Asian Stocks Decline Most in Five Weeks on Economic Outlook

By Chen Shiyin and Ian C. Sayson

Sept. 1 (Bloomberg) -- Asian stocks fell the most in five weeks, led by technology companies and automakers, on concern profits will decline as global economic growth slows.

LG Electronics Inc., the world's No. 3 television maker, dropped 9.6 percent after U.S. consumer spending waned and South Korea's exports grew less than forecast. Hon Hai Precision Industry Co. slumped by the 6.9 percent daily limit in Taipei following its first earnings decrease in seven years. China Merchants Bank Co. lost 5.7 percent in Shanghai on concern the nation's expansion will weaken after manufacturing contracted.

``Investors are still cautious,'' said Olan Caperina, who helps manage about $6.7 billion at BPI Asset Management Inc. in Manila. ``Unless there's a clear indication that global growth won't stall, stocks will pull back whenever there's news of a weakening U.S. economy.''

The MSCI Asia Pacific Index fell 2.1 percent to 122.61 at 3:16 p.m. in Tokyo, poised for its largest drop since July 29. All 10 industry groups retreated.

The regional measure has lost 22 percent this year as the global economy cooled and the world's largest financial companies posted writedowns and credit losses of more than $500 billion.

Japan's Nikkei 225 Stock Average fell 1.8 percent to 12,834.18, paced by Kawasaki Kisen Kaisha Ltd., after prices of shipping raw materials declined and Morgan Stanley downgraded the shares. China's CSI 300 Index dropped 3.8 percent, with Suning Appliance Co. tumbling by the daily limit after the electronics retailer said profit growth slowed.

Korea Air

South Korea's Kospi Index plunged 4.1 percent, the biggest decline in the Asia Pacific region. Korean Air Lines Co. fell the most in six years on concern rising oil prices and a weakening won will dent earnings. Most other regional stock indexes retreated. Malaysia and Vietnam are closed today for holidays.

Futures for the Dow Jones Stoxx 50 Index fell 0.9 percent today in European trading.

U.S. markets are shut today for the Labor Day holiday. Stocks retreated on Aug. 29, paring the biggest monthly gain since April, after the Commerce Department said consumer purchases rose in July at a third of the previous month's pace, while prices surged the most in 17 years. A report released a day earlier had shown gross domestic product expanded faster than economists had expected.

``Investors are getting worried again with a demand slowdown in the U.S.,'' said Seo Jung Ho, a fund manager at UBS Hana Asset Management Co. in Seoul, which has $30 billion in assets.

LG Electronics, which counts North America as its largest overseas market, slumped 9,700 won to 91,800 won, its largest drop since May 2004. Profit from mobile phones will fall in the current period from the second quarter because of lower shipments and higher marketing costs, Tong Yang Investment Bank said today in a report.

Exports, Manufacturing

Hynix Semiconductor Inc., the world's second-largest computer-memory maker, plunged 11 percent to 17,200 won. Honda Motor Co., Japan's second-largest automaker, retreated 3.4 percent to 3,460 yen.

South Korean exports, which make up more than half of gross domestic product, rose 20.6 percent in August from a year earlier, missing the 23.3 percent median estimate of economists surveyed by Bloomberg News.

Hon Hai, which makes iPods for Apple Inc. and Wii game consoles for Nintendo Co., tumbled NT$11 to NT$149, its largest retreat since Jan. 22. Second-quarter net income dropped 24 percent to NT$11.9 billion ($378 million), missing the average estimate of NT$14.9 billion in a Bloomberg News survey of analysts.

In China, manufacturing contracted for a second straight month in August, according to a survey of purchasing managers. Vice Commerce Minister Gao Hucheng said last week that weakness in global demand will weigh on exports for the rest of the year.

China Banks

China Merchants, the nation's fifth-largest bank by market value, lost 1.31 yuan to 21.77. Industrial & Commercial Bank of China Ltd., the world's most profitable bank, declined 3.5 percent to 4.76 yuan. The company predicted slowing growth after posting the fastest earnings increase among the world's banks in the first half.

Suning, China's biggest electronics retailer by market value, tumbled by the 10 percent limit to 36.62 yuan after saying first- half profit slowed. Aluminum Corp. of China Ltd., the country's biggest producer of the metal, fell 4.2 percent to 9.76 yuan after saying first-half profit slumped 65 percent.

Korean Air, South Korea's largest carrier, dropped 15 percent to 33,000 won, its largest slump since September 2001, after crude oil prices rose as much as 2.2 percent to $118 a barrel in New York and the won weakened, driving up dollar- denominated fuel bills.

Asiana, Kawasaki Kisen

Asiana Airlines Inc., South Korea's second-biggest carrier, plunged 11 percent to 3,970 won.

Kawasaki Kisen Kaisha, Japan's third-biggest shipping line, lost 4.9 percent to 744 yen in Tokyo after Morgan Stanley cut its rating to ``equal-weight'' from ``overweight.''

The shares also retreated after the Baltic Dry Index, which tracks the cost of shipping bulk commodities, slumped 1.7 percent on Aug. 29, its eighth straight decline.

Hanjin Shipping Co., South Korea's largest shipping line, tumbled 15 percent to 23,900 won, its biggest drop since March 2003. STX Pan Ocean Co., South Korea's No. 1 bulk carrier, lost 5.6 percent to S$2.36 in Singapore.

To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Ian C. Sayson in Manila at isayson@bloomberg.net.

Read more...

Technical Analysis for Major Currencies

Daily Forex Technicals | Written by Crown Forex | Sep 01 08 06:50 GMT |

EURO

Another attempt to decline towards the key support for the upside channel that started in November 2005 and ended on July 15, 2007 at the 1.4465 level yet we see a minor strong support at 1.4515 where the latter is our first target. Due to the pair being heavily oversold on most of the momentum indicators, we expect to witness high volatility during today yet trading below the 1.4660 level will help the pair reach the target in a short time period.

The trading range for today is among the key support at 1.4515and key resistance at 1.4810

The general trend is to the downside as far as 1.5830 remains intact with targets at 1.4515 and 1.4340

Support: 1.4630, 1.4600, 1.4590, 1.4560, 1.4515
Resistance: 1.4690, 1.4715, 1.4770, 1.4810, 1.4840
GBP

Nothing is stopping the vigorous decline of the pair! Here we see another breach of a key support level around 1.8150. The pair is being highly oversold and it is expected to see an upside correction yet at the end, the pair continues to decline targeting the key support for the long term upside channel that started on June 3, 2001 and ended on November 4, 2007 where this support lies around the 1.78 level

The trading range for today is among the key support at 1.7860 and key resistance at 1.8230

The general trend is to the downside as far as 1.9485 remains intact with targets at 1.8070

Support: 1.8005, 1.7980, 1.7960, 1.7900, 1.7860
Resistance: 1.8050, 1.8080, 1.8110, 1.8170, 1.8230
JPY

Another attempt to breach the several supports between 108.40 and 108.00 has failed. After reaching these levels today, the pair rebounded to start a new upside wave yet on the short term, trading will be to the downside as far as it remains below the 109.80. But it's certain that the medium term trend is still pointing to the upside. The trading range for today is among the key support at 107.75 and key resistance at 110.25 The general trend is to the upside as far as 103.00 remains intact with targets at 111.00 and 113.24

Support: 108.30, 108.20, 108.10, 107.75, 107.30
Resistance: 108.95, 109.35, 109.45, 109.80, 110.25

Recommendation: Buy above 108.20 with targets at 109.35 and stop loss below 107.60
CHF

New attempts of breaking the 1.1030 level is clear as the key support for the upside channel provided the pair with strong bullish momentum. However, the stochastic indicator shows the bair being slightly overbought which could limit the upside movements to breach the mentioned level today. From here we expect sideways trading in order to breach the 1.1030 resistance but the pair needs to escape the overbought area first. The trading range for today is among the key support at 1.0890 and key resistance at 1.1150. The general trend is to the upside as far as 1.0570 remains intact with targets at 1.1025 and 1.1455

Support: 1.0990, 1.0920, 1.0890, 1.0865, 1.0850
Resistance: 1.1030, 1.1075, 1.1110, 1.1150, 1.1225
CAD

The pair successfully breached the resistance level at 1.0570 where we expect the upside movements to extend reaching hte medium term target at 1.0825 yet we could witness slight downside correction movements since momentum indicars show the pair being slightly overbough. The trading range for today is among the key support at 1.0415 and key resistance at 1.0825. The general trend is to the upside as far as 1.0350 remains intact with targets at 1.0825 and 1.1000

Support: 1.0580, 1.0540, 1.0515, 1.0435, 1.0415
Resistance: 1.0690, 1.0715, 1.0745, 1.0825, 1.0915

Crown Forex

disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.



