Dollar Falls, Set for Weekly Decline, as U.S. Debates Rescue

By Stanley White and Ron Harui

Sept. 26 (Bloomberg) -- The dollar fell, heading for a second weekly decline against the yen, as U.S. lawmakers disagreed over a finance industry rescue plan and Washington Mutual Inc. became the nation's biggest bank to collapse.

The greenback was on course for a weekly loss against the euro after a group of Republicans opposed to the Treasury's $700 billion asset-purchase plan submitted an alternative proposal. The yen was set for weekly gains against the Australian and New Zealand dollars as investors pared so-called carry trades on concern the talks will drag on.

``The U.S. needs to act quickly, because the financial system and the dollar are at risk,'' said Akio Shimizu, chief manager of currency trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly listed lender. ``Congressional discussions over the rescue package aren't going smoothly at all.''

The dollar fell to 105.59 yen as of 8:15 a.m. in London from 106.56 late yesterday in New York, taking this week's drop to 0.9 percent. It traded at $1.4608 per euro from $1.4609 yesterday and $1.4466 on Sept. 19. The euro bought 154.30 yen, down 0.9 percent for the week.

The Australian dollar bought 87.64 yen, down 1.5 percent from a week ago, while the New Zealand dollar fell 0.3 percent to 72.49 yen. In carry trades, investors get funds in countries with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 7 percent in Australia and 7.5 percent in New Zealand. The risk is that currency moves erase profits.

Rival Plan

The new proposal to ease a U.S. credit crisis came after President George W. Bush met with Republican presidential candidate John McCain and Democratic rival Barack Obama to discuss the financial-markets rescue, according to Senate Banking Committee Chairman Christopher Dodd.

Dodd, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke favored a plan that would use taxpayer money to buy troubled assets from financial companies. The rival proposal calls for a mortgage-backed security insurance fund financed by premiums from the holders of those securities.

The U.S. government closed Seattle-based Washington Mutual, which faced $19 billion of mortgage-related losses, after customers withdrew $16.7 billion since Sept. 15, the Office of Thrift Supervision said in a statement. JPMorgan Chase & Co., the third-biggest U.S. bank by assets, agreed to acquire WaMu's deposits and branches for $1.9 billion.

The Fed, the European Central Bank and their counterparts in the U.K. and Switzerland said today they will provide dollars to money markets for the next week to ensure ample liquidity at the end of the quarter.

Dollar Negative

``This is a negative story for the dollar,'' said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital Inc., a unit of the U.K.'s third-biggest bank. ``News about Washington Mutual will make the market nervous and people will doubt whether a U.S. rescue plan will work.''

The yen may extend gains as the VIX volatility index closed above 30 for nine straight days, showing markets are facing a shock similar to the 1997 Asian currency crisis and 2001 terrorist attacks, according to JPMorgan Chase.

The VIX index, a Chicago Board Options Exchange gauge reflecting expectations of stock market price changes and a barometer of risk aversion, was at 32.82 late in New York yesterday headed for its fifth weekly gain. It rose to 42.16 on Sept. 18, the highest since October 2002.

``This indicates risk aversion, which in the current environment could support the yen,'' said Yen Ping Ho, a currency strategist at JPMorgan Chase in Singapore. ``Japanese investor buying of foreign assets has also slowed recently, which suggests less support against the dollar-yen's downside.''

Portfolio Flows

Japanese investors were net sellers of 606.9 billion yen ($5.74 billion) of foreign securities in the week ended Sept. 20, based on reports from designated major investors released by the Finance Ministry in Tokyo today. They sold 654.6 billion yen more overseas assets than they bought the previous week.

The collapse of Lehman Brothers Holdings Inc. and the U.S. government takeover of insurer American International Group Inc. have helped cause credit markets to seize up. The three-month London interbank offered rate, or Libor, for dollars rose to 3.77 percent yesterday, the highest level relative to the Fed's target rate on record.

``The credit channel is blocked up,'' said Stephen Malyon, co-head of currency strategy in Toronto at Scotia Capital Inc., a unit of Canada's third-largest bank by assets. ``Odds favor the next move by the Fed will be a cut. It surely will hurt the dollar.''

Futures contracts on the Chicago Board of Trade showed an 86 percent chance the Fed will cut its 2 percent target rate for overnight lending between banks by a quarter-percentage point at its meeting on Oct. 29, compared with zero chance a month ago.

The dollar has fallen 4.2 percent against the euro since touching a one-year high of $1.3882 on Sept. 11. The dollar reached $1.6038 on July 15, the weakest level since the European currency made its debut in 1999.

To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

Read more...

Sell Euro as U.S. Financial Rescue May Boost Dollar, UBS Says

By Candice Zachariahs

Sept. 26 (Bloomberg) -- Investors should sell the euro against the U.S. dollar as the risk of recession spreads to Europe and global central banks and sovereign wealth funds buy Treasuries, UBS AG said.

An industry survey showed Sept. 24 that business confidence in Germany, the euro region's largest economy, fell to the weakest level in three years. The U.S. government is working on a $700 billion bailout package for banks to stabilize money markets and jumpstart the economy.

``We expect the dollar to gain more support upon a successful vote on the bailout package,'' wrote Stamford-based Brian Kim, a currency strategist at UBS AG, in a research note dated Sept. 25. ``Continuing foreign central bank demand for Treasuries will be dollar-supportive.''

Kim advises selling the euro at $1.4655 with a target of $1.4250. Investors should exit the bet if the currency rises to $1.4890, said UBS, the world's second-biggest currency trader. The dollar traded at $1.4671 per euro at 9:36 a.m. in Tokyo from 1.4609 yesterday.

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

Read more...

Soybeans Gain on Tight U.S. Supplies; Corn Dips as Oil Declines

By Jae Hur

Sept. 26 (Bloomberg) -- Soybeans climbed amid tight supplies and corn slumped for a second day as crude oil declined, eroding demand prospects for the grain as a source of biofuel.

On Sept. 1, reserve soybean supplies from last year's harvest totaled 3.81 million metric tons (140 million bushels), 76 percent below the year-earlier level, the Department of Agriculture said Sept. 12. The inventory amounted to just 7.5 percent of estimated use for the previous 12 months of 51 million tons, the lowest ratio since 1973, according to USDA statistics.

``Soybean supplies remain very tight before this year's harvest,'' Hiroyuki Kikukawa, general manager of research at IDO Securities Co., said from Tokyo.

Soybeans for November delivery added as much as 1 percent to $11.95 a bushel in after-hours electronic trading on the Chicago Board of Trade and was at $11.9325 by 12:30 p.m. Singapore time. Still, the price is down 27 percent from a July peak of $16.3675.

Processors including Archer Daniels Midland Co. converted 3.86 million short tons of soybeans into vegetable oil and animal feed in August, the U.S. Census Bureau said yesterday. That's down 12 percent from 4.388 million tons a year earlier and from 4.18 million in July. The average estimate of five analysts surveyed by Bloomberg was for 3.842 million tons.

Corn for December delivery traded little changed at $5.58 a bushel by 12:36 p.m. Singapore time after touching $5.5225. The futures have lost 30 percent from a record $7.9925 June 27.

Exports Fall

Corn and soybeans declined yesterday on speculation that a slowing U.S. economy will reduce demand and overseas buyers may increase purchases of cheaper feed wheat, mostly from Russia and Europe, to replace the grain and soybean meal in animal feed.

Corn sales last week by U.S. exporters fell 68 percent to 547,796 metric tons from a year earlier, the USDA said yesterday.

Global trade in corn will decline 13 percent to 87 million metric tons in the year that began July 1, compared with a year earlier, the International Grain Council said yesterday. That was down from an August forecast of 88 million tons.

