Australia’s Rate Pause May Be Short-lived Amid Employment Boom

By Jacob Greber

Feb. 12 (Bloomberg) -- The biggest Australian jobs boom in five years may make it harder for central bank Governor Glenn Stevens to extend a pause in recent interest-rate gains.

Investors doubled bets the Reserve Bank of Australia will raise the overnight cash rate target by a quarter percentage point to 4 percent next month after a report yesterday showed employers added 52,700 workers in December, more than three times the 15,000 median estimate of 21 economists surveyed by Bloomberg News.

The fifth straight month of employment increases drove the jobless rate to an 11-month low of 5.3 percent, almost half European Union and U.S. levels, and stoked gains in Australia’s currency. Rising demand from mining companies such as Chevron Corp. for skilled workers threatens to push up wages and adds to signs the $1 trillion economy is robust enough to weather higher borrowing costs.

“The sting in the tail is that the job market is tightening, potentially causing employers to bid up for staff,” said Craig James, a senior economist at Commonwealth Bank of Australia who says the odds of a rate increase next month are about even.

Traders say there is a 46 percent chance of a quarter-point increase on March 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 4:03 p.m. yesterday. Prior to the jobs report, the chance of a move stood at 24 percent.

Stevens will raise the central bank’s key rate to 4 percent next month, according to eight of 17 economists surveyed by Bloomberg News yesterday. All expect an increase in borrowing costs by the end of next quarter.

Stronger Currency

The Australian dollar, which has jumped 36 percent in the last 12 months, rose to 88.85 U.S. cents in Sydney yesterday from 87.72 cents just before the report was released. The S&P/ASX 200 index of stocks rose 0.9 percent to 4,554.30.

Australian employers have added 194,600 jobs since August, the biggest five-month surge since employers created 214,000 jobs between September 2004 and January 2005.

Stevens unexpectedly kept the overnight cash rate target unchanged at 3.75 percent last week, saying information about the impact on the economy of quarter-point gains every month last quarter is still limited.

Yesterday’s report means “it’s now likely that the Reserve Bank will make a further cautious adjustment” next month, said Matthew Johnson, an interest-rate strategist at UBS AG in Sydney. “While the bank need not push too hard in response to this labor-market report, if employment growth sustains this pace, we’ll obviously be wrong about their gradualism,” Johnson said.

Resources Boom

Yesterday’s report reinforces the central bank’s prediction last week that Australia’s economic growth will accelerate this year as resources companies boost investment in mines and gas fields to meet rising global demand for iron ore, coal and energy.

The nation’s unemployment rate has tumbled from 5.8 percent in October, after Prime Minister Kevin Rudd’s government stoked the economy by distributing more than A$20 billion ($18 billion) in cash to consumers. Another A$22 billion is being spent on roads, railways and schools.

In contrast, the unemployment rate in the U.S. was 9.7 percent in January, and 10 percent in November among European Union countries, the highest rate in more than 11 years. New Zealand’s jobless rate climbed to 7.3 percent in the fourth quarter, the highest in more than 10 years, and Japan’s rate was 5.1 percent in December.

Faster Growth

The rebound in Australia’s economy, one of the few to skirt last year’s global recession, is being driven by a combination of the government’s stimulus package, Governor Stevens’ decision to slash interest rates to a half-century low of 3 percent in April last year, a stronger currency and the resilience of China, Treasury Secretary Ken Henry said yesterday in Canberra.

Gross domestic product will climb 3.25 percent in the three months through December 2010 from a year earlier, after gaining an annual 2 percent in the fourth quarter of 2009, the bank said in its quarterly monetary policy statement published last week.

“It now looks likely that the unemployment rate has peaked around 5.75 percent, a much better outcome than thought likely early last year,” when the government forecast the jobless rate would reach 8.5 percent in 2010, the central bank said on Feb. 5.

The number of full-time jobs gained 15,900 in January and part-time employment increased 36,900, yesterday’s report showed.

