Yen Rises Against Euro, Dollar on Deepening Recession Concerns

By Stanley White

Sept. 5 (Bloomberg) -- The yen climbed to the highest in more than a year against the euro on concern the credit-market slump will lead the world into a recession, prompting investors to sell higher-yielding assets funded in Japan.

The dollar fell versus the yen before a U.S. government report that will probably show employment dropped for an eighth month. The yen also jumped to a two-year high against the Australian and New Zealand dollars as stocks and commodities slumped. The pound dropped for a ninth day versus the dollar.

``This is a global recession story,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital, Britain's third-biggest lender. ``The yen is benefiting as risk appetite is on the decline.''

Against the euro, Japan's currency climbed to 150.60 yen, the strongest since Aug. 17, 2007, before trading at 151.40 yen as of 9:23 a.m. in London, from 153.40 yen. The yen reached 105.69 per dollar, the highest since July 17, before trading at 106.25, from 107.08. The euro fell to $1.4248, from $1.4325. It earlier touched $1.4214, the weakest since Oct. 24. The euro may decline to $1.40 in six months, Umemoto said.

U.S. payrolls fell by 75,000 after declining by 51,000 in July, according to the median estimate of 76 economists in a Bloomberg News survey before the Labor Department report due at 8:30 a.m. in Washington today. The unemployment rate likely stayed at a four-year high of 5.7 percent.

Carry Trades

The Australian dollar dropped to 86.21 yen, from 88.10 yen yesterday, and touched 85.89 yen, the lowest since July 2006. New Zealand's dollar slumped to 70.60 yen, from 72.04 yen, reaching 69.90 yen earlier, the lowest since July 2006. The UBS Bloomberg Constant Maturity Commodity Index reached a seven- month low and Japanese stocks headed for the worst weekly decline in a year.

Japan's currency often gains when demand for higher- yielding assets declines, as traders reverse so-called carry trades. In such trades, investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent benchmark interest rate compares with 4.25 percent in Europe, 7 percent in Australia and 8 percent in New Zealand.

Volatility implied by dollar-yen options expiring in one- month rose to 13.13 percent, the highest since mid-July, showing market swings may erase carry-trade profits.

``These currency moves are huge,'' said Toru Tokoyoda, head of foreign-exchange sales in Tokyo at Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm. ``Volatility is likely to squeeze higher on further gains in the yen as that would spur demand to hedge against that move.''

One-month volatility may rise to 15 percent provided that the yen rises to 105 per dollar today, he said.

Korean Won

South Korea's won rose 1 percent to 1,117.95, reversing an earlier drop of as much as 1.2 percent, on speculation the central bank is buying the currency to halt its declines. The nation's foreign-exchange reserves fell by $21 billion in the five months through August to $243 billion as the Bank of Korea bought won to try to halt the currency's slide.

A 10 percent drop in the won in the past month sparked concern South Korea may be headed for a repeat of 1997, when the currency lost half its value versus the dollar and the country turned to the International Monetary Fund for a $57 billion bailout to help companies repay overseas debt.

Accelerating inflation and a slowing economy prompted funds including Pictet Asset Management Ltd. and Aberdeen Asset Management Plc to move money out of the country. Speculation that the nation faces a crisis this month are ``groundless,'' said Deputy Finance Minister Shin Je Yoon.

Ruble Gains

Russia's ruble snapped three days of declines after the central bank said it sold a ``significant'' amount of foreign reserves yesterday to prop up the currency. Investors have taken about $30 billion out of Russia since the start of its five-day war with Georgia on Aug. 8, according to BNP Paribas SA.

The ruble rose to 30.3847 against the central bank's dollar-euro basket, from 30.4045 yesterday.

The dollar's 0.4 percent decline against the yen today followed a drop in U.S. asset prices. The Standard & Poor's 500 Index tumbled yesterday by the most in three months.

The U.S. government needs to start using more of its money to support markets to stem a burgeoning ``financial tsunami,'' said Bill Gross, co-chief investment officer of Newport California-based Pacific Investment Management Co., manager of the world's biggest bond fund, on the firm's Web site yesterday.

Juncker Comments

The euro dropped for a seventh day against the dollar, its longest decline since October 2006. The ECB yesterday kept its main refinancing rate at a seven-year high of 4.25 percent and President Jean-Claude Trichet told a press conference growth risks are on the ``downside.''

Europe's currency extended its decline after Luxembourg's Finance Minister Jean-Claude Juncker told reporters yesterday the currency is ``effectively overvalued.'' The euro has dropped more than 10 percent against the dollar from the record high of $1.6038 set on July 15. The ECB lowered its 2008 economic growth forecast yesterday to about 1.4 percent from 1.8 percent.

The U.S. economy is ``stagnant'' and Europe is falling into a recession, said Gail Fosler, president of the New York-based Conference Board, a group known for its consumer confidence survey. Central banks won't have much room to cut borrowing costs amid elevated prices, he said.

Pound's Slide

The pound fell for a ninth day, reaching a two-year low of $1.7538 after the Bank of England yesterday kept its target lending rate at 5 percent. Policy makers judged the fastest inflation in more than a decade outweighed the risk that the British economy is sinking into a recession.

Banks in the U.K., Spain and Ireland that have relied on the ECB for low-cost funding will soon have to pay more. The ECB will increase the so-called `haircut' on most asset-based securities from Feb. 1 to 12 percent from as low as 2 percent, the central bank said yesterday. That means it will lend just 88 percent of the value of the paper.

``The liquidity situation continues to be severe and this could be one reason for the euro to weaken,'' said Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader. ``This also focuses attention on the divergence in banks and economies in the euro region.''

The euro may fall to $1.40 this month after breaking below a cloud on its weekly ichimoku chart used to show support levels, he said.

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

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Bank of America Seeks to Settle Auction-Rate Accords

By David Mildenberg and Karen Freifeld

Sept. 5 (Bloomberg) -- Bank of America Corp., the nation's second-largest bank, said it wants to settle state and federal regulatory probes into how it marketed auction-rate securities on terms similar to agreements with other major banks.

``We understood that we had reached such an agreement in principle nearly two weeks ago,'' spokeswoman Shirley Norton said in statement yesterday. The bank negotiated for almost a month with the U.S. Securities and Exchange Commission and regulators in New York and Massachusetts for a deal that would provide liquidity relief to customers, the statement said.

Citigroup Inc., UBS AG and Goldman Sachs Group Inc. and five other banks settled claims in recent weeks stemming from a nationwide probe into firms that allegedly marketed the securities as about as safe as cash. The brokerages that managed the auctions abandoned the $330 billion market, stranding thousands of investors who could no longer sell the securities at weekly and monthly biddings held to set interest rates.

Bank of America, based in Charlotte, North Carolina, must strike an accord with regulators in Massachusetts or face legal action, Secretary of State William Galvin said Sept. 3. New York Attorney General Andrew Cuomo subpoenaed eight Bank of America executives this week, a person familiar with negotiations said yesterday. The bank fell 7.2 percent yesterday in New York trading.

``I think the underwriters have all recognized they have to settle these cases,'' John Coffee, a securities law professor at Columbia Law School in New York, said in a telephone interview yesterday. ``I don't see many people holding out.''

Investigation Continuing

Coffee said it was unclear whether high-level executives or brokers were targeted by Cuomo's subpoenas.

``It is possible regulators think some individuals should be responsible,'' he said, noting the two Credit Suisse Group AG brokers who were criminally charged Sept. 3. ``That may ratchet up the pressure.''

Alex Detrick, a spokesman for Cuomo, said yesterday the Bank of America investigation was continuing. State and federal regulators have investigated the auction-rate market since it fell apart in February.

``We are still seeking answers to certain questions that have arisen as a result of our initial inquiries,'' Detrick said in an e-mail after Bank of America's statement yesterday that an agreement was worked out in principle. ``Hopefully, a settlement will be in reach once we have obtained all the relevant information we are seeking, but we do have an obligation to follow all the evidentiary trails.''

Individual Conduct

Galvin, the 57-year-old Boston-based securities regulator who is leading a 12-state task force investigating Bank of America, said progress has been made.

``Getting everyone into a final agreement is a problem,'' he said in an interview Sept. 3. ``I'm not sure it's all Bank of America's fault.''

SEC spokesman John Nester declined to comment.

The eight banks that settled agreed to buy back a total of at least $44 billion of the securities from individuals, nonprofits and small businesses and to help their institutional clients find markets for the debt. They also agreed to pay fines totaling more than $520 million to state and federal regulators.

Aside from UBS, Citigroup and Goldman Sachs, settlements were reached with Morgan Stanley, Wachovia Corp., Merrill Lynch & Co., JPMorgan Chase & Co. and Deutsche Bank AG.

