Boss, Continental, K+S, Metro, Q-Cells: German Equity Preview

By Patrick Donahue and Stefanie Haxel

Jan. 20 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in Germany. Stock symbols are in parentheses, and share prices are from the previous close.

DAX Index futures expiring in March added 7.5, or 0.2 percent, to 4,329.5 as of 8:12 a.m. in Frankfurt. The DAX fell 1.2 percent to 4,316.14.

Axel Springer AG (SPR GY): Europe’s largest newspaper publisher, along with Respekt Media AS, Platforma Mediowa Point Group SA, and Zjednoczone Przedsiebiorstwo Rozrywkowe SA, were picked for further negotiations on the purchase of Polish newspaper Rzeczpospolita. Springer shares increased 1.86 euros, or 3.6 percent, to 53.86.

Continental AG (CON GY): A hedge fund led by Frank Scheuner wants to oust Chairman Hubertus von Gruenberg, Financial Times Deutschland reported, citing the investor.

Separately, shareholder Schaeffler Group wants to remove 10 members of the car-component maker’s supervisory board to extend its control, Die Welt reported. The shares fell 1.50 euros, or 8.2 percent, to 16.81 euros.

Deutsche Telekom AG (DTE GY): The Scout24 unit of Europe’s largest phone company put plans to expand abroad “almost” on hold to focus on new services in its home market, the Financial Times Deutschland reported, citing the unit’s head Martin Enderle. The shares added 24.5 cents, or 2.5 percent, to 10.235 euros.

Hugo Boss AG (BOS3 GY): Germany’s largest clothing maker plans to dismiss as many as 150 of the company’s more than 2,800 employees in Germany, the Financial Times Deutschland reported, citing an unidentified company spokesman. The shares dropped 32 cents, or 3 percent, to 10.28 euros.

K+S AG (SDF GY): JPMorgan Chase & Co. cut its recommendation on Europe’s largest producer of potash used in fertilizers to “neutral” from “overweight.” The shares lost 2 euros, or 5.1 percent, to 36.95.

Lanxess AG (LXS GY): The chemicals maker will introduce shortened hours for employees and may shed jobs if the economic climate worsens, Sueddeutsche Zeitung reported, citing Chief Executive Officer Axel Heitmann. The shares retreated 36 cents, or 2.9 percent, to 12.25 euros.

Metro AG (MEO GY): Germany’s largest retailer plans to cut costs and increase profit by 1.5 billion euros ($2 billion) from now until 2012 as the company focuses on its most-profitable businesses and “simplifies” its structure. The shares sank 77 cents, or 3.1 percent, to 24.39 euros.

Q-Cells SE (QCE GY): Germany’s largest solar company had its recommendation cut to “conviction sell” from “buy” at Goldman Sachs Group Inc. The shares dropped 86 cents, or 4 percent, to 20.54 euros.

Repower Systems AG (RPW GY): Goldman Sachs increased its recommendation for the wind turbine builder to “buy” from “neutral.” Repower shares declined 3.98 euros, or 3.8 percent, to 100.99.

Solarworld AG (SWV GY): Goldman Sachs Group Inc. raised the country’s third-largest solar company to “conviction buy” from “neutral.” The shares advanced 20 cents, or 1.5 percent, to 13.94 euros.

TA Triumph-Adler AG (TWN GY): The copy-machine distributor said Kyocera Mita Corp. holds 88.69 percent of voting rights in the company as the result of its takeover offer, subject to antitrust approvals. The shares fell 2 cents, or 1.1 percent, to 1.88 euros.

Volkswagen AG (VOW GY): The works council of Europe’s largest carmaker has lost a bid to have more representatives than Porsche SE employees on the Porsche supervisory board following the takeover of Volkswagen, Financial Times Deutschland reported, citing unidentified people at the companies. Volkswagen shares lost 3.22 euros, or 1.3 percent, to 240. Porsche (PAH3 GY), the maker of the 911 sports car, fell 56 cents, or 1.2 percent, to 46.19 euros.

