Currencies: EUR/USD Holding Close To The 1.50 Area, But No Real Test Yet

Daily Forex Fundamentals | Written by KBC Bank | Oct 21 09 08:13 GMT |

Sunrise Market Commentary Global bonds extend recent rebound, as equities retreat from the highs Yesterday, global bonds posted a strong rebound, as investors ignored another string of strong Q3 earnings and focused on the disappointing US housing starts to send equities lower and bonds higher. As a result, bonds extended their recent rebound signalling that the market is not ready for a substantial move lower. FX: EUR/USD holding close to the 1.50 area, but no real test yet The dollar is holding close to the recent lows against a lot of major currencies, including the euro. However, as the stock market rally shows some signs of fatigue, the dollar gets some respite too. In EUR/GBP, the test of the 0.9080 area continues. The Sunrise Headlines On Tuesday, US Equities closed lower weighed down by disappointing data from the US housing market. Dow/S&P dropped by 0.50% / 0.62% led by utilities and materials. This morning, most Asian shares show limited losses. Bank of Japan Deputy Governor Nishimura warned this morning that the downside risks facing the country's economy remained high, reiterating the need for the bank to maintain easy monetary conditions. In his speech on Tuesday night, Bank of England governor King called for banks to be split into separate utility companies and risky ventures, saying it was 'a delusion' to think tougher regulation would prevent future financial crises. New Zealand's central bank chief indicated that a rally in the kiwi dollar was not an obstacle to any interest rate rise, saying financial markets had already largely factored tighter policy into the exchange rate. Brazil's government imposed a 2% tax on foreign investment in local bonds and stocks. It might aim at preventing the real to strengthen further, but it also fills the government's coffers allowing a looser fiscal policy. The real and Bovespa lost ground following the decision. Yahoo Inc beat both profit and sales expectations due cost-cutting and restructuring and as spending by advertisers showed signs of life in the third quarter. After touching the $80 a barrel barrier, crude oil closed lower for the first time in nine days. Gold dropped below $1060 an ounce on Tuesday. Today, the calendar contains the UK CBI industrial trends survey; BoE Minutes and Fed's Beige Book. Boeing, Wells Fargo, Morgan Stanley, eBay, Fiat will announce third quarter results. EUR/USD On Tuesday, EUR/USD continued to trade within striking distance of the psychological barrier of 1.50 for most of the session, but a real test of this key level didn't occur. At the start of trading, currency traders still kept an eye on the outcome of the meeting of the eurogroup finance Ministers. The declarations after this meeting showed mounting unease among European policy makers with current strength of the single currency. However, the official talk was not really different from the usual G7 mantra and from recent ECB talk as they took notice of the fact that a strong dollar is in the interest of the US. This analysis was not really big news for the currency market and it also suggested that any hard action to stop the ascent of the euro is still very unlikely at this stage. There were some remarkable comments from an adviser of French President Sarkozy as he suggested that a way for Europe to stop the rise of its currency was to print money and to create inflation (as he suggested the US is doing). However, we don't have the impression that this view is shared by the ECB. Later in the session, the Bank of Canada in its policy statement also highlighted the negative consequences of a weak dollar for its economy. This triggered quite a substantial weakening of the Canadian dollar against the US dollar. However, we don't have the impression that this kind of rhetoric is already becoming a factor of importance for overall sentiment towards the US currency. Markets obviously don't believe that there will be a global move to stop the slide of the dollar anytime soon. So, currency markets soon returned to business as usual: watching the stock markets (and to a lesser extent the commodity markets). (European) Stock markets, still the most influential driver for the currency market, didn't really know which way to go. A series of high profile US companies came out with better than expected data, but the US eco data (PPI, Building Starts and permits) spoiled the game. So stocks lost some ground early in US trading and this triggered a profit taking move in EUR/USD too. However the EUR/USD currency pair still closed the session well above the 1.4900 mark. (1.4945 compared to 1.4965 on Monday). So, global pictured hadn't changed at all. Overnight, Fed's Yellen reiterated the view that a tightening in monetary policy in the US was not something she expected to happen over the next several months. Yellen made also some remarks on the dollar as she said that if the United States and Asian countries address the causes of the imbalances, these actions could increase confidence in the dollar. So, in this (US-based) view, the problem of the value of the dollar is not only a US problem, on the contrary. EUR/USD: 1.50 threshold within striking distance but no real test yet Support comes in at 1.4883/77 (Reaction low/Daily envelope), atr 1.4829 (Week low +MTMA), at 1.4766/53 (Weekly envelope/Boll Midline) and at 1.4691/74 (LTMA/reaction low) and at 1.4617 (uptrend line). Resistance stands at 1.4961 (Breakdown hourly), at 1.4994/08 (new high/Daily + Monthly envelope), at 1.5021/30 (2nd target double bottom/ Boll top), at 1.5164 (76% retracement from 1.6040). The pair is in overbought conditions. USD/JPY Today, the European calendar is empty. In the US, some Fed members will make public appearances and the Beige book, preparing the next Fed meeting, will be published. Usually, the content of the Beige Book confirms recent data evidence. So, by default, the price action on the equity markets will again be the most important single driver for EUR/USD trading. Over the previous days, stocks held op well, but the upward momentum slowed a bit. At least for now, this also prevented a real test of the 1.50 barrier in EUR/USD. Global context: recently, the swings in risk appetite/risk aversion were the drivers on the currency markets. 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 stay dollar skeptical as long as we don't get a clear signal that the Fed is coming closer to scale down its stimulating monetary policy. Nevertheless, the ongoing building up of USD short positions at some point will trigger a ST correction (cf. the price action in sterling last week). Such a correction most probably will occur in step with the stock markets. Looking at the (technical) charts, the break of EUR/USD above the range top at 1.4438/48 and above the 1.4719 (Dec high) improved the picture, but the move continued to develop in a rather gradual way. Nevertheless, the corrections are very limited, too. We still don't feel any need to row against the tide. However, as we come closer to the 1.50 mark and to our long-standing technical target of 1.5021 (2nd target double bottom of 1.3739), we become more cautious on the ST upside potential in the pair. Partial profit taking on standing EUR/USD long positions can still be considered. We wait for a correction to (re)establish EUR/USD long exposure. On Tuesday, USD/JPY showed again some intra-day swings, but after all the indecisive trading pattern that is already in place for some time hasn't changed. Global dollar weakness caused the pair to return close to the 90 area early in the session. However, a broader USD–short covering move later in the session (supported by weaker! than expected US data and their impact on the stock markets) helped USD/JPY to recoup the Asian losses. The pair closed the session little changed at 90.78, compared to 90.55 on Monday evening. There were no eco data in Japan this morning. BOJ deputy governor Nishimura indicated that downside risks for the Japanese economy remained high. He also said that (the scaling back) of emergency measures is a different matter from exiting macroeconomic policy. Most Asian stock markets are marginally lower this morning, but the moves are too small to have any impact on the currency markets. 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 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. Recently, we indicated that we were looking to sell into a more pronounced up-tick, hopefully in the 92/93 area, but we had become a bit worried whether this level would be feasible. Last week, the pair moved above the first important resistance area at 90.50, but the move didn't go much further. We keep a wait-and-see approach and still hope to get the opportunity to resell higher. USD/JPY: indecisive trading pattern persists Support is seen at 90.40 (Daily envelope daily), at 90.03(Broken weekly STMA), at 89.90/82 (break-up daily/MTMA), at 89.69 (weekly envelop), at 89.31/27 (Reaction lows hourly) and at 88.83 (last week low). Resistance comes in at 90.92 (reaction high hourly), at 91.15 (week high), at 91.33/41 (last week high/Daily envelope), at 91.74 (38% retracement), at 92.55 (21 Sep high). The pair is in neutral territory. EURGBP On Tuesday, trading in sterling was still driven by technical considerations. The UK data eco data (Monthly budget data/ Money supply) had no lasting impact on trading. The EUR/GBP currency pair hovered sideways the lower half of the 0.91 big figure during the morning session. During the US trading hours, a brief correction in EUR/USD also filtered through into EUR/GBP trading. The pair went for a retest of the key 0.9080 support area, but a clear break didn't occur. The pair closed the session at 0.9122, little changed from the 0.9110 area. So, the jury is still out whether correction has already run its course. This morning, there are some headlines on the screens of an interview with BoE's King as he said that interest rates 'at some point' will increase from the current record low levels. However, we didn't see any info on timing of such move. Later today, markets will keep a close look at the minutes of the previous BoE meeting. With the BoE you never know, but we expect that the Bank will keep all options open for the November policy meeting when it will receive a new inflation report to frame the next step(s) in its policy. 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 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 to add/reinstall EUR/GBP long positions around first important support area at 0.9080. A break below the latter would suggest that the short-term negative bias toward sterling is changing, which isn't our preferred scenario though. For now we maintain a wait-and see approach and look out whether the correction has run its course. If the 0.9080 area would give away, 0.8984 is the next point of reference. EUR/GBP: tests of 0.9080 support area continues. Support comes in at 0.9070 (Reaction low), at 0.9064/61 (LTMA/Break-up daily), at 0.9045/41 (Daily envelope/ weekly envelope + daily uptrend line since 0.8453), at 0.9033/27 (Boll bottom/38% retracement) and at 0.8984 (23 August low). Resistance is at seen at 0.9125/32 (STMA/Reaction high), at 0.9147 (Daily envelope/ reaction high), at 0.9190 (Reaction high) and at 0.9215 (MTMA). The pair is in oversold conditions News US: housing starts and permits disappoint in September Both US housing starts and permits surprised on the downside of expectations in September. Housing starts rose by 0.5% M/M from a downwardly revised 587 000 (earlier reported as 598 000) to 590 000. The increase was entirely based in the single family starts (3.9% M/M), while multi-family dropped by 15.2% M/M. Building permits, on the contrary, dropped by 1.2% M/M from a downwardly revised 580 000 to 573 000. Single family permits fell by 3.0% M/M, while multi-family increased by 6.0% M/M. Houses under construction dropped by 2.0% M/M and housing completed fell by 10.2% M/M. The disappointing figures, coming on the heels of a disappointing NAHB homebuilders' survey, might be due to governments' stimulus programme which will expire at the end of November, if it isn't prolonged by Congress. In September, producer prices dropped from -4.3% Y/Y to -4.8% Y/Y, while an unchanged reading was expected. On a monthly basis, producer prices fell by 0.6% M/M. Looking at the details, the unexpected decline was largely based in gasoline (- 5.4% M/M). Core PPI, excluding food and energy, dropped by a more moderate 0.1% M/M to an annual level of 1.8% Y/Y. So despite the steep drop in output during the recession, there are very few signals of a deflationary price trend at the producer's level, even if core prices are trending lower. A similar message comes out of the core pipeline price indices. Core intermediate PPI was up for the last 4 months and core crude prices even for the last 6 months. Other: UK budget deficit at record high level In September, M4 money supply slowed from a downwardly revised 12.1% Y/Y to 11.3% Y/Y, broadly in line with expectations. Britain suffered to biggest budget deficit for September since records started in 1993. Net borrowing rose from a downwardly revised £14.7B to £14.8B, but the consensus was looking for an even higher deficit (£15.5B). The public sector net cash requirement, on the contrary, surprised on the upside of expectations rising from £10.5B to £19.4B, compared with £13.3B last year. The detail show that government receipts dropped by 6.3% Y/Y, mainly due to lower taxes from corporate profits (-27% Y/Y), while VAT taxes dropped by 0.5% Y/Y and income taxed fell by 5.6% Y/Y. Government spending rose by 5% Y/Y as spending on social benefits (due to rising unemployment) increased by 9.7% Y/Y. 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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The Rise In Exports May Reduce The Contraction In Thailand's Economy

