Credit-Crunch Villains Pass the Buck, Party On: Mark Gilbert

Commentary by Mark Gilbert

Nov. 13 (Bloomberg) -- The great and the good of capitalism and free markets held a requiem dinner for the global financial system at a secret hideaway this week. As the waiter decanted a fresh bottle of 1985 Chateau Margaux, the blame game began.

``I blame the central banks,'' growled the bond trader, stabbing the air with a forkful of raw steak. ``If Alan Greenspan hadn't kept interest rates so low at the start of this decade, we wouldn't be in this mess. Talk about refilling the punch bowl when the party guests are already as drunk as skunks!''

``We told you we were not in the business of identifying bubbles, let alone trying to puncture them,'' replied the central banker, nibbling at a lettuce leaf. ``We warned you that credit spreads, emerging-market yields and volatility in stocks and bonds were all too low, and that you were under-pricing risk.''

The central banker took a sip from his refilled wine glass. ``Can you imagine the outcry if we had tried to halt the explosion in home ownership? I think you'll find that the true villains are the mortgage lenders; if they hadn't trashed their standards with self-certified and liar loans, the crisis in the housing market would have remained self-contained.''

``That's not fair,'' said the mortgage originator. ``We weren't on a level playing field. Fannie Mae and Freddie Mac were using their implicit government guarantee to distort competition in home loans. We were forced to take on more subprime borrowers just to stay in the game; if it hadn't been for all those clever derivatives products, we would never have been able to recycle all that toxic waste and keep the pyramid scheme afloat.''

Above Board

``Ah, the derivatives bogeyman,'' chuckled the structured- finance specialist. ``Listen, derivatives don't kill markets. Markets kill markets. Everything we did was designed to promote efficiency by allowing investors to disaggregate their risks. I can show you the bills from my lawyers to prove that every product we invented was legitimate.''

``All we did was offer advice on the best method of structuring securitization transactions,'' the capital-markets lawyer said. ``There would never have been a market for the racier collateralized-debt obligations if the rating companies had done proper due diligence, instead of slapping AAA ratings on anything and everything that offered to pay them a fee.''

``You can hardly expect the finest minds in finance to come and work for us when they can earn gazillion-dollar bonuses doing the same work for an investment bank,'' said the credit-rating assessor. ``We relied on the computer models that the banks helped us build, and those models turned out to be, shall we say, less than perfect. Besides, everything was fine until the money- markets froze. The problem wasn't over-optimistic ratings, it was an over-reliance on wholesale markets to fund leverage.''

On the Hook

The waiter cleared away the dinner plates. The diners all declined dessert -- ``Humble pie? No, thanks.'' -- agreeing instead that a couple of bottles of 1982 Chateau d'Yquem would round off the evening nicely.

``I'd never even heard of Structured Investment Vehicles until they started to blow up,'' said the central banker. ``We believed the banks when they said their business model was based on originate-to-distribute; how were we to know that once the music stopped, they were still on the hook for trillions of dollars of liabilities they'd slipped off the balance sheets?''

``Look, domestic savings rates just weren't high enough to provide the kind of leverage we needed to juice our returns to match those of our peers,'' said the commercial banker. ``We had to rely on money-market funds, rather than our deposit base. And the money markets wouldn't have frozen if it hadn't been for those ridiculous mark-to-market rules forcing all of us to prematurely disclose that we owned huge piles of securities that were rotting, before prices had any chance to recover.''

Capital Inadequacy

``We gave you plenty of leeway to play fast and loose with the truth so that you could stay solvent,'' said the regulator. ``Besides, you were just doing your job of maximizing returns to shareholders. If those greedy investors hadn't forced you to take on more risk, our rules on capital would have been more than adequate to keep the banking system solvent.''

``How on Earth was I supposed to fund the retirements of thousands of ex-employees when returns were collapsing simultaneously in every market?'' asked the pension-fund manager. ``Of course we wanted the banks to work their capital harder. We were in the same boat, trying to move money into new arenas to make a buck or three. We bought derivatives, commodities, we even held our noses and gave money to the hedge funds. That didn't turn out to be such a good idea.''

``Hey, we warned you there would be times like this,'' said the hedge-fund manager. ``If you want years when we deliver 50 percent, 60 percent returns, you have to expect periods when we will lose 20 or 25 percent of your money. You won't see us lining up with our begging bowls at the government bailout window.''

The waiter coughed, proffering a slim leather folder containing the reckoning for the evening's entertainment.

``You are a taxpayer, I take it?'' asked the investment banker. The waiter nodded. ``In which case, we were rather hoping you would foot the bill.''

(Mark Gilbert is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Mark Gilbert in London at magilbert@bloomberg.net

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North West Shelf Venture's LNG Expansion Running Below Capacity

By Angela Macdonald-Smith

Nov. 13 (Bloomberg) -- Australia's A$25 billion ($16 billion) North West Shelf venture is experiencing ``teething problems'' at its fifth liquefied natural gas production unit, which started up in August, said operator Woodside Petroleum Ltd.

Problems with the cryogenic heat exchanger mean the unit is taking longer than anticipated to ramp up to full production, Perth-based Woodside said today in a presentation to investors. The unit will run at 80-90 percent of capacity until it is shut down for maintenance in the second half of next year, it said.

The A$2.6 billion expansion of the North West Shelf venture plant in Western Australia, the nation's biggest LNG producer, boosted capacity for the fuel at the site in Karratha to 16.3 million metric tons a year. The venture sells LNG under long- term contracts to customers in Japan, South Korea and China.

The problem at the fifth unit ``will result in a reduced capacity until we get the problem fixed,'' Woodside Chief Executive Officer Don Voelte said in the presentation, which was webcast. The venture expects to produce about 250 LNG cargoes next year, Woodside said.

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

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China Fuel Demand Drop to Hurt Europe Refiners, Bernstein Says

By Nidaa Bakhsh

Nov. 13 (Bloomberg) -- A slowdown in demand for fuel in China may accelerate, cutting profits for refiners in Europe because they will export less to Asia, according to Sanford C. Bernstein & Co.

``We believe there is a significant risk of a more rapid slowdown in China's appetite for diesel than many expect,'' London-based Bernstein analyst Neil McMahon said in a report dated Nov. 11. ``This, in our view, is a key risk to European refining margins in 2009.''

A slowdown in China's economic activity means less use of diesel by commercial vehicles such as trucks transporting goods from factories, according to the report. McMahon expects China's diesel demand growth to fall to five percent next year from an average of nine percent over the past three years. Imports have fallen after a surge in demand for diesel before the Olympic Games in August.

Additional global refining capacity may exacerbate the oversupply of diesel, Bernstein said. Reliance Industries Ltd.'s new 580,000-barrel-a-day Jamnagar refinery in India is expected to add 250,000 barrels of diesel export capacity in 2009, according to the report.

Spare capacity of diesel worldwide will rise to 2.4 million barrels a day next year from 1.7 million barrels a day in 2008, the largest increase since 2005, the report said.

