European Stocks Climb as Italy Seeks to Cut Debt; UniCredit, Intesa Gain

By Adam Haigh - Dec 5, 2011 11:37 PM GMT+0700

European stocks rose, with the benchmark Stoxx Europe 600 Index extending its biggest weekly rally since November 2008, as Italy’s Prime Minister Mario Monti introduced a proposal to cut his nation’s debt.

A gauge of lenders led gains on the Stoxx 600 as UniCredit SpA (UCG), Intesa Sanpaolo SpA (ISP) and BNP Paribas SA jumped more than 3.5 percent. Aberdeen Asset Management Plc (ADN) climbed 4.2 percent after Scotland’s biggest fund manager reported profit and sales that topped estimates. SAP AG (SAP) fell 2.7 percent as the world’s largest maker of business-management software agreed to buy SuccessFactors Inc. for $3.4 billion in cash.

The Stoxx 600 rose 1 percent to 243.09 at the close, trimming the benchmark measure’s decline this year to 12 percent as concern abated that the euro area’s sovereign-debt crisis will intensify.

“If the euro zone holds together -- as we suspect it will -- there should be considerable upside for stocks,” said Ian Scott, chief global strategist at Nomura Holdings Inc. “More than a recession is already in the price.”

The Stoxx 600 last week posted its largest advance in three years, as central banks cut the interest rate on dollar funding, China reduced its reserve ratio for banks and euro-area policy makers planned to channel as much as 200 billion euros ($269 billion) through the International Monetary Fund to fight the debt crisis. The benchmark measure has rallied 13 percent from this year’s low on Sept. 22 amid optimism policy makers will solve the crisis.

National benchmark indexes climbed in every western- European (SXXP) market. France’s CAC 40 Index advanced 1.4 percent and the U.K.’s FTSE 100 Index rose 0.4 percent. Germany’s DAX Index increased 0.6 percent.

Mario Monti’s Plan

Monti presents a plan to reduce the European Union’s second-biggest debt to the Chamber of Deputies in Rome today. The budget package comes at the start of a critical week for Europe’s efforts to prevent Italy and Spain from succumbing to the crisis and causing a breakup of the single currency.

France and Germany want a new EU treaty to set out the rules for euro-area governments, President Nicolas Sarkozy said after meeting Chancellor Angela Merkel.

“We want it to be impossible for the deregulation that led to the euro zone’s current situation to recur,” Sarkozy said in Paris. “Our preference is for a treaty of 27, but we’re perfectly ready to have a treaty of 17.”

Merkel and Sarkozy are developing a plan for stricter enforcement of the region’s deficit rules that they will present to EU leaders at a summit on Dec. 9.

A gauge of European banks advanced 2.7 percent. UniCredit, Italy’s biggest lender, jumped 5.4 percent to 83.6 euro cents. Intesa Sanpaolo added 3.9 percent to 1.35 euros and BNP Paribas, France’s largest bank (BNP), rose 5.5 percent to 33.34 euros.

Santander Gains

Banco Santander SA gained 2.9 percent to 5.95 euros after Spain’s biggest lender (SAN) said it will seek to raise 1.97 billion euros by swapping preferred shares sold to retail customers in 2009 for newly issued stock as part of a strategy to increase its capital.

Aberdeen Asset Management climbed 4.2 percent to 212 pence as full-year profit surged after revenue rose faster than costs and it sold more higher-margin products.

SAP slipped 2.7 percent to 43.50 euros. The German software maker agreed to buy San Mateo, California-based SuccessFactors on Dec. 3 to better meet demand for new technologies such as cloud computing, real-time analytics and mobile applications.

UBS AG downgraded SAP to “neutral” from “buy,” saying that the software company’s decision to acquire technology rather than develop it internally does “raise questions about SAP’s competitiveness in other on-demand areas.”

Commerzbank AG (CBK) declined 4.3 percent to 1.43 euros as Germany’s second-largest bank offered to repurchase as much as 600 million euros of hybrid equity instruments.

Michael Page International Plc (MPI) slumped 5.9 percent to 343.5 pence after the recruiter said full-year pretax profit will miss analysts’ estimates.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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

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Stocks Rise as Euro Rallies on Proposal to Reduce Italian Debt; Oil Gains

By Michael Shanahan and Rita Nazareth - Dec 5, 2011 11:31 PM GMT+0700

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Dec. 5 (Bloomberg) -- Joseph Tan, Singapore-based chief economist for Asia at Credit Suisse Group AG’s private-banking division, talks about China's economy and central bank monetary policy. A Chinese services index declined last month as the government’s campaign to curb inflation and asset prices damped demand. Tan speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Dec. 5 (Bloomberg) -- Jesper Koll, head of equity research at JPMorgan Chase & Co. in Tokyo, talks about Japanese stocks and the nation's economy. Koll speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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Dec. 5 (Bloomberg) -- Clive McDonnell, Singapore-based head of emerging-market equity strategy for Standard Chartered Plc, talks about the outlook for emerging markets in Asia and their exposure to Europe's debt crisis. McDonnell also discusses the U.S. jobless rate. He speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Stocks (MXAP) rose, adding to the biggest weekly gain since March 2009, the euro strengthened and Italian borrowing costs dropped to a one-month low as Prime Minister Mario Monti proposed budget cuts and Germany and France pushed for a new European Union treaty to fight the debt crisis.

The MSCI All Country World Index climbed 1.2 percent as of 11:30 a.m. in New York, adding to an 8.4 percent rally last week. The Standard & Poor’s 500 Index advanced 1.6 percent and the Stoxx Europe 600 Index increased 1 percent, led by banks, while the euro appreciated 0.5 percent to $1.3452. The yield on the 10-year Italian bond slid 72 basis points to 5.96 percent. Oil rose for a second day, approaching $102 a barrel.

Monti will present the 30 billion-euro ($40 billion) plan, designed to reduce the euro-region’s second-biggest debt, to policy makers in Rome today. France and Germany want a new EU treaty to set out rules for euro area governments, French President Nicolas Sarkozy said after meeting with German Chancellor Angela Merkel, who said the region’s leaders will seek to “win back a bit of trust” at a summit on Dec. 9.

"France and Germany know how serious the problem is," Frederic Dickson, who helps oversee $28 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon, said in a telephone interview. "There’s a lot of anticipation that there will be positive comments coming out of Europe this week."

Global Rally

The MSCI All-Country World Index posted a sixth consecutive day of gains, the longest winning streak since October, and the Stoxx 600 rose for a second day. Italy’s FTSE MIB Index rallied 3 percent as Banca Monte dei Paschi di Siena SpA and Banco Popolare SC climbed more than 10 percent. Michael Page International Plc slumped 6 percent in London after the recruiter said annual pretax profit will miss analyst estimates.

The S&P 500 added to last week’s 7.4 percent rally, its biggest since March 2009. Banks led gains today, with JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. rising at least 3.6 percent to pace an advance in a 78 of 80 financial companies in the index.

MetLife Inc., the largest U.S. life insurer, climbed 4.4 percent after saying earnings will probably climb in 2012 as Chief Executive Officer Steven Kandarian reshapes management a year after the firm’s biggest acquisition.

Equities maintained gains as the Institute for Supply Management’s non-manufacturing index fell to 52 in November from 52.9 a month earlier. Fifty is the dividing line between expansion and contraction and the measure was projected to rise to 53.9, according to the median forecast in a Bloomberg News survey.

Treasuries fell, pushing the yield on the 10-year note up six basis points to 2.09 percent.

Bond Spreads

French 10-year bonds outperformed benchmark German bunds, narrowing the difference in yield, or spread, between the securities by 20 basis points to 93 points. The Spanish 10-year yield tumbled 54 basis points to 5.14 percent, dropping for the sixth consecutive day, the longest run of declines since August.

Germany sold 2.675 billion euros of six-month bills to yield 0.0005 percent, while the Netherlands sold 1.1 billion euros of 176-day bills and 1 billion euros of 84-day securities.

Merkel’s government won’t stand in the way of the Bundesbank helping to fight the debt crisis by channeling loans through the International Monetary Fund, a senior Merkel ally said. Germany is keen for the IMF to adopt a “decisive role” in combating the crisis alongside the European rescue fund, Michael Meister, the parliamentary finance spokesman for Merkel’s Christian Democratic Union, said today in a telephone interview.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments declined seven basis points to 320, the lowest since Nov. 3. Contracts on Italy dropped 29 to 429 and Spain fell 35 to 347.

