South Korea’s Economy to Grow at Slowest in 11 Years

By William Sim

Dec. 12 (Bloomberg) -- South Korea’s economy will expand at the slowest pace in 11 years in 2009 as the deepening global recession cools demand at home and abroad, the central bank said.

The economy will grow 2 percent next year from an estimated 3.7 percent this year, the Bank of Korea said in its 2009 outlook in Seoul today. Exports of goods will rise 1.3 percent, slowing from an estimated 3.6 percent gain in 2008, it forecast.

“It seems difficult for our economy to recover its growth momentum in a short period of time,” the central bank said. “Domestic demand is weakening further and exports are expected to slow sharply because of the global economic downturn.”

Governor Lee Seong Tae and his board yesterday cut the benchmark interest rate by 100 basis points to a record low of 3 percent to keep the nation from entering the first recession since 1998. The possibility is “always open” for more rate cuts, Lee said, adding the economy may see “very low growth for a significant period of time.”

Korea is expected to expand 0.9 percent in the first half of next year and 1.3 percent in the second half, the central bank said. Growth will pick up to 4 percent in 2010 as the global economy recovers, it said.

“Policy makers need more action to spur growth and stabilize financial markets against the global economic and financial crisis,” said Kwon Young Sun, an economist at Nomura International Ltd. in Hong Kong, who expects the key interest rate to be cut to 2 percent by the first quarter of next year.

Spending Slump

Consumer spending is expected to rise 0.8 percent next year from an estimated 1.5 percent gain this year, and the jobless rate will rise to 3.4 percent from 3.1 percent in 2008, today’s report showed.

Consumer-price inflation will ease to 3 percent in 2009, from 4.7 percent estimated for this year, the central bank said. Inflation excluding fresh food and oil will moderate to 3.5 percent next year from 4.2 percent estimated this year.

The nation’s estimated $4.5 billion current-account deficit will probably turn to a surplus of about $22 billion next year, the central bank said.

Asian nations are being battered by faltering demand for their products amid recessions in the U.S., Japan and Europe and weakening growth in China. South Korea’s exports fell the most in almost seven years in November as shipments to China, its biggest overseas market, plunged 27.8 percent.

The World Bank said this week East Asia’s economies face “hard times,” and lowered its 2009 growth forecast for the region to 5.3 percent from the previously estimated 7.4 percent in April. International trade will shrink next year for the first time in more than 25 years, it said.

South Korea is also pumping funds into banks, cutting taxes and boosting public spending to limit the fallout from the global credit crisis, which sent the Korean won down more than 30 percent and the stock index tumbling 39 percent this year.

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

Read more...

South Korea’s Lee Looks to Expand Currency Swaps

By Seyoon Kim

Dec. 12 (Bloomberg) -- South Korean President Lee Myung Bak is turning to his richer neighbors to help stem this year’s 31 percent decline in the won, Asia’s worst-performing currency.

Japan’s Prime Minister Taro Aso and China’s Premier Wen Jiabao will meet Lee in Fukuoka, Japan, tomorrow to discuss the global financial crisis. Lee is keen to expand currency swap agreements with the world’s biggest holders of foreign reserves to secure funds as the won’s plunge and a credit freeze make it harder for Korean companies to finance overseas debt.

South Korea wants to increase the dollar funds available to it to prevent a repeat of the currency crisis of 1997 that caused a run on the won and required a bailout from the International Monetary Fund to avoid a default on its debt. The Bank of Korea is scheduled to make an announcement on expanding its swap deals with China and Japan today.

“Korea has really experienced what it can be like when it runs out of reserves and how bad the downside can be for the economy,” said Robert Subbaraman, chief economist at Nomura International Ltd. in Hong Kong. “Korea has been quite proactive in trying to secure greater cooperation in the region.”

South Korea’s Kospi stock index has risen 19 percent since a $30 billion swap line was agreed with the U.S. Federal Reserve on Oct. 30, suggesting that the arrangement reassured investors that South Korea would be able to service its debt. Before then the index had lost almost half its value. The won has gained almost 5 percent versus the dollar since the pact.

Swap Agreement

Lee’s efforts may be paying off.

Japan may more than double its swap agreement with South Korea to $30 billion from $13 billion, Nikkei English News reported yesterday.

“Discussions are still under way including the amount and the timing of the announcement” with Japan, Choi Jong Ku, director general of the finance ministry’s international finance bureau, said yesterday. “We’re also in negotiations with China but nothing has been finalized.”

South Korea has a currency-swap agreement of $4 billion with China.

South Korea’s foreign-exchange reserves fell for eighth consecutive month to the lowest level in almost four years in November. Fitch Ratings last month cut its outlook for the nation’s credit rating to negative from stable, signaling that shrinking reserves may pose a threat to the economy’s stability.

Smaller Impact

“If sealed, the swap agreement with Japan and China may also provide a boost to the markets,” said Lim Jiwon, an economist at JPMorgan Chase & Co. in Seoul. Still, “because there have been reports Korea is looking to increase the swap line with Japan and China, the impact may be smaller than the Fed’s.”

Separately, the central banks of China, South Korea and Japan this week announced an agreement to meet in 2009, starting regular consultations to ensure currency stability in Asia.

Finance ministers from 13 Asian nations, including South Korea, Japan and China, agreed in May to create a pool of at least $80 billion in foreign-exchange reserves to be tapped to protect their currencies.

“This cooperation is kind of a regional self-rescue,” said Ding Zhijie, deputy dean of finance at Beijing’s University of International Business and Economics.

Leaders of the three nations meeting in Japan may also discuss pushing forward six-party talks on North Korea’s nuclear issues, Kazuo Kodama, spokesman for Japan’s Foreign Ministry, told reporters this week.

To contact the reporter on this story: Seyoon Kim in Seoul at Skim7@bloomberg.net

Read more...

PetroChina, Cnooc Downgraded at Goldman Sachs on Lower Oil

By Chua Kong Ho

Dec. 12 (Bloomberg) -- PetroChina Co. and Cnooc Ltd. had their stock ratings downgraded by Goldman Sachs Group Inc., which cited reduced profit forecasts due to a lower oil price.

PetroChina, the nation’s largest oil company, was cut to “sell” from “neutral,” according to a note today. Goldman Sachs cut its share-price estimate for PetroChina’s Hong Kong- traded shares by 45 percent to HK$4.10, and by 5.6 percent to 5.85 yuan for its Shanghai-traded stock.

Cnooc was lowered to “neutral” from “buy” and its share- price estimate cut 34 percent to HK$5.90.

To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net

Read more...

EU Nears Climate Accord With Concessions to Industry

By Jonathan Stearns

Dec. 12 (Bloomberg) -- European Union leaders inched toward a breakthrough on legislation to fight climate change by easing the costs for energy and manufacturing companies at the insistence of Poland and Germany.

French President Nicolas Sarkozy, holder of the EU’s rotating presidency, proposed delaying plans to end after 2012 the free allocation of allowances on which carbon-dioxide emission quotas are based. The aim is to help eastern European electricity producers that rely on coal as well as to aid steel, paper and other industries across the 27-nation bloc that face an economic slump.

With the main plan to reduce the CO2 quotas uncontested, Sarkozy proposed giving eastern European utilities until 2020 to prepare for the end of free permit grants and said energy- intensive manufacturers should face 70 percent auctioning that year. The European Commission, the EU’s regulatory arm, had proposed full auctioning for all power producers as of 2013 and for manufacturers starting in 2020.

