Italy Face a Fifth Contraction, But Trichet Words Remain In Mind...

Daily Forex Fundamentals | Written by ecPulse.com | Aug 07 09 12:35 GMT |

Recession is broaden in Europe's third largest economy, based on the reading released today from the Statistics Office Istat the Italian GDP contracted for the fifth consecutive quarter, as investors and citizens in the Italy remain hesitant, abstaining from spending as they foresee further downturn during their marsh toward finding a recovery. The gloomy fundamentals continue to through out this year as the protracted agony would continue to curb or destruct the economy. The Italian, Gross Domestic Product contraction in the preliminary second quarter reading to 0.5% coming better than the previous deep contraction -2.6% revised to -2.7%, along with the yearly GDP contracted 6.0% inline with the previous. The four leading economies between the sixteen nations were highly exposed to the ongoing turmoil in financial markets, as they were not resilient to the ongoing downturns in financial markets. Government interventions did not restore the long lost confidence especially after the jobless rates was boosted by all this downturn in the sixteen nations, as now the Unemployment rates stand at 9.4% with some projections it would surge higher before the end of the year, where any improvements in this sector in specific wont take place until 2011. It did not really stop at that this week; yesterday we've seen the European Central Bank leave their benchmark unchanged for the third consecutive meeting on the prospect that the current rates are the most appropriate at time being, as the economy is witnessing a slow recovery, with the pace of contractions eased significantly in the manufacturing and services sectors. Even with all the long speech given yesterday, Trichet abstained from giving any comments about deflationary pressures, as nowadays threat of deflation is increasing as prices plummeted heavily down to -0.6%. Trichet said, “Our inflation expectations are inline with avoiding those risks and we will continue to be very alert in this respect”, the bank compared to any other central banks even was the most cautious in handling the inflationary pressures issues, and especially the sixteen nations had faced along the year many issues with hiked consumer prices. Therefore, they did not expand their measures, preventing from any spur of consumer prices in the periods to come, as markets project a rise in crude prices to dampen economies activity further more. On the volatility seen to the commodities, he also added that the situation seen the increase in commodity prices is too complex due to the supply and demand, along with other factors that manage to influence prices, as a some sense of improvements and recovery made the crude oil to breach $73 per barrel in the prior month. Unlike other Central Banks, the ECB is purchasing the long-term covered bonds but there main concern remain heading toward the exit strategy to be used at the time signs of recovery starts appearing clearly. Therefore, the chairman said “they are not in a situation where the instruments we have utilized are complicated and would hamper an exit strategy. We can rest this weekend after we saw the European Central Bank held their stance yesterday, spreading hopes of improvements next year. 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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Forex Technical Analytics

Daily Forex Technicals | Written by FOREX Ltd | Aug 07 09 10:55 GMT |

CHF The estimated rate return to support line has not been implemented. At the moment, OsMA trend indicator marks activity fall of both parties and is forming divergence with the chart. On the assumption of it, as well as considering Ichomoku cloud descending position we can suppose mild descending movement to lower channel border. As for sales, the targets will be 1,0570/90 and (or) further variant up to1,0420/40, 1,0300/20 . As for buying positions, the targets will be 1,0700/20 and (or) further variant up to 1,0750/70, 1,0850/70. GBP The estimated long positions were implemented with the overlap of minimal estimated target. At the moment, GBP/USD is situated within channel borders as well as within Ichimoku cloud. On the assumption of it, as well as of bullish activity fall, marked by OsMA trend indicator, we can suppose further movement within channel borders. As for sales the targets will be 1,6670/90 and (or) further variant up to 1,6520/40, 1,6470/90. As for buying positions, on condition of the formation of topping signals the targets will be 1,6810/30 and (or) further variant up to 1,6950/70, 1,7000. JPY The pre-planned long positions were implemented with the achievement of minimal anticipated target. OsMA trend indicator marks bearish activity rise. On the assumption of it as well as of the break-out of resistance line we can suppose descending direction of indicator chart for today. It is necessary to be careful with false break-out and to wait confirmative signals from short time intervals. As for sales, the targets will be 94,40/60 and (or) further variant up to 93,50/70, 92,10/30. As for buying positions, the targets will be 95,60/80 and (or) further variant up to 96,40/60, 98,10/40. EUR The break-out variant for sales has not been implemented. OsMA trend indicator marked divergence with the chart. On the assumption of it, as well as of bullish activity fall and the position of Ichimoku cloud we can suppose further rise of indicator chart to close channel border. As for buying positions the targets will be 1,4420/40 and (or) further break-out variant up to 1,4560/80, 1,4680/1,4700. The alternative variant for sales on condition of the formation of topping signals will be below 1,4280 with the targets of 1,4210/30 and (or) further variant up to 1,4170/90, 1,4050/70. FOREX Ltd www.forexltd.co.uk

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Latvia’s Economy Fell 22% Last Quarter, Survey Shows

By Aaron Eglitis

Aug. 7 (Bloomberg) -- Latvia’s economy may have contracted 22 percent last quarter, the steepest decline since the country regained independence from the Soviet Union and shed communism almost two decades ago, a survey showed.

Gross domestic product contracted 22 percent in the three months through June from a year earlier, according to the median in a Bloomberg survey of eight economists. Estimates ranged from a 17 percent contraction to a 28 percent decline in output. The central statistics office will release the preliminary GDP report on August 10.

Latvia’s economy, the fastest growing in the European Union in 2006, is now suffering the bloc’s severest recession together with neighboring Lithuania. The country was forced to turn to a group led by the European Commission and the International Monetary Fund for a 7.5 billion euro ($10.8 billion) loan after its second-biggest bank needed a state rescue and a debt-fueled property bubble burst.

“We haven’t seen declines in western Europe like this, except possibly during the war,” said Morten Hansen, head of department at the Stockholm School of Economics in Riga, who estimated a 22 percent slump.

The economy slumped 18 percent in the first quarter as the government agreed to reductions in state pay and pensions in an effort to rein in the budget and comply with the terms of the bailout. The IMF and the Commission both withheld disbursements earlier this year until lawmakers committed to budget cuts.

Austerity

Austerity measures have left households struggling to make ends meet, with spending in shops plummeting, while the slump in demand has left businesses floundering. Retail sales fell 28.5 percent in the second quarter and industrial production dropped 18.7 percent.

