Asian Stocks Drop, Led by Commodity Producers; Rio Tinto Falls

By Shani Raja

Jan. 12 (Bloomberg) -- Asian stocks fell, led by commodity producers and industrial companies, as the worsening global recession drives down demand for raw materials.

Rio Tinto Group slumped 6 percent after shelving a $2.15 billion expansion of an iron ore mine in Brazil. Keppel Corp., the world’s biggest oil rig builder, tumbled 7.3 percent following the cancellation of a $405 million rig order. PetroChina Co. declined 3.9 percent as crude oil fell for a fifth day and U.S. unemployment jumped.

“The global economy is continuing to deteriorate,” said Rob Patterson, who manages about $2 billion at Argo Investments Ltd. in Adelaide. “If the U.S. economy is slowing, it means they’re importing less from countries like China, and that China is buying fewer commodities. It’s not helpful to anyone.”

The MSCI AC Asia Pacific excluding Japan Index fell 2.8 percent to 240.56 at 3:19 p.m. in Hong Kong, extending a three- day, 4.9 percent drop. All 10 industry groups retreated. The index has lost 2.9 percent this year, building on a 53 percent drop in 2008.

Japan’s markets are closed for a holiday. Australia’s S&P/ASX 200 Index slipped 1.4 percent. The Kospi Index dropped 2.1 percent in South Korea, where Hyundai Motor Co. slid 3.3 percent after planning to cut production. Wipro Ltd. plunged 8.6 percent, leading declines in India, after the World Bank said the software exporter is barred from working for the institution.

The Standard & Poor’s 500 Index sank 2.1 percent on Jan. 9, capping the worst week since November, after a government report showed the jobless rate climbed to 7.2 percent in December, more than economist estimates. Futures on the S&P 500 fell 0.4 percent today after President-elect Barack Obama said in an ABC interview that reviving the economy will require scaling back on campaign promises and personal sacrifice from all Americans.

Steel Demand

Rio Tinto lost 6 percent to A$41.30. The world’s third- largest mining company postponed an expansion of the Corumba iron ore mine in Brazil because of a decline in demand for the ingredient used to make steel.

Steel mills in Asia, Europe and North America are cutting purchases of raw materials as car manufacturers reduce output and companies cancel orders to build ships and offshore platforms.

Hyundai Motor said late on Jan. 9 it plans to cut first- quarter vehicle production in South Korea by as much as 30 percent amid plunging auto demand locally and overseas. The stock lost 3.3 percent to 45,150 won.

Ssangyong Motor Co., South Korea’s smallest carmaker, filed for court receivership at the end of last week to avoid bankruptcy after its vehicle sales fell 30 percent in 2008. Trading in its shares are suspended.

Orders Cancelled

Keppel dropped 7.3 percent to S$4.56 after Scorpion Offshore Ltd. terminated a $405 million oil rig order. The company is also discussing a settlement with Lewek Shipping Pte. for cancellation of a separate order.

Cosco Corp. Singapore Ltd. slipped 6.3 percent to 82 Singapore cents after India’s Great Eastern Shipping Co. scrapped orders for two bulk carriers due to “the current uncertain business environment.” It is the second order cancellation for Cosco in a month.

BlueScope Steel Ltd., Australia’s largest steelmaker, fell 2.1 percent to A$3.76. Dongkuk Steel Mill Co., South Korea’s third biggest, plunged 8.8 percent to 26,450 won.

Growth in the global economy will slow to 2.2 percent this year from 2008’s 3.7 percent, the International Monetary Fund said in November. A rate of 3 percent or less is “equivalent to a global recession,” according to the group.

PetroChina, Bumi

Oil producers slumped as crude oil fell for a fifth day in New York, extending last week’s 12 percent drop, on concern demand will decline more rapidly than the Organization of Petroleum Exporting Countries cuts output. Crude for February delivery lost as much as 1.7 percent to $40.15 a barrel in after- hours trading in New York.

PetroChina, China’s largest oil company, lost 3.9 percent to HK$6.75. China Oilfield Services Ltd., a unit of the nation’s largest offshore oil producer, slumped 6.2 percent to HK$5.87.

PT Bumi Resources, Asia’s largest power-station coal exporter, fell 9.5 percent to 570 rupiah, extending a four-day, 33 percent plunge. Indonesia regulators said they will review Bumi’s takeover of three companies last week. The acquisitions sparked analyst downgrades on concern the company is overpaying.

China Eastern Airlines Corp., the nation’s third-largest carrier by fleet size, slumped 7.1 percent to HK$1.04 in Hong Kong, after the carrier said it lost about 6.2 billion yuan ($906 million) on fuel hedging contracts last year.

Property developers dropped in Hong Kong after China’s house prices fell 0.4 percent in December from a year earlier, the first decline since the government started releasing the data in August 2005.

Builders Slide

Sun Hung Kai Properties, the city’s biggest developer by market value, dropped 2.4 percent to HK$68.35. Sino Land Co., the fifth largest, slumped 6.8 percent to HK$7.83.

Wipro, India’s third-largest software exporter, plunged 8.6 percent to 229.35 rupees. The company is barred from World Bank contracts for four years from June 2007 for providing “improper benefits” to the bank’s staff, according to a statement on its Web site. The purchase didn’t violate any ethics or conflict of interest policies, Wipro said in an e-mailed statement.

The World Bank’s statement came less than three weeks after it disclosed Satyam Computer Services Ltd. was banned. Satyam surged 55 percent to 36.75 rupees today on speculation a new government-appointed board will draw up a rescue plan for the company at the center of India’s biggest corporate fraud.

The stock lost 87 percent in the last two trading sessions after Chairman Ramalinga Raju said he falsified the accounts and quit.

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

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European Stock-Index Futures Drop; STMicroelectronics May Fall

By Alexis Xydias and Sarah Jones

Jan. 12 (Bloomberg) -- European stock-index futures fell, indicating the Dow Jones Stoxx 600 Index will drop for a fourth straight day, on concern that the global recession is snuffing out profit growth.

STMicroelectronics NV may decline after UBS AG advised selling shares of Europe’s largest computer-chip maker. UBS may slide after SonntagsZeitung said the Swiss bank will post an 8 billion-franc ($7.2 billion) loss for the fourth quarter.

Futures on the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, fell 0.5 percent to 2,484 at 7:47 a.m. in London. The U.K.’s FTSE 100 Index may decrease 24, according to Cantor Index, a betting firm.

