HK shares seen giving up gains after Wall St slump

HONG KONG, July 10 (Reuters) - Hong Kong shares are expected to fall on Thursday as cautious investors take to the sidelines after steep losses in U.S. markets and a recovery in crude oil prices after a two-day slide.

U.S. stocks tumbled on Wednesday, dragging the S&P 500 into a bear market, as worries about more credit losses hurt financial companies and Cisco Systems led technology shares lower after its CEO raised fears of an extended economic downturn.

All three major stock indices fell more than 2 percent.
"Investors will go back to fretting about the U.S. credit crisis and likely weak corporate earnings today after Wall Street's overnight slump," said Alex Tang, research director with Core Pacific Yamaichi International.

Tang expects the main index to find support at the 21,000 level today and trend lower to 20,600 in the short term. Hong Kong shares rebounded 2.8 percent on Wednesday, recovering from the previous session's steep fall, after the U.S. Fed said it may keep open a lifeline for Wall Street banks battered by the credit crisis.

STOCKS TO WATCH

* Air China won approval from the securities regulator to make a previously announced offer of up to 400 million additional A shares, the flag carrier said on Wednesday.

The issue, equivalent to about 3.3 percent of the company's share capital, must be conducted within six months, it said in a brief statement.

At Wednesday's closing price for Air China's shares of 10.39 yuan, the offer could raise as much as 4.16 billion yuan ($607 million).

Plastics maker Bestway International Holdings Ltd has agreed to pay a combined HK$6.98 billion ($894.7 million) for two Mongolian resource prospectors. The first, with a price tag of HK$1.28 billion, has rights to a polymetallic mine covering roughly 4.88 square kilometres. The second, costing HK$5.7 billion, has rights to a coal mine covering an area no less than 200 square metres. For more details, see here

* China's fifth largest bank, Bank of Communications will sell 3 billion yuan worth of yuan-denominated bonds in Hong Kong starting next week, the South China Morning Post quoted unnamed sources as saying. It would be the first yuan bond issue by a Chinese bank this year. ---------------MARKET SNAP SHOT @ 23:00 GMT ------------------

INSTRUMENT LAST PCT CHG NET CHG S&P 500 .SPX 1,244.69 -2.28% -29.010 USD/JPY 106.87 0.08% 0.090 10-YR US TSY YLD 3.809 -- 0.000 SPOT GOLD $927.60 -0.02% -0.150 US CRUDE CLc1 $135.96 -0.07% -0.090 DOW JONES .DJI 11147.44 -2.08% -236.77 ASIA ADRS .BKAS 143.73 -1.47% -2.15 -------------------------------------------------------------> > SE Asian Stocks-Firmer as oil recoils, but Iran weighs [.SO] > Iran saber-rattling sends dollar tumbling broadly [USD/] > TREASURIES-Bonds gain as stocks fall on financials worry [US/] > Gold firms on Iran missile launch, rise in oil [GOL/] > Oil pulls out of nose-dive as US supplies drop [O/R] > US STOCKS-S&P 500 plunges into a bear market [.N] (Reporting by Parvathy Ullatil; Editing by Anne Marie Roantree)

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Nikkei falls on economic and credit worries

TOKYO, July 10 (Reuters) - The Nikkei stock average fell 0.7 percent on Thursday, led by exporters such as Kyocera Corp following a steep drop on Wall Street on growing worries about the economy and credit problems.

Bank shares were mixed, with top lender Mitsubishi UFJ Financial Group rising 0.9 percent while No. 2 Mizuho Financial Group lost 1 percent.

Market analysts said the Tokyo market, which pared most of its earlier gains on Wednesday after news of an Iran missile test, was unlikely to fall sharply as one of investors' biggest worries had not materialised.

"There were fears about a jump in oil prices after Iran's missile test, but they didn't change much, and forex moves are also relatively calm," said Norio Shimura, deputy head of the equity department at Chuo Securities.

"Given U.S. stocks' falls, we are seeing selling this morning, but after that runs its course, the Nikkei might even regain ground back to 13,000," he said.

As of 0040 GMT, the benchmark Nikkei .N225 had fallen 95.45 points to 12,962.24. The broader Topix lost 0.4 percent to 1,279.89.

U.S. stocks tumbled on Wednesday, dragging the S&P 500 into a bear market, as worries about more credit losses hurt financial companies and Cisco Systems led technology shares lower after its CEO raised fears of an extended economic downturn.

High-tech parts maker Kyocera fell 2.1 percent to 9,150 yen, the biggest drag on the Nikkei.

Mitsubishi UFJ rose to 964 yen and Mizuho fell to 507,000 yen.

GS Yuasa Corp jumped 3.6 percent to 459 yen after the Nikkei business daily said Mitsubishi Motors Corp will start selling electric cars to retail customers next year, a year ahead of schedule, as it sees opportunities for these cars amid surging gasoline prices.

GS Yuasa, Asia's biggest car battery firm, has set up a joint venture with Mitsubishi Motors and Mitsubishi Corp to produce lithium-ion batteries for electric cars.

Mitsubishi Motor rose 1.6 percent to 190 yen, while Mitsubishi fell 1.9 percent to 3,140 yen. (Reporting by Taiga Uranaka; Editing by Chris Gallagher)

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China 'committed to fighting' climate change

(China Daily)
Updated: 2008-07-10 06:45

TOYAKO, Japan: The world has to fight climate change together but the responsibilities of the developed and developing countries in this battle has to be different, President Hu Jintao reiterated Wednesday.

Speaking at the Major Economies Meeting on Energy Security and Climate Change, he said global warming is the common concern of the world.

But the UN Framework Convention on Climate Change reflects the international consensus on the "common but differentiated responsibilities" of different countries, Hu said on the sidelines of the Group of Eight (G8) Summit.

He urged the world's major economies to play an exemplary role in meeting the needs of the UN convention and the Kyoto Protocol.

He suggested the major economies take forward international negotiations on climate change, and urged them to take the lead in carrying out practical cooperation.

The G8 has announced that it would cut its greenhouse gas emissions by half by 2050.

But the eight richest countries have not specified what the base year for the cut would be, making the target vague.

That's why the developing countries, including China and India, invited to the G8 talks, are not impressed. They want the G8 to reduce its emissions further because historically the richest countries are the world's biggest polluters and economically the most capable of adapting to the needed changes.

Hu reaffirmed China's pledge in the fight against global warming, and said it is determined to tackle the issue.

China has taken a series of measures that include saving energy and cutting emissions. It has set specific energy-saving targets, including reducing the energy consumption per unit of GDP by 20 percent by 2010, and increasing the forest cover to 20 percent. China is committed to meeting these targets, and is "ready to work with the rest of the world to achieve harmonious, clean and sustainable development", Hu said.

Xinhua





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Australian Dollar Rises on Speculation Jobs Rebounded in June

By Candice Zachariahs

July 10 (Bloomberg) -- The Australian dollar gained against the U.S. currency for the first time in five days before a government report expected to show employment rebounded in June.

The currency climbed the most in two weeks on speculation a mining boom will spur jobs growth and prompt traders to resume betting the central bank raise interest rates for a third time this year to cool inflation. The number of people employed rose 10,000 last month after a 19,700 drop in May, according to the median estimate of 25 economists surveyed by Bloomberg News.

``The Australian economy is in a very strong shape in large part because of the global commodity boom,'' said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation's largest lender. ``That's feeding through to a strong Australian dollar, lots of spending and that means more employment.''

The Australian dollar rose 0.4 percent to 95.57 U.S. cents at 9:39 a.m. in Sydney, from 95.17 cents in late Asian trading yesterday. It bought 102.07 yen from 102.19.

Demand for commodities from emerging markets including China and India helped exports rise to a record in May, helping to offset falling consumer spending and business confidence. Prior to the jobs decline in May, Australian employers had added workers every month from October 2006, the longest run of gains since the government began publishing monthly figures in 1978.

The statistics bureau will release the employment report at 11:30 a.m. in Sydney.

Rebounding Currency

The Australian dollar fell to a three-week low yesterday as traders reduced bets the central bank will raise borrowing costs after a government report showed home-loan approvals slid by the most in eight years and a private-sector survey of consumer confidence dropped to the lowest level since 1992.

Traders have assigned 12 percent odds to the Reserve Bank of Australia raising its 7.25 percent benchmark interest rate by a quarter-percentage point in the next 12 months, according to a Credit Suisse Group index based on trading in interest-rate swaps. The probabilities were 72 percent a week ago.

Australian government bonds gained for a fifth day. The yield on the 10-year bond fell 4 basis points, or 0.04 percentage point, to 6.30 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.257, or A$2.57 per A$1,000 face amount, to 91.902. Bond yields move inversely to price.

To contact the reporter on this story: Candice Zachariahs in New York at czachariahs1@bloomberg.net.



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Japan Should Create $33 Billion Sovereign Wealth Fund, Ito Says

By Ron Harui and Liza Lin

July 10 (Bloomberg) -- Japan should start a sovereign wealth fund with about $33 billion in assets, using interest earned on its $1 trillion of foreign reserves, said Takatoshi Ito, a member of a government advisory committee.

The fund would invest in higher-yielding assets overseas including equities, Ito said in a Bloomberg Television interview in Singapore. It needs to be set up ``as soon as possible'' to avoid exchange-rate fluctuations that may hurt the nation's reserves, he added.

The value of the $592 billion that Japanese investors, including the government, hold in U.S. Treasuries has been eroded in the past 12 months by the dollar's 12 percent drop against the yen. Ito, a member of Prime Minister Yasuo Fukuda's key economic panel, has scaled back his plan since suggesting a $700 billion fund a year ago because of opposition from the Ministry of Finance.

``My proposal is to take interest income separate from foreign reserves, accumulate it and manage it more actively,'' Ito said. ``The reserves are very exposed to currency and interest-rate risks in the future, so this is not desirable.''

He estimates that the government receives interest payments of about 3.5 trillion yen ($33 billion) a year on the reserves, which are held in highly-liquid assets such as Treasuries.

Japan's foreign reserves are second only to those of China, which set up a sovereign wealth fund to manage $200 billion of its $1.68 trillion of reserves in September. Assets managed by such funds will triple to more than $10 trillion by 2015, International Financial Services London said in March.