Prices were also pushed lower by crude oil, which declined as much as 1.3 percent to $106.91 a barrel on the New York Mercantile Exchange after gaining 2.2 percent yesterday.

Wheat for December delivery dropped as much as 1.2 percent to $7.2775 a bushel and last traded at $7.34. Futures have fallen 46 percent from a record $13.495 on Feb. 27.

The contract climbed 0.8 percent yesterday amid speculation growers in the U.S., the largest exporter, will plant fewer acres with winter varieties as prices fall and input costs rise.

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



Read more...

Copper May Drop as U.S. Economy Loses More Jobs, Survey Shows

By Claudia Carpenter

Sept. 26 (Bloomberg) -- Copper may fall next week on slowing growth in the U.S. economy, the second-largest buyer of the metal used in wires and pipes.

Fifteen of 28 analysts and traders surveyed by Bloomberg News yesterday and Sept. 24 forecast copper will decline. Eleven expected an advance and two were neutral. Copper for delivery in three months on the London Metal Exchange is down 2 percent this week.

U.S. employers probably slashed 90,000 jobs overall this month, economists said before a report set for release by the U.S. Labor Department on Oct. 3. Jobs in construction, the biggest use for copper, have dropped for the past 14 months. China is the largest buyer of copper.

This week's survey results: Bullish: 11 Bearish: 15 Neutral: 2

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



Read more...

China Stocks Set for 1st Gain in 9 Weeks on Government Action

By Zhang Shidong

Sept. 26 (Bloomberg) -- China's stocks rose, with the benchmark index set for its first gain in nine weeks, after the government increased support for the world's second-worst performing market this year.

Tsingtao Brewery Co., China's biggest brewer by sales, jumped 6.2 percent as its state-run parent bought more equity a week after the government urged big shareholders to stabilize the market. China Petroleum & Chemical Corp. fell 2 percent on a government report that industrial companies' profits grew at half the pace of a year earlier.

The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, advanced 11.59, or 0.5 percent, to 2,235.13 as of 2:30 p.m. local time. It has gained 7.8 percent this week. Earlier, the measure retreated as much as 1.4 percent on concern that government support won't prevent further declines because of a global economic slowdown.

``There are some concerns about the third-quarter earnings outlook as the domestic economy is on a downtrend,'' said Fan Dizhao, an investment manager at Guotai Asset Management Co. in Shanghai, which manages the equivalent of $5.l billion.

The CSI 300 has rebounded 18 percent since Sept. 18, when the government said it would buy more shares in the three- biggest listed banks and cut a stock trading tax to shore up equities. The gauge has slumped 58 percent this year on concern global demand for Chinese products will slow and as the government tightened lending to cool inflation.

Buy on Credit

China's State Council, or Cabinet, agreed to let investors buy shares on credit and sell borrowed stock to help develop the market, an official familiar with the plan said. It will take several days for the paperwork to go through, and the plan will be announced before the week-long National Day holiday next week or right after it, said the official.

``It's quite positive for the market and will help attract fresh capital into equities,'' said Wu Kan, a fund manager in Shanghai at Dazhong Insurance Co., which oversees the equivalent of $285 million. ``Given the current level the index is standing at now, I do think some investors will buy low through margin trading so as not to miss the boat.''

The introduction of margin trading follows last week's cut in interest rates, and the State-owned Assets Supervision and Administration Commission's appeal on Sept. 18 for government- owned companies to be ``a role model'' in promoting ``stable'' development of the nation's capital markets by buying back shares in publicly traded units.

Tsingtao

Tsingtao Brewery rose 5.7 percent to 16.80 yuan. The company said its state-controlled parent bought 1.9 million Shanghai-listed shares yesterday, increasing its stake to 30.71 percent from 30.56 percent.

China United Telecommunications Corp. rose for a third day, advancing 1.8 percent to 5.53 yuan, after it said yesterday its controlling shareholder bought about 50 million shares.

As of today, 52 companies have announced that their parents increased stakes in the listed units in response to the government appeal to support the market, Citic Securities Co. said in a note today.

China Petroleum or Sinopec, Asia's biggest oil refiner, fell 3.9 percent to 10.40 yuan. PetroChina Co., the nation's biggest oil company, lost 1.7 percent to 12.79 yuan.

Net income for Chinese industrial companies rose 19.4 percent from a year earlier to 1.87 trillion yuan ($274 billion), the statistics bureau said today. That was less than the 37 percent increase a year earlier. The oil refining and coking industry swung to a net loss of 96.1 billion yuan ($14 billion) in the first eight months as crude costs surged.

Ping An

Ping An Insurance (Group) Co., China's second-biggest insurer, dropped by the most in almost three months on concerns about losses on its investments in financial services company Fortis. Ping An slid 9.2 percent to 32.94 yuan, set for the biggest decline since July 2.

Ping An paid 1.81 billion euros for a 4.2 percent stake in Fortis, Belgium's biggest financial-services provider, in November. Its 2.15 billion euros purchase of half of the asset- management arm of Fortis is still pending regulatory approval.

``Concerns about Ping An's Fortis investments are the main reason for the drop,'' said Liu Peng, a Nanjing-based analyst at Huatai Securities Co. ``Investors are also getting more concerned about the insurer's overall investment performance as market volatility increased.''

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, fell 1.6 percent to 2,260.68. The Shenzhen Composite Index lost 0.4 percent to 605.52.

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



Read more...

Japanese Stocks Decline on Lower Shipping Rates, Bailout Doubts

By Patrick Rial

Sept. 26 (Bloomberg) -- Japan's shares declined, led by shipping lines, as cargo rates plunged. Lenders pared gains as the biggest bank failure in history coincided with conflict over the passage of a $700 billion financial rescue package.

Mitsui O.S.K. Lines Ltd., Japan's second-biggest bulk carrier, fell 6.3 percent to the lowest in almost two years. Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., two of the nation's three largest listed banks, retreated from 2.6 percent gains as a deal struck by U.S. lawmakers yesterday on the financial bailout appeared to be in jeopardy, and regulators seized Washington Mutual Inc.

The Nikkei 225 Stock Average fell 113.37, or 0.9 percent, to 11,893.16 at the close of trading in Tokyo. It earlier rose as much as 0.6 percent. The broader Topix index slumped for a third day, losing 6.06, or 0.5 percent, to 1,147.89. Almost four shares dropped for each that climbed on the Topix, which recorded a 0.1 percent weekly drop.

``The assumption is that the bailout will take longer than expected, which is negative,'' said Tsuyoshi Shimizu, a senior fund manager at Mizuho Asset Management Co., which oversees $26 billion. ``The longer it takes to pass something, the more victims we're going to see.''

The Topix rebounded from a four-year low last week as a plan to shore up the financial system improved market sentiment. Those gains were eroded this week amid concern the economy will continue to weaken and as financial markets turmoil continued.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.

Read more...

Asian Stocks Fall as U.S. Bailout Imperiled; Mitsui Declines

By Kyung Bok Cho and Patrick Rial

Sept. 26 (Bloomberg) -- Asian stocks fell for a fourth day after talks on a U.S. financial rescue plan stalled, Washington Mutual Inc. became the nation's biggest bank failure, and shipping rates slumped the most in 23 years.

China Merchants Bank Co. slid 4.7 percent in Hong Kong on concern the credit crisis is deepening after Republicans splintered over the proposed $700 billion bailout and WaMu was seized by regulators. Mitsui O.S.K. Lines Ltd., Japan's largest operator of dry-bulk ships, lost 6.3 percent. BHP Billiton Ltd. dropped 1.5 percent after crude oil prices declined.

