U.K. Consumer Confidence Increased in January, Nationwide Says

By Jennifer Ryan and Svenja O’Donnell

Feb. 3 (Bloomberg) -- U.K. consumer confidence rose in January as the economy emerged from its worst recession on record, Nationwide Building Society said.

The index of sentiment increased 3 points from the previous month to 73, the customer-owned lender said in an e-mailed statement today. The result is almost double the level of 39 measured in the same month last year.

Britain returned to economic growth in the fourth quarter as house prices increased and unemployment began to decline, establishing a recovery in time for the election due by June this year. The Bank of England tomorrow will probably pause emergency bond purchases after spending 200 billion pounds ($320 billion) so far as it gauges the strength of the pickup.

“Positive signs from the manufacturing sector and labor market may have helped boost confidence during January,” Martin Gahbauer, chief economist at Nationwide, said in the statement. “Confidence is likely to remain fragile for some months.”

The measure of consumers’ assessment of their present situation rose 3 points to 23, and an index of future expectations climbed 5 points to 107, Nationwide said.

Tesco Plc, Britain’s largest retailer, reported the strongest sales growth in three years on Jan. 12. Finance Director Laurie McIlwee said an increase in non-food sales and “upmarket” ranges are “good signs of increasing confidence.”

Spending Confidence

Gains in sentiment measures outweighed a decline in the gauge of spending confidence, which Nationwide attributed to the expiry of stimulus measures including a cut in value-added tax.

“The removal of these initiatives may now be causing consumers to reconsider parting with their cash at a time of year when we would normally expect to see high levels of spending confidence,” Gahbauer said.

With the economy shaking off the recession and expanding by 0.1 percent in the fourth quarter, Prime Minister Gordon Brown has gained support in opinion polls. The Conservatives’ lead over his ruling Labour Party narrowed to 7 percentage points in a ComRes Ltd. survey in the Independent newspaper yesterday.

The U.K. economy will still grow less than originally forecast this year, the National Institute of Economic and Social Research said in a separate report today. It forecast expansion of 1.1 percent, compared with the 1.3 percent rate predicted in October. The institute’s clients include the Bank of England and the Treasury.

Niesr forecast that unemployment will continue to increase, reaching a peak of 2.9 million in 2011. A separate report today by KPMG and the Recruitment and Employment Federation showed that a measure of hiring for permanent jobs grew at a slower pace in January from the previous month, falling to 60.5 from 62.8. A reading above 50 indicates an increase in hiring.

Aside from unemployment, consumers are also battling headwinds such as accelerating inflation. Prices of goods in U.K. shops advanced 2.3 percent in January from a year earlier after a 2.2 percent gain the previous month, the British Retail Consortium said in a separate report today. Food prices rose an annual 2.9 percent while non-food prices gained 1.9 percent.

To contact the reporters on this story: Jennifer Ryan in London at Jryan13@bloomberg.net; Svenja O’Donnell in London at sodonnell@bloomberg.net.

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BOE Rate Policy May Err Under Conservatives’ Plan, Gieve Says

By Jennifer Ryan

Feb. 3 (Bloomberg) -- Former Bank of England Deputy Governor John Gieve said the Conservative Party’s proposal to put the central bank in charge of financial regulation risks skewing its conduct of monetary policy.

“If, as I think is probable, the Conservatives win the election and they do make this change they need to give a lot of attention on how to mitigate these risks in putting everything into the BOE,” Gieve said in a speech late yesterday at Keele University in England. “You face a risk that your monetary policy becomes too attuned to the interests and concerns of the financial sector it’s regulating.”

Conservative leader David Cameron has pledged to shift supervision powers from the Financial Services Authority to the central bank if he beats Prime Minister Gordon Brown and wins the election which is due by June. That would concentrate oversight of the finance industry at the bank as it also keeps independence in monetary policy granted by Brown in 1997.

The point of keeping monetary policy and banking regulation separate was to ensure interest rates are “suitable for the whole economy,” said Gieve, a former senior Treasury official.

Gieve, who was the central bank’s top financial stability official until 2009, also acknowledged the dangers in the current system that kept apart competencies between the Treasury, the central bank and the FSA.

‘Through the Gaps’

“The risk is that if you go the other way and split these functions everyone attends to their own bit of the picture,” he said. In Britain, before the crisis struck in 2007, “things fell through the gaps. That’s been repaired in the last two years, but that’s a risk and if you stick with that system you’ll need to work very hard to mitigate that risk.”

