Australia, N.Z. Dollars Drop as Stocks Plunge; RBA Intervenes

By Candice Zachariahs

Nov. 21 (Bloomberg) -- The Australian and New Zealand dollars dropped as U.S. stocks sank to an 11 year-low, prompting investors to dump higher-yielding assets. The Reserve Bank of Australia intervened to buy its own currency.

The New Zealand dollar plunged to its lowest since 2001 against the yen and traded near a six-year low against the dollar as the Standard and Poor's 500 index extended its 2008 tumble to 49 percent. The RBA intervened as the Australian dollar slid close to a five-year low against the greenback.

``The global economy looks like a bit of a train wreck at the moment,'' said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Sydney. ``Currencies like Aussie and kiwi are very linked with the fortunes of the global economy,'' he said referring to the currencies by their nicknames.

Australia's currency dropped as low as 60.76 U.S. cents, close to the low of 60.1 cents touched Oct. 28, before trading at 61.11 cents as of 12:25 a.m. in Sydney. It has dropped 5.8 percent from 64.81 cents in New York trading on Nov. 14. The currency has plunged 8.5 percent to 57.58 yen from 62.96 late last week. The Australian dollar has a ``date with sub-60 cents,'' in the next few weeks, said Cavenagh.

New Zealand's dollar slid 5.3 percent this week to 52.39 U.S. cents. It slumped 8.1 percent to 49.35 yen.

The RBA bought its own currency this morning, ``providing liquidity as on previous occasions,'' said a spokesman for the Sydney-based central bank. He declined to be identified.

The central bank bought A$3.15 billion ($2 billion) of its own currency in October, the biggest net purchase on record, as the Australian dollar posted a record monthly drop.

Bond Yields Drop

The Australian and New Zealand currencies have dropped against the yen in four of the past five days as investors dumped higher yielding assets amidst increased concern over a global recession and expectations of more interest rate cuts from both central banks in December.

Australian government bonds advanced, sending yields down amid speculation the RBA will slash interest rates. The yield on the benchmark 1-year bill dropped 23 basis points to 2.72 percent, according to data compiled by Bloomberg. The yield on the benchmark 10-year note declined 20 basis points to 4.56 percent, according to data compiled by Bloomberg. A basis point equals 0.01 percentage point.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, declined to 5.20 percent today from 5.35 yesterday.

Traders are betting that the Reserve Bank of New Zealand will lower interest rates 100 basis points next month, with an 80 percent chance of 125 points, according to a Credit Suisse index based on overnight swaps trading.

Interest Rates

A separate Credit Suisse index shows bets on at least a 100 basis point cut from the RBA on Dec. 2, with a 56 percent possibility of a 125 point reduction.

Benchmark interest rates are 5.25 percent in Australia and 6.5 percent in New Zealand, compared with 0.3 percent in Japan and 1 percent in the U.S., attracting investors to the South Pacific nations' assets. The risk in such trades is that currency market moves will erase profits.

The currencies also fell as the prices of commodities the nations' export declined. Rising commodity prices spurred by demand from emerging nations like China and India helped the Australian dollar reach a 25-year high of 98.49 cents on July 16. The currency has slumped 38 percent since then as the Reuters/Jefferies CRB Index of 19 raw materials plunged more than 50 percent from a record in July.

Australia & New Zealand Banking Group downgraded its forecast for the Aussie to 54 U.S. cents by the end of 2009. The bank said it may lower that estimate if commodity prices fall further than its current forecasts. ANZ along with BNP Paribas SA have the most bearish end-2009 forecast on the Australian currency among 28 institutions tracked by Bloomberg News.

Dairy Sales

New Zealand's currency fell today as Fonterra Cooperative Group Ltd., the world's biggest dairy exporter, said it may pay its New Zealand milk suppliers 24 percent less this year as demand growth slows. That would remove NZ$2.3 billion or the equivalent of 1.3 percent of gross domestic product from the New Zealand economy, wrote Sue Trinh, a Sydney-based senior currency strategist with RBC Capital Markets, in a research note.

RBC forecasts the Reserve Bank of New Zealand will make a ``bold'' 150 basis point cut its benchmark rate on Dec. 4. ``Risks are skewed towards a bigger, rather than a smaller cut,'' Trinh wrote.

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

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Australia Stocks Near Five-Year Low on Global Recession Outlook

By Shani Raja

Nov. 21 (Bloomberg) -- Australian stocks plunged, sending the benchmark index near a five-year low, as global markets slumped after reports showed the U.S. economy is worsening.

BHP Billiton Ltd. fell 3.9 percent, extending its loss this week to 23 percent, after metals prices in London sank to their lowest since July 2005. Woodside Petroleum Ltd. plunged 8.3 percent as crude fell below $49 a barrel for the first time since May 2005. Macquarie Group Ltd. dipped 2.2 percent.

“Markets are progressively pricing in a deeper and more prolonged recession,” said Prasad Patkar, who helps manage about A$1.3 billion ($800 million) at Platypus Asset Management in Sydney. “A depression is too ugly to contemplate. It’s an ultra-low probability, but not zero probability.”

The benchmark S&P/ASX 200 Index dropped 3.7 percent to 3,227.70 at 12:31 p.m. in Sydney, the lowest since Dec. 18, 2003. The index has fallen 53 percent from the record set on Nov. 1, 2007, in the wake of the global credit crunch.

U.S. jobless claims approached the highest level since 1982, an index of leading economic indicators fell for a third time in four months, and the Federal Reserve said manufacturing in the Philadelphia area shrank at the fastest pace in 18 years.

A measure of six metals traded on the London Metal Exchange slumped 3.5 percent, with copper declining 3.1 percent and nickel 2.9 percent. Crude oil fell in New York as a recession in the U.S., Europe and Japan weighs on global energy demand.

BHP, Woodside

BHP, the world’s largest mining company, fell 3.9 percent to A$20.27. Woodside, the nation’s No. 2 oil producer, slumped 8.3 percent to A$28.10. Macquarie Group, Australia’s largest securities company, dropped 2.2 percent to A$26.40.

The S&P 500 fell to its lowest level in 11 years and extended its plunge from an October 2007 record to almost 52 percent in the worst bear market since the Great Depression. JPMorgan Chase & Co. tumbled 18 percent and Citigroup Inc. plunged 26 percent as concern the recession will trigger more bankruptcies pushed the cost of insurance against corporate defaults to an all-time high.

Fortescue Metals Group Ltd., Australia’s third-largest iron ore exporter, was among the day’s biggest gainers. It surged 9.7 percent to A$1.42, the most since Oct. 14, after reporting a new sales agreement and a quarterly “trading profit” of A$360 million ($219 million).

The following companies also rose or fell on the Australian stock exchange today.

Babcock & Brown Infrastructure Group (BBI AU), the owner of Australia’s second-biggest coal-export harbor, tumbled for the sixth straight day. The shares fell 0.7 cent, or 21 percent, to 2.7 cents, a record low.

It followed a 28 percent slide yesterday after Moody’s Investors Service Inc. downgraded the company’s corporate-family rating to Ba2 from Ba1, and senior-secured rating to Ba3 from Ba2, citing a growing “liquidity risk.”

Monadelphous Group Ltd. (MND AU), a mining services company, added 49 cents, or 8.4 percent, to A$6.32. The company yesterday said it plans to buy back as many as 2 million shares over the next 12 months.

