Currencies: Dollar Slide Contiues

Daily Forex Fundamentals | Written by KBC Bank | Oct 14 09 07:34 GMT |

Sunrise Market Commentary Global bonds extend rebound after US trading resumes, but sentiment remains fragile Yesterday, bonds extended Monday's rebound after US trading resumed following Columbus Day Holiday. Strong earnings from Intel and ASML overnight and a strong performance of the Asian equity markets point to a higher opening of the European and US equity markets today. A sustained break higher would hurt the bond markets. Dollar slide contiues On Tuesday, the slide of the dollar continued, even as the global context was not really dollar unfriendly with equities falling prey to a (limited) profit taking move. The EUR/USD 1.50 mark is coming within reach. Sterling remained under pressure early in the session, but the storm calmed down despite a lower than expected UK CPI The Sunrise Headlines On Tuesday, US Equities ended slightly lower after a six-day rally. Dow/S&P lost 0.15% / 0.28% led by financials and healthcare. This morning, most Asian shares gain after upbeat economic data from China and Australia. The Bank of Japan left rates on hold, but upgraded its view on the Japanese economy, saying it was recovering. Its assessment on financial conditions stayed unchanged from last month. The recovery in China's economy gained new impetus on Wednesday as the trade balance improved sharply in September. In September, New Zealand's housing sector improved to its best position in a year and the central bank said it would end some emergency support measures amid a recovering economy. Yesterday, Intel Corp reported higher than expected third quarter results and issued an upbeat outlook for the current quarter. ASML; Europe's largest maker of semiconductor equipment, reported its first profit after three consecutive quarters of losses as demand for the chip industry improved. Crude oil extends its rebound, rising above $72 a barrel ahead of the weekly inventory data from the American Petroleum Institute. Gold prices reached a fresh alltime high Today, the calendar contains the UK jobless claims, euro zone industrial production and US retail sales. JPMorganChase will announce third quarter results EUR/USD On Tuesday, the dollar continued to cede ground against most majors. The context was not really dollar unfriendly as the German ZEW confidence came out weaker than expected. Stocks showed a moderate correction too, but this was also not enough for a sustained USD rebound. Technical factors (EUR/USD buying interest from Asian central banks) were said to be behind the move. So, EUR/USD initially hovered in the 1.4750 area, but going into the US trading hours a new wave of dollar selling kicked in. The dollar was also loosing ground against the battered sterling. This illustrates the underlying weakness of the US currency. A poor start of the US stock markets caused a temporary EUR/USD correction to the 1.4800 area, but the pair still closed the session with a decent gain at 1.4853 compared to 1.4773 on Monday evening. During the day, there were some news headlines on the screens that China and Russia would look to expand the use of their national currencies in bilateral trade. This was not really a market mover, but is another small sign of the erosion of the dollar's status a reference currency. After the close of the European markets, Fed's Kohn in a speech sounded rather dovish. His remarks left hardly any trace on the USD charts. However, they confirm that dollar won't receive any support from a change in the Fed policy anytime soon. After the closing of the market, Intel came out with better than expected earnings and a positive outlook. This is supporting risktaking in Asia this morning and EUR/USD is once again joining this move, with the pair trading in the 1.4880 area at the moment of writing EUR/USD: heading to the 1.50 mark Support comes in at 1.4839 (Reaction low hourly), at 1.4802/97 (STMA/Daily envelope), at 1.4762/40 Reaction low/Break-up hourly), at 1.4699/93 (Boll Midline/MTMA). Resistance stands at 1.4890 (Reaction high), at 1.4911/18 (Target Channel break/Daily envelope), at 1.4931/84 (1st/2nd Irr B), at 1.5008/21 (Envelope monlty/2nd target double bottom). The pair is in overbought territory USD/JPY Today, the calendar is fairly interesting. The European industrial production data might cause some headlines on the screens but are not important for the currency market. Later in the session, the US retail sales have more market moving potential. The consensus expects a monthly decline of -2.1%, due to autos. After the close of the European markets, the Fed minutes deserve some attention, too. Recently, some Fed members started to talk on the exit of QE. It will be interesting to see whether this debate was already a real issue at the previous Fed meeting. Of course, the key focus of al markets will again be on the stock markets and the corporate earnings. Better than expected results of Intel in the US and of ASML in Europe suggest a positive start of the stock markets in Europe this morning. Later today global markets will keep a close eye at the results of JP Morgan. At least for now, the global context is looking EUR/USD supportive. Global context: recently, the swings in risk appetite/risk aversion were the evident drivers on the currency markets. In this context, improving investor sentiment towards risk is still considered a good reason to sell the US dollar. On top of that, in this low yield environment, the dollar has become (or is at least perceived to have become) the preferred currency to fund carry-trade deals. Lingering uncertainty on the huge US financing needs, some international debate on the status of the dollar and the Fed's intention to run an expansionary monetary policy for a prolonged period of time offer additional ammunition for carry traders to use the dollar rather than other currencies. This has put the dollar in a vulnerable position. We don't see many reasons to turn dollar positive before it becomes clear that the Fed will start tightening monetary policy. We don't expect a turnaround in policy anytime soon. Any correction on the stock markets might still have some impact on EUR/USD. In this respect, the earnings season is coming in full swing this week and as the US indices are near the cycle top and close to key resistance, it may be a break or make week for equities this week. The first corporate earnings are encouraging and this continues to put a strong floor for EUR/USD trading, too. Looking at the (technical) charts, the break of EUR/USD above the range top at 1.4438/48 improved the picture. The pair extensively tested the key 1.4719 December high and even set a new minor high (1.4844). At first there was no follow-through action on this 'break' yet. The subsequent correction narrowly missed the 1.4438/50 break-up area, put forward as offering a good opportunity to step in again and the pair resumed its gradual uptrend. The move was/is not really that spectacular, but it looks that the break above 1.4719 has been confirmed. So, if stocks would build on the current positive momentum, the 1.5021 target (2nd target double bottom of 1.3739) will soon come in the picture. The trend is your friend and the EUR/USD trend is obviously to the upside. On Tuesday, USD/JPY was locked in a rather narrow intraday trading range roughly between 90.20 and 89.45. However, in line with trading on most other major cross rates the bias was USD-negative, too. USD/JPY closed the session at 89.71 compared to 89.82 on Monday evening. This morning, the BOJ as expected left its policy rate unchanged at 0.1%. The bank did upgrade its view on the economy. On the other hand, they didn't give any indication on the fate of its temporary steps to facilitate corporate finance. Probably, even more interesting from a currency point of view: Japanese Deputy Finance Minister Minezaki said in an interview that Japan should not conduct intervention as soon as the yen rises. Rapid swings in foreign exchange are still seen undesirable. However, the Deputy Minister considered the current move as dollar weakness and rather than yen's strength and he expected this dollar weakness to persist. We don't understand the tactics behind this kind of yen-supportive talk (Would it be better to keep silent even if one implicitly agrees with the current move?). Whatever the tactical approach, the yen got another short in the arm this morning and USD/JPY dropped to the 89.00 area. Asian stock markets mostly are in positive territory (Japan is the exception to this rule). However, this has no big impact on the USD/JPY downtrend. Global context: USD/JPY reached a reaction high in the 97.80 area early August. Despite positive global investor sentiment, the dollar could not hold on to its gains against the yen. The link between USD/JPY and global investor risk aversion/risk appetite became less tight and sometimes it had even reversed. The dollar (and not the yen) was said to have become the preferred funding currency for carry trades. So, the price action in USD/JPY more or less joined the global dollar trend (decline). The long-term trend obviously remains USD/JPY negative. However, recently, we turned more cautious on USD/JPY shorts on technical considerations. On top of that, the change in talk from the Japanese authorities also slowed the ascent of the yen. So, the situation in USD/JPY has become a bit paralysed. We looked to sell USD/JPY in case of a more pronounced up-tick hopeful in the 92/93 area. However, the price action over the last 24 hours suggests that this area will be difficult to reach. The 90.50 area already looks like a hard nut to crack. The 87.10 (year low) area remains the next high profile target on the downside for this pair. USD/JPY: yen regains traction Support is seen at 88.65/42 (Reaction low/break-up hourly), at 88.17/10/05 (Weekly envelope/ Boll Bottom/ Last week low) and at 87.10 (Year low). Resistance comes in at 89.57 (breakdown hourly), at 90.02 (Bollinger midline), at 90.47/55 (30 Sep high/Daily +weekly envelope) at 90.90 (LTMA). The pair is in neutral territory. EURGBP On Tuesday, it looked at first that the sterling sell-off would continue at the same speed as was the case over the previous days. Better than expected BRC retail sales and a second consecutive positive reading of the RICS house price balance were no help for sterling. The same was true for the UK CPI. UK consumer prices rose only 1.1% Y/Y from 1.6% Y/Y in August. The lower than expected inflation reading reinforced the market feeling that the BoE has every reason to maintain a stimulating monetary policy for a prolonged period of time. EUR/GBP tested twice the 0.9400 area, but a sustained break didn't occur. Later in the session, BoE's Bean gave a speech the implications of quantitative easing. The speech was mostly educational in nature and we didn't read any market sensitive info in it. At that time, the euro lost temporary some ground across the board and this time EUR/GBP joined this global intraday correction. Yesterday, there was a slight underperformance of ST UK government bonds vis-à-vis their European counterparts. However, this was a reversal of Monday's outperformance. So, we don't see this as strong signal for trading sterling yet. So, it looks that the sterling storm is calming a bit. EUR/GBP closed the session at 0.9331, even slightly lower compared to the 0.9351 close on Monday. Today, the UK labour market data are on the agenda. The market expects a rise in the jobless claims by 24.5 K in September. The jobless rate is expected to go up from 5.0% to 5.1% .We have the impression that better/less negative eco data have to potential to trigger a ST sterling positive correction. The positive sentiment to risk might also (at least temporary) ease the pressure on sterling. Global context: Since early August, sterling sentiment deteriorated again. The August BoE decision to raise the asset purchase program to £175B and Governor King's call for an even greater effort indicated that the Bank intended to maintain a loose policy for a prolonged period of time. This triggered a new sterling selling wave. At the September meeting, the BoE took no additional policy steps. Nevertheless, the (monetary) picture stays sterling negative and more BoE talk on the positive effects of sterling weakness for the UK economy reinforced investors' feeling that the BoE was quite happy with the course of events. We have a long-standing sterling negative view and don't feel any need to change it. However, recently we advocated some caution on the recent steep EUR/GBP rise. We were looking for a correction to go add/reinstall EUR/GBP long positions. We hold on to the view. The 0.9160 reaction low is the first important support level on the charts. The 0.9080 area remains the key point of reference. EUR/GBP: sterling to enter calmer waters? Support comes 0.9314 (Reaction low), at 0.9304/99 (daily envelope/ break-up), at 0.9269/41 (Reaction low/weekly envelope), at 0.9223 (MTMA), at 0.9160 (reaction low). Resistance is seen at 0.9353 (Breakdown), at 0.9386/99 (Boll top/daily envelop), at 0.9413/17 (Reaction high/27 March high), at 0.9373 (76 % retracement) and at 0.9490/20 (March/Febr. high). The pair is in overbought conditions. News EMU: ZEW disappoints again in October In October, the German ZEW indicator showed its first decline in one year. The headline index dropped from 57.7 to 56.0, while the consensus was looking for a slight increase (to 58.8). The current situation, on the contrary, rose from -74.0 to - 72.2, the fifth consecutive improvement, but the increase was somewhat smaller than expected. After the impressive rally, the ZEW disappointed in the last two months, but we wouldn't take it too serious and wait for the more reliable IFO and PMI's to take a conclusion. Other: UK inflation drops more than expected in September In the UK, CPI inflation stayed flat on a monthly basis in September. The yearly figure dropped from 1.6% Y/Y to 1.1% Y/Y, while the consensus was looking for an outcome of 1.3% Y/Y. Looking at the details, food & non alcohol dropped by 0.9% M/M, transport by 1.5% M/M and communication by 0.3% M/M. Prices of clothing & footwear (3.6% M/M), education (1.8% M/M), and household (1.6% M/M) rose significantly. Core CPI came out in line with expectations falling from 1.8% Y/Y to 1.7% Y/Y. From next month onwards, however, base effects from crude oil are likely to see yearly inflation figure creep up again. Download entire Sunrise Market Commentary Disclaimer: This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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Japan's Central Bank Decides To Keep Their Non-Standard Financial Policies

