Leading Economic Index May Show U.S. Recession Is Close to Over

By Bob Willis

Aug. 20 (Bloomberg) -- The index of U.S. leading economic indicators probably climbed in July for a fourth consecutive month, another sign the worst recession in seven decades is almost over, economists said before a report today.

The Conference Board’s gauge of the economic outlook for the next three to six months rose 0.7 percent for a second month, according to the median forecast of 52 economists surveyed by Bloomberg News. Other reports may show first-time jobless claims fell and manufacturing in the Philadelphia region contracted at a slower pace.

Fewer job losses, rising stock prices and a renewal of factory output all indicate government efforts to stem the financial crisis and revive the economy are paying off. Even so, a jobless rate forecast to reach 10 percent and falling home values are a reminder that any expansion will be muted as consumers rein in spending and boost savings.

“Signs abound that the deepest recession since the Great Depression is nearing an end,” said Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “The worst is clearly over, but there are still a number of hurdles to jump before a self-sustaining recovery takes hold.”

The New York-based Conference Board’s index is due at 10 a.m. Survey estimates ranged from gains of 0.1 percent to 1 percent. An increase would mark the first time the index has climbed for four straight months since 2004.

Jobless Claims

Five of the 10 indicators in today’s report probably added to the index while two subtracted from it and three were little changed, according to Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado.

A drop in jobless claims, a positive spread between long- and short-term interest rates, a longer factory workweek, faster supplier deliveries and stock prices contributed to the gain, Englund predicted. Decreases in consumer expectations and the money supply limited the gain, he said.

New applications for unemployment benefits fell to an average of 559,000 in July from 616,000 in June. The Labor Department will report at 8:30 a.m. in Washington that claims dropped to 550,000 last week from 558,000 the week before, according to economists surveyed by Bloomberg.

The factory workweek rose to 39.8 hours in July, the highest since January, from 39.5 in June, the Labor Department said Aug. 7. Automotive plants are boosting output in response to signs that demand is recovering as they benefit from government incentives of up to $4,500 for consumers who trade in gas guzzlers for fuel-efficient vehicles.

Auto Industry

General Motors Co. this week called back 1,350 union workers, its biggest one-time increase in jobs since 2006, as it boosts second-half production, partly in response to demand from the Obama administration’s “cash for clunkers” program. Ford Motor Co. last week said it is boosting factory output by 26 percent in the second half of the year to meet rising demand created by the trade-in program.

Separately, the Federal Reserve Bank of Philadelphia may say at 10 a.m. that its factory gauge rose to minus 2 this month from minus 7.5 in July, according to the survey, signaling that the industry shrank at a slower pace.

A 1 percent gain in the average level of the Standard & Poor’s 500 Index in July from the prior month contributed to the leading index. The S&P 500 has soared 47 percent since March 9 -- when it reached its lowest level in more than 12 years -- as data signaled the economy may be turning around.

At the same time, consumer expectations for the next six months fell in July and continued falling this month, according to the Reuters/University of Michigan survey of sentiment released last week.

Building Permits

Building permits -- a sign of future construction -- unexpectedly fell 1.8 percent in July, Commerce Department figures showed, a reminder that any recovery in the housing market will be choppy.

Seven of the 10 indicators for the leading index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times.

The Conference Board estimates new orders for consumer goods, bookings for capital goods, and the money supply adjusted for inflation.

Economists surveyed by Bloomberg this month said the economy will grow at an average 2.1 percent pace in the second half of this year after contracting over the previous 12 months. The anticipated expansion won’t be enough to prevent the unemployment rate from reaching 10 percent for the first time since 1983, the survey also showed.

The recession may already be over, according to Edward McKelvey, a senior economist at Goldman Sachs Group Inc. in New York. A July gain in industrial production, the first in nine months, and the likelihood that output will keep growing because of depleted inventories is “the best” sign the contraction is over, McKelvey wrote in an e-mail to clients on Aug. 18.

Nonetheless, he said, “a lot has to happen before we can state this conclusion with conviction.”

                        Bloomberg Survey

===============================================================
                          Initial    Cont.   Philly      LEI
                           Claims   Claims      Fed
                           ,000’s   ,000’s    Index     MOM%
===============================================================

Date of Release              08/20    08/20    08/20    08/20
Observation Period          15-Aug    8-Aug     Aug.     July
---------------------------------------------------------------
Median                         550     6215     -2.0     0.7%
Average                        553     6224     -1.6     0.6%
High Forecast                  570     6300      4.0     1.0%
Low Forecast                   535     6150    -13.7     0.1%
Number of Participants          39       15       52       52
Previous                       558     6202     -7.5     0.7%
---------------------------------------------------------------
4CAST Ltd.                     555     ---       3.0     0.7%
Action Economics              ---      ---      -2.0     0.6%
AIG Investments               ---      ---      -5.0     1.0%
Ameriprise Financial Inc       540     6200      2.0     0.6%
Argus Research Corp.          ---      ---      -8.0     0.6%
Banesto                        560     ---      -2.4     0.3%
Bank of Tokyo- Mitsubishi      550     ---      -4.9     0.1%
Bantleon Bank AG              ---      ---      -2.0     0.7%
Barclays Capital               550     ---      -1.0     0.7%
BBVA                           549     6181     -4.7     0.5%
BMO Capital Markets            540     ---      -3.0     0.6%
BNP Paribas                    545     ---      -3.5     0.5%
Briefing.com                   550     ---       1.0     0.6%
Calyon                        ---      ---      -2.0     ---
Capital Economics             ---      ---       2.0     ---
Citi                           565     6240     -2.0     0.8%
ClearView Economics           ---      ---      -3.0     ---
Commerzbank AG                 560     ---       0.0     0.4%
Credit Suisse                  565     ---      ---      0.8%
Daiwa Securities America      ---      ---      ---      0.7%
Danske Bank                   ---      ---       0.0     ---
DekaBank                      ---      ---       3.0     0.7%
Desjardins Group               552     ---      -2.5     0.6%
Deutsche Bank Securities      ---      ---      -5.0     0.7%
Deutsche Postbank AG          ---      ---      ---      0.7%
DZ Bank                       ---      ---      -2.0     0.6%
First Trust Advisors           559     ---      -0.5     0.7%
Fortis                        ---      ---       1.5     ---
FTN Financial                 ---      ---      -5.0     ---
Helaba                         560     ---       0.0     0.3%
Herrmann Forecasting           542     6231      4.0     0.7%
HSBC Markets                   550     6180     -2.0     0.7%
IDEAglobal                     550     ---      -2.0     0.4%
IHS Global Insight            ---      ---      ---      0.8%
Informa Global Markets         560     6150     -3.5     0.3%
ING Financial Markets          540     6190      0.0     0.8%
Insight Economics              550     6200      2.5     0.8%
Intesa-SanPaulo               ---      ---      -5.0     ---
J.P. Morgan Chase              550     ---       0.0     ---
Janney Montgomery Scott L     ---      ---      ---      0.8%
Landesbank Berlin              560     ---      -2.0     0.5%
Maria Fiorini Ramirez Inc     ---      ---      ---      0.7%
Merrill Lynch/BAS             ---      ---       2.0     0.1%
MFC Global Investment Man      535     6215     ---      ---
Moody’s Economy.com            555     6190     -3.5     0.7%
Morgan Keegan & Co.           ---      ---      ---      0.5%
Morgan Stanley & Co.          ---      ---      ---      0.7%
Newedge                       ---      ---      -2.0     ---
Nomura Securities Intl.       ---      ---       1.5     0.4%
Nord/LB                        560     ---       2.0     0.3%
PNC Bank                      ---      ---      ---      0.4%
Raymond James                  555     ---      ---      0.7%
RBC Capital Markets            564     ---      -1.0     ---
RBS Securities Inc.            560     ---      ---      0.8%
Ried, Thunberg & Co.           550     6300     -2.0     ---
Schneider Foreign Exchang      567     6240     ---      1.0%
Scotia Capital                 570     6300     ---      ---
Societe Generale              ---      ---       0.0     ---
Standard Chartered            ---      ---      -2.0     0.3%
Stone & McCarthy Research      550     ---     -13.7     0.8%
TD Securities                  545     6250     -3.0     1.0%
Thomson Reuters/IFR            550     ---      -2.0     ---
UBS Securities LLC             550     ---       0.0     0.7%
UniCredit Research             550     ---      ---      0.6%
University of Maryland         555     ---      ---      0.4%
Wells Fargo & Co.             ---      ---      ---      0.7%
WestLB AG                     ---      ---      -4.0     0.8%
Westpac Banking Co.           ---      ---      -1.0     ---
Wrightson Associates           550     6300     -2.0     ---
===============================================================