Boart Longyear Ltd. (BLY AU), a provider of drilling services to mining companies including BHP Billiton Ltd., rose 2 cents, or 13 percent, to 22 cents, the most since March 6. IOOF Holdings Ltd., an Australian financial services firm, became a substantial holder in the company on Nov. 18, according to a statement today.

Nexus Energy Ltd. (NXS AU), operator of the proposed Crux natural gas liquids project, tumbled 8 cents, or 20 percent, to 33 cents, the lowest since June 29, 2005. Nexus said it scrapped an agreement with Vanguard Oil & Gas International Ltd. and Viking Shipping Ltd. for the supply of an oil production ship.

Sims Group Ltd. (SGM AU), the world’s biggest recycler of scrap metal, dropped A$1.20, or 9.8 percent, to A$11, the lowest since June 17, 2004. The company said some consumers have stopped buying and this will hurt its short-term financial performance.

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

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Japan Stocks Slump as U.S. Jobless Claims Soar, Oil Plummets

By Patrick Rial

Nov. 21 (Bloomberg) -- Japanesestocks tumbled for a fourth day on signs the global recession is deepening after U.S. unemployment claims surged and crude oil plunged below $50.

Honda Motor Co., which gets more than half its sales in North America, dropped 4.8 percent after the company said it plans to cut production there further. Mitsui & Co., which generates the most revenue from oil among Japan's trading houses, lost 3 percent. Orix Corp., the nation's largest non-bank financial company, plunged 9.7 percent after announcing the terms of a convertible bond issue.

``There's really not much good news to latch on to,'' Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd., which manages about $53 billion, said in an interview with Bloomberg Television. ``There's a fair amount of risk aversion taking place, which is why the yen is climbing, and that's going to negatively affect the exporters.''

The Nikkei 225 Stock Average dropped 229.12, or 3 percent, to 7,473.92 as of 9:42 a.m. in Tokyo. The broader Topix index fell 23.33, or 3 percent, to 758.95. For the week, the Nikkei has lost 12 percent, and the Topix has declined 10 percent, the second-biggest weekly slide for both gauges this year.

The Nikkei has fallen by a half this year as the credit crisis triggered by the collapse of the U.S. housing market prompted banks to tighten lending, sparking stock sell-offs.

The Standard & Poor's 500 Index closed at its lowest level in 11 years in New York yesterday, after lawmakers postponed voting on a plan to rescue the auto industry.

Jobless Claims

U.S. first-time jobless claims last week were the highest since 1982, with the exception of a one-week jump in filings in July 1992 caused by layoffs at General Motors Corp. The number of people on benefit rolls rose to 4.012 million, the most since December 1982.

The Bank of Japan will conclude its policy meeting today, with interest rates expected to remain unchanged. The nation's economy will probably shrink this year and next in the first back-to-back contractions since the onset of the banking crisis a decade ago, a Bloomberg survey of economists showed today.

Honda lost 4.8 percent to 1,814 yen. Nidec Corp., the world's biggest maker of hard disk-drive motors, lost 9.8 percent to 3,760 after JPMorgan Chase & Co. lowered its rating on the company. Daihatsu Motor Co., Japan's second-biggest minicar maker, fell 5.7 percent to 726 yen after Merrill Lynch & Co. said failing demand will cause profit to miss the company's estimate this year.

Falling demand as a result of the global slump has forced companies to reduce production or cut prices. Honda will trim production at U.S. plants by 18,000 more cars, bringing total cuts to 50,000 units since August, it said yesterday.

Crude, Yen

Mitsui, Japan's second-biggest trading house, lost 3 percent to 680 yen. Inpex Corp., Japan's biggest oil explorer, dropped 5.3 percent to 433,000 yen, the lowest since listing in 2006.

Crude oil for December delivery plunged 7.5 percent to $49.62 a barrel in New York, the lowest settlement since May 2005. Futures have dropped 66 percent since reaching a record $147.27 on July 11. A measure of six metals traded on the London Metal Exchange sank 3.5 percent to the lowest since July 2005.

The yen climbed to as high as 93.56 against the dollar, a three-week high. Financial market turmoil has caused investors to repay funds borrowed in yen, which carry the lowest interest rates in the developed world, aiding the currency's advance.

Orix retreated 9.7 percent to 5,590 yen. The company said yesterday it will sell l 150 billion yen ($1.57 billion) in convertible bonds to pay back debt. The conversion price, which will be set on Dec. 2 or 3, will be between 1.2 and 1.25 times the share price on that day.

Sumitomo Metal Mining Co., Japan's biggest nickel producer, jumped 2.5 percent to 616 yen after saying yesterday it plans to buy back 2.83 percent of its shares.

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

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Asian Stocks Fall for 5th Day as Recession Deepens; Honda Drops

By Kyung Bok Cho and Shani Raja

Nov. 21 (Bloomberg) -- Asian stocks fell for the fifth day after oil plunged below $50, Taiwan and Singapore forecast further contractions, and U.S. unemployment claims approached a 26-year high as the global slowdown deepens.

Woodside Petroleum Ltd., Australia's No. 2 oil producer, slumped 7.2 percent as crude declined to its lowest since May 2005. Canon Inc. and Nintendo Co., which get at least three- quarters of their sales from overseas markets, slid more than 4 percent. Honda Motor Co., earning more than half its sales in North America, dropped 4.8 percent after saying it will cut production there further.

``Markets are progressively pricing in a deeper and more prolonged recession,'' said Prasad Patkar, who helps manage about $800 million at Platypus Asset Management in Sydney. ``A depression is too ugly to contemplate. It's an ultra-low probability, but not zero probability.''

The MSCI Asia Pacific Index slumped 1.8 percent to 73.81 at 10:22 a.m. in Tokyo, set for its lowest close since Aug. 19, 2003. The gauge is set to lose 11 percent this week, the second-biggest weekly decline on record.

The index has plunged 53 percent in 2008 as global financial companies' losses and writedowns from the collapse of the U.S. subprime-mortgage market passed $950 billion. Rallies have fizzled -- most recently a 25 percent gain posted in the seven trading days following Oct. 27 -- as the economies of the U.S., Japan and the euro-zone enter recession.

Japan's Nikkei 225 Stock Average lost 2.8 percent to 7,487.09. The Bank of Japan will conclude its policy meeting today, with interest rates expected to remain unchanged.

Benchmark indexes in Taiwan and Singapore lost more than 2 percent after the nations said their economies will contract as exports decline.

Resources Fall

South Korea's Kospi index was on course for its longest losing streak since September 2000 as it fell for the ninth day. KB Financial Group Inc. led declines after UBS AG said the economy will shrink 3 percent next year, compared with a previous forecast for an expansion.

U.S. stocks tumbled yesterday, with the Standard & Poor's 500 Index dropping 6.7 percent to its lowest in 11 years, as economic data pointed to a worsening recession and lawmakers postponed a vote on a plan to salvage the auto industry. Futures on the S&P 500 advanced 0.9 percent.

Woodside dropped 7.2 percent to A$28.43. Crude oil for December delivery plunged 8.7 percent to $49.42 a barrel in New York and touched $48.55 in after-hours trading, the lowest since May 2005. Futures have dropped 67 percent since reaching a record $147.27 on July 11.

Rio Tinto Group, the world's third-largest mining company, slipped 4 percent to A$54.99. A measure of six metals traded on the London Metal Exchange, including copper and zinc, slipped 3.5 percent to the lowest since July 2005.

