Yen Rises on Speculation Stock Losses Will Curb Carry Trades

By Ron Harui and Stanley White

Nov. 26 (Bloomberg) -- The yen rose against the euro and the dollar as declines in Asian stocks prompted investors to pare holdings of higher-yielding assets funded in Japan.

The currency also gained versus the Australian dollar and the British pound on speculation the Federal Reserve's $800 billion plan to unfreeze credit markets won't prevent a protracted global slump. The U.S. economy, the world's biggest, shrank in the third quarter as consumer spending plunged the most in three decades, according to figures released yesterday.

``The yen should remain supported,'' said Osao Iizuka, head of foreign-exchange trading at Sumitomo Trust & Banking Co. in Tokyo. ``There was a bounce in sentiment after the Fed's announcement of its latest measures. This has faded, because there are still a lot of problems to work out.''

The yen rose to 123.72 per euro at 10:14 a.m. in Tokyo from 124.43 late yesterday in New York. It also strengthened to 95.02 per dollar from 95.22. The euro fell to $1.3024 from $1.3064. The pound declined to $1.5414 from $1.5472. The yen may rise to 94.80 per dollar today, Iizuka said.

Against the yen, Australia's dollar fell to 61.59 from 61.82 in New York late yesterday. The pound dropped 0.6 percent to 146.44 yen.

The MSCI Asia Pacific Index of regional shares slid 0.6 percent, while the Nikkei 225 Stock Average fell 1.6 percent.

Japan's benchmark interest rate of 0.3 percent compares with 5.25 percent in Australia and 3 percent in the U.K.

In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency market moves erase those profits.

`Fed's Balance Sheet'

The U.S. currency may weaken should the Fed lose money on the debt and asset-backed securities it plans to buy. The dollar reached a 2 1/2-year high against an index of the currencies of six major U.S. trading partners last week as investors sought refuge from deepening credit losses.

``We may see the Fed's balance sheet deteriorate because it's taking on all these assets,'' said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly listed lender. ``This is a latent risk for the dollar that could weaken it over the long term.''

The Fed will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a program of $200 billion to support consumer and small-business loans, the Fed said in statements yesterday in Washington.

OECD Cuts Forecast

The Organization for Economic Cooperation and Development cut its forecast for global growth in 2009. The economies of the organization's 30 members will contract 0.4 percent next year, after expanding 1.4 percent this year. Gross domestic product in the U.S. shrank at a 0.5 percent annual rate from July through September, the most since the 2001 recession, according to revised figures from the Commerce Department in Washington.

The ICE's Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden's krona, traded at 85.013 from 85.000 yesterday, when it fell 1.3 percent. The index rose to 88.463 on Nov. 21, the highest level since April 2006.

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

Read more...

Crude Oil Rises as Much as 0.8% in New York to $51.18 a Barrel

By Nesa Subrahmaniyan

Nov. 26 (Bloomberg) -- Crude oil rose as much as 0.8 percent to $51.18 a barrel in New York after falling more than $3 a barrel yesterday

Crude oil for January delivery traded at $51.11 at 8:53 a.m. Singapore time on the New York Mercantile Exchange. Futures have dropped 65 percent since reaching a record $147.27 on July 11. Yesterday, the contract declined $3.73, or 6.8 percent, to settle at $50.77 a barrel.

To contact the reporter on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net.

Read more...

Australia Stocks: Atlas, BHP, Fortescue, Rio, Santos, Woodside

By Shani Raja

Nov. 26 (Bloomberg) -- The S&P/ASX 200 Index slipped 10.90 points, or 0.3 percent, to 3,612.50 at 11:20 a.m. in Sydney, the most since Nov. 20. The broader All Ordinaries Index lost 29.20 points, or 0.8 percent, to 3,546.20, while the futures index expiring in December advanced 0.3 percent to 3,628.

Oil companies: Woodside Petroleum Ltd. (WPL AU) fell 56 cents, or 1.7 percent, to A$32.94, the most since Nov. 21. Santos Ltd. (STO AU) fell 39 cents, or 2.7 percent, to A$14.17, the most since Nov. 20.

Crude oil fell on speculation that a U.S. Energy Department report will show that inventories climbed for a ninth week as demand declined. Crude for January delivery declined 6.8 percent to settle at $50.77 a barrel at 2:42 p.m. in New York.

Separately, Woodside may need to sell stock next year to cover spending plans should oil prices remain around current levels and credit markets fail to ease, JPMorgan Chase & Co. said.

Iron-ore producers: Atlas Iron Ltd. (AGO AU) surged 5 cents, or 7.9 percent, to 69 cents, the highest since Nov. 10. Mt. Gibson Iron Ltd. (MGX AU) rallied 2 cents, or 7.6 percent, to 28 cents, the benchmark’s eighth-best performer.

Spot iron ore prices that have declined at least 65 percent from a record this year may not fall much further as producers cut output on slowing global growth, Macquarie Bank Group Ltd. said.

Ausenco Ltd. (AAX AU), an engineering company, tumbled 70 cents, or a record 24 percent, to A$2.25, the lowest since Sept. 6, 2006. The company said OZ Minerals Ltd. confirmed it had deferred spending on projects for which Ausenco provided engineering services.

BHP Billiton Ltd. (BHP AU) rallied A$2.05, or 7.8 percent, to A$28.27, the highest since Nov. 12. The world’s largest mining company yesterday abandoned its yearlong pursuit of Rio Tinto Group (RIO AU), blaming the rout in commodities prices and the credit-market squeeze for derailing the biggest hostile takeover. Rio plunged A$22.31, or 35 percent, to A$41.59, the most since Oct. 23, 1987.

ConnectEast Group (CEU AU), the company building the Eastlink tollway in Melbourne, slumped 11.6 cents, or 18 percent, 52.5 cents, the index’s fourth-biggest loser. ABN Amro Holding NV downgraded the company’s rating to “hold” from “buy.”

Fortescue Metals Group Ltd. (FMG AU), Australia’s third- largest iron ore exporter, plunged 13 cents, or 6.6 percent, to A$1.92, the most since Nov. 19.

Fortescue suspended work on an iron ore railroad in Western Australia, the contractor building the line said. NRW Holdings Ltd. (NWH AU) received instructions from Fortescue to stop work on the line connecting the Cloudbreak mine to the Christmas Creek project, Perth-based NRW said in a statement to the Australian stock exchange. NRW Holdings Ltd. tumbled 19 cents, or a record 42 percent, to 26 cents, an all-time low.

Gunns Ltd. (GNS AU), which is planning a A$2 billion ($1.3 billion) wood pulp mill in Australia’s Tasmania state, rose 6 cents, or 9.7 percent, to 73 cents, the most since Oct. 4, 2007. The move takes its two-day gain to 14 percent after the company agreed to sell some timber assets to repay debt.

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

Read more...

Japan Stocks Slump on Plunge in U.S. Home Prices; Toyota Drops

By Masaki Kondo

Nov. 26 (Bloomberg) -- Japan’s stocks fell as concern falling home prices will curb U.S. spending overshadowed the Federal Reserve’s $800 billion measure to unfreeze credit markets.