To contact the reporter on this story: Patrick Donahue in Berlin at at pdonahue1@bloomberg.net; Stefanie Haxel in Frankfurt at shaxel@bloomberg.net

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European, U.S. Stock Futures Decline; BNP, Logitech May Drop

By Adam Haigh

Jan. 20 (Bloomberg) -- European and U.S. stock futures fell as concern deepened banks will need to raise further capital and earnings will deteriorate amid the global economic slump.

BNP Paribas SA might decline as Societe Generale SA recommended clients sell the shares, saying the lender may have to raise as much as 8 billion euros ($10.4 billion). Logitech International SA may slide after the world’s biggest maker of computer mice said third-quarter profit slumped 70 percent.

Futures on the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, slipped 5, or 0.2 percent, to 2,249 at 7:43 a.m. in London. Futures on the Standard & Poor’s 500 Index fell 1.3 percent, while the MSCI Asia Pacific Index sank 2.2 percent.

Stocks in Europe, Canada and Brazil dropped yesterday on speculation government efforts to shore up the financial industry will fail to stem the deepening global recession. The U.K.’s Royal Bank of Scotland Group Plc said it expects to post a loss of as much as 28 billion pounds ($41 billion) for 2008 and the government got ready to raise its stake in the lender.

BNP Paribas may fall. Analysts at Societe Generale cut their recommendation for France’s largest bank to “sell.”

Analysts forecast earnings at financial companies in the Stoxx 600 will rise 42 percent in 2009 following a 59 percent slide last year, according to Bloomberg data. The benchmark index posted its worst annual slump on record in 2008 as more than $1 trillion in credit losses and writedowns eroded profits.

Logitech may drop. Net income declined to $40.5 million, or 22 cents a share, in the quarter ended Dec. 31. Analysts had estimated earnings of 44 cents a share.

Burberry, IG Group

Burberry Group Plc, the maker of $1,295 checked Lowry handbags, may gain after saying third-quarter sales rose 9 percent to 329 million pounds, beating the 291 million pounds forecasts by analysts surveyed by Bloomberg.

IG Group Holdings Plc may climb after the owner of the IG Index financial-market betting brand said first-half sales gained 47 percent to 126.5 million pounds and trading in the second half remains “strong.”

Air France-KLM Group, Europe’s biggest airline, said it will have an operating loss in the third quarter on a “slight weakening” in passenger revenue.

Royal Dutch Shell Plc, the region’s largest oil company, and Total SA may move as crude fell below $35 a barrel in New York.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net.

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RBS Losses Rock European Markets

Daily Forex Fundamentals | Written by Easy Forex | Jan 20 09 01:34 GMT |

U.S. Dollar Trading (USD) enjoyed major gains against the EURO and GBP as bad news out of Europe hurt their respective currencies. European stocks were also hurt by the negative news but follow on effects in the US Session were avoided as the Markets were closed for Martin Luther King Day. Feb Contract Crude Oil closed down $2.11 ending the New York session at $34.40 per barrel. The Euro (EUR) enjoyed buoyancy in early Asia before news of the S&P downgrade of Spain’s credit rating and European banking stocks tanked. EUR/JPY had a dramatic change of sentiment swinging from 2% gains to 2% losses. Also Hurting sentiment was the European Commission slashing growth forecasts for 2009 to -1.9% from -0.1%. Overall the EUR/USD traded with a low of 1.3060 and a high of 1.3381 before closing the day at 1.3090. Looking ahead, German Zew Survey is forecast at -44 vs. -45.2 in January. The Japanese Yen (JPY) gained strength after risk aversion soared in Europe on back of the fresh banking concerns. USD/JPY was under pressure as well but broad USD strength helped the pair to stay above the key 90 level. November Industrial Production was revised lower at -8.5% vs. -8.1%. Overall the USDJPY traded with a low of 90.17 and a high of 91.27 before closing the day around 90.60 in the New York session. Looking ahead, Consumer Confidence for December previously at 28.4. The Sterling (GBP) was the worst performing currency as Royal Bank of Scotland forecast losses of 28 Bn pounds, the largest in UK corporate history. Shares of RBS fell 67% and pressured other banks stocks lower on fear of nationalization. Overall the GDP/USD traded with a low of 1.4360 and a high of 1.4908 before closing the day at 1.4425 in the New York session. Looking ahead, December CPI is forecast at -0.8% vs. -0.1% m/m previously. The Australian Dollar (AUD) traded lower as the USD strengthened and risk aversion pushed the AUD lower. Commodities fell and this also added to downside pressure. AUD/NZD continued to make gains though as the beleaguered NZD continued to plummet. Overall the AUD/USD traded with a low of 0.6656 and a high of 0.6840 before closing the US session at 0.6680. Gold (XAU) fell to broad USD strength although it held up better than Oil on safe haven flows. Overall trading with a low of USD$832.45 and high of USD$842.90 before ending the New York session at USD$834 an ounce Easy Forex http://www.easy-forex.com Easy-Forex makes no recommendations as to the merits of any financial product referred to in this website, emails or its related websites and the information contained does not take into account your personal objectives, financial situation and needs. Therefore you should consider whether these products are appropriate in view of your objectives, financial situation and needs as well as considering the risks associated in dealing with those products

