Economic Calendar

Sunday, November 27, 2011

Key Boosts Free-Market Drive as New Zealand Gives Mandate for Asset Sales

By Tracy Withers - Nov 27, 2011 6:01 PM GMT+0700

New Zealand Prime Minister John Key’s re-election with his party’s biggest mandate in 60 years will strengthen the nation’s push for free-market policies as he pursues welfare cuts and asset sales to balance the budget.

Key’s National Party won 48 percent of the vote on Nov. 26, up from 45 percent three years ago, allowing him to form the next government with support from political allies in parliament. His administration will focus on advancing the sale of state assets and returning the budget to surplus by 2014-15 or earlier, the 50-year-old leader said in Auckland after the election.

Securing a second term allows Key to expand policies aimed at reducing the economy’s reliance on government spending, an effort that was slowed in the past three years by the need to help the country recover from the global financial crisis and New Zealand’s deadliest earthquake in 80 years. The leader, whose popularity survived a credit-rating downgrade, will need to show progress in cutting the budget deficit as soaring borrowing costs imperil indebted European nations.

“The key issue for New Zealand is having expenditure restraint,” said Philip Borkin, an economist at Goldman Sachs New Zealand Ltd. in Auckland. “It is ensuring the economy has less handbrakes on it to continue to grow. If we can get the economy growing strongly then the accounts will naturally repair themselves.”

Key has secured support from two smaller parties to ensure a majority in parliament. He met with senior ministers yesterday and plans talks today with the ACT and United Future parties, which backed him in the last parliament and have pledged to do so again.

Currency Record

Confirmation of a Key-led government may underpin the New Zealand dollar and bonds, Annette Beacher, Singapore-based head of Asia-Pacific research at TD Securities, said in an e-mailed note. The New Zealand dollar was little changed on Nov. 25, maintaining a weekly decline, while the benchmark NZX 50 stock index dropped 0.9 percent. The currency peaked at a record high in August, above 88 cents against the U.S. dollar.

New Zealand has benefited from falling borrowing costs this year as investors fleeing Europe’s debt turmoil find a haven in the developed world’s second-best-performing bond market. Government yields fell by an average 174 basis points this year to 3.55 percent on Nov. 16, an all-time low, Bloomberg/EFFAS indexes show. New Zealand debt maturing in a year or more returned 13.7 percent this year, second only to the 15.5 percent gain in U.K. securities.

Borrowing Climbs

Rates dropped even as borrowings rose 28 percent to NZ$70.9 billion ($52.5 billion) as of October, partly to fund rebuilding after earthquakes devastated the South Island city of Christchurch. The government’s gross debt was 38.7 percent of gross domestic product last year compared with 25.3 percent in Australia, according to the Organization for Economic Cooperation and Development.

“National have been quite clear about trying to constrain the size of the government,” said Craig Ebert, a senior economist at Bank of New Zealand Ltd. in Wellington. “Their policies kept more pressure off the deficit and debt numbers.”

Still, New Zealand lost its top AAA credit grades for local-currency debt at Standard & Poor’s and Fitch Ratings in September, with both assessors citing concern that government and household debt was too high.

“We have vulnerability as a country, which is our high level of private debt and external debt,” said Darren Gibbs, chief New Zealand economist at Deutsche Bank AG in Auckland and a former central bank and Treasury official. The National government has to ensure “New Zealand at some point doesn’t become another victim of the international financial crisis,” he said.

Creating Jobs

As the European debt crisis threatens global growth, New Zealand’s new government faces the challenge of shoring up confidence in an economy where unemployment exceeds 6 percent and employment rose 0.2 percent from the previous three months in the last quarter.

Key, who came to power three years ago pledging state support to help end the nation’s worst recession in three decades, has promised to create 150,000 jobs over the next term. To boost employment in the country of more than 4 million, he pledged to introduce a “starting-out” wage for young workers and will limit increases in the minimum wage.

