Iceland Rejects Chinese Billionaire’s Land Plan

By Omar Valdimarsson - Nov 26, 2011 10:22 PM GMT+0700

Iceland’s government denied Chinese billionaire investor Huang Nubo permission to purchase land in the island’s north, saying such a transfer of property would be “incompatible” with the country’s laws.

The government won’t let Huang, through his company Beijing Zhongkun Investment Group Co., proceed with a planned acquisition of 300 square kilometers (116 square miles) of land, the Reykjavik-based Internal Affairs Ministry said in an e- mailed statement yesterday.

Icelandic law “imposes strict conditions on corporations wishing to acquire ownership or the right to use Icelandic properties and it’s clear that the company in question doesn’t fulfill any of the requirements,” the ministry said.

Huang planned to invest about $200 million to build a resort with a hotel, golf course and racecourse, according to an Oct. 26 article in China Dialogue. In a September interview with Bloomberg News, Huang said he was in talks to buy the land for $8.8 million from a group of farmers and was awaiting approval from the government. Huang is estimated by Forbes magazine to have a fortune of $1.02 billion.

“Internal struggles between Iceland’s different political parties led to the rejection of the investment,” Huang said in an interview with the official Xinhua News Agency on Nov. 26. “A fair and reasonable international investment environment should not mean eyeing money in Chinese people’s pockets, while guarding against the Chinese in every possible way, and fearing they will take away the country’s resources,” Xinhua quoted Huang as saying.

The billionaire has now dropped plans to buy the land, RUV reported today, citing Huang’s spokesman in Iceland, Halldor Johannesson. Yao Chen, a Beijing-based public relations official at Zhongkun, said Huang wasn’t available to comment when contacted by Bloomberg News earlier today.

Huang, 55 when he was interviewed on Sept. 25, said then he planned to establish resorts in nations such as Denmark, Finland and Sweden within five years. The Iceland land purchase would have been the biggest by a foreigner, according to Huang.

“If I have the site in Iceland, then I’ll expand to other Nordic countries,” Huang, who describes himself as a poet and someone who has climbed Mount Everest three times, said in Shanghai in September. “I’ll buy land and build resorts in Nordic countries, but they won’t be the magnitude of the project in Iceland.”

Huang said his connection with Iceland started 30 years ago when he was studying at Peking University. His roommate and good friend back then was from Iceland and later married a politician. Huang donated $1 million last year to set up an Icelandic-Chinese poet-exchange program.

Emerging From Failure

Iceland, which is emerging from the failure of its bank industry in 2008, is now enjoying faster economic growth than the average in the euro area, the International Monetary Fund estimates. Iceland’s gross domestic product will expand 2.5 percent this year and next, compared with 1.6 percent in the 17- member euro area this year and 1.1 percent in 2012, the IMF said Sept. 20.

Since its financial meltdown, Iceland’s $12 billion economy has renewed its focus on core industries such as fishing, energy and tourism.

“The question is not how can we turn down direct foreign investment of this magnitude, but rather how can one nation do anything else but comply with the laws it has passed for itself?” Internal Affairs Minister Ogmundur Jonasson said by phone. “It would have been easy to circumvent these laws, by establishing an Icelandic limited liability company. That reminds us of the necessity to reconsider these laws from top to bottom.”

External Support

Iceland ended a 33-month program with the IMF in August. The government was forced to seek external support in 2008 after its biggest banks defaulted on $85 billion in debt, triggering a currency sell-off and sending the economy into a recession. GDP sank 6.9 percent in 2009, and contracted a further 3.5 percent last year, the Organization for Economic Cooperation and Development estimated in May.

“I’m not concerned that this will have any effect on direct foreign investment in Iceland,” Jonasson said. “Investors will have more confidence in a nation which abides by its own laws.”

To contact the reporter on this story: Omar Valdimarsson in London at valdimarsson@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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Saudi Shares Extend Losses on Crisis in Europe, Mideast Turmoil

By Mourad Haroutunian - Nov 26, 2011 9:45 PM GMT+0700

Saudi Arabian shares extended losses for a fourth day after global stocks fell on growing anxiety that Europe’s debt crisis will spread and as violence in Egypt and possible sanctions on Syria raised concern about regional stability.

Saudi Basic Industries Corp. (SABIC), or Sabic, the world’s biggest petrochemicals maker, fell for the seventh day in nine and its unit Yanbu National Petrochemicals Co. (YANSAB), known as Yansab, fell to its lowest price in eight months.

The Tadawul All Share Index (SASEIDX) weakened 0.5 percent to 6,057.59, its lowest level since Oct. 5 at the 3:30 p.m. close in Riyadh. The 149-company gauge extended losses in the past four days to 2.4 percent. Two shares dropped for every stock that rose.

“International sentiment is weighing on Saudi Tadawul, international markets have traded in the red for more than five sessions now,” said Samer Darwiche, an analyst at Gulfmena Investments in Dubai. “This is coupled by some regional unrest in Egypt and Syria.”

U.S. stocks tumbled in the worst Thanksgiving-week loss for the Standard & Poor’s 500 Index since 1932 and European stocks posted their biggest weekly drop in two months. The S&P 500 (SPX) has fallen for seven days, the longest streak in four months. The Dow Jones Industrial Average (INDU) fell 4.8 percent. The benchmark Stoxx Europe 600 Index dropped 4.6 percent

Protesters Occupied Square

In Cairo yesterday, protesters occupied Tahrir Square demanding that Egypt’s generals cede power even after the military council asked former Prime Minister Kamal el-Ganzouri to form a new government.

Syria may face sanctions from Arab League countries after missing a deadline to allow monitors from the bloc to enter the country. The league’s Social and Economic Council will meet today to discuss possible measures against Syria, and will make recommendations to foreign ministers due to convene tomorrow.

In Saudi Arabia’s oil-rich Eastern Province, four people were killed and nine wounded in clashes between Shiite Muslims and security forces, the official Saudi Press Agency reported on Nov. 24.

Sabic dropped 1.4 percent to 90.25 riyals. Yansab declined 1.9 percent to 41.90 riyals, its lowest price since March 5.

“The market may strengthen in the coming few days when the state budget is released.” said Turki Fadaak, head of research at Riyadh-based Albilad Investment Co.

Saudi Arabia’s stock exchange is the only Gulf Arab bourse open on Saturdays.

To contact the reporter on this story: Mourad Haroutunian in Riyadh at mharoutunian@bloomberg.net

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net

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Belgium Agrees 2012 Budget After Rating Cut

By Peter Chapman - Nov 26, 2011 10:53 PM GMT+0700

Belgium’s political factions reached a deal to reduce the leaderless country’s budget deficit, bringing it closer to forming a government after 531 days of post-election brinksmanship.

Elio Di Rupo, president of the French-speaking Socialist Party who has led coalition negotiations between six of the country’s political parties, thrashed out the accord after all- night talks. King Albert II today asked him to form a government after tensions between the Dutch-speaking north and French- speaking south fueled speculation the country could break up.

Belgium’s rating was yesterday cut one step to AA by S&P, which said the cost of bailing out Dexia SA (DEXB), a lack of policy consensus and slowing growth will make it difficult to reduce the euro region’s fifth-highest debt load. Caretaker Prime Minister Yves Leterme had called for a deal between the six parties involved before Nov. 28, when Belgium plans to raise as much as 2 billion euros ($2.7 billion) from a bond offering.

“It’s the markets that made them finally wake up,” Karel Lannoo, chief executive officer of the Centre for European Policy Studies in Brussels, said in a phone interview. “It’s good that the markets did this, because no one else managed to convince them -- not the electorate.” The “main stumbling block to forming a government” has now been removed, he said.

Sanctions Threat

Belgium faced sanctions from the European Union for failing to tackle the shortfall in its public finances. EU Economic and Monetary Affairs Commissioner Olli Rehn reiterated last week that Belgium must take action to meet that goal.

Central bank governor Luc Coene today urged euro-member governments to take action to restore financial markets’ confidence in the public finances. After that, the European Central Bank and its Belgian counterpart can take steps to restore the functioning of government bond-markets, he told Het Belang Van Limburg.

“This budget meets the multi-year commitments of Belgium towards the European Union,” the negotiators said in a joint statement on the deal. “It will reduce the deficit in our country to 2.8 percent of GDP in 2012 to break even in 2015.”

The deal, which includes 11.3 billion euros of savings and new taxes, “brilliantly passes the European test,” Alexander De Croo, the leader of the Flemish Liberal party, was quoted as saying by the Belga news agency.

‘Compromise Budget’

“It’s a compromise budget,” Laurette Onkelinx, a French- speaking socialist lawmaker, told Belga. “We tried to have a budget satisfying each other, but there would be no agreement if everyone did not have water in his wine.”

Three days ago, King Albert turned downDi Rupo’s request to stand down from leading the negotiations and urged the six parties to complete the discussions and form a government.

The King is “pleased that agreement has been reached” on the budget, the royal palace said in an e-mailed statement. “Accordingly, he has instructed” Di Rupo “to form a government as quickly as possible.” Di Rupo, 60, had sought to quit after the Liberals from both sides of Belgium’s linguistic divide refused to accept his earlier plans for a 2012 budget.