Daily Forex Fundamentals | Written by ecPulse.com | Oct 14 09 07:18 GMT |

Japan's central bank decided today to maintain its interest rates unchanged at 0.10% the tenth consecutive meeting, indicating however that it feels optimistic about the economy, which started recovering. Yet it did not mention ending their non-standard financial policies. Today's decision was unanimous, but Japan's central bank governor Mr. Shirakawa indicated that the need for the non-standard financial policies is less than before, as Japanese companies have become capable to obtain any necessary funding without government support. After these remarks it was widely expected for the central bank to announce ending their non-standard financial policies represented by buying bad debt and pumping funds into companies, which was started since last December when the intrest rates was lowered to its current level 0.10%. But since it did not mention ending their non-standard financial policies yet, its obvious that the central bank needs more time to make sure of the ability of small firms to obtain the necessary funding before the elimination of those financial policies, which had the biggest impact on the economy which was dragged out of recession. The central bank said in a statement accompanying the rate decision today that public investment had improved during the last period and that productivity and exports witnessed an increase as a result to the improving global demand especially from the Chinese economy, which replaced the U.S. economy by becoming the most important trade partner with Japan. As for the annual consumer price index, the central bank indicated that there are increases deflationary risks, as a result to the falling energy and food prices compared with last year's levels. As for the expectations on the medium to long term until 2010 the bank indicated that the decline in consumer price will become moderate especially with the stability foreseen in crude oil prices compared with last year The central bank also seen a better performance by the emerging economies that previously expected. Yet the downside risks for the Japanese economy continue to exist because of the fluctuations in the global financial markets and economic conditions, as well as the change in the companies' growth expectations over the medium to long term. Therefore the central bank will focus next on the downside risks faced by the economy and increase its efforts to stabilize prices. Meanwhile Japan released also its consumer confidence index during the month of September, which rose to 40.7 compared to the previous reading of 40.4. as for the households confidence also during the month of September it rose to its highest level in the 23 months to 40.5 compared to the previous reading of 40.1. all this was a result to the government stimulus plans and the improvement in companies profits which might lessen layoffs, thereby stabilize the income. Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk

