Sunrise Market Commentary

Daily Forex Fundamentals | Written by KBC Bank | Jul 16 08 07:31 GMT |

US Treasury curve steepens on weak equities and slightly more dovish Bernanke More gains for Treasuries that end however off intra-day highs. Equities looked into the abyss early on, boosting Treasuries, but tumbling crude prices allowed equities to avoid the worst. Today's trading may bring more clarity about the near term outlook crude oil (US inventories) and equities that lost momentum at the very end of trading yesterday. Belgian and Spanish government bonds underperform Yesterday, European bonds extended their rebound on the Bernanke testimony and equity woes. Today, the CPI will be released, but it will again be the equity and oil markets that will decide the direction on the European bond market. From a relative point of view, Belgian and Spanish government bonds underperformed their European counterparts. FX: EUR/USD sets new all-time high, but test was rejected. Currency markets were influenced by conflicting signals. The yen was the major beneficiary of the new flaring up in global market stress. EUR/USD tested the all-time highs, but the euro apparently has no strong enough cards to become the real safe haven alternative for the dollar. The Sunrise Headlines US equities end a rollercoaster ride yesterday with 0.8-to-1.1% losses (Dow/S&P), but well off intra-day lows. Biggest losers are the energy sector (-4.2%) on plunging oil price and the financials (-3%) on ongoing solvency concerns. A late session relapse keeps uncertainty high reflecting in a mixed performance in Asia overnight Bernanke slightly more dovish, as he sees significant downward risks Freddie Mac & Fannie Mae financial strength rating cut by Moody's. Fannie's CEO says company won't need lifeline US bank shares sink to 1996 levels on loss fears. Citigroup falls to lowest level since its 1998 creation. GM said it would cut labour costs, sell assets and borrow 2 Bn. $ to bolster finances. J&J gains about 2% as it beats Q2 earnings estimates Crude oil (138.40 $) stabilizes overnight following a steep drop yesterday for which we didn't see any particular trigger. Concerns over US and global economy are correctly put forward as a possible cause, but of course were already apparent before. US CPI and oil inventories and UK labour market data highlights of the day Currencies: EUR/USD Sets New All-Time High, But Test Was Rejected On Tuesday, the crisis feeling was again omnipresent and contrary to what often happened recently, the currency market this time didn't escape from the global turmoil. Lingering concerns on how US authorities will handle the credit crisis (Fannie and Freddie and the problems at regional banks) already kept the dollar under pressure from the start of European trading. A shape decline in the German ZEW economic sentiment index temporary halted the rise in EUR/USD, but at that stage the European side of the equation obviously was not the major concern of the currency markets. So, EUR/USD hit new all-time highs in the 1.6035/40 area going into the US trading session. The US data were mixed to slightly softer than expected but didn't contain a clear signal for currency trading and EUR/USD even ceded some ground going towards Mr. Bernanke testimony before the Senate. While still mentioning inflation risk, the Fed president gave some more weight to the downside risks for the economy than was the case recently. Regarding the dollar, he admitted that the fall of the US currency might have contributed to the rise in oil prices but his assessment on this item was very balanced. So, at first glance, the Bernanke statement didn't contain much obvious support for the dollar. However, the dollar was saved by the other major wildcard, being oil. Oil dropped sharply and this contained the damage for both the stock markets and the dollar. At the end of the day, EUR/USD closed the session at 1.5912, little changed from the 1.5908 close on Monday. The price action in EUR/JPY also deserves some attention and put the EUR/USD developments in perspective. With markets recently focused on the credit problems of the US agencies, it is quite logical that the dollar comes under pressure first. However, the sharp decline in EUR/JPY yesterday suggests that the rise in the EUR/USD probably is not really a strong vote of confidence in the single currency but rather some kind of 'by default' reaction. Yesterday, the yen was the only real safe haven currency among the majors. Today, the calendar is again very interesting with the final European and US CPI data, the US TIC data and production data. The US CPI is the most important release. The combination of a high headline reading and a softer core figure should be rather neutral for the dollar. Of course, the second part of the Bernanke Testimony (Q&A) also deserves the markets attention. Yesterday, the assumption that EUR/USD had entered a consolidation pattern, confined by the 1.6020 to 1.5285 medium term trading range, was seriously questioned, but at the end of the day, the test of the topside was rejected. The jury is still out on this test, but if yesterday's price action is confirmed today, it suggests that, if US credit headlines turn less aggressive, the underlying assumption of the market remains that the longer-term economic picture for both the US and Europe is not that different. Both areas face a similar problem of too high inflation and low/slowing growth and the Fed and the ECB have little room of maneuver to fix this difficult situation any time soon. On top of that, the eco picture in Europe is deteriorating rather sharply, too. This suggests that a major break higher of EUR/USD is not evident. It is still early days, but the price action in EUR/JPY (cf. supra) points in the same direction. Yesterday, we said that EUR/USD had to move away from the EUR/USD 1.60 area soon and in a convincing way, otherwise, a new USD-selling wave might be on the cards. Yesterday's rejected test still asks for confirmation and EUR/USD is still too close to the highs to call off the dollar alert. However, at least for now, there is no convincing reason to front-run on a major break higher in EUR/USD. Stop-loss protection (e.g. in the 1.6050 area) is still warrant; However, in a day-to-day perspective, courageous dollar optimists may even to try to sell EUR/USD on up-ticks hoping that the range holds. EUR/USD: first test rejected. Support stands at 1.5864/61 (Reaction low/23% retracement), at 1.5839/22 (Week low/Weekly envelope), at 1.5800 (Break-up/MTMA), at 1.5747/40 (Daily Channel bottom/Boll Midline) and 1.5729 (Break-up). Resistance is seen at 1.5960 (Breakdown), at 1.5992 (Boll Top), 1.6018 (Daily envelope), at 1.6040 (All-time high), and at 1.6076 (Daily Channel top), at 1.6182 (Weekly envelope) The pair is in overbought territory. USD/JPY On Tuesday, the heat of the global market meltdown also triggered a significant move in the major yen cross rates. Over the previous sessions, the impact of the global credit turmoil on USD/JPY (and EUR/JPY) was rather modest, but this pattern changed yesterday. Already during the morning session in Europe; USD/JPY dropped below the first important support at 104.99, painting a short-term double top pattern on the charts. However, the 'damage' was not limited to USD/JPY as also EUR/JPY moved sharply lower. It has been different recently, but the yen apparently resumes its function of safe haven in stormy financial times. USD/JPY closed the session at 104.72 (compared to 106.15 on Monday). EUR/JPY currently tests the first important support (166.09 neckline). This morning, the Asian stocks markets traded mostly mixed, but this doesn't really help USD/JPY to regain the 105-resistence. Recently, we had a neutral bias USD/JPY. The rejected test of the 108.58/62 area triggered a correction, but an intermediate bottom was found at 104.99. However, yesterday's break below this levels, (if confirmed), makes the picture in USD/JPY short-term negative again. The signals from the most obvious drivers for USD/JPY (oil and stocks) are not that clear, but for now we take the technical picture as the factor with the highest weight for our day-to-day strategy and put the risk for additional losses in USD/JPY. The first target of the short-term double top pattern is at 102.23. USD/JPY: 104.99 support broken. Support stands at 104.16 (ST low), at 103.87/68 (Daily envelope/38% retracment), at 102.70/55 (Reaction lows), at 102.23 (Target double bottom). Resistance comes in at 105.12 (Daily envelope), at 106.46 (Break-down), at 105.72 (STMA), at 106.27 (MTMA), at 106.81 (ST high), at 106.91/08 (Break-down/weekly envelope). The pair is in neutral territory EUR/GBP On Tuesday, EUR/GBP initially moved slightly higher, probably due to spill-over effects from EUR/USD. However, the move was technically insignificant and a higher than expected UK CPI also helped to block the upside in this pair. Later in the session EUR/GBP first continued to trade in a very tight 0.7950/70 trading range, but an acceleration in the EUR/USD correction also caused EUR/GBP to close the session near the intraday lows at 0.7934, compared to 0.7974 on Monday. Today, the UK labour market data are scheduled for release. A deterioration in the conditions could be a (slightly) negative for the sterling. However, recently the impact of this kind of data most often only was of intraday significance. Since mid April, EUR/GBP developed a very uninspiring consolidation pattern (0.7766/0.8098). We turned neutral on EUR/GBP as the pair shows no trading momentum at all. An attempt to move higher early this month again ran into resistance and also at the end of last week and early this week a test of the key 0.8033/34 area was rejected. After yesterday's price action, EUR/GBP is again in the middle of the long-standing trading pattern. So, the short-term alert on sterling is again called off. In a longer term perspective we hold on to our sterling skeptic attitude. EUR/GBP: ST sterling alert called off. Support comes in at 0.7925/23 (ST low/LTMA), at 0.7915 (Daily envelope), at 0.7900 (07 July low), at 0.7865 (MT Break-up), at 0.7868/61 (01 July/Boll bottom). Resistance stands at 0.7967/69 (Daily envelope/Reaction high), 0.8004 (Boll top), at 0.8022 (ST high), at 0.8033/34 (Reaction highs), at 0.8051 (Reaction high) and at 0.8098 (All-time high). The pair is again in neutral territory. News US: PPI accelerates, but retail sales disappoint PPI rose by a higher-than-expected 1.8% M/M and 9.2% Y/Y in June, the highest since June 1981. Consensus expected a more 'moderate' 1.4% M/M increase. As expected, energy prices, up 6% M/M (27% Y/Y) were the main culprit, but also food prices rose quite dynamic. On a more positive note, core PPI rose by 0.2% M/M and 3% Y/Y, slightly below expectations and keeping the Y/Y rate stable versus May. Pipeline inflation measures showed hefty increases. Crude goods PPI increased by 3.7% M/M (45.5% Y/Y), following a 6.7% M/M gain in May and Intermediate goods PPI increased by 2.1% M/M (14.5% Y/Y) following a 2.9% M/M increase in May. This suggests that price pressures at the finished goods level might still intensify in the next months. June Retail sales rose by a very disappointing 0.1% M/M (3% Y/Y), following a downwardly revised 0.8% M/M in May. Gas station sales, largely a price effect, jumped 4.6% M/M, added to give the report de qualification of weak. Core sales (excluding cars) were stronger at 0.8% M/M, following a strong 1.2% M/M, but fell nevertheless short of the 1% M/M increase expected. Car sales dropped 3.3% M/M The report is disappointing, as it concerns nominal sales, which means that real sales will still be lower (tomorrow's CPI will tell how much lower) and as it suggests the tax rebate checks won't have a big positive and sustainable impact. The NY Fed manufacturing survey suggested that the contraction in slowed in July somewhat, but labour market conditions deteriorated and price pressures intensified. The 'headline' general business conditions index rose to -4.9 from -8.7 and compares to expectations for -8. However, the details were on balance constructive with the exception of the labour market indices. Indeed, new orders jumped to 8.3 and shipments to 13.5 from respectively -5.5 and -6.5, passing the 0 boom/bust line. Unfilled orders (-8.4 from -10.5) and delivery times (-2.1 versus -7) improved more modestly. The number of employees index fell to -6.3 though (from 1.2) and the average workweek to -8.4 (from -2.3). The prices paid index set a new cycle high at 74.7 (from 73.3) while the prices received virtually stabilized at 47.4. EMU: ZEW economic sentiment tumbles The German June ZEW economic sentiment report shows that the deterioration of activity is fast deepening. The sentiment index dropped 11.5 points to an all time low of -63.9. It was the fourth straight decline. The current situation index, that is still at a historical high level and stabilized in February-to-June period, got whacked, as it dropped 20 points to 17. This is a sobering report that suggests that the German economy is slowing rapidly. French business sentiment index (Banque de France) dropped 1 point to 95 in June, a 5-year low, from a downwardly revised 96 previously. Also here the downtrend is well established. It confirms other sentiment data. Other: UK inflation surges higher in June UK CPI rose a higher-than-expected 0.7% M/M and 3.8% Y/Y, the highest since June 1992 and the second month inflation has been more than 1%-point above the BoE inflation target. Consensus was looking for a 0.4% M/M increase. Core CPI exceeded expectations too and rose to 1.6% Y/Y from 1.5% Y/Y in May. The larger than expected increase in the headline inflation rate indicates that the Bank has currently no room to cut rates, despite the recessionary economic environment. Download entire Sunrise Market Commentary