Carry Trade

Finance Minister Fukushiro Nukaga said in March the ministry focuses on liquidity and safety in managing the reserves. His ministry has said the money should be used in case Japan needs to intervene in the currency markets.

The finance ministry is ``opposed to doing anything about foreign reserves,'' said Ito, who described the current investment strategy as ``basically a huge carry trade.''

In such trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency market moves erase those profits. The benchmark interest rate is 0.5 percent in Japan, compared with 2 percent in the U.S., 8.25 percent in New Zealand and 12.25 percent in Brazil.

The yen has risen against 12 of the 16 most-active currencies in the past year as deepening credit-market losses prompted investors to cut carry trades. The currency traded at 106.83 per dollar as of 8:30 a.m. in Tokyo from 106.76 late in New York yesterday. It reached 95.76 on March 17, the strongest since Aug. 15, 1996.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Liza Lin in Singapore at llin15@bloomberg.net



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G8 couldn't push emitters to set targets

Thursday, July 10, 2008

Despite fading clout, group gets China, India, Brazil to join global warming fight, if their growth isn't victim

By REIJI YOSHIDA,Japantimes
Staff writer

TOYAKO, Hokkaido — The three-day Group of Eight summit in Toyako, Hokkaido, concluded Wednesday as the major industrialized powers and key emerging economies agreed to jointly fight global warming but failed to set any quantitative goals to substantiate their pledge.

"We, the leaders of the world's major economies, both developed and developing, commit to combat climate change in accordance with our common but differentiated responsibilities and respective capabilities," said a joint statement by the G8 states and eight other major greenhouse gas-emitting countries.

But five of the eight non-G8 participants — namely China, India, Brazil, South Africa and Mexico — turned down the G8's call to share a target to halve global emissions of greenhouse gases by 2050, a goal that was barely agreed on by the industrial countries the previous day.

Of the eight countries invited to the outreach session of the annual G8 summit, only Indonesia, South Korea and Australia expressed support for the long-term goal, according to a senior Japanese official who monitored the closed-door session of the top world leaders.

The five emerging powers reiterated they will not sacrifice their future economic growth for the sake of emissions cuts without the developed countries first making bold cuts themselves.

"There has not been any dramatic change in the positions of each participant," the official said.

Still, Prime Minister Yasuo Fukuda, the chair of this year's G8, praised the joint statement as a step to promote United Nations-led negotiations to establish a post-Kyoto Protocol agreement to curb global emissions. "This is a big achievement. . . . We have made a contribution to accelerate negotiations (to reduce emissions) at the United Nations," Fukuda said.

The joint statement released after Wednesday's talks between the G8 and emerging economies said, "We support a shared vision for long-term cooperative action, including a long-term global goal for emission reductions, that assures growth, prosperity and other aspects of sustainable development.

"Taking account of the science, we recognize that deep cuts in global emissions will be necessary to achieve the ultimate objective (of the U.N. Framework Convention on Climate Change)," it added.
Observers say this year's G8 summit has revealed the limits of the influence of the G8, given the growing clout of emerging economies and new global challenges such as soaring food and oil prices.

At a news conference wrapping up the summit, Fukuda was asked if the various written agreements pledging cooperation among the G8 nations can stop global inflation, a focus of crucial interest to people in developing nations.

Fukuda avoided a direct answer, only mentioning some of the measures agreed on by the G8 leaders at the summit.

Specifically, he cited the agreements to improve the transparency of oil futures trading by strengthening government monitoring, to extend emergency food aid and to provide long-term assistance to improve agricultural productivity in developing countries.

Fukuda also argued that all 16 countries that took part in Wednesday's discussion on climate change recognized the seriousness and urgency of global warming.

However, environmental groups were quick to lash out at the omission of any numerical targets in the declaration to cut greenhouse gases.

Indeed, forming any consensus on specific reduction targets between developed and developing countries is considered an extremely difficult task, since capping a nation's carbon dioxide emissions could directly affect its economic growth.

Thus talks over setting an emissions-reduction target are considered a diplomatic battle between developed and developing nations over the global distribution of future economic growth.

Tactically, there may not be many incentives for emerging economies to rush to clinch a deal with developed countries at this point, as negotiations over emissions are ongoing toward a meeting of the U.N. Framework Convention on Climate Change to be held in Copenhagen at the end of 2009.

"Developing countries must consider Copenhagen as the main battlefield of the negotiations," said a senior negotiator at the Foreign Ministry ahead of the G8 summit.

In addition, talks will be greatly affected by the environmental policies of the next president of the United States, who will replace George W. Bush in January.

The G8 countries — Japan, Britain, France, Germany, Italy, Canada, the U.S. and Russia — together with the eight guest states account for 80 percent of global greenhouse gas emissions.

"In order to address climate change, all major economies must be at the table. And that's what took place today," Bush said Wednesday at Toyako. "The G8 expressed our desire to have a significant reduction in greenhouse gases by 2050. We made it clear and the other nations agreed that they must also participate in an ambitious goal," he added.

Separately, Australian Prime Minister Kevin Rudd said the summit marked "a positive steppingstone" toward further global cooperation to deal with climate change.

"There has been no huge breakthrough" for a new international framework to fight global warming after the 1997 Kyoto Protocol expires in 2012, he acknowledged. But Rudd said the G8 agreement to seek to share the vision of halving global emissions by 2050 is a "step forward."




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Japan's Stock Futures Fall on Concern Credit Turmoil May Linger

By Masaki Kondo and Makiko Kitamura

July 10 (Bloomberg) -- Japan's stock futures fell on concern turmoil in the global financial market hasn't reached an end and a slowdown in the U.S. economy will weigh down company earnings.

U.S.-traded receipts of Sumitomo Mitsui Financial Group Inc. fell 2.6 percent from the closing share price in Tokyo yesterday after Fitch Ratings said it may cut its credit rating on Merrill Lynch & Co. Advantest Corp., the world's biggest maker of memory- chip testers, declined 0.9 percent after Merrill Lynch said slowing demand in the U.S. and emerging markets will crimp Intel Corp.'s earnings.

``It's likely the drop in financial shares in the U.S. will have a big impact on the Japanese market,'' Mitsushige Akino, who manages the equivalent of $557 million at Ichiyoshi Investment Management Co. in Tokyo, said in an interview with Bloomberg Television. ``Domestic demand is bad, export-related demand is bad; it's going to be a weak day.''

Nikkei 225 Stock Average futures expiring in September last traded at 13,010 in Chicago, 0.8 percent lower than the close of 13,120 in Osaka and 1 percent down from 13,145 in Singapore yesterday. The Bank of New York Japan ADR Index, which tracks American depositary receipts of Japanese companies, slid 1.6 percent.

Merrill Lynch, the third-largest U.S. securities firm, plunged to the lowest in almost six years in New York yesterday after Fitch placed the brokerage on Rating Watch Negative, owing to its worsening earnings outlook. Meanwhile, Fannie Mae paid a record yield over rates on two-year notes on concern the largest U.S. mortgage-finance company doesn't have enough capital to weather the housing slump.

The Nikkei rose 0.2 percent to 13,052.13 in Tokyo yesterday. The broader Topix index added 0.2 percent, to 1,285.53.

Waning Spending

Corporate technology spending has diminished, and consumers in emerging countries have slowed purchases, hurting Intel's earnings, a Merrill Lynch analyst said yesterday. There were ``signs of slowdown'' last month, especially in China and Europe, the brokerage said.

Meanwhile, Cisco Systems Inc., the world's biggest maker of computer-networking equipment, may forecast revenue in the quarter to October will be little changed or decline from the preceding three months, UBS AG said yesterday. Corporate customers and telecommunications carriers may curb their spending this year, Nikos Theodosopoulos an analyst at the brokerage, said.

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



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New Zealand's Manufacturing Contracts for Third Time

By Tracy Withers

July 10 (Bloomberg) -- New Zealand's manufacturing industry contracted for the third time in four months in June, adding to signs the economy has slipped into a recession.

The manufacturing index dropped to 45.7 from 47.9 in May, Bank of New Zealand Ltd. and Business New Zealand Ltd. said in a report e-mailed to Bloomberg News today. The index fell to the second-lowest since the survey began in June 2002. A reading below 50 indicates that manufacturing is contracting.

Declining production adds to signs the economy's expansion has stalled as record borrowing costs curb domestic demand and weak global growth hurts exports. The economy contracted 0.3 percent in the first quarter and eight of 13 economists surveyed by Bloomberg News expect it also shrank in the three months ended June 30.

``The first half of 2008 has been the toughest six months manufacturers have had to deal with for some time,'' said Phil O'Reilly, chief executive of Business New Zealand, a Wellington- based employer group.

O'Reilly said 75 percent of comments from manufacturers were negative as they experience the consequences of a slowing domestic economy, weak global growth and rising costs of raw materials.

The overall manufacturing index measures production, employment, new orders, finished stock and deliveries.

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



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King's Hands `Tied' as U.K. Economy Edges Closer to a Recession

By Brian Swint and Jennifer Ryan

July 10 (Bloomberg) -- Bank of England Governor Mervyn King may have little option other than to stand by and watch as the U.K. edges closer to its first recession in a generation.

Inflation accelerated to the fastest pace in more than a decade in May, making it harder for King to cut interest rates and help an economy threatened by falling house prices, record oil costs and tighter credit. Policy makers will probably leave the key rate at 5 percent today, according to all but one of the 49 economists in a Bloomberg News survey.

``Their hands are tied,'' said Amit Kara, an economist at UBS AG in London. ``The outlook for growth has clearly deteriorated, but on the flip side inflation is set to get worse. It's hard to see them doing anything other than holding rates unchanged.''

Prime Minister Gordon Brown's popularity is waning as the deteriorating economy erodes consumer confidence and companies including homebuilder Persimmon Plc and Barclays Plc cut jobs. King, chairing the first rate decision of his second term today, has already signaled that Britons should brace themselves for a decline in living standards.

Inflation accelerated to 3.3 percent in May, exceeding the government's upper 3 percent limit for only the second time in a decade. At the same time, surveys show services and manufacturing industries contracted in June, billionaire investor George Soros says a recession is ``likely'' and Lehman Brothers Holdings Inc. says the economy may start to contract this quarter.