Daily Forex Fundamentals | Written by ecPulse.com | Oct 21 09 09:16 GMT |

Thailand witnessed today an improvement in exports as a result to the rise in global demand since many governments adopted stimulus plans that reduced the negative impact of the global crisis. This contributed to the gradual improvement in most Asian economies which are dependent on exports. Thailand released today the annual index of exports for the month of September, which showed the least drop in exports in 11 months to -8.5% from the previous reading of -18.4%, while it was expected to fall to -15.9%. With this exports reached to 14.9 billion dollars. As for the imports, they fell by 17.9% in September yet less than the previous fall of -32.8%, while it was expected to fall to -27.9%. Thereby the trade balance showed a surplus of 1980 million dollars compared to the previous surplus of 2080 million dollars, while it was expected to record a surplus of 2290 million dollars. Thai exports are expected to continue to rise during this month, which will help reduce the contraction seen by the economy to -10% from the previous expectations of -13%. The government also expects exports to decline this year by 19% before rising again by 10% during next year. The improvement in Thailand's exports came in almost all areas, and this is what determined the government to expect it to continue to rise, especially since the main markets for the Thai products the United States, Europe and Japan started stabilizing. This contributed to the improvement in the consumer confidence which rose to its highest in 11 months in September, where expectations started indicating that the challenges faced by the economy are far less than before. The GDP in Thailand shrank by 4.9% during the second quarter after shrinking by 7.1% during the first quarter. The Thai government, like other governments around the world adopted a stimulus package to counter the recession that hit the country, and added 230 billion baht to its is funding program which will last for three years and which reached a total of 1.3 trillion baht. This package was directed to the consumers, which were able to compensate for the fall in exports, so exports are expected to remained weak but with gradual improvement according to the outlook of the global economy that might support demand worldwide 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 Analytics

