CPI and FOMC Decision Dominate Markets Ahead of the US Session

Daily Forex Fundamentals | Written by ecPulse.com | Dec 16 09 13:11 GMT |

The outlook for inflation in the United States remains somehow unclear, as yesterday the producer price index signaled that prices increased more than forecasted on the producer level and that might indeed lead to an increase in prices on consumers, meanwhile, the Federal Open Market Committee will announce today its decision on interest rates, where it’s widely expected that the Feds will leave their benchmark interest rates steady. Starting with the consumer price index for the month of November, as the U.S. Commerce Department is expected to announce that CPI rose in November by 0.4% following the prior reported rise of 0.3% back in October, while compared with a year earlier, CPI is expected to have risen by 1.8% up from the prior reported drop of 0.2%. Moreover, core CPI which excludes prices of food and energy is expected to show an increase of 0.1% in November following the prior reported rise of 0.2% back in October, while compared with a year earlier, core CPI is expected to rise by 1.8% compared with the prior reported rise of 1.7%. Inflation is still not expected to pose any threats for the U.S. economy at least not on the short term, however, prices started to show a gradual increase amid the recent improvement in economic conditions, in addition to rising energy prices which have been pushing prices to the upside, yet still the ongoing economic slack is still expected to continue weighing down on prices, and accordingly inflation should remain subdued over the short run. Expectations for inflation over the course of 2010 still signal that inflation will remain under control, as core PCE, the Feds’ favorite indicator for inflation is expected to remain well below the 2% target for inflation, while CPI is also expected to remain within the target range through 2010 around 2%. The U.S. economy is expected to continue its recovery well into 2010, and accordingly we should expect price pressures to start mounting gradually, however, with unemployment at elevated levels near a 26-year high alongside tightened credit conditions, we might expect inflation to remain subdued. Yet on the other hand, we have the huge increase in money supply amid the hefty amounts of liquidity that were pumped into the financial system in order to stabilize conditions and facilitate lending, and that increase in money supply would normally lead to an increase in inflation, but since the velocity of money which is a measure for the circulation of one dollar within the economy is still weak, inflation still hasn’t soared as it should have in a normal situation, as the recession indeed weighed down on prices and kept inflation under control. Meanwhile, the current account balance for the third quarter will be released, the current account deficit is expected to widen in the third quarter to $107.5 billion from the prior reported deficit of $98.8 billion. Also, data from the housing market is expected to show that activity continues to rise gradually, as the housing starts are expected to rise in the month of November to 574,000 from the prior reported estimate of 529,000 back in October, while building permits are expected to rise to 570 thousand from the prior revised estimate of 551 thousand. The housing market continues to show signs of rising activity, as seemingly the endless support for the housing market has finally paid off, where the government continued to offer tax credits for first time home buyers, in addition to cheap home values which lured bargain buyers into the housing market, yet a worrying sign remains with the high number of foreclosures which continue to weigh down on activity in the housing market. Moving on, as the Federal Open Market Committee is expected to leave its benchmark interest rates unchanged at the current target range between 0% and 0.25%, as despite the ongoing improvement in economic conditions, but the economy is still fragile and there’s still a possibility of further deterioration especially as unemployment is standing around its highest level since 1983 at 10.0%. Yet investors will be also interested in hearing what the Feds have to say over the outlook for inflation, as so far the Feds have been highlighting that “inflation is expected to remain subdued for some time”, however we don’t expect that stance to change for the time being at least. The U.S. economy still has a long way to go before conditions are back to normal, as the economy will still struggle in 2010 amid elevated unemployment levels, but we should be able to see a gradual improvement in economic activity, where the economy will be able to grow over a stronger pace during the second half of 2010, however, we still believe that the U.S. economy will stop short from fulfilling its long term growth potentials in 2010, which will most likely represent a recovery year for the world’s largest 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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FX Thoughts for the Day

Daily Forex Technicals | Written by Kshitij Consultancy Services | Dec 16 09 12:27 GMT |

USD-CHF @ 1.0373/76...Immediate Support at 1.0360 R: 1.0440-60 / 1.0490-0510 / 1.0550 S: 1.0360 / 1.0320-00 / 1.0220 Swiss has fallen from the day's high of 1.0425 and is now trading lower below 1.0400. Immediate Support is seen at 1.0360. If this immediate Support at 1.0360 holds, then we might see a rise towards the Resistance seen on the weekly graph in 1.0440-60 region. On the other hand, a strong break below 1.0360 might pull it down towards 1.0320-00 in the US session today which would also decrease the chances of a rise towards 1.0440-60. Overall the pair is still in its broader downtrend. A break and a weekly close above the Resistance region (1.0440-60) mentioned above, would signal a trend reversal. To see the Resistance on the USD-CHF Weekly graph click on the following link: http://www.kshitij.com/graphgallery/chfcandle.shtml#candle Cable GBP-USD @ 1.6363/67...Resistance zone 1.6397-1.6416 R: 1.6397-6416 / 1.6470-83 / 1.6505 S: 1.6272-62 / 1.6229 / 1.6151 Cable rose during the day above the range of 1.6205-1.6324 that we were looking for in the morning. However, it is still within the broader range of 1.6164 and 1.6380. Even beyond 1.6380, there is a strong Resistance in the region 1.6397-1.6416 created by the 13-MA, 100-MA and 200-MA on the 4H chart. It is rising ahead of the FOMC and allowing itself the room to stage a fall towards the Support at 1.6229 and even lower. Just wanted to remind the readers, that the pair has been trading around the 1.6229 since the last several days and has not closed below this level. The same may continues today as well. Aussie AUD-USD @ 0.9011/14...Support at 0.8960 R: 0.9060-70 / 0.9130 / 0.9180 S: 0.8960 / 0.8900 / 0.8840 The Support at 0.8965 mentioned in the morning commentary has held and Aussie has risen from the day's low of 0.8955. It is now trading just above 0.9000. If it continues to trade above 0.9000, we might see a rise towards 0.9060-70 where some Resistance is seen. A break and a further upmove above 0.9070 might see 0.9130 on the upside. On the downside, we may expect the Support at 0.8960 to hold in the US session. However, a break below 0.8960 might pull it down towards 0.8900 or even lower. Kshitij Consultancy Service http://www.fxthoughts.com Legal disclaimer and risk disclosure 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 responsibly 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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EURUSD: Outlook Lower Towards The 1.4479 Level

