Carlyle’s Rubenstein Warns Against Roubini Pessimism in Davos

By Simon Kennedy and Aaron Kirchfeld

Jan. 27 (Bloomberg) -- Carlyle Group LP co-founder David Rubenstein said it’s a “pretty attractive” time to invest, telling New York University Professor Nouriel Roubini that his pessimism about the economic outlook is misplaced.

“There are a lot of great opportunities we see in the United States and abroad,” Rubenstein said today at the World Economic Forum’s annual meeting in Davos, Switzerland. “Sometimes generals fight the last war, economists fight the last recession.”

Diverging outlooks of investors and economists are being thrown into relief in the ski resort as the worst financial crisis since the Great Depression ebbs. While the MSCI World Index has surged about 65 percent since March, Davos delegates including Roubini and Nobel laureate Joseph Stiglitz say the rally may end as the economic rebound loses steam.

“There is now a debate about the shape of this recovery,” Roubini, who predicted the crisis a year before it began in 2007, told the opening panel before Rubenstein challenged him. “I see a faltering of growth in the U.S., Europe and Japan.”

Rubenstein, who heads the world’s second-largest private equity firm, identified emerging economies as “attractive places” for investors alongside U.S. markets for energy and health care. Prices are low and the risk of systemic failure has been eliminated, meaning deals done last year will be among “some of the best” struck in a decade, he said.

‘Largely Recovered’

“The U.S. economy has largely recovered in the view of professional investors from the worst,” he said. “We’ve gone through a bit of a heart attack and heart attacks are not fatal so much anymore, so we’ve learned a lot.”

While he agreed that emerging markets will outperform their richer rivals, Roubini predicted growth in advanced economies such as the U.S. will slacken in the second half of the year. He cited weakening labor markets, declining consumer spending, tight credit, manufacturing overcapacity, government budget cuts and rising bond yields, he said.

“In advanced economies, the first half of the year is going to better than the second half,” Roubini said.

Roubini’s caution was shared by Dennis M. Nally, global chairman of New York-based PricewaterhouseCoopers LLP. A survey conducted by his company found 81 percent of 1,198 chief executives in 52 nations are confident in the next 12 months, yet majorities are worried by the threat of a protracted recession and intend to cut costs deeper.

‘Cautionary View’

“We’re not out of the woods yet,” Nally said. “There is a cautionary view.”

The International Monetary Fund yesterday raised its forecast for global growth this year to 3.9 percent from 3.1 percent, yet said the recovery in industrial nations will stay “sluggish” amid high unemployment and rising public debt.

Rubenstein and Roubini found common ground in agreeing that rising debt in the U.S. poses a threat to its economy and markets. Failure to tackle the debt will trigger a “sinking” dollar and undermine its role as the world’s reserve currency, Rubenstein said. Roubini warned that investors may “wake up” to the fiscal imbalances and push up long-term interest rates, choking the economic recovery.

To contact the reporter on this story: Simon Kennedy in Davos at skennedy4@bloomberg.net; Aaron Kirchfeld in Davos at akirchfeld@bloomberg.net

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Fed May Take Chance Ending Debt Purchases Won’t Hurt Housing

By Steve Matthews and Vivien Lou Chen

Jan. 27 (Bloomberg) -- The Federal Reserve may take a chance the housing market can stage a comeback without its support by announcing today it will stick to the plan to end a $1.25 trillion program of mortgage-debt purchases in March.

Fed Chairman Ben S. Bernanke and other policy makers meet after the sixth straight monthly gain in home prices in November added to signs housing is stabilizing. With financial markets rebounding, the central bank has said it plans to end emergency aid to bond dealers and money markets by Feb. 1.

The Fed will probably acknowledge growth accelerated last quarter while noting that tight credit and unemployment near a 26-year high still pose risks to the recovery. Officials are likely to maintain a pledge to keep interest rates low for “an extended period” as they look for evidence of a sustained expansion that will create jobs without raising inflation expectations, former Fed governor Lyle Gramley said.

“The Fed wants to sit still until the smoke clears,” said Gramley, a senior economic adviser to Potomac Research Group. “To change the ‘extended period’ language would send a signal to markets that a tightening is not far off, and I don’t think the Fed wants to do that,” Gramley said. He doesn’t expect a rate increase for at least six months.

The Federal Open Market Committee, gathering while Bernanke awaits a Senate vote on whether to confirm him for a second term, is scheduled to issue its statement at around 2:15 p.m.

Regional Fed presidents have differed over whether to continue buying mortgage-backed securities after March 31, with James Bullard of St. Louis saying the central bank should create such an option and Philadelphia’s Charles Plosser saying the purchases should end as scheduled.

Backed by Government

The Fed plans to buy $1.25 trillion of mortgage-backed securities sold by government-backed, housing-finance firms Fannie Mae, Freddie Mac and federal agency Ginnie Mae, along with $175 billion of corporate debt issued by Fannie, Freddie and the government-chartered Federal Home Loan Banks.

During the current meeting “the real discussion will be when they end the MBS program,” said former Atlanta Fed research director Robert Eisenbeis, using the acronym for mortgage-backed securities.

“This raises a huge risk to the recovery,” said Eisenbeis, now chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey. “You don’t want to risk cutting off the recovery in housing by essentially pulling the rug from under it.”

The Fed’s purchases have helped reduce mortgage rates by a range of a 25 basis points to 75 basis points, Boston Fed President Eric Rosengren said through Thomas Lavelle, a spokesman. A basis point is 0.01 percentage point.

Large Portfolio

Rates won’t increase by an equal amount after the end of purchases because the Fed will continue to hold a large portfolio of mortgage-backed securities, Rosengren said.

Eisenbeis disagreed, saying mortgage rates could rise by 75 basis points to 100 basis points.

The rate for 30-year fixed U.S. home loans, which reached a record low of 4.71 percent last month, was 4.99 percent in the week ended Jan. 21, according to mortgage finance company Freddie Mac.

“Housing is so heavily dependent on the Fed right now,” 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.

“The important thing for them is not to rock the boat and leave themselves plenty of flexibility so that in February and March they can alter their position if they need to,” he said.

Home-Price Index

The S&P/Case-Shiller home-price index increased 0.2 percent in November, the sixth consecutive gain, the group said yesterday in New York. The index was down 5.3 percent from November 2008, more than anticipated and the smallest year-over- year decline in two years.

U.S. central bankers, after reducing the main interest rate to a range from zero to 0.25 percent, switched last year to asset purchases and credit programs as the primary policy tools. The Fed has expanded its balance sheet to $2.24 trillion at the end of 2009 from $879 billion at the start of 2007. Since March, the FOMC has said “exceptionally low” rates are likely warranted for “an extended period.”