To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net

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White House to Cut Deficit Estimate for 2009 to $1.58 Trillion

By Brian Faler and Roger Runningen

Aug. 20 (Bloomberg) -- President Barack Obama’s budget office will announce the government’s deficit for 2009 will total $1.58 trillion, about $262 billion less than forecast in May, according to an administration official.

The White House’s biannual budget review set for release next week will show the outlook for the fiscal year ending Sept. 30 improved primarily because of reduced costs associated with the stabilizing economy. That has allowed the administration to scrap a $250 billion contingency plan to aid the financial industry, the official said.

The reduced deficit is also attributable to fewer bank failures than anticipated, which meant spending at the Federal Deposit Insurance Corp. will be $78 billion less than forecast, said the official, who requested anonymity because the figures haven’t been publicly released.

The deficit figure, as revised, would amount to 11.2 percent of the nation’s economy, the official said. That would be the biggest share since 1945.

“It’s better than we expected but it’s still a huge deficit,” said Stan Collender, a former congressional budget aide who is a partner at Qorvis Communications in Washington. He said the administration deserves “some credit here for managing the financial bailout situation so that they didn’t need another one,” adding that Obama and his aides faced “a very unstable situation when they walked in.”

The administration’s mid-session review, slated for release on Aug. 25, will update the White House’s economic and budget forecasts with revised estimates of GDP growth, unemployment and future deficits. The administration official declined to discuss any other details in the report.

The nonpartisan Congressional Budget Office, which in June estimated this year’s deficit would reach $1.825 trillion, is also scheduled to release a revised estimate on Aug. 25.

Previous Estimate

The Obama administration had previously pegged this year’s shortfall at $1.84 trillion and next year’s deficit at $1.26 trillion. Tax revenue this year will total $2.074 trillion, the official said, which would be down 18 percent from last year, a reflection of the slow economy. Spending will grow to $3.653 trillion, which would be up almost 23 percent from 2008.

Federal spending has been driven up in part by the $787 billion economic stimulus package enacted in February, a $700 billion bailout of the financial industry, takeovers of mortgage financiers Fannie Mae and Freddie Mac and the increased costs of running safety-net programs such as unemployment insurance.

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net.

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White House to Cut Deficit Estimate for 2009 to $1.58 Trillion

By Brian Faler and Roger Runningen

Aug. 20 (Bloomberg) -- President Barack Obama’s budget office will announce the government’s deficit for 2009 will total $1.58 trillion, about $262 billion less than forecast in May, according to an administration official.

The White House’s biannual budget review set for release next week will show the outlook for the fiscal year ending Sept. 30 improved primarily because of reduced costs associated with the stabilizing economy. That has allowed the administration to scrap a $250 billion contingency plan to aid the financial industry, the official said.

The reduced deficit is also attributable to fewer bank failures than anticipated, which meant spending at the Federal Deposit Insurance Corp. will be $78 billion less than forecast, said the official, who requested anonymity because the figures haven’t been publicly released.

The deficit figure, as revised, would amount to 11.2 percent of the nation’s economy, the official said. That would be the biggest share since 1945.

“It’s better than we expected but it’s still a huge deficit,” said Stan Collender, a former congressional budget aide who is a partner at Qorvis Communications in Washington. He said the administration deserves “some credit here for managing the financial bailout situation so that they didn’t need another one,” adding that Obama and his aides faced “a very unstable situation when they walked in.”

The administration’s mid-session review, slated for release on Aug. 25, will update the White House’s economic and budget forecasts with revised estimates of GDP growth, unemployment and future deficits. The administration official declined to discuss any other details in the report.

The nonpartisan Congressional Budget Office, which in June estimated this year’s deficit would reach $1.825 trillion, is also scheduled to release a revised estimate on Aug. 25.

Previous Estimate

The Obama administration had previously pegged this year’s shortfall at $1.84 trillion and next year’s deficit at $1.26 trillion. Tax revenue this year will total $2.074 trillion, the official said, which would be down 18 percent from last year, a reflection of the slow economy. Spending will grow to $3.653 trillion, which would be up almost 23 percent from 2008.

Federal spending has been driven up in part by the $787 billion economic stimulus package enacted in February, a $700 billion bailout of the financial industry, takeovers of mortgage financiers Fannie Mae and Freddie Mac and the increased costs of running safety-net programs such as unemployment insurance.

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net.

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Norway’s Economy Expands as Nation Exits Recession

By Josiane Kremer

Aug. 20 (Bloomberg) -- Norway’s economy unexpectedly grew last quarter as the biggest government stimulus in more than 30 years and record low interest rates rekindled domestic demand, pulling the world’s fifth-largest oil exporter out of recession.

The mainland economy, excluding oil, gas and shipping, expanded 0.3 percent in the second quarter from the previous three months, when it shrank a revised 1.3 percent, Statistics Norway said today. The overall economy slipped 1.3 percent.

“We are out of recession and growth began earlier than Norges bank had expected thanks to better private consumption and public spending,” said Bjoern-Roger Wilhelmsen, senior economist at First Securities ASA in Oslo.

The only Scandinavian country that isn’t a European Union member has been shielded from the worst of the global slump thanks to continued investment in its petroleum industries, which make up a quarter of output. Record low interest rates and a fiscal stimulus, as Prime Minister Jens Stoltenberg prepares for a Sept. 14 election, have also supported demand.

“The growth number indicates that economic activity has bottomed out,” Kyrre Aamdal, economist at DnB NOR ASA, said in a note to clients.

Increased activity in business services, wholesale and retail trade, post and telecommunications, as well as government spending, contributed to growth, the statistics office said.

