Thailand May Cut Key Rate as Economy Cools, Confidence Sinks

By Suttinee Yuvejwattana and Michael J. Munoz

Jan. 14 (Bloomberg) -- Thailand’s central bank will probably cut its benchmark interest rate for a second month after inflation cooled to the slowest pace in six years and anti-government protests sent confidence to a record low.

The Bank of Thailand may lower its one-day bond repurchase rate by half a percentage point to 2.25 percent, according to 13 of 19 economists in a Bloomberg News survey. The decision is due at 2:30 p.m. today in Bangkok.

Policy makers across Asia are cutting borrowing costs to help sustain growth as the global recession reduces demand for the region’s exports. Thailand’s economy may enter recession this quarter and grow at the slowest pace since 1998 this year. The nation’s fourth government in a year is boosting spending to spur expansion as exports and tourism cool.

“While the government has unveiled a stimulus package, implementation and disbursements will occur with a lag time,” said Radhika Rao, an economist at Ideaglobal Ltd. in Singapore who predicts a 50 basis-point reduction. “In the interim, the central bank will have to make up for the slack with aggressive policy easing.”

Governor Tarisa Watanagase and her six board colleagues unexpectedly lowered Bank of Thailand’s key rate by the most on record on Dec. 3, cutting it by 1 percentage point.

Indonesia, Taiwan

Bank Indonesia on Jan. 7 reduced its reference rate to 8.75 percent from 9.25 percent. Taiwan’s central bank cut borrowing costs last week after an unprecedented decline in exports, and South Korea trimmed its repurchase rate on Jan. 9 to the lowest ever to bolster domestic demand.

Slower inflation has given Thailand’s central bank scope to lower borrowing costs. Consumer prices rose 0.4 percent in December from a year earlier after oil prices fell. Exports, which make up 70 percent of the economy, slid in November from a year earlier for the first time since March 2002, sinking 18 percent. Tourist arrivals tumbled 22 percent, the most since after the December 2004 tsunami.

“With food and oil prices stabilizing fast and a nasty economic deceleration on the cards, the trend is very clearly at risk of turning deflationary,” said Carl Rajoo, an economist at Forecast Singapore Ltd. “There is abundant monetary space for the Bank of Thailand to drag down interest rates to spur the Thai economy.”

Gross domestic product may shrink this quarter and may have contracted in the last, with this year’s growth likely to be the slowest since a recession in 1998, according to the government.

Prime Minister Abhisit Vejjajiva’s four-week-old government will implement a 300 billion baht ($8.6 billion) stimulus package later this month to boost domestic demand and purchasing power, he said Jan. 9. The amount matches tourist revenue lost from an eight-day airport seizure that ended early last month.

Business sentiment is at a record low after the global recession sapped exports and six months of political protests in Bangkok that culminated in the airport seizures.

Thailand Central Bank Rate Forecasts

==========================================================
Observation Period            Jan.    Feb.   April     End
                               14      25       8    2009
==========================================================
Median                       2.25%   1.75%   1.50%   1.50%
% forecasts at Median        68.4%   63.6%   30.0%   33.3%
High                         2.25%   2.00%   2.00%   2.00%
Low                          1.75%   1.50%   1.00%   0.75%
Number of Estimates             19      11      10      12
==========================================================
ATR-Kim Eng Capital          2.25%   1.75%   1.25%   0.75%
Capital Economics Ltd.       1.75%      --      --      --
Capital Nomura Securities    1.75%   1.75%   1.50%   1.00%
CIMB Securities              2.25%      --      --      --
Citi                         2.25%   1.75%   1.50%   1.50%
Credit Suisse                2.25%      --      --      --
Forecast Singapore           2.25%   1.75%   1.75%   1.50%
HSBC                         2.25%   1.75%   1.50%   1.25%
Ideaglobal                   2.25%      --      --   1.25%
JP Morgan Chase              2.25%   1.75%   1.25%   1.00%
Macquarie Capital Securities 2.00%      --      --      --
Morgan Stanley               2.00%      --      --      --
Nomura International (HK)    2.25%      --      --      --
Phatra Securities            2.25%   1.75%      --   1.75%
Reuters IFR                  2.00%   1.50%   1.00%   1.50%
SCB Securities               2.25%   2.00%   1.75%   1.50%
Standard Chartered Bank      2.00%      --      --      --
Tisco Securities             2.25%   2.00%   1.75%   1.75%
Westpac Banking Corp         2.25%   2.00%   2.00%   2.00%
==========================================================

To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net; Michael J. Munoz in Hong Kong at mjmunoz@bloomberg.net

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Japan May Be First to Recover From Slump, Aide Says

By Toru Fujioka and Tatsuo Ito

Jan. 14 (Bloomberg) -- Japan’s economy may be the first among the Group of Seven nations to recover because its banks and companies are relatively healthy, an economic policy aide at the Cabinet Office said.

“It’s possible Japan will be the first one to see signs of recovery,” Takashi Omori, an adviser to Economic and Fiscal Policy Minister Kaoru Yosano, said in an interview on Jan. 9. “Damage in the financial sector has been relatively light and corporate health has dramatically improved.”

Japanese banks are still lending even as the global credit crunch intensifies, setting them apart from counterparts in the U.S. and Europe. While the world’s second-largest economy has become more resilient to global shocks after recovering from its own financial crisis a decade ago, the recession will linger through most of 2009, Omori said.

“At the earliest, we will see a sign of recovery in the second half of this year,” said Omori, 57, a former economist at UBS AG in Tokyo. “We still need to watch downside risks.”

Lending by Japan’s banks accelerated at the fastest pace in 16 years in December and the government has avoided buying stakes in the nation’s lenders even as the deepening global crisis forces policy makers in the U.S. and Europe to rescue financial companies.

Some economists aren’t as optimistic. A record drop in exports in November prompted the sharpest cuts in output in 55 years and companies from Toyota Motor Corp. to Sony Corp. are firing workers, damping prospects for a recovery.

‘More Severe’

“While this recession was expected to be mild, we’re finding that it’s actually much more severe than expected,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “We’re probably going to see a double- digit contraction in fourth quarter gross domestic product.”

Economists at Barclays Capital forecast Japan’s economy contracted an annualized 12.1 percent last quarter, which would be the sharpest drop since 1974. The U.S. economy shrank an annual 6.5 percent in the period, according to a Bloomberg survey of economists.

Omori, who also became the head of the Asia-Pacific Economic Cooperation economic council this month, said demand for Japan’s fuel-efficient technologies may spur growth.

Mitsubishi Motors Corp. last week said it may supply PSA Peugeot Citroen with electric cars. The Nikkei newspaper reported production would likely double to 10,000 vehicles for Peugeot from 2011 as a result.

Protectionism

Omori said one of his biggest challenges as the chairman of the APEC economic council will be preventing the spread of protectionism among APEC’s 21 member countries.

Russia last month increased duties on automobile imports, China reintroduced tax breaks for exporters, and India imposed caps on steel imports. France pledged $7.6 billion to shield its companies from foreign businesses.

“Free trade is fundamental,” said Omori, who has spent more than 32 years at the Cabinet Office. “If protectionism spreads around the world, the deterioration of the global economy will reach another level.”

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

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Australian Home-Loans Rise on First-Buyers’ Demand

By Jacob Greber

Jan. 14 (Bloomberg) -- Australian home-loan approvals rose in November, led by first-home buyers, after the central bank extended the biggest round of interest-rate cuts since the economy was last in a recession in 1991.

