Fortescue Halted in Sydney Ahead of Deal Completion

By Rebecca Keenan

Aug. 13 (Bloomberg) -- Fortescue Metals Group Ltd., Australia’s third biggest producer of iron ore, is completing a commercial negotiation and asked for shares to be halted in Sydney trading until next week.

Trading will be suspended to Aug. 17 when it expects to release a document regarding the negotiation, the Perth-based company said a statement to the Australian stock exchange. It didn’t provide details.

The company, run by Andrew Forrest, said yesterday it is reviewing financing options for planned expansions of its mine, port and rail operations in Western Australia. Fortescue is in talks with China Investment Corp. to sell convertible bonds worth $1 billion, Reuters reported this week, citing two unidentified people familiar with the deal.

Fortescue may need between $3 billion and $4 billion to proceed with plans to almost double output, Hunan Valin Iron & Steel Group, its second-largest shareholder, said in May. The mill in April put planned expansions on hold amid a cash squeeze.

Fortescue rose 2.3 percent to A$4.45 on the Australian stock exchange before the trading halt. It has more than doubled this year.

CIC, as China’s $200 billion sovereign wealth fund is known, is in talks with Fortescue to invest about $3 billion in the company, three people familiar with the deal said in February. Talks with CIC were continuing, director Chris Catlow said in March.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net;

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Space Images Forewarn of Indian Groundwater Crisis

By Jason Gale

Aug. 13 (Bloomberg) -- Orbiting satellites measuring the gravitational pull of water below the earth’s surface confirm what authorities in India suspected for more than 20 years: groundwater is shrinking in some of the nation’s driest areas.

Three northwest Indian states lost a volume of water from underground supplies equal to more than twice the capacity of Lake Mead, the biggest U.S. reservoir, between August 2002 and October 2008, scientists said in the journal Nature yesterday.

The findings suggest that pumping water from wells for irrigation is damaging India’s resources more than the government has estimated. Without measures to curb demand, dwindling groundwater supplies may cause drinking-water shortages and erode crop production in a region inhabited by 114 million people, the authors said.

“That part of northern India is really experiencing rapid groundwater decline that’s mostly human-driven,” said co-author Jay Famiglietti, associate professor of earth system science at the University of California, Irvine, in a telephone interview yesterday. “What they are doing is not sustainable.”

About a fifth of water used globally comes from under the ground, the Stockholm International Water Institute has said. Withdrawals are predicted to increase 50 percent by 2025 in developing countries, and 18 percent in developed countries, according to the policy group based in the Swedish capital.

India’s area of irrigation almost tripled to 33.1 million hectares (82 million acres) from 1970 to 1999, the authors said, spurred by the so-called Green Revolution that began in the 1960s to bolster production of wheat, rice and other staples.

River Contamination

Surface water supplies are also strained. Three-quarters of the country’s rivers, lakes and dams are contaminated by human and agricultural waste and industrial effluent, according to a report by the Ministry of Urban Development in September.

Groundwater stocks in Rajasthan, Punjab and Haryana states are being lowered at an average rate of about 4 centimeters (1.6 inches) a year, Famiglietti and colleagues said. The depletion is equal to about 17.7 cubic kilometers (4.7 trillion gallons) of water a year, exceeding the estimate of 13.2 cubic kilometers by the Ministry of Water Resources, the researchers said.

More than a quarter of the land area in the three states is irrigated accounting for about 95 percent of the groundwater consumed, they said. Levels of subsurface water also appeared to be declining in western Uttar Pradesh. That state, along with Punjab and Haryana are India’s largest wheat-producing states.

Monsoon Forecast

This year’s monsoon may be the weakest in five years, the India Meteorological Department said this week. That’s exacerbating demand for watering crops and prompted some governments to divert electricity to farms to pump water, said Sunita Narain, director of the New Delhi-based Centre for Science and Environment, who was not part of the study.

India’s government established a Central Ground Water Authority in 1986 to regulate pumping from aquifers. Groundwater hasn’t been developed evenly across India, and exploitation has led to a drop in water levels and seawater intrusion in some areas, the Ministry of Water Resources said on its Web site. Of 5,723 sites assessed, 839 are “over-exploited,” 226 are “critical” and 550 are “semi-critical.”

“I don’t think that the water issues are going to get the attention they deserve until we reach crisis mode,” Famiglietti said. “In that part of India, they are certainly reaching crisis mode.”

Pumping costs are being ratcheted up by the falling water table and the need to drill deeper wells, said Steven Gorelick, professor of earth sciences at California’s Stanford University.