Recessions Ease

The krone surged as much as 0.6 percent against the euro and traded at 8.6033 at 01.03 p.m. in Oslo, compared with 8.6218 yesterday. Against the dollar, the krone was up 0.2 percent.

The median forecast for mainland GDP of 14 economists surveyed by Bloomberg was for a 0.3 percent contraction, with two analysts forecasting growth.

France and Germany reported last week that their economies unexpectedly grew in the second quarter. The 16-nation euro area shrank 0.1 percent, the best result in more than a year.

Stoltenberg’s coalition has pledged 3 percent of non-oil gross domestic product to drag the economy out of recession. That’s helped keep a lid on unemployment and buoyed demand.

Household consumption was up by 0.6 percent in the second quarter, boosted by higher car sales, according to Statistics Norway. Imports of traditional goods rose 1.2 percent in the three months to end-June after falling for a year, while employment was unchanged, the office said.

Bank’s Message

The central bank expects the mainland economy to contract 1.5 percent this year before returning to growth in 2010. Governor Svein Gjedrem left the key rate at a record low on Aug. 12, after cutting it by a quarter point in June, and said positive developments in the country’s economy may prompt it to raise rates earlier than previously indicated.

Today’s GDP figures “confirm Norges Bank’s message from mid-August”. Wilhelmsen expects the first rate rise to come in October.

“Norges Bank seems to be right,” Eric Bruce, economist at Nordea Bank AB in Oslo, said in a note to clients. “The strong labor market figures during the summer were reflecting stronger growth. We were strengthened in our belief that the first hike will be in October and the risk of a hike already in September has increased.”

According to a survey of seven economists showed on Aug. 14 the central bank will probably raise its key interest rate this year, becoming the first central bank in the industrialized world to reverse an easing cycle.

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

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King Changes Tune as Slump Prompts ‘Activist’ Stance

By Jennifer Ryan

Aug. 20 (Bloomberg) -- For the first time in his career, Bank of England Governor Mervyn King wants a more expansive monetary policy than his colleagues.

King’s push to expand the central bank’s bond-purchase program to 200 billion pounds ($329 billion) was overruled by the Monetary Policy Committee, minutes of their Aug. 6 meeting published yesterday showed. On the 14 other occasions that King has lost a vote since the central bank was given rate-setting independence in 1997, he opted for tighter policy every time.

King, who led a global push by central banks to start buying bonds in March, argues that too timid an approach may undermine optimism that Britain is recovering from its worst recession in a generation. The vote for an even looser approach than his colleagues prefer defies King’s image as an advocate of tight monetary policy with a track record of backing interest- rate increases. The pound dropped after yesterday’s report.

“It proves he’s not just a hawk, he’s more of an activist,” said George Buckley, an economist at Deutsche Bank AG in London. “He’s not afraid to vote against the rest of the committee if he thinks it’s the right thing to do.”

The MPC voted 6-3 to increase bond purchases by 50 billion pounds to 175 billion pounds, the minutes showed. King was joined by Timothy Besley and David Miles in voting for an increase of 75 billion pounds. All nine opted to keep the benchmark interest rate at a record low of 0.5 percent.

‘Less Severe’

The pound weakened against all of the 16 most-traded currencies tracked by Bloomberg after the report. The danger from doing too much stimulus is “less severe” than the cost of being too cautious, the minutes said.

The pound fell as much as 0.8 percent against the dollar before rebounding later in the day.

“The bank is clearly taking the view that the recovery isn’t very sustainable,” said Jamie Dannhauser, an economist at Lombard Street Research Ltd. in London. “There’s very little damage that can come from doing too much stimulus.”

King’s vote suggests he may try to steer the central bank towards a further expansion of the purchase program at future decisions, economists say. The last time the governor was outvoted, in June 2007, he pushed through the quarter-point rate increase he wanted at the next month’s meeting.

Clear Signal

King typically casts the final vote at policy meetings, a practice which suggests he would have known he was on the losing side when he made the call.

“He made the choice to vote for more quantitative easing even though he knew it would make no difference to the decision,” said David Tinsley, an economist at National Australia Bank in London and a former central bank official. “It’s a clear attempt to signal the direction of his policy. He’s persuaded by the argument that doing more now is much less risky than doing less.”

King, who has now been outvoted three times since becoming governor in 2003, has rejected labels on his voting tendencies in the past and emphasized the importance of the 2 percent inflation target in the bank’s policy. He reiterated that mantra last week, saying the decision to increase bond purchases was justified by the fact that inflation may slow too much.

King says inflation, which stayed at 1.8 percent in July, could slow below 1 percent in coming months.

Brown ‘Determined’

King’s caution on the strength of the economy echoes Prime Minister Gordon Brown, who said last month that government officials are “determined to keep our focus” on the recovery. Brown must call an election by June 2010, and his ruling Labour Party trailed the opposition Conservatives by 14 percentage points in a YouGov Plc opinion poll ended on Aug. 14.

The U.K. budget deficit ballooned to 8 billion pounds in July, the largest for the month since records began in 1993, as the recession hammered tax receipts while unemployment benefit costs soared, the Office for National Statistics said today.

While surveys this month showed U.K. services expanded the most in 1 1/2 years and manufacturing grew for the first time in more than a year in July, unemployment has risen to a 14-year high. The economy contracted 0.8 percent in the second quarter, even as France and Germany returned to growth.

European Central Bank officials are also showing concern on whether the euro region’s economy can gain traction. Bundesbank President Axel Weber said in comments published yesterday he’s not yet convinced Germany’s recovery is sustainable after government stimulus measures helped the economy unexpectedly return to growth in the second quarter.

In the U.K., economists say King’s stance shows his determination to keep printing money and avoid the fate of Japan in the 1990s, where a delayed reaction to a banking crisis contributed to the country’s so-called lost decade.

“There’s a clear consensus that the situation is serious and it isn’t going to improve dramatically in the near term,” said Danny Gabay, director of Fathom Consulting in London and a former central bank official. “The message is that the MPC as a whole fears Japan more than Zimbabwe,” where inflation reached nearly 500 billion percent last September.

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

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Bernanke Diverging With King Means El-Erian Sees Dollar Decline

By Rich Miller

Aug. 20 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke and fellow central bankers gathering in Jackson Hole, Wyoming, are showing scant signs of reprising the coordinated stance they took fighting the worst financial crisis since the Great Depression as they deal with its aftermath.

The danger is that such a disjointed approach will lead to volatile financial markets, a damaging drop of the dollar and slower global growth, Mohamed El-Erian, chief executive officer of Newport Beach, California-based Pacific Investment Management Co., said in an interview.

“The question is not whether the dollar will weaken over time, but how it will weaken,” said El-Erian, a former deputy director of the International Monetary Fund whose firm runs the world’s largest bond fund. “The real risk is that you will get a disorderly decline.”

By the end of 2010, the euro will rise to about $1.60, its highest since April 2008, while Canada’s currency will appreciate to C$1.01 per U.S. dollar, its strongest since July 2008, as the U.S. is slow to tighten credit, said Sophia Drossos, co-head for global foreign-exchange strategy at Morgan Stanley in New York.