Daily Forex Technicals | Written by FOREX Ltd | Oct 21 09 07:24 GMT |

CHF The estimated test of key resistance range levels has been confirmed on conditions for the implementation of pre-planned short positions. OsMA trend indicator having marked in the general outlook the preservation of bearish development priority gives also grounds for the preservation of opened sales with the targets of 1,0080/1,0100 and (or) further break-out variant up to 1,0020/40, 0,9960/80, 0,9900/20. The alternative for buyers will be above 1,0240 with the targets of 1,0280/1,0300, 1,0340/60, 1,0420/40. GBP The pre-planned long positions from key supports were implemented with the achievement of main estimated targets. OsMA trend indicator having marked close activity parity of both parties gives grounds to suppose further period of rate range movement but favouring to buyers direction of planning for today. Therefore, at the moment considering current bullish cycle of indicator chart we can assume probability of rate return to close 1,6380/1,6400 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 1,6440/60, 1,6500/20 and (or) further break-out variant up to 1,6560/80, 1,6640/60, 1,6700/40. The alternative for sales will be below 1,6200 with the targets of 1,6140/60, 1,6080/1,6100, 1,6000/20. JPY Long positions, opened and preserved before, had positive result in the overlap of minimal estimated target. OsMA trend and preservation of minimal bullish party priority gives grounds for further supporting of buyers planning preferences for today. On the assumption of it, as well as considering current bearish cycle of indicator chart we can assume probability of rate return to Senoku Span B line of Ichimoku indicator at 90,10/20 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 buying positions on condition of the formation of topping signal the targets will be 90,50/60, 90,90/91,00, 91,20/30 and (or) further break-out variant up to 91,60/70, 92,00/10, 92,40/50. The alternative for sales will be below 89,80 with the targets of 89,20/40, 88,60/80. EUR The estimated test of key supports was confirmed but with conditions for the implementation of preplanned buying positions. OsMA trend indicator, having marked close activity parity of both parties gives grounds to suppose further rate range movement favouring to buyers planning. Therefore, at the moment, as for opened long positions the targets will be 1,4980/90, 1,5010/20 and (or) further break-out variant up to 1,5060/80, 1,5140/60, 1,5200/20. The alternative for sales will be below 1,4800 with the targets of 1,4740/60, 1,4680/1,4700. FOREX Ltd www.forexltd.co.uk

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Forex Technical Analysis

Daily Forex Technicals | Written by DeltaStock Inc. | Oct 21 09 09:04 GMT |

EUR/USD Current level-1.4959 EUR/USD is in a broad consolidation, after bottoming at 1.2331 (Oct.28,2008). Technical indicators are neutral, and trading is situated above the 50- and 200-Day SMA, currently projected at 1.4134 and 1.3523. Although there was a downward attempt, bottoming at 1.4883, the pattern below 1.4993 seems rather corrective in nature and our target at 1.5104 remains unchanged. Crucial on the downside is 1.4828 support Resistance Support intraday intraweek intraday intraweek 1.4996 1.5104 1.4883 1.4680 1.5104 1.6040 1.4828 1.4444 USD/JPY Current level - 90.67 A short-term bottom has been set at 87.12 and a large consolidation is unfolding since. Trading is situated below the 50- and 200-day SMA, currently projected at 94.86 and 94.84. The pair bottomed at 90.04, completing the consolidation below 91.34 and the bias is positive for 92.10. The resistance at 90.90 is to be considered a trigger for the expected upmove and crucial is 90.06. Resistance Support intraday intraweek intraday intraweek 90.90 92.40 90.40 88.01 91.40 97.79 89.70 83.53 GBP/USD Current level- 1.6484 The pair is in a downtrend after peaking at 1.7042. Trading is situated between the 50- and 200-day SMA, currently projected at 1.6454 and 1.5258. Yesterday's break above 1.6446 dynamic resistance cleared the road all the way up to 1.67+ levels. Current bias is still positive and aims to break above 1.6490 minor high, en route to 1.6612 and 1.67+. Crucial on the downside is 1.6327 low Resistance Support intraday intraweek intraday intraweek 1.6490 1.6752 1.6327 1.5706 1.6612 1.7042 1.6130 1.5352 DeltaStock Inc. - Online Forex & Securities Broker www.deltastock.com RISK DISCLAIMER: These analyses are for information purposes only. They DO NOT post a BUY or SELL recommendation for any of the financial instruments herein analyzed. The information is obtained from generally accessible data sources. The forecasts made are based on technical analysis. However, Delta Stock’s Analyst Dept. also takes into consideration a number of fundamental and macroeconomic factors, which we believe impact the price moves of the observed instruments. Delta Stock Inc. assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person's reliance upon the information on this page. Delta Stock Inc. shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation, losses or unrealized gains that may result. Any information is subject to change without notice.

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Ruble May Strengthen to 23 Per Dollar Next Year, Interfax Says

By Mark Sweetman

Oct. 21 (Bloomberg) -- The ruble may strengthen to a rate of 23 per dollar next year if oil prices are high, Interfax reported, citing Deputy Economy Minister Andrei Klepach.

To contact the reporter on this story: Mark Sweetman in Moscow at msweetman@bloomberg.net

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U.K. Pound Extends Gains Against Euro, Dollar After BOE Minutes

By Gavin Finch

Oct. 21 (Bloomberg) -- The pound extended its gains against the euro and the dollar after Bank of England policy makers maintained consensus on the size of their bond-purchase plan this month.

Britain’s currency rose 0.8 percent to 90.46 pence per euro as of 9:34 a.m. in London, and 0.9 percent to $1.6541.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

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Dollar Declines Against Pound, N.Z. Dollar on Company Earnings

By Lukanyo Mnyanda

Oct. 21 (Bloomberg) -- The dollar fell against the pound and the New Zealand dollar as signs companies are shaking off the worst effects of the recession sapped demand for the U.S. currency as a refuge.

The Dollar Index slid to the lowest level in 14 months as Cadbury Plc increased its sales forecast and Tele2 AB posted profit that beat analysts’ estimates. The dollar dropped the most against its New Zealand counterpart among its 16 most- traded peers after Reserve Bank of New Zealand Governor Alan Bollard said a stronger so-called kiwi wasn’t an obstacle to raising interest rates.

“It’s part of the bigger risk-appetite picture,” said Stuart Bennett, a senior currency strategist in London at Calyon, the investment-banking unit of Credit Agricole SA. “We’re still in an environment where there’s going to be a gradual recovery. For currency markets, it’s all about risk.”

The dollar was $1.6527 against the pound as of 9:34 a.m. in London, from $1.6382 yesterday in New York. The New Zealand dollar climbed to 75.67 U.S. cents, the highest level since July 2008, from 74.96 cents. The U.S. currency was little changed at 90.74 yen, from 90.78 yen. The euro traded at $1.4948, from $1.4945.

“Bollard’s comments have led to more intense speculation about when RBNZ will start hiking rates, and have opened the way for more currency gains,” said Sonja Marten, a currency strategist in Frankfurt at DZ Bank AG.

To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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Hyundai Supplanting Toyota as Won Undermines Exports

By Jason Clenfield

Oct. 21 (Bloomberg) -- David Beidny’s choice between a Japanese and South Korean car was easy: Hyundai Motor Co. gave him $3,500 in cash to make the purchase, a deal that money- losing Toyota Motor Corp. could ill afford to offer.

“I stopped by Toyota and I even sat in a Camry, but they were asking $4,500 more than the Hyundai I bought,” said the 46-year-old computer graphics designer from Rockland County, New York, who purchased an Elantra. “Hyundai was cutting the best deal.”