The country’s rating was lowered from AA+, with a negative outlook, London-based S&P said yesterday in a statement. The action by S&P is the first downgrade for Belgium in almost 13 years and puts its credit ranking on a par with the S&P local- currency ratings of the Czech Republic, Kuwait and Chile.

Borrowing Costs Jump

Belgium’s borrowing costs have surged to the highest in 11 years in the past two months after the nation’s government agreed to buy Dexia’s Belgian bank unit and guarantee part of the crisis-hit lender’s liabilities for 10 years. Investors continued a selloff in Belgian bonds after six-party coalition talks ran aground this week as Liberals and Socialists clashed over how to cut the budget deficit.

Belgium follows Slovenia, Spain, Italy, Ireland, Portugal, Cyprus and Greece in having its credit rating cut this year. The country of 10.8 million people, whose capital, Brussels, is home to the European Commission and the North Atlantic Treaty Organization, last had its credit standing lowered in December 1998 by Fitch Ratings.

Belgium’s budget deficit will narrow to about 3.6 percent of gross domestic product this year from 4.1 percent in 2010, S&P said. It also forecast government debt will increase to about 97 percent of GDP from 96.1 percent last year after the administration paid 4 billion euros to nationalize Dexia Bank Belgium NV.

To contact the reporter on this story: Peter Chapman at pchapman10@bloomberg.net;

To contact the reporter on this story: John Martens in Brussels at jmartens1@bloomberg.net

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Telekom Austria Investor Ronny Pecik Increased Stake in Company to 15.8%

By Boris Groendahl - Nov 26, 2011 9:05 PM GMT+0700

Telekom Austria AG (TKA), the partly state-owned telephone operator, said it was informed today that Ronny Pecik’s RPR Privatstiftung increased its stake in it to 15.8 percent via shares and options.

Vienna-based Telekom Austria said in a statement late yesterday that RPR exercised options to buy a 15 percent stake through its Marathon Zwei Beteiligungs GmbH vehicle, and in addition holds options to acquire a further 0.8 percent through its Everest Investment GmbH subsidiary.

At yesterday’s closing price of 8.209 euros in Vienna, Pecik’s stake is worth 574.6 million euros ($761 million), according to Bloomberg calculations.

The Alpine republic’s former phone monopoly said last month that Marathon Zwei has acquired options to buy 5.4 percent of the company’s rights. Pecik and three other investors are targeting a 20 percent stake in Telekom Austria, Format magazine reported Sept. 9, without citing anyone.

Pecik said Oct. 28 that he has teamed up with Egyptian billionaire Naguib Sawiris to buy a stake in Telekom Austria. Format magazine reported Nov. 24 that Norwegian telephone operator Telenor offered to buy options to buy Telekom Austria stock at 11.30 a share from Pecik.

‘Very Little Sense’

“From an analyst’s perspective, Ronny Pecik’s plans for Telekom Austria have made very little sense from the start,” controlling stake?’’ Berenberg analysts Usman Ghazi, Barry Zeitoune and Laura Janssens wrote in a note to customers on Nov. 24. “His plans to accelerate fibre build as a value-enhancing strategy, while management is correctly pursuing a more cautious demand-oriented strategy.”

Pecik “could also be reselling his stake to VimpelCom, Telefonica, Telenor (TEL) as a viable exit strategy,” the analysts said. “Regarding the latter, we do not see the attraction of Telekom Austria for an acquirer, particularly when it is not cheap when the EV is adjusted for restructuring provisions.”

Austria, which owns 28 percent of Telekom Austria, earlier this month amended a law to limits ownership of infrastructure companies by non-Europeans. A new clause in the country’s Foreign Trade Act states that stakes of 25 percent or more require approval by the Ministry of Economics unless the investor is from the European Union, the European Economic Area or Switzerland.

OeIAG, Austria’s state assets agency which manages the government’s stake in Telekom Austria, said in a statement today that it has “noted” the change of the company’s ownership structure and is a “stable core shareholder” in Telekom Austria.

To contact the reporter on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net

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Egypt Protesters Demand Generals Quit

By Ola Galal, Ahmed A Namatalla and Mahmoud Kassem - Nov 26, 2011 7:47 PM GMT+0700

One person died in clashes with police in Cairo as protesters rejected the military’s appointment of new Prime Minister Kamal el-Ganzouri and demanding the generals cede power.

Field Marshal Mohamed Hussein Tantawi, head of the ruling army council, said he gave el-Ganzouri “full prerogatives,” state-run television reported yesterday. Hundreds spilled over from Tahrir Square and started a sit-in in front of the nearby Cabinet building to protest el-Ganzouri’s appointment. One person died in clashes with police today at the site, state-run Nile News reported.

The council said elections scheduled to start Nov. 28 won’t be postponed and that it will stay in power until a presidential poll in June. Voting will take place over two days instead of one during each round, the Cabinet said on its Facebook page. In Cairo’s Abassiya Square, a one-day counter-protest backing the military grew into thousands after prayers on Friday.

“It’s a controversial appointment because it didn’t unite people, it divided them,” said Wael Ziada, Cairo-based head of research at EFG-Hermes Holding SAE. “Some protesters don’t believe he is the right figure to take independent decisions in the coming period. The best way forward is to carry on with peaceful elections and for the military council to hand over power to a national rescue government immediately afterward.”

Military Council

The army council, which took over after Hosni Mubarak’s ouster in February, is seeking to form an interim government in an attempt to defuse unrest that erupted on Nov. 19 and has left at least 38 people dead, according to the Health Ministry. The violence, which began in Cairo and cities including Alexandria, threatens to derail the elections and undermine attempts to secure financing for an economy still struggling to recover from this year’s revolt.

“Kamal el-Ganzouri is not good because he is a remnant of the old regime,” said Saeed Abu el Ela, 48, a lawyer who joined the Tahrir Square protest. “They should have picked someone new so the people would accept him. My problem is that he’s from the old regime and he’s old.”

El-Ganzouri, 78, told journalists he hopes a new government will be formed within a few days, though he said it’s unlikely that will happen before parliamentary elections. El-Ganzouri said he wouldn’t have accepted the role of prime minister had he believed the military council wanted to stay in power. He said that he has been given more powers than any previous government.

Muslim Brotherhood

“I asked the field marshal to take some time to be able to form a government that will satisfy the whole country,” he said in a televised speech yesterday.

Central Cairo was peaceful after Muslim worshippers completed their prayers, as the crowd in Tahrir Square grew. Protest leaders have called for a million-person rally against military rule. The Muslim Brotherhood, Egypt’s largest Islamic group, won’t take part, Mahmoud Ghozlan, a spokesman for the organization, said by telephone. The group is expected to form one of the largest blocs in parliament after the election.

Mohamed ElBaradei, the former head of the United Nations nuclear agency who said he will run for president, visited Tahrir Square yesterday.

Some protesters marched to the Cabinet office where they are holding a sit-in against the appointment of el-Ganzouri, the state-run Middle East News Agency reported. The protesters said they were nominating presidential hopefuls ElBaradei, Abdel Momeim Abu el-Fotouh, and Hamdine Sabahi to form a national salvation government, the Cairo-based agency said.

El-Ganzouri held several high-profile positions in 17 years of service under Mubarak, starting with his appointment as the minister of planning in 1982. His service ended after a three- year term as prime minister from 1996 to 1999. He is an economist with a PhD from the University of Michigan.

“He was the one who oversaw the privatization of companies and fired workers,” said Fatma Ramadan, 45, an activist at the Tahrir protest. “He has many problems.”

Lack of Trust

The April 6 Youth Movement, one of the groups that organized the anti-Mubarak uprising, said “the military council must know that we don’t trust it or its choices.”

Standard & Poor’s cut Egypt’s credit rating on Nov. 24, while the government raised less than half of its target sum at an auction of six-month and one-year Treasury bills, and was forced to pay record yields above 14 percent on both securities. The central bank unexpectedly raised interest rates for the first time since 2008 to stem flight from the pound.

Egypt’s five-year credit default risk rose to the highest since March 2009 yesterday, gaining eight basis points, or 0.08 percentage point, to 563, according to data provider CMA. That compares with 292 for Tunisia, the Arab country whose uprising also ousted its president in January.

The military council dissolved parliament and suspended the constitution after taking over from Mubarak, saying it aimed to hand power to a democratically elected government after elections.

Credit Rating

In cutting Egypt’s credit rating to B+, four steps below investment grade, S&P cited renewed violence amid a “highly polarized political landscape” that has weakened public finances and will lead to further declines in international reserves.

Egypt’s economy grew 1.8 percent in the fiscal year that ended on June 30, its weakest performance in at least a decade. Foreign-currency reserves have declined $14 billion this year to $22.1 billion last month.

To contact the reporters on this story: Ola Galal in Cairo at ogalal@bloomberg.net; Ahmed A Namatalla in Cairo at anamatalla@bloomberg.net; Mahmoud Kassem in Cairo at mkassem1@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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Key Re-Elected as New Zealand Prime Minister

By Tracy Withers and Chris Bourke - Nov 26, 2011 8:44 PM GMT+0700
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John Key, New Zealand's prime minister, waves to the audience after winning the general election in Auckland. Photographer: Brendon O'Hagan/Bloomberg

New Zealand Prime Minister John Key won a second term in office after his National party secured its best result in 60 years, giving him the mandate to sell state assets and help eliminate a budget deficit.

