USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 82.43; (P) 82.81; (R1) 83.25

Intraday bias in USD/JPY remains neutral and some more consolidations could be seen below 83.20 temporary top. But break of 80.50 support is needed to signal short term topping. Otherwise, outlook will remains cautiously bullish and we'd continue to favor further rally. Above 83.20 will target 84.49 key resistance next.

In the bigger picture, with 84.49 resistance intact, there is no confirmation of trend reversal yet and the multi-decade down trend in USD/JPY could still be in progress for a new low below 76.40. However, note that decisive break of 84.49 will argue that an important medium term bottom is formed. Focus will then turn to whether USD/JPY could sustain above 55 weeks EMA (now at 85.22). In that case, stronger rise could be seen towards 94.97 resistance and above.

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GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.6006; (P) 1.6044; (R1) 1.6111;

GBP/USD's sharp reversal after hitting 1.6140 minor resistance revives the original bearish view that fall from 1.6400 is not over. Break of 1.5935 will target medium term trend line support (now at 1.5811). Sustained break there will indicate that whole rise form 1.4230 has finished too and will turn outlook bearish for 1.5343 support. On the upside, however, above 1.6149 will dampen this immediate bearish case again and turn focus back to 1.6400 high instead.

In the bigger picture, price actions from 1.3503 (2009 low) are treated as consolidation to long term down trend from 2007 high of 2.1161. Rise from 1.4230 is treated as the third leg of such consolidation and with 1.5343 support intact, such rise could still continue for 1.7043 resistance. But after all, strong resistance should be seen between 1.7043 and 50% retracement of 2.1161 to 1.3503 at 1.7332 to limit upside. On the downside, break of 1.4230 support will be the first signal of down trend resumption and will turn focus to 1.3503 low for confirmation.

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Japan Sold 692.5 Billion Yen in March to Weaken Currency From Postwar High

Japan sold 692.5 billion yen ($8.4 billion) from Feb. 25 to March 29, the Ministry of Finance said in Tokyo today, showing the nation’s efforts to bring the currency down from a postwar high that threatened a recovery from its biggest-ever earthquake.

The yen climbed to a record 76.25 per dollar on March 17, prompting the Group of Seven nations to jointly intervene in foreign-exchange markets the next day for the first time in more than a decade. The currency had risen on prospects Japanese investors would repatriate assets to pay for rebuilding.

“The intervention’s impact has been huge,” Hitoshi Asaoka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest bank, said before the Finance Ministry released the data. “It’s not only stemmed the yen’s gain, but also sent a clear message that they will step into the market should the yen rapidly strengthen beyond 80 per dollar. That’s significant.”

The yen traded at 82.92 per dollar at 11:07 a.m. in London from 82.89 in New York yesterday, and compared with 82.98 on March 10, a day before the magnitude-9 temblor struck. The currency was at 117.86 per euro from 117.10, down from 114.49 on March 10.

G-7 finance chiefs said in a joint statement on March 18 they will “provide any needed cooperation” with Japan. “We will monitor exchange markets closely and will cooperate as appropriate,” the statement also said. The G-7 members hadn’t stepped in the market together since September 2000 when they sought to support the euro as it tumbled in its second year of existence.

September Intervention

Japan unilaterally sold 2.12 trillion yen in foreign- exchange markets from Aug. 28 through Sept. 28 in its first intervention since 2004 to keep the yen from reaching its previous postwar high of 79.75 per dollar reached in April 1995.

The Bank of Japan pumped 40 trillion yen into the banking system in successive one-day emergency cash operations from March 14 to March 22 to try to settle financial markets after the quake. The Japanese government said there’s no evidence insurance companies were repatriating assets from abroad due to the risk of radiation leaks from a quake-crippled nuclear plant.

Totan Research Co. had estimated that the BOJ may have spent about 690 billion yen when it intervened in the currency markets on March 18, based on the central bank’s holdings of government securities. The BOJ’s debt assets temporarily increase when Japan intervenes because the government sells bills to the bank to obtain funds for intervention, said Izuru Kato, chief market economist at Totan Research in Tokyo.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Shigeki Nozawa in Tokyo at snozawa1@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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Sarkozy Backs Broader Role for Yuan as Geithner Urges Flexibility at G-20

French President Nicolas Sarkozy said the yuan should be in the International Monetary Fund’s Special Drawing Rights, a unit of account derived from the value of the dollar, yen, pound and euro. Photographer: Qilai Shen/Bloomberg

The U.S. and France signaled openness to a greater role for the yuan while stressing the importance of exchange-rate flexibility as Group of 20 officials met in China to discuss the international monetary system.

French President Nicolas Sarkozy said the yuan should be in the International Monetary Fund’s Special Drawing Rights, a unit of account derived from the value of the dollar, yen, pound and euro. U.S. Treasury Secretary Timothy F. Geithner said world powers’ currencies should be included “over time” so long as they have flexible exchange rates and free capital flows.

Chinese officials said that the yuan’s value wouldn’t be a topic at today’s seminar in Nanjing and Geithner didn’t refer to the currency directly in his prepared remarks. At the same time, he said the mismatch between flexible currencies and the “tightly managed” exchange rates of some emerging economies is the most important problem to solve in the international monetary system.

“China will continue to proceed with currency reform at its own pace” and regardless of Sarkozy and Geithner’s comments, said Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd., who formerly worked for the International Monetary Fund and the European Central Bank.

The yuan touched 6.5488 per dollar in Shanghai today, the highest in 17 years. The U.S. describes the currency as still “substantially undervalued,” with American lawmakers arguing that gives China, the world’s biggest exporter, an unfair advantage in global trade.

‘Overwhelming’ Support

The Special Drawing Rights basket is reviewed every five years by the IMF’s executive board, and the most recent changes took effect in January. The next review will be in 2015, according to the Washington-based fund’s website.

Jim O’Neill, chairman of Goldman Sachs Asset Management, said the “overwhelming” view at today’s event seemed to be that the yuan should be included earlier than the IMF procedures may currently allow. His view is that the currency doesn’t need to be fully convertible and should be brought in “now.”

Sarkozy said that imbalances under existing monetary arrangements indicate the need for a “more flexible system” rather than a return to fixed or managed exchange rates.

G-20 finance chiefs, central bankers including the European Central Bank’s Jean-Claude Trichet and private economists are meeting for the one-day seminar that Sarkozy initiated on altering the monetary system to reduce the risk of a repeat global financial crisis.

IMF’s Role

The French president said that the IMF should have a bigger role in supervising nations’ balance of payments and reserves to help limit risks.

In October 2008, after the collapse of Lehman Brothers Holdings Inc., the volatility of the world’s major currencies rose to the highest level since at least 1992, according to a JPMorgan Chase & Co. index. Price swings also increased in May last year because of Europe’s debt turmoil and this month because of Japan’s earthquake.

The Group of Seven nations intervened to weaken Japan’s yen after the March 11 disaster. Sarkozy suggested today that a broader group should monitor currency markets.

Today’s meeting at the Purple Palace resort is being attended by economists including Nobel laureate Robert Mundell. It’s intended to lay the groundwork for an agreement at the G-20 summit in Cannes, France, in November that would lead to a more “stable and resilient” monetary order, Sarkozy said.

‘Financial Protectionism’

With France holding the presidency of the G-20 this year, Sarkozy has made the monetary system one of his priorities. He said today that without extra rules for foreign-exchange regimes, there is a risk of more conflict over currencies.

Sarkozy recalled the G-20’s unity at the height of the global financial crisis in 2009. Now, nations pursuing their own interests risk a “proliferation of unilateral measures during crises resulting in a new financial protectionism in which all economies suffer,” he said.

A gathering of G-20 finance ministers in February underscored the difficulties, with China resisting the inclusion of foreign-exchange reserves as a yardstick for gauging global imbalances. Sarkozy views China’s decision to host today’s event as a first step toward a more flexible yuan that should result in its inclusion in the IMF’s currency basket.

Created in 1969, Special Drawing Rights serve as international reserve assets and represent potential claims on usable currencies of IMF members. As of March 30, one SDR was the equivalent of $1.5797.

Capital Flows

“Currencies of large economies heavily used in international trade and financial transactions should become part of the SDR basket,” Geithner said. “To achieve this objective, the concerned countries should have flexible exchange-rate systems, independent central banks and permit the free movement of capital flows.”

