Stocks Fall on China, Europe Growth

By Stephen Kirkland and Rita Nazareth - Mar 5, 2012 10:15 PM GMT+0700

Stocks (MXWD) fell for a second day after China announced the lowest economic growth target since 2004 and European services and manufacturing output was less than earlier estimated. The yen strengthened, while oil erased early declines amid concern about tensions with Iran.

The MSCI All-Country World Index (MXWD) dropped 0.5 percent at 10:12 a.m. in New York and the Standard & Poor’s 500 Index slipped 0.2 percent, with both paring larger losses after U.S. economic data topped estimates. The yen strengthened against all 16 of its most-traded peers, while China’s yuan touched a four- week low. Oil was little changed at $106.62 a barrel, copper slid 1.4 percent and natural gas fell 4 percent. Ten-year Treasury yields rose one basis point to 1.98 percent.

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The yen strengthened against all 16 of its most-traded peers, while China’s yuan touched a four-week low. Photographer: Tomohiro Ohsumi/Bloomberg

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March 5 (Bloomberg) -- Stanley Crouch, chief investment officer of Aegis Capital Corp., talks about the outlook for global markets and investment strategy. Crouch speaks with Erik Schatzker, Stephanie Ruhle and Sara Eisen on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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March 5 (Bloomberg) -- Arne Lohmann Rasmussen, chief analyst at Danske Bank A/S, discusses the outlook for commodities. He speaks from Copenhagen with Owen Thomas on Bloomberg Television's "Countdown." (Source: Bloomberg)

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March 5 (Bloomberg) -- Mark Matthews, head of research for Asia at Bank Julius Baer & Co., talks about the outlook for the region's stock markets and investment strategy. Matthews also discusses China's economy. He speaks in Hong Kong with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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March 5 (Bloomberg) -- Wang Tao, a China economist at UBS AG, talks about Chinese government policy and the country's economic outlook. She speaks from Hong Kong with Caroline Hyde on Bloomberg Television's "First Word." (Source: Bloomberg)

China cut the nation’s economic growth target to 7.5 percent from an 8 percent goal in place since 2005, according to Premier Wen Jiabao’s speech at the National People’s Congress today. European services and manufacturing output shrank in February more than earlier estimated, Markit Economics said, before a report that may show U.S. factory orders fell for the first time in three months. Greece’s private creditors decide this week whether to sign off on the country’s debt restructuring.

“It’s just not an environment that we feel like sticking our neck out to take on a lot of risk,” Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston, said in a telephone interview. “We’ve been scratching our heads a little bit after the big run-up in equities. We just don’t see a strong enough global economic background to support where prices are right now.”

Retreat From High

The S&P 500 fell for a second day after last week reaching its highest level since 2008. Equities pared losses after the Institute for Supply Management’s index of non-manufacturing industries rose to 57.3 in February, topping the median economist projection for a decline to 56. Commerce Department data showed orders to U.S. factories decreased in January for the first time in three months. Bookings declined 1 percent, less than the median prediction for a 1.5 percent drop.

EBay Inc., Joy Global Inc. (JOY)and Advanced Micro Devices Inc. dropped more than 1.1 percent to pace losses among the biggest companies. Zynga Inc. (ZNGA), the online-game company that sold shares to the public in December, and CF Industries Holdings Inc., North America’s largest maker of nitrogen-based fertilizer , lost at least 3 percent after the companies were downgraded.

Corporate profits that doubled since 2009 have left the Standard & Poor’s 500 Index cheaper than at all 34 peaks since 1989, even as options traders push the cost of protecting against losses to the highest in four years.

Valuations

Companies in the benchmark gauge of U.S. stocks (MXWD) trade for 14.1 times earnings after advancing 102 percent since March 2009 to an almost four-year high last week, data compiled by Bloomberg that excludes peaks that occurred within a month of one another. Valuations are lower than at every 52-week peak since 1989. Traders have pushed the price of contracts that pay should the S&P 500 drop 20 percent to the most since 2007 compared with ones betting on a rally of the same size.

The Stoxx Europe 600 Index (SXXP) sank 0.3 percent. Salzgitter AG dropped 5.6 percent, the most since November, as the German steelmaker said it’s “impossible” to give detailed earnings forecasts. BP Plc rose 1.5 percent after Europe’s second-biggest oil company reached a $7.8 billion settlement with businesses and individuals over the 2010 Deepwater Horizon oil rig disaster.

The yen climbed 0.1 percent against the euro and advanced 0.5 percent versus the dollar. The euro strengthened 0.2 percent to $1.3217.

The S&P GSCI gauge of 24 commodities added 0.2, led by gains in cotton and heating oil. Cotton jumped the daily maximum allowed of 4 cents a pound, or 4.5 percent, after India halted exports. India is the second-biggest exporter after the U.S.

Emerging Markets

The MSCI Emerging Markets Index (MXEF) fell 1.1 percent after closing at a seven-month high last week. The yuan declined 0.1 percent to 6.3067 per dollar and earlier touched 6.3076, the weakest level since Feb. 7, according to the China Foreign Exchange Trade System. The Hang Seng China Enterprises Index (HSCEI) slid 2.3 percent.

