Yen Declines as Nakagawa Says Japan May Take Currency Action

By Stanley White

Dec. 18 (Bloomberg) -- The yen fell from near a 13-year high against the dollar after Japanese Finance Minister Shoichi Nakagawa signaled the nation is ready to sell the currency.

The yen also declined against the euro after Nakagawa told reporters that “we will take necessary steps if needed” to limit the currency’s advance and protect the overseas earnings of Japanese exporters. The dollar fell to an 11-week low against the euro on speculation the Federal Reserve’s near-zero interest rate policy will reduce the appeal of U.S. assets.

“We are at such low levels now that yen intervention becomes a possibility, and that’s making some people nervous,” said Saburo Matsumoto, senior manager of foreign-exchange sales at Sumitomo Trust & Banking Co. in Tokyo.

Japan’s currency fell to 87.77 per dollar as of 11:31 a.m. in Tokyo from 87.24 yen yesterday in New York, when it reached 87.14, the highest level since July 1995. It declined to 126.41 per euro from 125.80 yesterday. The dollar was at $1.4418 per euro from $1.4419 after reaching an 11-week low of $1.4456. The yen may decline to 88 per dollar today, Matsumoto said.

Japan may intervene in foreign-exchange markets as the yen’s recent gains are abnormal, Chief Cabinet Secretary Takeo Kawamura also said today in Tokyo. The government expects the Bank of Japan to respond appropriately to the yen, he said. Central banks intervene when they buy or sell currencies to influence their exchange rates.

Against the Australian dollar, the yen fell to 61.84 from 61.40 late yesterday in New York. It also declined to 52.11 per New Zealand dollar from 51.70, and to 8.9355 versus the South African rand from 8.8879.

Japanese Stocks

The yen also declined toward a five-week low against the euro as gains in local stocks gave investors more confidence to purchase higher-yielding assets. The Nikkei 225 Stock Average advanced 0.9 percent, after earlier falling by the same amount. Japan’s benchmark interest rate of 0.3 percent compares with 4.25 percent in Australia, 5 percent in New Zealand and 11.5 percent in South Africa.

Honda Motor Co., Japan’s second-largest automaker, yesterday cut its operating profit forecast for a third time for the year ending March 31 to 180 billion yen ($2.05 billion) from a prior estimate of 550 billion yen as the currency’s gains pushed up prices for overseas customers.

Previous Intervention

The last time Japan intervened on its own, it sold a record 20.4 trillion yen in 2003 and 14.8 trillion yen in the first quarter of 2004, when the yen rose as high as 103.42 per dollar. Japan hasn’t bought yen since 1998, when it spent 3.05 trillion yen as the currency reached as low as 147.66.

The Group of Seven, which comprises the U.S., Japan, Germany, the U.K., France, Italy and Canada, propped up the dollar in 1995, when it declined to a post-World War II low of 79.75 yen.

The greenback declined against the euro as longer-term Treasury yields fell and U.S. stocks declined on speculation the Fed has few tools left to combat a recession.

The yield on 10-year Treasuries fell two basis points, or 0.02 percentage point, today to 2.19 percent. It touched 2.0711 percent yesterday, the lowest level since the Fed’s daily data on the securities began in 1962. The Standard & Poor’s 500 Index fell 1 percent.

Near Zero

The Fed lowered its target rate on Dec. 16 to a range of zero to 0.25 percent, from 1 percent, the lowest rate among major economies. The central bank reiterated plans to buy agency debt and mortgage-backed securities and said it will study buying Treasuries.

“The next step is for the Fed to start buying Treasuries, which will depress yields further and lead the dollar lower,” said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co. Ltd., a unit of Japan’s largest brokerage. “The U.S. stock market shows few signs of life. I don’t think people are waiting to buy the dollar on the cheap.”

The dollar may fall to 85 yen next week, he said.

Investors should sell the U.S. dollar at 89 yen as it may decline as to 83 yen, National Australia Bank Ltd. said. They should exit the trade if the greenback strengthens to 91 yen and watch for intervention in February and March if the currencies trade at 80 yen or below, wrote a team led by Sydney-based John Kyriakopoulos, head of currency strategy at the bank, in a note yesterday.

The U.S. federal budget deficit widened last month to $164.4 billion compared with a gap of $98.2 billion in November a year earlier, the Treasury Department reported last week.

“The U.S. dollar will find 2009 a tougher year thanks to the U.S. budget deficit climbing to at least $1 trillion at the same time that interest rates fall close to zero and the Federal Reserve ramps up quantitative easing,” Kyriakopoulos said.

The U.S. currency will trade at 93 yen and $1.45 per euro by the end of 2009, the bank forecast.

The U.S. currency depreciated 22 percent against the yen this year, the most since 1987, as more than $1 trillion of credit-market losses sparked a seizure in money markets and threw the world’s largest economy into a recession.

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

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Korean Won Gains a 4th Day as Stocks May Lure Funds; Bonds Drop

By Kim Kyoungwha

Dec. 18 (Bloomberg) -- South Korea’s won strengthened for a fourth day on speculation a stock market rally will draw overseas investors. Bonds fell.

The currency, Asia’s worst performer this year, reached a six-week high as global funds bought 533 billion won ($411 million) more Korean shares than they sold this month. The Kospi stock index rose as much as 1.7 percent, set for its highest close since Oct. 21.

The won rose 2 percent to 1,299.15 per dollar as of 11:49 a.m. local time, according to Seoul Money Brokerage Services Ltd. It earlier touched 1,288.95, the strongest since Nov. 5. It still weakened 29 percent this year.

“The market is watching whether the key 1,300 level can be broken through as the won’s recent uptrend is supported by rallying stocks,” said Jay Won, a currency dealer with Korea Exchange Bank in Seoul. “Importers may emerge on the dollar’s dips, blocking any further advance in the won.”

South Korea should use interest-rate cuts and fiscal stimulus to cushion the economy from a global recession and avoid depleting its foreign-currency reserves to prop up the won, the Organization for Economic Cooperation and Development said yesterday.

“Intervention is likely to be costly and ineffective in the face of global financial turbulence that is driving the won’s depreciation and should therefore be limited to smoothing operations,” the OECD said yesterday. “This would also limit any further decline in foreign-exchange reserves, which provide a cushion against Korea’s short-term foreign debt.”

Bonds Decline

Bonds fell, snapping a five-day advance, as yields near the lowest since 2005 prompted some investors to sell.

The yield on five-year government bonds has slid 1.68 percentage points this quarter as the Bank of Korea delivered four interest-rate cuts, taking the seven-day repo rate to a record low of 3 percent to support the economy.

The yield on the benchmark bond due September 2013 climbed seven basis points to 4.19 percent, according to the Korea Exchange. The price fell, 0.30 or 30 won per 10,000 won face amount, to 108.18. A basis point is 0.01 percentage point.

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

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Gold Declines From 10-Week High as Oil Tumbles to Four-Year Low

By Feiwen Rong

Dec. 18 (Bloomberg) -- Gold fell from a 10-week high, ending an eight-day rally, as crude oil’s slump to the lowest in more than four years reduced the appeal of bullion as a hedge against inflation.

Oil fell as low as $39.19 a barrel, extending yesterday’s 8.1 percent decline, on rising U.S. stockpiles and skepticism the Organization of Petroleum Exporting Countries will achieve a 2.46 million barrel-a-day production cut agreed in Algeria. Gold gained 15 percent the previous eight days, as oil fell 1.8 percent and the dollar fell 9.4 percent over the same time.

