Currency Pair Daily Forecasts

Daily Forex Technicals | Written by Finotec Group | Aug 11 09 09:14 GMT |

EUR/USD Daily Technical Reports EUR/USD-market strategy can be a sell from the level 1.4191$ Technical oscillators supporting the bearish trend for the currency pair To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the MACD lines after a bearish crossover below the zero line. In order to find the power of the market, we use RSI (Relative Strength Index).With RSI; we can determine that the market is in a bearish direction. Also, MA oscillators indicate a bearish cross on the short MA line. USD/JPY Daily Technical Reports USD/JPY-market strategy can be a buy from the level 96.92 Technical oscillators supporting the bullish trend for the currency pair To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the MACD lines after a bullish crossover above the zero line. In order to find the power of the market, we use RSI (Relative Strength Index).With RSI; we can determine that the market is in a bullish direction. Also, MA oscillators indicate a bullish cross on the short MA line. GBP/USD Daily Technical Reports GBP/USD-market strategy can be a sell from the level 1.6491$ Technical oscillators supporting the bearish trend for the currency pair To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the MACD lines after a bearish crossover below the zero line. In order to find the power of the market, we use RSI (Relative Strength Index).With RSI; we can determine that the market is in a bearish direction. Also, MA oscillators indicate a bearish cross on the short MA line. USD/CHF Daily Technical Reports USD/CHF-market strategy can be a buy from the level 1.0823 Technical oscillators supporting the bullish trend for the currency pair To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the MACD lines after a bullish crossover above the zero line. In order to find the power of the market, we use RSI (Relative Strength Index).With RSI; we can determine that the market is in a bullish direction. Also, MA oscillators indicate a bullish cross on the short MA line. Finotec Group Inc. http://www.finotec.com/ Disclaimer: FINOTEC Tradings Market Commentaries are provided for informational purposes only. The information contained within these reports is gathered from reputable news sources and not intended as investment advice. FINOTEC Trading assumes no responsibility or liability from gains or losses incurred by the information herein.

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Daily FX Report

Daily Forex Technicals | Written by Varengold Bank | Aug 11 09 09:09 GMT |

Good morning. Today we will inform you about a strong JPY and USD. Negative data in china made low-yielding currencies more attractive, after investors used both currencies as a safe haven. We wish you a nice day and success in trading Markets review The JPY climbed against all major currencies after a report showed that the Chinese industrial output grew less than expected and exports fell, making Japanese currencies more attractive as a safe haven. China also reported that producer and consumer prices dropped both. Consumer prices fell 1.8% while the producer prices slid 8.2 percent. Exports in China fell 23 percent from a year earlier, the report showed. The USD/JPY fell for a second day after it touched a low at 96.56. It opened the week at 97.56 and trades currently around 96.70. The JPY also climbed against the EUR. Today, the pair reached a low at 136.46 while it opened at 137.36. It started the week at 138.42, which was almost the highest level since the middle of June. The EUR/USD dropped below the 1.4150 mark after ECB council member Erkki Liikanen said 'the recovery in the Euro-Zone will take more time'. Yesterday the EUR/USD extended its losses and dropped to a low at 1.4105, which was the lowest level since the month started. The EUR could make further losses before a German report may show that wholesale prices fell for the 9th month, economists say. Technical analysis EUR/USD Since the middle of June, the EUR/USD has been trading inside a bullish trend channel. After it touched the first monthly resistance pivot point (Pivot R1 (M)) at 1.4430, it pulled back to the middle Pivot point at 1.4131, which is close to the lower line of the channel. If the market breaks the middle pivot point and the lower line of the channel as well, it may aim the first support pivot line at 1.3959 EUR/GBP As you can see, the EUR/GBP is trading around the resistance line at 0.86. It pulled to this level after it touched the downward trend line, which starts around the middle of May. The MACD lines didn't cross each other yet, but they are touching each other already. If the pair crosses the 0.86 resistance level sustainable, it could boost the bulls and may lead for further gains towards the next resistance around 0.87 Pivot Points - Daily FX Support and Resistance Levels Daily Calendar & Key FX Events Varengold Bank IMPORTANT NOTIFICATION TO BE READ IN CONJUNCTION WITH THE CONTENTS OF THIS DOCUMENT This document is issued and approved by Varengold WPH Bank AG. The document is only intended for market counterparties and intermediate customers who are expected to make their own investment decisions without undue reliance on the information set out within the document. It may not be reproduced or further distributed, in whole or in part, for any purpose. Due to international laws/regulations not all financial instruments/services may be available to all clients. You should have informed yourself about and observe any such restrictions when considering a potential investment decision. This electronic communication and its contents are intended for the recipient only and may contain confidential, non public and/or privileged information. If you have received this electronic communication in error, please advise the sender immediately, and delete it from your system (if permitted by law). Varengold does not warrant the accuracy, completeness or correctness of any information herein or the appropriateness of any transaction. Nothing herein shall be construed as a recommendation or solicitation to purchase or sell any financial product. This communication is for informational urposes only. Any market or other views expressed herein are those of the sender only as of the date indicated and not of Varengold. Varengold reserves the right to consider any order sent electronically as not received unless it is confirmed verbally or through other means.

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Korea Keeps Interest Rate at Record Low a Sixth Month

By Seyoon Kim

Aug. 11 (Bloomberg) -- South Korea’s central bank kept its benchmark interest rate unchanged at a record low for a sixth straight month amid “favorable” signs of economic recovery.

Governor Lee Seong Tae and his board left the seven-day repurchase rate at 2 percent in Seoul today, as expected by 12 of 13 economists surveyed by Bloomberg. The Bank of Korea cut the benchmark by 3.25 percentage points between October and February, the most aggressive easing since it began setting a policy rate a decade ago.

“Recent signs of an improvement in the economy are still not enough to justify a rate increase, as the economy only started to pick up,” said Kim Seung Hyun, head of research at Taurus Investment Securities Co. in Seoul. “The central bank will have to start thinking about inflationary pressure from later this year when demand rises further.”

South Korean stocks have soared 40 percent this year on investor confidence in the economy, which last quarter expanded at the fastest pace since 2003, joining China and Singapore in leading a regional rebound. The International Monetary Fund upgraded its forecasts this week for South Korea’s economic growth in 2009, citing low interest rates and fiscal spending.

“We will maintain an accommodative policy stance so the economy can improve in coming months and financial markets maintain a stable trend like they did in the past few months,” Lee told reporters in Seoul today.

Stocks Rise

The benchmark Kospi stock index rose 0.1 percent to 1,577.43 at 12:01 p.m. in Seoul and the won fell for a third day, with the currency 1.2 percent lower at 1,243 against the dollar. The yield on five-year government bonds fell 7 basis points to 4.92 percent.

“Economic activity in terms of both production and demand has recently continued to exhibit favorable movements,” the central bank said in a statement in Seoul.

South Korean industrial output rose the most in four months in June, a sixth straight advance, and manufacturers’ confidence climbed to a 14-month high. Japanese machinery orders, an indicator of capital investment in the next three to six months, jumped 9.7 percent from May, the Cabinet Office said yesterday.