Cost of Pumping

“The problem of declining groundwater levels will become self-limiting at some point,” Gorelick said in an e-mail yesterday. “Use will curtail when it is simply too costly to pump the water to the surface from great depths, or when the quality of deeper and deeper groundwater is no longer suitable.”

Famiglietti and colleagues used hydrological modeling and data from the Gravity Recovery and Climate Experiment, or Grace, to quantify groundwater losses over more than six years. Groundwater depletion over the study period was equivalent to a net loss of 109 cubic kilometers of water, which is enough to fill India’s largest surface-water reservoir twice and Lake Mead almost three times, the authors said.

Grace’s twin satellites, launched in March 2002, detect subtle changes in the earth’s gravity field influenced by the motion of water and air. The satellites detect relative differences in gravitational pull since they occupy different positions in space, according to the mission’s Web site.

Across Borders

“What is remarkable about this study is that such small declines in groundwater levels can be detected using remote sensing based on Grace satellite data,” said Gorelick. “The approach is like trying to track new construction of urban skyscrapers by sequentially measuring the average elevation of an entire city.”

The technique will enable scientists to gauge water levels in aquifers that cross international borders, Famiglietti said.

“This is the first time that we have been able to go into the region with essentially no data on the ground and be able to come up with a pretty reasonable number for the rate of groundwater depletion,” he said. “We have the power now to be able to get that holistic synoptic of view of what’s going on over a large area.”

To contact the reporter on this story: Jason Gale



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China’s Mills Should Refrain From Expansion for Three Years

By Bloomberg News

Aug. 13 (Bloomberg) -- Steelmakers in China, the world’s largest producer, should refrain from expansion for the next three years to curb overcapacity, the industry minister said.

Steelmakers have the capacity to produce 660 million metric tons of steel a year, more than annual demand of 470 million tons, Li Yizhong, minister of industry and information technology said today in a televised press briefing in Beijing.

“China’s iron and steel industry is the worst in the country in terms of excess capacity,” Li said. “Plans to purely expand capacity of mills won’t be approved. I would like to call on the industry: No new projects for three years.”

The Asian nation is trying to stop a supply glut from stalling a price and profit revival for larger mills including Baosteel Group Corp. Excess production by high energy-consuming and polluting small mills has also led to the over-importing of the raw material iron ore and raised costs, the China Iron & Steel Association said last month.

“The overcapacity in the steel industry would stir a price war, hurting profits of the mills,” said Hu Yanping, an analyst at Umetal Research Institute. “But if this is just Li’s personal appeal, the effect would be very limited.”

Li’s comments that the ministry won’t approve capacity expansion echoes a government policy set in 2005, which said it won’t allow expansion plans unless older plants with similar capacity were closed.

About 35 percent of installed hot-rolled wide strip capacity in China was built without state approval, Umetal’s Hu said.

To contact the reporters on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net; Eugene Tang in Beijing at eugenetang@bloomberg.net

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Rubber Soars to 10-Month High as Oil Rally May Increase Demand

By Jae Hur

Aug. 13 (Bloomberg) -- Rubber jumped to a 10-month high as crude oil’s gains for a second day amid growing optimism of a global economic recovery may boost demand for the commodity used to make tires.

Futures in Tokyo added as much as 4.4 percent to the highest since Oct. 9 as oil extended gains after U.S. equities increased and the Federal Reserve said the recession is easing and pledged to keep interest rates low. A rise in oil prices boosts the appeal of natural rubber against synthetic product.

“Rubber got a boost from higher crude oil prices and relatively higher Shanghai futures,” said Takaki Shigemoto, an analyst at Tokyo-based commodity broker Okachi & Co.

January-delivery rubber rose as much as 8.9 yen to 209.9 yen a kilogram ($2,183 a metric ton) on the Tokyo Commodity Exchange. The price, which fell 1.7 percent yesterday, ended up 4 percent at 209 yen.

Rubber in Tokyo has risen 54 percent this year as crude oil has gained 59 percent and car sales in China have jumped. Crude oil for September delivery added 1.1 percent to $70.90 a barrel on the New York Mercantile Exchange after gaining 1 percent yesterday.

The MSCI Asia Pacific Index gained 1.6 percent to 112.92 as of 3:32 p.m. in Tokyo after the Standard & Poor’s 500 Index advanced 1.2 percent as the Fed said the economy is “leveling out” and that the benchmark interest rate will stay “exceptionally low” for an “extended period.”

Shanghai Prices

Rubber for January delivery on the Shanghai Futures Exchange, the most-active contract, rose for a fourth day, gaining 1.5 percent to 19,665 yuan ($2,878) a ton by 2:35 p.m. local time. The most-active contract has jumped 82 percent this year.

