Asian Market Update

Daily Forex Fundamentals | Written by Trade The News | Sep 16 08 04:56 GMT |

AIG downgraded by Moody's, S&P, Fitch AIG downgraded by Moody's, S&P, Fitch and AM Best: 'The main reason for the rating actions is the combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses,' explained Standard & Poors credit analyst Rodney A. Clark. Implications of AIG downgrade: The downgrades mean that AIG's counterparties can now demand that it post an additional $14.5B in collateral (according to filing dating back to August). 'It is not clear how quickly AIG would have to produce those funds,' wrote the WSJ. 'In addition, AIG or its counterparties could demand early termination based on the downgrades, resulting in payments of up to about $5.4 billion, the filing said.' Sources close to the company said that if AIG can't secure funding by Wednesday, it may have to file for bankruptcy. Latest on Lehman: The WSJ reports that Lehman may reach a deal to sell parts of its business to Barclays Hewlett-Packard said that it will cut 24,600 workers over the next three years as it merges operations with EDS. Forex: The USD gained some ground in Asia against the EUR, GBP, AUD and NZD. USD/JPY traded lower, testing 104.00 in early trades. Between 17:00 EDT and 0:10 EDT: EUR/USD -0.26%, GBP/USD -0.47%, USD/CHF -0.17%, USD/JPY -0.37%, AUD/USD -2.28%, NZD/USD -1.45%, AUD/JPY -2.61%, NZD/JPY -1.82%. Equities: Asian stocks plunged on Tuesday, with financials leading most of the downside. South Korean shares were the worst hit in Asia, falling as much as 6% in early trades. At 0:04 EDT Japan's Nikkei is -5.28%, the S&P/ASX200 is -2.32%, South Korea's KOSPI is -5.33%, Hong Kong's Hang Seng index is -5.33%, and the Shanghai composite index is -3.16%. The S&P500 futures contract lost -1.48% since the U.S. close, last trading at 1,178.40. Mitsubishi UFJ, one of Japan's largest lenders, saw its largest decline since July 2004. Chinese equities traded sharply lower despite the PBoC's surprise rate cut, with the Shanghai Composite briefly dipping below 2,000 for the first time since Nov 2006. Commodities: Nymex crude oil lost -4.15% between 18:00 EDT and 0:09 EDT on long liquidation, last trading at $91.74/bbl. Spot gold lost some ground in Asia, down -1.27% to trade at $777/oz. Trade The News Staff Trade The News, Inc. Legal disclaimer and risk disclosure All information provided by Trade The News (a product of Trade The News, Inc. "referred to as TTN hereafter") is for informational purposes only. Information provided is not meant as investment advice nor is it a recommendation to Buy or Sell securities. Although information is taken from sources deemed reliable, no guarantees or assurances can be made to the accuracy of any information provided. 1. Information can be inaccurate and/or incomplete 2. Information can be mistakenly re-released or be delayed, 3. Information may be incorrect, misread, misinterpreted or misunderstood 4. Human error is a business risk you are willing to assume 5. Technology can crash or be interrupted without notice 6. Trading decisions are the responsibility of traders, not those providing additional information. Trade The News is not liable (financial and/or non-financial) for any losses that may arise from any information provided by TTN. Trading securities involves a high degree of risk, and financial losses can and do occur on a regular basis and are part of the risk of trading and investing.

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The Daily Forecaster: GBPUSD

Daily Forex Technicals | Written by FX-Forecaster | Sep 16 08 05:48 GMT |

Price: 1.7963 Bias: Mixed - waiting for breaks Daily Bullish While gains were seen as expected these stalled at 1.8125 and caused a much deeper pullback than expected. I suspect we may be seeing a sideways consolidation and thus take care. Any bullish stance is going to require a move above 1.8005 and more importantly 1.8040-51. I suspect this will cap if seen. Only breach would threaten follow-through above 1.8075 to 1.8125 again and if yesterday's high is broken there is a stronger chance of direct gains. On the way take care at 1.8202-10 and 1.8263. Medium Term Bullish 16th September: The sharper than expected pullback from 1.8125 doesn't alter the bullish stance but may slow it down temporarily. However, while 1.7704-64 supports the risk still remains higher to above 1.8125 to 1.8445 at least and possibly higher. Daily Bearish The decline from 1.8125 has brought with it the risk of a short term sideways consolidation. There is resistance at 1.8040-51 and while this area caps we could see the downside come under pressure. If the 1.7888 low seen already this morning breaks directly then look for followthrough to 1.7854 minimum and if this break then 1.7828. Again, a break of this lower support will imply a move back to yesterday's low at 1.7764 and then 1.7671-1.7704. 26th August: Yesterday's recovery was not too convincing and with a bearish divergence in the daily chart I want to remain aware of the downside potential. A break below 108.50 & 108.12 will imply losses to 107.20 and more likely all the way down to 106.18-39. Med term 15th September: The 1.7444 low appears confirmed and thus I can't really make too much of the downside and I feel we need wait a little longer to assess where the upside will likely stall - but for a correction only. Resistance 1.8263 1.8173-02 1.8125 1.8035-51 1.8005 1.7970 Support 1.7888 1.7854 1.7828 1.7764 1.7704 1.7671 4-Hour Momentum Trailing Stop Bullish trend RSI Overbought Long Term Cycles and Momentum Monthy cycles still point to losses into mid- 2009 but with price reaching key support areas - and assuming these hold - we may be able to interpret the cycles as being within a larger weekly triangle into mid next year. Cycles and Momentum Cycles Momentum Daily Rising Bullish divergence Weekly Lower Oversold Monthly Lower Oversold ELLIOTT WAVE COMMENTS 16th September: The sharp losses from 1.8125 suggest an alternative 5-wave rally from 1.7444 and thus I have labeled the peak as Wave (a). The decline from there is difficult to assess and thus we should be aware of several possibilities. A directly bullish scenario would call the 1.7764 low as Wave (b) and therefore imply a move to the wave equality target at 1.8445 at least. However, I am not convinced this is likely. It could be that we are seeing a complex correction - or perhaps the downside is not complete. If ther is to be a new low then a break below this morning's low at 1.7888 woudl cause follow through to the 76.4% retracement at 1.7828 at least. Below there is likely to force a new low with the 61.8% retracement in Wave (b) at 1.7704 and the 66.7% retracement at 1.7671. To cover a more complex Wave (b) we may be seeing a flat or expanded flat (the latter implying a 38.2% expansion at 1.8210) both of which would then see a decline back to 1.7764. The only other alternative is a triangle which would imply a cap around 1.8040-51 (max 1.8075) and then a move back lower towards 1.7800-25 approx. Ian Copsey FX-Forecaster Legal disclaimer and risk disclosure The Daily Forecaster is an analytical tool only and is not intended to replace individual research. The service is offered as an opinion on the current state of the market with anticipated trading signals but not recommendations. The information provided in The Daily Forecaster should not be relied on as a substitute for extensive independent research before making your trading/investment decisions. Ian Copsey is merely providing this service for your general information. No representation is being made that any view or opinion will guarantee profits or not result in losses from trading. In addition any projections or views of the market provided may not prove to be accurate. The opinions are subject to change without notice. Opinions or views expressed in The Daily Forecaster are not meant to be either investment advice or a solicitation or recommendation to establish market positions. Ian Copsey will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this service. The information contained is private and may not be distributed or shared.

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Technical Analysis Daily: EUR/USD

Daily Forex Technicals | Written by iFOREX.bg | Sep 16 08 05:45 GMT |

EUR/USD 1.4223 EUR/USD Open 1.4225 High 1.4477 Low 1.4098 Close 1.4301 The Euro descended significantly yesterday against the US Dollar from Monday's top 1.4477 to the bottom 1.4098, which are the first resistance and support resistance levels respectively for the currency couple today. If, however the positive trend renews, as we expect for today, next resistance is expected at 1.4550, followed by 1.4635. In downward direction next support for today is expected at 1.3925, the break of which would lead to next target 1.3845. Technical resistance levels: 1.4475 1.4550 1.4635 Technical support levels: 1.4100 1.3925 1.3845 Trading range: 1.4210 - 1.4275 Trend: Upward Buy at 1.4223 SL 1.4193 TP 1.4263 iFOREX.bg Forecasts and Trading Signals http://www.zifx.com

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Foreign Exchange Market Commentary

Daily Forex Technicals | Written by HY Markets | Sep 16 08 05:07 GMT |

EUR/USD closed slightly lower on Monday as it consolidated last Friday's short covering rally. Profit taking tempered early gains and the low-range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI are diverging and are turning bullish hinting that a short-term low might be in or is near. Closes above the 20-day moving average crossing are needed to confirm that a short-term top has been posted. If it renews this summer's decline, the 87% retracement level of the aforementioned rally crossing is the next downside target. USD/JPY closed sharply lower on Monday as it extends the decline off August's high. The mid-range close sets the stage for a steady opening on Tuesday. Stochastics and the RSI are neutral to bearish signaling that sideways to lower prices are possible near-term. If it extends the decline off August's high, July's low crossing is the next downside target. Closes above the 20-day moving average crossing are needed to confirm that a short-term bottom has been posted. GBP/USD closed slightly lower on Monday as it consolidated some of last Friday's rally but remains above the 10-day moving average crossing. Profit taking tempered early gains and the mid-range close sets the stage for a steady opening on Tuesday. Stochastics and the RSI are oversold and are turning bullish signalling that a low might be in or is near. Closes above the 20-day moving average crossing are needed to confirm that a short-term low has been posted. If it renews this month's decline, monthly support crossing is the next downside target. USD/CHF gapped down and closed below the 10-day moving average crossing on Monday signalling that a short-term high has likely been posted. The mid-range close sets the stage for a steady opening on Tuesday. Stochastics and the RSI are oversold, diverging and are turning neutral to bearish signalling that sideways to lower prices are possible near-term. Closes below the 20-day moving average crossing are needed to confirm that a short-term high has been posted. If it renews this summer's rally the 87% retracement level of the aforementioned decline crossing is the next upside target. HY Markets http://www.hymarkets.com

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Confluence For A Dollar Top?