Bullard, who votes this year on policy, said in a speech in Shanghai this month the Fed should adjust asset purchases based on changes in the economy. Chicago Fed President Charles Evans told reporters Jan. 13 that the central bank would consider expanding purchases “if conditions were to deteriorate.”

In contrast, Kansas City Fed President Thomas Hoenig, who also votes on policy this year, said in a Jan. 11 interview that “the private market now is healing” and the program should end. Richmond Fed President Jeffrey Lacker said last month, “I think we have to move over time away from channeling resources to the housing market.”

Unexpected Loss

Policy makers will likely note continued “slack” in labor markets following last month’s unexpected loss of 85,000 jobs. The FOMC projects the unemployment rate will be between 9.3 percent and 9.7 percent in the fourth quarter of this year, according to forecasts released after its November meeting.

“It’s still too early to expect a dramatic announcement with regard to the Fed’s exit strategy because the economy is still finding its footing,” said Alan Skrainka, chief market strategist for Edward Jones & Co. in St. Louis, which oversees $500 billion in stocks, bonds, and mutual fund assets.

“It’s a delicate balancing act,” he said. “If the Fed pulls back too soon, the economy falters. If the Fed waits too long, the inflation risk grows.”

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 November 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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Weber Says ECB May Take More Exit Steps in First Half

By Francine Lacqua and Simone Meier

Jan. 27 (Bloomberg) -- European Central Bank council member Axel Weber said the bank may take further steps in the first half of this year to withdraw liquidity from the banking system as the economy gathers strength.

“As the economy improves, we’ll take some of the exceptional measures back,” Weber said in an interview with Bloomberg Television at the World Economic Forum in Davos, Switzerland, today. “Not all measures are needed to the same degree, so I don’t rule out that we take some additional steps even before the second half.”

One of the cornerstones of the ECB’s strategy to fight the financial crisis has been to lend banks as much money as they want at its benchmark interest rate of 1 percent, a record low. The Frankfurt-based central bank has already started to scale back its emergency longer-term lending as the economy shakes off its worst recession since World War II.

“Weber is basically confirming a gradual winding down of all the remaining measures,” said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London. “They’re making sure that all market participants understand. They want to avoid surprising the markets.”

The euro rose to as high as $1.4097 after Weber’s remarks from $1.4072 yesterday. It was at $1.4048 as of 2:26 p.m. in London. German bonds reversed earlier gains, pushing the yield on the two-year note up 1 basis point to 1.12 percent.

‘Gradual Process’

The ECB last month said its third offer of 12-month loans to banks in December was its last and also announced it will discontinue six-month loans after March. President Jean-Claude Trichet said the provision of unlimited cash in other refinancing operations will continue until at least April 13.

Weber, who is also head of Germany’s Bundesbank, said the ECB will have to discuss a return to a normal auction procedure, though this would not be reintroduced to all tenders at once. Normalization will be a “gradual process,” he said.

“The economy took a really steep fall, it’s been stabilizing” and will show a “protracted recovery,” Weber said. “We still have some bad news ahead of us.”

Inflation Risks

In the euro region, a recovery is already losing some momentum as governments phase out stimulus measures and companies continue to cut jobs, eroding consumer demand. Expansion in Europe’s manufacturing and services industries unexpectedly weakened in January and investor confidence in Germany, Europe’s largest economy, declined.

ECB Executive Board member Juergen Stark said yesterday that council members “expect only moderate growth” and “probably a bumpy recovery” this year. “Overall, I wouldn’t expect a fast return to robust growth,” he said.

The ECB last month forecast the euro-region economy will expand about 0.8 percent this year and around 1.2 percent in 2011. Inflation will average about 1.3 percent this year and 1.4 percent in 2011, the projections show. Weber said today that there are “upside risks” to the inflation outlook.

“Some measures are going to move inflation up but we don’t expect it to significantly surpass 2 percent,” he said. “I’m not worried. I think rates are appropriate at this point.”

Weber said he expects the Eonia overnight rate, or the interest European banks charge each other for overnight loans, to “gradually” move from the 0.25 percent deposit rate toward the ECB’s benchmark interest rate this year. It’s “going to be a slow process” and depends on a market normalization, he said.

“The decisive remark is that the withdrawal of unconventional measures isn’t time dependent but condition dependent,” said Christoph Rieger, co-head of fixed-income strategy at Commerzbank AG in Frankfurt. “The logical steps would be for the ECB to mop up liquidity, remove the full allotment, push the Eonia rate toward 1 percent and then hike.”

Weber declined to comment when asked whether he’s among the potential candidates to replace Trichet in 2011, saying that the bank has a “very good” president at the moment.

To contact the reporters on this story: Simone Meier in Dublin at smeier@bloombert.net; Francine Lacqua in Davos at flacqua@bloomberg.net.

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Tullow to Raise About 1 Billion Pounds in Share Sale

By Morwenna Coniam

Jan. 27 (Bloomberg) -- Tullow Oil Plc, the U.K. explorer with the most licenses in Africa, plans to sell as many as 80.4 million new shares to fund exploration and development in Uganda and Ghana.

“The placing should generate about 1 billion pounds ($1.61 billion) to the company,” Chief Executive Officer Aidan Heavey said by phone today. The shares fell as much as 5.6 percent in London trading, the steepest intraday decline since Sept. 18.

Tullow, which is engaged in a battle with Eni SpA for Ugandan assets being sold by Heritage Oil Plc, identified China National Offshore Oil Corp. and Total SA as the “top two bidders” to join it as partners in the east African nation.

The explorer wants to ensure sufficient capital to maintain a $500 million-a-year exploration program as well as developing its African assets, it said in a statement today. It plans to use some of the capital to conduct additional appraisal and development of Tweneboa and subsequent phases of the Jubilee field in Ghana. About 35 exploration wells are planned for this year.

Tullow slid as much as 68 pence to 1,148 pence. The shares were 4.7 percent lower at 1,159 pence as of 10:10 a.m. local time, valuing Tullow at 9.3 billion pounds.

Increased Spending

The placing will allow Tullow to “secure increased spending over the next three years or so,” Chief Financial Officer Ian Springett said on the same call. The explorer “should be done with equity” afterwards, he said.

Tullow plans an accelerated book-building process to be carried out by Bank of America-Merrill Lynch and RBS Hoare Govett Ltd. acting as joint global coordinators and bookrunners.

Tullow said in a separate trading statement that it has “never been in a better position to deliver growth.” It forecasts 990 million pounds of expenditure this year, up from 690 million in 2009, while net debt at the end of December stood at 720 million pounds.