“Oil’s fall below $40 a barrel led to a bit of a correction in the gold prices,” Ronald Leung, director, Lee Cheong Gold Dealers (Hong Kong) Ltd., said by phone from Hong Kong today. “Gold has been ignoring crude oil’s weakness and has rallied too much, too fast.”

Bullion for immediate delivery fell as low as $861.85 an ounce and was at $862.50 at 9:50 a.m. in Hong Kong. It reached $882.09 yesterday, the highest since Oct. 10, as the Federal Reserve’s near-zero interest rate policy led the dollar’s tumble against the euro and yen and boosted the appeal of the precious metal as an alternative asset.

Silver for immediate delivery fell 0.5 percent to $11.34 an ounce and platinum was little changed at $864.50 an ounce.

Gold’s gain yesterday, in the face of declining oil prices, showed the boost it received from the Fed’s “aggressive” rate cut, Darren Heathcote, head of trading at Investec Bank Ltd. in Sydney, said in a report today.

Gold has jumped 17.2 percent in the past month while the dollar has dropped 12.5 percent to a three-month low of $1.4456 against the euro and a 13-year low versus the yen today. The ICE Futures Exchange’s dollar Index, which tracks the dollar against six major currencies, fell 0.5 percent, its seventh straight decline.

February-delivery gold fell 0.4 percent to $864.80 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange.

Gold for October delivery in Tokyo was little changed at 2,438 yen a gram ($865 an ounce) at the 11 a.m. local time break.

To contact the reporter on this story: Feiwen Rong in Singapore at frong2@bloomberg.net

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Oil Trades Near Four-Year Low as OPEC Cut Seen as Insufficient

By Christian Schmollinger

Dec. 18 (Bloomberg) -- Crude oil traded near the lowest in more than four years on skepticism that OPEC’s larger-than- expected supply cut will be enough to boost prices as fuel demand drops.

Oil extended yesterday’s 8.1 percent decline after OPEC agreed that the group’s 11 members with quotas will trim current production by 2.46 million barrels a day to 24.845 million barrels a day. U.S. fuel consumption in November declined 7.4 percent from a year earlier to the lowest for the month since 1998, the American Petroleum Institute said yesterday.

“Worldwide demand for fuels is falling more than expectations,” said Ken Hasegawa, a commodity derivatives sales manager at Newedge Group in Japan. “The OPEC cut was much bigger than expected but it won’t be supportive for this market. This market can go down to $30.”

Crude oil for January delivery was at $40.08 a barrel, up 2 cents, at 10:34 a.m. Singapore time on the New York Mercantile Exchange. The contract earlier fell as much as 87 cents, or 2.2 percent, to $39.19 a barrel, the lowest since July 13, 2004.

The January contract expires tomorrow. The more active February contract was at $44.90 a barrel, up 29 cents.

Prices have tumbled 73 percent from a record $147.27 on July 11. Yesterday, futures declined $3.54 to $40.06 a barrel.

“OPEC will be seen as having done the sensible thing,” said Tony Regan, a Singapore-based independent oil and gas consultant in an interview on Bloomberg Television. “However, they are the supply-side equation and no one is looking at the supply side. People are more focused on declining demand.”

The Organization of Petroleum Exporting Countries’s cut, agreed to yesterday at a meeting in Oran, Algeria, is larger than a 2 million-barrel reduction indicated Dec. 16 by Saudi Arabian Oil Minister Ali al-Naimi.

OPEC Compliance

OPEC’s rate of compliance with a previous output cut is more than 85 percent, al-Naimi told reporters yesterday before the ministerial meeting that decided production targets. Analysts and traders are skeptical of the ability of the group to enact the output reduction.

“I don’t think OPEC can keep this production cut at the level they decided,” said Newedge’s Hasegawa. “They have to make money. Cheating will begin and the market knows that.”

The group will next meet on March 15 in Vienna and has chosen Angolan Oil Minister Jose Maris Botelho de Vasconcelos as its president for 2009.

Brent crude oil for February settlement was at $45.66 a barrel, up 13 cents, at 10:32 a.m. Singapore time on London’s ICE Futures Europe exchange.

Oil also dropped after the U.S. government said supplies climbed for the 11th time in 12 weeks.

Inventories rose 525,000 barrels to 321.3 million barrels last week, the U.S. Energy Department said yesterday in a weekly report. Supplies have climbed 11 percent since Sept. 19.

U.S. gasoline inventories gained 1.3 million barrels to 204 million barrels in the week ended Dec. 12, the Energy Department report showed. Supplies of distillate fuel, a category that includes heating oil and diesel, climbed 2.94 million barrels to 133.5 million barrels, the highest since November 2007.

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

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Australia Stocks: Centro Retail, Macquarie Office Trust, Orica

By Shani Raja

Dec. 18 (Bloomberg) -- The S&P/ASX 200 Index slipped 8.90 points, or 0.3 percent, to 3,561.70 at 10:35 a.m. in Sydney.

Australian Agricultural Co. (AAC AU) rallied 9 cents, or 5.4 percent, to A$1.77, the highest since Nov. 17. The nation’s largest cattle rancher is in talks to sell four stations in Queensland state for A$220 million ($155 million) to reduce debt, the Australian Financial Review reported, citing the company’s chief executive officer.

Centro Retail Group (CER AU) tumbled 1 cent, or 15 percent, to 7 cents, the benchmark index’s biggest decline. Centro MCS Manager Ltd., the responsible entity for Centro Retail Trust and Centro Retail Group, said it won’t pay a distribution to ordinary shareholders for the six months to Dec. 31.

IOOF Holdings Ltd. (IFL AU), an Australian pension funds firm, surged 33 cents, or 11 percent, to A$3.36, the most since Dec. 10 and the index’s best performance. The company said it became a substantial holder in OneSteel Ltd., gaining a 5.2 percent voting stake.

Macquarie Office Trust (MOF AU), Australia’s largest publicly traded office property trust, rallied 2 cents, or 8.9 percent, the benchmark’s second-biggest gain. The company announced an institutional and retail entitlement offer aimed at raising A$408 million.

Orica Ltd. (ORI AU) fell 43 cents, or 2.6 percent, to A$15.96, the lowest since Dec. 9. The company’s rating was downgraded to “neutral” from “buy” by analyst Simon Mitchell at UBS. The 12-month price target is A$17.00 per share.

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

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Japan Stocks Advance, Led by Developers on Lending Speculation

By Masaki Kondo and Shani Raja

Dec. 18 (Bloomberg) -- Japan stocks reversed an early drop as real estate shares led gains on speculation central bank interest-rate cuts will ease lending.

Mitsui Fudosan Co., the nation’s biggest developer, jumped 8.2 percent as traders bet the Bank of Japan will reduce rates this week, following a record cut by the Federal Reserve. Sumitomo Realty & Development Co., the nation’s No. 3 real estate company, climbed 7.6 percent. Honda Motor Co. slumped 4.1 percent after the carmaker cut its annual earnings forecast by two-thirds.

The Nikkei 225 Stock Average rose 102.50, or 1.2 percent, to 8,715.02 as of 9:50 a.m. in Tokyo, reversing a 0.9 percent drop. The broader Topix index lost 6.85, or 0.8 percent, to 845.31, with three stocks advancing for every two that fell.

There is a 54 percent chance the central bank will lower borrowing costs from 0.3 percent after concluding its two-day meeting tomorrow, according to calculations by JPMorgan Chase & Co. using overnight interest-rate swaps. The Fed on Dec. 17 cut its benchmark rate to between zero and 0.25 percent for the first time and said it will do whatever is needed to end the longest recession in a quarter-century.