``I know that some families will find it particularly difficult,'' said King, who doesn't expect a recession, on June 19. ``These changes to our spending power and to the housing market are real shifts that, although not easy to accept, we cannot side-step.''

Voter Confidence

Brown is losing Britons' confidence as growth slows. Seventy- two percent of respondents said they're not satisfied with his performance since he succeeded Tony Blair last year, according to a poll by Populus Ltd. published July 7. A separate poll last week showed voters are more concerned about inflation now than at any time since 1990.

Consumer confidence fell to the lowest in 18 years last month, GfK NOP Ltd. says. Marks & Spencer Group Plc lost a quarter of its value on July 2 after saying trading conditions won't improve for two years. Persimmon, the U.K.'s second-biggest homebuilder, said July 8 it's eliminating 1,100 jobs.

``A recession could really put the bank into a tough position,'' said Peter Newland, an economist at Lehman.

Raising Rates

For now, King and his colleagues on the nine-member Monetary Policy Committee are signaling they're more likely to follow the European Central Bank and raise rates rather than cut them. At least four policy makers have said they considered increasing borrowing costs last month and King said June 26 that inflation may exceed 4 percent this year.

The ECB last week raised its benchmark lending rate to a seven-year high of 4.25 percent. The Federal Reserve's benchmark stands at 2 percent.

``The bank isn't in a position where it feels it can cut rates,'' said David Page, an economist at Investec Securities in London. ``They're going to have to leave rates on hold until next year.''

U.K. borrowing costs are rising independently of monetary policy as the credit squeeze deepens. Brown was forced to nationalize Northern Rock in February and Bradford & Bingley Plc, the biggest lender to U.K. landlords, was last week unable to complete a rights offer to boost capital.

`Grave Concern'

Banks are also refusing to pass on the Bank of England's three rate cuts since December, threatening to exacerbate the housing slowdown. The rate on a home loan fixed for two years rose to 6.63 percent in June, the highest since February 2000, the Bank of England said yesterday.

Labour Party Deputy Leader Harriet Harman, standing in for Brown in Parliament yesterday, said ``the current state of the U.K. housing market is of grave cause for concern.''

``We are at a dangerous point when businesses are starting to act like a recession is due,'' said Adam Lent, head of economics at the Trades Union Congress, which represents 7 million workers and is calling for a rate cut today. ``The MPC needs to send a clear message that it is doing all it can to ease the credit crunch.''

While King says a sharp slowdown could push inflation below its central 2 percent target, giving them room to ease policy, economists including Lehman's Newland say a contraction would create as many problems as it would solve.

``Once people feel like the economy is in a downward spiral it becomes harder to get the economy back on an even keel,'' said Newlannd. ``No one wants one.''

To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Jennifer Ryan in London at Jryan13@bloomberg.net



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Rift With Emerging Economies Grows Amid Calls to Expand G-8

By James G. Neuger

July 10 (Bloomberg) -- The Group of Eight summit ended with the world's richest nations at odds with the most populous ones over climate change, agriculture subsidies and food prices.

The emerging economies represented at the meeting, led by India and China, refused to sign on to the G-8's pledged 50 percent cut in emissions by 2050, even after pressure from U.S. President George W. Bush. They also complained about subsidies developed nations give farmers.

The G-8, for its part, carped at its poorer cousins for stockpiling food supplies and keeping currencies artificially cheap to give exports a competitive edge.

Discord at the meeting, on the Japanese island of Hokkaido, raised questions about the future suitability of the G-8 as a forum to tackle global issues. After the emerging-economy guests upstaged the summit, French President Nicolas Sarkozy told reporters that meetings of the eight wealthiest nations are too exclusive.

``G-8 is an outdated concept,'' said Sung Won Sohn, a former White House economist and retired president of Los Angeles-based Hanmi Financial Corp., the largest Korean-American bank, in an interview. ``It is a rich-countries' party. It should be expanded to include key players in the world economy.''

Sarkozy's call for a bigger ``G'' to coordinate global economic policies was ignored by most leaders and shrugged off by next year's host, Italian Prime Minister Silvio Berlusconi. He said the current format permitted ``frank conversations.''

Wealth, Population

The G-8 -- the U.S., the U.K., Japan, Germany, Italy, France, Canada and Russia -- represents 870 million people who generate 62 percent of the world's economy, according to the University of Toronto's G8 Research Group. The so-called G-5 developing nations that attended the summit -- China, India, Brazil, Mexico and South Africa -- account for 11 percent of global output and 2.8 billion people, 41 percent of the world's population.

The division between the G-8 and the emerging economies was evident in the summiteers' pronouncements on the environment. Bush said ``all major economies'' needed to work together to reduce greenhouse-gas emissions, while Indian Prime Minister Manmohan Singh said eradicating poverty should come first because ``a quarter of our population lives on less than a dollar a day.'

The finger-pointing reopened a debate over whether the advanced economies' club, which expanded to eight when Russia joined in 1998, should enlarge again to reflect the global economic realignment.

Quality Dialogue

``Don't call it G-13, don't call it G-16,'' said Jose Angel Gurria, a Mexican who is secretary-general of the Organization for Economic Cooperation and Development, in an interview. ``Just keep the quality of the dialogue.''

At a press conference, Sarkozy said it was ``unreasonable to seek to tackle global issues without India, China, a country from South America, one from Africa and even an Arab country.''

Three leaders gave brief reactions and no substantial discussion ensued, according to a Japanese official's account of the closed-door meeting.

Every G-5 member will grow faster than the 1.3 percent rate projected for the ``advanced economies'' this year, led by China at 9.3 percent and India at 7.9 percent, according to the International Monetary Fund.

``It's not 1975 anymore, so for core economic issues in the globalized world, China and India are indispensable,'' said Andrew Cooper, associate director of the Centre for International Governance Innovation in Waterloo, Canada.

Climate Dispute

The biggest dispute between the two camps came over climate change. The G-8 said the route to solutions led through the G-5. Bowing to demands by Bush, the industrial eight -- producing 62 percent of global greenhouse gases -- insisted on ``sharing'' the goal of cutting carbon pollution with the less energy efficient developing world.

The G-5 issued its response from Sapporo, a half-hour helicopter ride from the G-8 enclave. In a dig at the gas- guzzling habits of SUV-driving Americans, the five demanded ``sustainable consumption patterns and lifestyles'' in the northern hemisphere.

Yesterday, the G-5 succeeded in stripping the numerical targets out of a joint statement with the G-8, along with Australia, Indonesia and South Korea. Mexican President Felipe Calderon said the rich world was shirking its ``unavoidable responsibility.''

Undervalued Currencies

G-8 criticisms weren't limited to climate. Taking aim at China, the G-8 leaders said some emerging economies are profiting from unfairly undervalued currencies.

Countries including India, China and Vietnam also were rebuked for stockpiling foods such as rice and corn to cope with rising prices instead of exporting them.

The lesser-developed countries blamed rich-world agricultural subsidies -- such as the European Union's 2008 handouts of 55 billion euros for farming and rural aid, or the five-year, $289 billion farm bill endorsed by the U.S. Congress in May -- for inflating prices and stifling food production in the southern hemisphere.

``There's no gain, no use to try to find a kind of scapegoat,'' IMF Managing Director Dominique Strauss-Kahn said in an interview.

Italy's Berlusconi will host next year's wrangling at a former American nuclear submarine base on Santo Stefano, a pink granite island off the northeast coast of Sardinia.

The Group of Five will be ready: It plans to meet two months earlier in Brazil.

To contact the reporter on this story: James G. Neuger in Toyako, Japan at jneuger@bloomberg.net



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Yen, South Korean Won, Malaysian Ringgit: Asia Currency Preview

By Aaron Pan

July 10 (Bloomberg) -- The following events and economic reports may influence trading in Asian currencies today.

Exchange rates are from the previous session.

Japanese yen: The Bank of Japan will release the nation's Corporate Goods Price Index for June at 8:50 a.m. The Ministry of Finance will release the current-account balance for May and weekly portfolio flows data at the same time.

Chief Cabinet Secretary Nobutaka Machimura will hold briefings at 11 a.m. and 4 p.m. in Tokyo. Vice Finance Minister Kazuyuki Sugimoto will talk to reporters at 5 p.m.

The yen was at 107.52 a dollar as of 7:47 a.m. in New York.

South Korean won: Bank of Korea policy makers will meet today to decide on interest rates. The central bank will leave borrowing costs unchanged at 5 percent, according to 19 of the 21 economists surveyed by Bloomberg News. Two predict an increase to 5.25 percent.

The won closed at 1,004.90.

Malaysian ringgit: Industrial production expanded 3.5 percent in May from a year earlier, economists said in a survey before a statistics department report tomorrow. Factory output rose 4.3 percent in April.

The ringgit was at 3.2440.

Philippine peso: Annualized export growth in May slowed to 4.5 percent from 4.9 percent in April, economists said before a government report today.

The peso was at 45.545.

Indian rupee: Industrial production expanded 6.5 percent in May from a year earlier, economists said in a survey before a government report tomorrow. Output rose 7 percent in April.

The rupee was at 43.135.

To contact the reporter on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net.



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New Zealand Dollar Rises Most in Two Weeks as U.S. Stocks Drop

By Candice Zachariahs

July 10 (Bloomberg) -- The New Zealand dollar rose the most in almost two weeks against the U.S. currency as a drop in U.S. equities increased the allure of the nation's higher-yielding assets.

The kiwi, as the local currency is called, gained for a second day as concern over the financial health of mortgage finance companies Fannie Mae and Freddie Mac led to a 2.3 percent drop in the Standard & Poor's 500 Index, capping the benchmark index's 20 percent drop since October.

``New Zealand still has fairly wide rate spreads,'' said David Watt, a senior currency strategist in Toronto at RBC Capital Markets, a unit of Canada's largest bank. ``Some people are nibbling at the margins.''

The currency rose 0.5 percent to 75.77 U.S. cents at 8:43 a.m. in Wellington, from 75.41 U.S. cents in late Asian trading yesterday. That's the highest level since July 3. The kiwi bought 80.91 yen, compared with 80.99 yen yesterday.