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Forex Technical Analytics

Daily Forex Technicals | Written by FOREX Ltd | Jul 16 08 07:16 GMT |

CHF The pre-planned breakout variant for sells has been realized with attainment of minimal assumed target. OsMA trend indicator having marked the relative rise of parties' activity with a minimal advantage from buyers gives minimal grounds to choose buyers' planning priorities for today. Hence and taking into account the feature of incompletion of bearish development, we assume a possibility of pair return to supports 1.0070/90, where it is recommended to evaluate the activity development according to the charts of shorter time interval. For short-term buyers' positions on condition of formation of topping signals the targets will be 1.0120/30, 1.0160/80 and/or further breakout variant up to 1.0210/20, 1.0240/60. An alternative for sells will be below 0.9990 with the targets 0.9920/40, 0.9880/.09900 GBP The pre-planned breakout variant for buyers has been realized with attainment of minimal assumed target. OsMA trend indicator having marked further development with strengthening of bearish activity up to parity level of the parties does not bring in clearness to a choice of planning priorities for today. But taking into account the fact that without grounds to change planning priorities in favor of sells we assume a possibility of attainment of supports 1.9960/80, where it is recommended to evaluate the activity development according to the charts of shorter time interval. For short-term buyers' positions on condition of formation of topping signals the targets will be 2.0040/60 and/or further breakout variant above 2.0080 with the targets 2.0140/60. An alternative for sells will be below 1.9900 with the targets 1.9840/60, 1.9760/80, 1.9700/20. JPY The pre-planned breakout variant for sells has been realized with overlap of assumed targets. OsMA trend indicator having marked the preservation of bearish advantage continues to support the preservation of corresponding planning priority for today. Hence and taking into account bullish character of indicator chart, we assume a possibility of pair return to resistance range 104.70/80, where it is recommended to evaluate the activity development according to the charts of shorter time interval. For short-term sells on condition of formation of topping signals the targets will be 104.10/30, 103.80/90 and/or further breakout variant up to 103.20/40, 102.80/103.00. An alternative for buyers will be above 105.50 with the targets 105.80/90, 106.20/40. EUR The pre-planned breakout variant for buyers has been realized but without attainment of minimal assumed target within previous trading day. OsMA trend indicator having marked further development as a relative rise of bearish activity gives grounds to make a corresponding choice of planning priorities for today. Hence and because of ascending direction of indicator chart, we assume a possibility of pair return to resistance range 1.5920/40, where it is recommended to evaluate the activity development according to the charts of shorter time interval. For sells on condition of formation of topping signals the targets will be 1.5860/80, 1.5820/40, 1.5770/80 and/or further breakout variant up to 1.5710/30, 1.5660/70. An alternative for buyers will be above 1.5980 with the targets 1.6020/40, 1.6080/1.6100. FOREX Ltd www.forexltd.co.uk

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Dollar Plunged Heavily…

Daily Forex Fundamentals | Written by Crown Forex | Jul 16 08 07:14 GMT |

"Significant downside risks to the outlook for growth" this is what Mr. Bernanke said yesterday in his semiannual testimony, but seriously my dear reader that downside risk to growth is hovering around most economies in the world, not just the Americans and the British, as this time growth in the European Union is tumbling after it proved to the whole world the resilience of their economy. The recorded a new yesterday, taking advantage of the weak dollar that was affected by the ongoing issue of Freddie Mac and Fannie Mae, supported by its one fundamental was not the case yesterday; but falling down as a correction from the extreme overbought area what we got today, as now the pair is trading around 1.5903 levels, with investors tending to take some of their profits after they saw the Euro record a high of 1.6038. With this profit taking transaction the pair might dipping more to the downside facing support levels at 1.5820-30 levels. As for today's calendar the European Union has just some inflationary data that are going to be discarded due the lag of those results, where Trichet had hiked rates after this month. Not just the Euro, the Royal currency took advantage of the weakening dollar, rallying to the upside recording a high of 2.0156, as it started its trading today in a plunging behavior down to 2.0039 levels, as its still holding above the 2 psychological barrier, the data today would affect the pound movements, with expectations that the people filling for unemployment benefits will increase in June as their economy is still struggling, fighting inflation and trying to revive growth. According to technical indicators the pound falls in an extremely overbought area, increasing the expectations that the market participants will head to profit taking transactions any minute but still waiting for today unemployment data. Finally the US dollar, facing serious challenges with Fannie Mae and Freddie Mac issue and what the upside risks to inflation from the surge in food and commodity prices; all what is occurring in the markets had its toll on the US dollar against the Japanese Yen taking it down to 104.20 levels with intention that it would continue its movement to the downside according to the technical indicators, as the target facing the dollar is 103.60 now. Crown Forex

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U.S. Consumer Prices Probably Rose in June as Fuel, Food Surged

By Shobhana Chandra

July 16 (Bloomberg) -- Consumer prices in the U.S. probably rose in June by the most in seven months as Americans paid more for fuel and food, a government report today may show.

The cost of living increased 0.7 percent after a 0.6 percent gain in May, according to the median forecast of 79 economists surveyed by Bloomberg News. Excluding food and energy, so-called core prices probably climbed 0.2 percent, the survey showed.

The figures underscore why Federal Reserve Chairman Ben S. Bernanke yesterday said inflation risks had ``intensified.'' The surge in energy costs has also slowed consumer and business spending, hurting growth and making it less likely policy makers will boost interest rates to stem even bigger price increases.

``Concern about inflationary developments and the resiliency of consumer spending has pushed the Fed to the sidelines,'' said Steven Wood, president of Insight Economics LLC in Danville, California.

The Labor Department's consumer-price report is due at 8:30 a.m. in Washington. Survey forecasts ranged from gains of 0.2 percent to 1.1 percent. Prices probably rose 4.5 percent from a year earlier, the most since September 2005.

A Fed report at 9:15 a.m. may show industrial production rose 0.1 percent in June, the first increase in three months, according to economists surveyed.