Daily Forex Fundamentals | Written by Ashraf Laidi | Sep 16 08 02:41 GMT |

Risk aversion is increasing looking like a pendulum swinging violently, with both extremes signifying heightened fear, with the lowest point of the pendulum reflecting short-lived reductions in aversion. Barclays announcement to reject the purchase of Lehman, the confirmed bankruptcy of Lehman and Merrill Lynchs announcement to sell itself to Bank of America each signified a rapid reduction in risk, which was principally guided by broad dollar declines and yen rallies. Temporary relief in volatility and risk aversion were triggered by announcements from a group of international banks forming a $50 bln fund to save help troubled banks. Careful with FIFO Analysis on Currencies A major fundamental argument sustaining the prior dollar rally was that of First-In-First Out (FIFO), supporting the hypothesis of the US recovering earlier than Europe because it had preceded it in entering the global slowdown and has delivered more aggressive fiscal and monetary measures than the old continent. While this notion is partially true, it overlooks the fact the impaired US banking capital and broadening credit woes (in interbank market and hedge funds) are the main factors distinguishing the US challenges from those in continental Europe. Stated differently, the Eurozone patients may have joined the global intensive care unit well after the U.S., but it in no way suggests that their condition is more critical than that of the U.S. Consequently, the collapse of Fannie/Freddie and Lehman, and near collapse of Merrill Lynch exemplify the repercussion on the increasingly fragile consumer fabric and employment foundation. The argument for Fed rate cuts is not only aimed at shoring up liquidity or inter-bank confidence, but adding from what remains of the Feds firepower to the ailing economy. A Cut in the Discount Rate?As in August 2007, the Fed may be expected to try markets reactions with a rate cut in the discount rate rather than in the Fed funds rate to further increase banks access to the feds lending window. The discount rate currently stands 25-bps above the 2.00% Fed funds rate, half than where it was before the beginning of the easing campaign last August. At a time when the Fed has tripled the period of term loans to banks and expanded the range of loans it could buy from banks, it only makes sense to lower the discount rate down to the Fed funds level. The Fed's inflation priorities are now largely overwhelmed by their obligation to save the financial system as well as the economy. Since June, I have been predicting that the next interest rate change will be down than up, compare to majority of pundits who had expected rate hike. Here are the articles June 27 and June 18. Planet Alignment for a Dollar Top? The charts below show confluence of macro forces acting to halt the dollar rally. US dollar index gives way at the 3-year trend line resistance of 80.70, while EURUSD stabilized last week at the major support of $1.3877, which is near the 3-year trend line (blue line) and 50% retracement of the rise from the $1.1638 low (Nov 2005) to the record high of $1.6036. Similarly, oil's decline has yet to breach the $98.66 support, which is the trend line support from the January 2006 low. Gold shows to have bottomed at $745, which is just above the key support of $730 support (previous resistance in May 2006) and the 50% retracement of the rise from the March 2005 low to this years fecord high. The fundamental underpinning of these chart formations is emerging from the latest woes in Wall Street and from a possible reduction in the dollars yield foundation in the discount rate. We continue to expect 50 bps in the fed funds rate, with the most plausible scenario occurring between Tuesdays FOMC meeting and the October meeting. But we are not yet ready to pronounce the end of the dollars upward correction due to what may occur in European banks ties to Lehman as well as the macroeconomic weakness in the continent. CHF and JPY continue to outperform across the board, especially against the wobbly USD and GBP. USDJPY seen capped at 106.20, with pressure pulling back towards 105.20 and 104.80. USDCHF eyes 1.1160, EURCHF eyes 1.5850, AUDJPY capped at 86.20, eyes 84.60 and 84.20. Ashraf Laidi http://www.ashraflaidi.com

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Daily Technical Analysis

Daily Forex Technicals | Written by FX Instructor | Sep 16 08 02:32 GMT |

EURUSD Outlook

Yesterday the EURUSD failed to maintain it's bullish correction. After broke resistance level at 1.4357 and topped at 1.4481 the pair whipsawed to the downside, hit the bottomed at 1.4084 and closed at 1.4278. Technically, this fact keep the bearish scenario intact. My model is mixed with neutral bias. Immediate resistance is seen at 1.4282 followed by 1.4329. Initial support at 1.4178 followed by 1.4084 (yesterday's low). CCI in neutral area on daily chart.

EURUSD Daily Supports and Resistances:

S1= 1.4081
S2= 1.3884
S3= 1.3684
R1= 1.4478
R2= 1.4678
R3= 1.4875
GBPUSD Outlook

The GBPUSD made indecisive movement by opened and closed at almost the same price yesterday (1.7985 and 1.7988). My model is mixed with neutral bias. Immediate resistance is seen at 1.7989. Initial support at 1.7850. CCI in neutral area on daily chart.

GBPUSD Daily Supports and Resistances:

S1= 1.7791
S2= 1.7594
S3= 1.7425
R1= 1.8157
R2= 1.8326
R3= 1.8523
USDJPY Outlook

The Greenback slumped against Japanese Yen yesterday. The pair bottomed at 104.26 and closed at 104.36. However the pair seems to be oversold now. My model is mixed with neutral bias in nearest term but still with downside bias in longer term. Immediate resistance is seen at 104.70. Initial support at 103.80 followed by 103.25. CCI in oversold area on daily chart.

USDJPY Daily Supports and Resistances:

S1= 103.44
S2= 102.52
S3= 100.78
R1= 106.10
R2= 107.84
R3= 108.76
USDCHF Outlook

The USDCHF bearish correction seemed limited yesterday. The pair attempted to pushed lower, bottomed at 1.1056 but rebound to the upside, topped at 1.1278 and closed lower at 1.1129. My model remains mixed with downside bias. Immediate resistance is seen at 1.1178. Initial support at 1.1056 (yesterday's low). CCI in neutral area on daily chart.

USDCHF Daily Supports and Resistances:

S1= 1.1030
S2= 1.0932
S3= 1.0808
R1= 1.1252
R2= 1.1376
R3= 1.1474

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Asian Development Bank Asia GDP Forecasts to 2009 (Table)

By Marco Babic

Sept. 16 (Bloomberg) -- Following is a table of forecasts for annual economic growth rates for Asia through 2009 from the Asian Development Bank in Manila.

The forecasts are contained in the Asian Development Outlook report and compares with earlier projections for 2008 and 2009.