Euro Advances

The euro advanced 0.2 percent versus the yen, while the Swiss franc depreciated 0.2 percent against the 17-nation currency, falling for the fourth successive day. The pound strengthened 0.6 percent to $1.5690, snapping a two-day decline.

The MSCI Emerging Markets Index (MXEF) rose 1.1 percent, on track for its sixth straight gain in its longest winning streak since Oct. 28. The Shanghai Composite Index (SHCOMP) lost 1.2 percent after a Chinese purchasing managers’ index, a gauge of industries such as construction, retail and property, shrank for the first time since February. The Micex Index added 0.8 percent in Moscow as Prime Minister Vladimir Putin’s hold on parliament weakened. Benchmark indexes advanced more than 1.7 percent in Poland and Hungary.

The S&P GSCI index of 24 commodities climbed 0.6 percent, led by nickel, coffee, sugar and energy products. Gasoline and Brent oil gained at least 0.6 percent and crude in New York jumped 0.8 percent to $101.78 a barrel. Iran said oil will breach $250 a barrel if other nations try to ban purchases of its crude, privately owned Shargh reported, citing a Foreign Ministry spokesman.

To contact the reporters on this story: Michael Shanahan in London at mshanahan3@bloomberg.net; Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net

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

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EU Treaty Rewrite Sought by Merkel, Sarkozy

By Patrick Donahue and Helene Fouquet - Dec 5, 2011 11:28 PM GMT+0700

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Dec. 5 (Bloomberg) -- Glenn Levine, senior economist at Moody's Analytics in Sydney, talks about the outlook for the global economy, the next European leaders' summit and its implications for financial markets. Levine speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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Dec. 5 (Bloomberg) -- Howard Ward, portfolio manager at Gamco Investors Inc., talks about the outlook for global markets and investment strategy. Ward, speaking with Sara Eisen on Bloomberg Television's "InsideTrack," also discusses China's economy and Europe's debt crisis. (Source: Bloomberg)

German Chancellor Angela Merkel and French President Nicolas Sarkozy pushed for a rewrite of the European Union’s governing rules to tighten economic cooperation in a demonstration of unity on ending the debt crisis.

Stocks and the euro rose after Merkel and Sarkozy said that Europe’s two biggest economies were aligned on backing automatic penalties for deficit violators and locking limits on debt into euro states’ constitutions. The French leader said they aimed to reach consensus on the changes required by March.

“We don’t have time -- we are conscious of the gravity of the situation,” Sarkozy said after the two met over lunch at the Elysee palace in Paris today. “We want to go as fast as possible based on this agreement between France and Germany, which is open to others.”

With the fate of the currency shared by the 17 euro countries at risk, Merkel and Sarkozy presented a common platform for a Dec. 8-9 summit of EU leaders in Brussels that aims to halt the crisis now in its third year. Among the French- German measures were plans to fast-track the permanent rescue fund to 2012, one year earlier than originally envisaged.

While the announcements represent “a good start to the week of truth,” Merkel and Sarkozy still need to convince the rest of the euro area to go along with their plans for closer union if they are to prompt European Central Bank President Mario Draghi to step up the ECB’s response to the crisis, said Carsten Brzeski, an economist at ING Group in Brussels.

‘Fiscal Compact’

“They need put money where their mouth is and bring everyone else on board,” Brzeski said by phone. “From a financial market perspective, it’s about them doing enough to deliver Draghi’s fiscal compact.”

Merkel and Sarkozy both declined to comment today on Draghi’s comments last week that “other elements might follow” should a “new fiscal compact” emerge among the euro nations.

Safeguarding banks, limiting the damage to Italy and Spain and finding additional rescue funds may hinge on the response to Franco-German demands for closer economic integration and tougher policing of fiscal rules.

The euro advanced, extending last week’s gains versus the dollar, climbing 0.3 percent to $1.3429 at 4:59 p.m. Frankfurt, while the Dow Jones Industrial Average climbed 1.2 percent to 144.29 points at 11:01 a.m. in New York.

The risk premium between Italian and German 10-year notes narrowed 79 basis points to 3.73 percentage points.

Geithner Trip

With the EU summit looming, U.S. Treasury Secretary Timothy Geithner arrives in Frankfurt tomorrow to prod political leaders, and the ECB holds a policy meeting Dec. 8.

European leaders will seek to “win back a bit of trust” at a summit after “our reliability has suffered,” Merkel said. “We are steadfastly determined to make the decision at the council now.”

The two repeated their rejection of jointly sold euro bonds in solving the crisis and affirmed the independence of the ECB.

“I want to tell French people that France and Germany totally oppose euro bonds because it isn’t at all a solution in this crisis,” Sarkozy said. “What a strange idea to put European debts in the same pot.”

Merkel also sought to calm concerns of euro-area member states that the European Court of Justice would be able to veto national budgets as part of a proposal for centralized deficit supervision.

“The European court won’t be able to check every budget, but rather rule on whether the debt brake anchored in national law has been implemented in such a way that it adheres to the Stability and Growth Pact,” Merkel said.

To contact the reporters on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net; Helene Fouquet in Paris at hfouquet1@bloomberg.net

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

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RIM Weighed Down by Tablet ‘Albatross’

By Hugo Miller - Dec 5, 2011 9:46 PM GMT+0700

Research In Motion Ltd. (RIM)’s commitment to keep battling Apple Inc. (AAPL)’s iPad even as demand for its BlackBerry PlayBook slumps means the company will likely have to sell the tablet at a loss. Its strategy depends on it.

The company said on Dec. 2 that it would book $485 million in pretax charges to write down the value of its PlayBook inventory and that it doesn’t expect to meet its full-year earnings target. Shipments have fallen for two consecutive quarters and are now about 1 percent of those of the iPad, forcing RIM to cut the price by $300, or more than half, making it unprofitable.

RIM will need to keep suffering the losses because the PlayBook is its sole product to run on software called BBX, an operating system the company is betting its future on, said Matt Thornton, an analyst at Avian Securities LLC. Abandoning the PlayBook may signal a lack of confidence in the system, alienating developers and leaving Apple’s iOS and Google Inc. (GOOG)’s Android mobile ecosystems with little competition, he said.

“You can’t kill it,” said Thornton. “The PlayBook is all they have to show developers, they don’t have a smartphone yet.”

The PlayBook writedown is the latest in a steady stream of bad news for Waterloo, Ontario-based RIM, whose BlackBerry is losing market share to the iPhone and Android devices. Apple and Google are attracting consumers with handsets that can run tens or hundreds of thousands of games, tools and other applications made by developers for those systems.

Dim Prospects

RIM said more promotions are needed to drive demand for the seven-inch PlayBook, shipments of which slumped to 150,000 units last quarter, down from 500,000 units in the quarter of their April debut. That may mean further price reductions for a product that costs $250 to $300 to make, according to Thornton.

“If they’re selling it at $199, they’re already in the red,” said Thornton, who is based in Boston and has a “neutral” rating (RIMM) on RIM shares. “For every one they sell, they’re losing money.”

Apple sold a record 11.12 million iPads in its most recent quarter and Amazon.com Inc. (AMZN)’s Kindle Fire tablet -- similar in size to the PlayBook -- may sell 3.9 million units in its first quarter on sale, according to researcher IHS iSuppli. Hewlett- Packard Co. (HPQ) scrapped its TouchPad tablet in August after failing to draw users away from the iPad.

Marisa Conway, a spokeswoman for RIM, referred queries about the company’s PlayBook strategy back to comments co-CEO Mike Lazaridis made in the Dec. 2 statement.

‘Positive Response’

Lazaridis said at the time the PlayBook was worth continuing because the tablet market is still “in its infancy and that “based on the positive response to the promotions that are underway in select markets, RIM believes this strategy will accelerate adoption” of its new operating system and help built the application ecosystem for devices planned for 2012.

“Whether you call the PlayBook an albatross or a yoke around the neck, management has not done a good job in bringing good products to the forefront and that’s why the share price is suffering,” said Bahl & Gaynor Investment Counsel’s Matt McCormick, whose firm oversees $4.1 billion and doesn’t own RIM shares. “I don’t see the prospects brightening anytime soon.”

