Stocks, Euro Retreat as Treasuries Halt Slump

By Andrew Rummer - Oct 13, 2011 8:31 PM GMT+0700

Stocks fell, halting the strongest rally over seven days in the U.S. since March 2009 and pulling European shares down from a two-month high, and the euro weakened as the European Central Bank said forcing investors to take losses in bailouts is a risk to financial stability. Base metals slid and Treasuries snapped a six-day drop.

The Standard & Poor’s 500 slipped 0.5 percent at 9:30 a.m. in New York as JPMorgan Chase & Co. (JPM) dropped after reporting a decline in earnings. The Stoxx Europe 600 Index lost 0.9 percent, after closing yesterday at the highest level since Aug. 4. The euro depreciated versus 13 of 16 major peers and the cost of insuring against default on European government bonds rose. Lead, nickel and copper led commodities lower.

The ECB said the involvement of the private sector in euro- area bailouts through forced investor losses would have “direct negative effects” on banks. JPMorgan Chase, the second-largest U.S. bank, reported an approximately 33 percent profit decline excluding a $1.9 billion accounting benefit as earnings from investment banking and trading slumped.

“Any disagreements on how we come out of this crisis will generate pressure on markets and specifically on the financial sector,” said Luis Benguerel, a trader at Interbrokers in Barcelona, Spain. “We are coming from a solid rally in recent days on the hopes that the debt crisis may be nearing a resolution. Anything that may divert that process will generate renewed instability.”

Seven-Day Rally

The S&P 500 retreated today after rebounding from a 13- month low last week, surging 9.8 percent over seven sessions as growing confidence in Europe’s efforts to fight its debt crisis and improving U.S. economic data alleviated concern the U.S. economy would relapse into a recession.

More than two stocks declined for every one that gained in the Stoxx 600. Carrefour SA (CA) sank 4.9 percent as the world’s second-largest retailer lowered its 2011 profit forecast for the second time in three months. Anglo American Plc led a retreat in mining companies, sliding 4.1 percent.

Applications for unemployment insurance payments decreased 1,000 in the week ended Oct. 8 to 404,000, Labor Department figures showed. Economists forecast 405,000 claims, according to the median estimate in a Bloomberg News survey. The U.S. trade deficit was little changed at $45.6 billion in August, compared with a median projection of $45.8 billion in a Bloomberg News survey of economists, according to data from the Commerce Department in Washington.

‘Massively Vulnerable’

“The market over the next few days may be due for a bit of a correction as we’ve had many days of gains,” Mohammed Apabhai, head of Asia trading at Citigroup Inc., said in a Bloomberg Television interview in Hong Kong. “If things do go wrong, markets remain massively vulnerable, but we’re not expecting that. Of course everything hinges on what comes out of Europe.”

U.S. 10-year Treasuries rose, snapping a six-day decline, pushing the yield down three basis points to 2.18 percent. German bunds advanced for the first time in seven days, driving the 10-year yield down three basis points to 2.16 percent.

Minutes from the Federal Reserve’s Sept. 20-21 meeting, released yesterday, showed policy makers saw “considerable uncertainty” that U.S. growth will pick up. Most participants favored giving additional information on the central bank’s goals and how they influence decisions, and most “saw advantages” in tying the Fed’s near-zero interest rates to more-specific developments in the economy.

Italian 10-year bonds fell for a fifth day as the yield rose eight basis points to 5.82 percent, the highest since August, as the nation sold debt maturing in 2016 and 2015. The yield climbed nine basis points to 5.81 percent.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed 6.9 basis points to 327.3. An increase signals worsening perceptions of credit quality.

Berlusconi Confidence Vote

Italian Prime Minister Silvio Berlusconi called for a confidence vote in Parliament to prove he has enough support to rule after failing to muster a majority on a legislative ballot this week. While the vote has yet to be scheduled, Berlusconi’s allies have indicated it may be tomorrow.

The euro declined 0.4 percent to $1.3731 and lost 0.9 percent to 105.56 yen. The Japanese currency rose 0.5 percent to 76.87 per dollar, strengthening versus 14 of 16 major counterparts.

Copper Drops

Copper dropped 2.3 percent to $7,349.50 a metric ton in London and oil in New York fell 1.3 percent to $84.44 a barrel. Raw sugar jumped 3.8 percent to 27.01 cents a pound as Thailand, the world’s second-biggest exporter of sugar, said floods may last until the end of the month.

The MSCI Emerging Markets Index advanced 0.7 percent, extending a six-day, 11 percent advance, the longest since April 6. The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong rose 3.7 percent, taking a rebound from its Oct. 4 low to 21 percent.

The Shanghai Composite Index gained 0.8 percent after China’s State Council said it will provide financial support and preferential tax policies for small companies. Poland’s WIG20 Index lost 0.8 percent, led by a 2.8 percent decline in KGHM Polska Miedz SA, the country’s only copper producer. The Micex Index retreated 0.2 percent in Moscow.

To contact the reporter on this story: Andrew Rummer in London at arummer@bloomberg.net

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

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JPMorgan Beats Estimates Due to Accounting

By Dawn Kopecki - Oct 13, 2011 7:59 PM GMT+0700

JPMorgan Chase & Co. (JPM), the second- largest U.S. bank, reported an approximately 33 percent profit decline excluding a $1.9 billion accounting benefit as earnings from investment banking and trading slumped.

Third-quarter earnings fell to about $3.1 billion, or 73 cents a share, not including the 29-cent accounting gain, from $4.71 billion on the same basis a year earlier. Net income was $4.26 billion, or $1.02 a share, compared with the average per- share estimate for adjusted earnings of 92 cents in a survey of 30 analysts by Bloomberg, the New York-based company said today.

Revenue at the investment-banking unit fell 13 percent from the second quarter as concern that Greece would default and U.S. lawmakers would fail to raise the debt ceiling roiled markets. The firm said the division will face similar market conditions for the rest of the year. The retail business fared better, with mortgage fees and related income gaining 25 percent from the second quarter and credit-card revenue up 7 percent.

The debt-valuation gain, “does not relate to the underlying operations of the company,” Chief Executive Officer Jamie Dimon, 55, said in a statement. Dimon said on a conference call with journalists that the after-tax effect of the accounting change was about 60 percent of the total gain for the quarter.

Matthew Burnell, an analyst at Wells Fargo & Co. (WFC), estimated the firm would post $350 million in gains from the change in debt valuation. U.S. accounting rules require the adjustment when the value of a company’s debt declines, under the theory that a profit would be realized if it were bought back at a discount.

Share Performance

JPMorgan fell to $32.61 in New York trading from $33.20 on the New York Stock Exchange yesterday. The shares are down 22 percent this year.

Third-quarter revenue fell 0.2 percent to $23.8 billion from a year earlier. Fixed-income and equity-markets revenue rose to $4.75 billion from $4.3 billion.

JPMorgan and other large banks, which have benefited from record low costs of funding mortgages and other assets, face a squeeze on net interest margins -- the difference between what they pay to borrow money and what they get for loans and on securities.

Jes Staley, CEO of JPMorgan’s investment bank, braced investors last month for the drop in trading revenue from the second quarter, when the company generated $5.5 billion from that business. The investment bank’s staff dropped to 26,615 in the third quarter from 27,716 in the second quarter, a decline of 4 percent.

‘Challenged’ Trading

“Trading overall in the third quarter is going to be challenged amid dislocations both home and abroad,” Jason Goldberg, a senior bank analyst at Barclays Capital in New York, said in an interview yesterday. “During the quarter, you saw both a slowdown in investment-banking activity and more challenging trading conditions amid a spike in volatility fueled by concerns in Europe.”

Slowing economic growth and heightened concern about European sovereign debt have weighed on bank stocks all year. The KBW Bank Index (BKX) dropped 25 percent this year through yesterday, and the worst performer, Bank of America Corp. (BAC), is down 51 percent. A jump in borrowing costs at some banks, including New York-based Morgan Stanley, subsided last week as investors became more optimistic that European Union policy will find a solution.

