Lehman Good-for-Retirement Notes Worth Pennies for UBS Clients

By Bradley Keoun and David Scheer

Nov. 3 (Bloomberg) -- UBS AG, Switzerland's largest bank, faces dozens of claims in the U.S. from clients who bought ``100 percent principal protected notes'' issued by Lehman Brothers Holdings Inc. that are now almost worthless.

Six attorneys hired to represent clients in the cases say UBS brokers touted the so-called structured notes as low-risk investments and failed to emphasize they were unsecured obligations of Lehman, which filed for bankruptcy in September. State regulators are fielding so many calls about Lehman's notes they're considering a task force to investigate the sales, said Rex Staples, general counsel for the North American Securities Administrators Association Inc., a group of 67 state and provincial regulators based in Washington.

``The sales pitches were that it's good for retirement accounts, and good for the safe, fixed-income part of people's portfolios as an alternative to owning stocks, because it's less risky,'' said Seth Lipner, a lawyer in Garden City, New York, hired by two holders of Lehman notes sold by UBS, including a 65- year-old accountant who says he lost $1.4 million in retirement savings. ``Of course, it turned out to be more risky.''

Any awards for investors would add to the financial industry's burgeoning costs for compensating individuals who bought supposedly safe investments that crumbled in the credit crunch. Banks and securities firms, including Zurich-based UBS, Citigroup Inc. and Merrill Lynch & Co., already have had to swallow more than $3.6 billion in fines and market losses on auction-rate securities they had to buy back from clients under orders from the U.S. Securities and Exchange Commission and regulators in New York, Massachusetts and other states.

UBS Woes

UBS had to take a charge of $900 million related to the auction-rate probe. It is also being investigated by the SEC for the sale of derivatives and investment contracts to state and local governments, and the Internal Revenue Service is looking into whether it improperly helped U.S. clients evade taxes.

Kristopher Kagel, a UBS spokesman in New York, said the bank ``properly sold'' Lehman's structured notes to its clients.

``The offering materials clearly identified Lehman as the issuer and discussed all the relevant risks and features of the product,'' Kagel said.

A state task force on structured notes would be similar to the one convened earlier this year that investigated the auction- rate market. Regulators have been concerned about structured notes for some time and ``now the complaints are beginning to come in at a fairly rapid clip,'' Staples said.

He declined to say whether UBS was a target of complaints.

Structured Notes

Structured notes, sometimes marketed as ``structured equities'' or ``hybrid financial instruments,'' are constructed by banks and Wall Street firms from a combination of bonds, stocks, commodities, currencies and derivatives. About a third of the $114 billion sold last year in the U.S. promised full or partial principal protection.

The banks, which rely on market borrowings to finance their loans, trades and investments, sold more structured notes to retail clients as the credit crisis made plain-vanilla bonds more expensive to issue in institutional debt markets. Sales of the notes quadrupled in the U.S. during the past four years, according to data compiled by London-based research firm mtn-i.

About $8 billion of Lehman structured notes were outstanding as of September, including $2.8 billion sold this year, mtn-i reported. The New York-based firm was selling the notes as late as August, while it was racing to find capital weeks before being swept away by what Chief Executive Officer Richard Fuld, 62, called a ``financial tsunami.''

Worth 14 Cents

UBS, the fifth-biggest brokerage firm in the U.S., sold about $1 billion of Lehman's structured notes in America, according to Kagel. The largest brokerages -- Merrill Lynch, Citigroup's Smith Barney and Morgan Stanley -- weren't big distributors of Lehman's notes because they mostly sell their own products, said a person with knowledge of the matter.

Lehman's Sept. 15 bankruptcy leaves holders of the notes waiting in line with other senior unsecured creditors for what's left of their money. Notes with full principal protection are trading at 10 cents to 14 cents on the dollar, according to New York-based SecondMarket, which provides a marketplace for securities that are illiquid, or barely trade.

The Lehman bankruptcy also put a damper on the structured- notes market, with new issuance in the U.S. slowing to about $98 million a day in the 45 days following Lehman's bankruptcy, compared with about $263 million a day in the year through Sept. 15, according to mtn-i.

Hong Kong Protests

The business took another blow in early October when the Federal Deposit Insurance Corp. said it plans to exclude ``derivative-linked products'' and ``debt paired with any other security'' from the bank-debt guarantees offered as part of the government's plan to stabilize financial markets.

The growing number of irate investors in the U.S. adds to those from Hong Kong, Singapore and Taiwan who have demanded refunds from banks that sold structured notes linked to Lehman. DBS Group Holdings Ltd., Southeast Asia's largest bank by assets, said on Oct. 22 that about 4,700 investors in Singapore and Hong Kong may lose their entire investment in Lehman notes. The Singapore-based bank estimates it may have to pay as much as S$80 million ($54 million) to compensate noteholders.

About 200 protesters marched through Hong Kong's financial district on Oct. 31, stopping at banks that sold Lehman notes, the Associated Press reported. They held signs that read: ``Major bank fraud'' and ``My money gone, I don't want to live.''

`Off the Hook'

In the U.S., investors are starting to come ``out of the woodwork'' after learning in quarterly statements that their Lehman investments are almost wiped out, said Jeffrey Kaplan, a Miami lawyer who specializes in securities-arbitration claims.

``Our phone is ringing off the hook,'' Kaplan said. ``The vast majority of calls we've taken are investors with accounts at UBS.''

Scott Silver, an attorney in Coral Springs, Florida, said he was hired by more than 40 clients after he issued an Oct. 8 press release announcing his willingness to investigate claims on behalf of buyers of Lehman structured notes. Some investors had read stories about the Hong Kong claims, he said.

``People are livid,'' Silver said. ``They feel that the investment was misrepresented to them. They didn't appreciate that it was tied to the credit risk of Lehman Brothers.''

Jacob Zamansky, a securities-arbitration lawyer in New York, said he has been retained by at least five clients who collectively purchased ``several million dollars'' of structured notes issued by Lehman.

Clients `Crushed'

``There were a lot of notes sold through UBS,'' Zamansky said. ``Clients are telling me that these were pitched as relatively safe instruments. The principal was protected and the only variable would be in the rate of return that was received. It appears that there were misrepresentations.''

James Sallah, a securities-arbitration lawyer in Boca Raton, Florida, said he's been contacted by ``dozens of clients'' and retained by a local 74-year-old doctor whose $5 million account at UBS dropped by 50 percent, including $400,000 of losses on Lehman structured notes.

``You've got people who wanted preservation of capital and now have just gotten crushed,'' Sallah said.

Investor arbitration claims filed with the Financial Industry Regulatory Authority in Washington have increased this year for the first time since they peaked in 2003 after the Internet-led stock-market bubble burst. There are claims for losses on preferred shares in Fannie Mae and Freddie Mac, the mortgage- finance companies seized by the U.S. government, and for bond mutual funds, including Charles Schwab Corp.'s YieldPlus Fund.

Finra Claims

Almost 3,470 arbitration cases were filed with Finra this year through September, exceeding the 3,238 during all of 2007. Finra doesn't break out how many of those claims involved structured notes.