Energy costs will continue stoking price pressures. Crude oil futures reached a record $147.27 a barrel on July 11 and have risen almost 90 percent in the past year. Regular gasoline, which topped $4 a gallon for the first time in June, is rising further this month, AAA figures show.

Wholesale Prices

Wholesale prices rose 1.8 percent in June, the most in seven months, the Labor Department reported yesterday. From a year ago, prices climbed 9.2 percent, the biggest surge since 1981.

``There are tremendous price pressures in the inflation pipeline,'' said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. ``But it is less clear if they will be successfully passed along to consumers.'' That's why the CPI data will be of ``heightened importance.''

Americans trimmed purchases of automobiles, furniture and restaurant meals last month as the cost of gasoline soared, a Commerce Department report showed yesterday. Retail sales rose 0.1 percent, less than forecast, a sign the boost from the tax rebate checks is already fading.

Bernanke, testifying before Congress yesterday as part of his semi-annual report on the economy, cited ``significant downside risks to the outlook for growth'' in addition to the heightened threat of inflation.

Less Spending

Consumer spending is ``likely to be restrained over coming quarters,'' and businesses are ``likely to be cautious with their spending in the second half of the year,'' Bernanke said.

Companies, unable to fully recover ballooning raw-material costs by raising prices, have cut staff and reduced equipment purchases as profits shrink.

Kimberly-Clark Corp., the maker of Huggies diapers and Scott paper towels, said earnings for this year will trail its previous forecast as expenses rise more than twice as fast as predicted, In May, the company said it would raise prices for a second time this year to counter higher costs for materials such as oil, natural gas and pulp.

``Inflation has outpaced our ability to offset higher costs in the near term through price increases, cost reductions and other measures,'' Thomas Falk, the Dallas-based company's chief executive officer, said this week in a statement.

Procter & Gamble Co., the maker of Tide detergent and Head & Shoulders shampoo, last week said it'll raise prices as much as 16 percent due to higher costs for plastic, energy and paper. The increases start in September and are the Cincinnati-based company's steepest in at least 18 months.

                         Bloomberg Survey

================================================================
                              CPI     Core     Ind.     Cap.
                                       CPI    Prod.    Util.
                             MOM%     MOM%     MOM%        %
================================================================

Date of Release              07/16    07/16    07/16    07/16
Observation Period            June     June     June     June
----------------------------------------------------------------
Median                        0.7%     0.2%     0.1%    79.4%
Average                       0.7%     0.2%     0.1%    79.4%
High Forecast                 1.1%     0.4%     0.5%    79.7%
Low Forecast                  0.2%     0.1%    -0.4%    79.0%
Number of Participants          79       78       78       67
Previous                      0.6%     0.2%    -0.2%    79.4%
----------------------------------------------------------------
4CAST Ltd.                    0.9%     0.2%     0.3%    79.5%
Action Economics              0.8%     0.2%     0.3%    79.5%
AIG Investments               0.7%     0.3%    -0.2%     ---
Aletti Gestielle SGR          0.8%     0.2%    -0.3%    79.0%
Allianz Dresdner Economic     0.7%     0.2%     0.1%    79.4%
Argus Research Corp.          0.6%     0.2%     0.1%    79.5%
Banc of America Securitie     0.5%     0.2%     0.4%    79.4%
Bank of Tokyo- Mitsubishi     0.7%     0.2%     0.1%    79.3%
Bantleon Bank AG              0.7%     0.2%     0.1%     ---
Barclays Capital              0.9%     0.2%     0.4%    79.6%
BBVA                          0.6%     0.2%    -0.3%    79.2%
BMO Capital Markets           0.7%     0.2%     0.2%    79.4%
BNP Paribas                   0.9%     0.2%     0.0%    79.3%
Briefing.com                  0.7%     0.2%     0.2%    79.4%
Calyon                        0.7%     0.2%     0.1%    79.4%
CFC Group                     ---      ---      0.1%    79.5%
CIBC World Markets            0.7%     0.2%    -0.1%    79.4%
Citi                          0.7%     0.1%    -0.4%    79.0%
ClearView Economics           0.5%     0.2%    -0.2%    79.0%
Commerzbank AG                0.8%     0.2%     0.0%    79.3%
Credit Suisse                 0.8%     0.2%     0.5%    79.7%
Daiwa Securities America      0.5%     0.2%    -0.1%    79.3%
Danske Bank                   0.5%     0.2%     0.0%    79.4%
DekaBank                      0.7%     0.2%     0.2%    79.4%
Desjardins Group              0.6%     0.1%     0.0%    79.3%
Deutsche Bank Securities      0.6%     0.2%     0.0%    79.4%
Deutsche Postbank AG          0.6%     0.2%     0.1%     ---
Dresdner Kleinwort            0.7%     0.2%    -0.1%    79.2%
DZ Bank                       0.6%     0.2%     0.0%    79.2%
First Trust Advisors          0.8%     0.2%     0.0%    79.2%
Fortis                        0.7%     0.3%     0.3%     ---
FTN Financial                 0.2%     0.2%    -0.1%    79.2%
GCI Capital                   0.8%     0.4%     ---      ---
Global Insight Inc.           0.9%     0.2%     0.5%     ---
Goldman, Sachs & Co.          0.7%     0.2%     0.0%    79.3%
H&R Block Financial Advis     0.6%     0.2%     0.1%    79.4%
Helaba                        0.7%     0.2%    -0.2%    79.3%
High Frequency Economics      0.7%     0.2%     0.3%    79.6%
Horizon Investments           0.7%     0.2%     0.1%    79.5%
HSBC Markets                  0.7%     0.2%    -0.1%    79.2%
IDEAglobal                    0.8%     0.2%     0.3%    79.7%
ING Financial Markets         0.7%     0.2%    -0.1%    79.4%
Insight Economics             0.6%     0.3%     0.1%    79.2%
Intesa-SanPaulo               0.7%     0.2%     0.1%     ---
J.P. Morgan Chase             0.8%     0.2%     0.5%    79.7%
Janney Montgomery Scott L     1.1%     0.3%    -0.3%    79.0%
JPMorgan Private Client       0.6%     0.2%    -0.1%    79.3%
Landesbank Berlin             0.5%     0.3%    -0.3%    79.0%
Lehman Brothers               0.8%     0.2%     0.0%    79.3%
Lloyds TSB                    0.7%     0.3%     0.2%    79.4%
Maria Fiorini Ramirez Inc     0.8%     0.2%     0.0%    79.3%
Merk Investments              0.9%     0.2%    -0.1%    79.4%
Merrill Lynch                 0.8%     0.2%     0.4%    79.6%
Moody's Economy.com           0.5%     0.2%    -0.2%    79.1%
Morgan Stanley & Co.          0.8%     0.2%     0.5%    79.7%
National Bank Financial       0.8%     0.2%     ---      ---
National City Corporation     0.5%     0.2%     0.2%    79.5%
Natixis                       0.7%     0.2%    -0.2%    79.4%
Newedge                       0.6%     0.2%     0.0%     ---
Nomura Securities Intl.       0.8%     0.2%    -0.2%    79.1%
Nord/LB                       0.7%     0.2%    -0.1%    79.2%
Okasan Securities             1.0%     0.2%     0.3%    79.3%
PNC Bank                      0.7%     0.2%     0.3%    79.5%
RBS Greenwich Capital         0.7%     0.2%     0.3%     ---
Ried, Thunberg & Co.          0.8%     0.2%     0.4%    79.6%
Schneider Trading Associa     0.7%     0.3%     0.3%    79.5%
Scotia Capital                0.8%     0.2%     0.1%    79.5%
Societe Generale              0.9%     0.2%     0.2%    79.4%
Standard Chartered            0.7%     0.2%    -0.1%    79.3%
Stone & McCarthy Research     0.6%     0.2%    -0.1%    79.2%
TD Securities                 0.7%     0.2%     0.0%     ---
Thomson Financial/IFR         0.8%     0.3%    -0.3%    79.1%
UBS Securities LLC            0.8%     0.2%     0.2%     ---
Unicredit MIB                 0.6%     0.2%     0.0%    79.2%
University of Maryland        0.7%     0.2%     0.3%    79.6%
Wachovia Corp.                0.7%     0.2%     0.0%    79.3%
Wells Fargo & Co.             0.7%     ---      0.3%    79.5%
WestLB AG                     0.6%     0.2%    -0.1%    79.3%
Westpac Banking Co.           0.5%     0.2%    -0.1%     ---
Wrightson Associates          0.8%     0.2%     0.4%    79.6%
================================================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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Paulson Pounded by Investors as He Seeks to Halt Market Crisis

By Brendan Murray and Rebecca Christie

July 16 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson, who arrived in Washington two years ago from the summit of American capitalism, is being pummeled by the markets that nurtured him.

Investors are rebuffing Paulson's plan to rescue the nation's two largest mortgage-finance companies. Shares of Fannie Mae have slid 31 percent, Freddie Mac has lost 32 percent and the Standard & Poor's 500 Financial Index has fallen 8 percent since his July 13 pledge of government support. Yesterday the skepticism spread to his own Republican Party, signaling what may be a tough fight ahead for his proposal.