The Taiex index retreated 1.4 percent after Taiwanese technology companies reported slumping sales. The BSE India Sensitive Index fell 1.6 percent before the results of state elections tomorrow that may be crucial in determining the future of the ruling Congress Party’s economic agenda. The Micex Index (MICEX) gained 1.1 percent after Vladimir Putin won a presidential election in an endorsement of his pledge to continue to privatize state companies and undertake political reform.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

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

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Stocks in U.S. Decline as China Reduces Its Target for Economic Growth

By Rita Nazareth - Mar 5, 2012 10:18 PM GMT+0700

U.S. stocks declined, following a three-week advance for the Standard & Poor’s 500 Index, as China reduced its economic growth target and a measure of euro-area services output shrank more than estimated in February.

EBay (EBAY) Inc., Joy Global Inc. (JOY) and Advanced Micro Devices Inc. (AMD) dropped more than 1.5 percent to pace losses among the biggest companies. Zynga Inc. (ZNGA), the online-game company that sold shares to the public in December, and CF Industries Holdings Inc. (CF), North America’s largest maker of nitrogen-based fertilizer, lost at least 3.1 percent after the companies were downgraded.

The S&P 500 fell 0.3 percent to 1,366.09 at 10:17 a.m. New York time. The benchmark index for American equities briefly pared losses as data showed service industries in the U.S. unexpectedly expanded in February. The Dow Jones Industrial Average slid 23.61 points, or 0.2 percent, to 12,953.96.

“It’s just not an environment that we feel like sticking our neck out to take on a lot of risk,” said Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston. “We’ve been scratching our heads a little bit after the big run-up in equities. We just don’t see a strong enough global economic background to support where prices are right now.”

Equities joined a global slump as China pared its growth target to 7.5 percent from an 8 percent goal in place since 2005. Euro-area services output shrank more than estimated, led by Italy and Spain. In the U.S., orders to U.S. factories decreased for the first time in three months. Separately, the Institute for Supply Management’s index of non-manufacturing industries rose to 57.3 in February from 56.8 a month earlier.

Stock Valuation

Stocks rose last week as data on housing and jobs improved. The S&P 500 (SPX) fell on March 2 amid concern that a rally to the highest level since 2008 has outpaced growth prospects. It trades at 14.1 times reported earnings, the highest since August while still below the average since 1954 of 16.4 times.

Some of the largest companies retreated. EBay lost 1.5 percent to $35.72. Joy Global dropped 3.9 percent to $82.42. Advanced Micro Devices declined 1.6 percent to $7.34.

Zynga (ZNGA) slipped 5.4 percent to $13.90. The biggest developer of games for social-networking sites was cut to neutral from overweight by JPMorgan, meaning the shares are expected to perform in line with the stocks the analyst covers over the next six-to-12 months. JPMorgan cited Zynga’s rally since the end of January.

CF Industries fell 3.1 percent to $182.34 after being cut to “neutral” from “buy” at Citigroup Inc. (C) and removed from the firm’s “Top Picks Live” list.

Pandora Media Inc. (P) rose 4.2 percent to $14.48. The online music service provider was upgraded to buy from hold at Stifel Nicolaus & Co., which cited the expansion of the company’s advertising sales staff.

Paris Store

Tiffany & Co. (TIF) gained 0.9 percent to $68.09. The company’s flagship Paris store in the city’s fashion district was put on the market for more than 30 million euros ($40 million), according to CBRE Group Inc., the broker handling the sale.

Corporate profits that doubled since 2009 have left the S&P 500 cheaper than at all 34 peaks since 1989, even as options traders push the cost of protecting against losses to the highest in four years.

The S&P 500 advanced 102 percent since March 2009 to an almost four-year high last week, data compiled by Bloomberg show. Valuations are lower than at every 52-week peak since 1989. Traders have pushed the price of contracts that pay should the S&P 500 drop 20 percent to the most since 2007 compared with ones betting on a rally of the same size.

Rising oil prices and concern European leaders have yet to contain the credit crisis are keeping investors from paying more for profits, which are projected to reach annual records through 2013.

Bears vs Bulls

Bears say equities aren’t cheap because the profit estimates are too optimistic. Bulls say shrinking price-earnings ratios provide a margin of safety should gains in the U.S. economy fail to match forecasts.

“Stocks have just gotten too cheap,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $160 billion. “We were worrying about a Chinese hard landing that didn’t happen. We worried about a U.S. double dip and that didn’t happen. We worried about Europe disintegrating, that didn’t happen. The worst risks have passed.”

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

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

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Stocks Cheaper Than Any U.S. Peak in 23 Years

By Whitney Kisling - Mar 5, 2012 9:38 PM GMT+0700

Corporate profits that doubled since 2009 have left the Standard & Poor’s 500 Index cheaper than at all 34 peaks since 1989, even as options traders push the cost of protecting against losses to the highest in four years.

Companies in the benchmark gauge of U.S. stocks trade for 14.1 times earnings after advancing 102 percent since March 2009 to an almost four-year high last week, data compiled by Bloomberg show. Valuations are lower than at every 52-week peak since 1989. Traders have pushed the price of contracts that pay should the S&P 500 drop 20 percent to the most since 2007 compared with ones betting on a rally of the same size.