Rulings in arbitration hearings may hinge on how brokers explained the products, whether risks were disclosed in writing and whether clients had the sophistication to understand them, said Jill Gross, director of the Investor Rights Clinic at Pace University School of Law in White Plains, New York.

``Arbitrators tend to be dubious of investors who claim their brokers told them information that was directly contradicted by written materials, even if it was in the fine print,'' Gross said. ``The customer is required in many jurisdictions to read the written materials, and often anything in writing trumps the oral statements that were made.''

That's an argument members of the Structured Products Association are likely to make, said Keith Styrcula, chairman of the New York-based industry group whose members include UBS, Merrill and other structured-notes issuers.

`Buyer-Beware Scenario'

``Bankruptcy risk is inherent in any investment involving a corporate entity in the U.S.,'' Styrcula said. ``If you don't understand that it's a note, and you're not reading the prospectus, then that's a buyer-beware scenario.''

Lipner, the Garden City lawyer who's also a law professor at Baruch College in New York, said one of his clients bought Lehman notes issued in February that came with a brochure promising that ``at maturity, you will receive a cash payment equal to at least 100 percent of your principal.'' The last in a list of 13 risk factors was: ``An investment in the notes will be subject to the credit risk of Lehman Brothers.''

He expects awards may be bigger in cases stemming from the credit crisis because arbitration panelists may have more sympathy for the losers: conservative investors who asked their brokers for investments that protected their principal.

``The tech sales played to people's greed,'' Lipner said. ``Here, what they sold appeared to be safe and therefore played to people's fears.''

To contact the reporters on this story: Bradley Keoun in New York at bkeoun@bloomberg.net; David Scheer in New York at dscheer@bloomberg.net

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Autlan, Banco do Brasil, Cencosud, Kroton: Latin Equity Preview

By [bn:PRSN=1] William Freebairn [] and James Attwood

Nov. 3 (Bloomberg) -- The following companies may have unusual price changes today in Latin America trading. Stock symbols are in parentheses, and share prices are from the previous close. Preferred shares are usually the most-traded class of stock in Brazil.

The MSCI Latin America Index fell 1.8 percent Oct. 31 to 2,141.71. Chilean markets were closed Oct. 31 for a holiday. Markets in Colombia are closed today for a holiday.

Argentina

Transportadora de Gas del Sur SA (TGSU2 AF): The natural gas processor and transporter probably will report today that third- quarter profit rose to 34.5 million pesos ($10.2 million) from 3 million pesos in the year-earlier period, Grupo SBS said in an Oct. 31 note to clients. The year-ago quarter was hurt by restricted gas supply because of a cold snap, the brokerage wrote. TGS rose 9.3 percent to 1.29 peso.

Brazil

Banco do Brasil SA (BBAS3 BS): The country's biggest bank agreed to buy 5.25 billion reais ($2.4 billion) of bank loans from other financial institutions, O Estado de S. Paulo said Oct. 31. The bank acquired loans from 14 financial firms in October, the newspaper reported, citing an e-mailed statement sent by bank vice president Aldo Luiz Mendes. Banco do Brasil rose 0.8 percent to 14.77 reais.

Kroton Educacional SA (KROT11 BS): The Brazilian administrator of private schools and colleges that sold shares in July boosted its share repurchase program by 53 percent. Kroton said it plans to buy back as many as 1.23 million share units, each representing 1 voting share and 6 non-voting shares. Kroton was unchanged at 8 reais.

Chile

Cencosud SA (CENCOSUD CC): Chile's biggest retailer had its ``buy'' rating reiterated at Banco Santander SA after reporting third-quarter operating profit that matched estimates. Cencosud probably will be able to lower expenses and remain financially ``healthy,'' analysts including Antonio Cruz wrote in an Oct. 31 note to clients. Cencosud rose 1 percent to 983.43 pesos.

Concha y Toro SA (CONCHA CC): Chile's biggest wine exporter reported third-quarter earnings before interest, taxes, depreciation and amortization that missed Banco Santander's estimates. The results suggest wine consumption is being hit harder than previously thought by the credit crisis, Paula Vicuna and other analysts wrote in an Oct. 31 note to clients. Concha y Toro rose 0.3 percent to 930 pesos.

Mexico

Cia. Minera Autlan SAB (AUTLANB MM): The largest manganese producer in North America said it plans to temporarily close a ferroalloy plant that accounts for 14 percent of production. The plant, which was scheduled to be closed Nov. 1, will re-open once demand increases. Autlan rose 9.6 percent to 35.50 pesos.

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

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Beaten-Down BRICs See No Relief Even as Rally Lures Stock Bulls

By Michael Tsang and Michael Patterson

Nov. 3 (Bloomberg) -- Forget last week's record 20 percent gain in emerging-market stocks. Hard times are ahead for equities in Brazil, Russia, India and China, some of the world's biggest money managers say.

Even with developing-nation shares trading at their cheapest levels in a decade, financial crises in Hungary and Pakistan that required international rescue packages and concern that economies from Turkey to Argentina are also teetering prompted investors to pull out of emerging-market funds at a record pace.

RBC Capital Markets cut its estimates on Oct. 23 for 2009 economic growth in Brazil to 2.5 percent from 4 percent and Russia to 4 percent from 6 percent. That may undermine analysts' forecasts for a 14.5 percent increase in earnings at a time when the global credit crunch seized up lending from Sao Paulo to Seoul and a slump in 24 of 25 developing-nation currencies last month inflated the costs of repaying dollar-denominated debt.

``I'm not brave enough to jump on to the bandwagon,'' said Franz Wenzel, deputy director for investment strategy at Axa Investment Managers, which oversees $655 billion in Paris. ``We have seen the first dominos to fall with Hungary and Turkey, and we might see other shoes to drop.''

As bank losses and writedowns tied to the collapse of U.S. subprime mortgages grew to more than $680 billion and the American economy began to shrink, investors pulled a record $40 billion from emerging-market stock funds this year, including $7.1 billion last month, according to EPFR Global, a Cambridge, Massachusetts-based fund research firm.

Back to Zero

Forced sales by hedge funds and other money managers that piled into emerging-market stocks exacerbated the decline, which wiped out all the gains generated by developing countries this decade, said Andrew Milligan, head of global strategy at Standard Life Investments in Edinburgh, which oversees $260 billion.

``Their economies have been shown to be far more linked than people were hoping,'' said Mark Konyn, Hong Kong-based chief executive officer at RCM Asia Pacific Ltd., which oversees $15 billion. ``The massive boom in international capital overseas has come to a crashing end.''

No doubt emerging-market stocks look attractive. Equity valuations in China and India fell by more than 70 percent over the past year as plunging commodity prices and recession concerns erased $9 trillion from developing-nation shares.

PetroChina Co., which became the world's first $1 trillion company in November 2007, lost 79 percent of its value, while Russian gas producer OAO Gazprom, about 50 percent larger than BP Plc in May, tumbled 76 percent.