The number of loans granted to build or buy homes and apartments increased 1.3 percent to 49,192 from October, when they advanced a revised 1.4 percent, the statistics bureau said in Sydney today. The median estimate of 17 economists surveyed by Bloomberg was for a 1 percent gain.

The second month of rising home-loan approvals suggests the benchmark interest rate at a six-year low of 4.25 percent, plus increased government grants to first-time buyers, will stoke demand for housing this year. Central bank Governor Glenn Stevens cut borrowing costs last year by three percentage points after home prices fell in the third quarter by the most since 1978 and the economy expanded at the weakest pace in eight years.

“The jump in first-home-buyer activity is interesting because they benefit most from rate cuts and assistance” from the government, said Michael Blythe, chief economist at Commonwealth Bank of Australia in Sydney.

“The housing sector won’t be a huge drag on the economy like in the U.S. and U.K.”

The number of loan approvals granted to first-home buyers surged to 23.6 percent of all house lending in November, the highest proportion since January 2002 and up from 19.5 percent in October.

Government Handout

To spur house building, which shows signs of stalling after home-construction approvals tumbled 35 percent in November from a year earlier, the government tripled a grant in October to first-time buyers of new homes to A$21,000 ($14,000).

Governor Stevens and his board said last month that monetary policy is now “expansionary” to stoke business and consumer confidence that has been battered by turmoil on global financial markets.

The Australian dollar traded at 66.87 U.S. cents at noon in Sydney from 66.84 cents before the report was released. The two- year government bond yield fell 1 basis point, or 0.01 percentage point, to 2.61 percent.

Investors have a 100 percent expectation the Reserve Bank of Australia will cut the overnight cash rate target by three quarters of a percentage point on Feb. 3, according to a Credit Suisse Group index based on swaps trading.

Job Losses

Slower economic growth and concern about rising unemployment may keep a lid on demand for home loans. Employers cut workers for a second month in December, driving up the jobless rate to 4.5 percent, the highest in almost two years, according to economists surveyed by Bloomberg News ahead a report tomorrow.

“If people don’t have a job or are uncertain about keeping a job, they are less likely to go out and buy a home,” said David de Garis, an economist at National Australia Bank Ltd. in Sydney. “That will be tested in the first half of the year.”

Lending to consumers and businesses rose at the slowest pace in six years in November, central bank figures published on Dec. 31 showed.

An index measuring the weighted average price for established homes in the nation’s eight capital cities dropped 1.8 percent in the third quarter from the previous three months, the Bureau of Statistics said on Nov. 3.

The economy expanded 0.1 percent in the third quarter from the previous three months, the weakest pace since 2000.

The total value of lending fell 0.9 percent to A$17.5 billion in November, today’s report showed. Lending to owner- occupiers rose 1.4 percent, while the value of lending to investors who plan to rent or resell homes slipped 6.1 percent.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Warren Buffett Is Sage of Tokyo as Well as Omaha: William Pesek

Commentary by William Pesek

Jan. 14 (Bloomberg) -- “I find very few wonderful businesses in Japan at present.”

That’s how Warren Buffett explained his lack of interest in the second-biggest economy to students at the University of Florida. Buffett’s gripes include “very low returns on equity” and a corporate culture that’s unresponsive to shareholders.

Japan’s markets have been battered of late by the global crisis, and the Nikkei 225 Stock Average fell more than the Dow Jones Industrial Average in 2008. Stocks in the U.S., the epicenter of the credit crunch, fell 34 percent, while Japan’s dropped 42 percent.

Buffett’s concerns explain much of the difference. And yet, the billionaire investor’s views are hardly a revelation. They are certainly not news to anyone who suffered from the Nikkei’s plunge in 2008 and 11 percent slide in 2007. What’s intriguing about Buffett’s comments is that he didn’t make them yesterday, or last month, but in October 1998.

A lot has changed in Japan. Banks rid themselves of the bad loans behind the forgettable 1990s. Companies woke up to the pressures of globalization, cutting some costs and trimming bloated workforces. Key industries, particularly automakers, have increased market share in the past 10 years.

Or have things changed very little since Buffett’s 1998 speech? Analyst John Mihaljevic, writing on the Web site Seeking Alpha, looked at corporate Japan’s evolution since then, and it’s not pretty.

Five Issues

“We approached our study of Japanese stocks with the hypothesis that we should be able to find some compelling investments given the cheap valuations of a large subset of Japanese public companies,” wrote Mihaljevic, managing editor of the Manual of Ideas in New York. “So far, however, we have remained unimpressed.”

Five specific issues are explored: a lack of business focus, murky corporate governance, little regard for returns on investment, the high cost of production, and clubby boardrooms.

Many big companies still look more like conglomerates of old than Western-style enterprises. Yes, many Western economies and companies are taking their lumps these days. Yet the lack of focus is apparent in names such as Sony Corp., which oddly has both a bank and an insurance arm.

Governance Concerns

On corporate governance, there have been modest successes. Nipponkoa Insurance Co., Japan’s fourth-largest casualty insurer, recently raised its profit target and vowed to cut costs and increase sales in response to pressure from one of its biggest shareholders: Southeastern Asset Management Inc.

Marked improvements are still few and far between. The increasing prevalence of takeover defenses and poison pills to avert mergers that may benefit shareholders is a big concern.

Companies in Japan, Mihaljevic says, routinely spend as much as 10 percent of annual revenue on capital expenditures even though they are in businesses with pretax profit margins of less than that amount.

Japan also is a high-cost center. While companies have embraced global outsourcing, many prefer to produce goods at home. That increases costs and leaves companies vulnerable to the strengthening yen. Buffett has long said high costs thwart his desire to buy an entire company in Japan.

Finally, the lack of gender diversity in boardrooms speaks to a continued unwillingness to open up the corporate culture. If there is any developed economy that needs to adopt new ways of doing business, it’s Japan.

Superior Technology

Japan is home to a highly skilled and hardworking labor force. Companies benefit from access to superior technology and manufacturing techniques. Japan also has some of the most environmentally friendly business practices anywhere.

Buffett’s Berkshire Hathaway Inc., it’s worth noting, has invested in Japanese shares here and there since 1998. In September, for example, Berkshire’s Iscar Metalworking Cos. agreed to buy a 71.5 percent stake in Tungaloy Corp., a manufacturer of tools for cars and planes.

But, Mihaljevic says, “assuming constant multiples, investors are likely to be disappointed, as they’ll be earning returns similar to the companies’ returns on equity. The latter generally range in the low- to mid-single digits and appear unlikely to rise anytime soon.”

Politics are worth considering, too. It’s hard to remember a time in the last 15 years when Japan existed in the kind of leadership vacuum that pervades the nation today. With a public support rate below 20 percent, it won’t be easy for Prime Minister Taro Aso to enact legislation to support the economy.

There’s no doubt the U.S. precipitated the global crisis. Yet Japan’s economy stopped on a dime because the government did nothing to create growth from within. Once U.S. demand dried up, Japan lost all steam.

Japan’s longest postwar expansion did little to fatten the paychecks of average households. A decade after pledging to boost domestic demand, Japan’s remains largely a one-trick economy: exports. That recognition is now reflected in stock prices.