The MSCI Asia Pacific Index dropped 1.1 percent, led by raw- material producers and industrial companies. Futures on the Standard & Poor’s 500 Index slipped 0.4 percent after President- elect Barack Obama said in an ABC interview that reviving the economy will require scaling back on campaign promises and personal sacrifice from all Americans. Alcoa Inc., the largest U.S. aluminum producer, unofficially kicks of the U.S. earnings season today.

“The economic outlook appears to be still deteriorating,” said Lawrence Peterman, investment director at Eden Financial Ltd. in London. “Markets are focusing a lot on the jobs market in the U.S., and the outlook for Europe is also poor. All this will feed through to corporate profits.”

Europe’s Stoxx 600 dropped for a third straight day on Jan. 9 amid concern rising U.S. unemployment signals that the global economic slump is deepening. The regional benchmark had rallied on the first two days of trading last week amid speculation government efforts to revive growth with stimulus packages and interest-rate cuts will boost the economy.

STMicro, UBS

STMicroelectronics was cut to “sell” from “neutral” by UBS, which said “there is a risk of revenues coming in lower than revised guidance.”

UBS may post an 8 billion-franc loss for the final quarter of 2008, SonntagsZeitung reported yesterday, without saying where it got the information. Such a result would take the bank’s full- year deficit to more than 20 billion francs, making it the biggest Swiss corporate loss, the Zurich-based newspaper wrote. UBS spokeswoman Rebeca Garcia declined to comment on the report.

Oce NV may be active after the world’s largest maker of wide-format printers posted a 98 percent slump in fourth-quarter profit because of an “unprecedented economic downturn.” Oce will pay a dividend for 2008 of 15 cents a share, down from 64 cents in 2007, the company said.

Earnings

The European companies tracked by Bloomberg that announced earnings since the Stoxx 600 began to rebound from its 2008 low on Nov. 21 have posted a 75 percent decline in average profit, missing analysts’ estimates by 91 percent.

Premier Foods Plc may move. The owner of the Hovis brand is asking its banks to let it make a rights offer in exchange for relaxing debt covenants, the Times reported, citing people close to the negotiations. Premier Foods proposed to sell about 40 percent of the company to private equity and hedge fund investors at a presentation to lenders last week, the Times said.

Roche Holding AG may be active after the Financial Times reported the world’s biggest maker of tumor drugs is preparing to raise its bid for biotechnology company Genentech Inc.

The Stoxx 600 has slumped 43 percent since the start of last year as $1 trillion in losses at financial companies eroded profits and the U.S., Europe and Japan fell into simultaneous recessions.

The index has rebounded 14 percent since Nov. 21 as investors speculated that Obama will boost the world’s biggest economy with tax cuts. The Federal Reserve has slashed interest rates to as low as zero percent, while the European Central Bank has scope to reduce borrowing costs further after the region’s inflation rate fell to the lowest in more than two years.

The deepening economic contraction in the U.K. spurred the Bank of England last week to cut its benchmark interest rate to the lowest since the central bank was founded in 1694.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net; Sarah Jones in London at sjones35@bloomberg.net.

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China can be first to 'recover' from crisis

By Wang Xu (China Daily)
Updated: 2009-01-12 07:29

China could be the first to recover from the global financial crisis, and will introduce more measures in the next two months to bolster the economy, Premier Wen Jiabao has said.

"Our aim is to be the first to recover from the financial crisis. We must have faith and determination," Wen said on a tour of export powerhouse Jiangsu province over the weekend.

The government will put forward a series of new measures, which top policymakers are working on, before the annual session of the National People's Congress that begins on March 5, he said.

Policymakers have used proactive fiscal and moderately loose monetary policies to maintain the economy's momentum. Plus, the government is drafting another policy package to help nine key industrial sectors hit hard by the global economic downturn.

The National Development and Reform Commission, the country's top planning body, is likely to announce the detailed policy for the auto sector soon. The policy will offer measures like tax and credit incentives to increase the sale of vehicles.

Wen said the government would expedite the investment of 600 billion yuan ($88 billion) into six major projects, approved in the country's master plan for scientific and technological development over medium and long terms.

The premier did not give details of the six projects but the master plan, released in 2006, included 16 scientific and technological schemes that were expected to be completed by 2020. Among them the development of the indigenously built jumbo passenger aircraft and the manned space program.

The country's economy has been losing steam over the past six months because the global economic downturn has dealt a blow to its exports sector. Exports dropped in November, the first time in seven years, and the industrial output growth fell to 5.4 percent, the lowest in 10 months.

But "our measures have already taken effect", Wen said, adding that the December data were "better than expected".

Some economic indicators such as corporate revenue and electricity use have already begun to rebound, he said.

According to China Electricity Council, an industry association, the country's use of electricity rose to 273.7 billion KWh in December, up 6.8 percent from the previous month. In October, the use of electricity, largely considered an indicator of the country's economic activities, dropped about 4 percent year-on-year - the first time in a decade.

The $586-billion fiscal stimulus package, announced on Nov 9, is expected to help the economy rebound this year, economists with the Standard Chartered Bank said in a research note on global economic outlook. They remained upbeat over the country's long-term growth prospects, too, despite the current slowdown.

Yi Gang, central bank vice-governor, said at a forum over the weekend that the country's economic growth would pick up between the second and third quarters because local enterprises are likely to have reduced their inventories substantially by then.




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South Korean, Japanese Leaders Pledge Closer Economic Ties

By Heejin Koo

Jan. 12 (Bloomberg) -- Japan’s Prime Minister Taro Aso and South Korean President Lee Myung Bak pledged to work together to help overcome the global financial crisis.

“Cooperation between our two countries is all the more important at a time of global economic crisis,” Lee told Aso at the start of a summit meeting in Seoul today. “I hope we can closely cooperate with each other separately as well as within an international forum, so that we can contribute to the recovery of the global economy.”

Japan and South Korea are seeking closer economic ties to spur growth. Japan’s economy shrank 2.85 percent in the three months ended Dec. 31, contracting for a third straight quarter, according to a Bloomberg survey of economists. The Bank of Korea cut its benchmark interest rate by a half point to a record low on Jan. 9, saying the economy is deteriorating faster than expected.

The two countries will speed up efforts to review whether to resume negotiations for a free-trade agreement, or an “economic partnership agreement,” as it is called in Japan, the two leaders said in a joint briefing after their meeting. The two nations will also take steps to attract Japanese manufacturers of machinery parts to set up in South Korea, they said.

Aso, who is on a two-day visit to Seoul, will return to Tokyo later today.