There’s speculation that some funds have been buying Shanghai rubber futures, prompting traders to purchase physical material from producing countries and Japan to take advantage of higher local prices, prompting an increase in stockpiles in Shanghai, said Shigemoto.

Rubber inventories expanded 6,644 tons to 62,778 tons, based on a survey of 10 warehouses in Shanghai, Shandong, Yunnan, Hainan and Tianjin, the exchange said Aug. 7. That was the sixth straight weekly increase and up 52 percent from 41,393 tons on June 25.

“Current inventory levels in Shanghai are believed well above the actual demand in the country,” Shigemoto said. “The market may plunge at some point if current speculative funds start unwinding their bets” on a price rise, he said.

Hyundai Motor Co. boosted sales in China 66 percent in the first seven months of the year to 300,816 vehicles, Xinhua said, citing the automaker.

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

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Kloppers Says BHP Has No Plans to Give Investors Cash

By Jennifer Joan Lee and Brett Foley

Aug. 13 (Bloomberg) -- BHP Billiton Ltd. Chief Executive Officer Marius Kloppers said the world’s largest mining company doesn’t have plans to return any surplus cash to shareholders.

“At this point in time we have no plans to return any surplus cash,” Kloppers said in a Bloomberg Television interview in London yesterday. “We believe we have good plans to put that money to work in our business.”

The Melbourne-based company plans $10.7 billion of capital expenditure this year and will spend $5.8 billion to create an iron ore venture with Rio Tinto Group, Kloppers said. It’s also studying potential acquisitions, including some in oil and gas, and will spend “billions of dollars” in coming years to develop the Jansen potash project in Canada, he said.

The company yesterday posted second-half net income of $3.26 billion, a drop of 65 percent from a year earlier, beating the $3.1 billion median estimate of six analysts surveyed by Bloomberg. Net operating cash flow was a record $18.9 billion.

Declines in metal prices also cut profit at Brazilian rival Vale SA by 84 percent in the second quarter and at Switzerland’s Xstrata Plc by 77 percent in the first six months of the year. Xstrata’s operating cash flow slid to $819 million in the second half from $3.1 billion.

‘Financial Clout’

“The scale and financial clout which BHP enjoys over its peer group is clearly evident when you compare its result to that of its smaller rival Xstrata,” said Cameron Peacock, a Melbourne-based analyst at IG Markets. “To produce a record net operating cash flow of $18.9 billion against the backdrop of the global financial crisis is certainly impressive.”

BHP, which increased its full-year dividend 17 percent, gained 0.7 percent to A$38.26 at the 4:10 p.m. Sydney time close on the Australian stock exchange. The stock has gained 26 percent this year compared with the 19 percent gain in the benchmark S&P/ASX 200 Index.

Kloppers, 46, cut output of some metals and eliminated jobs after commodity prices slumped in the second half of 2008.

BHP, which suspended a share buyback in December 2007, scrapped a hostile bid for London-based Rio last November. The transaction would have been the first major acquisition since BHP bought WMC Resources Ltd. for $7.6 billion in 2005.

In addition to the acquisition opportunities it’s studying, BHP plans to become one of the world’s biggest potash producers by developing Canadian assets, Kloppers said. It spent $95 million developing Jansen, which will have an annual capacity of 8 million metric tons of potash, he added.

Portfolio Diversification

“We think that it would round out the diversification of our portfolio nicely,” he said referring to the fertilizer. “It has a different set of drivers and hence would fit well.”

The company’s iron ore unit, the biggest earner in the year ended June 30, accounted for about 20 percent of sales. BHP’s base metals unit, which includes copper, silver, lead and uranium, suffered a 52 percent drop in sales, making it the fourth-biggest earner, down from the biggest previously.

Iron ore producers agreed this year with some steelmakers to cut annual contract prices for the first time in seven years. Talks with Chinese mills, the biggest buyers, are continuing.

BHP said yesterday it had $6 billion of exceptional items in the fiscal year ended June 30, including $3.6 billion for the suspension of the Ravensthorpe mine, $510 million for the sale of the Yabulu refinery and $450 million for the lapsed offer for Rio.

Commodity prices have rallied 15 percent this year as the global recession abates. The rebound may be extended into next year, Nouriel Roubini, the New York University economist who predicted the financial crisis, said on Aug. 3.

China bought record volumes of oil and iron ore in July as automakers, steel producers and builders expanded output to meet rising demand. Oil imports jumped 18 percent and iron ore purchases rose 5 percent, the country’s customs office said on Aug. 11.