Cuomo said last month that the settlements with the banks didn't cover conduct by individual executives.

Credit Suisse Brokers

Two former Credit Suisse Group AG brokers were charged Sept. 3 with violating securities laws by fraudulently selling corporate clients subprime mortgages linked to auction-rate securities.

Julian Tzolov, 35, and Eric Butler, 36, falsely told clients the products were backed by federally guaranteed student loans and were a safe alternative to bank deposits or money market funds, according to their indictment.

Butler pleaded not guilty to the charges, while Tzolov was said by U.S. Attorney Benton Campbell to be out of the country, though not a fugitive. Tzolov's lawyer declined to comment.

Coffee said he didn't think major underwriters would ``live or die'' on whether one of their brokers gets indicted.

``If it's the chief financial officer,'' he said, ``there's certainly pressure there.''

To contact the reporters on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net; Karen Freifeld in New York state Supreme Court at kfreifeld@bloomberg.net.

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Copper Inventories in LME-Monitored Warehouses Rise 10 Percent

By Claudia Carpenter

Sept. 5 (Bloomberg) -- Copper inventories in warehouses monitored by the London Metal Exchange advanced 10 percent, the most in three years.

Stockpiles rose 18,775 metric tons to 200,875 tons, figures from the exchange today showed. That's the biggest percentage increase since August 2005 and the most inventories since Jan. 8.

Copper for delivery in three months fell $226, or 3.1 percent, to $7,000 a ton as of 9:13 a.m. on the London Metal Exchange. Prices earlier declined to $6,980, the lowest since January this year.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net or ccarpenter2@bloomberg.net
Last Updated: September 5, 2008 04:24 EDT



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Palm Oil Falls as Crude Drop Erodes Prospect for Biofuel Demand

By Jae Hur and Yoga Rusmana

Sept. 5 (Bloomberg) -- Palm oil futures in Malaysia declined for a third time in four days after crude oil dropped to a five- month low, reducing demand prospects for biofuel made from the commodity and rival soybean oil.

Crude oil fell more than 6 percent this week in New York as the euro dropped to an 11-month low against the dollar amid signs that Europe's economy is slowing. Palm and soybean oils, used in food, often follow crude as they can be used as alternative fuels. Soybean oil touched a five-month low today.

``It's reaction to the other vegetable oil after oil dropped, denting the viability of biofuels,'' Ong Chee Ting, an analyst at Aseambankers Malaysia Bhd., said in Kuala Lumpur.

Palm oil for November delivery fell as much as 3.6 percent to 2,419 ringgit ($700) a metric ton on the Malaysia Derivatives Exchange and was at 2,465 ringgit at 12:30 p.m. break. The price is down 45 percent from the March record of 4,486 ringgit.

Soybean oil for December delivery in Chicago dropped as much as 2.1 percent to 49.20 cents a pound, the lowest since April 1, and traded at 49.85 cents as of 12:41 p.m. Singapore time.

The Malaysian exchange started today trading of U.S. dollar- denominated palm oil futures contracts, with 5 contracts each for November and December deliveries. The November contract traded at $696.50 a ton and the December was at $699 by the midday break.

``Malaysia is trying to replace Rotterdam as benchmark for a dollar contract, but it's still hard to see how this will work,'' Hariyanto Wijaya, a plantation analyst at Trimegah Securities in Jakarta, said.

Crude oil for October delivery fell 1.3 percent, to settle at $107.89 a barrel in New York, its lowest close since April 4. It traded as low as $107.25 before trading at $107.84 a barrel on the New York Mercantile Exchange.

To contact the reporters for this story: Jae Hur in Singapore at jhur1@bloomberg.net; Yoga Rusmana in Jakarta at yrusmana@bloomberg.net



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Copper May Rebound on Speculation of More Demand, Survey Shows

By Claudia Carpenter

Sept. 5 (Bloomberg) -- Copper may rebound next week on speculation the U.S. economy may come out of the current economic slowdown, reviving demand from wire and pipe manufacturers.

Sixteen of 31 analysts and traders surveyed by Bloomberg News yesterday and Sept. 3 forecast copper will rise. Thirteen expected a decline and two were neutral. Copper for delivery in three months on the London Metal Exchange is down 4.2 percent this week.

The Institute for Supply Management's index of services advanced to 50.6 in August, according to the report yesterday. Readings above 50 signal growth. Economists surveyed by Bloomberg News forecast it would remain at 49.5. U.S. vehicle sales were an annual 13.7 million units in August, Autodata Corp. said Sept. 3. The median estimate in a separate Bloomberg survey was 13 million units.

The U.S. is the second-biggest buyer of copper. China is the largest.

This week's survey results: Bullish: 16 Bearish: 13 Neutral: 2

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net



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Soybeans, Corn Slump as Dollar's Advance Dents Demand Outlook

By Jae Hur

Sept. 5 (Bloomberg) -- Soybeans tumbled for the fourth straight session to a three-week low and corn slumped as the dollar advanced against the euro, reducing the appeal of U.S. supplies to overseas buyers.

Before today the oilseed lost 6.7 percent this week, heading for the second weekly drop. The dollar jumped to the highest level today since October against the euro on signs Europe's economy is slowing. The U.S. currency's decline earlier this year helped push soybeans, corn, crude oil and gold to records.

``The dollar's strength is the key factor which put pressure on grains and other commodities as well as stocks,'' said Hiroyuki Kikukawa, general manager of research at IDO Securities Co. in Tokyo. ``Eventually, grains will recover because of their strong fundamentals, but at the moment they are following the overall bearish mood in the broad financial market.''

Soybeans for November delivery declined as much as 30.5 cents, or 2.5 percent, to $12.045 a bushel, the lowest since Aug. 15, in after-hours electronic trading on the Chicago Board of Trade, and stood at $12.145 as of 3:24 p.m. Singapore time. Futures have slid 26 percent from a record $16.3675 on July 3.

Corn for December delivery fell as much as 10 cents, or 1.8 percent, to $5.545 a bushel and traded at $5.5475 as of 3:24 p.m. Singapore time. The price has fallen 31 percent from a record $7.9925 on June 27.

``Wheat and Soybeans are under pressure from crop improvements and a much stronger dollar,'' said John Reeve, associate director for agricultural commodities at UBS AG in Singapore. ``Corn is now finding support from ethanol and stock feed users.''

Equities Decline

The euro dropped as much as 0.8 percent to $1.4214 against the U.S. dollar, the lowest since Oct. 24. The European currency has fallen for seven straight days. Gold earlier declined for six straight days and crude oil this week dipped to a five-month low.

Asian stocks fell for a fifth day, extending a global rout, after rising U.S. jobless claims deepened concern a global economic slowdown is cutting demand for the region's exports. U.S. stocks tumbled, sending the Standard & Poor's 500 Index down 3 percent for the longest stretch of losses since January.

``A lot of liquidation has been seen in the market with talk of the close of some hedge funds and concerns about slowing demand following an economic slowdown in the U.S., Europe and Japan,'' Kikukawa said.

Wheat Drops

Wheat for December delivery dropped as much as 16.5 cents, or 2.1 percent, to $7.605 a bushel, and traded at $7.625 as of 3:29 p.m. Singapore time. Futures have fallen 44 percent from a record $13.495 on Feb. 27 after farmers globally increased acreage to take advantage of a 77 percent price rally in 2007.

Australia may produce less of the grain than forecast because of dry weather, JPMorgan Chase & Co. said. Output may be 22.2 million metric tons, down from a previous forecast of 23.7 million tons, JPMorgan analysts led by Stuart Jackson said in a report yesterday.

The government's commodities forecaster predicted a crop of 23.7 million tons in June, up from last year's 13 million tons. Australia is forecast to be the world's third-largest wheat exporter in the year that began June 1, according to the U.S. Department of Agriculture.

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



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Crude Oil Extends Drop as Stronger Dollar Curbs Hedging Appeal

By Grant Smith
Enlarge Image/Details

Sept. 5 (Bloomberg) -- Crude oil fell in New York, set for its biggest weekly decline in a month, as the dollar gained, curbing demand for commodities as a currency hedge.

Oil has fallen more than 7 percent this week as the euro dropped to the weakest this year against the dollar. U.S. daily average implied fuel demand so far this year is down 4.1 percent at 19.9 million barrels from a year ago, U.S. Energy Department data showed yesterday.

``The rally in the U.S. dollar is weighing on prices, and adding to that is the weak macro economic data from the U.S. and Europe,'' said Toby Hassall, an analyst at Commodity Warrants Australia. ``The outlook looks bearish and funds are selling off on fundamental weakness.''

Crude oil for October delivery fell as much as $1.06, or 1 percent, to $106.83 a barrel, and traded at $106.90 at 8:59 a.m. London time on the New York Mercantile Exchange.

