Mattel Eclipses GM in Value on Toy-Car Gains: Chart of the Day

By Jeff Green and Heather Burke

July 4 (Bloomberg) -- Mattel Inc., helped by rising sales of Matchbox and Hot Wheels toy cars, has a larger market value than General Motors Corp. for the first time as record U.S. gasoline prices crimp sales of real cars and trucks.

GM shares fell to the lowest since 1954 this week after an analyst said bankruptcy was ``not impossible'' if the auto market continues to deteriorate. GM's U.S. unit sales fell 18 percent in June. The chart of the day shows a comparison of the change in market value for Mattel and GM.

Mattel is surpassing GM even after the toymaker reported its first quarterly loss in almost three years in April, a reflection of the diverging outlook for the two companies. Mattel may return to profitability after the first quarter, while GM will probably report losses through 2009 as buyers spurn pickup trucks and sport-utility vehicles, analysts said.

``Hot Wheels and Matchbox are basic, low-priced toys, so they appeal to consumers, in the U.S. and especially in less affluent countries, who may not be able to afford more expensive toys,'' Sean McGowan, a toy analyst at Needham & Co. in New York, said yesterday in an e-mail. He recommends buying Mattel shares.

GM, the world's largest automaker, rose 14 cents, or 1.4 percent, to $10.12 in New York Stock Exchange composite trading yesterday after a JP Morgan & Chase Co. analyst said GM has ``tough but manageable'' liquidity options. Mattel rose 8 cents to $17.22.

Mattel briefly passed Detroit-based GM in market value for the first time June 26 and regained its lead July 2. El Segundo, California-based Mattel is the world's biggest toymaker.

GM, turning 100 this year, reported its largest annual loss in 2007, $38.7 billion, after a tax accounting change, and hasn't had a profitable year since 2004. The carmaker's U.S. market share hovers at the lowest level since 1925, and last year GM was 3,000 cars away from being dethroned by Toyota Motor Corp. as the world's largest automaker.

Mattel said first-quarter revenue from toy cars rose 15 percent. The company had a $46.6 million loss in the quarter as Chinese manufacturing costs rose. The maker of Barbie dolls hasn't had an annual loss since 2000.

To contact the reporters on this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net; Heather Burke in New York at hburke2@bloomberg.net.

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European Stocks Fall; British Airways, Anglo American, B&B Drop

By Sarah Jones

July 4 (Bloomberg) -- European stocks fell, capping their fifth straight weekly decline, as oil prices near a record high weighed on airlines and a retreat in metals pushed commodity producers lower. Most Asian stocks fell, while U.S. markets were closed today for Independence Day.

British Airways Plc and Air France-KLM Group declined as crude traded above $145 a barrel. Anglo American Plc led mining shares lower as Goldman Sachs Group Inc. downgraded the industry. Bradford & Bingley Plc tumbled after TPG Inc. dropped plans to inject 179 million pounds ($354.7 million) into the company.

Europe's Dow Jones Stoxx 600 Index slipped 0.5 percent to 281.54 at 9:05 a.m. in London, extending this week's retreat to 2 percent. The fifth consecutive weekly drop is the longest losing streak since January.

``The focus is still very much strongly on the oil price because inflation is mainly driven by the oil price,'' said Bernd Meyer, head of pan-European equity strategy at Deutsche Bank AG in London.

The MSCI Asia Pacific Index was little changed today as the index completed a four-week, 12 percent slide, the longest losing streak since the period ended Feb. 8.

Credit-related losses topping $400 billion, record oil prices and accelerating inflation has led analysts to cut earnings estimates as the outlook for economic growth slows.

Earnings for Stoxx 600 companies will fall 1.7 percent this year, according to data compiled by Bloomberg. That's down from 11 percent growth predicted at the start of 2008.

National Markets

National benchmark indexes fell in 14 of the 17 western European markets that were open. The U.K.'s FTSE 100 lost 0.8 percent. France's CAC 40 slipped 0.7 percent, and Germany's DAX advanced 0.8 percent.

British Airways, Europe's third-largest airline, dropped 3 percent to 202.75 pence. Air France, Europe's biggest airline, retreated 1.4 percent to 14.20 euros.

Crude oil for August delivery was at $145.44 a barrel, up 15 cents, in after-hours electronic trading on the New York Mercantile Exchange.

Futures yesterday climbed to $145.85 a barrel, the highest since trading began in 1983. Prices have risen 3.6 percent this week and more than doubled in the past year.

Anglo American, the world's second-biggest mining company, lost 1.3 percent to 3,227 pence. Vedanta Resources Plc, India's largest zinc producer, declined 2 percent to 1,982 pence. Copper, lead and tin declined in London.

Goldman Sachs downgraded basic-resource shares to ``neutral,'' saying investor concerns about the impact from higher inflation will likely weigh on confidence in the sector.

``We are taking profits in basic resources,'' London-based analyst Peter Oppenheimer wrote in a note to investors. We have a ``view to upgrade again when risks subside.''

Bradford & Bingley

Bradford & Bingley fell 9 percent to 55.5 pence after TPG withdrew its offer to take a stake in the bank.

Britain's largest lender to landlords will continue with the capital-raising announced June 2 through an enlarged rights offer, the bank said. The rights offer is supported by some of the largest shareholders, including Legal & General Group Plc, Standard Life Plc., M&G Investment Managers and Insight Investment Management

Marks & Spencer Group Plc lost 3 percent to 229 pence, dropping for a seventh day. Citigroup Inc. downgraded the U.K.'s biggest clothing retailer to ``sell'' from ``buy'' after the company reported falling sales amid a slump in consumer spending.

The brokerage also cut its 2009 and 2010 pretax profit estimates 17 percent and 29 percent respectively and slashed its price estimate on the stock 54 percent to 205 pence.

``The current sharply deteriorating U.K. macro environment should drive a `Sell' stance on the U.K. general retailers,'' London-based analyst Richard Edwards wrote in a note.

UBS

UBS AG jumped 7.5 percent to 22.6 francs. The European bank hardest hit by the U.S. subprime crisis said it expects to post a second-quarter result ``at or slightly below break-even,'' helped by about 3 billion francs ($2.9 billion) in tax credits and that it sees ``no need to raise new equity.''

UBS, which posted a profit of 5.55 billion Swiss francs ($5.4 billion) a year earlier, said that market turmoil contributed to writedowns and a loss at the investment bank. The bank had a negative flow of net new money, which was worst in April. The results will be published Aug. 12 as planned.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.



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U.K. Stocks Decline; Bradford & Bingley, Marks & Spencer Fall

By Adam Haigh

July 4 (Bloomberg) -- U.K. stocks fell, led by Bradford & Bingley Plc after TPG Inc. withdrew its offer to buy a stake in Britain's largest lender to landlords.

HBOS Plc declined as Societe Generale SA advised selling the shares. Marks & Spencer Group Plc fell for a seventh day, to the lowest since 2001, as Citigroup Inc. downgraded the stock to ``sell'' from ``buy.''

The benchmark FTSE 100 Index retreated 38.4, or 0.7 percent, to 5,438.2 at 8:44 a.m. in London, extending this week's decline to 1.6 percent its seventh straight weekly fall. The FTSE All- Share Index lost 0.6 percent today and Ireland's ISEQ Index dropped 0.5 percent.

Bradford & Bingley lost 3.7 percent to 58.75 pence, after briefly falling below the 55 pence strike price of its rights offering. The lender said it will raise 400 million ($793 million) in new capital without the buyout firm.

HBOS retreated 1.4 percent to 275.25 pence. Societe Generale cut its recommendation on the U.K.'s biggest mortgage lender to ``sell'' from ``hold.''

``Given the June downgrades to monoline insurers and continued weakening in the U.K. credit environment, we believe that interim results could disappoint the market,'' London-based analyst Asheefa Sarangi wrote in a note to clients.

Marks & Spencer lost 4.9 percent to 224.5, bringing this year's decline to 60 percent.

Citigroup lowered its 2009 and 2010 pretax profit estimates 17 percent and 29 percent respectively and slashed its price estimate on the stock 54 percent to 205 pence.

``Sector-wide revenue trends will weaken further as consumer demand patterns deteriorate,'' London-based analyst Richard Edwards wrote in a note.