Refinery utilization rates for diesel are expected to drop to 90 percent over the next two years from 93.5 percent this year, McMahon said. That compares to an operating rate for gasoline below 90 percent over the next five years versus 92.5 percent this year, he said.

To contact the reporter on this story: Nidaa Bakhsh in London at nbakhsh@bloomberg.net

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Woodside Forecasts 33% Jump in Spending Next Year

By Angela Macdonald-Smith

Nov. 13 (Bloomberg) -- Woodside Petroleum Ltd., Australia's second-largest oil and gas producer, said capital investment may jump 33 percent next year as spending increases on building the Pluto liquefied natural gas venture to tap North Asian demand.

Capital expenditure may rise to A$7.3 billion ($4.7 billion) in 2009, up from an estimated A$5.5 billion this year, the Perth-based company said today in a presentation to investors. Woodside plans to raise between $1 billion and $1.5 billion of debt in the first half next year to fund expansion, said Lawrie Tremaine, group financial controller.

Woodside is building the A$12 billion Pluto LNG venture in Western Australia to gain from rising use of cleaner fuels in Japan. Almost three-quarters of next year's capital spending budget will be on the project. A decline in the Australian currency against the dollar means Woodside's U.S. dollar debt can fund more spending, the company said today.

``Pluto is a world-class project, so it is understandable that Woodside would want to progress development as quickly as possible bearing in mind the strong ongoing demand for energy in Asia,'' said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management in Sydney. ``Gearing is currently around 25 percent, which is modest, so one would imagine that the company could take on additional project debt.''

Woodside, 34 percent-owned by Royal Dutch Shell Plc, fell as much as 4 percent in Sydney trading to A$38.38 and was at A$38.40 at 10:09 a.m. local time. The decline compared with a drop of as much as 3.7 percent in the Australian Stock Exchange's benchmark energy index after oil prices fell in New York.

Flat Output

Production next year may be little changed at between 81 million and 86 million barrels of oil equivalent, compared with 81 million to 84 million this year, Woodside said. The company expects to report record annual profit this year before one-time items and higher cash flow, said Mike Lynn, vice president for investor relations.

``We remain well positioned to fund the continuing growth of our business,'' Tremaine said. The company, which has deferred plans to raise additional debt this half, will primarily rely on cash flows generated by its existing projects to fund expansion, he said.

The company currently has $2.05 billion of debt and $1.05 billion of undrawn facilities, it said in the presentation slides, sent to the exchange. Debt in the first half next year is set to rise to more than $4.2 billion, including the additional debt to be arranged next year, it said.

Pluto, Browse

Pluto is due to start shipments in 2010 from Western Australia, more than doubling Woodside's existing LNG output of 2.7 million metric tons a year, from its one-sixth share of the North West Shelf venture. Demand growth in LNG is continuing, yet the pace has slowed, Woodside said. Demand is still expected to exceed supply ``at least until 2015'' as new supply projects are delayed, it said.

Underinvestment in LNG production plants may boost prices for the fuel starting 2012, the International Energy Agency said yesterday in its World Energy Outlook 2008. Before that time there will be a ``massive expansion'' in supply, it said.

Woodside is also seeking to further expand LNG output at the North West Shelf venture, which started up a fifth production unit late August. That unit is experiencing some ``teething problems'' and will probably be shut down for work in the second half of 2009, the company said.

The company is still seeking more gas to underpin an expansion of its Pluto project and is working to develop LNG ventures at the Sunrise field in the Timor Sea and in the Browse Basin off the far northwest coast.

LNG is gas chilled to liquid form for transportation by ocean-going tankers.

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

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Malaysian Ringgit Declines on Credit-Market Concerns, Oil Slump

By David Yong

Nov. 13 (Bloomberg) -- Malaysia's ringgit fell to the lowest in almost two years on speculation the global credit- market crisis will deepen, prompting investors to stay away from emerging-market assets.

The currency slid for a third day as stocks in Australia, Japan and South Korea slumped, tracking losses in U.S. equities. Shares fell on U.S. Treasury Secretary Henry Paulson's plan to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit and scrap an effort to buy devalued mortgage assets. A report showed U.K. unemployment claims rose to the highest since March 2001.

``Market participants are likely to dine on burnt toast as increasing risk concerns are likely to deliver new territory moves for currencies,'' said David Croy, a strategist in Wellington at ANZ Investment Bank. ``Risk aversion is on the rise'' on worries over the unraveling of economic support packages, he said by phone today.

The ringgit traded at 3.5975 per dollar as of 8:26 a.m. in Kuala Lumpur versus 3.5935 late yesterday, according to data compiled by Bloomberg. It fell as much as 0.6 percent to 3.6163, the weakest since December 2006.

Yields on emerging-market debt are 6.53 percentage points higher than yields on U.S. Treasuries, according to the JPMorgan EMBI+ Index. The risk premium rose 61 basis points yesterday to near a two-week high. A basis point is 0.01 percentage point.

The ringgit has slid 10 percent since crude oil fell from a record $147.27 per barrel on July 11, while palm oil has more than halved over the same period. Both accounted for 15 percent of exports this year, the trade ministry said.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.

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Citic Pacific Receives $1.5 Billion Loan Facility From Parent

By Joost Akkermans

Nov. 13 (Bloomberg) -- Citic Pacific Ltd., the Hong Kong company under investigation after predicting a HK$15.5 billion ($2 billion) loss from unauthorized currency bets, said its parent will provide a $1.5 billion standby loan facility.

The loan will be replaced by a convertible bond issued to Citic Group, China's largest state-owned investment company, according to an e-mailed statement sent late yesterday. Citic Group will help the unit restructure its Australian dollar-leveraged foreign-exchange contracts.

The bonds will automatically convert into a stake in Citic Pacific at HK$8 a share, giving the parent a 57.6 percent holding in Citic Pacific, it said. Citic Pacific has been suspended from trading and last traded at HK$6.06.

Citic Pacific shares slumped and its debt ratings were slashed after the company, which makes steel and develops property, on Oct. 20 disclosed the impact of wrong-way bets on the Australian dollar.

The company bet the Australian dollar would rise, incurring losses after the currency tumbled 30 percent against its U.S. counterpart from a 25-year high reached in July. The company bought leveraged currency contracts to fund an A$1.6 billion ($1 billion) iron-ore mine in Australia, it last month.

Hong Kong's Securities and Futures Commission has started a probe into the company. Citic Pacific has been criticized by lawmakers for a six-week delay in revealing the trades.

Citic Pacific owns a 17.5 percent stake in Cathay Pacific Airways Ltd., Hong Kong's largest carrier, and a 52.6 percent stake in Citic 1616, according to its annual report. It also operates 9 power plants in China and 2 tunnels in Hong Kong.

Financial Director Leslie Chang, 54, didn't follow hedging policy and failed to seek the chairman's approval for the transactions, the company said Oct. 20. Chang and Financial Controller Chau Chi Yin, 52, were both ousted for the trades.