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The S&P 500 climbed 0.3 percent to 1,369.63 last week and closed at 1,374.09 on March 1, the highest since 2008. Photographer: Tim Boyle/Bloomberg

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March 2 (Bloomberg) -- Michael A. Gayed, the chief investment strategist at Pension Partners LLC, talks about the outlook and performance of retailer and consumer stocks. Gayed speaks with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

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March 2 (Bloomberg) -- James McCaughan, chief executive officer of Principal Global Investors, talks about the outlook for Europe's sovereign-debt crisis and the possible impact on global stock markets. He speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

Rising oil prices and concern European leaders have yet to contain the credit crisis are keeping investors from paying more for profits, which are projected to reach annual records through 2013. Bears say equities aren’t cheap because the profit estimates are too optimistic. Bulls say shrinking price-earnings ratios provide a margin of safety should gains in the U.S. economy fail to match forecasts.

“Stocks have just gotten too cheap,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $160 billion. “We were worrying about a Chinese hard landing that didn’t happen. We worried about a U.S. double dip and that didn’t happen. We worried about Europe disintegrating, that didn’t happen. The worst risks have passed.”

Weekly Gain

The S&P 500 climbed 0.3 percent to 1,369.63 last week and closed at 1,374.09 on March 1, the highest since 2008, as jobless claims fell to a four-year low and consumer confidence improved. The gauge slipped 0.3 percent to 1,365.66 at 9:36 a.m. New York time today.

The index was 6 points above its 2011 high of 1,363.61 last week, even as its price-earnings ratio fell from 15.6. Companies from Abbott Laboratories (ABT) in Abbott Park, Illinois, to Memphis, Tennessee-based International Paper Co. (IP) have rallied while valuations shrunk.

Profits grew 99 percent between the end of 2009 and 2011, and are forecast to rise another 12 percent this year and 13 percent next, data compiled by Bloomberg show.

Nine quarters of earnings growth have outpaced the index’s advance, leaving valuations 14 percent below the five-decade average of 16.4. The price-earnings ratio hasn’t been this low while the index was at a 52-week high in 23 years, according to data compiled by Bloomberg that excludes peaks that occurred within a month of one another.

Stay Away

Investors are shunning equities after one of the most volatile years on record, a period when 10-year U.S. Treasury bonds returned 9.8 percent compared with nothing for stocks. Concern Greece would default on its debt, six increases to lender reserve requirements by the People’s Bank of China and U.S. unemployment above 9 percent sent the S&P 500 down more than 19 percent between April and October before recovering.

“What you’re seeing is a gigantic exercise in behavioral finance,” Brian Barish, who helps oversee about $7 billion as Denver-based president of Cambiar Investors LLC, said of the multiple in a Feb. 29 phone interview. “It isn’t fair, but it is understandable. The ability to scare the hell out of people is much greater than the ability to attract them to equities.”

Options traders have increased bearish bets even as shares gained and earnings exceeded estimates by 3.1 percent in the fourth quarter. Six-month puts to protect against a 20 percent decline in the S&P 500 have an implied volatility of 29.09. That’s 2.2 times higher than calls to bet on a 20 percent gain, Bloomberg data on the price relationship known as skew show.

Peak Margins

Low valuations and rising options costs reflect investor concern about earnings after profit margins in the S&P 500 rose nine straight quarters and reached 14 percent between October and December, said Eric Teal, who manages $4 billion at First Citizens Bancshares Inc. Profitability has only been higher during five quarters in 2006 and 2007 and one in 1999. In both cases, the S&P 500 was in a bear market within a year.

Margins averaged 10 percent between 1991 and 2006, according to data compiled by Bloomberg.

“There is an underlying concern that profit margins have peaked and will begin to contract in coming years,” Teal, the Raleigh, North Carolina-based chief investment officer, said Feb. 28. “Thus, investors are unwilling to pay up for earnings that are clouded with uncertainty.”

Bearish Bets

For Keith Wirtz, who oversees $14.6 billion as chief investment officer for Fifth Third Asset Management in Cincinnati, there’s little surprise in options rising after the S&P 500 gained 25 percent in five months. The last time bearish bets were this high relative to bullish ones was in May 2007. The S&P 500 reached the highest price-earnings ratio in two years the following month and a record high of 1,565.15 in October 2007. What followed was the worst financial crisis since the Great Depression, with equity losses of 57 percent through March 2009.

“You’ve got risk coming from everywhere,” Wirtz said in a Feb. 29 phone interview. “That’s why the markets are skittish. You can’t put a measurement against those risks. How do you put probabilities on these kinds of outcomes? You just have to discount the worst, which is what they’re doing.”

The rally that restored more than $3.2 trillion to U.S. equity value since October is pushing up indicators used by analysts who use charts to predict future prices. About two- thirds of New York Stock Exchange-listed companies closed last week above their 200-day moving average. The 14-day relative strength index for the S&P 500, which compares the magnitude of gains and losses, has exceeded 70 on 13 days since Jan. 25. Some investors use that level as a signal a rally has come too far, too fast.

