The Rise In The New Zealand Dollar Help Slow Down Inflation

Daily Forex Fundamentals | Written by ecPulse.com | Oct 27 09 08:20 GMT |

New Zealand's Prime Minister indicated that the rise in the local currency does not reflect the current economic conditions seen by the country, and since the rise in the New Zealand dollar helped slow down inflation, the central bank does not see the need to start raising rates for now. The New Zealand central bank led by Alan Pollard may not face pressures to start raising rates in the upcoming period, since inflation is under control for now especially with the appreciation of local currency against other currencies that reduces the imported inflation, since import prices become lower. The consumer price index rose by 1.3% during the third quarter of the year, therefore it remains within the comfort zone of the central bank between 1.0-3.0%. And since the interest rates in New Zealand are higher than its trading partners, the country depends on the rise of its local currency. The New Zealand dollar is expected to remain near its highest levels, especially since interest rates stabilized in the United States between 0.0-0.25% and in Japan at 0.1%. Therefore, many worldwide investments head to New Zealand in order to benefit from the higher return resulted from the interest rate, which is higher than in other countries. This increases demand on the local currency, which consequently will keep rising Although the economy will benefit from the appreciation of the local currency, this will certainly, create problems for exports, which became less competitive. The Finance Minister Bill English demanded focusing on exports to push the economy into recovery and overcome the recession, and he also criticized the exaggerated rise in the New Zealand dollar which does not reflect the real conditions in the economy. Alan Pollard stated last week that the rise in the local currency is not what prevents the central bank from raising interest rates, and that the bank's decision to maintain interest rates at their lowest level at 2.5% was to support domestic consumption and strengthen investments that could compensate for the fall in exports, thereby support the economy. 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 27 09 08:17 GMT |

Rupee : The Indian Rupee maintains strength in short to medium term horizon due to weaker dollar overseas and huge inflows and higher equities. 45.80 would remain as an important support . Exporters Sell at rallies from 46.45 to 47.50 in short to medium term . Rupee broke the important resistance at 46.80 on dollar , commodities and equity correction overseas.Room till 47.14 (38.2 % retracement of last fall). Exporters sell at every rise importers stay open. (USDINR - 46.88).Bullish. Euro : EURO bullish momentum was paused on Friday and corrected yesterday around 200 pips.Bullishness is valid till it holds a even key support level 1.4850 area. Break of 1.48 clearly would signal major correction in euro driving other currency pairs also lower against dollar.Immediate resistance at 1.5050. Breaking which bullishness will resume again. (EurUsd-1.4880) Neutral. Sterling: GBP encountered selling at 1.6400 levels yesterday. Buying can happen incase it is unable to break 1.6250 today. Break of pound above 1.6400 price might start to regain it's bullish momentum once again.The bias remains neutral. (GBPUSD - 1.6340) Bearish. Yen : JPY attempted to push higher yesterday but failed to move below my key support level 91.40 and closed higher at 92.23 indicating bullish momentum is still there. 92.50 area remains potential strong resistance. Only valid break above that area could lead us to further bullish scenario. Key support level also remains at 91.40.( USDJPY -92.07) Bullish Aud :AUD is unable to break past 0.9300 levels . The daily weekly and monthly charts are highly overbought and major correction is expected till 0.8950 levels which can be considered as fresh buying opportunities for Aud.(AUDUSD- 0.9180) Bullish. Gold : Gold corrected till $1036.90 levels yesterday (as expected) on the back of weak commodities and stocks. It is currently trading at $1042 levels. Immediate resistance now comes at $1046 levels where intraday selling can be expected. (GOLD 1042.23) Neutral. Dollar IndexDollar index has rebounded strongly from 74.90 levels and currently trading at 76.08 levels. Further upside gains are expected till the cluster resistance at 76.75 levels (55 EMA in Daily chart). Daily stochastic is showing flat.(DI- 76.03) 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 27 09 08:11 GMT |

CHF The pre-planned break-out variant for buyers was implemented with the achievement of minimal estimated target. OsMA trend indicator having marked break out of key resistance levels by considerable bullish activity rise and gives grounds to the choice of buyers'direction priority for today. On the assumption of it, as well as of the descending direction of indicator chart we can assume probability of rate return to Ichimoku cloud border at 1,0120/40 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 buying positions on condition of the formation of topping signals the targets will be 1,0180/1,0200, 1,0240/60, 1,0300/20 and (or) further break-out variant up to 1,0360/80, 1,0420/40. The alternative for buyers will be below 1,0080 with the targets of 1,0020/40. GBP The estimated test of key resistance range levels was not confirmed but the preservation of minimal bullish activity priority gives grounds to suppose preservation of trading plans made before almost intact. Namely, we can suppose probability of the achievement of Senoku Span B of Ichimoku indicator at 1,6400/40 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 1,6340/60, 1,6240/80 and (or) further break-out variant up to 1,6180/1,6200, 1,6140/60, 1,6080/1,6100. The alternative for buyers will be above 1,6540 with the targets of 1,6580/1,6600, 1,6640/60, 1,6700/20. JPY The pre-planned short positions from key resistance range were implemented and the achievement of minimal estimated targets is supported by current bearish activity cycle according to OsMA trend indicator version. Therefore, for opened sales, the targets will be 91,40/60, 90,80/91,00 and (or) further break-out variant up to 90,20/40, 89,60/80. The alternative for sales renewal will be above 92,60 with the targets of 93,00/20, 93,40/60, 94,00/20. EUR The pre-planned break-out variant for sales was implemented with the achievement of main estimated target. OsMA trend indicator, having marked break-out of key supports by considerable sales activity rise and gives grounds to prefer bearish choice of planning of trading operations for today. On the assumption of it as well as considering ascending direction of indicator chart we can assume probability of rate return to Ichimoku cloud border at 1,4920/40 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 sales on condition of the formation of topping signals the targets will be 1,4860/80, 1,4800/20 and (or) further break-out variant up to 1,4740/60, 1,4680/1,4700. The alternative for buyers will be above 1,5000 with the targets of 1,5040/60, 1,5100/20. FOREX Ltd www.forexltd.co.uk

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Risk Appetite Wanes As Equities Falter

Daily Forex Fundamentals | Written by AC-Markets | Oct 27 09 08:09 GMT |

Market Brief There were very few scheduled risk events yesterday but a late slump across equity markets prompted a defiant rally from the USD, and caused EURUSD to plummet from 1.5000 to 1.4840 lows (currently 1.4920). GBP spent yesterday as one of the best performers against the USD, perhaps predictable given the extent of Friday's sell-off; but despite CAD gaining some ground as BoC's Carney failed to repeat or expand on his prior currency intervention comments, it too later succumbed to the wave of USD strength. The move appeared to be triggered by an aggressive sell-off in the S&P on high volumes, led predominantly by financial and insurance names. Specifically, there was speculation about the imminent withdrawal of home-buyer tax credits that dragged down banking stocks, as investors panicked about the consequences for the housing market without stimulus. It is likely there will be more to come in this corrective move; the high volumes going through on the equity futures may highlight a near-term top – and whilst we do still believe the broader global recovery trade still dominates, we have been long overdue a correction and at some stage investor confidence in equity valuations will run out of steam for this leg of the rally. Given the high correlation between EURUSD, equities and gold, it's unsurprisingly then that gold plunged through downside support to touch a low of $1037 overnight (currently $1042). Asian equities are down across the board this morning; the blame apportioned to the slump in commodity prices. Today's key risk events will be Swedish PPI, Eurozone M3 and US Consumer Confidence. Although the latter is likely to be the biggest market mover, we feel risk sentiment will be more sensitive to any moves in the equity markets in the coming session that economic data. ACM FOREX Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

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Takenaka Says Hatoyama Pushing Economy ‘Backward’

By Toru Fujioka and Tatsuo Ito

Oct. 27 (Bloomberg) -- Heizo Takenaka, the architect of policy changes credited with securing Japan’s longest postwar economic expansion, blasted the government that took office last month for undermining prospects for the nation’s recovery.