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Forex Technical Update

Daily Forex Technicals | Written by India Forex | Oct 14 09 07:43 GMT |

Rupee : Rupee is maintaining strength after break of 47.80 trendline support. Upmove/Retracements can be seen till 47.40 levels maximum. Selling at every rally in dollar is recommended till 47.40 levels. Until we see a break of 48.00 levels again on a closing basis the bias of rupee is quite strong. Medium term target 45.85. levels. (USD/INR 46.10) Clearly Bullish Euro : EURO failed to break the support of 1.4680 levels and regained fresh momentum from the 21 day EMA support. 1.48 levels remains the key support level for today we would watch any reaction around that area before being bullish again. Consistent movement below that area could be a potential threat to the bullish outlook and challenging near 1.45 levels and its rejection to maintain above 1.4850 could be an important even in longer term which could potentially trigger a significant bearish reversal. Staying above 1.4860 levels would move the euro to 1.4930 and 1.50 levels.(EUR/USD-1.4880) Slight Bullish Sterling :GBPUSD had taken a significant support at 1.57 levels yesterday and made a reversal pattern in daily charts. The bias is slightly bullish in short term and could reach till 1.6030 levels. Look at cautious shorts over there with tight stops. While broad Dollar weakness continues, violation of the major trendline resistance around 1.6100 could be a potential starting point for a bullish reversal scenario. Immediate support at 1.5880/50 area. Break below that area should keep the overall bearish scenario intact re-testing 1.5707.(GBP/USD 1.5963) Slight Bullish. Yen : Yen made another indecisive movement yesterday, formed a Doji on daily chart. On the h4 chart below we can see that the pair still able to stay above 89.60/30 area. The short term bearish case for yen remains intact. We also have a 'flag' formation, which is technically a bullish formation especially if we have a breakout above the 'flag' targeting 91.50 area. However, a valid break below 89.60/30 area should be seen as potential threat to the bearish correction scenario. (USD/JPY 89.04) Slight bearish. Aud : AUD accelarated with renewed momentum yesterday . Currently trading at 0.9130 levels , the pair looks highly overbought and poised for the meltdown triggering some downside retracement towards 0.9000 area but short position is not recommended at this phase. Move near 0.9180 is possible. (AUD/USD -0.9123) Bullish Gold : Gold has yet again made a record high of $1069 levels this morning breaking the earlier high. This strength in the yellow metal seem to sustain in the near term.(GOLD $1068.35)Bullish Dollar Index :The view on Dollar Index (basket against 6 currencies with EUR accounting for 57% of the basket) stays neutral. The next major support close to 75.50 has reached , breaking and maintaing below that would again make fresh lows to 74 dollars. Staying above 75.50 looks most likely lead to a decent correction.(Dollar Index - 75.65).Neutral India Forex http://www.indiaforex.in DISCLAIMER These views/ forecasts/ suggestions, though proferred with the best of intentions, are based on our reading of the market at the time of writing. They are subject to change without notice.Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. Those acting in the market on the basis of these are themselves responsible for any profits or losses that might occur, without recourse to us. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved.

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Forex Technical Analytics

Daily Forex Technicals | Written by FOREX Ltd | Oct 14 09 07:09 GMT |

CHF The estimated test of key resistance range levels has not exactly been confirmed but the estimated rate fall marked sign of rate oversold, and this reduces probability of strong rate fall. Therefore, at the moment, considering the chosen strategy, we can assume probability of rate range movement period with the test of close 1,0220/40 resistance levels, where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for short-term sales on condition of formation of topping signals, the targets will be 1,0160/80 and (or) further break-out variant up to 1,0100/20, 1,0040/60, 0,9980/1,000. The alternative for buyers will be above 1,0300 with the targets of 1,0340/60, 1,0400/20. GBP The pre-planned break-out variant for buyers was implemented but with the achievement of minimal estimated targets. OsMA trend indicator having marked bullish party activity priority at the break of key resistance range levels gives grounds to suppose further rate rise. Therefore, at the moment, considering descending direction of indicator chart we can assume probability of rate return to close 1,5900/20 supports where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for short-term buying positions on condition of formation of topping signals the targets will be 1,5960/80, 1,6020/40 and (or) further break-out variant up to 1,6080/1,6100, 1,6140/60, 1,5200/40. The alternative for sales will be above 1,5800 with the targets of 1,5740/60, 1,5680/1,5700. JPY The pre-planned break-out variant for sales was implemented and the achievement of estimated targets is supported, according to OsMA trend indicator version, by the tendency of strengthening of bearish activity levels at the break of key supports range level. Therefore, at the moment, as for opened sales the targets will be 88,40/60, 87,80/88,00 levels and (or) further break-out variant up to 87,20/40, 86,80/87,00. The alternative for buyers will be above 90,00 with the targets of 90,40/60, 91,00/20, 91,60/80. EUR The pre-planned break-out variant for buyers was implemented with overlap of minimal estimated target. OsMA trend indicator, having marked activity fall of both parties that considering the chosen strategy does not clarify the choice of planning priorities for today. Nevertheless, considering probability of keeping of the current tendency we can assume probability of rate return to close 1,4820/40 supports, where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for short-term buying positions on condition of the formation of topping signals the targets will be 1,4880/1,4900 and (or) further break-out variant up to 1,4940/60, 1,5000/20, 1,5060/80. The alternative for sales will be below 1,4760 with the targets of 1,4700/20, 1,4640/60. FOREX Ltd www.forexltd.co.uk

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U.S. Will Set Guidelines to Modify Commercial Real-Estate Loans

By Alison Vekshin

Oct. 14 (Bloomberg) -- U.S. bank regulators, saying losses on souring commercial real-estate loans pose the biggest risk to lenders, will issue guidelines to help the institutions modify the agreements.

Reduced demand for space has led to falling rental rates, adding to losses on the loans, leaders of the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Office of Thrift Supervision said in remarks prepared for delivery at a Senate Banking Committee hearing today.

“The most prominent area of risk for rising credit losses at FDIC-insured institutions during the next several quarters is in CRE lending,” FDIC Chairman Sheila Bair said, referring to commercial real estate. “Prudent loan workouts are often in the best interest of financial institutions and borrowers.”

Large concentrations of commercial property loans are behind many of the 123 banks that failed in the past two years, draining the FDIC’s deposit insurance fund. Commercial real- estate loans totaled almost $1.1 trillion as of June, representing 14 percent of all loans and leases, Bair said.

Federal bank regulators will soon issue guidelines on commercial real-estate loan workouts, Bair said without providing specifics.