Reaching Peaks

Of the 500 companies in the benchmark equity gauge, 67 reached 52-week highs last week, data compiled by Bloomberg show. That compares with 31 in the same week last year. Shares of Abbott, the maker of nutritional drinks, heart stents and drugs, reached the highest level in three years, even as its earnings multiple shrunk to 12.1 from 12.6 in May, data compiled by Bloomberg show. Profits excluding some items increased 12 percent a year since 2009 while shares rose an average 2.4 percent each year.

International Paper’s earnings haven’t trailed analyst forecasts since 2008 and the stock reached its highest price since November 2007 last week. The world’s largest pulp and paper producer’s price-earnings ratio fell 35 percent in the past 12 months to 10.1, data compiled by Bloomberg show.

Target Earnings

Annual profit at Target Corp. (TGT), the second-largest U.S. discount retailer, has climbed 15 percent on average since fiscal 2010. Even after reaching an almost 14-month high on March 1, the shares are trading at 13.5 times earnings, compared with 13.6 in October and the average of 19 since 1990.

“A number of recent trends have emerged which should support stronger corporate profits, including better U.S. economic data, less-severe results in Europe, higher oil prices and reduced financial sector stress,” Jonathan Golub, chief U.S. market strategist at UBS Securities LLC in New York, wrote last week, raising his year-end estimate for the S&P 500 to 1,475 from 1,325. “Conditions support further increases in both earnings and stock prices.”

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

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

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China Cuts GDP Target Seeking Sustainable Growth

By Bloomberg News - Mar 5, 2012 5:05 PM GMT+0700

China pared the nation’s economic growth target to 7.5 percent from an 8 percent goal in place since 2005, a signal that leaders are determined to cut reliance on exports and capital spending in favor of consumption.

Officials will also aim for inflation of about 4 percent this year, unchanged from the 2011 goal, according to a state- of-the-nation speech that Premier Wen Jiabao delivered to about 3,000 lawmakers at the annual meeting of the National People’s Congress in Beijing today.

Asian stocks fell as Wen, 69, said the nation needs to shift to a more sustainable and efficient economic model and achieve “higher-quality development over a longer period of time.” China must boost the incomes of ordinary people, count less on exports and investment and reduce the state’s role in favor of private enterprise, Zong Qinghou, the country’s second- richest man, said in a March 3 interview.

“The growth target indicates the lowest level that the government is comfortable with and is also a signal to local officials that they shouldn’t solely focus on the rate of expansion,” said Michael Buchanan, chief Asia-Pacific economist at Goldman Sachs Group Inc. in Hong Kong. “China’s trend growth rate is coming down but it’s still higher than this -- more like around 9 percent.”

Fiscal, Monetary Policy

Wen reiterated that the government will maintain a “proactive” fiscal policy and a “prudent” monetary policy. The government in February lowered banks’ reserve requirements for the second time in three months to boost lending and sustain growth, following five interest-rate increases from October 2010 to July 2011 aimed at slowing inflation.

The MSCI Asia Pacific Index (SHCOMP), which has gained for 11 straight weeks, fell 1 percent as of 2:20 p.m. in Tokyo. The benchmark Shanghai Composite Index dropped 0.4 percent at 1:21 local time. The gauge, while up 12 percent in 2012, has declined 16 percent from a year ago as China’s growth decelerated to the slowest since the second quarter of 2009.

The yuan weakened 0.1 percent against the dollar to 6.3047.

Elsewhere in Asia, India’s services industries expanded at a slower pace in February, according to a purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics. Taiwan may say inflation slowed in February from January, according to the median estimate of economists surveyed by Bloomberg.

Europe Slowing

European services and manufacturing contracted last month, a final composite gauge may show today. Italy, France and Germany will also release services PMI data today. Euro zone retail sales probably fell 0.1 percent in January from the previous month, the third consecutive decline, economists predicted ahead of the report.

The Institute for Supply Management may say service industries in the U.S. grew at a slower pace in February, while a Commerce Department report may show orders to U.S. factories fell in January.

China’s government plans a budget deficit of 800 billion yuan ($127 billion), or 1.5 percent of GDP, Wen said. That compares with last year’s target of 900 billion yuan, or 2 percent of GDP, and the actual deficit of 850 billion yuan, a figure altered by the use of a so-called budget stabilization fund and shifting some local-government spending, according to the speech. The Ministry of Finance in January gave preliminary budget data indicating a 2011 deficit of 519 billion yuan, or 1.1 percent of GDP.

Analyst Forecasts

The growth target matched the median forecast of 15 economists surveyed by Bloomberg News last month. Twelve of 15 economists forecast a 4 percent inflation goal, while the median estimate of 13 respondents was for a budget deficit of 1 trillion yuan.

Officials are targeting money-supply growth of 14 percent, according to the report, in line with the median forecast of 15 analysts for the rise in M2, the broadest measure. China has a goal of increasing fixed-asset investment by 16 percent this year, the National Development and Reform Commission said in a report. That’s below the 18 percent median estimate of 12 economists.

Wen and fellow officials from the ruling Communist Party are preparing to begin a once-in-a-decade handover of power later this year to a new set of leaders. President Hu Jintao and Wen will step down from their roles and let a younger generation of leaders step in that’s likely to include Vice President Xi Jinping and Vice Premier Li Keqiang.