Prices are down 27 percent from the record $147.27 reached July 11. The dollar's decline earlier this year had prompted investors to buy commodities, helping to push crude oil, gold, corn and gasoline to records.

The euro was at $1.4286 against the U.S. dollar at 8:50 a.m. London time from $1.4498 yesterday. It touched $1.432, the lowest since Dec. 21. The European currency has dropped for six straight days.

The Organization of Petroleum Exporting Countries, the supplier of 40 percent of the world's oil, will probably keep producing at a record pace. The 13-nation group will reject calls from Venezuela and Iran to trim supplies at its Sept. 9 meeting in Vienna, according to 29 of the 32 energy analysts surveyed by Bloomberg News.

To contact the reporter on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net. Grant Smith in London at gsmith52@bloomberg.net



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Gold Heads for First Weekly Drop in Three as Dollar Strengthens

By Rachel Graham

Sept. 5 (Bloomberg) -- Gold headed for its first weekly drop in three as the dollar strengthened against the euro, curbing demand for the metal as an alternative investment.

The relationship between gold and the euro-dollar exchange rate is strengthening, with a correlation of 0.7 so far this year, compared with 0.46 in the same period last year. A figure of 1 would mean the two moved in lockstep. The dollar rose for a seventh day against the euro.

``The bullish dollar has led gold to extend lower overnight,'' James Moore, an analyst at TheBullionDesk.com, wrote today in a report. ``We could see gold remain under pressure in the short term'' because of euro weakness, he wrote.

Gold for immediate delivery was little changed, rising 65 cents, or 0.1 percent, to $797.10 an ounce as of 8:54 a.m. in London. A close at that price would mean a weekly drop of 4.1 percent.

Standard Chartered Plc cut its gold forecast for the fourth quarter to $850, compared with a previous forecast of $925. It expects gold to exceed $1,000 in the second half of next year.

``We have maintained our view that prices will trend higher over the medium term,'' Standard Chartered analysts led by Helen Henton wrote today in a report.

Silver fell 7.5 cents, or 0.6 percent, to $12.74 an ounce.

Assets in Barclays Plc's iShares Silver Trust, the largest exchange-traded fund backed by the metal, climbed to a record yesterday.

Silver held by the company rose 0.2 percent to 6,524.93 tons on Sept. 4, according to data posted on the company Web site.

Among other metals for immediate delivery, platinum fell $32, or 2.3 percent, to $1,368 an ounce and palladium fell $3.50, or 1.2 percent, to $280.75 an ounce.

To contact the reporter on this story: Rachel Graham in London at rgraham13@bloomberg.net



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China Shortens Initial Public Offering Lock-up Period to 1 Year

By Zhang Dingmin and Chua Kong Ho

Sept. 5 (Bloomberg) -- China shortened the trading moratorium for investors who buy stakes in initial public offers to one year from three years, a move that may encourage strategic investors deterred by the lengthy lock up.

Companies will also no longer have to halt trading of their shares during annual earnings announcements and profit forecasts, the Shanghai and Shenzhen Stock Exchanges said in statements posted on their Web sites today. Stocks with volatile and ``abnormal'' movements due to speculation will be suspended, they said. The new rules take effect on Oct. 1.

``Shortening the lock-up could make it more attractive for pre-IPO strategic investors,'' said Fraser Howie, a Singapore- based analyst at CLSA Ltd. ``More disclosure is good for the market.''

About 8.7 trillion yuan ($1.27 trillion) of locked-up shares, almost half the combined market capitalization of the two exchanges, will be released in two years through 2010, according to local data provider Wind. New shares, while improving the tradability of a stock, also reduce the value of existing equity.

China's benchmark CSI 300 Index has slumped 59 percent this year, the most of 88 global measures tracked by Bloomberg, as central bank action to cool rising consumer prices deflated a stocks boom that drove equities up sevenfold in the two years to 2007.

The new rules will enable the exchanges to use ``special treatment'' to better protect small investors if controlling shareholders misuse funds or provide unauthorized guarantees to third parties, the two Chinese exchanges said.

``Considerable changes'' have occurred in the stock market and investor behavior since 2006, making a revision necessary, the Shenzhen bourse said on its Web site. ``At the same time, problems such as selective information disclosure and insider trading have stood out.''

To contact the reporter for this story: Zhang Dingmin in Beijing at Dzhang14@bloomberg.net; Chua Kong Ho in Shanghai at kchua6@bloomberg.net



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Japan Stocks Drop, Cap Worst Week in a Year on Jobs, Investment

By Masaki Kondo

Sept. 5 (Bloomberg) -- Japan's stocks tumbled, capping the worst weekly slump in a year, as the slowing global economy dragged down U.S. employment and compelled domestic companies to reduce capital spending.

Komatsu Ltd., which gets a fifth of its profit from the Americas, fell 4.4 percent to the lowest in two years after U.S. jobless claims reached a near five-year high and Japanese companies cut investment. Mazda Motor Corp., which gets more than half its profit from Europe, sank 6.9 percent after the European Central Bank cut economic forecasts. Resona Holdings Inc. led a gauge of banks to the lowest in four years after the manager of the world's biggest bond fund warned of a ``financial tsunami.''

The Nikkei 225 Stock Average sank 345.43, or 2.8 percent, to close at 12,212.23 in Tokyo, the biggest drop since April 14. The Topix index fell 30.81, or 2.6 percent, to 1,170.84. The Topix lost 6.7 percent this week, the worst since Aug. 17 last year.

``It's become much clearer to everybody that the U.S. is entering a recession, but it's also quite likely the European economy will slow,'' said Hiroshi Morikawa, a senior strategist at MU Investments Co., which manages about $14 billion. ``It's as though we are losing two pillars. Investors are better off holding cash rather than stocks.''

The Nikkei is 3.5 percent away from its March 17 low this year. The gauge has fallen 26 percent in the past 12 months as decade-high inflation damped spending and the global credit crisis caused corporate bankruptcies to reach a five-year high.

The number of people on jobless rolls rose to 3.435 million in the U.S., the highest since November 2003, the Labor Department said yesterday. That coincided with a report by the Japanese Ministry of Finance today that domestic businesses cut investment 7.6 percent last quarter, while profits at non- financial companies fell 5.2 percent.

Nintendo Downgrade

Komatsu, the world's second-biggest maker of earthmoving equipment, dropped 4.4 percent to 1,922 yen and posted a 17 percent weekly drop, the most since October 2000. Mazda dived 6.9 percent to 527 yen. Nintendo Co., the world's largest maker of handheld game players, lost 2.8 percent to 51,800 yen in Osaka trading after Nikko Citigroup Ltd. lowered its rating on the stock to ``hold,'' saying earnings will peak this year.

The ECB yesterday lowered its economic growth projection for 2008 and 2009. Daiwa Securities Group Inc., Japan's second- largest brokerage, cited a slowdown in Europe's economy when cutting its profit forecast for Japanese companies the same day.

`Very Bearish'

Resona, Japan's fourth-biggest publicly traded bank, plunged 7.7 percent to 93,700 yen, the lowest since August 2003. Mizuho Financial Group Inc., the second largest, dropped 6.4 percent to 413,000 yen while bigger rival Mitsubishi UFJ Financial Group Inc. lost 5.4 percent to 750 yen. Banks as a group fell to the lowest since February 2004 and posted the biggest drop among 33 industry groups on the Topix.

Bill Gross, co-chief investment officer of Pacific Investment Management Co., yesterday said the U.S. government needs to start using more of its money to support markets to stem a ``financial tsunami.''

``Credit risks are getting bigger and it's hard to hold on to financial stocks,'' said Tomokatsu Mori, who oversees about $935 million at Fukoku Capital Management Inc. ``We expect the market to remain very weak and the outlook is very bearish.''

Sony Corp., the world's second-biggest maker of consumer electronics, slid 4.2 percent to 3,880 yen, the lowest since November 2005. It yesterday recalled about 440,000 of its Vaio notebook computers, citing a risk they could overheat.

Aiful Corp., Japan's fourth-biggest consumer lender by value, surged 15 percent, the most since Oct. 22, to 755 yen, after JPMorgan Chase & Co. raised its rating on the stock to ``neutral'' from ``underweight.'' The stock had lost 67 percent this year through yesterday amid concern lenders will have to return excess interest payments to customers while creditor banks tighten lending.

``Aiful is likely to increase interest reimbursement provisions,'' Natsumu Tsujino, a Tokyo-based analyst for JPMorgan, wrote in a note to clients today. ``The move would not substantially hurt capital, which is currently sufficient.''