Japan, which barely emerged from recession in the second quarter, may see its expansion cut short as the exporters it depends on for growth cede business to South Korean rivals. Toyota is contending with a yen that has risen against all 16 major currencies in the past two years, including the dollar, euro and Korean won, eroding profit and leaving little room for price cuts. The won’s 22 percent slide versus the dollar let Hyundai give discounts and almost double its U.S. market share.

“Korea’s done much better over the last year and the exchange rates tell you a lot of the reason,” said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo. “Look at the earnings coming out of the two countries: the ones from Korea are strikingly better.”

The yen has soared 62 percent over its Korean counterpart over the past two years, trading at 13 won at 2:53 p.m. in Tokyo.

Earnings Scorecard

Seoul-based Hyundai posted record profit of 812 billion won ($697 million) in the three months through June. In the same period, Toyota lost 77.8 billion yen ($861 million). Nagoya- based Toyota, the world’s largest automaker, is forecasting its second consecutive loss.

Japanese electronics makers aren’t faring any better. Sony Corp. predicts an annual loss of 120 billion yen, with an appreciating currency threatening a deeper slump. The Tokyo- based company calculated its forecast assuming the yen will trade at 93 per dollar, weaker than the rate of 90.35 at the close in Tokyo yesterday.

“It’s a tough environment,” Sony Vice Chairman Ryoji Chubachi said in an interview this month in Chiba, near Tokyo. “We don’t have any room to breathe,” he said, citing the yen’s gain and reduced U.S. demand. Sony’s income statement shows its loss will widen by 1 billion yen for every 1 yen the currency appreciates.

Samsung’s Gain

In contrast, the won’s drop has allowed Samsung Electronics Co. and LG Electronics Inc. to lop off more than $100 from the price of a $1,000 television and stay profitable. Earnings at Suwon-based Samsung climbed 5.2 percent to 2.3 trillion won in the quarter through June. LG, which posted record profit of 1.1 trillion won in the period, says it will overtake Sony this year as the world’s second-largest TV maker.

“I don’t really see the competitive edge of Japanese companies right now,” said Peter Yu, a technology analyst at BNP Paribas SA in Seoul. South Korean firms are better at managing costs and quicker to market than Sony, which “takes months to make a decision and implement it,” he said.

Vexing for Japanese exporters is that the yen may not be overvalued. A Bank of Japan index comparing the currency with those of the nation’s top trading partners showed it rose 22 percent to 118.5 in September from 96.8 two years before. That’s still cheaper than the average of 122.5 the past two decades. A separate gauge compiled by Westpac Banking Corp. showed the yen rose 32 percent from two years ago while the won sank 37 percent.

‘Significant Advantage’

“That’s a very significant advantage for Hyundai or Samsung or LG,” said Uwe Parpart, chief Asia strategist at Cantor Fitzgerald LP in Hong Kong. “It’s something that the Japanese are beginning to learn to live with.”

The contrasting fortunes of the countries’ exporters have determined the speed at which their economies have rebounded. South Korea’s gross domestic product grew 2.6 percent in the second quarter, the fastest pace since 2003. Japan’s 0.6 percent expansion barely lifted the economy out of its worst postwar recession.

The Kospi stock index has gained 47 percent this year, about seven times more than Japan’s Topix. Hyundai has more than doubled, while Toyota has risen 23 percent.

South Korea’s success may in turn cause the won to appreciate as international investors flock to the nation’s assets. The won has the best prospects in 2010 among 34 currencies ranked by Bloomberg forecast surveys. Median projections show the won rising 6 percent against the dollar by Sept. 30, 2010. The yen is predicted to lose 7.8 percent per dollar and 13 percent versus the won.

Little Sympathy

Japan’s exporters, whose shipments overseas fell 36 percent in August from a year earlier, have received little sympathy from their government over the yen’s appreciation so far. Finance Minister Hirohisa Fujii says companies shouldn’t rely on a weaker yen to prop up sales abroad. Japan hasn’t intervened in the foreign-exchange market with yen sales since 2004.

By contrast, South Korean officials are acting to keep their currency cheap. The country’s foreign-exchange reserves soared 9.7 percent to $254 billion last quarter as officials sold won to contain an 8.1 percent rally against the dollar.

The collapse of General Motors Co. and Chrysler Group LLC created an opening in the U.S. market that the South Koreans were quick to seize. Hyundai has won U.S. customers with a marketing blitz and incentives that include cash rebates, gasoline discounts and an offer to repurchase cars from buyers who lose their jobs.

‘That Time Is Here’

“For the last five or 10 years, the question has always come up, ‘when do the Koreans finally become competitive? When do they pose a threat to the Japanese automobile makers?’” said Stephen Usher, a San Diego-based analyst for equity- research firm Japaninvest Plc. “That time is here.”

While Toyota’s U.S. market share held at about 17 percent through the first nine months of 2009, Hyundai increased its share by 1.3 percentage points to 4.4 percent, the industry’s biggest gain, according to Autodata Corp. The company was ranked ahead of Japanese makers Nissan Motor Co. and Mazda Motor Corp. in a survey this year of vehicle dependability by market researcher J.D. Power and Associates.

“For the money, it’s a fantastic car,” said Biedny, the graphics designer who in July traded his Ford Motor Co. vehicle for the Hyundai Elantra.

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net

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Nishimura Warns Against Prolonging BOJ Credit Steps

By Toru Fujioka

Oct. 21 (Bloomberg) -- Bank of Japan Deputy Governor Kiyohiko Nishimura said financial markets are improving and keeping the central bank’s emergency credit programs in place for too long may cause distortions.

“Excessive concerns are easing considerably and market functions are improving significantly,” Nishimura said at a press conference today in Kobe, western Japan. “Prolonging safety-net measures may cause the problem of moral hazard.”

Earlier in a speech, Nishimura stressed that ending the programs of buying corporate debt from lenders is a separate matter to interest-rate policy. Economists expect the central bank to end the credit steps by the end of the year, while leaving the benchmark rate at 0.1 percent through all of 2010 amid prolonged deflation and tepid economic growth.

“The central bank wants to make it clear that ending some measures doesn’t mean raising rates soon,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. Adachi predicts the corporate asset-purchase programs will expire in December as scheduled and the BOJ will “be one of the last central banks to raise interest rates.”

Nishimura, 56, said policy makers will decide the fate of the credit measures “after determining the extent to which market functions recover and whether excessive concerns among investors will return.” The bank will make an assessment by looking at the financial market “overall,” rather than the market for specific securities.

Easier to Sell

In the speech, he said companies with higher credit ratings are finding it easier to sell bonds and commercial paper. Since lowering the key interest rate to 0.1 percent in December, the bank has been buying the assets and offering banks unlimited loans backed by collateral to channel funds to companies. The three programs are due to expire on Dec. 31.

Japan’s “road to recovery will be very bumpy,” the deputy governor said at the news briefing, while adding that stimulus from governments and central banks worldwide will ensure it avoids a “double-dip” slump. In the speech he said it will take “a while” before consumer prices stop falling and return to a “desirable” level.