“The government is taking a small step forward and a big step backward,” Takenaka, who served in cabinet posts including economy minister from 2001 to 2005, said in an interview in Tokyo last week. “My biggest concern is that they don’t have any overarching economic policies to bolster growth.”

Takenaka’s criticism reflects concern among some economists that Prime Minister Yukio Hatoyama’s plans to support households may do little to spur the recovery while swelling the world’s largest public debt. Japanese stocks have lagged behind a global rally because the ruling Democratic Party of Japan hasn’t said how it will tackle fiscal woes and sustain growth, Takenaka said.

“Their policies are like a construction project for a fabulous kitchen and living room that don’t take the rest of the house into account,” said Takenaka, 58, who is now a professor at the Tokyo-based Keio University. The government may be forced to backtrack on its policies in a year to contain the swelling debt burden, he said.

Growth Gap

The world’s second-largest economy could expand around 2.5 percent annually if the government pursued an agenda that includes deregulation and lowering corporate taxes, Takenaka said, adding that growth would be slower than 1 percent under the DPJ-led initiatives.

Earlier this decade, Takenaka pushed Japan’s debt-laden banks to write off 19 trillion yen ($207 billion) in bad loans when he served as financial services minister under former premier Junichiro Koizumi.

He also held the economic and fiscal policy portfolio and oversaw plans to sell the Post Office, the holder of Japan’s largest pool of bank deposits, in an effort to spur competition in the financial industry and reduce what he regarded as wasteful public spending.

The Hatoyama administration’s decision to scrap plans to sell shares of Japan Post Holdings Co., together with a lack of policies to revive the economy and cut debt are “the biggest factors for a slower recovery in Japanese stocks,” Takenaka said.

Lagging Behind

The Nikkei 225 Stock Average has dropped 2.8 percent since the DPJ won the election on Aug. 30, while the Dow Jones EURO STOXX 50 Index gained 1.1 percent and the Dow Jones Industrial Average rose 3.4 percent. The yield on Japan’s benchmark 10-year bond has risen 8 basis points to 1.395 percent.

Deputy Prime Minister Naoto Kan said this month that he doesn’t intend to set a goal for balancing the budget now because the government’s focus is on lowering the jobless rate, an indication that fiscal discipline isn’t a priority.

“Some fiscal spending is needed now to avoid a recession,” Takenaka said. “But if you don’t cut spending, that will create a fiscal deficit problem, so it’s important that they toe the right line between these two things.”

Hatoyama, 62, said yesterday in a parliamentary address that his government’s “most important agenda” will be to help regional economies and aid businesses to support the economic recovery.

Budget Requests

Ministries this month asked to spend a record 95 trillion yen next fiscal year. Public debt is approaching twice the size of gross domestic product, according to the Organization for Economic Cooperation and Development.

“The problem with the DPJ’s election manifesto was that they lacked a growth strategy,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former Bank of Japan official. “Pursuing economic growth would allow them to also help restore fiscal health.”

Takenaka acknowledged that some of the government’s policies, including Transport Minister Seiji Maehara’s plans to make Tokyo’s Haneda Airport an international hub, may bolster growth.

Other plans to abolish highway tolls, reduce tuition fees and cut the gasoline tax may exacerbate deflation by lowering consumer prices about 1 percentage point, he said. The Bank of Japan will forecast this week that price declines will extend into fiscal 2011, damping the recovery, according to the median estimate of 15 economists surveyed by Bloomberg.

Takenaka said he was “stunned” by Financial Services Minister Shizuka Kamei’s decision to scrap the sale of Japan Post and appoint former top Finance Ministry official Jiro Saito to head the company.

The DPJ had opposed so-called amakudari, or the practice of former government officials taking positions at state-run entities. Last year it blocked the government’s nomination of Toshiro Muto, who held the same post as Saito at the ministry, as central bank governor.

Saito’s selection “is the biggest parachuting in history, with one of the most famous bureaucrats,” Takenaka said. “Even worse, he accepted the appointment without knowing what he’ll need to do with company.”

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; Tatsuo Ito in Tokyo at Tito2@bloomberg.net

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French Consumer Confidence Advances, Helped by Lower Prices

By Mark Deen

Oct. 27 (Bloomberg) -- French consumer confidence climbed in October for a third month as lower energy prices improved disposable income and government support spurred growth.

A gauge of household sentiment rose to minus 35 from minus 36 in September, Paris-based national statistics office Insee said today. Economists expected a reading of 35, a Bloomberg survey showed.

French consumers, helped by tax cuts, state incentives to buy cars and falling oil prices, have boosted the economy this year, lifting France out its deepest recession since World War II. Whether they’ll keep spending as energy prices recover and unemployment rises will be key to Europe’s second-largest economy in the months ahead.

“The behavior of consumers will be crucial” for 2010, said Gilles Moec, an economist at Deutsche Bank AG in London. “Households will have to face the disappearance of the deflation windfall” and a deteriorating labor market.

Consumer prices dropped from last year’s levels in each of the past five months as the price of crude oil fell from the record highs hit in mid-2008.

That effect is diminishing just as joblessness is rising. Jobless claims rose by 21,600 in September to 2.57 million, the Labor and Finance ministries said yesterday.

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net

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Home Prices in U.S. Probably Steadied, Consumer Confidence Rose

By Shobhana Chandra

Oct. 27 (Bloomberg) -- Home values in the U.S. kept stabilizing and consumer confidence rose, bolstering the case that an economic recovery is at hand, economists said before reports today.

The S&P/Case-Shiller index covering home prices in 20 cities fell 11.9 percent in August from a year earlier, the smallest drop in 19 months, according to the median forecast of economists surveyed by Bloomberg News. Sentiment this month climbed, a report from the Conference Board may show, even as Americans continue to fret over employment prospects.

Rising home sales, due in part to government programs including the first-time buyer credit and efforts to lower borrowing costs, have helped stem the slump in property values that precipitated the worst recession since the 1930s. Sustained gains in household spending, the biggest part of the economy, may be harder to come by as joblessness mounts.

“Home prices are clearly in a bottoming-out process and we’ll be at much more comfortable levels by next year,” said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado. “Consumers still face headwinds. The panic is over, but people need to see outright positive news on the horizon before we’ll get a big jump in confidence.”

The S&P/Case-Shiller figures, due at 9 a.m., would follow a 13.3 percent drop in the year ended July. Projections in the survey ranged from declines of 11 percent to 13.3 percent. Year-over-year records began in 2001. The gauge rose in June and July on a monthly seasonally adjusted basis.

