middle East. The Muslim holiday of Ramadan starts next month, while Hindus celebrate Diwali in October and the Chinese mark the mid-autumn festival in the same month. All three events are marked by celebratory meals, boosting edible oil demand.

Palm oil for January delivery on the Dalian Commodity Exchange, the most-active contract, gained 2.5 percent to 5,776 yuan ($846) per ton at the 11:30 a.m. local time trading pause.

To contact the reporter on this story: Claire Leow in Singapore at cleow@bloomberg.net

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Dollar Falls Toward Seven-Week Low Against Euro on Stock Rally

By Yasuhiko Seki and Ron Harui

July 28 (Bloomberg) -- The dollar fell toward its lowest level in seven weeks against the euro as Asian stocks extended a global rally, adding to evidence investors are shifting to higher-yielding assets.

The Australian dollar rose for a third day against the greenback after the Reserve Bank of Australia said the South Pacific nation’s economy may rebound faster than it forecast six months ago. The euro approached a three-week high against the yen after Deutsche Bank AG said second-quarter profit rose 68 percent, beating analysts’ estimates, on increased revenue from trading bonds and stocks.

“Rising share prices will make it easier for investors to take more risks,” said Toshiya Yamauchi, manager of the foreign-exchange margin trading department in Tokyo at Ueda Harlow Ltd. “Under such circumstances, the dollar and the yen will weaken, especially against the currencies of resource-rich nations and emerging markets.”

The dollar declined to $1.4275 per euro as of 7:05 a.m. in London from $1.4232 in New York yesterday, when it touched $1.4298, the lowest level since June 3. The U.S. currency was at 95.13 yen from 95.18 yen.

The euro rose to 135.80 yen from 135.48 yen yesterday, when it reached 136.10 yen, the strongest since July 2. The U.S. dollar fell to as low as C$1.0761 today, its weakest versus Canada’s dollar since Oct. 3.

MSCI’s Asia Pacific index of regional shares rose for an 11th day, the longest winning streak since January 2004, adding to evidence investor risk-appetite is increasing. The index climbed 0.9 percent today.

Dollar Index

The Dollar Index was near the lowest level this year before a report that economists said will show U.S. home prices fell at a slower pace in May, indicating that the American economy is recovering and demand for safe haven currencies will fall.

The S&P/Case Shiller index of 20 major metropolitan areas, scheduled for release today, will show property values fell 17.9 percent in May from a year earlier, according to a Bloomberg News survey of economists. The measure was down 18.1 percent in the 12 months ended April.

The Dollar Index, which the ICE uses to track the greenback against currencies including the yen, pound and Swedish krona, was at 78.476 from 78.626 yesterday, near this year’s low of 78.334 on June 2

The Australian dollar climbed after RBA Governor Glenn Stevens said it appears “that the downturn we are having may turn out not to be one of the more serious ones of the postwar era, in contrast to the experiences of so many other countries.”

Upside Risks

“We can much more easily imagine upside risks to the outlook, to balance out the downside ones, than was the case six month ago,” the Reserve Bank chief said in Sydney today.

Stevens left the benchmark lending rate at 3 percent on July 7 for a third month amid signs the lowest borrowing costs in half a century and government spending helped the nation skirt a recession.

“With Australia’s economy apparently doing well, there may be no more scope for interest-rate cuts,” said Masashi Kurabe, head of currency sales and trading in Hong Kong at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest publicly traded bank. “Higher-yielding currencies such as Australia’s dollar will likely be popular, with demand from people in countries with low yields such as Japan.”

Benchmark interest rates of 8.75 percent in Brazil and 0.25 percent in Sweden compare with 0.1 percent in Japan and as low as zero in the U.S.

The Australian dollar rose to 83.02 U.S. cents from 82.27 cents yesterday, and advanced to 78.97 yen from 78.31 yen.

Deutsche Earnings

The euro gained for a fourth day against the yen after Germany’s largest bank said in a statement today net income rose to 1.09 billion euros ($1.55 billion), or 1.64 euros a share, from 649 million euros, or 1.27 euros, a year earlier. Deutsche Bank’s earnings exceeded the 944 million-euro median estimate of 13 analysts surveyed by Bloomberg.

“The bank’s results were better than expected,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “The latest upmove in the euro could be due to this.”

Deutsche Bank’s Chief Executive Officer Josef Ackermann said the banking industry and financial markets stabilized in the quarter, propelling a fourfold gain in income from debt sales and an improvement in equity trading.