The euro traded at $1.4234 at 6:00 p.m. in New York yesterday, while the Canadian dollar was at C$1.0952 per U.S. dollar.

Bernanke, 55, and other policy makers, who meet on Aug. 20-22, are already staking out differing positions as they gain traction in their battle against a crisis that has cost financial companies worldwide about $1.6 trillion in writedowns and losses. The U.S. economy is forecast to grow by more than an annualized 2 percent in the second half of 2009 compared with an average contraction of more than 4 percent in the last two quarters of 2008, according to a Bloomberg survey of economists.

Unprecedented Purchase

Bank of England Governor Mervyn King expanded an unprecedented bond-purchase program by 50 billion pounds ($82.7 billion) on Aug. 6 to 175 billion pounds, saying the recession was “deeper than previously thought.” Less than a week later, on Aug. 12, the Fed said it would slow its buying of $300 billion in Treasury securities and finish by the end of October as the economy levels off. On Aug. 5, Bank of Israel Governor Stanley Fischer ended government-bond purchases as the economy resumed growing in the second quarter after contracting during the previous six months.

“What you would hope to happen is much better coordination internationally,” El-Erian said. “What’s likely to happen, however, is that national interests are going to dominate.”

United Front

Such divergent approaches contrast with the united front central banks took in the wake of Lehman Brothers Holdings Inc.’s collapse last year, when the Fed, European Central Bank, Bank of England, Bank of Canada, Swiss National Bank and Sweden’s Riksbank all cut interest rates on Oct. 8. The Fed also set up a record 14 swap lines with foreign central banks to provide them with dollars to ease a global liquidity squeeze.

The banks were forced to cooperate by the severity of the global credit crunch, said Peter Hooper, chief economist for Deutsche Bank Securities in New York and a former Fed official.

As the crisis ebbs, the desire to act in concert is likely to fade, Hooper said. The IMF forecasts the global economy will expand 2.5 percent next year after shrinking 1.4 percent in 2009.

“The biggest risk of central banks going at their own pace is currency overshooting,” Jim O’Neill, head of global economic research at Goldman Sachs Group Inc., said in an interview from London.

Raise Rates

Morgan Stanley’s Drossos recommends buying the currencies of countries that are likely to be among the first to raise interest rates while selling those of nations that have used quantitative-type easing to pump liquidity into their financial systems. She puts Australia and Norway in the first group and the U.K. and the U.S. in the latter.

Traditionally, the Fed has given little weight to the value of the dollar is setting monetary policy, Hooper said. President Barack Obama, in contrast, is counting on increased exports to propel the economy, according to National Economic Council Director Lawrence Summers.

Stronger exports are a “foundation for sustainable expansion,” Summers said in a March 13 speech at the Brookings Institution in Washington. Such shipments made up 12.7 percent of U.S. gross domestic product last year.

Summers, 54, who is considered by economists as a candidate to replace Bernanke when the Fed chairman’s current term ends in January, raised the possibility that major central banks should pay more attention to exchange rates at the Jackson Hole symposium six years ago.

‘Provocative’ Summers

Then president of Harvard University in Cambridge, Massachusetts, Summers described his remarks as “provocative” and also asked whether monetary-policy makers should give greater weight to financial stability. He declined to elaborate, NEC spokesman Matthew Vogel said.

Even at current exchange rates, the U.S. current-account deficit in trade of goods and services will widen to a record of more than $850 billion in 2012 from about $400 billion this year, said John Williamson, senior fellow at the Washington- based Peterson Institute for International Economics.

An orderly fall of the dollar would be good for the world economy as it helps the U.S. continue to expand while consumers retrench, El-Erian said, declining to be more specific about currency levels. Such a drop would also help other countries including China wean themselves off their dependence on exports, promoting growth worldwide in the process, he said.

Inventory Rebuilding

While the U.S. economy is picking up, the recovery is being driven by inventory rebuilding and Obama’s record $787 billion fiscal stimulus, Olivier Blanchard, chief IMF economist, suggested in a paper released by the Washington-based lender on Aug. 18. Neither will last, he added.

That means exports “must increase” for a sustained U.S. recovery to take place, he said. To help achieve that, “some coordination across countries is likely to be as crucial during the next few years as it was during the most intense part of the crisis.”

Without that coordination, there’s a danger of a disorderly dollar fall that would destabilize financial markets and could derail the recovery, he said.

The dollar has lost 12 percent since March 5 against an index comprising the euro, yen and four other major currencies.

While 54 strategists surveyed by Bloomberg News forecast that the dollar will end the year little changed, on average, from current levels against the pound and euro, volatility is already hurting some U.S. companies.

Currency Fluctuations

Avon Products Inc., the world’s largest door-to-door cosmetics seller, partly blamed currency fluctuations for a drop in second quarter net income to $82.9 million, or 19 cents a share, from $235.6 million, or 55 cents, a year earlier.

“Foreign exchange continued to significantly pressure profits,” Andrea Jung, CEO of the New York-based company, said in a July 30 statement.

The Bank of Canada is already wrestling with what to do about gyrations in the currency market. Governor Mark Carney said July 23 that the stronger Canadian dollar was a major risk to economic growth. Finance Minister Jim Flaherty followed that up on August 4 by signaling that steps could be taken to dampen volatility in the currency.

The bank may extend its commitment to keep interest rates at a record low 0.25 percent beyond the middle of 2010 if a strong currency threatens to prolong the recession, said Derek Holt, economist at Scotia Capital in Toronto. The Canadian dollar has risen nearly 16 percent against its U.S. counterpart since March 9.

Expansionary Policy

Fischer at the Bank of Israel is also grappling with unwinding an expansionary monetary policy while trying to contain the rise of the nation’s currency, the shekel, which has gained about 3 percent against the dollar since June 30.

With Barclays Capital forecasting on Aug. 5 that the Israeli economy will grow by 2.9 percent in 2010 after a 0.9 percent contraction this year, the 65-year-old central-bank governor is beginning to rein in his expansionary policies.

Israel will be the first central bank to raise interest rates, perhaps moving as early as next month, said Koon Chow, an emerging-markets strategist at Barclays in London.

That might lead to a steeper-than-desired rise of the shekel, he said. That is why former IMF deputy managing director Fischer, who is giving the luncheon speech at Jackson Hole on Aug. 21, has established a policy for the bank to purchase foreign currencies in the event of “unusual movements” in the shekel.

Recession Relapse

Monetary-policy makers worldwide may stay in sync if forecasts of an economic recovery prove stillborn and central banks hold off on tightening credit. Economists surveyed by Bloomberg put one-in-five odds on the possibility the U.S. will relapse into a so-called double-dip recession in the next 12 months.

David Kotok, chairman of Vineland, New Jersey-based Cumberland Advisors Inc., sees a risk of increased instability in foreign-exchange markets once policy makers start to sop up the money they have pumped into the global financial system.

“If central bankers act without coordination, they may find their currencies hammered or upwardly valued as markets react strongly or viciously” to interest-rate differentials, said Kotok, whose firm manages more than $1.2 billion. “Foreign-currency volatility will quickly cause adjustment in interest rates in the government-bond markets of the world.”