The multimillionaire and former foreign-exchange head at Merrill Lynch & Co. plans to overhaul welfare to help erase a record NZ$18.4 billion deficit. He said after the election he was confident of pursuing his asset-sale policy, which was opposed by 68 percent of 1,006 voters in a One News Colmar Brunton poll in late October.

State Assets

The sale of New Zealand’s state assets began in 1988 under a Labour Party-led government and progressed under National from 1990 to 1999, when companies such as Telecom Corp. and power company Contact Energy Ltd. (CEN) were created and sold.

Labour, which remains the main opposition even as its support fell to 27 percent from 34 percent in 2008, slowed the free-market policy push during its 1999-2008 rule. In campaigning for this month’s election, it had offered the alternative of a capital gains tax and income tax increases for the highest earners as the means to cut the budget deficit.

In contrast, National intends to raise at least NZ$5 billion by selling shares in electricity generators Meridian Energy Ltd., Mighty River Power Ltd. and Genesis Power Ltd., coal miner Solid Energy New Zealand Ltd. and Air New Zealand Ltd., which is now 75 percent state-owned. The government will retain at least a 51 percent stake and prioritize sales to local investors and pension funds, while limiting the size of individual holdings in the companies, the party has said.

Boosting Stocks

Key has pledged to use the money for capital projects including schools and irrigation. The so-called mixed ownership model will make the companies more efficient and will provide a boost to the stock market, he said before the election.

Part of Key’s challenge will be reviving business confidence, which fell to a seven-month low in October as the European crisis threatened to spill into a global slowdown. He also needs to bolster reconstruction after a February earthquake in the nation’s second-biggest city killed 181 people and wrecked more than 1,000 city buildings and about 6,500 homes. Rebuilding will cost at least NZ$20 billion over five years, according to government estimates.

Reconstruction delays have curbed earnings at companies such as Fletcher Building Ltd. (FBU) The nation’s biggest supplier of cement and lumber said last month profit in the six months ending Dec. 31 is likely to fall 10 percent from a year earlier because of weak residential and commercial construction.

Releasing Land

Key has said the government will help release land for new housing to accelerate construction that may require an estimated 30,000 more workers. That’s more than three times the 9,000 jobs the economy created since Key was elected in late-2008.

National will cap hiring by government departments and limit new spending to NZ$2.8 billion over its next three budgets, Key has said. He aims to cut welfare spending by NZ$1 billion over four years with a new program that will require two-thirds of current beneficiaries to train and be prepared to take work when it becomes available. Payment levels aren’t being reduced.

“It’s important that they continue to stick to the fiscal austerity script,” said Cameron Bagrie, chief economist at ANZ National Bank Ltd. in Wellington. “People are very mindful of governments who don’t deliver on their austerity plans. Once you lose credibility the rug gets pulled out pretty quickly.”

To contact the reporter on this story: Tracy Withers in Wellington at

To contact the editor responsible for this story: Stephanie Phang at


Arab Ministers to Discuss Syria Sanctions

By Abdel Latif Wahba - Nov 27, 2011 4:46 PM GMT+0700

Arab foreign ministers will meet today in Cairo to discuss possible sanctions against Syria after it failed to allow observers to verify its compliance with an accord to stop violence against protesters.

The ministers will consider measures including a travel ban on senior officials, a freeze on assets and the stoppage of flights to the country, the Arab League’s Deputy Secretary- General Ahmed Ben Heli said yesterday. The League rejected Syrian requests to negotiate the terms of the deal, which was agreed on Nov. 2. The original deadline was Nov. 19.

The regime of President Bashar Al-Assad is under increasing pressure to end an eight-month crackdown in line with pledges made to the League. Syrian security forces killed three protesters today and 29 yesterday, including five children, Al- Jazeera reported, citing activists.

“The Arab ministers will decide what can be implemented,” Ben Heli told reporters in the Egyptian capital, where the League is based.

Syria buried 25 soldiers, including six pilots, who were killed by the “armed terrorist groups,” the Syrian Arab News Agency reported today. Their deaths were “blatant proof of organized terrorism against Syria,” the news service said, citing Ghassan Abdelaal, the governor of Homs.