“We’re making progress,” Sarkozy told reporters late yesterday after the first round of negotiations at a two-day summit in Brussels. Polish Prime Minister Donald Tusk said his country’s views had been “taken into account on almost every aspect.”

An accord would put the finishing touches on draft legislation that underpins the EU’s goal to cut greenhouse gases including CO2 by a fifth in 2020 compared with 1990. The compromises put forward by Sarkozy seek to balance worries about job losses and a desire to persuade the U.S. and China, the world’s biggest emitters, to sign on to a climate-change treaty that would succeed the Kyoto Protocol after it expires in 2012.

CO2 Permits

The new EU rules center on the European emissions-trading system, the world’s biggest greenhouse-gas market, which requires companies that exceed their CO2 quotas to buy permits from businesses that emit less. The new EU law would reduce the annual quotas for electricity, steel, paper and other industries now in the trading system by 11 percent on average in 2013-2020 compared with 2008-2012.

In that context, the political tussle is over the extent to which the EU should add to the costs for industry of reducing CO2 emissions by using government auctions to allocate the allowances that make up the shrinking quotas. Most allowances are now granted for free to fill the quotas.

Under Sarkozy’s proposals made at the start of the summit, allowance auctions for existing eastern European utilities would start at 30 percent in 2013 and rise to 100 percent in 2020. All other EU power producers would face full auctioning as of 2013, as proposed by the commission.

In seeking to replace the goal of 100 percent auctioning for manufacturers beginning in 2020 with a 70 percent requirement that year, Sarkozy endorsed the 20 percent auction rate for them in 2013 that the commission proposed.

He also pushed to increase the share of EU emission allowances that will be redistributed mainly to the poorer eastern European nations to compensate for the scaling back of auction plans for manufacturers. The redistribution level for permits slated for auction would be 12 percent instead of 10 percent.

U.K. opposition to the original 10 percent level may complicate Sarkozy’s proposal for an increase.

Asked whether the summit would run into the weekend, Sarkozy said: “No weekend here, at least not this weekend.”

To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net

Read more...

PetroChina, Cnooc Downgraded by Goldman on Oil Drop

By Chua Kong Ho and Winnie Zhu

Dec. 12 (Bloomberg) -- PetroChina Co. and Cnooc Ltd. had their stock ratings downgraded by Goldman Sachs Group Inc., which cited lower profit estimates because of a decline in oil prices. The shares fell in Hong Kong.

PetroChina, the nation’s largest oil company, was cut to “sell” from “neutral,” according to a note today. Goldman Sachs cut its share-price estimate for PetroChina’s Hong Kong- traded shares by 45 percent to HK$4.10, and by 5.6 percent to 5.85 yuan for its Shanghai-traded stock. Cnooc was lowered to “neutral” from “buy” and its share-price estimate cut 34 percent to HK$5.90.

Crude oil has slumped more than 60 percent from the July record of $147.27 a barrel in New York as the global economic recession cuts demand for fuels.

“The oil industry’s profitability in 2009 is likely to re- test 1998 lows when oil prices fell below cash costs for non- OPEC producers and refining margins fell below refiners’ variable costs,” Goldman analysts, led by Kelvin Koh, said in a research report.

PetroChina shares declined 3.2 percent to HK$7.03 at 10:21 a.m. in Hong Kong, snapping five days of gains. Cnooc fell 2 percent to HK$7.53. The benchmark Hang Seng Index dropped 1.5 percent.

To contact the reporters responsible for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Winnie Zhu in Shanghai at wzhu4@bloomberg.net

Read more...

It’s Aso Versus Bush in the Big Debt Sweepstakes: William Pesek

Commentary by William Pesek

Dec. 12 (Bloomberg) -- It’s not a legacy any Japanese or American leader wants: that of debtor in chief.

Japanese Prime Minister Taro Aso is currently well ahead of U.S. President George W. Bush. Japan’s federal budget deficit is 5.2 percent of gross domestic product, while the U.S.’s is 3.6 percent. When viewed in terms of population -- 127 million Japanese to 309 million Americans -- Japan’s trajectory looks even worse.

What about all that off-balance-sheet U.S. debt? The Iraq and Afghanistan wars are one thing. All the borrowing the U.S. will do to avoid a repeat of the Great Depression and bail out key industries is quite another. It’s conceivable that the U.S. will knock Japan from its biggest-debtor perch.

Welcome to the Aso-versus-Bush Big Debt Sweepstakes, a contest neither leader would want to win. Throughout the world, debt managers are gearing up for a historic increase in borrowing. The stakes are high and sweeping in their implications.

Aso has been premier only since September. Yet he has been a Liberal Democratic Party bigwig for two decades and it will be on his watch that plans are scrapped to balance the budget by 2011. While the real U.S. debt explosion may be on President-elect Barack Obama’s watch, the process began under Bush.

The Organization for Economic Cooperation and Development estimates Japan’s debt stands at more than 1.7 times GDP, the highest ratio among its 30 member countries.

Ugly Trends

U.S. trends also are decidedly ugly. As James Grant, editor of Grant’s Interest Rate Observer in New York, noted on Nov. 28, total U.S. credit-market debt stood at $51 trillion at the end of the second quarter. That makes the ratio of debt to GDP 357 percent. In 1929, debt was 185 percent of GDP.

Other astute debt watchers, such as Paul Kasriel of Northern Trust Corp. in Chicago, are aghast at where the U.S. finds itself. Case in point: A trial balloon floated in the Wall Street Journal this week regarding the Federal Reserve issuing its own debt.

“This is akin to a counterfeiter issuing her own debt,” Kasriel wrote in a Dec. 10 report. “There could never be a default. All the counterfeiter would have to do is print up some new currency to pay the interest on or redeem her debt.”

Markets also are buzzing about the possible arrival of “Obama bonds,” inspired by a program tried during Jimmy Carter’s presidency in the late 1970s. The idea is to sell debt in foreign currencies to halt a precipitous drop in the dollar.

‘Gobs of Money’

“The government is going to be spending gobs of money,” says Peter Fisher, New York-based co-head of fixed income at BlackRock Inc.

As a former U.S. Treasury official in charge of debt issuance, Fisher knows intimately how the process of funding all that spending works. He recently suggested that the U.S. should consider issuing 100-year bonds, given the likely magnitude of its future debt load.

Japanese officials also know lots about selling debt. The U.S., as it’s often pointed out, is looking like Japan in the 1990s. Just like the Bank of Japan’s key interest rate, the Fed’s benchmark looks to be headed to zero. A massive borrowing binge is taking place to stabilize growth.

All this brings to mind James Carville’s 1992 observation. The White House adviser said he wanted to be reincarnated as the bond market so he could come back and scare everyone. These days, it’s the stock market keeping everyone up at night. That will change as credit-rating companies begin warning to downgrade the U.S. and Japan.

‘Not Unreasonable’

It’s quite disorienting for old-school bond aficionados to see yields on two-year U.S. notes fall from this year’s high of 3.11 percent in June to 0.86 percent. That’s “not unreasonable,” JPMorgan Chase & Co. analysts Terry Belton and Srini Ramaswamy in New York said in a Nov. 28 report. Yields in Japan were between 0.1 percent and 0.8 percent for three months after the BOJ began its zero-rate policy in 1999.