An SDR system without the yuan would be “ridiculous” and lack legitimacy, People’s Bank of China adviser Li Daokui said in Nanjing.

Chinese President Hu Jintao told Sarkozy yesterday in Beijing that China views the internationalization of the yuan as inevitable, with only the pace of the move in question, a French official said.

Officials including French Finance Minister Christine Lagarde are discussing topics including “shortcomings in the international monetary system” and dealing with volatile capital flows, according to the schedule for the conference at Nanjing, a city on the Yangtze River, about 170 miles (270 kilometers) from Shanghai.

U.S. Monetary Policy

Nations including Brazil, China and South Korea have argued that U.S. monetary easing has added to the threat of inflows of capital fueling inflation and asset bubbles. Ahead of today’s meeting, Xu Hongcai, a Chinese state economist, revived complaints about U.S. monetary policy in a paper that said the world had fallen into a “dollar trap.” Xu is an official at the China Center for International Economic Exchanges, the co- host of the Nanjing event.

China has an extra stake in the U.S. maintaining the value of the dollar as the biggest foreign holder of Treasuries, owning more than $1.1 trillion of the securities. China’s build- up of a world-record $2.85 trillion of foreign-exchange holdings, driven by trade surpluses and limits on gains in the yuan, highlights imbalances blamed for contributing to the global financial crisis.

--James Hertling, Michael Forsythe, Kevin Hamlin, Bonnie Cao in Nanjing and Zheng Lifei in Beijing. Editors: Paul Panckhurst, Sunil Jagtiani

To contact the Bloomberg News staff on this story: James Hertling at jhertling@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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Soybeans Gain on Speculation Lower U.S. Sowing, Brazil Rain May Cut Supply

Soybeans gained on speculation that reduced planting in the U.S., the world’s largest exporter, and rain in Brazil that is slowing collection of the oilseeds will curb production.

The area planted with soybeans in the U.S. may total 76.79 million acres this year, compared with the Department of Agriculture’s February estimate of 78 million acres, according to the average forecast of 32 analysts surveyed last week by Bloomberg News. Rain in Brazil, the third-biggest shipper of the oilseeds, has delayed the harvest and may curb yields.

“The Brazilian situation is still a major issue, and the continuing rain is still holding exports down,” said Jonathan Bouchet, an analyst at broker OTCex Group in Geneva. Investors may be buying contracts ahead of the USDA report, set to be released at 8:30 a.m. in Washington, expecting planting estimates to be lower than previously forecast, Bouchet said.

Soybeans for May delivery gained 6 cents, or 0.4 percent, to $13.78 a bushel by 10:07 a.m. London time on the Chicago Board of Trade. The most-active contract is set for a 1.8 percent loss this quarter, the first in three.

“Soybean values are sitting just under resistance levels,” Luke Mathews, a commodity strategist at Commonwealth Bank of Australia (CBA), said today in a report. “A low-acreage estimate should be enough to push the market through these,” he wrote, referring to points where investors may sell contracts.

The U.S. is estimated to account for 39 percent of global corn harvests in the 2010-2011 season, 35 percent of soybean output, and 28 percent of world wheat exports, according to USDA estimates on March 10.

Expand Plantings

Wheat futures were little changed on speculation that farmers in the U.S., the world’s largest shipper, may expand plantings, easing supply concerns.

Sowing of the grain may reach 57.2 million acres, up from the USDA’s estimate last month of 57 million acres, and 53.6 million acres a year ago, according to a Bloomberg News survey last week.

Wheat for May delivery dropped 1 cent, or 0.1 percent, to $7.2625 a bushel in Chicago. Futures have dropped 8.6 percent this quarter, the first such loss in four.

Corn for May delivery gained 0.2 percent to $6.6475 a bushel in Chicago, taking the quarterly gain for the most-active contract to 5.7 percent. Futures jumped 93 percent in the past year as production lagged behind demand, draining global stockpiles.

Areas seeded with the grain in the U.S., the largest grower and exporter, may climb to 91.751 million acres from 88.192 million last year, according to the Bloomberg survey. That would be the biggest since 2007 and the second-largest since 1944.

“The grains are holding pretty well following that Japanese quake, as they are expected to boost imports very soon,” Bouchet said. “But for today, most traders are waiting for the USDA report to come out.”

To contact the reporter on this story: Tony C. Dreibus in London at tdreibus@bloomberg.net; Luzi Ann Javier in Singapore at ljavier@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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Euro Rises Versus Dollar After Inflation Accelerates; Norway's Krone Gains

The euro strengthened against the dollar and the yen after euro-region inflation unexpectedly accelerated in March, bolstering the case for the European Central Bank to raise interest rates next week.

The 17-nation currency remained higher against most its major counterparts after Ireland announced that four of the country’s banks need to raise 24 billion euros ($34 billion) of additional capital. The dollar weakened as fewer Americans filed jobless benefits applications last week before the March employment report tomorrow. Norway’s krone rose to a two- and one-half-year high against the dollar as oil prices advanced and retail sales exceeded forecasts.

“As risk is being put back on, the euro is benefitting as the market looks forward to interest-rate expectation, regardless of what their economy is doing, the Irish stress test or any banking issues,” said Brian Taylor, chief currency trader a Manufacturers & Traders Trust in Buffalo New York. “Not only is the euro resilient against the dollar, it’s kicking everyone’s tail.”

The euro climbed 0.4 percent against the dollar to $1.4185 as of 11:41 a.m. in New York. It appreciated 0.3 percent to 117.42 yen and reached 117.90 yen.

Japan’s currency was little changed at 82.78 per dollar. It earlier depreciated to 83.21, the weakest since March 11, when Japan was struck by its biggest recorded earthquake.

Futures Bets

The shared currency earlier pared gains against the greenback after Anglo Irish Bank Corp. Chief Executive Officer Mike Aynsley said he’s “not sure we’ll get details” of plans for a funding facility for Irish banks after results of the stress tests.

Inflation in the 17-nation euro region quickened to 2.6 percent in March from 2.4 percent in February, European Union estimates showed today. That’s the fastest pace since October 2008, and exceeds the ECB’s 2 percent limit for a fourth month. Economists had forecast inflation to hold steady.

“Consumer price data is outweighing Portugal and Ireland,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “It adds supports to the euro.”

The euro is the second-best performer, after the Swedish krona, in the past quarter, according to Bloomberg Correlation Weighted Indexes, which tracks nine-developed market currencies. It has gained 3.6 percent against nations like the U.S., Canada and Britain.

Trichet Stand

ECB President Jean-Claude Trichet signaled on March 3 that policy makers may raise interest rates at their April 7 meeting. The implied yield on the three-month Euribor contract expiring in December rose three basis points to 2.09 percent today, as investors added to bets that rates will rise.

“The rate differential is being borne out more by the fact that the Fed is still printing money,” said Derek Halpenny, European head of currency research at Bank of Tokyo in London, referring to the Fed’s bond-buying program. “That tells you how far away we are from a shift in yields, and that is what’s dictating the dollar selling at the moment.”

U.S. jobless claims fell by 6,000 to 388,000 in the week ended March 26, Labor Department figures showed today in Washington. Nonfarm payroll are forecast to increase by 190,000 in March, according to the median estimate of 83 economists. The unemployment rate is projected to remain at 8.9 percent.

The Dollar Index, which InterContinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell 0.3 percent to 75.894. It approached a 15-month low of 75.249 reached on March 22 and headed for a 4.1 percent decline this quarter. The gauge is weighted 57.6 percent to moves in the euro.

Krone Performs

The Norwegian krone was the best performer against the dollar today, reaching a two and a half year high after retail sales in February were greater than expected. The krone appreciated 0.8 percent to 5.53083 per dollar after reaching 5.51028, the strongest since September 2008.

Crude oil rose 1.4 percent to $105.75 a barrel in New York. Norway, the world’s sixth-largest oil exporter.

Norges Bank, which has kept its benchmark rate at 2 percent since May last year, signaled this month it may start raising borrowing costs earlier than previously indicated to quell a credit-driven surge in property prices.

The yen headed for an 8.4 percent quarterly loss against the euro and 2 percent decline versus the dollar as Japan sold 692.5 billion yen ($8.4 billion) from Feb. 25 to March 29, the Ministry of Finance said in Tokyo today.

Yen Declines

The Japanese currency climbed to a record 76.25 per dollar on March 17, prompting the Group of Seven nations to jointly intervene in foreign-exchange markets the next day for the first time in more than a decade.