“The guidance we are working on is intended to promote supervisory consistency, enhance the transparency of CRE workout transactions, and ensure that regulatory policies and actions do not inadvertently curtail the availability of credit to sound borrowers,” said Timothy Ward, the OTS’s deputy director of examinations, supervision and consumer protection.

IndyMac Program

Bair pressed the mortgage industry last year to accelerate its modification of troubled home loans to curb rising foreclosures. The FDIC used its program to modify troubled mortgages held by IndyMac Federal Bank FSB, successor to the failed lender the agency inherited in July 2008.

U.S. banks recorded losses for residential construction and development loans that have defaulted and “a number will continue to produce losses that result in more bank failures,” Comptroller of the Currency John Dugan, regulator of national banks, said in his testimony.

Commercial real-estate and construction and development loans “are a significant examination focus right now,” Bair said.

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.

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India to Maintain Economic Stimulus, Rangarajan Says

By Bibhudatta Pradhan and Anil Varma

Oct. 14 (Bloomberg) -- India will maintain its economic stimulus through this fiscal year and the central bank is unlikely to change its “accommodative” monetary policy now, said C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council.

The Reserve Bank of India may opt to mop up excess money from the financial system as inflation accelerates in the coming months and may not raise benchmark interest rates, he said. The monetary authority may also discontinue its open-market debt purchases that it used in recent months to inject cash, while the $1.2 trillion economy may expand between 6 percent and 6.5 percent in the year ending March 31, he said in New Delhi today.

“As far as the monetary policy is concerned, the RBI has followed an accommodative” path, said Rangarajan, who served as the governor of the central bank between 1992 and 1997. “Unless inflationary pressures are very strong, there may not be a change in stance.”

The Reserve Bank has kept its policy rates at record lows after cutting the repurchase, or overnight lending rate, six times between October 2008 and April 2009 to shield the economy from the global recession. Gross domestic product grew 6.1 percent in the quarter ended June 30, accelerating for the first time since 2007.

The monetary authority forecasts the nation’s inflation rate will climb to 5 percent by March from 0.7 percent in the week ended Sept. 26. Governor Duvvuri Subbarao, who will review interest rates on Oct. 27, said earlier this month that he may need to tighten policy even before advanced economies.

The central bank “may not change the policy rate but may stop open-market operations” to slow price increases, Rangarajan said.

To contact the reporter on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; Anil Varma in Mumbai at avarma3@bloomberg.net

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BOJ Holds Rate at 0.1%, Stays Silent on Credit Steps

By Mayumi Otsuma

Oct. 14 (Bloomberg) -- The Bank of Japan held the benchmark interest rate near zero and refrained from saying whether it would end its emergency programs of buying corporate debt from lenders.

Governor Masaaki Shirakawa and his colleagues all voted to keep the key rate at 0.1 percent, the central bank said in a statement in Tokyo. They became more optimistic about the economy, saying it has “started to pick up.”

Shirakawa said this month that the need for the funding measures has diminished because companies have regained access to private financing and credit markets have stabilized, sparking speculation the bank would decide to end them as early as today. The policy board may want more time to examine whether ending the steps will squeeze small companies, which government ministers say are struggling to borrow.

“There’s no need for the bank to hurry; they’ll have two more opportunities” to decide to let the programs expire on Dec. 31 as scheduled, said Susumu Kato, chief economist at Calyon Securities in Tokyo. “Funding conditions for large companies are getting better but for smaller firms they remain severe.”

Since lowering rates to 0.1 percent in December, the bank started buying commercial paper and corporate bonds from lenders and offering them unlimited loans backed by collateral to channel funds to companies. The policy board extended the three plans to Dec. 31 when it met in July. Its next two meetings are on Oct. 30 and Nov. 19-20.

Yen’s Gains

The yen traded at 88.91 per dollar at 3:15 p.m. in Tokyo from 89.03 before the announcement. The currency reached an eight-month high of 88.01 on Oct. 7, eroding exporters’ repatriated earnings and making their products less competitive. Ten-year government bond yields were unchanged at 1.295 percent.

Central banks around the world are moving to pare back unprecedented measures to unfreeze credit.

The Federal Reserve last month said it would shrink programs that auction loans to banks and Treasuries to bond dealers. Australia’s central bank last week raised interest rates, becoming the first country in the Group of 20 nations to boost borrowing costs since the start of the financial crisis. The Reserve Bank of New Zealand said today it is removing some of the liquidity facilities put in place last year.

The Bank of Japan raised its assessment of the economy for a second month, citing improvements in corporate sentiment. “The decline in business fixed investment, which mainly reflects weak corporate profits, has been moderating,” it said.

Rising Confidence

Consumers are also more upbeat: Household confidence rose to a 23-month high in September, the Cabinet Office said today.

“The financial environment, with some lingering severity, is increasingly showing signs of improvement,” the bank said, reiterating language used last month. Still, it maintained that there is a “significant level of uncertainty” surrounding its prediction that the economic recovery will be sustained.

Government officials last week acknowledged the lack of demand for some of the BOJ’s programs, while also calling on policy makers to mind that smaller companies still have difficulty raising funds. Deputy Prime Minister Naoto Kan said he hopes the bank will consider the “severe” state of funding for smaller firms when it debates ending the measures.

Financial Services Minister Shizuka Kamei plans to submit a bill to parliament giving small companies a moratorium on loan repayments to banks.

Laid Groundwork

“The Bank of Japan has laid the groundwork for ending its purchases of commercial paper and corporate bonds, which are being little used, but today’s decision may give the impression that it’s mindful of the government’s view,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo.

Major companies said their access to funding improved compared with three months ago, the bank’s quarterly Tankan survey showed this month. Large firms’ access to credit has recovered to last year’s levels while small companies’ funding conditions were still tighter than December, the survey showed.

Calyon’s Kato said the central bank will let the bond- purchasing programs expire while extending the unlimited lending facility, which banks are tapping more.

The central bank lent 7.3 trillion yen ($82 billion) under the facility as of Aug. 31. In contrast, it had 100 billion yen of commercial paper on its balance sheet, about 3 percent of the amount it’s allowed itself to hold.

The board will probably hold interest rates near zero at least through the end of 2010, 16 of 17 economists who gave forecasts through the period said last week.

“The Bank of Japan will probably continue to indicate it remains cautious about any policy changes that would lead to a rate increase,” said Masaaki Kanno, a former BOJ official and now chief economist at JPMorgan Chase & Co. in Tokyo.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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Australian October Consumer Confidence Jumps 1.7%

By Jacob Greber

Oct. 14 (Bloomberg) -- Australian consumer confidence jumped to the highest level in more than two years as rising employment and share prices buoyed sentiment after the central bank raised interest rates last week.

The sentiment index gained 1.7 percent to 121.4 points in October, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Oct. 5 and Oct. 11 and released today in Sydney.

A surge in consumer confidence since May, which has driven up retail sales, home building and mortgage lending, prompted central bank Governor Glenn Stevens to raise the benchmark lending rate on Oct. 6 by a quarter percentage point to 3.25 percent and signal more increases. An Oct. 8 report showing the nation’s jobless rate unexpectedly fell as companies hired full- time workers boosted confidence, Westpac said.