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Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Jan 20 09 01:32 GMT |

News And Views Bank failures in Europe dominated news last night. The UK Government formalised expected plans to enhance support to the banking sector, but this was overshadowed by Royal Bank of Scotland's forecast loss of GBP28 billion, and the risk of further nationalisation of banks. German banks were also highlighted as facing drastic write-downs. In other credit-related news, Spain's AAA was cut to AA+ by Standard and Poor's, and sovereign credit-spreads have widened. In the absence of US equity market clues (on holiday), Euro-zone equities set the tone, down 1.2%. WTI oil was down 5% and the US dollar index (DXY) rose 0.6%. NZD/USD ran out of steam at 0.5545 at the NZ close, and Europe's gloom saw it fall over a cent. The two-day corrective rally has ended, and the bigger-picture decline to sub-0.50 has resumed. AUD/USD's decline was also EUR-influenced, and the zig-zag down to the Europe-low of 0.6680 area likely marks the beginning of a larger decline. AUD/ NZD recent sideways range is gradually getting smaller, and an upside breakout beyond 1.2370 is imminent. EUR was affected by the banking news and Spain's downgrade, falling from around 1.34 to its current low level of 1.3120. The European Commission's drastic downward revision of 2009 GDP, from -0.1% to -1.9%, added fuel to the move. The GBP unsurprisingly fell on the UK banking news, and is poised to break the recent 1.4450 low. The JPY strengthened slightly against the USD to just above 90, before retreating to 90.50; a dismal set of data releases yesterday supports the likelihood of Japanese repatriation this year. No US data to report. European Commission slashes growth forecasts. The 2009 GDP growth forecast was slashed from -0.1% in November to -1.9% in the latest projections (which happens to exactly match our current forecast for Euroland growth this year). 2010 is expected to see a modest rebound of just 0.4% (Westpac 0.7%). UK government announces further bank bailout plan, though the PM and Chancellor emphasised that the key intention was not simply to save the banks but rather to ensure the necessary lending to business and individuals takes place, in order to minimise the severity of the emerging recession. The government will increase its ownership of at least one of the major UK banks (RBS), direct the bank it already fully owns (Northern Rock) to lend more, provide an extended guarantee to cover potential losses for bank lending, and allow the Bank of England monetary policy committee to use asset purchases as one of its policy tools (effectively a green light for further quantitative easing). UK house prices down 1.9% in Jan. The Rightmove index is now running an annual pace of decline of -7.3% yr, lagging the major lender indices which have prices down around 16% yr. Outlook We look to sell strength in NZD from here, expecting 0.52 will be broken in the next few weeks. On the day, it shouldn't go any higher than 0.5470, more likely gravitating towards 0.54. Today's CPI (Q4) release is important, and we expect a weaker -0.5% than either the market's or the RBNZ's forecast; such a reading would see interest rates and the NZD lower. Country Release Last Forecast NZ Q4 CPI %qtr 1.50% –0.5% Dec Food Prices 0.80% – US Presidential Inauguration Jpn Nov Tertiary Industry Idx %mth 0.40% –0.8% Dec Consumer Confidence 28.7 27.5 Ger Jan ZEW Analysts’ Survey –45.2 –50.0 UK Dec CPI %yr 4.10% 2.50% Can Nov Manufacturing Shipments –0.5% –3.0% BoC Rate Decision 1.50% 1.00% Westpac Institutional Bank http://www.wib.westpac.co.nz/ Disclaimer All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.