“It’s all too true that deflation is already putting some pressure on Japan’s economy by squeezing corporate profits and wages,” said Yoshimasa Maruyama, senior economist at Itochu Corp. in Tokyo. “The Bank of Japan is very far from raising rates.”

Consumer prices excluding fresh food slid a record 2.4 percent in August from a year earlier. The central bank is likely to forecast price declines will extend to 2011 when they release their twice-annual economic outlook on Oct. 30, analysts say.

The central bank will probably hold interest rates near zero at least through the end of 2010, according to 16 of 17 economists surveyed by Bloomberg News this month.

Nishimura said the policy board will continue to focus on the risks to growth, and uncertainty over the global economic outlook is the biggest concern.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

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India Should Keep ‘Accommodative’ Rate Policy, Singh Aide Says

By Kartik Goyal and Cherian Thomas

Oct. 21 (Bloomberg) -- India should maintain an “accommodative” monetary policy until the economy recovers and inflation flares up, a top aide to the prime minister said, highlighting political pressures on the central bank to keep interest rates unchanged next week.

“The stance of monetary policy will have to change from its highly accommodative position,” said Chakravarthy Rangarajan, economic adviser to Prime Minister Manmohan Singh. “But that has to wait and that will depend on the growth performance of the economy and also inflationary pressures.”

Governor Duvvuri Subbarao said earlier this month that there is consensus within the Reserve Bank of India on the need to boost policy rates, while there is no agreement on the timing of such a move. The central bank’s next monetary policy statement is due to be released on Oct. 27 in Mumbai.

“Given the present signs of inflationary pressures, we have to act earlier than the U.S. and European economies” on interest rates, Rangarajan said today.

The Reserve Bank has kept borrowing costs at record lows after cutting its repurchase rate six times between October 2008 and April 2009 to help shield the economy from the global recession. The central bank left its key rates unchanged in July’s policy statement.

“In the short-term, managing inflationary risks, particularly food-price inflation, is the biggest challenge to be faced by our policy makers,” Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said at a news conference in New Delhi today.

Faster Inflation

The Economic Advisory Council forecast inflation to accelerate to around 6 percent by March 2010, more than the central bank’s 5 percent year-end estimate. The council also said India’s economy may expand 6.5 percent in the year through March, slower than the 8.7 percent average growth of the previous four years.

India’s economic growth is likely to slow in the current fiscal year due to the impact of the global recession and a reduction in farm output due to the weakest rains in almost four decades, Rangarajan said.

Total food grain production is likely to decline by 11 million tons in the current year to 223 million tons, compared with 234 million tons last year, the council said in a report. That will put pressure on food supplies, it said.

Rangarajan said stimulus measures introduced to protect India’s $1.2 trillion economy from the impact of the global recession must continue until the end of March 2010.

Interest-rate cuts and government tax reductions have together provided a stimulus worth more than 12 percent of India’s gross domestic product, according to central bank estimates.

“The stance of monetary policy will have to be calibrated taking into account growth prospects and the inflationary pressures,” Rangarajan said.

Overseas inflows into stocks may rise to $24.1 billion in the year to March and India may get foreign direct investment worth $36.9 billion. The council expects export orders worth $188.9 billion in the current year.

To contact the reporters on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net; Cherian Thomas in New Delhi at Cthomas1@bloomberg.net

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Swiss Economy Past Worst, Deflation Risks Eased, Gerber Says

By Klaus Wille and Simone Meier

Oct. 21 (Bloomberg) -- The Swiss economy is probably past the worst of the recession and deflation risks have eased, the government’s head of economic affairs said.

“The recession has probably bottomed out but the situation isn’t without risks,” Jean-Daniel Gerber, who heads the State Secretariat for Economic Affairs, said in an interview in his office in Bern on Oct. 19. “A double dip is possible but the second dip wouldn’t be as severe as the first one. The risk of deflation is much lower than before.”

The Swiss economy is recovering after the central bank cut borrowing costs close to zero and purchased corporate bonds and foreign currencies to fight the worst slump in three decades and combat deflation. Swiss leading economic indicators last month rose to the highest in more than a year and the state secretariat raised its outlook for the economy.

Gerber also said that Swiss National Bank President- designate Philipp Hildebrand is “right” that the country needs stronger bank regulations. Hildebrand, who takes over from Jean- Pierre Roth in January, has suggested options including restricting the size of banks and possibly breaking them up.

UBS AG, which received government aid last year, and Credit Suisse Group AG were both forced to eliminate jobs to help reverse record losses. Gerber said the size of the financial- services sector as a proportion of gross domestic product has fallen to around 10.5 percent from more than 12 percent in 2007.

“We have to strike a balance between strong banks and their size,” he said. “What’s important for Switzerland is that regulations are carried out in a way that all the players have to abide by similar regulations.”

‘Many Clouds’

The state secretariat, part of the Economy Ministry, said last month that it expects GDP to drop 1.7 percent this year and increase 0.4 percent in 2010. That compared with contractions of 2.7 percent and 0.4 percent, respectively, forecast in June.

With exports accounting for about half of GDP, Switzerland’s economy is dependent on a global recovery. The International Monetary Fund said earlier this month that the global economy will shrink 1.1 percent this year. It also raised its forecast for 2010, projecting growth of 3.1 percent.

“We’re closely looking at what’s going on outside Switzerland,” Gerber said. “There are still many clouds but the situation has improved in all major world regions.”

Falling Prices

The Swiss economy has been contracting since the third quarter of last year after companies cut spending and eliminated jobs to weather the global slowdown. The slump eased in the second quarter, when GDP fell 0.3 percent after a 0.9 percent drop in the previous three months.

Consumer prices have fallen on an annual basis for the past seven months. The SNB expects prices to drop around 0.5 percent this year before rising 0.6 percent in 2010 and 0.9 percent in 2011. That’s still less than half its 2 percent inflation limit.

The SNB in March started selling Swiss francs to weaken the currency and fight deflation. Switzerland’s status as a haven during times of turmoil buoyed the franc during the financial crisis even as its economy slumped.

“Before, there was a strong appreciation which wasn’t due to fundamentals of the economy. It was due to other factors, safe haven for instance,” Gerber said. “The central bank got the franc back where it was.”

The franc has fallen 2 percent against the euro since the SNB began the currency intervention on March 12. It had gained almost 8 percent in the previous six months.

Central banks around the world are already starting to ponder exit strategies as the global economy emerges from its worst slump in six decades. Hildebrand, currently the SNB’s vice president, said on Sept. 26 that the bank “will do whatever it takes on the exit side at the right time.”

Swiss borrowing costs are currently at 0.25 percent, which compares with the European Central Bank’s 1 percent key rate and the Bank of England’s 0.5 percent benchmark rate.

“Providing liquidity to markets is much easier than withdrawing liquidity,” said Gerber, who previously worked for the World Bank in Washington. “It will be a tough exercise. There’s a risk that central banks don’t choose the right moment.”

To contact the reporters of this story: Klaus Wille in Zurich at kwille@bloomberg.net; Simone Meier in Dublin at smeier@bloombert.net.