The benchmark interest rate in New Zealand is 8.25 percent compared with 0.5 percent in Japan and 2 percent in the U.S. making it a favorite for carry trades. In the transactions, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the borrowing and lending rates. The risk is currency market moves erase those profits.

Reserve Bank Governor Alan Bollard said on June 5 it is ``likely'' he will reduce interest rates this year because weak economic growth is slowing inflation. Three of 13 economists surveyed by Bloomberg News expect a reduction to 8 percent at the next meeting on July 24.

New Zealand's dollar has declined 5 percent in the past three months, the worst performer among the 16 most-traded currencies against the U.S. dollar.

To contact the reporter on this story: Candice Zachariahs in New York at czachariahs1@bloomberg.net



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Dollar May Fall for Second Day on Concern Over Fannie, Freddie

By Stanley White and Ye Xie

July 10 (Bloomberg) -- The dollar may fall against the euro for a second day on speculation losses may deepen at Fannie Mae and Freddie Mac, the largest sources of financing for U.S. home loans.

The dollar may also extend declines against the yen after Fannie Mae sold $3 billion of debt yesterday at record yield spreads over benchmark rates. The yen may advance against the Australian and New Zealand dollars as declining stocks prompt investors to pare holdings of higher-yielding assets funded with the Japanese currency. Federal Reserve Chairman Ben S. Bernanke and U.S. Treasury Secretary Henry Paulson testify before Congress today on financial market regulation.

``Freddie Mac and Fannie Mae could be the catalyst for further dollar declines,'' said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust and Banking Co. Ltd., a unit of Japan's largest brokerage. ``The U.S. financial sector isn't healthy. Things are likely to get worse, and that isn't fully reflected in the value of the dollar.''

The dollar traded at $1.5733 per euro at 8 a.m. in Tokyo from $1.5743 yesterday. The U.S. currency bought 106.86 yen from 106.76 yen. The yen was at 168.10 per euro from 168.06. The dollar may fall to $1.58 per euro and 106 yen today, Amikura forecast.

Against the Australian dollar, the yen traded at 102.03 from 102.16. It was quoted at 80.85 per New Zealand dollar from 80.95. The Standard & Poor's 500 Index fell 2.3 percent yesterday.

In carry trades investors borrow in countries with low interest rates and invest in high-yielding assets elsewhere. Japan's 0.5 percent target lending rate compares with 7.25 percent in Australia and 8.25 percent in New Zealand.

Fannie Mae

The Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six U.S. trading partners, fell 0.6 percent to 72.580 yesterday.

Fannie Mae's 3.25 percent benchmark notes priced to yield 3.27 percent, or 74 basis points more than comparable U.S. Treasuries, the Washington-based company said yesterday in an e- mailed statement. That's the biggest spread since Fannie Mae first sold two-year benchmark notes in 2000.

The dollar has fallen 11 percent against the euro since September, when the Federal Reserve made the first of seven reductions in its target lending rate, now 2 percent, to prevent the housing slump and credit market losses from plunging the U.S. economy into a recession.

Bernanke and Paulson are scheduled to testify before Congress at 10 a.m. today in Washington. The Fed may extend securities dealers' access to direct loans from the central bank into next year as long as emergency conditions continue, Bernanke said on July 8.

ECB, Inflation

European Central Bank President Jean-Claude Trichet told the European Parliament in Strasbourg, France, yesterday that the level of inflation is ``worrying.'' He also said it's important for the U.S. to repeat support for a strong currency.

Traders yesterday increased bets the ECB will raise borrowing costs again to curtail 4 percent annual inflation, twice policy makers' 2 percent target. The implied rate on the December Euribor interest-rate futures contract rose 0.02 percentage point to 5.12 percent.

Trichet said last week that he has ``no bias'' for monetary policy after increasing the ECB's main refinancing rate by a quarter-percentage point to 4.25 percent.

The yield advantage of two-year German bunds over comparable-maturity Treasury notes rose to a one-week high of 1.97 percentage points yesterday, making the European securities more attractive to investors.

``The risk is that the ECB will raise interest rates again,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``That will keep the euro relatively supported.''

To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.netYe Xie in New York at yxie6@bloomberg.net



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Oil Is Steady After Report Shows Drop in Supplies on West Coast

By Mark Shenk

July 10 (Bloomberg) -- Crude oil was little changed after a U.S. Energy Department report showed that an inventory drop occurred mostly on the West Coast, where the distribution system is isolated from the rest of the country.

Nationwide oil supplies declined 5.84 million barrels to 293.9 million barrels last week, the report showed. Stockpiles on the West Coast, known as PADD 5, fell 4.82 million barrels to 53.6 million. Total inventories of gasoline and distillate fuel, a category that includes heating oil and diesel, rose.

``The decline was mostly in PADD 5, so the market reaction was muted,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``The West Coast is detached from the rest of the country so any impact is mitigated.''

Crude oil for August delivery fell 31 cents to $135.74 a barrel at 8:06 a.m. Sydney time on the New York Mercantile Exchange. Yesterday, futures rose 1 cent to settle at $136.05 a barrel. Prices are up 88 percent from a year ago. Oil touched a record $145.85 a barrel on July 3.

The department released its weekly report on inventories yesterday in Washington.

Brent crude oil for August settlement rose 15 cents to settle at $136.58 a barrel yesterday on London's ICE Futures Europe exchange. Prices climbed to a record $146.69 on July 3.

Nigerian Resumption

Prices retreated from overnight highs after Royal Dutch Shell Plc said it resumed contracted deliveries of crude oil from Nigeria's offshore Bonga field that was shut after a militant attack last month.

Shell, Europe's biggest oil producer, lifted a so-called force majeure declaration on Bonga exports yesterday, Shell spokesman Rainer Winzenried said in a telephone interview. Force majeure is a legal clause which allows producers to miss contracted deliveries because of circumstances beyond their control.

Winzenried declined to comment on the loading schedule or current output levels. Bonga is producing ``enough to fulfill contracts,'' he said.

Shell stopped pumping oil from Bonga on June 19 after militants attacked the production and storage vessel at the deepwater field, 120 kilometers (75 miles) off the coast of Nigeria. Output resumed on June 24.

Nigerian output has been slashed over the past two years because of attacks on facilities. Nigeria produces low-sulfur, or sweet, crude oil, prized by U.S. refiners because of the proportion of high-value gasoline and distillate fuel it yields.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.



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Canada Stocks Fall on Credit Concern, Led by Royal Bank, EnCana

By John Kipphoff

July 9 (Bloomberg) -- Canadian stocks fell, led by financial companies, on concern banks and insurers face further credit losses. Royal Bank of Canada, the nation's biggest lender, paced the decline, dropping the most in almost four years.

The Standard & Poor's/TSX Composite Index erased an earlier advance after crude oil gave up gains and natural gas prices fell, sending energy shares including EnCana Corp. lower. Raw-materials producers such as Potash Corp. of Saskatchewan Inc. joined the selloff late in the session.

``There are more writedowns coming,'' said Andrew Martyn, who helps manage about $450 million at Toronto-based Davis-Rea Ltd. ``Investors better put on their crash helmets.''

The S&P/TSX dropped 1.4 percent to 13,610.84 in Toronto after climbing as much as 1.2 percent. Canada's stock benchmark has retreated 9.7 percent from its June 18 record of 15,073.13.

Royal Bank slid 4 percent to C$44.16, the most since Aug. 2004. The bank may record pretax writedowns of as much as C$1.5 billion ($1.48 billion) in the third quarter, on widening credit spreads and deteriorating subprime investments, Genuity Capital Markets analyst Mario Mendonca said in a note.

Manulife Financial Corp., Canada's biggest insurance company, dropped 4.1 percent to C$35.46 today, almost wiping out its advance yesterday, which was the biggest in four years.

Crude oil rose 1 cent to $136.05 a barrel in New York, after tumbling 6.4 percent the past two days. Oil's still up 88 percent in a year. Natural gas fell to the lowest in more than a month amid speculation supply is ample for the duration of the summer.

Energy Stocks

EnCana, North America's biggest publicly trade natural-gas company, fell 3.2 percent to C$81.18. Smaller rival Canadian Natural Resources Ltd. fell for a sixth-straight day, losing 3.5 percent to C$85.76.

Potash Corp. slipped 0.2 percent to C$218.80. The world's biggest maker of crop nutrients by market value rose as much as 3.1 percent earlier on a forecast for growing fertilizer demand and a ``buy'' recommendation from Canaccord Adams, which expects the stock to climb to C$425.

Research In Motion Ltd. fell 4.1 percent to C$118.70 for its steepest decline since June 26, when it fell the most in four years even as it reported more than doubled quarterly profit, because its forecast fell short of analysts' estimates.

``People are skeptical about everything,'' said Martyn. ``There's directional churn going on as investors try to figure out what's going on with energy and resources.''

A measure of finance shares dropped 2.3 percent and indexes of energy and materials stocks slipped 1.1 percent and 0.2 percent, respectively, after advancing earlier. The three groups account for more than three quarters of the S&P/TSX's value.

Martyn's comment was also supported by a report today that showed investment managers are becoming less enthusiastic on the Canadian equity market, with more than 95 percent believing that the market is fairly valued or overvalued.

Bullishness toward raw-materials stocks, which are still up 15 percent in 2008 after leading the S&P/TSX to its peak last month, almost halved to 32 percent from 62 percent, the survey by Russell Investments Canada Ltd. showed. Managers bearish on energy shares, the only other index group to have gained this year, rose to 41 percent from 23 percent, the report showed.

To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.



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Cisco, Freddie Mac, Monaco Coach, QLogic: U.S. Equity Movers

By Elizabeth Stanton

July 9 (Bloomberg) -- The following companies had unusual price changes in U.S. markets. Stock symbols are in parentheses after company names, and prices are as of 4 p.m. in New York.

Steel producers in the Standard & Poor's 500 Index advanced after UBS AG predicted ``robust'' earnings from the group and said the stocks had fallen too far.

U.S. Steel Corp. (X US) rose 5.1 percent to $158.17. AK Steel Holding Corp. (AKS US) climbed 5.2 percent to $54. Nucor Corp. (NUE US) rose 3.9 percent to $65.59.