Paulson, who came from Goldman Sachs Group Inc. expecting his biggest tasks to be forging a compromise on Social Security and fostering an economic dialogue with China, today faces a deepening housing crisis and a stock market lower than the day he started.

``This is a man who finds himself in a whirlpool he never dreamed he'd see,'' said David Kotok, chairman and chief investment officer of Cumberland Advisors Inc., a Vineland, New Jersey, firm that manages $1 billion.

He is also advocating policies he might not have expected to embrace. Paulson's recognition that the threats Fannie Mae and Freddie Mac pose require a federal response helped convince President George W. Bush to back the rescue plan.

``In the short term, you do what you need to do to protect the financial system,'' Keith Hennessey, the director of Bush's National Economic Council, said in an interview.

`Systemic Financial Risk'

The Bush administration's decision to back the mortgage companies, as well as the Federal Reserve's aid for Bear Stearns Cos. earlier this year, are ``specific cases that could involve systemic financial risk'' Hennessey said.

When Paulson, 62, started at Treasury in July 2006, consumer confidence in the U.S. was rising, stocks were advancing and crude oil cost half what it does today. His agenda included helping American businesses and workers become more competitive.

``The global economy has been more robust than at any point I can recall,'' the former Goldman Sachs chairman said in his first major speech, in August 2006, at Columbia University's business school in New York.

That changed a year later. U.S. credit markets began to deteriorate in August 2007 as debt linked to mortgage-backed securities fell in value, altering Paulson's initial plans to address ``long-term challenges'' to economic growth.

First Steps

As the crisis unfolded, sending stocks down for five straight months between November 2007 and March of this year, Paulson's initial efforts to respond met with only limited success.

He organized a group of mortgage lenders and services into an alliance called ``Hope Now'' to help struggling homeowners. It was criticized by House Financial Services Committee Chairman Barney Frank for moving too slowly.

Paulson tried to get banks including Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. to start an $80 billion fund to draw investors back into the market for short- term debt. Under an agreement he brokered, the fund would buy some of the $320 billion in assets held by structured- investment vehicles. The effort never got off the ground, because the banks decided to arrange their own rescues.

As the instability spread to Bear Stearns earlier this year, he helped organize the Fed's response: a $30 billion package to help facilitate JPMorgan's purchase of Bear in March. The government's help was needed to prevent the collapse of Wall Street's fifth-biggest bank from taking down the financial system, Paulson said.

Unprecedented Problems

``To be fair, he's facing problems that no one has ever faced before,'' said Peter Wallison, a fellow at the American Enterprise Institute in Washington and a former Treasury general counsel.

Those problems have multiplied with Fannie Mae and Freddie Mac. The companies have struggled as mortgage defaults soared, sending the value of mortgage-backed securities -- their main investment -- plummeting.

Paulson this week asked Congress to approve a plan to let the Treasury increase the companies' credit lines from $2.25 billion each, buy shares in them if necessary and give the Federal Reserve a role in setting their capital requirements.

He won the approval of Bush, who has ``tremendous confidence'' in Paulson, Hennessey said. ``There's no one with more experience, institutional knowledge and the connections to help the president.''

Credibility Questioned

At the same time, Paulson's credibility has been called into question both by the market reaction to his efforts and at a hearing yesterday in the Senate.

``The market has reacted to your plan by driving down Fannie Mae shares 26 percent today,'' Senator Jim Bunning, a Kentucky Republican, told the Treasury chief. ``Freddie Mac's are down 29 percent at this moment, just in case you are interested in how the markets are reacting to your wonderful plan.''

After a verbal lashing from senators of both parties, Paulson emphasized the urgency of the proposal.

This ``will be a great confidence-builder throughout the world, to see Republicans and Democrats, both houses come together and do something quickly here,'' he said.

Other lawmakers praise Paulson's willingness to work with Democrats. ``One of the things that Paulson has done is get the president to be sensible,'' Frank, a Massachusetts Democrat, said in an interview yesterday.

`Still Optimistic'

Paulson took the hearing in stride, David Nason, the Treasury's assistant secretary for financial institutions, said in an interview late yesterday. ``We're still optimistic that we're going to be able to get this done on a short time frame,'' Nason said.

Still, as Paulson spoke to the Senate panel, yields widened between Freddie Mac's and Fannie Mae's five-year debt and five-year U.S. Treasuries, signaling doubt that the government response would help.

Paulson has repeatedly emphasized the virtues of ``market discipline'' -- code words for self-policing. Now, with Fannie Mae and Freddie Mac in crisis, he has endorsed what critics say may be an open-ended commitment to save them.

``They say there are no atheists in a foxhole,'' said Harvard economist Jeffrey Frankel, a former Clinton administration official. ``Well, there are no libertarians in a financial crisis, either.''

To contact the reporters on this story: Brendan Murray at brmurray@bloomberg.net; Rebecca Christie in Washington at Rchristie4@bloomberg.net



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UBS Seeks to Appease Clients With Auction-Rate Buy

By Christopher Condon

July 16 (Bloomberg) -- UBS AG, Switzerland's largest bank, plans to buy back as much as $3.5 billion of auction-rate preferred shares after being sued in the U.S. for fraudulently selling the securities as low-risk alternatives to cash.

Investors will be able to get their money back in full, the Zurich-based company said yesterday in a statement. The offer, the first by a broker, applies to shares issued by tax-exempt closed-end funds managed by firms such as BlackRock Inc. and Nuveen Investments Inc. It doesn't include auction-rate debt from municipalities or student-loan providers.

UBS was sued last month by Massachusetts Secretary of State William Galvin, who said investors were misled by brokers and financial advisers into believing the securities were as safe as cash while paying higher dividends. At least 15 lawsuits have been filed against securities firms on behalf of investors whose money was frozen when the auction-rate market collapsed in February amid fallout from the subprime-mortgage crisis.

``It's fabulous,'' Harry Newton, 66, an investor in New York who owns $3.5 million in auction-rate preferred securities, said in an interview. ``They were the worst of all the brokerage companies that sold this stuff.''

UBS said last month it will ``defend the specific allegations'' of Galvin's suit. UBS spokeswoman Rohini Pragasam declined to comment yesterday. Galvin couldn't be reached for comment.

Pressure on Banks

``Obviously this is constructive, but other steps remain and there is no timetable mentioned,'' David Chandler, 68, the lead plaintiff in a lawsuit against UBS, said in an interview from his home in San Diego.

The UBS announcement will put pressure on other brokers to make similar offers, said Joseph Witthohn, a research analyst for Janney Montgomery Scott LLC in Philadelphia.

``You can be sure they're going to get calls from clients asking if they're going to do the same thing,'' Witthohn said.

Auction-rate securities were bought by individuals and corporations in auctions run by dealers. Dividend rates were set every seven, 28 or 35 days, a feature promoted by the brokers as providing the ability to buy or sell quickly. As much as $218 billion of the $330 billion of auction-rate bonds and shares outstanding in February remains frozen.

UBS will finance the repurchases by reissuing the preferred shares in a private placement through a trust that will be consolidated on the bank's balance sheet. The reissued shares will carry a put option, guaranteeing the holder the right to sell, and will be marketed to money-market funds and other institutional investors.

Credit Losses

The bank, the hardest hit in Europe by the holdings in subprime mortgage-backed securities, has written down more than $38 billion in losses in the past three quarters, equal to more than two-thirds of equity it had at the end of June 2007. UBS didn't say how the buyback will affect earnings or capital.

The UBS plan is similar to those announced by the three largest U.S. closed-end fund companies. Chicago-based Nuveen, BlackRock in New York and Boston-based Eaton Vance Corp. intend to replace some outstanding preferred shares with new ones carrying a put option that they hope will attract capital from U.S. money-market funds, which control $3.5 trillion.

The bank said it received guidance from the U.S. Treasury and is in talks with the Securities and Exchange Commission over the planned reissue. The staff of the SEC has already approved the closed-end funds' proposals.

UBS said it hopes to begin making repurchase offers ``within 30 days of resolving these regulatory issues.''

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net



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Pound Snaps Three-Day Gain Versus Dollar, Falls Against Euro

By Justin Carrigan

July 16 (Bloomberg) -- The pound snapped three days of gains against the dollar and fell versus the euro.

The U.K. currency dropped to $2.003 as of 6:48 a.m. in London, from $2.006 yesterday. It weakened to 79.37 pence per euro, from 79.33 pence.

To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net



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Australian Dollar Falls After Stevens Says Inflation to Slow

By Ron Harui

July 16 (Bloomberg) -- The Australian dollar fell from a 25-year high and two-year government bonds advanced after Reserve Bank of Australia Governor Glenn Stevens signaled interest rates may be high enough to keep inflation in check.

Australia's dollar snapped a four-day gain after Stevens told economists that the chances of ``keeping inflation low over the medium term are good,'' suggesting the RBA may have finished raising rates. The currency also declined as the yield premium on the nation's two-year debt compared with similar-maturity Treasuries narrowed 6 basis points to 4.17 percentage points.

``Interest rates are at a peak is the bottom line of the speech,'' said Matthew Johnson, an economist at ICAP Australia Ltd. in Sydney. ``The Australian dollar might go down, and that's what we're seeing immediately.''