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

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Australia Stocks Fall, Posting Biggest Weekly Drop in 6 Months

By Ian C. Sayson

Sept. 5 (Bloomberg) -- Australia's stocks fell for the fifth day, sending the benchmark index to its biggest weekly loss in six months, on concerns that the global economic slowdown is worsening.

National Australia Bank Ltd. sank 4.3 percent after Bill Gross, manager of the world's biggest bond fund, warned of more financial turmoil. Westfield Group, the world's biggest shopping center owner by market value, fell 2.3 percent after U.S. jobless claims rose to the highest in almost five years. Fortescue Metals Group Ltd. dropped 7.3 percent after raw-materials prices declined.

``The bearish sentiment is dictated a lot by what's happening in the U.S.,'' said Peter Vann, who helps manage $1.6 billion at Constellation Capital Management in Sydney. ``We have been underweight in commodities because we think they're overpriced.''

The S&P/ASX 200 Index slipped 102.40, or 2.1 percent, to 4,877.10 at the close in Sydney, completing a five-day, 5 percent slump. That's the measure's biggest weekly loss since March 7. The S&P/ASX 200 Index futures contract due in September plunged 2.5 percent to 4,874 while the All Ordinaries Index declined 101.40, or 2 percent, to 4,949.50.

National Australia Bank, the nation's largest by assets, dropped 4.3 percent to A$23.60. Commonwealth Bank of Australia, the biggest provider of home loans, fell 3.1 percent to A$41.59. The stocks were the two biggest drags on the benchmark index today.

U.S. Decline

The U.S. government should start using more of its money to support markets to avert a ``financial tsunami,'' Gross, co-chief investment officer of Pacific Investment Management Co., said yesterday.

Westfield sank 2.3 percent to A$17.25, the most in seven days. James Hardie Industries NV, the biggest seller of home siding in the U.S., fell 1.8 percent to $4.91.

The number of Americans remaining on unemployment rolls rose in the week ended Aug. 23 to a five-year high, the Labor Department said yesterday. Separately, European central bank President Jean-Claude Trichet said yesterday the economy is undergoing an ``episode of weak activity.''

Fortescue dropped 7.3 percent to A$6.39 as a measure of six metals traded on the London Metal Exchange dropped 1.1 percent. Rio Tinto Group, the world's No. 2 mining company, slid 1.4 percent to A$110.08, a seven-month low.

The following shares were among the most active in Australian trading. Stocks symbols are in brackets after company names.

Indophil Resources NL (IRN AU), an explorer of gold and copper resources in the Philippines, tumbled 42.5 cents, or 36 percent, to 76.5 Australian cents, the steepest drop on record. Xstrata Plc agreed to increase its stake in the company to 19.99 percent and said it has ``no current intention'' of buying further. Indophil was the biggest loser in the All Ordinaries Index.

Incitec Pivot Ltd. (IPL AU), Australia's largest fertilizer maker, decreased A$7.88, or 5.6 percent, to A$133.12. The company won approval from shareholders for a 20-for-1 stock split, Neville Heydon, spokesman for the Melbourne-based company said today.

Linc Energy Ltd. (LNC AU), owner of coal-mining licenses in Australia's Queensland state, jumped A$1.30, or 43 percent, to A$4.35, the most since May 2006. The company said today it agreed to sell its Teresa coal exploration permits to China's Xinwen Mining Group Ltd. for A$1.5 billion ($1.2 billion).

Perilya Ltd. (PEM AU), an exploration and mining company, decreased 3 cents, or 6.9 percent, to 40.5 Australian cents, the lowest since Aug. 6. The stock was downgraded to ``sell'' from ``neutral'' by UBS AG, which also reduced its price target to 34 cents from A$1.85.

To contact the reporter on this story: Ian C. Sayson in Manila at isayson@bloomberg.net



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Asia Stocks Fall for Fifth Day on Growth Concerns; Mizuho Drops

By Chua Kong Ho

Sept. 5 (Bloomberg) -- Asian stocks fell for a fifth day, set for the biggest weekly decline in a year, as concern over slowing global growth triggered a plunge in finance, energy and raw-materials shares.

Mizuho Financial Group Inc. tumbled 6.4 percent after Bill Gross, manager of the world's largest bond fund, warned of a ``financial tsunami'' and Goldman, Sachs & Co. told investors to sell Merrill Lynch & Co. shares. Fortescue Metals Group Ltd. tumbled 7.3 percent after resources prices declined, adding to the biggest weekly sell-off for Asian commodity stocks in at least 13 years. Nissan Motor Co. fell 3.6 percent after U.S. unemployment rolls rose to the highest in almost five years.

``Sentiment is terrible,'' said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which manages about $108 billion. ``You've got this ongoing correction in commodity prices, issues regarding financials, and concerns about profit downgrades in economically-sensitive companies.''

The MSCI Asia Pacific Index lost 2.1 percent to 116.70 as of 3:50 p.m. in Tokyo. The measure is headed for a 6.8 percent drop this week and the lowest since June 13, 2006. All 10 of the benchmark's industry groups declined, with about seven stocks retreating for each that advanced.

The region's index has tumbled 26 percent in 2008, almost twice the drop in the Standard & Poor's 500 Index, as a global slowdown cuts demand for the region's exports and financial companies post losses and writedowns stemming from the credit crisis. More than $15 trillion has been wiped off global stock markets since the October 2007 peak.

Sony, Sumco

S&P futures dropped 0.4 percent today after the S&P 500 yesterday dropped 3 percent as the number of people staying on jobless rolls rose to the highest since November 2003. The Labor Department report on nonfarm payrolls, due today at 8:30 a.m. in Washington, probably showed a drop of 75,000 last month, according to forecasts by economists surveyed by Bloomberg.

Japan's Nikkei 225 Stock Average dropped 2.8 percent to 12,212.23. Sony Corp. fell 4.2 percent after announcing a worldwide computer recall. Sumco Corp. tumbled 11 percent after second-quarter profit decreased.

Hong Kong's Hang Seng Index fell below 20,000 for the first time since April as Sun Hung Kai Properties Ltd. declined 6.1 percent following a cut to the city's growth forecast by Goldman Sachs. All markets open in Asia declined, with Hong Kong, Indonesia and China posting declines of more than 3 percent.

Nissan, Canon

Nissan, which generates more than half its profit in North America, slumped 3.6 percent to 800 yen. Toyota Motor Corp., which gets more than a third of its sales in the region, dropped 2.5 percent to 4,750 yen. Mazda Motor Corp. tumbled 6.9 percent to 527 yen, the most in a month.

Canon Inc., which gets almost 80 of its sales outside of Japan, declined 2.9 percent to 4,630 yen. Japanese exporters also fell as the yen gained against the euro to the highest in more than a year and appreciated versus the dollar to the strongest since July 17. A stronger local currency reduces Japanese companies' repatriated overseas sales.

Capital spending in Japan excluding software fell 7.6 percent in the three months ended June 30, a fifth-straight quarterly decline, data today showed. Earlier this week, reports showed Chinese manufacturing contracted for a second month in August, and Australia's economic expansion slowed to the weakest pace in more than three years as consumers cut spending.

European central bank President Jean-Claude Trichet said yesterday the economy is seeing an ``episode of weak activity.''

`More Downturns'

``At this stage of the game, we expect more bad news, more downturns, so there's no big rush into the market,'' said Mark Mobius, executive chairman of Templeton Asset Management Ltd., which oversees about $40 billion in emerging-market equities, in a Bloomberg Television interview. ``It's good to be conservative and to conserve some cash but take advantage of these opportunities'' when share prices fall.

Mizuho, Japan's second-biggest bank by assets, dropped 6.4 percent to 413,000 yen, while Mitsubishi UFJ Financial Group Inc. slid 5.4 percent to 750 yen. Commonwealth Bank of Australia, the country's biggest lender, fell 3.1 percent to A$41.59.

Gross, co-chief investment officer of Pacific Investment Management Co., yesterday said the U.S. government needs to start using more of its money to support markets to stem a burgeoning ``financial tsunami.''

William Tanona, an analyst at Goldman in New York, placed Merrill on the brokerage's ``conviction sell'' list, saying the company could post a $5.75 per share loss this quarter, versus a previous estimate for a $1 profit.

Fortescue, Jianxi

MSCI's index of 114 Asian materials stocks to a 12 percent tumble this week, headed for its biggest weekly loss since the measure started in 1995.

Fortescue dropped 7.3 percent to A$6.39, the lowest since March 20. Jiangxi Copper Co., China's second-biggest smelter, lost 4.1 percent to HK$10.34, as a measure of six metals traded on the London Metal Exchange dropped 1.1 percent. Sumitomo Metal Mining Co., Japan's largest gold producer, fell 3.4 percent to 1,153 yen, after gold declined for a fourth-straight day.