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Japan’s Demand for Service Falls as Consumer Spending Weakens

By Toru Fujioka

Jan. 20 (Bloomberg) -- Japan’s demand for services dropped in November as a deepening recession prompted companies to fire workers and slash wages.

The tertiary index, a gauge of money households and businesses spend on phone calls, power and transportation, fell 0.9 percent from October, the Trade Ministry said today in Tokyo. The median estimate of 26 economists surveyed by Bloomberg was for a 0.8 percent decline.

Toyota Motor Corp. and Sony Corp. are firing workers to cope with the global recession that triggered a record drop in exports in November. Wages slid and job prospects worsened in the month, and economists say consumers will keep cutting back as the slump in the world’s second-largest economy intensifies.

“In this environment, it is difficult for service consumption to follow a stable upward path,” said Kyohei Morita, chief Japan economist at Barclays Capital in Tokyo. “Households have become increasingly defensive.”

Toyota will cut all 4,500 temporary workers at its 12 Japanese plants this year because of falling vehicle sales, the Yomiuri newspaper reported today, without saying where it obtained the information.

Consumers, whose outlays account for more than half of gross domestic product, have been paring purchases for nine months, the longest losing streak in two years. The Economy Watchers index, a survey of barbers, taxi drivers and others on the front line of the economy, slipped to 15.9 last month, the lowest since the report began in August 2001.

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

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Tokyo Gas, Partners Scrap Plan to Buy Sendai Utility

By Megumi Yamanaka and Michio Nakayama

Jan. 20 (Bloomberg) -- Tokyo Gas Co., Japan’s biggest distributor of the fuel, and its two partners abandoned a plan to buy a public gas utility in the northern Japanese city of Sendai.

Tokyo Gas, Tohoku Electric Power Co. and Japan Petroleum Exploration Co., or Japex, will announce their decision to Sendai authorities this afternoon and will brief media on their reasons at 3 p.m., Tohoku electric spokesman Kotaro Kudo and Tokyo Gas spokesman Naoyoshi Oogake said by telephone.

The three companies in September last year said they will bid jointly for Sendai Gas, which supplies more than 360,000 customers in six northern cities and towns. Tougher competition with electricity and other fuels has prompted Sendai to privatize its gas business through the sell off, to be carried out by April 2010. Sendai Gas posted losses for the 15th consecutive year in the period ended March 2006.

Sendai plans to select a buyer in March 2009. The only bidder so far is the group led by Tokyo Gas, the city said in October.

The Nikkei newspaper reported that Sendai and the bidders couldn’t agree on conditions including the price. Sendai sought more than 60 billion yen ($664 million) and demanded that it retain veto power over proposals put to shareholders, the newspaper said. The group’s bid was below 60 billion yen, the Nikkei said, without citing anyone.

To contact the reporters on this story: Megumi Yamanaka in Tokyo at myamanaka@bloomberg.net.

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New York Session Recap

Daily Forex Fundamentals | Written by Forex.com | Jan 20 09 01:15 GMT |

The New York Session saw a relatively muted range due to the US holiday and the absence of stock and bond markets, but the USD emerged stronger at the end of the day as risk aversion remained the primary driver. Traders continued to fear the effects of a global recession and the negative impact on investing returns, leading them to shun riskier asset plays, buying the USD and selling carry trades (JPY-crosses like EUR/JPY). Earlier negative news out of the UK and Europe over additional bailouts for the British banking sector added to the pressure on those currencies and induced additional selling. Many commodity exchanges were closed for the US holiday, but spot oil and gold prices continued to soften, further supporting the USD. Upcoming Economic Data Releases (Asia Session) 1/19/2009 23:50 JN Tertiary Industry Index (MoM) NOV 0.40% -0.80% 1/20/2009 5:00 JN Consumer Confidence DEC 28.7 27.5 1/20/2009 5:00 JN Consumer Confidence Households DEC 28.4 27.9 1/20/2009 6:00 JN Machine Tool Orders (YoY) DEC F -71.90% - - Forex.com http://www.forex.com DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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CNPC to Maintain Spending This Year, China Business News Says