Flying Brands Ltd., the U.K. mail-order flower seller that went public in 1993, slumped 11 percent to 46 pence after saying it will close its U.S. Greetings Direct business following ``extremely disappointing'' test results in June.

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



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German Stocks Decline, Led by Deutsche Boerse, Linde, Henkel

By Stefanie Haxel

July 4 (Bloomberg) -- Germany's DAX Index dropped, erasing earlier gains. Deutsche Boerse AG, Linde Group and Henkel AG led declining shares.

The benchmark DAX fell 24.66, or 0.4 percent, to 6,329.08 as of 9:27 a.m. after advancing as much as 0.3 percent. The HDAX Index of the country's 110 biggest companies slipped 0.3 percent to 3,239.18.

Deutsche Boerse, operator of the Frankfurt exchange, lost 1.27 euros, or 1.8 percent, to 70.60.

Linde, Germany's largest maker of industrial gas, retreated 1 euro, to 1.1 percent, to 90.68. Henkel AG, the maker of Persil detergent, slipped 21 cents, or 0.8 percent, to 25.14 euros.

To contact the reporter on this story: Stefanie Haxel in Frankfurt at shaxel@bloomberg.net
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Goldman Says European Banks May Need as Much as EU90 Billion

By Alexis Xydias

July 4 (Bloomberg) -- European banks may need to raise between 60 billion euros ($94 billion) and 90 billion euros to keep their financial ratios at current levels amid a decline in credit markets, according to Goldman Sachs Group Inc.

In a note to investors distributed today a team of London- based analysts cut their recommendations on Carnegie & Co. and Swedbank AB of Sweden to ``sell'' from ``neutral.'' Banco Santander SA, Spain's largest bank, was downgraded to ``neutral'' from ``buy.''

``Regulatory pressures and a sharp turn in the European credit cycle are the two main causes for concern for bank investors,'' the report said. ``If, in addition to regulatory tightening, the sector returns to the early 1990s' level of credit losses, we estimate that the capital shortfall could amount to 90 billion euros.''

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.



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China Stock Funds Plunged 41% This Year, Galaxy Securities Says

By Zhang Shidong

July 4 (Bloomberg) -- China's mutual funds that buy stocks lost 41 percent of their value in the first half of the year as equities slumped and investors sold units, according to data compiled by China Galaxy Securities Co.

The combined net asset value of the 287 funds plunged to 1.74 trillion yuan ($254 billion) at the end of June from 2.94 trillion yuan at the end of last year, Beijing-based Galaxy Securities, China's second-largest brokerage by revenue, said in a report published in the China Securities Journal today.

China's benchmark CSI 300 Index slumped 48 percent in the first half on concern inflation at more than a decade-high and surging raw material prices will dent earnings growth. Gains in corporate earnings will slow down further in the third quarter on higher fuel costs, analysts including Chen Li at Shenyin & Wanguo Securities Co. said in an interview this week.

Investors sold 36.3 billion units from the mutual funds in the first six months, according to the Galaxy Securities report. The funds control about 30 percent by value of the tradable shares on the Shanghai and Shenzhen stock markets, it said. About two-thirds of the shares of companies listed in the cities are owned by the state or state-run institutions and are not available for sale.

The following table ranks the top 10 fund management companies by net asset value through June 30, according to China Galaxy Securities Co.

   FIRM                                            ASSETS (YUAN)
----------------------------------------------------------------
1. China Asset Fund Management Co.                 202.4 billion
2. Boshi Fund Management Co.                       132.1 billion
3. Harvest Fund Management Co.                     120.9 billion
4. China Southern Fund Management Co.              117.6 billion
5. E Fund Management Co.                           110.1 billion
6. GF Fund Management Co.                           82.5 billion
7. Dacheng Fund Management Co.                        78 billion
8. Hua An Fund Management Co.                         72 billion
9. China International Fund Management Co.          69.7 billion
10. Invesco Great Wall Fund Management Co.          57.2 billion
----------------------------------------------------------------

To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

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FX Trading Subdued

Daily Forex Fundamentals | Written by AC-Markets | Jul 04 08 08:20 GMT |

Market Brief

FX markets were relatively stable in Asian session as yesterday's volatility seem to have driven more then just the US participant to start their weekend early. EurUsd climbed tentatively back above the psychological 1.5700 level while UsdJpy bounced around 106.60 / 106.80 levels. Carry trades picked up a slight intraday upwards trend with EurJpy moving from 167.25 to 167.84 and AudJpy found support on the 10d-ma, rallying to 102.75. With a light calendar and the US 4th of July holiday we would expect trading to be subdued.

Oil prices were stable with Dubai trading at 145.13bll while gold slipped slightly to 934.35oz. US stock markets for the most part were able to shrug off the negative payroll data and close slightly higher however Asian markets were lower with only the Shanghai Composite trading up 1.95% higher today. European index futures are trading higher before the open US markets are closed.

As we had expected the ECB raised rates by 25bp to 4.25% yesterday while the accompanying press conference was more dovish then we had anticipated. In fact during the Q&A portion, Trichet said, 'I have no bias' in regards to future rate decisions. A comment he has never uttered before and clearly illustrates that the ECB now has a neutral bias. At this point we have a slight bias towards an additional hike in September due primary to Euro zone inflation which is expect to print at 4.1% for August. A large worrying figure and one that will provide Trichet with many sleepless nights, especially considering growth has now increased the pace of downwards deterioration. We don't expect EurUsd to pick up any noticeable trend until data from both countries starts giving us real signals as to the direction of monetary policy.

We will however be watching the UK and Gbp for selling opportunities. While the recent trading pattern of Gbp strength has been based on the markets renewed focus on inflation over growth we expect given the rapid decline of the domestic economy an eventual shift will occur. We expect a choppy move back to the 1.9300 lvls mid term.

Yesterday Sweden's Riksbank hiked rates 25bp to 4.50%, following the lead of the Norges Bank in a move that was widely expected. CPI inflation has recently jumped to 4.0% and rate expectations have followed suit putting the offensive. In addition, the bank signaled that the market could see two more rate hikes in order to slow the economy and contain inflation pressures.

In Australia trade deficit printed at $965m in May in line with expectations. However, there were large revisions of around $1.0bn to April, as higher contract prices for commodities were passed through.

10:00gmt - ECB's Trichet speaks
10:00gmt - ECB's Gonzales-Paramo speaks

ACM FOREX



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Daily Forex Fundamentals | Written by AC-Markets | Jul 04 08 08:20 GMT |
FX Trading Subdued
Market Brief

FX markets were relatively stable in Asian session as yesterday's volatility seem to have driven more then just the US participant to start their weekend early. EurUsd climbed tentatively back above the psychological 1.5700 level while UsdJpy bounced around 106.60 / 106.80 levels. Carry trades picked up a slight intraday upwards trend with EurJpy moving from 167.25 to 167.84 and AudJpy found support on the 10d-ma, rallying to 102.75. With a light calendar and the US 4th of July holiday we would expect trading to be subdued.

Oil prices were stable with Dubai trading at 145.13bll while gold slipped slightly to 934.35oz. US stock markets for the most part were able to shrug off the negative payroll data and close slightly higher however Asian markets were lower with only the Shanghai Composite trading up 1.95% higher today. European index futures are trading higher before the open US markets are closed.

As we had expected the ECB raised rates by 25bp to 4.25% yesterday while the accompanying press conference was more dovish then we had anticipated. In fact during the Q&A portion, Trichet said, 'I have no bias' in regards to future rate decisions. A comment he has never uttered before and clearly illustrates that the ECB now has a neutral bias. At this point we have a slight bias towards an additional hike in September due primary to Euro zone inflation which is expect to print at 4.1% for August. A large worrying figure and one that will provide Trichet with many sleepless nights, especially considering growth has now increased the pace of downwards deterioration. We don't expect EurUsd to pick up any noticeable trend until data from both countries starts giving us real signals as to the direction of monetary policy.

We will however be watching the UK and Gbp for selling opportunities. While the recent trading pattern of Gbp strength has been based on the markets renewed focus on inflation over growth we expect given the rapid decline of the domestic economy an eventual shift will occur. We expect a choppy move back to the 1.9300 lvls mid term.