Australia’s dollar reached a record versus the U.S. currency after a government report showed retail sales increased in February by more than economists forecast. Sales rose 0.5 percent last month, the Bureau of Statistics said today, surpassing the 0.4 percent increase projected by economists.

The Aussie was 0.2 percent stronger at $1.0353, after rising to $1.0362, the strongest level since the currency was freely floated in 1983.

China’s yuan rose to a 17-year high as G-20 finance chiefs are meeting in Nanjing, China. The yuan gained as much as 0.12 percent to 6.5478 per dollar, the strongest level since the country unified official and market exchange rates in 1993.

China may face pressure from nations including the U.S., India and Brazil to allow a stronger yuan, a seminar initiated by French President Nicolas Sarkozy on reshaping the global monetary system. former U.S. Trade Representative Susan Schwab said.

“My guess is that the conversations will take place, but they will take place quietly,” Schwab, a strategic adviser at law firm Mayer Brown LLP, told Bloomberg Television from Washington.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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Gold Heads for Longest Run of Quarterly Gains in 3 Decades on Libya, Debt

Gold rose in New York, heading for the longest streak of quarterly gains in more than three decades, as fighting in Libya and concerns about European debt spurred demand for an alternative investment.

Troops loyal to Muammar Qaddafi forced Libyan rebels to retreat as the U.S. and U.K. said they would consider arming opposition forces. Gold futures reached a record $1,448.60 an ounce on March 24 as fighting in Libya, the Japanese nuclear crisis and concerns about European debt boosted demand for a protection of wealth.

“Given the unrest in the Middle East and North Africa region, increasing debt issues in the euro zone and the environment of historically low interest rates, gold and silver should continue to remain underpinned and test towards recent highs,” James Moore, an analyst at TheBullionDesk.com in London, said in a report.

Gold futures for June delivery rose $14.80, or 1 percent, to $1,439.70 an ounce at 10:06 a.m. on the Comex in New York. Prices are up 1.3 percent this quarter. A 10th quarterly increase would be the best run of gains since at least 1975. The metal for immediate delivery in London was 1.1 percent higher at $1,438.40.

Libyan Foreign Minister Moussa Koussa quit Qaddafi’s government as rebels were forced to abandon much of the territory they captured after the U.S.-led air campaign against Qaddafi’s army began almost two weeks ago. The fighting in Libya is the most violent seen in more than two months of popular uprisings across the Middle East and North Africa.

Portuguese Debt

Standard & Poor’s this week cut credit ratings for Greece and Portugal, and the cost of insuring Portuguese government debt reached a record according to CMA prices, as speculation mounted the nation will be forced to restructure its borrowings.

Tokyo Electric Power Co. has been spraying water on the reactors at the Fukushima Dai-Ichi plant damaged after this month’s earthquake and tsunami in Japan. Work to repair the plant’s monitoring and cooling systems has been hampered by discoveries of hazardous radioactive water. The government hasn’t ruled out pouring concrete over the whole facility as one way to shut it down, Chief Cabinet Secretary Yukio Edano said.

Gold and silver are being supported by “inflation, geopolitical and euro zone debt concerns,” analysts at GoldCore Ltd. in Dublin said in a report.

Inflation Accelerates

European inflation unexpectedly accelerated to 2.6 percent in March, the fastest in more than two years, the European Union’s statistics office said today.

Gains were limited this quarter on signs the U.S. economy is improving, boosting investor appetite for higher-yielding assets like stocks. St. Louis Federal Reserve Bank President James Bullard yesterday said the central bank may need to begin pulling back from record levels of monetary accommodation even amid uncertainties in Japan and the Middle East.

Silver for May delivery in New York rose 1.1 percent to $37.91 an ounce. It reached $38.18 on March 24, the highest level since February 1980, the year futures reached a record $50.35. Prices are up 23 percent this year, heading for a ninth straight quarterly advance, the best run of gains since at least 1975.

An ounce of gold bought as little as 37.72 ounces of silver in London today, the lowest level since October 1983, data compiled by Bloomberg show. Silver is used more in industry than gold.

“Increasing global investment and industrial demand in the very small and finite silver bullion market is a recipe for higher prices,” GoldCore analysts said. With gold near a record, “silver is the cheap alternative to gold and an attractive store of value.”

Palladium for June delivery was up 1.6 percent at $769.95 an ounce, and is down 4.2 percent this quarter. Platinum for July delivery gained 0.5 percent to $1,782.80 an ounce. Prices are up 0.3 percent this quarter.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.

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Commodities Heading for a Third Quarterly Advance on Recovery, Oil's Surge

Commodities headed for a third quarterly advance as the global economy extended its recovery, and as crude oil climbed on concern that conflict in Libya and unrest in the Middle East would curb supplies.

Raw materials measured by the Standard & Poor’s GSCI Spot Index of 24 futures increased 0.2 percent to 712.61 at 1:42 p.m. in Singapore, extending its gain to 13 percent this year. Oil jumped 15 percent, cotton increased 35 percent, silver gained 22 percent and lean hogs rose 28 percent in the past three months.

Fighting in Libya, the toppling of leaders in Tunisia and Egypt and protests in countries from Bahrain to Syria drove crude oil past $100 a barrel this year. Floods in Australia and dry weather in China threatened crops, while Japan’s worst earthquake on record spurred speculation of increased commodity demand for rebuilding and food. That offset concern over a potential growth slowdown in China, the biggest commodity user, as the government seeks to tame inflation.

“We had a significant change in the overall environment, with some unexpected introduction of external risk,” said Yingxi Yu, Barclays Capital’s commodities analyst in Singapore.

Oil climbed 0.3 percent to $104.56 a barrel today, heading for its third quarterly increase on concern supplies will be reduced by an escalating conflict in Libya. Troops loyal to Libyan leader Muammar Qaddafi forced rebels to retreat as the U.S. and U.K. said they would consider arming opposition forces.

Military Action

Commodities will “attract inflows” on strong emerging market growth and inflation risks and as investors seek to hedge against “tail events” such as military action in the Middle East and Africa and the nuclear accident in Japan, Michael Lewis, head of commodities research at Deutsche Bank AG, wrote in a quarterly report yesterday.

Gold for immediate delivery jumped to a record $1,447.82 an ounce on March 24 and silver surged to a 31-year high of $38.165 an ounce as investors sought precious metals to protect their wealth from geopolitical risk and rising energy costs. Gold traded at $1,427.65 and silver at $37.6850 today.

“The big picture is that the global economy is continuing to recover,” Pu Yonghao, Hong Kong-based chief investment strategist at UBS Wealth Management, said in a Bloomberg Television interview. “Emerging markets continue to remain strong although inflation is a problem.”

The LME index of six industrial metals is up 0.9 percent this year, led by tin. The metal increased to a record $32,799 a metric ton on Feb. 15 and copper touched an all-time high of $10,190 a ton on expectations supply will trail demand.

Slowdown Risk

Crude oil prices at more than $100 a barrel, the potential for further monetary tightening in China and the debt crisis in Europe may weigh on the global recovery, analysts said.

“We’re already starting to see some demand destruction,” said Francisco Blanch, Bank of America Merrill Lynch’s head of commodities research.

China’s central bank boosted banks’ reserve-requirement ratios eight times and raised interest rates three times since the start of 2010 to cool the economy and tame inflation. The People’s Bank of China may raise interest rates again in early April, according to Citigroup Inc.

“If China over-tightens and this leads to a faster than expected slowdown, there is some downside risk but it shouldn’t be overstated,” said Barclays’s Yu. Europe’s “economy is not on a strong footing and the sovereign debt issue is not over.”

The debt crisis which began in Greece persists as Portugal had its credit rating cut this week, after the country’s parliament rejected a deficit-cutting plan, sparking the resignation of Prime Minister Jose Socrates on March 23.

In Ireland, top finance officials will today seek to show investors, taxpayers and the rest of the euro region that the banking crisis in the country might be nearing an end.

Central Bank Governor Patrick Honohan will publish the results of a third round of stress tests on the country’s banks at 4:30 p.m. in Dublin. Shortly afterwards, Finance Minister Michael Noonan will set out how more capital will be raised.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@Bloomberg.net

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Commodities Heading for a Third Quarterly Advance on Recovery, Oil's Surge

Commodities headed for a third quarterly advance as the global economy extended its recovery, and as crude oil climbed on concern that conflict in Libya and unrest in the Middle East would curb supplies.

