South Korea, Australia Warn Against Early Stimulus Withdrawal

By Shamim Adam

Sept. 4 (Bloomberg) -- South Korea and Australia said an early winding back of fiscal and monetary stimulus that has been pumped into economies risks derailing a recovery even as debates intensify that such policies may spur asset bubbles.

South Korea’s government will formulate an exit strategy from its stimulus program once there are signs the nation’s economic recovery is led by business and consumers, Vice Finance Minister Hur Kyung Wook said in an interview today. Australian Treasurer Wayne Swan yesterday said a premature withdrawal of stimulus would stall a global recovery.

Government pledges of more than $2 trillion in stimulus worldwide and interest rate cuts are helping the world economy pull out of the worst recession since World War II. The global equity rally has added about $15 trillion to the value of stocks since this year’s low on March 9 as the credit crunch eased and investors became more confident of a recovery.

“The global recession is still with us,” Swan said in London, where finance ministers and central bankers from the Group of 20 are meeting this week. “Getting the timing right is essential, but we have to be acutely aware of just how fragile the international economy is. I don’t sense that anybody thinks that the time is near” for stimulus to be withdrawn.

U.S. Treasury Secretary Timothy Geithner on Sept. 2 also cautioned that it’s too early to remove policies aimed at boosting growth. European Central Bank President Jean-Claude Trichet yesterday said the euro region’s recovery from recession will be “bumpy” and signaled officials are in no rush to withdraw emergency measures as it left rates at a record low.

‘First Signs’

“You’re seeing the first signs of positive growth now in this country and countries around the world,” Geithner said. “We’ve come a very long way but I think we have to be realistic, we’ve got a long way to go still.”

The U.S. economy faces a “significant chance” of contracting again after emerging from its worst recession since the 1930s, Nobel Prize-winning economist Joseph Stiglitz said yesterday.

Asia’s reliance on stimulus spending has caused public debt to swell and policy makers need to consider unwinding the measures, former Japanese Economic and Fiscal Policy Minister Heizo Takenaka said today.

“Asia is developing a dangerous amount of debt; we must look for an exit strategy,” Takenaka said in Tokyo. “If this continues, Asian economies will become too dependent on their governments.”

Southeast Asia

Policy makers in Southeast Asia’s biggest economies may begin to remove monetary stimulus in their financial systems as early as the second quarter of 2010 as growth resumes, according to UBG AG.

Singapore may shift its currency stance to one that allows for a modest and gradual appreciation of its exchange rate, while Thailand, Indonesia and the Philippines may start raising interest rates in the quarter ending June, UBS economist Edward Teather wrote in a report published yesterday. Malaysia will raise rates by 50 basis points next year, Credit Suisse predicts.

Central banks across Asia have started to signal they may soon need to raise borrowing costs as growth resumes and threatens to stoke consumer prices.

Indonesia’s central bank yesterday refrained from cutting its benchmark rate for the first time in 10 months, judging faster inflation is now a bigger risk than slowing growth.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

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U.S. Payroll Losses Slow, Unemployment Rises to 9.7%

By Timothy R. Homan

Sept. 4 (Bloomberg) -- The pace of U.S. job losses slowed in August as signs emerged that the recession is ending, while the unemployment rate reached a 26-year high, underscoring threats to consumer spending gains in the recovery.

Employers cut 216,000 from payrolls, fewer than forecast, after a 276,000 drop in July that was larger than previously reported, Labor Department data showed today in Washington. The jobless rate jumped to 9.7 percent from 9.4 percent.

“What we’re learning is that the pace of job declines is subsiding,” David Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto, said in an interview with Bloomberg Radio. “The economy is no longer detonating, but we are still losing jobs, and the unemployment rate is going up. It’s going to be a very tough environment for the consumer.”

Rising joblessness underscores Treasury Secretary Timothy Geithner’s judgment that it’s “too early” to start exiting from the unprecedented stimulus measures helping stabilize the economy. AMR Corp. and Whirlpool Corp. are among the companies continuing to cut staff to lower costs and revive profits in the aftermath of the deepest recession since the 1930s.

Stock-index futures fluctuated after the report, and contracts on the Standard & Poor’s 500 Index were little changed at 1,002.30 as of 9:06 a.m. in New York. Treasuries were also little changed, with benchmark 10-year notes yielding 3.35 percent.

Revised Losses

Revisions subtracted 49,000 from payroll figures previously reported for July and June.

The report comes hours before Geithner meets in London with finance ministers and central bankers from the Group of 20 emerging and developed nations.

While the G-20 gathering will discuss how policy makers plan to exit from their fiscal and monetary stimulus efforts, now isn’t the time to start pulling back, Geithner told reporters in Washington this week. “We’ve come a very long way but I think we have to be realistic, we’ve got a long way to go still.”

Federal Reserve policy makers waited at least a year after unemployment peaked before raising interest rates in the aftermath of the previous two recessions.

6.9 Million

The latest numbers brought total jobs lost since the recession began in December 2007 to 6.9 million, the biggest decline in any post-World War II economic slump.

Payrolls were forecast to drop 230,000 after a 247,000 decline initially reported for July, according to the median of 79 economists surveyed by Bloomberg News. Estimates ranged from decreases of 365,000 to 100,000. Job losses peaked at 741,000 in January, the most since 1949.

The jobless rate was projected to rise to 9.5 percent. Forecasts ranged from 9.3 percent to 9.8 percent. Economists surveyed by Bloomberg last month projected the jobless rate will reach 10 percent by early 2010 and average 9.8 percent for all of next year.

Adjusted for part-time employees that would rather have a full-time job and for discouraged workers that are no longer looking for a job but would take one if it were available, the jobless rate jumped to 16.8 percent in August from 16.3 percent.

A rising jobless rate, stagnant wages and falling home values signal a lack of consumer spending may curb an economic recovery.

Factory Jobs

Today’s report showed factory payrolls fell by 63,000 after decreasing 43,000 in the prior month. Economists forecast a drop of 60,000. The decrease included a loss of 15,000 jobs in auto manufacturing and parts industries.

Announcements of staff reductions continued last month. Whirlpool, the world’s largest appliance maker, said Aug. 28 that it will close its Evansville, Indiana, manufacturing plant, resulting in the elimination of 1,100 jobs, or 1.6 percent of the company’s workforce.

Payrolls at builders declined by 65,000 after decreasing 73,000. Financial firms decreased payrolls by 28,000, after a 17,000 loss the prior month.

Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 80,000 workers after falling 154,000. Retail payrolls decreased by 9,600 after a 43,200 drop.

American Airlines

Fort Worth, Texas-based American Airlines, a unit of AMR, said this week it will furlough 228 flight attendants and put 244 more on involuntary leave as part of the 1,600 job cuts it announced in June.

Government payrolls decreased by 18,000 after falling 28,000 the prior month.

Today’s report also showed the average work week held at 33.1 hours in August. Average weekly hours worked by production workers remained unchanged from the month before, at 39.8 hours, while overtime also held at 2.9 hours. That brought the average weekly earnings up to $617.32 from $615.33.

“We’re still going to see some months of job cuts,” Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “There is a whole range of options, like adding shifts or hours, that companies can put in place until it becomes necessary to hire people back.”

Workers’ average hourly wages rose 6 cents, or 0.3 percent, to $18.65 from the prior month. Hourly earnings were 2.6 percent higher than August 2008. Economists surveyed by Bloomberg had forecast a 0.1 percent increase from the prior month and a 2.2 percent gain for the 12-month period.

The U.S. recession “is bottoming out” and the economy is poised for “a slow return,” Alcoa Inc. Chief Executive Officer Klaus Kleinfeld said in a Sept. 2 interview. The head of the largest U.S. aluminum producer said government stimulus in the U.S. and China will affect the New York-based company’s earnings “positively” this year.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Ireland Taps Honohan to Run Central Bank Amid Financial Crisis

By Fergal O’Brien and Ian Guider

Sept. 4 (Bloomberg) -- Ireland named finance professor Patrick Honohan to run the country’s central bank, giving him supervisory power over a banking industry that almost collapsed last year and a voice in monetary policy across the euro region.

Honohan, 59, will succeed John Hurley, who retires later this month, Finance Minister Brian Lenihan said in Dublin late yesterday. He is currently a Professor of International Financial Economics and Development at Trinity College Dublin.

Honohan takes over as Ireland revamps its banking system amid the worst recession in the country’s history. An expert on banking, Honohan brings both economic and political skills to the job, having worked at the World Bank and as an adviser to former Irish Prime Minister Garret Fitzgerald.

“He’s not just an Irish expert on banking, he’s an expert of international renown,” said Karl Whelan, a professor at University College Dublin and a former economist at the Federal Reserve in Washington. “There’s some incredibly impressive people on the ECB council, and if you want to have your voice heard, it helps to have a resume like Patrick’s.”

While Honohan won’t have power over the so-called bad bank set up by the government to clear banks’ balance sheets, he will have responsibility for the stability of the financial system and the supervision of individual firms. Currently, the latter is managed by an autonomous regulator within the central bank.

“Throughout this financial crisis, I have sought the views of Professor Honohan and he has consistently provided valuable advice,” said Lenihan.

‘Honored’

The appointment of the academic marks a break from Ireland’s traditional policy of appointing a top ranking government official to the central bank role. Honohan said in a phone interview that he was “honored and delighted” to have the opportunity “to help stabilize” the financial sector and the economy. He declined to comment further.

Honohan will also join the European Central Bank’s 22- member Governing Council and has described President Jean-Claude Trichet’s style of communication as “oblique.”

“I think the big issue will be negotiating Ireland’s position within the ECB, making sure Ireland has the support of the ECB in sorting out its difficulties,” said Frances Ruane, Director of Ireland’s Economic & Social Research Institute.

The ECB said Aug. 31 that the bad bank, know as the National Asset Management Agency, must not make “undue premium payments” to banks when it takes over their loans.

Retuned

Honohan has criticized Irish economic policy in the past, saying that the lower interest rates inherited when the country adopted the euro in 1999 weren’t solely to blame for the credit- fueled boom over the following decade.

Joining the euro was “neither necessary nor sufficient for a crisis,” Honohan said in a paper delivered in Dubrovnik in June. “The Irish authorities did retain sufficient policy instruments to have combated the emergence of imbalanced; they simply did not use them effectively.”

Irish policies were “not retuned to take account of the fact that, following euro membership, financial markets were no longer offering an early warning system,” he said. “Corrective action that could and should have been taken were neglected as a result.”

Honohan supports the idea of a euro-region bank regulator, writing on the Irish Economy Web site in January that he has “long been an advocate” of such a move.

“Isn’t it now obvious that we in Ireland should be cheerleaders for an early move in this direction?” he said. “We urgently need all the help we can get in financial regulation -- even for nationalized banks.”

Risk Sharing

Born in Dublin in 1949, Honohan studied economics and mathematics at University College Dublin, where he graduated with first-class honors in 1971. After a masters degree at UCD, he completed a doctorate at the London School of Economics, where his dissertation was “Uncertainty, Portfolio Choice and Economic Fluctuations.”

Last month, he proposed a plan to share the risks associated with the National Asset Management Agency between the government and banks.

This would involve a two-part payment for the loans, with the second part made in the form of a stake in the agency. Lenihan, who is examining the proposal, said today that there “has never been a divergence” between him and Honohan on NAMA.

Married with one son, Honohan worked as an economist at Ireland’s central bank from 1976 to 1984 and was at the World Bank from 1987 to 1990 and again from 1998 to 2007. He has been at Trinity since 2007.

His academic papers have covered topics from divergent inflation rates in monetary unions to banks’ risk-management models and financial supervision in developing economies.

“The appointment is a loss for academia,” said Brian Lucey, an associate professor of finance at Trinity. “But it’s good for Ireland. He’s well respected across Europe.”

To contact the reporter on this story: Fergal O’Brien in Dublin at fobrien@bloomberg.net; Ian Guider in Dublin at iguider@bloomberg.net.

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Rand Weakens, Paring Weekly Gain, on U.S. Unemployment Concern

By Garth Theunissen

Sept. 4 (Bloomberg) -- The rand weakened from a six-week high as economists speculated a report will show U.S. unemployment rose, dulling risk appetite on concern the world’s largest economy is struggling to recover from recession.

The rand depreciated as much as 0.6 percent to 7.6925 per dollar and traded 0.3 percent weaker at 7.6697 by 10:18 a.m. in Johannesburg. Earlier the rand gained 0.1 percent to 7.6341, the strongest level since July 23.