Daily Forex Technicals | Written by FXTechstrategy | Dec 16 09 12:25 GMT |

EURUSD: With a firm hold below the 1.4625 level, its Nov 03’09 low established, further downside risk continues to point lower towards the 1.4500 level, its psycho level. A breach will open the door for more downside pressure towards its Oct 02’09 low at 1.4479 or even lower. The current price action has halted the pair’s medium term pattern of higher highs and lows and increased risk of a deeper price retracement. Its weekly RSI is bearish and trending lower supporting this view. On the other hand, a failure below the 1.4625 level if seen will turn focus to the upside towards the 1.4799 level, its Nov 20’09 high where a reversal of roles is expected to turn it back down again. If that fails, we may see further climb higher towards the 1.4949 level, the back of invalidated LT rising trendline. Beyond there will clear the way for a run at the 1.5143 level, Its YTD low. On the whole, with the 1.4625 level violated and a hold below it seen, further downside weakness is likely to continue towards the 1.4500/1.4479 levels. Mohammed Isah Market Analyst www.fxtechstrategy.com This report is prepared solely for information and data purposes. Opinions, estimates and projections contained herein are the author's own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which the author incur any responsibility. The does not accept any liability whatsoever for any loss arising from any use of this report or its contents. This report is not construed as an offer to sell or solicitation of any offer to buy any of the currencies referred to in this report

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U.S. Economy May Grow as Much as 4% Next Year, Blinder Says

By Stephanie Phang

Dec. 16 (Bloomberg) -- The U.S. economy may expand 3 percent to 4 percent next year, supported by a recovery in investment, job creation and fiscal and monetary stimulus, Princeton University economist Alan Blinder said.

“The U.S. economy is digging itself out of a deep hole,” Blinder, who served as the Federal Reserve’s vice chairman from 1994 to 1996, said in a Dec. 15 article that appeared on the Wall Street Journal’s Web site today.

Business investment remains 20 percent below the 2008 peak and is likely to increase as plants and equipment age, he said. Home building, currently at less than half the level in 1960, can only improve, while companies will stop reducing inventory at near-record rates as sales rise, he said.

Companies that slashed payrolls during the recession will also need to hire more workers as sales and production recover, Blinder said, predicting that net job creation may resume in a month or two.

More than 70 percent of a February $787 billion fiscal stimulus is yet to be spent, and the central bank’s interest- rate cuts, whose impact was muted by blocked “credit-granting arteries,” will flow to the economy as credit markets heal, Blinder said.

Still, “serious downside risks remain,” Blinder said. The investment rebound and fiscal stimulus will fade in 2010, consumer finances and confidence are “shaky,” banks are failing and commercial real estate is “a mess,” he said. That will prevent the economy from surging as much as it typically does after a deep recession, such as the 7.7 percent pace reported in the six quarters after the 1981-82 slump, he said.

To contact the reporters on this story: Stephanie Phang in Singapore at sphang@bloomberg.net

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European Consumer Prices Rise Less Than Estimated

By Simone Meier

Dec. 16 (Bloomberg) -- European consumer prices rose less than initially estimated in November as lower food and housing costs offset increases in alcohol and transportation.

Prices in the 16-nation euro region rose 0.5 percent from a year earlier after falling 0.1 percent in October, the European Union statistics office in Luxembourg said today. While that was below an initial estimate of 0.6 percent published on Nov. 30, it was the first annual consumer-price increase in seven months.

The European Central Bank forecasts that inflation will remain “moderate,” even as oil prices have jumped 58 percent over the past year. At the same time, companies continue to reduce costs and cut jobs to shore up earnings after the economy pulled out of the recession in the third quarter.

“Energy price effects are set to continue over coming months,” said Colin Ellis, an economist at Daiwa Securities SMBC Europe Ltd. in London. “But the fall back in labor-cost growth in the third quarter provides the ECB with another reason to keep interest rates low, as it suggests that inflationary pressures are currently subdued.”

The euro was little changed against the dollar after the data, trading at $1.4561 at 10:05 a.m. in London, up 0.2 percent on the day. The yield on the German 10-year benchmark bond was unchanged at 3.23 percent.

For now, companies are still cutting costs. European labor costs increased at the slowest pace in more than a year in the third quarter, data showed yesterday. At 9.8 percent, the jobless rate is the highest in almost 11 years and may reach 10.7 percent next year, according to EU forecasts.

Stimulus Measures

Global central banks have started to withdraw stimulus measures as the world economy recovers from the recession. The Organization of Petroleum Exporting Countries yesterday raised its 2010 output estimate as world consumption revives.

The ECB said on Dec. 3 that it will scale back some emergency loans as the region’s economy gathers strength. The Frankfurt-based bank on that day kept borrowing costs at a record low of 1 percent.

There is no need for the central bank to raise interest rates in the first half of 2010 as inflation pressures stay muted, ECB Governing Council member Ewald Nowotny indicated in an interview this week in Vienna.

Euro-region inflation may average about 1.3 percent next year and around 1.4 percent in 2011, the ECB forecasts. The Frankfurt-based central bank aims to keep annual gains in consumer prices just below 2 percent. Core inflation, excluding volatile costs such as tobacco, food and energy, slowed to 1 percent in November from 1.2 percent in the previous month.

‘Steady Hand’

“If there’s no infringement with regard to these goals then I wouldn’t see strong pressure or a strong need to change the policy that we have, that means a policy of steady hand,” Nowotny said. “I do not see major threats for price stability in the near future.”

In November, prices of food dropped 1.2 percent from a year earlier, while housing costs fell 1 percent, today’s report showed. Prices of alcohol and tobacco increased 4.5 percent and household equipment was 1.2 percent more expensive. Energy prices declined 2.4 percent.

“It’s very clear still that there won’t be any easy and rapid recovery in the world economy,” ECB council member Erkki Liikanen said on Dec. 11. “We have come through a major financial crisis, and always after a financial crisis the recovery is slow and shaky and that is where we are now.”

To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net

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U.K. Unemployment Falls for First Time Since 2008

By Scott Hamilton

Dec. 16 (Bloomberg) -- U.K. unemployment unexpectedly fell for the first time since February 2008, adding to signs the economy is emerging from its deepest recession in at least three decades.

Claims for jobless benefits declined by 6,300 in November to 1.63 million, the Office for National Statistics said in London today. The median forecast in a Bloomberg News survey of 26 economists was an increase of 12,500. The number of people seeking work in the three months through October rose 21,000 to 2.49 million, the smallest gain in 17 months.

The figures are a boost for Prime Minister Gordon Brown, who is counting on an economic revival to lift support for his Labour Party before a general election due by June. The economy has lost more than 600,000 jobs since the recession began, with the axe falling hardest on people under the age of 24.

“This a real shot in the arm,” Howard Archer, chief European economist at HIS Global Insight in London, said by telephone. “It’s very encouraging. However, I don’t think it’s an end for the rise in unemployment, which may continue until the end of next year. There’s a still a danger the economy may relapse next year, so I don’t think it’ll have a big impact on the Bank of England’s view of things things.”