Incomes ‘Too Low’

“The biggest hurdle facing China’s economy now is that the government’s income is too high and the people’s income is too low,” Zong, 66, chairman of Hangzhou Wahaha Group Co. and a member of China’s legislature, said in the interview.

The country’s leaders may cut the bank-reserve ratio further this year, Bank of China Ltd. (3988) Chairman Xiao Gang said in Beijing. Xiao also said the state-controlled bank, China’s fourth-largest by market value, will have loan growth this year be similar to that of 2011.

“This low growth target with relatively high inflation suggests monetary policy will be relatively relaxed,” said Liu Li-Gang, head of Greater China economics at Australia & New Zealand Banking Group Ltd. (ANZ) in Hong Kong. “This in turn will help increase bank lending and boost investment.”

The National People’s Congress, while often derided as a rubber-stamp parliament, counts some of China’s most powerful politicians and executives as its members. They wield power in their home provinces and weigh in on proposals such as levying a property tax, privatizing state-owned enterprises and changing how China manages its currency.

Global Contributor

China was the largest contributor to global GDP growth in 2010 as it surpassed Japan to become the world’s second-largest economy, after an average annual expansion of 10 percent for three decades lifted more than 600 million people out of poverty, according to the World Bank. The nation’s urban population last year surpassed that of rural areas for the first time.

The annual economic-growth targets have been routinely surpassed and are more indicative of the direction of policy. Even so, gross domestic product expanded 8.9 percent in the fourth quarter from a year earlier, the least since the second quarter of 2009. For the full year, growth was 9.2 percent after 2010’s 10.4 percent, compared with the 8 percent goal.

China’s consumer prices rose 5.4 percent last year, exceeding the 2011 official annual target of 4 percent while easing from July’s peak of 6.5 percent.

Average Target

Leaders are trying to ensure the expansion slows to no less than an average targeted pace of 7 percent for the five years through 2015.

At the same time, heightened pollution, a widening income gap and an aging population along with an under-developed social-security system are testing Communist Party leaders’ plans to shift to a more-balanced growth model.

On top of that, risks of a deeper slowdown may be rising as Europe’s sovereign-debt crisis is pushing the continent into recession, curbing China’s exports, while the country maintains rules that have ended a surge in home prices. Fifty-nine percent of global investors polled by Bloomberg in September said China’s economy will expand less than 5 percent annually by 2016.

Foreign companies are still looking to the country for growth. Yum! Brands Inc. (YUM), owner of the KFC and Taco Bell fast- food chains, said fourth-quarter profit gained 30 percent as it opened a record 656 stores last year in China.

China’s exports fell 0.5 percent in January, the first drop in more than two years, as a sluggish global economy hurt demand and the weeklong Chinese New Year holiday disrupted trade. Sales to the European Union rose 14 percent in 2011 after a 32 percent gain in 2010, according to data from China’s customs administration.

--Victoria Ruan, Zhang Dingmin, Henry Sanderson. With assistance from Kevin Hamlin, Stephen Engle, Michael Forsythe and Nerys Avery in Beijing. Editors: Scott Lanman, Paul Panckhurst

To contact Bloomberg News staff on this story: Victoria Ruan in Beijing at vruan1@bloomberg.net

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

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Obama Has ‘Israel’s Back’ Preventing Iran Nuke

By Margaret Talev - Mar 5, 2012 3:16 AM GMT+0700

President Barack Obama said the U.S. won’t hesitate to use military force to stop Iran from developing a nuclear weapon, while asserting there is still time for diplomacy and sanctions to work.

A nuclear-armed Iran threatens the security of the U.S. as well as Israel and would trigger an arms race in the region, Obama said in Washington to a conference of the American Israel Public Affairs Committee, the biggest pro-Israel organization in the U.S. He said international pressure including economic sanctions is isolating and dividing the Iranian leadership.

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U.S. President Barack Obama delivers remarks at the American Israel Public Affairs Committee (AIPAC) policy conference in Washington, D.C., U.S., on Sunday, March 4, 2012. Photographer: Ron Sachs/Pool via Bloomberg

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March 4 (Bloomberg) -- President Barack Obama speaks about Iran's nuclear program and the U.S.'s resolve to prevent the country from developing a nuclear weapon. Obama, speaking to a conference of the American Israel Public Affairs Committee in Washington, says the U.S. won't rule out any options to stop Iran from obtaining a weapon, adding that there is still time for diplomacy to work. (These are excerpts of Obama's speech. Source: Bloomberg)

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U.S. President Barack Obama and American Israel Public Affairs Committee (AIPAC) President Lee Rosenberg wave to AIPAC delegates assembled during a policy conference in Washington, D.C., U.S., on Sunday, March 4, 2012. Photographer: Ron Sachs/Pool via Bloomberg

“Iran’s leaders should know that I do not have a policy of containment; I have a policy to prevent Iran from obtaining a nuclear weapon,” Obama said. “And as I’ve made clear time and again during the course of my presidency, I will not hesitate to use force when it is necessary to defend the United States and its interests.”