Read more...

US Markets off Yet USD Strong

Daily Forex Fundamentals | Written by Crown Forex | Sep 01 08 06:40 GMT |

The U.S. markets today are closed as a result of Labor Day Holiday while yet the dollar remains strong in the markets on the back of weak major currencies.

The euro weakened in the markets especially as today Germany released its retail sales for the month of July coming in at -1.5% worse than both the expected reading of -0.3% and the prior reading of -1.4%. Using the MACD we see that the direction is to the downside while the ADX indicator is showing us a sell signal. The support is at 1.4595 as the resistance resides at 1.4665. The EUR/USD is currently traded at 1.4643 while recording a high of 1.4702 and a low of 1.4615.

The royal currency lost strength in the market after Chancellor of the Exchequer Alistair Darling said that the UK is heading towards the worst slump in 60 years. Already there are anticipations in the market that the BoE might have to cut interest rates in order to help revive growth in the British economy, this further pressured the sterling to keep falling. The GBP/USD is currently traded at 1.8014 while recording a high of 1.8128 and a low of 1.8004. If the pound gathers momentum from the support of 1.7980 it will reverse to the upside resistance of 1.8120.

We currently see unwinding of carry trades as investors fear the down falls of major economies as they sell high yielding currencies and buy low yielding currencies like the yen. The USD/JPY is currently traded at 108.49 while recording a high of 108.66 while a low of 108.23. We currently see a support at 108.20 and a resistance at 109.30.

Crown Forex

disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.





Read more...

FX Technical Analysis

Daily Forex Technicals | Written by Mizuho Corporate Bank | Sep 01 08 06:40 GMT |

EURUSD Comment: Just holding above the recent low at 1.4570 after the biggest monthly price drop ever. Nevertheless we remain within normal retracement parameters and the long term trend to a weaker US dollar. Bearish momentum has almost vanished completely and the Euro is very oversold. We continue to watch warily for signs of basing this week. Strategy: Possibly attempt tiny longs at 1.4635; stop below 1.4570. Short term target 1.4800, then 1.4900. Direction of Trade: → Chart Levels: Support Resistance 1.4617 " 1.4703 1.46 1.4729 1.4570* 1.4768 1.4525 1.4812 1.448 1.4909* GBPUSD Comment: The biggest monthly collapse since 1992 and losing ground against all major currencies the only exception the South Korean won which has also been hammered. Cable is more oversold than it has been since September 2000 and on the Bank of England's Trade Weighted basis weaker than it has been since November 1996. This is obviously unsustainable but with 'helpful' comments from UK authorities who only knows when enough is seen to be enough. Stand aside if possible and don't believe everything you hear. Strategy: Possibly attempt the tiniest of longs at 1.8045; stop below 1.7985. Short term target 1.8200, then 1.8400. Direction of Trade: → Chart Levels: Support Resistance 1.8005 " 1.8075 1.793 1.813 1.78 1.82 1.775 1.83 1.76 1.84 USDJPY Comment: The 'evening star' candle on the monthly charts adds weight to our view that the move above 110.00 was an 'extension'. The weekly close at 108.25, the lowest of the month, was slightly short of what we had hoped but a daily one this week should complete a small 'head-and-shoulders' top. Strategy: Sell at 108.5 0, adding to 109.00; stop above 109.35. Short term target 108.25/108.00, then 107.25. Direction of Trade: → Chart Levels: Support Resistance 108.21 " 108.7 108.13/108.00* 109.1 107.85 109.72 107.65 110.29 107.25* 110.67* EURJPY Comment: Having given up 61% of the previous rally it is just clinging to the weekly Ichimoku 'cloud'. The monthly close below 160.60 should add to current strong bearish momentum although the Euro is very oversold against the Yen (and other Yen crosses are similar, the KRW/JPY and NZD/JPY almost at March's lows). For today expect cautious consolidation above 158.00 with rallies to 160.00 seen as selling opportunities for further big declines this month. Strategy: Sell at 158.85, adding to 160.00; stop above 162.15. Short term target 157.25, then 156.00. Direction of Trade: → Chart Levels: Support Resistance 158.42 " 159 158.25 159.62 157.25 160 155.95* 161 155.55 162.03* Mizuho Corporate Bank Disclaimer The information contained in this paper is based on or derived from information generally available to the public from sources believed to be reliable. No representation or warranty is made or implied that it is accurate or complete. Any opinions expressed in this paper are subject to change without notice. This paper has been prepared solely for information purposes and if so decided, for private circulation and does not constitute any solicitation to buy or sell any instrument, or to engage in any trading strategy.

Read more...

Asia Session Recap

Daily Forex Fundamentals | Written by Forex.com | Sep 01 08 05:35 GMT |

The US Dollar strengthened in thinned holiday trading this session, as projections showed that Hurricane Gustav looked to hit Louisiana as a category 3 storm, not a category 5 as earlier assumed. However, the real story was the further collapse of GBP/USD, which plummeted to a 2 year low just above the 1.8000 level. The fall began when the UK’s Chancellor of the Exchequer Alistair Darling told a UK paper that the economic downturn currently underway may be the worst in 60 years. Adding to the gloom is the general assumption that the BoE will have to lower rates later in the year, although they will have a rate decision on Thursday in which the consensus is rates remain unchanged at 5.0%. The losses began from the opening of the gate, with a high of 1.8154, which collapsed to a 1.8004 low before the session end, extending the pairs losses to more than 8% for the month of August. This month’s drop represents the biggest since 1992. EUR/GBP blasted to a high of 0.8139, a level not seen since late 1999, and GBP/JPY hit a low of 195.14, a level not seen since March, as the British Pound fell through all sorts of bad technical levels in Asia.

EUR/USD peaked early to 1.4722, but the momentum failed and the pair eventually slid to a level of 1.4614 before leveling out near the 1.4640 region. As stated, some of the Dollar strength may be a bit prematurely based on the idea that Louisiana has averted another Katrina like disaster. The storm, seemingly lessening in strength, is poised to hit the coast by early morning in the US. Besides landfall for a potentially catastrophic hurricane, tomorrow is also a US holiday, and the FX market may be thinned due to this making for the possibility of explosive moves given the current environment. Good luck trading, and good luck to those in the path of the storm.

Upcoming Economic Data Releases (London Session):
01-05 SEP UK HBOS House Price 3Mths/Year AUG -8.80% -10.70%
01-05 SEP UK HBOS Plc house prices sa (MoM) AUG -1.70% -1.80%
9/1 6:00 GE Retail Sales (MoM) JUL -1.40% -0.30%
9/1 6:00 GE Retail Sales (YoY) JUL -3.90% -2.20%
9/1 6:30 AU RBA Commodity Index SDR YoY% AUG 41.10% - -
9/1 7:30 SZ SVME-Purchasing Managers Index AUG 54.1 53.2
9/1 7:50 FR PMI Manufacturing AUG F 45.1 45.1
9/1 7:55 GE PMI Manufacturing AUG F 49.9 49.9
9/1 8:00 EC PMI Manufacturing AUG F 47.5 47.5
9/1 8:30 UK M4 Money Supply (MoM) JUL F 0.90% - -
9/1 8:30 UK M4 Money Supply (YoY) JUL F 11.20% - -

Forex.com
http://www.forex.com

DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.





Read more...

Australian Manufacturing Contracted in August for Third Month

By Jacob Greber

Sept. 1 (Bloomberg) -- Australian manufacturing contracted in August for a third month, reinforcing the central bank's view that the economy is slowing enough to cut borrowing costs as soon as tomorrow.

The performance of manufacturing index rose 0.1 points to 47 from July, when it fell 0.1 points, PricewaterhouseCoopers and the Australian Industry Group said in a report released in Canberra today.

The index was below 50 for a third month, signaling manufacturing is shrinking. Australia's central bank will probably cut its benchmark interest rate for the first time in almost seven years tomorrow as the nation's 17-year economic expansion slows, according 22 of 23 economists surveyed by Bloomberg News.

``The contraction in manufacturing activity is very worrying and the case for cutting interest rates is compelling,'' Heather Ridout, chief executive officer of the Australian Industry Group, said in an e-mailed statement.

``With new orders falling sharply and the price of inputs continuing to rise, the index shows there is increasing pressure on future production,'' Ridout said.