Real Estate

Home sales remain slow. Purchases of new houses fell in August to a six-month low, according to Commerce Department data released Sept. 26. Purchases of previously owned homes rose to a five-month high, boosted by demand of low-priced, distressed houses, the National Association of Realtors said Sept. 21. Sales of existing properties have averaged a 4.97 million annual pace this year, compared with the 7.25 million peak reached in September 2005.

Fed policy makers last month announced more steps to spur growth and revive the residential real-estate industry, which since 1982 has aided every economic recovery except the current one. In a move aimed at lowering borrowing costs, the Fed said it will buy $400 billion of bonds with maturities of six to 30 years through June, while selling an equal amount of debt maturing in three years or less.

Loan growth in the U.S. remains stagnant and net interest margins, which measure the profit margin on lending, continue to decline. Bank loans and leases fell $2.1 billion to $6.829 trillion from August 2010 through Sept. 28, according to Federal Reserve data.

JPMorgan was the first of the major U.S. lenders to report third-quarter results.

New York-based Citigroup Inc. (C), the third-biggest U.S. bank, may report a profit of $2.49 billion when it releases results on Oct. 17, and Wells Fargo & Co., based in San Francisco, will probably say it earned $3.87 billion when it announces results the same day, the survey of analysts shows. Bank of America may report a profit of $2.73 billion on Oct. 18 while Goldman Sachs Group Inc. (GS) may say it earned $45.3 million.

To contact the reporter on this story: Dawn Kopecki in New York at dkopecki@bloomberg.com.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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Fed Signals Next Policy Move May Link Stimulus to ‘Mileposts’ for Economy

By Scott Lanman and Craig Torres - Oct 13, 2011 11:00 AM GMT+0700

Federal Reserve officials moved closer to setting targets for economic performance such as inflation to decide how long to keep interest rates at a record low, an action analysts said may come as soon as next month.

Most of the central bank’s 17 governors and regional bank presidents “saw advantages” in the approach and judged it would make policy more effective, the Fed said yesterday in minutes of its Sept. 20-21 meeting in Washington. Some officials wanted to keep more bond purchases as an option, the minutes said.

Chairman Ben S. Bernanke is trying to find new ways to spur growth and reduce joblessness stuck around 9 percent, while cushioning the economy from risks including the housing slump and Europe’s debt crisis. He may set the new policy benchmarks as early as his planned press conference following a two-day gathering of policy makers on Nov. 2, said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. (JPM) in New York.

“That seems like a logical next step” by officials should they decide the economy needs another jolt, said Feroli, a former Fed researcher. “There’s pushback in terms of properly implementing it, but the idea itself didn’t seem to generate a lot of intrinsic opposition” at the meeting last month.

The policy would aim to discourage investors from expecting higher interest rates until economic measures such as inflation or employment reach specified levels, thereby keeping borrowing costs low.

Philadelphia Fed President Charles Plosser told reporters yesterday that policy makers are struggling over how to improve public understanding of their actions, and he doesn’t predict they’ll resolve the issue at November’s meeting.

Hinge on Inflation

The Fed could make it clearer how its policies hinge on inflation, inflation expectations and employment, he said after a speech in Philadelphia. Some Fed officials support incorporating the so-called Taylor Rule, which measures where the policy interest rate should be set based on inflation and growth, said Plosser, one of three officials to dissent from the easing in August and September.

A portion of officials suggested at the meeting that the Summary of Economic Projections, which explains policy makers’ forecasts and will next be released Nov. 22, could be a vehicle for providing more information about the Fed’s long-run goals and the “likely evolution of monetary policy,” the minutes said.

The Fed’s challenge is deciding which “economic mileposts,” or variables, to use, said Dana Saporta, a U.S. economist at Credit Suisse in New York. The Fed would have to choose between measures of employment, including the jobless rate and changes in payrolls, and between inflation gauges that the Fed prefers or are better known to the public, she said.

‘Very Tricky’

“The unemployment rate is a very tricky statistic these days because it’s being moved around by forces other than job creation,” Saporta said. A drop in labor-force participation accounts for much of the decline in the unemployment rate to its most recent level of 9.1 percent in September from 10.1 percent in October 2009, Saporta said.

Fed officials also discussed ways to better specify the central bank’s long-run objectives for inflation and jobs, the minutes said. U.S. central bankers currently stop short of formal targets for prices or unemployment, instead stating levels that represent where data would “converge over time under appropriate monetary policy and in the absence of further shocks.”

Several policy makers last month were reluctant to identify an unemployment goal, because it’s influenced “importantly by nonmonetary factors,” in contrast to a central bank’s control over inflation, according to the minutes.

Cut Unemployment

Only Chicago Fed President Charles Evans has publicly supported the idea of allowing consumer-price increases faster than 2 percent annually as a way to lower unemployment. The interest-rate commitment should be contingent on joblessness falling to around 7 percent or 7.5 percent as long as inflation stays below 3 percent in the medium term, Evans said Sept. 7. Fed policy makers aim for long-run inflation of about 1.7 percent to 2 percent.

Fed officials debated the changes as part of a wide-ranging discussion of policy tools last month, the minutes showed. The meeting culminated in the Federal Open Market Committee’s decision to replace $400 billion of Treasuries in the central bank’s portfolio with longer-term debt to reduce borrowing costs. Three officials dissented.

Bernanke said last week the so-called Operation Twist program is a “significant step but not a game changer” for reviving growth and reducing unemployment stuck near 9 percent.

Boost the Economy

The minutes said an unspecified “number” of officials wanted to keep further asset purchases as an option to boost the economy as policy makers saw “considerable uncertainty” that U.S. growth will pick up.

Additional asset purchases would constitute a third round of so-called quantitative easing after the Fed bought $2.3 trillion in housing and government debt in two rounds from December 2008 to June 2011.

“The clear message here is that we are heading toward quantitative easing three,” which may come in the first quarter, said Harm Bandholz, chief U.S. economist at Unicredit Group in New York.

Bandholz forecasts the economy to slow from an annual pace of 1.5 percent to 2 percent in the third quarter to 1.3 percent in the current period and 1 percent in the first quarter of next year. Such slow growth rates will keep unemployment high and force the Fed to expand its balance sheet further from $2.86 trillion today, he said.

Too Large

Policy makers also decided on Sept. 21 to reinvest maturing housing debt into mortgage-backed securities in part to keep the Fed’s Treasury holdings from getting too large and possibly causing a “deterioration in Treasury market functioning,” the minutes said.

The FOMC left its benchmark interest rate in a range of zero to 0.25 percent, where it’s been since December 2008 and reiterated language from its August meeting that the rate is likely to stay very low through at least mid-2013. The rate is now contingent on “low rates of resource utilization and a subdued outlook for inflation over the medium run,” the statement said.

The Standard & Poor’s 500 Index of stocks pared gains after the report, rising 1 percent to 1,207.25 at the close in New York. Yields on 10-year Treasuries rose 6 basis points, or 0.06 percentage point, to 2.21 percent.

‘Risk of Deflation’

Some officials said expanding the Fed’s balance sheet further “would be more likely to raise inflation and inflation expectations than to stimulate economic activity and argued that such tools should be reserved for circumstances in which the risk of deflation was elevated,” the minutes said.

The Fed is considering further easing and disclosure as it faces pressure and criticism from politicians, especially Republicans. Former House Speaker Newt Gingrich called Bernanke a “disaster” in an Oct. 11 Republican presidential candidate debate in New Hampshire sponsored by Bloomberg News and the Washington Post. Republican lawmakers, including House Speaker John Boehner of Ohio, sent letter to Fed officials last month urging them to forgo additional easing.

Bernanke may need to use the press conference, potentially next month, to provide more clarity to the public on the Fed’s use of unconventional monetary policies, said Dan Greenhaus, chief global strategist at BTIG LLC, a New York market maker whose clients include the largest institutional investors in the U.S.

“There is an enormous amount of confusion among the politicians and citizens at large about what the Fed is doing, and it may get to the point where Bernanke may just have to speak English,” Greenhaus said. “I don’t see any other way than to use the press conferences as a clear megaphone.”

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; Craig Torres in Washington at ctorres3@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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Google Said Not to Plan Acquisition of Akamai After Shares Rise on Report

By Brian Womack - Oct 13, 2011 11:01 AM GMT+0700

Google Inc. (GOOG) isn’t planning to acquire Akamai Technologies Inc. (AKAM), two people familiar with the matter said, countering a report in Business Insider that fueled speculation a takeover may be imminent.