The Bank of Korea on July 10 raised its gross domestic product forecast for this year and next, saying the economy will shrink a less-than-expected 1.6 percent in 2009, before expanding 3.6 percent next year. Before that, the government on June 25 raised its 2009 GDP forecast, predicting the economy would shrink 1.5 percent this year, less than the previous estimate of a 2 percent drop.

‘Recovery Trend’

“The economy is likely to expand in the second half on a quarter-on-quarter basis as demand seems to have picked up from the second half, even though the impact of government policies will weaken,” Lee told reporters in Seoul today. “The recovery trend is likely to continue from the second quarter, even though there are some uncertainties remaining.”

Policy makers in the U.S., Europe and the U.K. are also keeping borrowing costs unchanged to spur their economies. The European Central Bank left its benchmark rate at a record low of 1 percent on Aug. 6, and the U.S. Federal Reserve will keep its overnight lending rate at between zero and 0.25 percent on Aug. 13, according to all 38 economists surveyed by Bloomberg News.

The Bank of Japan today kept its overnight lending rate at 0.1 percent and refrained from unveiling any new measures.

Some economists say the South Korean central bank may need to raise rates as early as November to prevent inflation from accelerating following the economic recovery.

Credit Risks

“Evidence for an economic recovery will build up, raising the necessity for an interest-rate increase,” said Nomura Holdings Inc. economist Kwon Young Sun in Hong Kong. “I think there are more upside risks to the economy than the Bank of Korea is predicting.”

Cheaper borrowing costs prompted households to increase borrowing, with the nation’s bank lending to households expanding for a sixth straight month in July.

“Mortgage loans continued to expand markedly,” the central bank said in a statement today. “Concerns about credit risk” and the short-term focus of market funds “have not been resolved,” it added. Lee said the central bank will look into the details of the increase in mortgage loans.

The government has said it will maintain its expansionary fiscal policies this year to help support the economy.

South Korea spent 167.1 trillion won ($137 billion), or 64.8 percent of this year’s budget, in the first half of 2009 to help support Asia’s fourth-largest economy. The jobless rate rose to the highest in more than eight years in June after manufacturers and construction companies cut jobs.

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

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BOJ’s Shirakawa Says Japanese Recovery Is Likely to Be Weak

By Mayumi Otsuma and Toru Fujioka

Aug. 11 (Bloomberg) -- Bank of Japan Governor Masaaki Shirakawa said any recovery in the world’s second-largest economy is likely to be weak because there’s no guarantee that demand will gain momentum once global stimulus programs fade.

“Even if we have a recovery, I don’t think it’s strength will be impressive,” Shirakawa told reporters in Tokyo today after his board kept the key interest rate at 0.1 percent. “I can’t be confident about the strength of final demand after inventory adjustments and policy measures run their course.”

The Bank of Japan said it remains concerned about “downside risks to economic activity and prices” even as the country’s deepest postwar recession abates. While exports and production are improving, spending by companies and consumers remains sluggish and the outlook is “attended by a significant level of uncertainty,” the central bank said.

“The decision to keep the current rate reflects how careful and conservative the central bank remains about the economic recovery,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment banking unit of Credit Agricole SA. “The bank won’t likely raise the rate at least until late 2010.”

The yen traded at 96.87 per dollar at 5:35 p.m. in Tokyo from 96.65 before the policy announcement. The yield on Japan’s 10-year bond fell one basis point to 1.445 percent. The Nikkei 225 Stock Average rose 0.6 percent, extending its rally to 50 percent since it reached a 26-year low in March.

No New Steps

Shirakawa and his colleagues refrained from unveiling new measures a month after they extended credit-easing programs until the end of 2009. The central bank’s rate decision was expected by all 22 economists surveyed by Bloomberg News.

The policy board said the economy has “stopped worsening,” leaving its view unchanged from a month ago. Investment by companies is “declining sharply” and household consumption “remains generally weak amid the worsening employment and income situation,” it said in a statement.

The government also left its monthly economic assessment unchanged today, saying it’s “picking up recently,” yet conditions are still “difficult.” Prime Minister Taro Aso’s ruling Liberal Democratic Party trails the opposition Democratic Party of Japan in polls ahead of an Aug. 30 election.

Aso’s 25 trillion yen ($262 billion) in stimulus measures helped consumer confidence climb for a seventh month in June, a Cabinet Office report showed today. The economy probably expanded 3.9 percent in the three months ended June 30 after contracting for four quarters, analysts predict a report will show next week.

Excess Workers

Even so, growth may not be sustained because companies still have spare capacity and employees.

“These excesses will continue to weigh on consumer spending and capital investment,” said Seiji Shiraishi, chief economist at HSBC Securities Japan Ltd. in Tokyo. Japan’s jobless rate climbed to a six-year high of 5.4 percent in June.

Shirakawa said that while consumer prices are falling at a faster pace, that’s unlikely to snowball.

“We don’t see a risk of a deflationary spiral now, however price declines have accelerated in recent months, and that warrants close and careful monitoring,” he said.

Policy makers may forecast later this year that deflation will extend into 2011, and economists say that will force them to prolong their policy of keeping rates near zero. Consumer prices excluding fresh food slid a record 1.7 percent in June.

Shirakawa said prices are falling worldwide because of a dearth of demand and excess supply in the wake of the global economic crisis. It will take “considerable time” before price drops moderate, he said.

Global Stimulus

More than $2 trillion in stimulus measures have helped to ease the worst global recession since the Great Depression.

China’s industrial output and retail sales grew more quickly in July, while exports slumped, reports showed today, underscoring that economy’s dependence on stimulus spending and record bank lending. Elsewhere in Asia, the Bank of Korea left its benchmark rate at a record low of 2 percent on signs of a recovery. Singapore’s economy expanded at an annual 20.7 percent pace last quarter, revised figures showed.

Japan’s key rate will stay unchanged at least through 2010, according to 12 of 16 economists surveyed by Bloomberg News. The Bank of Japan last lowered the rate in December and has since begun purchasing corporate debt and providing unlimited loans backed by collateral to lenders. The central bank last month extended the credit programs by three months to Dec. 31.

To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net; Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

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Russia Output Shrank Record 10.9% Last Quarter as Slump Deepens

By Paul Abelsky

Aug. 11 (Bloomberg) -- Russia’s economy contracted the most on record last quarter as rising unemployment sapped consumer demand, bank lending stalled and the government was slow to respond with support measures.

Gross domestic product contracted an annual 10.9 percent in the second quarter, the Federal Statistics Service said in an e- mailed statement today, citing preliminary data. The median estimate in a Bloomberg survey of seven economists was for output to shrink 10.2 percent. GDP expanded 7.5 percent from the previous quarter. The service’s data go as far back as 1995.

Russia’s economic decline is worsening after output contracted 9.8 percent in the first quarter, ending 10 years of expansion that averaged close to 7 percent. The worst global financial crisis since the Great Depression undermined demand for Russia’s oil, natural gas and metals. The country’s industrial production plunged as companies depleted stocks and struggled to raise funds during the credit crunch.