Yesterday Sweden's Riksbank hiked rates 25bp to 4.50%, following the lead of the Norges Bank in a move that was widely expected. CPI inflation has recently jumped to 4.0% and rate expectations have followed suit putting the offensive. In addition, the bank signaled that the market could see two more rate hikes in order to slow the economy and contain inflation pressures.

In Australia trade deficit printed at $965m in May in line with expectations. However, there were large revisions of around $1.0bn to April, as higher contract prices for commodities were passed through.

10:00gmt - ECB's Trichet speaks
10:00gmt - ECB's Gonzales-Paramo speaks

ACM FOREX



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Today's Key Points

Daily Forex Fundamentals | Written by Danske Bank | Jul 04 08 07:40 GMT |

* US equities closed the day on a positive note after a job markets report in line with expectations.
* EUR fell two figures versus USD as bond yields dropped in Europe after ECB was less aggressive than most expected.
* US markets are closed for Independence Day. We are looking for factory orders out of Germany as the only data of interest today.

Markets Overnight

US markets closed down early yesterday on a positive note ahead of Independence Day today after payroll data suggested that the job market was not as dire as many investors had feared, while the European Central Bank (ECB) president struck a less aggressive tone on prospects for rate hikes.

In a shortened session, with regular trading set to end at 19.00 CEST, volume was light. The Dow Jones was up 0.9% and S&P500 added 0.6%, both led by Exxon Mobil Corp (+2%) and rival Chevron Corp (+1%) as oil set new highs (again). The Nasdaq Composite Index was up 0.3%.

Crude oil went as high as USD 145.85 per barrel before erasing most gains with the approach of the long holiday weekend.

US Treasury bond yields did not move much yesterday, although the yield curve steepened by 5bp with 2yr yields declining to 2.55% from 2.60%. 10yr yields were broadly unchanged at 3.99%

On FX markets demand for the dollar rose sharply after ECB comments and job report for June were largely as forecast. Thus EUR/USD fell roughly two big figures from 1.59 to 1.57 from 14.30-15.00 CEST, and the pair has been fairly stable since then - currently trading at 1.572. USD/JPY rose from 106 to the current level of around 106.8.

Mixed picture of Asian equity markets this morning as Hang Seng adds 1.1% and Nikkei225 drops 0.9% as we speak.
Global Daily

The calendar for today is relatively thin. The US markets are closed for Independence Day and in Euroland the only data of interest is German factory orders from May published at 12:00. Following three consecutive months of decline, the numbers are expected to show a minor improvement with an 0.6% m/m reading, but that will do little to the soft trend. Later in the day Trichet is scheduled to speak, but we do not expect him to reveal anything new on the monetary policy outlook so closely after the policy meeting.

Following yesterday's re-pricing in European bond markets on the back of the ECB press conference we do not expect much action today. Bond yields should be left with equities and credit markets as their only directional guide.

Danske Bank
http://www.danskebank.com/danskeresearch



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India's Inflation Accelerates to Fastest in 13 Years

By Kartik Goyal

July 4 (Bloomberg) -- India's inflation accelerated to the fastest pace in more than 13 years, strengthening the case for the central bank to increase borrowing costs this month.

Wholesale prices rose 11.63 percent in the week to June 21, after gaining 11.42 percent in the previous week, Commerce Ministry Spokesman Rajeev Jain told Bloomberg News in a telephone interview in New Delhi today. The median forecast of 16 economists surveyed by Bloomberg News was for an 11.47 percent increase.

Faster inflation is threatening the popularity of Prime Minister Manmohan Singh's government, which is struggling to survive as its communist allies consider withdrawing their support over a nuclear deal with the U.S. A nationwide truckers' strike may have added to inflation.

``Miseries don't come alone,'' said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd., the local unit of Standard & Poor's. ``The political disharmony, inflation and the truckers' strike have disrupted the smooth functioning of the economy.''

Soaring energy, food and commodities prices are pushing up inflation around the world and forcing central banks to raise borrowing costs amid slowing economic growth. Sweden and Indonesia raised their benchmark interest rates yesterday, as did the European Central Bank. China has increased its cash reserve ratio to a record 17.5 percent.

Rate Increase

The Reserve Bank of India, which next meets to review rates on July 29, last month raised its benchmark interest rate twice to a six-year high of 8.5 percent and lifted its cash reserve ratio to 8.75 percent, to prevent money supply in the banking system from fanning inflation.

India's 10-year bonds fell for a fifth day, pushing yields to the highest in seven years. The yield on the benchmark 8.24 percent note rose 14 basis points to 8.95 percent as of 11:28 a.m. in Mumbai, according to data compiled by Bloomberg.

More than 4 million heavy and light commercial vehicles stayed off the nation's roads for two days this week to protest against taxes and rising fuel costs. The strike ended late yesterday after the government decided to roll back an increase in toll tax and promised not to raise the charge for one year, said Charan Singh Lohara, president of truckers' union.

The government increased retail fuel prices on June 4, pushing inflation to more than double the central bank's year- end target of 5.5 percent.

Political Impact

Rising prices have caused Prime Minister Singh's Congress party to lose ground in nine of 11 state elections since January 2007. Singh faces elections in six more states this year and national elections by May 2009.

To contain inflation that has tripled in the past seven months, the government yesterday banned exports of corn after restricting overseas sales of food items including wheat, rice, cooking oils and pulses. India had earlier banned cement exports and imposed a tax on outgoing shipments of steel products.

``Inflation is likely to hit 13 percent in a month,'' Joshi of Crisil said. The Reserve Bank may raise the repurchase rate by 25 basis points in the July meeting and increase the cash reserve ratio, depending on the liquidity in the system, he said.

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.



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Philippines to Speed Overseas Borrowing to Boost Peso

By Clarissa Batino

July 4 (Bloomberg) -- The Philippines plans to speed up overseas borrowings this year to strengthen the peso and cool price gains, Finance Secretary Gary Teves said, as inflation jumped to a 14-year high.

``There is concern about the rapid depreciation of the peso,'' Teves said in a telephone interview today. Overseas loans could strengthen the currency ``because we're adding more foreign exchange.''

The peso has lost 10 percent against the dollar this year, according to Bankers Association of the Philippines data. That helped push inflation to 11.4 percent last month by making it more expensive to import rice and oil, adding pressure on the central bank to increase interest rates further.


The government may bring forward the release of $900 million in loans from the World Bank and Asian Development Bank to this quarter and raise as much as $750 million from commercial sources, adding to the $500 million it borrowed in January, Teves said. The central bank agrees that this would help stem the peso's depreciation, he said.

``Overseas borrowing will increase the supply of dollars and that will help temper the depreciation, but it won't reverse the trend,'' said Ricky Cebrero, a treasurer at East West Banking Corp. in Manila. ``Easing some pressure on the peso will help control inflation.''

Strategy Change

The Philippines' borrowing strategy has reversed since late last year when it decided to increase its reliance on local debt to slow gains in the peso that affected exports and earnings of overseas workers, which together make up about half of the $118 billion economy. The currency gained almost 19 percent in 2007.

Inflation last month jumped to the fastest pace since May 1994 as food prices surged and weekly fuel-price increases ``triggered large price build-ups across wide commodities and services groups,'' Bangko Sentral ng Pilipinas Governor Amando Tetangco said today.

Policy makers, who next meet on July 17, raised the overnight borrowing rate by a quarter-point to 5.25 percent on June 5, the first increase since October 2005. The bank has scope to increase borrowing costs further without endangering growth, Deputy Governor Diwa Guinigundo said June 27.

The peso was little changed at 45.525 per dollar as of 12:54 p.m. in Manila, according to Tullett Prebon Plc.

Asset Sales

``To address supply-side inflation, we have started measures to boost rice and food supply along with subsidies on fuel and power,'' Teves said today. As a result, the government may incur a budget deficit of as much as 75 billion pesos.

Selling the government's stakes in Petron Corp., the nation's largest refiner, and PNOC Exploration Corp., an oil and gas explorer, may also help reverse the peso's decline if they're bought by overseas investors, Teves said yesterday.

The government may delay selling its Food Terminal Inc. land in Manila because ``the market for real estate has softened,'' he said, without elaborating.