“The government will be focused on building a more competitive economy with less debt, with more jobs and with higher incomes,” Key told supporters in his victory speech in Auckland late yesterday. “I’m absolutely committed to” the asset sales program, he said.

National won 48 percent of votes, the most it has taken since 1951, according to provisional results published on the Electoral Commission website. Key has 60 seats in the 121-member parliament and will be able to command a majority with support from the ACT and United Future parties that helped him to form a government in 2008 and have again signaled their support.

Key, a 50-year-old multimillionaire and former foreign exchange head at Merrill Lynch & Co., faces the task of steering a recovery from New Zealand’s worst natural disaster in 80 years amid global economic turmoil. His government has pledged to sell part of its stake in four energy companies and the national airline to help erase a record NZ$18.4 billion ($13.6 billion) budget deficit.

“We’ve got the numbers to put that program through,” Key said in an interview with Television New Zealand, adding he is “very committed” to returning the budget to surplus.

Financial Management

Key triumphed over opposition Labour Party leader Phil Goff, 58, after managing the economy through a global financial crisis and a Feb. 22 earthquake that devastated the business district of the second-largest city, Christchurch, killing 181 people. Still, his popularity extended beyond financial management.

He was photographed drinking beer while cooking meat on a barbeque with Prince William in January last year, when the U.K. royal visited Wellington. At the opening game of the Rugby World Cup on Sept. 9 in Auckland, he sang the anthem alongside the national All Blacks team on the field, and was on the podium to shake the hand of captain Richie McCaw after the team won the final on Oct. 23.

Support for National rose from 45 percent in the last election, when the party gained 58 seats. Key’s opinion poll support as preferred prime minister has exceeded 50 percent all year even as economic growth slowed and New Zealand lost its top credit grades at Standard & Poor’s and Fitch Ratings in September, with both citing concern that government and household debt was too high.

Consumer Spending

Still, New Zealand stocks have outperformed in the region, with the NZX 50 Index down 2.9 percent this year compared with the MSCI Asia Pacific Index (MXAP)’s 21 percent drop. The New Zealand dollar peaked at a record high in August, above 88 cents against the U.S. dollar. It traded at 74.05 cents in late New York trading Nov. 25.

The Christchurch earthquake and a temblor in September last year that didn’t cause any fatalities damped consumer spending and New Zealand faces a NZ$20 billion reconstruction bill.

While the Treasury Department forecasts annual average growth of 2.3 percent in the year ending in March, the central bank has said the country may not be immune to a worsening of the European debt crisis.

Support for Labour slumped to 27 percent from 34 percent in the 2008 election as voters rejected Goff’s plans to raise taxes on capital gains and high income earners. Labour, which secured 34 seats, opposes the proposed asset sales and pledged to remove sales tax on fresh fruit and vegetables to ease the cost of living for low income families.

‘Wasn’t Our Time’

“It wasn’t our time this time,” Goff said in televised comments after conceding defeat. “We can be proud of the fact we took some of the tough decisions that others have shied away from in the knowledge that they might not be immediately popular.”

Goff told reporters he is reviewing his leadership of the party and will discuss that with colleagues next week. Labour’s vote dropped to the lowest since 1928 as the rival Green party surged to 10.6 percent from 6.7 percent three years ago to take 13 seats in parliament, according to Electoral Commission data.

The New Zealand First party won 6.8 percent of the vote, giving it eight seats, after it won none in 2008.

ACT candidate John Banks won the Epsom constituency and will be his party’s only parliamentarian, as it got 1.1 percent of the national vote. United Future leader Peter Dunne, who was revenue minister in Key’s previous government, retained the Ohariu constituency and is also on his own in parliament.

Maori Party

Key said he will also meet with the Maori party, which won three seats, although it has opposed the asset sales program.

Under the nation’s mixed member proportional voting system, New Zealanders cast two ballots, one for a party and the other for a candidate in their constituency. There are 63 general constituencies and seven special constituencies reserved for native Maori voters.

Parties need to garner five percent of the vote or win a constituency to get into parliament.

In a non-binding referendum alongside yesterday’s ballot, voters were asked to retain or change the voting system. Fifty- four percent said they want to keep the so-called MMP system, while 43 percent opted to change it, according to votes submitted before polling day tallied on the Electoral Commission website. The commission aims to publish official results by Dec. 10.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Chris Bourke at cbourke4@bloomberg.net

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New Zealand Begins Vote Counting as Key Poised for Second Term in Office

By Chris Bourke and Tracy Withers - Nov 26, 2011 3:43 PM GMT+0700

New Zealand Prime Minister John Key’s National party is leading the main opposition with more than three-quarters of polling places counted in today’s election as the government seeks a second term in office.

National won 48.8 percent of votes compared with 26.4 percent for the Labour Party, according to preliminary results based on 77 percent of polling places counted, the Electoral Commission said on its website at 9:40 p.m. in Wellington. Results from all booths are likely to be known by 11:30 p.m.

“We can safely say we will be the largest party, but in terms of how it ends up we’ve still got some votes to get through,” Transport Minister Steven Joyce said on Television New Zealand.

Key, a 50-year-old multimillionaire and former foreign exchange head at Merrill Lynch & Co., is seeking to become the first party leader to capture more than half the votes cast in a New Zealand election since 1951. Since winning office in 2008, he has managed the economy through a global financial crisis and a Feb. 22 earthquake that devastated the business district in Christchurch, the nation’s second-largest city, killing 181 people.

National has pledged to sell state assets and overhaul welfare to eliminate a fiscal shortfall, while Labour plans to raise taxes on capital gains and high income earners to erase a record NZ$18.4 billion ($13.6 billion) deficit.

The prime minister has had “considerable challenges thrown at him domestically as well as offshore and he still seems to have the air of competence and being in control,” said Annette Beacher, Singapore-based head of Asia-Pacific research at TD Securities. “People in the financial markets can smell fear and he hasn’t expressed any.”

Opinion Polls

Key’s National party held an average 24-point lead over opposition leader Phil Goff’s Labour in five opinion polls published in the past week. In the last election, National won 58 seats in the 123-seat parliament and assembled a government with support from the ACT party, the Maori party and the one- seat United Future party.

New Zealand lost its top credit grades at Standard & Poor’s and Fitch Ratings in September, with both citing concern that government and household debt was too high. Still, New Zealand stocks have outperformed in the region, with the NZX 50 Index (NZSE50FG) down 2.9 percent this year compared with the MSCI Asia Pacific Index (MXAP)’s 21 percent drop.

Voting System

The New Zealand dollar peaked at a record high in August, above 88 cents against the U.S. dollar. It traded at 74.05 cents in late New York trading yesterday.

Under the nation’s so-called mixed member proportional system, Key will have to form a coalition again if he doesn’t win more than 50 percent of the vote. Goff, 58, could form a government by cobbling together a coalition with support from other parties if Key’s likely allies don’t win enough votes to stay in parliament.

In a non-binding referendum alongside today’s election, voters are being asked to retain or change the voting system.

New Zealanders cast two ballots, one for a party and the other for a candidate in their constituency. Parties need to garner five percent of the vote or win a constituency to get into parliament.

The Christchurch earthquake and a temblor in September last year that didn’t cause any fatalities damped consumer spending, and New Zealand faces a NZ$20 billion reconstruction bill.

While the Treasury Department forecasts annual average growth of 2.3 percent in the year ending in March, the central bank has said the country may not be immune to a worsening of the European debt crisis.

If Key wins he will face some tough choices, said Philip Borkin, an economist at Goldman Sachs New Zealand Ltd. in Auckland.

The global economic outlook means surpluses “will be a difficult task to achieve,” Borkin said. The situation will require “some potentially difficult and unpopular decisions to be made.”

To contact the reporters on this story: Chris Bourke in Wellington at cbourke4@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.net.

To contact the editor responsible for this story: Chris Bourke in Wellington at cbourke4@bloomberg.net

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Black Friday Draws Younger Shoppers

By Matt Townsend and Cotten Timberlake - Nov 26, 2011 12:01 PM GMT+0700

Play Video

Nov. 25 (Bloomberg) -- Robert Burke, chief executive officer of Robert Burke Associates, talks about the outlook for luxury retail sales during the holiday shopping season. He speaks with Betty Liu on Bloomberg Television's "In the Loop." Jay Margolis, a Bloomberg Television contributing editor and former retail executive, also speaks. (Source: Bloomberg)

Play Video

Nov. 25 (Bloomberg) -- David Strasser, an analyst at Janney Montgomery Scott LLC, talks about the outlook for the holiday retail sales season. He speaks on Bloomberg Television's "InBusiness with Margaret Brennan." (Source: Bloomberg)

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People rush into the entrance of Macy's department store as they open at midnight (0500 GMT) on November 25, 2011 in New York to begin the "Black Friday" shopping weekend. Photographer: Stan Honda/AFP/Getty Images

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Shoppers gather items at a Black Friday sale at a Toy "R" Us Inc. store in New York, U.S., on Thursday, Nov. 24, 2011. Photographer: Peter Foley/Bloomberg

Retailers may have lured more shoppers on Black Friday as an earlier start to their bargain bonanzas drew younger consumers.