Toyota Motor Corp., which gets about a half its profit from North America, lost 2.9 percent, snapping a two-day gain. Inpex Corp., Japan’s largest oil explorer, sank 3.1 percent after crude dropped for the first time in three days. Panasonic Corp. tumbled 4.2 percent on a newspaper report Goldman Sachs Group Inc. opposed the electronics maker’s bid for Sanyo Electric Co.

The Nikkei 225 Stock Average declined 58.46, or 0.7 percent, to 8,265.47 as of 9:49 a.m. in Tokyo. The broader Topix index fell 10.89, or 1.3 percent, to 820.69. In New York, the Standard & Poor’s 500 Index swung between gains and losses more than 20 times before closing 0.7 percent higher.

“Investor sentiment is drifting between optimism about U.S. policies and pessimism about the market outlook,” Hiroichi Nishi, a Tokyo-based equities manager at Nikko Cordial Securities Inc., said in an interview with Bloomberg Television.

Three-quarters of stocks on the Topix have sunk below their book value, with 30 percent of the gauge’s members having lost more than half its value this year. The collapse of the U.S. housing market has cost financial firms almost $1 trillion in losses and writedowns, prompting banks to hoard cash and consumers to reduce spending.

The S&P/Case-Shiller home-price index tumbled 17.4 percent in September from a year earlier, the fastest pace on record, as rising foreclosures in the U.S. pushed down property values.

Fed’s Measures

To unfreeze credit for homebuyers, the Fed will purchase as much as $600 billion of debt issued or backed by government- chartered housing-finance companies, the central bank said yesterday. It will also establish a $200 billion program to shore up consumer and small-business loans.

Toyota dived 2.9 percent to 3,040 yen. Closest rival Honda Motor Co. lost 2.4 percent to 2,040 yen, while Canon Inc., the world’s biggest camera maker, lost 1.7 percent to 2,855 yen. Makers of electronics and cars were the biggest contributors to the Topix’s slump.

Inpex slid 2.9 percent to 505,000 yen, and Japan Petroleum Exploration Co., the nation’s second-largest oil explorer, fell 5.4 percent to 3,360 yen. Mitsui & Co., which gets more than half its earnings from commodities, retreated 2.8 percent to 733 yen.

Crude oil for January delivery declined 6.8 percent to close at $50.77 a barrel yesterday on speculation a U.S. government report will show inventories climbed last week. Futures have dropped 66 percent since reaching a record $147.27 on July 11.

Panasonic, Sanyo

Panasonic, the world’s largest maker of consumer electronics, tumbled 4.2 percent to 1,338 yen, while Sanyo edged up 0.6 percent to 157 yen. Goldman, one of the three top holders of Sanyo’s preferred shares, opposed Panasonic’s bid for Sanyo as the offer price of 120 yen ($1.26) a share was too low, the Nikkei newspaper reported today.

Nikkei futures expiring in December retreated 1 percent to 8,260 in Osaka and slumped 0.7 percent to 8,265 in Singapore.

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

Read more...

Asian Stocks Decline as Rio Takeover Derailed, Loan Rates Rise

By Patrick Rial and Masaki Kondo

Nov. 26 (Bloomberg) -- Asian stocks fell as credit market turmoil derailed BHP Billiton Ltd.’s $66 billion takeover of Rio Tinto Group and pushed U.S. dollar borrowing costs higher.

Rio Tinto, the world’s third-largest mining company, slumped 35 percent, the most in more than two decades, while BHP advanced. Fukuoka Financial Group Inc., Japan’s largest regional lender, lost 4.4 percent after dollar lending costs rose for a third day. Toyota Motor Corp. lost 3.2 percent after the Nikkei newspaper said the carmaker will slash production in France by 20 percent and Fitch Ratings cut the company’s rating to AA from AAA.

The MSCI Asia Pacific Index fell 0.8 percent to 79.39 as of 9:22 a.m. in Tokyo. That snapped yesterday’s 4.1 percent rally, the biggest in three weeks, fueled by a surge in commodity prices and the U.S. government’s rescue of Citigroup Inc.

“Investor sentiment is drifting between optimism about U.S. policies and pessimism about the market outlook,” Hiroichi Nishi, a Tokyo-based equities manager at Nikko Cordial Securities Inc., said in an interview with Bloomberg Television. “With shares priced below book value, we’ll see some bargain-hunting.”

Japan’s Nikkei 225 Stock Average lost 1.5 percent to 8,201.71. Panasonic Corp. slid 2.9 percent after the Nikkei newspaper said Goldman Sachs Group Inc. opposed its bid for Sanyo Electric Co.

Rio led declines in Australia. Shares in South Korea jumped.

U.S. stocks advanced for a third day yesterday. The Standard & Poor’s 500 Index swung between gains and losses more than 20 times before closing 0.7 percent higher. Futures on the index lost 0.4 percent in trading today.

Takeover Bid Ended

More than half of stocks in Asia have sunk below their book value as the collapse of the U.S. housing market curbed consumer spending on Asian-made goods and reduced demand for fuel and other commodities. The MSCI Asia Pacific Index has tumbled by 49 percent this year as the global economy slipped into recession.

BHP yesterday scrapped its takeover offer for Rio saying the move would have increased the company’s debt load and as seizure in credit markets and a global recession has led to slumping commodity prices.

South Korea’s Posco, Asia’s third-largest steelmaker, rose 2.4 percent. The merger would have raised iron ore prices, the steelmaker had said.

The London interbank offered rate, or Libor, for three-month dollar loans climbed for a third day yesterday, to 2.20 percent, according to the British Bankers’ Association’s. The increase occurred in spite of new facilities designed to unlock credit markets, indicating government efforts may be failing.

To unfreeze credit for homebuyers, the Federal Reserve will purchase as much as $600 billion of debt issued or backed by government-chartered housing-finance companies, the central bank said in statements yesterday. It will also establish a $200 billion program to shore up consumer and small-business loans.

House Prices

The S&P/Case-Shiller home-price index tumbled 17.4 percent in September from a year earlier, the fastest pace on record, as rising foreclosures in the U.S. pushed down property values. The collapse of the U.S. mortgage market has claimed Bear Stearns Cos and Lehman Brothers Holdings Inc. while costing global financial companies almost $1 trillion on credit losses and writedowns.

Crude oil for January delivery declined 6.8 percent to close at $50.77 a barrel in New York on speculation a U.S. government report will show inventories climbed last week. Futures have dropped 66 percent since reaching a record $147.27 on July 11.

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

Read more...

Cheapest Gulf Stocks May Get Cheaper as Real Estate, Oil Drop

By Michael Patterson

Nov. 26 (Bloomberg) -- Stocks in Dubai, Abu Dhabi and Saudi Arabia that more than doubled the past four years are unraveling as lower oil and real-estate prices weaken economies in the biggest crude-producing region.

The MSCI GCC Countries Index of 115 gulf companies, already down 57 percent in 2008, may drop 20 percent more in the next six months, said Jeff Chowdhry, who helps oversee $150 billion at F&C Asset Management. Ten months after the index traded at 20 times reported earnings, Emaar Properties PJSC, the Middle East’s largest developer, trades below 3 times profit; Emirates NBD PJSC, the U.A.E.’s biggest bank, is valued at 5.