A shortage of workers may increase costs and cause delays at the nation’s liquefied natural gas projects, Fitch Ratings said on Feb. 8.

Pay Rise

The Maritime Workers Union of Australia has secured a A$50,000 pay increase over three years for workers at Total Marine Services Ltd., the Australian Broadcasting Corp. reported last week.

Marius Kloppers, chief executive officer of BHP Billiton Ltd., the world’s biggest mining company, said this week that the skills shortage in Australia’s resources industry is emerging faster than expected.

Chevron in December announced it signed an $82 billion deal with Japan’s Tokyo Electric Power Co. to supply liquefied natural gas from its Wheatstone field in Western Australia. The project is forecast to generate 6,500 jobs during construction.

It is in addition to the Chevron-led Gorgon gas venture, which is forecast to create another 10,000 jobs when construction starts this year.

Still, not all analysts are convinced that yesterday’s jobs report will prompt Stevens to raise borrowing costs next month.

“Despite the strength of the employment numbers over recent months, there is a soft underbelly” to the labor market, said Stephen Roberts, an economist at Nomura Ltd. in Sydney.

The number of hours worked declined 1 percent in January from December and 1.2 percent from a year earlier, which “will ultimately affect growth in household disposable income,” Roberts said. “The next cash rate hike is likely to be in May.”

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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U.S. Economy to Strengthen, Reducing Unemployment, Survey Says

By Bob Willis and Alex Tanzi

Feb. 11 (Bloomberg) -- U.S. unemployment peaked in October and will retreat through 2011 as the economy strengthens, according to economists surveyed by Bloomberg News.

The world’s largest economy will grow 3 percent this year and next, more than anticipated a month ago, according to the median estimate of 62 economists polled this month. The jobless rate, which reached a 26-year high of 10.1 percent in October, will end the year at 9.5 percent.

Efforts to rebuild inventories, investments in new equipment and software and improving sales overseas will spur employment and household spending. Scant inflation will give Federal Reserve policy makers room to keep the target interest rate near zero through the third quarter, buying the economy enough time to reach a self-sustaining expansion.

“It’s a matter of time before strength in the economy effectively feeds on itself, with more employment leading to stronger spending, which in turn leads to more employment,” said James O’Sullivan, global chief economist at MF Global Ltd. in New York. “The key is going to be the business sector leading the way and consumer spending following.”

Consumer purchases, which account for 70 percent of the economy, will grow 2 percent this year and expand 2.5 percent in 2011. By comparison, spending rose 3.3 percent on average over the two decades through 2007.

“Consumption has been on an uptrend,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. “The main reason for the pickup in recent months has been an improvement in the labor market.”

Less Unemployment

Unemployment fell to 9.7 percent last month from 10 percent in December, according to the Labor Department. Joblessness will average 9.1 percent in 2011.

A growing economy this year may generate 1.4 million jobs, according to the median estimate of economists surveyed this month by Blue Chip Economic Indicators. The U.S. has lost 8.4 million jobs since the recession began in December 2007, the most in the post-World War II period.

President Barack Obama last week announced he will back a temporary increase in Small Business Administration loans to $1 million from $350,000 to encourage hiring after government figures showed an unexpected loss of 20,000 jobs in January,

The administration says the $787 billion stimulus plan passed one year ago this month has funded up to 2 million jobs, yet more needs to be done.

Obama Proposals

“Far too many of our neighbors and friends and family are still out of work,” Obama said after touring a small business in the Washington suburb of Lanham, Maryland, last week.

The lack of jobs means companies will have to carry the economy in coming months by updating equipment, said David Resler, chief economist at Nomura Securities International Inc. in New York.

“Businesses simply haven’t invested enough in new Equipment, and I think there is pent-up demand,” said Resler.

Purchases of equipment and software increased at a 13 percent pace in the fourth quarter, the most since 2006, the government reported Jan. 29.

W.R. Grace & Co., the maker of catalysts and construction materials that is preparing to exit bankruptcy protection, is among companies planning to boost investments as global demand improves.