``The assumption is that the bailout will take longer than expected, which is negative,'' said Tsuyoshi Shimizu, a senior fund manager at Mizuho Asset Management Co., which oversees $26 billion. ``As with Washington Mutual, the longer it takes to pass something, the more victims we're going to see.''

The MSCI Asia Pacific Index fell 0.7 percent to 113.98 at 3:34 p.m. in Tokyo, erasing an earlier 0.9 percent advance. The index has declined 0.3 percent this week, a fourth weekly retreat.

Japan's Nikkei 225 Stock Average lost 0.9 percent to 11,893.16. Hong Kong's Hang Seng Index fell 1.4 percent led by as Ping An Insurance (Group) Co. on concern that its investments are losing money. New Zealand's NZX 50 Index declined 1.6 percent after the economy contracted in the second quarter, driving the nation into its first recession in a decade.

Samsung Electronics Co. led technology stocks lower after Goodmorning Shinhan Securities Co. cut its price and earnings estimates for Asia's biggest maker of chips, flat screen televisions and mobile phones.

Alternative Plan

Standard & Poor's 500 Index futures slid 1.5 percent after a group of House Republicans led by Eric Cantor rejected a plan proposed by Treasury Secretary Henry Paulson that's backed by President George W. Bush and Democratic leaders.

If Paulson backs an alternative plan put forward by Cantor, negotiations would ``have to start all over again,'' U.S. Senate Banking Committee Chairman Christopher Dodd said.

The S&P 500 rose 2 percent yesterday as investors speculated Congress would agree on the $700 billion bailout.

China Merchants, the nation's fifth-largest bank by market value, declined 4.7 percent to HK$19.54 in Hong Kong. Woori Finance Holdings Co., which controls South Korea's second-largest bank, slid 7.5 percent to 12,400 won.

Seattle-based Washington Mutual had ``insufficient liquidity'' and was in an ``unsound'' condition, the Office of Thrift Supervision said in a statement. JPMorgan Chase & Co., the third-biggest U.S. bank by assets, agreed to pay $1.9 billion for the deposits of WaMu after the U.S. government closed the bank.

Ping An Drops

Ping An, which paid 1.81 billion euros ($2.65 billion) for a stake in Fortis, plunged 9.7 percent to HK$47.50. Fortis fell in Brussels to a 13-year low yesterday on funding concerns.

HSBC Holdings Plc, Europe's largest bank by market value, cut 1,100 jobs in its global banking and markets division as the deepening financial crisis threatens to extend a decline in profit. The stock fell 0.1 percent to HK$123.50 in Hong Kong.

Babcock & Brown Ltd., this year's worst performer on the MSCI Asian index, slid 2.5 percent to A$2.31 in Australia, halting a five-day advance. China Citic Bank Corp., the banking unit of the nation's largest investment company, dropped 3.1 percent to HK$3.48 in Hong Kong.

Mitsui O.S.K. slumped 6.3 percent to 946 yen. Pacific Basin Shipping Ltd., Hong Kong's largest dry-bulk shipping line, lost a record 11 percent to HK$6.20, the lowest since March 2007. Hanjin Shipping Co., the biggest South Korean shipping line, slipped 6.5 percent to 27,850 won.

Slowing Demand

The Baltic Dry Index lost 7.3 percent yesterday, bringing its three-day slide to 16 percent, the steepest decline since at least 1985, on weaker demand for steel from Chinese construction companies. The price to lease a capesize vessel has fallen 22 percent this week, according to the Baltic Exchange.

``Investors are foreseeing a further slowdown in emerging markets and a prolonged economic slump will be no doubt negative for shipping companies,'' said Naoki Fujiwara, who oversees about $720 million as chief fund manager at Shinkin Asset Management Co. in Tokyo.

BHP, the world's biggest mining company, lost 1.5 percent to A$35.84. Mitsui & Co., Japan's second-largest trading company, declined 5 percent to 1,423 yen.

Crude oil lost 1.5 percent to $106.45 a barrel recently in after-hours trading. The contract had risen 2.2 percent to $108.02 yesterday in New York.

Refining Loss

China's two largest oil refiners slumped after the nation's oil refining and coking industry swung to a net loss of 96.1 billion yuan ($14 billion) in the first eight months because of record crude costs and weak demand. China Petroleum & Chemical Corp. dropped 4.7 percent to HK$6.30 and PetroChina Co. declined 2.1 percent to HK$8.45.

Samsung retreated 2.5 percent to 553,000 won. Goodmorning Shinhan reduced its price estimate by 9.3 percent to 680,000 won in a report. Third-quarter operating profit will fall 41 percent from the previous three months on weak earnings from semiconductors and displays, the brokerage said.

Takeda Pharmaceutical Co., Japan's biggest drugmaker, added 4.2 percent to 5,670 yen, the most since April 2. The company said yesterday it will buy up to 9 million of its own shares for as much as 50 billion yen ($472 million).

Lotte Confectionery Co., South Korea's biggest maker of candy and cookies, lost 4 percent to 1.12 million won. The industrial chemical melamine was found in biscuits made by a Lotte affiliate in China, the Hankook Ilbo newspaper said. A company spokesman who asked not to be identified declined to comment on the report.

Tsingtao Brewery Co., China's biggest beer company by sales, gained 5.4 percent to 16.75 yuan. The company said its state- controlled parent bought 1.9 million shares yesterday, increasing its stake to 30.71 percent, from 30.56 percent.

To contact the reporter for this story: Kyung Bok Cho in Seoul at kcho7@bloomberg.net; Patrick Rial in Tokyo at prial@bloomberg.net

Read more...

South Korea Pension Fund's Returns Fall Over 8 Months

By Saeromi Shin

Sept. 26 (Bloomberg) -- South Korea's National Pension Service, the country's largest investor, posted negative returns for the first eight months of the year after global stock markets were roiled by credit turmoil.

The pension fund's return averaged a negative 1 percent between January and August, the Ministry for Health, Welfare and Family Affairs said in a statement today. It forecast annual returns to fall, the first drop since 2005. The fund had 228 trillion won ($197 billion) of assets at the end of August.

``Global financial markets are facing a big crisis because of the U.S. credit crunch,'' Park Hae Choon, the fund's president, told reporters in Seoul yesterday. ``Market stabilization may not come easily despite a string of measures taken by the U.S. government.''

South Korea's benchmark Kospi index fell 22 percent in the eight months as the worst U.S. housing recession since the Great Depression and a resulting global credit crisis slowed the world economy, threatening to affect the nation's overseas shipments. The measure is headed for its first yearly decline since 2002.

Washington Mutual Inc. yesterday became the latest casualty in the financial crisis that has already claimed Bear Stearns Cos. and Lehman Brothers Holdings Inc. JPMorgan Chase & Co. agreed to pay $1.9 billion for deposits at WaMu, which was seized by regulators.

Equities Rout

South Korea's pension fund incurred a combined $66 million in losses from its investments in Lehman, Merrill Lynch & Co. and American International Group Inc., according to the press release. It had a loss of $38 million from its holdings in the two biggest U.S. mortgage financiers Fannie Mae and Freddie Mac.

South Korean bonds, whose positive returns buffered the fund from equity losses, accounted for 72 percent of the fund's total assets as of the end of August, while local stocks took up 13 percent, according to the statement.

The value of the fund's local equities declined 20.7 percent, while the return from local bonds was a positive 3.4 percent.

The slump in global stock markets has weighed on overseas pension funds. The California Public Employees' Retirement System, the largest U.S. public pension fund, had a negative 0.8 percent return for the April-June period, the statement showed. Netherlands-based ABP posted a negative 5.1 percent return on investment in the first half.

