Pound Rises, Gilts Fall as Inflation Accelerates at Record Pace

By Anchalee Worrachate

Jan. 19 (Bloomberg) -- The pound rose to a four-month high against the euro and two-year gilt yields jumped the most since November as a report showed the biggest increase on record in the U.K. inflation rate, stoking speculation borrowing costs may increase soon.

The pound climbed against all 16 major currencies tracked by Bloomberg, while the 10-year breakeven rate, a market gauge of inflation expectations, rose to the most since October 2008. December consumer prices advanced 2.9 percent from a year earlier, one full percentage point more than in November, according to the Office for National Statistics.

“The CPI number is a shocker,” said Peter Schaffrik, a co-head of interest rate strategy in London at Commerzbank AG. “It means the Bank of England will have to rein in its monetary stimulus, perhaps sooner rather than later. We are avoiding gilts, especially at the front end. It’s difficult for the market to outperform others against this backdrop.”

The pound traded at 87.37 pence per euro as of 11:34 a.m. in London from 88.03 pence yesterday. It strengthened below 88 pence for the first time since Sept. 15 yesterday. The pound traded at $1.6377 after rising to $1.6458 earlier, the highest since Dec. 8.

Britain’s economy is showing signs of recovery from its longest recession on record after the Bank of England cut its key interest rate to an all-time low of 0.5 percent and embarked on a 200 billion-pound ($328 billion) program of asset purchases. A survey yesterday showed asking prices for homes in England and Wales increased in January.

The pound was also boosted as Kraft Foods Inc. said it’s near an agreement to buy Cadbury Plc after four months of wrangling with the U.K. confectioner over price.

Gilt Spread

“Economic data are starting to look more encouraging,” said Neil Jones, head of European hedge-fund sales in London at Mizuho Corporate Bank Ltd. “The Kraft-Cadbury news is also supportive for the pound. Foreign money is coming in to buy U.K. assets, which have become cheap.”

The yield on U.K. short-sterling interest-rate futures contract expiring in December 2010 climbed 12 basis points to 1.78 percent as traders added to bets that the Bank of England will increase borrowing costs this year.

The consumer-price report was the first since May showing inflation above the central bank’s 2 percent target, presenting a challenge as policy makers assess when to start raising borrowing costs. Prime Minister Gordon Brown, who faces an election by June, is confident the economy has returned to growth, a spokesman said last week.

Falling Gilts

Gilts declined, pushing the yield on the 2-year note up 15 basis points, the biggest one-day increase since Nov. 12, before standing 9 basis points higher on the day at 1.30 percent. The 3.25 percent security due December, 2011 fell 0.18, or 1.8 pounds per 1,000-pound face amount, to 103.61. The 10-year yield rose 8 basis points to 4.02 percent.

The yield difference between 10-year gilts and index-linked debt, known as the breakeven rate, rose to 3.05 percentage points, the most since October 2008.

The yield gap between two- and 10-year notes was little changed at 2.71 percentage points. It earlier narrowed by 4 basis points to 2.68 percentage points, the least since Jan. 4.

To contact the reporter on this story: Anchalee Worrachate in London at Aworrachate@bloomberg.net

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Euro Drops Fourth Day Versus Dollar as German Confidence Falls

By Lukanyo Mnyanda

Jan. 19 (Bloomberg) -- The euro fell against the dollar for a fourth day after a report showed German investor confidence declined more than economists forecast, fueling speculation the region’s economic recovery is stalling.

The 16-nation currency weakened most versus the pound and the dollar after the ZEW Center for European Economic Research said its index of investor and analyst expectations dropped to 47.2 this month, from 50.4 in December. The pound climbed to a six-week high against the dollar after a report showed the nation’s inflation rate jumped in December by the most on record and Kraft Foods Inc. said it’s completing the terms of a recommended offer for U.K. chocolate maker Cadbury Plc.

“The euro zone is probably going to trail behind the recovery in other major economies,” said Toshi Honda, a strategist in London at Mizuho Corporate Bank Ltd. “We are not short of excuses to sell the euro.”

The euro slipped to $1.4305 as of 6:31 a.m. in New York, from $1.4384 yesterday, and traded as low as $1.4303, its weakest level since Jan. 8. It dropped to 129.88 yen, from 130.58 yen. The yen was little changed at 90.75 per dollar.

The euro snapped five months of gains in December amid mounting concern that countries such as Greece may struggle to curb ballooning budget deficits accumulated during the worst financial crisis since World War II. Germany’s economy, Europe’s largest, probably stagnated in the three months through December after growing in the previous two quarters, the Federal Statistics office said last week.