The collapse of the U.S. mortgage market has prompted banks to tighten lending, stripping businesses of cash. On Dec. 15, Matsumoto Kenko Co. became the 24th listed Japanese property- related company to file for bankruptcy this year.

Mitsui Fudosan climbed 8.2 percent to 1,452 yen, while closest rival Mitsubishi Estate Co. rose 5.7 percent to 1,532 yen, extending yesterday’s 10 percent surge. Sumitomo Realty advanced 7.6 percent to 1,375 yen. A gauge of real-estate companies was the biggest winner among 33 industry groups on the Topix.

The Topix Real Estate Index has risen 12 percent in the past two days, and it led gains among the broader gauge’s 33 industry groups today.

Honda Slumps

Honda dived 4.1 percent to 1,814 yen, while market leader Toyota Motor Corp. slid 1.3 percent to 2,990 yen. Canon Inc., which gets a third of its sales from the Americas, sank 1.5 percent to 2,705 yen.

Honda chopped its annual operating-profit target by 67 percent to 180 billion yen ($2.06 billion) and halved its third- quarter dividend, citing the surging yen and dwindling demand. Every 1 yen gain against the dollar cuts Honda’s full-year earnings by 18 billion yen.

“Honda’s earnings revision is likely to affect shares throughout the auto sector,” Mitsushige Akino, who oversees about $468 million at Tokyo-based Ichiyoshi Investment Management, said in an interview with Bloomberg Television.

The yen appreciated against the dollar to as much as 87.14, the strongest level since July 1995, from 88.76 at the close of stock trading in Tokyo yesterday. The Japanese currency traded at 111.76 against the dollar at the beginning of this year.

Nikkei futures expiring in March added 0.9 percent to 8,730 in Osaka and rose 0.6 percent to 8,725 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

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Asian Stocks Rise to Six-Week High; Developers, Banks Climb

By Patrick Rial and Ian Sayson

Dec. 18 (Bloomberg) -- Asian stocks rose to a six-week high, led by developers and financial companies, on speculation the region’s central banks will reduce interest rates to revive economic growth.

Sumitomo Mitsui Financial Group Inc. and Mitsui Fudosan Co., Japan’s biggest developer, gained more than 6 percent in Tokyo as traders increased bets the Bank of Japan will lower borrowing costs tomorrow. A drop in oil below $40 a barrel spurred a 4.4 percent gain in Qantas Airways Ltd. Honda Motor Co. sank 3.5 percent, helping trim the market’s losses, after cutting its earnings forecast by 62 percent amid slumping global sales.

“Investors are looking forward to the cut in interest rates,” said Kenji Tomida, chief fund manager at T&D Asset Management Co. in Tokyo, which has about $16 billion in assets. “This is providing the market some relief and stability.”

The MSCI Asia Pacific Index gained 0.6 percent to 90.81 as of 11:38 a.m. in Tokyo. The gauge has rallied 21 percent since reaching a five-year low on Nov. 20 as governments from China to India took steps to bolster their economies from the worst financial crisis since the Great Depression.

The Nikkei 225 Stock Average gained 0.8 percent to 8,679.

Sumitomo Mitsui advanced 6.2 percent to 376,000 yen. Mitsui Fudosan rose 6.6 percent to 1,430 yen.

Investors see a 54 percent chance that the BOJ’s policy board will reduce the overnight call rate from 0.3 percent at this week’s meeting, according to calculations made by JPMorgan Chase & Co. based on interest-rate swaps trading, up from 20 percent on Dec. 16. The meeting ends tomorrow.

Mitsubishi UFJ Financial Group Inc., Japan’s largest listed bank, rose 2.1 percent to 530 yen. The lender is likely to see increased loan volumes, Nana Otsuki, an analyst at UBS said. Otsuki upgraded the stock to “buy” from “neutral.”

Hana Gains

Hana Financial Group Inc., operator of South Korea’s fourth- largest bank, surged 5.9 percent to 23,200 won, bringing this week’s advance to 22 percent. Deutsche Bank AG boosted its price estimate on the shares, arguing the stock was undervalued after dropping as much as 75 percent this year.

Qantas rose 4.4 percent to A$2.36, as the declining oil price slashes the cost of jet-fuel for airlines.

Crude oil futures tumbled 8.1 percent to $40.06 a barrel in New York yesterday, the lowest settlement since July 2004, after touching $39.88. Prices have plunged 73 percent from a record on July 11.

Honda, Japan’s second-largest automaker, slid 3.5 percent to 1,825 yen. The company slashed its net income forecast for the year ending in March by 62 percent and chopped its third-quarter dividend in half, as the stronger yen crimped profits.

Koichi Sugimoto, an analyst at Merrill Lynch & Co. in Tokyo, cut his recommendation to “underperform” from “neutral.”

Chrysler Production

Aisin Seiki Co., the world’s biggest maker of automatic transmissions, tumbled 7.2 percent to 1,133 yen. JTEKT Corp., which makes power steering, lost 3.1 percent to 618 yen.

Chrysler LLC said yesterday it will shut all 30 of its plants for at least a month starting Dec. 19 as unsold cars and trucks pile up at showrooms.

Ford Motor Co. said it will idle most of its North American assembly plants for the first week of January, while General Motors Corp. said a new factory making engines for the Chevrolet Volt electric car is being delayed to conserve cash.

Commonwealth Bank of Australia, the nation’s biggest mortgage lender, slumped by a record 9.5 percent to A$26.39 as the nation’s biggest mortgage lender sold stock at a steeper discount than planned.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

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Brazilian Stocks Slip on Growth Concern; Bolsa, Ipsa Advance

By Alexander Ragir

Dec. 17 (Bloomberg) -- Brazilian stocks fell for a second day this week on concern that earnings forecasts may need to be reduced further as the economy weakens and the currency slumps.

Net Servicos de Comunicacao SA, the biggest cable-TV company, slid 4.6 percent after JPMorgan Chase & Co. said its fourth-quarter profit may be hurt by the weaker real. Vivo Participacoes SA and Tim Participacoes SA led declines for phone stocks as Brascan Corretora said they lost market share last month. Cosan SA Industria e Comercio and Cia Siderurgica Nacional SA advanced more than 3 percent as sugar and metals gained on the dollar’s plunge against the euro.

“The market has been pretty light, with a lot of rotation between sectors but not much flows in and out of the market,” said Julio Martins, who oversees $173 million as investment director at Banco Prosper in Rio de Janeiro. “This fight between sectors is what you’re seeing in the market.”

The Bovespa Index bounced between gains and losses, dropping 0.1 percent to 39,947.43. More than two stocks fell for every one that rose. Mexico’s Bolsa index jumped 2.1 percent to the highest in 10 weeks. Chile’s Ipsa gained 0.5 percent.

Net slid 49 centavos to 14.31 reais after JPMorgan said the company may report a foreign exchange loss of 166 million reais because of unhedged debt. Deutsche Bank AG cut its forecast for the American depositary receipts to $9 from $11.

The Brazilian real slipped 2.1 percent to 2.3623 reais per dollar. The real, which has lost 19.5 percent in the last three months, is the worst performing of the 16 most-traded currencies tracked by Bloomberg.

The dollar declined the most against the euro since the 15- nation currency’s 1999 debut and sank to a 13-year low versus the yen after the Federal Reserve cut its target lending rate to as low as zero.

Commodities Gain

Cosan, the world’s second-biggest sugarcane processor, rose 3.7 percent to 11.20 reais. CSN, as Brazil’s third-largest steelmaker is known, climbed 3.4 percent to 31.43 reais. Sugar prices rose for the second straight day. The Bloomberg Base Metals 3-Month Price Commodity Index advanced 0.7 percent.