The Australian dollar slipped to 97.78 U.S. cents at 2:10 p.m. in Sydney from 98.07 cents before the speech and an earlier high of 98.49 cents, the strongest since January 1983. The currency weakened 0.6 percent to 102.24 yen from 102.88 yen.

The RBA's outlook on inflation ``does involve a period of significantly slower growth in demand in Australia,'' Stevens said in a speech in Sydney today. ``We still expect inflation to fall back to 3 percent by mid-2010, and to continue declining gradually thereafter.''

Australia's benchmark interest rate is at a 12-year high of 7.25 percent, compared with 2 percent in the U.S. and 0.5 percent in Japan, making the country a popular destination for international investors seeking higher returns. The local currency, known as the Aussie, has risen the most among the 16 most-active currencies versus the U.S. dollar this year.

Traders increased bets that the RBA will lower its benchmark rate after Steven's speech. A Credit Suisse Group index based on interest-rate swaps showed the central bank will cut borrowing costs by 13 basis points in the next 12 months, compared with 2 basis points yesterday. A basis point is 0.01 percentage point.

Australian two-year government bond yields slid 10 basis points to 6.51 percent. Bond yields move inversely to prices.

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



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Rupiah to Outperform Other Asian Currencies, State Street Says

By Lilian Karunungan

July 16 (Bloomberg) -- Investors should buy the Indonesian rupiah as the nation's interest-rate advantage attracts overseas funds and commodity exports boost Southeast Asia's largest economy, according to State Street Global Markets.

The currency will rise to the strongest level since June 2007 by the end of the third quarter, Dwyfor Evans, a Hong Kong- based strategist at the unit of the world's biggest money manager for institutions, said in an interview today. Bank Indonesia has countered inflation better than other central banks in the region by increasing interest rates and allowing the rupiah to strengthen, he said.

``It's one of the Asian currencies with the strongest and clearest buy signal at the moment,'' Evans said. The central bank's ``rate-tightening cycle has been a boon in terms of interest-rate differentials.''

The rupiah appreciated about 2 percent over the past month, the second-biggest gainer among the 10 most-active Asian currencies outside of Japan. It traded at 9,133 as of 12:08 p.m. in Jakarta today.

The currency may advance 1.5 percent to 9,000 by the end of September, Evans predicted. Only three of 21 analysts surveyed by Bloomberg have a similar or more bullish forecast.

Indonesia is the world's biggest producer of palm oil and the largest thermal coal exporter. Its total sales abroad increased 31 percent in May from a year earlier, swelling the trade balance to $3.2 billion, double the amount in April, the government said on July 1. Foreign-exchange reserves were at a record $59.5 billion in June.

Volatility Falls

Policy makers will add to this year's three interest-rate increases by raising the benchmark borrowing cost by another quarter-percentage point at their next meeting on Aug. 5, Evans said in a report dated yesterday.

Indonesia's inflation accelerated to 11 percent in June, the fastest in 21 months, after the government cut fuel subsidies. The interest-rate premium over the U.S. benchmark rate stands at 6.75 percent, the widest since 2006.

The rupiah has also gained as volatility fell to near an all-time low, State Street's report said. Implied volatility on one-month dollar-rupiah options was at 5.15 percent compared with 8.75 percent on May 28, the highest this year.

Traders quote implied volatility, a gauge of expected swings in exchange rates, as part of pricing options. Options give the right, but not the obligation, to buy or sell a security at a pre-set time and price.

``The rupiah is no longer one of the more volatile currencies,'' Evans said in the report. It is a ``managed floating currency'' as the central bank has been selling dollars to stem a slide in the rupiah to quell inflation.

To contact the reporter on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net.



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Yen Sales by Tokyo Individual Investors at Highest Since August

By Kosuke Goto

July 16 (Bloomberg) -- Yen sales by Japanese individual investors on the Tokyo Financial Exchange reached the most since August yesterday as gains in the yen made higher-yielding assets abroad cheaper.

Housewives, pensioners and businessmen accelerated purchases of foreign exchange as Japan's currency rose to a six-week high against the dollar. The highest yen sales in 11 months came as Bank of Japan policy makers unanimously voted to keep interest rates at 0.5 percent and cut their economic growth forecast, raising speculation the central bank will leave borrowing costs unchanged beyond this year.

``With Japan's interest rates expected to remain low for a long time, Japanese investors have persistent demand for higher- yielding currencies,'' said Takahide Nagasaki, senior currency strategist in Tokyo at Daiwa Securities SMBC Co., a unit of Japan's second-largest brokerage. ``Their yen sales help stem any sharp appreciation of the yen.''

Net short positions, or bets a currency will decline, on the yen against seven major currencies, including the U.S. dollar and euro, rose to 353,418 contracts among so-called mom-and-pop traders yesterday, the highest since Aug. 14, exchange data showed.

Investors increased net long positions on the U.S. currency to a four-month high of 105,990 contracts, and on the euro to a five-month high of 20,869 contracts. A long position is a bet that an asset price will rise.

The contracts are denominated in 10,000 units of foreign currency.

The yen traded at 104.84 per dollar at 10:50 a.m. in Tokyo from 104.73 in New York yesterday, when it rose to 104.16, the strongest since June 3. It was also at 166.84 a euro from 166.65 yesterday, when it climbed to 166.42, the highest since July 1.

Carry Trades

Japan's benchmark rate is the lowest among major economies, making assets outside of the country more attractive to domestic investors. Benchmark borrowing costs are 2 percent in the U.S. and 4.25 percent at the European Central Bank.

The BOJ may keep rates on hold at least until the first quarter, Daiwa Securities SMBC's Nagasaki said.

The exchange's data signals Japan's individual investors may be resuming carry trades after reducing their positions as some higher-yielding currencies depreciated in the past year due to the U.S. subprime mortgage crisis.

In carry trades, investors get funds in countries with low borrowing costs and buy assets in countries with higher rates, earning the spread between the two. The risk is that currency moves erase those profits.

So-called margin trading of currencies in Japan using borrowed funds rose 86 percent in the first quarter to a record 213 trillion yen ($2.03 trillion), figures from the Financial Futures Association of Japan showed in May.

Japanese households have 1,490 trillion yen in financial assets, according to the Bank of Japan.

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



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Dollar Declines Against Yen as U.S. Banks May Report Losses

By Stanley White and Kosuke Goto

July 16 (Bloomberg) -- The dollar fell against the yen on speculation U.S. banks will report further losses this week, eroding confidence in the financial system of the world's largest economy.

The U.S. currency traded near a record low versus the euro before quarterly earnings from Wells Fargo & Co., Merrill Lynch & Co., JPMorgan Chase and Citigroup Inc. that may show banks are losing more money after the U.S. subprime mortgage collapse. Federal Reserve Chairman Ben S. Bernanke yesterday abandoned his view that economic risks had diminished as regulators announced plans for a rescue of Freddie Mac and Fannie Mae, the two largest buyers of U.S. mortgages. The yen rose as losses in Asian stocks spurred investors to pare so-called carry trades.

``Dollar selling will continue for some time,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``Bank earnings will likely highlight that the U.S. financial system isn't stable. A protracted downturn in U.S. economic growth is all but unavoidable.''

The dollar fell to 104.41 yen as of 6:55 a.m. in London, from 104.73 yen late yesterday in New York. It traded at $1.5907 per euro, after touching $1.6038 yesterday, the weakest since the 15-nation currency's 1999 debut. Japan's currency rose to 166.10 per euro from 166.65. The dollar may weaken to $1.5920 versus the euro and 104.40 yen today, Soma forecast.

The Australian dollar declined to 97.80 U.S. cents from 97.93 cents late yesterday in New York after Reserve Bank of Australia Governor Glenn Stevens said slowing demand will ease inflationary pressure. The Aussie, as the currency is known, reached a 25-year high of 98.49 cents yesterday.

`Yen Buying'

The yen rose to 102.20 per Australian dollar from 102.56. It also gained 0.4 percent against the New Zealand dollar to 80.62 and 0.2 percent versus the South African rand to 13.6545. The MSCI Asia-Pacific Index of regional shares fell 0.2 percent for its third day of declines.

``Risk aversion is prompting yen-buying,'' said Akira Kato, senior manager of the foreign-exchange trading department in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's biggest publicly traded lender by assets. ``Investors are concerned about U.S. government-sponsored enterprises and upcoming earning reports from the U.S.''

The yen may rise to 165.50 a euro today, he said.

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 4.25 percent for the European Central Bank, 7.25 percent in Australia, 8.25 percent in New Zealand and 12 percent in South Africa.

$400 Billion

Wells Fargo, the second-biggest U.S. mortgage lender, reports quarterly earnings today. JPMorgan Chase and Merrill announce results tomorrow, while Citigroup, the biggest U.S. bank, publishes its earnings on July 18.

Global banks and securities firms have reported losses of about $400 billion due to rising defaults on mortgages for U.S. homeowners with poor credit, according to Bloomberg data.

In testimony before the Senate Banking Committee yesterday, Bernanke abandoned his June assessment that the threat of an economic downturn has diminished, telling lawmakers that growth and inflation risks are increasing. Treasury Secretary Henry Paulson told the panel that the government would buy shares in Fannie and Freddie ``only if necessary.'' Bernanke speaks again before the House Financial Services Committee at 10 a.m. in Washington today.