By Wang Ying

Jan. 20 (Bloomberg) -- China National Petroleum Corp., the country’s biggest oil and gas producer, plans to invest more than 290 billion yuan ($42 billion) this year, little changed from 2008, the China Business News reported.

The parent company of Hong Kong-listed PetroChina Co. paid more than 85 billion yuan in windfall taxes last year, causing a decline in profit, the newspaper reported today, citing a company official it didn’t identify. The windfall taxes accounted for 62 percent of China National’s full-year earnings, the newspaper said.

China National may delay some non-production projects to ensure adequate investments for its “core business” this year, the report said.

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

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Contact Shares Fall by Record on Profit Drop Forecast

By Gavin Evans

Jan. 20 (Bloomberg) -- Contact Energy Ltd., New Zealand’s biggest publicly traded power generator, fell the most since its listing in Wellington after saying full-year profit may plunge 23 percent because hydropower output slumped and gas costs rose.

Profit before interest, tax, depreciation and changes in the value of financial instruments may fall 15 percent from last year, Chief Executive Officer David Baldwin said in a statement to the stock exchange today. Underlying profit may drop as much as 23 percent, he said. The stock fell as much as 10 percent.

Contact, half-owned by Sydney-based Origin Energy Ltd., said in August profit growth may stall as transmission constraints reduce its ability to profit from power produced at its dams on New Zealand’s South Island. Since then, high lake levels and an output cut at Rio Tinto Group’s Tiwai Point aluminum smelter have forced generators to release water from their dams.

“This has taken a lot of people by surprise,” said Rickey Ward, who helps manage the equivalent of $1.9 billion at Tyndall Investment Management Ltd. in Auckland. “It just throws up another red flag” for what was previously considered a defensive, utility stock, he said.

Contact fell 68 cents, or 9.3 percent, to NZ$6.67 at 12:30 p.m. in Wellington, after earlier touching a seven-week low of NZ$6.60. The stock is headed for its biggest one-day decline since trading started in May 1999.

Profit Expectations

Investors had been expecting full-year profit of about NZ$230 million, according to the average of six analyst estimates compiled by Bloomberg News. Contact’s forecast implies underlying after-tax profit of about NZ$180 million. It reported underlying profit of NZ$232.8 million in the year ended June 30 on earnings before interest, tax, depreciation and financial adjustments of NZ$567.2 million.

Contact’s customers are divided almost equally between each of the country’s two major islands, which it supplies from a mix of gas-fired, geothermal and hydro-electric generation. The utility usually makes about a third of its electricity at two dams on the lower South Island.

Their output the past six months is down about 14 percent from a year earlier, Baldwin said. Drought early in the period cut production, while generation since has been constrained as reduced transmission capacity to the North Island, the highest lake levels in 10 years and a 30 percent reduction in processing at the Tiwai Point smelter combined to force spilling from dams.

Extremes, Prices

New Zealand “has experienced two extremes of hydrology within six months, each at opposite ends of the scale,” Baldwin said.

Contact got about NZ$8.69 a megawatt-hour for generation from its dams on the South Island’s Clutha River at 11:30 a.m. At its Otahuhu plant in Auckland on the North Island, it got NZ$69.83 the same time.

Inflation-adjusted supply contracts will also contribute to a 25 percent increase in per-unit fuel costs for the gas-fired Otahuhu and Stratford plants this year, Baldwin said.

While the company can’t be blamed for the weather and transmission problems, management may have lost some credibility with investors given the timing and size of today’s forecast cut, Tyndall’s Ward said. Tiwai Point, the country’s biggest power user, cut production in November and a month later, national hydro storage reached a two-year high.