Consumer prices rose an annual 2.3 percent in July, the slowest pace since February 2003, according to the median estimate of seven economists in a Bloomberg survey. On the month, consumer prices fell 0.9 percent, the survey showed.

Latvia’s spending and wage cuts threaten to exacerbate its recession this year. The country’s parliament passed spending cuts worth about 500 million lati ($1 billion) on June 16 to ensure the continued inflow of loan payments. The government has committed to cutting spending or raising revenue by 500 million lati a year until 2012 to enable euro adoption. Latvia pegs its lats to the euro as part of the exchange rate mechanism.

The output slump is threatening to roll back economic gains made during the boom Latvia enjoyed after joining the EU in 2004, Hansen said. Output expanded more than 10 percent on average in 2005 and 2006, slowing to just under 10 percent in 2007.

Competitiveness

A 25 percent contraction in the second quarter “would reduce Latvian GDP to what it was in the same period of 2004, and thus have wiped out all the growth accomplished after EU membership,” he said, citing constant prices.

The Baltic country, which allows its currency to move 1 percent around a midpoint to the euro, is trying to bolster competitiveness through wage cuts and structural measures that will involve closing some hospitals and schools, instead of devaluing its currency.

The lats real effective exchange rate, a measure that shows the price development of Latvian goods versus those of trading partners, improved in April, May and June, the first three-month gain since the beginning of 2005, according to data on the Web site of the central bank.

Austerity measures are starting to yield gains in competitiveness as inflation slows and producer prices fall, said Andris Vilks, chief economist at SEB AB’s Latvian unit.

‘Strong Deflation’

“There has been very strong deflation” in producer prices, from July the outlook for deflation will be “very supportive.”

Annual inflation slowed to 3.4 percent in June from 4.7 percent in May, while producer prices fell an annual 7.8 percent in June, the third consecutive decline.

Vilks, who estimates the economy contracted 18 percent in the second quarter, said he expects the outlook for the third and fourth quarters to improve and sees an average decline in output of could be 12 percent in the second half.

Latvia’s interbank lending rates, which peaked in June at record highs on fears the currency might be devalued, have fallen and the currency has strengthened since the country passed budget cuts and received a 1.2 billion euro loan tranche from the European Commission.

The IMF and Latvia reached a preliminary agreement on July 28, which may lead to the transfer of another 195 million euros after the fund’s board reviews the assessment.

To contact the reporter on this story: Aaron Eglitis in Riga at aeglitis@bloomberg.net

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Italian Economy Contracts for Fifth Quarter on Recession

By Flavia Krause-Jackson

Aug. 7 (Bloomberg) -- Italy’s economy contracted for a fifth-straight quarter as consumer spending and exports slumped, extending the country’s worst recession in six decades.

Gross domestic product shrank 0.5 percent from the first quarter, when it contracted a revised 2.7 percent, statistics office Istat said in Rome today in a preliminary report. Economists had forecast a 0.7 percent contraction, the median of 23 estimates in a Bloomberg News survey showed. The economy shrank 6 percent from a year earlier.

The euro-region’s deepest recession since World War II has hurt demand for Italian goods and helped boost the jobless rate to a four-year high, leaving consumers reluctant to spend. The government of Prime Minister Silvio Berlusconi has introduced a range of measures, from corporate tax breaks to incentives to trade in old cars, in a bid to drag Italy out of its fourth recession since 2001.

“The recovery will be slow and the road to full-fledged growth will be a long and bumpy one,” said Paolo Pizzoli, an economist at ING Bank NV in Milan.

The International Monetary Fund has forecast that Italian GDP will shrink 5.1 percent this year and barely grow in 2010.

A separate report yesterday showed that industrial production in June declined 1.2 percent from the previous month. Economists had forecast a gain in output. Indesit SpA, Italy’s biggest maker of household appliances, posted a loss in the second quarter, and said it doesn’t see sales picking up soon.

Recession Easing

Still, the rate of the economic contraction is slowing, and a pickup in foreign demand may signal the start of a recovery. Factory orders in Germany, the region’s largest economy, posted their biggest increase in two years and business confidence rose for a fourth month in July. French business confidence gained for a third month in June.

“In the second quarter, net exports will make a positive contribution to the overall growth number, while decreases in consumer spending will slow,” said Luigi Speranza, an economist at BNP Paribas SA in London.

European car sales gained in June for the first time in 14 months as government-backed incentives boosted demand for producers such as Fiat SpA. The Italian carmaker recorded a 12 percent gain, selling 112,437 vehicles in the region.

A recovery will be slow in coming, European Central Bank President Jean-Claude Trichet said yesterday.

The economy will “remain weak” in 2009 and “after a phase of stabilization, a gradual recovery with positive quarterly growth rates is expected” next year, Trichet said at a press conference in Frankfurt.

The ECB kept its benchmark interest rate at a record low 1 percent yesterday.

Istat revised first-quarter GDP from a decline of 2.6 percent. The statistics office will give a breakdown of today’s data in its final report on second-quarter GDP on Sept. 10.

For Related News and Information:

-- With assistance from Steve Scherer in Rome and Elena Distaso in Milan. Editors: Andrew Davis, Jeffrey Donovan

To contact the reporter on this story: Flavia Krause-Jackson in Rome at fjackson@bloomberg.net

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German Exports Jump the Most in Almost Three Years

By Jana Randow

Aug. 7 (Bloomberg) -- German exports increased the most in almost three years in June, helping to haul Europe’s largest economy out of its worst recession since World War II.

Sales abroad, adjusted for working days and seasonal changes, surged 7 percent from May, when they rose 0.2 percent, the Federal Statistics Office in Wiesbaden said today. That’s the biggest jump since September 2006. Economists expected a gain of 0.9 percent in June, the median of 10 forecasts in a Bloomberg News survey showed. Exports were still down 22.3 percent from a year earlier.

The German economy may return to growth this quarter as a global recovery boosts demand for exports and government stimulus measures support spending at home. Factory orders rose the most in two years in June and business confidence improved for a fourth month in July. The government said yesterday its forecast that the economy will contract by 6 percent this year may now be too pessimistic.

“The German economy is stabilizing and the recession is probably over,” said Stefan Bielmeier, chief German economist at Deutsche Bank AG in Frankfurt, who expects gross domestic product to grow 0.3 percent in the third quarter from the second. “It’s encouraging that imports rose so strongly, though domestic demand remains an area of weakness in Germany.”