‘Aware of Problems’

Greece may have to step up its efforts to tackle a fiscal crisis that threatens to spread to other countries in the region, European finance chiefs said after a meeting yesterday.

The Greek government “is aware of the magnitude of the problems facing the country,” Luxembourg’s Jean-Claude Juncker told reporters in Brussels after leading the meeting of euro- area finance ministers that discussed Greece’s budget-cutting proposals.

Sovereign risks in the region may bring the euro’s relevance as a reserve currency into question, according to Royal Bank of Scotland Group Plc.

“The problems in Greece will be much harder for the market to gloss over this year and there is not a solution which appears good for the euro,” Greg Gibbs, a foreign-exchange strategist in Sydney at RBS, wrote in a report dated yesterday.

China Tightens

The yen advanced against higher yielding currencies including the South African rand and Australian dollar after the People’s Bank of China guided its benchmark one-year bill yield to the highest level in 14 month as it seeks to curb record loan growth and prevent bubbles in the nation’s property and stock markets.

Japan’s currency jumped 0.6 percent to 83.63 per Australian dollar and was 0.5 percent higher at 12.22 per rand.

“The yen is being driven mainly by changes in global risk sentiment,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “The market is more concerned about China overdoing any tightening of policy, but I don’t think this is justified.”

The pound rose against all 16 of its most-active counterparts tracked by Bloomberg. U.K. consumer prices climbed 2.9 percent from a year earlier, 1 percentage point more than in November, the biggest month-on-month increase since records began in 1997, data from Office for National Statistics in London showed today. The median forecast in a Bloomberg News survey of 30 economists was 2.6 percent.

‘Euro Without Greece’

The currency was also buoyed after Kraft said it’s close to agreeing the terms of a recommended offer for Cadbury. The U.S. company will raise its bid to about 12 billion pounds ($19.7 billion), people familiar with the matter said earlier.

The pound is “benefiting from a lack of alternatives” for traders, Leuchtmann’s team at Commerzbank wrote in an e-mailed note today. “It is being bought as the euro without Greece. In a constellation such as this, M&A deals are only the trigger for a continuation or acceleration of sterling’s rally.”

The pound gained to $1.6378 from $1.6343, after reaching $1.6458, the strongest level since Dec. 8. The U.K. currency also appreciated to 87.36 pence euro from 88.03 pence, after trading at 87.31, a four-month high.

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

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Platinum, Palladium Forecasts Raised by BOA-Merrill

By Kim Kyoungwha

Jan. 19 (Bloomberg) -- Bank of America-Merrill Lynch raised its 2010 forecasts for platinum and palladium on stronger demand and the introduction of exchange-traded funds for the metals.

The forecast for platinum was raised 35 percent to $1,750 an ounce, while palladium was increased 30 percent to $500, Michael Widmer, London-based metals strategist, wrote in a report yesterday. Platinum and palladium may average $2,000 an ounce and $650 an ounce over 2011 respectively, the report said.

“The recent launch of platinum and palladium ETFs in the U.S. is a key reason behind our upgrades,” Widmer said. “We believe that assets under management at these two investment vehicles could rise significantly.”

The ETFS Platinum Trust and ETFS Palladium Trust started trading on the NYSE Arca stock exchange on Jan. 8, data compiled by Bloomberg show. The funds are backed by physical metal, according to notices on the Web site of ETF Securities Ltd.

The metal held in ETF Securities Ltd.’s exchange-traded commodities products rose 2.6 percent to a record 679,938 ounces on Jan. 15, according to the Web site. Platinum and palladium are used mainly in pollution-control devices in automobiles.

Platinum for immediate delivery rose as much as 1.3 percent to $1,643.75 an ounce, the highest price since Aug. 4, 2008, and traded at $1,635.22 at 12:53 p.m. in Singapore. Palladium climbed 0.8 percent to $462.25 an ounce.

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

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El Nino May Hurt Sugar Production in the Philippines

By Luzi Ann Javier

Jan. 19 (Bloomberg) -- El Nino, which reduces rainfall in Asia, may curb sugar production in the Philippines, squeezing supply in Southeast Asia’s second-largest exporter if it lasts for five months, a government official said. Raw sugar rose.

“Our output may be lower and we might see tightness in supply” after April, said Aida Ignacio, deputy administrator at the Sugar Regulatory Administration, in a phone interview today. “How low it will go, we still don’t know.”

Lower output may make the Philippines an importer for a second year. Indonesia, Iraq, Egypt, Pakistan and Tanzania are seeking sugar to cool prices, straining global supplies forecast by Czarnikow Group Ltd. to fall short of demand by 13.5 million metric tons in the 2009-2010 season. El Nino can affect agricultural production across parts of Asia and curb rice production in Thailand, the world’s biggest exporter.