For Related News and Information: To see more on BHP: BHP AU CN To see more metal news: METT

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Soybean Futures Rise as USDA Lowers Global Inventory Estimate

By Luzi Ann Javier

Aug. 13 (Bloomberg) -- Soybean futures rose for a third day after the U.S. reduced its estimate on global stockpiles and reported sales of 113,000 metric tons of the American oilseed to China, signaling strong demand for the commodity.

The U.S. Department of Agriculture yesterday cut its estimate for soybean global ending inventories next year to 50.3 million metric tons, down 3 percent from the July forecast of 51.8 million tons, and lowered output projections for the U.S., the world’s biggest grower and exporter, and China.

“The figures coming through just continue to support the higher prices for soybeans,” Ben Barber, a futures adviser at Bell Commodities Ltd., said by phone from Melbourne today.

Soybeans for November delivery gained as much as 1 percent to $10.545 a bushel in after-hours electronic trading on the Chicago Board of Trade, before trading at $10.5225 at 2:35 p.m. Singapore time.

U.S. exporters sold 113,000 tons of soybeans to China, the biggest importer, for delivery in the marketing year beginning Sept. 1, the USDA said yesterday. The total included 58,000 tons earlier reported as being sold to unknown buyers.

Exporters are required in the U.S. to report any transaction of 100,000 tons or more for any commodity sold in one day to a single destination.

The USDA cut its U.S. soybean production forecast by 1.9 percent to 87.1 million tons, or 3.199 billion bushels, in the 2009-2010 marketing year.

China’s Inventories

Next year’s inventory forecast for China was reduced 2.8 percent to 7.06 million tons as excessive moisture in the northeast curbs yields.

“Soybeans may drag corn and wheat prices a little bit higher,” Bell’s Barber said.

Corn for December delivery rose 0.9 percent to $3.3925 a bushel at 2:43 p.m. Singapore time, extending yesterday’s 1.6 percent gain.

Global corn trade will rise faster next year, the USDA said, boosted by import demand in Mexico and Taiwan. The global trade forecast was raised to 84.48 million tons next year, from 81.73 million tons projected in July. That compares with an estimated 80.66 million tons in the 2008-2009 marketing year.

Wheat for December delivery fell as much as 0.7 percent to $5.14 a bushel before trading unchanged at $5.1775 a bushel.

The USDA forecast global wheat inventories next year at 183.56 million tons, up 1.3 percent from its July outlook. The production forecast for the U.S., the world’s biggest exporter, was raised by 3.4 percent to 59.4 million tons, or 2.18 billion bushels, as yields rise.

Korean Purchase

In the export market, South Korea’s Major Feedmill Group purchased 110,000 tons of U.S. corn for feed production through private negotiations yesterday, according to two industry executives who were familiar with the trade. The volume was in addition to the Korea Feed Association’s purchase of 55,000 tons in a tender yesterday.

Corn for May delivery on the Dalian Commodity Exchange gained as much as the 4 percent daily limit from the previous settlement price to 1,736 yuan ($254) a ton, the highest level since Sept. 26, before trading at 1,725 yuan at 2:57 p.m. local time.

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

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Japan Stocks Rise on U.S. Rate Outlook; Kawasaki Heavy Advances

By Masaki Kondo

Aug. 13 (Bloomberg) -- Japanese stocks rebounded from their biggest decline in a month yesterday after the U.S. Federal Reserve said it will keep its benchmark interest rate low.

Honda Motor Co., which gets almost half its sales in North America, climbed 1.3 percent. Toray Industries Inc. gained 6 percent after the Nikkei newspaper said it developed an insulin nasal spray. Kawasaki Heavy Industries Ltd., which makes bullet trains, jumped 6.9 percent after the Nikkei separately reported that Vietnam will use Japan’s high-speed-train technology.

The Nikkei 225 Stock Average added 82.19, or 0.8 percent, to close at 10,517.19 in Tokyo. The broader Topix index rose 8.54, or 0.9 percent, to 968.41, with seven stocks gaining for every two that fell. Yesterday, both gauges dropped the most in a month.

“The Fed’s commitment to a low interest rate eased concern higher borrowing costs will hamper the U.S. economic recovery,” said Mitsushige Akino, who oversees the equivalent of $624 million at Ichiyoshi Investment Management Co. “Some players such as individuals are continuing to buy and sell stocks based on a short-term view, but big investors probably won’t shift serious money invested with a long-term strategy.”

The Nikkei has risen 49 percent since a more than quarter- century low on March 10, keeping its estimated price-earnings ratio at the highest level among benchmark indexes of the world’s biggest equity markets, according to data compiled by Bloomberg. At the same time, the number of shares traded on the main board of the Tokyo Stock Exchange has held below this year’s daily average for more than a week.