Monthly Gain

Englund is among economists predicting the S&P/Case- Shiller report will show prices kept climbing in August compared with a month earlier. In July, the home-price index rose 1.2 percent from the prior month, the biggest gain since October 2005.

At 10 a.m., the New York-based Conference Board may report that its sentiment index rose in September to 53.5 from 53.1. Estimates in the Bloomberg survey ranged from 48 to 57.

In the latest evidence of rising demand, existing home sales in September jumped to a 5.57 million annual rate, more than economists forecast and the highest in more than two years, according to data from the National Association of Realtors issued last week.

Housing and manufacturing are leading the stabilization in the economy, the Federal Reserve said in the Beige Book survey of conditions in its 12 district banks during September and early October.

Fed Observation

“Most districts reported that housing market conditions improved in recent weeks, primarily from a pickup in sales of low- to middle-priced houses,” the Fed said.

One risk to the emerging stabilization is foreclosures, which worsen the property glut. Foreclosure rates will climb through late 2010, peaking only after the unemployment rate reaches 10.2 percent in the second quarter, Jay Brinkmann, chief economist at the Mortgage Bankers Association, said this month.

Unemployment, which is projected to exceed 10 percent by early 2010, according to the median estimate in a Bloomberg survey earlier this month, will also limit demand. Economists and industry groups are among those projecting home sales will also cool in the absence of the $8,000 credit for first-time buyers, due to expire Nov. 30. Lawmakers are debating extending the credit.

The Standard & Poor’s Supercomposite Homebuilding Index has climbed 22 percent since the beginning of July on the improving outlook for housing, compared with a 16 percent increase in the S&P 500 index. The builder index fell yesterday on concern that the tax-credit program may not be extended.

‘Low Level’

“The residential housing market appears to have stabilized, but it has done so at a very low level,” William Foote, chief executive officer of USG Corp., North America’s largest maker of gypsum wallboard, said Oct. 21 on a conference call. The Chicago-based company posted its eighth straight net loss last quarter as sales dropped 32 percent from a year ago.

Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.

                        Bloomberg Survey

==================================================
                        Case Shil   Consumer
                          Monthly     Conf
                             YOY%    Index
==================================================

Date of Release              10/27    10/27
Observation Period            Aug.     Oct.
--------------------------------------------------
Median                      -11.9%     53.5
Average                     -11.8%     53.3
High Forecast               -11.0%     57.0
Low Forecast                -13.3%     48.0
Number of Participants          33       74
Previous                    -13.3%     53.1
--------------------------------------------------
4CAST Ltd.                  -11.9%     51.5
Action Economics              ---      54.0
Aletti Gestielle SGR          ---      52.0
Ameriprise Financial Inc      ---      55.0
Argus Research Corp.          ---      55.0
Banesto                     -11.3%     54.4
Bank of Tokyo- Mitsubishi     ---      51.2
Bantleon Bank AG              ---      54.5
Barclays Capital            -12.0%     54.0
Bayerische Landesbank         ---      53.0
BBVA                        -12.5%     54.6
BMO Capital Markets         -12.3%     54.5
BNP Paribas                   ---      54.0
BofA Merrill Lynch Resear   -11.0%     55.0
Briefing.com                -13.0%     52.6
C I T I C Securities        -12.1%     53.2
Calyon                        ---      54.0
Capital Economics           -12.0%     54.0
CIBC World Markets            ---      52.0
Citi                          ---      53.0
ClearView Economics         -11.1%     55.0
Commerzbank AG              -11.3%     55.0
Credit Suisse                 ---      53.0
Daiwa Securities America      ---      54.0
Danske Bank                   ---      51.5
DekaBank                      ---      52.0
Desjardins Group            -12.4%     53.5
Deutsche Bank Securities      ---      55.0
Deutsche Postbank AG          ---      54.5
DZ Bank                     -12.0%     53.5
First Trust Advisors          ---      51.1
Fortis                        ---      55.0
Goldman, Sachs & Co.          ---      52.0
Helaba                        ---      52.5
Herrmann Forecasting        -12.5%     55.0
High Frequency Economics    -11.5%     50.0
HSBC Markets                -11.9%     52.0
Ibersecurities                ---      52.5
IDEAglobal                  -11.5%     56.0
IHS Global Insight            ---      52.5
Informa Global Markets        ---      55.0
ING Financial Markets       -11.8%     52.5
Insight Economics           -11.3%     54.0
Intesa-SanPaulo               ---      51.5
J.P. Morgan Chase           -12.0%     53.0
Janney Montgomery Scott L   -11.7%     53.0
Jefferies & Co.               ---      55.0
Landesbank Berlin             ---      48.0
Landesbank BW               -11.0%     53.0
Maria Fiorini Ramirez Inc     ---      53.5
MFC Global Investment Man     ---      52.0
Moody’s Economy.com           ---      51.0
Morgan Stanley & Co.          ---      54.0
National Bank Financial       ---      54.0
Natixis                     -12.0%     53.5
Newedge                       ---      53.5
Nomura Securities Intl.     -13.3%     ---
Nord/LB                       ---      52.5
RBS Securities Inc.           ---      49.0
Ried, Thunberg & Co.        -11.3%     54.0
Schneider Foreign Exchang     ---      53.4
Scotia Capital              -12.0%     53.1
Societe Generale              ---      55.0
Standard Chartered          -11.5%     53.5
Stone & McCarthy Research     ---      51.0
TD Securities               -11.3%     54.0
Thomson Reuters/IFR           ---      54.0
UBS                         -11.8%     51.5
UniCredit Research          -11.4%     57.0
University of Maryland      -12.3%     54.2
Wells Fargo & Co.             ---      53.2
WestLB AG                     ---      54.5
Westpac Banking Co.         -11.3%     51.5
Woodley Park Research       -12.5%     52.1
Wrightson Associates          ---      54.0
=================================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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Hungary to Be World’s Fiscal Leader, BofA Says

By Tasneem Brogger and Agnes Lovasz

Oct. 27 (Bloomberg) -- Hungary is poised to emerge from the global recession as a leader in fiscal health as years of economic pain brought on by government austerity measures pay off, according to Bank of America Merrill Lynch.

“Hungary’s massive fiscal tightening contributed to its economic decline,” said Radoslaw Bodys, central and eastern Europe economist at BofA Merrill Lynch Global Research, in an interview. “This is why Hungary is going to be the world’s fiscal leader next year.”

The nation that joined the European Union in 2004 has relied on a 20 billion-euro ($30 billion) International Monetary Fund-led loan since its debt-reliant economy succumbed to the credit crisis, forcing it to curb spending and levy more taxes to comply with the fiscal terms of the bailout. The efficiency of budget cuts will leave Hungary with a 1.3 percent surplus next year, adjusted for cyclical swings, Bodys estimates.

“In 2011, Hungary will probably be one of the only major countries in the world likely to be easing fiscal policy when the whole world is tightening,” Bodys said, referring to the 40 economies that BoA tracks worldwide. “That’s what makes Hungary in the longer term perspective quite an interesting and potentially a very strong outperforming country.” He expects the economy to grow as much as 5 percent in 2011.

The country’s fiscal outlook also means it’s one of the best placed in the region to adopt the euro, Bodys said.

“Honestly, I think Hungary can do it any time,” Bodys said. “I can imagine a scenario in which they enter the exchange rate mechanism even next year, and definitely before Poland.”