Sales volumes will rise 3 percent to 7 percent this year as spending on construction projects in Asia, the Middle East and Latin America rises, the Columbia, Maryland-based company said Feb. 2. It plans a 44 percent increase in capital spending to better support the projected sales gains.

Growth Accelerates

The U.S. economy grew at a 5.7 percent annual pace in last year’s fourth quarter, the best performance in six years, the government reported Jan. 29. Efforts to stabilize inventories contributed 3.4 percentage points to growth.

While the amount of the contribution will slow, the need to replenish stockpiles will keep factories growing. Manufacturing expanded in January at the fastest pace since 2004 as orders and production increased, the Institute for Supply Management said this month.

Households are still trying to overcome a record loss of wealth during the recession as home values and stock prices slumped, one reason why spending will be slow to recover.

Rising stocks are helping mend tattered balance sheets. The Standard & Poor’s 500 Index rose 65 percent last year from its 12-year low reached on March 9. The rebound has stalled with the gauge falling 4.2 percent so far this year as China stepped up efforts to curb lending, the Obama administration proposed rules to rein in risk-taking at banks and concern grew over government debt levels in Greece, Spain and Portugal.

Less Inflation

Little inflation on the horizon means the Fed will hold the target rate for overnight loans between banks at its current range of zero to 0.25 percent through the first nine months of the year, according the median estimate of economists surveyed this month, the same as in the prior survey. The rate will rise to 0.75 percentage point by the end of the year.

The central bank’s preferred price gauge, which tracks consumer spending and excludes food and fuel costs, will rise 1.3 percent this year, the smallest gain since 1964, according to the survey median.

To contact the reporters on this story: Bob Willis in Washington bwillis@bloomberg.net; Alex Tanzi in Washington at atanzi@bloomberg.net

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Jobless Claims in U.S. Decrease More Than Anticipated

By Courtney Schlisserman

Feb. 11 (Bloomberg) -- Fewer Americans than anticipated filed claims for unemployment insurance last week as an administrative backlog subsided and indicating companies are nearing the end of major staff cuts as the economy recovers.

Initial jobless applications declined by 43,000 to 440,000 in the week ended Feb. 6, the lowest level in five weeks, from 483,000 the prior week, Labor Department figures showed today in Washington. The total number of people receiving unemployment insurance and those receiving extended benefits decreased.

The fastest pace of growth in six years last quarter means the economy may be poised to add jobs as companies restock shelves to keep pace with increased sales. At the same time, with an unemployment rate projected to average almost 10 percent this year, consumer spending may be slow to recover.

“Things have not really deteriorated,” said Stephen Gallagher, chief U.S. economist at Societe Generale SA in New York. “Unfortunately it doesn’t show much improvement either.”

Stock-index futures extended earlier gains after the report. The contract on the Standard & Poor’s 500 Index climbed 0.4 percent to 1,067.3 at 8:42 a.m. in New York. Treasury securities fell.

Less Than Anticipated

Economists forecast claims would fall to 465,000, from a previously estimated 480,000 for the week ended Jan. 30, according to the median of 47 projections in a Bloomberg News survey. Estimates ranged from 440,000 to 485,000.

The drop in applications represents the end of an ‘administrative backlog’ that built up when government offices were closed during the year-end holidays, a Labor Department spokesman said in a press conference. The current figures signal a return to a more “normal” level of claims, he said.

Continuing claims decreased to 4.54 million in the week ended Jan. 30, the fewest since January 2009. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs.

The number of people who’ve used up their traditional benefits and are now collecting extended payments dropped by about 171,000 to 5.68 million in the week ended Jan. 23.

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.5 percent in the week ended Jan. 30, today’s report showed. Thirty-six states and territories had an increase in claims for that same week, while 17 had a decrease.

Unemployment Declines

The unemployment rate in the U.S. unexpectedly dropped to 9.7 percent in January, while payrolls declined by 20,000, Labor Department figures showed Feb. 6. Manufacturers added to payrolls for the first time in three years and that may provide some spark to revive the rest of the labor market.