“An extended El Nino is bad news,” Coscolluela said in a cell phone text message today, referring to the period from February through June or July. Still, “so far, our new crop is actually looking good,” he said.

The Philippines may buy as much as 150,000 tons of sugar this year, Rafael Coscolluela, the regulatory administrator, said last week. That would be the first purchase for domestic use since 2002, according to Amarra.

Batangas and 20 other provinces experienced a dry spell in the past three months, according to the weather bureau. Batangas has the capacity to produce 160,000 tons a year, about 7 percent of the nation’s forecast output this year, Philippine Sugar Millers Association Executive Director Archie Amarra said today.

‘Significant Influence’

The El Nino weather phenomenon strengthened in December and is forecast to last through June, according to a Jan. 7 U.S. Climate Prediction Center report. “Regardless of its precise peak strength, El Nino is expected to exert significant influence on global weather and climate in the coming months,” it said.

Below-normal rainfall may stunt cane growth in its first four months of development, Amarra said in a phone interview from Negros Island in central Philippines.

Cane needs at least a year to grow in the Philippines and planting takes place all year round, Amarra said today. El Nino may increase the sugar content of mature cane, helping raise yields for crops planted four months before the phenomenon hit the country, he said.

Price Jumps

Raw sugar had its biggest annual gain since 1974 last year. The March-delivery contract jumped as much as 2.1 percent to 28.20 cents a pound on ICE Futures U.S. in New York at 4:56 p.m. Singapore time.

The Philippines may buy sugar as early as April, said Agriculture Secretary Arthur Yap on Jan. 13. Supplies of smuggled sugar have dried up as global prices surge, lifting the use of domestically made sweetener to 2.1 million tons this year from 1.87 million tons last year, Amarra said last week. Output is forecast at 2.16 million tons, he said.

Exports may drop to 143,000 tons in the year that began Sept. 1, the lowest since 2002, after the government ordered a halt in shipments to markets outside the U.S., according to Amarra. The country ships sugar to the U.S. under its import quota system.

The country shipped 219,132 tons of raw sugar to the U.S. and other markets in the year ended Aug. 31, according to the government Web site. Domestic raw sugar prices jumped 10 percent to 1,658.33 pesos ($36) per 50-kilogram bag on Jan. 7 from a month earlier, according to the regulatory body’s Web site.

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

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Cadbury Accepts Kraft’s Raised 11.9 Billion-Pound Bid

By Andrew Cleary, Zachary R. Mider, and Duane D. Stanford

Jan. 19 (Bloomberg) -- Cadbury Plc agreed to an improved 11.9 billion-pound ($19.7 billion) offer from Kraft Foods Inc., ending more than four months of resistance and creating the world’s largest confectioner.

Cadbury investors will get 840 pence a share, including 500 pence in cash and the rest in stock, Kraft said in a statement today. Cadbury will also pay its holders an additional 10-pence dividend once the offer is unconditional. The revised bid is about 9 percent higher than Kraft’s previous bid of 769 pence, and consists of 40 percent stock and 60 percent cash.

“It looks like a modest win if not a home run for Cadbury shareholders,” said John Haynes, who helps manage 12 billion pounds including 5 million Cadbury shares at Rensburg Sheppards Plc in London. Five pounds “in cash is enough to keep us happy, and Kraft is a better investment with Cadbury than they were without.”

Kraft Chief Executive Officer Irene Rosenfeld increased the original bid after Cadbury rejected it as “derisory” and Hershey Co. prepared to mount a rival offer. A purchase by Kraft displaces Mars Inc. as the world’s biggest candy maker, according to Euromoniter data. The takeover creates a company with about $50 billion in annual sales, adding Cadbury’s Creme Eggs and Trident gum to Kraft’s Oreo cookies.

“We have increasing momentum in our business,” Rosenfeld said in an interview today. “We are quite confident that the combination of these two companies will help us to build on that momentum and further accelerate our ability to deliver attractive returns.”

‘Thrive’

Cadbury’s brands will “thrive” in the combined company, while for Kraft the deal gives leading positions in emerging markets from India to Brazil and Mexico, according to the statement.

The U.K. company’s shares rose as much as 3.8 percent in London trading to 838 pence, and climbed 26.5 pence to 834 pence as of 12:25 p.m. local time.

Hershey is unlikely to top Kraft’s offer, two people familiar with the matter said before Kraft’s final offer was released. Kirk Saville, a spokesman for the Pennsylvania-based candy maker, declined to comment. Cadbury agreed to pay a break fee of 117.7 million pounds if it withdraws the recommendation.

“This looks like a deal,” said Jon Cox, an analyst at Kepler Capital Markets in Zurich. “It’s hard to believe anybody can come in and break up the party.”