Reverse Measures

The country’s bond market reflects investor anticipation of a fiscal recovery.

The yield on the three-year 6.75 percent note has shed 1.7 percentage points in the past three months to 6.95 percent on Oct. 26, according to Bloomberg prices. That’s lower than the benchmark two-week deposit rate, which the central bank cut to 7 percent on Oct. 19. The yield on Poland’s comparable three-year note is up 4 basis points in the same period at 5.43 percent.

Hungary’s borrowing requirement will fall 24.8 percent next year, compared with a 24.4 percent increase for Poland, Bank of America Merrill Lynch estimates.

The budget deficit will improve to 3.8 percent of gross domestic product in 2010 from 3.9 percent this year, the government of Prime Minister Gordon Bajnai estimates.

The economy will contract 6.7 percent this year and 0.9 percent in 2010, the government predicts, before returning to growth in 2011.

‘Very Simple’

Hungary is preparing for a fifth year of spending cuts to meet the terms of the bailout. The government has also raised taxes and trimmed subsidies since 2006 to narrow the deficit, the widest in the EU at the time, after burgeoning expenditures led to the nation missing its targets for the shortfall every year between 2001 and 2006.

Growth will pick up as years of fiscal prudence allow authorities to ease policy as other countries are forced to reverse stimulative measures deployed through the crisis, according to Bodys.

“Growth is going to recover while inflation and the fiscal deficit will remain very low,” he said. “That will allow them to grow even faster in 2011 because they will be able to cut taxes in that year. The growth outlook looks good and the appreciation pressure on the currency will be strong. Being positive on the Hungarian fixed income market is very simple.”

Currency Play

Hungary’s potential to be central Europe’s top performer marks a reversal of the status quo, which ranked Poland the “strongest and Hungary the weakest,” Bodys said. “I think this is going to remain the case next year, when we expect Poland to grow 3.5 percent and Hungary to grow 0.2 percent. I think this may reverse from 2011.”

While buying Hungarian bonds over Polish debt based on “purely fundamental aspects” makes good sense, according to Bodys, Poland may reward investors who only buy the currency.

“Poland’s not a clear fixed income play; I would say it’s a clear foreign currency play,” Bodys said. “I’m very bullish on the Polish economy over the next year, which means the pressure on the currency will be clearly towards an appreciation.”

Poland is the only member of the European Union to have avoided a recession since the credit crisis started. Output grew 1.1 percent in the second quarter, and will probably expand 0.9 percent this year, the Finance Ministry estimates. The economy will grow 1.2 percent in 2010, according to the government.

“From the purely fundamental macroeconomic perspective the appreciation outlook of the zloty currently is the strongest since early 2004,” Bodys said. “This is mainly a function of growth and trade balance dynamics. What it means is that the currency is going to appreciate and you don’t want to miss that.”

To contact the reporter on this story: Tasneem Brogger in London at tbrogger@bloomberg.net

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Copper Alloy Output in Japan Rises to 10-Month High

By Jae Hur and Ichiro Suzuki

Oct. 27 (Bloomberg) -- Japan’s output of copper and copper alloy fabricated products, including sheets and tubes, climbed to the highest level in 10 months as global demand increased, an industry group said.

Production was 64,690 metric tons last month, up from 55,670 tons in August, the Japan Copper and Brass Association said in a statement today, citing preliminary data. That was the highest since November. Output in March had tumbled to 34,512 tons, the lowest since November 1974, and production last month remained 17 percent below a year earlier.

Japan’s Finance Ministry today raised its assessment of the regional economy for a second quarter as a rebound in overseas demand spurred gains in production. More than $2 trillion in stimulus spending around the world has rekindled global demand after the global credit crunch following the collapse of Lehman Brothers Holdings Inc. pushed the world into recession.

“We’ve seen a gradual recovery from the semiconductor, auto and electronics sectors,” said Keizo Tani, research section manager at the association. “Last month’s decline was the slowest this year and it will take a bit more time to recover to the output level before the Lehman shock of 70,000 tons a month.”

Reports in the past month showed Japan’s industrial production rose for a sixth month in August, large manufacturers became less pessimistic last quarter, and exports fell at the slowest pace in 10 months in September.

‘Severe State’

“Some areas of the economy, such as production, are showing signs of picking up, even though the economy is in a severe state,” the Finance Ministry’s local-office chiefs said today in a report for the three months ended Sept. 30.

Output of copper alloy fabricated products in the world’s second-largest economy slumped 31 percent from a year earlier to 335,034 tons in the six months started April 1, the lowest level since the fiscal first half of 1975, the industry group said.

The country’s copper wire and cable shipments dropped 23 percent in the fiscal first half to the lowest since 1971 on slumping demand from construction companies and electric- machinery makers, the Japanese Electric Wire and Cable Makers’ Association said Oct. 23.

Shipments, including exports and domestic business, fell to 317,000 tons in the six months to Sept. 30 from 411,500 tons in the year-earlier period, the cable makers’ association said. That was the lowest level since the first half of 1971.

September shipments fell 17 percent to 57,800 tons from a year earlier, dropping for a twelfth straight month, according to data from the group. That compared with 50,531 tons in August, the data showed

To contact the reporters on this story: Jae Hur in Tokyo at jhur1@bloomberg.net; Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net.

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Euro May Advance to ‘Psychological’ 140 Yen: Technical Analysis

By Ron Harui

Oct. 27 (Bloomberg) -- The euro may advance to the “psychological” level of 140 yen should the currency close above so-called resistance at 138.70 yen, RBC Capital Markets said, citing trading patterns.

Resistance at 138.70 yen represents the peaks of a “double top” and the horizontal line of an “ascending triangle,” George Davis, chief technical analyst in Toronto at RBC Capital Markets, wrote in an e-mail to Bloomberg News yesterday.

A double top forms when a currency rises, falls and climbs back to near its earlier high before dropping again. The euro’s first peak was the June high of 139.22 yen and the second peak was the August high of 138.72 yen, according to data compiled by Bloomberg. An ascending triangle is a right-angle triangle that usually forms during an uptrend as a continuation pattern.

“A daily close above 138.70 would not only pierce a double top, but it would also generate the bullish resolution of an ascending triangle pattern,” Davis wrote. “This outcome would project additional gains toward secondary resistance levels at 140.00, followed by 141.68 and 143.16.”

The euro traded at 137.12 yen as of 9:45 a.m. in Tokyo from 137.10 yen in New York yesterday, when it climbed to 138.49 yen, the highest level since Aug. 10. Europe’s currency has risen 4.4 percent so far in October and is heading for its first monthly gain versus the yen since June.

Resistance at 141.68 yen is the Oct. 14, 2008, high and the 143.16 yen level is the upper boundary of an ascending channel, according to RBC Capital Markets. An ascending channel indicates a currency will trade higher as long as it does not break below the lower boundary, or support.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Resistance is where sell orders may be clustered, while support is where there may be buy orders.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net

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China Sees Faster Production Gains in Fourth Quarter

By Sophie Leung

Oct. 27 (Bloomberg) -- China predicted an acceleration in industrial production and reported a 190 percent jump in overseas investment for the third quarter, underscoring the nation’s role in driving a global economic recovery.