Evidence of Recession

Contract iron ore prices, at a record after six years of gains, may decline as much as 20 percent next year as demand in China stalls and cash prices slump, Standard Chartered Plc said in a report.

Canon, the world's biggest camera maker, declined 4 percent to 2,505 yen in Tokyo. Nintendo, the largest maker of handheld video-game consoles, fell 4.1 percent to 25,900 won in Osaka.

U.S. government data yesterday showed initial jobless claims climbed to a higher-than-forecast 542,000 in the week ended Nov. 15, while the Conference Board's index of leading economic indicators fell for a third time in four months. Manufacturing in the Philadelphia area shrank in November at the fastest pace in 18 years, according to an index tracked by the Federal Reserve Bank of Philadelphia.

Taiwan, Singapore

Taiwan's economy will sink into a recession this year after exports slumped, following its first contraction since 2003, the government said yesterday. Singapore, which is already in recession, today lowered its growth forecast for a fourth time this year and said the economy may contract in 2009.

Cathay Financial Holding Co., Taiwan's largest listed financial-services company, dropped 3.7 percent to NT$28.90. Jardine Matheson Holdings Ltd., which owns office buildings, supermarkets and hotels across Asia, lost 5.6 percent to S$17.46 in Singapore.

Falling demand has forced companies to reduce production or cut prices. Honda, Japan's second-largest carmaker, retreated 4.8 percent to 1,814 yen after it said yesterday it will trim production at U.S. plants by 18,000 more cars, bringing total cuts to 50,000 units since August.

KB, owner of South Korea's biggest bank, tumbled 9.2 percent to 22,300 won. The stock is set to lose 31 percent this week. Daewoo Engineering & Construction Co., the nation's biggest builder, retreated 6.3 percent to 7,160 won.

`Credit Bubble'

``Korea's credit bubble is popping at the seams even as policymakers now attempt to shore up the system,'' Duncan Wooldridge, UBS's chief Asia economist in Hong Kong, wrote in a note yesterday. Slowing exports, rising unemployment and expanding household debt are risks to the economy, he said.

Orix Corp., a Japanese financial services provider, fell 15 percent to 5,240 yen, the lowest since April 2003. The company said yesterday it will sell 150 billion yen ($1.6 billion) in convertible bonds to pay back debt.

To contact the reporter for this story: Kyung Bok Cho in Seoul at kcho7@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

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Fed Commercial-Paper Purchases Rise; Cash Loans Drop

By Scott Lanman

Nov. 20 (Bloomberg) -- The Federal Reserve expanded commercial paper purchases from U.S. corporations, increasing holdings by $13.5 billion, or 5.2 percent, while cash borrowing by banks and Wall Street bond dealers declined.

The central bank increased its holdings to $272 billion in the week ended yesterday, after a $13.9 billion increase the previous week. The Fed has extended $270.3 billion in loans for the debt, the Fed said today in a weekly report on its balance sheet.

The commercial-paper purchases and other loan programs totaling more than $1 trillion are aimed at sustaining financial companies through a credit crisis that's led to $966 billion in writedowns and losses since the start of 2007. Interest-rate cuts and emergency loans by the Fed failed to prevent the U.S. economy from sliding into a recession.

Separately, direct loans to commercial banks fell to $92.6 billion from $99.2 billion as of yesterday, while cash borrowing by securities firms totaled $46.6 billion, down from $56.7 billion the previous Wednesday. The loans are at the discount rate, currently 1.25 percent.

The outstanding balance of American International Group Inc.'s $122.8 billion rescue credit line stood at $87.4 billion yesterday, up from $83.6 billion last week.

The company got an expanded $152.5 billion bailout from the government on Nov. 10, which hasn't taken full effect yet. The Treasury will invest $40 billion in funds from the $700 billion Congress provided in bank-rescue legislation, while the Fed's share of the bailout will fall to $112.5 billion.

Creditor Bailout

The Fed first provided an $85 billion loan Sept. 16 in a bailout of AIG's creditors, then authorized another $37.8 billion on Oct. 8. Those loans will be replaced by the ones announced Nov. 10. The insurer also got access to as much as $20.9 billion from the commercial paper program, AIG said this month in a regulatory filing.

Central bankers are flooding financial institutions with temporary loans in an effort to overcome cash hoarding by banks. The loans have enlarged the Fed's balance sheet to $2.19 trillion in total assets, up $1.29 trillion from a year earlier.

Bloomberg LP, parent of Bloomberg News, filed a lawsuit against the Fed Nov. 7 seeking disclosure of securities the central bank is accepting as collateral for the loans to banks and bond dealers.

Peak Level

In addition to the CPFF, the Fed started a separate program in September to lend to banks for purchases of asset-backed commercial paper from money-market mutual funds. Loans under that program totaled $61.9 billion as of yesterday, down from $76.5 billion a week earlier and a peak of $152.1 billion on Oct. 1.

The Fed invoked emergency powers on Oct. 7 to start the purchases of commercial paper as the credit freeze threatened the financing tool supporting daily cash needs for American businesses. The Treasury Department deposited $50 billion with the Fed to begin the program, which started Oct. 27.

American Express Co., the biggest U.S. credit-card company, and General Electric Co. are among companies that sold debt to the Fed.

The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars, fell to 2.15 percent today from 2.17 percent yesterday and is down from 4.82 percent on Oct. 10, according to British Bankers' Association data. That means banks can still get cheaper loans directly from the Fed than the private market.

Lowest Level

U.S. commercial paper outstanding rose for a fourth straight week, increasing $11.1 billion, or 0.7 percent during the week ended Nov. 19, to a seasonally adjusted $1.61 trillion, the Fed said earlier today. The Fed has cut the rate it will accept to buy the debt to the lowest since its program started.

The central bank cut the target for the federal funds rate to 1 percent Oct. 29, helping lower overall money market rates. More than half of 57 economists surveyed by Bloomberg News expect at least another quarter point reduction when Fed officials meet next month.

Next week's report will be the first to reflect a third Fed program involving commercial-paper purchases, the Money Market Investor Funding Facility, will begin Nov. 24. Under that program, the Fed will lend up to $540 billion to five special funds to buy certificates of deposit, bank notes and commercial paper with a remaining maturity of 90 days or fewer.

Another Fed unit, Maiden Lane LLC, holds the $26.9 billion of assets the central bank took on in its rescue of Bear Stearns Cos.

No Formal Target

The Fed said the M2 money supply rose by $29.6 billion in the week ended Nov. 10. That left M2 growing at an annual rate of 6.4 percent for the past 52 weeks, above the target of 5 percent the Fed once set for maximum growth. The Fed no longer has a formal target.

The Fed reports two measures of the money supply each week. M1 includes all currency held by consumers and companies for spending, money held in checking accounts and travelers checks. M2, the more widely followed, adds savings and private holdings in money market mutual funds.

During the latest reporting week, M1 declined by $21.1 billion. Over the past 52 weeks, M1 increased 6.1 percent. The Fed no longer publishes figures for M3.

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

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Canada's Dollar Falls to Lowest in 3 Weeks as Stocks, Oil Sink

By Chris Fournier

Nov. 20 (Bloomberg) -- Canada's currency fell to the lowest in more than three weeks as pessimism over the outlook for the global economy drove oil below $50 a barrel and stocks tumbled.