National Pension is forecasting annual returns this year to come in the range of a 4.52 percent decline to an increase of 5.8 percent. It may be the fund's first year-on-year decline since 2005, after gaining 7.05 percent in 2007 and 5.91 percent in 2006.

Risk Management

In July, Park said the fund will buy as much as 9 trillion won ($7.8 billion) of the nation's stocks in the second half.

Going forward, the global liquidity squeeze, combined with bankruptcy risks from financial institutions and weak investors' sentiment, may delay the recovery of the world economy, the NPS said in its statement. Under such circumstances, the fund will strengthen its risk management and consider cutting its targeted weighting for overseas stocks this year, it said.

``We may spend less on overseas shares than initially planned, and instead put the money into local bonds or other alternative investments,'' said Hong Sung Gi, head of the fund's Investment Strategy Division.

Possible investments include real estate and shares of Daewoo Shipbuilding & Marine Engineering Co. and state-owned Woori Finance Holdings Co., Hong said.

The pension fund said on Aug. 19 it may spend as much as 1.5 trillion won to make a joint bid for Daewoo. The fund has been in talks with companies that have shown interest, including Posco.

To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net.



Read more...

Merrill Adjusts Recommendations on European Insurance Stocks

By Sarah Thompson

Sept. 26 (Bloomberg) -- Insurance stocks will remain ``vulnerable to swings in both the credit and equity markets,'' Merrill Lynch & Co. wrote, but ``investors should remain relaxed on balance sheet strength for now at least.''

The bank upgraded Munich Re, the world's biggest reinsurer, and Vienna Insurance Group to ``buy'' from ``neutral.''

``We prefer to focus on strong franchise values or at least those companies with more resilient earnings streams,'' Edinburgh-based analyst Blair Stewart wrote in a research note dated today.

``Capital positions may well prove to be resilient, but there is an undeniably long list of reasons why earnings will drop heavily this year and remain under pressure,'' Merrill added.

Aviva Plc, the U.K.'s biggest insurer by premiums, was cut to ``neutral'' from ``buy,'' while ING Groep NV, Old Mutual Plc and Scor SE were lowered to ``underperform'' from ``neutral.''

Assicurazioni Generali SpA and Zurich Financial Services AG were raised to ``neutral'' from ``underperform.''

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



Read more...

European, U.S. Stock Futures Slump; Societe Generale May Fall

By Adria Cimino

Sept. 26 (Bloomberg) -- European and U.S. stock-index futures sank after negotiations on the $700 billion financial bailout plan stalled and Washington Mutual Inc. became the biggest U.S. bank failure in history. Asian shares declined.

U.S.-traded securities of Societe Generale SA, France's third-largest bank by assets, and Commerzbank AG slid. HSBC Holdings Plc, Europe's biggest bank by market value, may be active after cutting 1,100 jobs as the deepening financial crisis threatens to extend a decline in profit.

Futures on the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, lost 1.4 percent to 3,182 at 7:37 a.m. in London. The U.K.'s FTSE 100 Index may decrease 72, according to Cantor Index, a betting firm. Futures on the Standard & Poor's 500 Index expiring in December dropped 1.5 percent to 1,195.9, while the MSCI Asia Pacific Index slid 0.7 percent to 113.99.

``There's a lot of hesitation on the plan,'' said Pierre- Yves Gauthier, a founding partner at Alphavalue in Paris. ``This stalling is creating more worries. Politics have taken over.''

A group of House Republicans led by Eric Cantor of Virginia said they wouldn't support a plan based on the approach outlined by Treasury Secretary Henry Paulson and backed by President George W. Bush and Democratic leaders. The discord sent Paulson back into a late-night meeting on Capitol Hill with lawmakers. Lawmakers are set to meet again this morning.

U.S. stocks advanced yesterday as investors speculated Congress would agree on the bailout, trimming the S&P 500's drop this week to 3.7 percent. Europe's Stoxx 600 has lost 2.6 percent in the period.

Treasuries, Dollar

``There was a solid belief late yesterday that the U.S. bailout plan was close to being accepted with bullish comments from politicians helping cheer stocks on Wall Street,'' wrote Matthew Buckland, a dealer at CMC Markets in London. After ``a change of note overnight, we expect to see European equities start the week's final session in a highly defensive mood.''

American depositary receipts of Societe Generale lost 1.9 percent from the stock's close in Paris, and Commerzbank, Germany's second-biggest lender, also slipped 1.9 percent from the closing price.

Treasuries rose, with two-year notes heading for a fifth week of gains. The notes extended their longest winning streak since February as Seattle-based Washington Mutual was seized.

WaMu, which was acquired by JPMorgan Chase & Co., is the latest casualty of a financial crisis that drove Lehman Brothers Holdings Inc. and IndyMac Bancorp out of business and led to the hastily arranged rescues of Merrill Lynch & Co. and Bear Stearns Cos., which was itself absorbed by JPMorgan.

Dollar

The dollar declined, heading for a second weekly decline against the yen.

HSBC may be active. The company cut 1,100 jobs in its global banking and markets division. The reductions in the division's back-office operations amount to about 4 percent of HSBC's wholesale banking workforce, Hong Kong-based spokesman Gareth Hewett said.

``We're taking these steps in the light of the current global business and economic environment and our cautious outlook for 2009,'' Hewett said.

Adecco SA, the world's largest supplier of temporary workers, said it sees weak markets in the U.S. and Canada for the rest of the year.

Air France-KLM Group may be active after Europe's biggest airline said Chief Executive Officer Jean-Cyril Spinetta will step down after 11 years in the job, to be replaced by Chief Operating Officer Pierre-Henri Gourgeon.

Conergy AG will probably gain. Germany's second-largest solar company said its creditors agreed to extend a bridging loan to the end of the year.

Vestas Wind Systems A/S had its recommendation cut to ``underweight'' from ``equal-weight'' at Morgan Stanley, which said the stock looks ``unjustifiably expensive.''

The brokerage also cited ``early signs of softening demand among small developers'' and an increase in raw-material prices.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.



Read more...

Conergy, Hochtief, MTU Aero Engines: German Equity Preview

By Nadja Brandt

Sept. 26 (Bloomberg) -- The following companies may have unusual price changes in Germany. Stock symbols are in parentheses, and share prices are from the previous close.

The X-DAX Index climbed 0.1 percent to 6,159.74. The measure, derived from trading in DAX Index futures, provides an estimate of Germany's benchmark index. The DAX increased 2 percent to 6,173.03.

Conergy AG (CGY GY): Germany's second-largest solar company said its creditors agreed to extend a bridging loan to the end of the year. The shares added 5 cents, or 0.6 percent, to 7.96 euros.

Hochtief AG (HOT GY): Germany's biggest builder said it's not planning to dispose of its European construction business, denying a report by Manager-Magazin. The shares climbed 1.98 euros, or 5.4 percent, to 38.39 euros.

MTU Aero Engines Holding AG (MTX GY): The largest independent provider of jet-engine maintenance plans to hold a conference for analysts and investors. The shares climbed 83 cents, or 4.2 percent, to 20.78 euros.

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



Read more...

Research In Motion Falls After Profit Forecast Misses Estimates

By Vivek Shankar

Sept. 26 (Bloomberg) -- Research In Motion Ltd., maker of the BlackBerry e-mail phone, fell as much as 21 percent in late trading after competition from Apple Inc.'s new iPhone curbed its profit forecast for the second quarter in a row.

Earnings will be 89 cents to 97 cents a share in the third quarter, hampered by the cost of building more advanced devices and selling them at lower prices, Research In Motion said yesterday. Analysts in a Bloomberg survey had predicted earnings of 99 cents on average for the period, which ends Nov. 29.