===============================================================================
                          2005    2006    2007    2008    2008    2009    2009
                                                 Prior  Update   Prior  Update
===============================================================================
                       ----------------------Annual GDP Growth-----------------------
Asia ex-Japan              8.1%    8.9%    9.0%    7.6%    7.5%    7.8%    7.2%
-------------------------------------------------------------------------------
Central Asia              11.5%   13.4%   11.6%    7.5%    7.6%    8.4%    8.0%
Armenia                  13.9%   13.2%   13.8%   10.0%   10.0%    8.0%    8.0%
Azerbaijan               28.0%   34.5%   25.4%   15.7%   15.7%   18.0%   14.0%
Georgia                   9.6%    9.4%   12.4%    6.5%     n/a    7.0%     n/a
Kazakhstan                9.7%   10.7%    8.5%    5.0%    5.0%    6.3%    6.3%
Kyrgyz Republic          -0.2%    3.1%    8.2%    7.6%    7.0%    7.6%    6.5%
===============================================================================
                          2005    2006    2007    2008    2008    2009    2009
                                                 Prior  Update   Prior  Update
===============================================================================
Tajikistan                6.7%    7.0%    7.8%    8.0%    5.0%    8.0%    7.0%
Turkmenistan             12.9%   11.1%   11.6%   10.0%   10.0%   10.0%   10.0%
Uzbekistan                7.0%    7.2%    9.5%    7.8%    8.0%    7.2%    8.0%
-------------------------------------------------------------------------------
East Asia                  8.3%    9.4%    9.6%    8.1%    8.0%    8.2%    7.7%
China, People's Rep. of  10.4%   11.7%   11.9%   10.0%   10.0%    9.8%    9.5%
Hong Kong                 7.1%    7.0%    6.4%    4.5%    4.5%    4.8%    4.5%
Korea                     4.2%    5.1%    5.0%    5.0%    4.6%    5.2%    4.5%
Mongolia                  7.6%    8.6%    9.9%    9.5%    9.0%    9.0%    8.0%
Taipei                    4.2%    4.9%    5.7%    4.2%    4.2%    5.6%    4.6%
-------------------------------------------------------------------------------
South Asia                 9.0%    8.9%    8.6%    7.6%    7.1%    8.1%    6.7%
Afghanistan              16.1%    8.2%   11.5%    9.0%    7.5%    9.0%    8.3%
Bangladesh                6.0%    6.6%    6.4%    6.0%    6.2%    6.5%    6.5%
Bhutan                    6.9%    7.8%   17.0%   14.4%   14.4%    7.2%    7.2%
India                     9.4%    9.6%    9.0%    8.0%    7.4%    8.5%    7.0%
Maldives                 -4.6%   18.0%    7.6%    8.0%    6.5%    7.0%    7.0%
===============================================================================
                          2005    2006    2007    2008    2008    2009    2009
                                                 Prior  Update   Prior  Update
===============================================================================
Nepal                     2.9%    4.1%    2.6%    3.8%    5.6%    4.3%    5.0%
Pakistan                  9.0%    5.8%    6.8%    6.3%    5.8%    6.5%    4.5%
Sri Lanka                 6.2%    7.7%    6.8%    6.0%    6.0%    6.0%    6.0%
-------------------------------------------------------------------------------
Southeast Asia             5.7%    6.0%    6.5%    5.7%    5.4%    6.0%    5.4%
Cambodia                 13.3%   10.8%   10.2%    7.5%    6.5%    7.0%    6.0%
Indonesia                 5.7%    5.5%    6.3%    6.0%    6.2%    6.2%    6.2%
Lao People's Dem. Rep.    7.3%    8.3%    7.9%    7.7%    7.5%    7.8%    7.6%
Malaysia                  5.3%    5.8%    6.3%    5.4%    5.6%    5.9%    5.3%
Myanmar                  13.6%   12.7%     n/a     n/a     n/a     n/a     n/a
Philippines               5.0%    5.4%    7.2%    6.0%    4.5%    6.2%    4.7%
Singapore                 7.3%    8.2%    7.7%    5.2%    4.2%    5.8%    4.6%
Thailand                  4.5%    5.1%    4.8%    5.0%    5.0%    5.2%    5.0%
Viet Nam                  8.4%    8.2%    8.5%    7.0%    6.5%    8.1%    6.0%
-------------------------------------------------------------------------------
The Pacific                2.7%    2.2%    2.4%    4.4%    4.8%    3.3%    3.4%
Cook Islands              0.0%    0.7%    1.3%    3.5%    2.5%    3.5%    2.9%
===============================================================================
                          2005    2006    2007    2008    2008    2009    2009
                                                 Prior  Update   Prior  Update
===============================================================================
Fiji Islands              0.6%    3.4%   -6.6%    1.6%    1.7%    1.6%    1.4%
Kiribati                  1.6%   -5.2%    0.5%    1.0%    0.6%    1.0%    0.8%
Marshall Islands          1.7%    1.3%    2.0%    1.0%   -4.2%    1.0%   -2.2%
Micronesia               -0.6%   -2.3%   -3.2%   -3.5%   -5.0%   -3.0%   -2.2%
Nauru                   -14.5%    5.5%  -26.8%   -2.4%   -2.4%   -4.4%    1.5%
Palau                     5.9%    4.8%    2.1%    2.0%    1.2%    3.0%    2.2%
Papua New Guinea          3.4%    2.6%    6.2%    6.6%    7.6%    4.6%    5.1%
Samoa                     4.1%    1.9%    6.1%    3.0%    3.3%    3.0%    2.5%
Solomon Islands           5.0%    6.1%   10.3%    6.0%    8.0%    2.5%    4.0%
Timor-Leste               6.2%   -5.8%    7.9%    6.5%    6.5%    4.9%    4.9%
Tonga                    -3.3%    4.4%   -0.3%    1.0%    1.0%    2.0%    2.0%
Tuvalu                    2.0%    1.0%    2.0%    2.0%    1.2%    2.0%    1.6%
Vanuatu                   6.5%    7.2%    6.6%    5.7%    5.7%    4.3%    2.9%
===============================================================================

Source: Asian Development Bank

To contact the reporter on this story: Marco Babic in Singapore at mbabic@bloomberg.net

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Australian Central Bank Cut Rate on Threat to Growth

By Jacob Greber

Sept. 16 (Bloomberg) -- Australian central bank policy makers cut borrowing costs this month for the first time in seven years because the risk of leaving the benchmark rate too high for too long outweighed the danger of stoking inflation.

``In that event, demand could weaken more sharply than necessary,'' members of the Reserve Bank's board said in minutes of their Sept. 2 meeting, released in Sydney today. ``This would deliver a faster reduction in inflation, but at greater short- term economic cost.''

Today's minutes also show the bank's goal of cooling inflation, which has accelerated above its target range of 2 percent to 3 percent, means monetary policy could ``need to be on the restrictive side of normal for some time ahead.'' Governor Glenn Stevens reduced the overnight cash rate this month from a 12-year high to 7 percent and signaled policy makers were questioning whether to cut again or hold.

This month's rate cut ``wasn't a fait accompli,'' said Stephen Walters, chief economist at JPMorgan Chase & Co. in Sydney. ``They debated the risk of going too early, rather than too late.''

The timing of Stevens' next interest-rate cut depends on whether U.S. Federal Reserve Chairman Ben S. Bernanke reduces borrowing costs tomorrow, Walters added. ``Things have changed a lot in recent days.''

The chance of Bernanke cutting the benchmark by a quarter point to 1.75 percent has soared to 68 percent from 12 percent, futures trading shows.

Currency Slumps

The Australian dollar fell to 78.96 U.S. cents at 12:19 p.m. in Sydney, its lowest in more than a year, from 79.52 cents before the statement was released. The two-year government bond yield was little changed at 5.35 percent.

There is mounting evidence Australia's A$1 trillion ($790 billion) economy is slowing after 17 years of expansion. Gross domestic product grew 0.3 percent in the second quarter, the weakest pace in more than three years, as consumers cut spending for the first time since 1993.

The central bank forecast last month that the economy will expand 2 percent this year and 2.5 percent in 2009 after growing 4.3 percent in 2007.

``Members concluded that the slowdown in demand the board had been seeking was unfolding,'' the minutes said.

``A necessary precondition for a decline in inflation back towards the target was therefore in place, even though evidence for that decline would not be seen in the figures for some time.''

Inflation Fight

Policy makers raised the benchmark rate four times between August 2007 and March to temper an inflation rate that climbed to 4.5 percent in the second quarter. The bank expects consumer- price gains will peak at 5 percent in the fourth quarter, before falling below 3 percent in 2010.

``There were risks in easing too soon, since the evidence for the expected fall in inflation was still some time away,'' today's minutes said. ``However, there were also risks in waiting too long to have some easing of policy from a quite restrictive setting.''

Commercial lenders such as Commonwealth Bank of Australia and Westpac Banking Corp. may face a rise in costs in coming months as a ``large amount of bonds was due to mature around the world in the next few months,'' the minutes said.

That ``would lead to a considerable rise in global issuance and could put pressure on the costs faced by banks.''

Today's minutes come amid increased speculation that credit-market losses and the global economic slowdown will worsen after Lehman Brothers Holdings Inc.'s bankruptcy.

Stocks Tumble

Australia's benchmark S&P/ASX 200 stock index tumbled 2.5 percent at 12:15 p.m. in Sydney after U.S. stocks had their steepest drop since the September 2001 terrorist attacks.

``A lot of things have happened since the Reserve Bank's meeting and that means today's minutes aren't a great guide to their thinking at the moment,'' said Michael Blythe, chief economist at Commonwealth Bank of Australia in Sydney.

``On the economy alone, they wouldn't be cutting rates. Yet the state of financial markets means there is room for a decrease in October,'' Blythe added.

Today's minutes suggest policy makers are concerned that export income, which has surged 20 percent this year, is ``unlikely'' to be as strong in the year ahead because of slowing global growth.

Demand for iron ore from China is helping offset weaker household spending, and threatens to drive up wage demands as companies such as Rio Tinto Group expand mines and boost hiring.

``Wage growth at present was seen as being at the upper end of the range in the inflation-targeting period,'' today's minutes said.

Governor Stevens is due to give a speech in Sydney tomorrow.

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



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German Investor Confidence Probably Increased on Oil, Euro

By Gabi Thesing

Sept. 16 (Bloomberg) -- German investor confidence probably rose for a second month after a decline in oil prices and a weaker euro improved the prospects of Europe's largest economy, a survey of economists shows.

The ZEW Center for European Economic Research will say its index of investor and analyst expectations rose to minus 53 from minus 55.5 in August, the median of 43 forecasts in a Bloomberg News survey shows. ZEW releases the report, which aims to predict economic developments six months ahead, at 11 a.m. in Mannheim.