The Canadian dollar has lost 17 percent this quarter as investors flee to the U.S. dollar for safety. All of the most- actively traded currencies except Japan's yen have dropped against the greenback since Sept. 30. Crude oil accounts for 21 percent of the Bank of Canada's Commodity Price Index.

``Commodities and stocks are both considered risky assets, and risk is the last thing the market wants right now,'' said Jacqui Douglas, currency strategist at TD Securities Inc. in Toronto. ``There's a substantial risk of overshooting up to C$1.30 to C$1.35 on waves of risk aversion.''

The loonie, as Canada's currency is known for the aquatic bird on the one-dollar coin, weakened as much as 3.1 percent to C$1.2948 per U.S. dollar, from C$1.2547 yesterday. It traded at C$1.2935 at 4 p.m. in Toronto. The currency reached C$1.3017 on Oct. 28. One Canadian dollar buys 77.33 U.S. cents.

Crude oil for December delivery declined as much as $4.98 to $48.64 a barrel on the New York Mercantile Exchange. The contract last fell below $50 on Jan. 18, 2007.

``Chances of hitting $40 are a lot greater than going back to $60,'' said Martin Lefebvre, a senior economist at Montreal's Desjardins Group, Quebec's largest credit union. ``The slowdown is only starting to unfurl on the rest of the planet. That won't call for strong commodity demand.''

The MSCI World Index of stocks in 23 developed nations declined as much as 5.9 percent to 772.96, the lowest in almost six years.

`Fear Remains the Religion'

``Faith is lacking and fear remains the religion,'' Andrew Busch, a Chicago-based currency strategist at BMO Capital Markets, wrote in a report. The unit of Bank of Montreal, Canada's fourth-largest bank, has a C$1.25 year-end forecast for the Canadian dollar.

Canada's currency is headed for a sixth consecutive monthly drop, the longest losing streak since the seven straight losses ended September 1993. Commodities account for about a third of the country's export revenue.

First-time claims for U.S. unemployment insurance unexpectedly rose last week to the highest level since 1992.

Bank of Montreal and Canadian Imperial Bank of Commerce probably will lead the biggest quarterly profit decline for Canadian banks since 2002 because of lower capital-markets fees and higher provisions for bad loans, forcing some to freeze dividends, said TD Newcrest Inc. analyst Jason Bilodeau.

First Budget Deficit

Canada's parliamentary budget office said the nation is on course to post its first budget deficit in more than a decade next fiscal year as revenue slows.

Canadian Prime Minister Stephen Harper told lawmakers in Ottawa that Canada will take whatever financial, fiscal and monetary measures are needed to help the world's eighth-biggest economy.

The 10-year note's yield dropped 14 basis points, or 0.14 percentage point, to 3.38 percent. The price of the 4.25 percent security maturing in June 2018 climbed C$1.15 to C$107.10.

The yield on the two-year government bond fell 12 basis points to 1.80 percent, the lowest since at least 1989 when Bloomberg records begin. The price of the 2.75 percent security due in December 2010 rose 23 cents to C$101.88.

``The deflation scare is more likely to result in 10-year yields dropping some more, resulting in a curve flattener,'' said Lefebvre.

The 10-year bond yielded 158 basis points more than the two- year security, down from 184 basis points on Nov. 6, when the so- called yield curve was the steepest since May 2004.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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Record Options Trading Slows After Hedge Funds Fold

By Jeff Kearns

Nov. 20 (Bloomberg) -- U.S. options trading slowed this month from a record pace after hedge funds collapsed and the biggest market swings since 1929 made equity derivatives too expensive to be used as insurance against stock losses.

About 12.5 million contracts linked to shares changed hands each day in November on average, according to data compiled by Bloomberg. That’s 23 percent less than in October, the worst month for the Standard & Poor’s 500 Index since 1987, and 13 percent below the 2008 average, according to Options Clearing Corp., which processes all exchange-listed U.S. options.

Trading decreased as hedge funds suffered their worst back- to-back monthly declines in September and October, according to Hedge Fund Research Inc. Costs skyrocketed as the Chicago Board Options Exchange Volatility Index, the key measure of contract prices in the U.S., jumped to the highest level in its 18-year history in October.

“It’s broader and deeper than anything that’s happened before,” said Bill Brodsky, chief executive officer of the Chicago Board Options Exchange, the largest U.S. options market. “Our situation is as sound as we could wish it to be under these circumstances, but we’re part of the equity markets of this country and the equity markets have been knocked for a loop.”

The slowdown follows a record for annual options trading spurred by the stock-market retreat, which erased more than $30 trillion in value since October 2007. Over 3.26 billion contracts have been traded on U.S. exchanges this year, already more than the full-year record of 2.86 billion set in 2007, according to Chicago-based Options Clearing Corp.

‘Protecting’ Returns

The recent slump dims the prospects for exchanges and brokerages as investors shy away from trading equity derivatives and transfer holdings to cash to avoid more losses.

“It’s a significant drop but it doesn’t surprise me,” said Gary Katz, chief executive officer of the International Securities Exchange, the New York-based options market acquired in December by Frankfurt’s Eurex AG. “Firms are coasting to the end of the year and being very conservative in protecting what they have returned so far in 2008.”

Options are derivatives that give the right though not the obligation to buy or sell a security at a set price and date. Hedge funds are largely unregistered pools of capital that cater to wealthy individuals and institutions and allow managers to participate substantially in profits from investments. They try to make money in rising as well as falling markets.

November 1929

The S&P 500 rose or fell at least 1 percent in 86 percent of October’s trading days, making it the second-most volatile month in its 80-year history, according to S&P analyst Howard Silverblatt. Only November 1929 produced bigger swings, he said.

The CBOE Volatility Index, which averaged 17.54 last year, jumped to 89.53, its highest intraday level, on Oct. 24. It increased 91 percent in September and 52 percent in October. The measure, known as the VIX, tracks the cost of options linked to the S&P 500, which fell 17 percent last month.

The S&P 500 fell 6.7 percent to 752.44 today, sinking to the lowest closing level since April 1997. The index has fallen 49 percent in 2008, which would be the steepest annual retreat in the measure’s 80-year history. The VIX increased to 80.86, a record close.

U.S. options volume was fewer than 10 million contracts on three days in November. That’s below the total trading during the holiday-shortened session of July 3, when exchanges closed early before Independence Day.

“We’re going to see a pullback to more normal volumes,” said Ed Boyle, senior vice president for U.S. options at NYSE Euronext, the world’s largest operator of stock exchanges. “It’s a big deal because it can hurt the revenue of exchanges and the ability of trading firms to profit.”

Shifting to Cash

One reason for the decline is that investors have sold assets to protect against losses by moving money into cash, which reduces the need to use options to protect against drops in the underlying assets, said Jeremy Wien, who trades VIX options at Societe Generale SA in New York.

“People have fewer underlying positions to hedge,” Wien said. “There are fewer and fewer people taking positions because they’re saying, ‘I just want to make it to next year.’”

An estimated 700 hedge funds may go out of business by the end of the year, an increase of 24 percent from 2007, according to Hedge Fund Research. The Chicago-based firm’s Fund Weighted Composite Index fell 6 percent in September and another 6 percent in October.

“Over the last 10 years, the amount of volume that was because of hedge funds really went up as they were getting bigger and bigger and trading more and more,” said George Ruhana, chief executive officer of Chicago-based OptionsHouse LLC, the online brokerage unit of PEAK6 Investments LP. “Now their capital base isn’t going to allow them to trade as much.”