His remarks came the same day that George Osborne, who speaks for the Conservatives on financial matters, pledged to give the central bank a greater role in government accounts by giving Governor Mervyn King an advisory role on fiscal policy.

Opinion polls published in the past few days put the Conservative lead at between 7 and 9 points, compared with levels as high as 17 points in December. The party needs a margin of 10 points to win a majority in the House of Commons, according to Anthony Wells, a pollster at YouGov Plc.

To contact the reporters on this story: Jennifer Ryan in London at Jryan13@bloomberg.net

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EU to Back Greek Deficit Plan; Wage Freeze Is Pledged

By Maria Petrakis and Meera Louis

Feb. 3 (Bloomberg) -- The European Commission today will ask finance ministers to endorse Greek measures to reduce the European Union’s biggest budget deficit as Prime Minister George Papandreou promised more action, including a freeze on state workers’ pay.

“Greece is in the center of a speculative game aimed at the euro,” Papandreou said in a televised speech in Athens late yesterday. “It is our national duty to stop the attempts to push our country to the edge of the cliff.”

Papandreou pledged to raise fuel taxes in a move that will boost income immediately, and said an overhaul of the tax system, which will increase 2011 revenue, would be targeted at the wealthier to protect poorer Greeks. He said it is time for Greece, like other EU countries, to take “brave decisions” and raise the retirement age.

Greek bonds gained after the announcement with the premium investors demand to buy 10-year bonds over comparable German debt falling 14 basis points to 340 basis points. That’s down from an 11-year high of 396 basis points on Jan. 28.

No state worker will receive a wage increase this year, Papandreou said, reversing a pledge he made before his Oct. 4 election victory to give civil servants earning less than 2,000 euros a month a pay rise. Greek unions last night called on workers to join a strike already planned for Feb. 10 to protest the government’s cuts.

Spending Cuts

The commission, the Brussels-based EU executive, has warned that Greece may need to take further steps to shore up the budget even as it prepares to support the government’s program to rein in its deficit. The three-year plan Papandreou outlined last month includes measures to cut spending and raise revenue by 10 billion euros ($14 billion) this year.

The planned correction of the deficit by 2012 “is feasible but subject to risks,” commission President Jose Barroso said yesterday. The commission will recommend in a report today that European finance ministers endorse the Greek program at a meeting in Brussels later this month.

Skepticism about Papandreou’s plan drove the premium that investors demand to hold Greek 10-year bonds last week to the highest since the year before the euro’s debut in 1999. Concern that Greece and other European nations may struggle to contain their deficits has pushed the euro down more than 7 percent since late November.

Urging Support

The EU should do more to reassure markets that Greece’s European partners will come to its aid if its finances worsen, Nobel-prize winning economist Joseph E. Stiglitz said in an interview in Athens.

“If it made that announcement, then the speculators would know there’s no more hope and they would just go away,” Stiglitz said yesterday. “It would cost nobody.”

Papandreou yesterday urged Greeks to support the new measures and said the country couldn’t afford strikes and blockades that may derail the attempt to get the economy back on track. He sought backing in a series of meetings with political party leaders yesterday.

Adedy, the federation of Greek state worker unions, had already called a strike for Feb. 10 to protest the government’s initial plans to cut bonuses and put a partial freeze on wages. Last night, the organization said Papandreou’s measures “confirmed our expectations” and urged workers to join the strike.

Spain, Portugal

Greece, which had the EU’s widest deficit at 12.7 percent of gross domestic product last year, has struggled to convince investors it can bring the shortfall within the bloc’s limit of 3 percent and prompted investor scrutiny of other EU nations with swelling budget gaps. Spanish and Portuguese debt also fell as Greece’s finance minister said those nations face similar challenges in paring their deficits.

The EU will institute “a completely new mechanism to monitor” Greece’s budget cuts, European Economic and Monetary Affairs Commissioner Joaquin Almunia said in a Feb. 1 interview in Brussels. The government will have to submit a progress report by March 16, with a second report due on May 15, followed by quarterly updates.

“The commission will be in charge of monitoring the implementation of the program through a very intense surveillance,” Barroso said yesterday. “The successful correction of its very excessive deficit is not only important for Greece, but for the euro area and the EU as a whole.”

Greek Bailout

Economist Nouriel Roubini said in an interview today that the EU or the International Monetary Fund will probably offer financial aid to Greece to help the country avoid default.