Low Interest Rates

In New York, the Standard & Poor’s 500 Index rebounded 1.2 percent yesterday from its biggest decline in a month the day before. The Fed said the benchmark interest rate will stay “exceptionally low” for an “extended period” and said the recession is easing. The Fed’s Open Market Committee left the rate between zero and 0.25 percent after its two-day meeting.

Toyota Motor Corp., the world’s biggest automaker, rose 1.5 percent to 4,090 yen, while smaller rival Honda Motor Co. advanced 1.3 percent to 3,080 yen. Denso Corp., a car-parts maker affiliated with Toyota, gained 3.4 percent to 2,875 yen after Mitsubishi UFJ Financial Group Inc. lifted the stock to “strong outperform” from “market perform.”

Kawasaki Heavy climbed 6.9 percent to 263 yen, the steepest increase in the Nikkei. Nippon Sharyo Ltd., a maker of train cars, gained 8.9 percent to 652 yen. Kinki Sharyo Co. added 8.7 percent to 913 yen.

Bullet Trains

Vietnam Railways Corp. will use Japan’s bullet-train technology for a planned $56 billion link connecting Hanoi and Ho Chi Minh City, the Nikkei newspaper reported, citing an interview with Chief Executive Officer Nguyen Huu Bang. The Vietnamese government aims to build the line in sections and start running high-speed trains by 2020, the report said.

Toray rallied 6 percent to 568 yen, the highest close since Sept. 19. Toray and Japan’s Hoshi University developed an insulin spray for treating diabetes, the Nikkei said. A team of researchers plans to tie up with a drugmaker to begin clinical trials of the treatment, the Nikkei reported, without saying where it obtained the information.

T&D Holdings Inc., Japan’s largest listed life insurer, sank 1.6 percent to 3,070 yen, sending a gauge of insurers to the biggest decline among the Topix’s 33 industry groups. Pretax profit dropped by a fifth in the quarter to June 30 as proceeds from sales of securities holdings inflated income a year earlier, the company said.

Nikkei futures expiring in September added 1 percent to 10,540 in Osaka and gained 1.1 percent to 10,540 in Singapore.

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

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Asian Stocks Climb as Federal Reserve Says Recession Is Easing

By Patrick Rial and Shani Raja

Aug. 13 (Bloomberg) -- Asian stocks rose, driving the MSCI Asia Pacific Index to its biggest gain this month, after the U.S. Federal Reserve said the recession is easing and pledged to keep interest rates low.

James Hardie Industries NV, the No. 1 seller of home siding in the U.S., surged 9.9 percent in Sydney. Commonwealth Bank of Australia, the nation’s largest lender, gained 4.9 percent after Macquarie Group Ltd. lifted its recommendation on the stock, citing the potential for an earnings recovery. Billionaire Li Ka-shing’s Hutchison Whampoa Ltd. and Cheung Kong (Holdings) Ltd. advanced more than 1 percent in Hong Kong on better-than- estimated earnings.

“With earnings and economic data coming in better than expected, there’s an element of panic buying going on,” said Prasad Patkar, who helps manage the equivalent of $1.2 billion at Platypus Asset Management in Sydney. “The market’s full of reluctant bulls praying for the market to pull back because they want to deploy cash at better levels.”

The MSCI Asia Pacific Index gained 1.6 percent to 112.92 as of 3:56 p.m. in Tokyo, the biggest advance since July 31. The gauge has climbed 60 percent from a five-year low on March 9 amid speculation the global economy is recovering. Stocks in the measure are valued at an average 24.5 times estimated profit, compared with 17 times for the MSCI World Index.

Japan’s Nikkei 225 Stock Average added 0.8 percent. Citizen Holdings Co. climbed 4.7 percent after posting a smaller-than- estimated loss. Kawasaki Heavy Industries Ltd. climbed 6.9 percent after the Nikkei newspaper said Vietnam will use Japan’s bullet-train technology. Indonesia’s PT Bumi Resources rose 6 percent as oil and commodities prices climbed.

Low Interest Rates

In Hong Kong, Hutchison Telecommunications International Ltd. sank 8.1 percent on plans to sell a stake in an Israeli company, while Tencent Holdings Ltd., the operator of China’s biggest Internet-chat service, climbed 4.8 percent to a record on higher earnings.

Futures on the Standard & Poor’s 500 Index added 0.5 percent. The gauge climbed 1.2 percent yesterday as the Fed said the economy is “leveling out” and that the benchmark interest rate will stay “exceptionally low” for an “extended period.” The Fed’s Open Market Committee left the rate between zero and 0.25 percent after a two-day meeting.