RIM shares had dropped 71 percent this year before today, while Apple had climbed 21 percent. RIM slid 1.4 percent to $16.53 at 9:44 a.m. New York time.

‘Amazing’ Opportunity

RIM Co-Chief Executive Officer Jim Balsillie told analysts in March that the cost of developing the PlayBook and its new operating system would “impact our near-term earnings growth trajectory” but that it was worth it for a product with “amazing market opportunity.”

Weeks later after its April debut, the PlayBook was criticized for lacking a dedicated e-mail program. RIM promised it would fix that in a software upgrade that it now says won’t come until February. Moreover, the company says the first BlackBerrys built on BBX won’t come out until they’re ready, declining to reiterate an earlier goal of the first quarter of next year.

RIM fell 9.7 percent on the day it announced the PlayBook writedown, its biggest decline since its previous quarterly sales miss in September. Before today, the stock was 11 percent below its book value of $18.92, implying investors view RIM as worth less than the net value of its cash, inventories, real estate and intellectual property.

No Return?

“The BlackBerry is a bad product” and “the market is saying this is a broken company,” said Malcolm Polley, chairman of Stewart Capital Mutual Funds, who oversees $1 billion and is based in Indiana, Pennsylvania.

Compounding RIM’s problems is the slumping demand for its BlackBerry smartphones. Device shipments, made up mainly of BlackBerrys, will decline in the fourth quarter from the third quarter, RIM said Dec. 2.

“It’s not just PlayBook, this is more of a mix on the BlackBerry smartphone side coming in on the lower end,” said Jeff Fidacaro, an analyst with Susquehanna International Group LLP in New York.

The company’s U.S. market share sank to 9.2 percent in the third quarter from 24 percent a year earlier as consumers opted for the iPhone and phones from Samsung Electronics Co. (005930) and HTC Corp. (2498) that run Android, according to research firm Canalys.

“RIM needs compelling product lines,” said Ashok Kumar an analyst with Rodman Renshaw LLC New York. “They are losing market share and they have to stem that to recover, or they reach a point of no return.”

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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European Stocks Rise as Italy Plans to Cut Debt

By Adam Haigh - Dec 5, 2011 8:51 PM GMT+0700

European stocks rose, with the benchmark Stoxx Europe 600 Index extending its biggest weekly rally since November 2008, as Italy’s Prime Minister Mario Monti introduced a proposal to cut his nation’s debt.

A gauge of lenders led gains on the Stoxx 600 as UniCredit SpA (UCG), Intesa Sanpaolo SpA (ISP) and BNP Paribas SA jumped more than 5 percent. Aberdeen Asset Management Plc (ADN) climbed 5.6 percent after the Scottish fund manager reported profit and sales that topped estimates. SAP AG (SAP) fell 2.8 percent as the world’s largest maker of business-management software agreed to buy SuccessFactors Inc. for $3.4 billion in cash.

The Stoxx 600 rose 1.1 percent to 243.44 at 1:49 p.m. in London, trimming the benchmark measure’s decline this year to 12 percent as concern abated that the euro area’s sovereign-debt crisis will intensify.

“If the euro zone holds together -- as we suspect it will -- there should be considerable upside for stocks,” said Ian Scott, chief global strategist at Nomura Holdings Inc. “More than a recession is already in the price.”

The Stoxx 600 last week posted its largest advance in three years, as central banks cut the interest rate on dollar funding, China reduced its reserve ratio for banks and euro-area policy makers planned to channel as much as 200 billion euros ($269 billion) through the International Monetary Fund to fight the debt crisis. The benchmark measure has rallied 13 percent from this year’s low on Sept. 22 amid optimism policy makers will solve the crisis.

National benchmark indexes climbed in every western- European (SXXP) market. France’s CAC 40 Index advanced 1.5 percent and the U.K.’s FTSE 100 Index rose 0.8 percent. Germany’s DAX Index increased 1 percent.

Mario Monti’s Plan

Monti presents a plan to reduce the European Union’s second-biggest debt to the Chamber of Deputies in Rome today. The budget package comes at the start of a critical week for Europe’s efforts to prevent Italy and Spain from succumbing to the crisis and causing a breakup of the single currency. German Chancellor Angela Merkel meets French President Nicolas Sarkozy today to develop a plan for stricter enforcement of the region’s deficit rules that they will present to EU leaders at a summit on Dec. 9.

A gauge of European banks advanced 2.8 percent. UniCredit, Italy’s biggest lender, jumped 5.7 percent to 83.8 euro cents. Intesa Sanpaolo added 5.3 percent to 1.37 euros and BNP Paribas, France’s largest bank (BNP), rose 5.9 percent to 33.46 euros.

Santander Gains

Banco Santander SA gained 2.8 percent to 5.95 euros after Spain’s biggest lender (SAN) said it will seek to raise 1.97 billion euros by swapping preferred shares sold to retail customers in 2009 for newly issued stock as part of a strategy to increase its capital.

Aberdeen Asset Management climbed 5.6 percent to 214.7 pence as full-year profit surged after revenue rose faster than costs and it sold more higher-margin products.

SAP slipped 2.8 percent to 43.48 euros. The German software maker agreed to buy San Mateo, California-based SuccessFactors on Dec. 3 to better meet demand for new technologies such as cloud computing, real-time analytics and mobile applications.

UBS AG downgraded SAP to “neutral” from “buy,” saying that the software company’s decision to acquire technology rather than develop it internally does “raise questions about SAP’s competitiveness in other on-demand areas.”

Commerzbank AG declined 1.2 percent to 1.48 euros as Germany’s second-largest bank offered to repurchase as much as 600 million euros of hybrid equity instruments.

Michael Page International Plc (MPI) slumped 6.9 percent to 340 pence after the recruiter said full-year pretax profit will miss analysts’ estimates.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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

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Stocks in U.S. Advance as Banks Rally Amid Italy’s Move to Reduce Its Debt

By Rita Nazareth - Dec 5, 2011 9:44 PM GMT+0700

U.S. stocks rose, after the biggest weekly rally since March 2009 for the Standard & Poor’s 500 Index, as Italian Prime Minister Mario Monti proposed budget cuts and leaders prepared to meet on Europe’s debt crisis.

All 10 groups in the S&P 500 gained, led by financial shares. Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) climbed at least 4.3 percent. MetLife Inc. (MET), the largest U.S. life insurer, rallied 3.5 percent after saying earnings will probably increase in 2012. Dollar General (DG) Corp. advanced 2 percent after the dollar store chain raised its annual earnings forecast and said it will buy back as much as $500 million in shares.

The S&P 500 advanced 1.3 percent to 1,260.09 at 9:40 a.m. New York time. The benchmark measure for American equities surged 7.4 percent last week. (SPX) The Dow Jones Industrial Average climbed 134.57 points, or 1.1 percent, to 12,153.99 today.

“It’s a week of Europe,” James Paulsen, who helps oversee about $333 billion as chief investment strategist at Minneapolis-based Wells Capital Management, said in a telephone interview. “There’s some expectation you could have surprisingly good news coming out of Europe, a bigger-than- expected approach to solving this thing. If the bids for European bonds don’t fade away, that might get people more excited about this.”

Italian borrowing costs dropped as Monti will lobby parliament to support a 30 billion-euro ($40 billion) package of austerity and growth measures. France and Germany want a new European Union treaty to set out rules for euro area governments, President Nicolas Sarkozy said after meeting with Chancellor Angela Merkel.

Crisis-Fighting Funds

Merkel’s government won’t stand in the way of Bundesbank help to fight the crisis by means of loans channeled through the International Monetary Fund, a senior Merkel ally said.

Financial stocks had the biggest gain in the S&P 500 among 10 industries, rising 2.4 percent as a group. Bank of America added 4.3 percent to $5.88. JPMorgan increased 4.9 percent to $33.92. Morgan Stanley (MS) jumped 6 percent to $16.46.

Service industries in the U.S. probably expanded in November at the fastest pace in six months, a sign the economy is accelerating in the final months of 2011, economists said before a report today.