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U.S., China Links May Determine Exit Strategy Timing, ING Says

By Shamim Adam

Oct. 21 (Bloomberg) -- The extent of an Asian economy’s integration with the U.S. or China may determine the timing of its exit from stimulus measures implemented to counter the global financial crisis, according to ING Groep NV.

Countries that have closer trade and economic links to China and are more dependent on it for growth will be among the first to raise interest rates, Tim Condon, chief Asian economist for ING, said in an interview today. He pointed at Australia as an example, and said South Korea will probably be next.

Australia’s central bank this month became the first among the Group of 20 countries to raise rates since the height of the global crisis, as the world emerges from its recession. Bank of Korea’s Governor Lee Seong Tae and Reserve Bank of Australia’s Governor Glenn Stevens are indicating they may raise borrowing costs at a faster pace in coming months.

“Australia, by virtue of its commodities orientation, is locked at the hip with the Chinese economy, and it’s for that reason it was the first to move on the exit strategy,” Condon said. “If the economy is more integrated with China, its central bank is close to implementing the exit strategy. If the economy is more integrated with the U.S., the timing is farther out.”

Australia’s proximity to Asia is helping its economy rebound faster than most other developed nations. Trade figures show the nation’s largest export customers this year are China, Japan, South Korea, India and the U.S. Six years ago, the U.S. was ranked second.

‘Very Powerful’

China’s rebound has been powered by 4 trillion yuan ($586 billion) of spending on railways, roads, power plants and public housing. Gross domestic product probably grew 9 percent last quarter, the fastest pace since the three months ended September 2008, according to the median estimate of 34 economists surveyed by Bloomberg News.

“China is responsible for the export-led recovery, ranging from very powerful in North Asia to somewhat indifferent in some parts of Southeast Asia,” Condon said. “The pace of the export-led recovery is going to determine the timing of the exit strategy” for the rest of the region.

Governor Lee last week said any future increase in South Korea’s benchmark interest rate can be bigger than the central bank’s usual 25 basis points. It cut rates by 3.25 percentage points from October to February, the most aggressive easing since it began setting a policy rate a decade ago.

China is the biggest buyer of South Korean goods, and overseas sales to its neighbor are more than double those to the U.S., according to government data. The South Korean central bank may raise rates in December or January, Condon said.

‘Cold Water’

In Hong Kong, the central bank “is trying to pour cold water on the property market” while Taiwan will probably raise interest rates some time after South Korea’s move, Condon said.

Thailand’s central bank may keep its key rate unchanged at a fourth consecutive meeting today to support the economy’s recovery from recession, according to all 26 economists surveyed by Bloomberg News.

The Southeast Asian economy is more integrated with the U.S. than China, Condon said. Thailand exports 11.4 percent of its goods to the U.S. while shipments to China make up about 9.2 percent, he said.

“The Bank of Thailand was Asia’s most slavish Fed tracker during the last Fed tightening cycle and we expect history to repeat itself,” Condon said. ING predicts the Bank of Thailand will raise rates in the third quarter of 2010.

Economic Recovery

In Malaysia, central bank Governor Zeti Akhtar Aziz has said interest rates are at an “appropriate level” and are supporting the economy’s recovery. Easing inflation allowed Bank Negara Malaysia to reduce its key rate from 3.5 percent in mid- November to a record low of 2 percent. It kept borrowing costs unchanged at its August meeting.

“A higher U.S. export-destination share tells us that Malaysia’s economy, like Thailand’s, is more integrated with the U.S. than with China,” Condon said. “We think this means Bank Negara Malaysia, like the Bank of Thailand, will remain on hold for an extended period.”

While Malaysia’s exports to China have been rising, “it’s not big enough to lift the whole economy,” Condon said.

The timing of rate increases in Indonesia is less dependent on its links with China or the U.S., and more contingent on its inflation outlook, the ING economist said.

Bank Indonesia kept its benchmark rate unchanged for a second month at 6.5 percent on Oct. 5 after nine consecutive cuts since December last year. Inflation may accelerate to between 4 percent and 6 percent next year compared with this year’s estimate of 3.5 percent to 5.5 percent, Bank Indonesia Senior Deputy Governor Darmin Nasution said Oct. 14.

“Indonesia investors are particularly inflation wary,” Condon said. “The central bank will act early next year in the face of accelerating inflation to signal that they are on the case and prevent inflation expectations from rising.”

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

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Crude Oil Drops Before U.S. Report Expected to Show Supply Gain

By Rachel Graham

Oct. 21 (Bloomberg) -- Crude oil fell for a second day before a U.S. government report expected to show crude inventories rose last week.

Crude stocks rose 1.5 million barrels in the week ended Oct. 16 from 337.8 million the prior week, according to a survey of 15 analysts before the Department of Energy report, released later today. U.S. stocks are currently about 10 percent above last year’s level.

“We’ve come up quite quickly in the past couple of weeks,” Frank Schallenberger, head of commodities research at Landesbank Baden-Wuerttemberg, said by phone from Stuttgart. “The U.S. report should give the market new direction,”

Crude oil for December delivery fell as much as 90 cents, or 1.1 percent, to $78.22 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $78.36 a barrel at 9:51 a.m. London time.

Crude prices have gained 11 percent this month, tracking rising global equity markets and a weakening dollar.

Futures traded at over $80 a barrel yesterday for the first time in over a year as the dollar index, which measures the U.S. currency against six currencies, fell to its lowest since August 2008. Some investors buy dollar-priced commodities to hedge against a weaker U.S. currency.

Brent crude oil for December settlement declined as much as 69 cents, or 0.9 percent, to $76.55 a barrel on the London-based ICE Futures Europe exchange.

A report from the industry-funded American Petroleum Institute yesterday showed crude inventories in the U.S. increased 3.85 million barrels last week.

The Department of Energy report may show gasoline inventories fell 850,000 barrels from 209.2 million the week before, the survey showed.

Supplies of distillate fuel, a category that includes heating oil and diesel, declined 1 million barrels from 170.7 million the prior week, according to the survey. Stockpiles in the week ended Oct. 2 were at the highest level since January 1983.

The Energy Department is scheduled to release its weekly report today at 10:30 a.m. in Washington.

To contact the reporters on this story: Rachel Graham in London rgraham13@bloomberg.net

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Caltex May Start Drug Testing at Sydney Oil Refinery Next Year

By Ben Sharples

Oct. 21 (Bloomberg) -- Caltex Australia Ltd. may start random drug and alcohol testing of employees next year at its Kurnell oil refinery in Sydney, the country’s second largest, after a ruling by the national workplace relations tribunal.

Fair Work Australia, an independent body that has the power to resolve workplace disputes, said Caltex can begin testing from Feb. 1, subject to safeguards, a ruling on the tribunal’s Web site shows. This includes counseling and a series of warnings to staff that fail a test, the ruling shows.

“Random testing currently applies to any safety critical role in Caltex’s terminals and aviation, and to members of the Caltex leadership team, including the CEO,” Georgie Wells, a Sydney-based spokeswoman for the refiner, said in an e-mailed response to questions today. Sampling will cover all staff, including contractors, regardless of their position, Wells said.