Whether and when to use military force to stop Iran’s nuclear program has replaced the Israel-Palestinian peace process as the dominant issue in Israel-U.S. relations. Obama’s speech came on the eve of White House meeting with Israeli Prime Minister Benjamin Netanyahu, who also will address Aipac. In his 34-minute speech, Obama set out no so-called “red line” that if crossed by Iran would trigger a U.S. attack.

Netanyahu Reacts

Netanyahu said he was gratified to hear Obama reiterate his position that Iran must not be allowed to build a nuclear weapon and that the option of using military force remains.

“I appreciated that he made clear that when it comes to a nuclear-armed Iran containment is not an option,” Netanyahu said in Ottawa before leaving for Washington.

The Israeli leader also cited Obama’s affirmation that Israel has the right to act on its own if needed.

“I very much appreciated the fact that he said Israel has the right to defend itself by itself against any threat,” he said.

Obama’s relationship with Israel and the threat posed by Iran has emerged in the U.S. presidential campaign. Three Republican presidential candidates are scheduled to deliver messages to the Aipac conference.

Obama said all parties should consider the “weightiness of these issues” and the stakes for both the U.S. and Israel. He warned that the approach in dealing with Iran must be deliberate.

‘Loose Talk of War’

“Already, there is too much loose talk of war,” Obama said. “Such talk has only benefited the Iranian government, by driving up the price of oil, which they depend upon to fund their nuclear program. For the sake of Israel’s security, America’s security, and the peace and security of the world, now is not the time for bluster.”

Since the start of October, crude oil has risen 37 percent. Oil futures for April delivery were $106.70 a barrel March 2 on the New York Mercantile Exchange. Brent oil may rise to $150 a barrel this year if diplomatic relations between Iran and the west worsen, Barclays Plc forecast in a March 1 report.

Israeli President Shimon Peres, addressing Aipac this morning, said there is no disagreement between Israel and the U.S. on the goal of stopping Iran’s from building nuclear arms.

“Our message is clear: Iran will not develop a nuclear weapon,” Peres said.

Peres Medal

Obama, who also met with Peres after they spoke, told Aipac he will award Peres the Presidential Medal of Freedom, the highest U.S. civilian honor, later this year.

Iran says its nuclear program is for civilian energy and medical research.

The U.S. and the European Union tightened economic sanctions following a Nov. 8, 2011, report by United Nations inspectors that Iran’s nuclear research program may include pursuing the capability to build a nuclear weapon. As a result, Obama said, Iran is isolated and its economy ground to almost a halt last year.

Mark Dubowitz, executive director of the Washington-based policy research group Foundation for Defense of Democracies, said the only audience that counts for Obama’s message that he won’t tolerate a nuclear-armed Iran is Netanyahu and Iranian Supreme Leader Ayatollah Ali Khamenei.

‘Meaningful Action’

“It is now up to him to back up his words with meaningful action that sends a message to Jerusalem and Tehran about the strength of his resolve,” said Dubowitz, who has advised the administration and members of Congress on sanctions. Those actions, he said, include crippling sanctions, support for the Iranian opposition and preparations for military action.

“Overall it was a very good speech,” Israeli Deputy Foreign Minister Danny Ayalon said on Israel’s Channel 2 television. “The point that we have to pay particular attention to is that here, Obama has declared ownership; Iran is an American problem, and we won’t allow it to go nuclear.”

The Iranians, he said, “need to pay very close attention to what was said here.”

Aipac will also hear from Republican candidates including former House Speaker Newt Gingrich, former Massachusetts Governor Mitt Romney and former Pennsylvania Senator Rick Santorum, all of whom have accused Obama of failing to give Israel sufficient support. Obama won in 2008 with 78 percent support from Jewish voters, according to national exit polls.

Romney Criticism

Campaigning near Atlanta before the next round of primary contests on March 6, Romney said Obama has failed to impose sufficiently harsh sanctions against Iran or make clear that Iran having a nuclear weapon is “unacceptable to America.”

“I understand he just gave an address today talking about all the great things he’s done to provide greater peace and reduce the threat from Iran,” Romney told more than 1,000 voters in Snellville, Georgia. “That hasn’t happened.”

Without specifically citing critics, Obama reaffirmed his support for Israel and listed steps his administration has taken to bolster Israel’s defense and defend its ally.

“There should not be a shred of doubt by now: when the chips are down, I have Israel’s back,” Obama said. Political opponents who attack his policies are “not backed up by the facts,” he said.

To contact the reporter on this story: Margaret Talev in Washington at mtalev@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

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BP Set to Rise as Spill Settlement Lifts Cloud

By Brian Swint - Mar 5, 2012 7:01 AM GMT+0700

BP Plc (BP/) is poised to gain at least 5 percent this week after a $7.8 billion settlement with victims of the worst U.S. oil spill, an analyst survey showed.

BP shares will probably rise to a minimum of 520 pence from the close of 496.5 pence on March 2, according to the forecasts of five oil industry analysts. Jason Kenney, an analyst for Banco Santander SA (SAN) in Edinburgh, said the stock may climb as high as 580 pence over time if additional spill costs stay within the company’s estimates.

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Photographer: Chris Ratcliffe/Bloomberg

The deal with businesses and individuals, reached after markets closed last week, was lower than the $14 billion that had been discussed, according to people familiar with the talks, and the money for the settlement will come from a $20 billion compensation fund that’s already provisioned for. BP Chief Financial Officer Brian Gilvary said yesterday the company is prepared to settle with the U.S. government for penalties under the Clean Water Act if the terms are fair.