Unemployment in the U.S. probably rose to 9.5 percent in August from 9.4 percent in July, according to the median of 77 estimates in a Bloomberg News survey. Rising joblessness underscores Treasury Secretary Timothy Geithner’s view that it’s “too early” to begin exiting from stimulus measures aimed at reviving the U.S. economy.

“The rand is retracing a bit because there’s some caution ahead of the U.S. non-farm payrolls data,” said John Cairns, head of foreign-exchange research at Rand Merchant Bank in Johannesburg. “Investors don’t like taking big positions before an important data release that could impact negatively on risk appetite.”

Today’s decline pared the rand’s third weekly climb to 1.1 percent. The currency gained 2 percent yesterday after a report showed South Africa’s current-account deficit more than halved in the second quarter, reducing the country’s reliance on foreign capital.

“The significant improvement in the current-account deficit was far better than the market expected and is a big positive for the rand,” said Cairns. “It alleviates the need for foreign portfolio inflows.”

Current Account

The deficit on the current account, a measure of trade in goods and services, shrank to 3.2 percent of gross domestic product in the three months to end-June, the lowest since March 2004, down from 7 percent in the first quarter and narrower than the 4.4 percent median analyst estimate.

Foreign investors have been net buyers of almost 76 billion rand ($9.9 billion) of South African assets this year, according to data from the JSE Ltd., which runs the nation’s stock and bond exchanges. The capital inflows have helped the rand rally almost 23 percent against the dollar this year, making it the second-best performing major currency monitored by Bloomberg.

A gain of 3.5 percent in gold and 0.7 percent advance in platinum this week also boosted the currency of South Africa, an exporter of both metals.

Government bonds increased, with the yield on South Africa’s benchmark 13.5 percent security due September 2015 dropping 10 basis points from yesterday’s close to 8.04 percent. The bond’s price, which moves inversely to the yield, gained 51 cents from yesterday to 125.65 rand. In the week its price rose 57 cents.

To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net

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Darling Rejects FSA Call for Action to Curb ‘Useless’ Banks

By Gonzalo Vina

Sept. 4 (Bloomberg) -- U.K. Chancellor of the Exchequer Alistair Darling dismissed calls from Financial Services Authority Chairman Adair Turner to take action against parts of the banking industry that are “socially useless.”

It is not the job of governments to decide which elements of commercial activity are of wider social value, Darling said in a British Broadcasting Corp. radio interview today.

“You get into huge difficulties if you draw up a list of what’s useful and what’s useless in banking or indeed anything else because you are applying subjective judgments,” Darling said. “Where do you draw the line? ”

Turner last month said that the financial sector is “swollen” and proposed a global “Tobin Tax” on financial transactions to redistribute bank profits to the poor and to “public goods” like fighting climate change.

His suggestion was quickly dismissed by U.S. economist Henry Kaufman, Harvard University history professor Niall Ferguson and former Bank of England policy makers Willem Buiter and Richard Lambert. The Treasury said “taxation is a matter for the chancellor.”

The Conservative opposition has pledged to dismantle the FSA and return banking supervision to the central bank if it wins the next general election, due by June at the latest.

In a Prospect magazine article, Turner said complex financial products were of “very dubious social value” and proposed governments look at ways of discouraging their use.

Not the Same

“Clearly, not all innovation should be treated in the same category as the innovation of either a new pharmaceutical drug or a new retail format,” Turner wrote. “I think that some of it is socially useless activity.”

Turner had expressed views on taxes before. He said last month that the FSA is considering whether it could penalize banks that have tax-avoidance programs, even if primary enforcement of tax matters comes from the Treasury’s Revenue and Customs arm.

The government has endorsed other proposals made by Turner in March to overhaul regulation, including getting banks to put aside more capital.

Darling said he wants agreement among Group of 20 finance ministers, who meet in London today, for tougher rules to police banks and rein in bonuses.

He conceded bankers may leave the U.K. and that this would be a price worth paying as long as the right rules were in place to prevent a repeat of the excessive risk-taking that led to the worst financial crisis since the Great Depression.

“We have do decide what’s right and what’s appropriate, and if people don’t like it they could potentially go,” Darling said. “My point is, it is not actually in our interest for people to go offshore which is why we need international agreement.”

To contact the reporters on this story: Gonzalo Vina in London at gvina@bloomberg.net

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RBS, Barclays Cut Lending as Treasury Pushes for More

By Andrew MacAskill and Jon Menon

Sept. 4 (Bloomberg) -- Royal Bank of Scotland Group Plc and Barclays Plc, two of Britain’s biggest banks, cut lending even after promising the government to give more credit to borrowers and help revive the economy.

RBS and Lloyds Banking Group Plc, the two biggest banks bailed out by the government, and Barclays Plc reduced lending globally by 165 billion pounds ($270 billion) in the first half, according to company filings. RBS and Barclays reduced loans by about 11 percent, the most among Europe’s largest banks.

RBS and Barclays are at risk of missing the government’s target to boost their U.K. net lending by 36 billion pounds this year. The two banks cut lending to U.K. homeowners and businesses by 9.5 billion pounds in the first half, the filings show. London-based Lloyds, which is 43 percent owned by the taxpayer, declined to disclose its net U.K. lending.

“This is a bearish sign for the economy,” said Jonathan Loynes, chief European economist at Capital Economics Ltd. in London. “For there to be economic growth, bank lending needs to rise. It is pretty clear that there are supply constraints.”

The Treasury has committed 1.4 trillion pounds to rescue the nation’s banking system through direct investments, asset insurance and loan underwriting amid the worst recession in 60 years. Banks may not be lending the extra cash as they seek to bolster capital, Bank of England Deputy Governor Charles Bean said last week. Consumers repaid debt at a record pace in July, according to the Bank of England.

Lending Shrinks

Global lending fell by an average of 5.4 percent at the five largest U.K. banks in the first half, five times more than at the 10 biggest banks in continental Europe, company reports show. RBS, which is 70 percent government-owned, shrunk its global loan book by 91 billion pounds, Barclays by 50 billion pounds, and Lloyds by about 24 billion pounds, the filings show.

Fiona MacRae, a spokeswoman for Edinburgh-based RBS, said the bank had planned to shrink its loan book after receiving a government bailout. London-based Barclays said the reduction in lending was due to a decline in cash held against derivative trades and a stronger pound. Lloyds spokeswoman Eve Speight said the bank was committed to lending to “creditworthy” borrowers.