Toys “R” Us Inc. opened at 9 p.m. on Thanksgiving, an hour earlier than last year. Wal-Mart Stores Inc. (WMT) started offering its deals one hour later, followed by midnight openings at Macy’s Inc. (M), Best Buy Co. and Target Corp. (TGT) that drew young consumers to the biggest retail day of the year for the first time.

“It was definitely a younger customer, under 20 for the most part, and they were shopping in groups of friends, four and five at a time,” Macy’s Chief Executive Officer Terry Lundgren said yesterday of the crowd of 10,000 that waited at the chain’s flagship store in Manhattan. “It was almost a continuation of whatever social experience they were having hours before.”

Black Friday arrived with consumer sentiment at levels previously reached during recessions, as a record share of households said this is a bad time to spend, according to the Bloomberg Consumer Comfort Index. The measure has reached minus 50 or less in nine of the past 10 weeks, an unprecedented performance in its 26-year history.

Even with low confidence, sales may have gained from a year earlier as shoppers paid more for goods and unleashed some pent- up demand, said Craig Johnson, president of consulting firm Customer Growth Partners. Revenue from Black Friday may grow to $27 billion, an 8 percent increase from the same period a year ago, Johnson, whose firm is based in New Canaan, Connecticut, said in a telephone interview.

Good Early Sign

“The increase in consumers is a good sign early, but it doesn’t necessarily mean the overall holiday is going to fare much better than last year,” said Marshal Cohen, an analyst at Port Washington, New York-based NPD Group. People are spending about the same as last year while “nothing has shown us it’s going to be great, and nothing has shown us it’s going to be terrible,” he said.

Sales at brick-and-mortar stores may rise 2.8 percent to $465.6 billion this holiday season, slower than the 5.2 percent gain last year, according to the National Retail Federation. Online revenue may advance 15 percent to $37.6 billion, according to ComScore Inc. (SCOR) As many as 152 million people were expected to shop at stores and websites on Black Friday, up 10 percent from last year, according to the Washington-based NRF.

Chains such as Macy’s, Target and Kohl’s Corp. (KSS) may have taken revenue from competitors like J.C. Penney Co. (JCP) that didn’t open until 4 a.m., according Retail Metrics President Ken Perkins.

“It was a win for them,” said Perkins, who visited stores in Boston. “The additional costs of staying open a few more hours will be more than offset by the traffic they brought in and probably taking some market share.”

Macy’s Drives Traffic

Macy’s decision to start Black Friday earlier also prompted many malls to open at midnight. That helped boost foot traffic at Walt Disney Co. (DIS)’s namesake stores because Macy’s serves as the anchor tenant in the malls the house most of its locations, said Jim Fielding, president of Disney Stores Worldwide. Sales at Disney Stores rose high-single percentage points to meet expectations, Fielding said.

The extended hours drew Amanda Rottmueller, a 20-year-old nursing student, to Black Friday for the first time as she bought herself bras and pajamas that came with a free pair of slippers from Limited Brands Inc.’s (LTD) Victoria’s Secret at the Tri-County Mall in Cincinnati.

“The deal is just too good, and I can get something really nice I wouldn’t be able to afford otherwise,” she said.

Online Sales

The move to turn Black Friday into more than just one day also grew on the Web as online retailers, such as Amazon.com Inc. (AMZN), began advertising “Black Friday” deals well before yesterday. Online sales gained 39 percent on Thanksgiving and 18 percent by noon New York time, according to International Business Machines Corp.’s Coremetrics.

Kristen Gartland, a 20-year-old waitress, also tried Black Friday for the first time by starting at a Wal-Mart in Huber Heights, Ohio, at 10 p.m. and then Kohl’s at midnight. She said she planned to double her shopping budget to $350 from a year ago because she has made more money serving wings at a sports bar in nearby Miamisburg, Ohio.

Barb Steck, a 45-year-old Washington resident, also expected to double her holiday spending to “thousands” this year because the family construction business is doing well and she had pent-up demand. She got rid of some of that yesterday, spending $400 on shoes and pants at Michael Kors and Lululemon Athletica Inc.

“I haven’t done a lot of shopping recently,” Steck said. “I am starting to shop now for myself.”

Spending Drop

Many shoppers, including 39-year-old Tanya Taylor from San Diego, planned to cut back on holiday purchases. Her spending will drop by 50 percent because her freelance work in the beauty industry has declined, she said while shopping for her own clothes at a Macy’s at the Westfield Horton Plaza Mall in San Diego.

Gap Inc. (GPS), based in San Francisco, took the early openings one step further by boosting the number of stores open on Thanksgiving morning to about 1,000. Most of them were Old Navy locations, which offered women’s coats for as little as $14.75, or about 50 percent off, and scarves for $5, down from $7.94.

An Old Navy store in Greensboro, North Carolina, opened at 9 a.m. on Thanksgiving, attracting Paula Pile, a marriage counselor. She shopped for socks, pajamas pants and a $19 vest for her granddaughter, before heading to dinner with family.

By opening on Thanksgiving, Old Navy “is picking up my business,” said Pile, 57. “I am not one to get up in the middle of the night and go stand in line.”

Confidence, Spending

Black Friday may illustrate a gap between what consumers tell pollsters and how they actually behave -- a trend that has prevailed for much of this year, said Retail Metrics’ Perkins. Industrywide monthly same-store sales, a key indicator for retail growth because new and closed locations are excluded, have gained for more than two years and missed analysts’ projections once this year, according to Retail Metrics.

“A solid Black Friday suggests the rest of the season should be pretty good,” Perkins said. “Those who have jobs have been willing to spend.”

To contact the reporters on this story: Matt Townsend in Huber Heights, Ohio, at mtownsend9@bloomberg.net; Cotten Timberlake in Washington at ctimberlake@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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GM Volt Under U.S. Probe for Batteries

By Angela Greiling Keane and David Welch - Nov 26, 2011 6:25 AM GMT+0700

General Motors Co. (GM)’s electric plug- in hybrid Chevrolet Volt is the subject of a U.S. safety probe after its lithium-ion batteries, supplied by LG Chem Ltd., caught fire in crash tests.

A Volt caught fire three weeks after a side-impact crash test May 12 while parked at a testing center in Wisconsin, leading regulators to conduct more tests. Volt battery packs were damaged in three more tests last week, causing two fires, the National Highway Traffic Safety Administration said yesterday in a statement on its website.

“The agency is concerned that damage to the Volt’s batteries as part of three tests that are explicitly designed to replicate real-world crash scenarios have resulted in fire,” NHTSA said in the statement.

The U.S. regulator said it doesn’t know of any crashes outside of testing that have led to battery-related fires in Volts or other cars powered by lithium-ion batteries. Chevy Volt owners whose vehicles have not been in a serious crash don’t need to be concerned, the agency said.

GM maintains that the car is safe. The automaker and NHTSA have been working for months to replicate the fire in the car’s lithium-ion battery that occurred three weeks after the May collision test, Greg Martin, a GM spokesman, said by telephone.

Inducing Battery Failure

The testing, which involved a stand-alone battery assembly, “is part of a broader program over the last six months to induce battery failure under extreme conditions,” Martin said.

LG Chem, South Korea’s biggest chemical maker, is the Volt’s battery vendor. Dick Pacini, a spokesman with the Millerschin Group, which works for LG Chem (051910), said he couldn’t immediately provide comment. On Nov. 22, LG Chem said in a statement that it was cooperating with NHTSA and GM.

NHTSA, which said it’s working with the U.S. Defense and Energy departments to analyze the fires, conducted its first new test on Nov. 16 without a fire. The second test on Nov. 17 saw an initial temporary increase in battery temperature after the crash, and the battery pack caught fire at the test facility on Nov. 24. In a third test on Nov. 18, the battery was rotated hours after the crash and “began to smoke and emit sparks shortly after,” NHTSA said.

At this stage of Volt marketing, the NHTSA investigation will probably not hurt sales, said Jim Hall, principal of 2953 Analytics Inc., a consulting firm in Birmingham, Michigan.

The car has been on sale for a year as the manufacturer ramps up production. Most Volt owners are early adopters with an interest in the technology, and won’t be deterred by the post- collision fires, Hall said in a telephone interview.

“If they were selling to the mass market, it would be a bigger problem,” he said.

GM started selling the car in seven states and began offering the Volt in all 50 states in October, Martin said.

GM, based in Detroit, sold 5,003 Volts this year through October, according to Autodata Corp., a research firm in Woodcliff Lake, New Jersey. GM will push production to a rate of 60,000 a year starting in January. Of the 60,000 GM plans to build next year, 45,000 are earmarked for the U.S., and the rest will be exported, the company has said.

To contact the reporters on this story: David Welch in Detroit at dwelch12@bloomberg.net; Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

To contact the editors responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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Treasury 10-Year Yield Below 2% as Europe Debt Crisis Fuels Refuge Demand

By Susanne Walker - Nov 26, 2011 12:00 PM GMT+0700

Treasuries rose, pushing the yield on the 10-year note down for a second week, as concern the European debt crisis may escalate drove investors to the safety of U.S. government debt.