To contact the reporter on this story: Joost Akkermans in Hong Kong at jakkermans@bloomberg.net

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Japan's Yen, Chinese Yuan, Thai Baht: Asia Currency Preview

By Bob Chen

Nov. 13 (Bloomberg) -- The following events and economic reports may influence trading in Asian currencies today. Exchange rates are from the previous session.

Japanese yen: The Finance Ministry releases weekly portfolio flows data at 8:50 a.m. in Tokyo.

Chief Cabinet Secretary Takeo Kawamura will hold briefings at 11 a.m. and 4 p.m. in Tokyo. Vice Finance Minister Kazuyuki Sugimoto is scheduled to give a press conference at 5 p.m.

The yen was at 94.90 a dollar at 8:32 a.m. in Sydney.

Chinese yuan: Industrial output grew 11.1 percent in October from a year earlier, the slowest pace since February 2005, economists said in a Bloomberg survey before the government reports the data today at 10 a.m. local time.

The yuan was at 6.8295.

Thai baht: The University of the Thai Chamber of Commerce will report consumer confidence for October at 11 a.m. in Bangkok. The index fell to 69.5 in September, a 10-month low.

The baht was at 34.96.

To contact the reporter on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net.

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Yen Falls Against Dollar, Euro on Speculation Gains Excessive

By Stanley White

Nov. 13 (Bloomberg) -- The yen declined from two-week highs against the dollar and the euro on speculation its recent gains were excessive.

The euro fell for a third day against the dollar before data that may show Germany, Europe's largest economy, entered a recession, bolstering expectations that policy makers will lower interest rates. The pound slid to a six-year low on speculation borrowing costs will fall after the Bank of England said the U.K. economy will shrink through most of next year.

``The yen rose so much yesterday that it seems some Japanese importers were caught by surprise,'' said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Japan's second-largest publicly traded lender. ``It's an attractive level for them to sell.''

Japan's currency fell to 95.62 per dollar as of 9:54 a.m. in Tokyo from 95.01 late yesterday in New York, when it reached 94.48, the strongest since Oct. 28. It also slid to 119.08 against the euro from 118.77. Japan's currency earlier today reached 117.65, also the highest this month. The dollar rose to $1.2473 per euro from $1.2505.

The yen has strengthened against all of the world's 16 most-active currencies this month, extending gains in both September and October. The dollar was the only one of the currencies to climb versus the yen in August.

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

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Australian, New Zealand Dollars Slump on Equities, Commodities

By Candice Zachariahs

Nov. 13 (Bloomberg) -- The Australian and New Zealand dollars dropped by the most in three weeks against the yen as U.S. equities and commodity prices slumped, prompting investors to dump high-yielding assets.

The currencies fell to two-week lows against the U.S. dollar as a gauge of risk aversion surged to the highest in two weeks. They also fell amid a second day of declines for commodities, which account for more than half of the two nations' exports.

``We've seen equity markets, commodities and emerging-market currencies selling off and a major unwinding in carry trades,'' said Matthew Strauss, a senior currency strategist at RBC Capital Markets Inc. in Toronto. ``Aussie and kiwi have been particularly hard hit because the unwinding of carry trades plus the commodity link is weighing on them,'' he said, referring to the currencies by their nicknames.

Australia's currency slid 2.9 percent to 63.75 U.S. cents as of 8:17 a.m. in Sydney from 65.66 cents late in Asia yesterday. It dropped as low as 63.51, the weakest since Oct. 29. The currency fell 5.3 percent, the most since Oct. 24, to 60.49 yen.

New Zealand's dollar weakened 2.6 percent to 55.93 U.S. cents from 57.40 in Asia yesterday. It touched 55.53 cents, also the lowest since Oct. 29. It bought 53.05 yen from 55.83.

The South Pacific nations' currencies plunged as U.S. stocks fell for a third day on concern the economic slump is deepening after Best Buy Co. warned of a ``seismic'' slowdown in spending.

The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock-market price changes and a measure of risk aversion, closed at a two-week high of 66.46.

The UBS Bloomberg Constant Maturity Commodity index of 26 raw materials has dropped in six of the past eight sessions on concern a slowing global economy will cut demand for raw materials, which account for about 60 percent of Australia's exports and 70 percent of New Zealand's.

New Zealand's manufacturing industry contracted for a sixth month in October, Business New Zealand Ltd., a Wellington-based employer group, said today in a statement e-mailed to Bloomberg.

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

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Oil Falls to 21-Month Low on Forecasts of Lower Global Demand

By Mark Shenk

Nov. 13 (Bloomberg) -- Crude oil fell to a 21-month low on speculation that the International Energy Agency will cut its global demand estimate today and the U.S. will report that stockpiles gained.

The IEA is ``more than likely'' to lower its oil-demand forecast for the coming year in its next monthly oil report, according to Executive Director Nobuo Tanaka. The U.S. Energy Department cut its oil-demand and price forecasts yesterday. A department report today may show that crude-oil supplies rose last week.

``It's hard to see what will stop this slide,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York. ``It's more of the same. The market is moving on continuing economic concerns.''

Crude oil for December delivery fell $1.01, or 1.8 percent, to $55.15 a barrel at 10:40 a.m. Sydney time on the New York Mercantile Exchange. Earlier, it touched $55.03 a barrel, the lowest since Jan. 30, 2007. Prices have tumbled 63 percent since reaching a record $147.27 on July 11.

Futures dropped $3.17, or 5.3 percent, yesterday to $56.16 a barrel, the lowest settlement since Jan. 29, 2007.

The IEA, which coordinates energy policy in 28 developed countries, will cut its forecast for growth in global demand for a third month from 700,000 barrels a day in its monthly report today, according to four former analysts at the agency.

`Dramatically Downward'

``It appears that the demand numbers will be revised dramatically downward,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``Demand growth will probably be revised down from 700,000 barrels to about 300,000'' barrels a day.

The U.S. government reduced its forecast for oil prices next year by 43 percent as the economic slowdown cuts energy demand. West Texas Intermediate crude oil, the U.S. benchmark, will average $63.50 a barrel in 2009, down from $112 estimated in October, the Energy Department said in its monthly Short-Term Energy Outlook, released yesterday in Washington.

Global oil consumption will average 85.89 million barrels a day this year, up 80,000 barrels from 2007, according to the report. The estimate is down 250,000 barrels from the forecast a month ago. Demand will average 85.93 million barrels a day in 2009, down 990,000 barrels from last month's forecast.

OPEC Options

The Organization of Petroleum Exporting Countries, which announced a 1.5 million barrel-a-day supply cut last month to stanch the price drop, may meet again before its next scheduled gathering in December if futures keep declining, Shokri Ghanem, Libya's top oil official, said. OPEC oil ministers and officials are currently holding talks by telephone, he said.

If the IEA report shows flat demand, ``you can be sure that OPEC will get together before the next scheduled meeting and make further cuts,'' Barakat said.