MetLife rallied 3.5 percent to $32.86. Next year’s operating profit, which excludes some investment results, will be $4.80 to $5.20 a share, the New York-based company said today in a statement. That compares with the average $5.08 estimate of 20 analysts surveyed by Bloomberg.

Dollar General

Dollar General added 2 percent to $40.75. The company raised its 2012 adjusted earnings forecast to as much as $2.32 a share. On average, the analysts surveyed by Bloomberg estimated profit of $2.29 a share.

SuccessFactors Inc. (SFSF) surged 51 percent to $39.70. SAP AG, the largest maker of business-management software, agreed to buy the company for $3.4 billion in cash to keep pace with rival Oracle Corp. in the cloud-computing market.

Entergy Corp. (ETR) jumped 5.2 percent to $73.28. ITC Holdings Corp. (ITC) will acquire the company’s power-line business for $1.78 billion in assumed debt, making it one of the largest U.S. owners of transmission lines. ITC gained 8.6 percent to $80.10.

Chesapeake Energy Corp. (CHK) added 1.7 percent to $25.86. The company which agreed last month to sell part of its Utica Shale holdings sold to a group of private investors $750 million worth of preferred shares in a subsidiary created to help fund development of the oil and natural-gas field.

The S&P 500 may jump 6.9 percent by the end of this month as the benchmark measure completes a year-end rally, according to Peter Beuttell, a technical analyst at MTS Research Ltd. in Bath, England.

‘Under Way’

“If you look around the world, certain indexes didn’t look like they recovered enough, so there is a chance that the initial rallies could repeat,” Beuttell said in a telephone interview today. “That supports the case for another rally pattern, which is under way now.”

The “double zigzag” that began in October will continue this month, with the S&P 500 climbing to a resistance level of 1,330 by the end of the year, Beuttell said. The gauge slipped less than 0.1 percent to 1,244.28 on Dec. 2. The S&P 500 will not drop to its support level of 1,120 to 1,160 until next year. The S&P 500 has rebounded 15 percent from its October low of 1,099.23.

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

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

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Apple’s Claim Against Android Awaits ITC Ruling

By Susan Decker - Dec 5, 2011 12:01 PM GMT+0700

For two years, Apple Inc. (AAPL) has told the world that phones running on Google Inc. (GOOG)’s Android operating system are iPhone rip-offs. Now Apple is about to learn whether a U.S. trade agency thinks its claims have merit.

The International Trade Commission is set to rule Dec. 6 in a patent complaint lodged by Apple against rival smartphone maker HTC Corp. (2498) The decision would mark the first final verdict from any judicial entity in Apple’s global patent war against HTC and fellow Android-phone makers Samsung Electronics Co. (005930) and Motorola Mobility Holdings Inc.

A ruling for Apple may lead to a ban on U.S. imports of HTC devices, derailing the Taoyuan, Taiwan-based company’s trajectory from a small contract manufacturer founded in 1997 to the biggest U.S. smartphone seller in the third quarter. A victory for HTC may help it secure favorable terms in any settlement with Apple.

“In the past two years, HTC has emerged essentially from obscurity by promoting their own brand and high-end phones, and they’ve largely been able to do this by leveraging Android,” said Alex Spektor, an analyst with Strategy Analytics Inc.

HTC generated about $5 billion in U.S. sales last year, according to a separate patent complaint it filed at the trade agency against Cupertino, California-based Apple. That’s more than half of HTC’s $9.1 billion (NT$275 billion) in global 2010 sales.

HTC sold 24 percent of the smartphones in the U.S. during the third quarter, ahead of Samsung’s 21 percent and Apple’s 20 percent, Canalys reported Oct. 31. The Android platform accounts for almost 70 percent of the U.S. smartphone market, the Palo Alto, California-based researcher said. There were 120.4 million smartphones worldwide in the third quarter, a 49 percent jump from the year-ago period, Canalys said.

The Wrath of Jobs

HTC’s Android phones, introduced in 2008, infuriated Steve Jobs, according to Walter Isaacson’s biography of the late Apple founder. Jobs made it his mission “to destroy Android,” which he said “ripped off the iPhone, wholesale,” according to the book.

Apple contends that HTC’s Android phones infringe four Apple patents, including one for a system to detect telephone numbers in e-mails so they can be stored in directories or called without dialing the numbers. The commission is reviewing an agency judge’s findings that HTC infringed that patent and one covering the transmission of multiple types of data, along with two other Apple patents that the judge said weren’t infringed.

Dozen Cases

The case is one of about a dozen before the commission related to the dispute over Android devices. Microsoft is fighting with Motorola Mobility and Barnes & Noble Inc., while Apple has legal fights with HTC, Samsung and Motorola Mobility.

An Apple victory would mark the second setback for HTC in two weeks at the agency. On Nov. 21, the commission rejected an agency judge’s findings that Apple was violating the patent rights of HTC’s S3 Graphics unit. HTC agreed to buy S3 Graphics for $300 million in July after the judge said Apple was infringing two S3 Graphics patents for video compression.

The commission is an independent agency set up to protect U.S. markets from unfair trade practices. It has the power to block imports of products found to infringe intellectual property rights.

HTC has said it has “alternative solutions in place” to work around the patents if a violation is found.

T-Mobile USA Inc., the fourth-largest U.S. wireless provider, said in an Oct. 6 filing with the trade agency that it has much to lose should there be any limit on HTC phones.

‘Locking In Consumers’

“An ever-increasing majority of T-Mobile’s U.S. customers prefer the Android platform and would be unable to purchase adequate substitutes in the near-term if HTC’s Android smartphones were excluded,” T-Mobile, a unit of Deutsche Telekom AG (DTE), said in the filing.

T-Mobile teamed with Google and HTC to sell the first Android phone in the U.S. in September 2008, and a majority of its current smartphone sales are devices made by HTC.

Google, which denies copying the iPhone and hasn’t been named in any of the trade agency complaints, argued in a filing that Apple is trying to control the U.S. smartphone market through litigation. HTC’s Android devices “are helping prevent Apple’s iOS from becoming the sole viable mobile platform and thus ‘locking in’ consumers and software developers to that platform,” Google said in the filing.

Apple has argued that it’s not trying to exclude all rival smartphones, only those using Apple inventions without permission.

4G Phones

“Apple is an American company that has poured billions of dollars in research and development and other investments into the U.S. economy,” Apple wrote in an Oct. 17 filing with the agency. “HTC is a foreign company that is free-riding on Apple’s research and development expenditures and resulting patents rather than creating its own innovations.”

There’s no guarantee that the commission will ban the HTC phones should it find that HTC violated Apple’s patents.

Neither T-Mobile nor Google took a position on the infringement issue, focusing instead on the possible import ban. T-Mobile said an exclusion order may undermine efforts to spread the newest generation of phones, known as 4G, even as the Obama administration favors expanding wireless high-speed Internet service into rural areas.

The Bellevue, Washington-based company, which doesn’t sell the iPhone, said it operates “America’s largest 4G network.”

‘Last Thing’

The trade agency’s staff, which acts as a third party on behalf of the public in certain cases, has said that an exclusion order is “unlikely to have any significant impact on the public interest” and demand for smartphones could be met by other companies, including Apple.

It does recommend a limited exception for 4G phones. HTC accounts for more than half of all 4G sales in the U.S., so the company should be allowed to continue to bring in those phones for six months until additional competitors enter the market, the staff recommended.

HTC isn’t expected to retain its top spot in smartphone sales this quarter. On Nov. 23, the company cut its fourth- quarter revenue forecast, citing the weak global economy and competition from Apple and Samsung.

Apple has begun selling the iPhone 4, and Samsung’s newest Galaxy has become its best-selling phone ever, said Spektor of Strategy Analytics. At the same time, Sprint Nextel Corp. (S), one of HTC’s customers, has begun selling the iPhone. Another loss at the trade agency would further undermine HTC’s position, Spektor said.

“The last thing they need is for a non-competitive factor to come into play,” said Spektor, who is based in Newton, Massachusetts. “HTC’s competitors in the Android space would be happy because the Android slice of the pie is less crowded.”

The case is In the Matter of Certain Personal Data and Mobile Communications Devices and Related Software, 337-710, U.S. International Trade Commission (Washington).