``If the economy is down in the dumps then of course any glimmer of hope like an improvement in the oil price will boost optimism,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. ``The renewed financial market turmoil may eventually push up borrowing costs a bit, but I think the fallout in Europe will be contained.''

The price of oil has dropped more than a third from a July record and the euro has lost 10 percent against the dollar in the past three months, providing relief to consumers and exporters. Still, stocks and bond yields plunged yesterday after Lehman Brothers Holdings Inc became the latest victim of a yearlong credit squeeze.

Financial institutions worldwide have reported more than $500 billion in losses and writedowns and the credit-market turmoil has erased $11 trillion from global stocks in the past year. Germany's benchmark DAX index has lost 26 percent so far this year.

Lehman Bankruptcy

New York-based Lehman, founded 158 years ago, said yesterday it plans to file for Chapter 11 bankruptcy protection after failing to find a buyer. Merrill Lynch, also based in New York, agreed to sell itself to Bank of America Corp. for $50 billion in an emergency deal worked out over the weekend.

ZEW said yesterday that even though financial analysts could file their responses until today, the majority of those surveyed has already submitted their evaluation before Sept. 13.

The cost of borrowing euros for three months has remained close to the highest level since December 2000. The euro interbank offered rate, or Euribor, was little changed at 4.97 percent, European Banking Federation data showed yesterday. The one-week rate held at 4.4 percent. Germany's Ifo institute said yesterday that companies reported tighter lending standards ``in all sectors.''

The German economy shrank for the first time in almost four years in the three months through June and may not recover until the end of the year, ZEW President Wolfgang Franz said Sept. 11. Until then, a recession ``cannot be ruled out,'' he said.

Lower Growth Forecast

The Kiel-based IfW institute last week slashed its forecast for 2009 to just 0.2 percent, from a previous prediction of 1 percent, when the institute said the economy would weather the worst ravages of the U.S. subprime mortgage crisis.

Germany is now ``feeling the impact of the crisis as it develops globally,'' cooling demand for German goods, the institute said. The economy expanded 2.5 percent in 2007, and 3 percent in 2006.

Bundesbank President Axel Weber, who also sits on the European Central Bank's Governing Council, said Sept. 10 that Germany's economic ``resilience'' will prevent it from sliding into a ``deep recession.''

``Germany's foreign trade will by no means collapse next year, but it will make a smaller contribution to the economy's dynamism than usual,'' Anton Boerner, head of the BGA association of exporters and wholesalers, said the same day.

Investors have raised bets that the gloomy growth outlook and declining oil prices may force the ECB to lower borrowing costs. The yield on the March Eonia forward contracts contract was at 4 percent yesterday, down from 4.26 percent a month ago.

The ECB raised its benchmark rate by a quarter point to 4.25 percent in July after inflation accelerated to 4 percent, the fastest pace in 16 years and double the bank's 2 percent limit.

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



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Asia to Expand Slower Than Expected in 2008, 2009, ADB Says

By Shamim Adam

Sept. 16 (Bloomberg) -- Asian economies will expand at a slower-than-expected pace this year and next as growth in the U.S., Europe and Japan weakens and central banks pursue policies to quell inflation, the Asian Development Bank said.

Asia excluding Japan will grow 7.5 percent this year, less than an April estimate of 7.6 percent, the Manila-based institution said in a report today. The region will expand 7.2 percent in 2009, the lender said.

The U.S. housing slump has roiled financial markets and forced Lehman Brothers Holding Inc. to file for bankruptcy yesterday, deepening a crisis that threatens to tip the world into a recession. A slowdown will hurt demand for Asian-made goods and reduce expansion in a region the ADB says will account for more than a fifth of global growth this year.

``The global economy is in trying times,'' the ADB said. ``The financial crisis has spread and has severely affected even those countries with limited exposure to the problem of the U.S. subprime market. Developing Asian economies are being caught between rising inflation pressures and weakening growth prospects.''

The economies of Europe and Japan contracted last quarter, while the U.S. has lost 605,000 jobs this year. The world may face ``Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, said Tony Tan, deputy chairman of sovereign wealth fund Government of Singapore Investment Corp.

Inflation in Asia will reach 7.8 percent this year, higher than an April forecast of 5.1 percent that was already the most in a decade, the ADB said. Prices may ease to 6 percent next year, the report said.

Tightening Measures

``Monetary policy has a major role in containing these price pressures, and regional economies need to address rising inflation even at the expense of slower short-term growth,'' the ADB said. ``Central banks should impose the requisite tightening measures to prevent inflation from becoming entrenched in their economies.''

The ADB left its forecast for China's growth this year unchanged at 10 percent, and reduced its prediction for next year to 9.5 percent from 9.8 percent. India will expand 7.4 percent in 2008, and 7 percent next year, lower than initial projections, it said.

The People's Bank of China will probably start easing bank lending controls in the second half, the ADB said. China yesterday said it will lower the one-year lending rate and cut the proportion of deposits that the nation's smaller banks must set aside.

In India, the central bank will probably implement ``additional tightening in policy'' to fight inflation, according to the ADB.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net



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U.K. Regulator Should Get Sole Bank Rescue Power, Lawmakers Say

By Mark Deen

Sept. 16 (Bloomberg) -- The Financial Services Authority should have the sole power to order a rescue of a failing bank, a panel of U.K. lawmakers recommended, countering a Bank of England bid to share the responsibility.

The authority, the U.K. banking regulator, should hold the ``trigger'' on such decisions, and the central bank should get a consultative role and the right to recommend a bank rescue, Parliament's Treasury Committee said in a report released today. The cross-party panel advice broadly backed the system proposed by Chancellor of the Exchequer Alistair Darling.

``The system we propose maintains a clear line of authority, while ensuring that the Bank of England has reason to engage with individual institutions,'' committee Chairman John McFall said in a statement.

The report is aimed at shaping legislation on bank oversight after a run on deposits at Northern Rock Plc a year ago. Darling and Prime Minister Gordon Brown are seeking to create new powers similar to those of U.S. regulators to appoint an administrator and a ``bridge bank'' to handle the assets of financial institutions in danger of bankruptcy.

Bank of England Governor Mervyn King has sought expanded powers and has questioned the effectiveness of the regulator in acting to bail out a bank.

``There is a natural reluctance of a supervisor to announce publicly that the supervisory regime hasn't been successful,'' King said April 29. He told lawmakers July 22 that he'd ``have preferred an outcome in which either the FSA or the Bank of England could have initiated the trigger'' to bail out a bank.

Lehman, Merrill

Concern about failing banks has increased as writedowns rocked the financial system, leading to yesterday's bankruptcy filing by Lehman Brothers Holdings Inc. and the purchase of Merrill Lynch & Co. by Bank of America Corp.

The lawmakers' panel also recommended that government plans to guarantee bank deposits of as much as 50,000 pounds ($89,935) be as simple as possible and implemented without delay.

``There has been much focus on whether the appropriate compensation limit should be 35,000 pounds, 50,000 pounds or 100,000 pounds,'' McFall said. ``This is irrelevant'' if the system doesn't work smoothly, he said. ``It is far more important that banks be able to identify who their insured depositors are'' and that they be able to ``process compensation claims quickly.''

To contact the reporters on this story: Mark Deen in London at markdeen@bloomberg.net



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Fed Expands Lender of Last Resort Role as It Draws Bailout Line

By Scott Lanman
Enlarge Image/Details

Sept. 15 (Bloomberg) -- The Federal Reserve may be out of the business of bailing out financial companies; its role as lender of last resort is expanding.

The Fed's handling of the latest crisis on Wall Street signaled that its goal was to prevent Lehman Brothers Holdings Inc.'s bankruptcy from wrecking the entire financial system, and not to rescue any individual firm.

While ``the Fed has to establish its credibility vis-à-vis bailouts,'' central bankers also showed they are prepared to ``do everything in their power to protect the system from a liquidity crisis,'' said New York University economics professor Mark Gertler, who has collaborated on research with Fed Chairman Ben S. Bernanke.

Lehman's bankruptcy contrasted with the support the Fed and Treasury provided for the March buyout of Bear Stearns Cos. and last week's federal takeover of Fannie Mae and Freddie Mac. Instead of committing the government's money to another buyout, the Fed broadened the collateral it would accept for loans to securities firms to ensure that they could continue to trade. In another step to maintain market liquidity, 10 large banks will fund a new $70 billion lending program.

Allowing the failure of a firm like Lehman ``can have cascading effects that will affect liquidity needs of others, so you want to make as adequate provision for that as you can,'' said former Fed Governor Lyle Gramley, now a senior economic adviser for the Stanford Group Co. in Washington.

Changed Conditions

What's changed since the Bear Stearns rescue is the availability of Fed loans to investment banks and the fact that central-bank examiners have begun reviewing the finances of Lehman and other Wall Street firms, oversight they previously did only with commercial banks.

The Board of Governors yesterday approved accepting equities, in addition to investment-grade debt, in the Primary Dealer Credit Facility, the program for lending cash directly to securities firms. The facility was set up six months ago in the wake of Bear Stearns's collapse.