Even so, companies continue to cut staff.

United Parcel Service Inc., the world’s largest package- delivery company, said Feb. 8 it plans to furlough at least 300 pilots unless it can find more savings in a joint effort with the employees’ union. The company already is cutting 1,800 small-package jobs.

“Even though the economy has begun to turn around, UPS anticipates a very gradual recovery and a continued need for belt-tightening,” Bob Lekites, president of UPS Airlines, said in a statement.

News on the U.S. labor market: {TNI US LABOR } Stories on the U.S. economy: {TNI US ECO } Stories on consumers: {TNI US CONS } For a news search on the recession: {STNI USRECESSION }

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Indian Wheat Crop May Suffer From Drought, Meteorologist Says

By Rudy Ruitenberg

Feb. 11 (Bloomberg) -- The wheat harvest in India, the world’s second-biggest grower, may suffer from drought in the country’s western cultivation regions, agricultural meteorologist Gail Martell said.

Northwest India’s vegetation index, an indication of plant growth, is lower than a year ago because of stress to crops in December and January, Martell, who heads Whitefish Bay, Wisconsin-based Martell Crop Projections, said in a report. The country had a “very poor” summer monsoon, with the lowest rainfall in 37 years, according to the report.

“The Indian government is hoping for a bountiful wheat harvest to offset a serious shortage in summer rice,” Martell said. “Dry conditions in western India are tainting the outlook, spoiling chances for a bumper wheat harvest.”

Estimates for an Indian wheat crop of 82.4 million metric tons are “overly optimistic” because of the weather stress in the western states, according to Martell. The wheat harvest will start in central India in March and move north in April, according to the report.

Sub-par wheat yields are likely in the normally productive irrigated states of Punjab and Haryana, while Madhya Pradesh has the best potential for the grain, the meteorologist said.

“Pakistan wheat potential looks terrible in the northern growing regions bordering India,” Martell said. “January was particularly dry.”

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net

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Gold May Gain in New York on Concern Dollar Has Rallied Too Far

By Nicholas Larkin and Kyoungwha Kim

Feb. 11 (Bloomberg) -- Gold, little changed in New York today, may climb on speculation the dollar’s strength is overdone, increasing bullion’s appeal as an alternative asset.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, added 0.2 percent after the agreement brokered by the European Union to help Greece weather its debt crisis offered few details. Industrial commodities including copper rose as reports in Australia and China signaled a stronger economic recovery.

“A lot of people believe that the dollar’s risen too far too fast and are flocking to gold,” said Tom Schweer, a senior market strategist at LaSalle Futures Group Inc. in Chicago. Gold may also be benefiting from higher prices of other commodities, he said.

Gold futures for April delivery added $3.10, or 0.3 percent, to $1,079.40 an ounce on the New York Mercantile Exchange’s Comex unit at 9:26 a.m. local time. Gold for immediate delivery in London was 0.7 percent higher at $1,079.10.

The metal increased to $1,079.50 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $1,069.50 at yesterday’s afternoon fixing. The dollar has gained as concern about Greece’s finances weighed on the euro.

“We expect dips to continue to draw investment interest” on sovereign debt concerns, while “the positive economic outlook in the Asian region has given gold a lift,” James Moore, an analyst at TheBullionDesk.com in London, said in a report.

Greece, Spain, Portugal

The dollar has climbed 4.8 percent against the euro this year on concern that fiscal gaps in Greece, Spain and Portugal may widen. Euro-region leaders including German Chancellor Angela Merkel ordered Greece to get the bloc’s highest budget deficit under control and said they are prepared to take “determined” action to staunch the worst crisis in the currency’s 11-year history.

Fewer Americans than anticipated filed claims for unemployment insurance last week, the Labor Department said today. Australia’s jobless rate unexpectedly fell last month amid the country’s biggest hiring boom in five years, while China’s statistics bureau said lending surged to 1.39 trillion yuan ($204 billion) in January and property prices climbed the most in 21 months.