Losses in the yen against the dollar were tempered on speculation Japanese exporters are taking advantage of the currency’s drop in the past week to repatriate earnings from overseas assets before the month-end.

Japanese Exporters

“Exporters are prone to buy the yen, given that the end of the month is near,” said Yuji Saito, head of the foreign- exchange group in Tokyo at Societe Generale, France’s third- largest bank.

Japanese companies forecast the yen would average 94.85 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released July 1.

Adding to pressure on the dollar, China’s Assistant Finance Minister Zhu Guangyao said on the first day of bilateral talks with U.S. officials that his government remains “concerned” about the value of its U.S. assets.

Zhu’s remarks come after repeated public assurances by Treasury Secretary Timothy Geithner that the U.S. is committed to reining in a record budget deficit once an economic recovery is secured. China is the biggest foreign investor in U.S. government debt, and any decline in demand could push up borrowing costs.

“China has massive holdings of Treasuries, so it is obviously worried,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Any diversification away from the dollar could be gradual, and the greenback may weaken a bit.”

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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Hyundai Steel Says Demand Improving as Profit Beats Estimates

By Shinhye Kang

July 28 (Bloomberg) -- Hyundai Steel Co., South Korea’s biggest maker of construction steel, reported a better-than- expected second-quarter profit on a stronger won and lower costs, and said government spending may spur demand in the second half.

Net income fell 13 percent to 283.3 billion won ($228 million) in the three months ended June 30, from 325.5 billion won a year earlier, the Incheon-based company said in a regulatory filing today. That compares with the 126.7 billion won median profit estimate of 8 analysts surveyed by Bloomberg.

Hyundai Steel, the nation’s second-largest mill, forecast in January that sales will fall 26 percent this year, and cut prices by 20 percent in June. Demand is reviving as South Korea spends $52 billion to bolster economic growth, spurring bigger rival steelmaker Posco to lift output targets for the year.

“Steel demand from not only public sectors but also private sectors will revive as the economy is recovering,” said Kim Mi Hyun, an analyst at LIG Investment & Securities Co. “Operating profit will increase in the second half of this year after hitting the bottom in the first quarter.”

Hyundai Steel rose 0.6 percent to close at 63,900 won in Seoul trading, compared with a 0.1 percent gain in the benchmark Kospi index.

The “market environment may improve in the second half, helped by increasing demand from the public sector and seasonal demand,” the company said in an e-mailed statement today.

Hyundai Steel will meet its initial sales target this year, the company said today. In January, the company forecast 2009 sales of 7.8 trillion won. Second-quarter sales declined 34 percent to 1.95 trillion won.

Stronger Won

Operating profit, or sales minus the cost of goods sold and administrative expenses, fell 70 percent to 135.3 billion won.

Net profit rose more than five-fold from the previous three months as raw material costs fell, the stimulus boosted demand and the stronger won reduced the cost of Hyundai Steel’s foreign debt. The company, which gets almost 70 percent of sales from construction steel including reinforcing bars, said in March it will start increasing production.

The company has said it will raise H-beam export prices by $50 a metric ton for shipments in July and August as demand revives internationally. Last week, the company raised 2009 capital expenditure target by 11 percent to 2.36 trillion won.

Its first blast furnace will start operation in early January next year, the unit of Hyundai Motor Group also said today.

To contact the reporter on this story: Shinhye Kang in Seoul at skang24@bloomberg.net.

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China’s Heilongjiang Sells 24% of Corn Offered in State Auction

By Bloomberg News

July 28 (Bloomberg) -- China’s Heilongjiang province sold 71,100 metric tons of corn, or 24 percent offered via an auction of state stockpiles today, the National Grain & Oil Trade Center said in a statement on its Web site. The auction was the first stage of a government plan to sell 2 million tons of corn at auction today. The auction for corn from Jilin province continues, the center said.

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Copper Declines in Asia as Climb to 10-Month High Seen Overdone

By Glenys Sim

July 28 (Bloomberg) -- Copper slipped in Asia as some investors sold the metal to lock in gains after it climbed to the highest level in almost 10 months yesterday on optimism about a global economic recovery.

Copper’s 14-day relative strength index climbed to more than 70 yesterday, a level some investors use as a signal that prices are about to drop. The best performer on the London Metal Exchange advanced to $5,646 a metric ton yesterday, the highest price since Oct. 8, after acceleration in China’s economic growth and better-than-expected U.S. earnings fueled hopes the global recession is easing.