In all, Europe’s 15 largest banks by market value cut lending to customers by 2.9 percent from a year earlier, the company filings show. Banks provide about 70 percent of corporate financing in Europe compared with about 20 percent in the U.S., where borrowers sell commercial paper and corporate bonds to fund the majority of investments, according to the European Central Bank.

Some Banks Expanding

ECB President Jean-Claude Trichet and politicians around the continent are warning that banks’ reluctance to boost lending risks prolonging the recession.

Stockholm-based Nordea Bank AB bolstered lending by 5 percent in the period, more than any of the European banks. London-based Standard Chartered Plc and Zurich-based Credit Suisse Group AG increased loans by 3.6 percent.

All banks that received government aid cut lending in the first half, company filings show. Lloyds, Britain’s biggest mortgage lender, reduced its loan book by 3.6 percent. Zurich- based UBS AG, which received a cash injection from the Swiss government last year, pared lending by 7.2 percent.

“The priority of the weak banks right now is rebuilding their balance sheets,” said Arturo de Frias, a banking analyst at Evolution Securities Ltd. in London. “They are increasing some new lending, but at the same time running down their books by cutting old loans.”

Easing Demand

Banks say the lending slowdown is largely the result of a drop in demand from borrowers, a consequence of the recession. U.K. consumers, the most indebted in Europe, are paying back mortgages and credit card debt as interest rates drop.

RBS said U.K. net lending, which takes customer repayments into account, fell by 3.2 billion pounds in the first six months. The bank agreed to increase annual net lending by 25 billion pounds in February as a condition for state support. David Gaffney, an RBS spokesman, said businesses are looking to reduce their debt levels rather than increase them.

RBS said today it won’t call $1.6 billion of subordinated bonds after regulators objected to using state aid to pay holders of the lender’s lowest-rated securities. The Financial Services Authority told RBS not to redeem four series of bonds early after the European Commission said banks shouldn’t use government cash to repay equity and subordinated debt.

Brown Under Pressure

Barclays reduced its outstanding loans in the U.K. by 6.3 billion pounds in the first half even as it made 17 billion of new loans to households and businesses, indicating the bank may struggle to meet its target to increase lending by 11 billion pounds this year. Barclays spokeswoman Gemma Abbott declined to comment on the figures.

A Treasury spokesman said RBS’s lending targets are legally binding and apply over the 12 months from March. Barclays, which didn’t receive a government bailout, isn’t legally bound to increase lending, he added.

The failure to get credit flowing increases the pressure on Prime Minister Gordon Brown, who nationalized banks, insured assets and is underwriting loans to spur lending. Politicians have repeatedly criticized banks for failing to boost credit after receiving government bailouts and guarantees.

“The banks are still not playing fair,” said John Wright, chairman of the London-based Federation of Small Businesses, which represents 215,000 entrepreneurs. “Small businesses are still having difficulty getting finance from banks, and those that are fortunate enough to get finance face higher interest payments.”

To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net; Jon Menon at jmenon1@bloomberg.net

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U.S. Dollar Will Weaken, Currency Crash Possible, Roubini Says

By Sonia Sirletti and Jeffrey Donovan

Sept. 4 (Bloomberg) -- The dollar will weaken and the U.S. risks seeing a crash of the currency unless it does more to control the deficit and reduce debt, said New York University Professor Nouriel Roubini, who predicted the financial crisis.

“If markets were to believe, and I’m not saying it’s likely, that inflation is going to be the route that the U.S. is going to take to resolve this problem, then you could have a crash of the value of the dollar,” Roubini said in an interview today in Cernobbio, Italy. “The value of the dollar over time has to fall on a trade-weighted basis, but not necessarily relative to euro and yen.”

Roubini said he didn’t see a risk of a dollar crash in the “‘short term.” The value of the U.S. currency relative to currencies such as the yen or the euro “cannot change too much compared to current levels because if the dollar were to weaken a lot and the euro strengthen a lot, that’s going to warp any chance for the European economy to recover, same argument as to the yen,” he said.

“Most of the adjustment of the dollar in the future has to occur relative to China, relative to emerging Asia and relative to some of the other commodity exporters in the world, whether these are advanced economies or emerging markets,” he said.

Foreign creditors need assurances that the U.S. will address its deficit, Roubini said.

“Unless in the medium term these issues of fiscal sustainability are addressed, and unless we mop up that excess liquidity from the financial system, eventually the financial markets and the foreign creditors of the United States might get more concerned about the sustainability of the U.S. fiscal deficit and about the U.S. being tempted to use the inflation tax as a way of resolving its private and public debt problems,” he said.

To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net; Jeffrey Donovan in Rome at jdonovan26@bloomberg.net

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Canadian Dollar Gains as Job Reports Boost Appetite for Risk

By Chris Fournier and Matt Townsend

Sept. 4 (Bloomberg) -- Canada’s dollar advanced the most in more than a week as investors’ appetite for riskier assets grew after government reports showed the nation unexpectedly added jobs in August and the U.S. shed fewer positions than forecast.

“People are putting risk back on,” said John Curran, a Toronto-based senior vice president at CanadianForex Ltd., an online foreign-exchange dealer. “The Canadian dollar should head back down toward the bottom of the well-established range.” A “rather large” option expiry next week at C$1.10 should limit Canadian dollar gains, he said.

The Canadian currency appreciated as much as 1.2 percent to C$1.0887 per U.S. dollar, the biggest intraday advance since Aug. 27, before trading at C$1.0969 at 9:09 a.m. in Toronto, from C$1.1019 yesterday. One Canadian dollar purchases 91.17 U.S. cents.

Employment in Canada increased by a net 27,100 jobs last month after a decline of 44,500 in July, the nation’s statistics agency reported today in Ottawa. The median forecast of 21 economists in a Bloomberg News survey was for a decrease of 15,000 jobs.

“The number was well above consensus,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “It certainly suggests an improvement. It’s not necessarily a defining moment in Canadian job creation, but it certainly suggests a more bullish direction for the Canadian economy and, by extension, the Canadian dollar.”

U.S. Job Report

U.S. employers eliminated 216,000 jobs in August after a revised decrease of 276,000 jobs in the previous month, the Labor Department reported today in Washington. The median forecast of 79 economists surveyed by Bloomberg was for a reduction of 230,000. The unemployment rate increased to 9.7 percent from 9.4 percent in July.