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.

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Canada Stocks Drop Most Since 1987 on TD Bank Trading Loss, Oil

By John Kipphoff

Nov. 20 (Bloomberg) -- Canadian stocks fell the most since Black Monday 1987, led by banks and energy producers, after Toronto-Dominion Bank reported trading losses and oil prices fell below $50 a barrel for the first time in two years.

Manulife Financial Corp. slid 15 percent, while Canadian Natural Resources Ltd. dropped 22 percent. Teck Cominco Ltd. retreated to a two-decade low. Goldcorp Inc. rose as investors looked to gold and bullion stocks for a haven.

``The turbulent times will continue until we get a better sense of the depth and duration of the U.S. recession -- maybe in the New Year,'' said Laura Wallace, who helps oversee about $300 million as managing director at Coleford Investment Management Ltd. in Toronto. ``The problem with the S&P/TSX is that it's so undiversified. It reflects that valuations of some commodities went parabolic. Financials and commodities are the two sectors hardest hit in a recession.''

The Standard & Poor's/TSX Composite Index fell 9 percent to 7,724.76 in Toronto, the lowest in five years. The market's steepest drop since Oct. 19, 1987, extended its retreat this year to 44 percent. That would be the Canadian benchmark's worst annual plunge on record, surpassing a 37 percent slide in 1931.

The S&P/TSX, which gets almost three-quarters of its value from finance, energy and mining shares, has lost almost half its value, with its market capitalization sliding to C$1 trillion from a June record, as global credit losses topped $965 billion and commodity prices slumped.

Capitulation?

``Was that the day of capitulation? Who knows?'' said Gareth Watson, who helps manage $46 billion as associate director at ScotiaMcLeod's portfolio advisory group, based in Toronto. ``At this stage, with these markets, anything is possible. It's hard to turn the markets around when there is so little good news to talk about.''

Toronto-Dominion fell 13 percent to C$43.57, the most in at least a quarter century. Canada's second-biggest bank said it will have C$350 million ($274 million) in credit trading losses, and a deficit of C$153 million in its ``corporate'' segment from eroding investments, when it posts fourth-quarter results next month. The bank now expects profit of C$1.22 a share for the period, short of the C$1.30-a-share average analyst estimate.

Manulife Financial, the country's largest insurance company, dropped a record 17 percent to C$17.86, the most in its nine years of trading since demutualizing in 1999. Royal Bank of Canada, the biggest bank, slid 13 percent to C$35.65, also the most since 1983. Canadian Imperial Bank Of Commerce, the lender with the biggest writedowns among Canada's banks, slid 12 percent to C$42.28, the most in a decade.

Deepening Recession

Crude oil for December delivery fell 7.5 percent to $49.62 a barrel in New York, on concern a deepening recession in the U.S., Europe and Japan will cripple global energy demand. First- time claims for U.S. unemployment insurance rose last week to the highest level since 1992, the Labor Department said.

Copper prices tumbled 1.8 percent to $1.58 a pound and touched $1.552, the lowest since July 2005. Oil has slid 67 percent since reaching a record $147.27 in July. Copper has lost 63 percent this year. The Reuters/Jefferies CRB Index of 19 raw materials is down more than 50 percent from a peak in July. Gold rose 1.7 percent to $748.70 an ounce.\

Canadian Natural, the nation's third-biggest energy company by market value, dropped 22 percent to C$35.43 for its steepest drop since January 1989.

Retreat

EnCana Corp., Canada's largest energy company, fell 14 percent to C$43.86, the most in at least 25 years. Suncor Energy Inc., the second-biggest oil-sands company, retreated a record 15 percent to C$18.83.

Teck Cominco dropped 21 percent to C$4.10 and touched C$3.35, the lowest price in 20 years. Canada's biggest diversified mining company announced that it would halt dividends and cut spending to repay debt from last month's $10.4 billion purchase of Fording Canadian Coal Trust.

``Oh my goodness, look where Teck's trading,'' Wallace said. ``The Fording acquisition was very unfortunate.''

Major Drilling Group International Inc., the world's second-largest mineral-drilling contractor, slumped 18 percent to C$11, the lowest since May 2005. Mining companies including BHP Billiton Ltd., Rio Tinto Group and Xstrata Plc may cut capital spending by $12 billion next year as demand and metal prices fall, Sanford C. Bernstein & Co. said.

Potash Corp. of Saskatchewan Inc., the biggest maker of crop nutrients by market value, fell 12 percent to C$71.59, as corn, soybean and wheat prices extended declines on concern that the worsening economy will curb demand for food and feed. The stock peaked at C$244.03 on June 17.

Goldcorp, the second-largest bullion mining company by market value, advanced 6.1 percent to C$24.77

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

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Celanese, Dell, Novellus, Salesforce.com: U.S. Equity Preview

By Lu Wang

Nov. 20 (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 5:20 p.m. in New York, unless otherwise specified.

Standard & Poor's 500 Index futures expiring in December rose 3.30, or 0.4 percent, to 751.60. Dow Jones Industrial Average futures rose 57, or 0.8 percent, to 7,544. Nasdaq-100 Index futures added 6, or 0.6 percent, to 1,045.50.

Autodesk Inc. (ADSK US): The biggest maker of engineering- design software said fourth-quarter earnings excluding some items will be as much as 34 cents a share. That missed the 54- cent average estimate by analysts in a Bloomberg survey. The stock fell 5.8 percent to $16.82 in regular trading.

Celanese Corp. (CE US) fell 96 cents, or 11 percent, to $7.50 in trading after the official close of exchanges. The world's largest producer of chemicals called acetyls said profit for 2008 will be less than the company previously forecast because customers are purchasing less.

Dell Inc. (DELL US) rose 63 cents, or 6.4 percent, to $10.44. The world's second-largest computer maker posted third- quarter profit that beat analysts' estimates as Chief Executive Officer Michael Dell cut jobs and switched to cheaper production methods.

New York Times Co. (NYT US): The newspaper publisher cut its quarterly dividend 74 percent to 6 cents a share, saying the reduction will give the company greater financial flexibility. The stock dropped 9.9 percent to $5.72 in regular trading.

Novellus Systems Inc. (NVLS US) fell 41 cents, or 3.9 percent, to $10.21. The maker of equipment that helps turn silicon wafers into computer chips said fourth-quarter orders will fall more than previously forecast.

Salesforce.com Inc. (CRM US) rose $1.27, or 5.6 percent, to $24.10. The top seller of Internet-based customer-management software reported a bigger-than-expected 55 percent increase in third-quarter profit after adding customers.

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

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U.S. Stocks Plunge, Sending S&P to Lowest Level Since 1997

By Eric Martin

Nov. 20 (Bloomberg) -- U.S. stocks slid and the Standard & Poor's 500 Index plunged to its lowest level in 11 years after economic reports depicted a deepening recession and lawmakers postponed a vote on a plan to salvage the auto industry.

The S&P 500 extended its 2008 tumble to 49 percent, poised for the worst annual decline in its 80-year history. Chesapeake Energy Corp. and National-Oilwell Varco Inc. sank more than 21 percent after crude fell to a three-year low on concern the slumping economy will crush demand. JPMorgan Chase & Co. lost 18 percent and Citigroup Inc. dropped 26 percent as concern the recession will trigger more bankruptcies pushed the cost of insurance against corporate defaults to an all-time high.