“We can’t develop like this any longer,” President Dmitry Medvedevsaid yesterday during a meeting with political party leaders in the Black Sea resort of Sochi. “It’s a dead end. And the crisis has placed us in a situation where we will have to make decisions on changing the structure of the economy.”

Russia “crumbled” after commodity prices collapsed, Medvedev said. Energy, including oil and natural gas, accounted for 68.8 percent of exports to the Baltic states and countries outside the former Soviet Union in the first six months of the year, Russia’s Federal Customs Service said last week.

Urals crude oil, Russia’s chief export earner, averaged $61.03 a barrel during the last quarter after reaching a record $142.5 in July 2008.

Stocks, Oil

Russian stock market moves are showing record correlations with oil futures traded in New York, based on daily changes over the past 90 days, according to data compiled by Bloomberg. The 30-stock Micex index, which is mostly made up of energy companies, slipped into a bear market in June after falling more than 20 percent from its high on June 1, on concern a prolonged recession will cut demand for fuel. It gained 8.4 percent in July and is up 79 percent this year.

The world’s biggest energy exporter may run a budget deficit as wide as 9.4 percent of GDP this year, the country’s first shortfall in a decade, as plummeting demand for commodities threatens to cut revenue by a third, according to the Finance Ministry.

Russia has earmarked 2.51 trillion rubles ($79 billion) in spending to battle the slump, including funding designated for carmakers, agriculture and construction. The “anti-crisis” program was signed into law by Putin on June 19.

‘Might Fail’

“The planned fiscal relaxation might fail to stimulate private consumption in the face of significant uncertainty about future income,” the International Monetary Fund said in a report published on Aug. 7. “Absent a more determined policy intervention, there is a risk that banks will continue to struggle to adjust balance sheets, stifling credit expansion and impeding a recovery.”

Declining inventories accounted for 80 percent of the drop in GDP during the first three months, according to the Economy Ministry, which predicts output may shrink as much as 8.5 percent this year.

Russia’s inflation rate rose in July for the first time in four months, advancing to 12 percent from 11.9 percent in June. The trade surplus widened in June to $9.03 billion from $8.8 billion in the previous month.

The economy may start to show signs of recovery in the third quarter this year, Deputy Economy Minister Andrei Klepach said on July 23.

Central Bank

Russia’s economy will need between four years and five years to match last year’s pace of growth, Finance Minister Alexei Kudrinsaid yesterday. GDP in 2008 grew at the slowest pace since 2002, expanding 5.6 percent compared with 8.1 percent a year earlier.

The IMF forecasts a 6.5 percent economic contraction for Russia this year, followed by growth of 1.5 percent in 2010.

The central bank’s five interest-rate cuts since April 24 have failed to spur lending as banks hold back on concern borrowers can’t repay loans. Lending to consumers dropped 1.1 percent in June for the fifth consecutive monthly decline and banks shrank their corporate loan books by 1.2 percent, according to central bank data.

By the end of 2009, 17.4 percent of the population, or 24.6 million people, will be living beneath the subsistence level of $185 per month, almost 5 percent more than before the crisis, the World Bank said in a report released in June.

Unemployment may exceed 13 percent by the end of the year, compared with 8.3 percent in June, according to the World Bank.

Rising numbers of jobless and falling wages will cut the country’s nascent middle class by 10 percent, or 6.2 million people, to about 51.2 percent of the population, the Washington- based lender said. Household consumption, “the main source of growth in recent years,” is “collapsing,” it added.

To contact the reporter on this story: Paul Abelsky in St. Petersburg at pabelsky@bloomberg.net.

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China’s Falling Exports, Loans Signal Stimulus Needed

By Bloomberg News

Aug. 11 (Bloomberg) -- China’s exports and new loans tumbled in July and industrial output rose less than estimates, underscoring government concern that the world’s third-biggest economy is yet to establish a solid recovery.

Exports fell 23 percent from a year earlier, the customs bureau said. Industrial production gained 10.8 percent, the statistics bureau reported. New loans plunged to 355.9 billion yuan ($52 billion), less than a quarter of June’s level, the central bank said.

China will maintain a “moderately loose” monetary policy and “proactive” fiscal stance to bolster domestic spending in the face of slumping exports, Premier Wen Jiabao said Aug. 9. New loans fell as the government and banks moved to avert bad debt and bubbles in stocks and property after a record $1.1 trillion of lending in the first half helped drive a 7.9 percent economic expansion in the second quarter.

“There’s an element of fragility in the recovery,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale in Hong Kong. “The government needs an appropriately loose monetary policy.”

The yen rose against the euro and the dollar as investors sought safety because of the weaker-than-estimated output number and the export decline. The Shanghai Composite Index closed 0.5 percent higher, taking this year’s increase to 79 percent. Appliance manufacturer Qingdao Haier Co. and spirits maker Kweichow Moutai Co. climbed as the statistics bureau said retail sales rose 15.2 percent, more than estimates.

Topping Growth Target

China’s economy will grow 9.4 percent this year, topping the government’s 8 percent target, Goldman Sachs Group Inc. said yesterday. The credit boom and a 4 trillion yuan stimulus package helped General Motors Co. to report a 78 percent increase in vehicle sales in China in July.

Urban fixed-asset investment for the seven months to July 31 climbed 32.9 percent, the statistics bureau said. That was less than a 33.6 percent gain through June and the 34 percent median estimate in a survey of 22 economists.

“The fixed-asset investment number is worrying because government-sponsored investment is a pillar of the recovery,” said Tao Dong, chief Asia-Pacific economist at Credit Suisse AG in Hong Kong. “This set of data should postpone any thought of more aggressive tightening; the economy is slowing down a little bit.”

Solid Foundations

Policy makers cautioned this month that a recovery is not yet on solid foundations and central bank Governor Zhou Xiaochuan said July 28 that the nation will take its cue from the U.S. on when to end economic rescue efforts.

The Bank of Japan left its key lending rate unchanged today, citing “downside risks to economic activity” and South Korea held its benchmark at a record low, with Governor Lee Seong Tae saying a recovery faces “some uncertainties.”

The gain in industrial production in China compared with a 10.7 percent advance in June and economists’ median forecast for an 11.5 percent increase.

The export decline matched economists’ estimates and was the third biggest since China’s shipments began to shrink in November last year. China Shipping Container Lines Co., the country’s second-largest carrier of sea-cargo boxes, forecast last month a first-half loss on weaker global demand.

Imports fell 14.9 percent, leaving a trade surplus of $10.63 billion.

‘Modest Disappointment’

The industrial production figure suggested the economy “started the third quarter on a slightly softer tone,” Ben Simpfendorfer, a Hong Kong-based economist for Royal Bank of Scotland Plc, said in a Bloomberg Television interview. “It’s a modest disappointment.”

July’s new loans were the least since the government dropped quotas limiting lending in November last year and pressed banks to support a 4 trillion yuan stimulus package. None of 11 economists surveyed forecast such a low number. M2, the broadest measure of money supply, rose 28.4 percent.