“This rise is significant since the survey follows the Reserve Bank’s decision,” said Bill Evans, chief economist at Westpac Bank in Sydney. It also mirrors the last “tightening cycle, which began in May 2002,” and resulted in “sentiment being resilient to rises while rates remained very low.

“It seems unlikely that the next quarter-point increase in the mortgage rate in November will have any marked impact on sentiment.”

The Australian dollar rose to 90.74 U.S. cents at 11:13 a.m. in Sydney from 90.57 cents just before the report was released. The two-year government bond yield slipped 1 basis point to 4.56 percent. A basis point is 0.01 percentage point.

Stocks Gain

Australia’s benchmark S&P/ASX 200 Index of stocks extended gains, and was up 0.3 percent to 4,798 as at 10:49 a.m. in Sydney. It has surged 29 percent this year. Discount electronics retailer JB Hi-Fi Ltd. rose 1.2 percent to A$18.73, extending its rally this year to 93 percent.

Today’s report also supports Governor Stevens’ view that Australia’s economic growth will return to its trend pace of around 3 percent next year, boosted by A$42 billion ($38 billion) in government infrastructure spending and cash handouts to households.

“The board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy,” Stevens said on Oct. 6 after becoming the first Group of 20 central banker to raise interest rates.

A gauge of consumer sentiment on how the economy is faring now rose to the highest level since the Westpac survey was first produced in 1975.

Retail Sales

Recent reports show retail sales climbed 0.9 percent in August from July and approvals to build private houses increased 3.1 percent, the eighth consecutive month of gains. Bank lending rose 0.1 percent and loans to consumers buying houses jumped 0.6 percent.

JB Hi-Fi Ltd. today affirmed its forecast for annual sales of A$2.8 billion ($2.6 billion) after growth from stores open at least a year accelerated.

“While the economic outlook remains unclear, we are encouraged by recent signs the Australian economy and consumers are feeling more confident than this time last year,” Chief Executive Officer Richard Uechtritz told JB Hi-Fi’s annual general meeting in Melbourne.

Investors have a 100 percent expectation Stevens will raise the overnight cash rate target on Nov. 3 by another quarter point, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 10 a.m.

Signs that Australia’s economy, which skirted the global recession, is strengthening include a report published on Oct. 8 showing the jobless rate fell in September for the first time in five months as employment unexpectedly surged.

Economic Outlook

“The resilience of the labor market has also been buoying sentiment,” Evans said. The jobless rate’s drop last month to 5.7 percent from 5.8 percent “strengthened householders’ convictions that their jobs are safe.”

While confidence about the outlook for economic conditions over the next 12 months rose 5.7 percent, expectations on the five-year outlook dropped 2.6 percent, today’s report showed.

A measure of consumer confidence on whether now is a good time to purchase a house slipped 11 percent, the lowest level since November 2008.

“This raises some doubt about the extent to which the upbeat mood feeds through to actual spending,” Evans said. “Being optimistic about the future but still somewhat constrained financially may mean consumers remain more cautious.”

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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South Korea’s Jobless Rate Fell to 3.6% in September

By Seyoon Kim

Oct. 14 (Bloomberg) -- South Korea’s unemployment rate fell for the second time in three months in September as the nation’s economy recovers from the global economic slump.

The jobless rate dropped to 3.6 percent from 3.8 percent in August, the National Statistical office said today in Gwacheon, citing seasonally adjusted figures.

Finance Minister Yoon Jeung Hyun said yesterday gross domestic product may shrink by less than 1 percent this year, down from the government’s previous forecast of a 1.5 percent contraction. The economy expanded at the fastest pace in almost six years in the second quarter, leading a regional rebound with China and Singapore, and the Kospi stock index has risen more than 45 percent this year.

Exports fell at the slowest pace in 11 months in September and demand is likely to grow later this year, the government says. South Korean manufacturers’ confidence climbed to the highest level in two years as an improved global economic outlook made companies more confident about their sales.

The number of people self-employed or working in the public service sector rose 5.5 percent, today’s report showed. People employed in the manufacturing industry dropped 3 percent in September from a year earlier and jobs at retail outlets, hotels and restaurants fell 2.8 percent.

The unadjusted jobless rate stood at 3.4 percent, from 3.7 percent in August, today’s report showed.

South Korea’s central bank cut the benchmark interest rate by 3.25 percentage points between last October and February, the most aggressive easing since it began setting a policy rate a decade ago. The government also increased spending this year to help cushion the economy from recession.

GDP expanded 2.6 percent in the second quarter.

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

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China Export Decline Slows as Global Economy Recovers

By Bloomberg News

Oct. 14 (Bloomberg) -- China’s exports fell at the slowest pace in nine months in September, adding to evidence that the global economy is emerging from its deepest postwar recession.

Shipments dropped 15.2 percent to $115.9 billion from a year earlier, the customs bureau said on its Web site today. The median estimate of 23 economists surveyed by Bloomberg News was for a 21 percent decline. In August, exports slid 23.4 percent.

Stocks climbed in Shanghai after shipments to the U.S. and the European Union rose to the highest value since the nation’s export collapse began in November. China, the world’s fastest- growing major economy and second-biggest exporter, may next week report an 8.9 percent expansion in gross domestic product, a Bloomberg News survey of economists shows.

“This reflects a continued rebound in global demand,” said David Cohen, an economist at Action Economics in Singapore.

The Shanghai Composite Index rose 2.1 percent as of the 11:30 a.m. local time break in trading. Yuan forwards climbed to the highest in more than 13 months as traders bet that, after halting gains against the dollar from July 2008 to aid exporters, the central bank will let the currency appreciate at least 2.5 percent in the next year.

“The dollar peg will break in the first quarter of next year,” said Paul Cavey, an economist with Macquarie Securities in Hong Kong.

China’s Busiest Harbor

Positive signs for the global economy include a leading indicator released by the Organization for Economic Cooperation and Development last week, suggesting a recovery is under way in most major economies. Shanghai International Port (Group) Co., the operator of the mainland’s busiest harbor, said cargo volume rose for the first time in 11 months in September.

China’s imports fell 3.5 percent from a year earlier, the smallest decline in 11 months, according to the customs bureau data. The median estimate in the survey of economists was for a 15 percent slide, while the decline in August was 17 percent. Imports of iron ore rose to a record 64.6 million metric tons.

“Improvement in imports implies strong domestic demand and is a prelude to further improvement in exports,” said Sun Mingchun, chief China economist at Nomura Holdings Inc. in Hong Kong.

The trade surplus was $12.93 billion.

Extra Working Days

Goldman Sachs Group Inc. cautioned in a note that two extra working days last month compared with September a year earlier may have boosted the numbers.

A $586 billion stimulus package, cuts in interest rates and bank reserve requirements, and record lending drove China’s recovery after export demand collapsed because of the global financial crisis. China is due to report third-quarter GDP on Oct. 22.

“Stronger external demand will provide an alternative source of support for growth and provide scope for Beijing to start tightening policy gradually from early 2010,” said Brian Jackson, Hong Kong-based senior strategist for emerging markets at Royal Bank of Canada.