Tullow yesterday said it signed an agreement to buy Heritage Oil’s 50 percent share in Blocks 1 and 3A in the Lake Albert Rift Basin, Uganda for up to $1.5 billion, in an attempt to block a rival offer by Eni. The deal is subject to approval by the government of Uganda, it said.

In addition to the sale agreement with Heritage, Tullow is seeking to bring in partners to help develop its Ugandan assets. Total and CNOOC will be “presenting what they can do to the government in the next few weeks,” Heavey said.

Total spokeswoman Phenelope Semavoine declined to comment on Uganda.

Additional Interests

Tullow will also use some of the capital raised in the share sale to buy additional interests in Uganda to retain a stake of up to 50 percent of its enlarged acreage position, it said in today’s statement.

Operations in Ghana and Uganda will take up around 60 percent of the anticipated 2010 capital outlay, Tullow said. The explorer plans 10 wells in Uganda and seven in Ghana this year.

An accelerated drilling and exploration program is planned on the Tweneboa field following its establishment as “a major oil and gas-condensate field with a combined hydrocarbon column of at least 350 metres,” Tullow said.

The Tweneboa field is located in the Deepwater Tano block, which is 49.95 percent held by Tullow. The deposit may yield almost as much oil as the nearby Jubilee field, which may hold as much as 1.8 billion barrels of crude, the company said in November.

To contact the reporter on this story: Morwenna Coniam in London at mconiam@bloomberg.net;

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Oil Little Changed Around $75 Before Report on U.S. Inventories

By Grant Smith

Jan. 27 (Bloomberg) -- Crude oil was little changed around $75 a barrel before a report forecast to show crude inventories increased in the U.S., the world’s largest energy user.

Oil has dropped 11 percent from a 15-month high on Jan. 11 amid concern that the U.S. government may limit trading by banks and that China will take further steps to cool its economy. The Energy Department will likely say crude stockpiles climbed 1.5 million barrels last week as refinery throughput dropped, according to a Bloomberg survey before the report today.

“Market sentiment is negative at the moment,” said Tobias Merath, head of commodities research at Credit Suisse Group AG in Zurich. “Falling refinery utilization is in itself a negative sign as it reduces consumption of crude oil. Talk about Chinese monetary tightening, proposed banking regulation, has affected risk appetite.”

Crude oil for March delivery traded at $74.84 a barrel, 13 cents higher, in electronic trading on the New York Mercantile Exchange at 1:15 p.m. London time. Yesterday, the contract dropped 55 cents to settle at $74.71.

U.S. refining rates, already at their lowest level outside the Atlantic hurricane season since at least 1989, probably fell 0.1 percentage point, according to Bloomberg’s survey. Distillate stockpiles, which include heating oil and diesel, may have dropped by 1.8 million barrels, the survey said.

Oil stockpiles probably climbed from 330.6 million barrels in the prior week, according to the median of 18 analyst estimates in Bloomberg’s survey.

API Data

If the Energy Department numbers follow the forecasts, that would be counter to American Petroleum Institute data that were released late yesterday. Inventories of crude fell by 2.23 million barrels last week to 326.1 million, the industry group said. Distillate fuel supplies dropped 1.98 million barrels.

Gasoline supplies rose 916,000 barrels to 228.5 million barrels, the highest since March 1999, the API said.

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey. Oil-supply totals from the API and DOE moved in the same direction 75 percent of the time over the past four years, according to data compiled by Bloomberg.

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

The dollar rose against the euro as investors sold the European currency on concern fiscal deficits in the region will grow. The dollar climbed to $1.4022 to the euro, the strongest since July 30.

Waning Demand

Crude also dropped on speculation that oil demand may wane in China because of concerns of a slowing economy after banks began restricting new loans in response to a push by regulators to contain credit.

“The short-term outlook is really not showing too much brightness,” said Toby Hassall, commodity analyst at CWA Global Markets Pty in Sydney. “China has been underpinning demand for oil and other commodities, so the idea that they’re going to rein things in is certainly a negative for sentiment.”

Lending growth in China slowed in the third week of January from the month’s first two weeks, the Shanghai Securities News reported yesterday, citing unidentified people.

Brent crude for March settlement was at $73.57 a barrel, up 28 cents, on the London-based ICE Futures Europe exchange at 12:50 p.m. local time. The contract declined 40 cents, or 0.5 percent, to $73.29 a barrel yesterday.

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

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ConocoPhillips Reports Profit After Record Loss

By Edward Klump

Jan. 27 (Bloomberg) -- ConocoPhillips, the third-largest U.S. oil company, reported fourth-quarter profit of $1.22 billion after posting a record loss a year earlier when falling energy prices dragged down the value of acquired assets.

Net income was 81 cents a share, compared with a net loss of $31.8 billion, or $21.37, Houston-based ConocoPhillips said today in a statement. Excluding such items as writedowns on asset values, ConocoPhillips earned $1.16 a share, 4 cents more than the average of 16 analysts’ estimates compiled by Bloomberg. Revenue fell 2.8 percent to $43.6 billion.

ConocoPhillips said in October that it planned to sell some $10 billion of assets over two years, cut spending and reduce debt. In December, the company said its capital budget will be an estimated $11.2 billion for 2010, a drop of 10 percent from last year. That comes after the fourth quarter of 2008 included costs of about $34 billion to reflect a drop in asset values.

“They’re trying to reposition the company as best they can,” said James Halloran, a consultant with Financial America Securities in Cleveland. “Going forward, I think they have more of a hurdle to overcome to get back to being viewed as a company that’s sort of in control of its own destiny.”

ConocoPhillips rose 57 cents, or 1.1 percent, to $51 as of 8:44 a.m. in pre-market trading on the New York Stock Exchange. The stock has 9 “buy” ratings from analysts, 10 “holds” and 2 “sells.”

ConocoPhillips is first among the nation’s largest producers to report fourth-quarter earnings. Exxon Mobil Corp. of Irving, Texas, is scheduled to announce its results Feb. 1. San Ramon, California-based Chevron Corp. plans to report earnings Jan. 29.

Refining Capacity

Fourth-quarter worldwide crude-refining capacity utilization rate at ConocoPhillips, which has the largest U.S. refining capacity among integrated oil companies, was 76 percent.

“One reason it’s lagged here the last year or so is it has a larger exposure to refining than its peers just given its smaller size,” said Brian Youngberg, an analyst at Edward Jones near St. Louis who has a “buy” rating on ConocoPhillips shares and owns none. “As refining improves here as we go forward, which I think it will, that should provide a bit of a catalyst for them to play some catch-up with their peers.”

The company said fourth-quarter production of oil and natural gas fell to about 1.83 million barrels of crude equivalent a day. Daily output, which excludes the company’s stake in Russia’s OAO Lukoil, was 1.87 million barrels a year earlier.