OPEC President Chakib Khelil said the group may announce another output cut before its next planned meeting, Reuters reported. Members of the group produce more than 40 percent of the world's oil.

``If OPEC had wanted to make a statement, they should have made a cut of at least 3 million barrels,'' said Sean Brodrick, natural resource analyst with Weiss Research in Jupiter, Florida. ``Adherence to quotas is always questionable as well. They will have to make further cuts and say how they intend to make them.''

Prices of $80 a barrel are needed to make investment in new supply economical, the IEA's chief economist, Fatih Birol, said at a conference in London yesterday.

Project Delays

``We are already seeing projects be canceled because of the fall in prices,'' Brodrick said. ``I wouldn't be surprised if we see prices surge above $100 again next year because of the canceled projects and a pickup of demand.''

Energy prices also dropped as falling global stock markets signaled that the economic slump may deepen. The Standard & Poor's 500 Index declined 46.65 points, or 5.2 percent, to 852.30. The Dow Jones Industrial Average fell 411.30, or 4.7 percent, to 8,282.66.

U.S. crude-oil stockpiles probably increased 1 million barrels in the week ended Nov. 7 from 311.9 million the week before, according to the median of 13 analyst estimates before the Energy Department report.

The department is scheduled to release its weekly report today at 11 a.m. in Washington. The report is being delayed by a day because the Veterans Day holiday on Nov. 11.

Brent crude oil for December settlement declined $3.34, or 6 percent, to $52.37 a barrel on London's ICE Futures Europe exchange, the lowest settlement since Jan. 18, 2007.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

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Japan Stocks Drop on U.S. Spending Concern; Sony, Mizuho Slump

By Masaki Kondo

Nov. 13 (Bloomberg) -- Japan stocks fell for a third day as earnings forecasts stoked concern the U.S. economy is worsening and on speculation banks will sell shares to raise capital.

Sony Corp., the world's second-biggest maker of consumer electronics, slumped 7.3 percent after U.S. retailer Best Buy Co. cut its forecast on a spending slowdown, and the yen rose to a two-week high. Advantest Corp., the largest maker of memory-chip testers, lost 6.1 percent after Intel Corp. cut its fourth- quarter sales forecast. Mizuho Financial Group Inc. sank 4.7 percent after a person familiar with the plan said the bank may sell 300 billion yen ($3.2 billion) in preferred shares.

The Nikkei 225 Stock Average declined 351.72, or 4 percent, to 8,343.79 as of 9:52 a.m. in Tokyo. The broader Topix index fell 30.44, or 3.5 percent, to 844.79, with almost nine stocks slumping for each that rose.

``Best Buy's forecast illustrates the dimming spending climate in the U.S.,'' Mitsushige Akino, who oversees about $468 million at Tokyo-based Ichiyoshi Investment Management Co., said in an interview with Bloomberg Television.

The collapse of the U.S. mortgage market sparked $950 billion in losses and writedowns at financial companies, which now threaten a global economic recession. Central banks in the U.S., U.K. and Japan are among those that have cut interest rates to stimulate spending and growth as consumer confidence wanes.

Best Buy, the largest U.S. electronics retailer, yesterday slashed its earnings forecast for the year through February, citing a ``seismic'' slowdown in consumer spending. Japan's exports to the U.S., which accounted for about a fifth of the total, fell 11 percent in September, while companies from Sony to Toyota Motor Corp. cut earnings forecasts in the past month.

Surging Yen

Sony, which gets a quarter of its sales from the U.S., dropped 7.3 percent to 2,030 yen, while Nintendo Co., the world's biggest maker of handheld game players, lost 4.6 percent to 29,060 yen in Osaka trading. Canon Inc., the largest digital- camera maker, retreated 4.6 percent to 2,900 yen.

The yen appreciated against the dollar to as much as 94.52 today from 97.71 at the close of stock trading in Tokyo yesterday, reducing the value of Japanese companies' repatriated sales and threatening deeper cuts in forecasts.

Advantest slipped 6.1 percent to 1,159 yen, and Tokyo Electron Ltd., the world's second-largest producer of semiconductor equipment, lost 5.3 percent to 2,975 yen. Elpida Memory Inc., Japan's biggest maker of computer-memory chips, fell 9.6 percent to 497 yen.

Chip Slump

Intel, the world's largest computer-chip maker, slashed its fourth-quarter sales outlook by about $1 billion, as customers worldwide are ``aggressively'' cutting orders, the company said today. After the announcement, Standard & Poor's 500 Index futures expiring in December dropped as much as 1.4 percent in Chicago from a 0.4 percent gain.

Mizuho, Japan's second-biggest listed bank, retreated 4.7 percent to 259,700 yen, while larger rival Mitsubishi UFJ Financial Group Inc. lost 4.4 percent to 588 yen.

Mizuho may sell preferred securities to institutional investors in Japan by the end of this year to improve capital, a person familiar with the plan said today. Mitsubishi UFJ will complete the sale of as much as 600 billion yen of common shares in mid-December, advancing a sale that had been planned sometime in the next year, Kyodo News Service said today.

Sharp Corp., Japan's biggest maker of liquid crystal display televisions, declined 6.2 percent to 683 yen. The Osaka-based company will book a $120 million one-time loss in the third quarter, the company said today before markets opened. Sharp, along with LG Display Co., Chunghwa Picture Tubes, agreed to pay fines for conspiring to fix prices of displays, the U.S. Justice Department announced.

Nikkei futures expiring in December retreated 4.7 percent to 8,330 in Osaka and Singapore.

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

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Australia Stocks, Japan Futures Drop on U.S. Spending Concern

By Masaki Kondo

Nov. 13 (Bloomberg) -- Australia shares and Japan's stock futures dropped as slumping earnings at U.S. companies stoked concern demand in the world's biggest economy will wane.

Woodside Petroleum Ltd. retreated 3.9 percent in Sydney after oil prices fell to a 21-month low. U.S.-traded receipts of Sony Corp. lost 8.5 percent from the closing share price in Tokyo, after Best Buy Co. cut its forecast on a ``seismic'' spending slowdown and the yen rose to a two-week high. Sumitomo Mitsui Financial Group Inc. sank 9.2 percent as Treasury Secretary Henry Paulson's plan to divert the $700 billion rescue package from banks to consumer credit points to prolonged credit turmoil.

Australia's S&P/ASX 200 Index fell 3.9 percent to 3,774.90 as of 10:24 a.m. in Sydney. New Zealand's NZX 50 Index lost 1.4 percent to 2,734.21 in Wellington. In New York, the Standard & Poor's 500 Index sank 5.2 percent.

``Best Buy's forecast illustrates the dimming spending climate in the U.S.,'' Mitsushige Akino, who oversees about $468 million at Ichiyoshi Investment Management Co., said in an interview with Bloomberg Television. ``With Paulson's plan change, investors think the initial $700 billion won't be enough.''