To contact the reporters on this story: Clarissa Batino in Manila at cbatino@bloomberg.net; Francisco Alcuaz Jr. in Manila at falcuaz@bloomberg.net


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Spain, Ireland `Thrown to the Wolves' After ECB Move

By Ben Sills and Fergal O'Brien

July 4 (Bloomberg) -- Jose Mauricio Rodriguez Montalvo rents a room from his sister to help her afford her basement flat in Madrid as mortgage costs soar.

``She's crying over the Euribor,'' the 12-month money- market rate used to set Spanish mortgages, Montalvo, 28, said in an interview. ``We're just praying it won't keep going up.''

For homeowners in Spain and in Ireland, struggling to stay afloat amid the wreckage of a decade-long real-estate boom, those prayers are going unanswered. The European Central Bank yesterday increased its benchmark rate to 4.25 percent to fight inflation, pushing both economies a step closer to recession.

The two countries are particularly vulnerable to higher lending costs because their housing industries account for about 10 percent of their economies, twice the EU average. Montalvo's family has seen its monthly mortgage payment leap 50 percent to 2,080 euros since the ECB began raising rates in December 2005.

``They have been thrown to the wolves,'' said Stuart Thomson, who helps manage $46 billion in bonds at Resolution Investment Management Ltd. in Glasgow, Scotland. `It's much easier to bring inflation lower if you're willing to have a recession in economies like Spain, Italy and Ireland.''

The Irish economy contracted for the first time in more than a decade in the first quarter. Growth in Spain was the slowest in 13 years in the period, and economists surveyed by Bloomberg News see a 45 percent probability of a recession, or two consecutive quarterly contractions, within the next year.

Balancing Act

The ECB has more than doubled its key rate in less than two years under its mandate to control prices. Euro-region inflation accelerated to 4 percent last month, the fastest in 16 years, on soaring food and oil costs, even with growth slowing.

Trichet yesterday signaled further rate increases weren't imminent as he strikes a balance between taming inflation and not choking economic growth. Still, while he acknowledged some countries will be harder hit than others by the rate increase, he said the bank must serve the entire euro region just as the Federal Reserve sets policy for all 50 U.S. states.

``If you concentrate on California or Florida, it is not at all like Massachusetts or Alaska,'' he said in an interview with Ireland's RTE radio. ``It is the same in our case and we have to make a judgment what is good for the full body of the 320 million people'' in the euro area.

Fraction of Germany

Spain and Ireland make up less than 15 percent of the region's economy and their economies together are about half the size of Germany's. Growth in Europe's biggest economy accelerated in the first quarter to the fastest pace in 12 years and manufacturing was still expanding in June. Spanish industry contracted by the most on record.

Spanish Prime Minister Jose Luis Rodriguez Zapatero has called on the ECB to be ``flexible'' in setting monetary policy.

The Euribor has risen almost 30 basis points since June 5 when Trichet first signaled higher rates. That made new mortgages more expensive and will make existing ones costlier as 98 percent of Spanish home loans are on a variable rate. The jump in costs has sapped demand for housing.

Home starts in Spain plunged 70 percent in March from a year ago and dropped around 60 percent in Ireland. The slowdown prompted Dublin-based realtor Lisney to lower salaries by 10 percent for its 170 workers. The Irish unit of CB Richard Ellis plans to cut around a 10th of its workforce.

``Transactions have dried up,'' said Guy Hollis, managing director of CBRE in Ireland. ``It's not going to last forever, but we have to be prudent.''

Job Creation

The building boom going bust is tarnishing a decade of gains. Ireland's economy has grown the most in the euro area since monetary union in 1999, while Spain created more than a third of new jobs in the region.

After years of ``inappropriately low'' interest rates, Spain and Ireland are now feeling the ``hangover,'' said Alan Ahearne, a lecturer at Ireland's National University and a former economist at the Fed.

Irish banks including Allied Irish Banks Plc had their 2008 earnings estimates cut by Merrion Stockbrokers yesterday because of expectations for deteriorating credit quality.

The decade-long expansion does leave Spain and Ireland with resources to ease the pain of the slowdown. Zapatero's government will use a budget surplus of 2.2 percent of gross domestic product to finance 18 billion euros of measures to prevent defaults and aid unemployed construction workers.

Ireland, with the second-lowest government debt in the euro area after Luxembourg, will maintain a 184 billion-euro infrastructure investment plan.

That may not be enough to buffer the hard landing. The Spanish downturn destroyed 75,000 jobs in the first quarter when the unemployment rate jumped the most in three years to almost 10 percent. Ireland's jobless rate has risen to a nine-year high of 5.4 percent.

``Central banks are paid to cause a recession now and then,'' said Fortis Investments Chief Investment Officer William De Vijlder. ``Maybe it's a shock to put it like that, but that's reality.''

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net; Fergal O'Brien in Dublin at fobrien@bloomberg.net.



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UBS Sees Second-Quarter Net at or `Below Breakeven'

By Warren Giles and Elena Logutenkova

July 4 (Bloomberg) -- UBS AG, the European bank hardest hit by the U.S. subprime crisis, expects to post a second-quarter result ``at or slightly below break-even,'' helped by about 3 billion francs ($2.9 billion) in tax credits.

UBS, which posted a profit of 5.55 billion Swiss francs ($5.4 billion) a year earlier, said that market turmoil contributed to writedowns and a loss at the investment bank. The bank had a negative flow of net new money, which was worst in April, and will publish full quarterly results Aug. 12 as planned, the Zurich-based bank said today in a statement.

Chief Executive Officer Marcel Rohner is cutting 5,500 jobs, shutting businesses at the investment-banking unit and trying to stem defections among wealthy clients after 25.4 billion francs of net losses in the previous three quarters.

``Outflows in the wealth management business are just sending a poor signal about growth potential and investor sentiment,'' Stefan-Michael Stalmann, an analyst at Dresdner Kleinwort, said in a note to clients last week. ``The agenda in the next one or two quarters is likely to be dominated by a variety of operational challenges.''

Banks worldwide have announced $402 billion in writedowns and credit losses related to the subprime crisis. Markdowns at UBS, which amounted to more than $38 billion in the previous three quarters, led the bank to raise $29.2 billion of capital from investors this year. UBS said today that it sees ``no need to raise new equity.''

`Strategic Headache'

UBS fell 68 percent in Swiss trading over the past 12 months, cutting the company's market value to 61.6 billion francs. The stock is the fourth-biggest loser among the 59 companies in the Bloomberg Europe Banks and Financial Services Index.

Growth in assets from affluent clients at UBS, the largest manager of money for the wealthy, slowed to 8.8 percent in 2007 from 13 percent in the previous year, according to an annual survey by Scorpio Partnership released last week.

UBS also faces an investigation by the U.S. Department of Justice into whether the bank may have helped clients evade American taxes. Prosecutors this week got a Miami federal judge to authorize the Internal Revenue Service to issue a summons to UBS for client information as part of the probe. The bank has said that it's ``working diligently'' with both Swiss and U.S. authorities.

Strategic Review

Chairman Peter Kurer, who replaced Marcel Ospel in April, told shareholders at the annual meeting that he will lead a strategic review of all of the bank's businesses to make them better complement the wealth management unit, which he called UBS's ``core franchise.''

The bank plans to inform shareholders about results of the review at an extraordinary shareholders meeting on Oct. 2. The meeting was called to elect four new board members, as Kurer seeks to increase the level of financial expertise on the board after criticism from shareholders including former UBS President Luqman Arnold.

UBS brought in Jerker Johansson from Morgan Stanley in mid- March to run its investment-banking unit. Johansson in May took control of the firm's fixed-income business from Andre Esteves, who ran it for less than 10 months and left in June.

Johansson also announced plans to shut the U.S. municipal bond business, split off proprietary trading of both stocks and debt into a separate unit within the investment bank, and hired former Morgan Stanley colleague Thomas Daula as chief risk officer for the division.

UBS is cutting about 26 percent of the headcount at its fixed-income division, and about 9 percent in investment banking and equities. The securities unit, which at the end of the first quarter employed 21,230 people, is targeting pretax profit of about 4 billion Swiss francs after markets normalize, down from 5.6 billion francs in 2006.