Arris Group Inc. (ARRS US) plunged 17 percent, the most since Feb. 15, to $7.35. The maker of Internet equipment said second-quarter earnings and revenue were less than previously projected.

Circor International Inc. (CIR US) rose the most since the company's shares were listed in 1999, climbing 23 percent to $61.90. The maker of fluid-control valves said second-quarter profit may be as high as $1.10 a share, more than from its previous estimate of 74 cents to 83 cents.

Cisco Systems Inc. (CSCO US) fell 5.7 percent to $21.58, the lowest since September 2006. The world's biggest maker of computer-networking equipment faces a slowdown in the U.S. and Europe and may say fourth-quarter revenue was ``flat to down'' from the third quarter, according to UBS.

Cleveland-Cliffs Inc. (CLF US) gained 15 percent, the most since December 2003, to $105.78. North America's largest producer of iron ore pellets raised its forecast for iron ore revenue per ton for this year.

Dillard's Inc. (DDS US) fell the most in two months, sliding 10 percent to $9.81. The 70-year-old retailer is valued at a third of its book value, or assets minus liabilities, a sign that investors think the company will write down the value of its property, according to a Bloomberg analysis.

Federal Signal Corp. (FSS US) dropped 10 percent, the most since June 26, to $11.82. The maker of firetrucks was downgraded to ``underperform'' from ``market perform'' by Bank of Montreal analysts.

Freddie Mac (FRE US) fell 24 percent to $10.26, the lowest since October 1992. Fannie Mae (FNM US), the larger of the two U.S. mortgage-finance companies, paid a record yield over benchmark rates on $3 billion of two-year notes sold to investors today. Fannie Mae fell 13 percent to $15.31.

Intel Corp. (INTC US) declined the most since Jan. 16, dropping 5.3 percent to $19.81. The world's biggest maker of computer chips may fail to beat earnings estimates in the second half as some customers curb spending and Advanced Micro Devices Inc. (AMD US) introduces new products, Merrill Lynch & Co. said.

Mattson Technology Inc. (MTSN US) fell the most since April 24, losing 8.1 percent to $4.52. The maker of manufacturing equipment for semiconductors reported a bigger second-quarter loss than predicted as weak demand in the chip market caused customers to reduce orders.

MGIC Investment Corp. (MTG US) lost 11 percent to $6.65. The largest U.S. mortgage insurer will pay out more than $2 dollars in claims and expenses for every premium dollar earned this year and may lose money through 2009, Standard & Poor's said.

Monaco Coach Corp. (MNC US) dropped 21 percent to $2.45, the lowest since October 1996. Robert W. Baird & Co. cut its price target on the U.S. motor-home maker by 22 percent.

New York Times Co. (NYT US) slid the most since October 1998, falling 7 percent to $14.01. Lehman Brothers Holdings Inc. analyst Craig Huber lowered its earnings estimates for the newspaper publisher and said the company's dividend is at risk of being cut in coming years.

QLogic Corp. (QLGC US) climbed the most since Oct. 24, adding 8.5 percent to $15.15. The supplier of chips and switches for computer networks said first-quarter sales and profit surpassed its forecasts.

Sealy Corp. (ZZ US) slumped 8.6 percent, the biggest drop in four months, to $6.07. The world's largest bedding manufacturer reported second-quarter sales that trailed analysts' estimates and predicted a ``challenging'' second half.

SGX Pharmaceuticals Inc. (SGXP US) more than doubled to $3.09, its biggest-ever gain. Eli Lilly & Co., the world's biggest maker of psychiatric medicines, said it would buy the developer of experimental cancer treatments for $3 a share, or $64 million, in cash.

Tesoro Corp. (TSO US) fell the most since August 2004, losing 12 percent to $17.35. U.S. Department of Energy data released today showed gasoline inventories increased last week as consumption declined from year-earlier levels. About a third of the increase was on the West Coast, where Tesoro operates, Friedman Billings Ramsey & Co. analyst Eitan Bernstein said in an interview.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net



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Mexico Stocks Decline, Led by America Movil, Airport Operators

By William Freebairn

July 9 (Bloomberg) -- Mexican stocks fell for the first time in three days, led by America Movil SAB, after inflation quickened and a tumble for financial companies sent the Standard & Poor's 500 Index into its first bear market in six years.

America Movil, Latin America's biggest mobile phone provider and the most traded stock on the exchange, dropped the most in two months. Airport operators including Grupo Aeroportuario del Pacifico SAB slid the most on the Bolsa index after reporting less passenger traffic than analysts expected. Consorico Ara SAB led homebuilders higher before second-quarter earnings reports.

``The connection today was with the U.S. market. Oil took a break today, but the financial turmoil continued, hurting growth prospects,'' said Rogelio Gallegos, who helps manage the equivalent of about $325 million at brokerage Actinver SA in Mexico City.

The Bolsa index declined 1.6 percent to 28,095.79, the lowest since Feb. 7. Chile's Ipsa added 0.1 percent and Peru's Lima General rose 1.1 percent. Markets in Brazil and Argentina were closed for holidays.

U.S. stocks slid today, sending the S&P 500 into its first bear market since 2002. Fannie Mae and rival Freddie Mac led financial shares to their biggest fall in six years after Fannie sold $3 billion in notes at record yields over benchmark rates.

In Mexico, annual inflation quickened to 5.26 percent in June from 4.95 percent in May, adding to speculation the central bank will raise borrowing costs for a second time this year. The central bank, which seeks to keep inflation, at 4 percent or lower, unexpectedly raised the benchmark rate to 7.75 percent last month, ignoring suggestions by President Felipe Calderon that borrowing costs were too high.

America Movil Falls

America Movil fell 3.7 percent to 25.74 pesos.

``Investors are rightly concerned with the impact of lower rates in Latin America and further competition,'' Pali Capital Inc.'s Walter Piecyk said. ``There's also inflation concerns. Inflation will make it harder for the company to achieve its overly optimistic estimates'' for revenue per user.

Grupo Aeroportuario del Pacifico SAB, the country's largest airport operator, dropped the most since trading began in 2006 after it said it handled 4.8 percent fewer passengers in June than a year earlier.

Citigroup Inc. advised selling the shares, saying the company will be hurt by reductions in flights by low-fare carriers as oil prices rise. Interacciones Casa de Bolsa had expected traffic to rise 0.6 percent, according to a July 4 report.

`Difficult Times'

``There are difficult times ahead and an adjustment is under way,'' analyst Karla Pena of Interacciones said in a phone interview from Mexico City. Airlines revenue will decline as low- fare airlines reduce flights in the face of surging oil prices, she said.

``Their business is slowing and it has stopped being a favorite of investors,'' Pena said. She said she may review her ``buy'' rating on Gap, as the airport company is known, after second-quarter results are announced this month.

Gap fell 12 percent to 27.31 pesos.

Grupo Aeroportuario del Centro Norte SAB, the operator of 13 Mexican airports, slipped 4.1 percent to 21.62 pesos after reporting passenger traffic rose less than Interacciones expected.

Homebuilders Climb

Consorico Ara SAB, the fourth biggest homebuilder, climbed the most in two weeks. Corporacion Geo SAB, the second-largest builder, advanced the most in six weeks.

``The concerns about rising raw materials costs have been exaggerated,'' Carlos Hermosillo, analyst at Vector Casa de Bolsa, said from Mexico City. Second-quarter results for the homebuilders will climb, he said.

Geo may ``surprise positively'' when it reports results July 24, JPMorgan Chase & Co. said. Revenue growth will be in line with estimates for all builders, analyst Adrian Huerta wrote.

Geo climbed 2.4 percent to 33.31 pesos. Ara gained2.3 percent to 9.63 pesos.

In Chile, gains were led by Sociedad Quimica y Minera de Chile SA, the biggest fertilizer producer.

``After the sharp decline of the Ipsa index last week, investors are taking the opportunity to buy stocks that are now looking very attractive in terms of price earnings,'' said Alvaro Pipino, head of research at Santiago-based brokerage IM Trust. The Ipsa fell 7.7 percent last week.

SQM jumped 3.5 percent to 21,100 pesos, the most in two weeks. Global fertilizer demand may rise 14 percent by 2012 as farmers increase plantings to benefit from high prices and growing food consumption, the International Fertilizer Industry Association said.

To contact the reporter on this story: William Freebairn in Mexico City at wfreebairn@bloomberg.net



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U.S. Stocks Tumble, Sending S&P 500 to Bear Market; Banks Slide

By Eric Martin

July 9 (Bloomberg) -- U.S. stocks tumbled, sending the Standard & Poor's 500 Index into its first bear market since 2002, on growing concern the biggest mortgage finance companies may not weather the housing slump.

Fannie Mae and Freddie Mac led financial shares to their biggest decline in six years after Fannie's borrowing costs surged on concern it won't be able to fund its business. Cisco Systems Inc. dropped to the lowest level since September 2006 and Intel Corp. slid to a six-month low on analyst predictions that a slowing economy may hurt sales. Bank of America Corp. and Citigroup Inc. fell as Credit Suisse AG said 40 percent of the biggest U.S. lenders may need to cut dividends or raise more capital.

The S&P 500 lost 29.01 points, or 2.3 percent, to a two-year low of 1,244.69, with a third of the drop occurring in the last 20 minutes of trading. The Dow Jones Industrial Average fell 236.77, or 2.1 percent, to 11,147.44. The Nasdaq Composite Index plunged 59.55, or 2.6 percent, to 2,234.89. Almost four stocks declined for each that rose on the New York Stock Exchange.

``The trouble with the financials is that so much of it is a black box,'' Nick Sargen, who helps oversee $30 billion as chief investment officer of Fort Washington Investment Advisors in Cincinnati, said in an interview with Bloomberg Television. ``Everybody thought the worst of the writedowns were passed in April. And behold, here we are now and that wasn't the case.''

The S&P 500 extended its retreat from an October record to more than the 20 percent threshold that signals the start of a so-called bear market. The Dow has fallen 21 percent from its October all-time high and closed in a bear market on July 2.