The story, which sparked an after-hours surge of as much as 17 percent in Akamai stock, is baseless, said the people, who asked not to be identified. Several people in the advertising technology industry “think Google is about to buy Akamai,” Business Insider reported earlier yesterday.

“It’s mostly just a rumor,” according to the report.

Akamai, which speeds delivery of online content for such customers as Apple Inc. (AAPL) and Netflix Inc. (NFLX), was the subject of more buyout rumors than any other American company from 2005 through 2010, data compiled by Bloomberg show. It was named as a target 21 times by electronic news services, brokerages or newspapers, according to the data.

Weakness in Akamai shares -- it has slumped 50 percent this year -- means the company may be more alluring to acquirers. The company could attract interest from International Business Machines Corp., which is hunting for takeovers, or Verizon Communications Inc. (VZ), co-owner of the largest U.S. wireless operator, analysts at Blaylock Robert Van LLC and SunTrust Robinson Humphrey Inc. said earlier this month.

Representatives of Mountain View, California-based Google and Cambridge, Massachusetts-based Akamai declined to comment.

Akamai shares rose as high as $27.35 after the report, before paring the gains. The stock had been little changed at $23.37 in regular New York trading.

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Alcatel-Lucent Rises as FT Reports Permira Agreed to Buy Call-Center Unit

By Katie Linsell - Oct 13, 2011 5:11 PM GMT+0700

Alcatel-Lucent rose the most in more than eight months in Paris trading after the Financial Times reported that the telecommunications-equipment manufacturer agreed to sell its corporate call-center business.

Alcatel-Lucent jumped as much as 11 percent to 2.31 euros, the biggest intraday gain since Feb. 10, and was up 8.5 percent as of 12:09 p.m. That propelled the stock to a 3.1 percent increase this year, valuing the Paris-based company at 5.23 billion euros ($7.18 billion).

The French manufacturer reached an agreement to sell the call-center division to London-based private-equity firm Permira Advisers LLP for as much as $1.5 billion, the Financial Times reported today, without saying where it got the information.

Talks between Alcatel and Permira are under way and no agreement has been reached, a person with knowledge of the negotiations said, declining to be identified because the process is private. The companies may fail to reach a deal, the person said.

Simon Poulter, a spokesman for Alcatel-Lucent, and Noemie de Andia, a Permira spokeswoman, declined to comment.

To contact the reporters on this story: Katie Linsell in London at klinsell@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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‘Angry Birds’ Maker May Hold IPO in 2012, Mighty Eagle Says

By Jon Erlichman and Diana ben-Aaron - Oct 13, 2011 4:52 PM GMT+0700
Enlarge image

The ''Angry Birds'' mobile phone game, designed by Rovio Mobile Oy is displayed, on a white Apple Inc. iPhone 4. Photographer: Chris Ratcliffe/Bloomberg

Rovio Entertainment Oy, the Finnish creator of “Angry Birds” mobile-phone games, may sell shares to the public as early as next year and is probably worth more than $1 billion, its chief marketing officer said.

“We’re not ready to file for an IPO tomorrow,” Peter Vesterbacka, who also goes by the title Mighty Eagle, said in an interview with Bloomberg Television. “Maybe a year from now.”

The touchscreen game, in which players use a virtual slingshot to fling birds at structures populated by green pigs, has had 400 million free and paid downloads since 2009, with three fourths of those in the last six months. Rovio is hiring in the U.S. and China to develop activities such as retail and movies, and is worth more than $1 billion, based on funding talks, people with knowledge of the discussions said in August.

“We’re happy with our valuation but we think it’s probably a bit north of that,” said Vesterbacka. Espoo-based Rovio, which announced in June it took over Finnish animation studio Kombo, is weighing more acquisitions, he said.

Vesterbacka, 43, previously spent 14 years at Hewlett- Packard Co. selling systems to phone companies and encouraging mobile developers. He discovered the team that would become Rovio in an HP-sponsored games contest in 2003.

‘Insanely Profitable’

The Angry Birds brand also makes cash via advertising, in- game purchases and physical merchandise including T-shirts, Halloween costumes, stuffed toys and a cookbook. Rovio has benefitted from publicity, including a mention by Russian President Dmitri Medvedev, who praised Vesterbacka and Angry Birds this year “for creating an occupation for a huge number of officials who now know what to do with their leisure time.”

Merchandise is 10 to 20 percent of the business, and stuffed toys, priced $8.99 to $69.99 on the company’s website, are selling a million units a month, Vesterbacka said.

“We’re insanely profitable,” he said. “We are very, very profitable. We’re not a publicly traded company yet but we can fund our own growth.”

Vesterbacka worked on other startups after leaving HP in 2006, and joined Rovio in early 2010. The company has gone from a dozen people to about 200 since then. Now the Finn, often clad in a red hoodie, represents the company at events around the world, while Chief Executive Officer Mikael Hed runs the show in Espoo.

‘Billion Fans’

Hires this year include David Maisel, former chairman of Marvel Studios, which produced the “Iron Man” films, to be special adviser and executive producer of Angry Birds movies. The company also recruited former Tele2 CEO Harri Koponen, who hired Vesterbacka at HP, to head merchandise including books.

Rovio experienced its first high-profile departure with the exit of Wibe Wagemans, senior vice president of brand advertising, who was working on alliances with Starbucks and other retail brands.

Tie-ups with other companies include a deal with Finnair Oyj, which offered fans seats to play “Angry Birds” in the air in a promotional flight to Singapore last month, and bookseller Barnes & Noble Inc., which offers free access to the 99-cent “Mighty Eagle” feature to users of its Nook tablet device while they’re in its stores.

“We think we have a good shot at being the first entertainment brand that has a billion fans -- people we can talk to and have a dialog with every day,” said Vesterbacka. The company now has about 150 million “active users,” he said.

Games Charts

The company published 51 games for Nokia Oyj (NOK1V) phones and other handsets before releasing “Angry Birds,” which has had multiple runs at the top of the charts at online application stores in many countries, including Apple Inc.’s online app store in the U.S.

“Before the iPhone and the app stores, if you weren’t friends with the handset makers, even if you made a great game you couldn’t get it out there,” Vesterbacka said. “There were all these people on gateways controlling what went out. The app store model has changed the dynamics.”

“Angry Birds” zoomed to the top of the iPhone charts last year before being rolled out for Android phones, desktop computers, and Barnes & Noble’s Nook e-reader. It’s on Nokia’s current smartphones and on Windows Phone 7, and Rovio has been working on a social-media version for Facebook.

Footsteps of Disney

In March, Rovio received $42 million in funding from investors including Skype Technologies SA co-founder Niklas Zennstrom’s Atomico Ventures as well as Facebook backer Accel Partners. It’s “very possible” that Rovio will seek another venture-capital round before eventually holding an initial public offering, possibly in two to three years, CEO Hed said in June.

“We’re still building a lot of our infrastructure, our company, our platform, everything,” Vesterbacka said. “There’s a lot of good discipline in having to be ready to go public.”

The company is working on a 20-year plan for Angry Birds, Vesterbacka said. The rapidly changing nature of media distribution means Angry Birds movies could even go “direct to app,” he said.

“Disney started as a black and white cartoon about this little mouse,” he said. “Nintendo has been working on Mario for 26 years. Angry Birds is less than two years old.”

To contact the reporters on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net; Jonathan Erlichman in New York at jerlichman1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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BlackBerry Holdup Threatens U.S. Customers

By Mark Lee and Jonathan Browning - Oct 13, 2011 1:59 PM GMT+0700

Play Video

Oct. 13 (Bloomberg) -- Francisco Jeronimo, an analyst at IDC, talks about the disruption to Research In Motion Ltd.'s BlackBerry network. He speaks with Owen Thomas on Bloomberg Television's "Countdown." (Source: Bloomberg)

Research In Motion Ltd. (RIMM) said customers in Canada and the U.S., its largest market, still face delays after disruption to its BlackBerry network, while data services are now more accessible in other parts of the world.

RIM last night apologized for the network failure that halted messaging for three days in Europe and spread to the U.S., Canada and Latin America.