Manufacturing accounts for 10 percent of gross domestic product and employs one-tenth of the workforce.

The manufacturing survey, which is similar to the U.S. ISM index, asked more than 200 companies about production, new orders, deliveries, inventories and employment.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

Read more...

Money Market Disruption to Continue `for Some Time,' BIS Says

By Gavin Finch

Sept. 1 (Bloomberg) -- The strains in the global money markets that pushed relative borrowing costs higher will probably persist ``for some time'' as financial institutions struggle to raise cash, according to the Bank for International Settlements.

The difference between what banks charge each other for three-month dollar loans and the overnight indexed swap rate, the Libor-OIS spread that measures the availability of funds in the market, ``remains elevated,'' the Basel, Switzerland-based BIS wrote in its quarterly report. The spread was 78 basis points on Aug. 29, compared with an average 8 basis points in the 12 months to July 31, 2007, before the credit squeeze started.

``The term structure of Libor-OIS spreads suggests the interbank market pressures are expected to continue for some time,'' BIS analysts Ingo Fender and Peter Hordahl wrote in the report published today. ``At the same time, bids for U.S. dollar funds at auctions conducted by the European Central Bank and Swiss National Bank continued to be high.''

Interest-rate derivatives imply that banks are becoming more hesitant to lend on speculation credit losses will increase as the global economic slowdown deepens. The concern is that money will become tighter through year-end because of the amount banks have to refinance in December. Stuart Thomson, a money manager in Glasgow at Resolution Investment Management Ltd., in an interview at the end of last month cited a figure of $88 billion.

Losses & Writedowns

Credit markets seized up a year ago after banks suddenly became wary of lending to each other because of mounting losses linked to the collapse of the U.S. subprime-mortgage market. Financial institutions have suffered over $500 billion of losses and writedowns since the start of 2007, according to data compiled by Bloomberg.

Nations accounting for half of the world's economy face a recession, Binit Patel, an economist in London at Goldman Sachs Group Inc., said in an Aug. 21 report.

The premium banks charge for lending short-term cash may approach the record levels set last year, based on trading in the forward markets, where financial instruments are sold for future delivery. Back then, concern about the health of the banking system led investors to shun all but the safest government debt, sparking the biggest end-of-year rally for Treasuries since 2000.

Trust among banks remains low even after efforts by the Federal Reserve, ECB and Swiss National Bank to shore up the world's biggest banks and promote lending.

Loan Facilities

In response to the continuing turmoil, the Fed said July 30 it would give securities dealers access to its existing loan facilities. It now also offers 84-day loans to commercial banks under the Term Auction Facility, known as TAF, in addition to 28- day loans. In total, the Fed has provided almost $1 trillion of emergency loans.

An arrangement with the Fed that allowed the ECB to offer dollar-denominated funding to the region's banks was boosted to $55 billion from $50 billion.

The Fed's most recent lending survey released Aug. 11 said that more banks tightened credit standards for consumers and business borrowers since April as defaults and delinquencies on home loans climbed.

The seizure in the credit markets and rise in short-term borrowing costs this year triggered questions over the validity of Libor, a benchmark administered by the London-based British Bankers' Association and used to calculate rates on $360 trillion of financial products worldwide.

The BIS said in March some members of the BBA may have understated their borrowing costs to avoid being seen as having difficulty raising financing.

Formed in 1930, BIS monitors financial markets and regulates banks.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net;



Read more...

TD Securities' Australian Annual Inflation Index Rose 4.2%

By Jacob Greber

Sept. 1 (Bloomberg) -- An index measuring Australian inflation held above the central bank's target range of 2 percent to 3 percent, limiting Governor Glenn Stevens' scope to cut borrowing costs in coming months.

Consumer prices rose 4.2 percent from a year earlier, down from 4.6 percent in the 12 months through July, according to a monthly gauge released by TD Securities Ltd. and the Melbourne Institute in Sydney today. Prices climbed 0.1 percent from July, when they rose 0.4 percent.

The Reserve Bank of Australia will probably cut its benchmark interest rate for the first time in almost seven years tomorrow as the nation's 17-year economic expansion cools, according 22 of 23 economists surveyed by Bloomberg. New home sales fell in July to a two-year low and lending to consumers and businesses rose at the slowest annual pace since 2002, reports showed last week.

``Inflation pressures still remain elevated despite the clear slowing in the economy,'' said Joshua Williamson, a senior strategist at TD Securities Ltd. in Sydney.

``We now seriously doubt the scope for more than two or three quarter point interest-rate cuts if what we are seeing in the inflation gauge continues to be reflected in the official consumer price index.''

The biggest increase in the index came from rising prices for fruit and vegetables, insurance, gas and other household fuels, today's report said. Those gains were partially offset by cheaper gasoline, overseas holiday travel and accommodation.

Interest Rates

``Without the sharp fall in petrol prices, the gauge would have risen a record-equaling 0.6 percent for the month,'' Williamson said.

Investors expect Stevens will cut the benchmark borrowing cost by at least one percentage point in the next 12 months, according to a Credit Suisse Group index based on trading in interest-rate swaps at 8:53 a.m. in Sydney.

The government releases its official quarterly inflation report, the consumer prices index, on Oct. 22. Annual inflation accelerated to 4.5 percent in the second quarter from 4.2 percent in the previous three months.

The Melbourne Institute is a research unit of Melbourne University and TD Securities is a division of Toronto-Dominion Bank, one of Canada's largest lenders. The monthly inflation index measures the prices of 1,000 goods and services.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net



Read more...

Turkish Inflation Rate May Rise to Four-Year High: Week Ahead

By Steve Bryant

Sept. 1 (Bloomberg) -- Turkey's inflation rate probably rose to the highest in four years in August, a level the central bank forecasts will be a peak as energy costs decline.

Inflation accelerated to 12.3 percent, the fastest pace since February 2004, from 12.1 percent in July, according to the median estimate of 12 economists surveyed by Bloomberg. The statistics agency will announce the data at 5 p.m. in Ankara on Sept. 3.

The central bank halted three months of interest rate increases in August after a surge in energy prices that drove up inflation worldwide faltered. At 16.75 percent, Turkey's benchmark rate is the highest of 59 countries tracked by Bloomberg.

``We'll see inflation peaking either in August or September after which it will slowly decline,'' said Sengul Dagdeviren, chief economist for ING Bank Turkey. ``The fall in petrol prices will help inflation fall although the pass-through may be slow.''

The central bank will publish its analysis of the August inflation data the following day. The bank's monetary policy committee next meets on Sept. 18.

Oil prices have dropped more than 20 percent from a record $147.27 a barrel reached on July 11.

Lower energy costs, combined with a slowdown in Turkey and the European Union, will create a ``gradual decline'' in inflation, the bank said on Aug. 26, outlining the reasons for its decision to keep rates unchanged.

The benchmark ISE National 100 Index fell 2.6 percent to 39,844.48 last week. The lira strengthened to 1.1819 against the dollar from 1.1873 and the yield on the benchmark government bond tracked by ABN Amro rose 0.13 percentage points to 18.8 percent.

Turkey's grain board will hold a tender on Sept. 4 to buy 250,000 metric tons of wheat. The government has suspended tariffs on imported wheat to boost stockpiles after two years of drought reduced output.

The following is a list of important events in Turkey next week:

Event                                                  Date
August Manufacturing PMI                               Sept. 1
August inflation data                                  Sept. 3
Central bank publishes inflation analysis              Sept. 4
State Grain Board to tender for 250,000 tons of wheat  Sept. 4

To contact the reporter on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net.

Read more...

ECB Likely to Keep Rates at 7-Year High Even as Recession Looms

By Gabi Thesing
Enlarge Image/Details

Sept. 1 (Bloomberg) -- The European Central Bank will probably keep interest rates at a seven-year high this week, and may even threaten to raise them, at the risk of prolonging the economic slump.

All but one of 47 economists surveyed by Bloomberg News predict the bank will leave the benchmark rate at 4.25 percent on Sept. 4 and only five expect a cut this year, even after the region's economy contracted in the second quarter. The ECB's refusal to lower borrowing costs after inflation hit a 16-year high risks pushing the economy into a recession, economists said.

Investors ``assumed the ECB would soften its inflation- fighting stance,'' said Ulrich Katz, a Munich-based portfolio manager at Pacific Investment Management Co. which has over $800 billion under management. ``Well, it clearly hasn't.''