The Fed moves are aimed at keeping markets functioning. Lehman's failure means the primary dealers who trade with the Fed may have to rearrange a complex network of trades, which they depend on to fund their daily activity. If they lose access to cash, even temporarily, the U.S. financial system could grind to a halt.

Wider Collateral

The central bank also decided to accept all investment- grade debt securities as collateral for the Term Securities Lending Facility, which auctions loans of Treasuries. Previously the Fed had excluded debt such as corporate and municipal bonds.

The dealers held $159 billion of corporate bonds as of Sept. 3, according to the New York Fed.

``There is arguably more identifiable value in corporate equities and bonds in terms of future cash flows than there is for many of the mortgage-related assets that were created during the credit bubble,'' said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. in New York.

The decisions came six weeks after the Fed extended the emergency lending programs through January.

Today's market reaction may influence Fed policy makers as they gather for their regular interest-rate meeting tomorrow in Washington. The chance of a quarter-point reduction in the benchmark overnight lending rate soared to 62 percent from 12 percent, futures trading shows. The rate has been 2 percent since April, when the Fed completed 3.25 percentage points of cuts since last September.

Moral Hazard

Any expansion of the Fed's lender-of-last-resort role entails ``some risk of moral hazard,'' or the fostering of excessive risk taking, Gramley said. ``It's the moral hazard issue that led them to the view that Lehman ought to be allowed to go down the tubes.''

Lehman's failure means ``there will be less chance that deals in the private sector will look to the government for financing, and I think that's a very good thing,'' said former St. Louis Fed President William Poole in an interview with Bloomberg Television.

Even so, Lehman's bankruptcy was followed by calls for the Fed to provide a bridge loan for American International Group Inc., the largest U.S. insurer by assets, whose shares plunged more than 60 percent today as it sought to raise new capital.

Asked about AIG, Treasury Secretary Henry Paulson told reporters at the White House today that ``what is going right now in New York has got nothing to do with any bridge loan from the government.''

``What's going on in New York is a private sector effort, again, focused on dealing with an important issue that's I think important for the financial system to work on,'' Paulson said.

Meeting expanded liquidity needs requires ``establishing a new set of boundaries for central-bank lending,'' Richmond Fed President Jeffrey Lacker said in a June interview. Such limits may not be ``credible unless we let somebody fail in a costly way that is beyond that scope,'' Lacker said.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net



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Japan, China, Korea Join Central Bank Attempts to Calm Markets

By Shamim Adam and Mayumi Otsuma

Sept. 16 (Bloomberg) -- The Bank of Japan added 1.5 trillion yen ($14.4 billion) to the financial system and China cut interest rates as Asian central banks attempted to calm markets after Lehman Brothers Holdings Inc. filed for bankruptcy.

The Federal Reserve yesterday added $70 billion in reserves to the banking system, the most since the September 2001 terrorist attacks, and may cut its benchmark lending rate today. China lowered its benchmark rate for the first time in six years late yesterday and may act again.

Japanese bonds jumped, sending the yield on the benchmark 10-year bond to its biggest drop in five years on concern the credit crisis will worsen. Financial institutions worldwide have reported more than $510 billion in losses and writedowns and the credit-market collapse has erased $11 trillion from global stocks in the past year.

``Central banks have to show they are ready to take action to ensure stability,'' said Thomas Lam, an economist at United Overseas Bank Ltd. in Singapore. ``Precautionary steps are high on their list to prevent any significant impact and support their markets.''

The yield on Japan's benchmark 10-year bond dropped 15 basis points to 1.38 percent, the biggest decline since Sept. 23, 2003.

The cost to protect Japanese and Australian company debt from default rose to the highest in more than five months, credit-default swaps showed today. The Markit iTraxx Australia Series 9 Index was quoted 20 basis points higher at 205 as of 9:39 a.m. in Sydney, extending yesterday's record increase.

Stocks fell, sending the MSCI Asia Pacific Index 3 percent lower. Mizuho Financial Group Inc., a creditor to Lehman, tumbled 8.3 percent.

Money-Market Operations

``The Bank of Japan will carefully monitor the recent developments among U.S. financial institutions and continue to try to secure smooth fund settlements and financial-market stability by implementing appropriate money-market operations,'' Governor Masaaki Shirakawa said. The central bank starts a two- day policy meeting in Tokyo today.

South Korea will provide liquidity ``through open-market operations,'' Vice Finance Minister Kim Dong Soo said before an emergency meeting today with his counterparts from the central bank and the financial regulator in Seoul.

The Bank of Korea said in a separate statement today it will provide foreign currency liquidity through the swap market when necessary to ``help calm market players.''

The People's Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent, effective today. It lowered the reserve-requirement ratio for smaller banks to 16.5 percent from 17.5 percent.

`Chain Reaction'

``The authorities are afraid of a chain reaction and a further tightening of financial conditions, which would ultimately have a negative impact on the economy,'' said Tomoko Fujii, head of economics and strategy at Bank of America N.A. in Tokyo. ``They have no choice but to try to calm the markets.''

The Reserve Bank of Australia yesterday added A$2.1 billion ($1.7 billion) to the financial system, as did the European Central Bank, the Bank of England and the Swiss central bank.

Fed policy makers will meet today to decide on its key interest rate. The central bank hasn't reduced rates since April 30, when it made the seventh cut since September 2007, bringing the target rate for overnight loans between banks to 2 percent.

Futures show traders boosted odds to 68 percent that the Fed will cut rates at the meeting.

``Cutting interest rates may not be the most appropriate way to solve the crisis,'' said Lam. ``It's better for them to continue or enlarge their liquidity and collateral program.''

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net; Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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China May Cut Rates Again, Boost Spending for Growth

By Li Yanping and Kevin Hamlin

Sept. 16 (Bloomberg) -- China may cut interest rates again, ease limits on bank lending and boost spending to spur economic growth after lowering borrowing costs for the first time in six years.

``Policy makers will consider further interest-rate cuts in the coming month, in conjunction with a more proactive fiscal policy,'' said Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co. in Hong Kong. The central bank yesterday reduced the one-year lending rate and lowered the proportion of deposits that the nation's smaller banks must set aside.

The slowest inflation in 14 months gave China room to lower borrowing costs and protect jobs as the outlook for exports dims and the credit crisis deepens. China's stocks tumbled today after Lehman Brothers Holdings Inc. filed for bankruptcy and Bank of America Corp. agreed to buy Merrill Lynch & Co. for $50 billion.

``A gradual easing cycle has probably begun,'' said Alec Young, an international equity strategist at Standard & Poor's in New York. ``The focus is no longer on inflation and is more on China's growth. The rest of the world is flirting with a recession and China's growth is slowing too.''

The People's Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent, effective today. It lowered the reserve-requirement ratio for smaller banks to 16.5 percent from 17.5 percent.

`Important Problems'

The CSI 300 Index of stocks fell 4.4 percent as of 9:51 a.m. in Shanghai today. The yuan rose 0.3 percent to 6.8245 against the dollar, the biggest increase in two months, as the U.S. currency slumped.

The rate cut is ``to help solve important problems in our economy for its continued stable and fast development,'' the central bank said in a statement on its Web site yesterday, when markets were closed for a holiday.

In July, the central bank reduced restrictions on how much banks can lend by raising 2008 loan quotas for national banks by 5 percent and regional lenders by 10 percent, according to reports by Goldman Sachs Group Inc., BNP Paribas SA, and China Merchants Bank Co.

It's likely those quotas, the main constraint on borrowers, will be eased again, said Mark Williams, a London-based economist with Capital Economics Ltd. The rate cut will have a limited impact on the economy because bank lending financed just 15 percent of fixed investment last year, Williams said.

Shanghai Stocks Fall

The Shanghai Composite Index of stocks declined 4.6 percent to 1985.04, dropping below 2000 for the first time since 2006.

It was ``suspicious'' that the central bank had acted when the index seemed set to drop below 2,000, Williams said, adding that some people thought that level ``was a floor at which the government would intervene to shore up the market.''

China last week released data indicating that the economy has slowed.

Inflation cooled to 4.9 percent in August, export growth slowed and industrial production expanded by the least in six years. China's economy expanded 10.1 percent in the three months to June 30 from a year earlier, the fourth straight quarter of slower growth.

The weakness in China's asset markets is not just in stocks. Property could be headed for a ``meltdown'' as home prices and sales decline, Morgan Stanley said Sept. 12.

``This is the beginning of an easing cycle in China,'' said Darius Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong.

China has already slowed gains by the yuan against the dollar to protect jobs at exporters of shoes, toys and clothes and raised export-tax rebates for garments and textiles.

Infrastructure Spending

Infrastructure spending is a possible tool for stimulating economic growth. Officials are working on a plan for as much as 400 billion yuan ($58 billion) of spending and tax cuts, according to economists and reports in domestic news media.

China's central bank pushed the reserve requirement for lenders to a record 17.5 percent in June. The biggest banks are excluded from the reduction. Those exempted are: Bank of China Ltd., Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank Corp., Bank of Communications Co. and Postal Savings Bank of China.