One-Week Wonder

Depressed prices sparked a 20 percent rise in the MSCI Emerging Markets Index last week, part of a global rebound that pushed up the Standard & Poor's 500 by 10 percent and Europe's Dow Jones Stoxx 600 Index by 12 percent. The developing-nation index is still down 57 percent from its peak in October 2007.

One year ago, the MSCI Emerging Markets Index stood at an all-time high of 1,338.49 after a five-year rally produced a more than fivefold increase and added $12 trillion to the value of developing-nation markets.

As emerging economies grew a record 8 percent in 2007, investors pushed stock valuations above industrialized nations for the first time in more than seven years on speculation their equities would be insulated from the fallout of the worst U.S. housing slump since the Great Depression.

It also lifted six companies from emerging markets into the ranks of the world's 10 largest by value.

Safest Assets

Since then, developing-nation shares tumbled as much as 66 percent. Investors sold everything but the safest assets as credit markets froze and banks hoarded cash after Bear Stearns Cos. and Lehman Brothers Holdings Inc. collapsed.

Chinese stocks in the MSCI fell to 6.55 times profit last week, the lowest since August 1998 and an 80 percent drop from a year ago. Investors in Brazilian and Indian stocks tracked by MSCI were willing to pay an average of $6.69 and $9.29 per dollar of profit respectively, the least for both since at least 1995.

At the beginning of the year, shares of companies in the MSCI India Index commanded more than $35 per dollar of profit.

Peter Schiff, who oversees $1 billion as president of Darien, Connecticut-based Euro Pacific Capital, says the collapse in valuations makes this an even better buying opportunity than in 1998 -- the last time emerging-market stocks were this cheap.

Less-developed economies have a record $785 billion in current-account surpluses this year, compared with deficits of $109 billion in 1998, data from Washington-based International Monetary Fund show. Foreign debt fell to 24 percent of the gross domestic product, compared with 40 percent a decade ago.

Fire-Sale Prices

China's economy, which has increased by at least 7.5 percent in each year in the past decade, may grow 9.3 percent next year, according to IMF data. The U.S., the epicenter of the worst financial crisis since the 1930s, may expand just 0.1 percent.

``You've got fire-sale prices,'' Schiff said. ``Once you take America out of the equation, you're going to see the biggest economic boom that we've ever seen.''

That optimism helped emerging markets break out of a so- called bear market, as the MSCI index surged 26 percent in four days last week.

David Cornell, a London-based money manager at New Star Asset Management, which oversees about $30 billion, isn't convinced the gains herald a bull market in developing countries. Even with emerging-market economies forecast to rise at the fastest rates in the world, the IMF's prediction for 6.1 percent growth in 2009 would be the slowest in six years.

ICICI Bank Ltd., India's second-largest lender, last week reported quarterly profit that missed analysts' estimates as deposits fell and it set aside more money for bad loans and investment losses. The Mumbai-based bank is 72 percent below its January share-price peak, even with last week's 29 percent jump.

Domino Theory

``The needle has really hardly budged at all'' after last week, he said. ``We wouldn't say that we've turned the corner.''

The Federal Reserve agreed last week to provide $30 billion each to the central banks of Brazil, Mexico and South Korea to help alleviate the credit freeze in emerging nations.

Hungary secured a 20 billion euro ($25.5 billion) rescue package from the IMF, the European Union and the World Bank last week as its currency plunged 14 percent in October. Turkey is in talks with the fund, while Pakistan expects to get money to cover its balance of payments deficit for the next two years, Ashfaque Hasan Khan, an adviser at the finance ministry, said Oct. 31.

The same day, S&P lowered its rating on Argentina's foreign- currency debt for the second time since August on concern the worsening financial crisis will lead to a default.

``The recession is going to be fierce and it will have a dire outlook for earnings,'' said Axa Investment's Wenzel. ``That isn't yet in the prices.''

To contact the reporters on this story: Michael Tsang in New York at mtsang1@bloomberg.net; Michael Patterson in London at mpatterson10@bloomberg.net

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Wen sees worst year for growth

By Xin Zhiming in Beijing and Wang Zhenghua in Shanghai (China Daily)
The government should find the right balance between curbing inflation and maintaining a stable economic growth, Premier Wen Jiabao said on Saturday.

"We must be aware that this year would be the worst in recent times for our economic development," Wen said in an article published in the Qiushi journal.

Curbing inflation is still a challenge, even though it fell from a 12-year high of 8.7 percent in February to 4.6 percent in September, he wrote.

In his article, Wen said that the global downturn will continue to pressure the Chinese economy, which already faces a number of problems.

Given the situation across the world, "it is very difficult to maintain high growth and a low inflation rate in the long run", the premier wrote.

"The (global economic) situation is worsening", and the negative impact of the volatile international market on the Chinese economy would become more obvious as the days go by.

The main task of the macro-economic policy is "to successfully maintain a balance between stable and relatively fast economic development and curbing inflation", Wen said.

China's economy expanded by 11.9 percent in 2007, but the growth rate slowed to 9 percent in the third quarter of this year, prompting many experts to suggest that the government take prompt steps to bolster economic growth.

One of the ready choices policymakers have is to relax the monetary policy. But along with many economists, they are worried that too loose a monetary policy could make inflation shoot higher in the future.

Though maintaining economic growth is important, "we should fully understand the harms (serious) inflation can cause to economic growth, people's livelihood and social stability", Wen wrote.

Ma Jiantang, head of the National Bureau of Statistics, however, allayed fears over Chin's economic growth. The fundamentals of the Chinese economy remain sound, and it will maintain a stable growth despite feeling the pinch of the global economic slowdown, he said on Sunday.

Ma told China Central Television that the country has enough means to stimulate investment and domestic demand in order to ensure a stable economic growth.

Though China has maintained a high growth rate for three decades and people's living standards have improved substantially, investment and consumption levels in per capita terms remain low compared with some other countries, Ma said. "The potential is huge."

China's $1.9-trillion foreign exchange reserve is not only the largest in the world, but also makes it easier for the country to make international payments.

With the country's GDP growth slowing, many analysts are worried that the economy could weaken in the coming months.

As a sign of this weakening, they have warned that growth in fiscal revenue in the fourth quarter of this year will continue to drop after falling from more than 33 percent in the first half to 10.5 percent in the third quarter.

Shanghai feels the pinch

Shanghai Mayor Han Zheng said the global financial crisis has begun hurting China's financial hub.

"We are feeling deeply the impact of the changing global economic environment," Han said at a forum on Sunday.

But the government will take steps to spur investment and consumption, he said.

"A steady and orderly economic growth is our primary task," Han said.

Shanghai's GDP grew 10.1 percent in the first nine months, exceeding the target of 10 percent set for the whole of 2008.




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Coal efficiency set to get boost

By Si Tingting (China Daily)

The authorities aim to boost the efficient use of coal supplies by raising the average recovery rate of the resource in the country from about 30 percent currently to at least 50 percent by 2010, a senior government official has said.

The country's top economic planning agency, the National Development and Reform Commission (NDRC), had in 2006 set the goal of a 40 percent coal recovery rate by the end of the decade, Zhao Xiaoping, deputy director of the National Energy Administration (NEA) under the NDRC, said to participants of the 2009 China Industrial Development Forum on Saturday.