Syria Suspended

The United Nations estimates that at least 3,500 people have been killed since the start of the protests in mid-March.

The League suspended Syria, a founding member, for its handling of the unrest about two weeks ago. It was the boldest action by the organization since its condemnation of Muammar Qaddafi’s repression of protests in Libya paved the way for a UN resolution in March authorizing a North Atlantic Treaty Organization campaign in the North African nation.

In the first sign that Gulf companies may start re- evaluating their investments in Syria, Banque Saudi Fransi (BSFR), a Saudi lender part-owned by Credit Agricole SA, said yesterday it will sell its 27 percent stake in Bemo Saudi Fransi Syria and its 10 percent share capital in Bemo Lebanon.

“The financial risks in the Syrian Arab Republic do not permit Banque Saudi Fransi to continue as partner,” the Riyadh- based lender said in the statement on the Saudi bourse website. The bank “is no longer represented in the board of directors of Bemo Saudi Fransi Syria and Bemo Lebanon.”

Shrinking Economy

A planned auction for a mobile telephone license was abandoned this year after unrest spread and companies including Abu Dhabi-based Emirates Telecommunications Corp. and Turkey’s Turkcell Iletisim Hizmetleri AS (TCELL) pulled out. Syria had encouraged private industry and foreign investment in its state-dominated economy to provide long-term financing for development.

Syria’s $60 billion economy, which expanded 5.5 percent in 2010, may shrink 2 percent this year, according to the International Monetary Fund. The government expects growth of 1 percent, Finance minister Mohammad Al-Jleilati said in September.

The U.S. and the European Union have already imposed sanctions on Syria targeting companies and senior officials. Russia and China on Oct. 4 blocked a Security Council resolution calling on Assad to halt the deadly crackdown. Iraq yesterday said it would oppose Arab sanctions on Syria, the al-Sumaria news service reported, citing Foreign Minister Hoshyar Zebari.

“It’s not possible to impose sanctions on Syria,” Zebari was quoted as saying by the Baghdad-based news service. “Iraq will declare reservation if economic sanctions are imposed.”

The United Arab Emirates and Bahrain have urged their nationals to leave Syria. Qatar today advised its citizens to refrain from traveling to Syria, the official Qatar News Agency reported.

To contact the reporter on this story: Abdel Latif Wahba in Cairo at

To contact the editor responsible for this story: Andrew J. Barden at


Abu Dhabi Shares Drop Amid Mideast Turmoil

By Zahra Hankir - Nov 27, 2011 5:46 PM GMT+0700

Abu Dhabi’s shares fell for a 10th day as political turmoil in Egypt and Syria intensified and on concern Europe’s debt crisis may spread. Oil declined for a second week.

National Bank of Abu Dhabi PJSC (NBAD), the United Arab Emirates second-biggest by assets, dropped 1 percent. Abu Dhabi Islamic Bank PJSC, the country’s second-largest Shariah-compliant bank, retreated to the lowest since May 31. Abu Dhabi’s ADX General Index (ADSMI) decreased to the lowest since March 2009, declined 0.1 percent to 2,416.04 at the 2 p.m. close in the emirate. Dubai’s DFM General Index (DFMGI) fell 0.4 percent. About 29 million shares traded, compared with a 12-month daily average of 63 million.

Global stocks fell last week, with the STOXX Europe 600 Index tumbling 4.6 percent, after the cost of insuring European sovereign bonds against default rose to a record and Germany failed to find buyers for 35 percent of the bonds offered at an auction. Emerging market stocks (MXEF) sank 6.1 percent on speculation that Japan may face a credit-rating cut and evidence that China’s factory output may have contracted.

“In addition to the euro-zone worries and an economic slowdown in China, developing regional political uncertainties are keeping sentiments fragile,” said Tariq Qaqish, deputy head of asset management at Dubai-based Al Mal Capital.