James Hardie soared 9.9 percent to A$5.55. The stock also rose after Toll Brothers Inc., the biggest U.S. luxury home builder, posted sales that topped estimates yesterday.

Hon Hai Precision Industry Co., the world’s No. 1 contract electronics company and maker of Apple Inc.’s iPhone, advanced 3.8 percent to NT$110 in Taipei. Hyundai Motor Co., South Korea’s biggest automaker, added 2.8 percent to 92,900 won after saying it expects to boost sales in the U.S.

U.S. Recovery

“The Fed’s commitment to a low interest rate eased concern higher borrowing costs will hamper the U.S. economic recovery,” said Mitsushige Akino, who oversees the equivalent of $624 million at Ichiyoshi Investment Management Co.

Denso Corp., Japan’s largest maker of auto parts and a supplier to U.S. carmakers, jumped 4.5 percent to 2,905 yen after Mitsubishi UFJ Financial Group Inc. raised the stock to “strong outperform.”

Commonwealth Bank rose 4.9 percent to A$47.53. The shares were raised to “neutral” from “underperform” by Tom Quarmby, an analyst at Macquarie. The bank reported an 11 percent decline in second-half profit yesterday, beating analyst estimates.

Westpac Banking Corp. rose 3.9 percent to A$24.25, while National Australia Bank Ltd. added 4.3 percent to A$26.95.

Beating Estimates

Hutchison, billionaire Li’s biggest company, gained 1.3 percent to HK$57.60, while Cheung Kong, Hutchison’s largest shareholder and the world’s second-largest real estate developer, added 1.2 percent to HK$97.05 after their better-than-estimated profit reports.

Citizen gained 4.7 percent to 534 yen. The company reported a 1.3 billion yen operating loss yesterday for the three months to June 30. The watchmaker’s electronic device division and cost-cutting efforts are performing better than predicted, according to JPMorgan Chase & Co., which has an “overweight” rating on the stock.

A third of the 477 companies in the MSCI Asia Pacific Index that have reported quarterly results in the latest earnings season have beaten analysts’ profit estimates, while 17 percent have missed, according to data compiled by Bloomberg.

That’s helped the benchmark rise 9.3 percent since the end of June.

Train-related stocks in Japan gained after the Nikkei newspaper reported Vietnam Railways Corp. will use the country’s bullet-train technology for a planned link connecting Hanoi and Ho Chi Minh City. The Vietnamese government aims to build the line in sections and start running high-speed trains by 2020, the report said.

Energy Stocks Gain

Kawasaki Heavy, which makes high-speed trains, surged 6.9 percent to 263 yen, the steepest gain in the Nikkei 225. Kinki Sharyo Co., a rival producer, advanced 8.7 percent to 913 yen.

A gauge of the MSCI Asia Pacific Index’s energy stocks posted the biggest gain of the broader measure’s 10 industry groups after crude oil added 1 percent in New York yesterday, breaking a four-day losing streak. Futures rose 0.9 percent in after-hours trading. Copper jumped 3.2 percent yesterday.

Bumi Resources, Asia’s largest exporter of power-station coal, jumped 6 percent to 3,100 rupiah. Origin Energy Ltd., an Australian oil and gas explorer, rose 2.7 percent to A$15.07. Fortescue Metals Group Ltd., Australia’s No. 3 iron-ore producer, added 2.3 percent to A$4.45.

Hutchison Telecommunications, the emerging-market phone carrier controlled by billionaire Li Ka-shing, sank 8.1 percent to HK$1.86 after the company agreed to sell its controlling stake in Israel’s Partner Communications Ltd. HSBC Holdings Plc slashed to shares to “underweight” from “overweight” saying the deal limits the potential for a special dividend payout.

Tencent rallied 4.8 percent to HK$118.50. The company reported an 85 percent increase in second-quarter profit yesterday.

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

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Nokia Downgraded to ‘Neutral’ From ‘Buy’ at Goldman Sachs

By Stephen Kirkland

Aug. 13 (Bloomberg) -- Nokia Oyj, the world’s biggest maker of mobile phones, was downgraded to “neutral” from “buy” at Goldman Sachs Group Inc., which lowered its 2010-2011 earnings- per-share estimates by about 15-18 percent, according to a research report.

“Over the next 12 months a lack of compelling new high-end products and ongoing mid-end smartphone share loss means risk- reward is not compelling relative to our bullish view on the European technology coverage universe,” according to the report.

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German Stocks Advance as Economy Unexpectedly Grows; Banks Gain

By Julie Cruz

Aug. 13 (Bloomberg) -- German stocks advanced for a second day as the economy unexpectedly grew in the second quarter, signaling an end to the worst recession since World War II.