China is the world's largest coal producer and consumer. Its dependence on coal continues amid the occurrence of coal mine accidents and its use of the resource is said to be inefficient compared with those of other countries - the coal recovery rate in developed countries including the United States, Australia, Germany and Canada is reportedly about 80 percent.

China uses 3.3 tons of raw material to produce 1 ton of coal, while the US is said to use 1.25 tons.

The country's latest move to boost coal efficiency is expected to save 1.3 tons of resources for every ton of coal produced.

The authorities also aim to reduce energy consumption per unit of GDP by 20 percent, as well as cutting the emission of major pollutants by 10 percent, in the next five years.

As part of its efforts to achieve these goals, the country aims to consolidate the coal industry by building five large mines with a capacity of 100 million tons each, as well as shut polluting and inefficient small coal pits, Zhao said.

"Energy conservation and the ability to raise energy efficiency is a top priority in our energy development strategy," Zhao said.

According to a 2007 energy report issued by the Chinese Academy of Social Sciences, the country's State-owned coal mines have a mining recovery rate of nearly 44 percent, compared with a low of 10 percent seen in a number of small and private coal mines.

The low rate is mostly caused by backward and inefficient mining techniques, the academy reported. The country relies on coal to generate nearly 80 percent of its electricity, NDRC figures showed.


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Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Nov 03 08 00:20 GMT |

News And Views There were fewer month-end fireworks than feared in FX markets and equities, leaving USD Index little changed vs late Asia Friday. The DJIA's 144pt gain (S&P 500 +1.5%) was broadly representative of its intra-day trade, with no stunning volatility into the close. There were some jitters in the NY morning as the Oct Chicago PMI printed at an atrocious 37.8 (vs 56.7 in Sep and consensus of 48.0) but markets then stabilized. Equities took some heart from JP Morgan Chase's announcement that it would freeze home foreclosures for 90 days. The much anticipated London fixing saw huge volumes traded but it was not the lopsided scramble for USD that had been expected (and to at least some degree actively priced in). NZD/USD hit its 0.5748 low in early London then gradually meandered to 0.5825 at the NY close. AUD/USD entered London under heavy selling pressure, dipping as low as 0.6545 but was then relatively subdued, finishing the week at 0.6675/80. Large real money AUD selling at the fix met steady buying. EUR/USD was very subdued, mostly bumping around 1.2680 - 1.2800, closing the week at 1.2725. USD/JPY suffered some selling (to 96.50) as yen crosses weakened in the London morning but as equities recovered, the pair ratcheted back to the mid-98s by week's end. The Chicago PMI plunged to 37.8 in October, after spiking well above 50 in the last two months. The fall was flagged by the similarly weak Philly and New York surveys for October, and brings the Chicago survey to a level more consistent with past recessions. The production component more than fully reversed the unsustainable bounce of previous months, dropping to 30.9, and new orders fell to 32.5. Prices paid fell to 53.7, well down from the peak of 90.7 just three months ago. US personal income rose 0.2% in September, with a smaller than expected hit from the impact of hurricanes Gustav and Ike. Personal spending fell 0.3%, the biggest monthly slide in four years, and a 0.1% rise in the price deflator indicated that real spending was even softer. The core PCE deflator slowed slightly to a 2.4% annual pace, and in a more normal environment this would be causing the Fed some concern. US employment cost index rose 0.7% in Q2. The annual rate of growth slowed to 3.1% after peaking at 3.6% in Q1 last year, suggesting that a cyclical slowdown in wage growth is well under way. The University of Michigan sentiment index was boosted slightly to 57.6 for its final October reading, perhaps reflecting the fact that the scariest moments came in the first half of the month. Perceptions of current conditions were revised lower, but future expectations were a touch higher. One-year ahead inflation expectations finally yielded to the fall in oil and other commodities, with a big downward revision to 3.9% from 4.5%. The Eurozone CPI flash estimate fell further to 3.2%, from a peak of 4.1% in July. We expect further falls in coming months as commodity price declines feed through to consumer prices, and large monthly gains from last year start to drop out of the annual figures. This should give the ECB confidence to cut interest rates further. The Bank of Japan cut rates 20bps to 0.3%. The cut coincided with the release of the Bank's semi-annual Outlook report. The efficacy of such a small cut is highly debatable, but it should help domestic sentiment at the margin. The vote was 4:4, with the Governor's vote breaking the tie it would seem. Outlook We are neutral NZD/USD short term. To be sure, the NZD is oversold and we expect to see that being unwound this week. However, if we can push back up to the 0.60/0.62 level, we would be happy to consider selling strength. We see AUD/NZD higher, with scope for 1.18 multi-day, as an improved risk environment encourages unwinding of some of the excessive AUD shorts. Events Today Date Country Release Last Forecast 3 Nov NZ Q3 Labour Cost Index priv ord time 0.8% 0.80% Q3 QES Private Sector ord time 2.0% 1.00% Aus Oct ANZ Job Ads –1.4% – Oct TD-MI Inflation Gauge 0.4% – Sep Retail Sales (s.a) 0.6% –0.5% Q3 Real Retail Sales –0.6% 0.80% Q3 House Prices (ABS) –0.3% –0.5% US Oct Auto Sales mn ann'lsd 12.5 11.8 Oct ISM Manufacturing 43.5 40 Sep Construction Spending flat –1.0% Fedspeak: Lacker Eur Oct PMI Factory (F) 41.3a 41.3 European Commission Forecasts UK Oct House Prices %yr –12.4% –13.6% Oct PMI Factory 41.0 40 4 Nov NZ Oct ANZ Commodity Price Index –4.9% – Aus Melbourne Cup Day (VIC, ACT) RBA Policy Announcement 6.00% 5.50% US Sep Factory Orders –4.0% –1.2% Fedspeak: Fisher Westpac Institutional Bank http://www.wib.westpac.co.nz/ Disclaimer All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.

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FX Technical Commentary

Daily Forex Technicals | Written by Easy Forex | Nov 03 08 00:25 GMT |

Euro 1.2765 Initial support at 1.2626 (Oct 29 low) followed by 1.2558 (76.4% retrace 1.2329 to 1.3298). Initial resistance is now located at 1.2924 (Oct 31 high) at followed by 1.3299 (38.2% retrace 1.4867 to 1.2329 and Oct 30 high). Yen 98.45 Initial support is located at 96.08 (Oct 29 low) followed by 94.28 (61.8^% retrace 90.92 to 99.71). Initial resistance is now at 99.13 (Oct 30 high) followed by 99.71 (Oct 29 high). Pound 1.6100 Initial support at 1.5970 (50% retrace 1.5267 to 1.6672) followed by 1.5804 (61.8% retrace 1.5267 to 1.6672). Initial resistance is now at 1.6486 (Oct 31 high) followed by 1.6672 (Oct 30 High). Australian Dollar 0.6720 Initial support at 0.6555 (Oct 31 low) followed by the 0.6338 (Oct 29 low). Initial resistance is now at 0.6825 (Oct 31 high) followed by 0.6893 (Oct 30 high). Gold 728 Initial support at 718 (61.8% retrace 777.90-682.41) followed by 707 (Oct 27 low). Initial resistance is now at 742.25 (Oct 31 high) followed by 777.5 (Oct 30 Level). Currency Sup 2 Sup 1 Spot Res 1 Res 2 EUR/USD 1.2558 1.2626 1.2765 1.2924 1.3299 USD/JPY 94.28 96.08 98.45 99.13 99.71 GBP/USD 1.5804 1.5970 1.6100 1.6486 1.6672 AUD/USD 0.6338 0.6550 0.6720 0.6825 0.6893 XAU/USD 707.50 718.88 728.00 742.25 777.50 Easy Forex http://www.easy-forex.com Easy-Forex makes no recommendations as to the merits of any financial product referred to in this website, emails or its related websites and the information contained does not take into account your personal objectives, financial situation and needs. Therefore you should consider whether these products are appropriate in view of your objectives, financial situation and needs as well as considering the risks associated in dealing with those products