Benchmark 10-year yields closed at less than 2 percent for the first time in eight weeks and fell below comparable German bunds. The yield difference widened to 0.31 percentage point, the most since April 2009, as borrowing costs in the European region soared. U.S. auction yields dropped to record lows as the Treasury sold $99 billion in notes. A report Dec. 2 is forecast to show the U.S. added 120,000 jobs in November.

“There’s not a lot of confidence in places outside the U.S. right now,” said Christopher Bury, co-head of fixed-income rates at Jefferies Group Inc., one of the 21 primary dealers that trade with the Federal Reserve. “The overall risks have been increasing and that’s contributed to Treasuries performance over the last week. Discussions out of Europe are not making much headway and the markets are not trading very well.”

Ten-year note yields dropped five basis points, or 0.05 percentage point, on the week to 1.96 percent in New York, according to Bloomberg Bond Trader prices. The 2 percent note due in November 2021 rose 13/32, or $4.06 per $1000 face amount, to 100 10/32.

Yield Records

The yield dropped to 1.87 percent on Nov. 23, approaching the record low 1.67 percent set Sept. 23.

Trading in Treasuries closed at 2 p.m. yesterday in New York, after being shut the previous day for Thanksgiving.

U.S. yields set record lows at auctions this week even as the U.S. deficit reduction Congress’s supercommittee failed Nov. 21 to reach a deal, setting the stage for $1.2 trillion in automatic spending cuts, and as the Fed and the Treasury sold $116 billion in notes.

A $35 billion two-year note auction on Nov. 21 produced the highest bid-to-cover ratio on record for a fixed-coupon Treasury note or bond, 4.07, while a $35 billion five-year debt sale the next day was priced at a record low yield for the securities of 0.937 percent. A $29 billion seven-year auction on Nov. 23 garnered a record low yield of 1.415 percent.

The Fed sold $8.531 billion of securities maturing in February 2012 through July 2012 on Nov. 21 as part of its plan to lower borrowing costs that’s become known as Operation Twist, according to the Fed Bank of New York’s website. The central bank also sold $8.63 billion in Treasuries maturing from March 2014 to November 2014, in a second operation that day.

Supply Handle

“Supply has never been a problem when the markets are in turmoil,” Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker said Nov. 21. “There doesn’t seem to be any concrete solutions in Europe.”

Germany failed to sell all the bonds it wanted to at an auction Nov. 23, sparking concern investors are becoming wary of even the most creditworthy euro-region nations. Total bids at the auction of the bunds due in January 2022 amounted to 3.889 billion euros ($5.2 billion) out of a maximum target for the sale of 6 billion euros, according to Bundesbank data. The yield on the 10-year German bund climbed yesterday to 2.26 percent, the highest since Oct. 28.

“The market is anticipating that if Germany is going to be wrapping or guaranteeing in some way other countries debts, then German yields should be higher,” Bury said.

Merkel Rules

German Chancellor Angela Merkel on Nov. 24 ruled out joint euro-area borrowing and an expanded role for the European Central Bank in fighting the debt crisis.

The cost of insuring European sovereign bonds against default soared to a record and Spanish, Italian and Belgian two- year notes slumped. Two-year Italian yields climbed 58 basis points to a euro-era record high 7.90 percent.

Italy had to pay almost 7 percent to sell six-month bills at an auction yesterday, fanning investor concern that the world’s fourth-biggest borrower may struggle to finance its debt. The Italian Treasury paid 6.504 percent to auction 8 billion euros of the six-month debt, almost twice the 3.535 percent a month ago and the highest since August 1997.

“With European yields off so much, it will take a while for domestic traders to reassess relative value,” said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee. “If we become the new ultra safe haven, we can’t short Treasuries.”

Stress Measure

Interest-rate swap spreads, a measure of stress in credit markets, climbed this week. The difference between the two-year swap rate and the comparable-maturity Treasury note yield increased a basis point yesterday to 54.81, near the highest since May 2010, according to data compiled by Bloomberg.

European governments may ease provisions in a planned permanent rescue fund requiring bondholders to share losses in sovereign bailouts, German Finance Minister Wolfgang Schaeuble suggested yesterday.

There may be changes to the European Stability Mechanism, due to come into force in 2013. European leaders persuaded bondholders last month to accept a 50 percent loss on their holdings of Greek debt as part of an interim rescue effort.

Europe’s debt crisis and the ensuing demand for safety has pushed Treasuries up 9.7 percent this year, set for the biggest annual gain since 2008, according to Bank of America Merrill Lynch data. German bunds returned 7 percent and Japanese bonds advanced 2 percent, the indexes show.

The Labor Department may report a 120,000 increase in November nonfarm payroll jobs, up from an 80,000 gain in October, according to the median estimate in a Bloomberg News survey of 32 economists.

To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net;

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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S&P 500 Has Worst Thanksgiving Week Since ’32 Amid Europe Crisis

By Kaitlyn Kiernan and Nikolaj Gammeltoft - Nov 26, 2011 12:01 PM GMT+0700

U.S. stocks tumbled in the worst Thanksgiving-week loss for the Standard & Poor’s 500 Index since 1932 as concern grew that Europe’s debt crisis will spread and American policy makers failed to reach agreement on reducing the federal budget.

Bank of America Corp., Hewlett-Packard (HPQ) Co. and Caterpillar Inc. (CAT) dropped at least 7.6 percent to lead declines in the Dow Jones Industrial Average. (INDU) Energy stocks fell the most in the S&P 500 as oil declined for a second week and as Chevron Corp. (CVX) lost 5.7 percent after it was blocked from drilling in Brazil while the government probes a recent spill. Netflix Inc. (NFLX) slid 18 percent after raising $400 million to bolster cash.

The S&P 500 slid 4.7 percent to 1,158.67, closing at the lowest level since Oct. 7. The Dow fell 564.38 points, or 4.8 percent, to 11,231.78 this week.

“We’ve resumed focus on the European debt issues,” Terry L. Morris, senior equity manager at Wyomissing, Pennsylvania- based National Penn Investors Trust Co., said in a telephone interview. His firm manages about $2.2 billion. “The situation in Europe doesn’t seem to be improving, which makes the market defensive,” he said. “Spending cuts kicking in in the U.S. will be a negative too because it will be a drag on economic growth.”

The S&P 500 (SPX) has fallen for seven days, the longest streak in four months, and has tumbled 7.6 percent so far in November. U.S. equities erased an early advance on the final session of the week as S&P lowered Belgium’s credit rating and Reuters reported that Greece is demanding private investors accept larger losses on their debt.

Debt Concerns

The cost of insuring European sovereign bonds against default rose to a record this week as Germany failed to find buyers for 35 percent of the bonds offered at an auction. German Finance Minister Wolfgang Schaeuble said market turbulence sparked by the euro region’s sovereign-debt crisis will last for “a few months.”

Congress’s special debt-reduction committee failed to reach an agreement this week, setting the stage for $1.2 trillion in automatic spending cuts and fueling concern that economic- stimulus measures that are set to expire will not be renewed. Still, S&P reaffirmed it would keep the U.S.’s credit rating at AA+ after stripping the government of its top AAA grade on Aug. 5.

Stocks fell Nov. 22 as revised Commerce Department figures showed that gross domestic product climbed at a 2 percent annual rate from July through September, less than projected and down from a 2.5 percent prior estimate. U.S. stock exchanges were shut Nov. 24 for Thanksgiving and closed three hours early on Nov. 25.

‘Macro Factors’

“The market’s not trying to distinguish between stocks right now, it’s focused almost exclusively on macro factors,” John Linehan, director of U.S. equities and a portfolio manager at T. Rowe Price Associates Inc., said at a press briefing Nov. 22 in New York. “ There’s a tremendous amount of volatility in the marketplace. The market’s on the gas pedal and the tires are spinning, but we’re really actually not going anywhere.”

Companies most-tied to the economy fell, sending the Morgan Stanley Cyclical Index down 6.2 percent, the most since the week ending Sept. 23. Caterpillar, the world’s largest construction and mining-equipment maker, dropped 7.7 percent to $86.72.

All 10 groups in the S&P 500 fell this week, led by a 6.2 percent slump in energy producers and a 5.8 percent drop in financial shares.

Bank of America (BAC), Netflix

Bank of America declined 11 percent, the most in the Dow, to $5.17, while Citigroup Inc. (C) decreased 10 percent to $23.63. Both are among lenders that may have to temper plans to raise dividends and buy back stock next year as the Federal Reserve toughens capital tests for the biggest U.S. banks.

Netflix sank 18 percent, the most in the S&P 500, to $63.86. Technology Crossover Ventures will purchase $200 million in zero-coupon senior convertible notes due 2018 in the video- streaming and DVD subscription service, and T. Rowe Price Associates Inc. funds will buy $200 million in stock. The transactions suggest Netflix’s cash squeeze may last longer than it had anticipated, said Michael Pachter, an analyst with Wedbush Securities. The company needs to spend more to make its streaming content stand out against a growing list of competitors, he said.