In recent years, when economists such as Stephen Roach at Morgan Stanley said the U.S. was becoming Japan-like, detractors pointed to the health of American banks relative to Japan’s. We now know U.S. lenders were anything but sound, thanks to lax risk management.

As U.S. officials study Japanese market history, debt is perhaps the most cautionary of tales. Japan’s reliance on debt- financed public spending to jolt the economy in the 1990s seemed logical. Officials never had an exit strategy, and Japan is still reliant on borrowing.

“While government intervention is necessary, it should be temporary and reversible,” Mohamed El-Erian, co-chief executive officer of Newport Beach, California-based Pacific Investment Management Co., said on Dec. 9. “There has to be clarity on Day 1 as to what are the exit mechanisms.”

With Japan and the U.S. in deepening recessions, expect the two biggest economies to issue debt as rarely seen before. It’s up for grabs which will be the chief debtor five years from now.

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

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

Read more...

Taiwan PVC Makers May Raise Jan. Prices on Construction Demand

By Yu-huay Sun

Dec. 12 (Bloomberg) -- Formosa Plastics Corp. is among Taiwanese makers of polyvinyl chloride that may raise prices for the plastic material by as much as 7 percent next month on expectations of higher demand from construction companies.

Suppliers are offering PVC to be delivered to China in January at $630 to $640 a metric ton, an increase of $30 to $40 from previous quotes, said David Liu, a spokesman for Taipei- based China General Plastics Corp., Taiwan’s second-biggest maker of the material.

Asian PVC prices have fallen more than 50 percent since July as a global recession cut demand from toymakers and construction companies. About 60 percent of PVC goes into items such as pipes, flooring and window frames. Taiwan and China have announced economic stimulus packages that include public works, potentially reviving building projects.

“Prices are set to rebound after falling deeply,” said Jerry Lin, a Formosa Plastics spokesman. The company “will probably” raise domestic prices in January, he said.

Demand for PVC has improved “slightly,” Lin said in a telephone interview in Taipei yesterday. Taiwan’s biggest maker of the oil-derived plastic has reduced prices for four consecutive months for domestic customers.

Taiwan’s construction industry increased production by 4.85 percent from a year earlier in October, the first gain in six months, an economic ministry report showed Nov. 24.

Water Pipes

“We expect demand to increase,” China General Plastics’s Liu said by telephone yesterday. “The government stimulus packages include public works, which will mean demand to make casings for electricity cables and water pipes” that require PVC, he said.

China, Taiwan’s biggest export market, announced a 4 trillion yuan ($584 billion) stimulus package in November and loosened monetary policy after the economy grew at the slowest pace in five years in the third quarter.

Taiwan’s Cabinet approved two bills last month allowing NT$483 billion ($14.4 billion) of spending to stimulate growth after the economy shrank in the third quarter.

The plans cover NT$400 billion of spending on infrastructure and an NT$82.9 billion giveaway of shopping vouchers.

To contact the reporter on the story: Yu-huay Sun in Taipei ysun7@bloomberg.net

Read more...

Australian Dollar Rises to 1-Month High, Heads for Weekly Gain

By Candice Zachariahs

Dec. 12 (Bloomberg) -- The Australian dollar touched a one- month high against the U.S. currency as Asian stocks gained this week by the most since 1990. New Zealand’s dollar also rose.

Australia’s currency headed for a weekly advance after reports showed consumer confidence increased for a second month and home loan approvals climbed in October for the first time in nine months. Gains in the South Pacific nations’ currencies may be limited on concern the U.S. Senate won’t pass a $14 billion auto industry bailout and before China reports retail sales today.

The Australian dollar’s “advance has a lot to do with improvements in risk appetite,” said Besa Deda, acting chief economist and strategist at St. George Bank Ltd. in Sydney. “I favor a weaker Aussie from here, particularly with Chinese data starting to worry policy makers and investors,” she said, referring to the currency by its nickname.

Australia’s currency touched 68.01 U.S. cents, the highest since Nov. 11, before trading at 67.18 cents as of 8:25 a.m. in Sydney, from 66.38 cents late in Asia yesterday. It has risen 3.9 percent since closing at 64.67 cents in New York late last week. The currency advanced 2.6 percent to 61.58 yen from 60.02 yen in New York on Dec. 5.

New Zealand’s dollar gained 3.4 percent to 55.14 U.S. cents from 53.32 in New York last week. It bought rose 2.1 percent to 50.55 yen.

The Australian and New Zealand dollars rose as the greenback plunged against all major currencies after the cost of borrowing in dollars dropped, indicating weaker demand for year-end funding. The cost of borrowing in dollars for three months in London fell to the lowest level since September 2004, British Bankers’ Association data showed yesterday.

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

Read more...

Dollar Heads for Biggest Weekly Decline in 8 Years on Auto Bill

By Stanley White

Dec. 12 (Bloomberg) -- The dollar headed for its biggest weekly decline in eight years against the euro on speculation U.S. lawmakers will delay voting on legislation to lend the country’s automakers enough money to survive into the new year.

The greenback was also set for its sixth weekly decline versus the yen, the longest streak in four years, as Democrats and Republicans opposed to the $14 billion bailout made an alternative proposal, casting doubt on whether the current bill will pass the Senate. The euro rose against the yen this week after European Central Bank council member Axel Weber signaled the bank may be near the end of its rate-cutting cycle.

“There are no incentives to buy the dollar,” said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co. in Tokyo, a unit of Japan’s largest brokerage. “U.S. politicians can’t even agree on stopgap measures for the auto industry.”

The dollar traded at $1.3317 per euro as of 9:28 a.m. in Tokyo from $1.3352 late yesterday in New York, when it reached a seven-week low of $1.3405. It fell 4.5 percent this week. The dollar bought 91.46 yen, little changed from late yesterday and down 1.5 percent from Dec. 5. Against the British pound, the dollar traded at $1.5011 from $1.5036 yesterday and $1.4685 at the end of last week. The euro was quoted at 121.76 yen, on course for a 3.4 percent gain this week. The dollar may fall to $1.38 per euro and 88 yen this month, Amikura said.

Dollar Index

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, fell 1.9 percent yesterday to 83.834. It touched 88.463 on Nov. 21, the highest since April 2006.

The dollar gained 9.6 percent against the euro in 2008 as the credit-market seizure and $980 billion of losses on mortgage- related securities worldwide led investors to seek funding in the greenback.

Goldman Sachs Group Inc. lowered its forecast for the dollar against the euro and the yen for 2009, saying the repatriation of overseas assets by U.S. investors and demand for the greenback for funding are “diminishing.”

The U.S. currency will weaken to $1.45 per euro and 90 yen, strategists led by Jens Nordvig in New York wrote in a research note yesterday. The firm previously forecast that the dollar would trade at $1.30 and 105 yen by the end of next year.

Automakers

General Motors Corp. and Chrysler LLC are racing against the clock as they need federal aid to keep from running out of cash early next year. Pressure is mounting on GM as a small number of partsmakers ask for payments in advance, people familiar with the matter said.

The Republican’s alternative proposal, offered by Senator Bob Corker, would require automakers’ bondholders to take 30 cents on the dollar and would set wages similar to those paid by foreign companies such as Volkswagen AG.