‘Pretty Decent Year’

ConocoPhillips also said that full-year output for 2009 was about 1.85 million barrels a day. Daily production was equivalent to 1.79 million barrels of crude in 2008.

“Production-wise, they had a pretty decent year,” said Philip Weiss, an analyst at Argus Research in New York who has a “hold” rating on ConocoPhillips shares and owns none.

ConocoPhillips agreed to buy gas producer Burlington Resources Inc. in 2005, the day before prices hit an all-time high of $15.78 per million British thermal units. Gas averaged $4.93 in the fourth quarter, a drop of 23 percent from a year earlier.

On Jan. 19, ConocoPhillips said it would record fourth- quarter costs of $54 million related to its stake in Lukoil after that company’s third-quarter profit was lower than ConocoPhillips estimated when it determined the amount to include from the stake in its own earnings.

To contact the reporter on this story: Edward Klump in Houston at eklump@bloomberg.net.

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Asia Currencies: Won, Rupiah Lead Gains on Signs of Recovery

By Patricia Lui

Jan. 27 (Bloomberg) -- Asian currencies rose, led by the South Korean won and Indonesia’s rupiah, on optimism the region’s economic recovery will gain momentum.

The International Monetary Fund said yesterday the global economy this year will be stronger than it previously forecast with few signs of inflation, allowing central banks to keep interest rates low to ensure a sustained expansion. A report today showed Japan’s exports rose in December for the first time since Lehman Brothers Holdings Inc. collapsed in September 2008. The rupiah also rose from the lowest level in more than three weeks as concern eased about further lending curbs by China on domestic banks.

“In my view, markets may have over-reacted on all of the shocks, especially monetary tightening in China,” Stephen Jen, managing director of macroeconomics and currencies at BlueGold Capital Management LLP in London and former head of foreign exchange research at Morgan Stanley, wrote in a report yesterday.

The won rose 0.4 percent to 1,158.80 per dollar as of 12:45 p.m. in Seoul, according to data compiled by Bloomberg. Malaysia’s ringgit climbed 0.1 percent to 3.4220 and the rupiah gained 0.3 percent to 9,390.

The MSCI Asia Pacific Index of regional stocks lost 0.3 percent after swinging between gains and losses. The index slumped 5.8 percent in the previous seven days as U.S. President Barack Obama proposed measures to limit risk taking at U.S. banks and on concern China will rein in economic growth.

‘Monster Surplus’

Asian currencies slumped yesterday after Reuters reported reserve requirements for several Chinese lenders would be increased again, citing banking sources it didn’t identify. China’s central bank ordered banks on Jan. 12 to set aside more cash as reserves to slow record lending and curb inflation.

“Rumors China didn’t ask banks to raise reserve ratios again lifted Asian currencies,” said Thio Chin Loo, a senior currency analyst at BNP Paribas SA in Singapore.

The won rose, rebounding from this year’s low, after the central bank reported a record current-account surplus for 2009.

South Korea posted a surplus of $1.52 billion in December, the 11th month in a row, the Bank of Korea said today. The current account is the broadest measure of trade, tracking the flow of goods, services and investment income, and for 2009 recorded a surplus of $42.7 billion. The surplus may shrink “substantially” in January, Lee Young Bog, a Bank of Korea official, said today.

“The current-account surplus was a monster last year, but this year it’s expected to be lower as imports were really weak” in 2009, said Sean Callow, a currency strategist in Sydney at Westpac Banking Corp. “But it’s still quite substantial and will be a net positive for the won this year.”

Overseas investors pumped $944 million into Korean shares this year through yesterday, building on net purchases of $24.4 billion in 2009.

The ringgit climbed from its lowest level this year after the central bank said the economy’s recovery from recession has been underpinned by improvements in manufacturing and trade. Bank Negara Malaysia yesterday maintained the overnight rate at a record-low 2 percent for a seventh straight meeting.

Southeast Asia’s third-largest economy will probably expand 3.7 percent this year and 5 percent in 2011 after shrinking a projected 3.3 percent in 2009, the Malaysian Institute of Economic Research said this week. Prime Minister Najib Razak said Jan. 20 it may be 3.5 percent or more.

“The assessment leaves no doubt that the economic recovery is taking shape, which is positive for the ringgit outlook,” said Irwaan Iskandar Abrahim, who helps manage $130 million at ASM Investment Services Bhd. in Kuala Lumpur.

Improved China Link

Taiwan’s dollar rose on speculation overseas investors will add to their purchases of local stocks after the island’s government and China held talks yesterday on strengthening economic ties. The Taiex index slid 3.5 percent yesterday.

The island’s cabinet has agreed in a preliminary review to let local financial companies and banks acquire stakes in Chinese lenders, the Economic Daily News reported today, citing an unidentified senior official. Chinese banks will only be allowed to set up branches on the island, according to the paper.

“Maybe foreign investors are comfortable again with Taiwan money,” said Eric Hsing, a debt trader at First Securities Inc. in Taipei. “In the long run, I have confidence in Taiwan because relations between Taiwan and China are turning friendly.”

The local dollar advanced 0.1 percent to NT$32.031 against its U.S. counterpart, according to Taipei Forex Inc. The currency earlier reached NT$32.065, the weakest since Jan. 4.

Elsewhere in Asian currency trading, the Singapore dollar rose 0.1 percent to S$1.4034 versus the greenback, while the Thai baht and China’s yuan were little changed at 33.04 and 6.8268, respectively.

To contact the reporters on this story: Patricia Lui at Plui4@bloomberg.net

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China Central Banker Zhu Says Stable Yuan ‘Important’

By Rob Delaney and Simon Kennedy

Jan. 27 (Bloomberg) -- People’s Bank of China Deputy Governor Zhu Min defended his country’s “stable” yuan policy and warned that dollar volatility is threatening a global economic recovery.

“It’s absolutely important to have rmb stability. It’s good for China. It’s also good for the world” Zhu said in a panel discussion at the World Economic Forum in Davos, Switzerland. Rmb is an abbreviation for renminbi, the yuan’s formal name.

“Everybody understands that because of the U.S. dollar carry trading, all this money was brought into the emerging market, and someday if U.S. monetary policy changes, this money will go back to the U.S. market,” Zhu said.

China is fighting criticism from countries, including the U.S., that it’s keeping the yuan’s value artificially low, making it more difficult for exporting nations to compete. China has kept a lid on its currency since July 2008 after it strengthened 21 percent against the dollar over the previous three years.

“I think they have been excessively self-interested. I think they’ve been very uncooperative,” Barney Frank, chairman of the U.S. House Financial Services Committee, said of China’s currency policy. Frank was on the same panel as Zhu and made his comments to reporters afterwards.