To contact the reporter on this story: Heejin Koo in Seoul at hjkoo@bloomberg.net

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Australian Job Advertisements Fall as Recession Looms

By Gemma Daley

Jan. 12 (Bloomberg) -- Australian advertisements for job vacancies slumped for an eighth month in December to levels indicating the economy will enter a recession in the next nine months, according to an Australia & New Zealand Banking Group Ltd. report.

Jobs advertised in newspapers and on the Internet plunged 9.7 percent last month to an average of 190,661 a week, after falling 8.6 percent in November, according to the report released in Melbourne today. Newspaper ads plummeted by 51.8 percent from a year earlier, the largest annual decline since 1982.

“The demand for new labor across the Australian economy is at recession levels,” said Warren Hogan, head of economics at ANZ Bank in Sydney. “ANZ is forecasting the unemployment rate to rise to 6 percent in 2009.”

Central bank governor Glenn Stevens in December cut the benchmark interest rate to a six-year low of 4.25 percent to help the economy avoid its first recession in 17 years. Gross domestic product rose 0.1 percent in the third quarter, the weakest pace in eight years.

A report to be released on Jan. 15 will show employers probably cut 20,000 jobs last month and the unemployment rate rose to 4.5 percent from 4.4 percent in November, according to a Bloomberg survey of economists.

The number of jobs advertised in newspapers in December fell 13.9 percent from November to an average of 10,126 per week, today’s report showed. Vacancies on the Internet slid 9.5 percent from November to an average 180,535 per week. That was 28.1 percent lower than 12 months earlier.

To contact the reporter on this story: Gemma Daley in Canberra at gdaley@bloomberg.net

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King Narrows Tucker Successor Search to Enforce New BOE Policy

By Brian Swint

Jan. 12 (Bloomberg) -- Bank of England Governor Mervyn King, developing new policy tools as the U.K.’s interest rate approaches zero, is narrowing his search for someone to wield them.

King’s hunt for a new chief of markets, the enforcer of monetary policy, will focus on Paul Fisher, the bank’s head of foreign exchange, economists say. Neal Hatch, Andrew Haldane and Andrew Bailey, who are also bank officials, are among other potential successors to Paul Tucker, who becomes Deputy Governor in March. Interviews may start as soon as this week.

The role will be even more pivotal than before as policy makers consider ways to control the economy by buying bonds or other assets. Last week, they cut the benchmark interest rate to 1.5 percent, the lowest since the central bank was founded in 1694. Applications closed on Jan. 9 after King advertised for an official with experience at a “major financial institution” or a central bank in the Group of 10 nations.

“It will be one of the most important appointments King has to make, for sure,” said Amit Kara, an economist at UBS AG in London and a former Bank of England official. “This person will be on the Monetary Policy Committee and in charge of markets. These are important times.”

The bank, in an advertisement in the Economist magazine on Dec. 19, said that candidates for the “high-profile and influential role” should have a “good understanding” of monetary economics and a “strong background” in financial markets, particularly with money and credit.

“Practical experience of treasury management would be desirable,” the ad said.

Job Interviews

Interviews will be conducted in due course, a Bank of England spokesman said. He declined to comment further on the hiring process.

Fisher, 50, currently works under Tucker, 50, in the markets division. He is “a very good macroeconomist who’s done a lot of work on modeling,” Kara said.

“Paul Fisher would be a very obvious and well-qualified candidate,” said Danny Gabay, an economist at Fathom Financial Consulting and a former U.K. central bank official. “He’d be an easy person to slot into the role.”

Hatch, 45, is head of structural economic analysis in the bank’s monetary analysis and statistics division. While Fisher is a “strong candidate,” Hatch would be the best pick, said Colin Ellis, an economist at Daiwa Securities SMBC Europe Ltd. in London and a former Bank of England official.

“He’s a very safe pair of hands,” Ellis said.

Kara named Bailey, 49, and Haldane, 41, as potential applicants. Both are at the same management level as the new position, though they don’t sit on the bank’s nine-member rate setting panel.

Bailey, Haldane

Bailey, whose signature appears on every Bank of England banknote, is executive director in charge of banking services. Haldane, described by Kara as “one of the rising stars” at the bank, has just replaced Nigel Jenkinson as executive director for financial stability this month.

King, 60, said last year that he wants to promote more people to encourage talented staff to build a career at the central bank after a wave of departures during London’s decade- long financial boom. “They are the generation that will run the bank in the future,” he told lawmakers on April 29.

“In normal circumstances, I would expect the bank to make an appointment from within,” said Douglas McWilliams, chief executive officer of the Centre for Economics and Business Research in London. “But the role of the bank may be enhanced and they may well want to recruit someone with external experience.”

Outside Candidates

The position may attract outside candidates as London’s financial-services industry braces for job cuts this year amounting to almost a fifth of its 350,000-strong workforce, McWilliams said. Still, anyone who applies would probably earn “a good deal more” working for a commercial bank that pays annual bonuses, he said.

The bank didn’t disclose the salary on offer in its ad. Tucker earned 173,815 pounds ($264,928) in the 2007 to 2008 financial year, according to the central bank’s most recent annual report.

The successful candidate will have to work closely with Prime Minister Gordon Brown’s government. Both King and Chancellor of the Exchequer Alistair Darling have said that cooperation between the central bank and the Treasury would be crucial to successfully implementing unconventional policies.

If the bank moves to apply so-called quantitative easing, the executive director for markets will provide intelligence to the rate-setting panel on what investors are willing to buy and at what price. The official is also responsible for implementing policy makers’ decisions and will have to help design any new methods of controlling the economy.

“Clearly the markets area would be in charge of putting quantitative easing into practice,” Ellis said. “I would think they’ve got a lot of economists in the bank who are locked in a room thinking about this” and the bank and the Treasury have probably not yet agreed on how it would work, he said.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.

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Trust Me, I Have $1 Billion Stashed in the Bank: William Pesek

Commentary by William Pesek

Jan. 12 (Bloomberg) -- Wondering where all those Arthur Andersen accountants went? It may have been India.

It’s tempting to make that mental leap amid Satyam Computer Services Ltd.’s book-cooking scandal. Ramalinga Raju is no longer the entrepreneur who built India’s fourth-biggest software maker. He’s now allegedly the nation’s answer to Jeffrey Skilling, the former Enron Corp. chief executive officer serving a 24-year prison term.

Satyam’s crisis may be more jaw-dropping than Enron’s in 2001. It’s not just the magnitude of the scam -- 53,000 employees may lose jobs compared with 5,000 at Enron -- but the simplicity.