Some Senate Republicans threatened to block the House Democrats’ plan and a revised Senate version because there’s not enough authority to force automakers to cut costs. The House passed the bill on Dec. 10.

“A package will eventually be put in place and this is unlikely to dampen the current corrective rebound of many currencies against the dollar,” analysts led by Hans-Guenter Redeker, the London-based global head of currency strategy at BNP Paribas SA, France’s biggest bank, wrote in a research note yesterday. “There remains scope for some further near-term gains for the euro against the dollar.”

The dollar may decline to $1.35 versus the euro and to $1.53 per British pound in coming days, BNP forecast.

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

Read more...

Korean Won Set for Best Weekly Gain Since October on Rate Cut

By Kim Kyoungwha

Dec. 12 (Bloomberg) -- South Korea’s won was poised for the biggest weekly gain since the end of October on speculation record interest-rate cuts and an economic stimulus package will support demand for the nation’s assets.

The currency appreciated so far in December, following a four-month loss, as officials strive to keep the economy from entering a recession for the first time since 1998. Leaders from Korea, China and Japan will meet tomorrow in Fukuoka, Japan, to discuss possible currency swaps to help boost the supply of dollars and make it easier for banks and companies to get funding.

“The gloomy economic prospect has partly been priced in,” said Roh Sang Chil, a currency dealer with Kookmin Bank, South Korea’s biggest lender in Seoul. “The extreme fear and panic that there will be no floor in the won is subsiding.”

The won rose 8.2 percent this week to 1,363.55 per dollar as of 9:53 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. It fell 0.3 percent today and has weakened 32 percent this year, the biggest loser among the 10 most-traded regional currencies outside Japan.

Korea’s economy will expand at the slowest pace in 11 years in 2009 as the deepening global recession cools demand at home and abroad, the central bank said today.

The economy will grow 2 percent from an estimated 3.7 percent this year, the Bank of Korea said in its 2009 outlook in Seoul. Exports of goods will rise 1.3 percent, slowing from an estimated 3.6 percent gain in 2008, it forecast.

Governor Lee Seong Tae and his board yesterday cut the benchmark interest rate by 100 basis points to a record low of 3 percent. The government announced an $11 billion stimulus package to shore up demand and signed a $30 billion swap deal with the Federal Reserve in the past two months.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net.

Read more...

Australia Stocks: Qantas, Santos, Suncorp, Woodside Petroleum

By Ian C. Sayson and Malcolm Scott

Dec. 12 (Bloomberg) -- The S&P/ASX 200 Index fell 54.30 points, or 1.5 percent, to 3,543.70 as of 10:23 a.m. in Sydney, heading for its biggest loss since Dec. 2. The broader All Ordinaries Index declined 50.90, or 1.4 percent, to 3,483.30 while the futures contract due in December fell 1.2 percent to 3,544.

The following companies had unusual price changes in Australia trading. Stock symbols are in parentheses.

Oil companies: Woodside Petroleum Ltd. (WPL AU), the nation’s second-biggest oil producer, rose 93 cents, or 2.8 percent, to A$33.70, heading for an 11 percent gain this week after oil had its biggest one-day advance in five weeks. Santos Ltd. (STO AU), Australia’s third-biggest oil and gas producer, added 20 cents, or 1.4 percent, to A$15, heading for its highest close this month.

Crude oil jumped 10 percent, the biggest gain in five weeks, after the Saudi Arabian oil minister said he had delivered output cuts promised to OPEC, a sign world supplies are smaller than traders estimated.

Qantas Airways Ltd. (QAN AU), Australia’s biggest airline, fell 7 cents, or 3 percent, to A$2.28, set for its sharpest loss this week. The company was ordered to pay A$20 million ($13.2 million) in penalties for price fixing by the Federal Court in Sydney, according to the Australian Competition and Consumer Commission.

Suncorp-Metway Ltd. (SUN AU), Australia’s fifth-largest bank and third-largest insurer, fell 22 cents, or 2.9 percent, to A$7.47, set for its lowest close since Nov. 27. The company said it sold A$1.1 billion of bonds guaranteed by the Australian government.

To contact the reporter on this story: Ian C. Sayson in Manila at isayson@bloomberg.net; Malcolm Scott in Sydney at Mscott23@bloomberg.net.

Read more...

Crude Oil Falls as Demand Decline Outweighs OPEC Output Cuts

By Christian Schmollinger

Dec. 12 (Bloomberg) -- Crude oil fell in New York on speculation that declining fuel demand because of the global economic recession will outweigh cutbacks in output by OPEC.

Crude pared yesterday’s 10 percent gain, which came after Saudi Arabian Oil Minister Ali Al-Naimi said the kingdom had delivered the reductions promised to the producer group. Initial jobless claims in the U.S., the world’s biggest energy consumer, surged more than forecast last week to a 26-year high.

“If you look at the overall big picture, the demand collapse is still the overriding issue,” said Tony Nunan, an assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “What producers can do is break the momentum of the fall but getting this thing back up is going to be tough.”

Crude oil for January delivery fell as much as $1.24, or 2.6 percent, to $46.74 a barrel in electronic trading on the New York Mercantile Exchange. It was at $46.92 a barrel at 9:28 a.m. Singapore time. Oil has jumped 15 percent this week, the biggest weekly gain since January 2000.

Yesterday, futures rose $4.46 to $47.98 a barrel, the highest settlement since Dec. 1. It was the largest gain since Nov. 4.

The Paris-based IEA, an adviser to 28 nations, said global oil demand will contract this year for the first time since 1983 and reduced its outlook for 2009.

Consumption worldwide will shrink 200,000 barrels a day, or 0.2 percent, in 2008, the IEA said in a monthly report yesterday. Next year’s growth may be wiped out if the economic slump deepens, the agency said.

OPEC Meeting

Saudi Arabia’s oil production was “absolutely” in line with its Organization of Petroleum Exporting Countries’ quota, al-Naimi said yesterday in an interview in Poznan, Poland, where he was attending climate-protection talks. He declined to comment further on OPEC policy.

Al-Naimi said the kingdom pumped 8.493 million barrels of oil a day in November, close to its OPEC production quota of 8.477 million barrels a day. That’s 287,000 barrels a day less than estimated by the International Energy Agency.

OPEC is set to meet on Dec. 17 in Algeria to discuss further cuts in production. The group agreed to slash output by 1.5 million barrels a day on Oct. 24.

Brent crude oil for January settlement gained $4.99, or 12 percent, to settle at $47.39 a barrel yesterday on London’s ICE Futures Europe exchange, the biggest one-day gain since March 1998.

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

Read more...

Japan Stocks Drop 1st Time This Week on U.S. Car Rescue Concern

By Patrick Rial

Dec. 12 (Bloomberg) -- Japanstocks dropped for the first time this week on concern the global recession will deepen after Senate Republicans prevented passage of a U.S. auto bailout and the nation’s jobless claims soared to a 26-year high.

Toyota Motor Corp., which gets more than half its profit in North America, dropped 5.2 percent. Hino Motors Ltd. sank 7.9 percent after saying it will shutter its truck factory for longer than originally anticipated. Bridgestone Corp., the world’s largest tiremaker by sales, slumped 5.6 percent after oil prices surged the most in five weeks yesterday. The Nikkei 225 Stock Average gained 10 percent in the four days through yesterday after governments from the U.S. to China announced spending plans to stem the global recession.