Ferrero

Hershey and Ferrero SpA, who have said they are considering their options, must clarify whether they intend to make a firm offer for Cadbury by Jan. 25, the U.K. Takeover Panel said today. A Ferrero spokesman declined to comment.

As recently as Jan. 14, Cadbury called Northfield, Illinois-based Kraft an “unfocused conglomerate” with businesses in “unappealing categories.” Kraft had to raise its bid to at least 850 pence to win over Cadbury investors, according to a Bloomberg survey of nine holders.

Rosenfeld faced pressure from her own shareholders to get the price right. Billionaire investor William Ackman last week joined Warren Buffett, Kraft’s biggest shareholder, in saying Kraft risked diminishing the merits of a Cadbury takeover by issuing too much stock to pay for it. Rosenfeld declined to discuss any conversations with Buffett in today’s interview.

The increased offer values Cadbury at 13 times 2009 earnings before interest, tax, depreciation and amortization, according to Kraft’s statement. Comparable deals in the industry valued the businesses at 14.3 times to 18.5 times, Cadbury said in its Jan. 12 defense document to shareholders. in its Jan. 12 defense document to shareholders.

“A year from now, Kraft will be singing the praises of what a great deal they got,” said Andrew Wood, a senior analyst at Sanford C. Bernstein in New York.

Earnings Per Share

The acquisition will generate pretax cost savings of at least $625 million annually by the end of its third year, at a cost of $1.3 billion, Kraft said. The deal will add to Kraft’s 2011 earnings per share by 5 cents, and the company will lift its long-term sales growth target to at least 5 percent from at least 4 percent previously, the company said in the statement.

Kraft expects to revise its long-term earnings per share target will increase by 9 percent to 11 percent, more than the previous 7 percent to 9 percent range.

Kraft has informed Buffett of the revised deal with Cadbury, according to a person with knowledge of the matter. Buffett didn’t immediately return a request for comment sent to his assistant, Debbie Bosanek. Buffett’s Berkshire Hathaway Inc. said in a Jan. 5 statement it may support a Cadbury takeover if it concludes that the final offer “does not destroy value for Kraft shareholders.”

‘Tremendous Sense’

Ackman’s Pershing Square Capital Management LP bought a $950 million stake in Kraft, or 2 percent of the company, Ackman said in a Jan. 15 interview. A purchase of Cadbury makes “tremendous sense,” he said.

Kraft advanced 46 cents to $29.58 in New York Stock Exchange composite trading on Jan. 15. The stock didn’t trade yesterday because of a holiday in the U.S.

Kraft said it no longer needs to have the deal approved by its own shareholders because it reduced the number of shares it plans to issue to less than 20 percent of its existing stock.

Kraft said this month it would sell pizza brands including DiGiorno and Tombstone to Nestle SA and use proceeds from the $3.7 billion deal to boost the cash component of its Cadbury bid. The Toblerone maker has until Feb. 2 to gain acceptance from a majority of Cadbury investors.

Blitz

Cadbury CEO Todd Stitzer embarked on a week-long blitz in London and New York in December to persuade Cadbury shareholders not to accept Kraft’s offer, then worth about 733 pence a share. Rosenfeld also met with investors and said on a November earnings call that Kraft was well positioned for “top-tier performance” with or without Cadbury.

Stitzer wasn’t mentioned in today’s Kraft release and company spokesman Trevor Datson declined to comment on his role.

The 186-year-old U.K. company was founded by the Cadbury family, social reformist Quakers, who provided workers with accommodation and education in addition to employment.

Lazard Ltd., Centerview Partners, Citigroup Inc., and Deutsche Bank AG are advising Kraft on the deal. Cadbury is using Goldman Sachs Group Inc., Morgan Stanley, and UBS AG.

Some analysts had projected Cadbury would fetch 900 pence a share after Kraft disclosed its offer in September. Those estimates began to drop when Kraft made its offer formal Nov. 9 without raising the bid and no competing ones emerged.

“We are supportive of the management’s decision although the achieved price is slightly light of our stated target,” David Cumming, head of U.K. equities at Standard Life Investments, said in an e-mailed statement today. Cumming yesterday said an offer would have to be more than 900 pence to win Standard Life’s support.

To contact the reporters on this story: Andrew Cleary in London at acleary7@bloomberg.net; Zachary Mider in New York at zmider1@bloomberg.net; Duane D. Stanford in Atlanta dstanford2@bloomberg.net.

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U.S. Stock-Index Futures Decline Before Citigroup, IBM Earnings

By Julie Cruz

Jan. 19 (Bloomberg) -- U.S. stock-index futures retreated before quarterly earnings reports from Citigroup Inc. and International Business Machines Corp., the world’s largest computer-services provider.