Imports Increase

Imports rose 6.8 percent from May, when they dropped 1.9 percent, the statistics office said. The trade surplus widened to 12.2 billion euros ($17.5 billion) from 9.5 billion euros in the previous month. The surplus in the current account, the measure of all trade including services, was 13.3 billion euros, up from 4.2 billion euros in May.

Factory orders rose 4.5 percent in June from a month earlier, driven by rising export demand, the Economy Ministry in Berlin said yesterday. At the same time, industrial production dipped 0.1 percent after posting its biggest monthly gain in more than 18 years in May, the ministry said today.

“The worst is behind us, but we mustn’t become too euphoric in expecting a strong recovery,” said Alexander Krueger, head of capital markets at Bankhaus Lampe KG in Duesseldorf. “We’re only at the beginning of the stabilization.”

The International Monetary Fund on July 8 raised its estimate for global growth next year to 2.5 percent from 1.9. The Washington-based lender expects the world economy to contract 1.4 percent this year.

Government Stimulus

The government of Angela Merkel, who will seek a second term in office in national elections on Sept. 27, is spending about 85 billion euros to stimulate the economy. The measures include tax breaks and a 2,500 euro incentive for people who scrap their old cars to buy a new one.

Munich-based Allianz, Europe’s biggest insurer, on July 22 predicted the German economy will expand 2.3 percent in both the third and fourth quarters. UniCredit MIB economists yesterday raised their forecast for third-quarter growth to 1 percent from 0.3 percent.

Henkel AG, the German maker of Loctite glues and Persil detergent, said second-quarter profit more than tripled and forecast a “slightly better” performance from its adhesive unit in the next three months.

Linde AG, the world’s second-biggest maker of industrial gases, said on Aug. 3 business will pick up in the second half of the year as the global economy shows signs of improvement.

‘Better in the End’

Deputy Economy Minister Walther Otremba indicated the government may revise its forecast for a 6 percent contraction this year. “We’re pretty safe on the downside and it’s quite possible that we’ll do somewhat better in the end,” he said in an interview in Berlin yesterday. He declined to give a new forecast before October, when the government is scheduled to give its next regular outlook.

European Central Bank President Jean-Claude Trichet yesterday indicated the euro-region economy may recover sooner than previously anticipated and signaled the bank is unlikely to provide any further stimulus.

“The overall mood today is a little bit better than it was before,” Trichet said at a press conference in Frankfurt after the ECB left its benchmark interest rate at a record low of 1 percent. Still, “we are in an uncertain episode” and “I don’t exclude bumps” on the road to recovery, he said.

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

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Russia Cuts Benchmark Rate a ‘Cautious’ Quarter Point

By Alex Nicholson and Paul Abelsky

Aug. 7 (Bloomberg) -- Russia’s central bank said it reduced its main interest rates by a “cautious” quarter of a percentage point as it attempts to spur lending without triggering faster inflation.

Bank Rossii cut the refinancing rate to 10.75 percent from 11 percent and lowered the repurchase rate charged on central bank loans to 9.75 percent from 10 percent, effective from Aug. 10. The bank has cut the rates five times since April 24.

“The lending activity of banks remains low and rates for most borrowers are high, which stalls the recovery of economic growth,” the central bank said in a statement. At the same time, the bank’s board of directors opted for a “more cautious cut” after annual inflation accelerated to 12 percent in July.

Prime Minister Vladimir Putin last month urged bankers on the receiving end of government bailout funds to lend at no more than the refinancing rate plus three percentage points in a bid to boost flagging industries hit by Russia’s first recession in a decade. Unlike the U.S. and Germany, where recessions have led to annual declines in prices, Russia’s economic slump has had a limited impact on inflation.

“While today’s 25 basis point reduction may suggest a change in pace of the easing-cycle, further cuts in the official refinancing rate, perhaps to 10 percent, are possible over the coming Months,” David Oxley, emerging Europe economist at Capital Economics, said in an e-mailed note.

The “minimum” rate at which banks can lend is 15 percent to 16 percent and Bank Rossii should cut rates below 10 percent, said German Gref, head of the country’s biggest lender, OAO Sberbank.

Markets

Sberbank fell 2.1 percent after the central bank’s cut, which sent the ruble down 1.1 percent to 31.6191 per dollar. The 30-stock Micex Index slid 1.9 percent to 1,071.65 at 1:26 p.m. in Moscow, the steepest decline since July 28.

Policy makers were expected to lower the refinancing rate to 10.5 percent this month, in a Bloomberg survey of 15 economists published on Aug. 5.

Russia’s economy shrank 9.6 percent in June from the same month a year ago and grew 0.1 percent from the previous month, Deputy Economy Minister Andrei Klepach was quoted as saying by state news services on July 23.

The economy may start to show signs of recovery in the third quarter this year, he said, while acknowledging “risks” of a second wave of the crisis at the start of 2010 if companies have solvency problems.

More Cuts

After slowing for three consecutive months, consumer prices accelerated in July to an annual 12 percent from 11.9 percent in June. Falling domestic demand and a contraction in money supply will have a “substantial” effect on restraining consumer price growth, Bank Rossii said in the statement.

Lending to consumers dropped 1.1 percent for the fifth consecutive monthly decline in June and banks shrank their corporate loan books by 1.2 percent, the central bank said on July 30. Overdue bank loans reached 5 percent of the total in June, versus 4.6 percent a month earlier.

“We continue to expect the CBR will cut another cumulative 75 basis points by the end of the year, due to continued deterioration of lending conditions and economic weakness,” Vladimir Osakovsky, an economist at UniCredit SpA in Moscow said in an e-mailed note today.

‘Considerable Volatility’

Policy makers may cut the rate to 10 percent by the end of the year, according to the median estimate of 15 economists surveyed by Bloomberg.

Before April, the central bank raised rates to discourage investors from borrowing rubles to bet against the currency as collapsing global demand saw the price of oil tumble over a $100 per barrel between July last year and December.

In its statement the central bank said “considerable volatility” in the ruble’s exchange rate was “possible” as the central bank moves toward a more flexible exchange rate regime.

To contact the reporters on this story: Alex Nicholson in Moscow at anicholson6@bloomberg.net;

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U.S. Energy Day Ahead: Oil Falls; Wind May Increase Blackouts

By Rob Verdonck

Aug. 7 (Bloomberg) -- Crude oil fell for a second day as falling equity markets reinforced concerns that a pickup in economic activity and demand for fuels will be slow in coming.