Santos Ltd., Australia's third-biggest oil and gas producer, retreated 1 percent as oil traded at $107.77 a barrel, extending a 1.3 percent decline yesterday. Prices are down 27 percent since the record $147.27 reached July 11.

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

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U.K., Spanish, Irish Banks' Costs to Rise as ECB Tightens Rules

By Charles Penty and Jon Menon

Sept. 5 (Bloomberg) -- Banks in the U.K., Spain and Ireland that have relied on the European Central Bank for low-cost funding will have to pay more as it tightens lending rules.

ECB President Jean-Claude Trichet, concerned that some banks were abusing its willingness to make loans backed by securities most investors won't accept, said yesterday the central bank will increase the so-called ``haircut'' on securities used as collateral for loans to 12 percent from as little as 2 percent, meaning it will lend just 88 percent of their value.

``It's a call to discipline from the ECB,'' said Tomas Varela, chief financial officer at Banco Sabadell SA, Spain's fourth-largest bank, which holds about 5 billion euros ($7.2 billion) of securities that will be worth less after Feb. 1, 2009, under the new ECB rules. ``It's a signal to the financial industry to start opening up more normal avenues of liquidity.''

The ECB, which lent 467 billion euros last week to banks with operations in the 15-country euro area, accepts a broader range of collateral for loans than the Federal Reserve or the Bank of England, including bonds with credit ratings five levels below AAA and asset-backed securities. This leeway prompted some firms to create bonds specifically as collateral for ECB borrowing.

``It is a bit like a drug, and they don't want the banks to become dependent on it,'' said Neil Smith, a Dusseldorf-based analyst at WestLB AG. ``There have been concerns the facility is being exploited, and the ECB wants the banks to start finding alternative ways of funding their business.''

Spanish and British banks fell the most yesterday in European trading after the ECB clampdown. HBOS Plc, the U.K. mortgage lender that has tapped the ECB via its Irish operation, fell 7 percent. Barclays Plc, the country's third-biggest lender, slumped 6 percent.

`Waking Up'

``People are waking up to the fact that the support scheme is getting rather bigger than the ECB is comfortable with,'' Goodwin said.

Barclays and HBOS spokesmen declined to comment on yesterday's ECB decision or say how much they have borrowed.

In Madrid, Banco Sabadell fell 3.2 percent, Banco Santander SA, the country's largest bank, sank 4 percent and Bankinter SA, fell 5.3 percent.

While Varela said the tightening will have a ``marginal'' impact on Banco Sabadell, which has taken no more than 500 million euros under the ECB program, Spain's share of ECB borrowing increased to 10.8 percent from 4 percent a year ago, according to Bank of Spain data. Spanish banks borrowed a record 49.4 billion euros from the ECB as of last month.

`Bad News'

``This is clearly bad news for the profit and loss of banks, especially Spanish and Irish-based ones, that have retained asset- backed securities,'' said Luca Jellinek, head of interest-rate strategy in London at Royal Bank of Scotland Group Plc. ``ECB financing is a significant feature of their balance sheet.''

ECB lending to Irish banks more than doubled to 44.1 billion euros in the year through July, the central bank in Dublin said. About half goes to Dublin-based units of lenders from outside Ireland, according to Eamonn Hughes at Goodbody Stockbrokers.

HBOS, with a unit in Ireland, is among British banks that borrowed from the ECB, said Mamoun Tazi, an analyst at MF Global Securities Ltd.

``It highlights the dependency of U.K. banks on the central banks for a significant proportion of their funding,'' said Sandy Chen, an analyst at Panmure Gordon in London. ``With a significant increase in the cost of that funding, the read across is into earnings and the liquidity issues that gave rise to the funding programs in the first place.''

Winners, Losers

Central banks made borrowing easier after losses from subprime mortgage defaults in the U.S. caused credit markets to seize up worldwide. Banks have lost or written down $509 billion since the credit crisis began last year, with Europe accounting for $230 billion.

The cost of protecting European bank bonds from default rose yesterday to the highest in five months.

``The losers are the banks retaining bonds to raise cheap collateral, now the cost will be higher,'' said Jellinek at Royal Bank of Scotland Group Plc. ``The winners are the rest of the euro system whose collateral has been edged out.''



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Germany Stocks Update: DAX Index Falls 38.44 to 6,241.13

By Daniel Hauck

Sep. 5 (Bloomberg) -- Germany's benchmark stock index, the DAX Index, fell 0.61 percent at 9:05 a.m.

The index of 30 companies traded on the Frankfurt Stock Exchange fell 38.44 to 6,241.13. Among the stocks in the index, 3 rose and 27 fell.

Declines in the DAX were led by Allianz Se, Daimler Ag and E.on Ag. About 2.90 million shares traded in the DAX.



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U.K. Stocks Update: FTSE 100 Falls 11.10 to 5,351.00

By Daniel Hauck

Sep. 5 (Bloomberg) -- The U.K.'s benchmark stock index, the FTSE 100, fell 0.21 percent at 8:05 a.m.

The index of 102 stocks traded on the London Stock Exchange fell 11.10 to 5,351.00. Among the stocks in the index, 31 rose, 67 fell and 4 were unchanged.

Declines in the FTSE 100 were led by Royal Bank Of Scotland Group Plc (Rbs Ln), Barclays Plc (Barc Ln) and Vodafone Group Plc (Vod Ln). About 18.41 million shares traded in the FTSE 100.



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Stocks in Europe, Asia Fall; STMicro, Mizuho, Barclays Drop

By Adam Haigh

Sept. 5 (Bloomberg) -- Stocks in Europe and Asia fell, sending the MSCI World Index to its worst weekly slump since 2002, on concern weakening economic growth will curb earnings at semiconductor makers while credit-related losses at banks increase. U.S. index futures also declined.

STMicroelectronics NV, Europe's largest chipmaker, dropped 3 percent as UBS AG recommended selling the shares and cut its global sales-growth forecast for the industry by 50 percent. Merrill Lynch & Co. lost 4 percent in German trading, Barclays Plc sank 2.2 percent and Mizuho Financial Group Inc. tumbled 6.4 percent in Japan as Goldman Sachs Group Inc. advised clients to sell Merrill shares on concern the bank may post more writedowns. J Sainsbury Plc slid 2.8 percent after Deutsche Bank AG downgraded the supermarket chain, saying there are ``tough times ahead'' in the food and retail industry.

The MSCI World fell 12.51, or 1 percent, to 1,269.52 at 9:20 a.m. in London, extending its longest losing streak since February and bringing the weekly slump to 5.6 percent. The measure is down 20 percent in 2008 as subprime-related losses at global banks topped $500 billion and the global economy cooled.

``There are still lots of uncertainties out there,'' Andy Lynch, who manages about $3 billion at Schroder Investment Management Ltd. in London, said in a Bloomberg Television interview. ``Inflation is too high for central bank comfort and there are clear challenges for the world economy.''

Europe's Dow Jones Stoxx 600 Index retreated 1.4 percent as Infineon Technologies AG and William Morrison Supermarkets Plc also fell. The MSCI Asia Pacific Index sank 1.8 percent. Futures on the Standard & Poor's 500 Index slipped 0.4 percent.

U.S. Payrolls

The U.S. probably lost jobs in August for an eighth consecutive month, economists said before a government report today. Payrolls fell by 75,000 after declining by 51,000 in July, according to the median estimate of 76 economists in a Bloomberg News survey.

``Today we've got the non-farm payrolls and the market has moved quickly to tell us that the news is going to be bad,'' said David Evans, a trader at betting firm Betonmarkets.com in London.

Almost $17 trillion has been wiped off global stock markets since the peak in October 2007. Financial stocks have led the rout, with a measure for the industry in the MSCI World dropping 29 percent this year. Banks from UBS AG to Citigroup Inc. had to raise more than $360 billion in capital after contagion from the subprime-mortgage crisis in the U.S. eroded earnings.

The cost of protecting European corporate bonds from default rose today, according to traders of credit-default swaps.

`Difficult'

U.S. stocks tumbled yesterday, sending the Standard & Poor's 500 Index to the longest stretch of losses since January, after rising jobless claims heightened concern the economic slump is worsening and a decline in oil pushed energy producers lower.

STMicro lost 3 percent to 8.37 euros after UBS cut its recommendation on the shares to ``sell'' from ``neutral.'' The brokerage also slashed its 2009 revenue-growth forecast for semiconductors worldwide to 4 percent from 8 percent previously.

``The past couple of weeks have started to provide ample evidence that the second half of 2008 could be difficult for the semis industry,'' analysts Nicolas Gaudois and Richard Potter wrote in a research note.