The Canadian currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, appreciated 11 percent this year. It weakened 1.5 percent against the greenback last month, performing worse than 13 of the 16 most-traded currencies tracked by Bloomberg. The loonie was the No. 1 performer in July, gaining 7.9 percent.

Canada’s dollar will strengthen by the end of next year against its U.S. counterpart to C$1.07, according to the median forecast of 37 economists and analysts in a Bloomberg survey.

To contact the reporters on this story: Matt Townsend in New York at mtownsend9@bloomberg.net; Chris Fournier in Montreal at cfournier3@bloomberg.net

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Euro Erases Gain Against Yen as Stocks, Bond Yields Fluctuate

By Oliver Biggadike and Ye Xie

Sept. 4 (Bloomberg) -- The euro erased its gain versus the yen as U.S. stocks and government bond yields fluctuated after the Labor Department said employers eliminated fewer jobs in August than economists forecast.

“It’s a slightly better-than-expected number,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “There’s too much uncertainty about how this will play out. From a recession point of view, we still have a long way to go.”

Canada’s currency rose against all of the 16 most-traded counterparts tracked by Bloomberg as Statistics Canada reported the first gain in jobs since April. New Zealand’s dollar increased against the greenback and yen as Chinese stocks extended yesterday’s biggest gain in six months.

The euro was little changed at 132.10 yen at 9:42 a.m. New York, compared with 132.03 yesterday, after earlier increasing 0.8 percent. The dollar appreciated 0.3 percent to $1.4210 per euro, from $1.4252, and rose 0.3 percent to 92.92 yen, from 92.64.

Employers eliminated 216,000 jobs in August after a revised decrease of 276,000 jobs in the previous month, the Labor Department reported today in Washington. The median forecast of 79 economists surveyed by Bloomberg News was for a reduction of 230,000. The unemployment rate increased to 9.7 percent.

The Dollar Index rose 1.2 percent to 78.975 on Aug. 7 as 10-year Treasury yields climbed after a report showed July payrolls dropped less than economists forecast. The gauge, which the ICE uses to track the currencies of six major U.S. trading partners, advanced 0.2 percent to 78.609 today.

Trichet on Recovery

The euro erased its gain versus the dollar yesterday as European Central Bank President Jean-Claude Trichet said the economic recovery will be “rather uneven” after holding the target lending rate at a record low of 1 percent.

“Trichet sounded extremely dovish,” a team of Commerzbank AG analysts including Ulrich Leuchtmann in Frankfurt said in a report today. “It is hardly surprising that the dollar was able to benefit from it.”

The Federal Reserve signaled in minutes of its August meeting published on Sept. 2 that it’s trying to prepare investors for an end to some of its asset purchases as the U.S. economy shows signs it’s beginning to recover from its worst recession since the Great Depression.

Treasury Secretary Timothy Geithner told reporters on the same day in Washington that it’s still “too early” for the Group of 20 nations to implement exit strategies. G-20 finance ministers and central bankers meet today and tomorrow in London.

The kiwi, as the New Zealand currency is known, advanced 0.9 percent to 63.30 yen and appreciated 0.5 percent to 68.17 U.S. cents.

Canada’s dollar strengthened 0.7 percent to C$1.0944 per U.S. dollar as Statistics Canada reported employment rose by 27,100, compared with economists’ median forecast of a drop of 15,000. The unemployment rate increased to 8.7 percent as the labor force grew faster than employment.

To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net

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Corn, Soybeans Head for Weekly Decline on High U.S. Harvests

By Jae Hur

Sept. 4 (Bloomberg) -- Corn and soybeans are poised for weekly declines on forecasts that rain last month will allow farmers in the U.S. Midwest to produce more of the crops than the government forecast.

Before today, corn fell 4 percent this week and the oilseed slumped 6.9 percent. U.S. corn output will total 13.01 billion bushels, Informa Economics Inc. said yesterday. The Department of Agriculture forecast 12.761 billion last month, up from an estimated harvest of 12.101 billion last year.

“Informa’s bearish supply forecasts were a weight on the Chicago grains and oilseeds, but at this stage the market should be well aware of the bountiful new crop supply,” said Toby Hassall, a research analyst at CWA Global Markets Pty in Sydney.

Corn for December delivery fell as much as 0.6 percent to $3.1375 a bushel in electronic trading on the Chicago Board of Trade by 4:37 p.m. in Singapore. The price touched $3.115 yesterday, the lowest since Aug. 17.

Soybeans for November delivery were little changed at $9.41 a bushel. Prices reached $9.295 yesterday, the lowest level since July 30.

The soybean crop will total 3.305 billion bushels and could reach 3.372 billion with favorable September weather, Informa said. The USDA is estimating a crop of 3.199 billion bushels and is scheduled to release its second survey-based production forecast on Sept. 11.

Inventories, Demand

“Very tight inventories and voracious Chinese import demand will makes soybeans very sensitive to any adverse late- season weather events,” CWA’s Hassall said.

U.S. exporters sold 110,000 metric tons of soybeans to China and 174,000 tons of corn to unknown buyers for delivery in the marketing year that ends Aug. 31, the USDA said yesterday.

China’s soybean output in 2009-2010 may fall by 14.8 percent to 14.05 million metric tons on adverse weather conditions, Li Qiang, chairman of Shanghai JC Intelligence Co., said today at a Beijing conference.

Wheat for December delivery in Chicago fell 0.1 percent to $4.7825 a bushel at 4:38 p.m. Singapore time. The price touched $4.7525 yesterday, the lowest level since Dec. 5. Before today, the grain had lost 3.3 percent this week.

Grain crops in Australia’s New South Wales, usually the nation’s second-largest wheat producer, may fail after rain forecast this week missed many areas. The state was forecast to produce 6.8 million tons of wheat, 1.6 million tons of barley and 321,000 tons of canola this season.

‘Pretty Disappointing’

Rainfall in the past two days was “pretty disappointing,” Frank McRae, grains specialist at the state’s Department of Industry and Investment, said today. As much as 30 percent of the winter crop, including wheat, barley and canola, may be in “dire straits,” he said.

Hot, dry weather in eastern parts of Australia and the forecast return of an El Nino has raised concerns that the nation’s grain output may miss forecasts. The country, the world’s fourth-largest wheat exporter, relies on rain in September to boost yields ahead of the harvest from November.