The company is battling a challenge from the iPhone and other competitors with four new models, boosting development and marketing costs. The iPhone's $199 price tag may limit how much Research In Motion can charge for its latest products, making them less profitable than older models. Gross margin, or the percentage of sales left after production costs, will drop to 47 percent in the current period, from 50.7 percent last quarter.

``The gross margin is a nightmare,'' Peter Misek, an analyst with Canaccord Adams Inc. in Toronto, said in an interview with Bloomberg Radio. ``We certainly didn't expect that.''

Research In Motion, based in Waterloo, Ontario, fell as much as $20.49 to $77.04 in late trading yesterday. If that decline holds up today on the Nasdaq Stock Market, it will be the biggest one-day drop since January 2001.

Two in a Row

While Research In Motion's sales forecast met analysts' projections, the profit missed estimates for the second straight quarter. The company also has had to delay the U.S. release of one of its new phones, the BlackBerry Bold, until October. That device was designed to compete directly with the iPhone.

Handset makers are racing to establish themselves in the booming market for so-called smart phones, devices that manage e- mail and the Web. Shipments of the products may more than double to 288 million units in 2009 from last year, according to Stamford, Connecticut-based research firm Gartner Inc.

Research In Motion plans to increase its market share over the next few quarters, even if that means reducing profits in the short term, co-Chief Executive Officer Jim Balsillie said yesterday on a conference call. Gross margin in the fourth quarter may drop further, the company said.

``Does it change the profitability structure of the company? That's the concern,'' said James Faucette, an analyst with Pacific Crest Securities in Portland, Oregon. He recommends buying Research In Motion shares, which he doesn't own.

Expensive Features

Research In Motion is working on a touch-screen phone and an update to its Curve consumer model, in addition to the Bold and a flip-phone version of its BlackBerry Pearl, according to Mike Abramsky, an analyst at RBC Capital Markets in Toronto.

Some of the new phones are more expensive to make because they have more features, Balsillie said. The Bold, for example, has a brighter screen.

``It's difficult to pass on all these costs to customers,'' Balsillie said.

Sales this quarter will rise to as much as $3.1 billion, the company said yesterday. That topped analysts' average estimate of $2.96 billion.

Second-quarter net income rose 72 percent to $495.5 million, or 86 cents a share, from $287.7 million, or 50 cents, a year earlier, the company said. Analysts predicted a profit of 87 cents on average for the period, which ended Aug. 30. Revenue climbed 88 percent to $2.58 billion, compared with a projection of $2.59 billion from analysts.

Higher Costs

Sales and marketing costs almost doubled in the quarter, rising to $379.6 million, while research and development spending more than doubled, climbing to $181.3 million.

``The cost of selling and launching all these platforms is much higher than what people thought,'' Pablo Perez-Fernandez, an analyst with Global Crown Capital in San Francisco, said in an interview. He recommends buying the shares, which he doesn't own.

Research In Motion added 2.6 million users last quarter, compared with a 2.64 million estimate from Perez-Fernandez. The company expects to add 2.9 million users this quarter, missing Perez-Fernandez's projection of 3.09 million. Research In Motion currently has about 19 million BlackBerry users.

The company, which once focused mainly on corporate users, is offering cheaper phones to reach customers outside the business world. In the past quarter, Verizon Wireless reduced the price tag on the BlackBerry Pearl to $79 from $99. About 40 percent of Research In Motion's users are now consumers, while the rest are business customers.

Apple, based in Cupertino, California, is attacking the market from the opposite direction. After winning over consumers, it's going after corporate users with features such as access to office e-mail.

Apple introduced the iPhone 3G in July, selling a million units in the product's first three days. The original iPhone, which ran on a slower network, debuted in June 2007 at a price of $599.

Research In Motion increased its share of the U.S. smart- phone market to 53.6 percent in the second quarter from 44.5 percent in the first, according to Framingham, Massachusetts- based research firm IDC. Apple's phone sales slowed in the quarter as it prepared for the July launch of the iPhone 3G.

To contact the reporter on this story: Vivek Shankar in San Francisco at vshankar3@bloomberg.net

Read more...

America Movil, Atacocha, Positivo, Sadia: Latin Equity Preview

By William Freebairn and James Attwood

Sept. 26 (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 rose 3.8 percent yesterday to 3,450.21.

Argentina

Pampa Energia SA (PAMP AF): Argentina's biggest electricity holding company had its ``buy'' rating and 3.3 peso price estimate reiterated at brokerage Grupo SBS, analyst Mariano Kruskevich wrote in a note to clients yesterday, citing prospects for new expansion projects. Pampa rose 2.9 percent to 1.42 pesos.

Brazil

Positivo Informatica SA (POSI3 BS): The Brazilian computer maker said controlling shareholders may acquire an additional 2.3 percent stake. The holders may buy as many as 2.01 million shares, Positivo said yesterday in a statement to the Brazilian securities regulator. Positivo rose 0.1 percent to 8.10 reais.

Sadia SA (SDIA4 BS): Brazil's second-largest food company said it lost 760 million reais ($416 million) after it pulled out of a currency investment early because of turmoil in financial markets, the company said yesterday in a statement on the Brazilian securities regulator Web site. Sadia fell 2 percent to 9.30 reais.

Chile

Cia de Telecomunicaciones de Chile SA (CTCA CC): The country's biggest fixed-line carrier known as Telefonica Chile expects to book a profit of 9.5 billion pesos to 11 billion pesos ($17.7 million to $20.5 million) in fourth-quarter results from the sale of a unit. The company gave the estimate in a statement posted on the regulator's Web site yesterday after announcing the sale of the unit, Telefonica Asistencia y Seguridad SA, in a Sept. 22 filing. Telefonica Chile shares were unchanged at 970 pesos.

Mexico

America Movil SAB (AMXL MM): Latin America's biggest mobile- phone company does not expect to have enough of Apple Inc.'s iPhone handsets to meet demand when they go on sale today in Brazil, Reuters reported. Demand is higher than the initial shipments America Movil received from Apple, Brazil unit Chief Executive Joao Cox said on a conference call, the news agency reported yesterday. America Movil rose 5.6 percent to 25.71 pesos.

Peru

Cia. Minera Atacocha SAA (CMA/B PE): Peru's securities regulator asked Atacocha, Peru's fifth-largest zinc producer, to explain recent share moves. The company should clarify whether there have been developments in the talks between shareholders and an unnamed potential buyer, which Atacocha announced Aug. 28, the regulator said in a statement on its Web site yesterday. Atacocha rose 7 percent to 3 soles.

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



Read more...

S&P Cuts Market-Value Guidelines for U.S. Indexes

By Chan Tien Hin

Sept. 26 (Bloomberg) -- Standard & Poor's cut the market- value ranges for inclusion in its three main U.S. indexes after this year's rout wiped $1.8 trillion off the nation's shares.

Companies that join the Standard & Poor's 500 Index must be worth $4 billion or more, it said in a statement yesterday, down from at least $5 billion. The S&P MidCap 400's range was lowered to between $1 billion and $4.5 billion from $1.5 billion to $5.5 billion earlier. The changes became effective yesterday.

The S&P SmallCap 600 guideline is now $250 million to $1.5 billion, compared with $300 million to $2 billion before.

The S&P 500 is down 18 percent this year on concern more than $521 billion in credit losses and writedowns at financial firms globally and a slowing economy are curbing profits.

U.S. economic growth may slip to 1.7 percent this year and 1.5 percent in 2009, the slowest since the last recession in 2001 and its aftermath in 2002, according to the median of 80 economist forecasts compiled by Bloomberg.

The S&P 500 Index has 154 industry groups, with the Thrifts & Mortgage Finance Index being the worst performer this year, down 82 percent, led by Washington Mutual Inc. The Investment & Brokerage Index is down 50 percent.