Brazil earnings may slide 23 percent in 2009 as growth in the region’s largest economy slows to a forecast 2.2 percent from the previous 3 percent estimate, Citigroup Inc. said Dec. 11.

Deutsche Bank today cut its growth estimate for Brazil to 2.2 percent in 2009 from the previous estimate of 2.9 percent.

Phone stocks fell the most in the MSCI Brazil Index, losing 3.7 percent. Vivo, Brazil’s biggest mobile-phone company, and Tim, the third-largest, retreated after losing market share in November, Anatel data showed.

‘Tougher’ Competition

The increase in customer additions for the industry as a whole signals that competition for customers “is even tougher” and could lead to lower profitability in the fourth quarter, Brascan analyst Beatriz Battelli wrote in a note to clients.

Vivo slid 5.9 percent to 31.70 reais and Tim fell 3.6 percent to 3.75 reais.

Positivo Informatica SA, Brazil’s biggest computer maker, fell the most since shares began trading in 2006 on a report that Lenovo Group Ltd. won’t pursue a bid for the company.

Lenovo has decided not to pursue its bid for Positivo “for now” after considering a possible purchase, the Wall Street Journal reported, citing an unidentified person. An opportunity had previously existed for Lenovo to buy the Brazilian company, the Journal quoted the person as saying.

“The stock rose sharply and now it’s suffering from people questioning whether a deal will going to go through, and if it does, how long it will take,” said Martins.

Positivo tumbled 26 percent to 8.14 reais.

Bolsa Gains

In Mexico, the Bolsa gained for a second day.

Telefonos de Mexico SAB rose to a 15-year high as Banco Santander SA said the phone company’s forecast for capital spending reflects an “optimistic view” of its business next year.

Telmex, as the country’s biggest land-line phone company is known, advanced 4.7 percent to 14.65 pesos.

Homebuilders surged on bets Mexico’s central bank may cut rates, following the Federal Reserve’s interest-rate cut. Consorcio Ara SAB, the country’s fourth-largest homebuilder, increased 12 percent to 5.50 pesos on speculation rate reductions in Mexico could spur home sales on credit.

Elsewhere in Latin America, Argentina’s Merval rose 0.4 percent, Peru’s Lima General slipped 0.5 percent and Colombia’s IGBC declined 0.8 percent.

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net;

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S&P 500 Tops 50-Day Moving Average in Bullish Sign

By Elizabeth Stanton and Eric Martin

Dec. 17 (Bloomberg) -- The U.S. stock rally spurred yesterday by the Federal Reserve’s rate cut pushed the Standard & Poor’s 500 Index above its average level during the past 50 days, a signal to some traders that the advance will continue.

The benchmark index for American equities surged 5.1 percent to 913.18, exceeding its so-called 50-day moving average for the first time since Sept. 3. That’s the longest stretch since August 2002, according to data compiled by Bespoke Investment Group LLC. The figure was surpassed again today.

The S&P 500 spent most of the year trading for less than the moving average as it plunged 38 percent. The index jumped 20 percent since sinking to an 11-year low on Nov. 20, driven by President-elect Barack Obama’s economic stimulus plan that may reach $600 billion and the Fed cutting its benchmark lending rate to a record low. Surpassing the 50-day average may be a sign investors are less concerned the S&P 500 will give up its gains.

“It’s a positive point, and short-term-trading people will use it as a buy signal,” said Mary Ann Bartels, chief market analyst at Merrill Lynch & Co. in New York and the second-ranked technical analyst in Institutional Investor magazine’s 2008 survey. “It’s another sign that the market is improving.”

To some technical analysts, who study charts to make price predictions, surpassing a moving average suggests a majority of investors have turned bullish.

‘All Available Tools’

The S&P 500 jumped the most since Nov. 24 yesterday after the Fed lowered its target for the overnight lending rate between banks to a range of zero to 0.25 percent and said it will employ “all available tools” to revive economic growth. The closing level of 913.18 was 1.2 percent higher than the 50-day average of 902.37. Today, the index dropped to 904.42, which is 0.4 percent higher than the new 50-day moving average of 900.53.

Should the S&P 500 reach 1,007.51, its intraday peak on Nov. 4, it would probably surge another 19 percent to 1,200, Bartels said. A failure to break through that point would increase the likelihood of a plunge below 741.02, the 11-year low reached on Nov. 21, she added.

Among the companies in the S&P 500, 269 closed above their 50-day moving average yesterday, according to Bloomberg data. They included Google Inc., International Business Machines Corp. and Colgate-Palmolive Co., which had closed below on Dec. 15.

Yesterday marked the end of the 18th period in which the S&P 500 stayed under the 50-day moving average for at least 67 days, according Harrison, New York-based Bespoke. In prior occasions, it gained 1.7 percent, 4.4 percent and 3.5 percent on average during the ensuing week, month and half year, respectively. Over the three-month span, it lost 0.3 percent on average.

“It’s good,” Roger Volz, senior vice president at Hampton Securities Inc. in New York and a technical analyst since 1982, said of the S&P 500’s close above its 50-day moving average. “It’s a marking gauge for the condition of the charts and the probability we see a continuation in direction.”

To contact the reporters on this story: Elizabeth Stanton in New York at estanton@bloomberg.net; Eric Martin in New York at emartin21@bloomberg.net.

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U.S. Stocks Fall on Concern Fed Is Running Out of Ammunition

By Elizabeth Stanton and Whitney Kisling

Dec. 17 (Bloomberg) -- U.S. stocks fell and the Standard & Poor’s 500 Index retreated from a five-week high on concern the Federal Reserve has few tools left to combat the recession after cutting its benchmark interest rate to a record low.

Newell Rubbermaid Inc., the maker of Calphalon cookware, tumbled the most in at least 28 years as the shrinking economy forced it to reduce its 2008 profit forecast. Apple Inc. slid 6.6 percent after the maker of the iPhone said Chief Executive Officer Steve Jobs won’t speak at the Macworld Expo, spurring concern the leader’s health is deteriorating. Macy’s Inc. rallied 18 percent, helping trim the market’s losses, after lenders relaxed terms on a $2 billion credit line.

“The economic environment isn’t going to change a lot,” said Warren Koontz, who oversees $2.5 billion as chief investment officer for large-company value stocks at Loomis Sayles & Co. in Boston. Loomis manages $105 billion. “We do have to pay penance for the over-living of the past decade.”

The S&P 500 lost 1 percent to 904.42. Technology and energy shares were the biggest drag on the index as Apple tumbled and oil slid below $40 a barrel for the first time in four years. The Dow Jones Industrial Average declined 99.8 points, or 1.1 percent, to 8,824.34. The Russell 2000 Index of small U.S. companies added 0.8 percent.

Today’s decline erased about one-fifth of yesterday’s 5.1 percent rally in the S&P 500, which was sparked by the Fed’s reduction of its benchmark rate to a range of 0 to 0.25 percent and its plan to use “all available tools” to revive the economy. The dollar tumbled the most against the euro since the 15-nation currency’s 1999 debut and sank to a 13-year low versus the yen after the rate cut.

‘Significant Deterioration’

Europe’s Dow Jones Stoxx 600 Index slid 0.8 percent, as BNP Paribas SA tumbled 17 percent after saying losses at its securities unit since October more than wiped out the division’s profit for the first three quarters of the year.

Newell Rubbermaid Inc. fell 27 percent to $9.58. The company, which also makes Graco baby products, lowered its full- year profit forecast because of the “significant deterioration of global economic conditions” and said it is cutting 8 percent to 10 percent of its salaried workforce.