To contact the reporter on this story: Rich Miller in Washington rmiller28@bloomberg.net

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Hoenig Stirs Debate on Bank Failures as Fed Forum Convenes

By Scott Lanman

Aug. 20 (Bloomberg) -- The host for central bankers attending the Federal Reserve conference this weekend to discuss the financial crisis is a regional Fed chief who’s making waves with his proposal for letting big U.S. banks fail.

Thomas Hoenig, the Kansas City Fed president, will welcome Fed Chairman Ben S. Bernanke, European Central Bank President Jean-Claude Trichet and dozens of other central bankers to the annual symposium in Jackson Hole, Wyoming, starting today. Hoenig said he hopes the gathering will serve as a model for handling crises in the future.

Bernanke has urged Congress to back part of Hoenig’s proposal for dealing with faltering big banks, which would wipe out shareholder equity in any that receive government aid. The Treasury Department’s so-called resolution authority plan, while likely to result in stockholder losses, doesn’t require it.

“Tom is leading the mainstream on this,” said former Fed Governor Lyle Gramley, now senior economic adviser with New York-based Soleil Securities Corp. “He’s ahead of the curve.”

Hoenig, 62, took office in 1991 and is soon to be the longest-serving Fed policy maker. Out of the 12 regional Fed presidents, he is one of two to have served as a head of bank supervision. Hoenig is tougher than his colleagues on inflation, having dissented from interest-rate votes four times since 1995, always for tighter policy.

Alternative to Bailouts

Companies with weak capital or investor confidence shouldn’t be bailed out, Hoenig said in a private talk in Omaha, Nebraska, in March. He said the government instead should declare them insolvent, replace managers, remove the bad assets and require shareholders to take losses. Hoenig broke from his usual practice of speaking from notes on index cards for non- economic comments and released written text entitled “Too Big Has Failed.”

Senator Sam Brownback of Kansas asked for a copy of the speech after reading a newspaper article about it. He invited Hoenig to testify at an April hearing of the Joint Economic Committee, where Brownback is the ranking Senate Republican. Brownback said he had received “huge numbers of calls” from constituents angry about bank bailouts.

“Tom putting it out there, said, ‘You’re frustrated and you’re mad and there’s a way to address it,’” Brownback said in an interview. “It gave it, I think, a realistic, regulator approach from a respected individual.” He said he would like Hoenig to address lawmakers again this year.

The debate has been fueled by multibillion dollar government rescues of financial companies including Citigroup Inc. and American International Group Inc. Lawmakers in line with Hoenig include Alabama Senator Richard Shelby, the top Republican on the Banking Committee.

Shifting Risk

“Our regulatory reform effort must place the risk back where it belongs, on the risk takers and not on the taxpayers,” Shelby said in a statement.

Bernanke echoed Hoenig’s views in recent congressional testimony. In July 24 remarks to the House Financial Services Committee, the Fed chief indicated support for the Treasury’s resolution plan while adding that Congress might want to add some constraints such as requiring shareholders to bear losses.

“People are starting to sit up and take notice of his remarks,” said Camden Fine, president of Independent Community Bankers of America, a Washington-based trade group. “It’s influencing the debate.”

Not everybody agrees with Hoenig’s recommendation of setting strict guidelines to handle financial failures.

“You have to trust the authorities with some ability to change the rules when they need to,” said William Isaac, former head of the Federal Deposit Insurance Corp. and now chairman of the global financial services unit of LECG Corp., an economic and financial consulting company based in Emeryville, California.

Vigorous Debate

While Hoenig’s plan may not be covered in the formal discussions at Jackson Hole, his fingerprints extend past the brief remarks he delivers: Hoenig approves topics and speakers, with an eye to fostering debate.

“It has to be vigorous,” Hoenig said during an interview in a conference room next to his 14th-floor office at the bank’s new limestone-and-glass headquarters building in Kansas City. “I don’t think we’ll get better if we don’t listen to our critics as well as to those who praise us.”

Scheduled speakers include Bernanke tomorrow, along with Trichet, Bank of Japan Governor Masaaki Shirakawa, and less- well-known professors such as Carl Walsh of the University of California at Santa Cruz and Ricardo Caballero, chairman of the Massachusetts Institute of Technology’s economics department.

“I’m hoping that this becomes, in a sense, a lessons- learned and a beginning of a blueprint,” Hoenig said.

Roots in Iowa

Thomas Michael Hoenig grew up in Fort Madison, Iowa, the second of seven children of a plumber and homemaker. After being drafted into the Army and serving in Vietnam, he completed graduate studies in economics at Iowa State University in Ames. Unlike most students, Hoenig was ready with his dissertation topic, bank competition.

“He decided what he wanted to write his dissertation on and came in and told me,” recalled Dudley Luckett, a retired professor who was Hoenig’s adviser.

Hoenig joined the Kansas City Fed as an economist in 1973. He played basketball there with another young economist, Donald Kohn, who’s now the central bank’s vice chairman.

One of Hoenig’s defining experiences occurred in 1982, when he was on the front lines during the failure of Oklahoma City’s Penn Square Bank, which triggered a national banking crisis and helped precipitate the 1984 government takeover of Continental Illinois National Bank & Trust Co.

Principles Approach

“We learned lessons about concentrations of credit,” Hoenig said. That and subsequent events helped shape his view that setting hard rules for banks was better than the so-called principles-based approach, which favors wide-ranging edicts such as treating customers fairly. The U.K.’s financial regulator held itself out as a principles-based regulator until this year.

“There’s nothing in this crisis that I haven’t seen before,” Hoenig said.

Warning about dangers posed by big banks isn’t new for Hoenig. In a 1999 speech, Hoenig said the rise of “mega financial institutions” created a risk of a “less stable and a less efficient financial system” because the government would be reluctant to close troubled companies, creating implicit guarantees for some depositors and creditors.

Hoenig will become the longest-serving Fed policy maker this year when Minneapolis Fed President Gary Stern, who has also made a name studying too-big-to-fail, retires.

“I don’t ever recall him being so vocal on a subject like this,” said Douglas Lee, who runs Economics from Washington, a consulting firm in Potomac, Maryland. “He will certainly be a voice that will be listened to.”

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

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U.S. Initial Jobless Claims Rose by 15,000 to 576,000

By Courtney Schlisserman

Aug. 20 (Bloomberg) -- More Americans unexpectedly filed claims for jobless benefits last week, indicating companies are trying to cut costs further even as the economy stabilizes.

Applications rose to 576,000 in the week ended Aug. 15 from a revised 561,000 the week before, the Labor Department said today in Washington. The number of people collecting unemployment benefits the week earlier was little changed at 6.24 million.

Companies may keep paring staff in coming months, albeit at a slower pace, and hiring linked to the government’s recovery effort may not gain speed until 2010. While the unemployment rate dipped last month, economists project it will reach 10 percent by early next year, restraining consumer spending.

“The improvement in the labor market has stalled,” said Derek Holt, an economist at Scotia Capital Inc. in Toronto, who had forecast claims would rise to 570,000, “Consumer spending will be pushed back on its heels for a longer time than markets are expecting.”