Kraft Foods Inc. declined 0.3 percent in early New York trading after agreeing to acquire U.K. candy maker Cadbury Plc. Brink’s Home Security Holdings Inc. surged 32 percent after agreeing to be bought by Tyco International Ltd. Citigroup gained 1.2 percent.

Futures on the Standard & Poor’s 500 Index expiring in March slipped 0.2 percent to 1,130.5 as of 11:58 a.m. in London. Dow Jones Industrial Average futures dropped 0.1 percent to 10,550, and Nasdaq-100 Index futures were little changed at 1,862.75. U.S. markets were closed yesterday for the Martin Luther King Jr. holiday.

European stocks declined today as a report showed investor confidence in Germany, the region’s biggest economy, fell for a fourth month in January. The S&P 500 fell the most in a month on Jan. 15 as JPMorgan Chase & Co. reported a loss in its retail banking unit, consumer confidence trailed forecasts and a stronger dollar weighed on commodity prices.

“The Citigroup earnings release is going to be the interesting publication today because JPMorgan results on Friday were mixed and investors are still questioning the health of the financial and banking sector in the U.S.,” said Jacques Porta, a fund manager at Ofi Patrimoine in Paris, which oversees about $425 million in equities. “Citi earnings should give a direction to the market.”

Citigroup Earnings

Citigroup, the bank whose biggest shareholder is the U.S. government, is scheduled to release fourth-quarter earnings at 8:00 a.m. New York time. The shares jumped 1.2 percent to $3.46 in pre-market New York trading. IBM, which is due to post results after the market close, slipped 0.5 percent to $131.06 in German trading.

Kraft shares slipped 0.3 percent to $29.50 in pre-market trading. Cadbury’s board agreed to an 11.9 billion-pound ($19.7 billion) takeover offer from Kraft after the U.S. company raised its bid, ending more than four months of resistance.

Brink’s Home Security surged 32 percent to $41.59 in early New York trading after agreeing to be bought by Tyco in a $2 billion transaction. Tyco gained 1.2 percent to $38.

The S&P 500 has risen 1.9 percent so far this year. The index has surged 68 percent since March 9 amid record-low interest rates and about $12 trillion committed by governments worldwide to stimulate the economy.

Upside Surprise

U.S. shares may surprise on the upside this year after lagging behind 2009’s worldwide stock rally, said Garry Evans, head of global equity strategy at HSBC Holdings Plc.

“People have got very high expectations for Asia already,” Evans said on Bloomberg Television. “Contrast that to the U.S. where everyone is so bearish, it can only surprise on the upside.” HSBC has an “overweight” rating for U.S. equities and “underweight” on Asia excluding Japan.

U.S. companies are producing more cash than ever, making the S&P 500 cheaper than any time since credit markets froze just as investors say profits don’t justify higher prices. While the 68 percent rally since March drove price-earnings ratios to the highest level since 2002, when measured by cash flow the index is 37 percent below the 12-year average and half its valuation of 2007, data compiled by Bloomberg show.

A report due at 6:00 p.m. New York time may show builders became less pessimistic this month. The National Association of Home Builders/Wells Fargo confidence index probably climbed to 17 from a six-month low of 16 in December, according to the median estimate of 39 economists surveyed by Bloomberg. It would be the first gain in four months. Readings less than 50 signal that most respondents view conditions as poor.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

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Asian Stocks Fall for Second Day as Chipmakers, Banks Decline

By Anna Kitanaka and Shani Raja

Jan. 19 (Bloomberg) -- Asian stocks fell for a second day as declining computer-memory prices hurt chipmakers, banks dropped on concern earnings growth will slow, and a stronger yen threatened profits at Japanese exporters.

Powerchip Semiconductor Corp. sank 6.8 percent in Taipei and Elpida Memory Inc. lost 4.5 percent in Tokyo. Mitsubishi UFJ Financial Group Inc., Japan’s largest listed bank, slipped 2.4 percent after Barclays Plc said banks’ income from lending may slump. Toyota Motor Corp., which gets 31 percent of revenue from North America, declined 1.2 percent in Tokyo after the yen rose to the highest level in a month against the dollar.

The MSCI Asia Pacific Index fell 0.6 percent to 125.52 at 7:08 p.m. in Tokyo, with nearly twice as many stocks declining as advancing. It was the index’s first back-to-back drop since a decline on Dec. 17-21. The measure climbed 48 percent in the past 12 months amid signs of a global recovery.