Apple lost $6.27 to $89.16. Oppenheimer & Co. analyst Yair Reiner downgraded Apple to “perform” from “outperform,” saying it’s “past time” for Apple to disclose the state of Jobs’ health or outline a plan for a successor. Apple also said that the company will no longer participate in the MacWorld show after next month’s event.

Technology companies in the S&P 500 lost 1.7 percent as a group.

Macy’s Credit Line

Macy’s, the second-largest U.S. department store company, jumped 18 percent to $10.01. The amended credit agreement helps remove doubts about the company’s ability to pay off $950 million in debt maturing next year. The size on the $2 billion facility, led by Bank of America Corp. and JPMorgan Chase & Co., and the maturity date of Aug. 31, 2012, are unchanged, Macy’s said in a statement. The facility remains untapped, it said.

The S&P 500 Retailing Index advanced 1.2 percent as 24 of its 27 companies rose.

“We have kind of a push and pull between an economy that’s in recession, and probably getting worse right now, and a credit market that’s actually starting to heal or at least show signs of healing,” said Richard Campagna, chief investment officer of 300 North Capital LLC in Pasadena, California, which manages $1 billion.

Utilities Tumble

NiSource Inc., owner of Indiana’s largest natural-gas utility, declined 4.7 percent to $11.38 after Standard & Poor’s Ratings Services cut its outlook to “negative” from “stable,” citing a “strained liquidity position in 2009.”

Constellation Energy Group Inc. declined 20 percent to $23, its steepest loss since September, after agreeing to sell half its nuclear-power business to Electricite de France SA for $4.5 billion, abandoning an earlier deal to sell itself to Warren Buffett’s MidAmerican Energy Holdings Co. Moody’s Investors Service also cut Constellation’s senior unsecured debt to Baa3, the lowest investment grade, and said Constellation will be a stand-alone company that has sold a stake in its “crown jewel assets.”

A group of utility companies slid 2.9 percent, the most of the 10 main S&P 500 industry groups.

Morgan Stanley added 2.3 percent to $16.50, joining rival Goldman Sachs Group Inc. in advancing even after posting a wider-than-estimated fourth-quarter loss.

‘Healing Process’

Morgan Stanley’s loss of $2.24 a share compared with a deficit of $3.61 a share in the same period a year earlier. The average estimate of 16 analysts surveyed by Bloomberg was for a 34-cent loss, with no estimates exceeding $1.15. Morgan Stanley unexpectedly wrote down the value of its fixed-income businesses and lost money all three of its main divisions.

Goldman Sachs gained 3.7 percent to $78.78. The shares rallied 14 percent yesterday after the company posted a quarterly loss, its first since going public in 1999, that was wider than the average estimate in a Bloomberg survey, while narrower than some analysts had estimated.

“The healing process is going to be a long one, no doubt about that, but it appears that they’ve taken corrective action maybe faster than we might have thought even just a month ago,” Jeffrey Kleintop, chief market strategist at LPL Financial in Boston, told Bloomberg Television. LPL Financial oversees $233 billion. “That’s an encouraging sign they’ve now shored up their balance sheets and can begin to consider lending out some of this money that the Fed and the Treasury are aggressively pumping into them.”

Changing Wall Street

The Wall Street that Morgan Stanley and Goldman Sachs dominated for decades vanished in September, when Lehman Brothers Holdings Inc. went bankrupt and Merrill Lynch & Co. sold itself to Bank of America Corp. Goldman Sachs and Morgan Stanley took $10 billion each from the U.S. government as part of the Treasury’s plan to shore up the financial system.

This week’s markdowns at Morgan Stanley and Goldman Sachs pushed global losses and writedowns from the credit crisis to more than $1 trillion, according to data compiled by Bloomberg.

Financial companies in the S&P 500, which led the market higher yesterday with an 11 percent gain, fell 1.3 percent as a group today.

Fifth Third Bancorp, Ohio’s second-largest bank, declined after cutting its fourth-quarter dividend to 1 cent from 15 cents to preserve capital. The shares lost 6 percent to $7.51 and have tumbled 70 percent this year.

Leggett & Platt Inc., the maker of lumbar supports for car seats, fell after cutting its fourth-quarter forecast because of “extremely low” demand. The shares slid 6 percent to $14.59.

GE Downgrade

General Electric Co., the 106-year-old economic bellwether, fell 3 percent to $17.39. The world’s biggest maker of power- plant turbines, was lowered to “sell” from “hold” by Sterne Agee & Leach Inc., which said GE may cut as much as 9 percent of the workforce to reduce costs.

Energy shares retreated after a government report showed an increase in oil inventories, sending crude down 8.1 percent to $40.06 a barrel as OPEC failed to convince traders that the glut in supply will diminish and the U.S. government said supplies climbed for the 11th time in 12 weeks. Oil slid to as low as $39.88 during the session.

Chevron Corp., the second biggest U.S. energy company, declined 2.8 percent to $76.82, while Exxon Mobil Corp., the largest, fell 2.5 percent to $81.06.

Fiddle Faddle

ConAgra Foods Inc., the maker of Banquet frozen dinners, Egg Beaters and Fiddle Faddle popcorn, gained 8 percent to $16.25. ConAgra reiterated its earnings outlook for the 12 months through May as second-quarter profit beat analysts’ estimates by 16 percent, as cash-strapped consumers ate more meals at home. General Mills Inc. also beat estimates and the shares added 0.2 percent to $61.35.

Yesterday’s advance in the S&P 500 was its biggest on a Fed rate-decision day since 1994, when the central bank began announcing its target on the same day the decision was made, according to Bespoke Investment Group LLC. The rally put the index above its average level during the past 50 days for the first time since September.

The Fed said in its statement that the recession is likely to warrant exceptionally low levels of the federal funds rate “for some time.”

The central bank’s decision came after simultaneous recessions in the U.S., Europe and Japan dragged the S&P 500 down almost 45 percent from its 2007 record.

To contact the reporters on this story: Elizabeth Stanton in New York at estanton@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net.

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Crude Oil Rises as Federal Reserve Cuts Rate to Revive Economy

By Nesa Subrahmaniyan

Dec. 17 (Bloomberg) -- Crude oil rose for the first time in four days as stock markets rallied after the U.S. Federal Reserve cut its benchmark interest rate to a record low and pledged to revive the economy.

Oil gained as much as 1.8 percent in New York as Asian equities surged. Yesterday, oil fell on speculation further output cuts by OPEC, supplier of 40 percent of the world’s oil, will be insufficient to halt a slide in prices.

Crude oil for January delivery climbed as much as 90 cents, or 2.1 percent, to $44.50 a barrel, and traded at $44.22 at 10:36 a.m. Singapore time on the New York Mercantile Exchange. Prices have tumbled 70 percent from a record $147.27 on July 11.

“The market’s driven by economic news and anything that’s affecting the demand side is moving oil,” said Gerard Burg, minerals and energy economist at National Australia Bank Ltd. “OPEC’s cut has been priced in and there’s skepticism about their adherence to quotas but any withdrawal of supplies would help.”

Yesterday, futures fell 91 cents, or 2 percent, to $43.60 a barrel on skepticism that OPEC will reduce production targets enough at a meeting today to halt a decline in prices.

Crude oil also rallied today as the dollar declined against the euro and the yen, raising the appeal of commodities as a hedge against inflation.

The dollar fell toward a two-month low against the euro and also traded near the weakest level since 1995 versus the yen.

Russian Help

Saudi Arabian Oil Minister Ali al-Naimi said yesterday that the Organization of Petroleum Exporting Countries should trim output by 2 million barrels a day. The group is seeking the help of Russia, the world’s second-largest crude exporter, to share the burden of cuts.