“Right now we’re letting you down,” Chief Information Officer Robin Bienfait said in a statement on the company’s website yesterday.

RIM, which has built a reputation as a maker of secure and reliable e-mail devices, is struggling to stem declines in market share to touch-screen phones such as Apple Inc. (AAPL)’s iPhone that offer more consumer applications. The service disruptions began in areas that RIM is counting on for sales growth as revenue in North America drops.

The disruptions began in Europe and Asia early this week as the Blackberry Messenger service and Web browsing failed. BlackBerry users continue to have problems accessing data services as RIM works to clear the backlog of data, U.K.-based mobile-phone operator Vodafone Group Plc (VOD) said yesterday.

“We are taking this very seriously and have people around the world working around the clock to address this situation,” Bienfait wrote. “We believe we understand why this happened and we are working to restore normal service levels in all markets as quickly as we can.”

RIM, based in Waterloo, Ontario, fell 2.2 percent to $23.88 at the close in New York yesterday. It has lost 59 percent this year.

Data Backlog

RIM routes its traffic through two main centers, in Waterloo for North America and in Slough, southern England, for Europe, the Middle East and Africa, said Nick Dillon, an analyst at research firm Ovum in London.

That network concentration “has always been a risk to the service,” Dillon said. BlackBerry “is still the most robust e- mail system.”

RIM said the delays were caused by a core switch failure within its infrastructure. While the system is designed to transfer to a backup switch, that didn’t happen, it said. The result was a large backlog of data.

The company believes it has identified the root cause of the problem, though it will do further tests to make sure, David Yach, RIM’s chief technology officer of software, said yesterday on a conference call.

The problem is centered on its U.K. hub and service disruptions in North America were primarily caused by the backlog, not by technical faults there, Yach said.

Race Against Time

For RIM, facing investor demands for a shakeup in strategy and calls for new leadership, the interruption comes at an inopportune time. The company has to fix the problem quickly to avoid sacrificing customer data as the backlog grows too great and alienating clients, according to Malik Saadi, an analyst at Informa Telecoms & Media in Guildford, England.

“They cannot afford to have the problem for one more day, because the data backlog will just be massive,” Saadi said. “It’s really a race against the clock.”

Yach said the company has no plans to erase data to cut through the backlog.

Regions outside RIM’s traditional stronghold of North America are accounting for an increasing share of its revenue and new subscribers. As RIM’s U.S. revenue dropped 50 percent last quarter to $1.11 billion, sales outside the U.S., U.K. and Canada jumped 38 percent to $2.33 billion.

Users in India, one of RIM’s growth markets, were among those experiencing disruptions. BlackBerry users in South Africa that use local carrier Vodacom Group Ltd. received a text message yesterday telling them about a disruption in Blackberry services.

Services were also disrupted in Brazil, Chile and Argentina this week.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net; Jonathan Browning in London at jbrowning9@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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German Inflation Accelerated More Than Inititally Estimated, Led by Energy

By Christian Vits - Oct 13, 2011 1:47 PM GMT+0700

Inflation in Germany, Europe’s largest economy, accelerated more than initially estimated to the fastest in three years in September, led by energy costs.

The inflation rate, calculated using a harmonized European Union method, rose to 2.9 percent from 2.5 percent in August, the Federal Statistics Office in Wiesbaden said today. It had previously reported an inflation rate of 2.8 percent. In the month, prices rose 0.2 percent.

The European Central Bank last week kept its benchmark rate at 1.5 percent and said euro-region inflation will stay “clearly” above its 2 percent ceiling over the coming months. While some economists had called for a rate cut as a worsening debt crisis hurt economic growth, the central bank instead opted to extend liquidity measures to lenders.

“Inflation is proving to be not as transitory as many had expected,” said Sylvain Broyer, chief euro-region economist at Natixis in Frankfurt. “With this data, an ECB rate cut would be very difficult to deliver.”

The euro was little changed, trading at $1.3788 at 8:46 a.m. in Frankfurt. The single currency has depreciated 4.4 percent against the dollar over the past four months as European leaders struggled to contain the region’s debt crisis.

Price Pressures

While a weakening euro is bolstering exports, it’s also making imports more expensive. Household energy was 9.8 percent more expensive from a year ago, while prices of gas rose 5.4 percent, today’s report showed. Heating oil prices jumped 23.8 percent and diesel was 16.7 percent more expensive.

German wholesale prices rose 5.7 percent in September from a year earlier after increasing 6.5 percent in the previous month, the statistics office said yesterday. Annual gains in import and producer prices both weakened in August.

A deepening economic slowdown and waning demand may further ease price pressures. The ECB on Sept. 8 revised its forecast for euro-area growth this year to 1.6 percent from 1.9 percent, and to 1.3 percent from 1.7 percent in 2012. Inflation may average 2.6 percent this year and 1.7 percent next, it said.

“All economic forecasts anticipate that inflation rates will peak this quarter and decrease in 2012,” ECB council member Ewald Nowotny said on Oct. 10. “However, fear is justified on the development of the real economy.”

To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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Biggest U.S. Free Trade Legislation Since 1994 Eases Protectionist Concern

By Eric Martin and William McQuillen - Oct 13, 2011 9:45 AM GMT+0700
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A Kia Motors Corp. vehicle bound for export is driven into a carrier ship at the port in Pyeongtaek, South Korea. Photographer: SeongJoon Cho/Bloomberg

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Oct. 13 (Bloomberg) -- Shaun Cochran, head of Korea research at CLSA Asia-Pacific Markets, talks about the outlook for Bank of Korea monetary policy. Cochran, speaking from Seoul, also discusses the free-trade deal between South Korea and the U.S., and the outlook for South Korean stocks. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

The U.S. Congress approved free- trade agreements with South Korea, Colombia and Panama, bringing an end to years of stalemate and offering what supporters said was the biggest opportunity for exporters in decades.

The bills go to President Barack Obama, who spent two years seeking to broaden Democratic support for pacts revised from initial agreements reached by his predecessor. The South Korea deal, the biggest for the U.S. since the North American Free Trade Agreement in 1994, removes duties on almost two-thirds of American farm exports, and phases out tariffs on more than 95 percent of industrial and consumer exports within five years.

Yesterday’s step may diminish concern that the U.S. will turn to protectionism amid an unemployment rate that exceeds 9 percent, coming a day after a Senate vote designed to punish China for an undervalued yuan. The approval may also give impetus to Obama’s trans-Pacific trade initiative, which Japan, the world’s third-largest economy, is considering joining.

“This is a welcome development showing policy makers can be farsighted and come to an agreement that is positive for all parties involved in the long run in terms of GDP growth,” said Robert Subbaraman, Hong Kong-based chief economist for Asia excluding Japan at Nomura Holdings Inc. “There’s been a lot of market disappointment in policymaking this year.”

Stocks in Asia headed for a sixth straight day of gains, the longest winning streak in six weeks. South Korea’s benchmark KOSPI index rose 0.9 percent.

Economic Boost

The South Korea deal would boost American exports by as much as $10.9 billion in the first year in which it’s in full effect, according to the U.S. International Trade Commission. The accord with Colombia would increase exports as much as $1.1 billion a year. The U.S. Chamber of Commerce said the accords will prevent the loss of 380,000 jobs.

Companies such as Ace Ltd., Citigroup Inc. (C) and Pfizer Inc. have led the effort to get the South Korea deal passed, while Caterpillar Inc., General Electric Co. and Whirlpool Corp. were among the biggest backers of the accord with Colombia.

Obama submitted the legislation after House Speaker John Boehner, an Ohio Republican, said he would consider worker assistance along with the trade deals. First reached under President George W. Bush more than four years ago, the measures overcame a stalemate with Republicans on aid for workers who lose their jobs to foreign competition.

Obama’s Welcome

“I’ve fought to make sure that these trade agreements” with three nations “deliver the best possible deal for our country,” Obama said in an e-mailed statement. “American automakers, farmers, ranchers and manufacturers, including many small businesses, will be able to compete and win in new markets.”

The vote is a win for Obama in a week when the Senate declined to proceed with his $447 billion plan to increase employment. A government report last week showed the nation’s jobless rate held at 9.1 percent in September.