“Markets are pausing for a breath,” said Prasad Patkar, who helps manage about $1.6 billion at Platypus Asset Management in Sydney. “Expected corporate earnings are now factoring in the economic recovery. For markets to press on from here upwards, we’ll need to see the earnings growth come through.”

Stocks on the MSCI index trade at 20 times estimated earnings, compared with 15 times for the Standard & Poor’s 500 Index in the U.S. and 13 times for the Dow Jones Stoxx 600 Index in Europe. Futures on the U.S. gauge, which was closed yesterday for the Martin Luther King Jr. holiday, advanced 0.2 percent.

Japan’s Nikkei 225 Stock Average lost 0.8 percent to 10,764.90 in Tokyo and Taiwan’s Taiex Index sank 1.1 percent. Australia’s S&P/ASX 200 Index dropped 1 percent.

Chinese Investment

Hong Kong’s Hang Seng Index climbed 1 percent, reversing a decline of 0.6 percent, after the Caijing magazine said Shanghai may allow individuals to invest abroad. China’s Shanghai Composite Index gained 0.3 percent.

A gauge of technology-related companies on the MSCI Asia Pacific Index, the best performing of 10 industry groups in the past three months, was the biggest drag on the broader gauge.

Powerchip Semiconductor plunged 6.8 percent to NT$4.52, the steepest decline in the MSCI Asia Pacific Index. Inotera Memories Inc. sank 6.3 percent to NT$25.85 in Taipei. Samsung Electronics Co., Asia’s biggest maker of semiconductors, slid 2.4 percent to 823,000 won in Seoul. Elpida, Japan’s largest maker of memory chips, dropped 4.5 percent to 1,725 yen in Tokyo.

A benchmark index of prices for dynamic-random-access- memory chips retreated 1.7 percent, the sixth-straight day of declines, according to Dramexchange Technology Inc.

Bank Stocks Fall

Mitsubishi UFJ lost 2.4 percent to 486 yen after Barclays said in a report that declining interest rates are having “negative implications” for interest income at Japanese banks. Sumitomo Mitsui Financial Group Inc., which sets the price from tomorrow on shares it’s selling, fell 3.1 percent to 2,931 yen.

Commonwealth Bank of Australia, the country’s biggest bank, retreated 2.4 percent to A$56.64, the biggest drag on the MSCI index. Westpac Banking Corp., the No. 2 lender by market value in Australia, lost 1.2 percent to A$25.70.

Citigroup Inc. is due to report earnings today in New York. JPMorgan Chase & Co., the largest U.S. bank by market value, fell on Jan. 15 after saying it’s “cautious” about the outlook for consumer loan defaults, and its retail unit had the first quarterly loss since the first three months of 2008.

“Investors who chased the banks the last few days are taking risk off the table ahead of the U.S. open tonight,” said Angus Gluskie, who oversees $300 million at White Funds Management Pty in Sydney. “With banks having been weak after JPMorgan’s earnings, investors will be uncertain as to the trend of profitability in the U.S.”

Yen Hurts Exporters

Toyota, the world’s largest carmaker, dropped 1.2 percent to 4,140 yen. Honda Motor Co., which receives 81 percent of its sales from abroad, declined 2.1 to 3,300 yen. Canon Inc., a maker of electronics that gets 79 percent of revenue outside Japan, lost 1.4 percent to 3,810 yen.

The yen appreciated to 90.33 against the dollar today, the strongest since Dec. 21, from 91.04 at yesterday’s close of stock trading in Tokyo. That erodes the value of overseas income at Japanese companies when converted into their home currency.

Every 1 yen increase in the yen against the dollar this fiscal year will cut Honda’s operating profit by about 12 billion yen ($132 million) and reduce Toyota’s profit by about 30 billion yen, the automakers said in November.

Trial Program

Orient Overseas (International) Ltd. surged 6.2 percent to HK$54.70 in Hong Kong, the highest since May 2008. CapitaLand Ltd., Southeast Asia’s biggest developer, agreed yesterday to buy the company’s Chinese property assets for $2.2 billion. CapitaLand gained 1.9 percent to S$4.36 in Singapore.

China Construction Bank Corp., the nation’s second-biggest bank by market value, advanced 4.1 percent to HK$6.42. Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, rose 3.1 percent to HK$6.05.

Caijing said Shanghai may start a trial allowing individuals to invest in markets such as Hong Kong and other overseas areas. Caijing, a Beijing-based magazine, cited Fang Xinghai, head of Shanghai’s financial services office. Fang could not be reached at his office number and did not answer his mobile phone.

“If the program materializes, the domestic stock market will falter as it adds to the liquidity concern that’s caused by increasing new share sales and changing monetary policies,” said Zheng Tuo, president of Shanghai Good Hope Equity Investment Management Co. “Hong Kong will still be the biggest beneficiary of the program, because of the familiarity and its close links with the mainland.”