Policy makers Axel Weber and Lucas Papademos said last week the ECB remains focused on inflation risks and may need to lift rates again if they intensify. Executive Board members Lorenzo Bini Smaghi and Juergen Stark also stepped up their inflation- fighting rhetoric, just days before they meet to decide on rates.

``The comments were a wake-up call to the markets, which had gotten ahead of themselves in light of dire economic data,'' said Katz.

Some investors started betting on a rate cut by early next year after ECB President Jean-Claude Trichet said on Aug. 7 that economic growth would be ``particularly weak'' through the third quarter. Last week, a rate reduction was fully priced in by May, Eonia swap contracts showed. The yield jumped back up to 4.13 percent after Weber and Papademos spoke.

Too Early

``The discussion about declining rates in Europe is premature,'' Weber said in an interview published Aug. 27. ``I don't expect inflation to come down necessarily just with weaker growth. Inflation is still the No. 1 worry for central bankers in the euro region.''

The Frankfurt-based bank raised rates in July to prevent a wage-price spiral after inflation accelerated to 4 percent, twice its 2 percent limit.

Since then, data showed Europe's economy contracted 0.2 percent in the second quarter and economic confidence has plunged. At the same time, a 20 percent drop in oil prices has slowed inflation to 3.8 percent.

``The ECB is defending its July rate increase,'' said Laurent Bilke, an economist at Lehman Brothers International in London who used to work as a forecaster at the ECB. ``To admit two months after a rate increase that inflation pressures are easing would mean they were wrong to hike. The bank is confronted with a recession and will start to cut in January.''

New Forecasts

Trichet will on Sept. 4 unveil new economic forecasts that are likely to revise down the growth assessment and ratchet up the outlook for inflation, said Elga Bartsch, an economist at Morgan Stanley in London.

``If you only have one needle in the compass, which in the ECB's case is inflation, then you'll have to toughen your language,'' Bartsch said. The ECB is more likely to raise rates than cut them, she said.

In June, ECB staff projected growth would slow to about 1.8 percent this year and 1.5 percent in 2009 from 2.7 percent in 2007. Inflation was forecast to average 3.4 percent this year and 2.4 percent in 2009.

``Inflation is still high, too high,'' Bini Smaghi told Bloomberg Television on Aug. 28. ``We have a 2 percent target and we must bring it back to 2 percent -- below 2 percent,'' he said, adding its only tool to do so is interest rates.

Inflation Risks

Should inflation risks materialize, ``we'll have to re- examine our monetary-policy stance,'' Weber said. Papademos warned that the emergence of a wage-price spiral would ``require a stronger degree of monetary tightening.''

Wage inflation is accelerating across Europe as workers seek compensation for higher food and energy costs. IG Metall, Germany's biggest union whose wage accords cover 3.2 million workers, will present this year's claim on Sept. 8. It has said it will demand a bigger pay increase than the 6.5 percent it asked for last year.

The ECB is ``throwing down the gauntlet to IG Metall,'' said Natacha Valla, Goldman Sachs' chief French economist who was previously a forecaster at the ECB. The fact that ``a discreet member like Papademos was so explicit about wage growth possibly requiring further tightening shows how central wage negotiations are to the inflation debate.''

Even so, the ECB won't follow through on its threat, said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. Deutsche Bank expects a rate reduction in the first quarter of 2009.

``The ECB won't cut rates before inflation is under control,'' Bielmeier said. ``But with the economy tanking, it won't need to hike again.''

To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net.



Read more...

McCain Offers Voters Contradictions, Conundrums: Albert R. Hunt

Commentary by Albert R. Hunt

Sept. 1 (Bloomberg) -- Republicans are gathering in St. Paul, Minnesota, this week to nominate their greatest hero since Dwight D. Eisenhower, and the least-popular nominee with the party faithful since well before Ike.

There is little about John Sidney McCain III that is conventional, so why should this convention be any different?

McCain has performed brave acts as a U.S. Navy pilot, prisoner of war and legislative risk-taker that the current president and even the hero of modern Republicanism, Ronald Reagan, just talked about.

Yet his party's conservative base despises the Arizona Republican for offenses ranging from championing campaign- finance reform to his fight against George W. Bush for the presidential nomination eight years ago -- it was the Bush forces that did the sleazy stuff -- to his penchant for forming alliances with Democrats.

Unlike most politicians, he can't be easily categorized. ``There is no question that John has a deeper commitment to service and to a cause greater than any particular ideology,'' says New Hampshire Republican Senator John Sununu.

McCain's selection of the inexperienced Alaska governor, Sarah Palin, which stunned many politicians, reaffirms his maverick image. It was also impulsive: He'd only met her once, briefly, before last week. Most of his advisers wanted him to pick someone more seasoned as his running mate.

With McCain, contradictions abound. He has a lengthy conservative voting record in Congress; his literary hero is Robert Jordan, the American leftist-sympathizer in Ernest Hemingway's ``For Whom The Bell Tolls,'' who died while fighting Spanish fascists. He often cites Reagan, though his political hero is President Teddy Roosevelt, a big-government activist.

Shared Sacrifice

He speaks passionately and sincerely about shared sacrifice, drawing on the generations of service his family has given America. And then he just as passionately supports a costly war and asks no sacrifice of the wealthy.

He, far more than Bush, is a genuine internationalist who has traveled widely and is intimately familiar with major players in the world scene. Yet he is given to careless asides -- declaring ``we are all Georgians'' after the Russian invasion a few weeks ago.

There is a side that is touchingly tender. He spent countless hours in a hospital room with a dying and comatose Morris K. Udall, the former Arizona Democratic congressman. He comforted the family of the late David Ifshin, a close friend who as an antiwar demonstrator protested in Hanoi while McCain was nearby in a prison. McCain family affairs in Sedona, Arizona, are the Western version of the Kennedy family on Cape Cod.

Fiery Temper

Yet he has a volatile temper that some congressional colleagues, including Democratic Senate Majority Leader Harry Reid, say make him unfit for president. He has been known to lash out at his own wife.

There is no one in American political life more courageous -- he was a recipient of the John F. Kennedy Library's Profile in Courage award several years ago -- or who reacts more admirably to adversity.

He was brutally tortured by the North Vietnamese for 5 1/2 years. Still, he led the effort to normalize relations with that country decades later, providing cover for President Bill Clinton, a draft evader during that war.

He foolishly cavorted with savings-and-loan crook, Charles Keating; later he led almost every campaign-finance and ethics measure in the Senate.

Left for Dead

Of course, he was written off as politically dead as recently as last fall and bounced back to capture the nomination.

What does all this suggest about what sort of president McCain would be? The contradictions and conundrums continue.

The maverick independent has made political concessions over the past year. He believes that Bush's guru, Karl Rove, who orchestrated the personal attacks on McCain in the 2000 Republican presidential primary, lacks character. Today his campaign is staffed with Rove acolytes.

A major uncertainty would be economic policy. McCain has never bought into the supply-side school, which argues that tax reductions solve every problem. His espousal of huge tax cuts, principally for the wealthy, in this campaign is more of a political calculation than a personal conviction.

As a naval officer, politician and the son and grandson of admirals, honor and duty are deeply ingrained in McCain; the notion of getting fabulously rich or being paid 500-fold more than the average worker is not.

Populist

There is a gut populism in the Republican nominee. He saw Bush in 2000 and Mitt Romney in 2008 as men of unearned privilege.

It isn't clear how this would be resolved in a McCain administration. He really has little interest in matters economic, so appointments would be crucial. Some of his top economic advisers like Douglas Holtz-Eakin and Kevin Hassett (a Bloomberg columnist) are sensible conservatives who would adjust to changing economic or political realities.

If, however, he taps as Treasury secretary former Senator Phil Gramm -- who in July condescendingly dismissed economically strapped Americans as ``whiners'' -- economic policy will have a hard edge.

On foreign policy, he's a fervent believer in the Iraq mission, yet this Vietnam veteran also knows that a democracy can't wage war when it lacks popular support. My hunch is he would look for a faster exit strategy in his first year.

Appointments Matter

Appointments will matter a great deal in any McCain presidency; loyalty will be a byword. He wears his emotions up front and has a strong sense of who is properly motivated and who is not.

He'll always be resilient. Sununu recalls standing on the Senate floor with him in mid-July 2007 when his campaign was in tatters, running well behind Rudy Giuliani and Romney and even Fred Thompson in the polls.

``John was as confident as I've ever seen him,'' the lawmaker remembers. ``John is at his best when they say there's something he can't accomplish.''

(Albert R. Hunt is the executive editor for Washington at Bloomberg News. The opinions expressed are his own.)