“The rise in equities and commodities are feeding off each other,” Wang Xiaoli, analyst at Goldbull Futures Co., said from Shenzhen today. “The trend is still for higher prices, although we may see some profit-taking in between.”

Three-month delivery copper on the London Metal Exchange fell as much as 0.6 percent to $5,565 a ton and traded at $5,574.75 a ton at 10:47 a.m. in Singapore. The metal gained 12.5 percent in July, heading for the longest monthly rally since the eight-month winning streak ended January 2006.

Copper for September delivery in New York slid 0.3 percent to $2.5375 a pound at the same time, after climbing to $2.5790 a pound yesterday, a level not seen for a most-active contract since Oct. 7.

November-delivery copper on the Shanghai Futures Exchange lost as much as 1.1 percent to 44,430 yuan ($6,504) a ton, snapping a three-day rally. The contract traded at 44,600 yuan at 10:52 a.m. in Singapore.

U.S. stocks advanced yesterday, extending the Dow Jones Industrial Average’s best two-week rally since 2000 following the biggest jump in U.S. new-home sales in eight years. The regional benchmark MSCI Asia Pacific Index is set for an 11th consecutive gain, the longest winning streak since January 2004.

Among other LME-traded metals, zinc fell 0.3 percent to $1,705 a ton, nickel was down 1.5 percent at $16,701 a ton and tin declined 0.7 percent to $14,500 a ton. Aluminum added 0.2 percent to $1,830 a ton while lead hadn’t traded as of 10:55 a.m. in Singapore.

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

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Most Japanese Stocks Decline on Valuation Concerns; Isuzu Rises

By Masaki Kondo

July 28 (Bloomberg) -- Most Japanese stocks fell after the longest rally in two decades swelled the Nikkei 225 Stock Average’s valuations to the highest level in six weeks.

Nippon Carbon Co. dived 3 percent after a newspaper said falling chip demand drove down its profit. Electronics maker NEC Corp. dropped 2.7 percent, breaking its five-day winning streak. Sumitomo Mitsui Financial Group Inc. gained 3.9 percent after Nomura Holdings Inc. recommended buying the bank. Isuzu Motors Ltd. and Yamaha Motor Co. jumped after Mitsubishi UFJ Financial Group Inc. raised their ratings.

“Investor expectations for corporate earnings are running ahead of actual results,” said Masaru Hamasaki, a senior strategist at Tokyo-based Toyota Asset Management Co., which oversees the equivalent of $13 billion. “People are concerned that current share prices are too high.”

The Nikkei 225 Stock Average dipped 1.40, or less than 0.1 percent, to close at 10,087.26 in Tokyo, breaking its nine-day winning streak, the longest since February 1988. The broader Topix index rose 1.87, or 0.2 percent, to 930.13, with five stocks declining for every three that rose.

The Nikkei climbed 11 percent in its nine-day rally as better-than-expected results from U.S. companies such as Goldman Sachs Group Inc. and Apple Inc. boosted confidence in a recovery of the U.S. economy. The estimated price-earnings ratio on the gauge climbed to 41.8 times yesterday, a level not seen since June 15, according to benchmark compiler Nikkei Inc.

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

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Asian Stocks Rise on Brokerage Upgrades; Sumitomo Mitsui Gains

By Patrick Rial and Shani Raja

July 28 (Bloomberg) -- Asian stocks climbed, lifting the MSCI Asia Pacific Index for an 11th day, as brokerages upgraded banks and steelmakers ahead of earnings announcements.

Sumitomo Mitsui Financial Group Inc., Japan’s third-largest lender, rose 3.4 percent as Nomura Holdings Inc. recommended investors buy the shares. JFE Holdings Inc., Japan’s No. 2 steelmaker, added 3.3 percent after Goldman Sachs Group Inc. said earnings are set to improve from this quarter. James Hardie Industries NV, the biggest seller of home siding in the U.S., climbed 3.6 percent in Sydney after new-home purchases in America surged the most in eight years.

“Investors have been taking comfort that the reporting season hasn’t been horrific,” said Chris Hall, who helps manage $2.6 billion at Argo Investments Ltd. in Adelaide. “The market’s looking like fair value right now, but definitely not what I’d call cheap.”

The MSCI Asia Pacific Index rose 0.7 percent to 109.78 as of 1:20 p.m. in Tokyo. An acceleration in China’s economic growth and better-than-expected U.S. earnings have helped drive a 12 percent climb in the past 11 days. That’s the longest winning streak since January 2004.