The Nikkei was at 12,995 points on the day of Buffett’s 1998 speech. Today it’s at about 8,400. It may be time to start calling the Sage of Omaha the Sage of Tokyo, too.

(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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Caltex Australia Says Queensland Fuel Supplies Nearing Normal

By Angela Macdonald-Smith

Jan. 14 (Bloomberg) -- Caltex Australia Ltd., the nation’s biggest oil refiner, said deliveries of gasoline and diesel in southeastern Queensland are nearing normal as units at its Lytton refinery reach full capacity after an unplanned shutdown.

Production of unleaded gasoline and diesel at the site near Brisbane is back at full output, while premium unleaded gasoline should resume full capacity this evening, Georgie Wells, a spokeswoman for the Sydney-based company, said today. There is still “some reduced availability of premium” fuels, she said.

Caltex Australia, half-owned by Chevron Corp., closed the Lytton refinery, the largest in Queensland state, on Dec. 12 after the steam system failed and has been progressively restarting the plant since Dec. 13. Lytton is the smaller of Caltex Australia’s two plants, which have a combined processing capacity of 230,000 barrels a day.

“We did have some delay with premium fuel, and that was as a result of some maintenance being carried out on a unit relating to its production,” Wells said by telephone.

Unleaded gasoline production reached full capacity on Jan. 9 and diesel on Jan. 10, Wells said.

The Lytton plant started operating in 1965 and produces 17 million liters of fuel a day. About 45 percent of its output is gasoline, 35 percent diesel, 13 percent jet fuel and the rest fuel oil and other products, according to the company’s Web site.

Royal Dutch Shell Plc, BP Plc and Exxon Mobil Corp. also operate refineries in Australia.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net

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China's Electricity Prices May Fall in 2009, Official Says

By Wang Ying

Jan. 14 (Bloomberg) -- Power prices in China, the world's second-biggest consumer of energy, may fall this year because of slower economic growth, an official with the State Electricity Regulatory Commission said.

Some provinces have already cut prices, Huang Shaozhong, deputy director of the commission's department of tariffs and financial regulation, said in a telephone interview in Beijing today. Power prices will rise over the long term, Huang added.

Power demand and output in China will continue to fall this year, the commission said Jan. 12.

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

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Caltex Australia’s Operating Profit Exceeds Forecast

By Angela Macdonald-Smith

Jan. 14 (Bloomberg) -- Caltex Australia Ltd., the nation’s biggest oil refiner, said full-year operating profit fell less than earlier forecast after margins on processing crude into fuels gained last month. Its shares rose the most since October.

Operating profit was A$185 million ($123 million) in the year ended Dec. 31, more than last month’s forecast of as low as A$135 million, Sydney-based Caltex Australia said today in a statement to the Australian stock exchange. The profit figure, which is subject to audit, was still down 58 percent from 2007.

Caltex, half-owned by Chevron Corp., said Dec. 18 it was basing its forecast on a crude-oil price of $42 a barrel, an Australian dollar exchange rate of 65 cents and an average margin of about $9 a barrel. It didn’t specify in today’s statement the actual margin last month.

The net income figure for last year hasn’t yet been finalized as it depends on calculating the value of stockpiles on hand on Dec. 31, Caltex said in the statement. The company reported net income of A$646 million in 2007 and last month forecast a 2008 figure of between a loss of A$40 million and a profit of A$10 million.

Caltex Australia gained as much as 74 cents, or 10 percent, to A$8.22 in Sydney trading, the most since Oct. 30, and was at A$8.10 at 11:26 a.m. local time.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net

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Oil Slump Forces Even Richest Arab Countries to Run Deficits

By Camilla Hall

Jan. 14 (Bloomberg) -- Tumbling oil prices are forcing many of the richest Persian Gulf states to record budget deficits and limit a critical source of foreign investment for poorer Arab countries.

Central bank governors and finance ministers from the 22- member Arab League gather for a week of meetings today on the global financial crisis and Gulf efforts to create a single currency. United Nations Secretary-General Ban Ki-Moon may attend.

Crude is now selling at below the budget break-even point for seven of the Arab world’s 10 top oil producers and Saudi Arabia, the world’s biggest exporter, is forecasting its first deficit in at least seven years. Poorer Arab states are facing a fall in foreign investment with Egypt expecting inflows to almost halve this year, according to EFG-Hermes SAE, the largest Arab investment bank by market value.

“The Gulf won’t be growing so fast, so there’ll be less of a trickle down,” John Sfakianakis, chief economist at Saudi British Bank said in a telephone interview from Riyadh. “The Gulf private sectors are filled by expatriates from other Arab countries. These will be the first people to go.”

Ministers at the Arab Economic Summit meeting in Kuwait City are also planning to discuss Israel’s military incursion into the Gaza Strip, where more than 900 Palestinians have been killed in more than 2 weeks of fighting. A meeting of foreign ministers is scheduled for Jan. 16 to discuss the conflict.

Recession Impact

Oil prices have fallen almost 75 percent from their July high, as the global economy sank into recession, straining budgets of crude exporters. Most will probably tap into their oil savings to maintain spending and avoid recession.

Saudi Arabia said it will post a 65 billion riyal ($17 billion) deficit this year; Oman said it will record a budget shortfall of 810 million rials ($2.1 billion); while Dubai, the second-largest of the seven emirates that make up the United Arab Emirates, forecasts a shortfall of 4.2 billion dirhams ($1.1 billion).

“If governments cut back on spending they might make the economic slowdown worse,” said Giyas Gokkent, chief economist at the National Bank of Abu Dhabi PJSC, the U.A.E.’s second- biggest bank by assets. “Policy must be counter-cyclical.”

Saudi Contraction Seen

EFG-Hermes is forecasting that the Saudi economy will shrink by 0.9 percent this year while Kuwait will contract by 1.2 percent. Growth will remain positive in Qatar, Bahrain and Oman and the U.A.E. economy will stagnate.

Saudi Arabia posted a record budget surplus of 590 billion riyals ($157 billion) last year as oil rose to a record $147.27 a barrel in July. That was about the same size as Egypt’s gross domestic product.

“Rising oil prices were the catalyst for exceptionally strong growth over the past six years and falling prices will bring a slowdown in 2009,” Simon Williams, a Dubai-based economist for HSBC Holdings Plc, said by e-mail. “The Gulf can manage the deceleration, but the slowdown is going to be felt across the region and in all sectors of the economy.”

In Arab countries that have depended on their rich Gulf neighbors for investment, the impact may be felt the hardest.

Foreign direct investment in Egypt is projected to fall to $7 billion this year from $13.2 billion in 2008, EFG-Hermes said in a Nov. 13 report. About 20 percent of the investment came from the Gulf. The 8.6 billion dollars in remittances that were sent home by Egyptians working abroad last year are expected to shrink by 10 percent in the fiscal year starting in June, EFG-Hermes said. Half of that money comes from the Gulf.

The bank expects Jordan’s economic growth to slow to 4.7 percent this year from an estimated 5.7 percent in 2008, in part because of lower remittances and foreign investment from the Gulf.

To help boost regional trade, Gulf Arab leaders on Dec. 30 approved an agreement to create a Gulf central bank and single currency. The accord must now be endorsed by the national governments of Saudi Arabia, Kuwait, Bahrain, the U.A.E. and Qatar. Oman has pulled out of the proposal.