“I won’t rule out that gold will go down to $950 or $1,000, but I don’t expect more downside,” investor Marc Faber, who publishes the “Gloom, Boom and Doom Report,” said in an interview with Bloomberg Television in Hong Kong. “I don’t see any scenario where gold will collapse.”

Central Banks

Gold advanced 24 percent in 2009, a ninth consecutive gain, as governments cut interest rates and spent trillions of dollars to prop up economies and central banks in nations including India and China boosted bullion reserves. Gold futures are down 1.5 percent this year.

The Federal Reserve may raise its discount rate “before long” as part of the “normalization” of lending, Chairman Ben S. Bernanke said yesterday in testimony for Congress. A change in the rate, currently at 0.5 percent, won’t signal an altered outlook for monetary policy, he said, repeating that low rates are warranted “for an extended period.”

Silver for March delivery in New York lost 0.2 percent to $15.27 an ounce. Platinum for April delivery fell 0.4 percent to $1,506.80 an ounce. Palladium for March delivery gained 0.9 percent to $417.05 an ounce.

To contact the reporters on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net; Nicholas Larkin at nlarkin1@bloomberg.net.

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Asian Stocks Rise on China Consumer Prices, Australian Jobs

By Jonathan Burgos

Feb. 11 (Bloomberg) -- Asian stocks rose for a third day, led by materials producers and banks, as lower-than-estimated inflation in China and an increase in Australian jobs eased concern tighter monetary policy in the region will hurt growth.

Baoshan Iron & Steel Co. climbed 5.7 percent in Shanghai as pressure eased for the central bank to raise interest rates. Commonwealth Bank of Australia gained 2.3 percent after the country’s employers added more jobs last month than economists expected. Wumart Stores Inc. surged 11 percent in Hong Kong after MSCI Inc. said it will add the company to its indexes. Korea Electric Power Corp. jumped 4.8 percent after winning approval to adjust tariffs.

The MSCI Asia Pacific excluding Japan Index added 1.8 percent to 388.44 as of 6:19 p.m. in Hong Kong. Japan and Taiwan are closed today. The MSCI gauge has lost 10 percent from an 18- month high on Jan. 11 as China and India took steps to curb inflation and concern grew Greece, Spain and Portugal will struggle to trim budget deficits.

“Over the next few months we’ll start to see a fading of concerns about a hard landing in China, the issue of Greece will be dealt with and issues concerning growth in the U.S. will also start to fade,” Shane Oliver, head of investment strategy at AMP Capital Investors, which oversees about $90 billion globally, told Bloomberg Television in Sydney. “Investors should be using this market weakness as a buying opportunity.”

Hong Kong’s Hang Seng Index rose 1.9 percent. Australia’s S&P/ASX 200 Index gained 0.9 percent. New Zealand’s NZX 50 Index fell 0.7 percent as the country’s manufacturing industry expanded at a slower pace in January.

Missing Estimates

The Kospi Index increased 1.8 percent in South Korea, where the central bank left its key interest rate unchanged today. STX Offshore & Shipbuilding Co. jumped 6.3 percent, leading the country’s shipyards higher, after winning a $700 million order.

Futures on the U.S. Standard & Poor’s 500 Index advanced 0.5 percent. The gauge fell 0.2 percent yesterday as results at Sprint Nextel Corp. and Dean Foods Co. trailed estimates and concern grew that the economic recovery may slow as the Federal Reserve withdraws stimulus measures.

The MSCI Asia Pacific Index, which includes Japan, completed its third weekly decline last week as concerns over debt in Europe dented investor confidence. That cut the average price of stocks in the gauge to 18 times estimated earnings, the lowest level since February 2009, according to data compiled by Bloomberg.

Baoshan Iron & Steel, China’s biggest steelmaker, gained 5.7 percent to 7.83 yuan and Hebei Iron & Steel Co., the listed unit of the No. 2, advanced 2.7 percent to 5.74 yuan.