Loans growth was in keeping with the moderately-loose monetary policy, the state-run Xinhua News Agency quoted an unidentified central bank official as saying in a report on a government Web site.

New loans are usually higher in the first half of the year and in March, June and September, the official said.

China Construction Bank

China Construction Bank Corp., the nation’s second-largest bank, will cut new lending by about 70 percent in the second half to avert a surge in bad debt, President Zhang Jianguo said last week.

“We noticed that some loans didn’t go into the real economy,” Zhang, 54, said in an Aug. 6 interview at the bank’s headquarters in Beijing. “I feel that some industries are expanding too rapidly. For example, housing prices are rising too fast, and housing sales are growing too fast.”

UBS AG said in a July 31 note that the scale of China’s new lending in the first half was “neither sustainable nor necessary.” New loans of 300 billion yuan to 400 billion yuan a month in the second half would be “more than enough” to support the nation’s recovery, the report said.

Consumer prices fell 1.8 percent last month from a year earlier, the biggest decline since 1999, the statistics bureau said today. They were unchanged from the previous month. Producer prices dropped a record 8.2 percent.

To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net;

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U.K. Housing Market Improved in July, Surveyors Group Says

By Jennifer Ryan

Aug. 11 (Bloomberg) -- The U.K. housing market improved in July as the biggest proportion of real-estate agents and surveyors in two years saw increases in home values, the Royal Institution of Chartered Surveyors said.

The number of respondents saying prices dropped exceeded those reporting gains by 8 percentage points, the smallest margin since August 2007, RICS said in its monthly survey today in London. A separate report by the British Retail Consortium showed retail sales rose in July from a year earlier.

The report adds to evidence that the rout in residential property may have ebbed after mortgage approvals rose to a 14- month high in June. The Bank of England last week extended its bond purchase program to 175 billion pounds ($289 billion) to repair “fragile” financial conditions and underpin signs the economy is emerging from the worst recession in a generation.

“Although demand for property is continuing to rebound, it still remains low from a historical perspective,” Jeremy Leaf, spokesman at RICS, said in the statement. “If mortgage availability remains insufficient to meet the increase in buyer demand, then it is possible that prices may slip back again, especially if unemployment continues to rise and mortgage rates increase.”

A separate report from the BRC showed same-store retail sales in July rose by 1.8 percent from a year earlier. The BRC, which represents 80 percent of U.K. retailers, said total sales increased by 3.6 percent.

London showed the biggest improvement of the 12 regions tracked by the RICS survey, with a net balance of 29 realtors and surveyers saying prices rose in the last three months, followed by Scotland, with a net balance of 15.

Buyer Demand

“With the buyers continuing to return to the market and a lack of stock available prices are being forced up when compared to the beginning of the year, a trend which is likely to continue in the short term,” James Perris of De Villiers Surveyors in central London, said in the statement.

Mortgage approvals rose to 47,584 in June, the highest in more than a year. That’s a third lower than at the start of 2008, central bank data show. RICS last week forecast house prices will rise this year after the decline in values from their peak two years ago and lower borrowing rates lured buyers.

The Bank of England last week increased its bond-purchase plan by 50 billion pounds, saying the recession has proved deeper than previously thought. It held the benchmark interest rate at a record low of 0.5 percent. Governor Mervyn King will present the bank’s new growth and inflation forecasts tomorrow in London.

“We doubt that the economy will be able to develop significant sustainable recovery until around mid-2010 and suspect that unemployment will rise markedly further and wage growth will remain low, which does not bode well for house prices,” Howard Archer, an economist at IHS Global Insight In London, said in a statement yesterday.

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

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Lehman Contract Is Test Case for Billions of Dollars of Swaps

By Linda Sandler

Aug. 11 (Bloomberg) -- A U.S. bankruptcy judge may have a controlling say in resolving a dispute in a U.K. court between Lehman Brothers Holdings Inc. and a Bank of New York Mellon Corp. unit over a swap agreement that could affect billions of dollars of similar contracts.

At issue is who under U.S. bankruptcy law gets paid first under two swap agreements related to Lehman’s so-called Dante program of credit-linked notes -- Lehman or investors who bought the notes. Lehman lost under U.K. contract law. The U.K. judge left the question of U.S. bankruptcy law open as Lehman appeals his ruling.

“This issue has never been tested in court in the U.S.,” said Guy Dempsey, co-chair of the derivatives group at the law firm Latham & Watkins LLP.

Lehman, the investment bank liquidating in bankruptcy, says it is owed $70 million on the swaps and wants to get paid. BNY Corporate Trustee Services Ltd., acting for the note-holders, wants the case dismissed and cites a U.K. judge who said last month that note-holders are entitled to the payments under U.K. law now that Lehman is bankrupt.

The case, being considered in bankruptcy court in New York today, may affect many other swap agreements designed like Lehman’s, which includes an indenture and a sequence of payments, Dempsey and other experts said.

Terms of the two Lehman transactions, named Dante after the entity that issued the notes, specify that investors have first claim on whatever money is available if Lehman defaults or goes bankrupt. While the U.K.-based contract favors the noteholders, U.S. bankruptcy law normally protects a debtor company’s assets. Lehman is asking the bankruptcy judge to rule in its favor.

Not Yet Tested

Not yet tested is whether U.S. law permits the investors to use a written contract to give themselves priority claims after a bankruptcy. In the U.K., the related case was brought against Lehman by a trustee for Australian note-holders, Perpetual Trustee Co.

Rating agencies could start to downgrade credit-linked notes if the bankruptcy judge says Lehman can take away assets protecting the investments, debt research firm CreditSights Inc. said in a July 12 report. Insulating such deals from bankruptcy “forms the bedrock of securitization, CreditSights analyst Atish Kakodkar said in the report.

Lehman had a similar tussle last month in the U.S. over who owed what to whom with Metavante Corp., a company involved in another swap agreement. U.S. Bankruptcy Judge James Peck, in charge of Lehman’s bankruptcy, said in that case that he believed Lehman should be paid. He postponed a decision until September to give the opponents time to settle the issue themselves, Dempsey said.

Biggest Bankruptcy

Last September, Lehman filed the biggest U.S. bankruptcy ever with assets of $639 billion. It sued Bank of New York on May 20 over payments related to the credit-linked notes, issued by an entity it set up, Dante Finance Public Ltd.

“The bankruptcy code protects debtors from being penalized for filing a Chapter 11 case, notwithstanding any contractual provisions or applicable law that would have that effect,” Lehman said in its complaint.

Lawyers for Bank of New York, Eric Schaffer and Michael Venditto of Reed Smith LLP, didn’t returns calls or e-mails seeking comment.

The adversary case is In re: Lehman Brothers Holdings Inc. v. BNY Corporate Trustee Services Ltd., 09-01242, U.S. Bankruptcy Court, Southern District (Manhattan).