Now some of the world’s biggest emerging-market investors say valuations may fall further because prices don’t reflect the collapsing property market and 66 percent tumble in oil since its July 11 record. Templeton Asset Management’s Mark Mobius says stock markets in South Africa and China are more attractive.

“If anyone’s got any Middle Eastern stocks I would be taking this opportunity to sell,” Chowdhry, F&C’s head of emerging-market equities, said in an interview from London. “It’s a combination of a deteriorating fundamental outlook, bubble valuations which are just starting to unwind in real estate and banks, plus liquidations in funds.”

The Dubai Financial Market General Index of 29 companies in the emirate surged 493 percent from 2004 to 2007 as residential property prices climbed four-fold in the last five years and a 195 percent rise in oil boosted government spending. The Abu Dhabi Securities Exchange General Index jumped 159 percent during that period, while Saudi Arabia’s Tadawul All Share Index gained 149 percent.

Cheapest Shares

All three indexes tumbled more than 40 percent this year and traded this week at the cheapest levels on record compared with earnings, cash flow and net assets, according to data compiled by Bloomberg.

Emaar Properties, the second-worst performer this year in the Dubai index, is valued at 2.4 times earnings after falling 83 percent in 2008. Dubai-based Emirates NBD trades for 5 times profit after a 71 percent retreat.

The Dubai index’s 69 percent decline in 2008 is the steepest among benchmarks in the world’s 50 biggest equity markets. China’s CSI 300 Index lost 66 percent, while India’s Sensitive Index dropped 57 percent.

Templeton’s Mobius said Nov. 17 that he’s “aggressively” buying in other emerging markets such as China and South Africa and it’s too early to go “bargain hunting” in the Gulf.

“We really didn’t like the Middle East because it was up too high and there were so many other bargains around,” Mobius, who manages about $24 billion of emerging-market assets as executive chairman at Templeton, said in an interview from Johannesburg.

Forced Selling

While the deteriorating outlook for profits caused the retreat in Gulf stocks at the start of the year, this month’s 20 percent decline in the MSCI GCC index is mostly the result of sellers who dumped shares to repay loans, according to Oliver Bell, the head of emerging-market specialist equities at Pictet Asset Management, which oversees about $91 billion.

Arabtec Holding Co., the construction company building the world’s tallest tower in Dubai, has tumbled 42 percent this month and traded for 1.8 times earnings this week, the cheapest since Bloomberg began tracking the data in 2005.

“It’s left some companies where the fundamentals really haven’t changed that much and yet they are trading at ridiculous valuations that give you a once in a lifetime opportunity,” said Bell, who runs Pictet’s Middle East and North Africa equity fund in London. Bell isn’t buying yet, because “at the end of the day you’re catching a falling knife,” he said.

Growth Slows

Middle East economic growth will slow to 5.3 percent next year from 6.1 percent in 2008, the International Monetary Fund estimates. The IMF expects China’s economy to grow at an 8.5 percent pace next year and India to expand by 6.3 percent, according to the Washington-based fund’s World Economic Outlook.

Property prices in Dubai fell 4 percent in October, and declined 5 percent in Abu Dhabi, signaling a “turning point” in the markets, London-based HSBC Holdings Plc said in a Nov. 12 research note.

HSBC and London-based Lloyds TSB Group Plc, two of the largest banks operating in the U.A.E., restricted lending in the region this month. Dubai’s two largest mortgage lenders, Amlak Finance PJSC and Tamweel PJSC, will be taken over by a government-owned bank.

‘Property Bubble’

“The property bubble has just recently burst and the impact of that on psychology is going to take place here for a few more months,” said Cliff Quisenberry, who advises hedge funds at University Place, Washington-based research and consulting firm Investment Frontiers Research LLC.

Abu Dhabi, which owns nearly 8 percent of the world’s proven total oil reserves and runs the largest sovereign wealth fund, may cushion the region’s economy from losses at banks and real- estate developers. The emirate won’t allow Dubai’s state-owned companies default on debt payments, Abu Dhabi Commercial Bank Chief Executive Officer Eirvin Knox said this month in an interview in Abu Dhabi.

F&C’s Chowdhry says oil’s tumble from a July record $147.27 a barrel to $50.77 yesterday may hamper the ability of governments to rescue developers and construction companies while they shore up financial companies such as Amlak.

‘Daunting’

Middle East oil-producing nations excluding Kuwait may post “sizeable” fiscal and current account deficits if oil averages $50 a barrel next year, Citigroup Inc. said in a research note last week. Economic challenges facing the Gulf nations are becoming “increasingly daunting,” the New York-based bank said.

Lenders in the region are competing for local deposits after overseas investors pulled money, said Fahmi Alghussein, an executive director at New York-based Morgan Stanley. That’s pushing up interest rates on certificates of deposit and luring cash from stocks, Alghussein said.

“Banks are chasing depositors for funds in the region,” said Alghussein, who runs Morgan Stanley’s Middle East equity sales and distribution from Dubai. “That’s pushing money out of equities and other asset classes. As long as you have that, there’s no catalyst to invest in equities.”

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.

Read more...

Amaranth Reaches Deal With Federal Energy Regulators

By Tina Seeley

Nov. 25 (Bloomberg) -- Amaranth Advisors LLC and two of its former traders reached a settlement with federal regulatory staff over the alleged manipulation of natural gas futures prices, according to a regulatory filing.

The settlement, submitted to the Federal Energy Regulatory Commission yesterday, could end the case against the hedge fund and traders Brian Hunter and Matthew Donohoe. The commission accused them last year of manipulating prices on the New York Mercantile Exchange and proposed a $291 million fine.

The settlement, “if approved by the commission, will resolve all claims asserted against all respondents,” Chief Administrative Law Judge Curtis Wagner wrote in a filing today. An agency judge also must certify the settlement, Wagner wrote.

A separate case against Greenwich, Connecticut-based Amaranth and Hunter brought by the Commodity Futures Trading Commission is still in litigation, according to agency spokesman Dennis Holden. That case alleges attempted manipulation of gas prices during the same time period in 2006, and seeks a permanent ban on Hunter from trading in markets it oversees.

Hunter has filed several court cases seeking to block the Federal Energy Regulatory Commission from moving forward with its enforcement action. Hunter’s lawyers say the energy regulator doesn’t have jurisdiction over alleged violations in futures markets, and that the commodity regulator has the sole authority.

The Commodity Futures Trading Commission has also said in court filings that it has sole authority to punish any wrongdoing in futures markets.

Calls to spokesmen for Amaranth and Hunter were not immediately returned.

To contact the reporter on this story: Tina Seeley in Washington at tseeley@bloomberg.net.

Read more...

Options Traders Bet January Oil to Drop Below $50, $40 a Barrel

By Margot Habiby

Nov. 25 (Bloomberg) -- Oil traders placed bets that January crude will fall below $50, $45 and $40 a barrel as futures dropped for the first time in three days.

January $50 puts rose $1.47 to settle at $3.71 a barrel, or $3,710 a contract, at 4:15 p.m. on the New York Mercantile Exchange, according to data compiled by Bloomberg. The options contract was the most active on the exchange, trading 2,042 lots, down from 3,125 yesterday.