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New Zealand Wages Rise 3.5% as Fuel, Food Costs Soar

By Tracy Withers

Nov. 3 (Bloomberg) -- New Zealand wages rose at a record pace in the year ended Sept. 30 as workers demanded pay increases to meet rising food and fuel costs.

Wages for non-government workers, excluding overtime, increased 3.5 percent in the 12 months to September, according to Statistics New Zealand's labor cost index released in Wellington today. Wages rose 1.2 percent from the second quarter.

About 43 percent of companies surveyed said they increased wages because of a higher cost of living as fuel and food costs soared. Annual wage inflation may slow as consumer spending and business investment decline after the economy fell into its first recession since 1998.

``Wage inflation is close to peaking and will ease off in coming quarters because the labor market has turned,'' said Khoon Goh, senior economist at ANZ National Bank Ltd. in Wellington.

``Wage inflation at this rate will still continue to give the Reserve Bank some concern on the inflation front, but not enough to cause them to back off on further easing.''

New Zealand's dollar bought 58.53 U.S. cents at 11:35 a.m. in Wellington from 58.47 cents immediately before the report.

The median estimate of 11 economists surveyed by Bloomberg News was for wages to rise 0.8 percent in the quarter and 3.4 percent from a year earlier. Wages also rose 3.5 percent in the year to June.

Mining, Farming

The agriculture and mining industries posted record quarterly increases, the statistics agency said. Both sectors said the main reason was to reflect the higher cost of living.

Including overtime, wages for non-government workers rose 1.1 percent from the second quarter, for a record annual increase of 3.7 percent, today's report showed.

The economy contracted in the first half of this year and probably shrank in the third quarter, the central bank and Treasury Department said in September.

Reserve Bank Governor Alan Bollard has reduced the benchmark interest rate by 1.75 percentage points to 6.5 percent since July and will probably cut another half point in early December, according to eight of 10 economists surveyed by Bloomberg.

Unemployment Rising

Wages may slow as unemployment rises, increasing the supply of workers. Company hiring intentions slumped to a 20- year low in October, according to a survey by ANZ National.

Business confidence fell by the most on record as an inability to obtain credit made firms unwilling to hire workers or start new projects.

The jobless rate probably rose to 4.3 percent in the third quarter, the highest since 2003, according to a survey of 12 economists. The employment report is published on Nov. 6.

A separate series based on reported salary and ordinary- time wage rates of non-government workers rose 1.5 percent in the third quarter and 5.4 percent from a year earlier, Statistics New Zealand said.

Average hourly ordinary time wages of non-government workers climbed 1.1 percent in the quarter for an annual gain of 5.2 percent.

Statistics New Zealand also released indicators showing the demand for labor slowed in the third quarter.

The number of full-time equivalent employees declined 0.9 percent from the second quarter. The number of total filled jobs fell 0.6 percent.

Total paid hours dropped 0.3 percent, seasonally adjusted, from the second quarter.

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

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Australian Manufacturing Index Slumps to Record Low in October

By Jacob Greber

Nov. 3 (Bloomberg) -- Australian manufacturing contracted at a record pace in October as global financial turmoil prompted companies to reduce production.

The performance of manufacturing index fell 6.8 points from September to 40.4, the lowest level since the index was started in 1992, the Australian Industry Group and PricewaterhouseCoopers said in a report released in Canberra today. A reading below 50 signals manufacturing is shrinking.

A fifth straight monthly drop in manufacturing adds to evidence Australia's economy, now in its 17th year of expansion, will cool further after growing at the weakest pace in more than three years in the June quarter. Central bank Governor Glenn Stevens will cut the benchmark interest rate by half a point to 5.5 percent tomorrow, adding to last month's 1 percentage point reduction, according economists surveyed by Bloomberg News.

``The volatility in global financial markets is having an unambiguous impact on Australia manufacturing,'' said Heather Ridout, chief executive officer of the Australian Industry Group. A slump in new orders ``suggests that there is a crisis of confidence arising from a crisis of uncertainty.''

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

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

Ridout said there is ``clearly room for further reductions in interest rates.'' The Reserve Bank of Australia will announce its decision on borrowing costs at 2:30 p.m. in Sydney tomorrow.

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

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India, China Attempt to Cushion Economies From Global Crisis

By Michael Dwyer

Nov. 3 (Bloomberg) -- India and China are accelerating efforts to prop up growth as a global slump threatens the world's fastest-expanding major economies.

The Reserve Bank of India on Nov. 1 lowered its benchmark repurchase rate for the second time in two weeks, and for the first time in 11 years reduced the amount of money lenders are required to keep in government bonds. The People's Bank of China on Oct. 29 cut its key rate, three days before a weekend report showed manufacturing shrank in October.

``The gathering crisis in more advanced economies is forcing Asian policy makers to jettison assumptions about the health of export sectors,'' said Mark Williams, an international economist at Capital Economics Ltd. in London. ``Interest rates will tumble.''

Emerging Asian economies that account for one-fifth of world growth are being dragged down as their main markets in the U.S. and Europe contract, increasing the likelihood of a global recession. Policy makers in India and China are also boosting spending to prevent their economies from going under.

India's Finance Minister Palaniappan Chidambaram is planning to spend an extra 2.4 trillion rupees ($49 billion) this year, telling parliament last month that now was ``the right time'' to stimulate the economy.

China's Premier Wen Jiabao says sustaining economic growth is the government's ``first priority.'' China has already raised export incentives, cut costs for home buyers and pledged infrastructure spending.

`Extremely Aggressively'

India and China need to move fast to implement their stimulus plans, with growth already slowing in Asia's second-and third-largest economies amid weaker foreign demand.

Asian policy makers understand the importance of ``reacting extremely quickly and extremely aggressively to try to stimulate growth and prevent the worst-case scenario,'' said David Mann, senior strategist at Standard Chartered Plc in Hong Kong.

China's $3.3 trillion economy grew at the slowest pace in five years in the three months through September as export orders shrank and industrial production waned. The expansion cooled for a fifth straight quarter, to a 9 percent gain from a year earlier.