Tightening Measures

China’s government said consumer prices rose 1.5 percent in January, lower than the 2.1 percent median forecast in a Bloomberg News survey of economists. China has been taking steps to cool an economy that expanded 10.7 percent in the fourth quarter, the fastest pace in two years. The central bank ordered lenders on Jan. 12 to set aside larger reserves.

“The urgency for immediate interest rate increases has receded as consumer prices look stable,” said Ally Wang, who helps oversee about $1.2 billion at HSBC Jintrust Fund Management Co. “But the tightening concern is still there and data for the following months still needs to be closely watched.”

The People’s Bank of China said today that China’s lending surged to 1.39 trillion yuan ($203 billion) in January, more than in the previous three months combined.

Inner Mongolia Yitai Coal Co.’s dollar-denominated B shares jumped 5.6 percent to $9.125 in Shanghai after the company, a coal producer, reported an increase in 2009 net income.

Lower Jobless Rate

Optimism for growth in Australia’s economy boosted Commonwealth Bank by 2.3 percent to A$53. Australia & New Zealand Banking Group Ltd. added 2.7 percent to A$20.75.

Australian employers added 52,700 jobs from December, the fifth-straight monthly gain, the statistics bureau said in Sydney today. The median estimate of 21 economists surveyed by Bloomberg was for 15,000 new positions. The jobless rate fell to 5.3 percent from 5.5 percent.

James Hardie Industries NV, the biggest seller of home siding in the U.S., advanced 2.4 percent to A$7.85. The company said operating profit rose 66 percent in the third quarter and expects full-year operating profit to be close to the top range of analyst estimates.

“People are more optimistic for the time being and a bit happier the way the world is panning out,” said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne.

Material, Energy Shares

Material and energy shares posted the biggest advances of the MSCI Asia Pacific excluding Japan Index’s 10 industry groups. Oil producers gained as crude futures rose 1 percent to $74.52 a barrel in New York yesterday. Prices added 0.5 percent today, the fourth-consecutive advance.

Woodside Petroleum Ltd., Australia’s No. 2 oil producer, rose 3.2 percent to A$43. Santos Ltd., Australia’s No. 3 oil producer, climbed 1.6 percent to A$13.25. PetroChina Co., China’s largest oil producer, gained 2 percent to HK$8.68.

Korea Electric, supplier of almost all of South Korea’s electricity, gained 4.8 percent to 39,200 won after the government allowed it to adjust tariffs to reflect changes in fuel costs starting July 2011.

Wumart jumped 11 percent to HK$14.62 after MSCI said it will include the company in its indexes. Skyworth Digital Holdings Ltd. and Semiconductor Manufacturing International Corp., which will also be added, both surged more than 5 percent. The changes will be made at the close of Feb. 26.

MSCI Additions

“People are going to be pretty cautious today with Japan and Taiwan shut and a lot of volume will be off on that,” said Andrew Sullivan, a sales trader at Mainfirst Securities Hong Kong Ltd. “Chinese New Year is starting this weekend, so you won’t get a lot of bets being put on before that. On the positive side, you’ve got the MSCI additions.”

In Seoul, STX Offshore climbed 6.3 percent to 11,900 won after a unit won an order to build a liquefied natural gas terminal in Mexico. Hyundai Heavy Industries Co., the world’s No. 1 shipbuilder, jumped 7.1 percent to 220,000 won. Its subsidiary Hyundai Mipo Dockyard Co. climbed 10 percent to 123,500 won.

“The order has increased expectations that there could be more in the coming months,” said Lee Jae Won, an analyst at Tong Yang Securities Inc. in Seoul.

Telstra Corp. and Malaysian Airline System Bhd. posted the biggest declines on the MSCI Asia Pacific excluding Japan Index. Telstra sank 5 percent to A$3.22 in Sydney after cutting its annual revenue forecast for a second time in two months. The company also said first-half profit fell 3.3 percent.