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net;

To contact the editor responsible for this story: Michael Shepard at mshepard7@bloomberg.net

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No Lost Decade for S&P 500 as Big-Cap Bias Masks Rally

By Nikolaj Gammeltoft and Lu Wang - Dec 5, 2011 3:58 PM GMT+0700

Even with the Standard & Poor’s 500 Index down 19 percent since the bursting of the technology bubble in 2000, it’s been no lost decade for stocks.

The benchmark gauge for American common equity has climbed 66 percent since March 24, 2000, after stripping out adjustments for market value, which gives equal credit to Exxon Mobil Corp. (XOM), whose shares are worth $382.5 billion, and Monster Worldwide Inc. (MWW), at $945.6 million. That’s little help for most investors, whose returns reflect the capitalization-weighted index, says Cliff Asness at AQR Capital Management LLC.

Gains in the S&P 500 Equal Weighted Index through the dot- com tumble, the Sept. 11 attacks, the real-estate collapse and the worst financial crisis since the Great Depression show the resilience of U.S. companies that are forecast to report record earnings this year even as Europe’s debt crisis threatens growth again. Declines in the S&P 500’s biggest members have left them cheaper (OEX) compared with the full index than 89 percent of the time since 2000, according to data compiled by Bloomberg.

“Corporate America repaired itself,” Chris Hyzy, the New York-based chief investment officer at U.S. Trust Co., which oversees about $360 billion, said in a phone interview on Dec. 1. “On an equal-weighted basis, it hasn’t been a lost decade.”

Emergency Dollars

The S&P 500 (SPX) rose 7.4 percent last week to 1,244.28 after six central banks led by the Federal Reserve made it easier for lenders to obtain dollars in emergencies and the U.S. economy added 120,000 jobs. Bigger companies rallied more, pushing the S&P 100 Index up 7.6 percent. Both measures posted their largest gains since March 2009, the data show. The S&P 500 pared its loss this year to 1.1 percent.

Futures on the S&P 500 expiring in December climbed 0.8 percent to 1,253.7 at 8:58 a.m. in London today.

Owners of stocks in the S&P 100 suffered the most since March 24, 2000. The index fell 33 percent, driven by declines of 70 percent or more in Cisco Systems Inc. and General Electric Co., the second- and third-largest companies behind Microsoft Corp. (MSFT) at the peak of the technology bubble.

Equities suffered two bear markets lasting longer than a year in the previous decade. The first began after the S&P 500’s price-earnings ratio reached 31.2 following the 1990s rally led by computer and software makers. The second started in 2007 as global bank losses from subprime mortgages spiraled toward $2 trillion. The gauge doubled in five years starting in October 2002 as energy companies rallied 242 percent as a group and raw- material producers jumped 162 percent.

Lehman Bankruptcy

U.S. gross domestic product has increased every year since 2000 except for the 2008-2009 period, when the bankruptcy of Lehman Brothers Holdings Inc. triggered the worst recession in seven decades. Growth is forecast to reach 2.2 percent in 2012 from 1.8 percent this year, according to the median estimate of 63 economists in a Bloomberg survey.

Energy producers climbed 149 percent in the past decade as Houston-based Southwestern Energy Co. (SWN) surged 44-fold to $37.69. Materials producers, including Cliffs Natural Resources Inc. (CLF), gained 57 percent. The Cleveland-based miner went from a split- adjusted $3.18 to $68.34.

“All you have to do is to look at the balance sheet and earnings growth, and that will show you that in general, corporate America has done very well in the past 10 years,” David Spika, who helps oversee $12 billion as an investment strategist at Westwood Holdings Group Inc. in Dallas, said in a phone interview on Dec. 1. “You are seeing a much healthier corporate America today than you saw 10 or 12 years ago.”

Record Earnings

Companies in the S&P 500 are poised to report record earnings of $99.05 a share for 2011 and profits may rise 10 percent next year and 12 percent in 2013, based on analyst forecasts compiled by Bloomberg.

The decline in the S&P 100, whose companies have an average market capitalization of $73.9 billion, has reduced valuations to 35 percent below the mean of 18.6 since 1997, data compiled by Bloomberg show. The index trades for 12.1 times reported earnings, 7.6 percent lower than the S&P 500, the data show.

Smaller companies lifted the S&P 500 Equal Weighted Index to a record on May 10, almost four years after the capitalization-based gauge reached its all-time high of 1,565.15 in October 2007.

“That cycle is running its course,” Matt Peron, a money manager at Northern Trust Corp. in Chicago, said in a telephone interview on Dec. 1. His firm manages $644 billion. “I’m not saying it’s over, but it’s getting longer in the tooth. Mega- caps are looking very cheap.”

Worse Than Bonds

The Russell 2000 Index (RTY), a gauge of small-cap shares with an average market value of $667.8 million, peaked on April 29 and is up 28 percent since March 24, 2000. Equity benchmarks did worse than corporate bonds, which returned 121 percent, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Master Index.

The relative performance of smaller stocks doesn’t help the majority of investors. More than $5.58 trillion is benchmarked to the S&P 500 and about $1.31 trillion is directly linked to its value, according to an estimate by New York-based S&P. The biggest 100 companies make up 63 percent of the value of the S&P 500 and almost half of the entire American market.

Individuals pulled $9.01 billion from equity mutual funds since March 2000, with withdrawals exceeding $27 billion each year starting in 2007, according to data compiled by Bloomberg from the Investment Company Institute, a Washington-based trade group.

Investors Weren’t Spared

Gains in the equal-weighted index reflect appreciation in its smaller companies and stocks with lower valuations over the past decade, according to Asness, who helps oversee $38.8 billion as founder and president of the AQR hedge fund in Greenwich, Connecticut. Since most investors didn’t anticipate that, they weren’t spared the lost decade, he said.

“Sorry, I’m not sure it means more than small-cap and cheap stocks had a good decade,” Asness wrote in an e-mail. “If you add us all up, we add up to cap-weighted, not equal- weighted indexes.”

Cisco (CSCO) in San Jose, California, trailed the S&P 500 in eight out of the last 11 years as the market value of the world’s biggest maker of networking equipment fell 82 percent to $99.7 billion. The stock is down 8.3 percent this year, even after posting earnings that beat analysts’ estimates for at least the 27th straight quarter.

GE (GE) Declines

The market value of Fairfield, Connecticut-based GE has dropped 67 percent. The world’s largest maker of jet engines failed to exceed analysts’ estimates for the first time in two years as third-quarter earnings suffered from tighter profit margins in the industrial business. Its shares have fallen 12 percent this year.

Microsoft, the Redmond, Washington-based software maker, has been displaced by Irving, Texas-based oil producer Exxon as the world’s biggest company after demand from emerging markets bolstered energy stocks. Exxon’s profit almost doubled in the past 11 years.

Southwestern Energy, the Houston-based natural-gas producer, earned $604.1 million last year after losing $46.7 million in 2000. Cliffs, North America’s largest iron-ore producer, has boosted earnings 56-fold since 2000 as a housing boom in China and demand from automakers boosted steel orders. Southwestern Energy has a market value of $13.1 billion, while Cliffs is worth $9.77 billion.

“It was only a lost decade if you anchored on equities as your core holding and you relied on cap-weighting,” Rob Arnott, chairman and founder of Newport Beach, California-based investment firm Research Affiliates LLC, said in a telephone interview on Nov. 18. About $78 billion is managed using his firm’s investment strategies. “It was a lost decade for most investors, but it didn’t have to be.”

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

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

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Samsung Gains After Apple Fails to Block Imports of Galaxy Devices to U.S.

By Jun Yang - Dec 5, 2011 2:00 PM GMT+0700

Samsung Electronics Co. (005930), the world’s largest maker of mobile phones, rose in Seoul trading after Apple Inc. (AAPL) lost a bid to block sales of the South Korean company’s Galaxy phones and tablet computers in the U.S.

Samsung gained 1.5 percent to 1.06 million won at the close of trading in Seoul, while the benchmark Kospi index gained 0.4 percent.

The U.S. District Court in San Jose, California, ruled Dec. 3 against Apple’s plea to ban Samsung from selling its 4G smartphone and Galaxy Tab 10.1 tablet computer in the country. The victory builds on an Australian court ruling last month that lifted an earlier injunction on the tablet in the country. Samsung and Apple have filed at least 30 suits against each other on four continents since April.