To contact the reporters responsible for this story: Linda Sandler in New York at lsandler@bloomberg.net;

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Norges Bank May Leave Main Rate on Hold as Recession Abates

By Josiane Kremer

Aug. 11 (Bloomberg) -- Norway’s central bank may leave its benchmark interest rate at a record low this week as the country’s first recession in two decades shows signs of abating, a survey showed.

Oslo-based Norges Bank will keep the overnight deposit rate at 1.25 percent, ending an easing cycle that started in October, according to all 12 economists surveyed by Bloomberg. The bank announces its decision tomorrow at 2 p.m. local time.

Norway’s oil wealth has helped shield the country from the worst of the global recession, thanks to continued investment in its petroleum industries, which make up about a quarter of output. Norges Bank has kept rates higher than in neighboring Sweden and the euro area and will probably be the first central bank in the industrialized world to start raising borrowing costs, Deutsche Bank AG strategist Henrik Gullberg said in July.

“The bank will most likely conclude that the news has been on the strong side when it sums up developments” since June, said Erik Bruce, an economist at Nordea Bank AB in Oslo. “But it will be careful not to sound too hawkish.”

Policy makers will need to weigh the prospect of economic recovery against slowing price growth. Inflation numbers are “heading downward,” said Harald Magnus Andreassen, chief economist at First Securities ASA in Oslo. Norges Bank expects inflation in the world’s fifth-biggest oil exporter to slow “to close” to 1.5 percent in the coming year, it said on June 17.

Inflation adjusting for the effect of taxes and energy last month slowed to within the central bank’s target for the first time since June 2008. The rate dropped to an annual 2.5 percent, the central bank’s target rate, from 3.3 percent in June, Statistics Norway said yesterday.

Outlook

The mainland economy, which excludes oil and shipping, will shrink 1.5 percent this year and grow 0.9 percent next year, the Organization for Economic Cooperation and Development said in June. That compares with an estimated 4.8 percent slump in the 16-member euro area this year and no growth for the region in 2010, according to the OECD. Norway is the only Scandinavian country outside the European Union.

Governor Svein Gjedrem has lowered the benchmark rate from a five-year high of 5.75 percent in September. Prime Minister Jens Stoltenberg, who faces an election in September, has pledged to push through stimulus measures equivalent to 3 percent of non-oil gross domestic product to support the labor market.

Government and central bank support measures have boosted domestic demand and fueled house prices, which jumped 5.3 percent in the second quarter. Retail sales rose 1.9 percent in May from April, marking the second consecutive rise this year.

‘Surprised Positively’

Joblessness stood at 3 percent in July, measured according to the number of people receiving jobless benefits, and has risen less than Norges Bank expected, the bank said in June.

Norges Bank “will have been surprised positively since the last meeting, on 17 June, by the labor and financial markets especially,” Bjorn-Erik Rohne Orskaug, an Oslo-based economist at DnB NOR ASA, Norway’s biggest bank, said in a note to clients.

Norwegian home owners, the second richest in the world, have floating rates on home loans, meaning lower central bank rates are quick to feed through to mortgage costs. At the same time, job security is high, with about a third of the labor force employed in the public sector.

Finance Minister Kristin Halvorsen has warned consumers against embarking on spending sprees. “I fear that maybe some of the consumers will invest in the housing market” on the assumption that “the interest rate will be at a very low level for many years ahead,” Halvorsen said in a June 22 interview.

To contact the reporter on this story: Josiane Kremer in Oslo at Jkremer4@bloomberg.net.

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Pound Sentiment to Turn ‘Bearish’ on Drop Below $1.635, RBS Says

By Matthew Brown

Aug. 11 (Bloomberg) -- The pound will fall further against the dollar if it drops below $1.635, Royal Bank of Scotland Group Plc said.

The so-called support level was created by the low on July 29, before the pound’s advance to a nine-month high on Aug. 6, Sydney-based RBS foreign-exchange strategist Greg Gibbs wrote in a research report today.

“A break of this support will turn sentiment more bearish,” Gibbs said. “There will be support around $1.6200, $1.6000 and $1.5725.”

The pound was little changed at $1.6483 as of 7:45 a.m. in London. A support level is where buy orders may be clustered.

To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net

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TARP Oversight Panel Says Smaller Banks May Need Fresh Capital

By Rebecca Christie

Aug. 11 (Bloomberg) -- Smaller U.S. banks may need $12 billion to $14 billion in additional capital to cope with troubled loans still on their books, the Congressional Oversight Panel said today in a monthly report.

The panel, which reports to lawmakers and was created to monitor the $700 billion Troubled Asset Relief Program, said the biggest U.S. banks appear prepared to handle more loan losses, particularly the 19 banks that regulators put through stress tests earlier this year. Banks with assets of $600 million to $1 billion may face bigger challenges, the panel said.

Banks of that size “will need to raise significantly more capital, as the estimated losses will outstrip the projected revenue and reserves,” the report said, citing its own loan analysis. The panel is led by Elizabeth Warren, a law professor at Harvard University.

The report said the Treasury and other regulators should do more to help smaller banks deal with whole loans on their books. The Treasury and the Federal Deposit Insurance Corp. program have shelved the Legacy Loans Program, intended to use a combination of public and private funds to buy loans from banks.

“Failure to start the Legacy Loan Program raises concerns about Treasury’s strategy,” the panel’s report said.

Representative Jeb Hensarling, a Texas Republican who also is a member of the panel, dissented from the report’s findings. He said the loss estimates may not be accurate and shouldn’t be used to justify another round of government assistance.

Toxic Assets

“It is possible that the toxic-asset market is already beginning to heal itself and the intervention proposed by the panel could be inappropriate -- if not counterproductive,” Hensarling said. “I am not necessarily discouraged by the results for the smaller banks since it is entirely possible that the input assumptions used by the panel were excessively pessimistic.”

Treasury Secretary Timothy Geithner pledged that the department remains a “hands-off” investor in banks and auto companies, according to a letter released as part of today’s report.

“With respect to Treasury’s relationship with financial institutions in which it holds a financial interest, Treasury is a reluctant shareholder,” Geithner said in a July 21 letter. “The government will not interfere with or exert control over day-to-day company operations and, in the event the government obtains ownership interests, it will only vote on core government issues.”

The Treasury also told the panel it had no plans to extend a guarantee program for money market mutual funds that is scheduled to expire on Sept. 18. “The guarantee agreements do not provide for further extension of the guarantees,” the Treasury said in its comments.

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

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Productivity in U.S. Probably Surged, Lowering Labor Costs

By Shobhana Chandra

Aug. 11 (Bloomberg) -- The productivity of U.S. workers probably grew in the second quarter at the fastest pace in almost two years as employers squeezed more out of remaining staff to bolster profits, economists said before a government report today.

Productivity, how much an employee produces for each hour worked, rose at an annual 5.5 percent pace after a 1.6 percent gain in the prior three months, according to the median estimate of 62 economists surveyed by Bloomberg News. Labor costs likely fell for the first time in a year.

Lower expenses may mean companies will need to fire fewer workers as sales stabilize, the first step toward ending the worst employment slump in the post-World War II era. Increases in efficiency also help curb inflation, giving Federal Reserve policy makers, meeting this week, extra time to remove stimulus.