``We're just trying to stay away from the window,'' said James Paulsen, who helps oversee about $220 billion as chief investment strategist at Wells Capital Management Inc. in Minneapolis. ``This isn't about fundamentals, it's not about bad balance sheets, it's about fear and confidence.''

The S&P 500 slid 6.7 percent to 752.44, under the low of 776.76 reached during the bear market in 2002. The Dow Jones Industrial Average sank 444.99 points, or 5.6 percent, to 7,552.29. The Nasdaq Composite decreased 5.1 percent to 1,316.12. Twelve stocks retreated for each that rose on the New York Stock Exchange.

Global Rout

The S&P 500 extended its plunge from an October 2007 record to almost 52 percent in the worst bear market since the Great Depression. Concern the recession is worsening was spurred after jobless claims approached the highest level since 1982, the index of leading economic indicators fell for a third time in four months and the Federal Reserve said manufacturing in the Philadelphia area shrank at the fastest pace in 18 years.

Seventeen companies in the S&P 500 lost more than one-fifth of their market value today, as all 10 of the index's main industry groups slid at least 3.5 percent.

More than 2.2 billion shares changed hands on the floor of the NYSE, its busiest trading session since Oct. 10.

Europe's benchmark index slumped 3.6 percent, while Asia's sank 5.1 percent. Both declined to the lowest levels in more than five years. The MSCI Emerging Markets Index of developing markets lost 5.4 percent.

Treasury yields declined to record lows, with two-year note rates dropping below 1 percent for the first time, as investors sought the safety of government debt.

`Ugly Mess'

``It's an ugly mess out there,'' said Randy Bateman, who oversees $15 billion as chief investment officer of the asset management unit of Huntington Bancshares Inc. in Columbus, Ohio. ``The economy is confirming it is very, very weak.''

Chesapeake, a producer of oil and natural gas, lost $5.32 to $13.98. National-Oilwell, which makes energy production equipment, retreated $4.86 to $17.86.

Crude oil fell 7.5 percent to $49.62 a barrel, its lowest settlement since May 2005. Energy shares declined the most among 10 industries in the S&P 500, losing 11 percent collectively.

Exxon Mobil Corp., the largest U.S. energy company, fell the most in a month, losing $4.91, or 6.7 percent, to $68.51. Chevron Corp., the second-largest U.S. oil producer, plunged $6.21, or 8.8 percent, to $64.40.

JPMorgan Chase, the largest U.S. bank by market value, lost $5.09 to $23.38, its lowest price since March 2003. Citigroup sank $1.69 to $4.71, an almost 14-year low.

Citigroup, Goldman

Citigroup slumped even after Saudi billionaire Prince Alwaleed bin Talal said he would boost his stake in the New York-based company. The bank is urging the Securities and Exchange Commission to revive a prohibition on short-selling financial stocks, according to a person familiar with the matter.

SEC spokesman John Nester declined to comment. Citigroup spokesman Michael Hanretta didn't return a phone call seeking comment.

Goldman Sachs Group Inc., once the biggest and most profitable U.S. securities firm, fell below its initial public offering price of $53, wiping out 10 years of gains. Goldman lost $3.18, or 5.8 percent, to $52.

Contracts to protect against corporate default rose to an all-time high. Credit-default swaps on the Markit CDX North America Investment-Grade index jumped 14 basis points to a record 261, according to broker Phoenix Partners Group.

Analyst Paul Miller at FBR Capital Markets in Arlington, Virginia, said as much as $1 trillion in capital may be needed to shore up the financial system.

Insurance Losses

Life insurance stocks slumped for a fifth straight day on concerns that falling equity markets will cause losses on retirement products.

Lincoln National Corp. plunged $2.24, or 31 percent, to $5.07. The company said yesterday it expects a charge of as much as $300 million from the stock market slump in October.

MetLife, the largest U.S. life insurer, slipped $2.52, or 13 percent, to $16.48.

Life insurers including Lincoln National, MetLife and No. 2 Prudential Financial Inc. have lost more than two-thirds of their market value this year as falling stock markets pressured results from annuities and raised concerns the companies will need to raise capital.

The S&P 500 Financials Index sank 11 percent to its lowest level since July 1995.

Benchmark indexes briefly erased declines in midday trading after a congressional aide said senators had agreed on a bipartisan plan to rescue the U.S. auto industry.

Stocks resumed their slide and automakers pared gains after Democratic congressional leaders blocked immediate action on a bailout for the cash-strapped companies and told the industry to come up with a workable plan to submit to lawmakers in December.

GM, Ford

General Motors Corp. added 9 cents, or 3.2 percent, to $2.88 after climbing as much as 43 percent to $4, while Ford added 13 cents to $1.39, paring a 48 percent rally.

Alcoa Inc., the largest U.S. aluminum producer, had the third-steepest decline in the Dow average after Citigroup and JPMorgan, losing 16 percent to $6.85. Aluminum dropped the most in three years and copper fell to a three-year low in London as consumption of industrial metals in the housing and auto industries tumbled.

Dell Inc. dropped 54 cents to $9.81. After the close of trading, the world's second-largest personal-computer company reported profit that topped analysts' forecasts thanks to cost cuts and cheaper production methods. Sales fell 3.1 percent. In after-hours trading, Dell climbed 5 percent to $10.30.

December futures on the S&P 500 added 0.3 percent at 4:36 p.m. in New York.

Earnings Slump

The S&P 500's plunge from its October 2007 record came as earnings for companies in the index decreased for five straight quarters and worldwide writedowns and credit losses stemming from the collapse of the subprime mortgage market reached $965 billion.

The index rose or fell at least 1 percent in 86 percent of October's trading days, making it the second-most volatile month in its 80-year history, according to S&P analyst Howard Silverblatt. Only November 1929 produced bigger swings, he said.

Profits slumped 17 percent on average at companies in the index that have reported third-quarter results, according to Bloomberg data. Analysts expect a 9.5 percent decline in full- year earnings, based on estimates compiled by Bloomberg.

``It's probably going to take another year for things to calm down, for people to feel a little more comfortable with the economy,'' said Russell Rolnick, senior vice president for Lenox Advisors Inc., which oversees more than $1 billion in New York. ``People these days seem to be more interested in capital preservation than appreciation.''

-- With reporting by Elizabeth Stanton and Lynn Thomasson in New York. Editors: Michael Regan, Nick Baker

To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.

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Sugar Futures Drop in New York as Stocks Slump, Crude Oil Falls

By Shruti Date Singh

Nov. 20 (Bloomberg) -- Sugar prices fell in New York on concern the drop in the Dow Jones Industrial Average will reduce demand for commodities and crude oil's plunge may curb purchases of ethanol made from cane.

The Dow fell to the lowest level since March 2003 today amid concern that a global recession will be prolonged. Crude oil fell below $49 for the first time since May 2005.

``It's basically a little bit of spillover selling based on energy and equities,'' said Bill Adams, managing director for JKV Global in Chicago. ``Sugar should continue to fall until the first quarter.''

Raw-sugar futures for March delivery fell 0.16 cent, or 1.4 percent, to 11.51 cents a pound on ICE Futures U.S. in New York. The price has fallen 4.2 percent this month as crude oil slid 28 percent.

Morgan Stanley yesterday cut its sugar-futures forecast for the current and next marketing years on ``markedly lower crude- oil prices in the near term.''