Market Reaction

The pound rose after the report and was trading at $1.6334 as of 10:38 a.m. in London compared with $1.6240 yesterday. The 10-year gilt yield was little changed on the day at 3.892 percent.

The number of people in work rose by 53,000 to 28.9 million in the quarter through October, the biggest increase for 17 months, the statistics office said. In October, the number of claims rose by 5,900 instead of the 12,900 originally reported. The claimant rate in November was unchanged at 5 percent.

“It is encouraging that there are more people in jobs as we get near to Christmas, and also that so many more young people have been helped,” Work and Pensions Secretary Yvette Cooper said. “But it is still tough for a lot of people, and we still expect unemployment to increase again. So we are determined to do more.”

Unemployment has risen by less than officials initially predicted as companies froze pay and cut working hours to retain skilled labor needed once the economy returns to growth.

Jobless Rate

At 7.9 percent, the U.K. jobless rate is below the 10 percent in the U.S. and the 9.8 percent euro-region average. Many economists expect it to peak below 10 percent, compared with the postwar high of 11.9 percent record in 1984. Treasury forecasts published last week show the level of jobless claims is close to a peak.

The opposition Conservative lead in opinion polls has shrunk in recent weeks to less than 10 percentage points after Brown stepped up attacks on bankers and portrayed the Conservatives as the party of the rich. The margin is narrow enough to deny the opposition an outright majority at the election.

The labor market is likely nevertheless weigh on the wider economy, and companies may be slow to resume hiring as they initially increase the hours of existing workers, economists say.

Average earnings growth picked up to 1.5 percent in the quarter through October from 1.4 percent, with the rate excluding bonuses unchanged at 1.7 percent.

The fragility of the recovery was underlined earlier this month when Corus Group Ltd., the European unit of India’s Tata Steel, said it will cut 1,700 jobs at its Teeside plant in northeast England after demand for metal dropped. Diageo Plc, the world’s biggest liquor-maker, is also cutting jobs after closing facilities including a packaging plant and a distillery.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net.

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Global Confidence Holds Near Record as Recovery Gains Momentum

By Shamim Adam and Timothy R. Homan

Dec. 16 (Bloomberg) -- Confidence in the world economy held near a record high as reports showed the U.S. recovery is gaining momentum and more banks repaid government bailout funds, according to a Bloomberg survey of users on six continents.

The Bloomberg Professional Global Confidence Index fell to 58.9 this month from 60.3 in November. The series that began two years ago reached its highest in October with a reading of 61.7. The index exceeded 50 for a fifth month, which means there were more optimists than pessimists.

The MSCI World Index has surged 69 percent from its low of the year on March 9 as the global economy emerges from its worst recession since World War II, prompting policy makers to trim emergency stimulus. Financial markets, which fell after state- owned Dubai World attempted to delay debt repayments last month, have recovered as investors bet that default risks are abating.

“There are no signs of the global recovery fizzling out,” said Nick Kounis, chief European economist at Fortis Bank Nederland NV in Amsterdam, and a regular survey participant. “The U.S. economy is stepping up a gear, while Europe will see a slower recovery. Even if confidence levels out at this point, it won’t be a disaster.”

The survey of 1,934 Bloomberg users was conducted between Dec. 7 and Dec. 11. Since the previous survey, data showed the U.S. unemployment rate has fallen as employers cut the fewest jobs since the recession began, the euro-area economy emerged from its recession and Bank of America Corp. exited the Troubled Asset Relief Program after repaying $45 billion in government bailout funds.

Bank Repayments

Citigroup Inc. said Dec. 14 it struck a deal with regulators to repay $20 billion to taxpayers by selling equity and debt, while Wells Fargo & Co. yesterday sold $12.25 billion of common stock to help pay back TARP funds.

A measure of U.S. participants’ confidence in the world’s largest economy rose to 47.7 this month from 46.9 in November, the survey showed. U.S. retail sales in November climbed twice as much as economists expected, while exports rose to the highest level in 11 months, government figures showed.

“We’re getting a little more optimism because the labor market is getting close to a bottom,” said Jonathan Basile, a New York-based economist at Credit Suisse Group AG. “We anticipate that the global economy will continue to expand. We don’t see a double dip on the horizon.”

Bloomberg users were mixed on the outlook for their equity markets in the next six months. Respondents in the U.S., Japan and Spain expect shares to decline, while those in France, Germany and Italy predict their markets will extend gains.

Dubai, Greece

Global stocks, oil and gold prices slid after Dubai’s Nov. 25 announcement that state-owned Dubai World would seek to delay debt repayments. The neighboring emirate of Abu Dhabi on Dec. 14 provided $10 billion to help Dubai World avoid defaulting on a $4.1 billion bond payment.

Greece’s sovereign rating was downgraded this month by Fitch Ratings, which cited weakening public finances. The country has said there is no risk it will default or seek a bailout.

“Dubai and Greece showed us that the global deleveraging is not complete and financial pressures are continuing to build in both the public and private sectors,” said Klaus Baader, co- chief European economist at Societe Generale SA in London. “Global confidence is likely to stabilize at current levels until we see the weight of some of the restraining factors scaled back.”

Western Europe

The confidence gauge for Western Europe rose to 50.9 from 47.7 last month, exceeding 50 for the first time. Bloomberg users in Spain remained the most pessimistic in Europe even as its confidence index rose to 24.5 from 17.7 in November. Spain accounted for almost half of the euro region’s increase in unemployment over the past year.

Sentiment dipped in Japan on concern the yen’s rise to a 14-year high against the dollar will threaten profits and market share for companies including Sony Corp. The confidence gauge for Japan dropped to 29.5 from 29.9, while Asia’s index rose to 76.2 from 76.

Respondents turned bullish on the U.S. dollar for the first time since March, expecting it to strengthen in the next six months against the world’s most actively traded currencies. The trade-weighted Dollar Index has gained more than 2 percent in the past month. The dollar confidence index rose to 52 from 42.4 in November.

“Sovereign debt issues are a significant reason the dollar has strengthened in the last three weeks, and that brings with it a perception of improvement in the U.S. relative to the rest of the world,” said Chris Low, chief economist at FTN Financial in New York, who participated in this month’s survey.

Users in Japan are less confident the yen will rise against the dollar, with the index falling for a third month to 50.6 from 53. Respondents in France, Italy and Spain expected the euro to weaken against its U.S. counterpart.

Survey participants in the U.S. and Europe remained confident short-term interest rates will rise in the next six months, the survey showed.