The agreement is “very positive,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York. It “could speed up a government settlement and remove this dark cloud that has been hanging over BP for two years,” he said in an e-mailed response to questions.

BP’s market value has dropped by about 29 billion pounds ($45 billion) since the explosion on April 20, 2010, on the Deepwater Horizon rig that killed 11 workers and started the spill. Shares closed at 642.5 pence the day before the disaster.

Pollution Law

London-based BP still faces as much as $17.6 billion in fines for pollution law violations in a suit by the federal government, which will now take the lead in any trial over the spill. U.S. District Judge Carl Barbier in New Orleans yesterday postponed the trial, scheduled to start today, in light of the settlement.

“We remain prepared to settle with others on terms that are fair and reasonable,” CFO Gilvary said on yesterday’s conference call with analysts, echoing comments by Chief Executive Officer Bob Dudley on Feb. 7. “But equally, we’re prepared to go to court.”

Gilvary said it wouldn’t be appropriate to comment on settlement negotiations with federal or state governments. The settlement with individuals and businesses “removes a significant amount of uncertainty for the company in terms of the outlook, but also financially,” he said.

Stuart Joyner, an analyst at Investec Securities Ltd., said shares are about 25 percent below where they would be without the accident. The settlement with victims may push up shares 5 percent, he said.

Stronger Position

“It’s by no means over, but by settling with the largest group, BP is in a stronger position to negotiate with the government,” Joyner said. “BP can say they’ve made it right. The government is after an element of punishment, but if they get too tough it will look like they’re really going after the company, which they said they wouldn’t do.”

BP said the proposed settlement won’t increase the $37.2 billion charge it previously recorded in its financial statements for costs associated with the spill. That figure includes the $20 billion BP set aside for the claims trust fund.

BP would be able to absorb as much as $40 billion of costs related to the spill and still maintain a stable outlook on its A2 debt rating, which is five levels above the lowest investment-grade rank, Moody’s Investors Service said Feb. 24.

The accord provides for a transition from the Gulf Coast Claims Facility trust, through which BP said it has paid more than 220,000 claims from individuals and businesses. The company warned that, although the accord is for $7.8 billion, the $14 billion remaining in the trust may not be enough to satisfy all the costs the fund was created to address.

Earlier Talks

Before the settlement announcement, BP had been in talks with lawyers for spill victims over a deal to be funded by liquidating the remainder of the claims facility, three people familiar with the matter had said.

“The whisper was that the deal would be closer to $14 billion, so if it turns out to be around $8 billion, that’s clearly positive for BP,” said Jason Gammel, an analyst at Macquarie Capital Ltd. in London. “There’s about 30 pence per share of upside. The settlement with the government is still the biggest outstanding item.”

U.S. Attorney General Eric Holder, whose lawyers will now be leading the way in any trial, said Feb. 28 the U.S. has a “strong” case over liability for the explosion.

“We are prepared to go to trial,” Holder said in testimony before a U.S. House Appropriations subcommittee in Washington.

BP set aside $3.5 billion to pay Clean Water Act fines based on its own lower estimate of barrels spilled and no finding of gross negligence, or a conscious act or omission, which would raise the level of penalty per barrel spilled to as much as $4,300 from the $1,100 maximum as a result of simple negligence.

“The share price deserves to be at about 560,” said Iain Armstrong, an analyst at broker Brewin Dolphin Ltd. in London. “It’s still messy, but this is one more step to putting it behind them.”

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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Putin Wins Six More Years in Kremlin

By Henry Meyer and Ilya Arkhipov - Mar 5, 2012 7:57 AM GMT+0700

Russian Prime Minister Vladimir Putin claimed victory in a presidential election that his opponents say was marred by fraud, accusing protesters against his rule of seeking to usurp power.

“We won in an open and honest fight,” Putin said in front of thousands of supporters near the Kremlin last night as tears streamed down his face. “We showed that our people can easily distinguish between a desire for novelty and renewal from political provocations which have only one goal: to destroy Russian statehood and usurp power.”

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Russian Prime Minister Vladimir Putin delivers a speech during a rally with his supporters at the Luzhniki stadium in Moscow. Photographer:Yuri Kabodnov/AFP/Getty Images

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Russia's Prime Minister and presidential candidate Vladimir Putin votes in a polling station in Moscow, on March 4, 2012. Photographer: Yuri Kabodnov/AFP/Getty Images

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A woman marks her ballot at home as a member of a local electoral commission stands behind her with a mobile ballot box in the village of Muravshchina. Photographer: Viktor Drachev/AFP/Getty Images

Putin, 59, who has been at Russia’s helm for 12 years including the last four as premier, won another six years in the Kremlin with about 64 percent of the vote, according to preliminary results with more than 90 percent of all ballots counted. Exit polls estimated his score at about 60 percent. Opposition groups plan a rally in Moscow today.