Malaysian Airline, the country’s national carrier, slumped 5.9 percent to 1.92 ringgit after investors sold the stock to seek out cheaper rights shares. The company had raised funds through a rights offer at 1.60 ringgit each. Its rights entitlement began trading today at 16.5 sen each.

To contact the reporter for this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net.

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German Stocks End Three-Day Winning Streak; Deutsche Bank Falls

By Alexis Xydias and Julie Cruz

Feb. 11 (Bloomberg) -- German stocks dropped, driving the benchmark DAX Index to its first decline this week, as investors weighed an agreement by European leaders to tackle Greece’s budget deficit.

Deutsche Bank AG and Commerzbank AG, the country’s biggest banks, lost at least 2 percent. Deutsche Lufthansa AG fell as rival Air France-KLM Group forecast a worse-than-expected loss for the fourth quarter.

The DAX Index lost 1.2 percent to 5,469.49 as of 3:44 p.m. in Frankfurt, the first decline since Feb. 2. The gauge has fallen 9.6 percent since this year’s high in January on concern governments and central banks will withdraw stimulus measures and speculation Greece will struggle to tame its deficit. The broader HDAX Index lost also lost 1.2 percent.

European leaders ordered Greece to get the bloc’s highest budget deficit under control and said they were prepared to take “determined” action to staunch the worst crisis in the euro currency’s 11-year history.

The agreement, brokered by German Chancellor Angela Merkel, Greek Prime Minister George Papandreou, and European Central Bank President Jean-Claude Trichet, stopped short of offering concrete measures to help Greece handle a debt load that exceeds its annual economic output.

“The escalation of the tensions in EMU and the uncertain prospect of a near-term and sustainable positive resolution of the underlying causes make a more cautious strategy appear advisable,” wrote Munich-based Tammo Greetfeld of UniCredit SpA in a strategy report. “Capital preservation now has priority.”

German Banks

Deutsche Bank and Commerzbank lost 2.8 percent to 44.39 euros and 2 percent to 5.57 euros, respectively.

German banks had foreign claims of $330.8 billion related to the three countries on Sept. 30, according to the most recent data from the Bank for International Settlements in Basel, Switzerland. French banks had $306.8 billion of claims and U.K. lenders $156.3 billion, the data show.

Lufthansa, Germany’s largest airline, dropped 3.7 percent to 10.91 euros. Air France tumbled 7 percent after the company reported a third-quarter loss that was wider than the average analyst and projected a worse-than-expected result for the current period.

Daimler AG, the world’s biggest maker of luxury cars, fell 3.3 percent to 32.54 euros, while Bayerische Motoren Werke AG declined 1.9 percent to 29.11 euros. The Dow Jones Stoxx 600 Automobiles & Parts Index fell as much as 3.2 percent today, the worst performance among 19 industry groups in Europe’s Dow Jones Stoxx 600 Index.

Aurubis AG surged 4.4 percent to 31.40 euros. The company posted first-quarter net income of 90 million euros ($124 million) compared with a net loss of 98 million euros in the year-ago period. Aurubis said it expects demand for copper products to rise “in the mid-term” and sees full-year operating profit rising.

The following shares also rose or fell in German markets. Stocks symbols are in parentheses.

Celesio AG (CLS1 GY) dropped 1.2 percent to 20.49 euros. The German drug wholesaler was rated “underweight” in new coverage at Morgan Stanley, with a share price estimate of 19 euros.

Dialog Semiconductor Plc (DLG GY) climbed 11 percent to 10.70 euros, the biggest one-day gain in more than a month. Chief Executive Officer Jalal Bagherli said he’s relaxed about analyst predictions for the German chipmaker’s revenue to rise as much as 38 percent this year.

Fresenius SE (FRE3 GY) rose 2 percent to 49.23 euros. The health-care company was rated “overweight” in new coverage at Morgan Stanley, which set a share-price estimate of 60 euros.