“I expect there is going to be eventually some financial support,” Roubini told Bloomberg Television in Moscow. That support will come “either directly from the European Union or the ECB or, as I suggest, Greece should be going to the IMF to get an IMF package.”

The EU today also will take a first step toward a court case to force Greece to improve its reporting of deficit figures and other economic statistics. The commission said on Jan. 12 that “severe irregularities” in the nation’s statistical data leave the accuracy of the deficit in doubt.

Soon after winning elections in October, Papandreou’s government raised the 2009 deficit estimate to more than 12 percent from a previous forecast of 3.7 percent. The commission questioned the accuracy of the statistics presented by both the new government and the previous administration and said political interference remained an issue.

To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Meera Louis in Brussels at mlouis1@bloomberg.net.

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Roubini Expects European Union, IMF to Save Greece From Default

By Ryan Chilcote and Anastasia Ustinova

Feb. 3 (Bloomberg) -- The European Union or the International Monetary Fund will probably offer financial aid to Greece to help the country avoid default, economist Nouriel Roubini said.

“I expect there is going to be eventually some financial support,” Roubini said in a Bloomberg Television interview in Moscow today. That support will come “either directly from the European Union or the ECB or, as I suggest, Greece should be going to IMF to get an IMF package,” he said.

Greek Prime Minister George Papandreou yesterday pledged to freeze state wages as part of a three-year plan to reduce the EU’s biggest budget shortfall. Greece, which had a deficit last year of 12.7 percent of output, has struggled to convince investors that it can bring that ratio to within the EU’S 3 percent limit.

Skepticism about Papandreou’s plan drove the premium that investors demand to hold Greek 10-year bonds instead of benchmark German bunds to almost 400 basis points last week, the highest since the year before the euro’s debut in 1999.

Greece should adopt a “credible fiscal plan heavy on spending cuts that government can control,” rather than tax hikes and loophole closures that depend on “historically weak compliance,” Roubini and Arnab Das, of Roubini Global Economics, wrote in the Financial Times today.

“Failure to take the tough decisions necessary would draw attention to an uncomfortable historical truth: that no currency union has survived without a fiscal and political union,” Roubini and Arnab said.

To contact the reporter on this story: Ryan Chilcote in London at rchilcote@bloomberg.net

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Gilts Decline, Pound Gains After Consumer Confidence Improves

By Lukanyo Mnyanda

Feb. 3 (Bloomberg) -- U.K. gilts declined and the pound rose after a report showed consumer confidence improved last month, boosting speculation that the economic recovery is gathering pace.

Two-year gilts snapped a three-day gain after Nationwide Building Society said its index of sentiment climbed 3 points from the previous month to 73, almost double the level measured in the same month last year. The Bank of England will probably keep interest rates unchanged tomorrow and pause its bond-buying program after spending 200 billion pounds ($321 billion), according to Bloomberg surveys of economists.

“If consumer spending continues to improve, the balance may well shift to a more positive outlook and that may lead to higher yields,” said Elwin de Groot, a senior economist at Rabobank Groep in Utrecht, the Netherlands. “The problem is that there’s still too much uncertainty.”

The yield on the 10-year gilt increased 2 basis points to 3.93 percent as of 8:47 a.m. in London. The 4.5 percent security due March 2019 lost 0.16, or 1.6 pounds per 1,000-pound face amount, to 104.29. The two-year yield also advanced by 2 basis points, to 1.24 percent.

The Treasury is scheduled to auction 3 billion pounds of bonds maturing in 2018 today, part of a record 225.1 billion pounds of sales planned for the fiscal year through March.

The pound appreciated 0.5 percent to $1.6051 and strengthened 0.2 percent at 87.21 pence per euro.

Gilts returned 0.8 percent this year through yesterday, compared with 1.5 percent gains for German government bonds and U.S. Treasuries, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit.

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

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Dollar Drops Against Euro on Recovery Signs; Pound Advances

By Yasuhiko Seki and Ron Harui

Feb. 3 (Bloomberg) -- The dollar declined as stocks rose amid signs that the economic recovery is taking hold, fanning demand for higher-yielding currencies such as the South Korean won and the South African rand.

The Dollar Index, which tracks the U.S. currency against those of six major trading partners, dropped for a third day before a report that may show U.S. service industries expanded at the fastest pace in more than a year. The pound rose versus the euro and the dollar after data showed U.K. consumer confidence jumped. The euro extended two days of gains against the dollar as European Commission President Jose Barroso said the body will back Greece’s plans to cut its budget deficit.