Raw materials measured by the Standard & Poor’s GSCI Spot Index of 24 futures increased 0.2 percent to 712.61 at 1:42 p.m. in Singapore, extending its gain to 13 percent this year. Oil jumped 15 percent, cotton increased 35 percent, silver gained 22 percent and lean hogs rose 28 percent in the past three months.

Fighting in Libya, the toppling of leaders in Tunisia and Egypt and protests in countries from Bahrain to Syria drove crude oil past $100 a barrel this year. Floods in Australia and dry weather in China threatened crops, while Japan’s worst earthquake on record spurred speculation of increased commodity demand for rebuilding and food. That offset concern over a potential growth slowdown in China, the biggest commodity user, as the government seeks to tame inflation.

“We had a significant change in the overall environment, with some unexpected introduction of external risk,” said Yingxi Yu, Barclays Capital’s commodities analyst in Singapore.

Oil climbed 0.3 percent to $104.56 a barrel today, heading for its third quarterly increase on concern supplies will be reduced by an escalating conflict in Libya. Troops loyal to Libyan leader Muammar Qaddafi forced rebels to retreat as the U.S. and U.K. said they would consider arming opposition forces.

Military Action

Commodities will “attract inflows” on strong emerging market growth and inflation risks and as investors seek to hedge against “tail events” such as military action in the Middle East and Africa and the nuclear accident in Japan, Michael Lewis, head of commodities research at Deutsche Bank AG, wrote in a quarterly report yesterday.

Gold for immediate delivery jumped to a record $1,447.82 an ounce on March 24 and silver surged to a 31-year high of $38.165 an ounce as investors sought precious metals to protect their wealth from geopolitical risk and rising energy costs. Gold traded at $1,427.65 and silver at $37.6850 today.

“The big picture is that the global economy is continuing to recover,” Pu Yonghao, Hong Kong-based chief investment strategist at UBS Wealth Management, said in a Bloomberg Television interview. “Emerging markets continue to remain strong although inflation is a problem.”

The LME index of six industrial metals is up 0.9 percent this year, led by tin. The metal increased to a record $32,799 a metric ton on Feb. 15 and copper touched an all-time high of $10,190 a ton on expectations supply will trail demand.

Slowdown Risk

Crude oil prices at more than $100 a barrel, the potential for further monetary tightening in China and the debt crisis in Europe may weigh on the global recovery, analysts said.

“We’re already starting to see some demand destruction,” said Francisco Blanch, Bank of America Merrill Lynch’s head of commodities research.

China’s central bank boosted banks’ reserve-requirement ratios eight times and raised interest rates three times since the start of 2010 to cool the economy and tame inflation. The People’s Bank of China may raise interest rates again in early April, according to Citigroup Inc.

“If China over-tightens and this leads to a faster than expected slowdown, there is some downside risk but it shouldn’t be overstated,” said Barclays’s Yu. Europe’s “economy is not on a strong footing and the sovereign debt issue is not over.”

The debt crisis which began in Greece persists as Portugal had its credit rating cut this week, after the country’s parliament rejected a deficit-cutting plan, sparking the resignation of Prime Minister Jose Socrates on March 23.

In Ireland, top finance officials will today seek to show investors, taxpayers and the rest of the euro region that the banking crisis in the country might be nearing an end.

Central Bank Governor Patrick Honohan will publish the results of a third round of stress tests on the country’s banks at 4:30 p.m. in Dublin. Shortly afterwards, Finance Minister Michael Noonan will set out how more capital will be raised.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@Bloomberg.net

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U.S. Stocks Fluctuate as Jobless Claims Top Economist Estimates

David Sokol, former Midamerican Energy Chairman David Sokol. Photographer: Daniel Acker/Bloomberg

U.S. stocks fluctuated at the end of the biggest first-quarter rally in 13 years as higher oil and metal prices drove commodity producers higher, while consumer companies and banks slumped.

Chevron Corp. (CVX) added 0.9 percent as oil headed for a third quarterly gain in New York. Berkshire Hathaway Inc. (BRK/A) lost 1.6 percent as David Sokol, once a candidate to succeed Warren Buffett as the head of the investment firm, resigned after helping to negotiate the acquisition of a company whose shares he had purchased. Carmax Inc. (KMX) slumped 7.1 percent after the largest U.S. seller of used cars said gross margin dropped.

The Standard & Poor’s 500 Index slipped less than 0.1 percent to 1,327.48 at 11:14 a.m. in New York. The Dow Jones Industrial Average rose 4.73 points, or less than 0.1 percent, to 12,355.34. Equity index futures retreated before the open of exchanges after first-time claims for unemployment insurance topped economists’ estimates.

“You had the weekly jobless claim numbers slightly weaker, so you don’t have anything helping the market here,” said Timothy Ghriskey, chief investment officer at the Solaris Group LLC in Bedford Hills, New York, which manages $2 billion. “The market also had quite a recovery here since mid-March and there could be some profit-taking today as we end the quarter.”

The S&P 500 advanced 5.6 percent in this quarter through yesterday and is poised for its biggest gain in the January- March period since 1998. An earthquake and tsunami in Japan and concern that revolts in the Middle East and northern Africa will curb global growth dragged the S&P 500 as much as 6.4 percent lower from its high for the year on Feb. 18 through March 16. The gauge has recovered most of that loss, trimming its drop from its 2011 high to 1.1 percent.

First-Quarter Gains

The S&P 500 usually climbs further following first-quarter gains similar to this year’s, according to Birinyi Associates Inc. The index rises about 7.1 percent in the final three quarters of years following January-March gains of 5 percent to 7 percent, Birinyi data dating back to 1928 show.

The benchmark gauge of U.S. stocks is trading for about 13.7 times its companies’ estimated operating earnings, compared with an average multiple of 18.1 times reported profits over the last decade, data compiled by Bloomberg show.

Jobless claims fell by 6,000 to 388,000 in the week ended March 26, Labor Department figures showed. The median forecast of economists in a Bloomberg survey was for a decline to 380,000 claims. The report comes before tomorrow’s monthly government report on non-farm payrolls, expected to show that the economy added 190,000 jobs in March.

European Bonds

Other reports showed U.S. factory orders unexpectedly fell 0.1 percent after a 3.3 percent gain in January, the Commerce Department said today. The Institute for Supply Management- Chicago Inc.’s business barometer fell in March. The Bloomberg Consumer Comfort Index rose for the first time in five weeks to minus 46.9 in the period ended March 27 from a seven-month low of minus 48.9 the prior week.

European stocks slipped as the bonds of the region’s most- indebted nations sank and the cost of insuring against a Portuguese default jumped to a record as Ireland prepared to give banks more aid, deepening concern over Europe’s debt crisis.

“There are clearly quite a few risks out there that might hurt growth, not just in the U.S. but also the rest of the world,” Philippe Gijsels, the Brussels-based head of research at BNP Paribas Fortis Global Markets, said in a Bloomberg Radio interview.

Energy Companies Gain

Energy companies in the S&P 500 added 0.4 percent as a group as oil jumped 1.8 percent to $106.18 a barrel amid concern that the Libyan conflict will prolong production cuts. Chevron advanced 0.9 percent to $108.93.

Berkshire Hathaway Class B shares fell 1.6 percent to $84.11. Sokol bought about 96,000 Lubrizol Corp. shares in January before recommending the company as a takeover target, Buffett, Berkshire’s chairman and chief executive officer, said late yesterday in a statement. Sokol had initiated confidential talks with Lubrizol the month before. Berkshire agreed to buy the firm for $9 billion on March 14.

Carmax slumped 7.1 percent to $32.13 after declining 7.9 percent, the most intraday since Dec. 21. The largest U.S. seller of used cars said gross margin for the fourth-quarter fell to 14.2 percent from 14.5 percent in the year-ago period.

American International Group Inc. (AIG) fell 2.7 percent to $35.09 after the Federal Reserve Bank of New York said it has declined the insurer’s $15.7 billion offer to purchase the residential-mortgage backed securities owned by the central bank’s Maiden Lane II LLC rescue fund.

To contact the reporter on this story: Cecile Vannucci in New York at cvannucci1@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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USD/CAD Daily Outlook

USDCAD Outlook | Written by ActionForex.com | Mar 09 11 07:54 GMT

Daily Pivots: (S1) 0.9698; (P) 0.9722; (R1) 0.9738; More.