“How come it has taken so long when some of these issues have been pretty obvious for some time?”

Modeling the various impacts the company is exposed to at the moment is “not an insignificant task” spokesman Jonathan Hill said.

To contact the reporter on this story: Gavin Evans at gavinevans@bloomberg.net

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Russia, Ukraine Sign 10-Year Accords to Resume Gas Flows to EU

By Daryna Krasnolutska and Stephen Bierman

Jan. 20 (Bloomberg) -- Russia and Ukraine signed 10-year natural-gas contracts, ending a dispute that’s squeezed supplies to the European Union for almost two weeks and setting the stage for a resumption of deliveries.

Russian Prime Minister Vladimir Putin said yesterday gas flows to the 27-nation bloc will restart in “full volumes” through all export routes. His Ukrainian counterpart, Yulia Timoshenko, said there would be “no delays.”

Gas prices in the U.K., Europe’s biggest market, slumped the most in almost a year on expectations that supply shortages in many parts of central Europe and the Balkans will shortly be eased. The contracts were signed by OAO Gazprom, Russia’s gas exporter, and NAK Naftogaz Ukrainy, the state energy supplier, following weekend talks between both leaders in Moscow.

“There is no replacement for Russian gas,” said Pavel Kushnir, director of oil and gas research at Deutsche Bank AG in Moscow. “Russia is likely to preserve its 25 percent share of European supplies.”

Ukraine will pay higher European prices for Russian gas from 2010, after a 20 percent discount this year. In return, 2009 transit fees for Russia will remain unchanged from last year before also being raised to European levels. Timoshenko said gas prices had been agreed to on an “objective basis,” without being more specific.

Russian Offer

Russia offered Ukraine a price of $360 per 1,000 cubic meters for the first quarter, according to a statement from Bohdan Sokolovskyi, President Viktor Yushchenko’s energy aide, published on his Web site.

Putin told state television that the deal will eliminate the use of middlemen. In the past, Gazprom and Naftogaz have employed RosUkrEnergo AG, the Swiss-based trader half-owned by Gazprom, as an intermediary.

The EU demanded to know the “precise time” at which transit flows through Ukraine will start. “Our monitors will verify when the gas actually starts to flow,” the European Commission, the executive arm of the EU, said in a statement.

U.K. gas for delivery next month fell as much as 9.8 percent, the steepest one-day decline since March last year. The contract traded at 54.60 pence a therm as of 4:30 p.m. in London, according to broker Spectron Group Ltd. Prices had risen 10 percent in the past two weeks.

OMV AG, Austria’s largest oil-and-gas company, expects Russian gas to begin arriving at its Baumgarten hub two to three days after Gazprom turns on the taps. “It will take a while” for flows to reach Poland, Malgorzata Polkowska, a spokeswoman for the national gas pipeline operator, said by phone.

Energy Mix

Russian gas flows via Ukraine were halted Jan. 7 after Gazprom accused Ukraine of siphoning off transit flows for its own needs, a charge the country denies. The crisis has left parts of eastern Europe without fuel during freezing temperatures. Europe relies on Russia for a quarter of its gas, 80 percent of which is carried through Ukraine.

“Europe has to diversify its energy mix because 40 percent of planned new power stations are natural gas,” said Colette Lewiner, the Paris-based global leader of energy and utilities at Capgemini. Factories and power stations will make better use of liquefied natural gas terminals, build more storage facilities and improve their ability to trade gas after the Russia-Ukraine dispute, Lewiner said yesterday by phone.

The weekend deal followed a warning from the EU that it might urge European companies to seek legal redress if fuel supplies remain halted. A previous attempt by the EU to break the deadlock failed a week ago.

EU Warning

The agreement “is a major step forward,” Bernhard Jeggle, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart, said on Jan. 18. The 20 percent discount for Ukraine “makes it easier to transfer to world market price levels.”

The EU had labeled the talks a “test case” for the reliability of Russia and Ukraine as energy providers. The supply cutoff has already prompted renewed calls for the region to consider developing alternative sources of energy and nuclear power.