Bear Markets

The S&P 500 has had eight previous bear markets since 1962, according to data compiled by Birinyi Associates, a stock research firm based in Westport, Connecticut. Stocks have fallen an average of 33 percent over 382 days during those retreats. The S&P 500's retreat from its peak has lasted 274 calendar days so far. The Dow has had 11 previous bear markets since 1962, averaging a decline of 29 percent over 322 days.

A 46 percent tumble in financial shares and a 27 percent decline by consumer companies dependent on discretionary spending led the S&P 500's retreat from its Oct. 9 closing record of 1,565.15. MBIA Inc., the bond insurer whose credit rating was reduced five times by Moody's Investors Service, slid the most since the S&P 500's all-time high, falling 94 percent. Washington Mutual Inc., the biggest U.S. savings and loan, had the No. 2 retreat, falling 84 percent as declining home prices and rising gas and food prices spurred foreclosures.

Fannie, Freddie

Fannie Mae slipped $2.31, or 13 percent, to $15.31, its lowest price in 16 years. Freddie Mac lost $3.20, or 24 percent, to $10.26, also the lowest since 1992. Fannie's 3.25 percent benchmark notes priced to yield 3.27 percent, or 74 basis points more than comparable U.S. Treasuries, the Washington-based company said in an e-mailed statement. That's the biggest spread since Fannie Mae first sold two-year benchmark notes in 2000.

Fannie and Freddie, which are rated Aaa by the world's largest credit-rating companies, are being treated by derivatives traders as if they are rated five levels lower. Credit-default swaps tied to $1.45 trillion of debt sold by the two are trading at levels that imply the bonds should be rated A2 by Moody's Investors Service, according to data compiled by the firm's credit strategy group.

No `Clarity'

``The market's not giving any of these financial companies a break,'' Sean Clark, the Philadelphia-based chief investment officer of Clark Capital Management Group, which oversees $1.3 billion, said in an interview on Bloomberg Television. Investors are ``looking at more writedowns that could be huge and upcoming. The clarity just isn't there.''

Bank of America slid $1.48, or 6.3 percent, to $22.06. Citigroup lost 95 cents, or 5.5 percent, to $16.44. Regions Financial Corp., Alabama's biggest bank, declined $1.35, or 12 percent, $9.60.

Credit Suisse analysts lowered 2008 earnings-per-share estimates 17 percent across the bank industry. Wachovia Corp.'s price target was cut to $14 a share from $18, and Regions Financial Corp. was lowered to $12 from $21.

Wachovia Corp., the fourth-biggest U.S. lender, fell $1.25, or 8 percent, to $14.29. Regions tumbled 12 percent to $9.60.

Banks may be forced to slash their dividends or raise ``more expensive and dilutive forms of capital over the next few quarters,'' Credit Suisse said.

The S&P 500 Financials Index tumbled 5.2 percent, its steepest retreat since July 2002.

`Challenging'

Cisco lost $1.30, or 5.7 percent, to $21.58, leading technology shares to a 3.2 percent tumble as a group.

``Enterprise spending remains challenging and there has been further slowing in the U.S., especially in the West Coast region'' for Cisco, New York-based UBS analyst Nikos Theodosopoulos wrote in a report today. ``We also see Europe slowing from last quarter.''

Intel fell $1.11, or 5.3 percent, to $19.81. Merrill's Srini Pajjuri said some customers have curbed spending and Advanced Micro Devices Inc. may win more server sales from Intel with its new Barcelona processor.

Profits at S&P 500 companies declined 11 percent on average in the second quarter, according to the average estimate of analysts surveyed by Bloomberg. Income is projected to slump 60 percent on average at financial companies.

Global stock markets have erased more than $11 trillion this year as record oil prices and more than $400 billion in credit- related losses threaten to push the U.S., the world's largest economy, into recession.

Dividend at Risk?

New York Times Co. dropped to the lowest in 12 years after Lehman Brothers Holdings Inc. lowered its earnings estimates for the newspaper publisher. The company's dividend is at risk of being cut in coming years, Lehman analyst Craig Huber also said today in a note to clients. New York Times lost $1.05, or 7 percent, to $14.01.

The S&P 500 Steel Index gained 3.7 percent. UBS predicted ``robust'' earnings from the group, and said the industry is undervalued. Nucor Corp. added $2.43, or 3.9 percent, to $65.59. U.S. Steel Corp. climbed $7.62, or 5.1 percent.

The Russell 2000 Index, a benchmark for companies with a median market value 23 times smaller than the S&P 500, fell 2.8 percent to 663.75. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, dropped 2.2 percent to 12,658.17. Based on its retreat, the value of stocks decreased by $347 billion.

The benchmark index for U.S. stock options climbed the most in a week. The VIX, as the Chicago Board Options Exchange Volatility Index is known, added 9 percent to 25.23. The index measures the cost of using options as insurance against declines in the S&P 500.

``We're in the bear market,'' Barry James, president of James Investment Research, which manages $2 billion in Dayton, Ohio, said in an interview with Bloomberg Television. There is ``a lot of downward pressure obviously on the financials and on lending at both the corporate and consumer level, and that will continue to hurt earnings. We're getting to the point of getting another playable rally, but until then, look out below.''

To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.



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European Stocks Rise, Led by Banks; DSG, ArcelorMittal Advance

By Sarah Thompson and Jakob Lindstroem

July 9 (Bloomberg) -- European stocks rallied the most in two months on speculation losses at financial companies will ease and commodities will fall, reducing inflation and pressure on profit margins.

Barclays Plc, the U.K.'s fourth-biggest bank, and Credit Suisse Group AG advanced after JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said buyers are returning to some types of mortgage products. Daimler AG and DSG International Plc climbed as crude traded near a two-week low, while ArcelorMittal led metal producers higher after Alcoa Inc.'s profit topped analysts' estimates.

The Dow Jones Stoxx 600 Index added 1.8 percent to 283.90, the steepest gain since May 2 and paring this year's drop to 22 percent. Bank stocks, which have led a rout that erased more than $11 trillion from global equities this year, climbed the most since April today in Europe. The U.K.'s FTSE 100 Index jumped 1.6 percent, after briefly entering a bear market yesterday.

``Bear markets tend to overdo the negativity,'' said Alan Beaney, London-based head of investments at Principal Investment Management Ltd., which oversees about $2 billion. ``We are getting to the stage today where we think we should be reinvesting.'' He said he is ``overweight'' banks.

Record oil prices, rising inflation and credit-related losses topping $400 billion have pushed equity markets in Japan, China, Hong Kong, Germany and France down at least 20 percent, the common definition of a bear market.

National Markets

National indexes advanced in all 18 western European markets today. Germany's DAX added 1.3 percent, while France's CAC 40 increased 1.5 percent. Nokia Oyj jumped to a two-week high, while Barratt Developments Plc led a rebound by U.K. homebuilders.

Barclays rose 5.1 percent to 293.25 pence. Credit Suisse, the second-largest Swiss bank, gained 4.1 percent to 43.92 francs.

U.S. stocks yesterday rallied the most in a month after JPMorgan's Dimon said the credit crisis will ease, oil posted its biggest drop since March and Federal Reserve Chairman Ben S. Bernanke said the central bank may extend securities dealers' access to direct loans into 2009.

``I do think that the capital side of the crisis will ease,'' Dimon said yesterday.

Dimon also said he supports letting Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, make more home loans to add capital to the market.

Alliance & Leicester

Alliance & Leicester Plc, the second-worst performing U.K. bank stock this year, added 8.4 percent to 232.75 pence after naming Royal Bank of Scotland Group Plc's Alan Gillespie as chairman.

The appointment of Gillespie, who worked at Goldman Sachs Group Inc. for 14 years before joining RBS, may signal that the bank is looking for a buyer, Oriel Securities Ltd. said.

Daimler, the world's second-largest luxury carmaker, added 1.6 percent to 39.35 euros. DSG International advanced 6.9 percent to 38.75 pence. Metro AG, Germany's biggest retailer, rose 2.5 percent to 41.18 euros.

Oil traded at $135.55 today, having dropped $5.33 a barrel, or 3.8 percent, to $136.04 yesterday.

ArcelorMittal, the world's largest steelmaker, added 4.5 percent to 55.71 euros. BHP Billiton Ltd., the biggest mining company, increased 3.2 percent to 1,710 pence.

Alcoa's CEO Klaus Kleinfeld, who took over in May, boosted aluminum prices in the quarter 6.2 percent to an average $3,058 a ton. The increase helped the world's third-largest aluminum producer post profit excluding certain items of 71 cents a share, topping the 65-cent average estimate of 17 analysts in a Bloomberg survey.

`Strong' Outlook

Nokia advanced 2.6 percent to 16.11 euros. Dresdner Kleinwort raised its recommendation for the world's largest mobile-phone maker to ``buy'' from ``add.''

``The outlook into the second half looks strong, even in a weakening handset market, on the back of numerous new product launches,'' London-based analyst Janardan Menon wrote to clients. ``A high dividend yield and the share buyback program increase the stock's appeal.''

Taylor Nelson Sofres Plc climbed 11 percent to 274.5 pence. WPP Group Plc, the world's second-largest advertising company, made a hostile bid of 1.08 billion pounds ($2.13 billion) for Taylor Nelson as it seeks to combine the market researcher with its Kantar unit. WPP added 1.2 percent to 469.5 pence.

Barratt soared 38 percent to 54 pence as investors who had shorted the U.K. homebuilder's stock closed their positions and rival Redrow Plc said lenders were ``supportive'' of new loan terms.

`Short Squeeze'

Barratt is in talks with banks to refinance part of its 1.7 billion-pound debt to avoid potential breaches of its loan conditions. The company is due to update the market on the talks tomorrow.

The shares are benefiting from ``a combination of a short squeeze ahead of tomorrow's announcement and optimism following Redrow's news that covenants are not a problem,'' Tim Hughes, head of sales trading at IG Index in London, said via e-mail.

In a short sale, speculators sell borrowed stock in anticipation the price will drop, allowing them to buy back the shares at a cheaper value and pocket the difference when paying back the loan.

Redrow climbed 3.9 percent to 100 pence.

``Discussions with lenders to date have been constructive and supportive,'' Redrow CEO Neil Fitzsimmons said.