Defusing Unrest

In Egypt, the ruling military council is seeking to form an interim government to defuse unrest that erupted on Nov. 19. One person died in clashes with police yesterday, state media reported, bringing the official death toll in the past week to 39. Meanwhile, Arab foreign ministers will meet today to discuss possible sanctions against Syria after it missed a deadline to allow monitors to enter the country.

The Bloomberg GCC 200 Index (BGCC200), little changed at 2:08 p.m. in Dubai today, has dropped 12 percent so far this year, while the Dow Jones Industrial Average has lost 3 percent and the STOXX Europe 600 has tumbled 20 percent.

Crude for January delivery retreated 0.9 percent last week to $96.77 a barrel on the New York Mercantile Exchange. Abu Dhabi holds about 7 percent of the world’s proven oil reserves.

National Bank of Abu Dhabi decreased to 10.05 dirhams, the lowest level since Oct. 25, and Abu Dhabi Islamic fell 1.6 percent to 3.13 dirhams.

Qatar’s QE Index (DSM) fell 0.1 percent and Saudi Arabia’s Tadawul All Share Index gained 0.1 percent. Markets in Egypt, Oman, Bahrain and Kuwait are closed for an Islamic holiday.

To contact the reporter on this story: Zahra Hankir in Dubai at

To contact the editor responsible for this story: Claudia Maedler at


IMF Readying 600 Billion-Euro Loan Offer for Italy, Stampa Says

By Tommaso Ebhardt - Nov 27, 2011 7:11 PM GMT+0700

The International Monetary Fund is preparing a 600-billion euro ($794 billion) loan for Italy in case the country’s debt crisis worsens, La Stampa said.

The money would give Italy’s Prime Minister Mario Monti 12 to 18 months to implement his reforms without having to refinance the country’s existing debt, the Italian daily reported, without saying where it got the information. Monti could draw on the money if his planned austerity measures fail to stop speculation on Italian debt, La Stampa said.

Italy would pay an interest rate of 4 percent to 5 percent on the loan, the newspaper said. The amount could vary from 400 billion euros to 600 billion euros, La Stampa said.

To contact the reporter on this story: Tommaso Ebhardt in Milan at

To contact the editor responsible for this story: Chad Thomas at


Texas to Ask Supreme Court for Stay of Maps

By Laurel Brubaker Calkins - Nov 27, 2011 1:00 PM GMT+0700

Texas Attorney General Greg Abbott said he will file an emergency stay with the U.S. Supreme Court to block the use of election districts drawn by judges and contested by the state.

“At issue is whether the interim maps imposed by a three- judge redistricting panel violate the U.S. Constitution and federal law, and exceeds the proper role of the judiciary,” Abbott said yesterday in a statement.

Abbott said he would push for a quick ruling “so candidates will not needlessly file for office” based on “legally flawed” maps released last week by the federal court in San Antonio overseeing the state’s redistricting fight. Candidates may begin registering for Texas’s March 6 party primary elections tomorrow.

On Friday, the San Antonio judges refused Governor Rick Perry’s request to delay use of the interim maps the court created for state legislative races. Yesterday, the court adopted its previously announced interim districts for the U.S. House of Representatives, which the state also opposes.

Hispanic activists and the U.S. Justice Department claim voter boundaries created by the Republican-controlled Legislature were intentionally designed to prevent the election of Latinos.

Texas gained four new congressional seats after adding almost 4.3 million new residents since 2000. Hispanics comprised about 65 percent of that increase, according to the 2010 U.S. Census.

23 Seats

“Texas Attorney General Abbott is spending more time criticizing work done by unelected judges than he is concentrating on work done by elected representatives who created a map that’s not helpful to minorities,” said Trey Martinez Fischer, chairman of the Mexican American Legislative Caucus, which is fighting the state’s maps.

“Abbott is ignoring the fact that six judges in San Antonio and Washington believe there is a problem with this map the state of Texas is defending,” he said in a telephone interview.