Sugar will average 12.5 cents a pound on ICE in the year ending Sept. 30, down from an April forecast of 13.3 cents, Morgan Stanley said. The price will average 14 cents in the 12 months ending in September 2010, down from 16.2 cents projected earlier, the bank said.

Supply deficits may boost prices to 19 cents in the year ending in September 2011, the bank said.

To contact the reporter on this story: Shruti Date Singh in Chicago at ssingh28@bloomberg.net.

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Cocoa Declines on Plunging Equities, Bleak Economic Outlook

By Ron Day

Nov. 20 (Bloomberg) -- Cocoa prices fell in New York, ending a five-session rally, on speculation that a deepening recession will erode demand for the chocolate ingredient and other commodities. Orange juice gained.

The Standard & Poor's 500 Index fell below its lowest close in 11 years after economic reports signaled a deeper recession and lawmakers postponed voting on a plan to rescue the auto industry. First-time claims for U.S. unemployment insurance rose last week to the highest since 1992, a sign the labor market is deteriorating.

``The biggest thing affecting cocoa is the stock market,'' said Hector Galvan, a market analyst for RJO Futures in Chicago. ``Economic malaise continues to permeate in the minds of people.''

Cocoa futures for March delivery dropped $63, or 3 percent, to $2,009 a metric ton on ICE Futures U.S. in New York, the biggest drop in two weeks. The price gained 7.5 percent in the previous five sessions.

A rebound by the dollar eroded the appeal of U.S. commodities. The Reuters/Jefferies CRB Index of 19 raw materials is down more than 50 percent from a record in July as demand for energy, metals and crops dwindled.

This year, cocoa is down 1.3 percent, the smallest drop among 17 prices in the CRB index. Hogs and sugar still are up in 2008.

Orange-juice futures for January delivery rose 0.25 cent, or 0.3 percent, to 76.95 cents a pound. The price has dropped 47 percent this year.

To contact the reporter on this story: Ron Day in New York at rday1@bloomberg.net.

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Hog Prices Gain on Speculation Supply May Decline; Cattle Rise

By Whitney McFerron

Nov. 20 (Bloomberg) -- Hog futures rose the most since August on signs that animal deliveries to U.S. pork processors are slowing, easing concern that output gains may leave a glut. Cattle prices rebounded from a two-year low.

Meatpackers processed 2.31 million hogs last week, down 2.6 percent from a year earlier, government data show. Hog slaughter may be slowing because Canada is shipping fewer animals to the U.S., where the law since Sept. 30 requires meat to be labeled by national origin, said Jim Clarkson, an analyst at A&A Trading Inc. in Chicago.

``Hogs coming in from Canada have slowed down'' because of that new legislation, Clarkson said. ``It's not that supplies are tight. They're just not as big as people had forecast.''

Hog futures for February settlement jumped 1.775 cents, or 2.8 percent, to 64.675 cents a pound on the Chicago Mercantile Exchange, after touching 64.975 cents, the highest for a most- active contract since Sept. 30. The percentage gain was the biggest for a most-active contract since Aug. 6. Hogs have gained 12 percent this year.

Country-of-origin labeling is a longtime goal of U.S. farmers and ranchers convinced that identifying imported food will encourage manufacturers to use fewer imported products. On Sept. 24, Smithfield Foods Inc. said it will slaughter only domestic pigs at its U.S. plants, partly because of the new law.

Lower Prices, Bigger Herd

Hog shipments fell as the price of wholesale pork plunged 40 percent through yesterday from Aug. 15, and as the U.S. herd expanded to 68.657 million hogs on Sept. 1, the highest ever for that date, according U.S. Department of Agriculture data.

Wholesale pork declined 0.26 cent, or 0.5 percent, to 56.44 cents a pound yesterday, according to the USDA. The price is down 9.2 percent this month and this week reached a seven-month low.

Futures may fall next week because cash-market hogs are trading at a discount to the near-term December contract, Clarkson said. Cash hogs fell 0.81 cent, or 1.6 percent, to 49.64 cents a pound yesterday, according to the most recent USDA data. December futures, which rose 1.6 percent to 56.8 cents today, may fall as much as 4 cents next week, Clarkson said.

Cattle Markets

In another livestock market, cattle futures rose for the first time in more than a week on speculation that an earlier decline to the lowest since August 2006 was exaggerated. Analysts estimate that a USDA report tomorrow will show that the feedlot herd is shrinking, which may support prices.

U.S. feedlot operators may have reduced purchases of young cattle in October by 9.7 percent from the previous year, according to the average forecast of 10 analysts surveyed by Bloomberg News. The USDA will release its monthly feeder cattle report at 3 p.m. tomorrow in Washington.

``We've got a friendly cattle-on-feed report Friday,'' said Troy Vetterkind, owner of Vetterkind Cattle Brokerage in Chicago. ``We beat the market up so bad since last week. I would think that at some point in time we'd see some short covering, and apparently this is the day.''

Cattle futures for February delivery gained 1.375 cents, or 1.6 percent, to 86.525 cents a pound in Chicago. The price earlier tumbled to 83.8 cents, the lowest since Aug. 4, 2006. The most-active contract has slumped 6.7 percent this month.

Feeder-cattle futures for January delivery declined 0.1 cent, or 0.1 percent, to 89.75 cents a pound in Chicago. Earlier, the price sank to 87.6 cents, the lowest for a most- active contract since April 8, 2004. The price has slipped 8.5 percent this month.

Purchases Reduced

Feedlots may have cut purchases to 2.452 million head of cattle last month from 2.716 million a year earlier, after losing money for 17 straight months and as a slumping global economy raised concern beef demand will fall, the survey showed.

The price of wholesale choice beef rose for the 15th time in 16 days, gaining 0.33 cent, or 0.2 percent, to $1.5855 a pound at midday today, according to the USDA. Beef is up 11 percent this month on speculation retailers are increasing purchases in anticipation of a jump in U.S. demand for the Christmas and New Year's holidays.

To contact the reporter on this story: Whitney McFerron in Chicago at wmcferron1@bloomberg.net.

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Grains, Soybeans Drop as Plunging Stock Markets Curb Demand

By Jeff Wilson

Nov. 20 (Bloomberg) -- Corn, soybeans and wheat plunged as global stocks tumbled to a five-year low, increasing speculation that a weakening world economy will curb demand for food, animal feed and alternative fuels made from crops.

The MSCI World Index dropped as much as 5 percent to the lowest level since April 2003. Global equities have lost more than $32 trillion amid the worst financial crisis since the 1930s. Wheat, soybean and corn prices are down 48 percent or more from records this year.

``Record prices earlier this year set in motion declining demand and now the markets are fearful of demand destruction'' during a global recession, said Gary Rhea, president of Risk Management Partners in Des Moines, Iowa. ``Demand is declining until lower prices improve buying interest.''

Corn futures for December delivery fell 15 cents, or 4 percent, to $3.6375 a bushel on the Chicago Board of Trade. Earlier, the price touched $3.6025, matching a one-year low set on Nov. 11. The most-active contract is down 54 percent from a record $7.9925 on June 27.

Soybean futures for January delivery slid 41 cents, or 4.6 percent, to $8.56 a bushel in Chicago, after reaching $8.545, the lowest since Oct. 27. Most-active futures are down 48 percent from a record $16.3675 on July 3, touching a 13-month low at $8.38 on Oct. 16.