“OPEC appears to be caught in a ‘catch 22’ situation,” Harry Tchilinguirian, a senior oil market analyst at BNP Paribas SA in London wrote in a report. “An attempt to aggressively boost prices, by pursuing a larger-than-expected cut, could backfire by turning sentiment even more pessimistic on the economy.”

Russia may cut oil production by as much as 400,000 barrels a day as demand shrinks because of the global recession, Kuwait’s Oil Minister said late yesterday.

Russian Deputy Prime Minister Igor Sechin, who is attending OPEC’s meeting in Algeria today, is “promising to act positively,” Oil Minister Mohammed al-Olaim said in an interview with Bloomberg Television. “We think they will seriously do so.”

Excess Supplies

A production cut of 400,000 barrels a day is being talked about by the Russians and they “do think they will have to participate in a cut,” al-Olaim added.

“Realism would suggest that achieving a price floor appears a more feasible proposition than aiming outright for much higher prices given the current economic outlook,” BNP’s Tchilinguirian said.

OPEC members and other producers such as Russia are under increasing pressure to reduce supplies as oil’s $100 a-barrel collapse cuts export revenue, creating budget shortfalls.

“Supply is somewhat in excess of demand, inventories are also higher than normal, therefore to bring things in balance, there will be a cut in production of about 2 million barrels,” Saudi Arabia’s al-Naimi said yesterday.

Falling Consumption

World oil use in 2009 will drop by 0.2 percent to 85.68 million barrels a day, the OPEC secretariat said in a report yesterday. That’s 1 million barrels a day lower than forecast last month. The U.S. Energy Department said on Dec. 9 that global demand will decline 0.5 percent to 85.3 million barrels a day.

The Paris-based International Energy Agency, which coordinates energy policy in 28 developed countries, said in a Dec. 11 report that fuel consumption worldwide will increase by 0.5 percent to 86.3 million barrels a day next year. The IEA depends on data from the International Monetary Fund to make its forecasts.

The global economic slump will prompt the IMF to revise its economic forecasts in January, the group’s chief, Dominique Strauss-Kahn, said Dec. 15 at a conference in Madrid.

Implied volatility for crude oil, the major factor in determining options prices, reached 158.759 Dec. 15, according to data released by Nymex. It was the highest close in Bloomberg data going back to 1986. It’s a gauge of expected price swings.

U.S. crude-oil and fuel supplies have climbed as the recession crimps demand.

Inventories probably rose 600,000 barrels last week, according to the median of 11 responses in a Bloomberg News survey conducted before an Energy Department report today. The report will probably show that supplies of gasoline and distillate fuel, a category that includes heating oil and diesel, also increased.

Brent crude oil for February settlement rose as much as $1.23, or 2.6 percent, to $47.88 a barrel on London’s ICE Futures Europe exchange, and traded at $47.39 at 10:28 a.m. Singapore time. The January contract expired yesterday, after declining 4 cents to $44.56 a barrel.

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

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Japan Stocks Climb After Fed Rate Cut; Honda Slumps

By Patrick Rial

Dec. 17 (Bloomberg) -- Japanstocks rose after the Federal Reserve slashed interest rates to a record low and signaled it will continue to buy assets to bolster the world’s largest economy. Gains were limited as the dollar slumped.

Sumitomo Mitsui Financial Group Inc., Japan’s second-largest bank by market value, surged 4.7 percent. Mitsubishi Estate Co., the nation’s No. 1 developer by market value, gained 8 percent as traders increased bets the Bank of Japan will also lower rates, easing access to funding. Honda Motor Co. fell 5.4 percent as the yen traded near a 13-year high versus the dollar and a newspaper said Japan’s second-biggest carmaker will cut its profit forecast.

“In psychological terms I think the Fed’s move will help the market,” said Yuuki Sakurai, general manager of investment planning in Tokyo at Fukoku Mutual Life Insurance Co., which manages $54 billion in assets. “It provides some breathing room for the troubled economy, but it’s not the kind of move that will reenergize the system.”

The Nikkei 225 Stock Average climbed 72.44, or 0.9 percent, to 8,640.46 as of 9:51 a.m. in Tokyo. The broader Topix index gained 1 percent to 836.56. That compared with a 5.1 percent rally by the Standard & Poor’s 500 Index yesterday, the steepest advance in four weeks.

The Fed cut its target rate for overnight loans between banks to a range of zero to 0.25 percent, a record low. The central bank also said it will “employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability.”

BOJ Rates

Sumitomo Mitsui rose 4.7 percent to 355,000 yen. Nomura Holdings, Japan’s largest brokerage, gained 1.1 percent to 648 yen. Mizuho Financial Group Inc., the country’s third-biggest bank by market value, rose 3.7 percent to 238,600 yen.

Additionally, Goldman Sachs Group Inc., the investment house that converted into a commercial bank, reported a fourth-quarter loss of $2.12 billion that was less than some analysts had estimated, helping financial shares rally in the U.S.

Mitsubishi Estate gained 8 percent to 1,422 yen. Tokyu Land Corp., a developer with property concentrated in western Tokyo, soared 11 percent to 368 yen.

Investors saw a 40 percent chance the Bank of Japan will reduce its benchmark interest rate from 0.3 percent at this week’s meeting, according to calculations made by JPMorgan Chase & Co. based on interest-rate swaps trading. Bankruptcies in Japan’s real estate sector have surged this year as housing demand slumped while banks reined in lending.

Honda Forecast

Honda, which gets more than half its sales in North America, lost 5.4 percent to 1,866 yen. Its operating profit will total about 300 billion yen ($3.31 billion) for the year ending March 31, 200 billion yen less than its October forecast, the Nikkei newspaper said. Honda said it will hold a press conference at 3 p.m. today.

Bridgestone Corp., the world’s largest tiremaker by sales, declined 3.7 percent, while Isuzu Motors Ltd., Japan’s third- biggest maker of commercial vehicles, fell 4.3 percent.

Exporters were also hurt as the yen climbed to as high as 88.64 against the dollar after the Fed lowered interest rates, reducing the value of overseas sales. The yen reached a 13-year high of 88.53 versus the dollar last week.

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

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Asian Stocks Advance as Fed Cuts Interest Rates to Record Low

By Patrick Rial and Shani Raja

Dec. 17 (Bloomberg) -- Asian stocks rose to a five-week high after the Federal Reserve slashed interest rates to a record low and signaled it will continue to buy assets to bolster the world’s largest economy.

BHP Billiton Ltd., the world’s largest mining company, gained 4.3 percent and Newcrest Mining Ltd., Australia’s No. 1 gold producer, added 3.5 percent in Sydney on optimism lower U.S. borrowing costs will help sustain demand for metals. Mitsubishi UFJ Financial Group Inc. advanced 3 percent in Tokyo, leading gains among banks, as the cost of protecting corporate bonds from default fell.

The MSCI Asia Pacific Index climbed 2.1 percent to 89.26 as of 9:35 a.m. in Tokyo. Four stocks rose for each that dropped. The measure has fallen 45 percent this year, as the global credit crisis triggered by the collapse of the U.S. housing market pushed the world’s largest economies into recession.

“Confidence is starting to return to the financial markets that you’re not going to see any more systemic issues blowing you out of the water,” said Sean Fenton, who manages about $324 million at Tribeca Investment Partners in Sydney. “The recession is well and truly priced in.”

Japan’s Nikkei 225 Stock Average advanced 1.3 percent to 8,674.75 as investors’ bets the central bank will lower interest rates surged. Australia’s S&P/ASX 200 Index gained 2.1 percent to 3,630.30. New Zealand’s NZX 50 Index climbed 0.7 percent.