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

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Bank of America Board’s Split Said to Spur Kelly’s Withdrawal

By David Mildenberg, Brad Keoun and Sree Vidya Bhaktavatsalam

Dec. 16 (Bloomberg) -- Bank of America Corp.’s board was so split over whom to hire as chief executive officer that the top external candidate, Robert Kelly, withdrew instead of trying to unite the factions, people familiar with his thinking said.

Kelly, 55, chairman and CEO at Bank of New York Mellon Corp., dropped out earlier this week after concluding directors were divided between those who sought an outsider and those who preferred an internal choice, one of the people said, speaking anonymously because the talks were private. Kelly also questioned Bank of America’s decision in April to separate the chairman and CEO roles, the people said.

Negotiations with Kelly broke down during discussions about pay, according to people close to the Charlotte, North Carolina- based bank. The Wall Street Journal cited people familiar with the matter as saying he sought $20 million and the chairman’s title. Bank of America spokesman Jim Mahoney declined to comment.

“Mr. Kelly was very flexible on compensation -- in fact it was at the bottom of his list -- but the more important drivers of his decision were the strategic opportunities for growth at BNY Mellon,” Kevin Heine, a spokesman for the New York-based bank, said in an e-mail.

Kelly’s exit left the board with no outsiders actively engaged in talks, a person briefed on the matter has said. That makes it more likely the company will replace CEO Kenneth D. Lewis with either Chief Risk Officer Gregory Curl, 61, or Brian Moynihan, 50, who heads consumer banking. Lewis, 62, plans to leave at the end of the year.

“I think all along the company wanted to go internal,” FBR Capital Markets Inc. analyst Paul Miller said in a Bloomberg Television interview. “It looks like that’s what it’s going to do.”

‘Flexible’ on Pay

Since the CEO search began in October, at least four people have rebuffed approaches, including Citigroup Inc. director Michael O’Neill; former JPMorgan Chase & Co. investment-banking co-head William Winters; U.S. Bancorp CEO Richard Davis; and Eugene McQuade, a former Freddie Mac president who now oversees Citigroup’s largest banking subsidiary, according to people familiar with the matter.

Bank of America lost 10 directors through resignations or retirements since April, after Lewis was stripped of his chairman’s title and federal regulators required an overhaul of risk-management and succession strategies. The board has since added six directors, including ex-Federal Reserve Board Governor Susan Bies and Donald Powell, former chairman of the Federal Deposit Insurance Corp.

Visa’s Ex-Leader

Other new directors include Paul Jones, a former CEO at an Alabama bank, and William Boardman, ex-chairman of Visa International Inc.

The board is being advised in the search by Russell Reynolds Associates, according to a regulatory filing earlier this month.

Bank of America declined 44 cents, or 2.8 percent, to $15.19 yesterday in New York Stock Exchange composite trading. It was the biggest drop in the Dow Jones Industrial Average for the day; the shares have gained almost 8 percent this year.

To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net; Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net; David Mildenberg in Charlotte at dmildenberg@bloomberg.net.

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U.K. to Say Too Much Extra Capital Would Kill Off Derivatives

By Gonzalo Vina and Nandini Sukumar

Dec. 16 (Bloomberg) -- The U.K. will outline plans to prevent over-the-counter derivatives, or those traded outside exchanges, being priced out of the market by European Union proposals, a Treasury official said.

A study published in London by the Treasury and the Financial Services Authority today will set out plans to ensure derivatives too complex to be traded on an exchange or through a central clearing body aren’t made uncompetitive by high capital requirements demanded by the EU.

The U.K. gave qualified support to EU proposals to oversee derivatives in a report published in September. The U.K. doesn’t support the forced use of standardized contracts for all trades, or using demands for extra capital as a punishment rather than as a weight against perceived risk.

The Treasury backs the EU plan to get some derivatives traded on exchanges although it wants European authorities to recognize that there are instruments -- including life insurance products for people with profiles different from the wider population -- that can’t be traded centrally. Forcing investors to keep high levels of capital in reserve would price the products out of existence, the official said.

EU proposals in July were an attempt to cut risk in the $605 trillion over-the-counter derivatives market after the collapse of banks such as Lehman Brothers Holdings Inc. last year. U.S. President Barack Obama released a similar plan in June that would require standardized over-the-counter derivatives to be guaranteed by clearinghouses.

U.S. Proposals

Obama’s administration proposed regulatory changes in August, including imposing higher capital and margin requirements on derivatives markets and requiring certain contracts to be processed through clearinghouses. The European Commission has outlined plans to standardize derivative contracts, proposed operating standards for central counterparties and said derivative traders must record all transactions that aren’t centrally cleared.

Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans and commodities, or linked to specific events like changes in interest rates. Options and futures are the most common types of derivatives.

Clearing is the process of verifying that a buyer has funds to execute a trade. Some clearinghouses also act as central counterparties to every buy and sell order executed on an exchange, removing the risk that a trader defaults on his obligation in a transaction. The largest futures exchanges, including CME Group Inc., Eurex and Intercontinental Exchange Inc., all offer derivatives clearing.

The U.K.’s FSA said Nov. 10 it’s unlikely to prescribe which contracts must be processed through a clearinghouse.

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

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U.S. Economy May Grow as Much as 4% Next Year, Blinder Says

By Stephanie Phang

Dec. 16 (Bloomberg) -- The U.S. economy may expand 3 percent to 4 percent next year, supported by a recovery in investment, job creation and fiscal and monetary stimulus, Princeton University economist Alan Blinder said.

“The U.S. economy is digging itself out of a deep hole,” Blinder, who served as the Federal Reserve’s vice chairman from 1994 to 1996, said in a Dec. 15 article that appeared on the Wall Street Journal’s Web site today.

Business investment remains 20 percent below the 2008 peak and is likely to increase as plants and equipment age, he said. Home building, currently at less than half the level in 1960, can only improve, while companies will stop reducing inventory at near-record rates as sales rise, he said.

Companies that slashed payrolls during the recession will also need to hire more workers as sales and production recover, Blinder said, predicting that net job creation may resume in a month or two.

More than 70 percent of a February $787 billion fiscal stimulus is yet to be spent, and the central bank’s interest- rate cuts, whose impact was muted by blocked “credit-granting arteries,” will flow to the economy as credit markets heal, Blinder said.

Still, “serious downside risks remain,” Blinder said. The investment rebound and fiscal stimulus will fade in 2010, consumer finances and confidence are “shaky,” banks are failing and commercial real estate is “a mess,” he said. That will prevent the economy from surging as much as it typically does after a deep recession, such as the 7.7 percent pace reported in the six quarters after the 1981-82 slump, he said.