To contact the reporter on this story: Camilla Hall in London at chall24@bloomberg.net.

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Russia, Ukraine Blame Each Other as Gas Supply Remains Halted

By Stephen Bierman and Daryna Krasnolutska

Jan. 14 (Bloomberg) -- Russian natural-gas shipments through Ukraine were halted for a seventh day as both sides blamed each other for the failure to reopen pipelines and restore supplies to the European Union.

OAO Gazprom, Russia’s gas exporter, said it would try again to ship gas today after accusing Ukraine of flouting an EU- brokered deal and blocking flows yesterday. NAK Naftogaz Ukrainy, the state energy company, said there wasn’t enough pressure in the pipelines to ship gas without endangering domestic supplies.

Gas prices in the U.K., Europe’s biggest market, rebounded yesterday on concerns that supply disruptions to at least 20 nations won’t be eased soon. Gazprom, the supplier of a quarter of the continent’s gas, had agreed to resume deliveries suspended for the past week after EU observers began monitoring transit flows under an accord signed Jan. 12 in Brussels.

“It’s not a surprise that the agreement has already fallen apart,” Moscow-based Alfa Bank Chief Strategist Ronald Smith said. “This morning we were already getting signals that there was no agreement on who would provide the gas to power the turbines” in the Ukrainian pipeline network, he said.

The EU said “little or no” gas is flowing to the 27- nation bloc through Ukraine. “This situation is obviously very serious and needs to improve rapidly,” EU spokeswoman Pia Ahrenkilde-Hansen told reporters in Brussels.

Russia stopped flows through Ukraine on Jan. 7 after negotiations over a supply deal broke down. Russia complained that its western neighbor was diverting gas bound for Europe and had closed down its pipelines, charges denied by Ukraine.

Diversify Supplies

The cutoff has renewed calls for the EU to diversify its sources of energy away from Russia. Negotiations between Russia and Ukraine over a separate issue of gas prices and transit fees remain stalled.

U.K. gas for delivery next month advanced 2.5 percent to 57.45 pence a therm as of 5:45 p.m. London time yesterday, according to broker Spectron Group Ltd. Prices surged 24 percent last week after Gazprom turned off the taps.

The EU called for the international monitors to be granted “full access” to pumping stations in both Ukraine and Russia. “This is indispensable for ensuring that the gas destined for EU member states will arrive unhindered,” European Parliament President Hans-Gert Poettering said in a statement.

Alexei Miller, who heads Gazprom, said Ukraine’s pipeline system didn’t even take “a single cubic meter” of the fuel yesterday. Russia earlier gave an order for about 76 million cubic meters of fuel to be sent to the Balkans, Turkey and Moldova.

Technical Accord

Ukrainian President Viktor Yushchenko said Ukraine wants to sign a technical agreement with Russia to determine the volumes of gas that should be transported through its pipes, including destination and pressure. “A number of technical procedures must be done to switch the system back to transport Russian gas to the EU,” he told reporters in Kiev yesterday.

Gazprom also said Naftogaz refused a request to send a daily gas volume of 22.2 million cubic meters via the Ukrainian station of Uzhhorod, demanding “a guarantee of transit over an extended period of time.” Naftogaz spokesman Valentyn Zemlyanskyi denied Gazprom had applied to send gas via Uzhhorod.

Gazprom’s Deputy Chief Executive Officer Alexander Medvedev said the Russian exporter may have to declare force majeure on exports because of Ukraine’s “unreasonable” action. Force majeure is a legal clause that allows producers to miss contracted deliveries because of circumstances beyond their control.

‘Too Low’

“It looks like Ukraine never intended to open the system, Medvedev told reporters on a conference call. “The door is closed as before.”

Naftogaz said it wasn’t able to “technically” pump Russian gas to Europe. “The pressure in the pipeline is too low,” company spokesman Valentyn Zemlyanskyi said in a phone interview.

Three Ukrainian regions would have been left without gas if Naftogaz had agreed to a Russian proposal to export gas through the Sudzha compressor station, Chief Executive Officer Oleh Dubina told reporters in Kiev yesterday.

Ukrainian Prime Minister Yulia Timoshenko plans to meet her counterparts from Bulgaria and Slovakia today to discuss the dispute.

Gazprom said Ukraine was “dancing to music” being played by the U.S. An agreement Ukraine signed last month with the U.S. is “suspicious,” Medvedev said, without identifying the accord.

Blackout Threat

Ukraine, which is seeking membership of the North Atlantic Treaty Organization, signed a “charter on strategic partnership” agreement with the U.S. on Dec. 18 that includes commitments by both countries “to work closely together on rehabilitating and modernizing the capacity of Ukraine’s gas transit infrastructure.”

Gazprom’s overall deliveries to Europe fell by about 60 percent when it halted transit flows and supplies to Ukraine’s domestic market were suspended Jan. 1. Slovakia warned on Jan. 12 it was “on the brink of blackout,” prompting the government to consider restarting a nuclear power plant in violation of EU rules.

Medvedev said on Jan. 12 that Gazprom is “open to discussions” to agreeing a solution on supplies to its neighbor. Yushchenko favors gradual price increases for the gas the country imports from Russia.

Gazprom offered a price of $450 per 1,000 cubic meters after it said Ukraine rejected an offer, subsequently withdrawn, of $250. Medvedev said $450 was for the first quarter.

Oil Decline

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.

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.

To contact the reporters on this story: Stephen Bierman in Moscow sbierman1@bloomberg.net; Eduard Gismatullin in London at egismatullin@bloomberg.net

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Yuan Little Changed on Signs China Pausing Gains for Exports

By Judy Chen

Jan. 14 (Bloomberg) -- China’s yuan was little changed against the dollar on speculation a slide in exports prompted the central bank to halt the currency’s appreciation.

The People’s Bank of China fixed the yuan’s reference rate at the weakest level in almost a month after a government report yesterday showed overseas sales fell the most in almost a decade in December. The Chinese currency has dropped 0.2 percent so far in 2009 after rising 0.37 percent in the final quarter of last year and 0.17 percent in December.

“The trade data indicates signs of more declines in exports,” said Yang Shengkun, a currency analyst in Beijing at China Citic Bank Co., a unit of China’s biggest state investment company. “The trade surplus will probably narrow further, providing less support for yuan appreciation.”

The yuan traded at 6.8366 a dollar as of 10:17 a.m. in Shanghai, from 6.8341 yesterday, according to the China Foreign Exchange Trade System.

China’s exports dropped 2.8 percent, the customs bureau said on its Web site yesterday. That compares with a 21.7 percent gain a year earlier. Shipments grew 17.2 percent for all of 2008, down from 25.7 percent in 2007.

China’s trade surplus narrowed to $38.98 billion last month, from $40.09 billion in November. That was the first decline in 10 months.

The yuan’s central parity rate was set at 6.8399 per dollar today, the lowest since Dec. 16.

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

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Korean Won Gains a Second Day as Exporters Repatriate Funds

By Kim Kyoungwha

Jan. 14 (Bloomberg) -- South Korea’s won rose for a second day on speculation exporters are taking advantage of dollar gains to repatriate overseas income.

The Korean currency slid to a one-month low of 1,385.50 against the greenback yesterday after Goldman Sachs Group Inc. forecast the economy, Asia’s fourth largest, will shrink this year. The won fell 26 percent in 2008, Asia’s worst performance, and so far in 2009 has dropped 6.1 percent as a deepening global recession saps demand for emerging-market assets. The Kospi stock index declined for the fourth time in five days.