Crude oil for January delivery dropped $3.73, or 6.8 percent, to $50.77 a barrel at 2:42 p.m. on the exchange. Futures fell on speculation that a U.S. Energy Department report tomorrow will show that inventories climbed for a ninth week as demand declined.

January $45 puts added 83 cents to $1.75 a barrel, or $1,750 a contract. Volume was 785 contracts, down from 1,206 yesterday. Open interest was 10,456 lots yesterday, up from 10,090 on Nov. 21.

January $40 puts increased 38 cents to 66 cents, or $660 a contract, on volume of 442 lots. Open interest was 12,184 yesterday, compared with 11,707 on Nov. 21.

Open interest on the January $50 puts was 11,077 yesterday, up from 12,287 on Nov. 21.

One options contract equals 1,000 barrels of oil.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.

Read more...

Coffee Prices Rise for Second Straight Day on Dollar’s Slump

By Yi Tian

Nov. 25 (Bloomberg) -- Coffee rose for the second straight day as the dollar dropped, enhancing the appeal of some U.S. commodity futures.

The greenback weakened as much as 1.5 percent against a basket of six major currencies, after dropping 2.4 percent yesterday. Last week, coffee dropped 4.1 percent, while the dollar had the biggest gain in almost a month. Other so-called soft commodities such as cocoa and orange juice rose.

“The dollar is giving a lot of support to soft commodities,” said Marcio Bernardo, a broker at Newedge USA LLC in New York.

Arabica-coffee futures for March delivery gained 0.35 cent, or 0.3 percent, to $1.144 a pound on ICE Futures U.S. in New York. Yesterday, the price rose 3 percent, the most for a most- active contract since Nov. 12.

In London, robusta coffee for January delivery rose $15, or 0.8 percent, to $1,910 a metric ton on the Liffe exchange.

To contact the reporter on this story: Yi Tian in New York at ytian8@bloomberg.net.

Read more...

Montier Has ‘Never Been More Bullish’ on Stocks

By Michael Patterson

Nov. 25 (Bloomberg) -- Societe Generale SA strategist James Montier said he’s never been so bullish after the financial crisis dragged down prices for stocks, corporate bonds and inflation-protected government debt.

The Standard & Poor’s 500 Index is “distinctly cheap” because it trades for 15.4 times the 10-year moving average of its companies’ profits, compared with an average of 18 for the U.S. market since 1881, London-based Montier wrote in a research note today. Fifteen stocks in the U.S. index, from Chevron Corp. to Gap Inc., pass his test for “deep value,” while a tenth of shares in Europe and a fifth in Asia qualify.

“This is a value investor’s version of heaven,” wrote Montier, SocGen’s global equity strategist. “From a bottom-up perspective, the equity market is offering some excellent companies at truly bargain prices for those with the fortitude to shut their eyes, or at least switch off their screens and buy.”

Corporate bonds are pricing in the highest default rate since the Great Depression and some senior secured debt is trading for as little as 50 percent what investors would recover in a bankruptcy, Montier wrote. The drop in bonds may amount to “the investment opportunity of a lifetime,” he said.

Market Plunges

Equities tumbled this year, sending benchmark indexes in the U.S., Europe and Asia down more than 40 percent, as financial-company losses stemming from the U.S. housing-market collapse approached $1 trillion. Merrill Lynch & Co.’s U.S. Corporate Master Total Return Index of investment-grade corporate bonds declined 13 percent this year.

The Federal Reserve has reduced its benchmark interest rate to 1 percent from 5.25 percent in September 2007 and pledged to lend more than $7 trillion to revive the economy. Investors can get cheap insurance against the risk Fed lending spurs inflation by purchasing government bonds that pay interest on a principal amount that rises with the consumer price index, Montier wrote.

“Such instruments have seen their yields rise dramatically of late,” he said. “Mr. Market is offering you the opportunity to protect yourself from the ravages of inflation in an exceptionally cheap way.” Bond yields move inversely to prices.

Montier was a member of the top-ranked investment strategy team in Thomson Extel’s surveys the past three years.

“With all of these opportunities available I have never been more bullish!” he wrote. “Will I be early? Almost certainly yes, but if I can find assets with attractive returns and I have a long time horizon I would be mad to turn them down.”

S&P 500 stocks that Montier characterizes as “deep value
opportunities” based on profit and dividend yields, debt levels
and price relative to earnings:

Allegheny Technologies Inc.
Carnival Corp.
Chevron Corp.
ConocoPhillips
Cummins Inc.
Dow Chemical Co.
Gap Inc.
Illinois Tool Works Inc.
Ingersoll-Rand Co.
KLA-Tencor Corp.
Marathon Oil Corp.
Molex Inc.
Nucor Corp.
Tesoro Corp.
Valero Energy Corp.

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net;

Read more...

Mexico’s Currency Leads Gains in Latin America on U.S. Fed Plan

By Valerie Rota

Nov. 25 (Bloomberg) -- Mexico’s peso rose, pacing gains among Latin American currencies, on speculation a plan by the U.S. Federal Reserve to buoy consumer lending will shore up demand for Mexican exports.

The Mexican currency advanced for a third day as investors stepped up bets the peso is poised to rally after a three-month slump that drove it to a record low in October. Carlos Slim, Mexico’s wealthiest person, said investors who purchase dollars with pesos “at these prices will have to sell them cheaper” later, El Economista newspaper reported today.

“As a sense of calm returns, the peso should strengthen against the dollar,” said Tonatiuh Rodriguez, who oversees 50 billion pesos ($3.8 billion) in assets at Mexico City-based pension fund Afore XXI.

The peso gained 1.3 percent to 13.2328 per U.S. dollar at 5 p.m. New York time, from 13.4013 yesterday. It is up 5 percent over the past three days, paring its rout over the past three months to 23 percent.

The Fed said today it’s committing up to $800 billion to unfreeze credit for homebuyers, consumers and small businesses. It will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies and set up a $200 billion program to support consumer and small-business loans. The U.S. buys about 80 percent of Mexican exports.

“Measures are being taken so that the duration of the crisis is as short as possible,” said Omar Martin del Campo, a currency trader at Banco Ve Por Mas SA in Mexico City.

Current Account Gap

The global financial crisis that began last year with the rout in the subprime-mortgage market has fueled job losses and crimped consumer demand in the U.S. A report today showed Mexico’s current account deficit swelled in the third quarter to its widest since 2001, draining dollars from the country and contributing to the peso’s slide in recent months.

The current account, the broadest measure of trade in goods and services, widened to $5 billion from $2.7 billion in the second quarter, a central bank report showed.

Losses in the peso mounted in October as concerns grew a global central bank effort to cut lending rates wouldn’t be enough to unfreeze international credit markets.

Today’s announcement by the Fed, along with the U.S. government guarantee of troubled assets at Citigroup Inc. and President-elect Barack Obama’s pick of New York Fed President Timothy Geithner as Treasury secretary yesterday, buoyed confidence in the financial system and demand for higher- yielding assets.