Consolidation from 0.9683 is still in progress and intraday bias remains neutral. Even in case of another recovery, upside is expected to be limited by 0.9836 support turned resistance and bring fall resumption. Below 0.9683 will target 161.8% projection of 1.0851 to 1.0138 from 1.0671 at 0.9517 next. Nevertheless, above 0.9836 will dampen this view and bring stronger rebound back to parity instead.

In the bigger picture, whole medium term fall from 1.3063 (2009 high) is still in progress and such down trend could possibly extend further towards 2007 low of 0.9056. Nevertheless, fall from 1.3063 is still looking corrective and hence, we'd expect strong support between 0.9056/9709 to contain downside and bring another medium term rise. Though, break of 1.0851 resistance is needed to confirm medium term reversal. Otherwise, medium term outlook will remain bearish.

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AUD/USD Daily Outlook

AUDUSD Outlook | Written by ActionForex.com | Mar 09 11 07:54 GMT

Daily Pivots: (S1) 1.0056; (P) 1.0095; (R1) 1.0136; More

No change in AUD/USD's outlook. While upside momentum is clearly seen diminishing with bearish divergence condition in daily MACD, AUD/USD is still drawing strong support from 55 days EMA. Recent up trend is still in favor to continue further. Break of 1.0200 again will target another high above 1.0254. On the downside, break of 0.9943 support is needed to be the first signal of topping. Otherwise, we won't turn bearish yet.

In the bigger picture, note that bearish divergence condition remains in daily and weekly MACD. Reversal should be imminent even if 1.0254 is not yet the major top. We'll continue to look for topping signal in case of another rise. On the downside break of 0.9803 support will now be an early signal of medium term reversal and will turn focus to 0.9536 support for confirmation.

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EUR/USD Daily Outlook

EURUSD Outlook | Written by ActionForex.com | Mar 09 11 07:51 GMT

Daily Pivots: (S1) 1.3848; (P) 1.3918 (R1) 1.3975; More.

EUR/USD's retreat from 1.4035 is still in progress and deeper fall might be seen. But still, strong support should be seen from near term rising trend line (now at 1.3804) to contain downside and bring another rise. Break of 1.4035 will bring rally resumption towards 1.4281 key resistance next. However, sustained trading below the trend line support will argue that whole rebound from 1.2873 is possibly completed and will bring deeper decline to 1.3472 support instead.

In the bigger picture, as long as 1.3427 support holds, we'd favor the case that rise from 1.2873 is extending rebound from 1.1875. Also, that would mean that we're favoring the case that medium term correction 1.6039 was completed with three waves down to 1.1875 and the long term up trend might be resuming. Break of 1.4281 resistance will further affirm this case and target 1.5143 resistance and then 1.6039 high. However, break of 1.3472 will leave the whole rise from 1.2873 in three wave corrective structure, which in turn indicate that fall from 1.4281 is not finished and will turn favors back to the bearish case for at least a test on 1.2873 support.

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China May Deflect Geithner Pressure by Reporting Smaller February Surplus

China may deflect international pressure for faster yuan appreciation by reporting the nation’s smallest trade surplus in 10 months tomorrow. Photographer: Andrew Harrer/Bloomberg

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March 7 (Bloomberg) -- Shaun Rein, Shanghai-based managing director of China Market Research Group, talks about the outlook for the yuan and inflation in China. He speaks with Francine Lacqua on Bloomberg Television's "On The Move." (Source: Bloomberg)

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March 4 (Bloomberg) -- Hugh Simon, chief executive officer of Hamon Asset Management Ltd. and co-manager of the Dreyfus Greater China Fund, discusses China's economy and currency policy. Simon speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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March 7 (Bloomberg) -- Eswar Prasad, a senior fellow at the Brookings Institution and a professor at Cornell University, discusses China's five-year plan and the outlook for the country’s economy. Prasad speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

China may deflect international pressure for faster yuan appreciation by reporting the nation’s smallest trade surplus in 10 months tomorrow.

The excess was $4.9 billion in February, from $6.5 billion a month earlier, according to the median estimate in a Bloomberg News survey of 21 economists. Data for the first two months of the year is typically distorted by the timing of a Lunar New Year holiday.

A smaller surplus may support China’s contention that the world’s second-largest economy is moving toward balanced trade as imports climb. Commerce Minister Chen Deming said March 7 that it’s “totally unreasonable” to say the yuan is undervalued, rejecting renewed calls by U.S. Treasury Secretary Timothy Geithner for faster gains.

“The smaller surplus in the last three months, combined with the trend we saw in the last two years, shows China’s rebalancing efforts are working,” said Sun Chi, a Hong Kong- based economist at Nomura Holdings Inc. who previously worked for the U.S. Treasury in Beijing. “It will also alleviate the pressure for yuan gains.”

Economists combine Chinese data for the first two months of the year to eliminate distortions. On that basis, the surplus may be $11 billion, about half the amount a year earlier. The boost to imports from higher commodity costs is playing a role, Sun said.

Premier Wen Jiabao highlighted efforts to boost domestic demand as a “long-term strategic principle” in his annual report to the legislature in Beijing on March 5.

Yuan Falls

Exports may have climbed an annual 27 percent in February, with imports rising 33 percent, the survey showed.

The yuan dropped 0.1 percent to 6.5720 per dollar in Shanghai as of 9:44 a.m. Non-deliverable forwards traded at 6.4155, reflecting bets the currency will strengthen 2.4 percent in a year.

“While seasonal adjustment is tricky at this time of the year, the typical pattern will be for the trade surplus to rebound after narrowing early in the year,” said David Cohen, a Singapore-based economist for Action Economics who has previously worked for the U.S. Federal Reserve. The annual surplus may be about $160 billion, down from $183 billion last year, he estimated.

That level will “still leave pressure for yuan appreciation,” he added.

China may report trade deficits in some months this year, Chen said at the National People’s Congress in Beijing on March 7. That has only happened once in the past six years, in March 2010.

Currency Stability

The commerce minister also said that the yuan will appreciate gradually over the long term, adding that basic stability in the currency aids the global recovery.

Some U.S. lawmakers, including Senator Charles Schumer of New York, complain China is holding down the yuan’s value to give its exporters an unfair advantage over American rivals. China is the world’s No. 1 exporting nation by value of shipments.

Chinese companies can accept annual gains in the currency of 3 percent to 5 percent, Bank of China Ltd. President Li Lihui said at the Beijing congress on March 5. Central bank Deputy Governor Yi Gang said the same day that the yuan’s exchange rate is the closest it has been to “equilibrium.”

China is “committed” to moving to a market-determined, flexible exchange rate and understands the importance of allowing the yuan to appreciate, the International Monetary Fund’s Zhu Min said on March 7. “The only question remaining is the speed,” Zhu, a special adviser to the IMF and a former Chinese central bank deputy governor, said in Arlington, Virginia.

--Zheng Lifei. Editors: Paul Panckhurst, John Liu.

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at +86-10-6649-7560 or lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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Euro Weakens for Third Day Before First Portuguese Bond Sale in Two Months

The 17-nation euro declined 0.3 percent today, according to Bloomberg Correlation-Weighted Currency Indexes, which track the foreign exchange of 10 developed nations. Photographer: Chris Ratcliffe/Bloomberg

The euro declined for a third day against the dollar before Portugal seeks to borrow as much as 1 billion euros ($1.4 billion) in its first bond sale for two months as it seeks to avoid a European Union bailout.

Europe’s common currency erased an earlier decline against the yen and weakened against all but one of its 16 most-actively traded peers. Portugal is trying to sell bonds due 2013, returning investor focus to the debt crisis that forced Ireland and Greece to seek aid. Greek 10-year yields yesterday soared to the most since the euro’s introduction. Australia’s dollar fell for a fifth day after a report showed home-loan approvals dropped the most in a year.

“The risks in the periphery of the euro zone are building up,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. “Portugal’s issuance is going to be very important.”

The euro lost 0.3 percent to $1.3865 as of 8:46 a.m. in London, capping its longest run of declines since Feb. 15. It climbed to $1.4036 on March 7, the strongest level since November. It was little changed at 114.89 yen, from 114.94 yesterday in New York. Japan’s currency depreciated to 82.86 per dollar from 82.67.

The 17-nation euro declined 0.3 percent today, according to Bloomberg Correlation-Weighted Currency Indexes, which track the foreign exchange of 10 developed nations. It’s up 2.2 percent this year, driven by expectations that the European Central Bank will boost interest rates.