Stock-index futures trimmed earlier gains after the report showed the recent reduction in firings wasn’t being sustained. The contract on the Standard & Poor’s 500 index was little changed at 996.8 at 8:41 a.m. in New York, after being up as much as 0.7 percent earlier.

Exceeds Forecast

Economists forecast claims would fall to 550,000 from a previously reported 558,000, according to the median of 39 projections in a Bloomberg News survey. Last week’s reading exceeded the highest forecast of economists surveyed, which ranged from 535,000 to 570,000.

Today’s data coincides with the week the government collects information for its monthly employment report. While the economy has lost 6.7 million jobs since the recession started in December 2007, the 247,000 decline in payrolls reported for July was the smallest in almost a year and lower than economists projected.

The four-week moving average of initial claims, a less volatile measure, climbed to 570,000 last week from 565,750.

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 4.7 percent in the week ended Aug. 8.

Thirty-six states and territories reported an increase in new claims for the week ended Aug. 8 while 17 showed a decrease. Tennessee and North Carolina showed the biggest increases in claims, reflecting firings in transportation industries. California had the biggest decrease as payrolls at construction firms stabilized.

Payroll Outlook

Initial jobless claims reflect weekly firings and tend to rise as job growth -- measured by the monthly non-farm payrolls report -- slows.

“Concerns about the housing market, rising unemployment and softness in the overall economy continue to pressure consumers,” Frank Blake, chief executive officer of Home Depot Inc., said in a statement this week.

The largest home-improvement retailer on Aug. 18 reported second-quarter profit that fell less than analysts estimated and increased its full-year earnings forecast after reducing operating expenses.

General Motors Co., benefiting from the Obama administration’s “cash for clunkers” program, said Aug. 18 it is boosting production at some plants in Ohio and Ontario, bringing back about 1,350 union jobs.

Ford Motor Co. is boosting production by 26 percent in the second half, the Dearborn, Michigan-based automaker said Aug. 13. Chrysler Group LLC, based in Auburn Hills, Michigan, is also planning to make more light trucks, said a person familiar with the situation.

Other companies continue to make cuts. Lockheed Martin Corp., the world’s largest defense company, said Aug. 17 it plans to eliminate 800 jobs at its Space Systems unit by yearend.

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

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U.K. Has Record July Deficit as Recession Curbs Taxes

By Reed V. Landberg

Aug. 20 (Bloomberg) -- Britain had an 8 billion-pound ($13.2 billion) budget deficit in July, the largest for the month since records began in 1993, as the recession ravaged tax revenue and the cost of unemployment benefits surged.

The shortfall compared with a surplus of 5.2 billion pounds a year earlier, the Office for National Statistics said in London today. It came in a month when the Treasury usually gets a boost from quarterly tax payments. Britain last had a deficit in July in 1996.

The U.K. will have the biggest deficit in the Group of 20 next year, when Prime Minister Gordon Brown faces re-election, according to the International Monetary Fund. Brown is urging G- 20 leaders to keep up a coordinated fiscal stimulus until a world economic recovery is more certain. The Conservative opposition says spending cuts and possible tax increases are needed to curb debt.

“They’re completely disastrous numbers,” Paul Mortimer- Lee, an economist at BNP Paribas SA, said on Bloomberg Television in London. “With the economy in a parlous state, not much tax is being collected. The chancellor’s estimate for the deficit is going to be overshot by a considerable margin.”

The Treasury forecasts a deficit of 175 billion pounds in the fiscal year that began in April. In the first four months, the shortfall was 50 billion pounds, more than triple the level a year earlier.

Market Reaction

British government bonds and the pound fell after the report. The benchmark 10-year gilt’s yield rose 3 basis points to 3.614 percent as of 12:03 p.m. in London. The pound, which traded as high as $1.6608 earlier in the day, slumped to $1.6464.

Two other reports today indicated that the economy may be starting to rebound from the worst recession in at least a generation. Retail sales rose for a second month, the statistics office said. Mortgage approvals by the six biggest U.K. banks climbed to the highest this year, the Bank of England said.

The U.K. deficit this year will touch 11.6 percent of gross domestic product, second only to the U.S. gap of 13.5 percent, the IMF estimates. Next year, the deficit may total 13.3 percent of GDP, almost double the 7.7 percent peak in the 1993-94 fiscal year under Conservative Prime Minister John Major.

Last month’s deficit far exceeded the 600 million-pound shortfall that was the median of 16 forecasts in a Bloomberg survey. The figures are “broadly in line with where we expect them to be,” Chancellor of the Exchequer Alistair Darling said at a press conference in Edinburgh today.

Falling Revenue

Government receipts dropped 15 percent in July from a year earlier, the steepest decline since records began in 1998. Cash receipts from corporate profits fell 38 percent and value-added tax declined 34 percent. Income tax payments dropped 15 percent, reflecting slower wage growth and job cuts at banks including Citigroup Inc. and Royal Bank of Scotland Group Plc.

Spending rose 7.5 percent, with net spending on social benefits jumping 10 percent after unemployment climbed to a 14- year high. Net investment rose 10 percent to 2.9 billion pounds as the government brought forward projects to help the economy.

“It’s essential that at a time like this, it’s necessary for the government to maintain spending,” Darling said. “We need to take steps to reduce our borrowing and we remain committed to doing that. It’s right to remain cautious. There are a lot of uncertainties out there.”

Credit-Rating Warning

The Treasury in April forecast a deficit of 12.4 percent of gross domestic product. To cover the gap, the government said it expects to sell an unprecedented 220 billion pounds of debt, prompting Standard & Poor’s to warn that Britain may lose its AAA credit rating.

Including the liabilities of banks now controlled by the government, such as Bradford & Bingley Plc and Northern Rock Plc, Britain had 800.8 billion pounds of debt in July, or 56.8 percent of GDP. That’s the biggest debt burden since at least 1974-75. In 1976, the U.K. sought an emergency loan from the International Monetary Fund.

A cash method of accounting, known as the public sector net cash requirement, showed a deficit of 200 million pounds, the first borrowing for a July on that measure since 1995. Economists had expected a 5.6 billion-pound surplus.

With Labour trailing the Conservatives in polls 10 months before the general election deadline, Brown has sought to draw dividing lines between continued investment under his government and Conservative cuts. Economists say spending restraint and higher taxes are inevitable, whichever party wins, limiting the pace of economic recovery.

To contact the reporter on this story: Reed Landberg in London at landberg@bloomberg.net.

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Dollar Falls Versus Euro as U.S. Stock Gain Eases Safety Demand

By Ye Xie and Sapna Maheshwari

Aug. 19 (Bloomberg) -- The dollar dropped versus the euro as a rebound in U.S. stocks eased investor demand for safety triggered by a tumble in Chinese shares.

The yen and Swiss franc gained against currencies including the New Zealand dollar as the Shanghai Composite Index briefly fell into a bear market. Sterling weakened versus the euro after minutes of the Bank of England’s policy meeting showed Governor Mervyn King favored a bigger increase in asset purchases.