Nikkei 225 Stock Average futures expiring in December closed at 8,165 in Chicago, 6.6 percent lower than 8,740 in Osaka and Singapore. The Bank of New York Mellon Asia ADR Price Index, which tracks American depositary receipts of the region's companies, slid 4.5 percent.

The collapse of the U.S. mortgage market sparked $950 billion in losses and writedowns at financial companies and now threatens a global economic recession. Central banks in the U.S., U.K. and Japan are among those that have lowered benchmark interest rates to stimulate spending and growth as consumer confidence wanes.

`Significantly Weaker'

Best Buy, the largest U.S. electronics retailer, yesterday slashed its earnings forecast for the year through February, citing a ``seismic'' slowdown in consumer spending. The report preceded Intel Corp.'s announcement that its fourth-quarter sales will be lower than its earlier estimate by about $1 billion amid ``significantly weaker'' demand.

Japan's exports to the U.S., which accounted for about a fifth of the total, fell 11 percent in September, while companies from Sony to Toyota Motor Corp. cut earnings forecasts in the past month.

The yen appreciated against the dollar to as much as 94.52 today from 97.71 at the close of stock trading in Tokyo yesterday, reducing the value of Japanese companies' repatriated sales and threatening deeper cuts in forecasts.

New Facility

Paulson yesterday said he plans to use the second half of the $700 billion financial rescue package to help ease pressure on consumer credit, scrapping a plan to buy devalued mortgage assets. Treasury and Federal Reserve officials are seeking a new ``facility'' to shore up the market for asset-backed securities backed by assets, Paulson said, adding the program would be ``significant in size.''

Crude oil for December delivery declined 5.3 percent to $56.16 a barrel in New York yesterday, the lowest settlement since January 2007. Prices have tumbled 62 percent since reaching a record $147.27 on July 11.

Sharp Corp., Japan's biggest maker of liquid crystal display televisions, will book a $120 million one-time loss in the third quarter, the company said today before markets opened. The company, along with LG Display Co., Chunghwa Picture Tubes, agreed to pay a fine for conspiring to fix prices of displays, the U.S. Justice Department announced.

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

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Paulson Shifts Focus of Rescue to Consumer Lending

By John Brinsley and Robert Schmidt

Nov. 12 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets.

``Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards,'' Paulson said today in a speech at the Treasury in Washington. ``This is creating a heavy burden on the American people and reducing the number of jobs in our economy.''

His remarks are an acknowledgement that the pitch he made to Congress for the bailout hasn't delivered what was promised. Paulson sold the Troubled Asset Relief Program as a way to rid bank balance sheets of illiquid mortgage assets, and he may encounter resistance from Congress for the remaining $350 billion after using most of the first half to buy bank stakes.

Lawmakers will ``put his feet to the fire,'' said Kevin Petrasic, a former official at the Office of Thrift Supervision, now an attorney with the Paul, Hastings, Janofsky & Walker law firm in Washington. ``I'm not sure how you get around dealing with what is clearly the congressional intent.''

Charles Grassley of Iowa, ranking Republican on the Senate Finance Committee, said the shift makes ``you wonder if they really know what they're doing.'' Grassley, in a letter to Paulson and Federal Reserve Board Chairman Ben Bernanke, raised the possibility Congress could block appropriation of the remaining $350 million under the rescue package.

``Congress can act any time to revoke the Treasury's authority,'' Grassley said. ``They will be watched and they will be questioned.''

No Apologies

Paulson said he has no regrets for the revised plan. ``I will never apologize for changing a strategy or an approach if the facts change,'' he said.

Treasury and Federal Reserve officials are exploring a new ``facility'' to bolster the market for securities backed by assets, Paulson said, adding that the program would be ``significant in size.'' Officials are considering using a portion of the bailout money to ``encourage private investors to come back to this troubled market,'' he said.

The Treasury chief said the department is also considering having companies that accept new taxpayer funding get matching private capital. Buying ``illiquid'' mortgage-related assets -- the reason the program was established a month ago -- is no longer being considered, he said.

``We will continue to examine whether targeted forms of asset purchase can play a useful role,'' he said.

Initial $350 Billion

Paulson has committed all but $60 billion of the initial $350 billion allocated by Congress to take equity stakes in banks and in insurer American International Group Inc. Lawmakers, who could reject Treasury requests for the remaining $350 billion, are pushing for aid to automakers including General Motors Corp. Paulson is resisting.

House Financial Services Committee Chairman Barney Frank today proposed giving General Motors Corp., Ford Motor Co. and Chrysler LLC $25 billion in loans from the Treasury rescue fund.

``A collapse of the American automobile industry would be the worst possible thing that could happen at a time when we are already weakened,'' Frank, a Massachusetts Democrat, said in an interview on Bloomberg Television. He also said he disagreed with Paulson's decision to forgo buying bad assets.

``That was an important part of the way we sold the program, and I think he's making a mistake,'' Frank said.

Manufacturing Industry

Automakers ``are a key part of our manufacturing industry and manufacturing is critical,'' Paulson said in response to a question after his prepared remarks. ``We need a solution, but the solution has got to be one that leads to viability.''

Paulson said he has no timeline for notifying Congress of his intent to use the remaining TARP funds, and reiterated that he's ``comfortable'' that $700 billion is ``what we need'' to stabilize the financial system.

With less than three months left in the Bush administration, demands for assistance from foundering companies will likely escalate. The Treasury two days ago took a $40 billion stake in AIG. American Express Co. this week converted into a bank-holding company, making it eligible for funds.

President-elect Barack Obama, who takes office on Jan. 20, last week said his economic team will ``review the implementation'' of the rescue plan, suggesting he may have different priorities for its use.

Transition Team

Paulson said today he met with a member of the incoming president's transition team as well as someone ``who is going to have responsibility'' for the program after the end of the Bush administration.

The Treasury chief and his team have decided to stick with the success they've had with the capital injection program, rather than try to deal with setting up the asset purchases before the change in administration, said Martin Regalia, chief economist at the U.S. Chamber of Commerce in Washington.

``It's going to be the next guy's issue,'' he said. ``At this point, they're just trying to make sure the pieces don't come apart at the seams.''

Some lawmakers are also calling for greater oversight over use of the funds. Senator Charles Schumer of New York today reiterated his calls for Paulson to require banks taking public capital to increase lending rather than use the money to finance takeovers.

``The TARP really gave no incentive for the banks to lend the money, carrot or stick, and that's a big problem,'' he said on a conference call with reporters.

To contact the reporter on this story: John Brinsley in Washington at jbrinsley@bloomberg.net; Robert Schmidt in Washington at rschmidt5@bloomberg.net

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Canada Stocks Fall on Oil, Credit Concern; Suncor, Teck Drop

By John Kipphoff

Nov. 12 (Bloomberg) -- Canadian stocks had their biggest drop this month as materials and energy producers slid with commodity prices and financial stocks tumbled after the government signaled that the credit crisis isn't abating.