The Nikkei 225 tumbled 227.55, or 2.6 percent, to 8,493.00 as of 10:35 a.m. in Tokyo. The broader Topix index retreated 13.09, or 1.5 percent, to 835.16, on course for a 6.4 percent weekly gain.

“The market has already taken into account stimulus measures, so now the focus is switching to things such as the jobless numbers,” Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd., which manages about $53 billion, said in an interview with Bloomberg Television.

The Nikkei has fallen 44 percent this year as Japan slipped into its first recession since 2001, exceeding the 39 percent slump in 1990 when the nation’s economic bubble burst.

Toyota slumped 5.2 percent to 2,910 yen. Honda Motor Co., Japan’s second-largest automaker, retreated 7.1 percent to 2,040 yen. Hino Motors, Toyota’s truck-making affiliate, tumbled 7.9 percent to 175 yen, after confirming an earlier report by the Nikkei newspaper it would close its Tokyo truck plant for an extra four days next month on falling demand.

Auto Bailout

A $14 billion automaker bailout plan for General Motors Corp. and Chrysler LLC lacks the votes to pass the Senate, as Republicans refused to endorse the package.

“This proposal isn’t nearly tough enough,” Senate Republican Leader Mitch McConnell, a Kentucky Republican, said on the Senate floor. “We simply cannot ask the American taxpayer to subsidize failure.”

Additionally, some of Chrysler’s auto-parts suppliers concerned about losing money in case of a bankruptcy have asked the company to pay up front for orders, according to two people familiar with the matter.

The number of Americans filing first-time claims for unemployment benefits surged to 573,000 last week, the highest level since November 1982.

Bridgestone fell 5.6 percent to 1,458 yen. Smaller rival Sumitomo Rubber Industries Ltd. dropped 3.4 percent to 817 yen. About 60 percent of the material used in tires is oil based, according to the Japan Automobile Tyre Manufacturers Association.

Crude oil for January delivery soared 10 percent to $47.98 a barrel in New York yesterday, the biggest gain since Nov. 4. Ali al-Naimi, the Saudi Arabian oil minister, said yesterday the kingdom cut its output in November in line with curbs agreed to by the Organization of Petroleum Exporting Countries. Previous data showed the country was producing in excess of its target.

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

Read more...

Asian Stocks Fall on Concern Over U.S. Auto Rescue; Honda Drops

By Chua Kong Ho and Patrick Rial

Dec. 12 (Bloomberg) -- Asian stocks fell, ending a five-day rally by the region’s benchmark index, after Senate Republicans blocked a plan to rescue U.S. automakers and the nation’s jobless claims soared to a 26-year high.

Honda Motor Co. and Hyundai Motor Co. dropped more than 4 percent on concern the largest U.S. auto manufacturers will go bankrupt, disrupting parts makers that also supply Asia. James Hardie Industries NV, the biggest seller of home siding in the U.S., slumped 8.1 percent. KB Financial Group Inc. tumbled 9.3 percent after South Korea’s central bank forecast the economy will expand at the slowest pace in 11 years in 2009.

The MSCI Asia Pacific Index fell 1.6 percent to 86.68 as of 9:18 a.m. in Tokyo, snapping a five-day, 11 percent climb. Nine of the 10 industry groups declined, with about five stocks retreating for each that advanced.

Japan’s Nikkei 225 Stock Average sank 3.4 percent to 8,423.63, ending its longest winning streak since May. Australia’s S&P/ASX 200 Index slid 1.8 percent. South Korea’s Kospi Index dropped 2.4 percent. The economy will grow 2 percent next year from an estimated 3.7 percent this year, the Bank of Korea said in its 2009 outlook in Seoul today.

Futures on the Standard & Poor’s 500 Index declined 2.6 percent today. The measure yesterday fell 2.9 percent, led by financial shares.

The MSCI Asia Pacific Index has fallen 44 percent this year, the worst annual performance in its two-decade history. The first simultaneous recession in the U.S., Europe and Japan since World War II has roiled equity markets globally.

Bailout Vote

A $14 billion automaker bailout plan for General Motors Corp. and Chrysler LLC lacks the votes to pass the Senate, as Republicans refused to endorse the package. General Motors has hired lawyers and bankers to provide advice on whether the company should file for bankruptcy, the Wall Street Journal reported on its Web site.

“This proposal isn’t nearly tough enough,” Senate Republican Leader Mitch McConnell of Kentucky said on the Senate floor. “We simply cannot ask the American taxpayer to subsidize failure.”

The number of Americans filing first-time claims for unemployment benefits surged to 573,000 last week, the highest level since November 1982.

To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.netPatrick Rial in Tokyo at prial@bloomberg.net

Read more...

Madoff Charged in $50 Billion Fraud at Advisory Firm

By David Glovin and David Scheer

Dec. 11 (Bloomberg) -- Bernard Madoff, founder and president of a New York firm that invested funds for wealthy individuals, hedge funds and other institutions, was charged with operating what he told employees was a long-running $50 billion Ponzi scheme in what may be one of the largest frauds in history.

Madoff, 70, head of Bernard L. Madoff Investment Securities LLC, was arrested today at 8:30 a.m. by the FBI and appeared before U.S. Magistrate Judge Douglas Eaton in Manhattan federal court. Charged in a criminal complaint with a single count of securities fraud, he was released on $10 million bond guaranteed by his wife and secured by his apartment. Madoff, wearing a white-striped shirt, dark-colored pants and no tie, looked down as he left the courtroom with his wife, declining to comment.

“It’s all just one big lie,” Madoff told his employees on Dec. 10, according to the government. The firm, Madoff allegedly said to them, is “basically, a giant Ponzi scheme.”

Madoff faces as much as 20 years in prison and a $5 million fine if convicted. His New York-based firm was the 23rd largest market maker on Nasdaq in October, handling a daily average of about 50 million shares a day, exchange data show. It specialized in handling orders from online brokers in some of the largest U.S. companies, including General Electric Co. and Citigroup Inc.

‘One of The Pioneers’

“He’s one of the pioneers of modern Wall Street,” said James Angel, an associate business professor at Georgetown University in Washington. Madoff’s firm was among the first to automate market-making, in which a dealer continually buys and sells stock. The company was among the largest to offer “payment for order flow,” or paying to handle customer orders.

“The exchanges didn’t like the practice and questioned whether customers got the best price,” Angel said.

Madoff was also sued today by the U.S. Securities and Exchange Commission.

“Bernard Madoff is a longstanding leader in the financial services industry,” said defense lawyer Dan Horwitz. “We will fight to get through this unfortunate set of events. He’s a person of integrity.”

Fix Asset Management in New York, which had at least $400 million with Madoff, said it was checking with its lawyers regarding its holdings.

“We are very shocked,” John Fix, the son of founder Charles Fix, said by telephone from Greece. “We put in redemptions in the past few months and got our money back no problem. We are just so surprised about all this.”

‘Accelerating Their Redemptions’

Thomas Ajamie, a securities lawyer in Houston who won a $429 million arbitration award against Paine Webber Group in 2001, speculated that Madoff “couldn’t keep the Ponzi scheme going because investors were accelerating their redemptions.”