The requirement for smaller banks drops by 1 percentage point from Sept. 25. In areas affected by the Sichuan earthquake, the reduction is 2 percentage points.

The central bank left the key deposit rate unchanged at 4.14 percent, narrowing banks' margins on loans.

Zhu Baoliang, the chief economist at the State Information Center, a government research agency, said August's economic data probably prompted yesterday's moves, rather than events in the U.S.

In the U.S., banks including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. formed a $70 billion fund to ensure market liquidity as Lehman filed for bankruptcy and Bank of America Corp. agreed to acquire Merrill. The Federal Reserve may reduce the benchmark interest rate today to 1.75 percent from 2 percent, according to the futures market.

To contact the reporters on this story: Li Yanping in Beijing at yli16@bloomberg.net; Kevin Hamlin in Beijing on khamlin@bloomberg.net



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Woodside Says Australian Carbon Trade Plan May Double LNG Costs

By Angela Macdonald-Smith

Sept. 16 (Bloomberg) -- Woodside Petroleum Ltd., operator of Australia's North West Shelf liquefied natural gas venture, said that the introduction of carbon trading may more than double operating costs for a typical project.

A carbon price of A$20 ($15.97) to A$40 a metric ton of carbon emissions in 2010, escalating over time, would also cut after-tax cash flows on a two-unit, 10 million tons-a-year LNG project by as much as 29 percent, the Perth-based company said in a submission on the government's proposed carbon trading system published today on its Web site.

Under the proposed trading system, due to start in 2010, LNG producers wouldn't qualify for any free emissions permits, increasing costs for ventures that compete for customers against rivals in countries such as Qatar and Indonesia where there are no penalties for producing carbon. Woodside is urging the government to exempt LNG producers from the system, or grant them free permits, until overseas competitors face similar costs.

``Despite some suggestions to the contrary, LNG projects cannot absorb the expected cost of emissions permits, nor deal with the inherent uncertainty,'' Woodside said in the submission. The trading plan threatens ``the loss of industry investment for no environmental gain,'' it said.

Woodside, 34 percent owned by Royal Dutch Shell Plc, is a member of the Australian Petroleum Production & Exploration Association, which yesterday called on the government to create a category of industries called Clean Global Contributors that qualify for free permits because their output contributes to the reduction of emissions by displacing dirtier fuels such as coal.

Woodside, operator of the proposed Browse LNG venture off northwest Australia, said last month it may cut spending on the project, estimated to cost as much as $30 billion, because of the planned carbon trading system.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net



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Korean Won Falls Most in 6 Months as Stocks Plunge; Bonds Gain

By Kim Kyoungwha and Judy Chen

Sept. 16 (Bloomberg) -- South Korea's won fell by the most in six months after Lehman Brothers Holdings Inc. filed the biggest bankruptcy in history, fueling speculation global investors will step up sales of local shares and repatriate funds. Stocks plunged and government bonds advanced.

The currency, the biggest loser among global currencies that have started trading today, approached a four-year low and the nation's Kospi stock index tumbled as much as 6.5 percent. Vice Finance Minister Kim Dong Soo said the government may provide funds to help stabilize financial markets.

``There's panic selling for the won as investors' sentiment is badly bruised by Lehman's bankruptcy,'' said Lee Myung Hoon, a currency dealer with Industrial Bank of Korea in Seoul. ``A global share tumble is taking a toll on the local equity market. We are not sure how far the won will drop.''

The won fell 2.8 percent to 1,141.25 against the dollar as of 10:25 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. It reached 1,159 on Sept. 3, the weakest since August 2004.

Remarks this morning by Choi Jong Ku, director general of the finance ministry's international bureau, that the currency's declines are ``excessive'' did little to curb the won's loss.

Global investors sold more Korean shares than they bought every day except six since Aug. 1, according to Korea Exchange data.

``There's a concern in the short term that global stocks, bonds and currency markets will be more volatile,'' Kim said before an emergency meeting today with counterparts from the central bank and the financial regulator in Seoul. ``We will try to manage liquidity in a stable manner through measures such as open market operations.''

Bonds Advance

Local currency bonds rose for a fourth day as investors favored safer bets than equities and concern the global economy will slip into recession fueled speculation interest rates will be cut.

``There's a flurry of bids for flight to quality triggered by a slump in stocks,'' said Kong Dong Rak, a fixed income strategist with Hana Daetoo Securities Co. in Seoul. ``The central bank, albeit not immediately, could lower interest rates in coming months.''

The Bank of Korea last raised the benchmark seven-day repo rate to an eight-year high of 5.25 percent in August to curb inflation.

The yield on the benchmark bond due June 2011 fell 12 basis points to 5.53 percent, according to the Korea Exchange. The price rose 0.33, or 33 won per 10,000 won face amount, to 101.39. A basis point is 0.01 percentage point.

To contact the reporters on this story:
Kim Kyoungwha in Beijing at
kkim19@bloomberg.net;
Judy Chen in Shanghai at xchen45@bloomberg.net






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Yen, China Yuan, Singapore Dollar, Peso: Asia Currency Preview

By Sam Nagarajan

Sept. 16 (Bloomberg) -- The following events and economic reports may influence trading in Asian currencies today.

Exchange rates are from the previous session.

Japanese yen: The Cabinet Office will release its consumer confidence index for August at 2 p.m. in Tokyo. The sentiment index fell to 31.6 in July from 32.9 in June.

The Bank of Japan begins a two-day policy meeting in Tokyo. The central bank is likely to keep its benchmark interest rate unchanged at 0.5 percent, according to all 33 economists surveyed by Bloomberg News.

Finance Minister Bunmei Ibuki, Economic and Fiscal Policy Minister Kaoru Yosano and Chief Cabinet Secretary Nobutaka Machimura will hold briefings after a cabinet meeting this morning in Tokyo. Machimura will hold a second briefing at 4 p.m.

The yen was at 104.35 a dollar at 8:10 a.m. in Sydney.

China's yuan: The central bank cut interest rates yesterday for the first time in six years and reduced the amount of cash that some banks are required to set aside. It cut the one-year lending rate to 7.20 percent from 7.47 percent, effective today. Local financial markets were closed yesterday for a holiday.

The yuan was at 6.8450 on Sept. 12.

Philippine peso: The government will report July unemployment data today. Money sent back to the Philippines from overseas workers increased 25 percent in July to $1.37 billion, versus a 30 percent gain in June, the central bank said yesterday.

The peso was at 47.095.

Singapore dollar: Retail sales rose 11.8 percent in July from a year earlier, the most in 13 months, the Statistics Department said in a statement yesterday. They fell 3.2 percent in June.

The local dollar was at S$1.4344.

To contact the reporter on this story: Sam Nagarajan in New Delhi at samnagarajan@bloomberg.net



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Australian, New Zealand Dollars Slide as U.S. Stocks Tumble

By Candice Zachariahs

Sept. 16 (Bloomberg) -- The Australian and New Zealand dollars dropped to the weakest in more than two years against the yen as tumbling U.S. stocks reduced investor appetite for the South Pacific nations' higher-yielding assets.

The currencies also fell against the U.S. dollar after the Standard & Poor's 500 Index had its steepest decline since the September 2001 terrorist attacks on concerns Lehman Brothers Holdings Inc.'s bankruptcy will be followed by other financial institutions failing. American International Group Inc. sank 61 percent and Washington Mutual Inc. dived 27 percent.

``Safe haven and risk aversion are key and that's why the yen has gained pretty much across the board,'' said Tony Morriss, a senior currency strategist with ANZ Banking Group Ltd. in Sydney. ``As this crisis rolls on, the Aussie and Kiwi will lose more ground to safer currencies,'' he said, referring to the currencies by their nicknames.

The Australian dollar fell 2 percent to 83.31 yen at 8:57 a.m. in Sydney, from 84.91 in late Asian trading yesterday. The currency earlier reached 83.09 yen, the weakest since March 2006. It fell 1.1 percent to 79.70 U.S. cents from 80.62 yesterday.

New Zealand's currency declined to 68.23 yen, the lowest level since May 2006, from 69.20 yen late in Asia yesterday. It bought 65.45 U.S. cents from 65.71.

The Australian dollar dipped below 80 U.S. cents as Lehman filed for the biggest bankruptcy in history yesterday after Bank of America Corp. and Barclays Plc pulled out of talks to buy the New York-based bank.

Volatility

The currencies slid after the VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, rose to 31.70 yesterday, the highest since March 17.

Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 2 percent in the U.S. and 0.5 percent in Japan, making them favorites with investors seeking higher returns. The risk in such trades is that currency market moves can erase profits.

Australian government bonds gained. The yield on the 10- year note fell 5 basis points, or 0.05 percentage point, to 5.522 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.387, or A$3.87 per A$1,000 face amount, to 97.855. Bond yields move inversely to prices.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 6.79 percent, its lowest since April 2006, from 6.84 on Sept. 12.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net



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Dollar Slumps to Two-Month Low Versus Yen on Fed Rate Cut Bets

By Stanley White and Ron Harui

Sept. 16 (Bloomberg) -- The dollar slumped to a two-month low against the yen on speculation the Federal Reserve will cut the target lending rate today after Lehman Brothers Holdings Inc. filed for bankruptcy.