Yuan Peg

China’s economy rebounded stronger than anticipated in the fourth quarter, and the inflation rate accelerated to a 13-month high of 1.9 percent in December, igniting speculation the government will abandon the yuan peg to avoid the economy from overheating.

The Chinese government may allow the yuan to have “a bigger one-off move than people talk about, at least 5 percent, maybe more,” Goldman Sachs Group Inc. Chief Economist Jim O’Neill said in a Jan. 23 interview. “They may also consider having a wide band to let it move more frequently on the daily basis to stop speculative players.”

To contact the reporter on this story: Rob Delaney in Davos at robdelaney@bloomberg.net

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Dollar Trades at Almost Five-Week Low Before Fed’s Statement

By Ben Levisohn

Jan. 27 (Bloomberg) -- The dollar traded at almost a five- week low against the yen before the Federal Reserve’s policy statement, which is forecast by analysts to maintain a pledge to hold interest rates at virtually zero for an extended period.

“The Fed is having to walk a fine line now,” said Omer Esiner, a senior foreign-exchange analyst in Washington at Travelex Global Business Payments, a currency exchange network. “There’s a lot of political pressure to signal that they’ll keep rates low for the foreseeable future, and the market is getting anxious that there hasn’t been an articulated exit.”

Sterling rose versus all of its 16 most-traded counterparts on speculation the Bank of England will halt its bond-purchase program. The euro was at almost six-month low versus the dollar as New York University Professor Nouriel Roubini, who predicted the financial crisis, said he’s never been more pessimistic about the European monetary union’s future.

The dollar fell 0.2 percent to 89.48 yen at 8:58 a.m. in New York, from 89.65 yesterday. It traded earlier at 89.14, the lowest level since Dec. 18. The U.S. currency was little changed at $1.4057 per euro, compared with $1.4072. It touched $1.4022, the strongest level since July 30. The euro dropped 0.3 percent to 125.78 yen, from 126.16, after reaching 125.24, the lowest level since April 28.

The greenback weakened versus the yen on speculation the Fed reiterate that interest rates will stay low, discouraging demand for dollar-denominated assets. The Fed may acknowledge growth accelerated last quarter while noting that tight credit and unemployment at almost a 26-year high still pose risks.

Roubini on Euro

Spain represents a looming threat to the ability of the euro region to hold together, said Roubini in a Bloomberg Radio interview from the World Economic Forum’s annual meeting in Davos, Switzerland.

“Down the line, not this year or two years from now, we could have a breakup of the monetary union,” Roubini said. “It’s a rising risk.”

Speculation of a breakup has mounted in financial markets as Greece struggles to cut the continent’s biggest budget deficit and countries from Spain to Ireland face rising debt.

Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said in Luxembourg today there is no risk of a state bankruptcy for Greece and the possibility of the nation’s leaving the euro region is “an absurd theory.”

The common currency pared declines versus the dollar as the European Central Bank council member Axel Weber said policy makers may take further steps in the first half of this year to withdraw stimulus measures as the economy gathers strength.

Germany’s Inflation

German consumer prices, calculated using a harmonized European Union method, fell 0.4 percent this month after rising 0.9 percent in December, according to the median forecast of 21 economists in a Bloomberg News survey. The report from the Federal Statistics Office is due later today.

The pound rose 0.5 percent to $1.6224 on speculation the Bank of England will announce a pause in its 200 billion-pound ($323 billion) bond-purchase program next week. Sterling advanced 0.5 percent to 86.74 pence per euro.

Bank of England policy maker Andrew Sentance said the Monetary Policy Committee must be ready to shift gears as the economic recovery strengthens.

“The Bank of England will soon stop buying gilts, and that will help the pound,” said John Hydeskov, a currency strategist at Danske Bank A/S in Copenhagen.

The Fed will keep its target rate for overnight bank loans between zero and 0.25 percent today, according to all 93 economists surveyed by Bloomberg.

Fed Rate Outlook

Futures on the CME Group exchange indicate traders have been cutting bets the Fed will raise its target lending rate by June. The odds of an increase of at least a quarter-percentage point were 21 percent, down from 26 percent a week ago.

“Policy makers will maintain the status quo this time,” said Takako Masai, general manager of the capital markets division at Shinsei Bank Ltd. in Tokyo. “They are unlikely to change their economic outlook because U.S. economic reports haven’t been good.”

To contact the reporter on this story: Ben Levisohn in New York at blevisohn@bloomberg.net

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Rusal Drops in First Hong Kong IPO in 2010 as Market Slips 13%

By Bloomberg News

Jan. 27 (Bloomberg) -- United Co. Rusal Ltd., the world’s largest aluminum producer, tumbled 11 percent in its Hong Kong trading debut as demand for new equity waned after the city’s benchmark index dropped from a November high.

The Moscow-based company fell to HK$9.66, the worst Hong Kong debut since Dec. 18, from its listing price of HK$10.80. Rusal, the first 2010 IPO in the city, will use net proceeds of HK$16.7 billion ($2.1 billion) to pay down $14.9 billion of debt.

Rusal, barred from marketing to retail investors, found buyers for all the stock on offer after winning investments from Asian billionaire Li Ka-shing and New York hedge-fund manager Paulson & Co. Hong Kong’s Hang Seng Index and aluminum prices have dropped this week as investors globally retreat from risk on concern lending curbs in China, and U.S. plans to rein in banks will stifle the global economic recovery.

“The market sentiment right now isn’t very good,” said Helen Lau, an analyst at OSK Asia Holdings. “Investors are concerned about its debt risks. If the market outlook for aluminum improves and the potential risks diminish, people would be interested.”

Aluminum prices in Shanghai have dropped 8 percent from this year’s high on Jan. 7. The Hang Seng Index fell for a sixth day, extending a decline from its Nov. 16 high to 13 percent. Investors are concerned the Chinese government will rein in liquidity to contain asset bubbles after the country posted the fastest economic growth since 2007 in the fourth quarter.

“You’ve seen what’s happened with the financial situation in recent days,” Rusal Chief Executive Officer Oleg Deripaska said today in the city. Today’s “price is reasonable,” he said.

Rich Friends

Rusal’s global depositary shares fell 11.6 percent to 17.60 euros on their first day of trading in Paris as of 10:39 a.m. local time.

The first Russian company to IPO in Hong Kong had its offering delayed at least twice by regulators and restricted to wealthy and corporate investors on concern about its debt. The stock trades in blocks of 24,000 shares.

“The minimum trading board lot plus the weak market atmosphere will be obstacles for retail investors,” Allen Wong, senior research analyst at Quam Ltd., said in Hong Kong.