The Purchasing Managers' Index prepared by China Federation of Logistics and Purchasing fell to a seasonally adjusted 44.6 in October, the lowest reading since the gauge was launched in July 2005, according to a Nov. 1 statement. A reading below 50 reflects a contraction in manufacturing.

Slowing Growth

India's central bank said last month that growth in that $1.2 trillion economy may be as little as 7.5 percent in the year to March 31, compared with 9 percent in the previous 12 months. That would be the weakest pace since 2005.

The People's Bank of China and India's central bank, along with the U.S. Federal Reserve and the Bank of Japan, are already moving to lower borrowing costs and stimulate consumer spending and investment.

Over the weekend, India cut its repurchase rate to 7.5 percent from 8 percent, reduced the amount of deposits that lenders need to set aside as reserves to 5.5 percent from 6.5 percent, and lowered the amount of money lenders are required to keep in government bonds to 24 percent from 25 percent.

India's decision was taken ``to address concerns relating to the moderation in the growth momentum,'' the central bank said in a statement in Mumbai. ``Global financial conditions continue to remain uncertain and unsettled, and early signs of a global recession are becoming evident.''

Coordinated Action

The Chinese central bank reduced its key one-year lending rate to 6.66 percent from 6.93 percent on Oct. 29.

China cut borrowing costs for the first time in six years on Sept. 15, the day U.S. investment bank Lehman Brothers Holdings Inc. filed for bankruptcy. It followed up with another reduction on Oct. 8 as the Fed and five other central banks made emergency coordinated reductions to counter the financial crisis.

The Bank of Japan reduced its key overnight lending rate by 20 basis points to 0.3 percent on Oct. 31 after the Fed last week lowered its target rate for overnight loans to 1 percent, matching a half-century low. South Korea, Taiwan and Hong Kong also trimmed their benchmark rates last week.

Officials are signaling more cuts are likely and the European Central Bank and Bank of England both set policy on Nov. 6. Australia's central bank may also cut rates on Nov. 4, after lowering them by 1 percentage point to 6 percent last month, the biggest reduction since 1992.

``A global dislocation in economic activity is forcing policy makers to take more remedial action,'' said Mark Cliffe, global head of financial markets research at ING Groep NV in London. ``More policy easing is likely.''

To contact the reporter on this story: Michael Dwyer in Singapore at Mdwyer5@bloomberg.net.

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South Korea's Exports Increase By Least in 13 Months

By William Sim

Nov. 3 (Bloomberg) -- South Korea's exports rose at the slowest pace in 13 months in October as shipments to China fell for the first time since 2002, adding to concern the nation is headed for its first recession in a decade.

Exports, which make up more than half of gross domestic product, increased 10 percent from a year earlier, the Ministry of Knowledge Economy said in Gwacheon today. That compares with September's 28.2 percent gain and the 12.5 percent median estimate of 13 economists surveyed by Bloomberg News.

Emerging Asian economies that account for one-fifth of world growth are being dragged down as their main markets in the U.S., Japan and Europe contract, raising the likelihood of a global recession. South Korea's government plans to unveil a stimulus package today as it tackles the worst crisis since the nation needed a $57 billion bailout by the International Monetary Fund in 1997.

``Things can get worse if emerging-market demand cools quickly,'' said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. ``If China's economy cools more, it'll have a more serious impact on Korea's exports as we've been quite dependent on shipments to China.''

Exports to China, South Korea's biggest overseas market, fell 1.8 percent in the first 20 days of October.

India and China are accelerating efforts to prop up growth. India on Nov. 1 cut its benchmark repurchase rate for the second time in two weeks. China on Oct. 29 lowered its key rate, three days before a report showed manufacturing shrank.

Cars, Steel

Hyundai Motor Co., South Korea's second-biggest exporter, on Oct. 23 lowered its global vehicle-sales forecast for this year. Posco, Asia's biggest maker of stainless steel, said last month it will slash output by about a third this quarter to cope with a slowdown in demand.

South Korea posted a trade surplus of $1.22 billion in October, the first in five months, as import growth cooled to 12 percent on falling oil prices. The trade surplus will help ease pressure on the won, Asia's worst performing currency with a 36 percent slump against the dollar this year.

President Lee said today he'll take more action to support smaller companies to spur domestic demand and create more jobs.

The government has already promised $20 billion in tax cuts, 4.9 trillion won ($3.8 billion) in extra spending and at least 7 trillion won to aid the construction industry.

Slower Growth

Economic growth slowed to the weakest in four years last quarter, manufacturers and retailers have been firing workers this year as demand eases and Korean builders are reeling under the largest backlog of unsold homes in a decade.

The Bank of Korea last week cut interest rates by a record 75 basis points in an emergency move to restore confidence after the won plunged to a 10-year low and the Kospi stock index fell the most in at least two decades.

Figures today may show consumer prices rose by the least in six months in October, giving the central bank room to lower interest rates this week to spur growth, according to a survey of economists. The Bank of Korea's board next meets on Nov. 7.

Exports to Latin America surged 32.1 percent and sales to the Middle East jumped 22.4 percent, today's report showed. Shipments to the U.S. rose 10.8 percent.

Exports of semiconductors dropped 26.4 percent in October from a year earlier, while those of automobiles declined 14.3 percent. Sales of ships surged 118 percent.

South Korean factory output fell in September for a third month, the longest run of declines in almost eight years. Sales of consumer goods had the biggest decline in almost four years.

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.

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Bernanke's Fed Chasing Down the Global Infection: William Pesek

Commentary by William Pesek

Nov. 3 (Bloomberg) -- The first interest-rate cut in seven years had to be traumatic for Bank of Japan staffers.

Not only did it undo years of struggling to lift borrowing costs from zero, but few investors seemed to care. The indifference is partly attributable to the tardiness of the 0.2 percentage point move, which lowered the BOJ's benchmark rate to 0.3 percent.

The bigger reason was the U.S. Federal Reserve. The Fed's half-point rate cut to 1 percent last week came two days before the BOJ's move, and it surprised no one. What shocked many was a decision to provide $30 billion each to the central banks of Brazil, Mexico, Singapore and South Korea.

The internationalization of the Fed has been unfolding for years. From Seoul to Santiago, investors often care more about what happens in Washington than they do about actions taken by local monetary authorities. The central bank has 12 districts across the U.S., yet the last 15 years have seen the creation of de facto spheres of Fed influence around the globe.

Consider Oct. 29 as the day the Fed formalized the arrangement by creating areas 13, 14, 15 and 16. The Fed's decision to expand efforts to unfreeze markets in emerging nations raised eyebrows in Asia, eclipsing its rate reduction and that of the BOJ.

The International Monetary Fund also announced an emergency loan program that almost doubles borrowing limits for emerging economies and waives demands for austerity measures. That, too, surprised many observers.

Good Housekeeping

The IMF signaled that it will move faster with aid than in the past. It also showed the urgent need for an overhaul of the global financial order well before a Nov. 15 meeting of 20 industrialized and developing nations in Washington.

Five years from now, Fed Chairman Ben Bernanke will be regarded either as brilliant or reckless for so directly reaching around the globe. At the moment, it looks like an innovative and bold step. Already, it's done more to stop the bleeding in markets than have officials in, say, Seoul.