Standard & Poor's last changed its market-value guidelines in July 2007 when it raised the ranges for the three main U.S. indexes.

S&P, a unit of New York-based McGraw-Hill Cos., uses the figures as guidelines, not requirements, for index inclusion.

To contact the reporter on this story: Chan Tien Hin in Kuala Lumpur thchan@bloomberg.net.



Read more...

New Zealand Economy Second Quarter GDP: Summary (Table)

By Daniel Petrie

Sept. 26 (Bloomberg) -- Following is a summary of New Zealand's second quarter GDP figures from Statistics New Zealand in Wellington.

==============================================================================
                           2Q      1Q      4Q      3Q      2Q      1Q      4Q
                         2008    2008    2007    2007    2007    2007    2006
==============================================================================
Real GDP
QoQ% change             -0.2%   -0.3%    0.9%    0.6%    0.9%    1.2%    0.7%
 Annualized rate        -0.6%   -1.2%    3.6%    2.5%    3.8%    4.9%    2.6%
YoY% change              1.0%    2.2%    3.7%    3.5%    3.3%    2.4%    2.4%
Nominal GDP
QoQ% change             -1.0%    0.2%    3.0%    1.2%    2.4%    1.5%    1.8%
 Annualized rate        -4.1%    0.8%   12.4%    4.9%    9.7%    5.9%    7.6%
YoY% change              3.3%    6.9%    8.2%    7.0%    8.0%    6.3%    6.6%
------------------------------------------------------------------------------
Deflator                  1316    1323    1312    1282    1270    1250    1242
QoQ% change             -0.5%    0.8%    2.3%    0.9%    1.6%    0.6%    0.6%
YoY% change              3.6%    5.8%    5.6%    3.8%    4.3%    3.1%    3.0%
==============================================================================

Note: Figures are seasonally adjusted. Annualized quarterly rate figures

are calculated by Bloomberg.

Source: Statistics New Zealand

To contact the reporter on this story: Daniel Petrie in Sydney at dpetrie5@bloomberg.net

Read more...

Chinese Industrial-Company Profit Growth Is Halved

By Nipa Piboontanasawat

Sept. 26 (Bloomberg) -- Chinese industrial companies' profits rose at about half the pace of a year earlier as raw- material costs climbed and economic growth cooled.

Net income increased 19.4 percent in the first eight months of 2008 to 1.87 trillion yuan ($274 billion), the statistics bureau said today. The gain was 37 percent a year earlier.

China's economy, the world's fourth largest, may keep cooling as a credit crisis undermines global growth, reducing demand for Chinese products. Oil refiners and processors of coking coal posted a 96.1 billion yuan loss for the period on higher costs, today's report showed.

``Profit margins are being squeezed,'' said Paul Tang, an economist at Bank of East Asia Ltd. in Hong Kong.

Electricity generators' profits slumped 81.6 percent, contrasting with a 142.8 percent gain for coal miners and a 54.7 percent increase for the oil and gas industry.

Crude oil jumped 33 percent in the past year. China Petroleum & Chemical Corp., Asia's biggest oil refiner, has reported a slump in profits on government price controls and record costs.

China's economy expanded 10.1 percent in the three months through June, slowing for the fourth straight quarter. In August, industrial production grew the least in six years because of weaker export demand, power shortages and factory shutdowns for the Olympics.

`Weaker Demand'

``Because of weaker demand in the U.S. and Europe, it has been difficult for Chinese companies to raise prices even as costs increase,'' said Tang.

Producer-price inflation quickened to 10.1 percent last month, the fastest pace since 1996.

The government cut borrowing costs this month for the first time in six years and has also eased lending restrictions on banks to stimulate growth and protect jobs.

``There's so much momentum in the Chinese economy that it's unlikely to be a serious slowdown,'' said David Cohen, an economist at Action Economics in Singapore.

Telecommunications-industry profits rose 18.2 percent, half the pace of the first five months. Net income among transport- equipment manufacturers climbed 35.1 percent.

Overall, industrial companies' sales increased 29 percent to 31.6 trillion yuan in the first eight months from a year earlier.

The figures are released quarterly. Today's increase in profits compared with a 20.9 percent gain in the first five months.

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net;



Read more...

New Zealand Economy Shrank 0.2%, Confirming Recession

By Tracy Withers

Sept. 26 (Bloomberg) -- New Zealand's economy contracted last quarter, confirming the nation is in its first recession in 10 years and adding to the prospect the central bank will cut interest rates next month.

Gross domestic product fell 0.2 percent from the first quarter when it declined 0.3 percent, Statistics New Zealand said in Wellington today. The median expectation in a Bloomberg News survey of 13 economists was for a 0.5 percent contraction. From a year earlier, the economy grew 1 percent.

Reserve Bank Governor Alan Bollard has cut the benchmark interest rate by three quarters of a point to 7.5 percent since July to try to kick-start the economy. Facing a contraction again in the third quarter and fresh turmoil in global financial markets, most economists say Bollard will lower rates by a half- point on Oct. 23 with a fourth reduction likely in December.

``The Reserve Bank of New Zealand is going to cut rates again in October,'' said Stephen Walters, chief economist JPMorgan Chase & Co. in Sydney. ``Since they cut by half a point earlier this month, things have gotten a lot worse globally. So there's a case for them to keep going at that rate.''

The New Zealand dollar rose to 68.66 U.S. cents at 11:55 a.m. in Wellington from 68.17 cents before the report was released, gaining because the contraction was less than forecast by economists. The currency has fallen almost 12 percent this year. The five-year government bond yield was little changed at 5.60 percent.

Rate Outlook

``This recession won't be as bad'' as the 1998 slump, said Joshua Williamson, a senior strategist at TD Securities Ltd. in Sydney. ``This could be a relatively smaller easing cycle.''

The second-quarter contraction matched the central bank's forecast. Bollard expects the economy will shrink again in the three months ended Sept. 30. Eight of 10 economists surveyed by Bloomberg also predict a third-quarter contraction and the Treasury Department said Sept. 8 it couldn't rule out the possibility.

Finance Minister Michael Cullen said today the contraction is a ``temporary disappointment'' and the economy will recover in the fourth quarter. ``New Zealand's economic prospects are healthy and strong,'' he said in an e-mailed statement.

Bollard cut the record-high official cash rate in July by a quarter point to 8 percent, his first reduction in five years, when most economists expected no change. He followed on Sept. 11 with a half-point cut to 7.5 percent when all but one analyst forecast a quarter-point change.

Consumer Confidence

Ten of 14 economists expect a half-point cut to 7 percent next month. The rest tip a quarter-point reduction.

Consumer confidence fell to a 17-year low in the second quarter as food prices soared, fuel costs reached a record and home-loan interest rates remained at an all-time high.

``A clear shift in consumer sentiment occurred during this period, which placed significant pressure on retail sales, with margins coming under further pressure as retailers sought to clear seasonal inventories,'' Ian Morrice, chief executive officer at Warehouse Group Ltd., said this month.

Auckland-based Warehouse Group, the nation's biggest discount retailer, reported a 52 percent plunge in profit in the six months ended July 27.

The second straight quarterly contraction in gross domestic product was led by a slump in consumer spending, home building and exports, the statistics agency said.

Household spending, which makes up 60 percent of the economy, fell for a second straight quarter, the first successive decline in 16 years.

Business Investment

Purchases of durable items declined 0.7 percent, led by cars. Spending on alcohol, food and other so-called non-durable goods declined 0.8 percent. Spending on health, travel and other services rose.

New Zealanders are buying fewer cars, computers and appliances as they pay higher interest costs on their mortgages and credit cards. A borrower seeking a two-year fixed home loan faced a rate of 9.2 percent in June compared with 8.3 percent two years earlier.