To contact the reporters on this story: Stephanie Phang in Singapore at sphang@bloomberg.net

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Dollar Drops Versus Euro as Fed Expected to Keep Rates Steady

By Ben Levisohn and Anna Rascouet

Dec. 16 (Bloomberg) -- The dollar weakened against the euro on speculation the Federal Reserve may indicate the recovery is gaining strength while repeating a pledge to keep the benchmark interest rate almost at zero for an extended period.

The greenback reached a two-month high versus the shared European currency yesterday on expectations economic growth will prompt policy makers signal they’re ready to withdraw stimulus measures. Australia’s dollar slumped against all 16 of the most traded currencies as central bank Deputy Governor Ric Battellino damped expectations for further rate increases.

“We’ve had a strong dollar that was driven by the economic data and the market priced in a series of rate hikes over the next 12 months,” said Marcus Hettinger, a currency strategist in Zurich at Credit Suisse Group AG. “The Fed will probably stick to their message. That’s negative for the dollar.”

The dollar fell 0.3 percent to $1.4577 per euro at 7:30 a.m. in London, from $1.4538 in New York yesterday, when it reached $1.4504, the highest since Oct. 2. The U.S. currency was at 89.51 yen, from 89.61 yesterday, when it traded at 89.95, the strongest level since Dec. 7. The yen bought 130.54 per euro, from 130.29.

Housing, Consumer Prices

U.S. builders broke ground on 574,000 houses in November at an annual pace, up 8.5 percent, according to a Bloomberg News survey of economists before the data’s release today. Consumer prices rose 0.4 percent in November, after a 0.3 percent gain in the previous month, according to a separate survey. Producer prices climbed 1.8 percent last month, the government said yesterday, more than twice the median estimate.

Fed funds futures on the Chicago Board of Trade indicated yesterday a 53 percent chance that the Fed will raise its target lending rate by at least a quarter-percentage point by its June meeting, compared with 48 percent odds the day before.

All 98 economists in a Bloomberg survey expect the Fed will keep the target lending rate at zero to 0.25 percent when it releases its statement at the close of its meeting today.

Australia’s currency fell after the Reserve Bank of Australia’s Battellino said borrowing costs for households and businesses have risen faster than the central bank’s target rate. Benchmark interest rates are 3.75 percent in Australia, compared with 0.1 percent in Japan and as low as zero in the U.S.

‘Expansionary Segment’

“They are now above their previous cyclical lows,” he said. “It would be reasonable to conclude that the overall stance of monetary policy is now back in the normal range, though in the expansionary segment of that range.”

The Aussie also fell after the nation’s Bureau of Statistics said gross domestic product gained 0.2 percent in the third quarter from the previous period, below the median estimate by economists.

The currency sank as much as 1.2 percent to 89.56 U.S. cents, the lowest since Nov. 27, before trading at 90.06 cents.

Demand for the euro may be limited after European Central Bank council member Ewald Nowotny said he sees no need to raise interest rates in the first half of 2010 as inflation pressures stay muted.

“Our interest rate decisions are to be seen in connection with our price stability goal and in this context I do not see major threats for price stability in the near future,” Nowotny, 65, said in an interview in Vienna.

To contact the reporters on this story: Anna Rascouet in London at arascouet@bloomberg.net

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Fed May Raise U.S. Economic Assessment, Affirm Near-Zero Rates

By Steve Matthews and Vivien Lou Chen

Dec. 16 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke and his colleagues may indicate the U.S. recovery is gaining strength while repeating a pledge to keep the benchmark interest rate almost at zero for an “extended period.”

The Federal Open Market Committee gathers as growth in the final quarter of 2009 accelerates to more than 4 percent, the fastest pace in almost four years, according to analysts’ forecasts. The FOMC will probably discuss how to eventually withdraw unprecedented programs to revive credit, including purchases of $1.43 trillion in housing debt, economists said.

Fed officials in a statement today may try to head off any investor expectations the improving economy will prompt them to raise interest rates early next year. While acknowledging that job losses are easing after last month’s drop in the unemployment rate, the FOMC may reaffirm that tight credit and weak income growth are among the risks to the recovery.

“The last thing they want is for people to expect that tightening is closer,” said Laurence Meyer, vice chairman of Macroeconomic Advisers LLC in Washington and a former Fed governor. “They are going to increase their confidence about the sustainability of the expansion, but not become materially more optimistic about growth next year.”

The FOMC is scheduled to issue its statement at around 2:15 p.m. after the end of its two-day meeting.

“Assuming they don’t drop ‘extended period,’ market reaction will probably be limited,” said James O’Sullivan, chief economist at MF Global Ltd. in New York.

Changed Forecasts

Macroeconomic Advisers raised its forecast for fourth- quarter growth last week to a 4.2 percent annual pace from 3.1 percent, while Credit Suisse and JPMorgan Chase & Co. increased its estimate by 1 percentage point to 4.5 percent. Retail sales in November climbed twice as much as economists expected, while exports rose to the highest level in 11 months, government figures showed.

“The Fed has to fight two battles: supporting economic growth and showing the market it is concerned about potential inflation later on,” said Sung Won Sohn, former chief economist at Wells Fargo & Co. and now an economics professor at California State University-Channel Islands in Camarillo, California. “Balancing inflation and economic growth and the communications related to that will be their most difficult challenge.”

Fed funds futures on the Chicago Board of Trade indicated yesterday a 53 percent chance that the FOMC will raise its main lending rate by at least a quarter-percentage point by its June meeting, compared with 35 percent odds a month ago.

Fulfill Mandate

Any expectation by investors that monetary policy tightening will occur sooner would complicate efforts by policy makers to reduce the 10 percent unemployment rate, said former Atlanta Fed research director Robert Eisenbeis, now chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey.

“They have a huge problem, and the risk is real,” he said. “It will take extraordinary growth for three years to significantly eat into the unemployed who have lost their jobs.”

U.S. payrolls have fallen by 7.2 million since the start of the recession in December 2007, and a growing population means more jobs must be created to restore full employment. The FOMC projects the unemployment rate will be between 9.3 percent and 9.7 percent in the fourth quarter of 2010, according to forecasts released after its November meeting.

Policy makers will probably also continue to debate the usefulness of selling assets as part of the so-called exit strategy from the unprecedented expansion of credit, Fed watchers said. Central bank officials have tested the use of reverse repurchase agreements to drain some of the cash the Fed has pumped into the economy.

Main Lending Rate

The Fed has kept the benchmark lending rate at a range from zero to 0.25 percent during the past 12 months and has adopted asset purchases as its main policy tool. Since March, the FOMC has said “exceptionally low” rates are likely warranted for “an extended period.”

Bernanke and New York Fed President William Dudley, who serves as vice chairman of the FOMC, signaled in speeches last week that they favored keeping the language.