“The gain in productivity sets a good foundation for the recovery,” said Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts. “As the corporate profits picture becomes healthier and demand rises, businesses will be able to hire people. The Fed can take a very gradual approach to their exit strategy,” as “there’s really no threat of inflation from labor costs,” he said.

The Labor Department’s report is due at 8:30 a.m. in Washington. Survey estimates ranged from gains of 7 percent to 2.9 percent. Labor expenses probably fell at a 2.5 percent rate after increasing at a 3 percent pace the prior quarter, according to the survey.

Fewer Stockpiles

A report from the Commerce Department at 10 a.m. may show wholesalers cut inventories in June for a 10th consecutive month, according to the survey median.

Efficiency surged from April through June because employers cut payrolls and hours even faster than output. The total number of hours worked last quarter shrank at a 7.8 percent annual pace, while the economy contracted at a 1.7 percent pace excluding farms, according to figures from Labor and Commerce.

A Labor report last week showed payrolls fell by 247,000 in July after a 443,000 drop in June, in a sign job losses are already starting to ease. The economy has lost 6.7 million jobs since the recession began in December 2007.

Smaller workforces have helped stem the slump in profits. For the second quarter, 72.2 percent of Standard & Poor’s 500 companies beat consensus earnings estimates, just below the 72.3 percent ratio five years ago that was the highest since at least 1993, data compiled by Bloomberg showed as of yesterday.

Profits, Stocks

Investors are getting encouraged by the improvement. The S&P 500 index rose in each of the last four weeks, leaving it trading at the highest level relative to earnings since 2004.

DuPont Co., the third-biggest U.S. chemical maker, was one of the companies which posted second-quarter profit that topped analysts’ estimates as it trimmed expenses faster than expected. Wilmington, Delaware-based DuPont is cutting fixed costs by $1 billion, in part by shedding 2,500 employees and more than 10,000 contractors, and has achieved 60 percent of its cost- reduction target.

“Our aggressive actions to improve productivity and reduce costs across the company are paying off,” Chief Executive Officer Ellen Kullman said in a statement last month.

Some companies are already bringing employees back as demand stabilizes. Union Pacific Corp., the second biggest U.S. railroad by sales, trimmed payrolls by operating with about 45,000 workers in the second quarter, its lowest employment since its 1996 purchase of Southern Pacific Rail Corp.

Omaha, Nebraska-based Union Pacific, whose profit also beat analysts’ estimates, has recalled some furloughed workers since June as weekly carload rates gain. About 900 of the 5,300 conductors, engineers and other employees laid off as of mid- June have returned, a spokesman said in July.

                      Bloomberg Survey

================================================================
                            Prod-    Labor  Whlsale
                         uctivity    Costs     Inv.
                             QOQ%     QOQ%     MOM%
================================================================

Date of Release              08/11    08/11    08/11
Observation Period              2Q     2Q P     June
----------------------------------------------------------------
Median                        5.5%    -2.5%    -0.9%
Average                       5.3%    -2.9%    -0.8%
High Forecast                 7.0%    -0.5%    -0.4%
Low Forecast                  2.9%   -10.0%    -1.2%
Number of Participants          62       59       33
Previous                      1.6%     3.0%    -0.8%
----------------------------------------------------------------
4CAST Ltd.                    6.3%    -4.3%    -0.6%
Action Economics              6.0%    -3.0%    -0.8%
AIG Investments               6.0%     ---     -0.5%
Ameriprise Financial Inc      3.0%    -1.5%    -1.0%
Argus Research Corp.          4.5%    -1.0%    -0.7%
Bank of Tokyo- Mitsubishi     6.4%    -2.4%    -0.9%
Bantleon Bank AG              5.5%    -2.5%     ---
Barclays Capital              5.0%    -2.8%    -0.9%
BBVA                          2.9%    -2.3%    -1.1%
BMO Capital Markets           6.1%    -1.8%    -0.9%
BNP Paribas                   5.5%    -2.5%    -1.0%
Briefing.com                  5.2%    -2.2%    -0.9%
Calyon                        4.8%    -1.8%     ---
Capital Economics             5.0%    -3.0%     ---
CIBC World Markets            5.9%     ---      ---
ClearView Economics           5.0%    -2.5%    -0.8%
Credit Suisse                 5.5%    -6.0%    -1.0%
Daiwa Securities America      4.5%    -3.0%     ---
Danske Bank                   ---     -5.3%     ---
DekaBank                      5.3%    -2.3%     ---
Desjardins Group              5.0%    -2.0%    -0.7%
Deutsche Bank Securities      5.5%    -2.5%    -0.4%
DZ Bank                       5.5%    -2.2%     ---
First Trust Advisors          6.0%    -3.8%     ---
FTN Financial                 5.0%    -1.5%     ---
Goldman, Sachs & Co.          6.5%    -4.5%     ---
Helaba                        3.0%    -1.5%     ---
Herrmann Forecasting          6.0%    -2.9%    -1.1%
High Frequency Economics      5.5%    -2.5%    -1.2%
HSBC Markets                  5.5%    -2.0%    -0.9%
IDEAglobal                    4.5%    -1.8%    -0.6%
IHS Global Insight            5.4%    -5.7%     ---
Informa Global Markets        6.5%    -3.5%    -0.6%
ING Financial Markets         4.1%    -1.4%    -1.0%
Insight Economics             5.0%    -2.0%    -0.7%
J.P. Morgan Chase             5.4%    -4.4%     ---
Janney Montgomery Scott L     5.0%    -2.2%    -0.9%
Landesbank Berlin             ---      ---     -0.9%
Maria Fiorini Ramirez Inc     4.7%    -1.5%     ---
Merrill Lynch/BAS             4.6%    -1.9%    -0.6%
MFC Global Investment Man     5.0%    -2.0%    -0.4%
Mizuho Securities             4.0%    -1.0%     ---
Moody’s Economy.com           5.9%    -2.2%     ---
Morgan Stanley & Co.          6.0%    -5.5%     ---
Newedge                       4.0%    -1.5%     ---
Nomura Securities Intl.       6.2%    -3.4%     ---
Nord/LB                       5.5%    -0.5%     ---
PNC Bank                      5.5%    -2.0%     ---
Raymond James                 5.8%    -4.8%     ---
RBC Capital Markets           5.2%     ---      ---
RBS Securities Inc.           6.0%   -10.0%     ---
Ried, Thunberg & Co.          5.6%    -3.3%    -1.0%
Schneider Foreign Exchang     7.0%    -2.8%     ---
Societe Generale              6.0%    -2.4%     ---
Stone & McCarthy Research     4.9%    -2.8%    -0.6%
TD Securities                 5.3%    -2.3%     ---
Thomson Reuters/IFR           ---      ---     -0.6%
UBS Securities LLC            6.7%    -5.3%     ---
UniCredit Research            5.5%    -2.5%     ---
University of Maryland        3.5%     ---     -0.8%
Wells Fargo & Co.             5.1%    -4.5%     ---
WestLB AG                     4.7%    -1.5%     ---
Westpac Banking Co.           6.0%    -3.0%    -0.7%
Woodley Park Research         4.9%    -1.9%    -0.9%
Wrightson Associates          5.6%    -3.3%    -1.0%
================================================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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Obama to Defend Health-Care Plan at Town Hall After Disruptions

By Kristin Jensen

Aug. 11 (Bloomberg) -- President Barack Obama will defend his efforts to overhaul the U.S. health-care system at a town hall in Portsmouth, New Hampshire, today after a series of protests met his fellow Democrats in recent days.