Enron’s fraud was conducted through a labyrinth of off- balance-sheet deals and other accounting gimmicks. Accounting firm Arthur Andersen approved the company’s financial creativity and collapsed in 2002. Enron didn’t make it easy for the auditor.

Satyam’s con was impossibly transparent: The Hyderabad-based company said it had $1 billion in the bank that it didn’t.

Raju said he inflated earnings and assets. Assuming he’s telling the truth, you would think auditor PricewaterhouseCoopers LLP or board members could have cleared up a mess years in the making with a phone call, a fax machine or even a postage stamp. Management says it has a mountain of cash in the bank and you just flat-out believe it?

And why did the World Bank appear to know more about Satyam’s business practices than everyone else? Last month, the Washington-based lender declared Satyam ineligible for contracts for eight years, alleging “improper benefits” were given to the bank’s employees.

Delving Deeper

If Raju’s version of the story is the right one, it raises a stark question: Could a moderately sized start-up company claim to have $1 billion or $2 billion in cash and then go public without observers delving deeper?

Then again, Raju’s claims have yet to be proven. Investigations are afoot and no one is talking publicly -- no comments all around from auditors and Raju, who was arrested along with brother Rama on Jan. 9.

“There can be two possibilities,” says Ved Jain, president of the Institute of Chartered Accountants of India. “One, the auditor has been negligent. Second, he was aware and intentionally overlooked it.”

The bigger question, of course, is what else is hiding below the surface in Asia’s third-biggest economy. Is this “Enron moment” merely the tip of the iceberg? Or will it have a chastening effect that leaves India better off five years from now? It’s impossible to know.

Second Blow

The days of giving corporate executives the benefit of the doubt are long gone. The shenanigans at Enron, WorldCom Inc. and Parmalat SpA have even lost their shock-value following the failure of Lehman Brothers Holdings Inc. and financier Bernard Madoff’s alleged $50 billion fraud.

Clearly, this isn’t an India-specific problem. It’s important to remember that India’s economy and 1.2 billion people have vast potential. This is as much a setback for global corporate governance as it is for Indian officials.

Yet this is the second big blow for corporate India in recent months. It’s unclear how the Mumbai terror attacks in November that left 164 people dead will affect business. The Satyam affair has only compounded concerns that foreign investors will view India less favorably.

Arun Kejriwal, founder of Kejriwal Research & Investment Services in Mumbai, spoke for many when he said: “This is a black day for India.”

Crown-Jewel Industry

The reason is this scandal involves India’s premier global industry. That amplifies the economic ripple effect. It’s anyone’s guess whether the government will heed calls for a public bailout.

Credit Suisse Group analysts Nilesh Jasani and Arya Sen advised investors in a report last week to own shares of Indian companies with “good corporate governance” as Satyam’s troubles may prompt disclosure of more one-time losses. That’s all well and good, yet that’s what Satyam investors thought they had done.

The last decade has been disorienting for investors, especially the last 12 months. First it was regulators asleep on the job, then credit-rating companies and then accountants.

Raju, 54, was named Ernst & Young Entrepreneur of the Year in 2007. It seems he was far more entrepreneurial than regulators knew. Raju presumably also fooled Satyam’s board of directors.

Precarious 2009

In a letter to the board last week, Raju could have been speaking for shareholders when he said that hiding the truth “was like riding a tiger, not knowing how to get off without being eaten.”

Things just got harder for India at the worst time imaginable. Prime Minister Manmohan Singh expects the economy to grow about 7 percent in the 12 months ending March 31. Even if that rate is achieved, global trends have turned decidedly against India’s prospects.

Two months ago, officials in New Delhi were still saying India was less vulnerable to the global credit crisis than Asian peers. Two stimulus packages since early December, four interest- rate cuts since October and Satyam’s woes all belie that claim.

The risk is that recent events will reduce the foreign investment needed to maintain rapid growth and spread its benefits. India’s 2009 just got a bit more precarious.

(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

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China's Power Output, Demand to Extend Falls, Regulator Says

By Wang Ying

Jan. 12 (Bloomberg) -- Power demand and output in China, the world's second-biggest consumer of energy, will continue to fall this year because of slower economic growth, said the State Electricity Regulatory Commission.

Electricity producers will face ``increased difficulties'' because of ``unsolved problems'' in coal and power pricing, the commission said in a statement posted on its Web site today. China relies on coal for almost 80 percent of its power generation.

To contact the reporter on this story: Wang Ying in Beijing at ywang30@bloomberg.net.

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Shenhua to Bid for Stake in Rio Coal Unit, Morning Post Says

By Joost Akkermans

Jan. 12 (Bloomberg) -- China Shenhua Energy Co. plans to bid for a stake in a coal unit Rio Tinto Group is putting up for sale, the South China Morning Post reported, citing people it didn’t identify.

Rio is seeking interest for the majority holding it owns in Coal & Allied Industries, which runs operations in Australia’s New South Wales, the English-language Hong Kong-based newspaper said today. The stake is worth about $3.72 billion, according to the Morning Post.

Likely buyers of the stake, which include Mitsubishi Development Pty and Xstrata Plc, want Rio to include its coal assets in Queensland in a transaction, according to the newspaper. Mitsubishi is the second-largest shareholder in Coal & Allied and has change of control rights, it said.

China Shenhua Energy is the Hong Kong-listed unit of Shenhua Group Corp., China’s biggest coal producer, and Rio Tinto is the world’s third-largest mining company.

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

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GM Said to Grant First Contract for Volt Batteries to LG Chem

By Jeff Green

Jan. 12 (Bloomberg) -- General Motors Corp., the biggest U.S. automaker, is poised to name a unit of South Korea’s LG Chem Ltd. the winner of the first battery contract for the Volt electric car, people familiar with the matter said.

The deal is part of an announcement today on electric- vehicle technology that includes GM’s plan to assemble battery packs at one of its factories, said the people, who asked not to be identified because the plans aren’t public yet.

Awarding the contract ends GM’s review of cells from LG Chem’s Compact Power Inc. subsidiary in Troy, Michigan, and a unit of Continental AG using technology developed by GM and A123Systems Inc. Batteries based on A123’s technology may be used in the future, the people said.

The move is a step toward the November 2010 start of sales for the Volt, which GM is counting on to close a technology gap with Toyota Motor Corp., the world’s biggest seller of hybrids. Toyota is working on a plug-in version of its Prius to match the Volt’s projected 40 miles of travel on one battery charge.