To contact the writer of this column: Albert R. Hunt in Washington at ahunt1@bloomberg.net



Read more...

Asia Energy Day Ahead: Crude Gains on Hurricane Gustav Threat

By Todd Zeranski

Sept. 1 (Bloomberg) -- Crude oil and gasoline futures rose as Hurricane Gustav approached the Gulf of Mexico, halting most oil and natural-gas output and shutting local refineries.

U.S. companies have idled 96 percent of Gulf of Mexico oil output and 82 percent of natural-gas production, a government report showed.

MOST READ MARKETS STORIES

Crude Oil, Gasoline Advance as Gustav Cuts Production, Refining

Crude oil and gasoline futures rose as Hurricane Gustav approached the Gulf of Mexico, halting most oil and gas output and shutting local refineries.

U.S. Refineries Shut, Slow Operations as Hurricane Gustav Nears

Refineries operated by Valero Energy Corp., ConocoPhillips and Exxon Mobil Corp. are closing as Hurricane Gustav nears the U.S. Gulf Coast, where about 41 percent of U.S. refining capacity is located.

Oil May Rise as Gustav Threatens U.S., Survey Shows

Crude oil may rise next week on forecasts that Hurricane Gustav will strike production platforms in the Gulf of Mexico.

Natural Gas May Rise Next Week on Storm Threat, Survey Shows

Natural gas may rise next week on an outlook for storms in the Gulf of Mexico that may curtail the flow of the furnace and industrial fuel from rigs and platforms.

Gulf Producers Idle 96% of Oil, 82% of Gas Output for Gustav

U.S. companies have idled 96 percent of Gulf of Mexico oil output and 82 percent of natural-gas production as Hurricane Gustav moves toward the region, a government report today showed.

Venezuela to Export Crude Oil, Liquefied Gas to Ecuador

Venezuela and Ecuador agreed to ship crude oil from Venezuela to a refinery in Ecuador and to study the possibility of building a plant to receive Venezuelan liquefied natural gas in Ecuador.

Venezuela's Ramirez Says OPEC Shouldn't Raise Oil Production

The Organization of Petroleum Exporting Countries shouldn't increase production, Venezuelan Oil and Energy Minister Rafael Ramirez told reporters in Caracas.

Coal Prices to Remain Firm on Demand, Riversdale's O'Keefe Says

Coal prices will continue to be buoyed by demand from energy and steel companies, said Michael O'Keefe, chairman of Riversdale Mining Ltd., an Australian coal producer.

Sabine Declares Gas Pipeline Force Majeure, Shuts Henry Hub

Chevron Corp.'s Sabine Pipe Line LLC began to shut its pipelines and the Henry Hub natural gas connection point in Louisiana as mandatory evacuations were declared before the arrival of Hurricane Gustav.

Russian Energy Minister Pledges Stable Oil Supplies to Europe

Russia ``will do everything'' to maintain stable oil flows through the Druzhba pipeline to Europe, Energy Ministry Sergei Shmatko said.

TOP ENERGY COMPANY STORIES

Energy Future Starts Unit 2 at Big Brown Power Plant in Texas

Energy Future Holdings Corp. has started Unit 2 at its coal- fired Big Brown power station in Texas.

Nippon Yusen's Grace Cosmos LNG Tanker Due to Arrive in Mexico

Nippon Yusen KK's Grace Cosmos liquefied-natural-gas, or LNG, tanker is scheduled to arrive Sept. 2 in Altamira, Mexico, according to data compiled by Bloomberg.

Areva Profit More Than Doubles on Nuclear Fuel Units

Areva SA, the world's biggest maker of nuclear reactors, said first-half profit more than doubled as increased sales of nuclear fuel and a disposal gain offset mounting charges on a reactor project in Finland.

Valero Begins Shutdown of St. Charles, Louisiana, Refinery

Valero Energy Corp. said it has begun the shutdown and evacuation of its refinery in St. Charles, Louisiana, before Hurricane Gustav makes landfall near the plant.

Oil-Rig Insurers Brace for Test as Gustav Bears Down

Tropical Storm Gustav, projected to reach the Gulf of Mexico by Sunday, may reveal whether insurers have done enough to limit risks of covering offshore oil rigs in the wake of hurricanes Katrina and Rita.

Enbridge, BP to Build Pipeline From Illinois to Texas

Enbridge Inc., Canada's biggest pipeline company, and BP Plc agreed to develop a delivery system to transport Canadian heavy crude oil from Flanagan, Illinois, to Houston and Texas City, Texas.

EU Emission Permits for December Hold Steady Near 5-Week High

European Union emission permits were little changed near their highest in five weeks as crude oil advanced, potentially making clean-burning natural gas less profitable for power utilities.

HIGHLIGHTS FROM NEWSPAPERS

India Wants Exemption on Nuclear Accord, Press Trust Reports

India wants an unconditional exemption from the 45-nation Nuclear Suppliers Group to buy fuel and technology for its energy plan, the Press Trust of India reported, citing External Affairs Minister Pranab Mukherjee.

Reliance Scraps Plan to Transfer Stake in Gas Field, Times Says

Reliance Industries Ltd. scraped a plan to transfer 80 percent of its share in its biggest gas field to four wholly owned units, the Economic Times reported, citing a letter sent to the oil ministry.

To contact the reporter on this story: Todd Zeranski in New York at tzeranski@bloomberg.net

Read more...

U.K. August House Prices Fall Most Since 2001, Hometrack Says

By Brian Swint

Sept. 1 (Bloomberg) -- U.K. house prices fell by the most since at least 2001 in August as economic growth stagnated, and an end to the property slump is ``still some way off,'' according to Hometrack Ltd.

The average cost of a residential property in England and Wales slipped 5.3 percent from a year earlier to 167,000 pounds ($305,000), the London-based research company said in a statement today. That's the biggest annual drop since the index started seven years ago. Prices fell 0.9 percent from July.

``A recovery in the housing slump, even back to zero monthly growth, is still some way off,'' said Richard Donnell, director of research at Hometrack. ``It is confidence over the outlook for job prospects and the wider economy that is fundamental to any sustained turnaround in market conditions.''

Nationwide Building Society and HBOS Plc reports show that the U.K. has entered its steepest property market slump since the early 1990s. The Bank of England kept the benchmark rate unchanged in August as it weighed the fastest inflation in a decade against the threat of a recession.

Property values fell in each of the nine regions in Hometrack's survey. In London, they dropped 1.1 percent from July. The average time for a home to stay on the market rose to 11.3 weeks from 11 weeks, and the amount of the asking price achieved in sales fell to 90.7 percent from 90.9 percent.

`Market Turns'

``When the market turns, it can take as long as 24 to 36 months for prices to reach realistic levels,'' Donnell said. ``We are now well into this process.''

House prices in Britain declined 10.5 percent from a year earlier last month, the most since 1990, Nationwide said Aug. 20. HBOS said Aug. 7 that prices declined the most since 1983.

The flagging property market adds to signs that the U.K. may be entering its first economic contraction since 1992 after growth stagnated in the second quarter.

For manufacturers, orders fell to the lowest in three years, and companies expect a further deterioration, according to a separate report published today by the EEF engineering lobby group.

Inflation accelerated to 4.4 percent in July, more than twice the central bank's target, making the Bank of England reluctant to cut interest rates to shore up the economy. Societe General SA and Bank of America Corp. predict that the central bank will start lowering interest rates by the end of this year.

The next interest-rate decision is Sept. 4. All 61 economists in a Bloomberg News survey expect no change this month.

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



Read more...

China's Spending to Ward Off Olympic `Curse' May Help Buoy Asia

By Kevin Hamlin

Sept. 1 (Bloomberg) -- China's leaders are planning tax cuts and a public-works spending spree to make sure their economy's growth isn't doused along with the Olympic flame.

Ten of 11 Summer Olympics host nations analyzed by Morgan Stanley economist Stephen Jen saw growth and investment slump in the year following the games; the only exception in his study, which stretches back to 1956, was the U.S. in 1996. Government officials in China, whose expansion was already slowing before the Beijing games ended last month, are determined to avoid what Jen calls the ``Olympic Curse.''

That would provide a welcome boost for some of China's Asian neighbors, including Korea and Taiwan, as well as for commodity producers from Australia to Brazil whose economies are threatened by faltering demand from the U.S., Japan and Europe.

``The Chinese authorities will do whatever they can to avoid a sharp slowdown,'' says Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which manages about $108 billion. ``China's economy will be a key pillar of strength for Asia.''