It's one thing to accept euros, yen, pounds or Swiss francs in these kinds of ``liquidity swap facilities.'' It's quite another to accept emerging-market currencies. The Fed is bestowing its ``Good Housekeeping'' seal on economies that are following responsible policies yet are feeling the brunt of the credit crisis.

This activity raises a number of questions about what U.S. authorities are up to. Here are three relevant to Asia.

U.S.'s Friends

One, is the Fed playing geopolitics? Since the U.S. created the problems oozing around the globe, it should help others deal with them. That's especially true if the U.S. wants to have any friends a year from now.

The Fed had already created similar swap lines with the European Central Bank and monetary authorities in Australia and New Zealand. It is now extending the courtesy to ``four large systemically important economies'' in the developing world.

``There is another signal being sent: Being a friend of the U.S. still matters,'' Marc Chandler, global head of currency at Brown Brothers Harriman & Co. in New York, wrote in an Oct. 30 report. ``Venezuela, Argentina and Russia, for example, are unlikely to be thought of as likely candidates for a similar swap program with the Fed. Over time, who is regarded as a friend of the U.S. may impact valuations.''

Two, is the Fed helping the IMF or undermining it? It's more the former than the latter.

In recent weeks, Iceland approached Russia for loans before going to the IMF, while Pakistan sought help from China. With $1.9 trillion of reserves, China might easily supplant the role of the IMF and U.S. Treasury in Asia.

IMF is Back

Those overtures, even if unsuccessful, didn't go unnoticed by U.S. officials. Many observers wonder if they were among the catalysts behind the Fed's and IMF's actions last week.

``It has been fashionable to argue that the crisis would increase China's financial influence, as China sits on a ton of foreign exchange and potentially offered an alternative source of foreign-currency liquidity,'' Council on Foreign Relations economist Brad Setser in New York wrote on his blog last week.

And yet that hasn't happened. The U.S. and Europe moved quickly, at least by the standards of governments, to help a broad range of countries. ``China's rise, in effect, contributed to a change in the political climate that helped to lift some of the political constraints that in the past limited the IMF's scope,'' Setser argued.

International Monster?

Third, how does the Fed turn off this new spigot? An international precedent clearly has been set, one that may create even greater expectations next time there's a crisis.

For all its troubles, the dollar is still the world's reserve currency, and central banks in Beijing, Tokyo, New Delhi, Taipei and Seoul hold mountains of U.S. notes. If the dollar plunges because the Fed cuts rates further, those holding U.S. currency also may expect Fed bailouts.

Only time will tell if Bernanke created an international monster here. For the time being, Asia's emerging markets are all too happy to accept the Fed's seal of approval.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net

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Australia Offers Support for Uranium Mines in West, Age Says

By Angela Macdonald-Smith

Nov. 3 (Bloomberg) -- Australia's Resources Minister Martin Ferguson has held talks with Western Australian Premier Colin Barnett and Mines Minister Norman Moore to offer federal endorsement for new uranium mines in the state, the Age reported.

The talks, which were confirmed by Ferguson, signal the uranium industry will expand relatively quickly in Western Australia should resources companies want to develop projects beyond the exploration stage, the newspaper said. The approvals process for new mines will be a challenge for Environment Minister Peter Garrett, a former prominent anti-uranium campaigner, it said.

Western Australia's former Premier Alan Carpenter banned mining of the radioactive metal in the state.

Ferguson, who is due to hold meetings in India this week, won't canvass any changes to government policy banning uranium sales to the Asian nation because it isn't a party to the nuclear non-proliferation treaty, the Age reported.

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

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CLP Leads Bid for Temasek's Power Assets, Morning Post Says

By Kelvin Wong

Nov. 3 (Bloomberg) -- A CLP Holdings Ltd.-led bid has been shortlisted to buy power assets from Temasek Holdings Ltd., the investment unit of the Singapore government, the South China Morning Post reported, citing unidentified people in the market.

Temasek is aiming to finalize the agreement by the end of the year, the Hong Kong-based newspaper said today. The deal may be worth as much as $2.5 billion, the newspaper said.

CLP's partners in the bid include Japanese Itochu Corp. and Thailand Electricity Generating Public Co., the report said. CLP is Hong Kong's biggest power supplier.

To contact the reporter on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

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Osaka Gas Joins Marubeni Group in Australia APA Unit Investment

By Angela Macdonald-Smith

Nov. 3 (Bloomberg) -- Osaka Gas Co., Japan's second- biggest distributor of the fuel, joined a group led by Marubeni Corp. that agreed to buy 80.1 percent of an unlisted energy company spun off from Australia's APA Group.

Marubeni, Japan's fifth-largest trading house, will own 49.9 percent of the company, while Osaka Gas will hold 30.2 percent and APA the rest, Sydney-based APA said today in a statement to the Australian stock exchange.

APA, the owner of pipelines that transport more than half of Australia's natural gas, said last week it agreed to sell the stake to a Marubeni-led group, yielding proceeds of about A$600 million ($402 million) to reduce debt. The new entity will hold ``low-risk'' assets currently owned by APA including electricity transmission cables, power generators and three gas pipelines.

``The inclusion of Osaka Gas in the consortium completes a very strong equity partnership and also provides APA with an excellent opportunity to build a close relationship with another major international energy company,'' APA Managing Director Mick McCormack said in the statement.

APA, whose biggest shareholder is Malaysia's Petroliam Nasional Bhd., rose as much as 2.4 percent to A$3.00 in Sydney trading. The stock was at A$2.94 at 11:26 a.m. local time. The advance compared with a gain of as much as 3.3 percent in the exchange's benchmark index.

The assets to be included in the new company include the Murraylink and Directlink power cables, the Daandine power plant in Queensland, two coal-seam gas processing plants in Queensland, and the Telfer, Bonaparte and Wickham Point gas pipelines.

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

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Caltex Australia Says Currency Losses to Cut Profit

By Angela Macdonald-Smith

Nov. 3 (Bloomberg) -- Caltex Australia Ltd., the nation's biggest oil refiner, said foreign currency losses arising from an ``unprecedented'' drop in the Australian dollar will reduce 2008 profit by about A$200 million ($134 million).

Net operating profit for the year ending Dec. 31, excluding the effect of changes in oil prices on the value of stockpiles, may be between A$115 million and A$145 million, down from A$444 million last year, Sydney-based Caltex said today in a statement to the Australian stock exchange. Net income may be between A$135 million and A$185 million, down from A$646 million.

The Australian currency has dropped 29 percent in the past six months against the dollar. The decline from an average of 82 cents in September to an average of 68 cents in October accounted for about a half of Caltex's estimated foreign- exchange loss. Production of transport fuels is set to fall this year, driven by low, or negative, gross margins in the third quarter on processing crude into gasoline, the company said.

Debt rose to more than A$900 million at the end of October ``due to poor cash flow from refining as a result of low refining margins in the third quarter,'' Caltex Australia, 50 percent-owned by Chevron Corp., said in the statement.