Wheat for March delivery plunged 15.5 cents, or 2.8 percent, to $5.31 a bushel in Chicago, dropping for a fourth straight day. Futures are down 61 percent from a record $13.495 on Feb. 27.

Reduced Meat Demand

The slowing economy eventually will reduce demand for beef and pork from both domestic and overseas consumers, said Dale Schultz, a commodity specialist for Gottsch Enterprises, a cattle and hog feeder in Hastings, Nebraska. Reduced meat demand means smaller herds and reduced consumption of animal feed.

U.S. feedlot operators probably cut purchases of young cattle by 9.7 percent in October, after losing money for 17 straight months and as a slumping global economy raised concern beef demand will fall, a Bloomberg survey showed. The U.S. Department of Agriculture will update its feedlot-inventory numbers tomorrow at 3 p.m. in Washington.

Feedlots buy year-old animals that weigh 500 pounds (227 kilograms) to 800 pounds and fatten them on corn until they weigh about 1,200 pounds and are sold to slaughterhouses.

U.S. beef export sales totaled 4,249 metric tons last week, down 77 percent from the previous week, the USDA said today. Pork exports fell in four straight months through September, according to the most recent USDA data.

`Not Much Enthusiasm'

``There is not much enthusiasm'' to feed cattle with feedlots losing money and the negative outlook for beef exports, Schultz said. ``The key is meat exports and some buyers are finding cheaper substitutes or simply going without.''

Falling global stock markets and consumer confidence are reducing overseas demand for higher-priced U.S. grain, said Dan Cekander, a senior grain analyst for NewEdge USA LLC.

Egypt, the world's largest importer of wheat, agreed to buy 30,000 metric tons of Russian wheat at a tender today. The grain is for delivery between Dec. 15 and Dec. 31, Nomani Nomani, deputy chairman of the General Authority for Supply Commodities, said today by telephone from Cairo. The price was $160 a ton, about $20 below current U.S. export offers, Cekander said.

U.S. exporters sold 433,800 metric tons of corn in the week ended Nov. 13, down 15 percent from the prior four-week average and 77 percent smaller than a week earlier, the USDA said in a report. Total sales for delivery before Aug. 31 are down 45 percent from a year earlier.

Cheaper Supplies

``There are cheaper supplies of wheat outside of the U.S.'' for bread and flour makers and livestock producers, Cekander said. ``The corn-export sales pace remains anemic.''

Importers of animal feed in Asia have slowed purchases because of the credit crisis, said Gregg Hunt, a market analyst for Fox Investments in Chicago.

South Korea, Indonesia and other buyers of soybean meal are delaying purchases because of a collapse in trade financing, thwarting plans by India, Asia's biggest exporter, to boost shipments to a record.

Asian importers including Vietnam are struggling to secure credit as banks hoard capital. Indian shipments may total 5 million tons in the year from Oct. 1, less than the 6 million tons forecast in September, said Rajesh Agrawal, a spokesman for the Soybean Processors Association of India.

``The buyers of India's soybean meal are the same customers for U.S. supplies,'' Hunt said. ``The credit crisis is spreading to agriculture.''

Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007, with soybeans in second place at $26.8 billion, government figures show. Wheat is the fourth-biggest crop, behind hay, with a value of $13.7 billion.

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net

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Gold Rises on Speculation Interest Rates to Fall; Silver Drops

By Pham-Duy Nguyen

Nov. 20 (Bloomberg) -- Gold climbed for a second straight day on speculation the Federal Reserve will lower interest rates to stimulate the U.S. economy, boosting the appeal of the precious metal as an alternative asset.

The yield on two-year Treasury notes dropped below 1 percent for the first time ever on bets the Fed will cut its benchmark rate next month. Gold reached a record $1,033.90 an ounce on March 17, after the Fed slashed rates 2.25 percentage points in four months.

``Interest rates are headed lower and that means less competition for gold,'' said Marty McNeill, a trader at R.F. Lafferty Inc. in New York. ``Gold is catching a flight-to- quality bid.''

Gold futures for December delivery rose $12.70, or 1.7 percent, to $748.70 an ounce on the Comex division of the New York Mercantile Exchange. The price has dropped 11 percent this year.

The Fed will lower its benchmark bank-lending rate 25 basis points to 0.75 percent, according to the median estimate of 68 economists surveyed by Bloomberg.

``With interest rates so low, that's triggering ownership of gold,'' said Ron Goodis, retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey.

Other precious metals, which have wider industrial applications than gold, fell on concern that a global recession may damp demand for all commodities.

The International Monetary Fund projected that economies in the U.S., Japan and the euro zone will all shrink in 2009.

Industrial View

``Platinum, palladium and silver are now being counted as little more than expensive copper, expensive zinc, or expensive aluminum,'' said Dennis Gartman, an economist and editor of The Gartman Letter in Suffolk, Virginia. ``The `white-industrial' precious metals have followed the weakness of the base metals.''

Copper has fallen 48 percent this year.

Silver futures for December delivery fell 28.5 cents, or 3.1 percent, to $9.025 an ounce on Comex.

Platinum futures for January delivery dropped $33.60, or 4.1 percent, to $790.10 an ounce on Nymex. Palladium for December delivery fell $14.40, or 7.4 percent, to $179.45 an ounce.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

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Copper Futures Fall to Lowest Since July 2005 on Demand Slides

By Millie Munshi

Nov. 20 (Bloomberg) -- Copper prices tumbled to the lowest since July 2005 on signs that the global recession is deepening, eroding demand for industrial metals.

First-time claims for U.S. unemployment insurance rose last week to the highest level since 1992, the Labor Department said today. More than $32 trillion has been erased from the value of global equities this year as the U.S., Japan and some European nations fell into recession. Copper has plunged 63 percent from a record in May.

``The outlook for the global economy has declined rapidly in the past few weeks, increasing expectations of a protracted and severe downturn,'' Alex Heath, the London-based head of industrial metals at RBC Capital Markets, said in a report. ``The market is bracing itself for further weakness.''

Copper futures for March delivery dropped 2.95 cents, or 1.8 percent, to $1.58 a pound on the Comex division of the New York Mercantile Exchange. Earlier, the price touched $1.552, the lowest since July 15, 2005.

A rout in commodity prices today sent the Reuters/Jefferies CRB Index of 19 raw materials down more than 50 percent from a record in July. The gauge touched the lowest since July 2003.

Traders are selling metals, grains and energy on concern that demand won't rebound ``for some time,'' said Michael Pento, who helps oversee $1.5 billion at Delta Global Advisors in Holmdel, New Jersey.

`Appetite Disappeared'

``Commodities are getting killed because the appetite for these things has completely disappeared,'' he said.

Consumption of raw materials including copper has plunged as much as 30 percent this quarter from a year earlier, according to Sanford C. Bernstein Ltd. Supplies of the metal exceeded demand by 26,800 metric tons this year through September, the World Bureau of Metal Statistics said yesterday.

Production will continue to outpace demand next year, analysts at JPMorgan Chase & Co. said yesterday in a report. Copper may decline more than other industrial metals because 90 percent of mines are still running profitably, making production cuts less likely, the bank said.

``Copper stands out as potentially offering more downside in prices should demand remain weak and supply remain robust,'' bank analysts said. ``Prices are likely to trade lower.''

On the London Metal Exchange, copper for delivery in three months declined $110, or 3.1 percent, to $3,480 a metric ton ($1.58 a pound).

To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net.

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