The benchmark DAX Index added 0.7 percent to 5,387.24 as of 9:15 a.m. in Frankfurt. The measure has rallied 47 percent since March 6 as companies worldwide from Goldman Sachs Group Inc. to Apple Inc. and Bayer AG reported better-than-estimated earnings and economic data indicated a global improvement. The broader HDAX Index gained 0.7 percent today.

Gross domestic product rose a seasonally adjusted 0.3 percent from the first quarter, Germany’s Federal Statistics Office in Wiesbaden said today. The French economy also expanded 0.3 percent, Finance Minister Christine Lagarde said. Economists predicted contractions of 0.3 percent in Germany and a 0.2 percent in France, Bloomberg News surveys showed.

Deutsche Bank AG and Commerzbank AG, Germany’s biggest lenders, added 1.6 percent to 46.37 euros and 1.8 percent to 6.09 euros, respectively. Allianz SE, Europe’s largest insurer by market value, climbed 1.7 percent to 76.48 euros.

RWE AG gained 1.1 percent to 60.17 euros. Germany’s second- largest utility said profit rose 4.7 percent in the first half after the company locked in power tariffs at levels set before the recession. Earnings adjusted for swings in fuel prices increased to 2.23 billion euros ($3.17 billion) from 2.13 billion euros a year earlier.

Salzgitter AG dropped 2 percent to 67.30 euros. Germany’s second-largest steelmaker reported a second-quarter net loss of 90.9 million euros. Analysts surveyed by Bloomberg estimated a loss of 62.1 million euros.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net.

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U.K. Stocks Rise, Led by Mining Companies; Prudential Climbs

By Adam Haigh

Aug. 13 (Bloomberg) -- U.K. stocks rose for a second day after Prudential Plc posted a narrower first-half loss and raw- material producers rallied as metal prices climbed.

Prudential added 2.5 percent after the U.K.’s biggest insurer by market value said U.S. sales increased and the value of securities held by the unit climbed. Rio Tinto Group and BHP Billiton Ltd. gained as copper rallied on the London Metal Exchange.

The benchmark FTSE 100 Index gained 20.88, or 0.4 percent, to 4,737.64 as of 8:19 a.m. in London. The FTSE All-Share Index rose 0.5 percent and Ireland’s ISEQ Index advanced 1 percent.

The FTSE 100 has rebounded 35 percent since March 3 amid speculation the worst of a global economic slowdown is past and as companies from GlaxoSmithKline Plc to Aviva Plc posted results that beat estimates.

Prudential gained 2.2 percent to 488.6 pence. The net loss narrowed to 129 million pounds ($213.9 million) from 355 million pounds a year earlier. Operating profit, measured by so-called European embedded value, fell 7.7 percent to 1.25 billion pounds, beating the 1.19 billion-pound median estimate of six analysts surveyed by Bloomberg.

The insurer’s U.S. “retail sales were the highest in any first half in its history,” Chief Executive Officer Mark Tucker said in a statement.

Rio Tinto, the world’s third-largest mining company, added 3.1 percent to 2,384.5 pence. BHP Billiton, the biggest, gained 2.5 percent to 1,594.5 pence. Copper, lead, nickel, tin and zinc climbed in London.

Thomas Cook Group Plc slid 4.8 percent to 219 pence after Europe’s second-biggest tour operator said its nine-month loss widened, partly because of the affect of swine flu on summer bookings.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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Aegean Marine, Harris, LDK Solar, Regions: U.S. Equity Preview

By Lu Wang

Aug. 13 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

Aegean Marine Petroleum Network Inc. (ANW US): The Piraeus, Greece-based supplier of fuel for ships posted second-quarter profit excluding some items of 28 cents a share, exceeding the average analyst estimate by 33 percent.

Bank of America Corp. (BAC US): Paulson & Co., the hedge fund run by billionaire John Paulson, bought 168 million shares of Bank of America in the second quarter, a regulatory filing showed, becoming the lender’s fourth-largest shareholder.

Paulson also bought 35 million shares in Regions Financial Corp. (RF US), to become the second-largest stakeholder in the Alabama bank.

China Housing & Land Development Inc. (CHLN US): The apartment developer in China’s northwestern city of Xi’an said it had a loss of 32 cents a share in the second quarter because of a charge related to the revaluation of derivatives and warrants.

Harris Corp. (HRS US): The maker of military radios boosted the low end of its earnings forecast, saying it now expects at least $3.40 a share in fiscal 2010.