President Barack Obama’s push for wind and solar energy to wean the U.S. from foreign oil carries a hidden cost: overburdening the nation’s electrical grid and increasing the threat of blackouts.

To contact the reporter on this story: Rob Verdonck in London rverdonck@bloomberg.net

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Ships Spraying Sea Water May Offer Climate Quick Fix

By Jeremy van Loon and Christian Wienberg

Aug. 7 (Bloomberg) -- A fleet of sail-powered, ocean-going vessels spraying sea water in the air could save billions of dollars and allow the world to continue emitting carbon dioxide like it does by burning oil and coal.

Marine cloud whitening, which allows solar radiation to bounce off water vapor, at $9 billion would be more cost- effective than reducing CO2 emissions, according to a study by the think tank headed by Bjoern Lomborg, a professor at the Copenhagen Business School.

Geo-engineering projects like cloud whitening and painting roofs white to reflect heat are attracting attention among some policy makers as the world looks at alternative ways to combat global warming. Most plans to cut CO2 emissions involve using more wind and solar power, boosting energy efficiency and constructing air-tight buildings.

“People are only hearing about one solution to climate change and that’s to cut carbon-dioxide emissions,” Lomborg, author of “The Skeptical Environmentalist” (Cambridge University Press, 2001), said in a telephone interview. “In a recession, I’m sure people see the point in finding the cheapest and most effective ways of fighting climate change.”

The study on alternatives to reducing CO2 emissions comes four months before negotiators from more than 180 countries meet in Copenhagen as part of United Nations-sponsored talks to find ways to reduce greenhouse gases and limit global temperature gains to 2 degrees Celsius (3.6 degrees Fahrenheit) after an increase of about 0.8 degrees since industrialization.

White Clouds

Spraying salt water would introduce salt particles onto which water vapor can condense, forming white clouds in the same way they are created from sulphates emitted from ship engine exhausts and dust from volcanoes. The process would help to reflect 1 to 2 percent of the sun’s radiation and “cancel out” the warming caused by doubling the levels of atmospheric CO2 since pre-industrial times, according to the report.

The unmanned ships spraying the sea water would be powered by the wind, with electricity generated by turbines using the vessel’s movement through the water to provide energy for the spray. The system would yield $2,000 worth of climate benefits for every dollar spent, according to Eric Bickel and Lee Lane, the researchers who wrote the report. The document didn’t specify how many ships would be needed.

The world should try to have “white roofs everywhere” to help fight climate change, U.S. Energy Secretary Steven Chu said on May 26. Painting flat roofs of homes and commercial buildings white would reflect more of the sun’s heat back to space and reduce electricity used for air conditioning by as much as 15 percent, Chu said.

‘Frankenstein Ideas’

“Some of these geo-engineering solutions are like Frankenstein ideas,” said Kim Carstensen, head of the World Wildlife Federation’s global climate initiative. “There are consequences that we only half know about. And it doesn’t offer solutions on the scale we require.”

Sea fertilization, which involves adding iron shavings to the sea to promote the growth of CO2-absorbing algae, is another idea attracting attention.

Humans need to reduce greenhouse-gas emissions by 50 percent to 85 percent by 2050 in order to limit the risk of exceeding the 2-degree target. Exceeding that figure would mean rising sea levels that swamp coastal cities, drought and desertification elsewhere, the United Nations Environment Programme says.

‘Eye Off Ball’

“The biggest problem I see with geo-engineering is that it invites us to take our eye off the ball,” said Chris Henschel, a policy manager at the Canadian Parks and Wilderness Society. “The world’s attention needs to be focused on getting a strong agreement in Copenhagen for major reductions in emissions.”

Tweaking Mother Nature’s ways may come with a price. Research still needs to be done to determine the effects of geo- engineering and how rain patterns, cloud formations and other atmospheric processes may be altered, Lomborg said.

“It’s true that everything comes with a risk,” he said. “But there are also risks connected with carbon-dioxide cuts.”

To contact the reporters on this story: Jeremy van Loon in Berlin at jvanloon@bloomberg.netChristian Wienberg in Copenhagen at cwienberg@bloomberg.net

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Saras Quarterly Profit Falls 77% on Lower Fuel Demand

By Amanda Jordan and Andrew Davis

Aug. 7 (Bloomberg) -- Saras SpA, owner of the Mediterranean region’s biggest oil refinery, posted a 77 percent drop in second-quarter profit and said processing margins will remain “challenging” for the rest of the year.

Net income fell to 58.8 million euros from 251.5 million euros a year earlier, the Milan-based company said today in a statement. Saras reported a loss of 18.3 million euros when earnings were adjusted for inventory changes, versus a profit of 96.7 million euros. That’s wider than the 17.5 million-euro loss estimated by Credit Agricole Cheuvreux SA.

The global economic crisis has eroded demand for fuels, squeezing profit margins for refiners. About half the output at Saras’s Sarroch refinery on the island of Sardinia is middle distillates such as diesel and gasoil, which suffered the “most striking contraction” in the period, the company said. Planned plant upgrades also led to lower operating rates.

“Saras carried out a heavy cycle of planned maintenance in the refinery, with a negative impact on the results of the refining segment,” the company said in the statement. “In the near-term, the refining outlook will remain challenging.”

Saras dropped as much as 3.1 percent to 2.0225 euros in Milan trading, and was at 2.0575 euros as of 9:24 a.m. local time.

Fatal Accident

Saras carried out maintenance on a crude distillation plant and several conversion units in the period. Work was delayed after three contractors died on May 26 during maintenance on a mild hydrocracker, which makes diesel. The unit was impounded pending a police probe and was released on June 12.

The company processed 19.7 million barrels of crude in the second quarter, down 28 percent from a year earlier. The refining margin, or the profit from turning a barrel of oil into fuels, was $1.40 a barrel, compared with $11.30 a year ago.

Full-year refinery runs will be reduced to between 13.8 million tons and 14 million tons, Saras said, citing the maintenance and delays caused by the accident. That compares with an earlier estimate of 14.4 million to 14.7 million tons. The unplanned extension of second-quarter work into July will hurt third-quarter earnings, it said, adding that only “minor” maintenance is planned for the remainder of the year.

Sales fell 54 percent to 1.12 billion euros in the second quarter following a decline in oil-product prices from record- highs a year earlier, according to the statement.