Commodity producers declined as reports showed manufacturing contracted in Europe and may shrink by the most in more than two years in China. AK Steel Holding Corp. (AKS), the third- largest U.S. steelmaker by volume, plunged 16 percent to $7.04. Alpha Natural Resources Inc. (ANR), the coal producer that bought Massey Energy Co. for $7.1 billion in June, lost 15 percent to $18.81.

Chevron in Brazil

Chevron lost 5.7 percent to $92.29. The U.S. oil producer operating the $3.6 billion Frade oilfield off the coast of Brazil was blocked from drilling in the South American country while the government probes a recent spill.

Hewlett-Packard slipped 9.3 percent to $25.39 following profit forecasts that missed analysts’ estimates. Meg Whitman, who took over as chief executive officer two months ago, used her first earnings conference call to tell investors they need to lower their expectations. The first-quarter profit forecast and full-year earnings outlook both missed estimates -- a sign the company is still reeling from a technology-spending slump.

Groupon Inc. plunged 36 percent to $16.75, below its initial public offering price. The largest Internet daily-deal site was dragged down on concern that profit margins will be squeezed by surging marketing costs and competition from rivals such as LivingSocial.com, backed by Amazon.com Inc. Signs that Europe’s credit crisis may be worsening also fueled speculation that Groupon’s international operations will suffer.

Jefferies Group Inc. (JEF) jumped 4.8 percent to $10.65. Egan- Jones Ratings Co.’s analysis of Jefferies, including estimates of tumbling revenue, was “flat out wrong by a country mile,” Chris Kotowski, an Oppenheimer & Co. analyst, said in a report entitled “Another Hack Attack.” Sean Egan, president and founding principal of the ratings company, said the company stands by its analysis.

To contact the reporters on this story: Kaitlyn Kiernan in New York at kkiernan2@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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

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Euro Tumbles in Longest Losing Stretch in 18 Months as Debt Crisis Spreads

By Allison Bennett - Nov 26, 2011 12:00 PM GMT+0700

The euro slid for a fourth week, its longest losing streak versus the dollar in 18 months, as Germany’s struggle with a bond auction signaled Europe’s debt crisis is touching the region’s most fiscally sound nations.

The 17-nation currency fell for a third week against the yen as Belgium’s credit rating was downgraded and before the nation auctions securities next week, including 10-year debt. Italy and France will also sell bonds next week. The dollar gained against all of its most-traded peers after Congress’s budget supercommittee failed to reach agreement on cutting the U.S. deficit, sending investors to the safety of Treasuries.

“The conditions in the foreign-exchange market caught up this week with the conditions in the credit market,” Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London, said yesterday. “Before, there was a lot of selling of periphery paper for core paper. But if Germany goes, there’s no more core paper to buy -- the capital leaves the euro area.”

The euro dropped 2.1 percent to $1.3239 yesterday in New York, from $1.3525 on Nov. 18. It last fell for four weeks in May 2010. The shared currency sank 1.1 percent to 102.91 yen. The greenback gained for the first time in three weeks against the Japanese currency, appreciating 1.1 percent to 77.73 yen.

Benchmark U.S. 10-year note yields fell five basis points, or 0.05 percentage point, to 1.96 percent, their first close below 2 percent in eight weeks, as investors sought refuge.

Seven-Week Low

The euro touched a seven-week low against the dollar yesterday after Italy sold 8 billion euros ($10.6 billion) of 183-day bills at a rate of 6.504 percent, the highest since August 1997. The auction came two days after Germany, Europe’s biggest economy, missed its 6 billion-euro maximum sales target at a 10-year bond auction by 35 percent.

German Chancellor Angela Merkel again rejected calls for joint euro-area borrowing and an expanded role for the European Central Bank in fighting the debt crisis. Merkel, who spoke Nov. 24 at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France, said euro bonds would lead to a convergence of interest rates in the region. German 10-year debt yielded 2.26 percent yesterday, while comparable Italian government bonds yielded 7.26 percent.

“This crisis isn’t specific to the periphery any more, and there is this constant reminder that officials don’t have any real solution on the table,” Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said yesterday. “There is mounting concern about officials and their ability to get a handle on the crisis.”

Basis Swaps

The cost for European banks to fund in the U.S. currency reached the most expensive level since October 2008. The three- month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, swelled to as much as 1.61 percentage points below the euro interbank offered rate.

Goldman Sachs Group Inc. recommended on Nov. 23 that investors end a money-losing bet that the euro would gain against the dollar after Greece and Italy got new governments.

The close of the recommendation translated to a potential loss of about 2.3 percent, Thomas Stolper, Goldman’s London- based chief foreign-exchange strategist, wrote in a client note.

Belgium had its credit rating lowered one step to AA by S&P, which said bank guarantees, political instability and slowing economic growth will make it difficult to reduce the nation’s debt load. The action by S&P is the first downgrade for Belgium in almost 13 years.

“Selling the euro on rallies is the ultimate fundamental trade you want to have before we get a real resolution,” Greg Salvaggio, senior vice president of capital markets at the currency-trading firm Tempus Consulting Inc. in Washington, said on Nov. 22.

Yen Performance

The yen was the third-best performer among the dollar’s 16 most-traded counterparts tracked by Bloomberg, after the Taiwanese dollar and Singapore’s dollar.

The Japanese currency had its biggest five-day loss against the dollar since Nov. 4, the week the Bank of Japan intervened and sold yen to curb gains that were hurting exporters. The dollar may strengthen more than 20 percent to as high as 94 yen should it climb above key resistance levels, where sell orders may be clustered, at 83.30 and 85.50, Neuchatel, Switzerland- based MIG Bank said, citing trading patterns.

The congressional supercommittee’s failure to reach an accord on budget-deficit reductions extended partisan gridlock into the 2012 election year and set the stage for $1.2 trillion in automatic spending cuts.

The U.S.’s credit ratings and outlook weren’t affected by the panel’s failure, Standard & Poor’s said. The company stripped the U.S. of its top AAA credit rating Aug. 5, cutting the rating to AA+ after political gridlock on deficit cuts.

Krona Biggest Loser

The dollar surged 2.3 percent this week against nine developed-nation counterparts tracked by Bloomberg Correlation- Weighted Currency Indexes. Japan’s currency rose 1.1 percent, the euro slipped 0.1 percent and Sweden’s krona was the biggest loser, falling 1.3 percent.

The Swedish currency sank after central-bank Deputy Governor Barbro Wickman-Parak said Nov. 22 at a seminar the nation’s policy makers may cut interest rates if Europe’s debt crisis persists. Two days later, the Riksbank announced Sweden’s biggest banks will need to target tougher capital standards than those set by international regulators.

The krona depreciated 3.2 percent to 7.0063 versus the dollar in its biggest weekly loss since Sept. 23. It declined 1.1 percent against the euro to 9.2747.

Currencies of commodity-producing nations tumbled after the HSBC Flash Manufacturing purchasing-manager index for China declined to 48 this month, predicting the biggest contraction since March 2009. The Australian dollar fell for a fourth week, losing 3 percent to 97.11 U.S. cents. China is Australia’s biggest trading partner.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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EU Rescue Fund May Ease Bond Provision

By Tony Czuczka - Nov 26, 2011 12:55 AM GMT+0700

European governments may ease provisions in a planned permanent rescue fund requiring bondholders to share losses in sovereign bailouts, German Finance Minister Wolfgang Schaeuble suggested.

Schaeuble signaled that Germany may retreat from demands that private creditors contribute to rescues in exchange for European treaty amendments toughening rules on budget oversight.

European efforts to speed the setup of the 500 billion-euro ($662 billion) European Stability Mechanism from its planned mid-2013 debut have lost momentum as Germany and the Netherlands resisted pleas by France, Spain, Portugal and Ireland to drop its bondholder-loss provisions.

“Basically, we agreed on the principle for the ESM already in July,” Schaeuble told reporters in Berlin after talks with his Dutch and Finnish counterparts today. “If we now manage to move toward a stability union, we’ll see how one might possibly adjust the treaty.”

The debt crisis rattled Germany, Europe’s biggest economy, with the failure of a bund auction two days ago. Bond yields in Spain and Italy surged today, with Spain dropping a plan to auction a three-year benchmark next week and Italy being forced to pay more to borrow for two years than for 10. Belgium's credit rating was cut today to AA from AA+ by Standard and Poor's.

While there “may be discussions in Brussels” next week on sector involvement under the ESM, the aim of a finance ministers’ meeting will be to flesh out details of the agreement by EU leaders last month to write down Greek debt, recapitalize banks and strengthen the existing rescue fund, the European Financial Stability Facility, Schaeuble said.

ECB Pressure

As the crisis worsens, the European Central Bank is coming under pressure to step up its response. While France yesterday agreed to stop pressuring the ECB to print money, policy makers today signaled they are willing to offer cash-strapped banks more liquidity if needed.

“I can imagine very well that if an exceptional measure would be demanded from the European system of central banks it would be in this area,” Luxembourg board member Yves Mersch told Luxembourg radio in an interview today. “We would look for possibilities to contribute to avoid that in a situation of stronger growth decline we won’t also have a credit crunch.”