“There are some offshore dollar sales and exporter settlements after the won dipped below the 1,360 level,” said Jo Hyun Suk, a currency dealer with Korea Exchange Bank in Seoul. “Still, won gains will be limited given still shaky stock movements.”

The won rose 1 percent to 1,340.75 per dollar as of 9:42 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd.

ICE’s Dollar Index which tracks the greenback against the currencies of six major trading partners, yesterday rose 1.5 percent, its biggest gain in more than three weeks. The gauge of dollar strength is up 3.6 percent this month, after climbing 12 percent in the second half of 2008.

Finance Minister Kang Man Soo said the Korean economy faces a “difficult” year in 2009. Goldman yesterday forecast South Korea’s gross domestic product will shrink 1 percent in 2009, revising a November projection for 1.8 percent growth. Nomura International Ltd. and UBS AG also predict the economy will contract.

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

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Australian, N.Z. Dollars Strengthen as Stocks, Commodities Gain

By Ron Harui

Jan. 14 (Bloomberg) -- The Australian and New Zealand dollars rose against Japan’s currency, rebounding from one-month lows, as stock gains and higher commodities prices spurred demand for higher-yielding assets.

The currencies snapped four-day losing streaks versus the yen after government reports today showed home-building approvals in Australia and New Zealand increased in November, suggesting interest-rate cuts are helping combat slowdowns in the two nations’ economies.

“With equity and commodity markets steady, we are expecting the Aussie to find some support after its recent slide,” said Nick Jonas, a Brisbane-based treasury analyst at Suncorp-Metway Ltd., referring to Australia’s currency by its nickname.

Australia’s dollar rose to 67.44 U.S. cents as of 1:25 p.m. in Sydney from 67.03 cents late in Asia yesterday. It touched 65.76 cents, the lowest level since Dec. 12. The currency climbed to 60.36 yen from 59.78 yen, after sliding to 58.55 yen.

New Zealand’s dollar advanced to 55.53 U.S. cents from 55.45 cents in Asia yesterday. It earlier fell as low as 54.62 cents, the weakest since Dec. 15. The currency strengthened to 49.71 yen from 49.44 yen.

The MSCI Asia-Pacific Index of regional shares gained 1.4 percent, after sliding 7 percent in the previous four days. The Reuters/Jeffries CRB Index of 19 raw materials advanced 0.7 percent yesterday, after a 4.1 percent drop on Jan. 12.

‘Recovering’

“The Aussie is recovering and the New Zealand dollar is off its lows as commodity prices are a bit higher,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore.

Crude oil for February delivery climbed 2.8 percent to $38.85 a barrel, and gold rose 0.1 percent to $823.09 an ounce. Commodities including coal, iron ore, gold and oil account for 60 percent of Australia’s export revenue. New Zealand relies on raw materials including milk and timber for 70 percent of its overseas shipments.

The Reserve Bank of Australia reduced its benchmark rate by three percentage points last year to a match a record low of 4.25 percent in the most aggressive monetary-policy easing since 1991. The Reserve Bank of New Zealand cut its key rate in 2008 by 3.25 percentage points to 5 percent.

Australia’s dollar ended two days of losses versus the greenback as the number of loans granted to build or buy homes and apartments in Australia rose a higher-than-expected 1.3 percent in November from October, when they advanced a revised 1.4 percent, the statistics bureau said in Sydney.

Record Low

New Zealand’s dollar advanced after building permits climbed 4.3 percent from a record low in October, when they fell 20 percent, Statistics New Zealand said in Wellington, citing seasonally adjusted figures.

The currencies earlier fell to the lowest in more than four weeks against the dollar and the yen on concern the U.S. credit crisis will deepen. The Federal Home Loan Bank of Seattle said it will suspend dividends and “excess” stock repurchases, becoming the second of the government-chartered lending cooperatives to say its capital may be running low.

“The FHLB news is a worry for the financial markets and is likely to cause risk aversion,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s second-largest bank by market value. “The bias is for the yen to be bought against high-yielding currencies.”

Capital Shortfall

The Seattle bank’s likely capital shortfall as of Dec. 31 was caused by “unrealized market value losses” on residential mortgage bonds without government backing, the company said in a U.S. Securities and Exchange Commission filing yesterday. It joins the San Francisco Federal Home Loan Bank in taking steps to guard its reserves after the U.S. housing market collapse sent mortgage-backed bonds tumbling.

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. The benchmark rate is 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.

Financing costs in Australia rose. The difference between the rate Australian banks charge each other for three-month loans and the overnight swap rate climbed to 60.3 basis points from 59.5 basis points yesterday. The gauge, a measure of cash scarcity, averaged 11 basis points in the five years before the credit crunch started in August 2007.

Australian Bonds

Australian two-year government bonds were little changed after the yield reached 2.6 percent, the lowest since Dec. 15.

“Global investors are buying Australian bonds amid heightened expectations for further central-bank rate cuts,” said Yoshisada Ishide, a fund manager who oversees the equivalent of $1.5 billion at Daiwa SB Investments Ltd. in Tokyo. “This rally is likely to continue in the short term.”

Two-year yields may decline to 2.4 percent and 10-year yields may fall to 3.9 percent this week, from 3.98 percent today, Ishide said.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, declined to 3.81 percent from 4 percent late in Asia yesterday.

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

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Dollar Drops Versus Euro on Speculation U.S. Retail Sales Fell

By Stanley White

Jan. 14 (Bloomberg) -- The dollar declined from a five-week high against the euro on speculation U.S. retail sales fell for a sixth month and manufacturing weakened as a recession spread through the world’s largest economy.

The dollar also fell for the first day in four versus the British pound after Federal Reserve Chairman Ben S. Bernanke said fiscal policy alone won’t lead to a lasting recovery in economic growth. The Australian dollar rose from a four-week low on speculation a rebound in Asian stocks will give investors the confidence to buy higher-yielding assets overseas.

“Some traders are reducing their bets that the dollar will gain against the euro,” said Saburo Matsumoto, senior manager of foreign-exchange sales at Sumitomo Trust & Banking Co. in Tokyo. “America leads the pack when it comes to bad economic news.”

The dollar weakened to $1.3245 versus the euro as of 10:48 a.m. in Tokyo from $1.3182 late yesterday in New York, when it touched $1.3141, the strongest level since Dec. 11. The dollar bought 89.44 yen from 89.38 yen. The euro traded at 118.48 yen from 117.81 yen. The British pound rose to $1.4567 from $1.4501. The dollar may advance to $1.35 per euro this week, Matsumoto said.

The Australian dollar advanced to 67.26 U.S. cents from 66.46 cents late yesterday in New York. The New Zealand dollar was little changed at 55.34 U.S. cents. The MSCI Asia-Pacific Index of regional shares rose 1.1 percent, ending a four-day losing streak, as gains in oil prices boosted shares of energy producers.

Benchmark interest rates are 4.25 percent in Australia, 5 percent in New Zealand, 0.1 percent in Japan and range from zero to 0.25 percent in the U.S.

U.S. Economy

U.S. retail sales fell 1.2 percent in December, extending the longest run of declines since records began in 1992, according to a Bloomberg New survey of economists. The Commerce Department will release the data at 8:30 a.m. in Washington today. Fed surveys due tomorrow from the New York and Philadelphia regions are also forecast to show manufacturing contracted this month.