To contact the reporter on this story: Warren Giles in Geneva at wgiles@bloomberg.net; Elena Logutenkova in Zurich at elogutenkova@bloomberg.net



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LBO Defaults May Rise as About $500 Billion Comes Due, BIS Says

By Neil Unmack

July 4 (Bloomberg) -- Leveraged-buyout loan defaults may be ``significantly higher'' than ratings companies' estimates as about $500 billion of debt used to fund the takeovers comes due, the Bank for International Settlements said.

Companies bought by private-equity firms worldwide must repay the high-risk, high-yield loans and bonds by 2010, the Basel, Switzerland-based bank said in a report today, citing Fitch Ratings data. They may find it hard to raise the cash because of a slump in demand for collateralized debt obligations that pool the loans, BIS said.

Investors are shunning structured debt instruments such as CDOs, the main buyers of leveraged loans, after the credit-market seizure caused by the U.S. subprime mortgage collapse, the BIS said. The ability of LBO firms to refinance may be crimped further as banks tighten lending criteria after reporting $402 billion of credit losses and asset writedowns.

``The risk of a significant increase in LBO firm defaults in the next few years may have risen substantially,'' the BIS said. ``With prospects for a recovery in demand from securitization vehicles in 2008 remaining uncertain and banks having little capacity to fund new loans, refinancing risk remains a key challenge for many LBO firms.''

Defaults may be ``significantly higher'' than forecast by ratings companies because of the leverage that buyout firms use to acquire companies, BIS said in the report, citing year-end default-rate predictions of 4 percent.

Rising Defaults

The default rate on high-yield notes worldwide rose to 2 percent in May, from 1.7 percent in April, and is likely to reach 6.3 percent by May 2009, according to Moody's Investors Service.

Buyout firms typically borrow to finance about two-thirds of the cost of acquisitions. The debt they raise is rated below Baa3 by Moody's Investors Service and BBB- at Standard & Poor's.

Investors are demanding more in interest relative to benchmark rates to buy high-yield debt. The average U.S. leveraged loan yielded 413.2 basis points more than the benchmark London interbank offered rate this year, compared with 270 basis points at the end of 2007, according to S&P.

Sales of collateralized loan obligations, or CLOs, slowed to $30 billion in the first quarter, less than half the amount a year earlier, the BIS said, citing JPMorgan Chase & Co. data. The total of outstanding CLOs expanded to almost $250 billion in 2007, more than double the amount in 2004, according to the report, prepared by the bank's Committee on the Global Financial System.

Potential `Friction'

CLOs repackage loans into new securities with varying credit ratings and returns. The range of participants means it may take longer for holders of debt to get their money back after a default because of potential ``friction'' between different creditors during restructuring, the BIS report said.

``Agreements between creditors were often relatively easy to achieve when creditors were solely banks, but may be less straightforward when non-bank creditors are involved,'' the report said.

LBO loan defaults may trigger forced sales by some CLO managers, putting further pressure on loan prices, the BIS report said.

The BIS was formed in 1930 and acts as a central bank for the world's monetary authorities.

To contact the reporter on this story: Neil Unmack in London nunmack@bloomberg.net



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Spain, Ireland `Thrown to the Wolves' After ECB Move

By Ben Sills and Fergal O'Brien

July 4 (Bloomberg) -- Jose Mauricio Rodriguez Montalvo rents a room from his sister to help her afford her basement flat in Madrid as mortgage costs soar.

``She's crying over the Euribor,'' the 12-month money- market rate used to set Spanish mortgages, Montalvo, 28, said in an interview. ``We're just praying it won't keep going up.''

For homeowners in Spain and in Ireland, struggling to stay afloat amid the wreckage of a decade-long real-estate boom, those prayers are going unanswered. The European Central Bank yesterday increased its benchmark rate to 4.25 percent to fight inflation, pushing both economies a step closer to recession.

The two countries are particularly vulnerable to higher lending costs because their housing industries account for about 10 percent of their economies, twice the EU average. Montalvo's family has seen its monthly mortgage payment leap 50 percent to 2,080 euros since the ECB began raising rates in December 2005.

``They have been thrown to the wolves,'' said Stuart Thomson, who helps manage $46 billion in bonds at Resolution Investment Management Ltd. in Glasgow, Scotland. `It's much easier to bring inflation lower if you're willing to have a recession in economies like Spain, Italy and Ireland.''

The Irish economy contracted for the first time in more than a decade in the first quarter. Growth in Spain was the slowest in 13 years in the period, and economists surveyed by Bloomberg News see a 45 percent probability of a recession, or two consecutive quarterly contractions, within the next year.

Balancing Act

The ECB has more than doubled its key rate in less than two years under its mandate to control prices. Euro-region inflation accelerated to 4 percent last month, the fastest in 16 years, on soaring food and oil costs, even with growth slowing.

Trichet yesterday signaled further rate increases weren't imminent as he strikes a balance between taming inflation and not choking economic growth. Still, while he acknowledged some countries will be harder hit than others by the rate increase, he said the bank must serve the entire euro region just as the Federal Reserve sets policy for all 50 U.S. states.

``If you concentrate on California or Florida, it is not at all like Massachusetts or Alaska,'' he said in an interview with Ireland's RTE radio. ``It is the same in our case and we have to make a judgment what is good for the full body of the 320 million people'' in the euro area.

Fraction of Germany

Spain and Ireland make up less than 15 percent of the region's economy and their economies together are about half the size of Germany's. Growth in Europe's biggest economy accelerated in the first quarter to the fastest pace in 12 years and manufacturing was still expanding in June. Spanish industry contracted by the most on record.

Spanish Prime Minister Jose Luis Rodriguez Zapatero has called on the ECB to be ``flexible'' in setting monetary policy.

The Euribor has risen almost 30 basis points since June 5 when Trichet first signaled higher rates. That made new mortgages more expensive and will make existing ones costlier as 98 percent of Spanish home loans are on a variable rate. The jump in costs has sapped demand for housing.

Home starts in Spain plunged 70 percent in March from a year ago and dropped around 60 percent in Ireland. The slowdown prompted Dublin-based realtor Lisney to lower salaries by 10 percent for its 170 workers. The Irish unit of CB Richard Ellis plans to cut around a 10th of its workforce.

``Transactions have dried up,'' said Guy Hollis, managing director of CBRE in Ireland. ``It's not going to last forever, but we have to be prudent.''

Job Creation

The building boom going bust is tarnishing a decade of gains. Ireland's economy has grown the most in the euro area since monetary union in 1999, while Spain created more than a third of new jobs in the region.

After years of ``inappropriately low'' interest rates, Spain and Ireland are now feeling the ``hangover,'' said Alan Ahearne, a lecturer at Ireland's National University and a former economist at the Fed.

Irish banks including Allied Irish Banks Plc had their 2008 earnings estimates cut by Merrion Stockbrokers yesterday because of expectations for deteriorating credit quality.

The decade-long expansion does leave Spain and Ireland with resources to ease the pain of the slowdown. Zapatero's government will use a budget surplus of 2.2 percent of gross domestic product to finance 18 billion euros of measures to prevent defaults and aid unemployed construction workers.

Ireland, with the second-lowest government debt in the euro area after Luxembourg, will maintain a 184 billion-euro infrastructure investment plan.

That may not be enough to buffer the hard landing. The Spanish downturn destroyed 75,000 jobs in the first quarter when the unemployment rate jumped the most in three years to almost 10 percent. Ireland's jobless rate has risen to a nine-year high of 5.4 percent.

``Central banks are paid to cause a recession now and then,'' said Fortis Investments Chief Investment Officer William De Vijlder. ``Maybe it's a shock to put it like that, but that's reality.''

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net; Fergal O'Brien in Dublin at fobrien@bloomberg.net.



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S&P, Moody's Must Be Clearer on Asset-Backed Ratings, BIS Says

By John Glover

July 4 (Bloomberg) -- Moody's Investors Service and Standard & Poor's must be clearer and more detailed in their ratings of asset-backed securities and the risks of underlying collateral, the Bank for International Settlements said today.

The firms need to make rating documentation more accessible for investors and be more transparent about how they assess bonds that package mortgages and other debt, according to a report from the Committee on the Global Financial System, which meets under the auspices of the BIS in Basel, Switzerland.

Moody's, S&P and Fitch Ratings underestimated the severity of the worst U.S. housing slump since the Great Depression, the BIS report said. The failure of some bonds linked to U.S. subprime mortgages triggered $403 billion of bank writedowns and losses worldwide, contributing to the credit crunch.