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

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Cocoa Exports From Indonesia Advance 60% in August

By Yoga Rusmana

Sept. 4 (Bloomberg) -- Cocoa bean exports from Indonesia’s Sulawesi island, the nation’s main growing region, surged 60 percent in August as farmers sold stockpiles to benefit from a gain in prices and raise funds ahead of a Muslim festival.

Shipments from South and Central Sulawesi provinces, which account for about four-fifths of Indonesia’s output, advanced to 47,527 metric tons last month compared with 29,725 tons in July, according to data today from the Indonesian Cocoa Association. Sales were 25,261 tons in August last year.

Increased shipments from the world’s third-biggest grower may help to arrest this year’s 9 percent gain in the price of the chocolate ingredient, which has risen on concern that global demand will exceed supply. Indonesia, with the world’s largest Muslim population, will mark Eid al-Fitr on Sept. 21.

“Now is the right time to sell beans as the price is high,” Herman Agan, the head of the association’s Central Sulawesi branch, said by phone from Palu. “Farmers need money to buy food and new clothes for the festival.”

Cocoa for December delivery slipped 0.5 percent to $2,923 a ton on ICE Futures U.S. in New York yesterday. Ivory Coast is the world’s top producer, with Ghana the second-biggest.

Indonesian exports in the first eight months of the year slid to 176,312 tons from 180,891 tons a year ago, the trade group said today. The country harvests most of its crop from April to July, with smaller volumes gathered until September.

Production in Indonesia may rise next year for the first time in four years as improved yields offset any setback from a lack of rain from an El Nino, Halim Razak, chairman of the association, said on July 9. Output in 2010 may gain to 500,000 tons from an estimated 480,000 tons this year.

El Ninos shift weather patterns around the world and can cause drought in the Asia-Pacific.

To contact the reporter on this story: Yoga Rusmana in Jakarta at yrusmana@bloomberg.net

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Crude Oil Rises for First Time in Five Days as Equities Gain

By Grant Smith

Sept. 4 (Bloomberg) -- Crude oil rose for the first time in five days as rising equity markets encouraged hopes that the economic recovery is still on track.

Oil is nonetheless set for a weekly decline amid forecasts that the Organization of Petroleum Exporting Countries will keep production targets unchanged when it meets next week. Floor trading in New York will close for Labor Day on Sept. 7, marking the end of the peak gasoline consumption period in the U.S., where the jobless rate is at the highest since 1983.

“Medium-term our forecast is for a weaker dollar that might support oil prices,” said Sintje Diek, an analyst with HSH Nordbank in Hamburg. “But the bigger point is that the fundamental situation doesn’t support prices above $70, and risk aversion may lead to a correction.”

Crude oil for October delivery advanced as much as 82 cents, or 1.2 percent, to $68.78 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded for $68.05 as of 1:03 p.m. London time.

Oil has declined almost 6 percent this week, the biggest drop since the week to July 10, as early gains during each trading session have been erased before the close.

Europe’s Dow Jones Stoxx 600 Index advanced 1.4 percent to 233.95 at 1:36 p.m. in London.

OPEC members, due to meet in Vienna Sept. 9, have implemented about 71 percent of the 4.2 million barrels a day of supply cuts agreed on last year, according to data compiled by Bloomberg. The group pumps 40 percent of the world’s oil.

OPEC President

Jose Maria de Botelho Vasconcelos, the organization’s president and Angolan oil minister, said on Sept. 2 that the 12- member group would hold its current course to avoid higher oil prices derailing the global economic recovery.

OPEC will reduce shipments by 1.1 percent in the month to Sept. 19, according to consultant Oil Movements. The producer group will export 22.34 million barrels a day by sea in the four-week period, down from an average of 22.58 million barrels a day in the month to Aug. 22, the U.K. tanker tracker said in a report yesterday.

The U.S. jobless rate in August jumped to 9.7 percent, the highest since 1983, and employers cut another 216,000 jobs, highlighting threats to consumer spending.

The increase in the unemployment rate from 9.4 percent exceeded forecasts. The smaller-than-anticipated drop in payrolls was the least in a year, and followed a decrease of 276,000 in July that was larger than previously reported, Labor Department data showed today in Washington.

Brent crude oil for October settlement on the London-based ICE Futures Europe exchange traded up 20 cents at $67.32 a barrel as of 1:34 p.m. London time.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net;

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Fortis Plans to Hire at Least 10 Commodities Traders

By Claudia Carpenter

Sept. 4 (Bloomberg) -- Fortis Bank (Nederland) NV, owned by the Dutch government, plans to hire at least 10 commodities traders, brokers and sales people as it expands from energy into precious and industrial metals and agriculture.

Seven agriculture brokers from BNP Paribas Fortis including Jonathan Parkman and Eric Sivry will join in London in November, said Seb Walhain, global head of energy, carbon and commodities at Fortis Bank in Amsterdam. That will take the team to 15 in London and Amsterdam and Fortis is also hiring for its Hong Kong and New York offices, he said. The commodities business now covers oil and environmental products such as emissions trading.

“We will offer a full range of products from energy to carbon and commodities,” Walhain, 37, said by phone today. “We want to hire another 10 people and if all goes well maybe another 20 people” by the end of the year.

Societe Generale SA, Bank of America Corp., Barclays Plc and Morgan Stanley are among banks hiring commodity personnel after copper prices doubled and crude oil jumped 54 percent this year. Commodity prices as measured by the Standard & Poor’s GSCI Index of 24 commodities jumped 27 percent this year, exceeding a 16 percent gain in the MSCI World Index of stocks and a 2.8 percent drop in Treasuries.

Banking and Insurance

The Netherlands bought Fortis’s Dutch banking and insurance units and its stake in ABN Amro Holding NV for 16.8 billion euros ($24 billion) after the company ran out of short-term funding. Pascal Henisse, a spokesman for BNP Paribas in Paris, didn’t immediately respond to e-mails seeking comment.

“We’ve been in commodities for centuries,” Walhain said. “We lost some of the business as part of all the turmoil and we’re just getting back into it as soon as we can.”

Walhain said he plans to go to New York next week to recruit for the office on Park Avenue.

Fortis Bank’s merchant banking business, which includes energy, commodities, transportation and principal finance, had net income of 39 million euros ($55.6 million) in the first half of the year, according to a presentation on the company’s Web site. Total profit fell to 338 million euros from 543 million euros a year earlier, the company said last month.