Nordex AG dropped 16 percent to 22.77 euros, the steepest loss in more than two years. The German windmill maker that's expanding abroad cut its annual earnings forecast.

To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.



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Daiichi Sankyo, Inpex, Mitsubishi Motors: Japan Equity Preview

By Norie Kuboyama

July 10 (Bloomberg) -- The following companies may have unusual price changes in Japanese trading today. Stock symbols are in parentheses, and share prices are from the previous close. The information in each item was released after markets shut, unless stated otherwise.

Aozora Bank Ltd. (8304 JT), Bank of the Ryukyus Ltd. (8399 JT) and Gifu Bank Ltd. (8528 JT): The lenders may receive business improvement orders from the Financial Services Agency for missing performance targets, the Nikkei newspaper reported. The FSA is authorized to issue improvement orders to aid recipients that have missed earnings targets by at least 30 percent, Nikkei said. Aozora added 2 yen, or 0.8 percent, to 252. Bank of the Ryukyus was unchanged at 985 yen. Gifu slid 1 yen, or 1.3 percent, to 78.

Chiyoda Co. (8185 JT): The store chain said first-quarter net income jumped 56 percent to 1.52 billion yen ($14.1 million), reflecting the absence of charges related to devalued inventory in the previous year. Chiyoda gained 42 yen, or 2.7 percent, to 1,627.

Creed Corp. (8888 JT): The real estate advisory company said full-year net income decreased 40 percent to 2.77 billion yen, citing lower-than-expected sale prices for property. It expects 2.8 billion yen in profit this business year. Creed rallied 3,600 yen, or 4.8 percent, to 79,400.

Daiichi Sankyo Co. (4568 JT): Japan's third-biggest drugmaker said its U.S. subsidiary sold rights to its anemia drug Venofer to Fresenius Medical Care AG. (FME GR). Fresenius will have U.S. rights to make and sell the treatment for dialysis patients, Daiichi Sankyo said in an e-mailed statement. The Japanese company will keep rights to sell the medicine for other uses, it said. Daiichi Sankyo rose 30 yen, or 1 percent, to 3,160.

Fast Retailing Co. (9983 JT): Japan's biggest clothing retailer sold its entire 60 percent stake in Aspesi Japan to Alberto Aspesi & C S.p.A., Fast Retailing said in a release, without disclosing the value of the transaction. Aspesi Japan designs and sells Italy's Aspesi brand in Japan, the statement said. Fast Retailing added 90 yen, or 0.9 percent, to 9,780.

Furuno Electric Co. (6814 JO): The marine-equipment maker said first-quarter operating profit, or sales minus the cost of goods sold and administrative expenses, rose 21 percent to 2.26 billion yen, with a 3.7 percent advance in sales. Net income in the quarter ended May 31 fell 9.2 percent to 1.23 billion yen, citing an asset-impairment charge. The stock rose 24 yen, or 1.8 percent, to 1,341.

Happinet Corp. (7552 JT): The wholesaler of toys and child care goods said it will buy back as much as 1.66 percent of its outstanding shares through Sept. 30. The stock fell 1 yen, or 0.1 percent, to 1,470.

Inpex Holdings Inc. (1605 JT): Japan's biggest oil explorer said it may spend 1.24 trillion yen in the three years through March 2011 on developing oil fields, liquefied natural gas projects and acquisitions. Inpex slid 30,000 yen, or 2.4 percent, to 1.24 million yen.

Kyocera Corp. (6971 JT): The company, High Tech Computer Corp. (2498 TT) and Sony Ericsson Mobile Communications (23752Z LN) were accused in a lawsuit of violating patents used to produce mobile phones. SPH America LLC, a closely held company, sued the companies in federal court in Alexandria, Virginia, claiming three of its patents have been violated. Kyocera lost 170 yen, or 1.8 percent, to 9,350.

Link Theory Holdings Co. (3373 JT): The apparel retailer reversed its full-year forecast to a net loss of 470 million yen from 50 million yen in profit, citing foreign-exchange losses from devalued yen-denominated loans to a U.S. subsidiary. The stock gained 5,000 yen, or 2.8 percent, to 181,000.

Mitsubishi Motors Corp. (7211 JT): The automaker will start selling the i MiEV plug-in electric vehicle to retail customers next summer, the Nikkei newspaper reported. The automaker had previously planned to start leasing the minicar to businesses next summer and sales to individuals in 2010, the report said. The stock fell 1 yen, or 0.5 percent, to 187.

NTT DoCoMo Inc. (9437 JT): Japan's largest mobile-phone operator set up a company in Shanghai to provide services to corporations, targeting Japanese firms in China. DoCoMo China Co., a wholly owned subsidiary, will begin operations from the end of July, Tokyo-based DoCoMo said in a statement on its Web site. The stock rose 4,000 yen, or 2.5 percent, to 166,000.

Nippon Mining Holdings Inc. (5016 JT): The company's first- half pretax profit may rise 4 percent to about 100 billion yen as higher oil prices increase the value of the company's inventory, the Nikkei newspaper said. That would exceed the Tokyo-based oil distributor's most recent forecast of 51 billion yen, the report said. The stock dropped 4 yen, or 0.6 percent, to 626.

Sumitomo Osaka Cement Co. (5232 JT): Japan's third-largest cement producer said a unit shipped raw concrete that fell short of Japanese government standards. The cement was shipped by Mutsuai Concrete Co., a 50 percent owned subsidiary, Tokyo-based Sumitomo said. The stock fell 3.2 percent to 211 yen.

Tecmo Ltd. (9650 JT): The game software developer said in a preliminary earnings statement first-half net income totaled 360 million yen, 20 percent above its forecast, citing foreign- exchange benefits. Tecmo added 7 yen, or 0.7 percent, to 1,053.

Terumo Corp. (4543 JT): Asia's largest medical products maker said it sued Maquet GmbH, accusing it of infringing a German patent for medical devices used in heart surgery. Terumo slid 70 yen, or 1.2 percent, to 5,600.

To contact the reporter on this story: Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net.



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Alliance, PetroVietnam, Polaris: Asia Ex-Japan Equity Preview

By Berni Moestafa

July 10 (Bloomberg) -- The following companies may have unusual price changes in Asian trading, excluding Japan. Stock symbols are in parentheses, and prices are from the previous close.

Air China Ltd. (601111 CH): China's largest international carrier, said it won approval from the securities regulator to issue as many as 400 million A shares on the mainland stock market. Air China rose 2.16 percent to 10.39 yuan.

Alliance Global Group Inc. (AGI PM): Philippine billionaire Andrew Tan's investment company said it will buy as much as 2 billion pesos ($44 million) of its own shares to boost a stock that lost over half of its value this year. Alliance, which will run the buyback program for 18 months starting today, was unchanged at 2.65 pesos.

GS Engineering & Construction Corp. (006360 KS): South Korea's third-largest builder said it received an 87.9 billion won ($88 million) order for a housing project in Vietnam. The project is part of the company's 7 trillion won property-development plan in the Southeast Asian nation. GS Engineering rose 0.2 percent to 95,100 won.

IOI Corp. (IOI MK): Malaysia's second-biggest palm oil producer bought back 2.2 million of its shares for 14.5 million ringgit ($4.5 million), paying as much as 6.65 ringgit each, a stock exchange filing showed. IOI was unchanged at 6.65 ringgit.

LG Display Co. (034220 KS): The world's second-largest maker of liquid-crystal displays said second-quarter net income tripled to 759 billion won after higher demand helped drive up prices and shipments. LG Display raised its capital spending budget 50 percent to 4.5 trillion won, while its prediction for third-quarter profitability missed analysts' estimates. LG Display declined 6.3 percent to 34,350 won.

Megaworld Corp. (MEG PM): The No.2 Philippine builder said it will start the construction of its fifth high-end residential block in McKinley Hill, a property inside a former Army camp in Manila that's being turned into blocks of apartments and offices. The stock gained 3.3 percent to 1.26 pesos.

PetroVietnam Drilling and Well Services Joint-Stock Co. (PVD VN): The company, which supplies drilling services to ConocoPhillips and Petroliam Nasional Bhd., said net profit more than doubled to 500 billion dong ($30 million) as its rig operated at full efficiency. PetroVietnam gained 2.8 percent to 91,500 dong.

Polaris Securities Co. (2854 TT): Taiwan's largest online brokerage said sales in June fell 90 percent from a year earlier to NT$66.9 million ($2.2 million), as the domestic market was roiled by global concerns over credit losses and surging energy costs. Polaris fell 0.3 percent to NT$15.3.

Rizal Commercial Banking Corp. (RCB PM): The Philippines' No. 8 bank by value said it is reviewing ``several banks'' for acquisitions, responding to a Philippine Daily Inquirer report that it is among four potential buyers of Asiatrust Development Bank (ASIA PM). Rizal Bank declined 1.7 percent to 14.75 pesos. Asiatrust, Manila-based thrift bank, increased 11 percent to 8.90 pesos.

Sembcorp Marine Ltd. (SMM SP): A shipyard owned by Sembcorp, the world's second-largest maker of oil rigs, will build a 100 million-euro ($157 million) fallpipe vessel for Dredging Environmental & Marine Engineering NV of Belgium. Sembawang Shipyard Pte will deliver the vessel in the first quarter of 2011, DEME said. Sembcorp Marine rose 0.2 percent to S$4.25.

To contact the reporter on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net.



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Australia Stocks Preview: BHP, Commonwealth Bank, Midwest, Rio

By Shani Raja

July 10 (Bloomberg) -- The following is a list of companies whose shares may rise or fall in Australia. This preview includes news announced after markets closed yesterday. Prices are from yesterday's close unless otherwise stated.

The S&P/ASX 200 Index futures contract due in September dropped 1.3 percent to 4,929 at 6:58 a.m. in Sydney. The Bank of New York Australia ADR Index slumped 1.5 percent in New York.

The S&P/ASX 200 Index gained 79 points, or 1.6 percent, to 5,011.90.

Mining shares: A measure of six metals traded on the London Metal Exchange advanced 1.5 percent. Zinc rose 5.7 percent, copper 0.1 percent and nickel 4.1 percent.

American depositary receipts of BHP Billiton Ltd. (BHP AU), the world's largest mining company, lost 0.8 percent to the equivalent of A$39.10 a share in New York, 88 cents lower than the A$39.98 close in Sydney.