The drop in the peso “has been too strong and too fast,” said Pablo Septien, who oversees about $400 million in assets in Mexico City at Finaccess SA. “We saw an aberration.”

Inflation Surge

Yields on Mexico’s 10 percent bond due in December 2024 fell 16 basis points, or 0.16 percentage point, to 9.35 percent. The yield has declined 52 basis points since Nov. 20. The bond’s price rose 1.32 centavo to 105.39 centavos per peso, according to Banco Santander SA.

Slim, speaking in Buenos Aires, where he joined a delegation of business leaders accompanying President Felipe Calderon on a state visit to Argentina, also said he expects inflation to recede in Mexico, according to Mexico City-based Economista.

Mexico’s annual inflation surged to a seven-year high of 6.2 percent in the 12 months through mid-November, the central bank reported yesterday.

“A pickup in inflation is always bad news, but the current levels of yields seems to have already discounted higher inflation rates,” Rodriguez at Afore XXI said. Long-term bond “yields at these levels have room to decline.”

To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net.

Read more...

Cotton Prices Drop, Erasing Earlier Gains, as Equities Decline

By Shruti Date Singh

Nov. 25 (Bloomberg) -- Cotton futures fell from the highest price in three weeks after U.S. equity indexes declined, renewing concern the slowing global economy will reduce demand for commodities.

The Dow Jones Industrial Average, which traders see as an indicator of commodity demand, fell as much as 1.9 percent today. The Reuters/Jefferies CRB Price Index dropped as much as 2.4 percent today, led by energy and cotton futures. The price of the fiber gained as much as 3.1 percent earlier and jumped more than 12 percent in the previous two sessions.

“The weakness in equities, crude down as much as it is and cotton’s inability to hold together early, along with it having been up a lot in the past three days, suggested a modest retreat,” Sharon Johnson, an analyst for First Capitol Group in Atlanta, said in an e-mail.

Cotton futures for March delivery fell 1.05 cents, or 2.3 percent, to 43.75 cents a pound on ICE Futures U.S. in New York. The price earlier climbed to 46.2 cents, the highest price for a most-active contract since Nov. 5.

Cotton has fallen 36 percent this year on concern a global recession is eroding demand for textiles and clothing.

Global cotton consumption will decline 3.3 percent in the year through July 2009 to 119.33 million bales, the U.S. Department of Agriculture said Nov. 10. A bale weighs 480 pounds, or 218 kilograms.

“There is very little happening in the physical cotton world,” Andy Ryan, a risk management consultant for FCStone in Nashville, said in an e-mail today.

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

Read more...

Most Canada Stocks Fall, Led by Research In Motion; Nexen Gains

By John Kipphoff

Nov. 25 (Bloomberg) -- Most Canadian stocks fell as mining companies declined after BHP Billiton Ltd. scrapped its record takeover bid for Rio Tinto Group and Toronto-Dominion Bank announced plans to bolster its capital following trading losses.

Barrick Gold Corp. paced the drop among raw-materials shares after saying that it froze hiring at most operations in an attempt to conserve cash. Research In Motion Ltd. slid to the lowest in more than a week after BMO Capital Markets said the maker of the BlackBerry e-mail phone may sign up fewer subscribers than forecast this month.

The Standard & Poor’s/TSX Composite Index added 1.99, or less than 0.1 percent, to 8,442.86 in Toronto as 130 stocks declined and 105 advanced. Nexen Inc. led energy shares higher, helping the group rally a third day even as oil prices fell.

“We’re definitely not buying bank stocks at the moment,” said Robert McWhirter, who manages about $140 million at Selective Asset Management in Toronto. “There’s concern RIM came up light on the quarter. Tech stocks are facing a challenge, as other companies are, because of lower earnings across the board. The market’s trying to find a bottom.”

The S&P/TSX added 9.3 percent in three sessions, the most since a three-day, 15 percent advance on Oct. 30, boosted by the U.S. government’s bailout of Citigroup Inc. Canada’s main stock benchmark is still down 39 percent this year, poised for its worst annual drop on record, after worldwide credit losses approached $1 trillion and commodity prices slumped.

Short Supply

Research In Motion fell 8.1 percent, the most since Nov. 14, to C$50.77. Outlets of Verizon Wireless, the mobile-phone provider selling Research In Motion’s new Storm phone since last week, received only a limited number of the handsets, BMO Capital Markets analysts led by Keith Bachman wrote in a note, citing conversations with “several” stores.

Bachman, based in New York, said he estimates that Research In Motion will gain 2.78 million new subscribers in November, missing the company’s forecast of 2.9 million.

A measure of computer-related stocks, which gets four- fifths of its value from Research In Motion, dropped 6.8 percent.

A gauge of raw-materials shares fell 1.4 percent after BHP Billiton abandoned its yearlong pursuit of Rio Tinto, blaming the rout in commodities prices and the credit-market squeeze for derailing its $66 billion offer, the biggest attempted hostile takeover in the mining industry.

Cost Cuts

Barrick Gold fell 1.9 percent to C$34.30, declining for the first time after a four-day rally during which it advanced 36 percent. The biggest bullion mining company instituted cost- saving measures, including travel restrictions, about a month ago, spokesman Vince Borg said today in an interview.

Goldcorp Inc., the second-largest by market value, dropped 3.1 percent to C$30.54. Kinross Gold Corp., Canada’s third- biggest producer of the metal, retreated 4.2 percent to C$16.95.

Toronto-Dominion fell 4.7 percent to C$40.89, taking its decline this year to 41 percent. Canada’s second-largest bank, the worst-performing stock in 2008 among the nation’s six biggest lenders, said last night that it will sell as much as C$1.38 billion ($1.12 billion) in stock to increase its regulatory capital ratio. TD said last week that it will post about C$350 million in trading losses for the fourth quarter.

A group of finance shares still rose 0.6 percent after Bank of Montreal posted a 24 percent gain in fourth-quarter earnings, exceeding analysts’ estimates as it did not repeat debt writedowns and trading losses from a year ago. The stock added 2.4 percent. Sun Life Financial Inc., Canada’s third-largest insurer, rose 10 percent to C$24.67, the most in almost a month.

Nexen gained 8.9 percent to C$20.15. EnCana Corp., Canada’s biggest oil and gas company by market value, added 1.9 percent to C$51.98. An index of energy companies in the S&P/TSX added 0.8 percent, rallying for a third day after falling to the lowest since 2004 on Nov. 20.

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

Read more...

Wheat Falls as Rising Ukraine Output Curbs U.S. Grain Demand

By Tony C. Dreibus

Nov. 25 (Bloomberg) -- Wheat prices fell from a one-week high after Ukraine, the world’s fifth-largest exporter, reported a surge in grain production, signaling a drop in demand for U.S. supplies.

Ukraine increased the harvest of all grain by 83 percent to 53.6 million metric tons this year, Volodymyr Klymenko, head of the Ukrainian Grain Association, said yesterday. Wheat futures in Chicago are down 38 percent this year.

“We can’t sustain prices with all the problems we’ve got with demand,” said Tomm Pfitzenmaier, a partner at Summit Commodity Brokerage in Des Moines, Iowa. He said that Ukraine is “where all the expansion is going to take place. That’s the only place in the world where they have good growing conditions.”