“With stocks gathering some momentum, risk aversion is abating,” said Hiroshi Maeba, deputy general manager of foreign-exchange trading in Tokyo at Nomura Securities Co., Japan’s biggest securities broker. “Buyers are returning to the higher-yielding currencies.”

The dollar weakened to $1.3978 per euro at 8:11 a.m. in London, from $1.3964 in New York yesterday. It was little changed at 90.39 yen. The pound jumped to $1.6036, from $1.5973 yesterday.

The MSCI World Index of equities rose for a third day, its longest winning streak in almost a month. Standard & Poor’s 500 Index futures advanced 0.1 percent.

Pound Gains

The Institute for Supply Management’s index of non- manufacturing companies, which make up almost 90 percent of the U.S. economy, rose to 51 from 49.8 in December, according the median estimate of 75 economists surveyed by Bloomberg News. Readings above 50 signal growth. A separate report may show companies last month cut the fewest jobs in two years.

The pound advanced against 14 of its 16 major peers after Nationwide Building Society said an index of consumer sentiment increased 3 points in January to 73, giving the Bank of England more reason to scale back measures to stimulate growth following a two-day policy meeting that ends tomorrow.

“Speculation that some Bank of England policy makers will express a hawkish view on the economy and monetary policy is supporting the pound,” said Toshiya Yamauchi, manager of foreign-exchange margin trading at Ueda Harlow in Tokyo.

Britain returned to growth in the fourth quarter as house prices increased and unemployment began to decline, establishing a recovery in time for the election due by June. The Bank of England completed its 200 billion-pound ($325 billion) asset- purchase program on Jan. 26.

Winning Won

The South Korean won was the best-performer of the world’s major currencies today, gaining versus all 16 of its most-traded peers tracked by Bloomberg. It rose 0.9 percent versus the dollar and 0.8 percent compared with the euro.

“Global stock markets are gaining strength and it’s the same in Korea,” said Ko Yun Jin, a currency dealer at Kookmin Bank in Seoul. “Foreigners are buying stocks. Around the 1,160 level, there were a lot of exporters selling so it was hard for the Korean won to weaken.”

The upturn in stocks worldwide may not be sustainable, according to Mohamed A. El-Erian, the chief executive officer of Pacific Investment Management Co., which runs the world’s biggest mutual fund.

Investors have wrongly priced in an “orderly” withdrawal of stimulus measures, a rebound in bank lending and coordinated government policy to restore growth, El-Erian wrote in a Bloomberg News column. That means Wall Street projections for gains in 2010 may be incorrect and prices will slump, he said.

“Investors may well find that January’s global equity sell-off was just a precursor to a disappointing year for several asset classes,” El-Erian, 51, wrote.

Greece Buoys Euro

The Standard & Poor’s 500 Index fell 3.7 percent in January, more than any month since February 2009, after China set higher reserves for lenders and U.S. President Barack Obama proposed curbs on risk taking at banks.

The euro rose for a third day versus the dollar today after Barroso said the European Commission will recommend in a report today that the region’s finance ministers endorse the Greek deficit-cutting program at a meeting in Brussels this month. Greek Prime Minister George Papandreou yesterday pledged more action to tackle the deficit, including a freeze on state workers’ pay.

Greece needs its measures to be backed by the International Monetary Fund, Nouriel Roubini and Arnab Das of Roubini Global Economics wrote in the Financial Times. A “credible austerity plan” for Greece should ideally be backed by a large IMF program to prevent a run on public debt and banks during the tough times ahead, they said.

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

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Asia Currencies Rise, Led by Won, as Recovery Spurs Risk-Taking

By Lilian Karunungan and Patricia Lui

Feb. 3 (Bloomberg) -- Asian currencies rose, led by South Korea’s won and the Philippine peso, as gains in U.S. home sales and Brazil’s factory output stoked optimism a global economic recovery will boost appetite for emerging-market assets.

The won climbed for a second day as foreign investors bought more Korean stocks than they sold and the MSCI Asia- Pacific Index of shares advanced. Sales of previously owned U.S. homes increased 1 percent in December after sliding 16 percent in November, the National Association of Realtors said yesterday. Brazil’s output jumped a greater-than-expected 18.9 percent in December from a year earlier, government data showed.

“The tone in Asian currencies is a bit more supportive today as the recent macro data flow out of the U.S. has been more positive,” said Prakriti Sofat, a regional economist at Barclays Plc in Singapore. “We are seeing a bit of a breather after the recent sell-off.”