Perry, who is seeking the Republican nomination for president, approved election maps drawn by the Texas Legislature in June. Critics said the maps created no new districts that improved election opportunities for Latinos, who historically have voted more often for Democrats than Republicans.

Republicans hold 23 of Texas’s 32 congressional seats.

Interim Maps

Separate three-judge panels have held hearings in Washington and San Antonio on related challenges to Texas’s electoral maps. Latino activists and congressmen whose jobs were threatened by the Legislature’s maps sued Perry in San Antonio federal court in August, seeking to block the maps.

Abbott sued the U.S. Justice Department in Washington federal court seeking pre-clearance of the election maps, a step required of all states with a history of voting rights violations. The Washington court on Nov. 8 refused to allow the Perry-approved maps to be used in next year’s elections, saying the court needed time to explore allegations that they were designed to keep Latinos out of office.

To avoid a delay in the state’s election cycle, the San Antonio judges created interim maps they said more fairly reflected the distribution of the state’s increased population. They proposed interim congressional boundaries on Nov. 23, a week after they submitted interim state legislative districts.

Ample Time

Texas Republicans claim the judges substituted their own policy preferences for those of the state’s elected representatives. Such action “ignores the voice of the citizenry,” Abbott said in objecting to the maps.

Republicans complained the judges’ maps favor the state’s Democratic minority too much and represent too radical a remedy, given that no court has yet determined the lawmakers’ maps are racially biased.

U.S. District Judge Jerry E. Smith, the dissenting member of the three-judge panel, said the court should delay implementing any of the new maps and keep candidates from filing until the high court has reviewed the panel’s work.

“Texas has some of the earliest primaries,” Smith said in his dissent from the order rejecting Perry’s bid to block use of the judges’ maps. “A delay of even a few weeks would still provide ample time for orderly primaries and runoffs well in advance of the November elections.”

The Texas case is Perez v. Perry, 5:11-cv-00360, U.S. District Court, Western District of Texas (San Antonio). The Washington case is Texas v. U.S., 1:11-cv-1303, U.S. District Court, District of Columbia (Washington).

To contact the reporter on this story: Laurel Brubaker Calkins in Houston at

To contact the editor responsible for this story: Michael Hytha at


Black Friday Sales Rise 6.6% to Record: ShopperTrak

By Matt Townsend and Cotten Timberlake - Nov 27, 2011 12:00 PM GMT+0700

Black Friday sales increased 6.6 percent to the largest amount ever as U.S. consumers shrugged off 9 percent unemployment and went shopping.

Consumers spent $11.4 billion, ShopperTrak said in a statement yesterday. Foot traffic rose 5.1 percent on Black Friday, according to the Chicago-based research firm.

“This is the largest year-over-year gain in ShopperTrak’s National Retail Sales Estimate for Black Friday since the 8.3 percent increase we saw between 2007 and 2006,” ShopperTrak founder Bill Martin said in the statement. “Still, it’s just one day. It remains to be seen whether consumers will sustain this behavior through the holiday shopping season.”

The brisk turnout came as retailers from Gap Inc. (GPS) to Wal- Mart Stores Inc. (WMT) to Toys “R” Us Inc. opened their doors earlier than ever. The move to turn Black Friday into more than just one day also spurred online sales, which gained 39 percent on Thanksgiving and 24 percent on Black Friday, according to International Business Machines Corp.’s Coremetrics.

Many shoppers were rookies who had never before participated in the busiest shopping day of the year, dubbed Black Friday because many retailers are said to become profitable then. 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 National Retail Federation.

Macy’s Inc.’s (M) Chief Executive Officer Terry Lundgren said he was struck by how many people in their 20s descended on the chain’s flagship store in Manhattan.

“It was almost a continuation of whatever social experience they were having hours before,” he said.

Consumer Sentiment

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, shoppers paid more for goods and unleashed some pent-up demand, said Craig Johnson, president of consulting firm Customer Growth Partners, which is based in New Canaan, Connecticut.