Today’s announcement will cover Detroit-based GM’s plan to assemble cells provided by LG Chem into the final battery pack, and may include details of the automaker’s investment in the project, the people said. The New York Times reported the battery-pack assembly plans yesterday.

‘Battery Partner’

“We will announce a battery partner,” GM Vice Chairman Bob Lutz said in an interview yesterday at the North American International Auto Show in Detroit, declining to identify the winner. Chief Executive Officer Rick Wagoner also said the automaker would talk more about its technology effort, declining to give details.

LG Chem, South Korea’s biggest chemical maker, said Jan. 8 that the company was still in talks to supply hybrid-auto batteries to GM. CEO Kim Bahn Suk said at the time that LG Chem expected a “positive result” from the discussions.

The four-passenger Volt will use its internal-combustion engine only to recharge the battery. The car can be plugged into a standard 120-volt outlet and be charged in about eight hours, or less than 3 hours at a 240-volt outlet, GM said.

GM, like all automakers selling in the U.S., must increase the average fuel efficiency of the fleet as much as 40 percent to 35 miles per gallon of gasoline by 2020 to comply with new federal standards.

A123Systems, a General Electric Co.-backed maker of lithium-ion batteries that is based in Watertown, Massachusetts, said last week it is applying for $1.84 billion in federal loans to build the first large U.S. plants to supply rechargeable hybrids and electric cars.

Closely held A123, which last year announced an initial public share sale, said in a statement its first U.S. battery plant would be in southeast Michigan. The company plans to eventually spend $2.3 billion on U.S. factories that would employ 14,000 people.

To contact the reporter on this story: Jeff Green in Detroit at jgreen16@bloomberg.net

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Ukraine Agrees to Sign New Russia Gas-Monitors Accord, EU Says

By Paul Abelsky and Peter Chapman

Jan. 12 (Bloomberg) -- Ukraine agreed to sign a new version of an accord to authorize monitoring of natural gas flows, paving the way to resume Russian gas shipments through the country to the rest of Europe, a European Union official said.

The new version followed a phonecall between Russian Prime Minister Vladimir Putin and European Commission President Jose Manuel Barroso, and will be separate from a handwritten declaration from the government of Ukrainian Prime Minister Yulia Timoshenko that hours earlier caused the Russian side to threaten to pull out of the deal.

“Barroso has spoken to Timoshenko and they have agreed to separate the two documents,” commission spokesman Ferran Tarradellas Espuny in Brussels said late yesterday. “On one side the declaration and on the other side the terms of reference.”

The EU brokered an accord that established independent verification of the gas shipments by Russian gas exporter OAO Gazprom, with monitoring teams arriving yesterday.

Gazprom, which supplies a quarter of Europe’s gas, had halted transit supplies through Ukraine on Jan. 7 in a dispute with Ukraine’s state energy company NAK Naftogaz Ukrainy over prices, transmission fees and debts.

Ukraine had complicated the pact by issuing a declaration yesterday afternoon, which the Brussels-based European Commission said was a mixture of a factual restatement of the agreed “Terms of Reference” already signed, and in some cases Ukraine’s interpretation of what has been agreed. While the European Commission said the declaration “does not add to and it does not subtract from the terms of the treaty,” the Russian side had objected to the late addition.

Declaration

The declaration had demanded 21 million cubic meters of gas a day to ensure gas flows, which amounts to an attempt to “legalize stealing,” Gazprom Chief Executive Officer Alexei Miller told reporters in Moscow yesterday. Ukraine denies charges of siphoning off Russian gas destined for European countries.

“The Commission considers that all conditions expressed by the two parties have been met and there is no reason to delay the restoration of gas supplies any further,” the European Commission said. At least 20 European countries have been affected by the gas stoppage, with the Balkans hardest hit.

Gazprom spokesman Sergei Kupriyanov said late yesterday that the company hadn’t received a final document that it was satisfied with.

Russian state-run broadcaster Vesti late yesterday showed Vladimir Chizhov, Russia’s envoy to the EU, holding a copy of the document signed by representatives of the Russian and Ukrainian governments, the EU, Gazprom and NAK Naftogaz Ukrainy, Ukraine’s state energy company. Next to the signature of Ukraine’s first deputy prime minister were the words “declaration attached,” Vesti said, adding that it was unclear what was meant.

Monitoring Teams

One observation team has been let into a Russian measuring station in Sudzha, the European Commission said. Other groups will travel to the Orlovka, Pisarevka, Sokhranovka, Beregovo and Tekovo stations in Ukraine after arriving in Russia’s neighbor.

“Ukraine is going to have to put its cards on the table,” Ronald Smith, chief strategist with Moscow-based Alfa Bank, said today. “It will be apparent who is telling the truth. With the monitors it will be very clear what’s going on. On the pricing side there’s no reason for Ukraine not to pay market-based prices for its gas.”

Russia’s Putin said Gazprom has lost about $800 million since the start of the dispute with Ukraine, the Interfax newswire reported, citing an interview to be broadcast on German television channel ARD on Jan. 14. Russia is ready to buy into Ukraine’s gas transportation network if the Ukrainian state agrees, he said.

Pipeline Supplies

Gazprom’s European customers receive 80 percent of supplies through pipelines that cross Ukraine. Gazprom’s overall deliveries to Europe fell by about 60 percent when it halted transit flows via Ukraine and supplies to Ukraine’s domestic market were suspended Jan. 1 pending a new contract.

Once gas starts to flow in Ukraine, it may take about 36 hours for it to reach EU states, where in some the situation is “serious,” Czech Prime Minister Mirak Topolanek said. The Czech Republic, which holds the European Union’s sixth-month rotating presidency, has called an energy council meeting for all EU members today in Brussels, Industry Minister Martin Riman said.

E.ON AG expects full deliveries of gas three days after the fuel enters Ukraine, Kai Krischnak, spokesman for the German utility’s Essen-based E.ON Ruhrgas AG gas division said yesterday.

Gas Price Talks

Oleh Dubina, the chief executive officer of Naftogaz, said yesterday talks on a price for supplies of gas to Ukraine from Russia this year had failed to produce a result. Gazprom offered a price of $450 per 1,000 cubic meters after it said Ukraine rejected an offer, subsequently withdrawn, of $250.

Gazprom’s prices to European customers under long-term contracts typically lag behind prices for crude and oil products by about six to nine months. Crude has fallen by more than 70 percent since reaching a record in July. Ukraine paid Russia $179.50 per 1,000 cubic meters for gas last year under a separate arrangement.