China shipped $22.6 billion of goods to the EU last month and $21.2 billion to the U.S., the customs bureau said. Exports of labor-intensive products, such as furniture and textiles, fell at a slower pace than shipments in general, it said.

“Growth trends in China’s ports point to a nascent recovery in trade,” said Jing Ulrich, head of China equities in Hong Kong for JPMorgan Chase & Co.

Seasonally adjusted, exports declined 20.1 percent from a year earlier and rose 6.3 percent from the previous month.

--Li Yanping, Kevin Hamlin. Editors: Paul Panckhurst, John McCluskey.

To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

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Crude Oil Jumps Above $75 to One-Year High on Demand Optimism

By Yee Kai Pin

Oct. 14 (Bloomberg) -- Crude oil rose above $75 a barrel in New York, the highest in a year, on optimism the global economic recovery will boost energy demand.

Oil climbed for a fifth day as the dollar declined and Asian shares advanced. Prices rose yesterday after the Organization of Petroleum Exporting Countries upgraded its 2010 global demand forecast on expansion in emerging economies.

“This rally today really was prompted by two things: one, the revised demand forecast from OPEC and the other, the continued weakening of the U.S. dollar,” said Victor Shum, a senior principal at energy consultants Purvin & Gertz Inc. in Singapore. “The world is simply getting less negative in terms of demand growth.”

Crude oil for November delivery gained as much as 98 cents, or 1.3 percent, to $75.13 a barrel in electronic trading on the New York Mercantile Exchange. That’s the highest since Oct. 21, 2008. The contract traded at $74.89 at 1 p.m. Singapore time.

Futures have gained 68 percent this year on speculation demand will bounce back as economies emerge from recession. The dollar’s decline has also bolstered the investment appeal of commodities including gold, which hit a record high for a second day. The U.S. currency touched $1.4889 per euro, the weakest level since August 2008. Gold for immediate delivery gained as much as 0.5 percent to $1,069.80 an ounce.

“The dollar reached a 14-month low yesterday and today has continued to weaken against the euro and Japanese yen,” Shum said. “That has fueled momentum to break through the $75 level.”

U.S. Stockpiles

The MSCI Asia Pacific Index climbed to a 13-month high, adding 0.7 percent to 119.86 at 1:44 p.m. in Tokyo.

“Oil is showing the impact from the financial markets -- gold and stock markets,” said Ken Hasegawa, a commodity derivatives sales manager at brokers Newedge in Tokyo.

Oil rallied even as stockpiles in the U.S., the world’s largest energy consumer, are expected to have increased. Commercially held crude oil inventories rose 1.15 million barrels in the week to Oct. 2, according to the median of estimates from 12 analysts polled by Bloomberg News. Gasoline stockpiles probably climbed 1 million barrels, the survey showed.

The Energy Department will release its weekly report tomorrow at 11 a.m. in Washington, a day later than usual because of the Columbus Day holiday Oct. 12. The industry-funded American Petroleum Institute will put out its data today.

Demand Upgrades

OPEC, which pumps 40 percent of the world’s oil, yesterday raised its forecast for global demand for a second month. The 12-member group predicted consumption next year will rise 0.8 percent to 84.93 million barrels a day, led by emerging markets. The International Energy Agency on Oct. 9 raised its demand projection for a third month.

“It is further fueling the sentiment that the demand outlook is better than what a lot of people are expecting,” said Ben Westmore, an energy and minerals economist at National Australia Bank Ltd. in Melbourne.

Brent crude oil for November settlement rose as much as 88 cents, or 1.2 percent, to $73.28 a barrel on the London-based ICE Futures Europe exchange. The contract was at $73.14 a barrel at 1 p.m. in Singapore. Yesterday, it gained 1.5 percent to $72.40 a barrel, the highest settlement since Aug. 28.

To contact the reporter on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.net.

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Copper Imports by China Up for First Month in Three

By Bloomberg News

Oct. 14 (Bloomberg) -- Imports of copper and products by China, the world’s largest consumer, climbed for the first time in three months.

Purchases increased to 399,052 metric tons in September, the Beijing-based customs office said today. That’s 23 percent more than August, according to data compiled by Bloomberg.

Copper, used in pipes and power cables, has doubled in London this year as China’s 4 trillion yuan ($586 billion) stimulus spending and state stockpiling boosted imports to a record, and the world recovered from its worst recession since World War II, increasing demand for raw materials.

“The gain is a bit of a surprise” as importing has remained money-losing, said Edward Fang, an analyst at China International Futures Co. “Yet it’s not that unreasonable given the low summer production season is over.”

China’s scrap copper imports were 410,000 tons in September, customs said. That compares with 392,121 tons in August, according to data compiled by Bloomberg.

--Li Xiaowei. Editor:

To contact the Bloomberg News staff on this story: Li Xiaowei in Shanghai at Xli12@bloomberg.net

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Yen Gains Most in 2 Weeks on Falling Stocks, Producer Prices

By Yoshiaki Nohara and Ron Harui

Oct. 14 (Bloomberg) -- The yen gained the most against the euro in almost two weeks as Japanese stocks declined and a Bank of Japan report showed producer prices fell for a ninth month, boosting demand for the currency as a refuge.

The yen advanced against all 16 of its major counterparts after data from Japan’s central bank, which kept its benchmark interest rate unchanged today, spurred speculation that deflation will deepen. The dollar fell to a 14-month low against the euro before a U.S. report forecast to show retail sales dropped last month by the most this year, supporting the case for the Federal Reserve to keep interest rates low.

“The recovery in Japan’s economy is likely to lag that of other countries,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “This may cause risk aversion and buying of the yen.”

The yen rose 0.6 percent to 132.49 per euro at 7:01 a.m. in London from 133.26 in New York yesterday. The intraday gain was the largest since Oct. 1. The Japanese currency advanced to 89.00 per dollar from 89.71. The dollar fell to $1.4887 per euro from $1.4854. Earlier it touched $1.4890, the weakest level since August 2008.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, declined to 75.564, after earlier dropping to 75.551, the lowest since Aug. 11, 2008.

The Nikkei 225 Stock Average lost 0.2 percent. The euro-yen exchange rate had a correlation of 0.79 with the Nikkei 225 in the past year, according to data compiled by Bloomberg. A reading of 1 would mean the two moved in lockstep.

Japan’s Producer Prices

Japan’s producer prices dropped last month as oil traded lower than last year’s levels and demand for materials waned, the Bank of Japan said. The costs companies pay for energy and unfinished goods declined 7.9 percent in September from a year earlier after sliding a record 8.5 percent in August.

The yen typically rises during times of economic and financial turmoil because Japan’s trade surplus means the country doesn’t have to rely on overseas lenders.

The Bank of Japan left its benchmark interest rate at 0.1 percent today and refrained from saying whether it would end its corporate debt purchase programs. The BOJ’s decision matched the forecast from all 20 economists surveyed by Bloomberg News. The rate will be kept through 2010, analysts forecast in a Bloomberg News survey.

The yen also strengthened after Reuters reported Japanese Vice Minister Naoki Minezaki as saying dollar weakness is likely to continue and Japan shouldn’t intervene in markets to halt gains in its currency. Minezaki is a deputy of Japanese Finance Minister Hirohisa Fujii.