“More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets,” Bernanke said in a speech yesterday in London.

“We expect U.S. retail sales to worsen significantly,” Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader, wrote in a research note today. “There’s a high chance that the dollar will face renewed selling pressure versus the yen.”

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

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Energy Resources Fourth-Quarter Production Rises 5%

By Angela Macdonald-Smith

Jan. 14 (Bloomberg) -- Energy Resources of Australia Ltd., producer of more than a 10th of the world’s mined uranium, said fourth-quarter output rose 5 percent from a year earlier on the processing of higher-grade ore.

Production of uranium oxide was 1,634 metric tons in the three months ended Dec. 31, taking full-year production to 5,339 tons, Darwin-based Energy Resources, controlled by Rio Tinto Group, said today in a statement to the Australian stock exchange. Full-year sales slid 1 percent to 5,272 tons.

Uranium spot prices fell 40 percent last year, the biggest annual drop since at least 1996, according to prices compiled by Metal Bulletin. Energy Resources, which in November said drilling at its Ranger site near Darwin found between 15 million and 20 million tons of resources that may underpin an expansion, said today it halted work on studies on the extension of the open pit at the mine.

“It is likely that the high-grade mineralization targeted in the open pit extension study may be recovered through underground mining,” the company said in the statement.

Energy Resources, or ERA, rose as much as 20 cents, or 1.1 percent, to A$18.12 in Sydney trading and was at A$18.06 at 10:0 a.m. local time. The gain outpaced an advance of as much as 0.5 percent in the exchange’s benchmark index.

Energy Resources’ average sales price for uranium rose to $32.53 a pound last year, from $25.06 in 2007. The spot price fell to $52.50 at the end of December, down from $89.50 a year earlier.

“ERA’s average contractual sales price is only partially influenced by the spot market due to the portfolio of contracts containing a range of pricing mechanisms,” the company said in the statement.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net

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Baosteel Closed Six Furnaces on Low Demand, Shanghai News Says

By Helen Yuan

Jan. 14 (Bloomberg) -- Baosteel Group Corp. closed six blast furnaces since October after demand fell, the Shanghai Securities News reported, citing unidentified officials at the company.

The closures cut 2008 profit by 32 percent to 23 billion yuan ($3.4 billion) and lowered fourth-quarter output by 30 percent, the report said, without giving production details. Two of the smelters were turned off and four weren’t restarted after being shut for regular maintenances, the paper said. Shanghai-based Baosteel, China’s largest steelmaker, has steel units in Shanghai, Nanjing, Urumqi and Guangzhou.

Wuhan Iron & Steel Group also has kept some furnaces shut, the report said. Its total profit fell 18 percent to 7.6 billion yuan last year, the report said.

Hebei Iron & Steel Group has closed 11 furnaces at its seven mills, leaving the utilization ratio at 75 percent of capacity in the second half of last year.

To contact the reporter for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

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Gold Trades Little Changed, Rising Crude Oil Provides Support

By Glenys Sim

Jan. 14 (Bloomberg) -- Gold traded little changed in Asia as rising crude oil prices and a pause in the dollar’s rally added to the appeal of the precious metal as an alternative investment. Platinum advanced.

Bullion, down 3.2 percent this week, edged higher after Saudi Arabia said it will extend its oil production cuts. Gold fell to a one-month low of $814.66 an ounce yesterday as the dollar neared a five-week high against the euro.

“Gold has crashed through key support around the $830-$835 area, and is now on track to test support towards the $750-$800 area,” Michael Jansen, an analyst at JPMorgan Securities Ltd. in London, said in a report. The recent slide was “largely a function of the stronger U.S. dollar as well as a markedly weaker crude oil market.”

Bullion for immediate delivery traded little changed at $823.80 an ounce at 10:40 a.m. in Singapore, after gaining 0.1 percent yesterday. Gold for February delivery was 0.3 percent higher at $823.40 in after-hours electronic trading on the Comex division of the New York Mercantile Exchange.

The dollar fell from a five-week high against the euro on speculation a report today will show U.S. retail sales declined for a sixth month. The dollar weakened to $1.3244 versus the euro from $1.3182 late yesterday in New York, when it touched $1.3141, the strongest level since Dec. 11.

Platinum

Platinum for immediate delivery rose as much as 1.4 percent to $957 an ounce, as investors deemed the 5 percent decline in the past two days as excessive. The metal has fallen 40 percent in the past year on concern demand from carmakers may weaken further as their global sales plunge. Most platinum and palladium consumption is for catalytic converters to filter noxious gases from engine exhaust.

Ford Motor Co., the second-largest U.S. automaker, expects U.S. sales of cars and light trucks may fall as much as 9 percent this year from 2008, when they reached a 16-year low. PSA Peugeot Citroen, Europe’s second-biggest carmaker, reported sales dropped 8.7 percent last year.

Among other precious metals for immediate delivery, silver was little changed at $10.78 an ounce, and palladium rose 0.5 percent to $185 an ounce as of 10:40 a.m. in Singapore.

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

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Corn Climbs on Speculation Dryness May Damage Argentine Crop

By Sungwoo Park

Jan. 14 (Bloomberg) -- Corn rebounded from the lowest price in a month on speculation hot, dry weather will hurt plants in Argentina, the second-largest exporter after the U.S.

Less than 1 inch (2.5 centimeters) of rain will fall across 80 percent of Argentina's key agricultural region in the next 16 days, intensifying drought conditions, Allen Motew, the director of meteorology at QT Information Systems Inc. in Chicago, said in a report. Temperatures will average as much as 5 degrees Fahrenheit above normal this week and rise next week, he said.

``The dry weather news is driving up grains'' along with rising crude oil and equities, said Han Sung Min, a manager at the international marketing division of Korea Exchange Bank Futures Co. in Seoul. ``Expectations that China will continue to buy soybeans is also propping up the grain market.''

Corn for March delivery advanced as much as 1.9 percent to $3.695 a bushel in electronic trade on the Chicago Board of Trade and was at $3.69 a bushel at 11:06 a.m. Seoul time after plunging to the lowest level since Dec. 12 yesterday.

The MSCI Asia Pacific Index gained for the first time in five days with energy producers rising on a rebound in oil. Crude oil rose 3.4 percent to $39.05 a barrel at 10:54 a.m. Seoul time, gaining for a second day, after Saudi Arabia said it will make deeper supply cuts than announced to bolster prices.

Soybeans for March delivery rose as much as 1.8 percent to $9.885 a bushel and last traded at $9.8675 a bushel. Wheat for March delivery climbed as much as 1.5 percent to $5.7925 a bushel and last traded at $5.79 a bushel.

U.S. exporters reported sales of 399,000 metric tons of soybeans to China, the Department of Agriculture said on Jan. 12.

Elsewhere in Asia, South Korea bought 55,000 tons of corn for feed production yesterday after purchasing 110,000 tons the previous day.

To contact the reporter on this story: Sungwoo Park in Seoul at spark47@bloomberg.net.

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Oil Rises a Second Day as OPEC Signals Deeper Production Cuts

By Christian Schmollinger

Jan. 14 (Bloomberg) -- Crude oil rose for a second day in New York after OPEC leaders signaled their intention to make deeper supply cuts to bolster prices.