The U.S. economy faces “formidable headwinds,” including a weak labor market and tight credit, that will probably generate a “moderate” pace of expansion, Bernanke said.

Growth will probably decline next year from the 3 percent to 3.5 percent pace likely in the last six months of this year, “mostly because some of the current sources of strength are temporary,” Dudley said.

‘Pretty Fragile’

“The economy is still pretty fragile,” said Dean Croushore, a former Philadelphia Fed economist who is now chair of the economics department at the University of Richmond in Virginia. “Because inflation has remained low and growth is positive, but not overly strong, the Fed has time to think about how to reduce the excess amount of liquidity in the market.”

The central bank will probably continue to describe inflation as “subdued” and inflation expectations as “stable,” economists said. The Fed’s preferred price measure, which excludes food and fuel, climbed 1.4 percent in October from a year earlier.

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net; Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

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Brazil Says Coffee Crop to Fall Less Than Expected in 2009

By Katia Cortes

Dec. 16 (Bloomberg) -- Coffee output in Brazil, the world’s biggest producer, will fall less than previously expected, the Agriculture Ministry said.

Coffee growers will harvest 39.47 million bags of coffee this year, down from a September estimate of 39 million bags, the ministry’s stockpiles agency, known as Conab, said today in a statement. The crop will drop from 45.99 million bags last year.

A bag of coffee weighs 60 kilograms (132 pounds).

To contact the reporter on this story: Katia Cortes in Brasilia at at kcortes@bloomberg.net

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Corn, Wheat Decline as Stronger Dollar Cuts Investment Demand

By Supunnabul Suwannakij

Dec. 16 (Bloomberg) -- Corn fell for a second day as a stronger dollar reduced investment demand for commodities and curbed U.S. farm export prospects.

The dollar traded near a two-month high against the euro amid speculation the Federal Reserve may withdraw stimulus measures and increase borrowing costs because of signs the U.S. economic recovery is gaining momentum.

“A substantially stronger dollar has negative impacts on Chicago grain markets,” Toby Hassall, a research analyst at CWA Global Markets Pty, said today by phone from Sydney.

Corn for March delivery on the Chicago Board of Trade fell 0.4 percent to $4.06 a bushel at 3:25 p.m. in Singapore, extending yesterday’s 0.2 percent decline. The price advanced 6.5 percent in the three days ending Dec. 14 on concerns that the crop in the U.S. would be damaged by adverse weather.

Snow, rain and high winds continued to delay the slowest U.S. corn harvest since at least 1986, according to the Department of Agriculture.

The USDA forecast the crop at 12.921 billion bushels, second only to the harvest of 2007. The estimate will be updated on Jan. 12.

Wheat declined as the stronger dollar may hurt exports by the U.S., the world’s largest shipper. The March-delivery contract fell 0.4 percent at $5.345 a bushel at 3:24 p.m. in Singapore, after dropping 1.2 percent yesterday.

The dollar traded at $1.4541 per euro at 3:27 p.m. in Singapore from $1.4538 in New York yesterday when it reached $1.4504, the strongest level since Oct. 2.

Global Supply

India, the world’s second-biggest wheat grower, may have “better” production than last year as sowing of the nation’s biggest winter-sown crop progresses well, Junior Farm Minister K.V. Thomas said.

“Overall situation in planting of wheat, rice and lentils is good,” Thomas told reporters in New Delhi today.

Wheat and corn should remain “fairly range-bound” in the near term amid prospects for South American crops to increase global supply levels, CWA Global’s Hassall said.

Argentine corn output will rise to 14 million metric tons next year from 13.2 million tons in the past February- August harvesting season, Martin Fraguio, executive director of growers association Maizar, said yesterday.

Soybeans Gain

March-delivery soybeans gained 0.3 percent to $10.6475 a bushel at 3:02 p.m. in Singapore. The contract reached $10.7475 in Chicago yesterday, the highest price since Dec. 1 on rising demand.

U.S. exporters sold 290,000 tons to China for delivery before Sept. 1, the Department of Agriculture said yesterday. Cumulative U.S. sales to all customers from Sept. 1 to Dec. 3 were up 56 percent from a year earlier. U.S. processors used 4.36 million tons last month, up 15 percent from a year earlier, an industry group said Dec. 14.

China’s soybean imports in December may be nearly 4.9 million tons, the China National Grain & Oils Information Center said today in an e-mailed statement.

Imports reached a record 4.71 million tons in June, according to Bloomberg data. China, the world’s largest soybean buyer, increased imports for the first time in five months in November when shipments increased by 15 percent from a month earlier to 2.89 million tons, the Beijing-based customs office said on Dec. 11.

To contact the reporter on this story: Supunnabul Suwannakij in Bangkok at ssuwannakij@bloomberg.net

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Asian Stocks Fluctuate as Japanese Banks Rise, China Banks Drop

By Shani Raja and Kana Nishizawa

Dec. 16 (Bloomberg) -- Asian stocks fluctuated as Japanese banks advanced on speculation they’ll have at least a decade to implement stricter capital rules, and Chinese lenders fell after a regulatory official said bad loans pose a long-term risk.

Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. surged more than 14 percent in Tokyo after the Nikkei newspaper said lenders will have at least 10 years to meet international rules on capital ratios. China Construction Bank Corp. sank 2.1 percent in Hong Kong and Bank of China Ltd. lost 1.5 percent. Vietnam’s benchmark index slumped 3.8 percent, the most in the Asia-Pacific region, after the nation’s central bank doused speculation it was injecting capital into local banks.

“A 10-year delay is pretty much the same as not doing it,” said Masaru Hamasaki, chief strategist at Tokyo-based Toyota Asset Management Co., which oversees the equivalent of $14 billion. “If all the worries about capital raising and dilution disappear, it’s very likely that banks will gain back what they’ve lost.”

The MSCI Asia Pacific Index rose 0.2 percent to 119.58 as of 7:21 p.m. in Tokyo, with about as many stocks advancing as declining. The gauge has climbed 33 percent this year, set for its biggest annual gain since 2003, as governments supplied money and cut interest rates to revive global economic growth.

Japan’s Nikkei 225 Stock Average added 0.9 percent, paring a 1.4 percent gain after the Financial Services Agency said no agreement on capital ratios had been reached.

Vietnam Retreats

Hong Kong’s Hang Seng Index decreased 0.9 percent, and Australia’s S&P/ASX 200 Index lost 0.3 percent. The country’s economy expanded 0.2 percent in the three months through September, the Bureau of Statistics said today in Sydney. That was less than economists estimated. Vietnam’s VN Index slumped 3.8 percent.