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

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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Crude Oil Declines as OPEC Discusses Holding Emergency Meeting on Output

Crude oil fell from a 29-month high in New York as members of the Organization of Petroleum Exporting Countries discussed whether to hold a special meeting.

Crude slipped 0.4 percent after Kuwait’s oil minister said OPEC members are considering whether to convene an “urgent meeting.” Futures trimmed losses as opponents of Libyan leader Muammar Qaddafi plan to recapture a town, Bin Jawad, and after Goldman Sachs Group Inc. and Bank of America Merrill Lynch raised oil-price forecasts.

“OPEC may schedule a meeting to discuss increasing production,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The OPEC news and signals that the U.S. may release some strategic reserves is making some investors think twice about being long.”

Crude oil for April delivery dropped 42 cents to settle at $105.02 a barrel on the New York Mercantile Exchange. The contract ended yesterday at $105.44, the highest settlement since Sept. 26, 2008. Futures are up 28 percent from a year ago.

Prices declined from the settlement after the American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles rose 3.82 million barrels to 348.5 million. April oil fell 77 cents, or 0.7 percent, to $104.68 a barrel in electronic trading at 4:34 p.m.

Brent crude oil for April settlement slipped $1.98, or 1.7 percent, to end the session at $113.06 a barrel on the London- based ICE Futures Europe exchange.

Narrowing Spread

The premium of Brent to West Texas Intermediate, the grade traded in New York, surged to a record $19.54 on Feb. 21 as unrest spread in the Middle East and North Africa and stockpiles climbed at Cushing, Oklahoma, the WTI delivery point. The premium narrowed to $8.04 today, the least since Jan. 20.

“The spread has become so big that it’s attracted value players,” said Peter Beutel, president of Cameron Hanover Inc. in New Canaan, Connecticut, a trading-advisory company. “Widening the spread became a high-stakes poker game among a few players, and it now appears to be coming to an end.”

Kuwait’s oil minister told reporters in Kuwait City today that OPEC Secretary General Abdalla El-Badri is contacting members to see whether a meeting on production levels is needed.

“I’ve talked to Abdalla El-Badri in this regard and he is calling everybody and making a consensus on whether we’ll need an OPEC meeting, an urgent meeting,” Sheikh Ahmad al-Abdullah al-Sabah said. “We have to find out at the meeting whether there is a need for an increase or not.”

Libyan Turmoil

Violence in Libya, Africa’s third-largest crude producer, has cut output by as much as 1 million barrels a day, according to the International Energy Agency. The North African country pumped 1.39 million barrels a day in February, down from 1.59 million the previous month, according to Bloomberg estimates.

“The question now is how much geopolitical risk premium is appropriate,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Prices have risen so much that we need an ongoing stream of frightening news to keep the market moving higher.”

Vienna-based researcher JBC Energy GmbH estimated Libya accounts for 8.8 percents of total global production of light, sweet crude, or crude oil with low density and sulfur content. This type of crude yields more of more lucrative fuels such as gasoline and diesel when processed.

Some OPEC members and producers outside the group have made up for the reduction in crude shipments from Libya, Qatari Energy Minister Mohammed Saleh al Sada said today.

‘Hardly Any Effect’

“There was hardly any effect” on supply because of the Libyan unrest, he said at a conference in Doha.

Demonstrations have toppled leaders in Tunisia and Egypt and there have been protests in countries including Iran, Yemen and Oman. In Saudi Arabia, OPEC’s biggest producer, websites have called for a nationwide “Day of Rage” on March 11 and March 20, according to Human Rights Watch.

“The big news is Libya, at least until Friday,” Beutel said. “Come Friday, all eyes will be on the Day of Rage in Saudi Arabia.”

The Obama administration will consider using the Strategic Petroleum Reserve if rising oil prices caused by turmoil in the Middle East and North Africa threaten the U.S. economy, White House Chief of Staff William Daley said on NBC’s “Meet the Press” program on March 6.

Total SA Chief Executive Officer Christophe de Margerie said there is “no reason” to tap the reserve and that to do so “is to send the message that we are scared.” He spoke at CERAWeek, a Houston conference put on by IHS Cambridge Energy Research Associates.

Goldman Sachs

Goldman Sachs raised its second-quarter outlook for Brent crude by $4.50 to $105 a barrel, citing estimates that spare capacity in OPEC has dropped below 2 million barrels a day, according to a report dated yesterday.

Bank of America Merrill Lynch increased its Brent crude price forecast for this year to $108 a barrel from $88 and for next year to $95 a barrel from $85, in a note today.

Oil volume in electronic trading on the Nymex was 861,561 contracts as of 4:31 p.m. in New York. Volume totaled 902,351 contracts yesterday, 13 percent above the average of the past three months. Open interest was 1.58 million contracts, the highest since July 16, 2007.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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Oil Falls a Second Day on OPEC Supply Speculation, Rising U.S. Stockpiles

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March 8 (Bloomberg) -- Nigel Gault, chief U.S. economist at IHS Global Insight, talks about the outlook for oil prices and the U.S. economy. He speaks with Matt Miller and Carol Massar on Bloomberg Television's "Street Smart." (Source: Bloomberg)

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March 8 (Bloomberg) -- Alexander Ridgers, head of commodities at London-based CMC Markets, talks about the outlook for oil prices. He speaks with Andrea Catherwood on Bloomberg Television's "Last Word." (Source: Bloomberg)

Oil dropped for a second day in New York as speculation mounted that OPEC will consider boosting output to compensate for disruptions in Libya and rising U.S. supplies signaled weakening demand.

Futures slid as much as 0.8 percent after U.S. crude inventories climbed the most since November, according to American Petroleum Institute data. Angola’s oil minister said the Organization of Petroleum Exporting Countries should wait to see how events in Libya unfold before calling an emergency meeting about prices and production. Kuwait’s oil minister yesterday said members of the group are weighing an “urgent” meeting to determine whether more output is needed.

“I think the situation in Libya to some degree is contained from an oil-price point of view,” said Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne. “There is also a lot of supply in the market, it’s not tight.”

Crude for April delivery decreased as much as 81 cents to $104.21 a barrel in electronic trading on the New York Mercantile Exchange, and was at $104.30 at 3:39 p.m. Singapore time. Yesterday, the contract lost 42 cents from the previous settlement of $105.44, the highest since Sept. 26, 2008. Prices are up 28 percent from a year ago.

Brent oil for April settlement slipped 41 cents, or 0.4 percent, to $112.65 a barrel on the London-based ICE Futures Europe exchange. The contract jumped 3.4 percent last week, its sixth weekly increase.

Crude Inventories

U.S. crude inventories climbed 3.8 million barrels last week to 348.5 million, the industry-funded American Petroleum Institute said. An Energy Department report today may show stockpiles increased by 1 million barrels, according to a Bloomberg News survey of analysts.

Violence in Libya, Africa’s third-largest crude producer, has cut output by as much as 1 million barrels a day, according to the International Energy Agency. The North African country pumped 1.39 million barrels a day in February, down from 1.59 million the previous month, according to Bloomberg estimates.

Crude dropped yesterday after Sheikh Ahmad al-Abdullah al- Sabah, Kuwait’s oil minister, told reporters that OPEC Secretary General Abdalla El Badri is contacting members to see whether a meeting on output levels is needed.

“The information that we have is that the market is supplied,” Angolan Oil Minister Jose Maria Botelho de Vasconcelos told reporters at an IHS Cambridge Energy Research Associates conference in Houston yesterday. Prices have risen because of geopolitical problems in North Africa, and “we need to wait a little bit” to act, he said.

Brent Premium

Demonstrations have toppled leaders in Tunisia and Egypt and there have been protests in countries including Iran, Yemen and Oman. In Saudi Arabia, OPEC’s biggest producer, websites have called for a nationwide “Day of Rage” on March 11 and March 20, according to Human Rights Watch.

The premium of front-month Brent futures to West Texas Intermediate, the grade traded in New York, surged to a record $19.54 on Feb. 21 as unrest spread in the Middle East and North Africa and stockpiles climbed at Cushing, Oklahoma, the WTI delivery point. The premium was at $8.33 today.

The spread has narrowed even as supplies at Cushing continue to rise. Stockpiles there have climbed to a record 40.3 million barrels, the API data showed yesterday. Brent’s premium has narrowed as hedge funds and other financial investors buy New York futures, according to Anthony Nunan, the assistant general manager for risk management at Mitsubishi Corp. in Tokyo.