‘Things Are Improving’

The dollar retreated against 15 of its 16 major counterparts as the Commerce Department is forecast to report sales at U.S. retailers fell 2.1 percent last month, after rising 2.7 percent in August, according to the median estimate of 78 economists in a Bloomberg News survey. The data is due today in Washington.

“Globally, things are improving, but the U.S. will be lagging a bit,” said Phil Burke, chief dealer for foreign- exchange spot trading at JPMorgan Securities in Sydney. “The U.S. dollar will probably weaken.”

Fed Vice Chairman Donald Kohn said yesterday inflation and growth will probably stay below the central bank’s objectives for some time, warranting very low interest rates for an “extended period.” The Fed today will release minutes of its Federal Open Market Committee’s meeting in September.

Australia Dollar

“Further talk of the U.S. rates remaining low for a long time in the minutes would likely weigh on the dollar, particularly versus the pound, the Australian dollar and the yen,” David Forrester, currency economist in Singapore at Barclays Capital, wrote in a note to clients today.

The Fed funds target range is zero to 0.25 percent. Policy makers may start raising the benchmark rate in the second quarter of 2010, according to analysts’ forecasts compiled by Bloomberg.

The Australian dollar rose to its highest level since August 2008 after a report showed China’s imports in September fell less than economists forecast.

The so-called Aussie gained against 14 of its 16 major counterparts after Australia’s largest trading partner said imports fell 3.5 percent in September from a year ago, less than the 15 percent drop forecast in a Bloomberg News survey.

“The China data in general showed pretty strong exports and imports,” said Forrester. The figures are “much stronger than consensus so it is good news for commodity currencies.”

Australia’s dollar rose to 91.42 U.S. cents, the most since August 2008, from 90.89 cents in New York yesterday.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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Copper to Advance Through 2012, Morgan Stanley Says

By Glenys Sim

Oct. 14 (Bloomberg) -- Copper may average higher for each of the next three years, driven by better-than-anticipated demand in China, global supply constraints, and longer term growth recovery, according to Morgan Stanley.

The red metal may average $2.27 a pound this year, up 6 percent from an earlier target of $2.14, the bank said in a report today. It may average $2.98 a pound next year, $3.18 a pound in 2011 and $3.31 a pound in 2012, up as much as 19 percent from previous estimates, the report said.

“We expect the broad and strong gains in base metal prices in 2009 to be sustained into 2010 and beyond, led by copper which remains our preferred base metal exposure,” Morgan Stanley’s analysts wrote.

Copper has doubled this year as governments around the world ramped up stimulus spending to spur their economies. China’s 4 trillion yuan ($586 billion) stimulus plan and record lending drove the country’s imports of the metal to record levels in the first half of this year. China’s imports of refined copper reached a peak of 475,999 tons in June, and were 399,052 tons last month, according to customs data today.

“A deficit market characterized by growth recovery and long-term supply constraints highlight the risks of copper’s vulnerability to supply or demand shocks from 2010 onwards,” wrote the analysts.

The metal for delivery in three months on the London Metal Exchange has averaged $4,769.53 a ton this year, and traded at $6,200 a ton at 10:32 a.m. in Singapore.

“Cyclical trends”

“Cyclical trends are supportive for commodities as unprecedented fiscal and monetary easing has re-ignited growth,” the analysts wrote. “The U.S. dollar remains in a sustained weakening trend, and asset allocations towards commodities are increasing.”

The Dollar Index, which tracks the performance of the greenback against six major trading partners including the euro and yen, fell for a third day to the lowest level since August 11, 2008. Dollar-denominated copper tends to move inversely to the U.S. currency.

Still, a period of consolidation seems likely while China “digests its imports” and other markets take more time to recover, the analysts wrote.

Global copper production will exceed demand by 539,000 tons in 2010, compared to an estimated 368,000 tons this year, as consumption slows, the International Copper Study Group said. Production of refined copper will rise 0.7 percent to 18.22 million tons as consumption slips 0.3 percent to 17.68 million, the group said Oct. 9.

Zinc, Nickel

Morgan Stanley also raised its price targets for zinc and nickel through 2012. It expects zinc to average 68 cents a pound this year, 80 cents in 2010, 83 cents in 2011 and 87 cents in 2012, up by as much as 16 percent from earlier calls.

Nickel may average $6.54 a pound in this year, $7.78 in 2010, $7.88 in 2011 and $8.08 in 2012, as much as 15 percent higher than previous estimates.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net

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Conseco, Intel, LDK Solar, Myriad Pharma: U.S. Equity Preview

By Lu Wang

Oct. 14 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

Conseco Inc. (CNO US): Paulson & Co., the hedge fund that bet against subprime mortgages, agreed to increase its stake in the life insurer by buying $77.9 million in stock and warrants.

Intel Corp. (INTC US): The world’s biggest chipmaker forecast fourth-quarter sales and profitability that topped estimates, indicating that computer demand is returning to pre- recession levels.

LDK Solar Co. (LDK US): The Chinese maker of silicon wafers used in solar power cells said Nicola Sarno, senior vice president of manufacturing, will leave the company to “pursue personal interests.”

Myriad Pharmaceuticals Inc. (MYRX US): The biopharmaceutical company said its experimental drug, MPI- 0485520, may have the potential to treat chronic inflammation, obesity and diabetes.

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

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Philippines May Hold Another Rice Tender, Secretary Yap Says

By Cecilia Yap

Oct. 14 (Bloomberg) -- The Philippines, the world’s biggest rice importer, may hold another tender this year to purchase the grain from overseas, said Agriculture Secretary Arthur Yap.

The new tender may be on top of the Oct. 30 purchase planned by the National Food Authority, Yap said today in Manila. The Philippines is seeking to buy 250,000 metric tons of rice at the Oct. 30 tender.

To contact the reporter on this story: Cecilia Yap in Manila at cyap19@bloomberg.net

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China to Curb Steel Production to Reduce Oversupply

By Bloomberg News

Oct. 14 (Bloomberg) -- China, the world’s largest steel producer, is working on plans to curb excess capacity as the nation faces “severe oversupply,” according to the nation’s third-largest mill.

The government may have detailed plans on how to close obsolete mills, advance mergers and reduce the number of iron ore importers by the end of the year, Deng Qilin, the general manager of Wuhan Iron & Steel Group, said in an interview.

Steel prices in China have dropped 23 percent since reaching a 10-month high on Aug. 4, as overproduction offset rising demand created by government stimulus spending. Some steelmakers have incurred losses at current prices, Deng said.

“The government will impose strict measures to effectively close outdated mills and boost consolidation,” Deng, also the chairman of the China Iron and Steel Association, said while attending the World Steel Association annual meeting in Beijing yesterday. “We bigger players will surely benefit from such a move.”

Wuhan Iron & Steel Co., the Shanghai-listed unit of Wuhan Group, rose 2.4 percent to 7.55 yuan at 10:49 a.m. local time, taking the year’s advance to 57 percent.