`More Bearish'

``Bernanke has become a bit more bearish on the U.S. economy than before,'' said Yuji Kameoka, a senior economist and currency analyst in Tokyo at Daiwa Institute of Research, a unit of Japan's second-largest brokerage. ``This reduces expectations for a Fed rate increases this year and is currently weighing on the dollar.''

The U.S. currency may move between 104 yen and 106 yen, and $1.58 and $1.60 a euro this week, he said.

Federal funds futures on the Chicago Board of Trade show a 7 percent chance the Fed will increase its 2 percent target lending rate at its Aug. 5 meeting, compared with 77 percent odds a month ago.

The Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, fell for a sixth day, dropping 0.2 percent to 71.71.

The U.S. currency has given up most of the gains made versus the euro since July 3, when European Central Bank President Jean-Claude Trichet said he had ``no bias'' on future interest-rate moves. The dollar strengthened 0.6 percent to $1.5706 per euro that week. It has since slumped 1.2 percent on concern that losses at Fannie Mae and Freddie Mac will deepen.

Consumer Prices

U.S. consumer prices may have risen at an annual rate of 4.5 percent in June, the most since September 2005, according to the median forecast of economists surveyed by Bloomberg News. The Labor Department report is due at 8:30 a.m. New York time.

``Consumer-price data aren't likely to support the dollar,'' Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Plc in Tokyo and a former Bank of Japan currency trader, wrote in a research note today. ``It will serve as a reminder that the U.S. faces stagflationary risks, making it difficult to conduct monetary policy.''

The dollar may fall to a seven-week low of 103.70 yen, according to technical analysis of its price chart, said Masashi Hashimoto, a senior currency analyst at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo.

The U.S. currency is poised to slide as the relative strength index, a comparison of the magnitude of gains and losses, shows the dollar is losing momentum, Hashimoto said. The dollar's 14-day relative strength index against the yen, was 37.3 today, down from 46.4 on July 14 and 51.6 a week ago.

The so-called support level of about 103.70 yen represents a 38.2 percent reversal of the dollar's climb to a high of 108.58 reached on June 16 from a low of 95.76 on March 17, based on a series of numbers known as the Fibonacci sequence. Support is a level where buying is expected to outweigh selling.

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




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Samsung Life, Kyobo Shun U.S., Europe for Korea Bonds

By Kim Kyoungwha

July 16 (Bloomberg) -- South Korean life insurers are shunning U.S. and European corporate bonds because of a rising risk of default and plowing money into domestic debt.

Samsung Life Insurance Co., Korea's biggest insurer, is diverting $500 million into 10-year government bonds, said Koo Sung Hoon, head of investments at the company. Kyobo Life Insurance Co., the third-largest, is reconsidering plans to invest the equivalent of $1 billion overseas and may put the money to work at home instead, said Cho Ok Rae, chief of international investments.

``Risks are increasing so we are now rebalancing our fixed- income portfolios, which means we are selling corporate bonds we hold in the U.S. and Europe,'' Koo said this month in an interview in Seoul. ``Corporate default risk will rise.''

The cost of protecting U.S. and European corporate bonds increased in the past two months on concern credit losses at banks will widen, slowing global economic growth. Financial firms worldwide have accumulated about $416 billion in writedowns and losses as the U.S. housing slump deepens. Samsung Life sold all of its U.S. regional bank debt last year, said Koo.

South Korean debt returned 1.9 percent this year, according to an index compiled by HSBC Holdings Plc. U.S. corporate bonds delivered a loss of 1.4 percent, Merrill Lynch & Co.'s Corporate and High Yield Master index shows.

``There's a long, long way to go for the U.S.,'' said Koo. ``Credit ratings are being downgraded and it's very risky for debt holders.''

Credit Risk

Samsung Life holds $14 billion of foreign assets, mainly corporate debt with credit ratings of A+ on average, according to Koo. That's the fifth-highest investment grade at Standard & Poor's. More than 60 percent of new investment was in domestic 10-year government bonds, he said.

Credit-default swaps on the Markit CDX North America Investment Grade Index of 125 companies increased 2 basis points to 142.5 yesterday, according to broker Phoenix Partners Group in New York. Contracts on the Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 1.5 basis points to 103.75, according to JPMorgan Chase & Co. prices.

Credit-default swaps are financial instruments used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to debt agreements. A rise indicates deterioration in the perception of credit quality. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

Diverting Funds

Korean bonds are ``more stable and safer'' than overseas debt even after inflation drove yields to near the highest since 2002, Kyobo's Cho said in an interview yesterday in Seoul.

``We are diverting some of more than 1 trillion won ($1 billion) allocated for overseas investments into the local market,'' Cho said. ``The entire amount may go to local bonds should the second half outlook for overseas markets stay grim.''

The yield on the South Korea's 5.5 percent 10-year note due in September 2017 climbed as high as 6.19 percent this month, before falling to 6.03 percent today. Inflation accelerated to an annual rate of 5.5 percent in June, the fastest in a decade.

``The loss from selling U.S. and European bonds can be compensated for by reinvestment in Korea,'' Samsung Life's Koo said. The firm hedged overseas investments with swap contracts in which it pays U.S. dollar London interbank borrowing rates and receives South Korean Treasury yields. It will keep those contracts open after cutting overseas investments, said Koo.

`Tap Opportunities'

Korea Life Insurance Co., the nation's second-largest insurer, intends to ``gradually'' increase funds invested abroad, Kim Yong Hoan, head of global investments, said in an interview in Seoul on July 11.

``We are continuing to tap opportunities in overseas markets through hedge funds'' to achieve an annual return of 7 percent, said Kim, whose company has 50 trillion won in assets and 2 trillion won overseas. It will raise money going into hedge funds by $500 million, he said.

Samsung intends to buy $40 million in global distressed assets, including asset-backed securities, over the next five years, said Koo. It favors local debt for most of its new investments.

``We are bearish'' on U.S. and European bonds, he said. ``Even though the liquidity issue is almost over in the financial sector, the impact on consumption and employment will leave the U.S. economy with much slower growth.''

To contact the reporter on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net



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Platinum Futures Drop Amid Signs Auto Catalyst Demand to Slump

By Dave McCombs

July 16 (Bloomberg) -- Platinum futures in Tokyo dropped to a 10-week low on speculation declining sales at automakers including Toyota Motor Corp. will cut demand for the metal in exhaust filters.

The most-active contract for platinum plunged after public broadcaster NHK reported Toyota will cut this year's global sales target by 350,000 vehicles to 9.5 million. General Motors Corp., Toyota's only bigger rival, yesterday suspended its dividend and said it will sell assets to raise cash as weak sales slash profit.

``There is nothing new about limits on production in South Africa, so the weak picture for U.S. auto demand is dragging down platinum,'' Wakako Harada, a trader at Mitsubishi Corp. in Tokyo, said today by phone. The decline in platinum for immediate delivery may lure physical buyers, she said.

Platinum for June delivery plunged as much as 297 yen, or 4.4 percent, to 6,418 yen a gram ($1,912 an ounce), the lowest since May 8. It traded at 6,433 yen at 3 p.m. on the Tokyo Commodity Exchange.

Metal for immediate delivery dropped as much as $41 to $1,938.50 an ounce, 2.1 percent lower than yesterday in New York, and the lowest since July 8. It traded at $1,950.50 an ounce at 2:57 p.m., Tokyo time.

Car and light-truck manufacturers worldwide account for more than 60 percent of platinum demand, according to estimates by Johnson Matthey Plc, which makes about one-third of the world's auto catalysts.

Demand from physical buyers of the metal increases whenever the price falls below $1,950 an ounce, Harada said.

Platinum's 5.7 percent decline so far this month has trimmed its annual gain to 28 percent. The metal climbed to a record high in March, partly on expectations a power shortage in South Africa, which accounts for about 78 percent of global supply, would restrict mining.

Wage disputes and fatal accidents also restricted mining in the country, prompting speculation output will fail to meet rising demand for the metal to make cars and trucks.

To contact the reporter for this story: Dave McCombs in Tokyo at dmccombs@bloomberg.net



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Copper Climbs in Asia on Peru Strike Threat, Dollar Decline

By Glenys Sim

July 16 (Bloomberg) -- Copper rose for a fifth time in six days in Asia, on expectations of a strike in Peru and as the dollar held near a record low against the euro, raising the appeal of raw materials as an alternative investment.

Copper gained as workers at Freeport-McMoRan Copper & Gold Inc.'s Peruvian copper-mine, the nation's third largest, failed to reach an agreement over issues including better working conditions and may walk out on July 16, a union official said on July 11. The metal has jumped 23 percent this year, partly boosted by supply concerns.

``Fresh reports of mine strike activity in South America and a weak U.S. dollar'' may offset ``concerns about slowing global growth,'' Mark Pervan, a senior commodity strategist with Australia and New Zealand Banking Group Ltd. in Melbourne, said yesterday in an e-mail. ``Copper may be the best supported on expectation Freeport-McMoRan's copper mine workers in Peru will strike.''