Ukraine and Georgia, both former Soviet republics, have strained relations with Russia in their efforts to join the EU and the North Atlantic Treaty Organization. The gas dispute has come as Timoshenko and Ukrainian President Viktor Yushchenko, who have clashed over economic policy, are facing a financial crisis that has forced them to seek a $16.4 billion International Monetary Fund bailout.

2006 Spat

In 2006, Russia turned off all gas exports to Ukraine for three days, causing volumes to fall in the EU, and also cut shipments by 50 percent last March during a debt spat.

The current spat has forced member counties of the 27-nation EU to consider how to develop alternative sources of energy and nuclear power. The Slovak government this weekend approved the restart of a nuclear reactor, in the face of EU opposition, to meet the country’s energy needs as the halt in Russian gas supplies continued.

Prime Minister Robert Fico told reporters the move would be for a “necessary” period until the gas market stabilizes. The reactor in Jaslovske Bohunice was closed Dec. 31 as part of the conditions imposed on Slovakia when it joined the EU.

To contact the reporters on this story: Peter Chapman in Brussels at pchapman10@bloomberg.netPaul Abelsky in St. Petersburg at pabelsky@bloomberg.net.

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Citigroup May Book $10 Billion Gain From Morgan Stanley Deal

By Bradley Keoun and Christine Harper

Jan. 12 (Bloomberg) -- Citigroup Inc. may book a gain of as much as $10 billion by forming a brokerage venture with Morgan Stanley, helping to replenish capital depleted by the biggest losses in the bank’s 197-year history, a person familiar with the talks said.

The pretax gain would result from writing up the value of Citigroup’s Smith Barney brokerage unit to the new price set by the deal, said the person, who declined to be identified because the talks are confidential. The gain of $5 billion to $6 billion after taxes would flow into Citigroup’s capital, a loan-loss cushion so eroded that the bank had to get $45 billion of rescue funds last year from the U.S. government.

“You’re selling out the future to get through the crisis of the present, and unfortunately they don’t have a lot of other choice,” David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller in New York, said in a Jan. 9 interview.

The worst banking crisis since the Great Depression forced Citigroup Chief Executive Officer Vikram Pandit to abandon his pledge not to sell Smith Barney. For the past decade, the unit has been at the center of the bank’s plan to provide bond- underwriting, savings accounts and investment advice under a single umbrella.

Citigroup spokesman Michael Hanretta declined to comment. Jim Wiggins, a spokesman for Morgan Stanley, didn’t return calls seeking comment.

‘Morgan Stanley Smith Barney’

Talks on the plan to combine Smith Barney with Morgan Stanley’s brokerage in a $20 billion joint venture progressed over the weekend, another person briefed on the talks said. The deal may be announced as soon as mid-week, this person said.

Under the plan being considered, Morgan Stanley would pay $2 billion to $3 billion to New York-based Citigroup to obtain 51 percent of a venture that would combine both firms’ retail brokerage arms, people familiar with the plan said.

The new firm, tentatively named Morgan Stanley Smith Barney, would have about 22,000 brokers, exceeding the network created by Bank of America Corp.’s Jan. 1 takeover of Merrill Lynch & Co., which have about 20,000 brokers between them.

To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net; Christine Harper in New York at charper@bloomberg.net.

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China to Keep Yuan Close to Dollar ‘Peg’ in 2009, Goldman Says

By Judy Chen

Jan. 12 (Bloomberg) -- China will keep the yuan trading within a narrow range against the dollar in 2009 on concern renewed appreciation will hurt exporters at a time of shrinking global demand, Goldman Sachs Group Inc. said.

The yuan has remained little changed since the end of July as the People’s Bank of China pledged to pursue a stable currency while a credit crisis triggered recessions in the U.S., Europe and Japan. China’s exports fell 5.3 percent in December, the most in almost a decade, according to the median forecast of economists surveyed before a government report this week.

The central bank “will likely keep the yuan close to a peg against the dollar,” Helen Qiao and Song Yu, Hong Kong-based economists at Goldman, wrote in a report today. “This is viewed as a critical issue for trade development in the face of unprecedented uncertainties in the global economy.”

The yuan’s 21 percent gain since the end of a fixed exchange rate in July 2005 has squeezed exporters’ profits and made Chinese products more expensive for overseas buyers. The slide in exports is undermining Premier Wen Jiabao’s target of sustaining economic growth at more than 8 percent a year.

Goldman’s analysts predict the yuan will trade at about 6.87 per dollar in three, six and 12 months, compared with 6.8389 as of 9:35 a.m. in Shanghai. China’s customs bureau may release December trade figures as early as today.

To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net

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Korea Won Slides to Four-Week Low as Recession Concerns Build

By Kim Kyoungwha

Jan. 12 (Bloomberg) -- South Korea’s won slumped to a four- week low against the dollar on mounting concern Asia’s fourth- largest economy faces a prolonged recession.

The Korean currency, Asia’s worst performer last year, fell for a third day after Hankyoreh reported, citing a senior Bank of Korea official it didn’t identify, that the economy shrank more than 4 percent in the final quarter from the previous three months. The Kospi stock index, which has climbed 24 percent since reaching a three-year low in October, also slid for the third day in a row.

“The market is pricing in the possibility of a deeper recession than was previously expected,” said Jay Won, a currency dealer with Korea Exchange Bank in Seoul. “It’s anybody’s guess how long a bear-market rally in stocks will be sustained.”

The won fell 1.2 percent to 1,359.15 per dollar as of 9:42 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. It earlier touched 1,364, the weakest since Dec. 15. The won lost 26 percent last year, the worst performance among Asia’s 10 most-traded currencies, and the Kospi tumbled 41 percent.

Bank of Korea Governor Lee Seong Tae said on Jan. 9, after the central bank cut its benchmark interest rate by a half point to a record-low 2.5 percent, that it’s “almost certain” the economy had a very big contraction last quarter.

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

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Euro Falls Versus Dollar, Yen on Speculation ECB Will Cut Rates

By Ron Harui

Jan. 12 (Bloomberg) -- The euro fell for a second day against the dollar as traders raised bets that the European Central Bank will cut interest rates to the lowest since 2005 at its Jan. 15 meeting.

The currency also dropped to a one-month low versus the yen as Bank of America and Deutsche Bank AG forecast the 16-nation region’s economy will contract 2.5 percent this year. The difference in yield between two-year German and Japanese government bonds narrowed to the least in 18 years, according to data compiled by Bloomberg.