Ratings companies ``should enhance the information underlying'' their grading of asset-backed securities, the BIS committee said in the report. ``Better information on the key risk factors'' of the ratings is needed, and the companies ``should take system-wide risk into account.''

Ratings companies are under pressure from governments and regulators to improve practices which may have contributed to the lending squeeze and economic slowdown.

The limited historical information used in ratings firms' models made the losses worse and the companies also miscalculated the risk of mortgage sellers relaxing their underwriting standards at around the same time, according to the BIS report.

`Taken Advantage'

``Some weakly capitalized originators may have taken advantage of transparent rating agency criteria, enabling borrowers to misrepresent occupancy, income, downpayment source and/or property appraisals,'' the BIS said.

The BIS report is part of an attempt by governments and regulators to give greater scrutiny to the role and practices of credit-rating companies in securitizations.

European Union finance ministers will back a call for stricter oversight, requiring ratings companies to register with authorities, in a draft statement approved for a meeting next week and obtained by Bloomberg News. The U.S. Securities and Exchange Commission requires ratings companies to register and is attempting to abandon a requirement that money-market funds buy short-term debt carrying a high grade from at least two ratings firms.

Investors ``felt that the use of ratings in regulatory frameworks had underpinned revenues and warranted further review,'' the BIS said.

The Committee on the Global Financial System is chaired by Donald Kohn, vice chairman of the Federal Reserve. The BIS was formed in 1930 and acts as a central bank for the world's monetary authorities.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net



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Argentina, Chile: Latin America Bond and Currency Preview

By Jamie McGee

July 4 (Bloomberg) -- The following events and economic reports may influence trading in Latin American local bonds and currencies today. Bond yields and exchange rates are from a previous session.

Argentina: Congress probably will vote today in its lower house to affirm a tax increase on crop exports imposed by the administration by decree four months ago, an opposition party legislator said.

Congressional deputies supporting President Cristina Fernandez de Kirchner will likely ratify the increase, said Christian Gribaudo, vice president of the lower house's agriculture committee and a member of the opposition PRO party. Farmers ended roadblocks and resumed grain shipments last month as Fernandez sought the backing of Congress for the tax.

The peso fell by 0.3 percent to 3.0270 per dollar.

The yield on the country's inflation-linked peso bonds due in December 2033 gained 6 basis points, or 0.06 percentage point, to 9.955 percent, according to Citigroup Inc.'s unit in Argentina.

Chile: The annual inflation rate accelerated to the fastest pace since 1994 in June, cementing expectations that the central bank will raise interest rates next week for a third time this year.

Consumer prices rose 9.5 percent in the 12 months through June after increasing 8.9 percent in the year through May, the government said. The inflation rate was higher than the 9.1 percent median estimate of 14 economists in a Bloomberg survey.

The peso rose 1.5 percent to 509.23 per dollar.

The yield for a basket of five year peso bonds in inflation- linked currency units, called the unidades de fomento, stayed at 2.84 percent, according to the Bloomberg composite prices.

To contact the reporter on this story: Jamie McGee in New York at jmcgee8@bloomberg.net



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Dollar May Advance to 107.70 on Charts, Bank of America Says

By Kosuke Goto

July 4 (Bloomberg) -- The dollar may advance to 107.70 yen, according to charts traders watch to predict price movements, said Tomoko Fujii, head of economics and strategy for Japan at Bank of America Corp., the second-largest U.S. bank.

A so-called candle chart, that displays a currency's high, low, open and close for each day, indicated traders became bullish on the dollar, said Tokyo-based Fujii. The upside target of 107.70 was on its 200-day moving average, she said.

``The dollar-yen's short-term technical momentum is bullish,'' Fujii said.

The candle chart on July 2 and yesterday showed a so-called ``bullish engulfing pattern,'' a formation that shows the buying pressure exceeded selling pressure, reversing the dollar's bearish-trend, she said. In this formation, the first day's body, which is the area between the open and closing price, is engulfed by the second day's body.

The U.S. currency traded at 106.67 yen as of 11:40 a.m. in Tokyo from 106.73 yen in New York yesterday. It last reached 107.70 yen on June 26.

In the longer term, the dollar-yen is likely to move between its 55-day moving average, at 105.37 yen today, and the 200-day moving average, she added.

Traders often look for signs of a currency's short-term trend by viewing the five-day moving average and aim to forecast longer-term trends with the 21-, 55- and 200-day moving averages.

They use moving averages to identify levels of support, where buying is expected, or resistance, where selling is predicted.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

To contact the reporter on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net



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Dollar Heads for Weekly Gain as Trichet Says `No Bias' on Rate

By Stanley White and Kosuke Goto

July 4 (Bloomberg) -- The dollar headed for a weekly gain versus the euro for the first time since mid-June on speculation the interest-rate differential that favors the 15-nation currency will stop widening.

The euro traded near a one-week low against the dollar after European Central Bank President Jean-Claude Trichet said he has ``no bias'' to increase the refinancing rate again after lifting borrowing costs yesterday. The yen headed for weekly declines versus the Australian dollar and the South African rand as Trichet's comments bolstered purchases of higher-yielding assets funded in the Japanese currency.

``The immediate reaction was to sell euros and buy dollars,'' said Thomas Harr, a senior currency strategist in Singapore at Standard Chartered Plc, the U.K. bank that gets most of its profit from Asia. ``The market was looking for a hawkish ECB and it was disappointed.''

The dollar touched a one-week high of $1.5675 per euro and traded at $1.5716 at 1:50 p.m. in Tokyo, from $1.5703 yesterday. The euro has fallen 0.5 percent this week. The dollar was at 106.75 yen, little changed from yesterday and up 0.6 percent from a week ago. The euro bought 167.78 yen, from 167.58 last week.

The yen declined 0.7 percent in the five days to 102.73 per Australian dollar. It also fell 2.6 percent to 13.7650 against the South African rand. In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency moves erase those profits.

Yield Spread

Japan's benchmark borrowing cost of 0.5 percent compares with 7.25 percent in Australia and 12 percent in South Africa. The ECB boosted its benchmark rate by a quarter-percentage point to 4.25 percent yesterday, the first increase in a year.

The difference in yield between two-year German bunds and similar-maturity Treasury notes narrowed to 1.91 percentage points compared with 2.05 percentage points on July 2, which was the widest since June 6.

The ECB's interest-rate increase will help the central bank bring the inflation rate back below 2 percent, Trichet said at a press conference in Frankfurt yesterday. Economic growth may slow to 1.5 percent next year from 1.8 percent this year and 2.6 percent in 2007, according to the ECB.

Neutral Stance

``Trichet has confirmed that the central bank has shifted back to a more neutral stance,'' BNP Paribas SA strategists led by Hans-Guenter Redeker wrote in a research note dated yesterday. ``We believe that interest rates are now on hold, suggesting that further downward pressure in the euro is now likely.''

The euro may fall to $1.53 on a break below $1.5650, according to BNP.

Traders reduced bets the ECB will increase rates further this year. The implied rate on the December Euribor futures contract fell 0.13 percentage point to 5.15 percent yesterday.

The euro may come under more pressure to decline on speculation investors will repatriate earnings from European government debt payments.

The euro-zone region will pay 43 billion euros ($67.6 billion) in coupon and principal on government debt today, including Finland's bond redemption totaling 7 billion euros, said Yuji Saito at Societe Generale SA in Tokyo.

``More than a few investors are trying to repatriate redemption payments on euro-zone bonds this week, taking advantage of any rally in the euro,'' said Saito, head of foreign-exchange sales at the Tokyo unit of France's second- largest bank by market value.

U.S. Rates

Strength in the dollar may prove short-lived should economic data start to discount the prospect of a rate increase by the Federal Reserve this year, Junya Tanase, a currency strategist in Tokyo at JPMorgan Chase & Co., the third-largest U.S. bank, said in an interview with Bloomberg Television.

``Should weak numbers continue to come out, that would reduce expectations for a rate hike and push down the dollar,'' Tanase said.

The U.S. currency may move between $1.56 and $1.59 a euro, and 104.50 yen and 107.50 yen next week, he said.

Futures on the Chicago Board of Trade yesterday showed an 81 percent chance the Fed will increase its target rate for overnight lending between banks by at least quarter-percentage point by year-end compared with 88 percent odds a week ago.