OPEC is willing to reduce crude production again to “preserve the price of oil,” Venezuelan President Hugo Chavez said yesterday in Caracas. Saudi Arabia Oil Minister Ali al- Naimi said the kingdom’s February output will be “lower than the target” set at the group’s Dec. 17 meeting.

“These comments from the OPEC countries are supportive for the market and keep prices from losing ground,” said Ken Hasegawa, a commodity derivatives sales manager at Newedge Group in Tokyo. “We need time to see how effective the production cuts will be over the next one or two months.”

Crude oil for February delivery rose as much as $1.47, or 3.9 percent, to $39.25 a barrel and was at $38.94 at 9:38 a.m. Singapore time on the New York Mercantile Exchange. Yesterday, futures rose 19 cents, or 0.5 percent, to settle at $37.78 a barrel. Oil is down 59 percent from a year ago.

“We will do what it takes to bring the market in balance,” al-Naimi said as he arrived in New Delhi yesterday for a conference. The country is currently producing 8 million barrels a day, about level with its 8.051 million barrel-a-day allocation.

Oil ministers from the Organization of Petroleum Exporting Countries agreed in Oran, Algeria, to cut supply by 9 percent to 24.845 million barrels a day starting Jan. 1.

Further Reduction

“We’re willing to cut 2 million more, 4 million more barrels to preserve the price of oil,” Chavez said in a speech to the National Assembly in Caracas.

The group needs to make the deepest supply reductions in its history to comply with the new target. The 11 OPEC nations with quotas produced an average of 27.45 million barrels a day in December, according to data compiled by Bloomberg News.

The U.S. economy will contract 1.5 percent this year, a half percentage point more than projected last month, according to the median of 59 forecasts in a survey taken from Jan. 5 to Jan. 12 by Bloomberg News.

“The economy needs some time to rebound,” said Newedge’s Hasegawa. “Without this, the strength in crude oil will not be sustained and it’s possible we may head toward $35, especially for February WTI.”

U.S. Stockpiles

Falling demand for raw materials has hit most commodity markets. The Reuters/Jefferies CRB Index of 19 raw materials has declined 53 percent since reaching a record in July. The gauge rose 1.64, or 0.7 percent, to 222.19 yesterday.

Brent crude oil for February settlement gained as much as 27 cents, or 0.6 percent, to $45.10 a barrel on London’s ICE Futures Europe exchange. It rose $1.92, or 4.5 percent, to settle at $44.83 a barrel yesterday. The contract expires tomorrow.

The more active March future was at $47.68 a barrel, up 24 cents, at 9:44 a.m. Singapore time.

U.S. crude-oil stockpiles probably gained 2.75 million barrels in the week ended Jan. 9, according to the median of 14 responses by analysts in a Bloomberg News survey. The department will release its weekly petroleum supply report today.

Inventories of gasoline and distillate fuel, a category that includes heating oil and diesel, rose, according to the Bloomberg News survey.

The price of oil for delivery next December is 55 percent more than for February, allowing traders to profit if they have the ability to store crude. This structure, in which the subsequent month’s price is higher than the one before it, is known as contango.

“This situation has now created a $10 difference between the first three months contract’s and this has given an incentive for traders to store oil as much as possible,” said Hasegawa.

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

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Foreigners Biggest Stock Sellers in 21 Years, Tokyo Bourse Says

By Satoshi Kawano

Jan. 14 (Bloomberg) -- Foreign investors were bigger net sellers of Japanese stocks in 2008 than in any other year in the last two decades, and the trend may continue in 2009, as the earnings outlook for many companies remains bleak.

Non-residents were net sellers of 3.7 trillion yen ($42 billion) in Japanese equities last year, the Tokyo bourse said today, based on data from exchanges in Tokyo, Osaka, and Nagoya. It was the biggest net outflow by foreign investors since 1987, the data compiled by the Tokyo Stock Exchange showed.

“It’s too early to say that sales by overseas funds that previously expanded through borrowing peaked last year,” said Gentoku Kiyokawa, director of Fortis Investments in Tokyo, which oversees $200 billion in assets globally.

The investment figures highlighted the combined effects of tighter liquidity, which forced some foreign funds to sell holdings, and deepening concern about the global financial crisis, which has thrust the Group of Three economies into simultaneous recessions for the first time since World War II.

Funds from overseas investors “aren’t likely to flow into Japanese equities this year unless there are signs of a halt in the deterioration of earnings at Toyota Motor Corp., Canon Inc., and other global blue chips,” Kiyokawa added.

Non-residents were last net sellers in 2000, and their biggest selling position was in 1987, when they liquidated 7.2 trillion yen in shares, according to the TSE data.

Domestic individuals became net buyers for the first time since 1990, acquiring more than 1 trillion yen in shares.

Trust Banks

The purchases by locals are a sign that “low global interest rates and a strong yen made foreign currency- denominated assets look less attractive” to individuals, said Takahiro Tsuchiya, a strategist at Daiwa Institute of Research in Tokyo.

Retail investors may take advantage of a low Nikkei 225 Stock Average, which fell a record 42 percent last year, to continue buying, Tsuchiya said.

Trust banks, which manage pension funds, bought a net 4.5 trillion yen in equity, the most since 1998, as funds rebalanced their portfolios in the wake of global declines in stock markets.

“Many corporate pension funds may reduce their weighting of Japanese shares this year,” said Mitsushige Akino, an investment officer who oversees about $430 million at Tokyo- based Ichiyoshi Investment Management Co.

The Government Pension Investment Fund, which manages more than 1 trillion yen, may be a net seller this year, Akino said.

To contact the reporter on this story: Satoshi Kawano in Tokyo at skawano1@bloomberg.net

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Hong Kong Stocks Gain on Higher Oil Price, China Property Plans

By Shani Raja

Jan. 14 (Bloomberg) -- Hong Kong stocks rose for the first time in seven days, led by energy producers and developers, as oil prices rebounded and China unveiled plans to boost the nation’s property market.

Cnooc Ltd., China’s biggest offshore oil producer, rallied 3.2 percent after crude climbed for the first time in six days. Sun Hung Kai Properties, Hong Kong’s No. 1 property developer by market value, rose 3 percent. HSBC Holdings Plc, Europe’s largest bank by market value, fell 1.9 percent after Morgan Stanley said the company may cut its dividend in half.

The Hang Seng Index added 136.77, or 1 percent, to 13,804.82 as of 10:25 a.m. local time, its first advance since Jan. 5. The Hang Seng China Enterprises Index, which tracks Chinese companies’ so-called H shares, advanced 2.4 percent to 7,249.39.

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

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Most Japanese Stocks Gain; Shipping Stocks Climb on Higher Fees

By Masaki Kondo

Jan. 14 (Bloomberg) -- Most Japanese stocks climbed as shippers gained on increases in fees for transporting commodities and higher oil prices lifted energy producers.

Nippon Yusen K.K. and Mitsui O.S.K. Lines Ltd., the nation’s biggest shipping lines, jumped more than 3 percent. Inpex Corp., Japan’s largest oil explorer, rose 5 percent after crude oil gained for the first time in six days. Fujitsu Ltd. jumped 6.9 percent on a newspaper report it will likely sell its hard-disk business to Toshiba Corp. Mitsubishi Estate Co. lost 2.4 percent, extending yesterday’s 9.2 percent decline, on concern the industry might have more failures after two real-estate companies filed for bankruptcy on Jan. 9.