“The central bank is not injecting capital into the commercial banking system,” because the State Bank of Vietnam is limiting credit growth to curb inflation, Governor Nguyen Van Giau was quoted as saying yesterday in a statement on the government’s Web site.

Futures on the Standard & Poor’s 500 Index rose 0.6 percent. In New York yesterday, the gauge declined for the first time in five days, losing 0.6 percent. Citigroup Inc., the only major lender still dependent on U.S. taxpayers, said it will sell at least $20.5 billion of equity and debt to repay government bailout funds. Credit-card delinquencies increased at JPMorgan Chase & Co.

Japanese Banks Surge

Mitsubishi UFJ Financial Group Inc., Japan’s largest bank by market value, climbed 4.9 percent to 470 yen. Sumitomo Mitsui, the No. 2, added 14 percent to 3,030 yen. Mizuho, the third- biggest, jumped 15 percent to 182 yen. Japanese banks had the five biggest increases in the MSCI Asia Pacific Index, led by Mizuho, in the MSCI Asia Pacific Index.

The Basel Committee on Banking Supervision will begin to introduce rules requiring banks to raise their capital ratios from 2012 and give them a transition period of 10 years to 20 years, the Nikkei said, without citing anyone as the source of the information.

Mizuho had the weakest risk-adjusted capital ratio among 45 international banks, according to an analysis by Standard & Poor’s dated Nov. 20. Mizuho, Sumitomo Mitsui and Mitsubishi UFJ were all in the lowest of five groups, S&P said at the time.

Mitsubishi UFJ said this week it will sell as much as 1.03 trillion yen ($11 billion) of shares to shore up capital. The world’s largest financial companies have reported $1.7 trillion in losses and writedowns since the U.S. subprime-mortgage market collapsed in 2007, according to data compiled by Bloomberg.

‘Eased Concerns’

“The delay in stricter banking regulations eased concerns that major banks will need to raise capital,” said Hiroichi Nishi, an equities manager at Nikko Cordial Securities Inc.

China Construction Bank declined 2.1 percent to HK$6.56 in Hong Kong and was the biggest drag on the MSCI Asia Pacific Index. Bank of China Ltd. retreated 1.4 percent to HK$4.10. Industrial & Commercial Bank of China Ltd. dropped 1.3 percent to HK$6.30.

China’s banks will face risks for a “long period of time” from bad loans and from lending concentrated in certain industries and customers, Wang Huaqing, disciplinary commissioner of the China Banking Regulatory Commission, said at a forum in Beijing today.

The MSCI Asia Pacific Index has climbed 69 percent from a more than five-year low on March 9 to yesterday, outpacing gains of 64 percent by the S&P 500 and 56 percent for Europe’s Dow Jones Stoxx 600 Index. Stocks in the benchmark trade at 22 times estimated earnings, compared with 18 times for the S&P and 16 times for the Stoxx.

‘Synchronous Growth’

“We’re moving to a more synchronous growth environment in 2010, but may see a moderation in the absolute levels of growth,” said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne. “There’ll be a reluctance to take large risky positions during a quiet period.”

Toyota Motor Corp., the world’s biggest carmaker, climbed 1.6 percent to 3,760 yen in Tokyo, after the Asahi newspaper said it may post a full-year profit. The automaker, which last month forecast a loss of 200 billion yen for the current business year, may be able to post a profit depending on the yen-dollar exchange rate, Asahi said, citing a person familiar with the situation who it didn’t name.

The company will some capital investments and take other steps to cut costs, according to the report. Nissan Motor Co. added 2.1 percent to 740 yen.

Santos, Inpex, Oil

Santos Ltd., Australia’s third-biggest oil and gas producer, gained 1.9 percent to A$13.87 and Inpex Corp., Japan’s largest oil explorer, advanced 1.5 percent to 659,000 yen.

Crude oil futures advanced, snapping their longest decline since 2001, as January contracts added 1.7 percent to settle at $70.69 a barrel in New York yesterday.

News Corp. advanced 2.7 percent to A$16.90 in Sydney after the stock was raised to “buy” from “hold” at Deutsche Bank AG. Iluka Resources Ltd., the world’s biggest zircon producer, rallied 1.8 percent to A$3.48 after it was boosted to “hold” from “sell” at ABN Amro Holding NV.

To contact the reporters for this story: Shani Raja in Sydney at sraja4@bloomberg.net; Kana Nishizawa in Tokyo at knishizawa5@bloomberg.net

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Oil Rises a Second Day on Forecast U.S. Supply Shrank Last Week

By Grant Smith

Dec. 16 (Bloomberg) -- Crude oil rose for a second day before a report forecast to show that U.S. crude inventories declined last week.

Oil advanced in tandem with European equities before a U.S. Federal Reserve meeting today expected to hold interest rates near a record low to support economic growth. The Energy Department will likely report later today that stockpiles dropped 2 million barrels in the week ended Dec. 11, according to a Bloomberg survey.

“Oil is holding support lines before the inventory data,” said Robert Montefusco, broker at Sucden Financial in London. “There’s talk about demand coming back in the second half of next year, currencies have been supportive and the colder weather can only help the market for heating oil.”

Crude oil for January delivery gained as much as 90 cents, or 1.3 percent, to $71.59 a barrel in electronic trading on the New York Mercantile Exchange. It was at $71.27 at 10:35 a.m. London time.

Yesterday, the contract rose $1.18, or 1.7 percent, to settle at $70.69 a barrel, snapping its longest decline since 2001. Futures have climbed 60 percent this year.

An Energy Department report today will show U.S. crude oil inventories declined last week as imports fell for a third week, a Bloomberg News survey of analysts showed.

Stockpiles declined by 2 million barrels in the week ended Dec. 11, from 336.1 million the prior week, according to the median of 17 estimates. The department will release its Weekly Petroleum Status Report at 10:30 a.m. in Washington.

API Report

The American Petroleum Institute reported yesterday crude oil inventories rose 924,000 barrels last week to 332.5 million. Gasoline stocks climbed 2.07 million barrels to 217 million, the highest since April, according to the API.

The industry-funded API collects stockpile information on a voluntary basis while the government requires that reports be filed with the Energy Department.

The Organization of Petroleum Exporting Countries, which produces about 40 percent of the world’s oil, raised its estimate for the amount of crude group members will have to pump next year as consumption recovers.

OPEC will need to produce 28.61 million barrels a day to satisfy demand in 2010, it said in an e-mail report yesterday. That’s about 100,000 barrels a day more than last month’s projection and represents an increase of 30,000 barrels a day from 2009, the first annual gain in three years.

Angola Meeting

OPEC is scheduled to meet Dec. 22 in Luanda, Angola. At previous gatherings this year, members have called for better implementation of the 4.2 million barrels a day of cuts announced in 2008.