Suncor Energy Inc. paced a retreat among resource producers as oil slid to a 21-month low. Teck Cominco Ltd. had a second- straight record drop on concern that it may be unable to pay off debt. Manulife Financial Corp. led finance stocks lower after Finance Minister Jim Flaherty offered more support to banks, predicting an ``extended period of stress'' in credit markets.

``We're in a bear-market -- anyone with problems gets spanked,'' said John Kinsey, who helps manage about C$1 billion for Caldwell Securities Ltd. in Toronto. ``Energy and commodities are down, and to complete things, financials are joining in. People don't want to own anything today.''

The Standard & Poor's/TSX Composite Index dropped 5.3 percent to 8,922.57 in Toronto. Canada's main equity measure has lost more than two-fifths of its value since climbing to a peak on June 18 as oil and commodities approached records.

Also weighing on the Canadian market today was a drop in U.S. stocks, triggered by the U.S. Treasury's plan to redirect the remainder of a $700 billion fund, originally earmarked for a bank bailout, to bolster consumer credit. A recession in Canada is ``inevitable'' as the U.S. economic slump spreads north, Toronto-Dominion Bank Chief Executive Officer Edmund Clark said.

Commodities account for a third of Canada's exports. Gauges of mining, energy and finance shares fell 9.9 percent, 6.8 percent and 4.3 percent, respectively, today. The S&P/TSX gets almost three-quarters of its value from those three groups.

Teck Cominco fell 24 percent to C$6.63. Canada's biggest diversified mining company dropped by a record for a second day on concern that prices for metallurgical coal may decline, and that it won't be able to repay $9.8 billion in debt used to finance last month's acquisition of Fording Canadian Coal Trust.

Asset Sales

The company denied yesterday that it plans a share sale after its stock fell 20 percent. Today Teck said that it may sell gold mines, interests in other projects and bonds.

``They don't need distressed asset sales,'' said Kinsey, whose firm holds Teck Cominco shares. ``They have strong cash flows. They'll get through this. At some stage it's a buy, but we don't like to catch a falling knife.''

Kinross Gold Corp., Canada's third-biggest bullion mining company, fell 13 percent to C$14.18. Barrick Gold Corp., the world's largest gold miner, retreated 9.8 percent to C$25.69.

Potash Corp. of Saskatchewan Inc., the biggest maker of crop nutrients by market value, fell 11 percent to C$85.57.

Oil fell 5.3 percent to $56.16 a barrel in New York, the lowest since January 2007, on speculation the International Energy Agency will cut its global demand estimate tomorrow and the U.S. will report that stockpiles increased. Gold fell as oil's drop reduced its appeal as an alternative investment.

Energy Companies

Suncor Energy, the second-largest oil-sands mining company, declined 12 percent to C$23.38, the most in almost a month. Canadian Oil Sands Trust, lead partner in the biggest tarsands producer, slid 14 percent to C$24.26. EnCana Corp., Canada's biggest energy company, dropped 6.2 percent to C$53.44. Canadian Natural Resources Ltd. fell 10 percent to C$47.95.

Minister Flaherty tripled the amount of mortgages the government is authorized to buy to as much as C$75 billion ($62 billion) to encourage new lending. Canada is also cutting the cost for banks to tap a government loan insurance program after it went unused at the initial premium.

The Bank of Canada said today that it will inject another C$8 billion into the banking system to temporarily buy up ``non- mortgage loan portfolio'' assets. State-owned Canada Mortgage and Housing Corp. bought C$7 billion of mortgages.

Manulife, North America's largest insurance company by market value, retreated 9.3 percent to C$23.35. Royal Bank of Canada, the country's biggest lender by assets, fell 5.5 percent to C$43.91. Toronto-Dominion, the second-largest bank, dropped 5.2 percent to C$52.95.

To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.

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S&P 500 `Almost Certain' to Retest Low, JPMorgan Says

By Elizabeth Stanton

Nov. 12 (Bloomberg) -- U.S. stocks are ``almost certain'' to revisit the five-year low reached Oct. 10, according to an analysis of historical trading patterns by JPMorgan Chase & Co.

The Standard & Poor's 500 Index fell at least 20 percent on 21 occasions since 1900, and ``retested'' the level, or fell back after a rally, all but three of those times, JPMorgan U.S. equity strategists led by Thomas J. Lee wrote in a report.

More than $700 billion of mortgage-related bank losses and signs the U.S. economy is in a recession sent the benchmark index for American equities down as much as 46 percent from its October 2007 peak. JPMorgan's research suggests the nearly 12 percent advance by the S&P 500 on Oct. 13 didn't herald a bull market.

``If Oct. 10 indeed proves to be the low, a retest is almost a certainty,'' the report said. ``Retests are the norm, occurring 86 percent of the time.''

The S&P 500 will probably retreat to the 839.80 it reached during trading on Oct. 10 by Nov. 23, based on past intervals, the report said. Just 25 percent took longer than 44 days to decline back to the lows, the report said. The longest interval between a trough and a retest was 104 days following the October 2002 slump.

Other factors that argue against a retest before mid- November include still-elevated volatility, a condition that ``sidelines major institutional investors,'' and the Nov. 15 deadline for hedge funds redemptions, the report said.

Deteriorating Economy

``The economic situation has deteriorated very rapidly in the last four to six weeks,'' said Jonathan Armitage, head of U.S. large-cap equities at the American unit of Schroders, the U.K. manager of $259 billion. ``Given that sort of macro backdrop and what we're seeing from corporate announcements, I'm not surprised we're seeing the market as weak as it's been.''

The S&P 500 fell 5.2 percent today to 852.3, its third straight drop. Best Buy Co., the largest electronics retailer, fell as much as 13 percent after warning of a ``seismic'' slowdown in consumer spending.

Lee maintained his forecast that the S&P 500 will end the year at 1,125, representing a 31 percent advance.

``A 42 percent decline in equities since their 2007 peak means a substantial recession has been discounted,'' he wrote.

The average Wall Street forecast calls for the S&P 500 to gain 30 percent to 1,118 by Dec. 31 -- more than twice as much as the biggest-ever advance to close out a year, according to year-end predictions compiled by Bloomberg. Strategists were even more bullish at the beginning of the year, predicting that the S&P 500 would end 2008 at a record 1,632.

A separate report by Westport, Connecticut-based Birinyi Associates Inc. last week observed that market lows since 1962 don't share any characteristic by which investors can recognize one as it's occurring.

JPMorgan's list of S&P 500 bottoms and retest intervals in days since 1900 follows:

12/19/1917      0
04/28/1942      0
06/13/1949      0
10/15/1903     16
03/27/1980     16
08/31/1998     22
02/28/1978     23
08/29/1966     28
05/26/1970     29
10/19/1987     33
10/22/1957     38
06/18/1982     38
12/24/1914     40
03/31/1938     41
10/04/1974     44
06/20/1921     47
10/11/1990     61
11/15/1907     63
06/16/1953     63
06/26/1962     83
10/09/2002    104

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net

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Brazil Stocks Plunge on Commodity Slump, Slowdown; Bolsa Falls

By Alexander Ragir and William Freebairn

Nov. 12 (Bloomberg) -- Brazilian stocks tumbled the most in three weeks, led by raw-material companies, on concern the slowing economy and declines in commodity prices may hurt the earnings outlook for the nation's biggest producers.