“The situation is turning positive for Samsung,” Seoul- based analysts C.W. Chung and Marcello Ahn at Nomura Holdings Inc. wrote in a note today. “In the best case, Samsung will be able to receive patent license fees from Apple.”

The conflict will probably continue regardless of the San Jose ruling, said Trip Chowdhry, an analyst at Global Equities Research in San Francisco.

“It’s getting more convoluted,” he said by phone today. “I don’t think this will be over. I do see that there may be some negotiated settlement, but not anytime soon.”

Apple won a one-week extension of the Australian ban on the Galaxy Tab 10.1 on Dec. 2, effective until the country’s top court considers the iPad maker’s request for permission to appeal the Nov. 30 decision by a lower court.

Samsung modified the tablet’s design last month and renamed it Galaxy Tab 10.1N to avoid a German sales ban upheld by a Dusseldorf court in September.

In October, Samsung changed the way photos are browsed on three Galaxy-phone models for the Dutch market to bypass an injunction won by Apple in August.

To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net

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

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Builders Shrink ‘Great Australian Dream’ as Priciest Home Market Falters

By Nichola Saminather - Dec 5, 2011 1:21 PM GMT+0700

Australian homebuilders are responding to declining demand and higher land costs by reducing the sizes of houses and lots.

Stockland, Australia’s biggest listed home builder, has cut the average size of plots in its house-and-land packages by almost 20 percent to 481 square meters (5,177 square feet) over three years. Australand Property Group (ALZ), a unit of Singapore’s CapitaLand Ltd. (CAPL), is redesigning homes as it shrinks them, while Peet Ltd. (PPC), which has 70 housing estates, is building on smaller lots with shared barbecue and exercise areas to compensate.

Higher prices for land and materials and increasing wages and taxes are pushing costs higher at a time the prices developers can charge are restrained as the developed world’s most expensive housing market cools. Home prices in Australia’s eight capital cities dropped 4 percent in the year to Oct. 31, according to RP Data, the most since the real estate researcher began compiling the figures in 1999.

“There’s an affordability crisis in Australia, and one way of keeping the price point where people can afford it is to reduce the size,” said Peter Sherrie, national president of industry group the Urban Development Institute of Australia. “With some innovative house designs, developers are able to provide a perfectly acceptable dwelling on a much smaller lot.”

Pursuit of the Great Australian Dream -- ownership of a stand-alone house on a quarter-acre piece of land -- has seen households double their debt load as a proportion of disposable income in the past 15 years to 154 percent in the quarter ended June 30, according to central bank figures. That’s higher than the 133 percent ratio Americans accumulated at the height of the U.S. sub prime-mortgage boom.

Australian Dream

The Great Australian Dream is a phrase derived from the American Dream, which equates prosperity and freedom with land ownership. In Australia, it encapsulates an idealized suburban lifestyle of grassy backyards, swimming pools and barbecues.

At 243.6 square meters, Australian houses are the biggest in the world, according to an August report by Commonwealth Securities Ltd., a unit of Commonwealth Bank of Australia. The average house in the U.S. was 222.2 square meters in 2010, Canada’s homes averaged 177 square meters and Japan’s 132 square meters, it said.

Stockland has decided to build smaller homes closer to public spaces rather than with big backyards, said Andrew Whitson, general manager for Victoria state at the company. The Sydney-based company has increased the proportion of homes on lots less than 450 square meters to 50 percent of all its housing projects, from 27 percent three years ago, it said at its full-year results presentation in August.

“The push is driven not only by affordability, but also to cater to our growing population and to make more efficient use of land,” Whitson said.

Stockland (SGP) climbed 1.2 percent to A$3.45 in Sydney today.

Urban Sprawl

With about two-thirds of Australia’s 22.8 million people living in the nation’s eight capitals, cities have historically expanded out, rather than up, to fit a growing population.

Melbourne, the nation’s densest city, had 530 people per square kilometer (0.4 square mile) and Sydney, the nation’s most populous city, had 380 as of June 2010, a March statistics bureau report shows. That compares with about 10,194 people per square kilometer in New York, according to the city’s department of planning, 6,017 in Tokyo and 7,126 in Singapore, according to statistics bureau data for each city.

State governments are now pushing developers to build closer to urban centers. Authorities require between 50 percent and 70 percent of new housing estates to be located within existing city limits, are restricting land releases on city fringes, and are demanding developers help pay for roads, transport and other amenities when building outside the limits.

Smaller Lots

“Developer charges, infrastructure charges are escalating,” said Andrew Harvey, senior economist at the Housing Industry Association, Australia’s biggest residential building organization. “They have to pay for schools and bike paths and a range of other gold-plated facilities, and that gets passed on in its entirety to home buyers.”

That’s helping push up the price of land plots even as they shrink. The average plot of land in Australian capital cities in the June quarter cost A$214,656 ($219,600), up 5 percent from a year ago, HIA data shows. The size has fallen 13 percent in Sydney to 525 square meters, 16 percent in Melbourne to 513 square meters, and 27 percent in Perth to 451 square meters from a peak about eight years ago.

New home sales fell 8 percent in the three months to Oct. 31, according to HIA. Sales of detached houses slumped 8.4 percent, while apartment sales declined 5.1 percent.

Rising Costs

Meanwhile, building costs are also rising. The price of building materials increased 2.1 percent in the three months ended Sept. 30 from a year earlier, and construction wages climbed 3.4 percent, according to statistics bureau data.

Australand is reconfiguring its homes as it downsizes them, replacing a third or fourth bedroom with smaller spaces that better suit a gym, media room or other use, said Rod Fehring, executive general manager of the Sydney-based company’s residential division.

“The number of households with one or two people in them has been rising, but we as an industry are still consistently designing three- and four-bedroom homes,” Fehring said. “Australand is moving away from the conventional definitions of bedrooms to activities that those spaces are used for, so they can have more flexible uses.”

Australand stock added 1.5 percent to A$2.74.

More than three-quarters of Australian households had more bedrooms than were needed to accommodate the occupants, according to a statistics bureau report released Nov. 16.

World’s Costliest

Australian homes cost 6.1 times the gross annual median household income, compared with 3 times in the U.S. and 5.2 times in the U.K., according to a report by Belleville, Illinois-based consulting company Demographia.

The median price for houses and apartments across all regions in Australia was A$316,000 as of Oct. 31, according to RP Data. That compares with a median of $171,475 in the U.S., based on figures from property website Zillow.com.

At Perth-based Peet, which owns, syndicates and jointly develops it projects, the push for smaller homes has been driven by both increasing development costs and demand from buyers seeking smaller dwellings that are easier to maintain, Managing Director Brendan Gore said.

“This includes many people who now don’t want a large backyard which requires time-consuming maintenance, but would like landscaped parks and open spaces nearby,” Gore said.

Falling Prices

While Peet’s average lot size has dropped as much as 20 percent in some areas over the past three years, community amenities such as exercise areas or barbecue facilities have increased, he said. Peet shares added 1.3 percent to 81 cents.

As the market sours, landed properties are losing value faster than apartments. House prices in Australian capitals fell 4.7 percent in October compared with a year earlier, while apartment values slipped 1.7 percent, according to Brisbane- based RP Data.

“The trend will absolutely be toward more smaller lot houses,” said Tim Lawless, director of research at RP Data. “There is demand for it based on affordability pressures. Developers want to maximize their yields, and potential buyers want to max the bang for their buck.”

Sydney-based Monarch Investments has reduced the size of its homes to between 160 square meters and 170 square meters, from 250 square meters two years ago, Chief Executive Officer Peter Icklow said. It is splitting normal 460 square-meter lots in half on two of its current projects, and building homes with smaller rooms and only one-car garages, he said.

“I can see the size of houses going down to 130 square meters,” Icklow said. “It will keep going down until people can afford them. The Great Australian Dream isn’t gone; it’s just a smaller dream now.”

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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India Signals Readiness to Defend Slumping Rupee as Growth Slows: Economy

By Anoop Agrawal and Unni Krishnan - Dec 5, 2011 5:17 PM GMT+0700

India signaled it’s prepared to act against excessive declines in the rupee, as Asia’s worst performing currency this year threatens to exacerbate the fastest inflation among so-called BRIC nations and hurt growth.