ASML Holding NV, Europe's largest manufacturer of semiconductor equipment, lost 1.9 percent to 15.17 euros. Infineon AG, Europe's second-biggest maker of semiconductors, slipped 1.3 percent to 5.81 euros.

Merrill fell 4 percent to $25.15 in Germany. Barclays, the U.K.'s third-biggest bank, declined 2.2 percent to 322 pence. Mizuho, Japan's second-largest bank by assets, dropped 6.4 percent to 413,000 yen.

`Conviction Sell'

Goldman added Merrill, third-biggest U.S. securities company to its ``conviction sell'' list, according to a report by analysts including William Tanona. The share-price estimate was lowered 23 percent to $22.

J Sainsbury declined 2.8 percent to 337.75 pence after Deutsche Bank cut its recommendation for the U.K.'s third-largest supermarket chain to ``sell'' from ``hold.''

``We expect newsflow on inflation, industry growth and competition to deteriorate'' in the fourth quarter, analysts James Collins and Ingrid Azoulay wrote in a note to clients.

William Morrison retreated 1.1 percent to 276.25 pence. Deutsche Bank downgraded the shares to ``hold'' from ``buy.''

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



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Axtel, Plascar, Usiminas, Vale, Walmex: Latin Equity Preview

By William Freebairn and James Attwood

Sept. 5 (Bloomberg) -- The following companies may have unusual price changes today in Latin America trading. Stock symbols are in parentheses, and share prices are from the previous close. Preferred shares are usually the most-traded class of stock in Brazil.

The MSCI Latin America Index fell 4 percent yesterday to 3,634.62.

Brazil

Banco Itau Holding Financeira SA (ITAU4 BS): Brazil's second-biggest non-government bank hired executives from UBS AG, Hyposwiss Privatbank Ltd. and Rothschild Bank AG as it expands international operations, Itau said yesterday in a statement. Itau fell 3.3 percent to 30.10 reais.

Cia. Vale do Rio Doce (VALE5 BS): The world's largest iron- ore producer halted operations at its French subsidiary because of a problem with an electrical furnace. The unit, Rio Doce Manganese Europe, will be shut until February, reducing ferroalloy output by 45,000 metric tons, Rio de Janeiro-based Vale said yesterday in an e-mailed statement. The unit has operated at 60 percent of capacity since an accident last August, Vale said. The stock fell 3.1 percent to 35.51 reais.

Usinas Siderurgicas de Minas Gerais SA (USIM5 BS), Cia. Siderurgica Nacional SA (CSNA3 BS), Plascar Participacoes Industriais SA (PLAS3 BS): Autoworkers in Brazil scheduled a Sept. 6 vote for a strike designed to win wage increases, Metalworkers Union spokeswoman Vanilda Oliveira said yesterday. Usiminas, as the second-biggest Brazilian steelmaker is known, and CSN, the third-biggest, are suppliers to Brazil's auto industry. Plascar, an auto-parts supplier, fell 11 percent to 3.30 reais. Usiminas dropped 5.7 percent to 48.25 reais. CSN declined 7.6 percent to 48.21 reais.

Chile

Sociedad Quimica y Minera de Chile SA (SQM/B CC): Chile's biggest fertilizer exporter is a buying opportunity after losing 16 percent in six days on speculation that slowing global growth will crimp crop-nutrient demand, said Banchile Inversiones analyst Christian Contreras. Global fertilizer prices probably will remain high even as other commodities such as oil fall, Contreras said by phone. The stock probably will rise to 26,000 pesos by end-2009, he said. SQM slid 4.6 percent to 17,302 pesos.

Mexico

Axtel SAB (AXTELCPO MM): Mexico's second-largest fixed-line phone company was raised to ``hold'' from ``sell'' by Vector Casa de Bolsa. The company is trading at multiples to its earnings before interest, taxes, depreciation and amortization that are 24 percent below its historical average, analyst Martin Lara wrote in a research note e-mailed yesterday. Axtel rose 1.3 percent to 13.63 pesos.

Wal-Mart de Mexico SAB (WALMEXV MM): Latin America's largest retailer yesterday said that August sales increased 7.4 percent from a year earlier. That was more than the 5.5 percent forecast by Credit Suisse in an Aug. 28 note. Walmex, as the company is known, dropped 3.3 percent to 37.63 pesos.

To contact the reporter on this story: William Freebairn in Mexico City at wfreebairn@bloomberg.net; James Attwood in Santiago at jattwood3@bloomberg.net.



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Merrill Lynch Cut to `Sell' at Goldman on Writedowns

By Brett Miller and Chua Kong Ho

Sept. 5 (Bloomberg) -- Merrill Lynch & Co., down 51 percent in New York trading this year, was cut to ``sell'' at Goldman Sachs Group Inc. on concern the firm may post more writedowns tied to credit-related investments.

Goldman added the third-biggest U.S. securities company to its ``conviction sell'' list, according to a report by analysts including William Tanona. The share-price estimate on the stock was lowered 23 percent to $22, compared with yesterday's closing price of $26.21.

Merrill, battered by more than $40 billion of credit market writedowns, has sold mortgage-linked assets to reduce risk and free up capital. The company trades at 1.22 times book value, compared with 0.91 for Citigroup Inc., the only other firm that's reported larger writedowns and losses stemming from the credit market crunch, according to data compiled by Bloomberg.

``Merrill currently trades at the highest price-to-book multiple in our large-cap brokerage universe, despite having some of the most significant exposures to troubled assets such as CDOs, mortgages and leveraged loans,'' said the report, dated yesterday. ``With these markets still under pressure, we believe additional write-downs and book value deterioration will continue to plague the stock.''

Merrill is rated the equivalent of sell by four of 20 firms, including Goldman, according to recommendations collected by Bloomberg. The same number recommend clients buy the stock while the remaining 12 rate Merrill the equivalent of neutral.

Stock Falls

Merrill fell 4.1 percent to $25.14 in German trading as of 9:26 a.m. Frankfurt time.

The credit crunch has produced more than $500 billion of credit losses and writedowns at the world's biggest banks and securities firms. Merrill, with $51.8 billion, ranks second after Citigroup Inc.'s $55.1 billion, data compiled by Bloomberg show.

Merrill is in talks to sell mortgages and other debt to Korea Asset Management Corp. for less than $200 million, a person familiar with the negotiations said. The talks are faltering because of a dispute over price, said Lee Chol Hwi, the Korean firm's chief executive officer, in a Sept. 3 interview in Seoul.

Failure to reach an agreement may indicate Merrill and smaller rival Lehman Brothers Holdings Inc. have to cut prices as mortgage-related losses widen. Lee said state-run Korea Asset can afford to be patient because the U.S. financial crisis will probably push prices lower.

Goldman said ``very weak'' third-quarter results from investment banks and financial services companies will weigh down brokerages over the next two months.

``Dislocations across many of the financial markets as well as additional deleveraging are resulting in a meaningful slowdown in overall corporate and institutional activity,'' the Goldman report said.

To contact the reporters on this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Brett Miller in Tokyo at Bmiller30@bloomberg.net



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Today's Key Points

Daily Forex Fundamentals | Written by Danske Bank | Sep 05 08 08:21 GMT |
Danske Daily

* Stock market and bond yields sharply lower on continued concern about the health of the financial sector and global growth. EUR has weakened further overnight
* Main focus today is the US employment report. Thin calendar in Europe today with only German industrial production likely to catch attention

Markets Overnight

Sentiment on stock markets globally has been very negative overnight on the back of concern about global growth and the health of the financial sector as well as a continued correction in crude oil and commodity prices. In the US, stock indices S&P500 and Nasdaq plunged 3.0% and 3.2% with financial stocks being hit especially hard. There has been no respite in Asia. This morning the Nikkei index is down 2.9% and Hong Kong's Hang Seng is down 2.8%.

Consequently government bond yields are markedly lower. Since European market close 2Y and 10Y US government bond yields are down by 8bp and 6bp to 2.16% and 3.66% respectively.

EUR has weakened further overnight after remarks from Luxembourg's premier minister Junker about EUR being 'overvalued', a slightly softer ECB and as ECB's tightening of collateral standards put pressure on EUR.

This morning EUR/USD is trading at 1.427. With deleveraging back in focus JPY has benefitted. This morning USD/JPY is trading at 106.8 and EUR/JPY at 152.3. Scandinavian currencies have weakened slightly overnight, but overall there has been no major impact from Riksbanken's interest rate decision yesterday.

EUR/SEK is currently trading at 9.483. Since European market close EUR/NOK is largely unchanged at 7.989. Crude oil prices have been stable overnight after dropping yesterday. The Nymex October crude oil future is trading at 108.0 USD this morning.
Global Daily

In Europe the calendar is relatively thin this morning. Only data which should be able to catch some attention in the European markets is the German industrial production data for July released at 09:00CET. We expect the release to confirm that German industry is cooling fast with a decline of -0.5 m/m, which would be in line with consensus. Speeches by ECB's Trichet, Stark and Bini Smaghi at 08:50CET could prove an interesting followup on yesterday's monetary policy meeting.