Copper for delivery in three months rose $69.25, or 0.9 percent, to $8,214.25 a ton on the London Metal Exchange at 10:44 a.m. in Singapore, after falling as much as 2.1 percent yesterday.

Copper for September delivery lost as much as 530 yuan, or 0.9 percent, to 62,010 yuan ($9,100) a metric ton on the Shanghai Futures Exchange. The most-active contract stood at 62,390 yuan at 10:46 a.m. local time.

The dollar traded at $1.5910 per euro at 10:11 a.m. in Tokyo, after touching $1.6038 yesterday, the weakest since the 15-nation currency's 1999 debut on speculation U.S. banks will report further losses this week, eroding confidence in the financial system of the world's largest economy.

Gains Limited

Limiting copper's gains were concerns about waning demand on falling Chinese imports and a weakening outlook for the U.S. economy. Copper has dropped 8 percent from a July 2 record on speculation a slowdown in global economic growth may erode consumption.

China's imports of copper and alloys slumped 19 percent in June from a year earlier, according to customs data yesterday. U.S. Federal Reserve Chairman Ben S. Bernanke said risks to U.S. growth and inflation have increased.

Among other LME-traded metals, aluminum and zinc were also lifted by the weak dollar and as crude oil stemmed losses from its biggest one-day decline yesterday.

Aluminum rose 0.6 percent to $3,233 a ton, and zinc was up 1.9 percent at $1,875.25. Lead fell 0.3 percent to $1,985, while nickel and tin had not traded as of 10:49 a.m. in Singapore.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net



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Gold Falls for First Day in Six as Crude Oil Drops Below $140

By Feiwen Rong

July 16 (Bloomberg) -- Gold fell for the first time in six days as crude oil's tumble to below $140 a barrel yesterday eroded the appeal of the metal as a hedge against inflation.

Oil in New York traded at $138.68 a barrel at 10:56 a.m. in Singapore, after dropping as much as $9.26 to $135.92 yesterday because of concern a slower U.S. economy will curtail demand. Gold has added 17 percent this year and oil has gained 44 percent.

``A $9 fall in the price of oil saw widespread profit- taking'' in the gold market, David Thurtell, analyst at BNP Paribas SA in London, wrote in a report yesterday.

Bullion for immediate delivery traded 0.6 percent lower at $972.05 an ounce at 10:52 a.m. in Singapore. The metal fell to as low as $969.21 an ounce yesterday in New York from an almost four-month high of $988.02. Silver lost 0.5 percent to $18.8350 an ounce.

Still, ``gold could firm on renewed worries about the U.S. financial system and a sick U.S. dollar,'' Mark Pervan, analyst at Australia and New Zealand Banking Group Ltd. in Melbourne, wrote in a report yesterday.

The dollar traded at $1.5905 against the euro at 10:43 a.m. in Singapore, after falling to a record low at $1.6038 yesterday, amid speculation that U.S. banks will report further losses this week, eroding confidence in the financial system of the world's largest economy.

Gold for August delivery lost 0.6 percent to $972.70 an ounce in after-hours electronic trading on Comex at 10:45 a.m. in Hong Kong. Gold for December delivery traded in Shanghai fell 0.6 percent to 211.98 yuan a gram ($968 an ounce) at the same time.

Gold for June 2009 delivery dropped 1.1 percent to 3,301 yen a gram ($981 an ounce) on the Tokyo Commodity Exchange at the 11 a.m. local time break, after reaching a 25-year high of 3,346 yen yesterday.

To contact the reporter for this story: Feiwen Rong in Singapore at frong2@bloomberg.net

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Soybeans Rally for First Day in Three; Corn Little Changed

By Jae Hur

July 16 (Bloomberg) -- Soybeans rose for the first time in three days after touching a one-week low as investors bet recent declines were overdone, while corn was little changed, trading close to a one-month low.

Soybeans have declined 5 percent in the past two days on speculation that favorable weather in parts of the U.S. Midwest will boost crop prospects. Corn lost 6 percent in the two-day period. Dry weather helped revive crops ravaged last month by floods along the Mississippi and Iowa rivers, and timely rains fell in some growing areas.

``It's purely a technical adjustment,'' said Nicholas Chung, senior manager of the commodity derivatives team at Korea Development Bank in Seoul. ``Overall market sentiment is not bright following slumping crude oil prices and declining global equity markets.''

Soybeans for November delivery rose as much as 9.75 cents, or 0.6 percent, to $15.2575 a bushel in after-hours trading on the Chicago Board of Trade and stood at $15.2275 at 10:52 a.m. Singapore time. The contract earlier traded as low as $15.1325, the lowest since July 8. The most-active futures have risen 75 percent in the past year, reaching a record $16.3675 on July 3.

Corn for December delivery was down 0.75 cents at $6.66 a bushel at 10:55 a.m. Singapore time. The contract lost 2.3 percent yesterday after falling to $6.615, the lowest since June 10. The most-active futures still have gained 91 percent in the past year, reaching a record $7.9925 on June 27, on rising demand for the grain to feed livestock and to produce biofuel.

`Fundamentals Bullish'

``Fundamentals for corn and soybeans are still bullish, but they can not be free from a worsening credit crisis,'' Chung said. ``At the moment, some investors are trying to get out of commodities to make up for losses from stocks or for cash.''

The MSCI Asia-Pacific Index, set to close at its lowest since October 2006, has lost 18 percent this year. U.S. stocks dropped yesterday, sending the Standard & Poor's 500 Index to the lowest since 2005, as a plunge in oil dragged down energy shares and investors lost confidence in the government's plan to rescue Fannie Mae and Freddie Mac.

Crude oil yesterday had its largest dollar decline since Jan. 17, 1991, and the biggest percentage drop since March as slowing economic growth reduces demand. Federal Reserve Chairman Ben S. Bernanke yesterday said risks to growth and inflation have risen.

Wheat for September delivery fell 4 cents, or 0.5 percent, to $8.07 a bushel at 10:56 a.m. Singapore time, dropping for a third day. The contract earlier dipped to $8.04, the lowest since June 10. Prices have slumped 40 percent from a record $13.495 set on Feb. 27 as higher prices spurred farmers to boost planting.

Wheat regions in Western Australia state, the nation's biggest grower of the grain, have received their ``best rain'' of the cropping season, CBH Group said today.

There was between 10 millimeters (0.4 inch) and 40 millimeters of rain overnight, Michael Musgrave, operations manager for CBH, the state's largest grain handler and marketer, said. Rain fell across the majority of the wheat belt, he said.

In the export market, Egypt bought 240,000 metric tons of wheat yesterday. Japan is seeking to buy 76,000 tons of milling wheat at a tender tomorrow.

To contact the reporter on this story: Jae Hur in Singapore at jhur1@bloomberg.net



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Brasil Telecom, OdontoPrev, Petrobras: Latin Equity Preview

By William Freebairn and Alexander Ragir

July 16 (Bloomberg) -- The following stocks may have significant gains or losses in Latin American markets. Symbols are in parentheses after company names, and stock prices are from the last session.

The MSCI index of Latin American shares declined 0.7 percent to 4,358.76 yesterday. In Brazil, preferred shares are the most commonly traded class of stock.

Brazil

Brasil Telecom Participacoes SA (BRTP4 BS): The country's third-biggest fixed-line telephone company said second-quarter net income rose 75 percent to 254.4 million reais ($160.2 million) as it added Internet and mobile-phone customers. Net revenue rose 2.9 percent to 2.82 billion reais, the company said in a regulatory filing yesterday. Brasil Telecom rose 3.1 percent to 23 reais.

OdontoPrev SA (ODPV3 BS): The Brazilian dental-care company's second-quarter results to be reported Aug. 8 will show margin expansion and 18 percent growth in net revenue from the year before, Itau Corretora de Valores SA analyst Marcio Osako wrote in a note to clients yesterday. OdontoPrev gained 2.5 percent to 40.99 reais.

Petroleo Brasileiro SA (PETR4 BS): Brazil's state-controlled oil company said it had record total production of 2.42 million barrels of oil and gas equivalent per day in June. Petrobras, as the company is known, said yesterday in an e-mailed statement that total daily output was 3.3 percent higher than its June 2007 production and 2.3 percent more than in May 2008. Petrobras fell 0.8 percent to 40.55 reais.

Chile

Cia. Cervecerias Unidas SA (CCU CC): Chile's largest brewer is trading for less than other beverage companies, creating ``an attractive buying opportunity,'' Banco Santander SA analysts Diego Celedon and Alexander Robarts wrote in a research report e- mailed yesterday. Its profit margin will remain stable this year, and the company will benefit from an acquisition in Argentina, the analysts wrote, citing a meeting with company executives. CCU, as the company is known, fell 1.1 percent to 2,820 pesos.

Mexico

Grupo Aeroportuario del Pacifico SAB (GAPB MM): Mexico's largest non-state airport operator said yesterday that passenger traffic may fall as much as 1 percent this year, reducing an earlier forecast that traffic would gain as much as 7 percent. The new estimate was ``worse than expected,'' analyst Francisco Guzman of Bank of Nova Scotia said in a phone interview yesterday from Mexico City. Aeroportaurio del Pacifico rose 1.8 percent to 27.80 pesos.