The tests are potentially discriminatory and can be “an invasion of privacy and civil liberties,” according to evidence presented to the tribunal on behalf of the Australian Workers Union and the Australian Institute of Marine and Power Engineers, which argued against random sampling, the ruling showed.

Andrew Casey, spokesman for the Australian Workers Union, wasn’t immediately available for comment.

Kurnell, in southern Sydney, has the capacity to process 135,000 barrels of crude a day, according to a Sept. 21 presentation. The plant produces petrol, diesel and jet fuels, the Caltex Web site shows.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

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Bank of England Keeps Bond Consensus Until November

By Brian Swint

Oct. 21 (Bloomberg) -- Bank of England policy makers maintained consensus on the size of their bond-purchase plan this month, postponing a debate on the need for more spending until officials produce economic forecasts in November.

The nine-member Monetary Policy Committee, led by Governor Mervyn King, unanimously voted to keep the program at 175 billion pounds ($286 billion) and to leave the benchmark interest rate at a record low of 0.5 percent.

“There were differences of view among members of the committee on the balance of risks to the medium-term outlook for inflation and how it had shifted in recent months,” the minutes of the Oct. 8 meeting showed today in London. “All committee members, however, agreed that recent developments were not sufficiently compelling to justify revising the target level of asset purchases.”

King and David Miles had pushed for more spending in August, when forecasts showed that the inflation rate may not return to the 2 percent target in two years. King said yesterday that the outlook for consumer prices is volatile and that policy makers would look beyond the short term to determine how much spending the economy needs.

The pound extended gains against the euro and the dollar after the minutes were published. Britain’s currency rose 1.2 percent to 90.16 pence per euro as of 10:10 a.m. in London, and 1.3 percent to $1.6577.

November Forecasts

“The forecast round ahead of the November inflation report would provide an opportunity to assess more fully how the medium-term outlook for activity and inflation had evolved since August,” the minutes said.

The central bank should pause its bond-purchase program next month after Britain probably emerged from recession, the National Institute for Economic and Social Research said today. Gross domestic product will probably increase 0.7 percent in the last three months of the year, Niesr said.

While the U.K. economy may have returned to growth in the third quarter, policy makers have signaled that the recovery may be uneven. The statistics office will probably say Oct. 23 that the economy grew 0.2 percent in the July-September period, according to the median of 33 economists forecasts in a Bloomberg News survey.

Policy makers said that higher asset prices, lower short- term interest rates and the weakness of the pound would help economic growth in the future. London home sellers raised asking prices to a record high this month and led gains across the U.K., Rightmove Plc said Oct. 19.

The bond purchases had probably helped contribute to improvements including a narrowing of spreads, the minutes said.

“The evidence suggested that the effect on asset prices had been of the type that the committee had anticipated when it launched the program and had been substantial,” the minutes said. “The impact of the recent rises in asset prices would be to support spending, but only if sustained.”

The next policy decision is due on Nov. 5.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.

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GDF Suez Says It Would Welcome Investment From Chinese Funds

By Tara Patel

Oct. 21 (Bloomberg) -- GDF Suez SA, the world’s second- largest utility, would welcome investment from Chinese sovereign funds, Vice Chairman Jean-Francois Cirelli said today at a conference in Paris.

The Paris-based company has been approached by a Chinese sovereign wealth fund about a possible investment, Liberation reported this week, citing an interview with Chief Executive Officer Gerard Mestrallet.

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

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BHP Sees Return to Full Output at Olympic Dam by End of March

By Rebecca Keenan and Jesse Riseborough

Oct. 21 (Bloomberg) -- BHP Billiton Ltd., the world’s largest mining company, expects full output from its Olympic Dam copper, uranium and gold mine in Australia to resume by the end of March after repairs to a damaged shaft.

“We anticipate that ore hoisting will be at approximately 25 percent of capacity” until then, Melbourne-based BHP said today in a statement, without specifying any output cuts. A study has begun to determine the extent of the damage, BHP said.

BHP said yesterday it had declared force majeure on some supply contracts at the world’s largest uranium deposit and the fourth-biggest copper lode after mechanical failure forced the shutdown of the main haulage shaft at the underground mine on Oct. 6. An extended outage is likely to push uranium prices higher because the mine accounts for about 5 percent of global supply, JPMorgan Chase & Co. said this month in a report.

Uranium rose 0.3 percent to $47.13 a pound, the highest in two months, on Oct. 16, according to MF Global Energy’s index.

First-quarter copper cathode output from the mine in South Australia state dropped 31 percent to 37,700 tons, while uranium production was little changed at 1,130 tons, the company said today in a production report. Gold output from the mine declined 5 percent to 26,006 ounces, it said.

The mine produced 181,800 metric tons of copper cathode, 108,039 ounces of gold and 4,007 tons of uranium oxide in the year ended June 30. A six-month repair period may cut BHP’s earnings before interest and tax by $31 million in the year ending June 30, 2010, JPMorgan said. An extended outage may also support copper prices, which climbed to a six week high in Shanghai yesterday, the bank said.

Global Customers

All gold and silver from Olympic Dam is sold to the Perth Mint in Western Australia. The copper goes to customers in Europe, Australia and Asia, and uranium oxide is sold to the U.K., France, Sweden, Finland, Belgium, Japan, South Korea, Taiwan, Canada, U.S. and Spain.

Ore is crushed underground before being hauled to the surface where it is fed into one of two grinding circuits, according to BHP’s Web site. Almost all the ore is normally hoisted through the Clark shaft and the secondary shaft, Whenan, is used when mining is close by, according to BHP. The company has been using the smaller shaft to haul ore since the incident.

Force majeure is a legal clause that allows a company to miss deliveries because of circumstances beyond its control.

BHP is considering an expansion that would convert the existing underground mine operation into an open pit. The mine is 560 kilometers (348 miles) north of Adelaide.

To contact the reporters on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net; Jesse Riseborough in Melbourne at jriseborough@bloomberg.net.

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Gold May Advance in London, New York Trading as Dollar Weakens

By Stuart Wallace

Oct. 21 (Bloomberg) -- Gold, little changed today in London and New York, may advance as a weaker dollar spurs demand from investors seeking to hedge against further declines in the currency.

The Dollar Index, a six-currency gauge of the greenback’s strength, fell as much as 0.3 percent, extending its annual decline to 7.3 percent. Asian equities fell for the first time in three days and stocks in Europe were little changed. Some investors buy gold to diversify their portfolios.

“The yellow metal will continue to look to the dollar and equities for direction, with gold broadly tracking risk sentiment,” James Moore, an analyst at TheBullionDesk.com in London, said in an e-mail.

Gold for immediate delivery rose $3.30, or 0.3 percent, to $1,058.50 an ounce as of 9:05 a.m. in London. The metal reached a record $1,070.80 on Oct. 14 and is heading for a ninth consecutive annual advance.

Gold for December delivery added 50 cents, or 0.1 percent, to $1,059.10 an ounce on the Comex division of the New York Mercantile Exchange.

Holdings of gold in exchange-traded commodities of ETF Securities Ltd. fell to 7.99 million ounces from 8.1 million ounces the day before, according to figures on the company’s Web site today. Gold holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, were unchanged at 1,109.31 metric tons as of Oct. 20.