To contact the reporters for this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

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French Stocks: Alstom, Audika, Casino, Renault, Valeo Move

By Sarah Jones

Jan. 19 (Bloomberg) -- France’s CAC 40 Index declined 18.90, or 0.5 percent, to 3958.56 at 9:15 a.m. in Paris. The SBF 120 Index also lost 0.5 percent.

The following is a list of shares that rose or fell in Paris. Stock symbols are in parentheses.

Alstom SA (ALO FP) dropped 1.92 euros, or 3.6 percent, to 52.17 euros, snapping a four-day advance. The world’s second- largest train maker reported third-quarter sales that fell short of analysts’ estimates and said the timing for future bookings remains uncertain.

Audika SA (ADI FP) increased 99 cents, or 3.9 percent, to 25.40 euros, a third straight gain. Europe’s second-largest hearing-aid distributor said fourth-quarter sales rose 10.4 percent to 34.2 million euros ($49.3 million).

Casino Guichard-Perrachon SA (CO FP) slid 1.04 euros, or 1.7 percent, to 61 euros as CA Cheuvreux downgraded the biggest operator of supermarkets in Paris to “underperform” from “outperform.” The company posted a 2.2 percent gain in fourth- quarter sales to 7.32 billion euros, missing estimates.

Renault SA (RNO FP) fell 74 cents, or 1.9 percent, to 38.54 euros after Nomura Holdings Inc. cut its recommendation for France’s second-largest carmaker to “neutral” from “buy.”

Valeo SA (FR FP) added 34 cents, or 1.3 percent, to 25.99 euros as Nomura upgraded the country’s second-biggest auto-parts supplier to “neutral” from “reduce.”

To contact the reporters on this story: Sarah Jones in London at sjones35@bloomberg.net.

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U.K. Stocks Decline, Led by SABMiller; Barclays Shares Fall

By Sarah Jones

Jan. 19 (Bloomberg) -- U.K. stocks retreated to the lowest level this year as SABMiller Plc, the world’s second-biggest brewer, reported beer volumes that missed analysts’ estimates and the inflation rate jumped.

SABMiller fell the most in seven months. Barclays Plc slid 2.4 percent after Credit Suisse Group AG said Britain’s second- biggest bank may need to raise more capital. Cadbury Plc jumped 3.3 percent after Kraft Foods Inc. agreed to buy the U.K. chocolate maker.

The benchmark FTSE 100 Index declined 42.75, or 0.8 percent, to 5,451.64 at 12:15 p.m. in London, on course for the lowest close since Dec. 31. The FTSE All-Share Index dropped 0.8 percent, while Ireland’s ISEQ Index retreated 0.9 percent.

The FTSE 100 surged 22 percent in 2009 for its biggest annual rally since 1997 as central banks cut interest rates to record lows and governments worldwide committed about $12 trillion to revive the economy.

“After yesterday’s broad-base strength, a degree of caution has returned to stock markets today,” Philip Gillett, a sales trader at IG Index in London, wrote. “The broader market seems more concerned with U.K. inflation data coming in higher than expected, increasing expectations that a rise in interest rates will need to be made by the year end.”

Consumer prices climbed 2.9 percent from a year earlier, 1 percentage point more than in November, the Office for National Statistics said. The median estimate of economists in a Bloomberg survey was for 2.6 percent inflation.

SABMiller Declines

SABMiller lost 2.9 percent to 1,767 pence, the steepest intraday slide since June. The brewer said beer volumes, stripping out acquisitions and disposals, were unchanged in the third quarter. That missed the median analyst estimate for a 1 percent increase in a Bloomberg News survey.

Barclays declined 2.4 percent to 310.05 pence as Credit Suisse cut its share price estimate for the lender by 13 percent to 350 pence. The bank may need to raise 17 billion pounds ($28 billion) to meet new capital requirements over the next three years, according to London-based analyst Jonathan Pierce.

“Our numbers suggest a potential sizeable capital deficit,” Pierce wrote in a report today, keeping his “outperform” rating on the stock.

HSBC Holdings Plc, Europe’s biggest bank, slipped 2.4 percent to 682.4 pence after Exane BNP Paribas downgraded the shares to “underperform” from “neutral.”

Cadbury jumped 3.3 percent to 834 pence. Cadbury’s board agreed to an 11.9 billion-pound ($19.7 billion) takeover offer from Kraft after the U.S. company raised its bid, ending more than four months of resistance.

Burberry Group Plc rallied 3.8 percent to 622 pence. The U.K.’s largest luxury retailer reported third-quarter sales growth that beat estimates and said full-year pretax profit will be “towards the top end” of analysts’ forecasts.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.