Rusal reserved about 39.4 percent of the IPO shares for Malaysian billionaire Robert Kuok, hedge fund Paulson, NR Investments Ltd., the principal investment company of Nathaniel Rothschild of the banking family, and Russian state development bank Vnesheconombank, or VEB.

Today’s decline means shares owned by Paulson, NR Investments and Kuok would have a combined paper loss of about HK$180 million.

Buy Chalco

The IPO price gives Rusal an enterprise value that is 11.7 times the 2010 earnings before interest, tax, depreciation and amortization, or Ebitda, people familiar with the sale said last week. The enterprise value is a sum of a company’s market value, equity and debt minus cash.

Aluminum Corp. of China Ltd., the nation’s largest producer of the metal known as Chalco, trades at an enterprise value 13.6 times its 2010 Ebitda, according to data compiled by Bloomberg.

“Some analysts say that Rusal is most sensitive to aluminum price changes, which might be true,” Quam’s Wong said. “But it seems prudent to buy Chalco,” which will also benefit from higher prices without Rusal’s debt, Wong said.

Beijing-based Chalco fell 3.4 percent to close at HK$7.90 in Hong Kong. Rusal’s IPO comes less than two months after it completed Russia’s biggest corporate debt restructuring.

Rusal posted a loss of $868 million in the first half of 2009, compared with net income of $1.4 billion a year earlier. Full-year profit won’t be less than $434 million for 2009, it said in the prospectus.

Other Russians

Rusal’s IPO will lure other companies in Russia, Ukraine and Kazakhstan to list in the city, Deputy Chief Executive Officer Artem Volynets said today in a Bloomberg Television interview.

“We do believe that Rusal listing here opens up an alternative market for our region,” Volynets said. “There’s a very high level of interest.”

OAO Russian Railways, operator of the world’s longest rail network, said Jan. 21 it may consider the city for the proposed dual listings of two units.

“Russian companies have looked to London for finance,” said Eric Kraus, a strategist at Otkritie Financial Co. in Moscow. “But with large pools of capital in Greater China, particularly interested in resources companies, then the trend will move towards the East.”

China’s Demand

China, the world’s largest metal consumer, spurred price increases in raw materials last year as its $586 billion stimulus spending raised demand from builders and automakers.

Aluminum futures gained 45 percent in London last year, and Alcoa Inc. said on Jan. 11 that global demand will increase 10 percent this year, led by China.

“Last year, China’s growth supported the demand,” Rusal Deputy CEO Volynets said in the interview. “We see strong end- user demand. We see restocking in the global supply chain.”

BNP Paribas SA and Credit Suisse Group AG led banks including Bank of America Merrill Lynch, BOC International Holdings Ltd., Nomura Holdings Inc., Renaissance Capital Ltd., OAO Sberbank and VTB Capital SA in arranging the sale.

--John Duce and Paul Gordon in Hong Kong, Xiao Yu in Beijing, and Maria Kolesnikova in Moscow. Editors: Tan Hwee Ann, Jacob Lloyd-Smith.

To contact the Bloomberg News Staff of this story: Xiao Yu in Beijing at yxiao@bloomberg.net. John Duce in Hong Kong at Jduce1@bloomberg.net.

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Sugar Falls for a Second Day in London on Supply Speculation

By M. Shankar

Jan. 27 (Bloomberg) -- White sugar dropped for a second day in London to a one-week low on speculation that Brazilian and European Union supplies may help ease a production deficit.

Output in Brazil’s Center South, the world’s largest sugar- producing region, rose 34 percent to 68,800 metric tons in the first half of January from a year earlier, industry association Unica said yesterday. The European Commission said today it plans to permit exports of an additional 500,000 tons of sugar above the EU’s quota to check rising prices.

“The price situation on the EU and world market as well as production costs for beet and sugar in the EU are such that out- of-quota sugar can be exported without violating WTO subsidy commitments,” Agriculture Commissioner Mariann Fischer Boel said in the statement.

White, or refined, sugar for March delivery fell as much as $6.30, or 0.8 percent, to $738 a ton, the lowest price since Jan. 19, on the Liffe exchange. The contract was at $738.60 at 11:15 a.m. local time. Raw sugar for March delivery slid 0.4 percent to 29.18 cents a pound on ICE Futures U.S. in New York. Prices doubled last year in both markets.

The EU had set a sugar-export quota of 1.35 million tons for 2009-10 to comply with a World Trade Organization ruling from 2005. Global demand for sugar will outpace supply by 13.5 million tons this season, according to Czarnikow Group Ltd., a broker of the sweetener.

Among other agricultural commodities traded on Liffe, cocoa for March delivery fell 9 pounds, or 0.4 percent, to 2,300 pounds ($3,730) a ton. The retreat was the third in a row. Robusta coffee for March delivery climbed $19, or 1.4 percent, to $1,366 a ton.

To contact the reporter on this story: M. Shankar in London at mshankar@bloomberg.net.

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Palm Oil Forecast Raised by RBS on El Nino, Crude

By Claire Leow

Jan. 27 (Bloomberg) -- Palm oil may average $850 a metric ton this year, more than previously forecast, as El Nino pares production and higher crude oil prices lift demand for biofuels, said Nirgunan Tiruchelvam, an analyst at Royal Bank of Scotland Asia Securities (Singapore) Pte. in a report today.

Tiruchelvam raised his forecasts to $950 a ton for 2011, and to $950 a ton for 2012. Palm oil in Rotterdam, which averaged $681 last year, closed at $760.50 a ton yesterday.

“We expect El Niño and tree stress to depress productivity,” he said in the report. “Higher crude prices should vastly improve the viability of crude palm oil-based bio- diesel.”

Central Pacific Ocean temperatures are “well above El Niño thresholds” and some areas “generally remain above values observed at the peak of the 2006 El Niño event,” the Australian Bureau of Meteorology said on its Web site on Jan. 20. El Niño causes dry weather in Southeast Asia, hurting crops.

Between the weather phenomenon and higher demand for alternatives to fossil fuels, palm oil inventory could be depleted because of “significant under-investment in agriculture, combined with demand growth,” Tiruchelvam said.

Palm oil stockpiles in Malaysia, the second-biggest producer, last month reached 2.24 million tons, the second- highest level on record.

Recommended Stocks

Tiruchelvam recommended Indofood Agri Resources Ltd. and Golden Agri-Resources, both companies with plantations in Indonesia and shares listed in Singapore, as his top picks.

“We see potential for the sector to be re-appraised as a green energy play,” he said.

Indofood Agri shares may reach S$3.41 in 12 months, from a closing price of $1.98 yesterday, while Golden Agri may reach 71 Singapore cents, from a close of 50.5 cents yesterday, he said.