With advanced economies facing predictions of a return to recession, the free-trade deals show how developed nations are turning to emerging markets as sources of growth. Colombia’s gross domestic product rose 5.2 percent in the year through June, and that of South Korea, Asia’s fourth-biggest economy, increased 3.4 percent. U.S. GDP expanded 1.3 percent in the second quarter from the previous three months at an annual rate.

‘Sorely’ Needed

“These agreements will provide an economic boost at a time when our country sorely needs it,” Senator Max Baucus, a Montana Democrat who leads the Finance Committee, which controls trade bills in the chamber, said after almost eight hours of debate.

Obama is seeking to double American exports by 2015, in part through boosting shipments to Asian nations. Nine nations are involved in negotiating the U.S.-led Trans-Pacific Partnership trade accord, known as the TPP.

The administration negotiated terms for auto tariffs in the South Korea agreement that won over the United Auto Workers union, an exchange of tax information with Panama and labor- rights assurances from Colombia.

The House and Senate passed the agreements as South Korean President Lee Myung Bak visited Washington. Lee, who is to address Congress today, told the U.S. Chamber of Commerce yesterday that the trade accord will create “good, decent jobs” that will help spur both economies.

Japan’s Concern

“Japanese companies will be put in a further disadvantageous position compared with South Korean competitors in the U.S.,” Yoichi Kaneko, a ruling Democratic Party of Japan lawmaker said today in a telephone interview. “There is still an opposition within the DPJ but I think it’s important for Japan to join the TPP and free trade agreements.”

The South Korean tariff phase-outs increase market access for U.S. chemical, automobile, medical device and drug companies, and the end of duties on a range of agricultural exports benefits producers of meat, dairy, vegetables and fruits and nuts. Banks and communications companies would also gain opportunities through reductions in regulatory barriers.

“Removal of tariffs will of course be good. South Korean automobile-parts makers have started to attract heightened interest from customers in the U.S. since the earthquake that crippled Japan in March,” said Moon Seung Ki, a spokesman for Hyundai Mobis Co., South Korea’s biggest auto-parts maker.

Samsung Electronics Co., the world’s No. 2 semiconductor maker, said it would see little change in sales from the deal. Nam Ki Yung, a Seoul-based spokesman for the company, said “it will be good for overall trade for both nations. Still, we don’t expect a big impact on our business.”

Labor Opposition

The trade deals were opposed by groups including the AFL- CIO the nation’s largest federation of labor unions and a frequent Democratic ally. Richard Trumka, the organization’s president, had urged lawmakers to oppose them, saying in an Oct. 4 speech in Washington that they are “lousy” deals and will destroy 159,000 jobs by encouraging companies to send work overseas.

“These flawed trade deals are the wrong medicine at the wrong time,” Trumka said in a statement yesterday. “Working people know what too many politicians apparently do not: These deals will be bad for jobs, workers’ rights and our economy.”

Senators Robert Casey of Pennsylvania and Sherrod Brown of Ohio, both Democrats from manufacturing states facing re- election next year, opposed the bills. They said prior trade measures never worked as well as advertised for U.S. workers.

“They will in fact lead to job losses, especially in manufacturing,” Casey said before the vote.

Colombia Bill

The Colombia accord faced the most opposition, passing on votes of 66-33 in the Senate and 262-167 in the House. Brown in the Senate and Representative Sander Levin of Michigan led Democratic opposition, saying Colombia had done too little to protect union leaders from assassination.

“Colombia remains the most dangerous place in the world to be a trade unionist,” Brown said in a speech on the Senate floor.

While the 51 Colombian union members killed last year represent a 73 percent decline from 186 in 2002, according to the National Union School, a labor-rights organization based in Medellin, slayings increased from 47 in 2009. More than 1,700 union members were killed in Colombia in the past decade, the most in the world and 63 percent of the global total, based on union school figures.

The pacts are the first passed by Congress since a deal with Peru in 2007.

The House also voted last night to renew aid for workers hurt by foreign competition and tariff preferences for developing nations. The bill extends benefits, including those for service workers that expired in February, through 2013 while cutting the weeks of extended unemployment insurance that participants can receive to 130 from 156, and reducing the health-care tax credit for people enrolled in the program.

To contact the reporters on this story: Eric Martin in Washington at emartin21@bloomberg.net; William McQuillen in Washington at bmcquillen@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net

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European Stocks Retreat From Two-Month High

By Andrew Rummer - Oct 13, 2011 5:31 PM GMT+0700
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A construction worker carries materials on a building site on the Gold Coast in Australia. The Australian dollar climbed 0.4 percent to $1.0195 after earlier rising to $1.0233 after the unemployment rate fell for the first time since March. Photographer: Patrick Hamilton/Bloomberg

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Oct. 13 (Bloomberg) -- Kit Juckes, head of foreign-exchange research at Societe Generale SA, talks about currency markets. He speaks with Linzie Janis and David Tweed on Bloomberg Television's "Countdown." (Source: Bloomberg)

European stocks fell from a two- month high, U.S. futures dropped and the euro weakened as the European Central Bank said forcing investors to take losses in bailouts is a risk to financial stability. Base metals slid.

The Stoxx Europe 600 Index sank 1.1 percent at 11:31 a.m. in London, after closing yesterday at the highest level since Aug. 4. Standard & Poor’s 500 futures slipped 0.5 percent. The euro depreciated 0.9 percent versus the yen and 0.4 percent against the dollar. Copper lost 1.9 percent. The cost of insuring against default on European government bonds rose.

The ECB said the involvement of the private sector in euro- area bailouts through enforced investor losses would have “direct negative effects” on banks. European Commission President Jose Barroso will speak today in Brussels after calling yesterday for a “coordinated approach” to recapitalize the region’s lenders.

“Any disagreements on how we come out of this crisis will generate pressure on markets and specifically on the financial sector,” said Luis Benguerel, a trader at Interbrokers in Barcelona, Spain. “We are coming from a solid rally in recent days on the hopes that the debt crisis may be nearing a resolution. Anything that may divert that process will generate renewed instability.”

Carrefour Forecast

Three stocks declined for every one that gained in the Stoxx 600. Carrefour SA (CA) sank 4.9 percent as the world’s second- largest retailer lowered its 2011 profit forecast for the second time in three months. Anglo American Plc led a retreat in mining companies, sliding 4.1 percent.

The drop in S&P 500 futures indicated the U.S. gauge will snap a three-day, 4.5 percent rally. JPMorgan Chase & Co. (JPM) may say today profit slid 10 percent in the third quarter, the biggest decline in more than two years, according to estimates from analysts surveyed by Bloomberg.

Minutes from the Federal Reserve’s Sept. 20-21 meeting, released yesterday, showed policy makers saw “considerable uncertainty” that U.S. growth will pick up. Most participants favored giving additional information on the central bank’s goals and how they influence decisions, and most “saw advantages” in tying the Fed’s near-zero interest rates to more-specific developments in the economy.

U.S. Trade Gap

A report today may show the U.S. trade deficit increased 2.2 percent to $45.8 billion in August as a cooling in the global economy prompted companies to ship fewer goods abroad, according to the median of 81 forecasts in a Bloomberg survey. Other data may show jobless-benefit claims rose last week.

“The market over the next few days may be due for a bit of a correction as we’ve had many days of gains,” Mohammed Apabhai, head of Asia trading at Citigroup Inc., said in a Bloomberg Television interview in Hong Kong. “If things do go wrong, markets remain massively vulnerable, but we’re not expecting that. Of course everything hinges on what comes out of Europe.”

U.S. 10-year Treasuries rose, snapping a six-day decline, pushing the yield down four basis points to 2.17 percent. German bunds advanced for the first time in seven days, driving the 10- year yield down five basis points to 2.14 percent.

Italian 10-year bonds fell for a fifth day, pushing the yield up to the highest since August, as the nation sold debt maturing in 2016 and 2015. The yield climbed nine basis points to 5.83 percent.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed two basis points to 323. An increase signals worsening perceptions of credit quality.

Berlusconi Confidence Vote

Italian Prime Minister Silvio Berlusconi called for a confidence vote in Parliament to prove he has enough support to rule after failing to muster a majority on a legislative ballot this week. While the vote has yet to be scheduled, Berlusconi’s allies have indicated it may be tomorrow.