The won strengthened 0.9 percent to 1,149.25 per dollar as of the 3 p.m. close in Seoul, according to data compiled by Bloomberg. It reached this year’s low of 1,174.90 two days ago. The peso climbed 0.8 percent to 46.025 and the Indonesian rupiah advanced 0.6 percent to 9,300.

The MSCI Asia-Pacific Index of equities rose 1.2 percent after the Standard & Poor’s 500 Index yesterday capped its biggest two-day rally since October with a 1.3 percent advance. South Korea’s benchmark Kospi index of stocks gained 1.2 percent, paring this year’s loss to 4 percent.

Exporters Selling

“Global stock markets are gaining strength and it’s the same in Korea,” said Ko Yun Jin, a currency dealer at Kookmin Bank in Seoul. “Foreigners are buying stocks. Around the 1,160 level, there were a lot of exporters selling, so it was hard for the Korean won to weaken.”

Korean exports increased 47 percent from a year earlier in January, the biggest gain in more than 20 years, according to government data released this week. The government forecast a trade surplus for this month of about $2 billion, after imports last month exceeded overseas sales for the first time in a year.

Malaysia’s ringgit had its first gain in three days, boosted by speculation the central bank will raise interest rates as economic recoveries gather pace at home and abroad. The currency strengthened 0.3 percent to 3.4070 per dollar in Kuala Lumpur.

A trade ministry report on Feb. 5 will show Malaysia’s exports rose 11.8 percent in December, the most since September 2008, according to the median forecast in a Bloomberg News survey of economists.

“The latest data are bringing back optimism in the market and are supportive of risk-taking,” said Tan Voon Ching, a foreign-exchange trader at OSK Investment Bank Bhd. in Kuala Lumpur. “Recent talk of higher interest rates should also support the ringgit.”

Interest-Rate Outlook

Bank Negara Malaysia on Jan. 26 said borrowing costs cannot remain too low for too long to prevent “financial imbalances.” The central bank will raise its overnight rate by at least 25 basis points from a record-low 2 percent in the second quarter, according to five of 12 economists in a separate Bloomberg poll.

Elsewhere in Asia, the Taiwan dollar advanced 0.2 percent to NT$32 versus the greenback. The Singapore dollar gained 0.1 percent to S$1.4083 and the Thai baht rose 0.2 percent to 33.07. China’s yuan was little changed at 6.8267.

To contact the reporters on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net; Patricia Lui at plui4@bloomberg.net

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Rubber Advances to One-Week High, Pares Gains as Oil Retreats

By Aya Takada

Feb. 3 (Bloomberg) -- Rubber climbed for a third day, advancing to the highest price in a week, before paring gains as crude oil declined.

Futures in Tokyo retreated after touching the highest level since Jan. 26 on signs of recovery in the global economy. Raw materials climbed after reports yesterday showed pending home sales in the U.S. strengthened in December and vehicle sales climbed 6.3 percent in January.

Oil fell after an industry report showed a larger-than- expected increase in crude stockpiles in the U.S., the world’s biggest energy consumer. Synthetic rubber is made from naphtha, distilled from petroleum.

“Rubber took a cue for direction from oil,” Hisaaki Tasaka, an analyst at Tokyo-based commodity broker ACE Koeki Co., said today by phone. “Rubber is still on an upward trend as economic growth is stimulating demand.”

Rubber for July delivery added as much as 1.8 percent to 287.5 yen a kilogram ($3,178 a metric ton) on the Tokyo Commodity Exchange and settled at 284.9 yen, a gain of 0.9 percent.

Crude oil for March delivery dropped as much as 0.6 percent to $76.78 a barrel on the New York Mercantile Exchange and last traded at $77.18. The contract jumped 3.8 percent to $77.23 yesterday, the biggest gain since Sept. 30.

Pending home sales in the U.S. rose 1 percent in December and were 11 percent higher than a year earlier, the National Association of Realtors said in Washington yesterday.

Car and truck sales in January grew to an annual rate of 10.8 million, 13 percent higher than a year earlier, researcher Autodata Corp. said yesterday. That beat the average estimate of 10.5 million among eight analysts surveyed by Bloomberg.

May-delivery rubber on the Shanghai Futures Exchange gained 2.5 percent to settle at 23,525 yuan ($3,446) a ton. Prices fell to 22,250 yuan on Feb. 1, the lowest level since Dec. 16.