At the same time, Executive Board member Jose Manuel Gonzalez-Paramo said the ECB doesn’t see any need to do more at the moment.

To contact the reporter on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Belgium’s Credit Rating Lowered to AA by S&P on Bank Rescues, Politics

By John Martens - Nov 26, 2011 7:01 AM GMT+0700

Belgium’s credit rating was cut one step to AA by Standard & Poor’s, which said bank guarantees, lack of policy consensus and slowing growth will make it difficult to reduce the euro region’s fifth-highest debt load.

The rating was lowered from AA+, with a negative outlook, London-based S&P said yesterday in a statement. The action by S&P is the first downgrade for Belgium in almost 13 years and puts its credit ranking on a par with the S&P local-currency ratings of the Czech Republic, Kuwait and Chile.

Belgium’s borrowing costs have surged to the highest level in 11 years in the past two months after the nation’s government agreed to buy Dexia SA’s Belgian bank unit and guarantee part of the crisis-hit lender’s liabilities for 10 years. Investors continued a selloff in Belgian bonds after six-party coalition talks ran aground this week as Liberals and Socialists clashed over how to cut the budget deficit.

“One cannot ignore the current political crisis that Belgium is facing, but apart from this, this rating cut also illustrates how banking-sector issues can reverberate on the sovereign,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “The question is whether other European countries might follow, given rising tensions throughout the banking sector.”

Belgium follows Slovenia, Spain, Italy, Ireland, Portugal, Cyprus and Greece as euro-area countries having their credit rating cut this year. The country of 10.8 million people, whose capital, Brussels, is home to the European Commission and the North Atlantic Treaty Organization, last had its credit standing lowered in December 1998 by Fitch Ratings.

2012 Budget

The yield on Belgium’s 4.25 percent bond due in September 2021 rose 13 basis points to 5.86 percent at 6 p.m. in Brussels yesterday, after reaching 5.88 percent, the highest since February 2000. The extra yield investors demand to hold the Belgian government securities instead of German bunds of similar maturity widened to a record 360 basis points.

The country still doesn’t have a 2012 budget after 531 days of coalition talks focused mostly on tensions between Dutch- and French speakers.

Three days ago, Belgium’s King Albert II turned down Elio Di Rupo’s request to stand down from leading the negotiations and urged the six parties to complete budget discussions and form a government. Di Rupo, 60, the president of the French- speaking Socialists, sought to quit after the Liberals from both sides of Belgium’s linguistic divide refused to accept his latest proposals for a 2012 budget.

Spending Cuts

Those proposals included 6.6 billion euros ($8.7 billion) of additional taxes even as the European Commission told Belgium to focus on spending cuts to narrow its budget deficit, Alexander De Croo, leader of the Flemish Liberal party, told public broadcaster VRT after the talks broke down on Nov. 21.

“S&P’s announcement strengthens even more the need to finalize as soon as possible the 2012 budget,” Belgian caretaker Prime Minister Yves Leterme and Finance Minister Didier Reynders said in a joint e-mailed statement. “Even after this downgrade, the Belgian rating remains one of the strongest in Europe.”

Belgium’s budget deficit will narrow to about 3.6 percent of gross domestic product this year from 4.1 percent in 2010, S&P said. It also forecast government debt will increase to about 97 percent of GDP from 96.1 percent last year after the administration paid 4 billion euros to nationalize Dexia Bank Belgium NV.

Dexia’s Liabilities

Public debt could potentially exceed one year of economic output should government backstops given to banks “crystallize” on the sovereign’s balance sheet, S&P said. Belgium agreed to guarantee as much as 54.5 billion euros of Dexia’s liabilities as part of the joint rescue with France and Luxembourg, both of which are rated AAA by S&P.

The French-Belgian lender (DEXB), which is being broken up after running out of short-term funding, still had 23.9 billion euros of government-backed borrowings outstanding on Nov. 24, according to data published by the National Bank of Belgium. Some of that debt doesn’t mature before May 2014.

Belgium has also conditionally pledged to buy shares of KBC Groep NV (KBC), covering 90 percent of potential losses exceeding 3.2 billion euros on collateralized debt obligations and protection bought from MBIA Insurance Corp.

Brussels-based KBC, Belgium’s biggest bank and insurer by market value, reported a third-quarter net loss of 1.58 billion euros this month. Widening credit spreads led the bank to write down 618 million euros on its structured-credit investments in the quarter.

Bank-Support Measures

Moody’s Investors Service last month put Belgium’s Aa1 rating under review for a possible downgrade, saying the likelihood of additional bank-support measures, the “fragile” market sentiment for highly indebted euro-area nations and slowing growth constituted growing risks.

Fitch Ratings affirmed Belgium’s AA+ credit score as recently as Oct. 20. The ratings company maintained its negative outlook pending a government agreement, saying a “more aggressive” debt-reduction program will be needed.

To contact the reporter on this story: John Martens in Brussels at jmartens1@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net

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AT&T to Offer Bigger Asset Sales to Save Takeover

By Scott Moritz and Serena Saitto - Nov 26, 2011 6:53 AM GMT+0700

AT&T Inc. (T), with its T-Mobile USA takeover facing regulatory opposition, is preparing the biggest remedy proposal yet to the Justice Department to salvage the $39 billion deal, according to a person familiar with the plan.

The company is considering an offer to divest a significantly larger portion of assets than it had initially expected, said the person, who declined to be identified because the plan isn’t public. Though the exact size of the disposals hasn’t been determined, they could be as much as 40 percent of T-Mobile USA’s assets, the person said.

The asset sale is an attempt to address the concerns of the Justice Department, which sued to block the takeover on Aug. 31, saying the deal would “substantially lessen competition” in the wireless market. The acquisition was dealt another blow on Nov. 22, with the Federal Communications Commission signaling an attempt to block it.

“It’s going to be problematic for AT&T to find a successful divestiture solution,” said Kevin Smithen, an analyst with Macquarie Securities USA Inc. in New York. The pool of potential buyers isn’t very big and those that might be interested probably wouldn’t have a chance, Smithen said. “It’s unlikely that the DOJ would allow a big competitor like Verizon to purchase the assets,” Smithen said.

Customers Versus Spectrum

ATT’s proposal is likely to include the divestiture of a higher share of customers and lower percentage of spectrum, said the person familiar with the matter. The company needs more capacity to serve users as it adds customers and more of them adopt data-intensive smartphones.

AT&T, based in Dallas, fell 0.5 percent to $27.41 yesterday in New York and has lost 6.7 percent this year. T-Mobile owner Deutsche Telekom AG added 1.6 percent to 8.83 euros in Frankfurt and has declined 8.6 percent this year.

Brad Burns, an AT&T spokesman, and Andreas Fuchs, a Deutsche Telekom spokesman, declined to comment.

The asset-sale proposal, which could come as early as the next Justice Department hearing on Nov. 30, might be the only remaining option if the second-largest U.S. wireless operator wants to avoid a lengthy court battle in its bid to become the country’s top mobile carrier. The purchase may vault it past Verizon Wireless (VZ), depending on the size of the divestitures.

On Nov. 24, AT&T and Deutsche Telekom asked to pull their deal applications to the FCC so the companies could better focus on the Justice Department lawsuit. AT&T also said it would take a one-time charge of $4 billion to cover the breakup fee it will need to pay to Deutsche Telekom if the deal fails.

‘All or Nothing’

One approach is to propose a remedy that would lessen the market impact of losing the fourth-largest wireless service provider. AT&T has been in discussions with MetroPCS Communications Inc. (PCS) and Leap Wireless International Inc. (LEAP) to sell spectrum and customers as a way of propping up competition in the absence of T-Mobile.

The second approach is to fight the court case, which is scheduled to begin Feb. 13.

“If there were a last, best offer to be made, they would have made it a long time ago,” said Craig Moffett, a Sanford C. Bernstein & Co. analyst in New York, who has a “market perform” rating on AT&T shares. “It’s very hard to envision a solution that would satisfy the problems the DOJ found with the deal. Realistically, AT&T is going to take its chances in court in February. It’s all or nothing.”

According to a term in the agreement, AT&T would be able to pay less than the deal’s original $39 billion value if regulators demand asset sales that surpass 20 percent of that figure, or about $7.8 billion, three people with direct knowledge of the situation said Sept. 7.

AT&T could walk away from the deal and pay Deutsche Telekom a breakup fee if the concessions requested top 40 percent of that value, the people said. If the deal doesn’t happen there’s no way AT&T can avoid paying the breakup fee, the people said.

To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net

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Daimler to Drop Maybach, Focus on S-Class

By Andreas Cremer - Nov 26, 2011 1:44 AM GMT+0700

Daimler AG will shut down the super- luxury Maybach brand to end almost a decade of losses from an auto that sells for more than $350,000 when a revamped version of the flagship Mercedes-Benz S-Class comes to market in 2013.

“It would not make sense to develop a successor model,” Chief Executive Officer Dieter Zetsche said in remarks confirmed by Daimler spokesman Marc Binder. “The coming S-Class is in such a way a superior vehicle that it can replace the Maybach.”