‘Moving Higher’

“There’s every reason to suggest gold will carry on moving higher,” David Baker, managing partner of Baker Steel Capital Managers, said in a Bloomberg Television interview. “We still see a lot of value in the market.”

Hedge funds and other large speculators are holding a record long position, or bets on higher prices, in U.S. gold futures, data from the Commodity Futures Trading Commission show. The biggest bet among options traders is for gold to reach $1,200 by December.

Among other precious metals for immediate delivery, silver added 5 cents, or 0.3 percent, to $17.545 an ounce, platinum gained $5.50, or 0.4 percent, to $1,356 an ounce and palladium dropped 20 cents, or 0.1 percent, to $336.30 an ounce.

Rhodium for immediate delivery added $50, or 2.8 percent, to $1,850 an ounce, according to prices from Johnson Matthey Plc on Bloomberg. That’s the highest since October last year.

To contact the reporter on this story: Stuart Wallace in London at swallace6@bloomberg.net

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Palm Oil Declines as Crude Oil Extends Drop From One-Year High

By Claire Leow

Oct. 21 (Bloomberg) -- Palm oil declined for a second day from its highest level in almost six weeks as crude oil extended its retreat from a one-year high, reducing palm’s appeal as an alternative fuel.

Palm oil for January delivery slipped as much as 1 percent to 2,159 ringgit ($637) a ton and traded at 2,168 ringgit by the 12:30 p.m. break on the Malaysia Derivatives Exchange. Crude oil for December delivery dropped as much as 0.8 percent to $78.46 a barrel in New York and traded at $78.68.

“We are optimistic on crude oil,” Nirgunan Tiruchelvam, a plantation analyst at Royal Bank of Scotland Asia Securities (Singapore) Pte., said by telephone today. “In such a context, palm oil does look undervalued.” The edible oil has gained 28 percent this year, less than half the 76 percent jump in crude, which reached a high of $80.05 a barrel yesterday.

“We reiterate our optimism on crude palm oil prices,” Tiruchelvam said. He forecasts an average of $717 a ton this year, implying about $800 for the rest of the year, he said. Crude oil has advanced for three weeks, gaining 19 percent to Oct. 16, and “a similar run-up of crude palm oil prices is in the offing,” he said.

Palm oil may climb to between 2,500 and 2,600 ringgit in the next three to four weeks as the drop in crude may be temporary, Harish Galipelli, head of research at Kochi-based JRG Wealth Management, which advises traders, said yesterday.

To contact the reporter on this story: Claire Leow in Singapore at cleow@bloomberg.net

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Japan’s Nikkei 225 Average Falls as Chip-Gear Makers Retreat

By Patrick Rial

Oct. 21 (Bloomberg) -- Japan’s Nikkei 225 Stock Average fell, led by chip-equipment makers after a measure of industry health declined. Japan Airlines Corp. led gains in the Topix index on speculation the carrier will get government funding.

Advantest Corp., the world’s biggest maker of equipment to test computer-memory chips, sank 1.6 percent after a ratio of sales to orders in the chip-equipment industry decreased to a three-month low. Mitsui Fudosan Co., Japan’s largest property developer, retreated 4.1 percent, and real-estate companies fell the most among the Topix index’s 33 industry groups. Japan Airlines, Asia’s biggest carrier, jumped 6.8 percent after the Nikkei newspaper said a government panel proposed more funding.

The Nikkei 225 lost 3.45 points, or 0.03 percent, to 10,333.39 at the close of trading in Tokyo. The broader Topix added 0.25 point to 913.70. About the same number of shares rose as fell on the benchmark.

“The economic recovery is still intact, but data is showing that the pace of the rebound has started to slacken,” said Kiyoshi Ishigane, a senior strategist at Mitsubishi UFJ Asset Management Co., which oversees the equivalent of $56 billion. “Investors haven’t forgotten the nightmare we had last year and are quick to sell when they get anxious.”

The Topix sank to a 25-year low on March 12 and has climbed 30 percent since then as governments and central banks moved to ease credit conditions and stimulate growth. Stocks in the gauge are valued at 5.7 times cash flow, compared with an average of 14 times during the past five years.

Book-to-Bill

Advantest fell 1.6 percent to 2,405 yen. Rohm Co., a chipmaker, dropped 2.1 percent to 6,000 yen after Citigroup Inc. cut the shares to “hold” from “buy.” Tokyo Electron Ltd., the world’s second-largest maker of semiconductor equipment, retreated 1.6 percent to 5,680 yen.

The book-to-bill ratio for Japanese manufacturers of chipmaking equipment fell to 1.28 in September, the lowest level since June, according to preliminary figures released by the Semiconductor Equipment Association of Japan.

In New York, the Standard & Poor’s 500 Index retreated from the highest level in a year yesterday, losing 0.6 percent. Housing starts rose 0.5 percent to an annual rate of 590,000 in September, a Commerce Department report showed, missing economists’ estimates.

Real-Estate Companies

Mitsui Fudosan sank 4.1 percent to 1,623 yen. Mitsubishi Estate Co., Japan’s biggest property developer by market value, lost 2.8 percent to 1,457 yen. They were the two largest drags on the Topix. A gauge of real-estate companies rose 14 percent in the past 10 trading days, the second-best-performing industry group in Japan during that period.

“There’s nothing to make overseas investors excited and spur them to increase holdings of Japanese stocks,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees the equivalent of $96 billion. “With earnings coming up, investors want to first gauge the situation before stepping in.”

Japan Airlines Corp. jumped 6.8 percent to 126 yen, the sharpest gain in the Nikkei 225. A government panel recommended the airline receive 300 billion yen ($3.3 billion) in private and public funds, more than an earlier proposal for 150 billion yen, the Nikkei newspaper reported.

Nitto Denko Corp., the world’s largest maker of optical film for liquid-crystal displays, rose 4.8 percent to 2,820 yen. The company said in a preliminary earnings statement yesterday that operating profit for the six months to Sept. 30 totaled 25.5 billion yen, as sales recovered and exceeded analysts’ estimates. Profit also beat estimates.

Toshiba Upgrade

Toshiba Corp., the world’s second-biggest maker of flash memory chips, added 4 percent to 546 yen and was the biggest positive contributor to the Topix. CLSA Ltd. boosted the company’s investment rating to “buy” from “underperform,” on the view that rising use of so-called smart phones will boost demand for the company’s chips.

SanDisk, the biggest maker of flash-memory cards used in digital cameras and mobile phones, said fourth-quarter sales will probably be between $1.1 billion and $1.2 billion, compared with analysts’ estimates for 835.4 million. The shares surged 9.5 percent in late trading in New York.

Taiyo Yuden Co. slumped 4.3 percent to 1,074 yen, the biggest decline in the Nikkei 225, and Japan Aviation Electronics Industry Ltd. dived 3.9 percent to 494 yen. The makers of electronic components were cut to “neutral” from “buy” by Fumihide Goto, a Tokyo-based analyst at UBS AG.

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

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