Investment by Chinese firms abroad rose to $20.5 billion in July through September, almost triple a year earlier, the Ministry of Commerce said in a statement. Industrial output may rise 16 percent in the fourth quarter, Ministry of Industry and Information Technology official Zhu Hongren said in a briefing, compared with a 13.9 percent pace of gains in September.

Policy makers may be encouraging Chinese companies to invest abroad in part to help counter pressure for the nation’s currency to appreciate, analysts said. Investors are betting on the yuan to appreciate in the coming year as China’s growth accelerates from its weakest pace in a year.

“China’s growth is certain and stable,” said Zhu Jianfang, an economist at Citic Securities Co. in Beijing. “Chinese policy makers see pressure for yuan to appreciate, so they encourage companies to invest abroad to strike the balance.”

Today’s figures came after the government last week reported that China, the world’s third-biggest economy, expanded 8.9 percent in the third quarter, the fastest pace in a year.

The economy is showing more signs of stabilizing, the National Development and Reform Commission said in a statement on its Web site today, adding that the government’s stimulus measures have been effective.

Yuan Bets

Yuan forwards, which rose to a 14-month high last week, suggest the currency will gain 2.3 percent against the dollar in the coming year. The 12-month offshore contracts were down 0.2 percent today to 6.6730. The yuan climbed 21 percent over three years after the government scrapped a fixed exchange rate in July 2005.

China’s policy on yuan will remain stable until the nation’s exports recover and improve, Jiang Jianjun, an official in the foreign trade department of the Ministry of Commerce told an online forum today.

The projection for China’s production gains encouraged some investors to sell the dollar on confidence that the global recovery will diminish demand for the U.S. currency as a haven. The dollar rose as much as 0.2 percent and traded at $1.4894 per euro at 7:55 a.m. in London.

Stephen Roach, chairman of Morgan Stanley Asia, today said investors are wrong to bet that China will restrain its unprecedented stimulus after the economy accelerated in the third quarter.

‘Growth Surprise’

“The Chinese really are fixated on one thing and one thing alone which is social stability -- they don’t want to take a risk of another negative growth surprise” slowdown, Roach said in an interview on Bloomberg Television in Hong Kong.

By contrast, India, Asia’s third-largest economy after Japan and China, today signaled it’s preparing to raise borrowing costs as inflation pressures build. The Reserve Bank of India ordered banks to keep more cash in government bonds, and central bank Governor Duvvuri Subbarao said “it may be appropriate to sequence the ‘exit’ in a calibrated way.”

Inflation in China isn’t a big risk for the nation in the foreseeable future, China central bank Deputy Governor Yi Gang said, the China Securities Journal reported separately today. The government will keep the yuan exchange rate basically stable, the Beijing-based newspaper reported, citing comments the People’s Bank of China’s Yi made at Peking University yesterday.

The nation’s diversification of its foreign currency reserves shouldn’t cause short-term fluctuations in exchange rates, the newspaper cited Yi as saying.

Investment Abroad

Overseas investment by Chinese companies in the first nine months of the year rose 0.5 percent to $32.9 billion, the Beijing-based Commerce Ministry said on its Web site. The figures don’t include financial transactions.

China Investment Corp., the nation’s sovereign wealth fund that holds almost $300 billion, bought an 11 percent stake in Astana, Kazakhstan-based JSC KazMunaiGas Exploration Production for about $939 million, after spending $2.75 billion to acquire Indonesia’s PT Bumi Resources and Noble Group Ltd. in September.

China’s investment in Africa in the first half of the year rose 78.6 percent to $875 million from a year earlier, the Ministry of Commerce said in a statement on its Web site today. Chinese government will continue to encourage companies to invest abroad, the statement said.

To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.netNerys Avery at navery2@bloomberg.net

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Crude Oil Trades Below $79 as Demand Gains Lag Behind Price

By Ann Koh

Oct. 27 (Bloomberg) -- Crude oil traded below $79 a barrel after falling the most in a month as prices rose at a faster pace than a recovery in demand.

Oil earlier also declined after OPEC’s president said the group may boost production targets at its meeting in December as prices climbed above $75. Crude oil surged to a one-year high of $82 a barrel last week.

“The rally will not sustain,” said Clarence Chu, a trader with options dealers Hudson Capital Energy in Singapore. “Eventually oil should go back down towards $70. Demand hasn’t really come back.”

Crude oil for December delivery was at $78.79 a barrel, up 11 cents, at 3:18 p.m. Singapore time. Yesterday, it dropped $1.82, or 2.3 percent, to close at $78.68 a barrel on the New York Mercantile Exchange, the biggest decline since Sept. 24 and the lowest settlement since Oct. 16. Prices have gained 76 percent this year and reached $82 a barrel on Oct. 21.

The dollar dropped to $1.4904 per euro as of 6:25 a.m. in London from $1.4876 yesterday in New York. The greenback reached $1.5063 yesterday, the weakest level since August 2008.

“The range for crude has changed to $75-$85, moved up, and the upper limit is at $82 at the moment,” said Ken Hasegawa, a commodity derivatives sales manager at brokers Newedge in Tokyo. “Unless there is a collapse in the economy, this market would be supported at around $75 a barrel.”

U.S. Stockpiles

An Energy Department report due tomorrow will show that U.S. inventories of crude oil rose 1.5 million barrels last week, according to the median of nine estimates by analysts in a Bloomberg News survey. Supplies in the week ended Oct. 16 climbed 1.3 million barrels to 339.1 million, leaving stockpiles 9.4 percent above the five-year average for the period.

Analysts forecast that inventories of gasoline and distillate fuel, a category that includes heating oil and diesel, declined last week.

Crack spreads, or the profit from refining crude into heating oil and gasoline, probably rose as refiners on the country’s East Coast shut for maintenance, reducing crude demand and the supply of oil products, Chu said.

The Organization of Petroleum Exporting Countries, which accounts for 40 percent of global oil output, will meet Dec. 22 in Luanda, Angola, to review production quotas.

Some member countries are able to pump more oil if the market requires it, OPEC President and Angolan Oil Minister Jose Maria Botelho de Vasconcelos said in an interview on Oct. 25.

“The price of oil was pushed back below the $80 mark by the thought of OPEC increasing production at their next meeting in December and increased concerns over banking sector liquidity,” said Mike Sander, an investment adviser with Sander Capital in Seattle.

Brent crude oil for December settlement was at $77.37 a barrel, up 11 cents, on the London-based ICE Futures Europe exchange at 3:14 p.m. Singapore time. Yesterday it declined $1.66, or 2.1 percent, to end the session at $77.26 a barrel.

To contact the reporter on this story: Ann Koh in Singapore at akoh15@bloomberg.net

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Copper Alloy Output in Japan Rises to 10-Month High

By Jae Hur and Ichiro Suzuki

Oct. 27 (Bloomberg) -- Japan’s output of copper and copper alloy fabricated products, including sheets and tubes, climbed to the highest level in 10 months as global demand increased, an industry group said.

Production was 64,690 metric tons last month, up from 55,670 tons in August, the Japan Copper and Brass Association said in a statement today, citing preliminary data. That was the highest since November. Output in March had tumbled to 34,512 tons, the lowest since November 1974, and production last month remained 17 percent below a year earlier.