The recent sharp depreciation isn’t a sign of “helplessness in dealing with the kind of global turbulence we are seeing,” central bank Deputy Governor Subir Gokarn said in Mumbai on Dec. 3. “We do have the instruments to do this in the form of strategic capital controls, which can be used to enhance the supply of foreign exchange.”

The rupee has fallen 13 percent this year as investors sold emerging-market assets on concern Europe’s debt crisis will lead to a global recession. India’s economy expanded last quarter at the slowest pace since 2009 after the central bank raised interest rates by a record to tame inflation, while Prime Minister Manmohan Singh’s efforts to stimulate growth were hamstrung by corruption scandals that have stalled legislation.

“The central bank is trying to manage expectations right now having given an impression that they don’t have the tools to control rupee weakness earlier,” said Ramya Suryanarayanan, an economist at DBS Group Holdings Ltd. in Singapore. While it would be pointless to fight the trend, “there are negative consequences, in the short term, given the speed of the fall.”

Asian currencies from Indonesia to India have fallen this year as policy makers grapple with Europe’s protracted sovereign-debt crisis, which has hurt demand for the region’s exports and prompted nations from Australia to Thailand to lower borrowing costs.

China Services

Asian stocks rose for a sixth day today, with Asia’s benchmark index headed for its longest winning streak since Oct. 13, as Italy took steps to trim its debt before European Union leaders meet this week to tackle the region’s crisis. The MSCI Asia Pacific Index (MXAP) advanced 0.4 percent. Gains were limited as Chinese stocks fell, with the Shanghai Composite Index sliding 1.2 percent.

A China purchasing managers’ index for non-manufacturing industries fell to 49.7 in November from 57.7 the previous month, the China Federation of Logistics and Purchasing said on its website Dec. 3. A reading above 50 indicates expansion. A services index issued by HSBC Holdings Plc and Markit Economics today fell to 52.5, the lowest level in three months.

Australia Rates

Elsewhere in the Asia-Pacific region, reports today showed Australian business profits advanced 4.8 percent in the third quarter from the previous three months, more than economists estimated, while inventories declined, as high commodity prices boosted earnings in mining. New Zealand construction fell to the lowest level in more than 10 years in the third quarter and the Treasury lowered its growth outlook.

Taiwan’s inflation rate eased to the lowest level in more than a year in November, while a Purchasing Managers’ Index released by HSBC and Markit showed India’s services industry expanded at the quickest pace in three months.

Australia’s central bank will probably make its first consecutive interest-rate cuts this quarter since the global recession that followed Lehman Brothers Holdings Inc.’s 2008 collapse. Traders are betting on an 88 percent chance that Reserve Bank Governor Glenn Stevens, who lowered borrowing costs last month for the first time in 2 1/2 years, will reduce the key rate tomorrow by a quarter percentage point to 4.25 percent, a Credit Suisse Group AG Index shows.

Service industries in the U.S. probably expanded in November at the fastest pace in six months, economists said before an Institute for Supply Management’s non-manufacturing index report today. Other reports may show factory orders fell in October.

India’s Signal

Russia’s inflation rate probably fell last month to the lowest since September 2010, a Bloomberg survey showed ahead of data today or tomorrow. Euro zone retail sales, and Singapore’s PMI are also due today.

In India, where the government said last week it has limited scope for a boost in spending to create demand and spur growth, the Reserve Bank of India signaled in October it’s nearing the end of monetary tightening, provided inflation slows.

India’s benchmark wholesale-price inflation was 9.73 percent in October. By comparison, consumer prices rose 7 percent in Brazil, 5.5 percent in China and 7.2 percent in Russia in the same month. The central bank has boosted the repurchase rate by 375 basis points in 13 moves since the start of 2010, the fastest round of increases since the monetary authority was established in 1935, according to Bloomberg data.

‘Warning Shot’

The rupee’s decline is adding to concern Indian policy makers will be unable to cool inflation which has stayed above 9 percent all year. The currency weakened 6.7 percent against the dollar last month, the biggest decline in almost two decades, touching a record low of 52.4550 on Nov. 25.

Foreign-exchange reserves fell $4.3 billion to $304.4 billion in the week ended Nov. 25, the central bank said in a statement on Dec. 2, a sign it sold dollars to stem losses. Intervention isn’t “an easy judgment” and the RBI has no target exchange rate for the rupee, Gokarn said.

“He’s firing a warning shot,” rather than committing the central bank to a series of capital controls, said Robert Prior- Wandesforde, Singapore-based head of India and Southeast Asia economics at Credit Suisse Group AG. “That hasn’t been their policy and would go against their stated aims. It may be designed to scare the speculators.”

Any measures are more likely to be designed to encourage greater inflows rather than to discourage outflows, he said. India needs to do more to keep the rupee from weakening further “given the inflationary issues,” he said.

Finding a Balance

“Our broad objective is to find a balance between the short-term risk of the rupee spiraling downwards and the medium- term risk of a loss of confidence in our ability to meet our external obligations,” Gokarn said.

On Nov. 23, the central bank raised the limit on interest rates paid by the nation’s companies on some maturing overseas borrowings and also relaxed rules for currency swaps in an attempt to stem the rupee’s slide. The currency rose 0.6 percent the following day.

There are already restrictions on debt inflows applying to quantity, tenor and pricing, Gokarn said.

“Short-term debt is the least preferred, because it’s seen as most vulnerable to sudden reversals, while long-term, despite risk concerns, is seen as contributing to the resource flow into infrastructure,” he said. “These controls on debt might be viewed as structural or strategic capital controls.”

India will consider imposing restrictions on overseas investment by local companies and curbing pre-payments of foreign loans if the rupee weakens further, the Economic Times reported today, citing a finance ministry official with knowledge of the meeting’s agenda. The measures are among options to be considered by a sub-committee of the Financial Stability Development Council, which is meeting Dec. 8, the newspaper said.

Overseas investors have sold $325 million more of Indian stocks than they bought this year through Dec. 1, according to exchange data. Asia’s third-largest economy grew 6.9 percent in the three months to September from a year earlier, the slowest pace in more than two years.

To contact the reporters on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net; Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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Merkel Heads to Paris as EU Leaders Seek Debt Strategy

By Patrick Donahue and Gregory Viscusi - Dec 5, 2011 3:15 PM GMT+0700
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German Chancellor Angela Merkel and French President Nicolas Sarkozy. Photographer: David Ramos/Getty Images

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Dec. 5 (Bloomberg) -- George Papaconstantinou, Greek finance minister during the first year of the crisis and now energy minister, talks about efforts to combat the region's debt crisis. A European proposal to channel central bank loans through the International Monetary Fund may deliver as much as 200 billion euros ($270 billion) to fight the debt crisis. Papaconstantinou also discussed the implementation of Greek austerity measures. He spoke with Bloomberg's Francine Lacqua on Dec. 2. (Excerpt. Source: Bloomberg)

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Dec. 5 (Bloomberg) -- Glenn Levine, senior economist at Moody's Analytics in Sydney, talks about the outlook for the global economy, the next European leaders' summit and its implications for financial markets. Levine speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

European leaders will take another run at fixing the debt crisis this week after the failure of their fourth rescue blueprint sparked intensified concern the 17-nation euro area was on the brink of unraveling.

German Chancellor Angela Merkel and French President Nicolas Sarkozy will hold talks in Paris today starting at 1:30 p.m. over lunch. With a European Union summit in Brussels looming Dec. 9, U.S. Treasury Secretary Timothy Geithner arrives in Frankfurt tomorrow to prod political leaders and the European Central Bank holds a policy meeting Dec. 8.

Safeguarding banks, limiting the damage to Italy and Spain and finding additional rescue funds may hinge on the response to Franco-German demands for closer economic integration and tougher policing of fiscal rules. Markets climbed last week as investors looked toward the latest plan to rescue the euro, betting that a new regime of budget rules at the summit may clear the way for more intervention from the ECB.

“The door should swing open for the ECB to become more aggressive,” Erik Nielsen, global chief economist at UniCredit SpA, wrote in a note to clients yesterday. Stepped-up bond purchases by the ECB will “restore a degree of sanity.”