Among Malaysian planters, he recommended IOI Corp., Kuala Lumpur Kepong Bhd., and Sime Darby Bhd. He also advised investors to buy Indonesia-listed planters PT Perusahaan Perkebunan London Sumatra Indonesia and PT Astra Agro Lestari.

His price forecasts are based on crude oil at $75 a barrel this year, exceeding $80 a barrel next year and rising above $90 a barrel in 2012 amid a global economic recovery.

Crude oil in New York averaged $62.10 last year and traded unchanged at $74.71 a barrel at 11:46 a.m. Singapore time. Biofuels are produced by mixing ethanol from sugar -- or oils from corn, soybeans or palm fruit -- with fossil fuels.

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

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S&P 500 Is on ‘Precipice,’ May Extend Drop: Technical Analysis

By Adam Haigh

Jan. 27 (Bloomberg) -- The Standard & Poor’s 500 Index may extend its decline from the peak of the rally to 9.6 percent if a key support level is breached, according to the head of technical analysis at Mint Equities Ltd.

The S&P 500 closed at 1,092.17 yesterday, 5 percent below the 15-month high of 1,150.23 on Jan. 19. If the benchmark gauge for U.S. equities breaches the level at 1,087 to 1,091, the next support is at 1,040, 4.8 percent below yesterday’s close, according to Mint’s Geoff Wilkinson.

“We now stand on the edge of a proverbial precipice,” Wilkinson, who is based in London, wrote in a note to clients today. Investors who are betting that the market will rally might get “stranded by the sheer pace of the recent declines and, with the lack of any ‘get out of jail free’ subsequent recovery, start to reach for the ‘panic’ button.”

Technical analysts use price and volume history to predict levels of possible support against further declines or resistance to gains. The S&P 500 posted its biggest three-day slump in 10 months last week, erasing its gains for the year, amid concern China’s curbs on lending will slow the global economy’s rebound from its first recession since World War II.

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

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Brazilian Stocks Fluctuate on Inflation Concern; Real Slips

By Alexander Ragir

Jan. 27 (Bloomberg) -- Brazilian stocks fluctuated from gains to losses as heightened concern accelerating inflation will prompt central banks to increase interest rates overshadowed a gain in steelmakers.

Usinas Siderurgicas de Minas Gerais SA, Brazil’s second- biggest steelmaker, jumped after Itau Unibanco Holding SA upgraded the stock on prospects of a 30 percent rise in domestic sales this year. BM&FBovespa SA, the owner of Latin America’s biggest bourse, sank after Goldman Sachs Group Inc. stripped the stock of its “buy” rating, citing prices relative to earnings prospects.

The Bovespa stock index fell 0.1 percent to 65,429.46 at 8:40 a.m. New York time. Thirty-nine stocks rose on the index while 21 fell. The BM&FBovespa Small Cap index added 0.3 percent to 1,144.75. The real lost 0.7 percent to 1.8474 per dollar on concern slower global growth will cut demand for commodities and slow foreign-currency inflows.

Investors around the world are concerned that economic growth will falter as the Federal Reserve and European Central Bank curb stimulus measures and economists predict central banks in China, India, Brazil and Australia will push up borrowing costs.

Brazil’s central bank will probably hold the overnight rate at 8.75 percent for a fourth straight meeting today, according to all 41 economists surveyed by Bloomberg. The bank’s statement accompanying the decision may indicate policy makers’ willingness to raise rates in April to keep inflation in line with their 4.5 percent target, said Benito Berber, senior analyst for Latin America at RBS Securities Inc.

To contact the reporter on this story: Alexander Ragir at aragir@bloomberg.net

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AGF Management, CN Railway, Sherritt: Canada Equity Preview

By Matt Walcoff

Jan. 27 (Bloomberg) -- Shares of the following companies may have unusual moves in Canadian trading. Stock symbols are in parentheses.

The Standard & Poor’s/TSX Composite Index rose for a second day, gaining 6.68 points, or 0.1 percent, to 11,361.19.

AGF Management Ltd. (AGF/B CT): The mutual-fund manager said it earned 40 cents a share in the fourth quarter, excluding certain items, surpassing the average estimate in an analyst survey by 32 percent. The company also increased its quarterly dividend 4 percent to 26 Canadian cents a share, effective in March.

Canadian National Railway Co. (CNR CT): Canada’s largest railroad said it earned 90 Canadian cents a share in the fourth quarter, missing the average analyst estimate by 1 cent a share, or 1.2 percent. The company also said it will increase its quarterly dividend 6.9 percent to 27 Canadian cents a share effective in March and buy back as much as 3.2 percent of its outstanding shares this year.

Enablence Technologies Inc. (ENA CV): The supplier of fiber-optic equipment said it will sell as many as 62.5 million shares, not including over-allotment shares, at 40 Canadian cents a share. The company had 254.7 million shares outstanding as of Dec. 31. Shares fell 4.7 percent to 41 cents.

Metro Inc. (MRU/A CT): The grocery-store chain had its rating raised to “buy” from “neutral” by analyst Chris Li of Bank of America Corp. Li told clients Metro’s first-quarter earnings have “given us more confidence in the company’s ability to improve its margins over the longer term.” Metro’s profit, excluding certain items, topped analyst estimates by 6.6 percent, according to Bloomberg data.

Sherritt International Corp. (S CT): The diversified mining company had its rating increased to “outperform” from “sector perform” by analyst Ian Howat of National Bank of Canada, who cited the likelihood of higher coal prices and demand growth in Asia.

Whiterock Real Estate Investment Trust (WRK-U CT): The owner of commercial properties in Canada said it will sell at least 3 million units at C$14.95 a unit in part to help fund the C$214 million ($201.4 million) purchase of a minority interest in seven Toronto-area office buildings. Whiterock units rose 0.3 percent to C$15.60 before being halted.

To contact the reporter on this story: Matt Walcoff in Toronto at mwalcoff1@bloomberg.net.

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Berkshire, BlackRock, DeVry, Gilead, Yahoo: U.S. Equity Preview

By Emily Schmitt

Jan. 27 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses. Prices are as of 7:45 a.m. in New York.

Altera Corp. (ALTR US): The maker of programmable semiconductors reported fourth-quarter profit excluding some items of 34 cents a share. The average estimate of analysts surveyed by Bloomberg was 29 cents.

Amazon.com Inc. (AMZN US) rose 1.7 percent to $121.51. The world’s biggest online retailer was raised to “buy” from “hold” at Kaufman Brothers LP.

BlackRock Inc. (BLK US): The world’s biggest money manager reported fourth-quarter profit excluding some items of $2.39 a share, beating the average analyst estimate by 15 percent, as last month’s purchase of Barclays Global Investors lifted fee revenue and investors poured $82 billion into funds.