Japan’s Finance Ministry today raised its assessment of the regional economy for a second quarter as a rebound in overseas demand spurred gains in production. More than $2 trillion in stimulus spending around the world has rekindled global demand after the global credit crunch following the collapse of Lehman Brothers Holdings Inc. pushed the world into recession.

“We’ve seen a gradual recovery from the semiconductor, auto and electronics sectors,” said Keizo Tani, research section manager at the association. “Last month’s decline was the slowest this year and it will take a bit more time to recover to the output level before the Lehman shock of 70,000 tons a month.”

Reports in the past month showed Japan’s industrial production rose for a sixth month in August, large manufacturers became less pessimistic last quarter, and exports fell at the slowest pace in 10 months in September.

‘Severe State’

“Some areas of the economy, such as production, are showing signs of picking up, even though the economy is in a severe state,” the Finance Ministry’s local-office chiefs said today in a report for the three months ended Sept. 30.

Output of copper alloy fabricated products in the world’s second-largest economy slumped 31 percent from a year earlier to 335,034 tons in the six months started April 1, the lowest level since the fiscal first half of 1975, the industry group said.

The country’s copper wire and cable shipments dropped 23 percent in the fiscal first half to the lowest since 1971 on slumping demand from construction companies and electric- machinery makers, the Japanese Electric Wire and Cable Makers’ Association said Oct. 23.

Shipments, including exports and domestic business, fell to 317,000 tons in the six months to Sept. 30 from 411,500 tons in the year-earlier period, the cable makers’ association said. That was the lowest level since the first half of 1971.

September shipments fell 17 percent to 57,800 tons from a year earlier, dropping for a twelfth straight month, according to data from the group. That compared with 50,531 tons in August, the data showed

To contact the reporters on this story: Jae Hur in Tokyo at jhur1@bloomberg.net; Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net.

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Dollar May Be Supported by Bank Regulation, End of QE, RBS Says

By Justin Carrigan

Oct. 27 (Bloomberg) -- The dollar may be bolstered as governments tighten banking regulations and policy makers prepare to end asset-purchase programs designed to revive their economies, Royal Bank of Scotland Group Plc said.

“While central banks may be grappling with how and when to exit quantitative monetary-policy measures, another factor that may be a waking sleeper is the tougher banking-sector regulations,” Greg Gibbs, a currency strategist in Sydney, wrote in a report today. “With several plausible reasons why the dollar recovery may have occurred, it may be worthwhile adopting a more defensive attitude towards risky currencies.”

To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net

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Dollar Falls as China Output Report Sparks Recovery Optimism

By Yasuhiko Seki and Ron Harui

Oct. 27 (Bloomberg) -- The dollar fell, ending a two-day advance against the euro, on revived optimism that the global economy recovery is spurring demand for so-called carry trades.

The greenback dropped versus 13 of 16 major counterparts after a Chinese government spokesman said industrial output may rise 16 percent in the fourth quarter. The yen declined versus Australia’s dollar after the South Pacific nation’s business confidence surged in the third quarter, backing the case for the central bank to raise interest rates.

“The latest output forecast from China immediately brightened the prospects of the global economy,” Daisaku Ueno, chief analyst at Gaitame.Com Research Institute Ltd., a unit of Japan’s largest currency margin company. “Risk-sentiment improved, triggering buying of higher-yielding currencies such as the Aussie, which benefits from a recovery in China.”

The dollar dropped to $1.4921 per euro as of 6:54 a.m. in London from $1.4876 in New York yesterday. The yen bought 137.23 versus the euro from 137.10, and fetched 91.97 against the dollar from 92.19.

Australia’s dollar climbed to 92.11 U.S. cents from 91.62 cents in New York yesterday. It rose to 84.68 yen from 84.45 yen.

Ministry of Industry and Information Technology spokesman Zhu Hongren commented on China’s industrial output in an online briefing today.

An index of Australian business confidence rose to 16 points from minus 4 points in the previous quarter, National Australia Bank Ltd. said, citing its quarterly survey of 930 companies conducted between the end of August and early September.

Kiwi Reverses

The New Zealand dollar reversed earlier losses as renewed global optimism stoked buying of the so-called kiwi.

“This global pool of investible funds has to find somewhere to get yield,” said David Forrester, a currency economist in Singapore at Barclays Capital, in a Bloomberg Television interview. “Commodity currencies are generally offering that. We do prefer the commodity currencies.”

New Zealand’s dollar, known as the kiwi, earlier slid after Prime Minister John Key said the currency’s recent strength was “helping offset any imported inflation concerns.”

“I would personally be surprised if they raise rates in 2009,” Key said, speaking of policy makers at the nation’s central bank.

The Reserve Bank of New Zealand, which acts independently of the government, will announce its next rates decision on Oct. 29. Consumer prices rose 1.3 percent in the third quarter, within the bank’s 1 percent to 3 percent targeted band. Key, a former foreign-exchange trader with Merrill Lynch & Co., said the country’s base rate is already “well above” most of its trading partners.

New Zealand’s dollar fell as much as 0.4 percent before trading at 75.03 U.S. cents from 74.77 in New York yesterday. It earlier touched 74.48 cents, the least since Oct. 20.

Japanese Exporters

Benchmark interest rates are 2.5 percent in New Zealand and 3.25 percent in Australia, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets and driving up their currencies.

The yen rose from a five-week low versus the dollar on speculation Japanese companies are bringing back earnings on overseas assets before the end of the month.

Large Japanese manufacturers expected the yen to average 94.50 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released Oct. 1. The forecast in the previous report was for a rate of 94.85.

“There’s talk that exporters are buying the yen,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This is causing the dollar-yen to dip.”

Toyota, Honda

Toyota Motor Corp. and Honda Motor Co., Japan’s two biggest automakers, may increase overseas production as a stronger yen makes exports less competitive. Japanese carmakers have lost U.S. market share to South Korea’s Hyundai Motor Co. after the yen rose to a 13-year high against the dollar in January.

“We must think about producing overseas what is now being produced in Japan,” Toyota Executive Vice President Takeshi Uchiyamada said at the Tokyo Motor Show yesterday. The yen may “have a big impact on Japanese production,” Honda’s President Takanobu Ito said.

Japanese Finance Minister Hirohisa Fujii reiterated today that he’s never voiced support for a stronger yen. He was speaking in Tokyo today.

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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Philippines to Hasten Rice Imports on Concern Prices May Surge

By Luzi Ann Javier

Oct. 27 (Bloomberg) -- The Philippines, the world’s biggest rice buyer, plans to bring forward imports for 2010 to beat other nations to the market before prices surge and ensure stockpiles aren’t drained, the National Food Authority said.

“We need to prepare” for the shortfall, Jessup Navarro, administrator of the authority, said in an interview in Manila yesterday. “We need to bring in the rice we need right away.”

The Southeast Asian nation is rushing purchases on concern that drought in India and weather-related damage to crops in other parts of Asia may lead to a supply shortage, Navarro said.

“That could exert huge pressure on prices,” he said. “When there’s speculation, people are hoarding, other countries stop exports, while importing countries are trying to buy. Speculation, panic; you cannot control that,” he added, when asked if he see prices returning to record levels.

Rice futures surged to a record $25.07 per 100 pounds on the Chicago Board of Trade in April 2008 as exporters including India and Vietnam curbed overseas sales and importers such as the Philippines rushed to boost shipments to secure domestic supplies and cool inflation.