Chinese steel prices probably won’t rebound for the rest of the year, Deng said. Hubei province-based Wuhan Steel may carry out annual maintenance which will reduce output, he said, declining to give details.

Record Output

Steel output in China reached a record this year as the government invests 4 trillion yuan ($586 billion) in the economy, spurring public works building. The nation’s cabinet in August said it was studying curbs on overcapacity in industries including steel.

Demand may expand by 19 percent this year to 526 million metric tons, the World Steel Association predicted this week. Growth may slow to 5 percent next year, it said.

Mills in China may have the capacity to produce 700 million tons of steel a year now, Deng said. The overcapacity is affecting Wuhan Steel’s expansion plans, he said.

The National Development and Reform Commission, China’s top planning agency, is unlikely to approve a feasibility report on Wuhan Steel’s planned 10 million-ton steel plant this year, Deng said. Without the approval, Wuhan can’t start construction at the project at Fangcheng Port in the southwestern province of Guangxi, he said.

Premier Wen

“Premier Wen Jiabao has said to build the plant at an appropriate time,” Deng said. “We will get the approval eventually, but not now. We have the patience and we can wait because the new mill, aiming at high-end products, would make us stronger.”

Chinese steelmakers are facing rising import competition, with Japanese manufacturers “dumping” products in the country, Deng said. Japan is the world’s biggest exporter this year, while China ranks only sixth and has turned into a net importer, he said.

Steel exports to the U.S. and Europe plunged as much as 85 percent in the first eight months, the steel association said Oct. 12. The U.S. and European Union are slapping duties on Chinese imports after their producers claimed Chinese rivals benefited from unfair subsidies.

Wuhan Steel and Baoshan Steel Group, China’s biggest mill, have asked the nation’s commerce ministry to investigate imports of grain-oriented flat-rolled electrical steel from the U.S. and Russia, the ministry said June 1.

--Helen Yuan. Editors: Tan Hwee Ann, Teo Chian Wei.

To contact the reporter on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

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Japan Stocks Fall, Led by Financial Shares on Concern of Losses

By Patrick Rial and Satoshi Kawano

Oct. 14 (Bloomberg) -- Japanese stocks fell, led by financial shares on concern government policies will force banks to book more loan losses.

Mitsubishi UFJ Financial Group Inc., the country’s biggest lender by value, dropped 3 percent after the Nikkei newspaper said Japan Airlines Corp. may seek debt relief of 300 billion yen ($3.36 billion). The airline lost 3.8 percent. Nomura Holdings Inc., Japan’s largest brokerage, fell 2.9 percent after Meredith Whitney said she was “far less bullish” on banks and cut her rating on Goldman Sachs Group Inc., citing valuations.

The Nikkei 225 Stock Average declined 0.1 percent to 10,066.86 as of 12:55 p.m. in Tokyo. The broader Topix index slipped 0.9 percent to 893.50, headed for its first loss in six days. More than three shares retreated for each that advanced.

“It looks like more companies will have their loans forgiven, when really they should be using the bankruptcy process,” said Tomomi Yamashita, a Tokyo-based fund manager at Shinkin Asset Management Co., which oversees about $5.5 billion. “This kind of policy may be good for the small businesses and others receiving help, but it’s very negative for the financial markets. Investors still expect banks to announce additional capital raisings.”

The government drafted a plan last week to grant a three- year moratorium on loan payments for some small businesses. Financial Services Minister Shizuka Kamei said yesterday that, while the program won’t be mandatory, “we will give incentives to the banks so that the purpose of the law will be executed.”

Financials Decline

The Topix index has slumped 8.5 percent since its 2009 peak on Aug. 26, weighed down by concern that policies of Japan’s new government will hamper a recovery in earnings. Shares on the benchmark trade at an average of 38 times estimated earnings, compared with 20 times at the start of the year. Japan’s market was the only one to fall today in Asia besides the Philippines.

Mitsubishi UFJ lost 3 percent to 486 yen. Sumitomo Mitsui Financial Group Inc., Japan’s second-biggest publicly traded lender, fell 4.4 percent to 3,280 yen. Sumitomo Trust & Banking Co. tumbled 5.2 percent to 470 yen, the sharpest drop in the Nikkei 225. The Topix Banks Index posted the second-steepest decline among the Topix’s 33 industry groups.

The Nikkei newspaper said Japan Airlines may seek debt relief totaling 300 billion yen, including loan waivers and debt-for-equity swaps, under a rehabilitation plan overseen by a government panel. The shares dropped 3.8 percent to 128 yen.

Mitsui Sumitomo, Aioi

Mitsui Sumitomo Insurance Group Holdings Inc., which is buying Aioi Insurance Co. to create Japan’s largest non-life insurer, lost 4.1 percent to 2,210 yen. Aioi dropped 4.4 percent to 413 yen. Natsumu Tsujino, an analyst at JPMorgan Chase & Co. in Tokyo, cut both shares to “neutral” from “overweight.”

“Although the overall sector appears attractively valued, as we have noted for some time, we lower our ratings because we do not sense significant momentum from the merger,” Tsujino said in a report dated yesterday.

A measure of financial stocks in the Standard & Poor’s 500 Index dropped 1.1 percent yesterday in New York, the biggest decline among 10 industry groups, after Whitney cut Goldman Sachs to “neutral” from “buy.”

The analyst, who left Oppenheimer & Co. this year to create her own firm, predicted in October 2007 that Citigroup Inc. would have to cut its dividend, which the bank did in January 2008. Her recommendation triggered what was at the time the steepest tumble in Citigroup shares since September 2002.

Nomura, Daiwa Securities

Nomura slumped 2.9 percent to 639 yen. Daiwa Securities Group Inc., Japan’s second-biggest brokerage, decreased 3.7 percent to 465 yen.

“The market is going to struggle to gain ground as investors look to lock in recent gains on financials,” said Hiroichi Nishi, an equities manager at Nikko Cordial Securities Inc. in Tokyo.

Sekisui House Ltd., Japan’s largest homebuilder, climbed 1.5 percent to 765 yen. Taisei Corp., the nation’s fourth- largest construction company by revenue, increased 3.5 percent to 176 yen. Both stocks were lifted to “outperform” from “neutral” by Yoji Otani, an analyst at Credit Suisse Group AG. Both shares are trading at unusually large discounts to book value, the analyst wrote in a report.

So-called defensive stocks climbed as investors snapped up shares of companies whose earnings are considered to be insulated from a weakening economy. Japan Tobacco Inc., the world’s third-biggest maker of cigarettes, added 2.3 percent to 273,600. Kao Corp., Japan’s largest maker of household and personal-care products, climbed 3.8 percent to 2,185 yen.

Japan’s producer prices fell 7.9 percent in September from a year earlier, in-line with economists’ estimates, as oil traded below last year’s levels and demand for materials waned.

“Valuations simply don’t work in this environment; the only determinant of the market’s trend is whether the economy is growing or shrinking,” said Takashi Kamiya, who helps oversee some $16 billion at T&D Asset Management Co. in Tokyo. “We’re headed for a slowdown and I doubt the next stimulus measures to rescue the economy will help as much as investors are expecting.”

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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