“A large portion of the euro’s demise has been predicated on the view that the ECB is falling behind the curve,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. “The market has priced in a 50 basis-point rate cut from the ECB.”

The euro dropped to $1.3405 as of 10:12 a.m. in Tokyo from $1.3476 late in New York on Jan. 9. The currency also declined to 120.73 yen from 121.81 yen. It touched 120.42 yen, the weakest since Dec. 12. Against the British pound, the euro traded at 88.84 pence from 88.78 pence.

The yen rose to 90.07 per dollar from 90.39 late in New York on Jan. 9. It also climbed to 62.80 against Australia’s dollar from 63.59 and gained to 52.91 versus New Zealand’s dollar from 53.49. It advanced the most against South Korea’s won, rising 1.3 percent to 15.03886.

‘Soft’ Data

Thirteen of the 16 most-active currencies strengthened against the euro as traders increased bets that the ECB will cut its 2.5 percent benchmark interest rate at this week’s meeting. The implied yield on the Eonia forward contract fell to 1.748 percent on Jan. 9 from 1.813 percent on Jan. 8. Eonia is the euro overnight index average.

The difference in yield between Japanese and German two-year notes narrowed to 1.13 percentage points on Jan. 9 from 1.21 percentage points on Jan. 8, the least since 1990.

“The recent run of soft euro-zone data has heightened expectations that the ECB will cut by 50 basis points to 2 percent and concern about the euro-zone outlook will likely keep the euro-dollar defensive early this week,” Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington, wrote in a research note today.

Accelerating job cuts and declining investment may shrink the European economy by 2.5 percent in 2009, according to Bank of America and Deutsche Bank AG. That’s five times the rate of contraction the ECB staff projected last month.

Nordic Currencies

The world’s biggest foreign-exchange traders are snapping up Sweden’s krona and Norway’s krone.

Current-account surpluses and forecasts by the Organization for Economic Co-operation and Development that Nordic economies will avoid the worst of the global recession made the currencies Goldman Sachs Group Inc.’s top picks for 2009, with potential gains of more than 17 percent.

Deutsche Bank, the biggest trader in the $3.2 trillion-a-day market, said last week the krone and krona are “well placed” for a rebound.

“It’s pretty clear the Scandinavian currencies weakened excessively last year,” said Thomas Stolper, a foreign-exchange analyst at Goldman Sachs in London. “These economies should hold up better than euroland and with improvements in market conditions some of this misalignment will be reversed.”

Stocks Fall

Japan’s currency gained for a fourth day against the Australian and New Zealand dollars before a U.S. government report this week that may show retail sales contracted for a fifth month in December, adding to signs the recession in the world’s largest economy is deepening.

Asian stocks fell, following losses in Europe and the U.S. on Jan. 9. The MSCI Asia-Pacific Index of regional shares excluding Japan dropped 1.2 percent. Japan is closed today for a public holiday.

“The bias remains for more upside for the yen on the crosses, with risk aversion back in play on continued dismal readings” for the global economy, RBC’s Trinh said.

Sales at U.S. retailers declined 1.2 percent last month, capping the longest stretch of declines since records began in 1992, according to a Bloomberg News survey of economists. The Commerce Department will release the report on Jan. 14.

Implied volatility on one-month Australian dollar options against the yen rose to 32.79 percent from 32.44 percent on Jan. 9, indicating greater exchange-rate fluctuation risks that can erode profit on so-called carry trades.

In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency market moves erase those profits. Benchmark interest rates are 4.25 percent in Australia and 5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S.

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net

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Australia, New Zealand Dollars Fall After Slump in U.S. Stocks

By Tracy Withers

Jan. 12 (Bloomberg) -- The Australian and New Zealand dollars fell after stock declines and a rising U.S. jobless rate reduced appetite for higher-yielding assets.

Unemployment in the U.S. climbed to 7.2 percent in December, the highest level in almost 16 years, adding to signs of a global economic slowdown that reduces risk appetite, according to a Jan. 9 report. The Standard & Poor’s 500 stock index fell 2.1 percent.

“Last week’s weak global data provided a reality check and reaffirmed that the global outlook for 2009 remains dismal,” said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. “Any further losses in global equities should see investors ditch growth-sensitive currencies like the New Zealand dollar.”

Australia’s dollar fell to 70.01 U.S. cents at 8:25 a.m. in Sydney from 70.34 cents in late New York trading on Jan. 9. The currency dropped to 63.11 yen from 63.59.

New Zealand’s dollar declined 0.6 percent to 58.85 U.S. cents from 59.20 cents in Asia yesterday. It traded at 53.07 yen from 53.52 yen on Jan. 9.

The benchmark interest rate in New Zealand is 5 percent, compared with 0.1 percent in Japan and as low as zero in the U.S., making the South Pacific nation an attractive destination for international investors seeking higher returns. Australia’s key lending rate is 4.25 percent.

Weighing on the Australian and New Zealand currencies, the euro fell the most versus the U.S. dollar since October on speculation the European Central Bank will lower interest rates on Jan. 15.

The ECB will cut its target rate by a half percentage point to 2 percent, according to the median forecast of 32 economists surveyed by Bloomberg News.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

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Copper Futures in Shanghai Jump 5% Limit to 28,140 Yuan a Ton

By Glenys Sim

Jan. 12 (Bloomberg) -- Copper futures jumped by the exchange-imposed 5 percent daily limit in Shanghai as some investors stepped up arbitrage trading to take advantage of the price gap between London and Shanghai.

Copper for March delivery on the Shanghai Futures Exchange rose 1,340 yuan from the previous settlement price to 28,140 yuan ($4,117) a metric ton.

London Metal Exchange copper gained as much as 3.2 percent to $3,510 a ton, and traded at $3,500 a ton at 9:25 a.m. Singapore time.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net

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Oil Falls on Concern Demand to Drop More Rapidly Than Supply

By Angela Macdonald-Smith and Christian Schmollinger

Jan. 12 (Bloomberg) -- Crude oil fell for a fifth day in New York, extending last week’s 12 percent drop, on concern demand will decline more rapidly than the Organization of Petroleum Exporting Countries cuts output.

Deutsche Bank AG on Jan. 10 lowered its forecast for the average price of crude oil this quarter by $10 to $45 a barrel, citing expectations consumption will fall by 1 million barrels a day this year. U.S. supplies have climbed in 13 of the past 15 weeks as the economy slows, according to the Energy Department.