Democratic members of the House and Senate who have returned to their home districts have encountered protesters holding signs and screaming slogans such as “just say no” to the party’s health-care plan. The Democratic National Committee has accused Republicans of orchestrating the disruptions.

Obama and some Democrats in Congress are pushing plans that would offer the option to purchase health insurance from a government-run program, while requiring all Americans to get coverage and putting new restrictions on insurers. Republicans say the effort will increase costs and limit choices for care.

“We expect that there will be a vigorous debate, as there have been at plenty of town halls that President Obama has had,” White House spokesman Bill Burton told reporters yesterday. “We look forward to it.”

About 1,800 people will attend the event in a local high school, with most of the tickets available to the public, Burton said. Obama will focus on issues such as how the new law would prohibit insurers from denying coverage to people with preexisting conditions, Burton said.

House, Senate Leave

The House of Representatives left Washington on July 31 for a five-week recess after putting off a vote on legislation until September. The Senate began its recess on Aug. 7 with one of the two committees working on the issue still struggling to find a bipartisan compromise.

House and Senate lawmakers are grappling with issues such as whether to create the government-run health-care plan, which would compete with private insurers, whether to mandate that employers offer coverage to their workers, and how to pay for a plan that may cost $1 trillion over 10 years.

Democrats are aiming to cover millions of uninsured Americans while reducing health-care costs that make up about a sixth of the nation’s economy. The effort to persuade voters that they are on the right track has been complicated by polls showing that Americans increasingly disapprove of the changes.

“The Republicans and the Democrats are going to spend an awful lot of money” trying to persuade voters during August, Peter Brown, assistant director of the Quinnipiac University polling institute, told reporters last week in Washington. “There’s this gigantic battle.”

‘Manufacturing’ Outrage

White House spokesman Robert Gibbs last week accused a group opposing the health-care overhaul plan of disrupting town-hall meetings by “manufacturing” outrage. And the top two Democrats in the House, Speaker Nancy Pelosi and Maryland Representative Steny Hoyer, wrote a column yesterday in USA Today decrying the disruptions.

“Drowning out opposing views is simply un-American,” wrote Hoyer and Pelosi, of California.

Burton yesterday said he believes there’s “a pretty long tradition of people shouting at politicians in America” and Obama “encourages debate.”

Even so, “if you just want to come to a town hall so you can disrupt, so that you can scream over another person, he doesn’t think that’s productive,” Burton said.

To contact the reporter on this story: Kristin Jensen in Washington at kjensen@bloomberg.net

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Obama Says Buy American Stimulus Rule Doesn’t Hurt Canada Trade

By Nicholas Johnston and Alexandre Deslongchamps

Aug. 11 (Bloomberg) -- “Buy American” rules that Congress included in the U.S. economic stimulus package don’t endanger free trade with Canada, President Barack Obama said after meeting with the leaders of Canada and Mexico.

“This has in no way endangered the billions of dollars of trade taking place between our two countries,” Obama said yesterday, noting that Canadian Prime Minister Stephen Harper raises the issue “every time I see him.”

The $787 billion stimulus measure approved in February stipulates that products purchased with the funds must be made in the U.S. That’s caused friction between the U.S. and Canada, its largest trading partner.

“It’s important to keep it in perspective,” Obama said during a news conference at the close of a two-day meeting with Harper and Mexican President Felipe Calderon in Guadalajara, Mexico. “We have not seen some sweeping steps toward protectionism.”

Along with trade issues, the leaders discussed flu-season preparations, Mexico’s battle against drug cartels, combating climate change and encouraging economic growth.

“We come here today, three nations, one continent, because of the challenges and opportunities that we will be facing together,” Obama said.

The “Buy American” provisions have prevented companies such as Ipex Inc., a Toronto-based pipe manufacturer, or Hayward Gordon Ltd., a pump and engineered-systems manufacturer in Halton Hills, Ontario, from taking part in infrastructure projects generated by the stimulus measure.

Working Collectively

“We did have a good discussion, as President Obama said,” Harper told reporters. “I’m very happy to see that our provinces and the federal government have recently come to an agreement to work collectively on this matter.”

Under the North American Free Trade Agreement, Canada’s provinces have the right to limit their government purchases to Canadian firms. The provinces have been working toward a proposal that would open up these procurements to foreign firms, with the hope that U.S. states and cities will do the same.

“There may be mechanisms where states and local jurisdictions can work with provinces to allow for cross-border procurement practices,” Obama said yesterday.

Harper said he anticipates the subject to come up when he meets with Obama again. Harper will visit Obama in Washington on Sept. 16.

Canada and the European Union led international efforts to get Congress to scale back a stimulus-bill provision saying that all the steel and manufactured goods bought with that money had to be made in America. Congress later agreed to soften that requirement, saying it would be applied in a way that complies with U.S. international obligations.

Seeking Growth

The three leaders agreed at the summit to “continue to take aggressive coordinated action” to restore economic growth in North America.

Obama also said the U.S. is a full partner with Mexico in the battle against drug cartels, and he praised Calderon’s “determination and courage” in fighting the illegal drug trade and resulting violence.

“I have great confidence in President Calderon’s administration applying the law-enforcement techniques that are necessary to curb the powers of cartels, but doing so in a way that is consistent with human rights,” Obama said.

Immigration

On his goal to overhaul U.S. immigration policies, Obama said he expects lawmakers to have completed a draft of legislation by the end of the year, setting the stage for congressional action in 2010.

“When we come back next year, we should be in a position to start acting,” said Obama, who as a U.S. senator from Illinois supported legislation to create a guest-worker program, tighten border security and set a path to legal status for millions of illegal immigrants. That bill failed.

Obama said the U.S., Mexico and Canada are united in supporting a return of democratic rule in Honduras after the ouster of President Manuel Zelaya.

Acting Honduran President Roberto Micheletti, backed by the Honduran Supreme Court, Congress and military, has refused to allow Zelaya to resume his term.

“For the sake of the Honduran people, democratic and constitutional order must be restored,” Obama said. “Our three nations stand united on this issue. President Zelaya remains the democratically elected president.”

To contact the reporters on this story: Nicholas Johnston in Guadalajara, Mexico, at njohnston3@bloomberg.net; Alexandre Deslongchamps in Guadalajara, Mexico, at 4801 or adeslongcham@bloomberg.net

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Rubber Jumps to 9-Month High as Oil Gain Boosts Demand Outlook

By Jae Hur

Aug. 11 (Bloomberg) -- Rubber soared to a nine-month high, advancing for a second day, on speculation a rally in crude oil may increase demand for the commodity used in tires amid growing optimism for a global economic recovery.