Gerresheimer AG (GXI GY) slumped 4.4 percent to 22.35 euros, on course for the lowest close since November. The German medical-packaging company was cut to “neutral” from “overweight” at Piper Jaffray.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net; Julie Cruz in Frankfurt at jcruz6@bloomberg.net

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U.K. Stocks Fluctuate; Lloyds, Barclays Fall, Rio Tinto Gains

By Adria Cimino

Feb. 11 (Bloomberg) -- U.K. stocks fluctuated between gains and losses as investors weighed a European Union agreement to deal with Greece’s debt crisis.

Lloyds Banking Group Plc led financial shares lower. BT Group Plc sank 8.2 percent after saying the regulator has concerns about the valuation and recovery plan of its pension program. Rio Tinto Group, the world’s third-largest mining company, advanced after swinging to a profit in the second half.

The benchmark FTSE 100 Index added 7.59, or 0.2 percent, to 5,139.58 as of 3:07 p.m. in London after swinging between gains and losses at least 12 times. The index has lost 7.3 percent since this year’s high on Jan. 11 amid concern Greece, Spain and Portugal will struggle to curb their budget shortfalls. The FTSE All-Share Index rose 0.2 percent and Ireland’s ISEQ Index slid 0.4 percent.

The EU deal is “a first step, a first bit of good news,” said Arnaud Scarpaci, a fund manager at Agilis Gestion in Paris, which oversees about $150 million. “Now we have to see how it will be done and over what time frame. The stock market remains nervous.”

EU leaders meeting in Brussels today ordered Greece to get the bloc’s highest budget deficit under control and said they were prepared to take “determined” action to staunch the worst crisis in the euro currency’s 11-year history. The agreement stopped short of offering concrete measures to help Greece handle a debt load that exceeds its annual economic output.

Lloyds, Barclays

Lloyds, the U.K.’s biggest mortgage lender, lost 4.8 percent to 47.61 pence. Barclays Plc, Britain’s third-largest bank, slid 4 percent to 266.8 pence.

BT Group sank 8.2 percent to 120.6 pence. The U.K.’s largest fixed-line phone company said the pensions regulator has “substantial concerns with certain features of the agreement” between the company and the trustee of the BT pension plan on the triennial actuarial funding valuation and recovery program.

Rio Tinto advanced 1.4 percent to 3,182 pence. The company reinstated the payment of a dividend after swinging to a second- half profit as prices increased because of the global economic recovery.

The following shares also rose or fell in London. Stock symbols are in parentheses.

Catlin Group Ltd. (CGL LN) jumped 3.4 percent to 336 pence for the biggest gain since December. The owner of the largest insurance unit at Lloyd’s of London reported a 2009 profit on lower claims resulting from a benign U.S. hurricane season.

Diageo Plc (DGE LN) slipped 1.9 percent to 1,006 pence after three days of gains. The maker of Smirnoff vodka and Captain Morgan rum said first-half operating profit fell 6 percent to 1.54 billion pounds, missing analyst estimates.

Halma Plc (HLMA LN) soared 5.7 percent to 240.7 pence, for the biggest gain since December. The world’s second-biggest maker of smoke detectors expects its full-year net income to exceed market expectations as average weekly revenue rose 3 percent in the last four months compared with the first half of its financial year.

Rolls-Royce Plc (RR/ LN) rallied 6 percent to 518 pence, for the biggest gain since July. The world’s second-largest maker of aircraft engines reported annual profit ahead of analyst estimates and said it will raise the planned payout to investors after winning more defense contracts.

Smith & Nephew Plc (SN/ LN) increased 4.6 percent to 662 pence for its biggest gain since September. Europe’s largest maker of shoulder and knee implants said fourth-quarter operating profit rose 5.6 percent to $189 million.

Sports Direct International Plc (SPD LN) jumped 7.3 percent to 104.1 pence, the biggest gain since November. The largest U.K. sporting-goods retailer said group total sales in the 13 weeks to Jan. 24 were 370 million pounds ($577 million).

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.

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