Caltex Australia gained as much as 21 cents, or 2.2 percent, to A$9.60 in Sydney trading on the exchange and was at A$9.52 at 10:38 a.m. local time.

The ``short-term pain'' in 2008 operating profit will be offset by the positive effect of a weaker Australian dollar on future refining earnings, Caltex said.

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

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TrustPower Profit Rises on Hydro-Electric Production

By Gavin Evans

Nov. 3 (Bloomberg) -- TrustPower Ltd., the operator of New Zealand's largest wind farm, said first-half profit rose 4 percent after rain late in the period increased power production from the company's dams.

Net income rose to NZ$66.8 million ($39 million) for the six months ended Sept. 30, from NZ$64.3 million a year earlier, the Tauranga-based company said in a statement to the stock exchange.

TrustPower operates dams and a wind farm to supplement power it buys from rivals to supply its customers. In June, it warned of a decline in full-year earnings after prices surged to a record as drought across much of the country drained the nation's hydro-electricity reserves and cut its own output.

``Combined generation production during the second quarter improved significantly compared with the prior quarter,'' Chairman Bruce Harker said in the statement today. About 210,000 tons of emission credits were also sold during the period.

TrustPower was unchanged at NZ$7.40 at 10:15 a.m. in Wellington.

Earnings before interest, tax, depreciation and movements in financial instruments rose 18 percent to NZ$136.7 million. The company increased its first-half dividend to 16 New Zealand cents and will pay a 10 cents special dividend in December, Harker said.

Debt as a share of total assets was 36 percent at Sept. 30, including NZ$50 million of bonds maturing Dec. 15. The company plans to this week offer NZ$100 million of 2015 bonds paying 8.4 percent, Harker said.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net

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Oil Rises for a Second Day as Interest Rate Cuts to Spur Growth

By Gavin Evans

Nov. 3 (Bloomberg) -- Crude oil rose for a second day in New York on speculation fuel demand will increase after the U.S., India and China cut interest rates to prop up economic growth.

The Reserve Bank of India on Nov. 1 lowered its benchmark repurchase rate for the second time in two weeks, and for the first time in 11 years reduced the amount of money lenders are required to keep in government bonds. The People's Bank of China on Oct. 29 cut its key rate, three days before a weekend report showed manufacturing shrank in October.

Crude oil for December delivery gained as much as 47 cents, or 0.7 percent, to $68.28 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $68.24 a barrel at 9:42 a.m. in Singapore.

Oil fell 33 percent last month on signs that the economic slowdown in the U.S. and Europe will spread to emerging markets, curbing fuel consumption. The previous record price decline occurred in February 1986, when crude oil slipped 30 percent to $13.26 a barrel. Oil trading in New York began March 30, 1983.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net

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Subbarao Abandons India `Inflation Vigil,' May Cut Rates Again

By Cherian Thomas

Nov. 3 (Bloomberg) -- Indian central bank governor Duvvuri Subbarao has abandoned the ``inflation vigil'' he outlined just 10 days ago in his inaugural monetary policy statement.

For the first time since 1997, the Reserve Bank of India on Nov. 1 deployed all three of its main tools to shore up growth after inter-bank lending rates climbed to 21 percent. Economists at Yes Bank Ltd. and Standard Chartered Bank predict more interest-rate cuts following the weekend reduction.

``India's central bank has no other option but to focus on economic expansion,'' said Shubhada M. Rao, chief economist at Yes Bank Ltd. in Mumbai. ``Global cues have turned against growth and it was surprising to see the hawkish tones on inflation'' last month, he said.

Subbarao, less than two months into the job, has grappled with monetary policy at a time when inflation is double the central bank's target and a global downturn threatens to hit the economy. The central bank's renewed focus on growth aligns with Prime Minister Manmohan Singh's push to buoy the economy ahead of elections due by May.

The decision to cut rates on Nov. 1 is a U-turn from the stance Subbarao spelled out in his first statement. At that time, he said price pressures could come from lower farm production, volatile oil prices and a weaker rupee.

Subbarao's emphasis on inflation in his Oct. 24 statement took investors by surprise. Only four days earlier he had cut the repurchase rate by 1 percentage point following a meeting with Prime Minister Singh. In the previous two weeks he had reduced the cash-reserve ratio by 250 basis points.

Change in Tack

Nov. 1 marked another change. Subbarao slashed the repurchase rate again, lowering it by 50 basis points to 7.5 percent. He also reduced the amount of deposits that lenders need to set aside as cash reserves to 5.5 percent from 6.5 percent, and in government debt to 24 percent from 25 percent.

Last week also saw the capitulation of Japan, which abandoned a two-year struggle to raise the lowest borrowing costs among major economies. The Bank of Japan on Oct. 31 cut its key overnight lending rate by 20 basis points to 0.3 percent after the Fed lowered its target rate for overnight loans to 1 percent, matching a half-century low. Norway, China, Taiwan and Hong Kong also trimmed their benchmark rates last week.

India's weekend announcement came as cash dwindled in the banking system, as evidenced by a tripling in overnight call money rates last week. Cash dried up as overseas investors pulled out a record $12.8 billion from Indian stock markets this year and the central bank sold dollars to slow the pace of the rupee's decline.

Foreign Reserves

India's foreign-exchange reserves fell $15.5 billion in the week ended Oct. 24, the most on record, to $258.4 billion. The rupee is down 20 percent this year, the second-worst performer after the South Korean won of Asia's 10 most-active currencies.

``The writing was on the wall for more policy rate cuts because of the liquidity crunch,'' said Indranil Pan, chief economist at Mumbai-based Kotak Mahindra Bank Ltd. ``We will see more liquidity-unfreezing measures.''

India's decision to lower borrowing costs was taken ``in view of the ebbing of upside inflation risks and also to address concerns relating to the moderation in the growth momentum,'' the central bank said in its statement on Nov. 1.

Inflation in India has dropped below 11 percent for the first time since May. Wholesale prices rose 10.68 percent in the week to Oct. 18 from a year earlier after gaining 11.07 percent in the previous week.

Commodity Prices

Standard Chartered economist Anubhuti Sahay expects inflation to slow to as much as 3.5 percent by the end of the second quarter of 2009, helped by a decline in commodity prices. Sahay expects the repurchase rate to be at 6 percent by then.

Investors expect stocks, bonds and rupee, which gained last week, to advance further today. The Sensitive index, which has halved this year, rose 12.5 percent last week, and the rupee climbed 0.7 percent, snapping an 11-week losing streak.

The yield on benchmark 10-year government paper, which dropped 1.12 percentage points to 7.5 percent last month as bonds completed their best month in almost a decade, may decline to 7.35 percent today, said Arvind Sampath, head of interest- rate trading at Standard Chartered Plc in Mumbai.

`It was a good set of measures that addressed the most pressing need of the hour, which is to ease liquidity constraints in the system,'' Sampath said. ``The repo-rate cut is a proactive step that takes advantage of falling inflation to tackle the slowdown in growth.''

To contact the reporter on this story: Cherian Thomas in New Delhi at Cthomas1@bloomberg.net

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