The greenback dropped 1.2 percent against the euro last week, a second weekly loss, after the Fed gave no indication in its June 25 statement that it will start reversing the most aggressive series of cuts in two decades.

Candle Chart

The dollar may advance to 107.70 yen, according to charts traders watch to predict price movements, said Tomoko Fujii, head of economics and strategy for Japan at Bank of America Corp., the second-largest U.S. bank.

A so-called candle chart, that displays a currency's high, low, open and close for each day, indicated traders became bullish on the dollar, said Tokyo-based Fujii. The upside target of 107.70 was on its 200-day moving average, she said.

``The dollar-yen's short-term technical momentum is bullish,'' Fujii said.

The candle chart on July 2 and yesterday showed a so-called ``bullish engulfing pattern,'' a formation that shows the buying pressure exceeded selling pressure, reversing the dollar's bearish-trend, she said.

To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.netKosuke Goto in Tokyo at kgoto2@bloomberg.net



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Technical Analysis Daily: EUR/USD

Daily Forex Technicals | Written by iFOREX.bg | Jul 04 08 05:51 GMT | EUR/USD 1.5712

EUR/USD Open 1.5789 High 1.5900 Low 1.5675 Close 1.5695

The Euro dropped significantly yesterday against the US Dollar from yesterday's top 1.5898 to today's bottom 1.5675 on the US Unemployment Claims, Rates, and Nonfarm Employment Change announcements, which are the first resistance and support levels respectively for the currency couple today. If the negative trend continues, next support is expected at 1.5630, followed by 1.5560. In upward direction next resistance for today is expected at 1.5950, the break of which would lead to next target 1.6000.

Technical resistance levels: 1.5900 1.5950 1.6000
Technical support levels: 1.5675 1.5630 1.5560

Trading range: 1.5700 - 1.5765

Trend: Upward

Buy at 1.5712 SL 1.5682 TP 1.5752

iFOREX.bg Forecasts and Trading Signals
http://www.zifx.com

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West Australia Ag Minister Sees Wheat Crop Yields Below Average

By Madelene Pearson

July 4 (Bloomberg) -- Western Australia, the nation's biggest grower of wheat, may see two thirds of its crop producing below-average long-term yields because of dry weather, the state's agriculture minister said.

The state may produce 6 million metric tons to 8 million tons of wheat this harvest, Kim Chance, 61, said today during an interview in his Perth office. The state's production of all grains may total 10 million tons, he said.

Australia, which is forecast to become the world's third- largest wheat exporter, relies on the state for about 40 percent of its total grain output. The chance of below-average rainfall is as much as 75 percent in parts of Western Australia between July and September, the country's weather forecaster has said.

``All of these predictions assume average rain between now and the end of September, so not a great outlook at all,'' Chance said. ``It could come in below that because those predictions are based on average rain.''

Global wheat prices rose to a record $13.495 a bushel on Feb. 27. Australia's worst drought on record has cut the nation's output for the past two harvests, dropping the country to number six among wheat exporting nations.

``This will be our third or fourth year in a row that we haven't been able to satisfy our core clients,'' Chance said. Prices ``are going to stay strong for a long time,'' as rising incomes in China and India drive demand, he said.

Western Australia may produce 8 million tons to 12 million tons of all grains, CBH Group, the state's biggest grain handler and marketer, said yesterday, restating an earlier forecast. Output of all grains may be between 10 million tons and 12 million tons, with the wheat crop forecast at 6.7 million tons, the West Australian Department of Agriculture said on June 6.

The U.S. is forecast as the world's largest wheat exporter in the year that began June 1, followed by Canada and Australia, according to the U.S. Department of Agriculture's latest estimate.

To contact the reporter on this story: Madelene Pearson in Perth at mpearson1@bloomberg.net



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Forex and Dow Jones Recommended Levels

Daily Forex Technicals | Written by FXtechtrade | Jul 04 08 02:24 GMT |

EUR/USD

Today's support: - 1.5654, 1.5636 and 1.5612(main), where correction is possible. Break would give 1.5596, where correction also may be. Then follows 1.5568. Break of the latter would result in 1.5543. If a strong impulse, we would see 1.5510. Continuation will give 1.5492.

Today's resistance: - 1.5708 and 1.5731(main). Break would give 1.5752, where a correction is possible. Then goes 1.5764. Break of the latter would result in 1.5795. If a strong impulse, we'd see 1.5820. Continuation will give 1.5846.
USD/JPY

Today's support: - 106.20, 105.94 and 105.72(main). Break would bring 105.53, where correction is possible. Then 105.24. If a strong impulse, we would see 105.05. Continuation would give 104.74 and 104.51.

Today's resistance: - 107.10 and 107.33(main), where a correction may happen. Break would bring 107.56, where also a correction may be. Then 107.81. If a strong impulse, we would see 108.03. Continuation will give 108.19 and 108.37.
DOW JONES INDEX

Today's support: - 11 125.00, 11 193.72, 11 179.68 and 11 162.60 (main), where a delay and correction may happen. Break of the latter will give 11 138.20, where correction also can be. Then follows 11 116.38. Be there a strong impulse, we would see 11 093.90. Continuation will bring 11 072.00 and 11 058.74.

Today's resistance: - 11 296.30, 11 317.40 and 11 340.00 (main), where a delay and correction may happen. Break would bring 11 373.72, where a correction may happen. Then follows 11 396.22, where a delay and correction could also be. Be there a strong impulse, we'd see 11 418.80. Continuation would bring 11 441.26.

FXtechtrade
http://www.fxtechtrade.com

Disclaimer: Any information presented by Nikolajs Serikovs at this very website should be in no way understood as an offer, promise or guarantee for receiving a profit or avoiding the losses. Stated here levels of support and resistance must not be construed as an investment advice or endorsement for any financial instrument. There exists no guarantee that the market would behave in accordance with the information stated here Prepared in Republic of Latvia for the worldwide distribution.



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Asian Stocks Drop to 20-Month Low; Kansai, Bumiputra Decline

By Chen Shiyin and Chua Kong Ho

July 4 (Bloomberg) -- Asian stocks dropped on concern record oil and slowing growth will dent profits. The region's benchmark index slumped to an 20-month low, while Japan's Nikkei 225 Stock Average extended its longest losing streak in 54 years.

Kyushu Electric Power Co. led power producers lower after oil rose above $145 a barrel. Bumiputra-Commerce Holdings Bhd. paced declines in Malaysia after UBS AG cut its forecast for banks' profits, citing higher consumer prices and weaker growth. State Bank of India fell after Morgan Stanley reduced its share- price estimates for the nation's government-run banks, citing slower loan growth.

``It's going to be a difficult second half unless we get a sharp fall in the oil price,'' said Lim Kok Boon, Singapore-based chief investment officer at Fortis Private Banking, which oversees $9 billion ``There's going to be a lot of pain.''

The MSCI Asia-Pacific Index declined 0.3 percent to 132.18 at 1:59 p.m. Tokyo time, after earlier dropping to 131.97, which would be the lowest close since November 2006. The index is set to complete a four-week, 12 percent slide, the longest losing streak since the period ended Feb. 8.

Japan's Nikkei 225 slid 0.8 percent to 13,162.41, capping a 12-day, 9 percent slump. The Kuala Lumpur Composite Index dropped 2.5 percent, Asia's largest decline, after trading resumed in Malaysia following a one-day suspension because of a systems failure. All Asian benchmark indexes declined this week, except Vietnam.

Most U.S. stocks fell yesterday, completing the longest streak of weekly declines in four years, after Nvidia Corp. cut its sales forecast. Markets are closed today for a holiday.

Kyushu, Tenaga

Kyushu Electric, Japan's fifth-largest power producer by market value, lost 1.1 percent to 2,185 yen. Chubu Electric Power Co. fell 2.1 percent to 2,525 yen. Tenaga Nasional Bhd., a Malaysian state-controlled power producer, dropped 3.8 percent to 7.70 ringgit.

Crude oil rose 1.2 percent to $145.29 a barrel yesterday in New York and touched a record high of $145.85 during the day. Futures have more than doubled from a year earlier, spurring finance ministers from the Group of Eight nations to say last month that surging food and fuel prices have replaced the credit squeeze as the biggest threat to the world economy.