The Russian leader is seeking to reassert his authority in the face of renewed protests over electoral fraud allegations similar to those that sparked the largest unrest in his decade in power. Outgoing President Dmitry Medvedev, who agreed to step aside in September to make way for Putin’s return, appeared alongside his predecessor at the rally. Putin backed the presidential candidacy of Medvedev, 46, four years ago, when the constitution prevented him from running for a third consecutive term.

‘Frustration and Anger’

“Putin may have won the election but the challenges he’s been facing in the past few months won’t go away,” said Masha Lipman, an analyst at the Carnegie Moscow Center. “There is deep frustration and anger, and protests will continue.”

Putin’s support plummeted last year, culminating in rallies that brought tens of thousands of people to the streets of Moscow and other major cities to protest alleged fraud in the ruling United Russia party’s victory in Dec. 4 elections. The premier vowed to raise spending on social programs and the military as he stepped up campaign promises to reverse the slide in his ratings.

Putin scored 64.5 percent, with 92.2 percent of votes counted, according to the Central Electoral Commission, which estimated turnout at 64 percent. Official results are due later today. Putin got 58.3 percent of the vote, the All-Russian Center for the Study of Public Opinion, or VTsIOM, said, citing an exit poll of 159,161 people. Putin got 59.3 percent, according to an exit poll by the Public Opinion Foundation.

Fraud Allegations

Fraud allegations are exceeding reports received during the conduct of the election three months ago, Alexey Navalny, an anti-corruption blogger and opposition leader, told the Ekho Moskvy radio station.

About 5,000 reports of violations had been registered nationwide, the Golos vote monitoring group said by e-mail. Presidential candidates Gennady Zyuganov, the leader of the Communist party who placed second, and billionaire Mikhail Prokhorov, who was third, questioned the fairness of the balloting.

The vote was the cleanest election in the “entire history of Russia,” Putin’s campaign manager, Stanislav Govorukhin, told reporters.

The ruble has gained 9.7 percent against the dollar this year, the third-best performance among currencies tracked by Bloomberg, behind the Hungarian forint and the Polish zloty. The benchmark Micex (INDEXCF) stock index is up 15 percent.

The cost of insuring government debt against non-payment for five years using credit-default swaps fell to 179 basis points on March 2, its lowest level since Aug. 17, according to data provider CMA, which is owned by CME Group Inc. (CME) and compiles prices quoted by dealers in the privately negotiated market.

‘Happy Investors’

“Investors will be happy if the exit polls are confirmed,” Chris Weafer, chief strategist at Moscow-based investment bank Troika Dialog, said by e-mail. “Attention will quickly switch to who will be appointed in the key positions in the next government and how Putin can deliver on the promises made during his election campaign without busting the budget.”

As European nations adopt record austerity measures that have toppled governments from Spain to Romania, Putin’s pledges may raise government spending by as much as 4.8 trillion rubles ($164 billion), or 5 percent of economic output, through 2018, Capital Economics estimates.

‘Full Support’

More than 100,000 people gathered near the Kremlin for the rally to celebrate Putin’s victory, state television said. One of the participants, Sergei Smykov, 50, an autoworker from Nizhny Novgorod, 400 kilometers (250 miles) southeast from Moscow, said Putin had restored Russia after the chaos of the 1990s. “He has my full support,” he said.

Zyuganov came second with 17 percent backing, according to the partial results. He was followed by Prokhorov with 6.9 percent and Vladimir Zhirinovsky of the nationalist Liberal Democratic Party with 6.6 percent.

The election was “absolutely unfair,” Zyuganov said on state television. He declined to congratulate Putin on his victory or recognize the outcome. Prokhorov also said he didn’t consider the presidential vote honest.

Putin’s election is “illegitimate” and protests led by middle-class Russians won’t die down, said former Prime Minister Mikhail Kasyanov, an opposition leader.

‘People to the Streets’

“We will continue to call people to the streets,” Kasyanov said by phone. “Mr. Putin has been selected as the winner of this so-called election, and the middle-class in Moscow and other cities know that without this pressure we won’t achieve anything.”

The opposition is calling for new parliamentary and presidential elections in March 2013 and March 2014, Kasyanov said.

The Organization for Cooperation and Security in Europe and Golos will release their assessment of the presidential vote today.

In the southwestern district of Akademicheskaya, a member of the electoral commission filed a complaint after five minibuses of people came to vote at a polling station. The people said they were soccer players who had been invited to Moscow for a game by United Russia, said the official, Yuri Zuev, adding that he suspected them of multiple voting.

Opposition parties including the Communists have alleged United Russia inflated its result in December to about 50 percent, having won closer to 30 percent of the vote. International observers said the elections were marred by ballot-stuffing.

‘Already Evident’

“It is already evident that the violations are clearly and indisputably affecting the outcome of the vote and yet again show that these are not real elections,” said Navalny.

Authorities installed web cameras in more than 91,000 polling stations in a bid to allay concerns about fraud. The OSCE, which is deploying 230 observers together with the Council of Europe, said in a report last month that the cameras couldn’t capture all the details of the voting process, in particular during counting.

“The next term may be tragic for Putin,” Igor Bunin, head of the Moscow-based Center for Political Technology, said by phone. “He will have to solve dozens of social and economic problems in his term, and to solve them, he risks losing the support of his core electorate.”

To contact the reporters on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net; Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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