Daimler hasn’t made a profit on the Maybach after deciding to reintroduce the 1930s-era marque in 2002, Zetsche said. Mercedes will double variations of the 72,000-euro ($95,000) S- Class to six as it seeks to boost annual vehicle sales by at least 10,000 a year and step up its challenge to Bayerische Motoren Werke AG (BMW) as the world’s top luxury-car maker.

BMW and Volkswagen AG’s Audi have grown at more than five times the pace of Mercedes over the past decade by adding new offerings faster. The 125-year-old manufacturer, which has also dropped to third in profitability, lost the luxury-car sales lead to BMW in 2005 and slipped behind Audi this year.

On the Offensive

“Mercedes is now also mounting the attack in the high-end segment,” Zetsche said in comments to the Frankfurter Allgemeine Zeitung newspaper, to be published tomorrow. “We have always dominated this segment and that should continue to be the case. We don’t want to wait until the others pull ahead.”

Daimler held extensive internal discussions on “which route promises the greatest possible success in the luxury segment,” before concluding that sales prospects were better at Mercedes than at Maybach, the CEO said.

U.K. luxury sports-car maker Aston Martin, which said at the Frankfurt motor show in September that it expected to conclude talks on cooperation with Mercedes within weeks, declined to comment on the ramifications of Daimler’s comments. Zetsche had said at the expo that the talks concerned Maybach.

“We’ve been talking with Mercedes for some time,” Aston Martin spokesman Matthew Clarke said today by telephone.

Maybach hasn’t seriously challenged BMW’s Rolls-Royce and Volkswagen AG (VOW)’s Bentley since it its reintroduction, with sales topped out at 600 cars in 2003 and sliding to 200 last year. Rolls-Royce sold 2,700 vehicles in 2010 and Bentley 5,100.

To contact the reporter on this story: Andreas Cremer in Berlin at acremer@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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S&P 500 Index Caps Worst Thanksgiving-Week Drop Since ’32; Treasuries Fall

By Michael P. Regan and Rita Nazareth - Nov 26, 2011 5:09 AM GMT+0700

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Nov. 25 (Bloomberg) -- Jay Margolis, a Bloomberg Television contributing editor and a former retail executive, talks about Black Friday and holiday retail sales and hiring activity by retailers. He speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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Nov. 25 (Bloomberg) -- Ben Rogoff, a technology fund manager at Polar Capital Partners LLC, talks about the outlook for the technology industry and investment strategy. Rogoff, speaking with Sara Eisen on Bloomberg Television's "InsideTrack," also discusses the potential bidding for Yahoo! Inc. (Source: Bloomberg)

U.S. stocks slipped, capping the worst Thanksgiving-week loss since 1932, and commodities fell as a reduction in Belgium’s credit rating and reports that Greece is demanding bondholders accept larger losses fueled concern Europe’s debt crisis is worsening. Treasuries fell.

The S&P 500 declined for a seventh straight day, losing 0.3 percent to close at 1,158.67 at 1 p.m. in New York and extending its weekly retreat to 4.7 percent. The S&P GSCI Index of commodities slipped 0.3 percent. The euro lost 0.9 percent to $1.3229. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments lingered near a record, up 6 basis points at 386. The dollar rallied against most peers.

U.S. equities erased earlier gains as Reuters reported Greece is demanding that new bonds issued to investors as part of a debt swap have a net present value of 25 percent, lower than the “high 40s the banks have in mind.” Greece’s 10-year bond traded at about 24.3 percent of face value as of today’s close. Equities rose earlier amid reports European leaders were discussing sparing private investors from sharing the costs of bailing out troubled nations.

“The demands of Greece now totally change the game,” Mark Grant, a managing director at Southwest Securities Inc. in Fort Lauderdale, Florida, said in an e-mail. “The situation can no longer be called voluntary by any stretch of the imagination. The equity markets in the United States may test the lows again as there is increasing concern of a major recession in Europe.”

Energy producers and retailers had the biggest declines among 24 industries in the S&P 500, with Exxon Mobil Corp. down 0.9 percent and Amazon.com Inc. slumping 3.5 percent.

Retailers (S5RETL) Retreat

Twenty-two of 30 retailers in the S&P 500 retreated as Black Friday, the biggest retail day of the year, arrived with consumer sentiment at levels previously reached during recessions, as a record share of households said this is a bad time to spend, according to the Bloomberg Consumer Comfort Index. The measure has reached minus 50 or less in nine of the past 10 weeks, an unprecedented performance in its 26-year history.

Banks advanced following reports that some European officials oppose forcing private investors to share the cost of bailing out countries with the region’s permanent rescue fund. German Chancellor Angela Merkel and French President Nicolas Sarkozy “confirmed their support for Italy, saying that they are aware that the collapse of Italy would inevitably lead to the end of the euro,” Italian Prime Minister Mario Monti told a Cabinet meeting, according to an e-mailed statement.

Bondholder Provisions

European governments may ease provisions in a planned permanent rescue fund requiring bondholders to share losses in sovereign bailouts, German Finance Minister Wolfgang Schaeuble suggested. Schaeuble signaled that Germany may retreat from demands that private creditors contribute to rescues in exchange for European treaty amendments toughening rules on budget oversight.

The S&P 500 Financials Index (S5FINL) rose 0.4 percent today and has tumbled 13 percent in November to lead the S&P 500’s 7.6 percent slide.

U.S. financial shares “had been knocked down dramatically and there’s a better tone today,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a telephone interview. “We have to hope they can get their act together in Europe and we go back to concentrating on what we’re doing here.”

Treasuries fell on speculation investors seeking refuge from volatility in the European sovereign-debt markets may have pushed U.S. government yields too low. The 10-year note’s yield rose eight basis points to 1.97 percent. The rate is up from a record low of 1.67 percent on Sept. 23.

Dollar Gains

The dollar increased against 15 of 16 major peers, surging 1.2 percent against the Swiss franc and at least 1 percent against the Norwegian krone and Swedish krona. The euro weakened against 12 of 16 major peers.

Silver and gasoline lost at least 1.9 percent to lead declines in 19 of 24 commodities tracked by the S&P GSCI. Crude oil 1.2 percent to $97.36 a barrel as of 1:44 p.m. in New York.

The Stoxx Europe 600 Index climbed 0.7 percent, reversing an earlier 1.1 percent retreat and trimming its weekly loss to 4.6 percent. The regional benchmark index is down almost 24 percent from its 2011 high in February. Greek lender Piraeus Bank SA and Dexia SA climbed more than 7.8 percent to lead today’s gains. Dexia, the bank being broken up after running out of short-term funding, should have borrowing guarantees agreed by the Belgian and French governments within days, a French official said.

Italian Rates

European stocks slid earlier as Italy had to pay almost 7 percent to sell six-month bills at an auction today, nearly twice the rate it paid a month ago and the highest since 1997, adding to evidence Europe’s debt crisis was spreading to the core nations.

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo urged euro-area politicians to take bold steps toward fiscal union to end the debt crisis, and said they should not rely on the ECB. European Union Economic and Monetary Affairs Commissioner Olli Rehn said it looks like contagion is spreading to core countries. Moody’s Investors Service cut Hungary’s debt to junk. Yesterday, S&P said Japan hasn’t made progress in tackling its debt load.

“We need to see more action out of Europe before any sort of rebound happens,” Nick Maroutsos, who oversees the equivalent of about $3 billion as co-founder of Sydney-based Kapstream Capital, said in a Bloomberg Television interview. “Greece, Ireland, Portugal are becoming after-thoughts as the crisis is now unfolding at the footsteps of Italy, France and Germany. These are the larger countries and these would have the largest knock-on effects.”

Extending Declines

Italian five- and 10-year bonds extended declines after borrowing costs increased at the bill sale even as the ECB bought the nation’s securities, according to three people with knowledge of the transactions, who declined to be identified because the deals are private. A spokesman for the ECB in Frankfurt declined to comment. The five-year yield was up 21 basis points at 7.74 percent and rates on 10-year debt were up 15 points at 7.26 percent.

Italy sold 8 billion euros ($10.6 billion) of 183-day bills to yield 6.504 percent, up from 3.535 percent at the previous auction on Oct. 26 and the highest since August 1997.

The Spanish two-year note yield exceeded 6 percent for the first time since the euro was created in 1999. Portugal’s 10- year bond yield rose 43 basis points to 12.64 percent, a day after the nation’s credit ranking was lowered to below investment grade by Fitch Ratings. After European markets closed today, S&P lowered the long-term sovereign credit ratings on Belgium to ‘AA’ from ’AA+’. The outlook is negative.

Best Since January

Japan’s benchmark bond yields completed the biggest weekly gain since January on concern the government will fail to rein in the world’s largest debt burden. Ten-year yields added 3.5 basis points to 1.03 percent at the 6:05 p.m. close at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The last time the rate rose above 1 percent was Nov. 1. Yields climbed 8.5 basis points this week, the most since the period ended Jan. 7.

The MSCI Emerging Markets Index slipped 1.3 percent to a seven-week low. Hungary’s BUX Index lost 3.1 percent, the most in three weeks, the cost of insuring Hungarian debt against default climbed to a record, bond yields surged and the forint tumbled after the Moody’s downgrade.

Hong Kong’s Hang Seng China Enterprises Index slid 1.8 percent.

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; 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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