China has already eased lending restrictions and halted an appreciation of the yuan that was starting to pinch exports. Now, after four straight quarters of decelerating gross domestic product growth, the government is considering a fiscal stimulus of as much as 400 billion yuan ($58 billion), according to economists and reports in domestic news media.

Tax Cuts and Spending

A plan awaiting approval from the State Council and the National People's Congress includes 220 billion yuan of spending and 150 billion yuan of tax cuts, the Beijing-based Economic Observer newspaper reported last week.

China has tripled railway spending this year to 300 billion yuan. The current five-year plan, which runs through 2010, calls for investing almost 4.8 trillion yuan on power stations, waterways, roads and other infrastructure projects -- more than the combined output of Taiwan, Thailand and Vietnam. Reconstruction after May's Sichuan earthquake could cost another 1 trillion yuan, the government says.

``As the Chinese economy moderates, official priorities are tilting towards maintaining growth and employment,'' says Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co. in Hong Kong. ``China's infrastructure spending could even accelerate after the games.''

China might go beyond fiscal stimulus. The People's Bank of China said Aug. 15 it would ``fine-tune'' monetary policy to cushion the economy as overseas demand weakens. Frank Gong, head of China research at JPMorgan, expects the central bank to reduce the portion of deposits banks are required to hold as reserves by 2.5 percentage points, to 15 percent, by next year.

`Foot Off the Brake'

China's inflation rate ``is coming down, so they have got potential to take their foot off the brake and ease up on monetary policy,'' AMP's Oliver says. The rate peaked at 8.7 percent in February and was 6.3 percent in July.

China's growth slowed to a 10.1 percent annual rate in the second quarter after a recent high of 12.6 percent in the second quarter of 2007. Some economists say China's expansion -- still the fastest among the world's 20 biggest economies -- remains strong enough to maintain its momentum without new spending or monetary easing. ``But it's an uncertain world situation, so a month or two from now, those plans may look very smart,'' says David Dollar, the World Bank's director for China.

About 20,000 Hong Kong-owned businesses will close or relocate from China's nearby Guangdong province by the end of this year, in part because of slowing export demand, according to the Hong Kong Small and Medium Enterprises Association.

`Quite Nervous' Authorities

In a country where the number of new job-seekers each year exceeds the number of jobs created by 20 million, a decline in economic growth to even 8 percent would be tantamount to a recession, says Tao Dong, chief Asia economist with Credit Suisse AG in Hong Kong. Anything ``below 9 percent would make the authorities quite nervous,'' he says.

That figure is significant for China's neighbors as well. For every 1 percentage point that China increases its growth rate, the rest of Asia will be boosted by half that, says Huang Yiping, chief Asia economist at Citigroup Inc. in Hong Kong.

Among countries with the most at stake are Taiwan, which shipped almost 36 percent of its total exports to China last year; South Korea, which sent 25 percent; and Japan, which shipped 19 percent, according to UBS AG.

Replacing the U.S.

Japan, whose economy shrank at an annual rate of 2.4 percent last quarter, would be even worse off without strong demand from China, which replaced the U.S. as Japan's biggest customer in July. Komatsu Ltd., Japan's largest maker of earthmovers, reported in July that sales in China gained 37 percent in the quarter, while revenue from North and South America declined.

``With Europe and the U.S. starting to struggle, and Asia starting to buckle, you don't want all engines sputtering at the same time,'' says Rob Subbaraman, chief Asia economist at Lehman Brothers Holdings Inc. in Hong Kong. ``It will be more and more helpful if China can keep its economy on an even keel.''

China's spending will also help demand for commodities -- from iron ore mined in Australia to copper produced in Chile. China is the world's biggest consumer of coal, steel, aluminum, iron ore, nickel ore, copper and natural rubber.

``Raw-materials demand in China is going to be very strong for decades to come,'' Marius Kloppers, chief executive officer of BHP Billiton Ltd., said Aug. 18. China's appetite for steel will double by 2015, said Kloppers, whose Melbourne-based firm is the world's biggest mining company.

`Aggressive' Price Gains

Price gains for copper through 2010 will be ``aggressive'' because of limited supplies and Chinese demand, Citigroup said in an Aug. 18 report.

As one of the last remaining engines of growth, China may help keep the global economy from slipping into its first recession since 2001-2002. Economists at the International Monetary Fund deem anything less than a 3 percent world growth rate as a global recession.

``Continued robust, albeit slowing, growth in China and the rest of the emerging markets is a major driver of our view that the world economy will grow by a healthy 3.6 percent next year after 3.9 percent in 2008,'' said Binit Patel, international economist with Goldman Sachs in London, in an Aug. 21 report.

China has ample funds to pay for pro-growth policies, with outstanding debt of only 15.7 percent of GDP, compared with 75 percent in India, a budget surplus and the world's largest currency reserves, at $1.8 trillion.

``This is one country that's been saving during the boom time,'' says the World Bank's Dollar. ``If exports drop off sharply and consumers get cautious, they can come in very quickly with government spending or tax reductions.''

To contact the reporter on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net



Read more...

New Zealand Dollar May Fall as Investors Spurn Higher Yields

By Tracy Withers

Sept. 1 (Bloomberg) -- The New Zealand dollar may fall on speculation that rising oil prices and weaker U.S. stocks will prompt investors to turn away from higher yielding investments.

Oil prices rose as Hurricane Gustav approached the Gulf of Mexico, halting most oil and gas output and shutting local refineries. Falling U.S. stocks make investors more averse to risk and less inclined to buy currencies such as the New Zealand dollar where the benchmark interest rate is 8 percent.

``Soft U.S. stocks and rising risk aversion sent yen cross rates south,'' said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington.

New Zealand's currency bought 69.97 U.S. cents at 9:54 a.m. in Wellington trading, from 70.05 cents in late New York on Aug. 29. The currency fell to 75.81 yen from 76.25 yen, nearing a two-week low.

New Zealand's dollar is a popular investment for traders who borrow cheaply in yen where the benchmark rate is 0.5 percent. The trade is risky because profits depend on the movement in two currencies and investors typically exit the trade when other markets deteriorate.

The Standard & Poor's 500 index fell 1.4 percent on Aug. 29 amid rising oil prices and lower-than-estimated earnings at Dell Inc., the world's second-largest personal computer maker.

Gustav, downgraded to a Category 3 storm by the National Hurricane Center in Miami yesterday, may strengthen to Category 4 later today and will make landfall as a ``major'' hurricane. The storm shut three-quarters of oil output in the region and refineries operated by Valero Energy Corp., ConocoPhillips, Marathon Oil Corp. and Exxon Mobil Corp.

New Zealand's dollar may also decline amid expectations Reserve Bank Governor Alan Bollard will cut rates at his next review on Sept. 11 as the economy slows. Fourteen of 15 economists surveyed by Bloomberg News expect a quarter- percentage point cut and one expects a half-point reduction.

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



Read more...

Dollar Falls on Speculation Oil Gains to Weaken U.S. Economy

By Stanley White

Sept. 1 (Bloomberg) -- The dollar fell to the lowest in more than a week against the yen on speculation a rise in oil prices will harm the economic outlook for the world's largest energy consumer.

The dollar declined against the euro as Hurricane Gustav approached the Gulf of Mexico, halting most oil and natural gas output from the region. The British pound fell to a record low against the euro and the weakest in two years versus the dollar after Chancellor of the Exchequer Alistair Darling said the British economy faces the worst slump in 60 years.

``The dollar's move is related to the news on Gustav,'' said Takeshi Iba, vice president of foreign exchange in Tokyo at BBH Investment Services Inc., a unit of Brown Brothers Harriman. ``A rise in oil prices can temporarily push the dollar lower.''

The dollar fell to 108.21 yen, the lowest since Aug. 21, before trading at 108.45 yen at 8:47 a.m. in Tokyo from 108.80 yen in New York on Aug. 29. Against the euro, the dollar slid to $1.4697 from $1.4673. The euro bought 159.40 yen from 159.65 yen. The dollar may decline to 108 yen this week, Iba forecast.

The pound declined to 81.39 pence per euro, the lowest since the single European currency's debut in 1999, before trading at 81.10 pence. It also declined to $1.8083, the lowest since April 2006, and traded at $1.8117 from $1.8211.

Crude oil for October delivery rose 1.3 percent to $117.00 a barrel. Prices are up 22 percent this year. The euro-dollar exchange rate and oil had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.