The yen jumped to the highest in more than two years against the Australian and New Zealand dollars as investors pared holdings of higher-yielding assets funded with Japan's currency on concern credit losses will widen. A measure of the greenback against the currencies of six major trading partners fell for a third day after U.S. stocks tumbled the most since the September 2001 terrorist attacks.

``Dollar selling is all but unavoidable,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``A rate cut is likely because the Fed needs to do something to stabilize the financial system. Risk aversion will also help the yen rise.''

The dollar traded at 104.17 yen at 9:41 a.m. in Tokyo from 104.66 yesterday. It earlier touched 104.13 yen, the lowest level since July 16. The dollar gained to $1.4231 per euro from $1.4243. The pound declined to $1.7931 from $1.8007. The dollar may weaken to 103.90 yen today, Soma forecast. Japan's currency rose 0.7 percent to 148.14 per euro.

The yen also gained 1.9 percent to 83.25 versus the Australian dollar and 1.2 percent to 68.38 against the New Zealand dollar as investors reduced so-called carry trades, in which they borrow in countries with low borrowing costs and buy higher-yielding assets elsewhere. The risk is that currency market moves erase those profits.

Carry Trades

Japan's 0.5 percent target lending rate compares with 4.25 percent in Europe, 7 percent in Australia and 7.5 percent in New Zealand.

``The yen is appreciating as risk aversion rises and carry trades are unwound,'' said Besa Deda, acting chief economist at St. George Bank Ltd. in Sydney, in a research note today. ``The Australian dollar should remain under pressure, especially on the cross rates.''

Lehman filed for the biggest bankruptcy in history after Bank of America Corp. and Barclays Plc pulled out of talks to buy the New York-based bank. Bank of America, the biggest U.S. consumer bank, instead agreed to acquire Merrill Lynch & Co. for about $50 billion, as the credit crisis claimed another of America's oldest financial companies.

`Hard to Top'

``It's hard to imagine anything more cataclysmic than this,'' said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``It will be hard to top that kind of news flow. The yen hasn't looked so good for quite a while.''

American International Group Inc., the largest U.S. insurer by assets, may be propped up by $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. after it was turned away by the Fed, according to people familiar with the situation.

The ICE future exchange's Dollar Index, a measure of the greenback's strength versus the currencies of major trading partners, slid 0.3 percent to 78.673.

Futures on the Chicago Board of Trade showed yesterday a 74 percent chance the central bank will lower its 2 percent target rate for overnight lending between banks by a quarter-percentage point today, compared with no chance a week ago.

Policy markers are scheduled to announce their decision at 2:15 p.m. in Washington. One hundred of 105 economists surveyed by Bloomberg News expected the Fed to keep the rate on hold, while the rest forecast a cut.

Implied volatility on one-month euro-dollar options surged to 14.34 percent yesterday, the highest level since the aftermath of the Sept. 11, 2001, terrorists attacks, indicating traders see more price fluctuation in the next month.

Treasury Rally

The dollar rose 1.9 percent to 1.8149 Brazilian real yesterday and 1.4 percent to 10.7437 Mexican pesos as U.S. investors repatriated capital and bought Treasuries.

``The vicious cycle of the credit crunch causing a slowdown in the U.S. economy will continue,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital, Britain's third- biggest lender. ``For the dollar, there will be a flight to quality into Treasuries.''

A rally in Treasuries pushed the yield on the two-year note down 0.42 percentage point to 1.78 percent yesterday, the most since the Sept. 11 attacks. It was the first time the yield fell below 2 percent since April. The 10-year note's yield dropped 0.20 percentage point to 3.52 percent.

The yield advantage of the benchmark 10-year note over comparable-maturity Japanese government securities decreased to 1.90 percentage points yesterday, the narrowest since 1993, making the U.S. securities less attractive.

Stocks Slide

Stocks tumbled yesterday, with the Standard & Poor's 500 Index dropping 4.7 percent. The Dow Jones Stoxx 600 Index of European shares retreated 3.5 percent.

The dollar has gained about 12 percent since touching an all-time low of $1.6038 per euro on July 15 as the European economy slowed and crude oil dropped 35 percent from its peak of $147.27 a barrel.

`` The appetite for the U.S. dollar has not reversed,'' said Jack Spitz, a managing director of foreign exchange at National Bank of Canada in Toronto. ``Risk reduction provides support.''

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

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Australia's Benchmark Falls on Concern Over U.S. Banks Fallout

By Shani Raja

Sept. 16 (Bloomberg) -- Australian stocks fell, led by financial companies, as the collapse of Lehman Brothers Holdings Inc. and a plunge in American International Group Inc. shares deepened concerns about global financial and economic stability.

Macquarie Group Ltd., Australia's biggest securities firm, slumped 7.4 percent to its lowest price in four years. National Australian bank Ltd., the nation's biggest by assets, declined 4.2 percent to its lowest since April 2000.

Australia's benchmark S&P/ASX 200 Index slipped 117.20 points, or 2.4 percent, to 4,700.50, the lowest since Dec. 20, 2005, at 10:30 a.m. in Sydney trading. The index, which declined 1.8 percent yesterday, has tumbled 26 percent this year.

``The markets are panicking big-time,'' said Prasad Patkar, who helps manage the equivalent of about $1.8 billion at Platypus Asset Management in Sydney. ``AIG poses a systemic risk because it's a large counterparty in the financial system. The banking sector is a bit too close to the action.''

AIG, the biggest U.S. insurer by assets, is seeking to plug a $70 billion to $75 billion financing gap, while Lehman Brothers filed the largest bankruptcy in history on Sept. 15.

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



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France Overtakes China as World's Fourth-Largest Stock Market

By Zhang Shidong

Sept. 16 (Bloomberg) -- France overtook China as the world's fourth-largest stock market after lending curbs and an economic slowdown made the Asian nation's equities among the worst performers globally this year.

Equities traded on China's Shanghai and Shenzhen stock exchanges dropped in value to $1.98 trillion as of Sept. 12, below the $2.01 trillion for France as of Sept. 14, according to the most recent data compiled by Bloomberg. China's markets were shut yesterday for a holiday.

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



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Japan Stocks Tumble, Head for 3-Year Low, on Lehman Bankruptcy

By Masaki Kondo

Sept. 16 (Bloomberg) -- Japan's stocks plunged, headed for a three-year low, after Lehman Brothers Holdings Inc.'s bankruptcy filing and tumbling oil prices exacerbated concern credit turmoil will slow the global economy.

Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc., Japan's largest listed banks, were untraded as orders to sell exceeded those to buy. Aozora Bank Ltd., controlled by Cerberus Capital Management Ltd., was poised to fall after Lehman's filing showed the Japanese bank was its biggest creditor. Consumer lender Takefuji Corp. lost 2 percent.

``Investors can't help but see Lehman's collapse setting off a chain reaction of bank failures worldwide,'' said Mitsushige Akino, who oversees about $468 million at Ichiyoshi Investment Management Co. in Tokyo. ``If concerns about the series of global bank failures linger, the impact on Japan's financial stocks will be bigger than the subprime problem.''

The Nikkei 225 Stock Average sank 344.66, or 2.8 percent, to 11,870.10 in Tokyo. The broader Topix index dived 31.47, or 2.7 percent, to 1,145.73, falling below the March 17 level of 1,149.65, the lowest close since June 10, 2005.

Lehman, the fourth-largest U.S. investment bank, was forced into the biggest bankruptcy filing in history, becoming the latest victim of the subprime mortgage crisis. At least seven Japanese banks lent a total of $1.62 billion, according to the Chapter 11 filing by Lehman. Among the largest unsecured creditors are Aozora, based in Tokyo, and Mizuho Corporate Bank Ltd., a unit of Mizuho Financial.

``We are closely monitoring the moves of Asian markets and trying to figure out how these developments will affect the Japanese market,'' the Bank of Japan's chief press officer Yoshihiro Sugimoto said yesterday.

Crude oil tumbled as much as $2 a barrel to a seven-month low of $93.71 a barrel after refineries along the Gulf of Mexico escaped major damage from Hurricane Ike. The yen appreciated against the dollar to as much as 104.14 today, the strongest since July 16.

Nikkei futures expiring in December retreated 5.6 percent to 11,580 in Osaka and slumped 5.2 percent to 11,580 in Singapore.

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

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Asian Stocks Extend Global Rout on Lehman, AIG, Oil Decline

By Chua Kong Ho and Shani Raja
Enlarge Image/Details

Sept. 16 (Bloomberg) -- Asian stocks plunged the most in six months, extending a global rout, led by creditors of Lehman Brothers Holdings Inc. and commodity producers after raw- material prices slumped.

Mitsubishi UFJ Financial Group Inc., the largest Japanese bank, dropped 9.8 percent in Tokyo. Babcock & Brown Ltd., among Australia's biggest losers from the global credit crisis, sank 32 percent. American International Group Inc., seeking funds to avoid failure, plunged 61 percent yesterday in New York, part of the biggest tumble in U.S. stocks since the September 2001 terrorist attacks. Nippon Mining Holdings Inc. lost 5.5 percent, leading mining companies lower, as oil and copper dropped.