“What OPEC has done is probably going to be enough to tighten up the market and support the oil price, but it will take a while for those production cuts to eat away at inventories,” said David Moore, a commodity strategist at Commonwealth Bank of Australia. “The near-term contracts are still very low and that reflects the fact we still have ample supplies at the moment.”

Crude oil for February delivery fell as much as 68 cents, or 1.7 percent, to $40.15 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $40.58 at 9:40 a.m. in Singapore.

OPEC, supplier of more than 40 percent of the world’s oil, agreed last month to cut production quotas by 9 percent to revive prices as the global recession erodes demand. Oil has plunged more than $100 in the last six months.

The group may cut its production further should crude prices continue to decline, Iran’s OPEC Governor Mohammad Ali Khatabi was cited as saying Jan. 11 by the Oil Ministry. OPEC is scheduled to meet next in Vienna on March 15. Iran is the group’s second-largest producer, after Saudi Arabia.

‘Steep Curve’

On Jan. 9, prices in New York dropped 2.1 percent to $40.83 a barrel after the U.S. said it lost 2.589 million jobs last year, the most since 1945.

Oil for March delivery is at a more than $5 a barrel premium to the front-month contract, while the April future is $9 above February delivered supplies. The situation where near-term crude is cheaper than later-dated oil is called a contango.

“The curve is very steep, which is consistent with the view that the market tightens up in time and we get higher prices down the track,” Commonwealth’s Moore said.

Oil for February dropped last week as stockpiles at Cushing, Oklahoma, the delivery point for crude traded at Nymex, climbed to 32.2 million barrels, the highest since the U.S. Energy Department started tracking the supplies in 2004. Total capacity in the area is around 47.7 million barrels, according to estimates from Andy Lipow at Houston-based consultants Lipow Oil Associates LLC.

Last week’s decline followed a 23 percent jump the week before, the most since August 1986.

Brent crude prices on Jan. 9 fell 0.6 percent to $44.42 a barrel on London’s ICE Futures Europe exchange.

U.S. Gasoline

The average price of regular gasoline at U.S. filling stations rose to $1.78 a gallon on speculation refinery maintenance may reduce stockpiles in the weeks ahead.

The motor fuel gained 12 cents, or 7.2 percent, in the three weeks ended Jan. 9, according to oil analyst Trilby Lundberg’s survey of 7,000 filling stations nationwide.

“This is simply a bounce after hitting bottom finally and it reflects a slight change in our demand behavior,” Lundberg said in a Bloomberg Radio interview yesterday. “Demand at these much lower prices is not down as much as it was in the fall although it is still down.”

To contact the reporters on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net

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Asian Stocks Drop as U.S. Unemployment Jumps; Woodside Falls

By Shani Raja

Jan. 12 (Bloomberg) -- Asian stocks dropped for a third day, led by commodity producers, on concern an increase in U.S. unemployment signals a worsening global recession.

Woodside Petroleum Ltd. slipped 2 percent as crude oil fell for a fourth day. U.S. employers cut 524,000 positions in December, capping the worst year for firings since 1945. Rio Tinto Group slumped 5.5 percent after Deutsche Bank AG downgraded world’s third-biggest mining company to “hold” from “buy”. Hyundai Motor Co., South Korea’s biggest automaker, slid 1.1 percent after saying it plans to cut domestic production.

“The global economy is continuing to deteriorate,” said Rob Patterson, who manages about $2 billion at Argo Investments Ltd. in Adelaide. “If the U.S. economy is slowing, it means they’re importing less from countries like China, and that China is buying fewer commodities. It’s not helpful to anyone.”

The MSCI AC Asia Pacific excluding Japan Index fell 1.2 percent to 244.42 at 9:06 a.m. in Hong Kong, extending a two-day, 3.2 percent loss. All 10 industry groups declined. The index tumbled 53 percent in 2008, the biggest annual drop in its two- decade history.

Japan’s markets are closed for a holiday. Australia’s S&P/ASX 200 Index slipped 1.7 percent, while South Korea’s Kospi Index dropped 1.2 percent.

The Standard & Poor’s 500 Index sank 2.1 percent on Jan. 9, capping the worst week since November. The unemployment rate climbed to 7.2 percent in December, the Labor Department said, exceeding forecasts from economists polled by Bloomberg. The nation lost 2.589 million jobs last year, just shy of the 2.75 million drop at the end of World War II.

President-elect Barack Obama said in an ABC interview on the weekend that reviving the U.S. economy will require scaling back on his campaign promises and personal sacrifice from all Americans.

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

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Australia Stocks: Babcock, James Hardie, Rio, Santos, Woodside

By Shani Raja

Jan. 12 (Bloomberg) -- The S&P/ASX 200 Index fell 65.10, or 1.7 percent, to 3,670.60 at 10:33 a.m. in Sydney, the lowest since Dec. 30. The broader All Ordinaries Index declined 57.50 points, or 1.6 percent, to 3,622.90, while the futures contract expiring in March slipped 1.7 percent to 3,639.

U.S.-linked stocks: James Hardie Industries NV (JHX AU), the biggest seller of home siding in the U.S., slumped 15 cents, or 3.3 percent, to A$4.40, the lowest since Dec. 29. Westfield Group (WDC AU), which owns shopping malls in the U.S., fell 25 cents, or 1.8 percent, to A$13.56, the most since Dec. 19.

U.S. stocks declined on Friday, extending the market’s worst weekly slump since November, on concern an increase in the unemployment rate to an almost 16-year high signals the global recession is worsening. The S&P 500 lost 2.1 percent to 890.35.

Oil companies: Woodside Petroleum Ltd. (WPL AU) lost 75 cents, or 2.1 percent, to A$35.23, the lowest since Dec. 29. Santos Ltd. (STO AU) slipped 30 cents or 2.1 percent, to A$14.17.

Crude oil fell a fourth day after a report showing the U.S. unemployment rate surged in December raised concern demand will drop faster than OPEC cuts output. Crude oil for February delivery declined 2.1 percent to $40.83 a barrel at 2:44 p.m. in New York on Friday, the lowest settlement since Dec. 30.

Babcock & Brown Infrastructure Group (BBI AU), an Australian investment fund, tumbled 1.5 cents, or 12 percent, to 11.5 cents, the lowest since Jan. 5. The company said it may consider a sale of PD Ports Plc, operator of Britain’s third- biggest container dock.

Rio Tinto Group (RIO AU), the world’s third-biggest mining company, slumped A$2.09, or 4.8 percent, to A$41.84, the lowest since Jan. 2. The company was downgraded to “hold” from “buy’ at Deutsche Bank AG.

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

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