“Dismal demand has led to large inventories buildups, and diesel margins are expected to stay under pressure until strong economic recovery will start to materialize,” the company said. “However, a recent string of ‘green shoots’ in various countries across the world is leading to expectations that the worst may be over.”

The Sarroch refinery can process 300,000 barrels of oil a day, or 15 percent of Italy’s total, according to the company’s Web site. The facility’s integrated gasification combined-cycle, or IGCC, power plant will also undergo scheduled maintenance in the fourth quarter, it said.

To contact the reporters on this story: Amanda Jordan in London at ajordan11@bloomberg.net; Andrew Davis in Rome at abdavis@bloomberg.net

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Pound May Be Edging Toward ‘Tipping Point,’ Bank of Tokyo Says

By Daniel Tilles

Aug. 7 (Bloomberg) -- The pound may weaken after the Bank of England unexpectedly increased its asset-purchase plan yesterday, Bank of Tokyo-Mitsubishi UFJ Ltd. said.

“Yesterday’s BOE actions have raised the downside risks to the pound as it is likely to raise foreign-investor concerns over the BOE’s policy credibility similar to the Fed, edging the pound closer to an eventual tipping point,” Lee Hardman, a currency economist at the bank in London, wrote today in a report. “The U.K. needs a weak pound more than ever. In these circumstances, we believe that pound-dollar levels above $1.70 will prove unsustainable.”

Sterling fell 0.3 percent to $1.6727 as of 10:44 a.m. in London.

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

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King Raises Stakes in 175 Billion-Pound U.K. ‘Gamble’

By Jennifer Ryan

Aug. 7 (Bloomberg) -- Bank of England Governor Mervyn King is betting that he can keep pumping money into the economy without an outbreak of inflation once growth returns.

The central bank yesterday added 50 billion pounds ($84 billion) to its asset purchase plan, taking it beyond the previous limit granted by the Treasury. Economists say King’s move risks stoking excessive inflation as the bank pumps a total of 175 billion pounds into the economy, equivalent to 12 percent of gross domestic product.

“It’s a gamble,” said Peter Dixon, a London-based economist at Commerzbank AG, Germany’s second-biggest bank. “The more we throw at this problem, the bigger the potential exit strategy risks will be.”

The Bank of England said yesterday that Britain’s recession has been deeper than officials anticipated. Deputy Governor Charles Bean warned in July that the bank risks stoking inflation if it waits too long before withdrawing stimulus and King has said that the timing of an exit strategy will still be a “tricky judgment.”

The pound has dropped 1.4 percent against the dollar since yesterday’s decision. The U.K. currency traded at $1.6743 as of 10:34 a.m. in London. The 10-year gilt yield has fallen 15 basis points to 3.678 percent. Eight of 12 primary dealers that bid at government debt auctions had predicted the central bank would announce a pause yesterday.

ECB Contrast

The scale of King’s commitment contrasts with the European Central Bank, which has so far only bought 5.1 billion euros ($7.3 billion) in covered bonds and is focusing its emergency measures on pumping money into the economy through refinancing operations.

“We are not in a situation where the instruments we have utilized are complicated and would hamper an exit,” ECB President Jean-Claude Trichet said in an interview on Bloomberg Television in Frankfurt yesterday. “We chose instruments that are easy to exit.”

Inflation in the U.K. will be the fastest in the Group of Seven nations next year, which may force the Bank of England to raise interest rates before other central banks, the Paris-based Organization for Economic Cooperation and Development predicts.

Producer prices in Britain unexpectedly rose 0.3 percent last month after manufacturing picked up the previous month, data from the Office for National Statistics showed today.

The bank said yesterday that the pound’s weakness has put “upward pressure” on consumer prices. The U.K. currency has fallen 9.6 percent from a year ago against a basket of currencies of Britain’s major trading partners.

Slowing Inflation

U.K. central bank officials are for now emphasizing that deflation remains the economy’s bigger threat. They predicted in May that inflation may slow below 1 percent in the fourth quarter and will release new forecasts on Aug. 12. The projections may show whether the bank has become more concerned that inflation will be even slower.

The inflation rate fell to 1.8 percent in June, dropping below the bank’s 2 percent target for the first time since September 2007. The government’s former inflation measure, the retail price index excluding mortgage interest payments, has already dropped to 1 percent.

Bean told the BBC last month that “we’re not going to get inflation without having had a recovery first,” and that “we’ll get inflation if we pump too much extra money into the economy and then we don’t withdraw it fast enough.”

Outstanding Debt

The bank’s move has now left it committed to buying up as much as 22 percent of the total amount of outstanding U.K. government bonds.

“It’s an enormous amount now,” said Neville Hill, an economist at Credit Suisse Group in London and a former U.K. Treasury official. “They’re over-clubbing it. This means they think the consequences of downside risks materializing are just so severe that it’s better to play along to the upside risks.”

King’s move may nevertheless help Prime Minister Gordon Brown, who is trying to ensure the economy revives before national elections which he must call by June next year.

“If it helps support a recovery, it’s helpful for the government,” said Jeavon Lolay, an economist at Lloyds Banking Group Plc in London.

Some economists say that the U.K. recession is deep enough to curb inflation. The slump has shrunk the economy by 5.7 percent, compared with a total 6 percent drop in the contraction that ended in 1981. Royal Bank of Scotland Group Plc today reported a first-half loss as it set aside 7.52 billion pounds to cover bad loans and declining asset values.

“I don’t think it’s a gamble,” said Andrew Milligan, head of global strategy at Standard Life Investments Ltd. in Edinburgh and a former U.K. Treasury official. “I see little harm in expanding quantitative easing at this time. We’ve stopped a multi-year recession and have generated signs of a recovery. The damage is going to take time to repair, and unconventional policies are warranted.”

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net

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Pound Will Gain 10% Against Dollar on Inflation, Barclays Says

By Candice Zachariahs

Aug. 7 (Bloomberg) -- The pound will rise 10 percent versus the dollar over six months as the Bank of England’s decision to add more funds to the economy now means it will have to adopt a tighter monetary policy later, Barclays Capital said.

The U.K. currency will also strengthen against the euro as quickening inflation spurs policy makers to move toward raising interest rates next year, said Paul Robinson, a currency strategist at Barclays in London. Central bank Governor Mervyn King yesterday kept the benchmark lending rate at a record low of 0.5 percent and said the BOE will increase asset purchases by 50 billion pounds ($83.9 billion) to spur growth.