The euro declined 0.4 percent to $1.3730 and 0.9 percent to 105.56 yen. The Japanese currency rose 0.5 percent to 76.90 per dollar, strengthening versus all 16 major counterparts.

Copper dropped 1.9 percent to $7,380 a metric ton and oil in New York fell 1.7 percent to $84.14 a barrel. Raw sugar jumped 1.6 percent to 26.43 cents a pound as Thailand, the world’s second-biggest exporter of sugar, said floods may last until the end of the month.

The MSCI Emerging Markets Index advanced 0.5 percent, extending a six-day, 11 percent advance, the longest since April 6. The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong rose 3.7 percent, taking a rebound from its Oct. 4 low to 21 percent.

The Shanghai Composite Index gained 0.8 percent after China’s State Council said it will provide financial support and preferential tax policies for small companies. Poland’s WIG20 Index lost 1.5 percent, led by a 3.6 percent decline in KGHM Polska Miedz SA, the country’s only copper producer. The Micex Index retreated 0.9 percent in Moscow.

To contact the reporter on this story: Andrew Rummer in London at arummer@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net

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Buffett’s Son Defends Occupy Wall Street

By Andrew Frye and Alan Bjerga - Oct 13, 2011 11:00 AM GMT+0700

Howard Buffett, the Berkshire Hathaway Inc. (BRK/A) director and son of Chairman Warren Buffett, said Wall Street protesters were provoked by abuses from corporations amid a widening disparity between rich and poor.

“I think it takes that to make things happen sometimes,” Howard Buffett, 56, said of the demonstrations in an interview yesterday in Des Moines, Iowa. Over the past 15 years, “we saw large corporations really screw people.”

Occupy Wall Street has drawn out protesters from New York to Seattle and gained empathizers among the top executives at Citigroup Inc. (C) and Blackrock Inc. Warren Buffett, the world’s third-richest person, has said he is concerned about inequity in the U.S. The younger Buffett, a farmer and philanthropist, said obtaining enough food has become more difficult for more people.

“There has never been a larger gap between earnings in this country,” said Howard Buffett, who was in Des Moines to deliver a speech at the World Food Prize conference. “There has never been a time in my lifetime when the government is going to cut an incredible amount of programs that support poor people and feed them.”

Protesters criticized the government for propping up financial firms including Citigroup and Bank of America Corp. (BAC) in 2008 while individuals struggled with unemployment, depressed wages, foreclosures and reduced retirement savings. Republican lawmakers oppose raising taxes to reduce the U.S. deficit and have pushed for cuts to government programs.

‘Class Warfare’

Mitt Romney, the former Massachusetts governor and a candidate for the Republican presidential nomination, said protesters are targeting “a scapegoat” and are wrong to divide the country. President Barack Obama, who joined Warren Buffett in a push to raise taxes on the wealthy, is guilty of “class warfare,” Romney has said.

“There has been class warfare going on,” Buffett, 81, said in a Sept. 30 interview with Charlie Rose on PBS. “It’s just that my class is winning. And my class isn’t just winning, I mean we’re killing them.”

Howard Buffett, a Berkshire director since 1993, said hunger is rising in the U.S. as well as in poorer nations. A record 45.3 million Americans received food stamps in July and almost one in six live in poverty, the government said. Buffett is president of the Howard G. Buffett Foundation, which advances agriculture in developing nations.

Buffett’s Wagers

Warren Buffett has backed some of the biggest financial firms while chiding bankers for excesses in risk-taking and compensation. Omaha, Nebraska-based Berkshire invested $700 million in Salomon Inc. in 1987, $5 billion in Goldman Sachs Group Inc. in 2008 and $5 billion in Bank of America this year. Buffett, the father, has compared Wall Street to “a church that’s running raffles on the weekend.”

Wall Street “does a lot of good things and then it has this casino,” Buffett said in October 2010. “One of the problems we still have is we have unbalanced incentives for managers of huge financial institutions.”

Blackrock Chief Executive Officer Laurence D. Fink and Jim Chanos of hedge fund Kynikos Associates said this month they understand the anger directed at financial companies. Bill Gross, who runs the biggest bond fund at Pacific Investment Management Co., said in a Twitter post that wage earners are fighting back after three decades of class warfare in which they were “being shot at.” Citigroup CEO Vikram Pandit said yesterday he’d be happy to talk with protesters.

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Alan Bjerga in Des Moines, Iowa, at abjerga@bloomberg.net.

To contact the editors responsible for this story: Steve Stroth at sstroth@bloomberg.net; Dan Kraut at dkraut2@bloomberg.net.

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China Exports Slow on ‘Severe Challenges’

By Bloomberg News - Oct 13, 2011 4:19 PM GMT+0700
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Growth in shipments to Europe, China’s biggest export market, slumped to 9.8 percent, from 22 percent, amid the sovereign-debt crisis in euro-region nations. Photographer: Jerome Favre/Bloomberg

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Oct. 13 (Bloomberg) -- Diana Choyleva, a Hong Kong-based economist at Lombard Street Research Asia, talks about China's economy. The nation's trade surplus last month fell to the lowest since May as export growth slowed. Choyleva speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

China’s exports rose the least in seven months and the customs bureau warned of “severe” challenges as the global economic outlook dims, giving Premier Wen Jiabao’s government less incentive to let the yuan rise.

Exports rose a less-than-forecast 17.1 percent in September from a year earlier, the bureau’s data showed in Beijing. The trade surplus was $14.51 billion, the smallest since May. Growth in shipments to Europe, China’s biggest export market, slumped to 9.8 percent, from 22 percent, amid the sovereign-debt crisis in euro-region nations.

China may move to restrain the yuan, which has gained the most against the dollar among 25 emerging-market currencies in the past four years, even after the U.S. Senate voted this week for legislation aimed at forcing faster appreciation. The risk of a trade slump may also encourage China to refrain from raising interest rates and to add to support for companies after unveiling tax breaks for small businesses yesterday.

“Although Washington is ramping up the pressure on Beijing to move faster on the currency, Chinese officials will be able to cite today’s data as evidence that exporters are already feeling the pinch,” said Brian Jackson, a Hong Kong-based strategist with Royal Bank of Canada. Jackson noted that yuan gains against the euro add to risks for exports to the region.

Yuan Against Euro

The Chinese currency has gained 4.3 percent versus the euro since the start of August. The yuan slipped 0.3 percent to 6.3763 per dollar as of 12:43 p.m. in Shanghai. Stocks in China rose, joining a rally across Asia. The benchmark Shanghai Composite Index was 0.5 percent higher at 2,432.19 at the 11:30 a.m. local-time break.

The U.S. may today report a trade deficit of $45.8 billion for August, up from $44.8 billion in July, according to the median forecast in a Bloomberg News survey.

China’s imports advanced 20.9 percent in September, less than analysts’ 24.2 percent median estimate and a 30 percent gain in August. Export growth compared with a median forecast of 20.5 percent and a rise of 24.5 percent in August.

“The leading indicators from the developed economies indicate that worse will follow” for exports, said Yao Wei, a Hong Kong-based economist at Societe Generale AG.

‘Sliding’ Confidence

The yuan’s appreciation has weakened competitiveness and exporters are afraid to accept large or long-term orders, the customs bureau said in a statement. “Serious development problems, high unemployment rates and sliding consumer confidence” in the EU, U.S. and Japan, and slowing growth in emerging economies “present severe challenges,” it said.

“Domestic demand is still quite strong,” said Zhang Zhiwei, a Hong Kong-based economist with Nomura Holdings Inc.

The import slowdown was driven mainly by weakening purchases from companies processing goods for re-export, Zhang said. China’s passenger-car sales rose at a faster pace for a fourth straight month in September, climbing 8.8 percent, the China Association of Automobile Manufacturers said today.

Imports rose to $155.2 billion, just shy of August’s record. Purchases of copper climbed to the highest level in 16 months as lower prices lured traders to place orders and replenish stocks.

Full-Year Forecasts

A reduction in duties on some commodities including refined oil starting July 1 led to a 77 percent jump in imports of such goods in the third quarter from a year earlier, the customs bureau said.