Futures in Tokyo rose as much as 4.6 percent as crude oil advanced for the first time in four days, boosting the appeal of natural rubber versus synthetic product. China’s industrial production gained 10.8 percent in July, compared with a 10.7 percent advance in June, the statistics bureau reported today.

“Crude oil prices holding above $70 a barrel have given support to rubber,” Shuji Sugata, research manager at Mitsubishi Corp. Futures & Securities Ltd., said today. Increasing car sales in China and declining rubber stockpiles in Japan have made investors reluctant to sell, he said.

January-delivery rubber rose as much as 9 yen to 205.4 yen a kilogram ($2,122 metric ton), the highest since Nov. 5, on the Tokyo Commodity Exchange and closed at 204.4 yen. The price gained 2.3 percent yesterday.

Rubber has risen 34 percent since July 13 and crude oil has gained 19 percent. Crude oil for September delivery rose 0.7 percent to $71.08 a barrel on the New York Mercantile Exchange at 3:38 p.m. Tokyo time.

China’s passenger-vehicles sales rose 70.5 percent in July to 832,596, the China Association of Automobile Manufacturers said Aug. 7. The gain was the biggest since January 2006 as tax cuts and government subsidies spurred demand. General Motors Co., the largest overseas automaker in China, and Nissan Motor Co. both intend to add capacity in the country, which is set to surpass the U.S. as the world’s largest auto market this year.

Car Industry

“With a jump in China’s car sales, and GM’s plan to use the internet to bolster car sales, the outlook for the global car industry is relatively bright,” said Takaki Shigemoto, an analyst at Tokyo-based commodity broker Okachi & Co.

General Motors will let customers buy cars and trucks online from some California dealers through EBay Inc., the operator of the most-visited U.S. e-commerce Web site. Chevrolet, Buick, GMC and Pontiac brands will be available at gm.ebay.com starting today through Sept. 8, GM and San Jose, California- based EBay said yesterday in a statement. More than 225 dealers will participate, the companies said.

A Labor Department report last week showed the U.S. jobless rate fell to 9.4 percent in July from June, the first drop since April 2008. Economists had estimated the rate would rise to 9.6 percent.

Rubber for January delivery on the Shanghai Futures Exchange, the most-active contract, added 3.1 percent to 19,405 yuan ($2,839) a ton at 2:42 p.m. local time.

To contact the reporters on this story: Jae Hur in Singapore at jhur1@bloomberg.net

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Yen Rises a Second Day as China Output Grows Less Than Forecast

By Ron Harui and Theresa Barraclough

Aug. 11 (Bloomberg) -- The yen rose for a second day against the euro and the dollar after Chinese reports showed industrial output grew less than expected and exports fell, spurring demand for the relative safety of Japan’s currency.

The yen strengthened versus all of its 16 major counterparts after China also said producer and consumer prices both dropped. The South Korean won dropped to its weakest level this month after the central bank said “uncertainties” over the economic recovery remain.

“The data indicate China’s economy may not be growing as strongly as people are hoping,” said Takashi Kudo, director of foreign-exchange sales at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “This is leading to risk aversion, with the yen being bought.”

The yen advanced to 137.18 per euro as of 8:48 a.m. in London, from 137.36 in New York yesterday, after earlier trading at 136.46, the strongest level since Aug. 5. It appreciated to 96.81 per dollar from 97.15. The euro rose to $1.4167 from $1.4140, and bought 86.10 British pence from 85.79 pence.

China’s statistics bureau said industrial production grew 10.8 percent in July, below the median estimate for a 11.5 percent gain forecast by economists surveyed by Bloomberg News. Consumer prices fell 1.8 percent and producer prices slid a record 8.2 percent. Exports dropped 23 percent from a year earlier, the customs bureau said.

Euro to ‘Struggle’

The euro rose from near a one-week low versus the dollar even after a German report showed wholesale prices declined for a ninth month, giving the European Central Bank more reason to keep borrowing costs at a record low.

German prices fell 10.6 percent in July from a year earlier, after declining 8.8 percent the previous month, the Federal Statistics Office said today in Wiesbaden.

“We suspect the euro-dollar will struggle this week, given the relatively anemic economic performance of the euro-zone,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington.

A recovery of the 16-nation euro region will take some time, ECB council member Erkki Liikanen said, according to the Finnish newspaper Uutispaeivae Demari yesterday.

Standard & Poor’s yesterday lowered Estonia’s long-term sovereign credit rating to A-, and cut Latvia’s rating to two notches below investment grade, citing the region’s recession.

Won Slumps

Korea’s won declined for a third day, its longest losing streak in four weeks, after the central bank kept the benchmark rate unchanged at a record low 2 percent today and Governor Lee Seong Tae said doubts over a recovery remain.

“The BOK may be curbing expectations of early rate hikes,” said Daniel Hui, a foreign-exchange strategist at HSBC Holdings Plc in Hong Kong. “That might also be hurting the Korean won.”

The won closed down 0.9 percent at 1,239.20 per dollar after dropping to 1,243.95, the weakest level since July 30.

Losses in the dollar were tempered by speculation U.S. reports this week will provide more evidence the world’s largest economy is emerging from recession.

U.S. retail sales rose 0.8 percent in July, after a 0.6 percent gain in June, a Bloomberg survey showed before the Commerce Department’s Aug. 13 report. Industrial production increased 0.4 percent in July, following a 0.4 percent drop in June, according to a separate Bloomberg survey before the Federal Reserve report on Aug. 14.

‘Turn Higher’

“The case is building for an eventual turn higher of the dollar,” Richard Grace, chief currency strategist in Sydney at Commonwealth Bank of Australia, wrote in a research note yesterday. “The U.S. economy is improving and the economy will likely emerge from the global recession ahead of Europe.”

U.S. policy makers will keep their benchmark interest rate as low as zero at the two-day Federal Open Market Committee meeting starting today according to all 43 economists surveyed by Bloomberg.

The Dollar Index, which the ICE uses to track the dollar against currencies of six major U.S. trading partners such as the euro, fell 0.2 percent to 79.107.

The euro is likely to weaken to 130 yen by year-end after the 16-nation currency failed to rise through so-called resistance at 141.04 yen, according to Deutsche Bank AG, citing trading patterns.

Resistance at that level represents the 50 percent retracement of the euro’s decline from last year’s high of 169.96 yen reached on July 23, to this year’s low of 112.12 on Jan. 21, based on a series of numbers known as the Fibonacci sequence. Resistance refers to levels where sell orders may be clustered. Since reaching January’s low, the euro has gained 22 percent versus the yen.

“The European currency has strengthened too quickly,” said Koji Fukaya, a senior currency strategist at the Tokyo unit of Deutsche Bank, the world’s biggest foreign-exchange trader. “It will struggle to break 140 yen.”

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net; Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net

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