The Nikkei 225 Stock Average added 34.71, or 0.4 percent, to 8,448.62. The broader Topix index rose 8.42, or 1 percent, to 822.54 as of 10:11 a.m. in Tokyo.

Nippon Yusen rose 3.4 percent to 550 yen, while Mitsui O.S.K. added 4 percent to 606 yen. Kawasaki Kisen Kaisha Ltd., the third biggest, advanced 4.3 percent to 413 yen. Shipping lines were the second-biggest winners among 33 industry groups on the Topix after mining companies.

The Baltic Dry Index, a measure of commodity-shipping costs, climbed for a sixth day, rising 2.5 percent to the highest level since Oct. 29.

Inpex rose 5 percent to 676,000 yen, while smaller rival Japan Petroleum Exploration Co. gained 2.2 percent to 4,220 yen. Crude oil for February delivery broke a five-day losing streak yesterday with a 0.5 percent gain in New York as Saudi Arabia Oil Minister Ali al-Naimi said his country will make deeper supply cuts than previously announced.

Fujitsu, Toshiba

Fujitsu, the world’s sixth-largest maker of hard-disk drives, surged 6.9 percent to 421 yen, and Toshiba rose 1.8 percent to 392 yen. Fujitsu is in the final stage of talks to sell its hard- disk business to Toshiba for as much as 40 billion yen ($448 million), the Nikkei newspaper reported today.

Mitsubishi Estate, Japan’s second-biggest developer, sank 2.4 percent to 1,260 yen, and market leader Mitsui Fudosan Co. lost 2.7 percent to 1,260 yen. Sumitomo Realty & Development Co., the third largest, retreated 1.2 percent to 1,167 yen. Real- estate companies as a group were the biggest losers among the Topix groups.

Real-estate advisory company Creed Corp. and condominium builder Toshin Housing Co. separately filed for bankruptcy last week. Tokyo Shoko Research Ltd. yesterday said bankruptcies among listed companies rose to the highest level in 2008 since World War II. Three-quarters of those failures were real estate-related, according to data compiled by Bloomberg.

Nikkei futures expiring in March edged up 0.6 percent to 8,420 in Osaka and gained 0.5 percent to 8,415 in Singapore.

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

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Asian Stocks Gain for First Time in Five Days; Fujitsu Climbs

By Patrick Rial and Masaki Kondo

Jan. 14 (Bloomberg) -- Asian stocks gained for the first time in five days, as a rebound in oil boosted energy producers and technology companies rose on speculation mergers and cost- cutting measures will bolster profits.

Woodside Petroleum Ltd. rose 2.4 percent in Sydney as crude oil climbed for the first time in six days. Toshiba Corp. and Fujitsu Ltd., Japan’s No. 2 personal computer maker, gained more than 5 percent in Tokyo on speculation the companies are in talks to combine their hard-disk drive businesses. Sony Corp. added 5.8 percent after Merrill Lynch & Co. raised its target price, saying the company may reorganize to lower costs.

“Whether companies can turn around later this year depends largely on restructuring and cost cutting moves when the weather is stormy,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co., which oversees the equivalent of $6.1 billion.

The MSCI Asia Pacific Index advanced 1.4 percent to 87.12 as of 11:34 a.m. in Tokyo. About three stocks rose for each that dropped and all 10 industry groups increased.

The gauge lost 7 percent during the previous four sessions amid growing concern the global recession will fuel losses for the region’s manufacturers. Analysts have slashed their profit estimates for companies included in MSCI’s Asian index by 40 percent since a peak in April, according to data compiled by Bloomberg.

Growth in the global economy will slow to 2.2 percent this year, a rate “equivalent to a global recession,” the International Monetary Fund said in November.

Japan’s Nikkei 225 Stock Average added 0.6 percent to 8,464.07, led by Sony. All other benchmark indexes rose apart from Malaysia, the Philippines and Vietnam.

U.S. Futures

The Standard & Poor’s 500 Index edged up 0.2 percent in the U.S. yesterday as investors bought up shares trading at low valuations and avoided industrial companies. Futures on the S&P rose 0.6 percent in trading today.

Crude oil for February delivery broke a five-day losing streak yesterday with a 0.5 percent gain in New York as Saudi Arabia Oil Minister Ali al-Naimi said his country will make deeper supply cuts than previously announced. A measure of six metals traded in London climbed 2.6 percent, partially offsetting a 4.9 percent decline the previous day.

Woodside Petroleum, Australia’s second-largest oil and gas producer, rose 2.5 percent to A$35.65, snapping a four-day, 10 percent slump. Inpex Corp., Japan’s biggest oil explorer, added 5 percent to 676,000 yen. Jiangxi Copper Co., China’s second- biggest smelter, gained 2.3 percent to 12.11 yuan in Shanghai.

Technology Companies

Toshiba, Japan’s biggest chipmaker, rose 5.7 percent to 407 yen and Fujitsu surged 5.6 percent to 416 yen. The two companies are in final talks about a hard-disk drive joint venture, in which Toshiba would have a majority stake, according to four people familiar with the discussions.

Sony jumped 5.8 percent to 2,115 yen. Hitoshi Kuriyama, an analyst at Merrill in Tokyo, boosted his price estimate on the shares by 9.7 percent to 2,267 yen, citing the potential for job cuts and supply chain improvement to boost profitability. The stronger yen and weak demand will cause Sony to report its first operating loss in 14 years, the Nikkei newspaper said yesterday.

Other technology stocks gained. Hitachi Ltd., the world’s biggest maker of hard-disk drives used in notebook computers, rose 2.3 percent to 353 yen. Casio Computer Co., Japan’s largest maker of electronic dictionaries, soared 7.9 percent to 695 yen. Taiwan’s Asustek Computer Inc., maker of the low-cost Eee personal computer, gained 2.2 percent.

An index of Asian technology stocks has advanced 1.5 percent this year, the second-best performer among 10 industry groups. MSCI’s broader index has lost 2.9 percent in 2009, led by utilities and energy producers.

Capital Raising

Wesfarmers Ltd., Australia’s No. 2 retailer, dropped 3.5 percent to A$16.87. The company said today it may cut its dividend for a second year after writing off about A$150 million ($100 million) in the first half on provisions and the falling value of some investments.

HSBC Holdings Plc, Europe’s largest bank by market value, fell 1.5 percent to HK$71.90 in Hong Kong after Morgan Stanley analysts predicted it may have to raise as much as $30 billion and halve its dividend as earnings drop.

In Japan, Sapporo Holdings Ltd. slumped 5.1 percent to 462 yen. Credit Suisse Group said Japan’s beer market will likely contract this year as the domestic economy continues to weaken and restaurant sales slump. Yoshiyasu Okihira, a Tokyo-based analyst at Credit Suisse, cut his recommendations on Asahi Breweries Ltd., Kirin Holdings Co., and Sapporo, Japan’s top three brewers.

Shipping companies climbed after the Baltic Dry Index, a measure of freight costs, rose 2.5 percent, a sixth consecutive gain. Cosco Corp Singapore Ltd., the shipbuilding and repair unit of China’s biggest shipping company, added 3.1 percent to 83 Singapore cents. Mitsui O.S.K. Lines Ltd., Japan’s second-biggest bulk shipper, jumped 4.5 percent to 609 yen.

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

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