Today's most important event is the US employment report for August. We expect the US job market to continue to shed jobs with a non-farm payrolls reading at -90K (consensus -75K). This time around there is large uncertainty about the state of the labour market because the weekly claims data has been distorted for a while by the unemployment benefit extensions. As claims data have failed to reverse in recent weeks, we think that some of the weakness in claims data ascribed to this extension might be real. Put differently, we fell that the risk to our estimate is slightly to the downside. Unemployment for August is expected to remain unchanged at 5.7%, but still on an upward trend.

Today bond markets are likely to focus on the US employment report. Although European bond markets have been range trading for a while, the poor sentiment in US and Asian equity markets and yesterday's solid drop in US bond yields might carry over to Europe in the morning with a chance of bond yields opening lower.

In US the bullish trend in bond markets seems to continue, with both 2yr and 10yr declining significantly yesterday. We prefer to stay on this trend today and remain biased for lower bond yields going into the non-farm release. Tonight at 21:55 CET a speech from San Francisco Governor Yellen (dove, non-voter) on the US economy should attract some attention.

With German industrial production expected to confirm the weak state of the manufacturing sector, as signalled by recent order data, and a small negative surprise in US non-farm payrolls on the cards, we see little overall directional guidance for EUR/USD in today's key data releases. The fundamental case for a downward trend in EUR/USD is still present, but the recent move below 1.45 has been rapid and is likely to have increased the short term risk of a technical correction higher. We then feel more comfortable with yesterday's fall in EUR/CHF below 1.60, which has taken the cross back at levels more in line with our short-term financial models.
Scandi Daily

Thin calendar in Scandinavia today. In Norway, July industrial production will be released. We expect a slight increase in manufacturing production in July.

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

Disclaimer

This publication has been prepared by Danske Markets for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Markets´ research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Markets is a division of Danske Bank A/S, which is regulated by FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright (©) Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.



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Yen Surges as Asian Stocks Continue to Dwindle on Growth Concerns

Daily Forex Fundamentals | Written by AC-Markets | Sep 05 08 08:19 GMT |

The EURUSD dropped away yesterday in end of day trading as U.S Stocks ended their trading day 3% lower. The Euro Dollar pair subsequently traded range bound from 1.4297 to 1.4253 after initially dropping to 1.4214 on first move - a 1 year low. ECB's downgrading of the Euro zone’s growth prospects increased downside risks and sentiment weakening the currency further. This offset the weak US jobless claims and sluggish same-store retail sales. Oil continues to be weaker despite EIA inventory showing definite demand resilience.

Asian markets continue to feel the full grunt of the global economic crisis. Nikkei dropped another 2.75% as the Japanese economy sees it's industries suffer from weak public sentiment the state of the global economy. The Yen rose against the dollar at the NY close, USDJPY pair dropping to 105.72 before retracing to 107.30 levels before settling and trading a range from 106.5 to 107.3 in Asian trading session.

The Hangseng fell below 20'000 level for first time in 1 year as the Korean economy fails to buck the current bearish trend in Asian markets.

Today the focus is very much on the US Nonfarm payrolls at 12:30 GMT, the market expects a -71K (47% lower in one month) decline to hit home the severity of the global economy. Continued dollar strength to be driven by weak outlook on growth outside the US - namely European equities underperforming in comparison to their U.S counterparts - and lower oil prices.

AC Markets
http://www.ac-markets.com

Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.



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Major Market Movers: US Non-Farm

Daily Forex Fundamentals | Written by Crown Forex | Sep 05 08 07:35 GMT |

Volatility is back into markets, majors and stocks all faced some enormous losses yesterday as investors don't really understand what is taking place in the financial markets; not just the Euro or the British pound the US dollar joined the plunging game yesterday, even when we saw it strengthen against the European currencies but it dropped against the Japanese Yen.

Outlooks in the economies are getting gloomier; the situation in the Zone and Royal economies is getting darker. We thought that Mr. Trichet would be changing his stance yesterday in the Interest rate statement which was released after holding rates steady at 4.25% for the second consecutive time, but he decided to hold on the Hawkish statement believing that inflation in the zone can be aggravated easily with any fluctuation in the oil prices.

A 'Weak Episode' that's what Trichet called the slowing growth in the Zone and along with the hawkish statement market fears of a recession increased, as the 15 economies are teetering on the edge of an inescapable doom if the ECB don't move in the upcoming months.

But today's highlight remain heading toward the Americans, with our calendar full of Labor fundamentals that would give us an idea of how this sector is doing as we are about to end the third quarter of this year.

Even if we consider the United States the best of the worst now but their labor markets continues to soften with expectations that lay offs would take place for the eight consecutive month, which will continue to weighing upon the American growth and shaken the confidence of household as they see a big threat on the total Income that could be cut at any minute.

That's why the citizens that were not fired from the their jobs are now trying to hold on their current jobs just to survive the tsunami that destroyed everything it moved upon, as their incomes fell on August in negative levels no Spending will be taking place even if the America's output reading signaled to some improvement in the second quarter due to the given away rebates, but expectation now are increasing that the growth in the second half of the year would stagnate.

The American session will start it usual trading today with a report released by the labor department which is the Non-farm payroll reading, the median estimate indicates that 75 thousand jobs were cut in August from the previous 51 thousand cuts.

Forecasts varies and this time the range between expectations is wide, according to the survey the worst forecast signals to 150 thousand job cut as the economy slows, but personally I believe that this reading it's a bit augmented because we recently saw some improvement in the manufacturing and the services sectors even when sub-indexes figure confirm that the employment sector continued to contract. Others believe that a contraction in the labor markets will continue but to better than expectations, 40 thousand lost is the best case scenario coming better than the previous losses; this reading is most likely to be seen today…

Other accompanying data are about to released; expectations that the Unemployment rates would hold at 5.7% levels, but if high layoff would take place in August the unemployment rate would jump higher to 5.9% according to what markets expect. The Average hourly earning would be holding still at 0.3% on the month and on the year it would stand at 3.4% levels.

The bulls are waiting to see the result of today's data, as if the reading came to better than expectations the Dollar will remain to be the main conqueror in the markets, which would give it some strength to erase some of the losses that halted upon it yesterday, letting the Japanese Yen to strengthen against majors due to the lower risk appetite that took place yesterday to extend today in the Asian session.

My dear reader seriously today get out of markets, as the increasing volatility is making the situation very risky as the movements are not defined and most support levels for majors have been broken increasing the possibility that majors might have fallen in a bear market.

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.



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Forex Depth Analysis: USD/JPY

Daily Forex Technicals | Written by Finotec Group | Sep 05 08 08:09 GMT |

Yen strength keeps other currencies in the shade! The yen climbed to the highest in more than a year against the euro on concern that a credit- market slump will lead the world into a recession, prompting investors to sell higher-yielding assets. The dollar fell versus the yen before a U.S. government report that will probably show employment fell for an eighth month. The euro declined after Luxembourg's Finance Minister Jean-Claude Juncker said the currency is 'overvalued.' The yen also jumped to two-year highs against the Australian and New Zealand dollars as stocks and commodities slumped. The following technical analysis gives us a detailed lookout on what is expected to happen to USD/JPY. The buying point is at 107.60; based on a break of a strong Fibonacci level. Previous resistance is the take profit at 108.59 Fibonacci 23.6% is the stop loss at 106.66 The selling point is at 106.72; based on a break of standard error channel lower line. Previous support is the take profit at 105.66 Fibonacci 61.8% is the stop loss at 107.47 To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the crossing of MACD line to the signal line and is pointing downwards. In order to find the power of the market, we use RSI (Relative Strength Index).With RSI; we can determine that the market is in a downtrend. The momentum oscillator is very important to understand the strength of the market and as we see on the graph it is in a bearish direction. The Stochastic oscillator crosses %D line and is pointing downwards. * The following analysis is for information only; Finotec is not responsible for any decisions or misinterpretations based on the given text. Finotec Group Inc. http://www.finotec.com/ Disclaimer: FINOTEC Tradings Market Commentaries are provided for informational purposes only. The information contained within these reports is gathered from reputable news sources and not intended as investment advice. FINOTEC Trading assumes no responsibility or liability from gains or losses incurred by the information herein.