Wheat futures for March delivery fell 4 cents, or 0.7 percent, to $5.5275 a bushel on the Chicago Board of Trade. Yesterday, the price reached $5.78, the highest for a most- active contract since Nov. 17. The grain has tumbled 59 percent since reaching a record $13.495 on Feb. 27.

Ukraine has exported 10 million tons of grain in the year that started July 1, and the country plans to ship the same amount by May 31, Klymenko said.

The U.S. Department of Agriculture expects Ukraine to ship 9 million tons of wheat in the 12 months that started June 1, compared with 1.24 million tons the prior year. The U.S. is the largest exporter followed by Canada, Russia, Australia and Ukraine, USDA data show.

U.S. Exports

Importers have committed to buy 20 million tons of U.S. wheat since the beginning of the marketing year, down 27 percent from the same period a year earlier, government data show. Exporters have shipped 15.1 million tons, down 14 percent from the prior year, the USDA said.

The price also dropped as investors sold baskets of commodities, including grains, metals and energy, Pfitzenmaier said. Crude oil slid 6.8 percent today, and copper dropped more than 1 percent. The Reuters/Jefferies CRB Index that tracks 19 raw materials dropped as much as 2.4 percent today.

“It looks like all these markets are trying to focus on crude oil,” said Vince Boddicker, a manager at Farmers Trading Co. in Mitchell, South Dakota. “They’re trying to separate themselves from it, but if it can, I don’t know.”

Grain-futures volumes have declined because of wide price swings and financial-market turmoil, Pfitzenmaier said. About 33,295 wheat contracts for March delivery traded today, down 39 percent from a year earlier.

“People have backed away on everything,” Boddicker of Farmers Trading said. “If you go back and analyze the year, we had index funds buying commodities. Then, at the end of June and into July, we were hearing about Fannie Mae and Freddie Mac, so people have pulled their money out of commodities.”

Wheat is the fourth-biggest U.S. crop, valued at $13.7 billion in 2007, behind corn, soybeans and hay, government data show.

To contact the reporter on this story: Tony C. Dreibus in Chicago at Tdreibus@bloomberg.net.

Read more...

Nickel Falls in London; 9-Year High Stockpiles Show Weak Demand

By Chanyaporn Chanjaroen

Nov. 25 (Bloomberg) -- Nickel fell for the first time in three days in London as stockpiles reached a nine-year high, underscoring weaker demand for stainless steel. Copper also dropped.

Inventories of nickel tracked by the London Metal Exchange have soared 34 percent since the end of June to 62,442 metric tons, the highest since February 1999. Stainless-steel makers, the largest users of the metal, have been cutting production in response to falling demand from the building industry.

“The dominant feature in the nickel market is the miserable demand environment,” said Neil Buxton, managing director of London-based GFMS Metals Consulting Ltd.

Nickel for delivery in three months lost $175, or 1.6 percent, to $10,500 a ton in London. The contract has lost 60 percent this year, the largest drop among the six primary metals on the exchange.

The metal is heading for a second consecutive yearly drop after falling 21 percent in 2007. ThyssenKrupp AG, Germany’s largest steelmaker, needs to extend the holiday closing period of three plants to four weeks as demand wanes for stainless steel, Rheinische Post reported today, citing an unidentified spokesman. Tummarello Daniel, a spokesman for the company in Duesseldorf, didn’t immediately respond to an e-mail seeking comment.

BHP Billiton Ltd., the world’s largest mining company, today scrapped its $66 billion offer for Rio Tinto Group, citing the turmoil in global markets. It also said it would take a $2.1 billion charge to write down the value of its Ravensthorpe and Yabulu nickel operations in Australia.

‘Heavily Delayed’

“Ravensthorpe is a heavily delayed project with a very cautious ramp-up schedule,” said Andrew Keen, an analyst at Sanford C. Bernstein Ltd. in London. “This announcement indicates that some of the production problems that have plagued other nickel start-ups may also apply to Ravensthorpe.”

OAO GMK Norilsk Nickel, the world’s largest producer of the metal, suspended two nickel mines in Western Australia on rising costs and plummeting prices. They produce about 10,000 tons a year.

Copper Falls

Copper dropped $55, or 1.5 percent, to $3,695 a ton. LME- monitored copper stockpiles added 2,825 tons, or 1 percent, to 287,225 tons, taking this year’s increase to 45 percent.

On the Comex division of the New York Mercantile Exchange, copper futures for March delivery fell for the fourth time in five sessions, dropping 1.75 cents, or 1 percent, to $1.654 a pound.

Chile, the world’s biggest copper supplier, cut its price forecast for the metal next year by more than half to $1.60 a pound ($3,527 a ton) as faltering global economies reduce demand.

The state-run Chilean Copper Commission reduced its forecast for Chilean output by 1.6 percent to 5.36 million tons, according to a report on its Web site.

Lead lost $30, or 2.5 percent, to $1,190 a ton and zinc gained $30, or 2.5 percent, to $1,250 a ton. Aluminum rose $10 to $1,810 a ton and tin gained $100, or 0.8 percent, to $12,900 a ton.

PT Timah, the world’s second-biggest tin miner based in Indonesia, may shift some of its output to make tin-derived products such as tin solder and chemicals as the price of the metal has fallen.

Timah may benefit more from selling tin-derived products than from selling the metal to traders, Corporate Secretary Abrun Abubakar said in Jakarta today. The company may shift production next year if “we think the price is low,” he said, without saying how much Timah would set aside.

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net

Read more...

Gold Futures Rise for Longest Rally Since July; Platinum Gains

By Pham-Duy Nguyen

Nov. 25 (Bloomberg) -- Gold futures rose for a fifth straight session, the longest rally since July, as a decline in the dollar boosts the appeal of the precious metal as an alternative investment. Platinum also gained, and silver fell.

The dollar dropped for a third session against the euro after the Federal Reserve pledged $800 billion to help ease the credit crisis for homeowners, consumers and small businesses. Gold and most metals often move in the opposite direction of the U.S. currency. Before today, gold fell 2.1 percent this year as the dollar rallied 11 percent against the euro.

“With the flood of liquidity, that’s going to float the boats and sink the dollar,” said Ron Goodis, a retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. “Commodities look set to stage a comeback on the dollar weakness. The real strength is likely to be in gold.”

Gold futures for February delivery rose 10 cents to $820.50 an ounce on the Comex division of the New York Mercantile Exchange, after earlier touching $834.50. The price climbed 12 percent since Nov. 18, the longest rally since the five days ended July 15.

Silver futures for March delivery fell 7.3 cents, or 0.7 percent, to $10.305 an ounce on the Comex, after earlier rising to $10.60. The metal rose 15 percent the previous two sessions.

Platinum futures for January delivery rose $5.20, or 0.6 percent, to $871.60 an ounce on the Nymex. Palladium for March delivery climbed 80 cents, or 0.4 percent, to $197.70 an ounce.

Dollar Drops

The dollar fell as much as 1.2 percent against the euro and 1.5 percent against a weighted basket of six major currencies.