Berkshire Hathaway Inc. (BRK/B US) gained 7.4 percent to $73.01. Billionaire Warren Buffett’s insurance and investment company was picked to join the Standard & Poor’s 500 Index, the benchmark for U.S. stocks that investors with about $1 trillion in assets mimic.

DeVry Inc. (DV US): The for-profit college reported second- quarter profit excluding some items of $1 a share, beating the average analyst estimate by 21 percent.

Gilead Sciences Inc. (GILD US) rose 5.9 percent to $47.50. The drugmaker reported fourth-quarter profit of 93 cents a share, beating the average analyst estimate by 10 percent, on demand for AIDS drugs and surging royalties from the anti-flu treatment Tamiflu.

Nvidia Corp. (NVDA US): The maker of graphics chips that help run video games said it won’t negotiate with Rambus Inc. (RMBS US) after losing a U.S. trade agency decision that it violated three Rambus-owned patents.

Pactiv Corp. (PTV US): The maker of Hefty garbage bags forecast first-quarter adjusted profit of 42 cents a share at most. The average analyst estimate in a Bloomberg survey is for earnings of 51 cents a share.

RF Micro Devices Inc. (RFMD US): The U.S. maker of chips and radio systems for mobile phones reported third-quarter profit excluding some items of 14 cents a share, beating the average analyst estimate by 16 percent.

Yahoo! Inc. (YHOO US) added 3.2 percent to $16.50. The owner of the second most-used Internet search engine in the U.S. reported fourth-quarter sales that topped analysts’ estimates as the online advertising market showed signs of recovery.

To contact the reporter on this story: Emily Schmitt in New York at eschmitt1@bloomberg.net.

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World Stock Index Declines for Sixth Day as Yen, Bonds Rally

By Stuart Wallace

Jan. 27 (Bloomberg) -- The MSCI World Index of stocks fell for a sixth day, its longest losing streak in almost a year, on concern the global economic recovery will falter. The yen and bonds rose while industrial metals dropped.

The MSCI Index retreated 0.2 percent at noon in London, bringing its six-day slide to 5.2 percent. Futures on the Standard & Poor’s 500 Index rose 0.2 percent. The yen strengthened against 11 of its 16 biggest counterparts and copper declined for a second day. Greek bonds tumbled, driving the 10-year note yield up 18 basis points to 6.42 percent.

Investors are concerned that economic growth will falter as the Federal Reserve and the European Central Bank curb stimulus measures and economists predict central banks in China, India, Brazil and Australia will push up borrowing costs. Earnings setbacks also hurt stocks. Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest lender, and SAP AG, the biggest maker of business-management software, missed analysts’ estimates.

“People came into this year with too optimistic a view and now they are being punished for that,” said Charles Morris, who runs HSBC Investment Management’s Absolute Return Fund in London with about $2.5 billion in assets. “It’s perfectly healthy to have this correction.”

Europe’s Dow Jones Stoxx 600 Index fell 0.3 percent as financial shares retreated. Banco Bilbao sank 5.3 percent in Madrid. Man Group Plc, the largest publicly traded hedge fund company, plunged 3.2 percent in London after the value of its biggest program-driven fund dropped the most in seven weeks.

Emerging Markets

Asian stocks declined for an eighth day, the longest losing streak since May 2005 as the MSCI Asia Pacific Index slid 1.1 percent. The MSCI Emerging Markets Index fell 0.5 percent, taking its six-day retreat to 7.8 percent in the longest slump in a year. The Shanghai Composite Index sank 1.1 percent as banks dropped on lending curbs and investors speculated policy makers may soon raise rates.

Westpac Banking Corp. declined 2.4 percent in Sydney as investors increased bets the central bank will raise interest rates as early as next week. Toyota Motor Corp. fell 4.3 percent in Tokyo on plans to halt U.S. sales of eight models involved in a recall.

U.S. futures advanced after the S&P 500 fell 0.4 percent yesterday. A record nine-quarter earnings slump for S&P 500 companies is projected to have ended in the fourth quarter with a 73 percent increase in profits. More than 130 companies are scheduled to release results this week, including Abbott Laboratories, Boeing Co. and Caterpillar Inc. today.

Fed Decision

The Federal Open Market Committee, gathering while Chairman Ben S. Bernanke awaits a Senate vote on whether to confirm him for a second term, is forecast to keep the benchmark for short- term interest rates in the zero to 0.25 percent range, where it’s been since December 2008. The Fed may take a chance the housing market can stage a comeback without its support by announcing today it will stick to the plan to end a $1.25 trillion program of mortgage-debt purchases in March. The statement is scheduled for release at 2:15 p.m. New York time.

The Bombay Stock Exchange Sensitive Index lost 2.9 percent before a central bank meeting this week that economists predict will result in higher reserve requirements for banks. Brazil’s central bank will probably signal its readiness to raise borrowing costs after leaving its benchmark interest rate at a record low, economists said before today’s policy meeting.

Rand, Yen

Most developing-nation currencies weakened against the dollar, led by a 1 percent slide in South Africa’s rand as a split vote by the central bank’s Monetary Policy Committee to leave the benchmark interest rate unchanged spurred expectations of a rate cut.

The yen advanced as investors scaled back purchases of higher-yielding currencies. It climbed 0.1 percent against the dollar.

Greek bonds declined after the Finance Ministry in Athens denied a Financial Times report that it plans to sell 25 billion euros ($35 billion) of debt to China as the government struggles to cut the largest budget deficit in the European Union. The extra premium investors demand to hold Greek 10-year bonds instead of benchmark German securities of similar maturity widened 16 basis points to 320 basis points.

The cost of protecting against losses on European corporate bonds using credit-default swaps rose, with the high-yield Markit iTraxx Crossover Index climbing 9 basis points to 448, near the highest level in five weeks, according to JPMorgan Chase & Co.

Deficit Concern

Traders are buying protection against defaults on sovereign debt at more than five times the pace of company bonds, as governments fund ballooning deficits. The net amount of credit- default swaps outstanding on 54 governments from Japan to Italy jumped 14.2 percent since Oct. 9, compared with 2.6 percent for all other contracts, according to Depository Trust & Clearing Corp. data. European countries led the increase, with the amount of protection on Portugal rising 23 percent, Spain 16 percent and Greece 5 percent.

U.K. natural gas for February delivery rose 5.3 percent to its highest price in more than 11 months as forecasts for colder weather boosted demand. Crude oil for March delivery in New York rose 16 cents to $74.87 a barrel. Copper for delivery in three months fell 1.5 percent to $7,270 a metric ton on the London Metal Exchange, leading a retreat in metals. China accounts for more than a quarter of global copper demand.

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

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