New York-based Fairfield Greenwich Group runs the $7.3 billion Fairfield Sentry Ltd., a fund that invested in Madoff. Andrew Ludwig, a spokesman for Fairfield, declined to immediately comment.


The SEC in its complaint, also filed in Manhattan federal court, accused Madoff of a “multi-billion dollar Ponzi scheme that he perpetrated on advisory clients of his firm.”

The agency said it’s seeking emergency relief for investors, including an asset freeze and the appointment of a receiver for the firm. Ira Sorkin, another defense lawyer for Madoff, couldn’t be immediately reached for comment.

Advisory Business

Madoff ran his investment advisory business from a separate floor of his firm’s office, keeping financial statements “under lock and key,” prosecutors said. Early in December, he told one employee that clients wanted to redeem about $7 billion and that he was struggling to free up the funds, the government said. After he told another staff member Dec. 9 that he wanted to pay annual bonuses before the year’s end, two months early, a pair of senior employees asked to speak with him, prosecutors said.

They had noticed he had been suffering from a “great deal of stress” and wanted to know what was happening, the U.S. said. When one of them challenged his explanations, Madoff invited them to his Manhattan apartment, saying he “wasn’t sure he would be able to hold it together” if they continued talking at the office, the government said.

While meeting the pair at his home yesterday, Madoff conceded that he was “finished,” that his advisory business is “all just one big lie” and “basically, a giant Ponzi scheme,” the government said. The business had been insolvent for years with losses of about $50 billion, he told the employees, according to the criminal and SEC complaints.

Madoff said he had about $200 million to $300 million left and planned to distribute money to select employees, family and friends before surrendering to authorities in about a week, the government said.

Confessed to FBI

Madoff allegedly confessed to FBI agent Theodore Cacioppi on Dec. 11, saying there was “no innocent explanation,” the SEC said in its complaint. Madoff said it was his fault and he had “paid investors with money that wasn’t there.” He also said he was “insolvent” and he expected to go to jail, it said.

The Madoff firm had about $17.1 billion in assets under management as of Nov. 17, according to NASD records. At least 50 percent of its clients were hedge funds, and others included banks and wealthy individuals, according to the records.

Madoff started his firm in 1960 with $5,000 of savings and took advantage of securities-law changes in the 1970s designed to spur competition in U.S. stock markets, according to a profile posted on the Web site Finance Tech.

75 Percent Owner

Madoff, who owned more than 75 percent of his firm, and his brother Peter are the only two individuals listed on regulatory records as “direct owners and executive officers.”

Peter Madoff was a board member of the St. Louis brokerage firm A.G. Edwards Inc. from 2001 through last year, when it was sold to Wachovia Corp.

Bernard Madoff served as vice chairman of the National Association of Securities Dealers, a member of its board of governors, and chairman of its New York region, according to the SEC Web site. He was also a member of Nasdaq Stock Market’s board of governors and its executive committee and served as chairman of its trading committee.

He was chief of the Securities Industry Association’s trading committee in the 1990s and earlier this decade, where he represented brokerage firms in discussions with regulators about new stock-market rules as electronic-trading systems and networks gained prominence.

He was an early advocate for electronic trading, participating in roundtable discussions at the SEC as regulators weighed trading stocks in penny increments. His firm was among the first to make markets in New York Stock Exchange listed stocks outside of the Big Board, relying instead on Nasdaq.

‘Third Market Makers’

“These guys were one of the original, if not the original, third market makers,” said Joseph Saluzzi, the co-head of equity trading at Themis Trading LLC in Chatham, New Jersey. “They had a great business and they were good with their clients. They were around for a long time. He’s a well-respected guy in the industry.”

At 6:30 p.m., security guards at the front desk of the lipstick-shaped building on Third Avenue in midtown Manhattan housing Madoff’s office were turning people away. Ganesh Sewpershad, a messenger with Speeddox, said he had been trying to deliver mail for 20 minutes and was told to return tomorrow.

Madoff’s Web site advertises the “high ethical standards” of his firm.

“In an era of faceless organizations owned by other equally faceless organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: The owner’s name is on the door,” according to the Web site. “Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm’s hallmark.”

The case is U.S. v. Madoff, 08-MAG-02735, U.S. District Court for the Southern District of New York (Manhattan)

To contact the reporter on this story: David Glovin in U.S. District Court in New York at dglovin@bloomberg.net and; David Scheer in New York at dscheer@bloomberg.net.


Read more...

Canadian Stocks Fall, Led by Gildan, Lululemon, National Bank

By John Kipphoff

Dec. 11 (Bloomberg) -- Canadian stocks fell, led by consumer and finance companies, as apparel makers slid on signs the recession is hurting profit, and banks fell on speculation a deal to restructure asset-backed commercial paper is at risk.

Gildan Activewear Inc. and Lululemon Athletica Inc. had record drops after both the T-Shirt maker and the yoga-wear retailer forecast earnings that fell short of analysts’ estimates. National Bank of Canada, the Canadian lender with the biggest holding of insolvent commercial paper, fell to a six- year low. BCE Inc. slid after its takeover, the biggest buyout in history, was canceled.

“These issues are adding to uncertainty about prospects going forward,” said Rick Hutcheon, who manages about $140 million as chief investment officer at RKH Financial in Toronto. “ The market doesn’t like that.”

The Standard & Poor’s/TSX Composite Index dropped 242.10, or 2.8 percent, to 8,391.90 in Toronto. The benchmark for Canadian stocks, which gets three-quarters of its value from energy, mining and finance shares, has fallen 39 percent in 2008, poised for its worst year, after global credit losses approached $1 trillion and commodities slumped.

Gildan plunged 35 percent to C$11.60 for its steepest decline since trading began 1999. Profit for the 12 months through September 2009 will fall because of a “continuing negative outlook” for T-shirt demand, Gildan said. Industry shipments of T-shirts in the U.S. plunged about 20 percent last month from a year earlier, following a decline of 13 percent in October, Gildan said.

North America’s biggest T-shirt maker expects 2009 profit of $1.10 to $1.30 a share, excluding items. Analysts expected an average of $1.87, according to a Bloomberg survey.

Yoga-Wear

Lululemon Athletica Inc. fell 33 percent to C$8.80, the most in its 16 months of trading. The yoga-wear company that quadrupled profit last year cited the weaker economy and Canadian dollar as it cut its profit forecast.

BCE slid 4.3 percent to C$22.03. The phone company’s C$52 billion ($41 billion) leveraged buyout was abandoned by Ontario Teachers’ Pension Plan and a group of U.S. private-equity firms today after auditor KPMG said last month that the transaction would leave the carrier insolvent.

National Bank of Canada dropped 9.4 percent to C$29.81, the lowest since October 2002. A plan to swap C$32 billion in insolvent asset-backed commercial paper for new notes is in jeopardy as the restructuring committee of investors and financial companies is asking the federal government for as much as C$10 billion in backstops, the Globe and Mail reported, citing two unidentified people familiar with the situation.

Most at Stake

National Bank is the Canadian lender with the most at stake in the ABCP market. It held about C$2.2 billion of the frozen debt as of Oct. 31, the bank said on Dec. 4.

The insolvent asset-backed paper hasn’t traded since August 2007, when investors began to shun the debt because of concerns about links to high-risk U.S. mortgage loans. That month, a group led by Caisse de Depot et Placement du Quebec reached an agreement, called the Montreal Accord, to freeze the notes.