“In the longer term, medium term, we think it’s a risk- friendly environment,” said Achim Walde, head of currencies at Oppenheim KAG in Frankfurt, where he helps oversee 3 billion euros ($4.3 billion) in assets. “We should see an upward revision in growth.”

The dollar declined 0.7 percent to $1.4233 per euro at 4:04 p.m. in New York, from $1.4136 yesterday. The yen appreciated 0.7 percent to 94 per dollar, from 94.69, after trading at 93.67, the strongest level since July 23. The yen was little changed at 133.80 per euro after touching 132.20, the strongest level since July 22.

Now is a good time to sell the dollar and buy those currencies sensitive to global economic recovery, including the Norwegian krone, according to Walde.

The krone gained 0.8 percent to 6.0603 per dollar after crude oil for September delivery increased 4.4 percent to $72.24 a barrel as U.S. inventories declined the most in more than a year. Norway is the world’s fifth-largest oil supplier.

Dollar Index

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro, yen, pound and franc, dropped 0.6 percent to 78.472, erasing its gain as U.S. equities and crude oil increased.

The U.S. currency’s decline versus the euro accelerated after breaching $1.4175, where traders had preset orders to sell the dollar, said Brian Dolan, chief currency strategist at FOREX.com, a unit of the online currency trading firm Gain Capital in Bedminster, New Jersey.

The greenback is threatened by the “gusher of federal money” that rescued the financial system, the billionaire investor Warren Buffett wrote in a New York Times commentary.

“Enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects,” Buffett, 78, wrote. The “greenback emissions” will swell the deficit to 13 percent of gross domestic product this fiscal year, while net debt will increase to 56 percent of GDP, he said.

The government is trying to spark business and consumer spending through a $787 billion stimulus plan spanning tax cuts and infrastructure projects, while the Treasury and Federal Reserve spent billions more on separate programs to rescue financial institutions and resuscitate the banking system.

Greenback’s Status

The dollar will drop the most against emerging-market counterparts as it loses its status as the world’s main reserve currency, Curtis A. Mewbourne, portfolio manager at Pacific Investment Management Co., which runs the world’s biggest bond fund, wrote on the company’s Web site.

“Investors should consider whether it makes sense to take advantage of any periods of U.S. dollar strength to diversify their currency exposure,” Mewbourne wrote in his Emerging Markets Watch report. “The massive amounts of U.S. dollar liquidity produced in response to the crisis” have helped reduce demand for the currency, he wrote.

The dollar’s share of global central banks’ foreign reserves increased to 65 percent in the first three months of this year, from 64 percent in the previous quarter, according to the International Monetary Fund. The greenback’s share has been about 65 percent over the past five years after falling from 72.7 percent in 2001.

Stronger Yen

Japan’s currency appreciated 0.8 percent to 63.35 against the New Zealand dollar, and the franc advanced 0.3 percent to 1.5161 versus the euro. The yen and franc typically rise during times of financial turmoil because Japan’s and Switzerland’s trade surpluses reduce the nations’ reliance on foreign capital.

The Shanghai Composite Index slumped 4.3 percent, leading other Asian gauges lower. It briefly extended its losses to more than 20 percent from this year’s high reached on Aug. 4, meeting the definition of a bear market. The Standard & Poor’s 500 Index rose 0.7 percent after earlier dropping 0.9 percent.

The sell-off in higher-yielding assets and the yen’s outperformance may be short-lived as the global economic recovery takes hold, according to Dale Thomas, head of currencies in London at Insight Investment Management, which oversees $121 billion.

‘Storm to Pass’

“I don’t think that’s the start of a big new trend,” said Thomas. “We’re pretty much going to sit on the fence” and “wait for the storm to pass,” he said.

The pound weakened 0.9 percent to 86.09 pence per euro and dropped 0.2 percent to $1.6536 after earlier losing 1.1 percent.

The Bank of England’s Monetary Policy Committee voted 6-3 to raise the amount it will spend as part of its quantitative- easing program by 50 billion pounds ($82 billion), according to minutes of the Aug. 6 decision released by the central bank today in London. King, Timothy Besley and David Miles dissented in favor of a 75 billion pound expansion.

The central bank is spending 175 billion pounds to buy assets in a move aimed at pushing down borrowing costs to revive the U.K.’s shrinking economy.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Sapna Maheshwari in New York at smaheshwar11@bloomberg.net

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Marine Harvest Chief Says Salmon Supply Squeeze Will Persist

By Meera Bhatia

Aug. 20 (Bloomberg) -- Marine Harvest ASA, the world’s largest salmon farmer, expects supply to fall short of demand as Chile’s output will take as many as six years to return to levels seen before a virus ravaged its fish farms.

“It will take long for Chile to come back to volumes they used to have,” Chief Executive Officer Aase Aulie Michelet, 56, said in an interview yesterday at the company’s headquarters in Oslo. “We will be undersupplied for a while.”

Salmon export prices from Norway, the biggest supplier ahead of Chile and the U.K., climbed 13 percent this year on a growing world shortage. Global supply is estimated to slump 10.3 percent to 1.3 million metric tons this year after an outbreak of the Infectious Salmon Anemia virus at Chilean farms, according to industry consultant Kontali Analyse AS.

Marine Harvest plans to increase investment in technology, research and development to better understand diseases, the chief executive said. Similar outbreaks in 1970s and 1990s also hurt the industry, which traces its origins to commercial salmon farms in Scotland and Norway in the 1960s.

“The winners will be those who can improve fish health,” Aulie Michelet, whose company was formed in 2006 through the merger of three salmon producers, said. She said she’d “welcome” consolidation to better prevent disease.

Supply Squeeze

Salmon supply has risen about 55 percent this decade, according to Kontali Analyse, in part as health-conscious consumers eat more salmon. Demand has also risen as increased cultivation has driven down prices relative to other foods such as beef and chicken, according to Marine Harvest.

While the company has benefited from the supply squeeze, it was forced to take a $115 million charge in the second quarter for its unit in Chile and has cut its workforce in the country 67 percent to about 1,600 workers. Chile had accounted for 23 percent of its total output.

It plans to further reduce its workforce in Chile “substantially,” the CEO said, adding that it will be in 2014 or 2015 before volumes return to earlier levels. Global volumes will drop 8 percent to 13 percent in second half, she said, adding that she’s “quite positive for the next quarters.”

The company is sending more Norwegian salmon to the U.S, where it set up a processing plant in Miami and will open a plant in Los Angeles to take advantage of the Chilean shortfall.

Quarter Loss

Marine Harvest last week reported a second-quarter loss of 66.1 million kroner, compared with a profit of 22.4 million kroner a year earlier. It had an operating loss in Chile of 380 million kroner, while profit in Norway more than doubled to 393 million kroner. It plans to harvest 313,000 metric tons this year, down from 327,000 tons last year.

The company’s shares have more than tripled in value this year after plunging 70 percent last year.

Marine Harvest is seeking to grow “gradually” in Norway and to expand in Asia by marketing, sales and “other options,” the chief executive said. The strategy doesn’t include investing in more assets in Chile, she said.

“I believe in balanced growth -- say 5 percent year by year,” she said. “If that was the increase over time I think this would be a well developed market.”