To contact the reporter on this story: Aya Takada in Tokyo atakada2@bloomberg.net

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Wheat Advances as Price Slump, Dollar Drop Attracts Importers

By Jae Hur

Feb. 3 (Bloomberg) -- Wheat climbed for a third day on speculation that last month’s slump and the dollar’s decline will increase demand from importers. Soybeans declined.

Wheat for March delivery gained as much as 0.8 percent to $4.9125 a bushel on the Chicago Board of Trade. The grain tumbled 12 percent last month, the biggest monthly drop since June 2009, on slack demand for U.S. supplies amid increasing global inventories. The dollar has lost 0.6 percent against a basket of six major currencies since Jan. 29.

“The U.S. dollar pullback is behind the bounce,” said Toby Hassall, an analyst with CWA Global Markets Pty in Sydney. “In my view the fundamentals remain soft, particularly wheat and soybeans.”

Wheat has rallied 3.7 percent from $4.7150 a bushel on Jan. 29, the lowest level in more than three months, and was at $4.8875 at 3:33 p.m. Tokyo time after trading as low as $4.8575. The price jumped 2.6 percent yesterday, the most since Jan. 4.

Global output in the year that ends May 31 will total 676.1 million metric tons, after a record crop of 682.7 million tons the previous year, the U.S. Department of Agriculture said in a Jan. 12 report. Stockpiles were forecast by the USDA to expand 19 percent to 195.6 million tons.

Japan will hold a tender tomorrow to buy 85,000 tons of milling wheat, including 65,000 tons of U.S. grain. Morocco is seeking to buy 103,000 tons of U.S. wheat in a tender that closes Feb. 16, the country’s grain-buying office said Feb. 2.

Corn Tender

South Korea’s Nonghyup Feed Inc. issued a tender to buy as much as 165,000 tons of corn for arrival between April and July, according to a copy of the company’s tender notice. The company also sought 55,000 tons of feed wheat for July delivery in the tender today.

Soybeans for March delivery slipped 0.2 percent to $9.24 a bushel while corn was little changed at $3.66 a bushel.

Corn and soybeans gained 1.7 percent yesterday, the most since Dec. 28, as equities and crude oil jumped, signaling more demand for fuel and livestock feed made from the crops.

Crude oil was little changed at $77.18 a barrel after gaining 3.8 percent yesterday, the biggest gain since Sept. 30. The Dollar Index was at 78.956 as of 3:40 p.m. Tokyo time, little changed from yesterday, when it fell 0.3 percent.

Asian stocks advanced as much as 1 percent, lifting the MSCI Asia Pacific Index for a second day, after the Standard & Poor’s 500 Index added 1.3 percent yesterday as U.S. pending home sales increased 1 percent in December after a 16 percent drop in November, the National Association of Realtors said. Compared with a year earlier, pending sales climbed 11 percent.

To contact the reporter on this story: Jae Hur in Tokyo at jhur1@bloomberg.net

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Gold Climbs for a Third Day as Declining Dollar Boosts Demand

By Nicholas Larkin and Jae Hur

Feb. 3 (Bloomberg) -- Gold gained for a third day in London as the dollar extended a decline, boosting demand for the metal as an alternative investment.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, fell for a third day before a report that may show U.S. service industries expanded at the fastest pace in more than a year in January. Gold, which climbed to a two-week high, typically moves inversely to the U.S. currency.

“The euro seems to be on the upside, and that’s beneficial for gold,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “Physical demand is exceptionally good,” and prices may climb toward $1,140 an ounce if they surpass $1,125, he said.

Gold for immediate delivery added as much as $10.65, or 1 percent, to $1,125.10 an ounce and traded at $1,121.60 at 10:01 a.m. local time. Bullion for April delivery was up 0.4 percent at $1,122.10 on the New York Mercantile Exchange’s Comex unit.

“Price levels below $1,100 an ounce apparently attract buyers who consider this as a lucrative entry point,” Eugen Weinberg, a senior analyst with Commerzbank AG, wrote in a note to clients.

Gold climbed for a ninth year in 2009, reaching a record $1,226.56 an ounce on Dec. 3 as the dollar slumped on record-low interest rates and a surge in government stimulus spending. Spot prices fell in the prior three weeks as the dollar strengthened and the Dow Jones Stoxx 600 Index of European shares slid the most in 11 months.