In New York, the Standard & Poor’s 500 Index rallied 5.1 percent yesterday to the highest level since Nov. 10. The gauge’s advance was the most on a Fed rate-decision day since 1994, according to Bespoke Investment Group LLC.

Hong Kong Interest Rates

The Fed cut its target rate for overnight loans between banks to a range of zero to 0.25 percent, a record low. The central bank also said it will “employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability.”

A senior Fed official indicated that the bank will now shift its policy focus to asset purchases as a means of providing liquidity to the financial system.

The Hong Kong Monetary Authority lowered its base rate to 0.5 percent from 1.5 percent following the Fed’s decision. Movements in Hong Kong rates typically track U.S. credit policy because the local currency is pegged to the dollar.

In Japan, investor bets that the central bank will lower interest rates doubled yesterday after the government urged it to boost efforts to bolster the nation’s ailing economy.

Investors saw a 40 percent chance the Bank of Japan will reduce the overnight call rate from 0.3 percent at a policy meeting this week, according to calculations made by JPMorgan Chase & Co., up from 20 percent earlier in the day.

To contact the reporters for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

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Australia Stocks: BHP, Centro, Macquarie Media, Rio, Stockland

By Shani Raja

Dec. 17 (Bloomberg) -- The S&P/ASX 200 Index rose 64.00 points, or 1.8 percent, to 3,620.20 at 10:36 a.m. in Sydney, the highest since Dec. 10. The broader All Ordinaries Index gained 58.50 points, or 1.7 percent, to 3,557.40, while the futures contract expiring in December advanced 2.1 percent to 3,628.

The following are among the most-active stocks in Australian markets.

Mining shares: BHP Billiton Ltd. (BHP AU), the world’s largest mining company, surged A$1.07, or 3.5 percent, to A$31.71, the highest since Oct. 1. Rio Tinto Group (RIO AU), the world’s third-biggest mining company, gained A$1.36, or 3.5 percent, to A$40.56, the highest since Dec. 1.

The U.S. Federal Reserve cut its benchmark interest rate to a record low and said it will employ “all available tools” to revive the economy.

Centro Properties Group (CNP AU) soared 4 cents, or 49 percent, to 13 cents, the highest since Sept. 9. The world’s fifth-largest shopping-center owner plans to cede control to its banks after failing to refinance A$5.1 billion ($3.4 billion) of debt accumulated as it acquired 650 U.S. malls.

Macquarie Media Group Ltd. (MMG AU), the Australian regional broadcaster, rallied 10 cents, or 17 percent, to 68 cents, the most since Oct. 31. The company said it had a strong balance sheet and that its finances were sound.

Stockland (SGP AU), Australia’s biggest housing developer, plunged 28 cents, or 7.6 percent, to A$3.40, the most since Dec. 2. The company said annual earnings may fall by 24 percent and that it may defer some planned projects after writing down the value of residential properties.

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

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Canadian Stocks Rally on Fed, Led by Potash, EnCana, Manulife

By John Kipphoff

Dec. 16 (Bloomberg) -- Canadian stocks rose to their highest this month as commodity and finance shares climbed after the Federal Reserve cut its benchmark rate to a record low and said it will do whatever is needed to revive economic growth.

Potash Corp. of Saskatchewan Inc. gained more than 7 percent on higher prices for wheat and corn. Bullion mining companies including Goldcorp Inc. joined the rally after the Fed’s cut sent the U.S. dollar lower, boosting the appeal of metals and other commodities traded in the American currency. Suncor Energy Inc. rose pacing gains among oil producers even as crude prices reversed an earlier advance. Financial shares rallied from an earlier drop, led by Manulife Financial Corp., on the prospect of lower financing costs,

“The Fed’s move exceeded expectations,” said John Stephenson, who helps to oversee about $1.5 billion at First Asset Investment Management Inc. in Toronto. “So the markets have rallied. But the truth is, until the U.S. stops falling we’re in for a bumpy ride. We’ve got to see the U.S. stop falling, some growth come back and then we’ll see the rest of the world improve.”

The Standard & Poor’s/TSX Composite Index rose 3.1 percent to 8,724.11 in Toronto, the highest close since Nov. 28. The main Canadian equity benchmark has fallen 37 percent this year, poised for its worst annual drop since 1931, on slumping commodity prices and global credit losses of almost $1 trillion.

The Federal Reserve cut its key interest rate to “a target range” of between zero and 0.25 percent and said that “weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.” The bank will also use “all available tools,” including the possible purchase of longer-term treasury bonds, to bolster growth.

Upgrade

Potash gained 8.7 percent to C$93, the highest since Nov. 11. The world’s largest crop-nutrient producer was upgraded to “buy” from “underperform” by Merrill Lynch & Co. analyst Steve Byrne, who said, in a note to clients today, that “fertilizer fundamentals are nearing a bottom.” The stock has still more than halved in value this year.

Byrne, based in New York, left his “underperform” recommendation on Agrium Inc. unchanged, saying North America’s third-largest fertilizer company faces a “potential large inventory devaluation in its retail business.” Agrium climbed 10 percent to C$41.72, its highest price in a month.

Wheat futures rose 4.6 percent to $5.44 a bushel in Chicago on a report that Saudi Arabia is in the market for 500,000 metric tons of high-protein milling wheat. Corn and soybeans rose after the U.S. dollar declined for the fifth straight session.

Gold futures rose as high as $857.50 in after hours electronic trading on the Comex division of the New York Mercantile Exchange, the highest since Oct. 15.

Miners Rally

Goldcorp, the second-largest gold producer by market value, added 4.5 percent to C$38.00. Kinross Gold Corp., Canada’s third-biggest bullion miner, rose 6 percent to C$22.

Suncor Energy, the world’s second-biggest oilsands producer, added 5.6 percent to C$26.61. EnCana Corp., Canada’s biggest energy company by market value, added 5.2 percent to C$57.82. Talisman Energy Inc. gained 5.6 percent to C$12.13.

“Everyone’s looking for some positives because everything’s been crushed so badly,” said Allan Brown, who helps oversee abut $52 million as chief executive of Burlington Capital Management, a Burlington, Ontario-based hedge fund company, before the Fed decision was announced.

Measures of materials and energy shares added 5.6 percent and 3.8 percent today, paring their respective declines this year to 29 and 35 percent. An index of industrial companies advanced 4.1 percent, led higher by Canadian National Railway Co., the nation’s biggest railroad. Canadian National added 5 percent to C$44.

Manulife Financial, Canada’s biggest insurance company, climbed 4 percent to C$21.13. Royal Bank of Canada, the country’s biggest lender, added 1.9 percent to C$34.90.

Bank of Montreal dropped 6.8 percent to C$30.35. Canada’s fourth-biggest bank plans to sell as much as C$1.1 billion in discounted stock to shore up capital. About 33.3 million shares will be offered at C$30 apiece in a sale expected to close Dec. 24, the Toronto-based bank said yesterday.

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

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U.S. Stocks Rally, Led by Banks, as Fed Cuts Rate to Record Low

By Whitney Kisling

Dec. 16 (Bloomberg) -- U.S. stocks rallied and the Standard & Poor’s 500 Index climbed to a five-week high after the Federal Reserve cut its benchmark interest rate to a record low and said it will employ “all available tools” to revive the economy.

Citigroup Inc. jumped 11 percent and JPMorgan Chase & Co. rose 13 percent after the central bank said it “stands ready to expand” purchases of mortgage-backed securities. Goldman Sachs Group Inc. surged 14 percent after its first quarterly loss as a public company was smaller than some analysts’ estimates. Boeing Co. and Intel Corp. added more than 7.2 percent as all 10 industry groups in the S&P 500 increased at least 2.2 percent following the Fed’s announcement.