“The more policy easing there is, the quicker the economy is likely to grow and the sooner it will need to be tightened,” Robinson wrote in a note yesterday. The BOE’s “decision coupled with the positive news we have had on forward-looking prospects in both the U.K. and global economies, makes an earlier and more aggressive tightening of policy more likely.”

The pound traded at $1.6788 as of 10:26 a.m. in Tokyo, after weakening 1.2 percent yesterday, the biggest decline since June 3. The currency rose to $1.7043 on Aug. 5, the highest level since Oct. 21. Against the euro, the British currency was at 85.57 pence.

Sterling has been the third-best performer against the dollar and euro in the past three months among the 16 major currencies on optimism the U.K. is recovering from its deepest recession since World War II.

The pound will advance to $1.86 in six months and $1.88 in a year, Barclays forecasts, increasing its earlier estimates from $1.80 for both periods. The currency will climb to 78 pence per euro in six months and trade at 80 pence in a year, the bank said, revising its previous predictions of 80 pence and 83 pence.

Actual tightening of monetary-policy is not likely to happen during the fourth quarter of this year “but it may be clearly on its way by then,” Robinson said

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

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U.S. Judge Wants More Data on Bank of America’s Deal With SEC

By Thom Weidlich

Aug. 7 (Bloomberg) -- A federal judge said he needs more information on the basis for Bank of America Corp.’s $33 million settlement of a lawsuit filed by the U.S. Securities and Exchange Commission before he can approve it.

Bank of America on Aug. 3 agreed to resolve claims it misled investors about bonus payments in connection with its January acquisition of Merrill Lynch & Co. The SEC had filed a complaint shortly before the accord was announced.

The agreement didn’t specify how the $33 million figure was arrived at or whether it would come from the $20 billion Bank of America received in bailout money from the federal government, U.S. District Judge Jed Rakoff said in an Aug. 5 order that scheduled an Aug. 10 hearing on the matter.

“Despite the public importance of this case, the proposed consent judgment would leave uncertain the truth of the very serious allegations made in the complaint,” Rakoff wrote.

The SEC claimed in its complaint that Bank of America falsely represented to shareholders of both banks “that Merrill had agreed not to pay year-end bonuses when, in fact, Bank of America had agreed that Merrill could pay such bonuses up to as much as $5.8 billion,” Rakoff wrote. Merrill paid $3.8 billion in bonuses, according to the order.

Bank of America, based in Charlotte, North Carolina, didn’t admit to any wrongdoing in the settlement.

“We look forward to appearing before the judge and answering what questions he may have about the settlement,” Scott Silvestri, a spokesman for Bank of America, said yesterday in a phone interview. “We can’t envision any scenario under which TARP money would be used to fund the settlement,” he said, referring to the federal Troubled Assets Relief Program.

“We look forward to appearing before the court and addressing any questions Judge Rakoff may have,” John Nester, a spokesman for the SEC, said in an e-mailed statement.

The case is Securities and Exchange Commission v. Bank of America Corp., 09-cv-6829, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Thom Weidlich in New York at tweidlich@bloomberg.net.

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Canadian Dollar Falls as Economy Sheds More Jobs Than Forecast

By Sapna Maheshwari and Chris Fournier

Aug. 7 (Bloomberg) -- Canada’s dollar fell versus its U.S. counterpart after a government report showed the nation’s economy lost more jobs in July than economists forecast.

“The knee-jerk reaction says it all,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “Three times more jobs lost than consensus -- ultimately this is not positive for the Canadian dollar. The market will very quickly refocus on the U.S. number at 8:30 a.m. as an influence from a global perspective.”

The loonie, as the currency is known, slid 0.6 percent to C$1.0841 per U.S. dollar at 7:17 a.m. in Toronto, from C$1.0777 yesterday. It touched C$1.0633 on Aug. 4, the strongest level since Oct. 2.

Employment dropped by a net 44,500 positions last month after a net loss of 7,400 in June, Statistics Canada reported today in Ottawa. The median forecast of 22 economists surveyed by Bloomberg News was for a reduction of 15,000 jobs in July. The unemployment rate remained at 8.6 percent.

“The only good news is that it’s behind us,” said Firas Askari, head currency trader in Toronto at BMO Capital Markets, a unit of Canada’s fourth-largest lender.

U.S. payrolls shed 325,000 jobs in July after losing 467,000 in the previous month, according to a separate Bloomberg News survey. The report from the Labor Department is due at 8:30 a.m. in New York.

The Canadian dollar gained 13 percent this year against its U.S. counterpart as investors sought assets that historically benefit when global demand rebounds.

To contact the reporters on this story: Sapna Maheshwari in New York at smaheshwar11@bloomberg.net; Chris Fournier in Montreal at cfournier3@bloomberg.net

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Yen Gains as Stock Declines, Bank Losses Spur Demand for Safety

By Anchalee Worrachate

Aug. 7 (Bloomberg) -- The yen rose against the dollar and the euro after stocks declined and Royal Bank of Scotland Group Plc posted a first-half loss, stoking demand for the Japanese currency as a refuge.

The yen gained against all 16 of the most-active currencies monitored by Bloomberg as the MSCI World Index of shares fell 0.4 percent, dropping for the third straight day. The pound slid as RBS, the U.K.’s biggest government-owned bank, reported a 1.04 billion-pound ($1.74 billion) loss. Insurer Allianz SE said second-quarter profit fell.

“Risk perception remains the driving factor in near-term moves in the yen crosses,” said Michael Klawitter, a currency strategist at Commerzbank AG in Frankfurt.

The yen traded at 95.26 against the dollar as of 6:32 a.m. in New York, from 95.46 yen yesterday. It strengthened to 159.42 per pound, from 160.22. Against the euro, the Japanese currency appreciated to 136.78 yen, from 136.94.

The Dollar Index was at 78.011, from 78.065 yesterday. The gauge, which the ICE uses to track the U.S. currency against the euro, yen, pound, Canadian dollar, Swiss franc and the Swedish krona, declined to 77.428 on Aug. 5, the lowest level since Sept. 29.

About 70 percent of RBS’s losses came from its so-called non-core division, which includes assets it plans to sell or discontinue. The bulk of the division is comprised of the bank’s global banking and markets businesses, which include propriety trading and higher risk assets.