Hong Kong’s Hang Seng Index gained 0.8 percent, while Taiwan’s Taiex Index rose 1.5 percent. Compal Electronics Inc., the world’s No.2 maker of notebook computers, climbed 3.1 percent in Taipei after the Commercial Times said the company will supply laptops to Acer Inc. Tata Motors Ltd.’s U.S.- receipts jumped 3.8 percent yesterday after the Indian company unexpectedly reported a jump in profit.

Fluctuating Stocks

Japan’s Nikkei 225 Stock Average swung between gains and losses and was recently 0.3 percent lower. China’s Shanghai Composite Index fell 0.3 percent, its first drop in a week. Sichuan Expressway Co. slumped 10 percent after tripling in value in its trading debut yesterday.

Futures on the Standard & Poor’s 500 Index slipped 0.3 percent today. The gauge climbed 0.3 percent yesterday as a government report showed sales of new homes jumped 11 percent last month from May, the most in eight years and higher than every economist forecast in a Bloomberg survey.

Sumitomo Mitsui, Japan’s No. 3 listed bank, climbed 3.4 percent to 3,970 yen. The company had its investment rating lifted to “buy” from “neutral” at Nomura with a price estimate of 4,500 yen. Improved capital ratios boost the bank’s growth prospects, Nomura analyst Keisuke Moriyama wrote in a Japanese-language report yesterday.

Mitsubishi UFJ Financial Group Inc., the country’s biggest lender by value, rose 0.7 percent to 557 yen, while smaller rival Mizuho Financial Group Inc. added 0.5 percent to 212 yen. The three banks will report first-quarter earnings this week.

Stimulus Policies

Analysts have boosted estimates since the beginning of April for companies in Asia outside Japan, according to data compiled by Bloomberg. Profit forecasts have actually declined within Japan, the data show.

“Earnings season is kicking into high gear this week, so investors are focusing on the individual winners and losers,” said Ryuta Otsuka, a strategist at Toyo Securities Co. in Tokyo.

JFE, which is due to release quarterly earnings today, climbed 3.3 percent to 3,420 yen. Sanyo Special Steel Co. jumped 9.4 percent to 383 yen. Goldman lifted shares of both companies to “buy.”

“We believe that the outlook for 2010-11 is beginning to improve markedly from our previous assumptions, based on the coordinated policy response from governments around the globe,” analysts led by Rajeev Das wrote in a report. “We also believe the end of the June quarter marks a trough for the current cycle.”

U.S. Economy

James Hardie climbed 3.6 percent to A$5.19 following the U.S. home sales report. Nissan Motor Co., which gets 34 percent of its sales in North America, gained 1.1 percent to 623 yen.

The MSCI Asia Pacific Index has climbed 55 percent from a more than five-year low on March 9 on speculation stimulus policies worldwide will revive the global economy. Stocks on the gauge are valued at an average 24.5 times estimated net income, the most expensive level since March 31.

U.S. companies including Intel Corp. and Apple Inc. this month reported better-then-expected results. Government figures due July 31 may show that the contraction in the U.S. economy narrowed to a 1.5 percent pace in the second quarter, following a 5.5 percent drop in the first three months of 2009, economists surveyed by Bloomberg News predicted.

Compal, which gets 31 percent of its sales in America, rose 3.1 percent to NT$33.45. Acer will contract out the production of 20 million laptops in the first phase of contracts, and Compal will be the largest supplier, the Commercial Times reported today.

Beating Estimates

Sapporo Holdings Ltd. rose 5.3 percent to 599 yen in Tokyo after the brewer said it will post a smaller-than-expected net loss for the six months ended in June.

Tata Motors’s American depositary receipts climbed 3.8 percent to the equivalent of 506.51 rupees, pointing to a gain for the company’s Indian listing, which closed at 374.10 rupees. The company posted a 58 percent increase in net income for the quarter ended in June as a change in accounting rules and lower commodity prices helped mask a fall in demand.

In Shanghai, Sichuan Expressway, which operates toll roads, sank 10 percent to 9.81 yuan. The stock soared 203 percent in its first day of trading yesterday.

China’s Shanghai Composite Index has climbed 88 percent this year, as government stimulus, record bank lending and an economic rebound spurs demand for equities. Companies in the benchmark are valued at 26 times estimated earnings, up from 11 times in October.

“While it’s obvious that the market is in a bubble, the rally could still go on as the government hasn’t stopped the liquidity,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which manages about $285 million. “If a correction starts, that will be powerful.”

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

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