The German and French leaders differ on matters such as the role of the ECB and sanctions for euro-area states that violate deficit rules. The two nations are leading the push for closer economic ties among euro nations and locking in tougher enforcement of budget rules to counter the debt crisis.

‘Inconceivable’

Sarkozy speechwriter Henri Guaino today criticized Merkel’s proposal that fiscal scofflaws be hauled in front of judges.

“It is inconceivable that the European Court of Justice overrules a budget that has been voted in France, or in Germany or Italy,” Guaino said today on RMC radio.

In Rome, the Italian Cabinet proposed a 30 billion-euro ($40 billion) package of emergency economic measures to shore up the country’s finances. Italian Prime Minister Mario Monti is under pressure to reassure markets as a selloff of the country’s bonds sent borrowing costs surging last month.

“Together we will make it,” Monti told reporters in Rome after the cabinet meeting. “I wanted to send you a message of serious concern but also of great hope.”

Spanish and Italian 10-year bonds extended last week’s rally on optimism that political leaders may find the right recipe for calming markets. Investors brushed off the most comprehensive effort, which was produced at a six-day summit marathon in October.

Spread Narrows

The risk premium between Italian and German 10-year notes narrowed 36 basis points today to 4.29 percentage points, the smalest gap since Nov. 3. The euro climbed 0.4 percent $1.3446 at 9 a.m. in Paris.

In a speech to German parliament on Dec. 2, Merkel invoked a marathon analogy to the crisis, pushing her proposal to enforce stricter budget rules through EU treaty changes and ruling out calls for quick action such as jointly issued euro bonds or establishing the ECB as a lender of last resort.

ECB President Mario Draghi signaled last week that the central bank could step up its efforts if euro-area governments forge a closer fiscal union. Should a “new fiscal compact” emerge, “other elements might follow,” Draghi said.

The ECB is already lending banks as much money as they ask for in an attempt to stimulate the flow of credit to households and businesses. Draghi said Dec. 1 that the bank’s bond purchases aim solely to ensure its rates are transmitted on markets, not to create new money or “subsidize governments.”

ECB Cut Seen

The ECB unexpectedly cut its benchmark interest rate by a quarter point to 1.25 percent last month, and all but one of 26 economists in a Bloomberg News survey predict another quarter- point reduction when policy makers meet on Dec. 8.

Geithner will meet with political leaders and central bankers on his visit this week. The Treasury Secretary has pressed European leaders to take stronger action to stave off the crisis, which Treasury officials have said endanger the U.S. recovery.

Merkel will also continue to press her case when she meets Spain’s Prime Minister-elect Mariano Rajoy at a European party meeting on Dec. 8 in Marseille, France. The German leader will ask him to support her plan to save the euro at the upcoming summit, El Mundo reported yesterday.

“A successful meeting next weekend suggests a better mood all around as we go into the holiday season,” Jim O’Neill, chairman of Goldman Sachs Asset Management, wrote in a note to clients. “A failed meeting suggests anything but.”

To contact the reporters on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net; Gregory Viscusi in Paris at gviscusi@bloomberg.net

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

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Monti’s Austerity Debut Risks Italian Wrath

By Lorenzo Totaro and Chiara Vasarri - Dec 5, 2011 2:51 PM GMT+0700

Prime Minister Mario Monti is asking Italians to swallow 30 billion euros ($40 billion) in additional emergency economic measures even as the nation’s fifth recession in the last decade looms next year.

Monti, whose Cabinet approved the package yesterday, is due to present the plan to the legislature today at 4 p.m. in Rome, and Parliament is expected to vote on it by Christmas. The premier has vowed “shared sacrifices” as he seeks to cut the euro area’s second-biggest debt and regain investor confidence after Italian borrowing costs exceeded the 7 percent threshold that led Greece, Ireland and Portugal to seek aid. Italy’s 10- year bond yield dropped 24 basis points to 6.44 percent today.

“The huge public debt of Italy isn’t the fault of Europe, it’s the fault of Italians,” Monti, who took over last month after former Premier Silvio Berlusconi resigned, told a news conference as he detailed the package yesterday. “Together, we will make it.”

Italian bonds have snapped a seven-week decline amid optimism that European policy makers may take steps to ease the crisis summits this week, with the 10-year yield difference to German bunds down 50 basis points in the past week to 4.43 percentage points. Italy is still paying the highest rates in more than a decade on its debt, and offered more than 7 percent on new bonds for the third time in a week on Nov. 29.

Monti’s plan ties pensions to contributions rather than a worker’s last salary, resurrects property taxes and includes a levy on luxury goods. Monti’s task in pushing through Italy’s third austerity package since July may be complicated by a recession next year and road bumps in Parliament and in the streets as protesters rally over a perceived lack of fairness.

‘Baby Pension’

“You can’t choke the economy by imposing more taxes to keep paying Mario Draghi’s pension,” Edward Luttwak, a senior associate at the Center for Strategic and International Studies, a policy institute in Washington, said on Sky TG24 on Dec. 1. “Draghi gets a ‘baby pension’ of about 15,000 euros a month from the Italian Treasury” and “only by cutting these ‘golden pensions’ will the government be in a position to be more rigorous with other people’s pensions.”

European Central Bank President Draghi’s early retirement from the Treasury, which he left in 2001, is an example of the privileges enjoyed by officials in the state administration. A spokesman for INPDAP, the public-sector pension agency, declined to comment on Draghi’s pension, which was reported by journalist Mario Giordano in his book “Bloodsuckers: How Golden Pensions Are Bleeding Us Dry.”

Eliminating ‘Privileges’

Monti, without giving further details, told reporters the new package will eliminate some pension “privileges.” He also said that in solidarity with Italians making sacrifices, he would give up his salary as premier and finance minister.

Draghi had to take a 50 percent pay cut when he joined the ECB from the Bank of Italy, where he earned 757,714 euros last year as governor. That’s five times as much as Federal Reserve Chairman Ben S. Bernanke’s salary. The average monthly gross salary for an Italian is 2,033 euros, according to statistics office Istat.

“To reduce waste would require intervening decisively on the privileges that thousands of laws guarantee state workers,” author Giordano said in an e-mail. “In Sicily, there’s a law that allows” civil servants “to retire at age 40 with just 20 years of contributions.”

Lawmakers Change

The speakers of both houses of Parliament agreed on Nov. 29 to calculate lawmakers’ pensions based on contributions rather than on their last income. The change takes effect Jan. 1 and mirrors measures in yesterday’s package, which also aligns men and women’s retirement age at 66 starting in 2018 and eliminated the inflation index on all but the lowest pensions.

Monti’s measures were welcomed by Angelino Alfano, the leader of Berlusconi’s party, and also received qualified backing from Democratic Party leader Pier Luigi Bersani.

Unions were less supportive. The plan is “indigestible,” and “we are ready to counter the wrong decisions,” said Susanna Camusso, head of Italy’s biggest union, CGIL. The group led a nationwide general strike against austerity cuts in September and has vowed to take to the streets again if its demands aren’t met. Thirty police and 20 protesters were hurt in a separate Oct. 15 protest in Rome that turned violent.

Monti’s package, 10 billion euros of which seek to boost growth, touches on all aspects of society. Items are aimed at shrinking the size of the government, forcing transactions of more than 1,000 euros to be done electronically to fight tax evasion, raising the sales tax by two percentage points, and giving tax breaks to companies to hire young workers and women.

Looming Recession

Italy’s economy, whose growth has trailed the EU average for more than decade, will contract 0.4 percent to 0.5 percent next year, Deputy Finance Minister Vittorio Grilli told the news conference. That would be the fifth recession since 2001.

Berlusconi’s People of Liberty party, the biggest in Parliament, said last month it would back Monti, though only to implement austerity measures announced before the former premier resigned on Nov. 12. Berlusconi also said his party opposes any new levy on wealth or high earners. Grilli said yesterday new taxes will mostly affect assets and the wealth.

“Parliamentary backing for Monti will fragment as special interest groups seek to defend their positions,” said Stephen Lewis, London-based chief economist at Monument Securities. “It seems likely market confidence will erode in the course of his legislative efforts.”

To contact the reporters on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net; Chiara Vasarri in Rome at cvasarri@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; Angela Cullen at acullen8@bloomberg.net

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