``Investors have never experienced a surge in oil like this and they are clueless about when it ends or the effect on corporate earnings,'' said Yuuki Sakurai, general manager of financial and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $54 billion. ``This isn't a situation investors can cope with.''

MSCI's Asian index fell 13 percent in the first half, the worst start since 1992, as $400 billion in bank writedowns and credit-related losses and rising oil prices offset efforts by central banks to bolster confidence in financial markets.

Babcock & Brown

Declines among utilities were capped after Babcock & Brown Power said it will sell a power station for A$700 million ($672 million), using the profits to cut debt. The stock jumped 11 percent to 73.5 Australia cents, trimming its year-to-date loss to 73 percent.

Parent Babcock & Brown Ltd., Australia's second-biggest securities firm, rose 3.7 percent to A$7.22. The shares have declined 73 percent this year, the worst performer among the MSCI Asian index's 990 members.

Bumiputra-Commerce, the second-largest, dropped 4.6 percent to 7.20 ringgit, set for its lowest since November 2006. Malayan Banking Bhd., the No. 1 bank, lost 2.1 percent to 6.90 ringgit, while Public Bank Bhd., Malaysia's third-largest bank, slipped 2 percent to 10 ringgit.

Banks' Earnings

UBS cut its earnings estimates for banks, saying borrowers' abilities to repay loans have been affected by inflation. CLSA Ltd. also cut its share-price forecasts for Maybank, Public Bank and two other Malaysian banks.

Malaysia's inflation may reach a nine-year high of 5 percent in July after the government raised gasoline and diesel prices, Bank Negara Malaysia said earlier this month. The central bank will meet to review borrowing costs on July 25. Central banks in Indonesia, Taiwan, India, Vietnam and the Philippines have all boosted interest rates since the start of June.

Bursa Malaysia Bhd., operator of the nation's stock exchange, dropped 5.8 percent to 6.45 ringgit, set for the lowest close since November 2006. The trading suspension yesterday was caused by a hardware systems failure, ``the worst'' experienced by Bursa, Chief Executive Officer Yusli Mohamed Yusoff said yesterday.

State Bank, India's largest, fell 0.9 percent to 1,090.95 rupees. Morgan Stanley cut its price target for the company by 39 percent, and lowered estimates for Punjab National Bank, Bank of Baroda, Corporation Bank, Canara Bank, Union Bank of India, Bank of India, and Oriental Bank of Commerce.

In Hong Kong, Industrial and Commercial Bank of China Ltd., the world's largest lender by market value, led gains among Chinese banks after saying first-half profit probably rose by more than 50 percent. The shares rose 2.6 percent to HK$5.14, the most since May 13.

Shanghai Pudong Development Bank Co. rose 3 percent to 21.04 yuan in Shanghai after saying profit in the first half may have gained more than 140 percent on increased lending, higher fee income and a lower tax rate.

To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Chua Kong Ho in Shanghai at kchua6@bloomberg.net



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Asia Session Recap

Daily Forex Fundamentals | Written by Forex.com | Jul 04 08 05:46 GMT |

As the smoke cleared from yesterdays major data releases, we see the Dollar still standing strong, and actually continuing earlier gains into Asia. As you well know by now, EUR/USD fell two big figures as traders were alerted to the fact that US NFP data was really no worse than expected and ECB President muttered the words 'no bias' as to the expectations of future hikes. As of the Asia open we saw EUR/USD at 1.5703, and the pair eventually slid to lows of 1.5673 before crawling back above the figure to close the session right near 1.5715. Trichet's demure comments pretty much threw cold water on the chance of any more near term rate hikes, and caught many long Euro holders flat-footed. Traders are now left to speculate if the ECB hike can be a one and done scenario.

In USD/JPY the Greenback lost some ground in Asia, but not much, after a 106.71, 106.81 high, and a low of 106.60, the pair retired from Asia near 106.73….not overly active this session. The Yen crosses made modest gains, GBP/JPY gaining 30 pips from the open to 211.85, and EUR/JPY gaining 10 pips to 167.74.

In other pairs, USD/CHF cooled off from its early day highs of 1.0281 to 1.0255; as well USD/CAD did the same, falling to 1.0166 from earlier highs of 1.0191.AUD/USD looked powerful as it topped 0.9624 this session as it continues its astounding rise toward parity. AUD/NZD hit a 7 year high this session as it plowed to a high of 1.2725. This pair has just looked unstoppable.

The data in Europe is light, and the US markets are closed, although, as you know the FX markets are open for normal trading.

Upcoming Economic Data Releases (London Session):

7/4	5:00	JN	Leading Index CI	MAY P	92.80%	93.00%
7/4	10:00	GE	Factory Orders MoM (sa)	MAY	-1.80%	0.80%
7/4	10:00	GE	Factory Orders YoY (nsa)	MAY	15.00%	2.00%
7/4	14:00	CA	Ivey Purchasing Managers Index	JUN	62.5	62
7/5	10:00	EC	ECB's Trichet Speaks at Conference in Aix-en-Provence, France	5-Jul

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Japan Stocks Fall a 4th Week on Oil Concern; Tokai Carbon Rises

By Makiko Kitamura and Masaki Kondo

July 4 (Bloomberg) -- Japanese stocks headed for their fourth-straight weekly loss as record oil prices raised costs for companies and curbed the spending appetite of consumers.

Kyushu Electric Power Co. extended its decline to a third day. Seven & I Holdings Co. led retailers lower, while Round One Corp., which operates bowling alleys, sank to the lowest in three months. Tokai Carbon Co. soared the most in seven years on its plan to raise prices on graphite electrodes.

Crude has risen more than $5 a barrel this week, hitting a record $145.85 yesterday on concern Chinese demand may constrain supplies. Oil soared more than 50 percent this year, causing Japan's consumer prices to rise at the fastest in a decade.


``Investors have never experienced a surge in oil like this and they are clueless about when it ends or the effect on corporate earnings,'' said Yuuki Sakurai, general manager of financial and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $54 billion.

The Nikkei 225 Stock Average fell 77.56, or 0.6 percent, to 13,187.84 as of 1:03 p.m. in Tokyo, extending its drop to a 12th day, the longest streak in 54 years. The broader Topix index sank 7.98, or 0.6 percent, to 1,290.04. Almost two stocks fell for every two that gained on the Topix.

For the week, the Nikkei has sunk 2.6 percent, while the Topix is down 2.3 percent. Both gauges have fallen for four weeks.

Kyushu Electric dropped 1.8 percent to 2,170 yen, while bigger rival Chubu Electric Power Co. fell 1.2 percent to 2,550 yen. Market leader Tokyo Electric Power Co. slid 0.7 percent to 2,770 yen.

A $1 change in the price of a barrel of crude changes Tokyo Electric's annual earnings by about 16 billion yen ($150 million), according to the company.

Electrode Prices

Seven & I, the nation's largest retailer, dropped 1.6 percent to 3,070 yen and ABC-Mart Inc., which makes and sells shoes, lost 5.4 percent to 2,470 yen. Round One retreated 2.6 percent to 112,000 yen, en route to the lowest since April 1.

Tokai Carbon leapt 10 percent to 1,117 yen, set for the sharpest jump since March 2001 and was the biggest winner on the Nikkei. Nippon Carbon Co. gained 6.4 percent, after having lost 14 percent in the past eight days.

Tokai Carbon will raise electrode prices for export by about 70 percent to pass on surging costs and as demand increases in emerging markets, the Tokyo-based company said today.

Mitsui Sumitomo Insurance Group Holdings Inc. added 2.7 percent to 3,490 yen, leading insurance companies to the third- biggest winner as a group on the Topix. Bigger rival T&D Holding Inc. rose 1.3 percent to 6,430 yen, with Sompo Japan Insurance Inc. gaining by almost the same degree.

``Insurers have nothing to do with foreign exchange or crude prices, and there is always demand for their services,'' Fukoku's Sakurai said. ``Investors are buying these stocks because of the lack of choices.''

Nikkei futures expiring in September lost 0.2 percent to 13,200 in Osaka and fell 0.2 percent to 13,210 in Singapore.

To contact the reporters on this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net; Masaki Kondo in Tokyo at mkondo3@bloomberg.net.


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