“Even though there is this oversupply there is a lot of demand for WTI as a financial asset,” Nunan said by telephone today. “Despite all this talk about it being a broken benchmark the financial community doesn’t seem to care.”

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net

To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net

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China Imports of New Zealand Milk Jump Five-Fold, Aiding Quake-Hit Nation

China’s milk imports from New Zealand surged more than five-fold since 2008 as rising incomes stoked demand, sending prices to a record and bolstering the economy as it recovers from the deadliest earthquake in 80 years.

China, the biggest importer of New Zealand dairy products by value, purchased about 353 million kilograms of the country’s milk products in 2010, up from 69 million kilograms in 2008, according to government data supplied by Fonterra Cooperative Group Ltd., the world’s largest exporter. Fonterra processes 95 percent of the country’s milk and earns a fifth of its export revenues, the company said.

New Zealand is relying on China and other emerging markets to buy more dairy products to rekindle economic growth after a contraction in the quarter ended Sept. 30. Asian consumers are demanding more protein as incomes and nutrition levels rise, said Con Williams, rural economist at ANZ National Bank Ltd.

“Milk’s going to be an important component because it’s about 25 percent of export earnings,” Williams said. “It’s going to be a cornerstone in terms of earning overseas dollars and then getting that through the economy.”

Prime Minister John Key said March 2 there’s likely to be “virtually no growth” in New Zealand for the financial year through June. The economy might have contracted in the fourth quarter of 2010, entering its second recession in two years, Finance Minister Bill English said last month.

An economic recovery may be slowed by the 6.3-magnitude earthquake that struck the South Island city of Christchurch on Feb. 22, killing more than 160 people and causing an estimated NZ$15 billion in damage.

Growth Cut

Economic growth in 2011 is expected to be 1.5 percentage points lower because of the temblor, according to the Treasury Department. A “small contraction” in real gross domestic product is predicted in the March quarter, compared with a 0.5 percent growth forecast before the quake, it said on March 6.

High prices for New Zealand’s commodity exports may help Christchurch recover from its second quake in six months, English said March 1. Export prices rose for a sixth month to a record in February, according to the ANZ Commodity Price Index.

Whole milk powder prices surged 41 percent in Fonterra’s last seven global auctions, prompting the company to freeze local wholesale prices for the rest of this year.

Prices reached a record on March 2 amid sustained demand from China and concerns rising input costs may curb supply. Milk prices will likely remain at least 50 percent above historical averages in the longer term, Fonterra’s Chief Executive Officer Andrew Ferrier said on Feb. 14.

Diet Shift

As developing nations’ incomes rise, diets are expected to include more meat and processed foods, favoring dairy and livestock, according to an annual outlook from the Organization for Economic Cooperation and Development and the United Nations’ Food and Agriculture Organization last June.

Global food prices have surged on increased demand coupled with harvest disruptions, including a drought in China, as well as heavier-than-usual rains across parts of Asia. Food prices climbed to a record last month, according to a 55-item basket tracked by the United Nations.

China imported about NZ$2.1 billion ($1.6 billion) worth of New Zealand dairy products in 2010 from $732 million in 2008, according to the government data. The country’s milk imports are likely to remain strong this year as local supply struggles to meet demand growth, according to a Feb. 14 forecast from Dairy Australia.

Higher incomes, population growth and concerns about the safety of domestic milk supply after a melamine contamination in 2008 killed at least six infants will buoy demand, Williams said.

Dairy Farms

“Over the medium term, New Zealand is well positioned to supply that,” he said. “Longer term, it’s how can you work with the Chinese in the country to grow supply from what they have in terms of resources.”

Fonterra in October agreed to develop a dairy farm in China’s Hebei province to expand local milk production. Its existing Tangshan farm has doubled to more than 6,000 cows since it opened in 2007 and produces about 25 million liters of milk for local consumption.

Other countries that recorded the largest growth in imports include India and Sudan. India’s imports of New Zealand dairy products more than doubled to NZ$162 million last year, according to the government data. The value of Sudan imports jumped to NZ$114 million from NZ$39 million in 2008.

Australia and the U.S. were the second- and third-biggest importers of New Zealand dairy products in 2010, according to the data. Australia bought NZ$853 million and the U.S. purchased NZ$748 million of dairy products last year.

To contact the reporter for this story: Phoebe Sedgman in Wellington at psedgman2@bloomberg.net.

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net.

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Boston Beer, Ciena, Finisar, JDS Uniphase: U.S. Equity Preview

Shares of the following companies may have unusual moves in U.S. trading.

AeroVironment Inc. (AVAV) : The maker of low-flying drones for U.S. military forces reported fiscal third-quarter profit of 52 cents a share excluding some items, beating the average analyst estimate by 37 percent.

Boston Beer Co. (SAM US): The maker of Samuel Adams lager said 2011 profit will be as low as $3.45 cents a share, compared with a prior forecast of $3.95 a share.

Diamond Foods Inc. (DMND) : The nut processor and distributor said 2011 profit will be as low as $2.45 a share versus the average analyst estimate of $2.51.

Finisar Corp. (FNSR) : The maker of fiber-optic transmission gear said it won’t earn more than 35 cents a share excluding some items in the fourth quarter, missing the average analyst estimate of 48 cents.

Other makers of networking equipment may move, including JDS Uniphase Corp. (JDSU) , Ciena Corp. (CIEN) , Infinera Corp. (INFN) , Oclaro Inc. (OCLR) and Oplink Communications Inc. (OPLK) .

Texas Instruments Inc. (TXN) : The largest analog chipmaker narrowed its first-quarter profit estimate to 56 cents to 60 cents a share from 54 cents to 62 cents. The average analyst estimate in a Bloomberg survey was 59 cents.

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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U.S. Stocks Advance as Oil Retreats; Sprint, Bank of America Shares Rise

Sprint Nextel rallied 7.1 percent after Bloomberg News reported that people with knowledge of the matter said Deutsche Telekom AG has held talks to sell its T-Mobile USA unit. Photographer: Jacob Kepler/Bloomberg

U.S. stocks advanced, snapping a two-day decline for benchmark indexes, as crude oil retreated and Bank of America Corp. (BAC) sparked a rally in financial shares after saying its home-loan business is in “recovery mode.”

Bank of America jumped 4.7 percent, leading a gauge of financial shares to the biggest gain among 10 Standard & Poor’s 500 Index industries. Sprint Nextel Corp. (S) climbed 4.9 percent after people with knowledge of the matter told Bloomberg News that Deutsche Telekom AG held talks to sell its T-Mobile USA unit to the company. PulteGroup Inc. climbed 8.4 percent after the homebuilder reported “good traffic and sign-up rates.”

The S&P 500 increased 0.9 percent to 1,321.82 at 4 p.m. in New York. The benchmark gauge had fallen 1.6 percent over the previous two trading days. The Dow Jones Industrial Average advanced 124.35 points, or 1 percent, to 12,214.38. Crude oil declined 0.4 percent to $105.02 a barrel in New York.

“We’re in an economic recovery and the stock market is reflecting that,” said John Carey, a Boston-based money manager at Pioneer Investments, which oversees about $250 billion. “Companies are flush with cash and there’s been a pick-up in M&A activity, which is an indication of corporate confidence. In addition to that, crude oil prices are down and people can relax a bit about energy costs not going through the roof.”

The S&P 500 yesterday erased last week’s gain as oil reached a 29-month high. The gauge rallied 5.1 percent this year as companies reported earnings that topped analysts’ estimates for the eighth straight quarter and the Federal Reserve kept interest rates at a record low.

‘Urgent Meeting’

Crude oil fell as members of the Organization of Petroleum Exporting Countries discussed whether to hold a special meeting and Libyan rebels prepared an offensive to regain a town. Kuwait’s oil minister said OPEC members are considering whether to convene an “urgent meeting.”

Nouriel Roubini, who predicted the global financial crisis, said an increase in oil prices to $140 a barrel will cause some advanced economies to slide back into recession. Underlying how fragile the recovery is, Roubini said the European Central Bank may be making a mistake by raising interest rates “too soon” when debt-ridden countries on the euro region’s periphery struggle to restore the competitiveness of exports.