The agency estimates full-year export growth will drop to 18 percent from 31 percent in 2010 and expansion in imports will ease to 21 percent from 39 percent. The trade surplus may narrow to about $170 billion from $183 billion last year, Lu Peijun, vice minister at the customs bureau, said. The excess has dropped every year from a record $295 billion in 2008.

“A major shift in policy is unlikely until early December when the central economic work conference is usually held, although the government is already taking some selective easing measures such as the support extended to small firms,” said Chang Jian, an economist at Barclays Capital in Hong Kong who formerly worked for the Hong Kong Monetary Authority and the World Bank.

Support Measures

The government will provide financial support and preferential tax policies for small companies, the State Council said in a statement yesterday, after a meeting where Premier Wen Jiabao presided. The government will be more tolerant of bad loan ratios for small-company loans, the cabinet said.

The collapse of some manufacturers in Wenzhou city in Zhejiang province has highlighted concern that small companies are facing a credit squeeze after monetary tightening.

In Guangdong, another export hub, footwear maker Wing Kwai Trading Co. says it faces rising wage costs, weaker demand and a stronger yuan.

“Demand for our products has been falling because of the economic outlook,” said company owner David Huang before today’s trade data. “The yuan keeps rising and workers are asking for higher and higher wages.”

China’s foreign ministry warned U.S. lawmakers yesterday that the proposed bill allowing penalties against countries that undervalue their currencies would damage bilateral trade and risks undermining the global recovery. The legislation will now move to the Republican-controlled House of Representatives.

“Trade tensions, at least the rhetoric, are likely to heat up between China and the U.S. as the global outlook deteriorates,” Barclays’ Chang said.

A stronger yuan would help China curb inflation and reduce the trade surplus, she said. A government report tomorrow may show consumer prices climbed 6.1 percent last month from a year earlier, according to a Bloomberg News survey of analysts. That compares with the government’s full-year target of 4 percent.

--Li Yanping, Zheng Lifei. With assistance from Ailing Tan in Singapore, Andrea Wong in Taipei and Fion Li in Hong Kong. Editors: Chris Anstey, Paul Panckhurst.

To contact Bloomberg News staff on this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

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

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RIM in ‘Race Against Clock’ on Disruption

By Jonathan Browning, Hugo Miller and Adi Narayan - Oct 13, 2011 3:07 AM GMT+0700
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A man holds a Research In Motion Ltd. BlackBerry smartphone at a mobile phone store in Mumbai, on Sept. 28, 2011. Photographer: Adeel Halim/Bloomberg

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Oct. 12 (Bloomberg) -- Alex Gauna, an analyst for JMP Securities LLC, talks about Research In Motion Ltd.'s BlackBerry service disruptions and the outlook for the company. He speaks with Jon Erlichman and Cory Johnson on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

Research In Motion Ltd. (RIMM)’s BlackBerry service was disrupted for some users in North America, as a snag that is halting messaging for a third day across Europe, the Middle East and Africa spread to its largest market.

Subscribers in the Americas may experience “intermittent service delays,” RIM said on its website today. The company said it is working to resolve the issue and apologized to users.

RIM, which has built a reputation as a maker of secure and reliable e-mail devices, is struggling to stem declines in market share to touch-screen phones such as Apple Inc. (AAPL)’s iPhone that offer more consumer applications. The service disruptions began in areas that RIM is counting on for sales growth as revenue in North America drops.

“It’s like being disconnected from the world because people have gotten so addicted to BlackBerry services,” Nilesh Dedhia, managing director of Vidhi Wealth Management in Mumbai, said in an interview.

The disruptions began in Europe and Asia early this week. BlackBerry users continue to have problems accessing data services as RIM works to clear the backlog of data, U.K.-based mobile-phone operator Vodafone Group Plc (VOD) said today.

“The resolution of this service issue is our number one priority right now and we are working night and day to restore all BlackBerry services to normal levels,” RIM said on its U.K. website.

RIM, based in Waterloo, Ontario, fell 2.2 percent to $23.88 at the close in New York. It has lost 59 percent this year.

Data Backlog

RIM routes its traffic through two main centers, in Waterloo for North America and in Slough, southern England, for Europe, the Middle East and Africa, said Nick Dillon, an analyst at research firm Ovum in London.

That network concentration “has always been a risk to the service,” Dillon said. BlackBerry “is still the most robust e- mail system.”

RIM said the delays were caused by a core switch failure within its infrastructure. While the system is designed to transfer to a backup switch, that didn’t happen, it said. The result was a large backlog of data.

The company believes it has identified the root cause of the problem though will do further tests to make sure, David Yach, RIM’s chief technology officer of software, said today on a conference call.

The problem is centered on its U.K. hub and service disruptions in North America were primarily caused by the backlog, not by technical faults there, Yach said.

Race Against Time

For RIM, facing investor demands for a shakeup in strategy and calls for new leadership, the interruption comes at an inopportune time. The company has to fix the problem today to avoid sacrificing customer data as the backlog grows too great and alienating clients, said Malik Saadi, an analyst at Informa Telecoms & Media in Guildford, southern England.

“They cannot afford to have the problem for one more day, because the data backlog will just be massive,” Saadi said. “It’s really a race against the clock.”

Yach said the company has no plans to erase data to cut through the backlog.

Regions outside the RIM’s traditional stronghold of North America are accounting for an increasing share of its revenue and new subscribers. As RIM’s U.S. revenue dropped 50 percent last quarter to $1.11 billion, sales outside the U.S., U.K. and Canada jumped 38 percent to $2.33 billion.

‘PR Challenge’

“These outages create another highly visible PR challenge, coming in markets where the company is still growing,” Mike Abramsky, an RBC Capital Markets analyst in Toronto, said in a note to clients. He has a “sector perform” rating on the stock.

Users in India, one of RIM’s growth markets, were among those experiencing disruptions. BlackBerry users in South Africa that use local carrier Vodacom Group Ltd. received a text message telling them that “BlackBerry services could remain impaired for the remainder of today.”

Services were also disrupted in Brazil, Chile and Argentina yesterday.

To contact the reporters on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net; Jonathan Browning in London at jbrowning9@bloomberg.net; Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net; Kenneth Wong at kwong11@bloomberg.net

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HP Gains PC Market Share After Considering Spinoff

By Adam Satariano - Oct 13, 2011 6:44 AM GMT+0700

Hewlett-Packard Co. (HPQ)’s proposal to spin off its personal-computer business didn’t scare off many PC buyers last quarter, with its U.S. and global market share increasing in the period.

The Palo Alto, California-based company’s share of U.S. PC shipments rose to 28.9 percent from 25.4 percent a year earlier, solidifying its lead in the industry, Gartner Inc. (IT) said today. Worldwide, Hewlett-Packard’s share climbed to 17.7 percent from 17.3 percent. IDC, another market research firm, also showed the company gaining ground.

Hewlett-Packard announced a proposal to spin off the PC business on Aug. 18, under its previous chief executive officer, Leo Apotheker. The company, which replaced him with Meg Whitman the following month, has been reconsidering the idea, people familiar with the matter said in September.

“Despite the potential spinoff of its PC business, HP executives’ efforts to give the appearance of ‘business as usual’ seemed to work in the quarter,” Stamford, Connecticut- based Gartner said in its report.

Total PC shipments rose less than forecast in the third quarter, dragged down by disappointing back-to-school sales, a sluggish economy and a shift to tablets and smartphones, according to Gartner.

IPad Impact

Shipments climbed 3.2 percent, below the 5.1 percent growth that had been projected, the research firm said. The industry shipped 91.8 million units in the period, compared with almost 89 million last year, Gartner found. IDC said global sales rose 3.6 percent, below the 4.5 percent growth it had predicted.

“Back-to-school PC sales were disappointing in mature markets, confirming that the consumer PC market continues to be weak,” Mikako Kitagawa, a Gartner analyst, said in a statement. “The popularity of non-PC devices, including media tablets, such as the iPad and smartphones, took consumers’ spending away from PCs.”

Lenovo Group Ltd. (992) ranked No. 2 in global shipments for the first time, after Hewlett-Packard. Lenovo had 13.5 percent of the market, boosted by a joint venture with NEC Corp. and aggressive marketing, Gartner said. Dell Inc. (DELL) was third, with 11.6 percent.