Petroleo Brasileiro SA plunged 14 percent after Credit Suisse Group AG downgraded the oil producer on the prospect of lower earnings as crude prices drop. Usinas Siderurgicas de Minas Gerais SA led a decline in steelmakers as UBS AG said the metal price is likely to fall because Chinese demand is slowing. Tam SA, Brazil's biggest airline, dropped to the lowest in three years as domestic air traffic slowed last month.

``People are realizing that global growth in 2009 will be really low,'' said Eduardo Roche, who helps manage the equivalent of about $600 million at Banco Modal SA in Rio de Janeiro. For steel, ``the potential slowdown in demand could be very great.''

The Bovespa fell 7.8 percent to 34,373.99, the biggest drop since Oct. 22. Chile's Ipsa slid 3.5 percent. Mexico's Bolsa index lost 5 percent, led by companies that will be dropped from the MSCI Inc. index of Latin American stocks. The MSCI Emerging Markets Index fell 4 percent.

Petrobras, which reported a doubling of third-quarter profit yesterday, sank 3.29 reais to 20.62 reais. The shares were headed for their biggest drop since 1998 after Credit Suisse cut its rating on the stock to ``neutral'' from ``outperform'' and oil prices fell more than 5 percent.

``We are becoming increasingly concerned with the company's deteriorating cost structure and earnings outlook'' with oil prices at $60 a barrel, analyst Emerson Leite wrote in a note. He previously had an ``outperform'' rating on the shares.

Crude oil touched a 20-month low of $55.94 a barrel.

Steel Outlook

Usiminas, as Brazil's second-biggest steelmaker is known, dropped 9.3 percent to 22 reais.

``Chinese steel prices continue to decline and we expect Brazilian prices to follow suit,'' UBS wrote in a note.

Gol fell 1.2 percent to 7.95 reais. Domestic air travel by Brazilian airline companies slid 3.9 percent in October from the same period last year, according to ANAC, the National Agency of Civil Aviation in Brasilia.

``The question of falling demand is a big one for airlines,'' Roche said.

Azul Linhas Aereas Brasileiras, the Brazilian airline created by JetBlue Airways Corp. founder David Neeleman, should begin flights in December, the company said in a statement after the National Civil Aviation Agency approved the carrier's aircraft and business plans.

Tam SA, Brazil's biggest airline, lost 1.44 reais to 17.56 reais.

The BM&FBovespa Small Cap index dropped 4.9 percent. The BM&FBovespa MidLarge Cap index slipped 8.1 percent.

Bolsa Drops

Mexico's Bolsa index fell for a second day, led by companies that will be dropped from the MSCI Inc. Latin American index. Axtel SAB, Mexico's second-largest fixed-line phone company, fell to the lowest in three years after MSCI said it would remove the phone company from the index Nov. 25. Corporacion Geo SAB, Mexico's second-biggest homebuilder, will also be removed.

MSCI says $3 trillion is invested in funds that track its different indexes.

Axtel fell 11 percent to 5.47 pesos. Geo dropped 12 percent to 13.95 pesos.

Cemex SAB, North America's largest cement producer, slid 8.7 percent to 7.47 pesos, the lowest since March 1999, after Credit Suisse said costs for its debt may rise as it plans to sell $436 million in bonds.

Chile's biggest iron-ore producer, Cap SA, declined for a second day, losing 5.3 percent to 8,101 pesos. Industrial metal prices extended declines amid speculation that miners need more output cuts to match slowing demand from China.

In other Latin America markets, Argentina's Merval fell 5.5 percent, Peru's Lima General index retreated 3.4 percent and Colombia's IGBC slipped 1 percent.

To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net; William Freebairn in Mexico City at wfreebairn@bloomberg.net.

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Applied Materials, Crocs, Crown, Intel: U.S. Equity Preview

By Lu Wang

Nov. 12 (Bloomberg) -- The following companies may have unusual price changes in U.S. trading tomorrow. Stock symbols are in parentheses, and share prices are as of 5:30 p.m. in New York, unless otherwise specified.

Standard & Poor's 500 Index futures expiring in December lost 10.40, or 1.2 percent, to 843.10. Dow Jones Industrial Average futures fell 357, or 4.1 percent, to 8,280. Nasdaq-100 Index futures slipped 19.50, or 1.7 percent, to 1,144.

Applied Materials Inc. (AMAT US): The largest maker of chip- production machinery reported a 45 percent drop in profit and said it will cut 1,800 jobs as the financial crisis deepens an industrywide slump in orders. The shares fell 70 cents, or 6.6 percent, to $9.95 in regular trading.

Crocs Inc. (CROX US) fell 75 cents, or 39 percent, to $1.15. The maker of colored plastic clogs said it expects a loss of as much as 65 cents a share in the fourth quarter. Analysts, on average, estimated a loss of 6 cents, according to a Bloomberg survey.

Crown Holdings Inc. (CCK US): The maker of about a fifth of the world's beverage cans said it plans to close two plants in the Montreal area in the first quarter, affecting 175 employees. The stock dropped 7.2 percent to $16.50 in regular trading.

Intel Corp. (INTC US) fell 66 cents, or 4.9 percent, to $12.86. The world's largest chipmaker lowered its fourth-quarter sales forecast, saying revenue will be about $9 billion, plus or minus $300 million. It originally targeted between $10.1 billion and $10.9 billion.

National Semiconductor Corp. (NSM US): The maker of chips for the five largest mobile-phone manufacturers reduced its revenue forecast for the second quarter and said it will cut about 5 percent of its workforce. The stock fell 6.5 percent to $11.33 in regular trading.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

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U.S. Stocks Fall on Treasury Strategy Shift, Best Buy Forecast

By Lynn Thomasson

Nov. 12 (Bloomberg) -- U.S. stocks fell for a third day as the Treasury's plan to use bailout funds to shore up consumer lending and Best Buy Co.'s warning of a ``seismic'' slowdown in spending stoked concern the credit crisis is far from over.

Citigroup Inc. and the Standard & Poor's 500 Financials Index slid to 12-year lows as the Treasury scrapped plans to buy mortgage assets and shifted focus to consumer credit. American Express Co. tumbled 10 percent on a report the company may need government aid. Best Buy, the largest electronics retailer, lost 8 percent after saying profit will decrease in ``the most difficult climate we've ever seen.'' Occidental Petroleum Corp. dropped 11 percent as crude sank below $57 a barrel.

``It's hard to get away from the drumbeat of negatives,'' said Liam Dalton, who oversees $1.3 billion as New York-based chief executive officer of Axiom Capital Management. Best Buy's forecast cut is ``a further sign of the retrenchment of the consumer and spending that's slowing very, very rapidly.''