Allianz, Europe’s biggest insurer by market value, said net income fell 16 percent to 1.87 billion euros as property and casualty earnings were crimped by the recession.

Non-Farm Payrolls

The dollar strengthened against the pound and the Australian dollar before the U.S. reports employment figures today. Employers cut 325,000 jobs in July, down from 467,000 in the prior month, a Bloomberg survey showed. The unemployment rate will increase to 9.6 percent, from 9.5 percent, a separate survey showed. The Labor Department data is due at 8:30 a.m. in Washington.

The number of Americans filing claims for jobless benefits fell by 38,000 to 550,000 in the week ended Aug. 1, the Labor Department said yesterday.

“The market is cautious ahead of today’s payrolls figures,” said Lee Hardman, a currency economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Given the recent scale of gain in risk appetite, the market is heavily positioned pro-risk going into the data, making risk assets vulnerable to a negative surprise.”

German Output

The euro pared its weekly gains against the dollar and the yen as German industrial output unexpectedly declined in June after increasing the most in more than 18 years a month earlier.

Production fell 0.1 percent from May, when it jumped 4.3 percent, the biggest gain since data for a reunified Germany began in 1991, the Economy Ministry in Berlin said today. Economists predicted an increase of 0.5 percent in June, a Bloomberg survey showed.

European Central Bank President Jean-Claude Trichet yesterday kept the main refinancing rate unchanged at 1 percent and said interest rates are “appropriate,” signaling policy makers won’t change borrowing costs any time soon.

The euro rose to $1.4363, from $1.4257 on July 31. The common currency advanced 1.4 percent this week against the yen.

“Global risk appetite has improved and that’s the key driver of the market at the moment,” said Daragh Maher, deputy head of global currency strategy at Calyon in London. “The euro is being supported by that theme. But this is perhaps more of a recent dollar weakness story than that of euro strength.”

‘Recent Improvement’

The Australian dollar was poised to rise a fourth week after the Reserve Bank of Australia said it may raise rates, spurring investors to buy higher-yielding assets.

The currency traded near the highest level since September versus the U.S. dollar after a report yesterday showed the number of people employed in the South Pacific nation rose by 32,200 from June. Economists had forecast a decline.

“Following the surprising good news on the labor market, traders priced in almost half another 25 basis point-rate hike by year-end, which has provided the Aussie with significant support on the crosses,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in a report today. Australia’s currency may strengthen to 86 U.S. cents over the next week or so, he said.

Reserve Bank of Australia policy makers said in their quarterly policy statement today that they may increase interest rates if the economic recovery continues.

Australia’s benchmark interest rate of 3 percent compares with 0.1 percent in Japan and as low as zero in the U.S., making the South Pacific nation’s assets attractive to investors seeking higher returns.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net

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RBC Sees Dollar, Yen Revival Without ‘Monster’ U.S. Jobs Data

By Daniel Tilles

Aug. 7 (Bloomberg) -- The dollar and the yen may resume gains unless the U.S. jobs figures today are better than expected, according to RBC Capital Markets.

“It is worrying that whisper numbers for non-farm payrolls are skewed toward a much higher figure since upward momentum in risk appetite appears to be fading,” Sue Trinh, a senior currency strategist in Sydney, wrote today in a report. “We will really need to see a monster non-farm payrolls headline to generate fresh upside momentum. Otherwise, the risk is skewed toward a dollar and yen revival.”

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

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U.S. Exporters Push Obama to Fix Mexico Trucks, Tariff Dispute

By Mark Drajem

Aug. 7 (Bloomberg) -- U.S. exporters want President Barack Obama to bring a souvenir home from his meeting with North American leaders in Guadalajara next week: an agreement to put Mexican trucks back on U.S. roads.

Makers of paper, batteries, toothpaste and grapes are paying tariffs on $2.4 billion of exports to Mexico after that country retaliated for a U.S. ban on Mexican trucks. Transportation Secretary Ray LaHood’s comment on Aug. 4 that he’s too busy with the “cash for clunkers” auto-discount program to focus on the truck dispute hasn’t helped matters, exporters say.

“On the U.S. side, there is a lack of political desire to solve this,” said Ken Barbic, director of federal affairs at Western Growers of Irvine, California, which represents grape, lettuce, date and pear growers hurt by the tariffs.

Congress in March ended a pilot program that let Mexican trucks deliver goods in the U.S., after lawmakers such as Senator Byron Dorgan, a North Dakota Democrat, said the vehicles posed a safety hazard. Mexico responded with the tariffs.

The issue will be on the agenda when Obama meets with Mexican President Felipe Calderon and Canadian Prime Minister Stephen Harper at the North American Leaders Summit on Aug. 9 and 10, officials said at a White House briefing yesterday.

‘Hurting Bottom Line’

“We would like to see a greater sense of urgency” from the Obama administration to resolve the trucking issue, said Steve Mulder, a lobbyist at Venn Strategies in Washington who represents the Alliance to Keep U.S. Jobs, a group of companies formed to fight the tariffs.

Appleton Papers Inc. of Appleton, Wisconsin, and Mary Kay Inc., the Dallas-based cosmetics seller, as well as growers of grapes and pears say the tariffs have damaged or cut off one of their biggest export markets.

Mary Kay is paying $450,000 a month in added tariffs and taxes to get its lipstick, blush and skin products into Mexico, said Anne Crews, vice president of government relations for the privately held company. “We have not passed the cost on,” she said. “It’s hurting Mary Kay’s bottom line.”

Mexico imposed a 10 percent duty on Appleton’s carbonless paper, said Kent Willetts, vice president of marketing and strategy. The country is a $50 million market for the paper, he said.

“We’ve maintained our exports at the expense of little or no profit,” Willetts said. “The question is: How long can it go on?”

Caterpillar to Microsoft

Privately owned Appleton is a member of the Alliance to Keep U.S. Jobs with such companies as Caterpillar Inc.,Smithfield Foods Inc. and PepsiCo Inc. Those publicly traded companies also want to stop the tariffs. Their products haven’t been hit by them so far.

The group persuaded a Senate committee to include language in pending legislation urging Obama to “work expeditiously” to establish a new border-crossing plan.

“It’s the principle that is most important for our industry,” said Gary Shapiro, president of the Consumer Electronics Association, which represents Amazon.com Inc.,Intel Corp.,Microsoft Corp. and other technology companies. “Mexican trucks are where the free-trade battle is being fought this week.”