In the U.S., Dell was second with 21.9 percent, Gartner said. Apple, based in Cupertino, California, was the third- biggest seller, accounting for 12.9 percent of the market, up from 10.8 percent during the same period a year earlier, Gartner said.

Hewlett-Packard also gained share in market data released by IDC. In the U.S., the company’s market share grew to 28.6 percent, from 24.9 percent a year earlier.

Hewlett-Packard shares were little changed today in New York trading. The stock has declined 39 percent this year, hurt by investors’ concerns about its strategy.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Kleiner Perkins Goes After Twitter-Like Startups in Content Push

By Olga Kharif - Oct 13, 2011 11:01 AM GMT+0700

Kleiner Perkins Caufield & Byers will invest in two mobile startups in the next week that turn users of their applications and services into contributors, said Matt Murphy, a partner at the venture firm.

One of the investments may be announced today and the other in a week, said Murphy, who didn’t disclose the names of the companies.

Kleiner, which has stakes in Twitter Inc. and Groupon Inc., is ramping up investments in what it calls local crowdsourced content and commerce, Murphy said in an interview. Users of these applications may contribute video, services or coupons to consumers nearby. The idea is to replicate the success of sites like Twitter, where people share article links and short statements, in an array of mobile apps.

“We are getting to a stage in mobile where people are willing to do more than just consume, they are interested in being content creators,” Murphy said. “It’s one of the biggest trends we are seeing in mobile. It really unlocks the potential of mobile. People can help make experiences more interesting.”

As part of this trend, consumers will increasingly interact with merchants through applications or services by sharing an image or sending a text message, Murphy said.

For example, Uber is a service that lets users request car service via text message or a mobile app. Uber, which is not a Kleiner investment, sends the request to the nearest driver and sends the customer an estimated arrival time. Uber puts the crowd of professional drivers and potential customers together, and lets them interact.

“It will be integral to many, many applications,” Murphy said.

The startups can make money by taking a cut of the offers, or through advertising revenue, Murphy said. Ads served to apps to which users contribute content may command higher rates, he said.

“Because the user-generated contribution is so valuable, you can see higher engagement rates,” Murphy said.

To contact the reporter on this story: Olga Kharif in Portland, Oregon, at okharif@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Asia Stocks Rise for 6th Day as Bond Risk Falls

By Shiyin Chen - Oct 13, 2011 12:31 PM GMT+0700

Asia stocks rose for a sixth day, while bond risk fell on speculation policy makers in Europe, the U.S. and China will prevent the global economy from sliding into a recession. Commodities declined.

The MSCI Asia Pacific Index jumped 1.4 percent at 2:28 p.m. in Tokyo and Standard & Poor’s 500 Index futures were little changed. The Markit iTraxx Asia index of default risk among 40 investment-grade borrowers outside Japan sank a seventh day. The euro traded at $1.3803, near the strongest level in almost four weeks. The Australian dollar and South Korea’s won climbed to the strongest levels in three weeks. Oil lost 0.9 percent in New York, while copper sank 1.9 percent.

European Commission President Jose Barroso yesterday called for a reinforcement of crisis-hit banks, the payout of a sixth loan to Greece and a faster start for a permanent rescue fund. The Fed said some officials last month wanted to keep further asset purchases as an option to boost the economy. China unveiled a package of measures to help small companies, including tax breaks and easier access to bank loans.

“There’s definitely been a change in the rhetoric if not the policy action,” Mohammed Apabhai, head of Asia trading at Citigroup Inc., said in a Bloomberg Television interview in Hong Kong. Fed Chairman Ben S. Bernanke and German Chancellor Angela Merkel “have stepped in and said they’ll do whatever it takes. You’ve seen the turnaround in China and the loosening they seem to be embarking on, and there’s probably more to come.”

About five shares rose for every two that fell on MSCI’s Asia Pacific Index, which was poised for its longest winning streak since Sept. 1. The Nikkei 225 Stock Average added 1 percent and Australia’s S&P/ASX 200 Index gained 1 percent.

Korea, China

The Kospi Index rallied 1.5 percent after the U.S. Congress cleared legislation for a free-trade agreement with South Korea. Hyundai Mobis (012330) Co. rose 2.1 percent, pacing gains among automobile parts makers, on speculation the companies will benefit from the accord.

The CSI Smallcap 500 Index (SZ399905), comprising companies with a average market value of 6.28 billion yuan ($985 million), rose 1.1 percent, more than the 0.2 percent increase on the Shanghai Composite Index. The Chinese government will provide financial support and preferential tax policies for small companies, the State Council said yesterday after a meeting at which Premier Wen Jiabao presided. The government will be more tolerant of bad loan ratios for small-company loans, the Cabinet said.

Data today showed Chinese exports climbed 17.1 percent last month, the least since February, and imports growth slowed to 20.9 percent.

The S&P 500 gained 1 percent yesterday, rounding off a three-day, 4.4 percent rally. JPMorgan Chase & Co. may say today profit slid 10 percent in the third quarter, the biggest drop in more than two years, according to estimates by analysts surveyed by Bloomberg.

Fed Minutes

Minutes from the Fed’s Sept. 20-21 meeting showed policy makers saw “considerable uncertainty” that U.S. growth will pick up. Most participants favored giving additional information on the central bank’s goals and how they influence decisions, and most “saw advantages” in tying the Fed’s near-zero interest rates to more-specific developments in the economy, according to the minutes. Treasuries snapped a six-day drop, dragging 10-year yields down one basis point to 2.20 percent today.

The cost of insuring Asia corporate and sovereign bonds against non-payment decreased, with the Markit iTraxx Asia index sliding 6 basis points to 207.5 basis points in Singapore, Royal Bank of Scotland Group Plc prices show. That’s set for a seventh consecutive day of declines and the lowest level since Sept. 21, according to data provider CMA.

The Markit iTraxx Japan index fell 7 basis points to 193.5 in Tokyo, Citigroup Inc. prices show. A close of 193.5 would be the lowest since Sept. 21, CMA data show.

Australian Jobs

The Australian dollar climbed 0.4 percent to $1.0195 after earlier rising to $1.0233 after the unemployment rate fell for the first time since March. The number of people employed rose by 20,400, from a revised 10,500 fall in August and the jobless rate fell to 5.2 percent from 5.3 percent, the statistics bureau said in Sydney. South Korea’s won gained 0.9 percent to 1,155.88 per dollar and earlier touched 1,154.78, the strongest level since Sept. 21. The Bank of Korea left its seven-day repurchase rate unchanged at 3.25 percent during a review, a decision predicted by all 15 economists surveyed by Bloomberg.

The euro yesterday rallied 1.1 percent against the dollar. The 17-nation currency fell 0.2 percent to 106.39 yen. It reached 107.05 yen yesterday, the most since Sept. 9. The dollar lost 0.2 percent to 77.08 yen. Slovakia is set to approve Europe’s enhanced bailout fund today or tomorrow, completing the ratification process across the 17 euro countries.

Copper, Oil

The U.S. will intensify its call for forceful action from Europe at a meeting of Group of 20 nations in Paris this week, Lael Brainard, the Treasury undersecretary for international affairs, said yesterday. An Oct. 23 summit of euro leaders looms as a deadline for a breakthrough in combating the crisis.

“Risk appetite has improved because of the positive news from Europe and the U.S.,” said Syhiful Zamri, director of investment, research and advisory at Kenanga Investors Bhd. in Kuala Lumpur.

Copper dropped as much as 2.3 percent to $7,355 a metric ton on the London Metal Exchange, after yesterday climbing to the highest level in two weeks yesterday. Nickel retreated 0.9 percent and tin sank 1.4 percent.

Oil for November delivery dropped 0.9 percent to $84.83 a barrel after American Petroleum Institute data showed U.S. implied gasoline demand fell the most in more than five years. The International Energy Agency yesterday cut its 2012 demand estimate for oil by 210,000 barrels a day and said Libyan output will rebound to 50 percent more than earlier forecast.

To contact the reporters on this story: Shiyin Chen in Singapore at schen37@bloomberg.net; at echew16@bloomberg.net.

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net.

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