The Dutch government plans to merge all of Fortis Bank’s assets under the ABN Amro name and then sell it to private investors after 2011.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net

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Copper Premiums Drop in China as Asia Stockpiles Soar, CRU Says

By Chanyaporn Chanjaroen

Sept. 4 (Bloomberg) -- Surcharges added to copper prices, a signal for demand, have dropped as much as about 40 percent in China as Asian stockpiles swell in response to slower buying in the world’s largest consumer of the metal, CRU said.

The so-called copper premium has slid to between $70 and $90 a metric ton in Shanghai, according to Paul Settles, an analyst at the London-based commodities researcher. The premium, which includes freight and insurance and is paid on top of London Metal Exchange prices, was $120 in the first week of August, he said.

LME-tracked inventories in South Korea, the nearest location to China, have soared more than 26-fold to 27,075 tons from 1,025 tons at the end of June. Copper stockpiles have dropped in Europe and the U.S., drained by record first-half imports into China, where the government is spending 4 trillion yuan ($586 billion) to stimulate the local economy.

“China has got a bit of stockpile, and they will have to work that down before they come back to the market,” Settles said yesterday by phone. “It might be later in the fourth quarter or in the first quarter next year” when buyers from the country resume purchases in the physical market, he said.

Copper inventories in LME-registered European warehouses have plunged 77 percent from the year’s peak in February. In the U.S., inventories tracked by the exchange have declined 17 percent from April’s high.

European Premiums

Any drop in South Korean inventories would indicate a pickup in Chinese purchases, Leon Westgate, an analyst at Standard Bank Plc in London, said yesterday in a daily report.

In Europe, so-called spot premiums have slid to between $60 and $85 a ton in Rotterdam from this year’s peak of $90 to $110 in June, according to CRU. U.S. premiums have dropped to around 4 cents to 4.5 cents a pound over LME prices from as much as 5.5 cents in May and June, Settles said.

Copper has doubled this year on the LME after plunging in 2008 as commodities dropped in the second half. Consumption in China has expanded at a “double-digit” rate, Settles said. At the same time, usage has slid at similar paces in the U.S., European Union nations and other leading consumers, he said.

“It appears that we’ve hit the bottom, especially if macroeconomic indicators are to be believed,” said Settles. “The question is how strong the recovery will be, in both the world economy and copper demand.”

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net

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Japan Stocks Fall, Led by Daiwa Securities, Dainippon Sumitomo

By Patrick Rial and Satoshi Kawano

Sept. 4 (Bloomberg) -- Japanese stocks declined to their lowest close in more than a month as Daiwa Securities Group Inc. entered talks to dissolve a venture and chemical producers sagged on concern demand isn’t recovering.

Daiwa slumped 6.1 percent after Sumitomo Mitsui Financial Group Inc. said the companies are in talks to end their venture, leaving Daiwa without a banking partner. Sumco Corp. lost 4.7 percent after the Nikkei newspaper said the world’s second- largest maker of silicon wafers will cut production capacity. Dainippon Sumitomo Pharma Co. plunged 6.1 percent after Bank of America Corp. lowered its investment rating on the stock.

“I’m guessing we’ll see the correction continue before a real buying opportunity emerges,” said Hiroshi Morikawa, a senior strategist at MU Investments Co., which manages the equivalent of $13 billion. “Recent data has been fundamentally strong, but the market is showing a lukewarm reaction.”

The Nikkei 225 Stock Average lost 0.3 percent to 10,187.11 at the close of trading in Tokyo, reversing a 0.4 percent climb. The broader Topix index slipped 0.8 percent to 935.74, with more than three times as many stocks falling as rising. Both measures finished trading at the lowest levels since July.

In the last five days, the Nikkei fell 3.3 percent, while the Topix lost 3.5 percent, the most in eight weeks.

Investors avoided taking large positions ahead of U.S. unemployment data today that may give an indication on the state of the economic recovery, Morikawa said.

U.S. Unemployment

Companies cut payrolls by 230,000 workers, according to economists surveyed by Bloomberg. Estimates ranged between 100,000 and 365,000 jobs cut.

“Opinions on the unemployment data are at polar opposites, making investors wary of diving into the market today,” Morikawa said.

Japanese companies slashed capital spending in the second quarter by 22 percent from the previous year, a ninth consecutive drop, the Finance Ministry said today.

Daiwa fell 6.1 percent to 508 yen, its largest drop since June 29 and the steepest decline in the Nikkei 225. Sumitomo Mitsui slipped 2.1 percent to 3,770 yen. Nomura Holdings Inc., Daiwa’s larger rival, slumped 3.7 percent to 755 yen. The Topix gauge of securities companies had the biggest loss among 33 industry groups in the broader measure.

Daiwa may pay about 200 billion yen ($2.16 billion) to buy out Sumitomo Mitsui’s 40 percent stake in their brokerage venture, the Nikkei reported, citing unidentified people at both companies. Sumitomo Mitsui may lend Daiwa about 100 billion yen for the transaction, the report said.

‘Weaker Business’

“Daiwa will be a weaker business trying to survive as an independent company with competitors that have mostly strengthened,” said David Threadgold, a Tokyo-based analyst at Fox-Pitt Kelton. “MUFG is putting Mitsubishi UFJ Securities together with Morgan Stanley Japan, Nomura has beefed up with Lehman and Daiwa’s old partner will now be a competitor.”

Dainippon Sumitomo slumped 6.1 percent to 963 yen, a day after agreeing to buy U.S. drugmaker Sepracor for $2.6 billion to gain a U.S. sales force and experimental treatments in the world’s biggest drug market. Ritsuo Watanabe, an analyst at Bank of America, cut the stock to “underperform” from “neutral.”

Sumco dropped 4.7 percent to 1,969 yen. The company will lower 300 millimeter wafer production capacity by 10 percent, the Nikkei reported, indicating demand has yet to recover. Sumitomo Chemical Co., Japan’s second-largest chemical producer, slid 2.8 percent to 420 yen. Mitsubishi Gas Chemical Co. fell 3.3 percent to 500 yen.

Seven & I Holdings Co., the operator of 7-Eleven convenience stores, dropped 2.3 percent after Bank of America cut the shares to “neutral” due to projected weakness in the company’s department stores and general merchandise shops.

Toshiba Corp., Japan’s biggest maker of nuclear reactors in terms of power capacity, retreated 2.3 percent to 466 yen. The company may pay 500 billion yen ($5.4 billion) for the power transmission and distribution unit of Areva SA, Reuters reported, citing Jiji Press.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Satoshi Kawano in Tokyo at Skawano1@bloomberg.net.