To contact the reporters on this story: William Freebairn in Mexico City at wfreebairn@bloomberg.net; Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net



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SEC Subpoenas Wall Street in Expanding Hunt for `Manipulators'

By David Scheer

July 16 (Bloomberg) -- The U.S. Securities and Exchange Commission subpoenaed Wall Street's biggest firms and hedge-fund advisers in a widening effort to crack down on suspected manipulation of Lehman Brothers Holdings Inc. and Bear Stearns Cos. shares, three people familiar with the situation said.

The SEC's enforcement unit demanded information from banks including Deutsche Bank AG, Goldman Sachs Group Inc. and Merrill Lynch & Co., according to two of the people, who declined to be identified because the inquiries aren't public. The Washington- based regulator is seeking trading records and e-mails, one of them said.

The subpoenas mark a new front in the broadest U.S. investigation of Wall Street trading since state and federal regulators homed in on mutual-fund abuses in 2003. The SEC issued an emergency order yesterday curtailing short selling in financial stocks, including Lehman and mortgage-finance companies Fannie Mae and Freddie Mac. The agency is also examining whether securities firms have adequate internal controls to thwart misconduct.

``The SEC is trying to determine whether there was illegal manipulation of market prices, and that is far easier to do if you have a broad sweep,'' said Tamar Frankel, a law professor at Boston University.

SEC Chairman Christopher Cox, 55, told the Senate Banking Committee yesterday the agency is investigating whether illegal trading contributed to the collapse of Bear Stearns in March and the 80 percent drop in the market value of larger rival Lehman Brothers this year. The probe focuses on traders who seek to profit by intentionally spreading false information about the firms.

SAC, Citadel

SEC spokesman John Nester declined to comment on the subpoenas, as did Deutsche Bank spokesman Ted Meyer, Goldman spokeswoman Andrea Raphael and Merrill spokesman Mark Herr. It is Merrill's policy to cooperate with regulators, Herr said.

More than 50 hedge funds firms including SAC Capital Advisors LLC and Citadel Investment Group LLC have received subpoenas, people with knowledge of the situation said. The Wall Street Journal reported the requests to hedge funds yesterday.

Most of the subpoenas were sent last week, and some recipients are being asked for information relating only to Lehman or Bear Stearns, a person familiar with them said.

The SEC won't limit its focus to individual investors, and will likely sift for ``communications that would suggest traders got together and coordinated efforts for a particular security,'' said Barry Barbash, a partner at Willkie Farr & Gallagher LLP in Washington who previously headed the agency's division of investment management.

Bear's Downfall

The regulator began the probes in March as Bear Stearns's stock plunged on speculation it lacked adequate cash to operate. The drop spurred clients to pull business and forced the firm's sale to JPMorgan Chase & Co. on March 16.

Lehman has struggled since then to quash concerns that have helped push down its stock 78 percent this year. On June 3, the company denied it had borrowed from the Federal Reserve and said cash holdings increased during the quarter. Last week, two of its biggest clients, SAC Capital and bond-fund manager Pacific Investment Management Co., denied they were pulling business.

Cox told officials at the Federal Reserve and U.S. Treasury over the weekend that the agency is stepping up efforts to curb market speculation, a person with knowledge of the talks said.

On July 13, the agency's inspections unit announced plans to cooperate with the Financial Industry Regulatory Authority and the New York Stock Exchange's regulatory arm to check whether firms have controls to prevent the intentional spread of misinformation.

Naked Shorts

Cox yesterday told lawmakers the agency will require traders to obtain shares of brokerages, Freddie Mac and Fannie Mae before betting their shares will fall. The temporary order, to take effect July 21, will bar so-called naked short-selling, in which traders avoid the financial cost of borrowing stocks.

The order requires anyone making a short sale to first ``borrow or arrange to borrow'' the securities and then deliver them by the settlement date. It applies to shares in 19 firms including Citigroup Inc., JPMorgan and UBS AG.

In traditional short selling, traders borrow stock through a broker and hope to profit by selling shares at a higher price and later buying them back at lower prices to repay the loan. Naked short sellers do the same thing, with one difference: They don't borrow any shares, which means they can drive down prices by flooding the market with orders to sell shares they don't have.

Freddie Mac, down as much as 34 percent today before Cox's comments, fell 26 percent to $5.26 in New York Stock Exchange composite trading. Fannie Mae tumbled 27 percent. Lehman rose 82 cents, or 6.6 percent, to $13.22, ending a four-day slide.

`Home to Roost'

``Small public companies have been complaining for years about the abuses of naked and illegal short selling,'' Roel Campos, a former SEC commissioner now at Cooley Godward Kronish in Washington, said in an e-mailed response to questions. ``The new attention by regulators has occurred when those naked-short chickens came home to roost with Bear Stearns and now Lehman.''

The move drew objections from Friedman Billings Ramsey & Co. analyst Paul Miller, who has an underperform rating on both Fannie Mae and Freddie Mac. Miller said the SEC's crackdown on investors shorting their stock ``stinks of favoritism.''

``This whole administration is trying to jawbone the stock market up,'' Miller said. ``Everybody thinks this is short selling and it's not. It's a fundamental shift in how investors look at these companies.''

The SEC has sanctioned only one person so far for alleged stock manipulation stemming from the credit crisis. In April, a former Schottenfeld Group LLC trader settled claims he spread rumors on Nov. 29 that Blackstone Group LP was lowering a takeover bid for Alliance Data Systems Corp. Alliance Data's shares plunged 17 percent in half an hour that day.

``More of these cases have to be brought,'' Cox said in his Congressional testimony.

Historically, ``it has been difficult to parse where rumors start and where they are being spread,'' he said. Now, technology is ``permitting us to trace back through e-mails and instant messages to the very individuals who have manufactured intentionally false information.''

To contact the reporter on this story: David Scheer in New York at dscheer@bloomberg.net.



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Air Liquide, BMW, Credit Agricole, SEB: European Equity Preview

By Nadja Brandt

July 16 (Bloomberg) -- The following companies may have unusual price changes in European trading. Stock symbols are in parentheses, and share prices are from the previous close.

The Dow Jones Stoxx 600 fell 2.2 percent to 266.51. The Dow Jones Stoxx 50 Index dropped 2.2 percent to 2,710.85. The Euro Stoxx 50 Index, a benchmark for the nations using the euro, decreased 2.3 percent to 3,142.73.

Air Liquide SA (AI FP): The world's largest maker of industrial gases bought Pure Helium to expand in the Middle East and said it plans to invest $1 billion in the Persian Gulf region over the next five years. The shares rose 6 cents to 81.22 euros.

Alstom SA (ALO FP): The world's third-largest power-plant builder reports first-quarter sales before the market opens in Paris. The company may say revenue rose 13 percent to 4.57 billion euros ($7.26 billion), according to the median of seven analyst estimates, on a record backlog of power and train orders. The shares gained 3 cents to 66.10 euros.

Autogrill SpA (AGL IM): The world's biggest manager of airport restaurants presents its strategy to investors in London. The shares slipped 3 cents, or 0.4 percent, to 7.11 euros.

Bayerische Motoren Werke AG (BMW GY): The ACEA European Automobile Manufacturers Association plans to release June car sales figures. BMW fell 51 cents, or 1.8 percent, to 27.71 euros.

Daimler AG (DAI GY) declined 1.16 euros, or 3.1 percent, to 36.38 euros. Porsche AG (POR3 GY) dropped 2.83 euros, or 3.3 percent, to 84.32 euros. Volkswagen AG (VOW GY) increased 3.98 euros, or 2.3 percent, to 174.23 euros.

Cie. Financiere Richemont SA (CFR VX): The world's largest jewelry maker may say first-quarter sales rose 8.7 percent to 1.38 billion euros in the three months through June, based on the median estimate of 14 analysts surveyed by Bloomberg. The shares fell 60 centimes, or 1.1 percent, to 53.4 francs.

Continental AG (CON GY): Europe's second-biggest tire company may continue to be active after receiving an 11.2 billion euro takeover approach from ball-bearing maker Schaeffler Group that would create the world's No. 1 car-parts supplier. The shares climbed 7.62 euros, or 12 percent, to 73.42 euros.

Credit Agricole SA (ACA FP): France's third-biggest bank by market value said its board backs Chief Executive Officer Georges Pauget, following record losses tied to U.S. subprime mortgages. The shares fell 46 cents, or 3.9 percent, to 11.40 euros.

Medigene AG (MDG GY): The biotechnology company that stopped a clinical trial last week after a patient died plans to hold its annual shareholders' meeting. The shares rose 18 cents, or 3.7 percent, to 4.99 euros.

SEB AB (SEBA SS): Scandinavia's third-biggest bank will probably report a second-quarter profit of 2.72 billion kronor ($460 million), the mean analyst prediction. SEB retreated 1 percent to 103.75 kronor.

SGS SA (SGSN VX): The world's biggest goods inspector may say profit rose 14 percent in the first half to 267 million Swiss francs ($266 million), according to the median of eight estimates compiled by Bloomberg. The shares fell 8 francs, or 0.6 percent, to 1378 francs.

To contact the reporter on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net.



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