Brent crude oil for January settlement was at $72.79 a barrel on the London-based ICE Futures Europe exchange, up 74 cents, at 10:33 a.m. London time. Yesterday, the contract rose 16 cents to settle at $72.05 a barrel.

The January contract for Brent expires today. The more widely traded February contract was at $73.61 a barrel, up 74 cents.

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

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German Stocks Rise for Fifth Day as Banks, Carmakers Advance

By Cornelius Rahn

Dec. 16 (Bloomberg) -- German stocks rose for a fifth day, led by banks and automakers, as a report showed Europe’s service and manufacturing industries expanded at the fastest pace in more than two years.

The benchmark DAX Index added 0.9 percent to 5,861.98 as of 10:24 a.m. in Frankfurt, poised for the longest stretch of daily gains since September. The measure has rallied almost 60 percent since March 6 as Europe’s largest economy emerged from recession and the world economy showed signs of recovery. The broader HDAX Index increased 0.9 percent today.

A composite index based on a survey of purchasing managers in both industries in the 16-nation euro region increased to 54.2 in December from 53.7 in the previous month, London-based Markit Economics said today in an initial estimate. That was the highest since October 2007. Economists expected a gain to 54, according to the median of 10 forecasts in a Bloomberg survey. A reading above 50 indicates expansion.

Federal Reserve Chairman Ben S. Bernanke and his colleagues may indicate the U.S. recovery is gaining strength while repeating a pledge to keep the benchmark interest rate almost at zero for an “extended period.”

The Federal Open Market Committee gathers as growth in the final quarter of 2009 accelerates to more than 4 percent, the fastest pace in almost four years, according to analysts’ forecasts. The FOMC will probably discuss how to eventually withdraw unprecedented programs to revive credit, including purchases of $1.43 trillion in housing debt, economists said.

Banks, Carmakers

Deutsche Bank AG climbed for a third day, adding 4 percent to 51.48 euros. Germany’s biggest lender was raised to “selected list” from “outperform” at CA Cheuvreux, which said “we are very pleased that management is going out on a limb on profitability by giving hard figures” and named the stock as one of its top picks in Germany.

Commerzbank AG, the country’s second-largest bank, jumped 5.2 percent to 6.26 euros, poised for the steepest gain in more than a month.

Bayerische Motorenwerke AG, the world’s largest maker of luxury cars, gained 1.2 percent to 31.96 euros snapping a two- day decline. Daimler AG, the second-biggest, gained 1.1 percent to 36.77 euros. Automobile and parts shares were among the best performers among 19 industry groups in the pan-European Dow Jones Stoxx 600 index today.

Aurubis, TUI

Aurubis AG, Europe’s biggest copper refiner, increased 1.1 percent to 30.34 euros, the first gain in three days. The company expects demand for copper to recover next year and forecast a limited surplus in 2010 and 2011.

Separately, Aurubis said the voting rights stake of Salzgitter AG’s Salzgitter Mannesmann GmbH unit had exceeded the 25 percent threshold on Dec. 15, and now amounts to 25.26 percent. Salzgitter added 0.5 percent to 66.85 euros.

TUI AG jumped 7 percent to 5.80 euros, headed for its biggest gain since August. The travel company that’s helping bail out the Hapag-Lloyd shipping line was raised to “outperform” from “underperform” at Cheuvreux, which said “the operating risks at Hapag Lloyd appear to have decreased.”

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

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U.K. Stocks Rise, Led by Barratt, Taylor Wimpey; Punch Declines

By Maud van Gaal

Dec. 16 (Bloomberg) -- U.K. stocks climbed, erasing yesterday’s decline, led by homebuilders after Citigroup Inc. advised clients to buy the shares.

Barratt Developments Plc, Taylor Wimpey Plc and Redrow Plc. all gained more than 2.5 percent. Punch Taverns Plc dropped after saying trading in the last four months remained “difficult.”

The benchmark FTSE 100 Index advanced 32.19, or 0.6 percent, to 5,317.96 at 9:39 a.m. in London. The index has rebounded 51 percent since March and is heading for its biggest annual gain since 1997 as central banks cut interest rates to record lows and governments worldwide committed about $12 trillion to revive the economy. The FTSE All-Share Index rose 0.6 percent today, while Ireland’s ISEQ Index declined 0.3 percent to 2,914.56.

Barratt Developments, Taylor Wimpey and Redrow were raised to “buy” at Citigroup, which said in a report “we think the negative market sentiment is overdone and that the whole sector now looks good value on a 12-month basis.”

Barratt advanced 3.3 percent to 113 pence. Taylor Wimpey added 2.6 percent to 34.81 pence. Redrow surged 5.5 percent to 129.2 pence.

Amec Plc added 2 percent to 770 pence, paring yesterday’s 2.5 percent drop. The U.K.-based energy engineering company was raised to “buy” from “hold” at Societe Generale SA, which cited “a likely acceleration in growth starting in 2010.”

Punch

Punch Taverns Plc dropped 0.9 percent to 80.45 pence. The largest U.K. pub owner said trading in the 16 weeks until Dec. 12 “remained difficult” and operating margins have “stabilized.”

“The challenging economic environment and our smaller pub estate will affect profitability in the short-term.” the Burton upon Trent, England-based company said in a statement today.

Drax Group Plc, the owner of western Europe’s biggest coal- fired power plant, said full-year earnings before interest, tax, depreciation and amortization will “modestly” beat analyst estimates. The shares advanced 2.7 percent to 421.1 pence.

Federal Reserve Chairman Ben S. Bernanke and his colleagues may indicate the U.S. recovery is gaining strength while repeating a pledge to keep the benchmark interest rate almost at zero for an “extended period.”

The Federal Open Market Committee gathers as growth in the final quarter of 2009 accelerates to more than 4 percent, the fastest pace in almost four years, according to analysts’ forecasts. The FOMC will probably discuss how to eventually withdraw unprecedented programs to revive credit, including purchases of $1.43 trillion in housing debt, economists said.

The following shares also rose or fell in U.K. markets. Stock symbols are in parentheses.

AstraZeneca Plc (AZN LN) climbed 1.3 percent to 2,865.5 pence. The U.K.’s second-largest drugmaker won a U.S. panel’s backing to expand use of the cholesterol pill Crestor in the prevention of heart disease, a move that, if allowed, may add $500 million to annual sales.

United Business Media Ltd. (UBM LN) advanced 2.9 percent to 464.4 pence, a fifth day of gains. The publisher of Information Week and owner of PR Newswire was raised to “buy” from “neutral” at Nomura Holdings Plc.

To contact the reporter on this story: Maud van Gaal in Amsterdam at mvangaal@bloomberg.net.

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