Rice for delivery in January gained 0.2 percent to $13.70 per 100 pounds as of 10:54 a.m. Singapore time.

“For record prices to be hit again, it wouldn’t take much,” Euben Paracuelles, an economist at Royal Bank of Scotland Plc said by phone from Singapore today. “The same sort of weather problems are hurting output of these big rice exporters.”

Tender Advanced

The National Food Authority, which manages the government’s grain stockpiles, has set its first tender for Nov. 4, when it plans to buy 250,000 metric tons of rice for delivery beginning January, more than a month ahead of the typical date. More tenders may be held this year, Agriculture Secretary Arthur Yap said Oct. 23.

The impact of the storms that damaged crops in the Philippines will not be felt by the domestic market until June next year, when supplies from the October-December and March-May harvests begin to run out, he said. Harvests from other parts of the country that were spared by the storms have kept prices stable, he said.

About 13 percent of the 6.5 million metric ton fourth- quarter output forecast by the government in August was lost as Tropical Storm Ketsana and Typhoon Parma hit the nation’s biggest rice-producing regions, the Department of Agriculture said in a report released Oct. 13.

The Philippines is assessing the damage from the storms and the possibility of ramping up output in the first harvest of 2010 before setting the total volume of next year’s imports, Navarro said.

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

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Gold Rebounds From Biggest Decline in 3 Months as Dollar Falls

By Kim Kyoungwha

Oct. 27 (Bloomberg) -- Gold advanced, rebounding from its biggest drop in three months, as the dollar fell against major global currencies, reviving demand for the precious metal as an alternative asset.

The U.S. currency weakened for the first time in three days against a basket of six major currencies including the yen on concern U.S. bank losses will derail the global economic recovery. Gold, which typically moves inversely to the dollar, dropped 1.6 percent yesterday, the most since July 28.

“The dollar’s movements are still crucial to the course of gold,” said Hwang Il Doo, a senior trader with KEB Futures Co. in Seoul. “Over the longer term, the uptrend is still valid although there are increased signals that the market needs consolidation before another rally to records.”

Immediate-delivery gold rose 0.4 percent to $1,042.50 at 2:08 p.m. in Singapore, after earlier touching $1,037.03, the lowest since Oct. 7. Bullion touched a record $1,070.80 on Oct. 14 and has risen 18 percent this year. Gold futures for December delivery was little changed at $1,042.80 on the Comex division of the New York Mercantile Exchange.

Still, some analysts warned that rising short positions, or bets that prices will decline, signaled at a reversal of the bullish trend in the past few weeks.

“We have been observing that the number of short positions rose for the third week in a row, signaling that an increasing proportion of market players view the current gold price level as unsustainable,” Eugen Weinberg, analyst with Commerzbank AG., wrote in a note yesterday. “Should this sentiment spread further among market participants, the gold price could come under considerable pressure.”

Jon Nadler, senior analyst with Kitco Metals Inc., also wrote in a report that the absolute level of speculative long positions remains worrisome and continues posing a very real “opening of the floodgates type of liquidation” risk should prices extend a drop, a scenario that is “ultimately unavoidable.”

Among other precious metals, silver increased 0.8 percent to $17.20 an ounce, platinum added 0.2 percent to $1,335.25 an ounce and palladium was up 0.2 percent to $335.25 an ounce.

To contact the reporter on this story: Kyoungwha Kim in Singapore at Kkim19@bloomberg.net

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Japan Stocks Fall Most in Three Weeks; Resource Companies Drop

By Akiko Ikeda and Masaki Kondo

Oct. 27 (Bloomberg) -- Japanese stocks fell the most in three weeks as commodities companies tracked crude-oil prices lower, shipping lines slashed profit forecasts and consumer lenders declined on concern new regulations will cut earnings.

Mitsubishi Corp. and Mitsui & Co., Japan’s largest commodities traders, sank more than 4 percent after crude oil dropped the most in a month. Kawasaki Kisen Kaisha Ltd., Japan’s third-biggest shipping line by sales, slumped 6.4 percent after more than doubling its loss forecast. Acom Co., a consumer lender, plummeted 7.5 percent after an industry group said new rules will reduce people’s ability to borrow.

“There is so much uncertainty over consumer lenders,” said Hideo Arimura, a senior fund manager at Mizuho Asset Management Co., which oversees the equivalent of $35 billion in Tokyo. “There are few institutional investors who touch these shares and I can’t come up with any reason their shares will rise.”

The Nikkei 225 Stock Average lost 1.5 percent to 10,212.46 at the close in Tokyo. The broader Topix index decreased 1.7 percent to 895.48, with five times as many shares declining as advancing. Both gauges slumped the most since Oct. 2, and all but one of the Topix’s 33 industry groups retreated.

Mitsubishi, which gets 39 percent of its sales from commodities, declined 5.5 percent to 1,962 yen, and Mitsui tumbled 4.9 percent to 1,243 yen. Trading companies fell the most among the Topix’s 33 groups, followed by consumer lenders.

Crude oil for December delivery lost 2.3 percent to $78.68 a barrel in New York yesterday, the biggest drop since Sept. 28.

Commodities, Shipping Lines

Pacific Metals Co., a nickel producer, sank 6.1 percent to 712 yen after Goldman Sachs Group Inc. rated the stock “sell” in new coverage.

“Declines in commodity prices have a great impact on Japanese stocks, as they are highly correlated,” said Masanori Ikunaga, who helps manage about $4.1 billion at Sumitomo Mitsui Asset Management Co.

Acom tumbled 7.5 percent to 1,186 yen, extending a 4 percent decline yesterday to the lowest close since the consumer lender went public in 1993. Aiful Corp. sank 2.1 percent to 140 yen, and Promise Co. dropped 4.7 percent to 587 yen.

Half of all borrowers at consumer lenders may be rejected for additional loans because of regulations that take effect in June 2010, the Japan Financial Services Association said yesterday. The new rules will limit total borrowing from consumer lenders to one-third of income.

Container Business ‘Problem’

Kawasaki Kisen lost 6.4 percent to 353 yen. The shipper widened its forecast annual net loss to 79 billion yen ($858 million) from 31 billion yen. Nippon Yusen K.K., Japan’s largest shipping line by sales, fell 2.5 percent to 347 yen after the company cut fleet spending plans by half and widened its loss forecast fivefold.

Mitsui O.S.K. Lines Ltd. dropped 2.5 percent to 551 yen. The operator of the world’s largest merchant fleet slashed its profit forecast 93 percent to 2 billion yen.

“The container business is the big problem for shipping lines,” said Masayuki Kubota, who oversees the equivalent of $1.7 billion in assets in Tokyo at Daiwa SB Investments Ltd. “New ships are going to keep coming onto the market and supply will increase.”

Astellas Pharma Inc. plunged 6.7 percent to 3,340 after Toshihide Yoda, an analyst Barclays Plc, cut the drugmaker to “underweight” from “equal-weight,” saying a competitor’s product is hurting sales. Astellas, Kawasaki Kisen, Pacific Metals and Mitsubishi had the steepest declines in the Nikkei.

Chuo Mitsui Trust Holdings Inc., a trust bank, surged 7.9 percent to 367 yen before being halted, after the Nikkei newspaper said it will merge with Sumitomo Trust & Banking Co. Chuo Mitsui had the biggest gain in the Nikkei 225.