“ABCP won’t go away,” said Hutcheon. “People thought it was wrapped and done and now it’s not.”

The market extended losses in the afternoon as energy and mining shares fell even as oil, gold and copper gained, on concern that a $14 billion plan to bail out the U.S. auto industry, expected to support demand for fuel and industrial metals, lacks support in the Senate.

EnCana Corp. fell 7.4 percent to C$55.22. Canada’s largest natural-gas producer cut its 2009 capital budget, saying that declining energy prices reduced the profitability of some drilling projects.

ACE Aviation Holdings Inc. almost doubled, adding C$3.23 to C$6.58. The parent of Air Canada (AC/B CN), the country’s biggest airline, said that it will seek court and shareholder approvals to wind down the company and distribute assets, including cash and Air Canada shares, to shareholders.

Air Canada dropped a record 29 percent to C$1.28 on concern investors receiving its stock may dump it.

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

Read more...

Brazil Stocks Fall on Global Slowdown Concerns; Bolsa Declines

By Paulo Winterstein and James Attwood

Dec. 11 (Bloomberg) -- Brazilian stocks fell on concern that slackening demand for metals and a deepening global recession may lead to an earnings contraction next year.

Gerdau SA paced losses for steelmakers as analysts said markets in the U.S. and Brazil will weaken and the U.S. automaker bailout plan ran into snags. Perdigao SA dropped for the first time in five days as Credit Suisse Group downgraded the food producer on slower global demand. Brasil Telecom Participacoes SA led declines on the Bovespa index after Valor Economico reported that regulators may delay Telemar Norte Leste SA’s purchase of the company by preventing them from combining Internet services.

“With or without a recession in Latin America, growth is going to slow down a lot,” said Eduardo Roche, who helps manage the equivalent of about $600 million at Banco Modal SA in Rio de Janeiro. “These worries about external growth and the auto industry package are the focus of our market, because a slowdown in the U.S. will affect everybody.”

The Bovespa dropped in the last five minutes of trade, erasing a gain of as much as 2.2 percent. The index closed down 485.33 points, or 1.2 percent, to 38,519.07. Mexico’s Bolsa dropped 1.7 percent, while Chile’s Ipsa added 0.6 percent.

Gerdau, the steelmaker which gets 46 percent its revenue from its North American operations, fell 4.4 percent to 15.80 reais.

The Bush administration’s $14 billion automaker bailout plan and other alternatives lack the votes to pass the Senate, as lawmakers seek to beat a deadline to keep General Motors Corp. and Chrysler LLC from collapsing.

Gerdau’s profit next year and in 2010 will be less than estimated earlier, Roger Downey, a Sao Paulo-based analyst with Credit Suisse, said in a Dec. 9 report. Downey cited lower prices and sales, and reduced Brazilian and U.S. steel demand.

“High exposure to U.S. markets should negatively impact Gerdau’s earnings momentum,” Downey said.

Brazil Profit Outlook

Brazil corporate earnings may slide 23 percent in 2009 as growth in the region’s largest economy slows to a forecast 2.2 percent from a previous 3 percent estimate, Citigroup strategist Geoffrey Dennis wrote. The expected profit slump compares with a 23 percent increase estimated in June, Dennis wrote in a note to clients today, predicting further earnings downgrades.

Latin American company earnings may fall 17 percent next year on slower economic growth and lower commodity prices, he said.

Perdigao dropped 4.8 percent to 35.85 reais. Brazil’s biggest food company is expensive and food producers could see demand falling in 2009, Credit Suisse analyst Marcel Moraes said.

Brasil Telecom dropped 7.7 percent to 19 reais. Brazil’s antitrust regulator ruled Telemar and Brasil Telecom must keep their Internet provider services separate, Valor Economico reported today. Brazil’s third-biggest fixed-line phone company, which has outperformed the Bovespa index this year, also was swapped for cheaper commodity stocks as prices rebounded today, Roche said in a phone interview.

Defensive Switch

“This week we’ve seen a switch in positions from more defensive stocks to commodity stocks,” he said. Brasil Telecom was down 14 percent through Dec. 8, compared with a 40 percent drop in the index. Brasil Telecom has dropped 15 percent in the last three days as the Reuters-Jeffries index rose more than 5 percent.

The Bovespa earlier gained on soaring oil prices and increasing bets that interest rates will be cut. Petroleo Brasileiro SA rose 1.8 percent.

The BM&FBovespa Small Cap index gained 1.3 percent. The BM&FBovespa MidLarge Cap index fell 1.4 percent.

Mexico’s Bolsa index fell for the first time in five sessions, led by cement-maker Cemex SAB on concern slowing economies in the U.S. and Mexico will hurt fourth-quarter earnings.

Cemex, North America’s biggest cement maker, dropped the most in 11 years as Banco Santander SA said fourth-quarter results would be “very weak” and U.S. initial jobless claims surged to a 26-year high. Cemex, which gets a quarter of revenue from the U.S., fell 19 percent to 11.41 pesos.

“For Latin America, we now expect outright recession to hit only Mexico,” Dennis wrote.

To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net;

Read more...

Bank of America, Danaher, Furniture Brands: U.S. Equity Preview

By Lynn Thomasson

Dec. 11 (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 5:50 p.m. in New York, unless otherwise specified.

Standard & Poor’s 500 Index futures expiring in March 2009 slid 1.1 percent to 865. Dow Jones Industrial Average futures lost 119 points, or 1.4 percent, to 8,451. Nasdaq-100 Index futures dropped 1.8 percent to 1,168.25.

Bank of America Corp. (BAC US) added 6 cents to $14.97 in trading after the close of regular trading. The third-largest U.S. bank said it plans to cut 30,000 to 35,000 positions over the next three years because of its acquisition of Merrill Lynch & Co. and the weak economic environment.

Danaher Corp. (DHR US) slumped 4.4 percent to $47.51. The maker of Craftsman tools said next year may be “difficult” and predicted 2009 profit as low as $3.70 a share, compared with the average analyst estimate of $4.07 from a Bloomberg survey.

Equitable Resources Inc. (EQT US) gained 3.3 percent to $32.15. The producer of oil and natural gas was picked to replace Transocean Inc. in the Standard & Poor’s 500 Index, S&P said.

Transocean (RIG US) slid 3.3 percent to $56.17. The world’s offshore oil driller plans to switch its incorporation to Switzerland, making it ineligible for the S&P 500.

Esterline Technologies Corp. (ESL US) gained 5 percent to $33.60. The manufacturer of jet-engine parts reported fourth- quarter profit excluding some items of $1.38 a share, or 30 percent more than the average of analyst estimates compiled by Bloomberg.

Furniture Brands International Inc. (FBN US): The maker of Broyhill and Thomasville chairs and tables said it was cutting 1,400 jobs, or about 15 percent of its domestic workforce, because of “continuing soft retail-market conditions.” The stock dropped 7.6 percent to $3.06 in regular trading.

Legg Mason Inc. (LM US): The asset manager took a $517 million loss on the sale of debt issued by Axon Financial Funding Ltd., cutting its holdings in structured investment vehicles by more than 40 percent. Legg Mason shares fell 8.7 percent to $18.17 in regular trading.