As part of the North American Free Trade Agreement, the U.S. agreed to allow Mexican trucks free rein on U.S. roads, a pledge it has never fully honored because safety advocates and union officials say Mexico’s trucks and drivers don’t meet U.S. standards.

Teamsters Against Trucks

Lawmakers such as Representative Brad Sherman, a California Democrat, are urging Obama to contest the tariffs instead of compromising with Mexico and allowing the trucks to return.

The International Brotherhood of Teamsters union, whose members include U.S. truck drivers, also opposes restarting the Mexican truck deliveries, Teamsters General President James Hoffa said in an e-mailed statement.

“Until there is a guarantee that these trucks are safe, Mexican trucks should not be allowed to drive freely on our highways,” Hoffa said.

In 2008, the U.S. and Mexico had $368 billion in trade, making Mexico the third-largest U.S. trading partner after Canada and China, according to the Commerce Department.

Safety proponents, Teamsters and the American Trucking Association met with LaHood in April to discuss how the pilot program could be changed and restarted, said Clayton Boyce, a spokesman for the Arlington, Virginia-based trucking association, which supports allowing Mexican trucks in the U.S.

‘Still Waiting’

“We’re still waiting for the administration,” Boyce said.

LaHood said at the National Press Club in May that he had met with as many as 30 lawmakers as he sought help in drafting a plan to allow some Mexican trucks into the U.S. He said the issue would be resolved by the “early part of the summer”

On Aug. 4, LaHood said he has been focusing on getting Congress to provide more funds for the auto-discount plan.

“We’re spending all our time working on the additional $2 billion” for the clunkers program, LaHood said. “We’ll come back in the fall and see where we are.”

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net

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Auto Inventories Depleted by U.S. ‘Cash for Clunkers’ Discounts

By Angela Greiling Keane and Craig Trudell

Aug. 7 (Bloomberg) -- Auto shoppers may not find their preferred colors or accessories when they visit U.S. showrooms this weekend as the government’s “cash for clunkers” program depletes inventories.

Automakers may need four to six weeks to rebuild supplies, said John McEleney, chairman of the National Automobile Dealers Association. General Motors Corp. and Chrysler Group LLC dealers may be most affected because those companies slashed production as they went through bankruptcy, he said.

“With this quick spike in sales, it has wiped out a lot of inventory,” McEleney, who owns dealerships in Iowa City and Clinton, Iowa, said in an interview yesterday. “The selection won’t be quite as great.”

Cash for clunkers offers credits of as much as $4,500 for the purchase of a new, more fuel-efficient vehicle when buyers turn in an older one to be junked. The Transportation Department had received 184,304 dealer applications for funds totaling $775 million through Aug. 5, with more requests in the pipeline.

The program, kicked off by Transportation Secretary Ray LaHood on July 25, has probably run through its initial $1 billion, McEleney said.

The U.S. Senate gave final approval yesterday to an infusion of $2 billion that LaHood has said would keep the program running through the end of the month. President Barack Obama has indicated he will sign the measure into law.

Clearing Lots

The discounts are helping dealers clear their lots of 2009 vehicles as automakers ramp up production for the 2010 model year, said Gary Dilts, senior vice president at Westlake Village, California-based research firm J.D. Power & Associates.

“You’ve got to purge the system to really get it right,” Dilts said. “Getting down to the bottom of inventories like this is a very healthy thing for the industry at this time of year.”

Neale Kuperman, owner of a Toyota Motor Corp. dealership in Blauvelt, New York, said he usually keeps at least 75 Corollas, 20 RAV-4s, and 10 Priuses on the lot. The store was down to 10 Corollas and two RAV-4s and lacked a single Prius yesterday.

“We have seven-and-a-half acres here, and you could play a game of touch football right now and not run into a car,” Kuperman said. “We’re absolutely depleted on models.”

The program has invigorated sales, Jessica Caldwell, director of industry analysis for Edmunds.com in Santa Monica, California, said in a report yesterday. “Of course, this level of activity will not continue, as it reflects the behavior of those anxious and able to participate in the program -- and that is a limited set of people,” she said.

Ford Prices Rise

Ford Motor Co., the only U.S. automaker to avoid bankruptcy, credited lower inventory for a $2,000 rise in prices on each vehicle sold in the second quarter compared with a year earlier.

“Having inventories under control means there’s not a push to move the metal,” Chief Financial Officer Lewis Booth told reporters Aug. 5 at a conference in Traverse City, Michigan. “We’ve all lived with too many stocks and it’s a lousy way to run a business.”

Ford posted its first monthly sales gain since 2007 in July.

General Motors and Chrysler have lower inventories than Ford because they cut production further. Chrysler closed all of its assembly plants when it filed for bankruptcy April 30, and kept some of them closed until July, after emerging in June.

GM said on April 23 that it would temporarily stop production at 13 U.S. assembly plants for several weeks to trim inventory after sales dropped in this year’s first three months. GM filed for bankruptcy on June 1 and exited on July 10.

Used-Car Lots

The clunkers program is protecting dealers’ used-car lots because of the requirement that vehicles traded in be scrapped, not sold, said Paul Taylor, chief economist of the dealers association, based in McLean, Virginia.

“It will help used-car values,” Taylor said. “These don’t put used cars in the marketplace.”

Used-car sales may have gotten a boost from the program because consumers who don’t qualify for the government discount buy a previously owned vehicle instead, said Robert Sacks, spokesman for Lithia Motors Inc., a Medford, Oregon, company that operates 88 dealerships.

‘Great Deals’

“It’s a big side benefit,” Sacks said in an interview. “You have a lot of people who are now suddenly becoming aware there are some great deals out there.”

The dealer association’s McEleney said he isn’t sure whether the additional $2 billion would last through the month.

“I would expect the pace will slow down a little bit because you’ve had the early adopters and a lot of people that wanted to move fast,” he said.

After adding contractors to process the submissions, the agency has worked through a bottleneck of applications and caught up, said Rae Tyson, spokesman for the National Highway Traffic Safety Administration, which administers the program, in an interview.

“Everything seems to be flowing very nicely right now,” he said yesterday. The computerized system, set up by Oracle Corp., can now process as many as 30,000 transactions simultaneously, up from 12,000 when the program began, Tyson said.

To contact the reporters on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net; Craig Trudell in Southfield, Michigan at ctrudell@bloomberg.net

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