Since the second quarter of 2007, banks worldwide have posted $971.2 billion in losses and writedowns related to the credit crunch. The U.S. has already committed $700 billion to help bail out banks. Fed policy makers have also lowered the benchmark interest rate to 1 percent from 5.25 percent in September 2007.

The dollar is “going to lose its status as the world’s reserve currency,” Jim Rogers, chairman of Rogers Holdings, said yesterday in a televised interview with Bloomberg News. “It will be devalued and it will go down a lot. These guys in Washington, they want to debase the currency.”

Still, gold’s gains were limited as some investors sold the metal after four straight days of gains. The metal earlier rose to the highest since Oct. 16.

Sell Signal

“Don’t be surprised that gold falls because it’s had a sharp rise the past few days,” said Marty McNeill, a trader at R.F. Lafferty Inc. in New York. “Once gold runs up, these hedge funds take advantage of the gain and sell for a profit.”

The seven-day relative strength index for gold has been above 70 for the past three days, a signal to technical traders that prices are headed lower.

“We are short of gold,” said Dennis Gartman, an economist and editor of the Suffolk, Virginia newsletter the Gartman Letter. “We shall always sell rallies such as these that retrace as classically as this market has.”

Gartman yesterday advised clients to begin selling gold, saying the metal’s recent gains were “nothing more than a rally in a bear market.”

Gold reached a record $1,033.90 on March 17 after Bear Stearns Cos. agreed to be purchased by JPMorgan Chase & Co. to avoid collapse. The metal dropped as low as $681 on Oct. 24 as the unfolding credit crisis forced some investors to sell the metal to raise cash and cover losses in other markets.

Before today, the Standard & Poor’s 500 Index has lost 42 percent this year.

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

Read more...

Brazilian Stocks Rise, Led by Homebuilders; Bolsa, Ipsa Decline

By Alexander Ragir and Fabio Alves

Nov. 25 (Bloomberg) -- Brazilian stocks gained for a second day as an increase in mortgage loans in Latin America’s biggest economy and the Federal Reserve’s $800 billion plan to support consumers and homebuyers eased concerns about the credit crisis.

Homebuilder Cyrela Brazil Realty SA Empreendimentos e Participacoes surged 14 percent after mortgage loans rose last month. Banks and credit-card processor Redecard SA rallied after the Fed announced two new efforts to ease credit markets for homebuyers, consumers and small businesses. Cia. Siderurgica Nacional led gains for steelmakers after BHP Billiton’s bid for the second-biggest iron ore maker failed. Brazil’s two biggest airlines dropped after Citigroup Inc. cuts its forecast for their American depositary receipts.

“The Fed move brings back some confidence in financial markets, cleared out the problem even more and gives some breathing room for it to function better,” said Januario Hostin Junior, chief equity portfolio manager at Leme Investimentos in Florianopolis, Brazil, which oversees about $35 Million.

The Bovespa rose 1.8 percent to 34,812.86. Mexico’s Bolsa slid 1.2 percent. Chile’s Ipsa slipped 0.4 percent. The MSCI Emerging Markets Index rose 3.2 percent.

Cyrela surged the second most on the Bovespa after a central bank report showed in mortgage loans increased last month even as overall bank lending slowed.

Mortgage Increase

Year-to-date mortgage loans increased 30 percent through the end of October to 56.4 billion reais ($24.5 billion), the central bank said today. Mortgage loans rose 2.7 percent in October from the previous month, while overall bank lending contracted 3 percent to 157.3 billion reais.

Cyrela jumped 14 percent to 7.20 reais. Gafisa SA, the second-largest, added 4.6 percent to 7.90 reais.

Redecard gained 5.9 percent to 25 reais. Goldman Sachs Group Inc. said the company’s third-quarter earnings beat its estimates and that it expected Redecard to deliver on its expected growth.

A gauge of bank stocks in the MSCI Brazil Index climbed 4.3 percent. Banco Itau Holding Financeira SA, which is acquiring Uniao de Bancos Brasileiros SA to become the region’s biggest bank, jumped 4.6 percent to 24.69 reais. Unibanco rose 4.5 percent to 13.79 reais.

The U.S. central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a program of $200 billion to support consumer and small-business loans, the Fed said in statements today in Washington.

CSN, Brazil’s third-biggest steelmaker, advanced 4.3 percent to 24.26 reais. Aluminum Corp. of China, the largest shareholder in Rio Tinto Group, said BHP Billiton Ltd.’s dropped bid for the world’s second-largest iron ore supplier would benefit Chinese steelmakers.

‘Positive For Steelmakers’

“BHP’s failed takeover bid is positive for steelmakers because further concentration of iron ore supplier would translate in higher prices for the metal in the long term as the bigger producers would have more bargaining power,” said Francisco Schumacher, an analyst at Raymond James & Associates.

Gol Linhas Aereas Inteligentes SA, Brazil’s second-largest carrier, tumbled 5.3 percent to 7.54 reais after Citigroup reduced its estimate for the ADRs by 9.5 percent on concern that leisure travel will slow. Tam SA, the biggest carrier, slid 4.9 percent to 14.50 reais. Citigroup cut its estimate for Tam ADRs by 27 percent to $24, citing hedging and foreign exchange losses.

The BM&FBovespa MidLarge Cap index added 1.9 percent, while the BM&FBovespa Small Cap index added 0.1 percent.

Bolsa drops

Mexico’s Bolsa index fell for the first time in three days, as auto parts maker Alfa SAB dropped the most in three weeks on speculation General Motors Corp. may need government help to avoid bankruptcy liquidation.

Alfa, the world’s biggest maker of aluminum engine heads and blocks, declined 7.8 percent to 24.45 pesos. General Motors may need to cut costs and debt in addition to getting a government- backed bankruptcy plan to remain viable, Merrill Lynch & Co and JPMorgan Chase & Co. analysts said. Alfa gets about 30 percent of revenue from auto parts revenue, including sales to GM.

Argentina’s Merval rose 0.5 percent, Colombia’s IGBC gained 0.8 percent and Peru’s Lima General dropped 2.7 percent.

To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net; Fabio Alves in New York at falves3@bloomberg.net.

Read more...

U.S. Stocks Gain After Fed Announces $800 Billion Lending Plan

By Elizabeth Stanton

Nov. 25 (Bloomberg) -- U.S. stocks climbed and the Standard & Poor’s 500 Index posted its first three-day advance since September after the Federal Reserve committed as much as $800 billion to help resuscitate lending.

D.R. Horton Inc. rallied 38 percent to lead homebuilders in the S&P 500 to a 20 percent gain as the Fed announced the new funding. SLM Corp., the student lender known as Sallie Mae, and CIT Group Inc., the commercial-finance company, jumped more than 20 percent. Cisco Systems Inc. and Hewlett-Packard Co. led a decline in technology companies, limiting the market’s advance, on concern the recession is hurting demand.

The S&P 500 added 0.7 percent to 857.39, extending its rebound from an 11-year low on Nov. 20 to 14 percent. The Dow Jones Industrial Average increased 36.08 points, or 0.4 percent, to 8,479.47. The Nasdaq Composite Index slipped 0.5 percent to 1,464.73. Almost two stocks rose for each that fell on the New York Stock Exchange.