`Bit of Pain'

``If we do go above $120 a barrel and hold that for several days, that would create a little bit of pain for the U.S. dollar,'' John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney, said in an interview with Bloomberg Television.

An economic downturn in the U.K. due to a housing slump would be ``profound and long-lasting,'' Darling said in an interview with the Guardian newspaper on Aug. 30. The next day Darling said he was referring to global conditions rather than those in Britain, the Sunday Telegraph reported, citing television interviews.

The pound also declined as U.K. house prices fell by the most since at least 2001 in August, according to a report released today by Hometrack Ltd.

The Bank of England will keep interest rates unchanged at 5 percent on Sept. 4, according to a Bloomberg News survey of economists. Traders are paring bets on higher borrowing costs in the U.K. The implied yield on the March short-sterling futures contract fell to 5.185 percent on Aug. 29 from 5.45 percent at the end of July.

``Darling painted a pretty dismal picture of the U.K. economy, prompting some speculation of a rate cut,'' said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. ``Sterling is at a record low against the euro now, so we're in uncharted territory.''

The pound may fall to $1.80 in coming weeks, she said.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net



Read more...

Pictet, Aberdeen Sell Won as Bank of Korea Fights Currency Drop

By Kim Kyoungwha

Sept. 1 (Bloomberg) -- Pictet Asset Management Ltd. and Aberdeen Asset Management Plc are betting the Bank of Korea will lose the battle to stem the won's drop, thwarting its attempt to curb the fastest inflation in a decade.

The won slid 7 percent against the dollar in August, the most in a decade, as price increases and a slowing economy prompted bond and stock funds to move money out of the country. Government currency purchases failed to halt the decline and led to a $16.7 billion drop in foreign-exchange reserves in the four months through July to $247.5 billion.

The slump in reserves ``weakens the hand'' of the central bank, said Wee-Ming Ting, head of Asian fixed income in Singapore for Pictet, part of Switzerland's largest privately held bank for the wealthy. ``We are short the won,'' he said, referring to positions that profit from further declines.

The drop surprised strategists, who forecast at the start of the year that the won would appreciate 5 percent to 890 per dollar, according to a Bloomberg News survey of 22 estimates. Instead, the currency slid to 1,088.9 last week, compared with the median fourth-quarter forecast of 1049.

Consumer prices in Asia's fourth-largest economy climbed 5.9 percent in July from a year earlier, increasing pressure on the central bank to raise its benchmark rate from an eight-year high of 5.25 percent. Confidence among consumers in July was the lowest since 2000 and spending by households, saddled with record debt, fell in the second quarter for the first time in four years.

Stock, Bond Sales

International investors sold a record 25 trillion won ($23 billion) more Korean shares than they bought this year, stock exchange data shows, and the benchmark Kospi stock index fell 22 percent.

Net sales of the nation's bonds totaled $4.2 billion in June and July, snapping a two-year run of monthly purchases, according to central bank figures. Benchmark five-year yields climbed 90 basis points, or 0.90 percentage points, in the past four months to 5.86 percent.

Including dollar sales in the forwards market, the Bank of Korea has spent about $43.7 billion supporting the won this year, according to Richard Yetsenga, a strategist in Hong Kong with HSBC Holdings Plc.

``We have been targeting 1,100,'' Yetsenga wrote in an Aug. 28 report. ``Now that we are in striking distance of that target, it is difficult to see what will stop the move there.''

Vice Finance Minister Kim Dong Soo pledged last week to take action to stem the won's depreciation and Goldman Sachs Group Inc. predicts the government will have some success, forecasting an exchange rate of 1,040 in three months.

`One-Way Bet'

The won is ``not a one-way bet,'' said Goohoon Kwon, a Seoul-based economist with Goldman, the world's biggest securities firm. Policy makers could raise rates, helping attract funds seeking higher returns, he said.

Aberdeen Asset, Scotland's largest independent money manager, is betting the Bank of Korea will fail, forecasting the won will be as weak as 1,200 per dollar in a year's time.

``We have been short the won and are generally negative over the next three to six months,'' said Anthony Michael, who oversees the equivalent of $3.7 billion of Asian assets as the firm's regional head of fixed income in Singapore. ``Growth in Korea is going to slow substantially.''

The $970 billion economy expanded 4.8 percent in the second quarter from a year earlier, the slowest since the first three months of 2007, when it grew 4 percent. The trade balance swung to a deficit in December for the first time in five years.

Overseas Borrowings

An increase in South Korea's overseas borrowings is also driving funds out of the country, said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong.

Short-term overseas debt, external borrowings that mature in a year, almost tripled to $175.65 billion as of June 30 from $65.9 billion at the end of 2005, official figures show.

The increase was mainly caused by exporters' locking in dollar rates for overseas earnings, Bank of Korea Deputy Governor Rhee Gwang-Ju said in a July interview. This year's decline in Asian currencies doesn't signal a repeat of the financial crisis a decade ago because central banks have more reserves, he said.

``Potential difficulties with rolling over the debt may lead to a sharp drawdown of reserves and pressure on the won,'' said Dariusz Kowalczyk, a strategist with CFC Seymour Ltd. in Hong Kong, who has the most bearish estimate in the survey. He predicts the won will end the year at 1,200 per dollar.

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

Read more...

Australian Dollar Falls as Investors Pare Carry-Trade Holdings

By Chris Young

Sept. 1 (Bloomberg) -- The Australian dollar fell to its lowest level in four months against the yen as a slide in U.S. stocks prompted investors to pare holdings of higher-yielding investments funded in Japan.

Australia's currency, a favorite of so-called carry trades, declined for a second day after crude oil futures increased as Hurricane Gustav approached the Gulf of Mexico. The Australian dollar approached its lowest in almost a year against the U.S. currency on speculation Reserve Bank of Australia policy makers will cut interest rates when they meet tomorrow.

``The risk aversion story has weakened the Australian dollar,'' said John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney. ``Carry trade sentiment has been hurting it.''

The Australian dollar dropped 0.5 percent to 92.94 yen, reaching 92.71, the weakest level since April 2. It traded at 85.73 U.S. cents as of 8:49 a.m. in Sydney compared with 85.78 cents in late New York on Aug. 29. The currency will trade between 85.25 and 87.50 cents this week, Kyriakopoulos said.

The Australian currency is a favorite for carry trades because the nation's benchmark interest rate is at a 12-year high of 7.25 percent. That compares with 0.5 percent in Japan and 2 percent in the U.S. In the strategy, investors get funds in a country with low borrowing costs and invest in one with higher rates, earning the spread between the two. The risk is that currency market moves erase those profits.

Traders are certain Reserve Bank of Australia policy makers will lower their interest rate by a quarter-percentage point when they meet tomorrow, according to interest-rate futures trading on the Sydney Futures Exchange.

Australian government bonds gained for a second day. The yield on the 10-year bond fell 1 basis point, or 0.01 percentage point, to 5.75 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.110, or A$1.10 per A$1,000 face amount, to 096.127. Bond yields move inversely to prices.

To contact the reporter on this story: Chris Young in Sydney at cyoung12@bloomberg.net.



Read more...

Crude Oil, Gasoline Advance as Gustav Cuts Production, Refining

By Gavin Evans and Margot Habiby

Sept. 1 (Bloomberg) -- Crude oil and gasoline futures rose as Hurricane Gustav approached the U.S. Gulf coast, halting most regional oil and gas output and shutting local refineries.

Gustav, about 215 miles (350 kilometers) south-southeast of the Mississippi River mouth, will make landfall along the Louisiana coast later today as a ``major'' hurricane, according to the U.S. National Hurricane Center. Wind and sea conditions have reduced the chances of ``significant intensification,'' the center said.

``There are still some production rigs in the way'' of a major storm, said Gerard Burg, energy and minerals economist at National Australia Bank Ltd. in Melbourne. ``We're just going to have to wait and see what kind of impact it's going to have.''

Crude oil for October delivery rose $1.52, or 1.3 percent, to $116.98 a barrel in after-hours electronic trading on the New York Mercantile Exchange at 9:45 a.m. in Sydney. Prices, which dropped 7 percent in August, are up 22 percent this year.

Gulf Coast refineries have cut at least 1.56 million barrels a day of production, about 9.8 percent of the U.S. total. Eight refineries have announced shutdowns, while another five have reduced capacity.

Personnel from more than 70 percent of the platforms and rigs in the Gulf have been evacuated as the storm approaches, the U.S. Minerals Management Service said in a statement on its Web site yesterday. About 1.25 million barrels a day of oil, and 6.09 billion cubic feet of gas have been shut, or more than 96 percent of offshore oil output and 82 percent of gas production.