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European Stocks Decline as Alstom, HSBC Retreat; Cadbury Gains

By Adam Haigh

Jan. 19 (Bloomberg) -- European stocks declined as a report showed investor confidence in the region’s biggest economy fell for a fourth month and sales at Alstom SA missed estimates. Asian shares dropped, while U.S. futures were little changed.

Alstom, the world’s second-largest train maker, sank 3.8 percent. Casino Guichard-Perrachon SA lost 1.4 percent after reporting fourth-quarter revenue that also trailed analysts’ forecasts. HSBC Holdings Plc paced a retreat among banks after Exane BNP Paribas recommended selling the shares. Cadbury Plc jumped 3.7 percent as its board agreed on an 11.9 billion-pound ($19.7 billion) takeover offer from Kraft Foods Inc.

Europe’s Dow Jones Stoxx 600 Index slipped 0.7 percent to 256.46 as of 11:27 a.m. in London. The regional benchmark gauge has climbed 63 percent since March 9, boosted by record-low interest rates in the U.S. and Europe and about $12 trillion committed by governments worldwide to revive the economy. The rally has slowed in 2010 as the measure posted its first weekly decline in a month.

“There’s been a nervousness this year in terms of investors trying to understand when and how central banks will exit the stimulus process,” said Gregor Smith, a fund manager at Daiwa Asset Management in London who helps oversee about $1 billion. “A few people have just decided this is as good as it gets for the rally and are taking some profits.”

Germany’s ZEW Center for European Economic Research index of investor and analyst expectations, which aims to predict developments six months ahead, declined to 47.2 in January from 50.4 in the previous month. This was lower than the drop to 50 that the median forecast of 37 economists had predicted in a Bloomberg News survey.

U.S., Asia

Standard & Poor’s 500 Index futures expiring in March slipped 0.2 percent ahead of trading in the U.S., where markets were closed yesterday. Citigroup Inc. and International Business Machines Corp. are among companies scheduled to report results today. Analysts estimate fourth-quarter profits in the S&P 500 grew 67 percent on average, data compiled by Bloomberg show.

The MSCI Asia Pacific Index lost 0.6 percent today. Japan Airlines Corp., Asia’s biggest carrier, said it’s filing for bankruptcy, according to the government’s chief spokesman.

Alstom tumbled 3.8 percent to 52.04 euros. Sales in the fiscal third quarter rose to 4.69 billion euros ($6.75 billion) from 4.56 billion euros a year earlier. That trailed the average estimate of 4.81 billion euros in a Bloomberg survey of seven analysts.

Casino, HSBC

Casino slid 1.4 percent to 61.15 euros after saying revenue from continued operations in the three months ended Dec. 31 rose to 7.32 billion euros from 7.17 billion euros a year earlier. That missed the 7.36 billion-euro estimate from eight analysts surveyed by Bloomberg.

Banks were the worst performers among 19 industry groups in the Stoxx 600 today, falling 1.5 percent.

HSBC, Europe’s largest bank, lost 2.2 percent to 684 pence after Exane downgraded the shares to “underperform” from “neutral.” Barclays Plc, the U.K.’s second-biggest bank, sank 2.2 percent to 310.7 pence as Credit Suisse Group AG cut its price estimate on the shares by 13 percent, saying its forecasts imply a “sizeable capital deficit,” according to a report to clients today. The bank has an “outperform” recommendation on the stock and said “this is a relative call rather than a particularly upbeat view on Barclays’ shares.”

Cadbury climbed 3.7 percent to 837 pence. Investors will get 840 pence a share, including 500 pence in cash and the rest in stock, Kraft said today. Cadbury will also pay its holders an additional 10 pence dividend once the offer is unconditional. The new bid is about 9 percent higher than Kraft’s previous offer and consists of 40 percent stock and 60 percent cash.

SABMiller, Daimler

SABMiller Plc retreated 2.9 percent to 1,767 pence. The world’s second-biggest brewer posted beer volumes that missed analysts’ estimates as China’s worst snowstorms in 50 years kept drinkers at home and South African consumers reined in spending.

Daimler AG lost 1.4 percent to 36.59 euros after Nomura Holdings Inc. cut its recommendation on the German maker of luxury cars and trucks to “neutral” from “buy.” France’s Renault SA slid 2.9 percent to 38.14 euros as Nomura also downgraded the stock to “neutral” to “buy.”

Burberry Group Plc, the U.K.’s largest luxury retailer, rallied 3.5 percent to 620.5 pence after it reported third- quarter sales growth that beat estimates and said full-year profit will be “towards the top end” of analysts’ forecasts.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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