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Daily Forex Analysis

Daily Forex Technicals | Written by FOREXYARD | Sep 05 08 08:01 GMT |

Headlines Nonfarm Payrolls On Tap Market Trend EUR/USD GBP/USD USD/JPY USD/CHF AUD/USD EUR/GBP Daily Trend Weekly Trend Resistance 1.4375 1.7670 107.35 1.2065 0.8250 0.8205 1.4355 1.7650 107.15 1.2045 0.8230 0.8185 1.4325 1.7620 106.85 1.2015 0.8200 0.8155 Support 1.4265 1.7560 106.25 1.1055 0.8140 0.8095 1.4235 1.7530 105.95 1.1025 0.8110 0.8065 1.4215 1.7510 105.75 1.1005 0.8090 0.8045 Economic News USD - USD Appreciates in Expectation of Today's Announcement. Yesterday, the greenback saw over 300 pips worth of gain against the EUR, as the cross dropped from a 1.4522 level at the beginning of the trading day, down to 1.4211 - making an 11 month low. The USD also continued its appreciation vs. the GBP; however this rally did not affect the USD\JPY pair, as the USD lost about 200 pips against the JPY. The USD rose during yesterday's session despite some concerning data that was published from the U.S. economy. The Automatic Data Processing has announced a 33K drop forecast for the Non-Farm Employment Change. However, it appears that the market has limited its reaction to the survey as it has failed to accurately estimate the actual figures over the past few months. The Revised Non-Farm Productivity and the Unemployment Claims also pointed out that the U.S economy is far from fully recovering, as the unemployed individuals in the U.S. are consistently growing, currently measured at 444K. The only good news for the USD was the better- than- forecasted result on the Non-Manufacturing Purchasing Manager's Index that showed that the non-manufacturing industry has slightly expanded during July. In conclusion, two factors have joined together to strongly support the USD. The first one was the poor Euro-Zone data, which is continuing to prove that the most sustained global concerns are now coming from the European nations, and not from the U.S. The second factor is what is known as the "herd effect". The current USD bullish trend appears to be so enduring that investors are seeing potential for unlimited profits and are so anxious to join the fest that they are becoming almost oblivious to the economic indicators. In this turn of events, only a major combination of unfortunate data from the U.S., along with a series of positive signals from the Euro-Zone, could initiate a long-lasting reversal for the EUR/USD pair. As for today, at least for one trading session, everything is prone to change. Today is the first Friday of the month, and as such, the U.S Non-Farm Employment Change will be announced at 12:30 GMT. Unlike yesterday's data, this indicator will not be overlooked by investors. This is because it is a leading indicator of consumer spending, which accounts for a majority of overall economic activity, and also because it is published much earlier than the other leading indicators, and as so, investors often plan their weekly and monthly strategies based on this survey's result. This is why an immediate reaction to this survey's figures will take place. Analysts have forecasted a 73K drop in the number of employed people during July, and such a result is very likely to generate a bearish impact on USD pairs. However, in case of better- than- expected figures, the USD might extend its sharp bullish rally, and in its center, the EUR/USD might drop to levels around 1.4100. EUR - Will the US Nonfarm Payrolls Figures Help the EUR? Yesterday, the EUR suffered from falling trends against all the major currencies, including a 300 pips slide against the USD. The EUR/USD is now traded around the 1.4250 level, which reflects an almost 1,800 pips drop that the pair saw during the last five weeks. It appears that the EUR is nurturing its deterioration in every opportunity it gets as unfortunate data is published on a daily basis from the Euro-Zone. In addition, the European Central Bank (ECB) is adding fuel to the high flames with decreasing growth forecasts for the region. The German economy, which is considered to be the Euro-Zone's strongest, seems like it has entered a slowing phase, and as a result, is pulling the entire region into recession. Yesterday, the German Factory Orders survey fell by 1.7% in July as opposed to the previous month, continuing a series of negative data from Germany. Soon after, the ECB announced that it leaves the interest rates intact at 4.25%. However, at the press conference that was held shortly after the interest rates announcement, ECB chiefs have mentioned that the EUR is still effectively overvalued despite its recent fall, boosting the USD against the EUR. Furthermore, the ECB has readjusted its growth expectations for the next year- and- a- half. For the year 2008, the ECB predicts a 1.1% growth rate, and a rate of 1.2% for 2009. Only three months ago the ECB published 1.8% growth rate estimations for 2008, and 1.5% estimations for 2009. All of the above was interpreted by investors as an excellent opportunity to extend their short positions on the EUR, and the result was a sharp drop against all the major currencies. Looking ahead to today, various economic indicators will be published from the Euro-Zone; the German Industrial Production will be the most affecting indicator. Analysts are expecting a 0.5% drop in June as opposed to May, and another bearish inclination is likely to take place for the EUR. However, the U.S Non-Farm Employment Change will definitely be the most affecting global event today, and traders are well advised to follow its results as it seems to be the only thing that might generate a minor bearish correction for the USD, which would mean a rising trend for the EUR. JPY - Powerful Upswing for the JPY. Yesterday the JPY rose against all of its major currency counterparts. The JPY rose over 200 pips against the USD, and over 600 pips against the EUR, as the EUR/JPY saw a 13 month low, reaching beneath the 151.00 level. It seems that investors were bailing out of more leveraged carry trades, and began borrowing Yen at low rates in order to buy higher yielding currencies and commodities. Moreover, not only did the JPY appreciate against the major currencies such as the EUR and the GBP, it was also the only currency to appreciate against the USD. Analysts also estimate that the Euro-Zone's economic uncertainty has lead investors to seek out for other prospects aside from the EUR. The first choice was of course the USD, which initiated its current bullish trend. Since the U.S. economy is far from being a stabile economy to rely on recently, the JPY has suddenly became a very attractive prospect. Late at night, during early Asian trading, the Japanese Capital Spending was published, demonstrating a 6.5% decrease from the first quarter of the year. This turned a minor bearish correction for the JPY during the night. Today, the JPY will be absent from the economic calendar, and traders should follow overseas events in order to determine the JPY's direction for today. Special attention should be given to the U.S Non-Farm Employment Change that will be published at 12:30 GMT, and will be today's leading publication which will also affect the Yen's crosses. OIL - OPEC Scheduled Meeting to Discuss Potential Cuts to Oil Production. Dodging storms and defying international conflict, oil prices have continued to sink. Prices dropped over a buck last night to hit $107.71 this morning. Market analysts are expecting this price to continue further down this weekend to eventually sag below the $100 mark, in which case OPEC will meet to discuss a cut in production. OPEC, which produces 40% of the global energy supply, has stated that market volatility is still high and they will consider waiting for more stability before making any cuts, but if prices continue to fall, they will do just that. Another major factor affecting oil prices is the strengthening dollar. As it appreciated even more yesterday, dollar-based commodities witnessed price drops. If the dollar continues its upward swing, the prices of these commodities, given the stagnating economy, may see this as a persisting trend. The impact of today's Non-Farm Employment Change figures on the USD will no doubt have an effect on oil prices, but the decrease in demand for energy and the worldwide economic slowdown will most likely continue their downward push on crude oil's price until reaching a point where producers would intervene with production cuts. Technical News EUR/USD The pair is in a bearish formation and the daily studies are strengthening the notion that the pair's direction is down. The hourly confirm the bearish notion as the 4 Hour RSI has failed to cut the 80 level from the bottom section. It appears that the EUR/USD is heading towards 1.4000 GBP/USD The pair is consolidating at the 1.7590 level after the sharp drop from 1.7900. The momentum is bearish and the next key level will reach a 1.7500 level. If a breach through that level will occur a stronger bearish move will be validated that might take the pair to new lows. USD/JPY A mild bearish channel is forming On the 4 Hour chart with 104.50 as a support barrier which is going to be tested, probably today. In case of a breach the pair might be in its way to 103.00. Going short might be preferable after the breach through the support level will take place. USD/CHF The dailies and the 4 hour charts are bullish, so this pair is expected to continue its upward movement. This pair will probably target the 113.00 level and entering a long position on a dip will create a good opportunity for some profit taking. The Wild Card Oil It has been nothing but bearish momentum for this commodity in the past 5 days, and this downtrend appears to be continuing at full throttle. forex traders should note that Oil is breaking one support level after another and no halt appears to be in sight. The next target price should be around $100 a barrel. Indicators Date Time (GMT) Country Event Period Previous Forecast 9/05 08:00 USD Italian Trade Balance -0.06B -1.00B 10:00 EUR German Industrial Production m/m 0.2% -0.5% 11:00 CAD Employment Change -55.2K 9.0K 11:00 CAD Unemployment Rate 6.1% 6.2% 12:30 USD Unemployment Rate 5.7% 5.7% 12:30 USD Average Hourly Earnings m/m 0.3% 0.3% 14:00 CAD Ivey PMI 65.5 61.7 09/06 06:30 EUR ECB President Trichet Speaks - - FOREXYARD

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