Pimco Forecast

The equity-market decline may worsen amid persistent U.S. joblessness and economic growth that trails economists’ forecasts, said Mohamed A. El-Erian, whose firm runs the world’s biggest mutual fund. Investors have wrongly priced in an “orderly” withdrawal of stimulus measures, a rebound in bank lending and coordinated government policy to restore growth, El- Erian, Pacific Investment Management Co.’s chief executive officer, wrote in a Bloomberg News column.

Bullion will average $1,135 an ounce this year, up from a previous forecast of $1,050, UBS AG said in a report yesterday. Newmont Mining Corp., the world’s second-largest gold producer by sales, reaffirmed its forecast for the metal to rise to $1,350 by the end of 2010.

“I feel pretty confident that as things move forward, we will see continued support for the gold price,” CEO Richard T. O’Brien said today at the company’s $2.9 billion Boddington operation, Australia’s biggest gold mine. “No question it will be volatile, but we will see support.”

Silver for immediate delivery gained 1 percent to $16.8775 an ounce in London. Platinum added 0.4 percent to $1,586.50 an ounce and palladium climbed 0.8 percent to $445.77 an ounce.

Platinum and palladium are mainly used in automotive pollution-control devices and jewelry. Vehicle sales in the U.S. rose 6.3 percent in January, Autodata Corp. said yesterday.

To contact the reporters on this story: Jae Hur in Tokyo at jhur1@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net

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U.K. Stocks Advance; Benchmark FTSE 100 Index Gains 0.3 Percent

By Andrew Rummer

Feb. 3 (Bloomberg) -- U.K. stocks rose for a fourth day after a report showed consumer confidence increased and shares of financial and basic-resources companies gained.

The FTSE 100 Index added 0.3 percent to 5,298.92 at 9:18 a.m. in London, having earlier lost as much as 0.3 percent.

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European Stocks Rebound; Stoxx 600 Index Gains 0.3 Percent

By Andrew Rummer

Feb. 3 (Bloomberg) -- European stocks resumed their advance as gains by mining companies and automakers overshadowed worse- than-estimated earnings from Electrolux AB and Roche Holding AG.

The Dow Jones Stoxx 600 Index added 0.3 percent to 251.51 at 9:11 a.m. in London, having earlier fallen as much as 0.1 percent.

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Asian Stocks Gain for Second Day on Esprit Profit, Cnooc Output

By Jonathan Burgos and Shani Raja

Feb. 3 (Bloomberg) -- Asian stocks rose, giving the MSCI Asia Pacific Index its first back-to-back advance in three weeks, as Esprit Holdings Ltd.’s better-than-estimated profit and Cnooc Ltd.’s output targets boosted earnings prospects in the region.

Esprit, the biggest Hong Kong-listed clothier, gained 7.9 percent. Cnooc, China’s No. 1 offshore oil explorer, jumped 9.4 percent in Hong Kong on plans to increase oil and gas production by as much as 28 percent this year. James Hardie Industries NV, the biggest seller of home siding in the U.S., climbed 3.8 percent in Sydney after U.S. pending home sales rose. Itochu Techno-Solutions Corp., which develops computer systems, surged 6.9 percent after reporting a jump in profits.

“We’re getting more and more confirmation that the cyclical recovery is on track,” said Nader Naeimi, a Sydney- based strategist at AMP Capital Investors, which oversees about $90 billion globally. “The fundamentals continue to be supportive. Still, when the market becomes overbought, it also becomes very vulnerable to a change in sentiment.”

The MSCI Asia Pacific Index gained 1.3 percent to 119.13 as of 6 p.m. in Tokyo, taking its advance in the past two days to 2.5 percent. The measure last rose for two consecutive days on Jan. 14-15. The gauge sank 3 percent last month, the most since February last year, on concern central banks from China to India will tighten monetary policy to curb inflation.

Hong Kong’s Hang Seng Index jumped 2.2 percent. The Shanghai Composite Index gained 2.4 percent as investors speculated losses that had made the gauge the world’s worst performer in 2010 were overdone. Japan’s Nikkei 225 Stock Average rose 0.3 percent. Taiwan’s Taiex Index climbed 1.6 percent and the Kospi Index added 1.2 percent in Seoul.

James Hardie, Boral

Futures on the Standard & Poor’s 500 Index added 0.1 percent. The gauge climbed 1.3 percent in New York yesterday as pending home sales in the U.S. rose 1 percent in December after a 16 percent drop in November, the National Association of Realtors announced in Washington. Compared with a year earlier, pending sales climbed 11 percent.