``You're going to get a massive flight to safety,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. ``Banking stocks are guilty by association. There's no place to hide because commodities were down quite sharply last night too.''

The MSCI Asia Pacific Index declined 3.5, or 3 percent, to 112.11 at 10 a.m. in Tokyo, set to close at its lowest since Nov. 16, 2005. Japan's Nikkei 225 Stock Average dropped 4.7 percent to 11,641.87. All Asian markets open for trading fell.

South Korea's Kospi Index tumbled 5.3 percent and index futures plunged, prompting a five-minute halt in program trading of shares on the measure. South Korea may provide more funds to help stabilize financial markets following Lehman's bankruptcy filing, the country's vice finance minister said.

Global Rout

The Bank of Japan added 1.5 trillion yen ($14.4 billion) into the financial system, while China cut interest rates for the first time in six years as weakening exports dimmed the outlook for growth. Markets in Japan, China, Hong Kong and South Korea were shut for public holidays yesterday, when the MSCI Asia Pacific excluding Japan Index retreated 1.9 percent.

U.S. stocks tumbled, pushing the Standard & Poor's 500 Index down 4.7 percent. S&P 500 futures lost 0.5 percent today. The cost to protect Japanese and Australian company debt from default rose to the highest in more than five months, credit default swaps show.

Lehman, the fourth-largest U.S. investment bank, was forced into the biggest bankruptcy filing in history, becoming the latest victim of the subprime mortgage crisis. At least seven Japanese banks lent a total of $1.62 billion, according to the Chapter 11 filing by Lehman.

Mitsubishi UFJ fell 9.8 percent to 774 yen, while Sumitomo Mitsui Financial Group Inc. declined 12 percent to 603,000 yen. Babcock & Brown, an infrastructure manager, tumbled 32 percent to A$1.07.

`Systemic Risk'

Kookmin Bank dropped 7.7 percent to 55,500 won. Woori Finance Holdings Co., which controls South Korea's second- biggest bank, fell by a record, plunging 14 percent to 13,050 won. South Korea's Financial Services Commission said yesterday the country's firms have invested about $720 million in loans and securities linked to Lehman.

AIG, the biggest U.S. insurer by assets, may be propped up by $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co., according to people familiar with the situation. S&P cut the insurer's long-term counterparty rating to A- from AA- and also lowered the short- term counterparty credit rating, and said they remain on watch for a possible further downgrade.

``AIG poses a systemic risk because it's a large counterparty in the financial system,'' said Prasad Patkar, who helps manage the equivalent of $1.8 billion at Platypus Asset Management in Sydney. ``It's too big to be allowed to fail.''

Oil, Copper

Nippon Mining, Japan's biggest copper producer, dropped 5.5 percent to 467 yen. Rio Tinto Group, the world's No. 3 mining company, slid 1.1 percent to A$105.24 in Sydney. Woodside Petroleum Ltd., Australia's No. 2 oil and gas producer, fell 2.9 percent to A$50.52.

Crude oil tumbled as much as $2 a barrel to a seven-month low of $93.71 a barrel after refineries along the Gulf of Mexico escaped major damage from Hurricane Ike. Copper fell 1.8 percent, the most since Sept. 5.

The Reuters/Jefferies CRB Index of 19 raw materials declined as much as 2.5 percent, erasing this year's gain. Copper has dropped 26 percent from a record in May.

To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.



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U.S. August Industrial Production: Statistical Summary (Table)

By Alex Tanzi

Sept. 15 (Bloomberg) -- Following is a summary of the U.S. industrial production and capacity utilization report for Aug. released by the Federal Reserve.

===============================================================================
                             Aug.   July   June   May   April  March   Aug.
                     Weight  2008   2008   2008   2008   2008   2008   YOY%
===============================================================================
Industrial production 100.0%  -1.1%   0.1%   0.2%  -0.1%  -0.5%  -0.2%  -1.5%
  Prev. estimates      n/a    n/a    0.2%   0.4%  -0.2%  -0.6%  -0.2%   n/a
Ex high-tech         95.69%  -1.2%   0.0%   0.2%  -0.2%  -0.7%  -0.4%  -2.4%
Ex vehicles          94.88%  -0.6%  -0.1%   0.0%  -0.2%  -0.2%   0.0%  -0.4%
Ex tech & vehicles   90.57%  -0.7%  -0.1%   0.0%  -0.2%  -0.3%  -0.1%  -1.4%
                             -----------------Industry Groups-----------------
Manufacturing         78.70%  -1.0%   0.1%   0.0%   0.1%  -0.9%   0.1%  -1.9%
Motor vehicle, parts  5.12% -11.9%   2.5%   4.8%   0.5%  -6.6%  -4.8% -20.7%
ex. motor veh/parts  73.58%  -0.3%  -0.1%  -0.3%   0.1%  -0.5%   0.4%  -0.6%
Machinery             4.89%   0.3%   0.0%   0.3%  -0.1%  -3.2%   1.7%  -3.0%
Computer, electronics 6.85%   0.0%   0.4%   0.5%   0.4%   1.5%   2.0%  13.8%
===============================================================================
                             Aug.   July   June   May   April  March   Aug.
                     Weight  2008   2008   2008   2008   2008   2008   YOY%
===============================================================================
Utilities              9.68%  -3.2%  -1.6%   1.8%  -2.2%   1.6%  -3.4%  -4.2%
Electric              7.98%  -4.0%  -2.3%   3.2%  -2.7%   1.3%  -2.8%  -5.1%
Natural Gas           1.70%   0.0%   1.5%  -4.3%   0.0%   2.9%  -6.3%  -0.1%
Mining                11.62%  -0.4%   1.1%   0.2%   0.0%   0.0%   0.3%   3.5%
                             -----------------Market Groups-------------------
Products              56.13%  -1.5%   0.1%   0.6%  -0.1%  -0.7%  -0.5%  -1.8%
Consumer goods       29.33%  -2.0%   0.2%   0.7%  -0.2%  -0.6%  -1.1%  -3.0%
 Home electronics     0.31%  -0.3%  -0.5%  -2.0%   2.5%   4.7%   1.0%  16.0%
Business equipment    9.38%  -0.6%   0.2%   0.3%   0.3%  -1.7%   0.9%   0.7%
 Info processing      2.72%   0.2%  -0.3%   0.6%   0.6%   1.3%   1.4%  10.3%
Defense and space     1.73%  -0.7%  -1.0%   1.1%  -0.5%  -0.1%   0.0%   0.4%
Construction supply   4.21%  -1.0%   0.4%  -0.3%   0.5%  -1.0%   0.1%  -5.8%
Business supplies    10.64%  -0.6%  -0.6%  -0.2%  -0.6%   0.1%  -0.6%  -2.0%
Materials             43.87%  -0.9%   0.1%   0.0%  -0.2%  -0.4%   0.2%  -0.6%
Energy               14.58%  -1.1%   0.5%  -0.2%  -0.3%  -0.1%  -0.1%   0.8%
                             ----------------------Indexes------------Yr. Ago-
Total production      100.0%  110.3  111.6  111.5  111.3  111.4  112.0  112.0
===============================================================================
                             Aug.   July   June   May   April  March   Year
                     Weight  2008   2008   2008   2008   2008   2008   Ago
===============================================================================
Manufacturing        78.70%  111.4  112.5  112.4  112.4  112.3  113.3  113.6
Mining               11.62%  104.8  105.2  104.1  103.9  103.9  103.9  101.2
Utilities             9.68%  104.7  108.2  110.0  108.0  110.5  108.7  109.3
                             -------------Capacity Utilization----------------
Total industry        100.0%  78.7%  79.7%  79.7%  79.7%  79.9%  80.4%  81.2%
  Prev. estimates    100.0%   n/a   79.9%  79.8%  79.6%  79.8%  80.5%   n/a
Ex high-tech         95.07%  78.6%  79.6%  79.7%  79.6%  79.8%  80.4%  81.3%
 Computers            1.13%  80.6%  80.6%  81.0%  81.5%  81.6%  81.2%  77.9%
 Semiconductors       2.35%  78.0%  79.5%  78.8%  79.5%  81.2%  81.3%  80.9%
Manufacturing        80.83%  76.6%  77.5%  77.5%  77.6%  77.7%  78.5%  79.6%
Mining                9.90%  91.3%  91.7%  90.7%  90.6%  90.6%  90.7%  88.9%
Utilities             9.27%  81.5%  84.4%  85.9%  84.5%  86.6%  85.4%  87.0%
                             -----------Motor Vehicle Assemblies--------------
Total                 10.75%   8.19   9.76   9.25   8.68   8.44   9.39  10.96
Autos & light trucks 10.47%   7.96   9.56   9.04   8.42   8.17   9.13  10.71
===============================================================================
NOTE: All figures are seasonally adjusted. Motor vehicle assemblies
are in millions of units at an annual rate.



To contact the reporter on this story:
Alex Tanzi in Washington  atanzi@bloomberg.net

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