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Asian Stocks Fluctuate as Brokerages Downgrade Seven & I, Hynix

By Shani Raja

Sept. 4 (Bloomberg) -- Asian stocks fluctuated, with the MSCI Asia Pacific Index set for its third weekly drop in five, as brokerage downgrades of Seven & I Holdings Co. and Hynix Semiconductor Inc. countered a rally in metal prices.

Seven & I, the world’s largest convenience store operator, fell 2.3 percent in Tokyo and Hynix Semiconductor Inc., the world’s No. 2 maker of computer-memory chips, sank 5.7 percent in Seoul. Zijin Mining Group Co., China’s largest gold miner, climbed 2.2 percent after the metal jumped to a six-month high. Henan Yuguang Gold & Lead Co. surged 10 percent in Shanghai.

The MSCI Asia Pacific Index was little changed at 112.80 as of 7:23 p.m. in Tokyo, with about as many stocks rising as falling. The gauge has lost 1 percent this week, paring its advance from a five-year low on March 9 to 60 percent. The rally has taken the average price of stocks on the measure to 1.5 times book value, close to a 12-month high.

“We’ve seen that economically things are improving, but the big question is how much of that is already in the price,” said Matt Riordan, who helps manage about $3.8 billion at Paradice Investment Management in Sydney. “We need to see companies pushing up their guidance. If that doesn’t happen it means things are looking pretty full on the valuation side.”

Japan’s Nikkei 225 Stock Average lost 0.3 percent, erasing an earlier 0.4 percent advance. Daiwa Securities Group Inc. sank 6.1 percent after Sumitomo Mitsui Financial Group Inc. said it’s in talks to end a brokerage venture between the two.

China’s Shanghai Composite Index advanced 0.6 percent, and Hong Kong’s Hang Seng Index gained 2.8 percent. China Resources Enterprise Ltd. surged 5.2 percent after JPMorgan Chase & Co. and Nomura Holdings Inc. raised their ratings.

Board Changes

Australia’s S&P/ASX 200 Index gained 0.1 percent. Asciano Group, the country’s largest port and rail operator, climbed 6 percent after announcing changes to its board. Taiwan’s Taiex Index added 0.7 percent.

Futures on the Standard & Poor’s 500 Index added 0.3 percent. The gauge climbed 0.9 percent yesterday, ending a four- day losing streak, as supermarket operator Costco Wholesale Corp. and clothier Gap Inc. reported sales that beat estimates.

Seven & I fell 2.3 percent to 2,100 yen after Hidehiko Aoki, an analyst at Bank of America Corp.’s Merrill Lynch & Co. unit, downgraded the stock to “neutral” from “buy.”

Dainippon Sumitomo Pharma Co., which offered to buy U.S. drugmaker Sepracor Inc. for $2.6 billion yesterday, sank 6.1 percent to 963 yen. Ritsuo Watanabe, also at Merrill Lynch, lowered the stock to “underperform” from “neutral” because of expiring patents at Sepracor.

Seen The Bottom?

Hynix slumped 5.7 percent to 20,800 won in Seoul. Daewoo Securities Co. cut its rating to “hold” from “buy,” saying the share price already reflects an improved earnings outlook.

“A lot of companies are saying things have seen a bottom but they’re not prepared to go out there and say they’re confident,” said Riordan. “We’re going to want to see that start to happen in the next few months.”

Zijin Mining climbed 2.2 percent to HK$7.03 in Hong Kong trading. In Sydney, Avoca Resources Ltd., an Australian producer, gained 2.7 percent to A$1.695 Australian cents, while Dominion Mining Ltd. surged 7.9 percent to A$4.37.

Gold futures in New York jumped to a six-month high yesterday, reaching $999.50 an ounce, on speculation a weak dollar will boost demand for precious metals as an alternative investment. An index of six metals in London climbed 1.6 percent yesterday, the most since Aug. 28.

Daily Limit

Lead jumped as much as 3.3 percent in London, following a 7.8 percent surge yesterday. Henan Yuguang, China’s top producer of the metal, gained by the 10 percent daily limit to 18.30 yuan. Shenzhen Zhongjin Lingnan Nonfemet Co. added 7.2 percent to 22.77 yuan.

China Resources, with interests as diverse as food processing, retailing and ports, advanced 5.2 percent to HK$19.56. JPMorgan raised its rating to “overweight” from “neutral” after the company’s profit from beverages more than doubled in the first half. Nomura upgraded the stock to “buy.”

The MSCI Asia Pacific Index’s rally since March came as economic and earnings figures bolstered optimism the worst of the global economic crisis has passed.

This week, Australia’s statistics bureau reported second- quarter gross domestic product growth that was faster than economists estimated, while Japan’s Trade Ministry said Aug. 31 that industrial production climbed 1.9 percent from June, also exceeding economist targets.

Beating Predictions

The stock rally boosted the average price of stocks in the MSCI Asia Pacific Index to 23 times estimated earnings, up from 17.6 times at the start of the year, data compiled by Bloomberg show. The S&P 500 is at 16.7 times, while the Dow Jones Stoxx 600 Index is at 14.8 times.

“I’m guessing we’ll see the correction continue before a real buying opportunity emerges,” said Hiroshi Morikawa, a senior strategist at MU Investments Co., which manages the equivalent of $13 billion. “Recent data has been fundamentally strong, but the market is showing a lukewarm reaction.”

Japanese businesses cut spending for a ninth quarter as the global recession squeezed profits, the Finance Ministry said today in Tokyo, underscoring the challenge for the country’s new government to sustain an economic recovery.

Daiwa fell 6.1 percent to 508 yen, while Sumitomo Mitsui, Japan’s second-biggest bank, lost 2.1 percent to 3,770 yen. The companies said in separate statements that no final decision had been made on ending their brokerage venture.

In Sydney, Asciano climbed 6 percent to A$1.60. The company said Malcolm Broomhead will take over as chairman from Tim Poole, who will step down from the role at the company’s annual meeting in October. Broomhead is a former managing director of Melbourne-based Orica Ltd., the world’s largest maker of industrial explosives.

Babcock & Brown Infrastructure Group slumped 22 percent to 6.1 Australian cents. The fund said an asset-sale program won’t enable it to meet 2010 financial-year debt maturities, even as the company negotiates with a potential cornerstone investor.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.

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