Many shoppers are in the mood to buy for themselves. One is Kevin Fusting. While most of his gift budget will go to video games for his 10- and 12-year-old sons, Fusting, a 46-year-old oriental rug seller from Chevy Chase, Maryland, may buy himself a present this year: a Sony Corp. digital camera.

“I am not getting any younger,” he said, explaining the temptation.

Full Price

Stacey Carfi, a 32-year-old controller visiting Washington from Charleston, South Carolina, is treating herself, too. She paid full price for two pairs of pants -- one for herself -- and a key ring at Michael Kors and Lululemon Athletica Inc. (LULU) She planned to buy herself shoes this holiday, too.

“It is the season for buying, so why not get in on that?” Carfi 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 Washington-based NRF. Online revenue may advance 15 percent to $37.6 billion, according to ComScore Inc.

Not all shoppers planned to spend more this holiday season. Tanya Taylor, 39, bought clothes for herself at a San Diego Macy’s, and planned to spend 50 percent less this year because she’s getting less work as a freelancer in the beauty industry.

‘A Win’

Chains such as Macy’s, Target Corp. (TGT) and Kohl’s Corp. (KSS), which all opened at midnight, may have taken revenue from competitors like J.C. Penney Co. (JCP) that didn’t open until 4 a.m., according Ken Perkins, president of Swampscott, Massachusetts-based Retail Metrics.

“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 early start prompted many malls to open at midnight. That helped boost foot traffic at Walt Disney Co.’s namesake stores because Cincinnati-based Macy’s is the anchor tenant in the malls that house most of its locations, said Jim Fielding, president of Disney Stores Worldwide. Sales at Disney Stores met expectations by rising high-single percentage points, Fielding said.

Free Slippers

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 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.

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 New York at; Cotten Timberlake in Washington at

To contact the editor responsible for this story: Robin Ajello at


Europe’s Single Currency May Unravel Before Action, UBS Says

By Dan Hart - Nov 27, 2011 2:56 AM GMT+0700

Europe’s monetary union may unravel sooner than the region’s leaders can mobilize to ensure the sovereign-debt crisis doesn’t overwhelm the currency, a UBS AG (UBSN) foreign exchange strategist wrote.

“Financial markets continue to move faster than politicians,” Mansoor Mohi-uddin, head of foreign exchange strategy for UBS, wrote in today’s note. Markets are starting to “price in the endgame” for the currency, he said.

European bonds slumped after Germany failed to draw bids for 35 percent of the offered amount at an auction of 10-year bunds this week, stoking concern the region’s debt crisis is infecting even the safest sovereign securities.

The dissolution of the currency would force Germany and other countries’ banks to take losses on their sovereign bond holdings and burden them with the need to raise even more capital, the Singapore-based analyst wrote.

German Chancellor Angela Merkel’s desire for closer fiscal union in Europe could weaken that country’s position if funds needed to be transferred to strengthen the monetary union, Mohi- uddin wrote.

He said next week’s meeting of European finance ministers and the auction of 8 billion euros worth of Italian bonds are expected to be a key measure of the euro’s strength.

The euro slid for a fourth week, dropping 2.1 percent to $1.3239 yesterday versus the dollar, the longest losing streak in 18 months. Also, the 17-nation currency fell for a third week against the yen as Belgium’s credit rating was downgraded. The currency fell 1.1 percent to 102.91 yen.

Dow Jones Newswires reported on the research note earlier.

To contact the reporter on this story: Dan Hart in Washington at

To contact the editor responsible for this story: Sylvia Wier at


Pakistan Cuts NATO Supply Lines After Attack

By Haris Anwar and Anwar Shakir - Nov 27, 2011 6:29 AM GMT+0700

Pakistan cut supply lines to NATO troops in Afghanistan and ordered a U.S. withdrawal from a drone base after reports that helicopters of the U.S.-led NATO force in Afghanistan killed at least 24 Pakistani soldiers in an attack on a border post.