Waters Corp. (WAT US) tumbled 13 percent to $36.59. The maker of scientific testing equipment said fourth-quarter profit could be as low as 94 cents a share, less than its previous prediction for earnings of at least $1.08.

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

Read more...

U.S. Stocks Fall on Concern Over Bailout, Higher Jobless Claims

By Whitney Kisling

Dec. 11 (Bloomberg) -- U.S. stocks declined the most in a week after lawmakers said a $14 billion plan to rescue the nation’s auto industry lacks the votes to pass the Senate and initial jobless claims jumped to a 26-year high.

General Motors Corp. and Ford Motor Co. slid more than 10 percent. Bank of America Corp. slumped 11 percent and General Electric Co. tumbled 5.3 percent following government reports that 573,000 people applied for first-time unemployment benefits last week and the trade deficit grew 1.1 percent as exports decreased. Ciena Corp. plunged 20 percent, its steepest drop in three months, after the network-equipment maker posted a fourth- quarter loss.

The Standard & Poor’s 500 Index fell 2.9 percent to 873.59, with financial shares posting the biggest retreat among 10 industries. The Dow Jones Industrial Average decreased 196.33 points, or 2.2 percent, to 8,565.09. The Russell 2000 Index of small companies lost 5.3 percent.

“Whether the auto bailout turns out to be a Band-Aid or a real long-term plan is uncertain, and as we all know uncertainty is anathema to the equity markets,” Richard Weiss, who oversees $60 billion as chief investment officer at City National Bank in Beverly Hills, California, told Bloomberg Television. “Right now it’s political football.”

The market’s early declines came as the reports on jobless claims and a drop in exports spurred concern that the yearlong recession is deepening. The S&P 500 has tumbled 44 percent from its record last year after the collapse of the subprime mortgage market caused profits to decrease for five consecutive quarters.

Short-Lived Gains

Stocks turned higher in midday trading as Saudi Arabia, the world’s biggest crude producer, said it cut output, propelling oil to its steepest gain in five weeks and Hess Corp. to a 6.8 percent advance. Benchmark indexes resumed their descent as prospects dimmed that the White House will convince Senate Republicans to vote in favor of the auto rescue.

About 1.47 billion shares changed hands on the floor of the NYSE, 9.5 percent less than the three-month daily average.

GM slid 48 cents to $4.12, while Ford lost 35 cents to $2.90. The bailout failed to garner enough support to pass the Senate, as Democratic leaders and the Bush administration raced to save the car industry and the millions of jobs dependent on it before GM and Chrysler LLC burn through their remaining cash. For GM, that could be in three weeks. The House voted 237-170 yesterday to approve emergency loans.

The Bloomberg Michigan Auto Group Index of carmakers and parts suppliers dropped more than 5 percent, its biggest decline since Dec. 1, as seven of its eight companies fell.

Economy Watch

Bank of America fell 11 percent to $14.91, while GE, the world’s biggest maker of power-generation equipment, dropped 5.3 percent to $17.05.

The Labor Department said initial jobless claims increased by a bigger-than-forecast 58,000 to 573,000 in the week ended Dec. 6, the highest level since November 1982. The slump in exports to a seven-month low, caused by recessions spreading to U.S. trading partners, spurred a widening in the trade deficit to $57.2 billion in October, the Commerce Department said.

“Jobless claims have grown pretty significantly,” said John Davidson, president of PartnerRe Asset Management Corp., which oversees $12 billion in Greenwich, Connecticut. “All sectors of the economy are affected, and it’s going to be a tough Christmas for retailers and for consumers.”

Ciena Tumbles

Ciena slumped 20 percent, the most since Sept. 4, to $6.05. The maker of network equipment for customers such as AT&T Inc. posted an adjusted fourth-quarter loss of 10 cents a share on a cutback in orders from telephone companies. Analysts surveyed by Bloomberg expected 4 cents in profit.

Microsoft Corp. had its profit estimates cut at Morgan Stanley on a deterioration in business following slowing sales predictions from chipmakers. The world’s largest software developer declined 5.6 percent to $19.45.

U.S. Bancorp fell 10 percent to $24.85 after saying at a Goldman Sachs Group Inc. conference that it expects net charge- offs, or the cost of bad loans that won’t fully be repaid, of about $600 million to $650 million and an impairment of $200 million to $300 million this quarter. The shares have dropped 22 percent this year, better than the 52 percent slide in the KBW Bank Index.

Financial companies, which led the S&P 500’s rebound from an 11-year low on Nov. 20 with a 27 percent rally, slid 8.5 percent today. JPMorgan Chase & Co., the largest U.S. bank, dropped 11 percent to $29.94, while Citigroup Inc. fell 8.8 percent to $7.57 and American Express Co. declined 6.6 percent to $20.13.

Real-Estate Slump

Real estate companies in the S&P 500 fell 16 percent as a group. U.S. foreclosure filings climbed 28 percent last month from a year earlier and a brewing “storm” of new defaults and job losses could force 1 million homeowners from their properties next year, RealtyTrac Inc. said. Developers Diversified Realty Corp. dropped 20 percent to $5.04. Prologis, the largest warehouse owner, slumped 25 percent to $5.60.

A group of health care companies rose 0.2 percent, the only industry of 10 in the S&P 500 to gain. UnitedHealth Group Inc., the largest U.S. medical insurer, led the advance, surging 8.9 percent to $23.49.

Eli Lilly & Co. also rallied, even after it gave a 2009 profit forecasts that missed analysts’ estimates, joining Merck & Co. as the second major U.S. drugmaker to trim expectations. The shares gained 1.7 percent to $35.62.

‘Clean the Deck’

“If companies are willing to clean the deck and make adjustments so numbers are more rational and real, they could be getting rewarded by investors,” said Jason Cooper, who helps manage about $3.5 billion at 1st Source Investment Advisors in South Bend, Indiana.

Europe’s Dow Jones Stoxx 600 Index fell 0.8 percent today as concern that the economic slowdown from China to America is deepening weighed on automakers, overshadowing a rally in oil producers. The MSCI Asia Pacific Index rose for a fifth day, the longest winning streak in seven months, as South Korea cut interest rates to a record low.

Hess, the fifth-biggest U.S. oil producer, had the second- biggest gain in the S&P 500 after crude rose and the company said it plans to drill eight exploration wells off northwest Australia next year. The shares rallied 6.8 percent to $47.71.

Crude oil for January delivery rose 10 percent to $47.98 a barrel in New York, the highest price since Dec. 1 and the biggest gain since Nov. 4.

Rebound From 11-Year Low

The S&P 500 this week marked a technical end to a 14-month bear market, extending its rebound from an 11-year low last month to as much as 21 percent, as President-elect Barack Obama stepped up efforts to pull the economy out of a recession.

The VIX, which measures the cost of using options as insurance against declines in the S&P 500, has dropped 31 percent since Nov. 20, when it rose to 80.86, the highest in its 18-year history. The VIX, as the Chicago Board Options Exchange Volatility Index is know, increased 0.1 percent to 55.78 today.

S&P 500 companies reported an average 18 percent decline in profits in the third quarter, prompting analysts to cut estimates for next year. They now project earnings growth of 8.2 percent in 2009, about one-third of their forecast of 23 percent at the end of the third quarter, according to data compiled by Bloomberg.

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net.

Read more...