LDK Solar Co. (LDK US): The Chinese maker of silicon wafers used in solar power cells reported a second-quarter loss that was wider than analysts expected on costs to write down the value of products held in inventory.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

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Paulson Hedge Fund Buys Banks That Lost Value in Credit Crisis

By Saijel Kishan and Cristina Alesci

Aug. 13 (Bloomberg) -- John Paulson, the hedge-fund manager whose wagers against the U.S. housing market helped him earn an estimated $2.5 billion last year, bought Bank of America Corp. and Goldman Sachs Group Inc. stock in the second quarter, while adding to stakes in gold companies.

His firm, Paulson & Co., bought 168 million shares of Charlotte, North Carolina-based Bank of America valued at $2.2 billion as of June 30, according to a filing yesterday with the U.S. Securities and Exchange Commission. It was the biggest new purchase in the second quarter for Paulson, 53, and made him the bank’s fourth-largest owner.

“It’s ironic because he was the one that made the right call shorting subprime,” said Jerome Dodson, who oversees $2.5 billion at Parnassus Investments in San Francisco. “His timing is good but he probably won’t be as successful with this purchase as he was with betting the housing market would collapse.”

Paulson, who manages about $29 billion, last year started a hedge fund, called Paulson Recovery fund, to invest in financial firms hurt by mortgage writedowns. He boosted investments in gold companies this year to help mitigate potential inflation as governments worldwide increase spending to help their economies recover from recession. Gold has gained 7.7 percent this year.

Stefan Prelog, a spokesman for New York-based Paulson, declined to comment on the filing.

Bank Stocks

Bank of America gained 94 percent in the second quarter as concern the government would take an ownership stake eased amid signs of an improving economy. Paulson also bought 2 million shares of Goldman Sachs, the New York-based investment bank, in the period.

He ended the quarter with 7 percent of the UltraShort Financials ProShares exchange-traded fund, which is used by investors who expect bank shares to decline. The fund declined 57 percent in the quarter as the Dow Jones U.S. Financials Index rose 29 percent. Paulson’s 2 million shares were valued at $84 million on June 30.

Bank of America is the second-largest home lender, trailing Wells Fargo & Co., after acquiring Countrywide Financial Corp. last year. Countrywide lost $703.5 million in 2007 and almost collapsed under the weight of defaulting subprime mortgages.

Paulson’s filing came a day after Timothy Barakett, founder of the $5.5 billion Atticus Capital LP, said he was closing his $3.5 billion Atticus Global Fund to spend more time with his family and concentrate on philanthropic interests. Atticus bought Bank of America shares valued at $355 million in the second quarter, according to a regulatory filing on Aug. 10.

Betting on Gold

Paulson’s stake in the bank is the fund’s second-biggest holding after SPDR Gold Trust. He left unchanged his 9 percent stake in the investment fund that buys gold bullion, according to the filing.

His firm became the largest holder of Johannesburg-based gold producer AngloGold Ashanti Ltd. after buying 40 million shares to end the quarter with a 12 percent stake. Paulson also increased his stake in Johannesburg-based Gold Fields Ltd., becoming the third-largest owner of its U.S.-listed shares.

The fund reduced its stake in Market Vectors Gold Miners ETF, a fund that mirrors moves in the Amex Gold Miners Index, after selling 11 million shares. He owned a 5.3 percent stake in the fund in the second quarter valued at $227 million, down from 15 percent in the first three months of the year.

The hedge fund manager left unchanged a 4.4 percent stake in mining firm Kinross Gold Corp., according to the filing.

Paulson’s Pay

Paulson earned an estimated $2.5 billion last year, according to Institutional Investor’s Alpha Magazine. His Credit Opportunities Fund soared almost sixfold in 2007 on bets that subprime mortgages would plummet. Last year, his flagship fund returned 37 percent, compared with a loss of 19 percent for hedge funds on average.

Money managers who oversee more than $100 million in equities must file a Form 13F within 45 days of each quarter’s end to list their U.S.-traded stocks, options and convertible bonds. The filings don’t show non-U.S. securities or how much cash the firms hold.

Paulson reported holdings valued at $17.1 billion at the end of June compared with $9.3 billion at the end of the first quarter. He placed bets during the quarter on companies including Sun Microsystems Inc. and Wyeth that are takeover targets.

Paulson bought 74 million shares of Santa Clara, California-based Sun Microsystems, which is being taken over by Oracle Corp. for $7.4 billion. The new purchase was his second- largest in the second quarter, according to the filing.

The hedge fund increased its stake in Madison, New Jersey- based Wyeth, which is set to be acquired by Pfizer Inc., by buying 18 million shares of the drugmaker, according to the filing.

Paulson also increased his stake in Schering-Plough Corp. after buying 44 million shares in the Kenilworth, New Jersey- based firm. Schering-Plough agreed in March to be taken over by Merck & Co.

To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net;

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