`More Prepared'

Gasoline for October delivery gained 7.48 cents, or 2.6 percent, to $2.9290 a gallon on the exchange. Electronic transactions started early to allow market participants to respond to Gustav. Trades will be dated Sept. 2 because of today's Labor Day holiday in the U.S.

``We're more prepared for this storm than we ever have been for any hurricane that I remember,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``We're better prepared, and demand isn't that strong anyway, so I'm about as optimistic as I can be in this type of disastrous situation.''

The Gulf of Mexico accounts for 26 percent of U.S. oil production and 14 percent of natural-gas output. The Gulf normally produces about 1.3 million barrels of oil and an estimated 7.4 billion cubic feet of gas a day, according to the agency, part of the U.S. Interior Department.

Brent crude oil for October settlement rose $1.51, or 1.3 percent, to $115.56 a barrel on the ICE Futures Europe Exchange today.

Katrina, Rita

Hurricane Katrina struck Louisiana Aug. 29, 2005 with winds near 130 miles-an-hour, flooding 80 percent of New Orleans, killing 1,800 people in Louisiana and Mississippi and causing more than $80 billion in damage.

The storm reached Category 5 status, the strongest type of hurricane, before hitting land. Oil rose as much as 5.4 percent on Aug. 30 to a record $70.85 a barrel after Katrina closed 95 percent of offshore output in the Gulf of Mexico.

Almost 19 percent of U.S. refining capacity was idled because of damage and blackouts caused by hurricanes Katrina and then Rita, which made landfall Sept. 24, 2005.

Gustav, earlier downgraded from Category 4, was packing winds of 115 miles an hour, the hurricane center said in its 4 p.m. local time advisory. While the storm may strengthen as it heads toward Louisiana, continuing wind shear and its track away from deep, warm currents in the Gulf ``reduces the chances of significant intensification.''

``You get a couple of rigs shut down, keeled over from this hurricane, and this is going go take days or weeks to fix,'' said Brad Samples, a commodity analyst for Summit Energy Inc. in Louisville, Kentucky. ``The bigger problem is on the refining side and the potential impact on all the refineries that string along the Gulf Coast.''

Natural gas for October delivery fell 19.3 cents, or 2.4 percent, to $7.75 per million British thermal units.

Chevron's Sabine Pipe Line LLC began to shut its pipelines and the Henry Hub natural gas connection point in Louisiana as mandatory evacuations were declared. Henry Hub, in Erath, Louisiana, is the pricing point for Nymex natural-gas futures.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.

Read more...

South Korea Stocks: Doosan Infracore, Doosan Heavy Industries

By Kyung Bok Cho

Sept. 1 (Bloomberg) -- South Korea's Kospi index slid 23.40, or 1.6 percent, to 1,450.84 as of 9:15 a.m. in Seoul, headed for its lowest since March 28, 2007.

The following are among the most-active stocks in South Korean markets.

Doosan Group affiliates: Doosan Infracore Co. (042670 KS), South Korea's largest construction-equipment maker, fell 3,000 won, or 14 percent, to 18,250. Doosan Heavy Industries & Construction Co. (034020 KS), South Korea's biggest power- equipment maker, retreated 6,200 won, or 7.9 percent, to 72,200.

JPMorgan Chase & Co. cut its price estimate for Infracore by 33 percent to 20,000 won, in a report, citing declining demand in the U.S. and Europe, and the possibility of an additional capital injection into the company's U.S. Bobcat's units. The brokerage also lowered its price target for Doosan Heavy by 9.8 percent to 110,000.

To contact the reporter for this story: Kyung Bok Cho in Seoul at kcho7@bloomberg.net



Read more...

Australia Stocks Update: S&P/ASX 200 Falls 19.20 to 5,116.40

By Darren Boey

Sep. 1 (Bloomberg) -- Australia's benchmark stock index, the S&P/ASX 200 Index, fell 0.37 percent at 10:05 a.m.

The index of 200 companies traded on the Australian Stock Exchange fell 19.20 to 5,116.40. Among the stocks in the index, 35 rose, 71 fell and 94 were unchanged.

Declines in the S&P/ASX 200 Index were led by Bhp Billiton Ltd, Commonwealth Bank Of Australia and Australia & New Zealand Banking Group Ltd. About 61.38 million shares changed hands on the Australian Stock Exchange.

Bhp Billiton Ltd, which rose 13 cents to A$41.05, was the most active stock by value in Australia.

The next most-active issues were Australia & New Zealand Banking Group Ltd, which fell 16 cents to A$16.45, and Commonwealth Bank Of Australia, which fell 42 cents to A$41.98.



Read more...

Japan's Stocks Decline on U.S. Consumer Spending; Honda Drops

By Kanoko Matsuyama and Toshiro Hasegawa

Sept. 1 (Bloomberg) -- Japan's stocks declined after U.S. consumer spending slowed in July, raising concern that demand for Japanese-made goods will fall in the world's largest economy.

Honda Motor Co., which gets more than half its sales from North America, dropped 2.2 percent, while Sharp Corp., Japan's biggest maker of liquid crystal display TVs, declined 2.6 percent. Kawasaki Kisen Kaisha Ltd., Japan's third-biggest shipping line, was poised to fall after Morgan Stanley cut its rating and cargo fees for commodities fell for an eighth day.

``The fall in stocks will be heavily dependent on the macro statistics report from the U.S.,'' Tomochika Kitaoka, at a Tokyo- based strategist Mizuho Securities Co. said in an interview with Bloomberg Television.

The Nikkei 225 Stock Average dropped 185.22, or 1.4 percent, to 12,887.65 at the 9:06 a.m. in Tokyo. The broader Topix index declined 18.92, or 1.5 percent, to 1,235.79.

Purchases in the U.S. rose 0.2 percent, one-third the pace in June, the Commerce Department said on Aug. 29 in Washington, while prices surged the most in 17 years.

Kawasaki Kisen was cut to ``equal-weight'' from ``overweight'' at Morgan Stanley. The Baltic Dry Index, a measure of shipping costs for commodities, fell for an eighth-consecutive trading day.

To contact the reporters for this story: Kanoko Matsuyama in Tokyo at kmatsuyama2@bloomberg.net.

Read more...

Asian Stocks Decline on U.S. Consumer Spending; Honda, LG Drop

By Chen Shiyin

Sept. 1 (Bloomberg) -- Asian stocks fell, led by automakers and technology companies, on renewed concern that faltering U.S. economic growth will hurt demand for the region's exports.

Honda Motor Co., which gets half its sales from North America, and LG Electronics Inc., the world's No. 3 television maker, both dropped more than 2 percent after consumer spending in the world's largest economy slowed in July. Rio Tinto Group, the world's third-largest mining company, slumped 2.1 percent as metals prices declined on concern global demand is waning.

The MSCI Asia Pacific Index slipped 0.9 percent to 124.14 as of 9:18 a.m. in Tokyo as all 10 industry groups retreated. A measure including automakers posted the largest drop among the gauge's 10 industry groups.

The regional measure has dropped 21 percent this year as the global economy slowed and the world's largest financial companies posted writedowns and credit losses of more than $500 billion.

Japan's Nikkei 225 Stock Average fell 1.1 percent to 12,925.94. Stock indexes also declined elsewhere in the region. Malaysia and Vietnam are closed today for holidays.

U.S. markets are also closed today for the Labor Day holiday. Stocks fell on Aug. 29, paring the biggest monthly gain since April, after the Commerce Department said purchases in the U.S. rose 0.2 percent in July, one-third the pace in June, while prices surged the most in 17 years.

A measure of six metals traded on the London Metal Exchange dropped 0.5 percent on Aug. 29, with copper declining 0.3 percent and nickel losing 1.3 percent.

To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net.

Read more...

Economic Calendar Eco Data 9/1/08

GMT Ccy Events Actual Consensus Previous Revised
01:30 AUD Australia Current account Q1 -11.9B -19.49B
06:00 EUR Germany Retail sales M/M Jul 0.00% -1.40%
06:00 EUR Germany Retail sales Y/Y Jul -2.00% -3.90%
07:30 CHF Swiss SVME PMI Aug 53.3 54.1
07:55 EUR Germany Manufacturing PMI Aug F 49.9 49.9
07:55 EUR Eurozone Manufacturing PMI Aug F 47.5 44.3
08:30 U.K. U.K. PMI manufacturing Aug 44 44.3
U.S. Canada Market holiday



Read more...