Spending on new housing fell 8.2 percent in the second quarter, the third straight decline, the statistics agency said.

Business investment increased, led by a 16 percent jump in spending on plant, machinery and equipment amid demand from the oil industry. Commercial construction slipped. Inventories held by retailers and the distribution industry rose.

Overseas shipments of goods and services declined 0.2 percent in the quarter as dairy sales dropped. Import volumes rose 3.3 percent led by transport equipment.

Milk Output

Farmers produced 4.3 percent less milk in the year ended June 30 because of a drought, Fonterra Cooperative Group Ltd., the world's largest dairy exporter, said this week. Dairy exports declined 18 percent in the second quarter. Sales of butter, cheese and milk powder make up one-fifth of New Zealand's exports.

Farm production fell 0.6 percent in the second quarter as the drought forced many farmers to stop milking cows. Mining and forestry output also dropped.

Manufacturing increased 1.4 percent, rebounding from a first-quarter slump as farmers sent livestock to slaughter as feed diminished. The construction industry dropped 3.8 percent, led by home building.

The GDP deflator was 4.8 percent in the year ended June 30, the statistics agency said.

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

Read more...

Japan's Inflation Exceeds 2% for Second Month on Oil

By Mayumi Otsuma

Sept. 26 (Bloomberg) -- Japan's consumer-price inflation exceeded 2 percent for a second month as companies passed on costs of food and other daily necessities.

Core prices, which exclude fresh food, climbed 2.4 percent in August from a year earlier, the same pace as July, the statistics bureau said today in Tokyo. The median estimate of 33 economists surveyed by Bloomberg News was for a 2.4 percent increase.

The fastest inflation in a decade won't spur an interest- rate increase by the Bank of Japan because prices gains are likely to moderate as oil costs drop. Policy makers will probably keep the key rate at 0.5 percent, the lowest in the industrialized world, as it monitors the effect of the global financial crisis on Japan's shrinking economy.

``Inflation will peak soon,'' said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group in Tokyo. ``That will allow the Bank of Japan to remain on hold and keep an eye on the economy for a while.''

The yen traded at 105.96 per dollar at 11:21 a.m. in Tokyo from 106.40 before the report was published. Yields on 10-year government debt fell 1 basis point to 1.465 percent.

The core inflation rate has surpassed wage growth for four months, stripping consumers of their spending power and pushing their sentiment to a 26-year low. The economy contracted last quarter as exports and personal spending dropped.

Inflation Alarm

``We are not ringing the secondary-inflation alarm, as wages are weak and penetration of price hikes is likely to be mild,'' said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo.

Crude oil has fallen by more than a fifth since rising to a record in July. Soybeans, corn and wheat have slumped after climbing to records this year.

Finance Minister Shoichi Nakagawa said today that higher prices are hurting consumers and companies and that the government is taking measures to ease the burden. The government said last month it would cut taxes for some low-income earners.

Some economists say consumer inflation will hover around 2 percent even as commodity costs tumble because companies have yet to make up for accumulated losses incurred by fuel and material cost increases and will try to pass on costs to clients.

``Though the economy will likely be stuck in a recession for a while, prices will stay at high levels,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo. ``The central bank will neither raise nor cut rates for the time being.''

Potato Chips

Calbee Foods Co., a Tokyo-based snack food maker, said this month it will raise potato chip prices by about 8 percent in November to offset costlier edible oil. The company last year tried to absorb costs by reducing the amount of chips per package.

The central bank expects core consumer prices to moderate gradually as oil prices decline, Governor Masaaki Shirakawa said last week. Even so, the bank should carefully watch whether consumers' inflationary expectations and companies' price- setting behaviors will change, he said.

Bank of Japan policy makers have said they consider core prices to be stable if they stay between zero and 2 percent over the mid- and long-term period. Prices by that measure will probably average 1.6 percent in 2008 and 1.4 percent in 2009, according to Tetsufumi Yamakawa, a former Bank of Japan official and now chief Japan economist at Goldman Sachs Group Inc.

Shelved Policy

The central bank has kept the key overnight lending rate at 0.5 percent since doubling it in February 2007. It shelved a policy of gradual rate increases in April.

Of 29 economists who gave predictions through June in a Bloomberg survey, 24 said the central bank will keep rates unchanged by then. Four estimated higher rates and one forecast a cut.

Excluding food and energy, prices were unchanged in August from a year earlier after increasing 0.2 percent in July. Core prices in Tokyo advanced 1.7 percent in September from a year earlier, faster than the 1.5 percent increase of August, today's report showed.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

Read more...

Crude Oil Declines on Concern U.S. Bailout Plan May Hit Snag

By Christian Schmollinger

Sept. 26 (Bloomberg) -- Crude oil fell in New York after Congressional negotiations on plans to rescue the financial industry stalled, adding to concern that the economy of the world's biggest energy consumer will falter, slowing fuel demand.

Senate Banking Committee Chairman Christopher Dodd said yesterday that the agreement in principle he had reached earlier in the day with some Republicans was later undermined by a proposal offered by other members of the caucus. U.S. average oil products consumption for the past four weeks was down 6.6 percent from last year, the Energy Department said Sept. 24.

``The up and downs we've seen in the oil market deeply depend on the strength of the rescue plan,'' said Hirofumi Kawachi, a senior energy analyst at Mizuho Investors Securities Co. in Tokyo. ``People are simply losing confidence in the ability of Congress to pass the projected plan.''

Crude oil for November delivery fell as much as $1.44, or 1.3 percent, to $106.58 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $106.71 a barrel at 10:34 a.m. Singapore time.

Prices are down 28 percent from the record $147.27 a barrel reached on July 11. Yesterday, futures rose $2.29, or 2.2 percent, to settle at $108.02 a barrel.

Oil is headed for its first weekly gain in three weeks after climbing 2.1 percent since Sept. 19. The market traded in a $26.78 range including a record one day jump of $25.45 on Sept. 23 after traders that sold October futures earlier in the month had to buy back contracts at higher prices before expiry.

Sales of new homes in the U.S. fell in August to a 17-year low, signaling the housing market suffered another setback even before the latest turmoil in financial markets. Sales dropped 11.5 percent, more than forecast, to an annual rate of 460,000, the fewest since January 1991, the Commerce Department said yesterday. The median sales price dropped to a four-year low.

Durable Goods

Orders for U.S. durable goods fell more than twice as much as forecast in August, a sign that slower sales and tighter credit conditions prompted companies to cut spending. The 4.5 percent drop in bookings of goods meant to last several years followed a revised 0.8 percent gain in July, the Commerce Department said yesterday in a separate report.

Gasoline demand averaged 9 million barrels a day during the past four weeks, down 3.4 percent from the same period last year, the Energy Department report showed. Gasoline inventories dropped 5.9 million barrels to 178.7 million barrels, the lowest since 1967. Supply levels prior to 1990 were reported on a monthly basis.

Brent crude oil for November settlement fell as much as $1.20, or 1.2 percent, to $103.40 a barrel on London's ICE Futures Europe exchange. It was at $103.48 a barrel at 10:19 Singapore time. The contract declined yesterday as much as 83 cents, or 0.8 percent, to $103.77 a barrel.

There was also pressure on prices as OPEC continues to export large volumes of oil as it may take time for the group to cut back their output to the proscribed quota levels.

OPEC's daily shipments of oil will increase 2.2 percent in the four weeks to Oct. 11, according to data from industry consultant Oil Movements released yesterday.

The Organization of Petroleum Exporting Countries will load 24.75 million barrels a day in the period, compared with 24.21 million barrels a day shipped in the four weeks ended Sept. 13, the Halifax, England-based consultant said.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.