Rio Tinto Group (RIO AU) declined 30 cents, or 0.2 percent, to A$123.15.

Financial stocks: U.S. stocks tumbled, sending the Standard & Poor's 500 Index into its first bear market since 2002 on growing concern the biggest mortgage finance companies may not weather the housing slump. Fannie Mae and Freddie Mac led financial shares to their biggest decline in six years after Fannie's borrowing costs surged on concern it won't be able to fund its business. The S&P 500 lost 29.01 points, or 2.3 percent, to a two-year low of 1,244.69.

Separately, Reserve Bank of Australia Governor Glenn Stevens said the global shakeout from the credit squeeze has further to run as banks and securities firms report losses, cut workers and improve risk monitoring.

Commonwealth Bank of Australia (CBA AU), the nation's largest mortgage provider, rose 76 cents, or 1.9 percent, to A$41.49. National Australia Bank Ltd. (NAB AU), the nation's largest bank, gained A$1.25, or 4.7 percent, to A$27.60.

Metcash Ltd. (MTS AU): Australia's biggest grocery wholesaler, withdrew from bidding for a pharmaceuticals wholesaling unit of Primary Health Care Ltd. (PRY AU) after the antitrust regulator called for further submissions on the takeover. Metcash fell 2 cents, or 0.5 percent, to A$3.83. Primary Health Care slipped 32 cents, or 6.6 percent, to A$4.50.

Midwest Corp. (MIS AU): The iron ore producer intersected high-grade magnetite mineralization at its flagship Weld Range Project, it said in a statement yesterday. The discovery improves the chances of ``significant volumes'' of the material being present across a wider area, the company added. Midwest advanced 2 cents, or 0.3 percent, to A$6.40.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.



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Greenback Weakness Takes Hold of Markets Following Iranian Missile Test

Daily Forex Fundamentals | Written by CMS Forex | Jul 09 08 20:11 GMT |

AUS Consumer Sentiment Falls to Lowest in 16 Years, Loans Drop By Largest in 8 Years

In Australia, last evening saw the WMI Consumer Sentiment index fall to -6.7%. It's the lowest level since January 1992 as higher gas and oil prices weigh down confidence. Despite a stronger retail sales report last week, recent data is showing the economy cooling. A second release today showed that home loans fell by 7.9% in May, the largest drop in 8 years. High interest rates and borrowing costs are curbing growth in the housing sector.

AUD/USD - Ausse Climbs 100 Pips from Low, as Greenback Weakness Enters Markets Following Iranian Missile Test

Following the release, the Aussie-US Dollar traded below 0.95, the lowest since June 19th. From this oversold level, the pair jumped about 100 pips as political evens brought pressure on the greenback. Overnight, Iran test fired several long range missiles, in a show of what kind of retaliation the country can take if its nuclear sites are attacked. The increase in tensions gave oil prices a lift after two days of sharp falls.

JPN Machine Orders Surge 10.4%

In Japan, orders for core machinery rose 10.4%, surging above expectations of a 1% increase. There was strong demand from emerging economies. Demand for equipment dealing with semiconductors and steel led the way.

EUR 1st Q GDP Revised Lower

In Europe, the final version of GDP for the first quarter showed GDP expanding 0.7% compared to the originally estimated 0.8%. The euro-zone has seen recent indicators from manufacturing, services and consumer spending all on the decline.

GER Trade Balance Slides as Exports Fall 2.3%

Exports from Germany fell 2.3%, the biggest fall since June 2004, as a strong Euro and weaker global growth impact demand. The trade surplus shrank to 14.4 billion euros as a result, far below forecasts. German exports have been a strong driver of activity for the euro-zone during the 1st quarter. Weaker foreign demand will pave the way for a rough 2nd quarter as domestic demand eases at the same time.

EUR/JPY - Rally in European Stocks Helps Euro Climb vs Yen

European stock markets recovered from yesterday fall, with the main indexes up around 1.5%. Shares of banks led the way as bargain hunters snapped up stocks in the battered sector. The Euro-Yen rose to a new high for the week, near 168.90, a 160 pip rally from yesterday's low. The rally ran out of steam around the NY open as US equities opened lower, giving some relief to the Yen.

UK Nationwide Consumer Confidence Falls to New Low, Goods Trade Deficit in Stable

In the UK, the nationwide consumer confidence index fell to a new low of 63. The biggest shift came in the future expectations sub-index which is falling as result of a weakening housing market and higher costs for food and fuel. The trade deficit in goods for May remained at its level in April of 7.5 billion pounds.

GBP/USD - Pound Jumps on Dollar Weakness to Rally 125 Pips Despite Weaker Data Earlier

The Pound-Dollar pair hit a low following the confidence data near 1.9675, but the rest of the overnight session and NY trading saw a 125 pip surge, bringing the pair back to yesterday's high at 1.98. If the pair stalls here, it looks to be forming a sideways range. In Monday's session the Pound was pressured by weak industrial production data.

CAN Housing Starts Perform Slightly Better Than Expected

Canadian housing starts measured an annual rate of 218K in June, which is down from May, but still a strong figure. Unlike in the US and UK, housing remains rather robust in Canada, though for how long this will last remains to be seen.

USD/CAD - Loonie Gains 100 Pips on Greenback, Strongest Session in a Week

The Loonie took the offensive against the greenback, with the US Dollar-Canadian Dollar pair sliding 100 pips to trade near 1.01. It's the biggest move in favor of the Loonie about a week, as the Canadian housing starts release, corresponded with higher oil prices and general US Dollar weakness in today's session.

USD/JPY - Dollar Rally Vs Yen Stalls at NY Open

Stocks in the US started off weaker, managed to break into the green as oil prices receded from their earlier jump, but by noon were back below their open for the day. The Dollar-Yen tested its high from yesterday near 107.65 but then retreated. Price action was quite tame with the pair looking like its consolidating.

Upcoming Releases - BOE Decision

Tonight, Japan releases its CGPI, a measure of inflation. Australia releases its employment change and unemployment rate, while New Zealand releases its manufacturing PMI.

In the later European session, the ECB will post its monthly bulletin. The Bank of England will finish its meeting and give its decision on interest rates, which are expected to stay at 5%, despite weakening growth in the economy. Tomorrow, the US has just one release its weekly jobless claims figure.

Capital Market Services, L.L.C.
www.cmsfx.com

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U.S. Market Update

Daily Forex Fundamentals | Written by Trade The News | Jul 09 08 16:15 GMT |


Dow -16 NASDAQ -7.75 S&P -1

Markets are off their best levels in early trading as traders give up some of the gains from yesterday's rally. Crude has reversed course several times this morning: oil was up after Iran test fired medium- and long-range missles, aiding a rebound from three-week lows, but the complex has since given some back discarding generally bullish weekly inventory data. Natural gas is off another 2% approaching levels not seen in nearly a month. Commodity stocks in general are seeing a snap back from yesterday's misery: NUE +7%, X +12%, MT +3% and PCU +4%.

Merrill Lynch is lower once again after Fitch noted that it may cut the firm's senior debt rating. Several names within the tech sector are indicating the group is beginning to feel the effects of the slowing economy. A UBS analyst said CSCO-3% May sales would be flat and decline further in Q4 as US spending continues to slow, adding that enterprise spending remains weak. CSCO's CEO commented after the close yesterday that customers see economic recovery early next year, rather than later in 2008. Broadband developer ARRS-19% is hurting after it slashed guidance after the close, blaming "maturing demand" for certain products. MTSN-10% also cut its forecast yesterday, citing continued weakness in the memory market and lower production levels among customers. QLGC is one bright spot in the group trading up 10% after guiding Q2 results higher for the second time. Potash names are rebounding after several initiations at Canaccord Adams. The season's initial eps reports have not been received particularly well: AA is trading well off pre-market highs after an inline report yesterday; the company received a mixed bag of analyst reactions despite the generally dour expectations heading in. ZZ-20% after missing on revenue (and beating on EPS thanks to an accounting change). WWW-5% is off despite beating estimates and guiding in line. ISCA-4% after missing and lowering its full-year revenue outlook.

In currencies, the USD was broadly softer during the New York morning, partly due to crude's turnabout. For the most part, the dollar remains within recent price ranges against the majors. The EUR/USD continues to consolidate in a 1.5610 to 1.5730 post ECB rate decision range. CHF was initially firmer following the launch of a missile test out of Iran, with USD/CHF is testing 1.0280 before recovering back above the 1.0330 level. Carry-related pairs are higher as European equities rebound from yesterday's initial weakness, generally aided by lower oil prices. The EUR/JPY is back above 168, while EUR/CHF was probing the 1.62 handle. Financial sector concerns remain on the radar, as the iTraxx Crossover Index remains around the 530bps level. In addition, the CAD strengthened throughout the New York morning as dealers noted CTAs and model type of trading programs purchasing CAD as its traded below the 1.0150 area. Verbal intervention in currencies remains in force as the G8 meeting concludes in Tokyo. The French Finance Minister said that the recent ECB rate decision is weighing on the euro's strength, adding that the USD/JPY and USD/CNY crosses are undervalued compared to euro crosses. The ECB's Ordonez repeated his stance that the ECB must prevent CPI risks from coming into effect while noting that risks from inflation are multiplying. He also reiterated that Germany's GDP could contract in Q2 in a technical rebound.

Trade The News Staff
Trade The News, Inc.



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Economic Calendar Eco Data 7/10/08

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
23:50	JPY	Japan Domestic CGPI M/M Jun		0.60%	1.10%
23:50	JPY	Japan Domestic CGPI Y/Y Jun		5.30%	4.70%
23:50	JPY	Japan Trade balance (jpy) May		500B	634.7B
23:50	JPY	Japan Current account May		-9.70%	-29.60%
01:30	AUD	Australia Unemployment rate Jun		4.30%	4.30%
01:30	AUD	Australia Employment change Jun		10K	-19.7K
08:00	EUR	ECB Monthly Report (July)
11:00	GBP	BOE rate decision Jul		5.00%	5.00%
12:30	USD	U.S. Jobless claims		395K	404K
14:00	USD	Bernanke and Paulson Testify

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