To contact the reporters for this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net; Masaki Kondo in Tokyo at mkondo3@bloomberg.net.



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Asian Stocks Fall on Commodity Prices, Hong Kong Property Curbs

By Masaki Kondo and Shani Raja

Oct. 27 (Bloomberg) -- Asian stocks declined, dragging the MSCI Asia Pacific Index down by the most in three weeks, as raw- material prices fell yesterday and Hong Kong enacted measures to curtail property speculation.

Mitsubishi Corp., a Japanese trading company that gets 39 percent of its sales from commodities, slumped 5.5 percent. Sun Hung Kai Properties Ltd. sank 3.4 percent in Hong Kong after the city tightened down-payment requirements for luxury homes. Kawasaki Kisen Kaisha Ltd., Japan’s No. 3 shipping line, dived 6.4 percent after more than doubling its yearly loss forecast.

The MSCI Asia Pacific Index dropped 1.5 percent to 117.99 as of 5:17 p.m. in Tokyo, set for the biggest slump since Oct. 2. The gauge has climbed 67 percent from a five-year low on March 9 amid signs government measures were helping the global economy out of its worst slump since World War II.

“We’re at a turning point” said Diane Lin, a Sydney-based fund manager at Pengana Capital Ltd., which oversees about $1.1 billion. “The stimulus has been helpful in pulling economies out of recession, but markets have been taking it for granted that this will continue.”

Japan’s Nikkei 225 Stock Average declined 1.5 percent. Consumer lenders Aiful Corp. and Promise Co. lost more than 2 percent after an industry group said about 50 percent of customers may be rejected for additional loans.

India’s Sensex fell 1.3 percent, led by banks after the central bank ordered lenders to keep more cash in government bonds, signaling the start of a tighter monetary policy.

James Hardie, Baidu

Australia’s S&P/ASX 200 Index declined 1.6 percent. James Hardie Industries NV, the No. 1 seller of home siding in the U.S., fell 4.2 percent as U.S. senators discussed cutting a tax credit for homebuyers. The Kospi Index lost 0.5 percent in Seoul with LG Innotek Co. slumping 8.4 percent after Credit Suisse Group AG downgraded the stock.

Among shares that gained, Chuo Mitsui Trust Holdings Inc. surged 7.9 percent in Tokyo, while Sumitomo Trust & Banking Co. added 1.8 percent after the Nikkei newspaper said both banks will merge in “spring” 2011.

Baidu Inc., the operator of China’s biggest search engine, sank 13 percent in U.S. after-hours trading after forecasting fourth-quarter revenue that missed analysts’ estimates.

Futures on the Standard & Poor’s 500 Index were little changed. The U.S. gauge declined 1.2 percent yesterday, led by financial companies after Richard Bove, a Rochdale Securities LLC analyst, said the government will force Bank of America Corp. to raise more capital before repaying the Troubled Asset Relief Program.

Oil, Copper

U.S. stocks will “drop painfully from current levels,” in the coming year amid disappointing economic data and profits as margins shrink, Jeremy Grantham, chief investment strategist at Grantham Mayo Van Otterloo & Co., wrote in a quarterly report.

Mitsubishi, Japan’s biggest trading house, dropped 5.5 percent to 1,962 yen. Woodside Petroleum Ltd. retreated 2.5 percent to A$49.60 in Sydney. BHP Billiton Ltd., the world’s biggest mining company, fell 2.2 percent to A$38.85.

Crude oil for December delivery lost 2.3 percent to $78.68 a barrel in New York yesterday, the biggest drop since Sept. 24. Copper futures fell 0.8 percent, declining from the highest level in almost 13 months.

Sun Hung Kai Properties, Hong Kong’s No. 1 property developer by market value, fell 3.4 percent to HK$118.20. Cheung Kong (Holdings) Ltd., the second biggest, slid 3 percent to HK$102.30.

Down payments for homes priced above HK$20 million ($2.6 million) will be raised to 40 percent from 30 percent, Hong Kong Monetary Authority Chief Executive Norman Chan said.

Shipping Lines Fall

Kawasaki Kisen slumped 6.4 percent to 353 yen. Market leader Nippon Yusen K.K. fell 2.5 percent to 347 yen, while Mitsui O.S.K. Lines Ltd. lost 2.5 percent to 551 yen.

Kawasaki Kisen more than doubled its net-loss forecast for the year to March 2010. Nippon Yusen widened its full-year loss forecast by more than fivefold, while Mitsui O.S.K. cut its annual earnings target by 93 percent.

LG Innotek, a maker of mobile-phone components, dropped 8.4 percent to 115,000 won, the steepest decline in two months. Credit Suisse cut its recommendation to “underperform” from “neutral,” citing worse-than-expected earnings.

Stocks have rallied since March amid better-than-estimated economic and earnings figures. This month, reports showed an export decline slowed in China and U.S. service industries grew for the first time in a year. Amid signs the global economy is improving, Australia’s central bank unexpectedly raised its benchmark rate on Oct. 6 and has signaled further increases in coming months.

Valuation Concerns

After markets shut, Honda Motor Co., Japan’s No. 2 automaker, almost tripled its full-year earnings forecast as government stimulus measures spurred demand. Toshiba Corp., the nation’s biggest memory chipmaker, reported a narrower-than- forecast loss for the first half.

The MSCI Asia Pacific Index has risen 32 percent this year, set for the biggest annual gain since 2003. Stocks in the benchmark are valued at 23 times estimated earnings for this year, higher than 17 times for the S&P 500 and 15 times for Europe’s Dow Jones Stoxx 600 Index, according to Bloomberg data.

“There is doubt as to whether the current outlook for profit growth next year can justify current valuations,” said Hideo Arimura, a senior fund manager at Mizuho Asset Management Co., which oversees the equivalent of $35 billion in Tokyo.

Consumer Lenders

Japanese consumer lenders fell after the Japan Financial Services Association said yesterday that half of the companies’ borrowers may be rejected for additional loans as regulations providing a ceiling on lending are implemented.

Aiful declined 2.1 percent to 140 yen in Tokyo, while rival Promise slipped 4.7 percent to 587 yen. Acom Co. slid 7.5 percent to 1,186 yen, extending yesterday’s 4 percent drop, after the company said on Oct. 23 that first-half earnings were 85 percent lower than its forecast.

“There is so much uncertainty over consumer lenders,” said Mizuho Asset’s Arimura. “There are few institutional investors who touch these shares and I can’t come up with any reason their shares will rise.”

Heizo Takenaka, the architect of policy changes credited with securing Japan’s longest postwar economic expansion, said in an interview last week he is concerned the government doesn’t have any “overarching” economic policies. Takenaka served in cabinet posts including economy minister from 2001 to 2005.

James Hardie retreated 4.2 percent to A$7 in Sydney. Shares of U.S. homebuilders slumped yesterday as senate leaders negotiated to extend and gradually reduce the housing tax credit through 2010.

Chuo Mitsui surged 7.9 percent to 367 yen, and Sumitomo Trust added 1.8 percent to 500 yen. The banks will merge in spring 2011, which will create Japan’s fifth-largest bank, the Nikkei newspaper reported today, without citing anyone. The banks said in a separate statement that nothing has been decided, without confirming or denying the report.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.



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