Read more...

Australian Minister Is in Darwin for Inpex LNG Announcement

By Angela Macdonald-Smith and Gemma Daley

Sept. 26 (Bloomberg) -- A decision on the site of Inpex Holdings Inc.'s proposed A$12 billion ($10 billion) Australian liquefied natural gas project may be announced today after the government said the resources and energy minister is in Darwin.

An announcement on Inpex is expected at 11:30 a.m. Darwin time, a Resources, Energy and Tourism department official said, asking not to be named before official statements are made. The Northern Territory is expected to trump Western Australia as the site for the project, ABC News reported today.

Tokyo-based Inpex and partner Total SA are set to decide on the site for a plant to turn gas from the Ichthys field off Australia's northwest coast into LNG for export to Japan. Earlier this year they started studying a site near Darwin amid opposition to an originally preferred location on the Maret Islands off Western Australia, closer to the gas field.

Should the partners choose the Darwin site, the project will contribute more than A$50 billion to the Northern Territory economy over the next 20 years and create 4,000 jobs, the territory government estimates. It would be the largest single infrastructure project ever undertaken in the territory.

Inpex owns 76 percent of Ichthys, while Paris-based Total, Europe's third-largest oil company, owns the rest. Australia's energy minister is Martin Ferguson.

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



Read more...

Inpex Picks Darwin for $20 Billion Australia LNG Site

By Shigeru Sato and Angela Macdonald-Smith

Sept. 26 (Bloomberg) -- Inpex Holdings Inc., Japan's largest oil explorer, picked Darwin in northern Australia as the site of a proposed $20 billion natural gas project that would be the biggest Japanese investment in the country.

Inpex and partner Total SA will decide whether to build the Ichthys liquefied natural gas project late next year or early 2010 and production may start in late 2014 or early 2015, the Tokyo-based company said today in a statement to the stock exchange. They dropped an earlier plan to build the plant off Western Australia, closer to the offshore gas field.

The fuel will be shipped to Japan, the world's largest LNG consumer, where demand for gas from power producers may rise 21 percent by 2030, International Energy Agency projections show. Inpex's estimate for the cost of the project is more than double the latest estimate from the Northern Territory government.

``Initial project costs may have grown by a few billion dollars to build a longer pipeline spanning the Ichthys field and terminating in Darwin, but rising LNG sales prices will easily help Inpex absorb incremental costs,'' Lalita Gupta, an analyst at Morgan Stanley in Tokyo, said by telephone.

Inpex gained as much as 4.2 percent in Tokyo trading to 1.016 million yen and was at 1.008 million yen at 11:23 a.m. local time.

Light Oil

The partners will start initial plant engineering work ``soon,'' Inpex said. The plant will be designed to initially produce more than 8 million metric tons of LNG a year, as well as 1.6 million tons a year of liquefied petroleum gas and 100,000 barrels a day of condensates, a type of light oil.

Should the Ichthys project go ahead, it will boost jobs and business opportunities in the Darwin region, Australian Resources and Energy Minister Martin Ferguson said in a separate e-mailed statement.

``The reserves are sufficient to support a major LNG export project for decades to come,'' Ferguson said. ``I hope this project will be one of many established over the next few years as we continue to unlock the wealth from Australia's immense gas and energy resources.''

Global consumption of LNG is set to increase 10 percent a year through 2015, more than five times the estimated gain in crude-oil demand, Citigroup Inc. said in April, as utilities switch to cleaner fuel for power generation.

Last 40 Years

The Ichthys project, which will have a life of at least 40 years, is one of about 10 proposed LNG ventures in Australia, which has two operating plants and another under construction. Woodside Petroleum Ltd., Chevron Corp. and Royal Dutch Shell Plc are among rivals proposing projects in northwest Australia.

Australia is the nation expected to show the biggest growth in LNG production capacity through 2022, with 16 percent of the total proposed in the world in that period, according to the Paris-based IEA. Australia had a potential 91.7 million tons a year of new capacity as of March 2008, the IEA said.

``Environmental, economic and engineering studies have demonstrated the viability of locating an LNG plant at Blaydin Point and have lent weight to this decision,'' said Naoki Kuroda, president of Inpex.

Earlier this year Inpex and Paris-based Total started studying the Blaydin Point site near Darwin amid opposition from environmental groups to their originally preferred location on the Maret Islands off Western Australia, closer to the Ichthys field. The partners would have had to negotiate an agreement with local Aboriginal communities to build the plant in Western Australia, and would also have been under an obligation to supply some of the gas into the local market.

Gas Pipeline

The selection of Darwin means they will need to build an 850-kilometer (528-mile) pipeline to transport gas from the offshore field, boosting project costs.

Inpex said today it expects the total cost of the project to exceed $20 billion. That's more than double the latest projection of A$12 billion ($10 billion) from the Northern Territory government and Inpex's original figure of about A$10 billion. Inpex owns 76 percent of Ichthys, while Total, Europe's third-largest oil company, owns the rest.

The forecast production from Ichthys represents about 50 percent of Australia's existing LNG output, 60 percent of LPG production and about 20 percent of crude-oil output, Inpex said.

LNG is natural gas chilled to liquid form, reducing it to one-six-hundredth of its original volume, for transportation by tanker to destinations not connected by pipeline.

To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net;

Read more...

Banpu May Post Record Profit for Third Year in 2009

By Anuchit Nguyen

Sept. 26 (Bloomberg) -- Banpu Pcl, Thailand's biggest coal company, expects to sell more fuel at higher prices in the next 15 months, helping to drive profit to a record for the third straight year in 2009.

``Higher coal output and prices will keep the company's earnings growth strong next year,'' Chief Executive Officer Chanin Vongkusolkit said in an interview in Bangkok. ``Coal demand in the region will continue to rise because it is the cheapest alternative to oil.''

Power-station coal prices have doubled in a year and reached a record in July, driven by increased demand for alternative fuels after a surge in crude oil costs. Banpu has contracted to supply 40 percent of its output next year at higher prices, Chanin said.

``Banpu's coal contracts are being signed at much higher prices for next year without much resistance,'' said Avin Sony, an analyst at ABN Amro Securities Co. in Bangkok, who recommends that investors buy the stock. ``That leaves ample room for an earnings surprise in 2009.''

The biggest increase in production will come from Banpu's mines in China, where output is expected to rise to 3.5 million metric tons from 2 million tons this year, Chanin said yesterday. The company projects its 2008 sales at 20 million tons, he said.

Banpu has contracts to sell all coal from its mines in China, Indonesia and Thailand at an average price of about $70 a ton this year compared with $41 a ton in 2007, Chanin said.

Earnings Outlook

The mining company's net income more than doubled to a record 6.65 billion baht ($196 million) in 2007. Earnings climbed 48 percent to 4.37 billion baht in the first six months this year.

Profit may rise to 14.4 billion baht in 2009 from 9.52 billion baht in 2008, according to the median estimate of 20 analysts surveyed by Bloomberg.

The Thai company is considering investing in coal mines in South Africa to boost production, Chanin said. The company had earlier said it may invest in mines in India and Australia.

Banpu paid $420 million in June to buy the shares it doesn't already own in Asian American Coal Inc., which holds a 56 percent stake in Shanxi Asian American-Daning Energy Co. Shanxi Asian has been operating a mine in China's Shanxi province since 2006 with a 25-year concession. It has coal reserves of 88 million tons and produces 4 million tons a year.

Banpu's stock fell 1.2 percent to 330 baht as of 10:25 a.m. Bangkok time. The shares have dropped 18 percent this year compared with a 28 percent decline in Thailand's benchmark SET Index.

To contact the reporter on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net.



Read more...