Stock-index futures erased gains before the open of exchanges as European Central Bank Governing Council member Axel Weber said he doesn’t want to correct market expectations for as many as three quarter-point increases in the bank’s benchmark interest rate this year.

‘Zero Rate Trap’

“One of the biggest fears is that the developed nations have gotten themselves into a zero rate trap,” said Peter Sorrentino, who helps oversee $14.4 billion at Huntington Asset Advisors in Cincinnati. “So, if they start to raise rates, the market will begin to move beyond their control.”

Financial shares in the S&P 500 rose 2.2 percent, collectively, the biggest gain within 10 groups. The KBW Bank Index added 2.7 percent, as all of its 24 stocks gained.

Bank of America jumped 4.7 percent, the most in the Dow, to $14.69. The largest U.S. lender said its commercial- and investment-banking businesses are already transitioning this year and may post what the company considers normalized earnings in 2012 and 2013.

Chief Executive Officer Brian T. Moynihan, hosting the lender’s first investor day since 2007, is seeking to assure investors the bank will return to profitability as the economy stabilizes and the company recovers from disputes with investors over soured mortgages. The company’s net loss last year was driven by writedowns at credit-card and home-lending units acquired by Moynihan’s predecessor, Kenneth D. Lewis.

‘Growth Company’

“We are changing the culture of the company from a company that was built upon acquisitions and consolidation,” Moynihan said today in New York. “We are again a growth company.”

Sprint gained 4.9 percent to $4.70. Deutsche Telekom has held talks to sell its T-Mobile USA unit to Sprint in exchange for a major stake in the combined entity, said people with knowledge of the matter. Talks have been on and off, and a deal may not be reached, said the people, who spoke on the condition of anonymity because the talks are private.

“In general, all options are open in the U.S. -- the sale of the whole business or of parts,” Deutsche Telekom Chief Financial Officer Timotheus Hoettges said in an e-mail today. He said the company could also find a partner, sell shares in the market or form a network agreement.

Bill White, a spokesman for Overland Park, Kansas-based Sprint, declined to comment.

M&A Scorecard

Announced takeovers of U.S. companies have totaled $186.4 billion so far in 2011, 21 percent more than in the same period last year, according to data compiled by Bloomberg.

A gauge of homebuilders in S&P indexes rallied 4.8 percent. PulteGroup jumped 8.4 percent, the most in the S&P 500, to $7.09. The largest U.S. homebuilder by revenue said it signed up 2,674 homes for sale in the first two months of the year. The orders showed “demand continues to stabilize and slightly improve entering the current spring selling season,” JPMorgan Chase & Co. said in a note.

The Bloomberg U.S. Airlines Index of 12 stocks jumped 7.3 percent, as the retreat in crude oil prices eased concern about higher energy costs. US Airways Group Inc. (LCC) climbed 12 percent to $9.28. Delta Air Lines Inc. (DAL) added 9.7 percent to $11.07.

Energy shares had the only decline in the S&P 500 among 10 industries, falling 0.6 percent, collectively. Occidental Petroleum Corp. (OXY) slumped 2.1 percent to $100.92. ConocoPhillips (COP) decreased 1.1 percent to $78.32.

McDonald’s Slumps

McDonald’s Corp. (MCD) fell 1 percent, the most in the Dow, to $75.54. The world’s biggest restaurant chain reported sales rose 2.7 percent at stores open at least 13 months in the U.S. last month, missing analysts’ estimates. Analysts had projected a gain of 4 percent, according to the average of three estimates compiled by Bloomberg.

Urban Outfitters Inc. (URBN) had the biggest decline in the S&P 500, tumbling 17 percent to $31.66. The operator of the namesake and Anthropologie clothing chains said profit margins shrank last quarter. Gross margin, or the percentage of sales after the cost of goods sold, narrowed 2 percentage points to 39.7 percent in the quarter ended Jan. 31, the Philadelphia-based company said yesterday. Profit amounted to 45 cents a share, trailing the 52-cent average of estimates compiled by Bloomberg.

The past two years have shown that stock investors need to focus on “the beaten-up areas of the market” when prices rebound, according to Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist.

More than Quintupled

Auto stocks set the S&P 500’s pace since March 9, 2009, according to data compiled by Bloomberg, as the industry-group index more than quintupled in the period through yesterday. Grocery and drugstore stocks had the smallest gain, at 34 percent. The two industries’ rankings were almost exactly the opposite in the preceding bear market, which lasted 17 months. The S&P 500 Automobiles and Components Index tumbled 84 percent, more than any other industry except banks. The S&P 500 Food and Staples Retailing Index did best by losing only 26 percent.

“Fears of a Great Depression reenactment provided investors with a powerful trading opportunity over the past two years,” Levkovich wrote today. The auto industry is among those most closely linked to the economy’s performance, while food and drug retailers had less to gain from economic growth.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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European Stocks Fluctuate; EADS Advances on Earnings, Alcatel Shares Slide

European stocks fluctuated as a second day of declines in the price of oil offset concern about the levels of euro-region government debt. U.S. index futures and Asian shares were little changed.

European Aeronautic, Defence & Space Co. advanced 3.3 percent after the company returned to profit in 2010 and reinstated its dividend. Alcatel-Lucent SA dropped more than 4 percent after U.S. rival Finisar Corp. forecast earnings that missed estimates. E.ON AG (EOAN) declined 1.2 percent after the world’s largest utility by sales said net income will fall.

The Stoxx Europe 600 Index fell 0.1 percent to 281.42 at 9 a.m. in London. The gauge has lost 3.1 percent since peaking at a 2 1/2-year high on Feb. 17 as oil surged amid escalating unrest in North Africa and the Middle East, increasing concern that higher energy costs will harm the economic recovery.

“Any gains from the easing oil price are offset by the threat of euro-zone debt troubles and prospects of tighter monetary policy,” said Jonathan Sudaria, a London-based trader at London Capital Group.

Standard & Poor’s 500 Index futures slipped 0.2 percent today. The MSCI Asia Pacific Index gained 0.1 percent.

Crude fell as much as 0.8 percent to $104.21 a barrel in New York as speculation mounted that OPEC will consider boosting output to compensate for disruptions in Libya and U.S. crude inventories climbed.

OPEC Production

Angola’s oil minister said the Organization of Petroleum Exporting Countries should wait to see how events in Libya unfold before calling an emergency meeting about prices and production. Kuwait’s oil minister yesterday said members of the group are weighing an “urgent” meeting to determine whether more output is needed.

In Europe, Moritz Kraemer, managing director of European sovereign ratings at S&P, warned some countries may have their credit ratings cut further while a Greek debt default is a “possibility.”

Asked if the worst was over for the region’s sovereign credit-rating outlook, Kraemer said: “I wish I could say yes, but the answer is no.” Kraemer was speaking in an interview at a EuroMoney conference in London yesterday.

EADS rose 3.3 percent to 20.49 euros after reporting full- year net income of 553 million euros ($767 million) compared with a 763 million-euro loss a year earlier. The aerospace company also said profitability will rebound after this year as it smoothes out currency swings and jet deliveries gain.

Alcatel Falls

Alcatel, France’s largest telecommunications equipment maker, dropped 4.4 percent to 3.80 euros. Finisar, the Sunnyvale, California-based maker of fiber-optic transmission gear, yesterday forecast fourth-quarter earnings of 31 to 35 cents a share. That missed analyst estimates of 48 cents.

E.ON lost 1.2 percent to 22.85 euros after the German utility said adjusted net income will fall as much as 32 percent this year after the government imposed a new tax on its nuclear plants and it sells power at lower prices.

Prudential Plc (PRU) gained 3.4 percent to 738.5 pence after the U.K.’s biggest insurer by market value more than doubled full- year net income to 1.43 billion pounds ($2.31 million). Operating profit for the period rose 24 percent to 1.94 billion pounds, beating analyst estimates of 1.74 billion pounds.

Iberdrola Renovables SA (IBR) jumped 8.4 percent to 2.97 euros, the biggest gain since 2008, after parent company Iberdrola SA (IBE) bid 2.5 billion euros to buy out minority investors in its renewable energy unit. Iberdrola SA shares slipped 0.8 percent to 5.94 euros.

Tognum AG (TGM) climbed 4.1 percent to 24.16 euros as Daimler AG and Rolls-Royce Group Plc offered 24 euros a share to purchase the German maker of heavy-duty engines. Tognum surged 23 percent on March 7 after Daimler and Rolls-Royce said they were considering a joint bid for the company.

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

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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