Prime Minister Yousuf Raza Gilani “strongly condemned” the attack and ordered the Foreign Ministry to address the incident “in the strongest terms” with the North Atlantic Treaty Organization and the U.S., his spokesman said yesterday in an e-mailed statement. The Cabinet’s defense committee held an emergency meeting and ordered the U.S. to withdraw from the Shamsi Airbase within 15 days.

Army Chief of Staff Ashfaq Kayani said the attack was a “blatant and unacceptable act,” and demanded urgent action against those responsible. NATO and the U.S. said the incident is being investigated.

The U.S. and Pakistani governments have been trying to stabilize their relationship after a year that included Pakistan’s detention of a CIA contract employee for killing two Pakistanis, the U.S. raid that that killed Osama bin Laden in May, and public accusations by top U.S. officials that Pakistan’s army is actively aiding militant groups that the U.S. defines as terrorist.

“This incident puts General Kayani in a very difficult position among his troops,” Talat Masood, a retired army lieutenant general and security analyst in Islamabad, said in an interview. “I don’t think both allies will go to the tipping point, but it makes things even worse at a time when the Obama administration was trying to restore a working relationship with Pakistan after the Osama bin Laden incident.”

Border Posts

In the Nov. 25 attack, NATO helicopters and a fighter aircraft fired at Pakistani border posts on the mountainous frontier between Afghanistan’s Kunar province and the Pakistani district of Mohmand, according to a statement posted on the Pakistani army’s website. The attack is at least the fourth on a Pakistan border facility by NATO forces in 15 months.

Pakistan’s defense committee, in a written statement from Islamabad, said the attacks “constituted breach of sovereignty, were violative of international law and had gravely dented the fundamental basis of Pakistan’s cooperation” with U.S. and NATO forces in Afghanistan.

‘Shared Interests’

“Senior U.S. civilian and military officials have been in touch with their Pakistani counterparts from Islamabad, Kabul and Washington to express our condolences, our desire to work together to determine what took place, and our commitment to the U.S.-Pakistan partnership, which advances our shared interests, including fighting terrorism in the region,” White House National Security Council spokeswoman Caitlin Hayden said in an e-mail yesterday.

NATO oversees the International Security Assistance Force, or ISAF, in Afghanistan. The incident “has my highest personal attention and my commitment to thoroughly investigate it to determine the facts,” said the ISAF commander, Gen. John R. Allen, in an e-mail. “My most sincere and personal heartfelt condolences go out to the families and loved ones of any members of Pakistan Security Forces who may have been killed or injured.”

Cameron Munter, the U.S. ambassador to Pakistan, said “the United States will work closely with Pakistan to investigate this incident,” according to a statement from his embassy.

NATO Investigation

It’s “highly likely” that NATO aircraft conducted a raid, the British Broadcasting Corp. said, citing an interview with spokesman Brigadier-General Carsten Jacobson. NATO is investigating how the incident happened and has sent condolences for it, Jacobson told the BBC.

In September 2010, U.S. forces attacked areas in the border districts of Kurram and North Waziristan, killing what Pakistan said were several of members of its paramilitary Frontier Corps, an army-led force that guards much of the border. Pakistan closed its frontier for 10 days to the NATO-contracted trucks that haul food, uniforms, construction material and other “non- lethal” supplies from its port of Karachi into Afghanistan. Pakistan re-opened the border after a joint investigation with U.S. officials and a NATO apology for the attacks.

Afghan and Pakistani Taliban factions regularly attack U.S. and other NATO forces from their bases in Pakistan and try to slip back across the frontier for protection from NATO retaliation. ISAF has at times asserted a right of “hot pursuit” of Taliban guerrillas into Pakistani territory, while Pakistan has objected, calling such actions a violation of its sovereignty.

The Pakistan-Afghanistan border passes through rugged mountains and desert terrain and is unmarked over most of its more than 2,600-kilometer (1,600-mile) length. The two countries dispute the border’s location in many areas.

To contact the reporters on this story: Haris Anwar in Islamabad at; Anwar Shakir in Karachi at

To contact the editor responsible for this story: Paul Tighe at