The company was formed in 2006 after Marine Harvest’s fish- farming unit was merged with Norway’s Pan Fish ASA and Fjord Seafood ASA, a transaction organized by the company’s main owner, shipping billionaire John Fredriksen.

Michelet has an M.Sc.Pharmacy from University of Oslo and held positions including president of GE Healthcare AS (Norway) before joining Marine Harvest in March last year.

To contact the reporter on this story: Meera Bhatia in Oslo at mbhatia2@bloomberg.net.

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El Nino May Last Into 2010, World Meteorological Group Predicts

By Jae Hur

Aug. 20 (Bloomberg) -- The El Nino warming of the equatorial Pacific, an event that can change weather patterns worldwide, will probably last into the first quarter of next year, according to the World Meteorological Organization.

Sea-surface temperatures had “generally risen to between 0.5 and 1 degree Celsius warmer than normal by the end of June, with similar temperatures observed in July,” the Geneva-based organization said yesterday in an update. “This warming resembles the early stages of an El Nino event.”

El Ninos can disrupt farm output worldwide, parching parts of Asia, while dumping increased rain in California. Indonesia, the third-largest rice grower, cut its 2010 output forecast Aug. 17 on concern the El Nino may curb the expansion of the harvest.

The forecast from the World Meteorological Office is in line with that from the U.S. National Weather Service’s Climate Prediction Center, which said on Aug. 6 that the El Nino will probably intensify and last in 2010.

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

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Asian Stocks Advance as Chinese Shares Rebound; Brambles Gains

By Jonathan Burgos and Shani Raja

Aug. 20 (Bloomberg) -- Asian stocks advanced as China’s benchmark index erased yesterday’s slump, while Brambles Ltd. and QBE Insurance Group Ltd. reported better-than-estimated earnings.

Brambles, the world’s biggest supplier of pallets, and QBE, Australia’s biggest property and casualty insurer, advanced more than 3 percent in Sydney. Isuzu Motors Ltd., Japan’s third- biggest maker of commercial vehicles, rallied 5.4 percent as brokerages recommended buying Japanese automakers. PetroChina Co., the nation’s biggest oil producer, climbed 6.9 percent in Shanghai after crude-oil prices climbed.

The MSCI Asia Pacific Index gained 1.2 percent to 111.67 as of 7:24 p.m. in Tokyo. The gauge has rallied 58 percent from a more than five-year low on March 9 amid growing confidence government stimulus measures and lower borrowing costs will lift the world out of recession.

“Share markets are trying to price in a substantial recovery,” said Jason Teh, who helps manage about $2.8 billion at Investors Mutual Ltd. in Sydney. “Elements of the economy are beginning to appear to have stabilized, but we’ve been through something that hasn’t been witnessed for decades and any recovery is vulnerable to hiccups.”

Japan’s Nikkei 225 Stock Average advanced 1.8 percent to 10,383.41. Hong Kong’s Hang Seng Index climbed 1.9 percent.

China’s Shanghai Composite Index rose 4.5 percent, following yesterday’s 4.3 percent drop. The gauge briefly fell to bear-market levels yesterday, denoted by a 20 percent decline from its peak this year on Aug. 4. The measure is now down 16 percent from that high.

China Mobile Profit

Among stocks that fell, China Mobile Ltd. lost 0.2 percent in Hong Kong, erasing earlier gains after reporting earnings that missed estimates. CSL Ltd., the world’s second-biggest maker of blood plasma products, and Boral Ltd., Australia’s largest seller of building materials, sank more than 3 percent on brokerage downgrades.

Futures on the Standard & Poor’s 500 Index rose 0.4 percent. The U.S. gauge advanced 0.7 percent yesterday as energy stocks gained, while Merck & Co. led drugmakers higher after a judge upheld a patent.

The Asian gauge fell 3.4 percent this week through yesterday on concern the rally since March had outpaced growth prospects. Companies on the gauge are priced at an average 24 times estimated earnings, compared with 17 times for the S&P 500 and 14 times for the Dow Jones Stoxx 600 Index in Europe.

Reports last week showed Chinese exports dropped in July and investment growth slowed, while Australia’s statistics bureau said wage growth stalled last quarter as the worst global slump since the Great Depression drove up unemployment.

Further Improvement

“The consensus remains among investors that the global economy is on course for a recovery, but we have to see further improvement in the economy and company earnings for markets to go up higher,” said Kiyoshi Ishigane, a strategist at Mitsubishi UFJ Asset Management Co., which oversees about $53 billion.

Brambles jumped 3.6 percent to A$7.15. The company said annual net income fell 30 percent to $452.6 million, exceeding the $419.2 million average of five analyst estimates. QBE rose 6.4 percent to A$22.06 after saying first-half profit climbed 19 percent on premium growth and foreign exchange gains, beating expectations of investors including White Funds Management Pty.’s Angus Gluskie.

A third of the 516 companies in the MSCI Asia Pacific Index that have reported results since early July have beaten analysts’ profit estimates, while 18 percent have missed, according to data compiled by Bloomberg.

Beating Estimates

Bank of Communications Ltd., China’s fourth-largest lender, gained 1.3 percent to HK$9.19 in Hong Kong. The company said net income for the second-quarter was little changed at 7.62 billion yuan ($1.1 billion). That’s higher than the average estimate of 7.24 billion yuan from nine analysts in a Bloomberg survey.

China’s stocks are set to rebound from this month’s plunge on prospects earnings will beat estimates and policy makers will maintain bank lending, Bank of America Corp.’s Merrill Lynch unit said. The Shanghai Composite Index has retreated 15 percent in August.

PetroChina climbed 6.9 percent to 13.88 yuan in Shanghai. Woodside Petroleum advanced 7.3 percent to A$47.53 in Sydney. Inpex Corp., Japan’s largest oil explorer, gained 2.9 percent to 721,000 yen in Tokyo.

Crude oil for September delivery rallied 4.7 percent to $72.42 a barrel in New York. U.S. oil stockpiles dropped 8.4 million barrels last week, the most since the week ended May 23, 2008, a report from the Energy Department showed.

Isuzu, Hino Motors

Isuzu climbed 5.4 percent to 197 yen after Nikko Citigroup Ltd. raised its recommendation to “hold” from “sell.” Hino Motors Ltd. advanced 5.1 percent to 391 yen after upgrades at Nikko Citigroup and Daiwa Securities.

China Mobile, the world’s biggest mobile phone carrier, lost 0.2 percent to HK$82.85 in Hong Kong, having earlier gained as much as 2.4 percent. The company reported second-quarter net income of 30.1 billion yuan ($4.4 billion), lower than the 31.1 billion yuan estimate from a Bloomberg analyst survey.

CSL slipped 3.6 percent to A$31.92 in Sydney. Citigroup Inc. cut the stock to “hold” from “buy,” saying the Australian dollar is likely to rise against the U.S. dollar and euro this year, reducing the value of sales in overseas markets. Macquarie Group Ltd. lowered CSL to “neutral” from “outperform.”

Boral plunged 7.5 percent to A$5.43. Credit Suisse Group AG cut its rating to “underperform” from “neutral.”

To contact the reporter for this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

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