“This is a more direct effort, as opposed to shoring up the balance sheets of key banks,” Erick Maronak, the New York- based chief investment officer at Victory Capital Management, which oversees $61 billion, said of the Fed’s lending program. “Hopefully that alone will restore confidence and get things moving again.”

The S&P 500 yesterday capped its biggest two-day gain since 1987 as confidence in the financial system was boosted by the government’s guarantee of troubled assets at Citigroup Inc. and President-elect Barack Obama announced his team of financial advisers. Obama’s picks included Fed Bank of New York chief Tim Geithner as Treasury secretary and former Harvard University President Lawrence Summers as White House economic director.

Drifting

The benchmark for U.S. equities drifted between gains and losses more than 20 times today as optimism about the Fed’s plan was tempered by declines in computer-related stocks.

SLM climbed $1.74 to $9.64 and CIT group added 49 cents to $2.87. D.R. Horton, the largest U.S. builder, jumped $1.90 to $6.90 even after the company reported its sixth straight quarterly loss and cut its dividend to conserve cash.

Fannie Mae and Freddie Mac, the largest U.S. mortgage- finance companies which were placed under government conservatorship in September, rallied 38 percent and 18 percent respectively.

Lincoln National Corp. and Hartford Financial Services Group Inc., insurers whose shares were pummeled by losses on investments, rose 44 percent and 13 percent respectively.

$800 Billion

The Fed will purchase as much as $600 billion of debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the central bank said in statements today in Washington.

The Fed’s debt-purchase program is the latest in a series of federal government initiatives over the past year aimed at blunting the economic harm from the collapse of the U.S. subprime mortgage market.

Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co., among the 10 biggest diversified financial companies, advanced more than 6.4 percent each as they prepared to sell debt backed by the Federal Deposit Insurance Corp. under a program finalized last week. Goldman sold $5 billion of government-backed notes today.

E*Trade, Citigroup

E*Trade Financial Corp. rose 50 percent to $1.32 for the biggest gain in the S&P 500. The fourth-biggest online brokerage by client assets said it’s “optimistic” it will get approval to receive funds from the government’s Troubled Asset Relief Program.

Citigroup, the New York-based bank that got $306 billion of loan guarantees from the government over the weekend, added 13 cents to $6.08. Chief Financial Officer Gary Crittenden said in a Bloomberg Television interview that there is “no need for us to sell assets at this point, although we’ll continue to work away on non-strategic assets.”

The S&P 500 Financials Index climbed 2.5 percent, adding to yesterday’s record gain of 19 percent. The group of banks, investment firms and insurers has rallied 26 percent since Nov. 20, trimming its 2008 decline to 60 percent.

Hewlett-Packard fell $2.10, or 5.9 percent, to $33.60 for the biggest drop in the Dow average even after the world’s biggest personal-computer maker yesterday reported a 10 percent increase in PC sales last quarter, beating some estimates. The economic slowdown may limit Hewlett-Packard’s ability to boost margins and could put its 2009 revenue forecast at risk, Maynard Um, an analyst at UBS AG in New York, said today in a note.

Tech Slump

Cisco, the biggest maker of networking equipment, slumped 6 percent to $15.42. The company plans to shutter its North American offices for five days for the first time in more than a decade as it seeks to shave $1 billion in costs.

Analog Devices Inc. fell 6.7 percent to $16.95. The maker of semiconductors for companies including Cisco posted earnings that trailed estimates and forecast a drop in revenue in the first quarter from the previous quarter as it cuts production to match slower demand.

Semiconductor-related companies in the S&P 500 lost 3.1 percent collectively for the biggest tumble among 24 industries after Citigroup cut earnings estimates for Advanced Micro Devices Inc., Qualcomm Inc., Texas Instruments Inc. and Nvidia Corp., citing a “bad” October.

Research In Motion Ltd., maker of the BlackBerry mobile e- mail device, fell 8.3 percent to $41.50. Keith Bachman, an analyst at BMO Capital Markets in New York, said shipments of the company’s new Storm device are delayed.

Economy Watch

Stocks rose at the open as the Fed’s plan overshadowed a Commerce Department report showing the U.S. economy shrank in the third quarter faster than previously estimated as consumer spending plunged by the most in almost three decades. Gross domestic product contracted at a 0.5 percent annual pace from July through September, the most since the 2001 recession, according to revised figures released today. The government’s advance estimate issued last month showed a 0.3 percent decline.

“Earnings forecasts of companies are being revised significantly downward, especially in the last week to 10 days,” said Komal Sri-Kumar, chief global strategist at TCW Group Inc. in Los Angeles, which manages $120 billion. “That’s having a depressing effect on prices even as optimism about stimulus and the incoming administration and the likelihood of a more consistent set of economic measures is helping the stock market.”

Housing Slump

An industry report showed house prices in 20 U.S. cities declined in the year ended in September at the fastest pace on record because of rising foreclosures. The S&P/Case-Shiller home-price index dropped 17.4 percent in September from a year earlier, more than forecast, after a 16.6 percent decline in August. The gauge has fallen every month since January 2007. Year-over-year records began in 2001.

CB Richard Ellis Group Inc. lost 11 percent to $4.49. The world’s largest commercial real estate broker said office rents in London’s West End, midtown Manhattan and Tokyo fell in the third quarter for the first time in almost seven years as the global financial crisis cut demand.

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

Read more...

J.Crew, Rambus, Thomas & Betts, Verigy: U.S. Equity Preview

By Lu Wang

Nov. 25 (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 2.40, or 0.3 percent, to 849.70. Dow Jones Industrial Average futures slipped 27, or 0.3 percent, to 8,418. Nasdaq-100 Index futures slipped 1.75, or 0.2 percent, to 1,133.75.

J.Crew Group Inc. (JCG US) fell $1.25, or 11 percent, to $9.80 in trading after the official close of exchanges. The U.S. clothing retailer run by former Gap Inc. Chief Executive Officer Millard Drexler lowered its annual earnings forecast for the third time this year.

Rambus Inc. (RMBS US) rose 35 cents, or 5 percent, to $7.30. The designer and licensor of memory chips won a pre-trial ruling that other chipmakers infringed one claim, or element, of a patent in a case scheduled for trial in January.

Thomas & Betts Corp. (TNB US) dropped $1.40, or 7.8 percent, to $17.89. The second-largest maker of electronic connectors in North America reduced its forecast, saying it expects fourth-quarter profit from continuing operations to be close to 84 cents a share. Analysts had forecast the company would earn $1.06 on average, according to a Bloomberg survey.

TiVo Inc. (TIVO US): The pioneer of digital video recorders said that, excluding some items, it had a loss of 1 cent a share in the third quarter. Analysts, on average, expected the company to report a loss of 6 cents, according to a Bloomberg survey. The stock fell 4.7 percent to $4.43 in regular trading.

Verigy Ltd. (VRGY US): The maker of semiconductor-testing equipment forecast revenue of as much as $110 million in the first quarter. That trailed the average estimate of $119 million in a Bloomberg survey of analysts. The stock fell 12.5 percent to $8.40.

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

Read more...