James Hardie jumped 3.8 percent to A$7.96, while Boral Ltd., a building-materials company that gets 11 percent of its sales in the U.S., advanced 4.5 percent to A$5.60. Both stocks were upgraded to “buy” from “neutral” by UBS AG. Canon Inc., a camera maker that earns 28 percent of its revenue in the Americas, rose 1.4 percent to 3,660 yen.

“The U.S. housing report might help investors have a little more confidence in the economy than before,” said Kiyoshi Ishigane, a strategist in Tokyo at Mitsubishi UFJ Asset Management Co., which oversees about $65 billion. “People had expected difficulties in the recovery of the housing market.”

Esprit, Cnooc

Esprit climbed 7.9 percent to HK$57.90 after the company reported net income of HK$2.7 billion ($348 million) for the six months ended December. The amount beat the HK$2.26 billion mean estimate of analysts surveyed by Bloomberg.

Cnooc gained 9.4 percent to HK$12.32 after saying it plans to produce between 275 million and 290 million barrels of oil equivalent as demand for fuel rises in China. Nine new production areas will come on stream this year off the Chinese coast, the company said.

China Oilfield Services Ltd., a unit of Cnooc’s state- controlled parent, climbed 10 percent to HK$10.86.

Idemitsu Kosan Co. surged 9.9 percent to 6,460 yen as a climb in New York oil futures yesterday increased the profitability of the company’s exploration business in the North Sea. Idemitsu and China Oilfield’s advances were the largest in the MSCI Asia Pacific Index today.

Best Performers

Crude oil futures rose 3.8 percent to $77.23 a barrel in New York yesterday as gains in equities signaled the U.S. economy is rebounding and fuel demand will climb. Gold futures added 1.2 percent. The London Metal Exchange Index of six metals including copper and zinc increased 1 percent.

Advances in commodity prices helped drive gauges of material producers and energy companies on the MSCI Asia Pacific Index up by at least 2.4 percent, the most of 10 industry groups. Optimism the global economic recovery will feed commodities demand has made the two industries the MSCI index’s best performers in the past year.

BHP Billiton Ltd., the world’s largest mining company and Australia’s largest oil producer, increased 2.6 percent to A$41.50, while Rio Tinto Group, the world’s third-largest mining company, added 1.4 percent to A$72.

Technology shares, the MSCI Asia Pacific Index’s second- best performing industry group in the past 12 months, accounted for 15 percent of the gauge’s increase today.

Advanced Semiconductor

Itochu Techno-Solutions surged 6.9 percent to 2,975 yen after the company reported a 63 percent climb in net income for the nine months through December. Advanced Semiconductor Engineering Inc., the world’s largest chip packaging and testing company, jumped 6.9 percent to NT$25.70 in Taipei trading after Citigroup Inc. upgraded the stock to “hold” from “sell.”

The MSCI Asia Pacific Index rallied 34 percent in 2009 as growth in the region helped the world economy emerge from the worst slowdown since World War II. The Standard & Poor’s 500 Index in the U.S. advanced 23 percent last year, while the Dow Jones Stoxx 600 Index climbed 28 percent in Europe.

Companies in MSCI’s Asian index trade at 1.55 times book value on average, compared with 2.2 times for the S&P 500 and 1.7 times for the Stoxx 600.

Investors have wrongly priced in an “orderly” withdrawal of stimulus measures, a rebound in bank lending and coordinated government policy to restore growth, Mohamed A. El-Erian, the chief executive officer of Pacific Investment Management Co. wrote in a Bloomberg News column. That means Wall Street projections for gains in 2010 may prove incorrect and prices will slump, he said.

Nissan, Toyota

Alumina Ltd. rose 1.5 percent to A$1.66 as Citigroup recommended investors buy shares of Alcoa Inc., the largest U.S. aluminum maker. Alumina operates the Alcoa World Alumina & Chemical venture with Alcoa.

“The U.S. housing market is rebounding,” said Hiroichi Nishi, an equities manager at Nikko Cordial Securities Inc. in Tokyo. “The economy is definitely recovering. Exporters and commodity related shares will be the focus.”

Nissan Motor Co., which derives more than a third of its revenue from North America, gained 1.2 percent to 755 yen after saying vehicle sales in the U.S. rose 16 percent in January.

Toyota Motor Corp., which last month started the recall of more than 4 million vehicles, lost 5.7 percent to 3,400 yen. The company’s U.S. sales fell 16 percent last month to a 10-year low.

To contact the reporters for this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

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