The S&P 500 dropped 5.2 percent to 852.3 and lost 8.5 percent over the past three days. The Dow Jones Industrial Average retreated 411.3 points, or 4.7 percent, to 8,282.66. The Nasdaq Composite Index lost 5.2 percent to 1,499.21, a five-year low. More than 24 stocks fell for each that rose on the New York Stock Exchange.

Economic Concern

The S&P 500 is less than 0.5 percent above its lowest close in five years. The measure reached that level, 848.92, on Oct. 27 and rallied 18 percent in the following six days. Most of those gains have now been erased as companies from Blackstone Group Inc. to News Corp. reported weaker earnings and commodity prices tumbled.

The stock benchmark is down 45 percent from its October 2007 record. The index is ``almost certain'' to revisit its five-year low, according to JPMorgan Chase & Co. strategist Thomas J. Lee, who said such ``retests'' occurred in 86 percent of the bear markets since 1900.

About 1.5 billion shares changed hands on the floor of the NYSE, in line with the three-month daily average. Europe's Dow Jones Stoxx 600 Index sank 3.3 percent and the MSCI Emerging Markets Index fell 4 percent.

Best Buy declined for a seventh day, losing $1.91 to $21.97. Profit for the year ending in February may be as low as $2.30 a share, the company said. Analysts projected $3.04, according to the average estimate in a Bloomberg survey.

Rival Circuit City Stores Inc. filed for bankruptcy protection on Nov. 10, while Macy's Inc., the second-biggest U.S. department-store chain, projected profit declines today, sending its shares down 11 percent.

Energy Slump

Energy companies in the S&P 500 lost 7.3 percent as a group, while raw-material producers declined 6.4 percent collectively.

Oil sank 5.3 percent to $56.16 a barrel at the close of trading in New York on forecasts that tomorrow's Energy Department report will show U.S. crude inventories grew last week amid decreased energy demand. Nickel, gasoline and crude led declines in the Reuters/Jefferies CRB Index of 19 raw materials.

Occidental Petroleum, the fourth-largest U.S. energy company, decreased $5.34 to $45.07. Exxon Mobil, the world's biggest, slipped 5.1 percent to $68.93.

AK Steel Holding Corp. fell 25 percent to $7.73. The fourth-largest U.S. steelmaker said it's temporarily idling operations at facilities in Ohio and Kentucky because of falling demand.

VIX Gains

The Chicago Board Options Exchange Volatility Index climbed for a third straight day, adding 8.2 percent to 66.46. The so- called VIX measures the cost of using options as insurance against declines in the S&P 500.

The S&P 500 Financials Index slid 6.9 percent to the lowest close since 1996. The measure of banks, brokerages and asset managers is down 57 percent in 2008.

Treasury and Federal Reserve officials are exploring a new ``facility'' to bolster the market for securities backed by assets, Treasury Secretary Henry Paulson said. Officials are considering using a portion of the $700 billion financial bailout money to ``encourage private investors to come back to this troubled market,'' he said.

`Heavy Burden'

``Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards,'' Paulson said today in a speech at the Treasury in Washington. ``This is creating a heavy burden on the American people and reducing the number of jobs in our economy.''

Buying ``illiquid'' mortgage-related assets --the reason the Troubled Asset Relief Program was established a month ago -- is no longer being considered, he said.

Citigroup sank $1.16 to $9.64, while Bank of America Corp., Goldman Sachs Group Inc. and Fifth Third Bancorp dropped more than 9 percent each.

American Express Co. slumped $2.35 to $20.05. The credit- card company most dependent on capital markets for fundraising may have requested the government aid before it converted into a bank holding company two days ago, the Wall Street Journal reported, citing unidentified sources.

Morgan Stanley, which converted into a bank holding company in September, lost 15 percent to $11.94 after saying it will fire 10 percent of its institutional securities staff and 9 percent from asset-management.

Financials, which began the year as the biggest part of the S&P 500, fell behind consumer staples to become the fourth- largest today. The industry had been among the top three in the index since August 1995, according to Bloomberg data compiled on a monthly basis.

GM Gains

General Motors Corp. gained 16 cents, or 5.5 percent, to $3.08 after House Speaker Nancy Pelosi urged Congress to protect the country's carmaker from collapse. GM and Ford Motor Co. were among the biggest of only 12 gains in the S&P 500.

Congressional Democrats are telling President George W. Bush to back an economic stimulus package that would provide federal aid to state governments and boost spending on unemployment assistance, food stamps and infrastructure projects.

Confidence in the world economy stayed near rock-bottom in November as a global recession loomed, a survey of Bloomberg users on six continents showed. The Bloomberg Professional Global Confidence Index was at 6.6 compared with 4 in October, the lowest since the survey started a year ago. A reading below 50 means pessimists outnumber optimists.

President-elect Barack Obama may inherit the worst U.S. recession in three decades, according to economists surveyed by Bloomberg News, as more than $918 billion in credit losses at banks, brokerages and insurers drag on global growth.

Recession Prediction

``We basically see the U.S. remaining in a recession through the first half of the year,'' Binky Chadha, New York- based chief U.S. equity strategist at Deutsche Bank AG, said on Bloomberg Television. ``Earnings are probably not going to hit bottom until the economy hits bottom, and even then with a bit of a lag.''

Third-quarter earnings decreased 19 percent on average for S&P 500 companies that have reported results, according to Bloomberg data. Profits for 2008 will drop an average 8.5 percent and rise 12 percent next year, based on a survey of analysts' estimates.

Prologis, the world's largest warehouse developer, plunged 35 percent to $4.47 for the steepest decline in the S&P 500. The company cut its dividend and said it plans to halt new developments as the credit crisis worsens. Chief Executive Officer Jeffrey Schwartz resigned.

Qualcomm, Sprint

Qualcomm Inc. retreated 7.1 percent to $32.57. The biggest maker of mobile-phone chips has stopped hiring and is cutting some research projects after a ``dramatic'' contraction in chip orders from mobile-phone makers, Chief Executive Officer Paul Jacobs said.

Sprint Nextel Corp. slumped 23 percent to $1.95, the lowest since at least 1980. Merrill Lynch & Co. cut its forecast for shares of the third-largest U.S. mobile phone company by almost half to $3.10 on concern the slowing economy may stall a business rebound.

Google Inc. fell below $300 a share for the first time since 2005 after Citigroup Inc. analysts cut their profit estimates for the owner of the most popular Internet search engine and said online advertising growth will slow. The shares declined 6.6 percent to $291.

Technology spending worldwide will grow less than predicted next year as the financial crisis forces companies to trim budgets, IDC reported. Spending will rise 2.6 percent in 2009, down from an earlier estimate of 5.9 percent, the Framingham, Massachusetts-based research firm IDC said.

The S&P 500 Information Technology Index slid 5.1 percent to the lowest level since 2003.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

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