“A big, widespread, explosive, incendiary shell has come out of the Fed’s cannon,” said Frederic Dickson, who helps oversee about $19 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. “It’s a bloody big deal. This is the kick-it-up-a-notch moment.”

The S&P 500 added 5.1 percent to 913.18, its highest close since Nov. 10. The advance put the benchmark index above its average level during the past 50 days for the first time since September. The Dow Jones Industrial Average gained 359.61 points, or 4.2 percent, to 8,924.14. The Russell 2000 Index of small companies increased 6.7 percent.

The Fed cut its target rate for overnight loans between banks to a range of zero to 0.25 percent. The Fed’s decision came after simultaneous recessions in the U.S., Europe and Japan dragged the S&P 500 down almost 45 percent from its 2007 record and sent benchmark indexes from Brazil to Bangkok into bear markets.

Fed-Day Rally

Today’s advance in the S&P 500 was its biggest on a Fed rate-decision day since 1994, when the central bank began announcing its target on the same day the decision was made, according to Bespoke Investment Group LLC. About 1.5 billion shares changed hands on the New York Stock Exchange, 5 percent fewer than the three-month daily average.

Citigroup climbed 83 cents to $8.23, while JPMorgan jumped $3.72 to $32.35. The S&P 500 Financials Index climbed 11 percent, the steepest gain among 10 industries and the group’s biggest advance since Nov. 24.

Boeing, the world’s second-largest commercial jet maker, added $3.16 to $41.90, while Intel, the largest chipmaker, rose $1.05, the most since Oct. 30, to $15.64.

‘Rekindle the Confidence’

The Fed said in its statement that the recession is likely to warrant exceptionally low levels of the federal funds rate “for some time.” The statement noted that the Fed has already announced it will purchase agency debt and mortgage-backed securities, and said the central bank is ready to expand the program. Policy makers continue to weigh the potential benefits of buying longer-term Treasury securities, the statement said.

“They’re trying to rekindle the confidence of consumers and businesses, and that ultimately drives profits in the stock market,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, Ohio, which manages $30 billion.

Treasury notes rallied, sending yields to record lows, on expectations the Fed will buy the securities to force borrowing costs lower. The dollar weakened to $1.41 against the euro for the first time in two months.

Goldman’s Loss

Goldman Sachs added $9.54, the most since Nov. 24, to $76. Its loss of $4.97 a share in the three months ended Nov. 28 was the company’s first quarterly deficit since going public in 1999 as asset values and investment-banking fees declined. The average estimate of 18 analysts surveyed by Bloomberg was for a loss of $3.73, with UBS AG’s Glenn Schorr estimating a deficit of as much as $5.50 a share.

Compensation and benefits, the firm’s biggest expense, fell in the quarter as the company cut 2,500 jobs and lowered average employee pay by 45 percent to $363,654. The company that set a Wall Street profit record in 2007 converted to a bank-holding company and accepted $10 billion from the U.S. government earlier this year as investors lost confidence in companies that rely on debt-market funding.

Morgan Stanley, the Goldman Sachs competitor that also became a bank, rallied 18 percent to $16.13. The firm will report fourth-quarter results tomorrow. Analysts estimate a loss of 34 cents a share, excluding some items, according to a Bloomberg survey.

Goldman Sachs is still down 65 percent in 2008, while Morgan Stanley has lost 70 percent.

CIT Group Jumps

CIT Group Inc. added 13 percent to $4.65 after the commercial finance firm that ran short of cash this year said it generated $398 million of regulatory capital in an exchange of equity units as it seeks to qualify for as much as $2.5 billion in federal bailout funds.

XL Capital Ltd. jumped the most in the S&P 500, adding 27 percent to $3.68. The Bermuda-based insurer that’s lost 93 percent of its value this year said it doesn’t intend to seek additional capital at this time.

Financial companies have fallen the most among the 10 industries in the S&P 500 this year, losing 56 percent, followed by companies that produce raw materials, which have fallen 44 percent in the same period.

CF Industries Holdings Inc. gained 12 percent to lead material companies up 6.1 percent today. The U.S. maker of nitrogen-based crop nutrients rallied along with other fertilizer companies after their shares were upgraded at Merrill Lynch & Co., which said “fundamentals are nearing a bottom.”

Potash Rally

Potash Corp. of Saskatchewan Inc., the world’s largest crop-nutrient producer, rallied 11 percent to $76.91. Mosaic Co., the world’s largest producer of phosphates, gained 14 percent to $35.96, while Terra Industries Inc., the biggest U.S. maker of liquid-nitrogen fertilizer, added 19 percent to $17.58. Intrepid Potash Inc., the largest producer of the crop nutrient in the U.S., rose 6.1 percent to $19.80.

Best Buy Co. climbed 18 percent, the most since January 2001, to $27.68. The electronics retailer affirmed its full-year earnings forecast and reported third-quarter profit, excluding some items, of 35 cents a share, beating the average analyst estimate by 49 percent. The company also said it’s offering voluntary severance packages to almost all workers and slashing capital spending as part of a “significant” cost-cutting plan.

Gilead Sciences Inc., the leading maker of AIDS treatments, climbed 7.9 percent to $47.87. Merrill Lynch & Co. raised its recommendation on the stock to “buy” from “neutral.”

GE Maintains Dividend

General Electric Co. jumped 5.7 percent to $17.92. The world’s biggest maker of power-plant turbines won an order valued at about $3 billion to provide electricity-generating equipment and services to Iraq. The company also said it will maintain its dividend of $1.24 a share in 2009.

General Motors Corp., the biggest U.S. automaker, rose 4.2 percent to $4.25. The Treasury may adopt a plan that would let a car czar or the Treasury Secretary force GM and Chrysler LLC into bankruptcy if the companies don’t show they can survive without government aid. GM and Chrysler would be required to submit viability plans by March 31 or lose any further U.S. support, Carl Levin, a Democratic senator from Michigan, told reporters in Detroit.

Only 15 S&P 500 companies fell today, led by cigarette- makers Lorillard Inc. and Altria Group Inc., which slid for a second session after the U.S. Supreme Court ruled smokers can sue over the marketing of “light” cigarettes. Lorillard dropped 4.7 percent to $55.20, while Altria slumped 4.4 percent to $14.54.

Eaton Corp. dropped 2.2 percent to $42.96 after the maker of power-distribution equipment and car-engine valves lowered its fourth-quarter profit estimates. The company cut 3,400 jobs, or 5.3 percent of its workforce this year amid weakening demand.

Worst Year Since Depression

The S&P 500 has fallen 38 percent in 2008, poised for its worst year since the Great Depression, after losses and writedowns at the biggest global financial companies reached almost $1 trillion and earnings at U.S. companies dropped for five straight quarters, matching the longest streak on record.

The S&P 500 has climbed more than 21 percent since slumping to an 11-year low on Nov. 20, gains that short seller Jim Chanos said will falter as President-elect Barack Obama’s infrastructure spending plan disappoints investors. Chanos said he’s adding to his short-sale bets against construction, cement and steel companies.

“It will not be profitable to the extent that people think,” Chanos, whose Ursus Fund has risen more than 50 percent this year, told Bloomberg Television. “People are forgetting that there are always promises of infrastructure plans.”

More than three-quarters of money managers expect U.S. stocks to advance next year, while 72 percent say the market is undervalued, according to Russell Investments’ quarterly survey of investors whose firms oversee about $10 trillion.

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

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