European alternatives to supplies from Gazprom are limited and no final decision has been made on financing the planned Nabucco pipeline, a rival route intended to carry central Asian gas to Europe by 2013.

“By signing a 10-year deal, they are moving to offset at least some of the damage done by the recent gas spat,” Alfa Bank Chief Strategist Ronald Smith said by phone from Moscow.

Price Demands

Turkish Energy Minister Hilmi Guler yesterday called for a speedy agreement on the Nabucco link, which would run from Turkey through Bulgaria, Romania and Hungary to Austria.

This month, Gazprom cited a possible price of $450 per 1,000 cubic meters for deliveries to Ukraine in January, reflecting the average price in countries bordering Russia’s neighbor. It made the offer after saying Ukraine had rejected a gas price of $250. Ukraine had said $201 would be fair.

The average price that Ukraine will pay this year, according to preliminary calculations, will be not more than $235, Deputy Prime Mister Hryhoriy Nemyria said in a Ukraine Channel 5 television interview. Timoshenko said a price would be announced in two days.

Gazprom’s prices to European customers under long-term contracts typically lag prices for crude and oil products by about six to nine months. Crude has fallen by 75 percent since reaching a record in July. Ukraine paid Russia $179.50 per 1,000 cubic meters for gas last year.

Gazprom’s gas output will likely fall 2 percent this year because of lower fuel prices, weaker demand and a milder winter, according to a report yesterday by JPMorgan Chase & Co.

A 20 percent discount to European prices will still weigh heavily on the Ukrainian economy, said Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies.

For Related News: Today’s top gas stories: TGAS Energy markets menu: NRG

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Asia Day Ahead: Lehman Rescue Failed on Guarantees, Baxter Says

Jan. 20 (Bloomberg) -- The U.S. is facing an “economic Pearl Harbor” that has spread fear throughout the country, billionaire investor Warren Buffett told Tom Brokaw in an interview broadcast yesterday on Dateline NBC. Lehman Brothers Holdings Inc.’s rescue failed when U.S. officials couldn’t find a bank to provide the same trading guarantees that Bear Stearns Cos. received, the New York Federal Reserve’s general counsel said.

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MAIN ECONOMIC RELEASES New Zealand Consumer Prices Seen Falling 0.4% on Quarter Japan Index of Service Demand Seen Falling 0.8% in November Japan November Consumer Confidence Seen Declining to Record Low Japanese Government Releases Monthly Economic Assessment

MAIN ANALYST UPGRADES/DOWNGRADES *LG DISPLAY RAISED TO ‘UNDERPERFORM’ AT CLSA *SEMBCORP MARINE CUT TO ‘UNDERPERFORM’ AT CREDIT SUISSE *MALAYSIAN CONSTRUCTION SECTOR RAISED TO ‘POSITIVE’ AT HWANGDBS *MITSUBISHI ELECTRIC CUT TO ‘MARKET PERFORM’ AT MITSUBISHI UFJ *URALKALI, SILVINIT, ACRON RATED ‘BUY’ AT TROIKA DIALOG

ASIAN MARKETS

The Nikkei 225 futures contract due in March fell 180 points to 8,100. The Hang Seng January contract rose 141 to 13,393. The S&P/ASX 200 Index futures due March dropped 14 to 3,535 at 7:00 a.m. in Sydney.

Treasury Yields Flattened as Fed Fights to Cut Mortgage Rates

The Federal Reserve’s inability to narrow the gap between consumer borrowing costs and government interest rates is driving investors to the longest-maturity Treasuries.

Pound Falls Versus Euro, Dollar on U.K. Bank Plan; Ruble Drops

The pound fell against the euro and the dollar on speculation British Chancellor of the Exchequer Alistair Darling’s second bank rescue in three months won’t be sufficient to revive the recession-mired economy.

Stocks in Europe, Brazil, Canada Decline; Royal Bank, BASF Drop

Stocks in Europe, Brazil and Canada fell on speculation government efforts to shore up the financial industry will fail to stem the deepening global recession.

European Bonds Fall for Second Day on U.K. Asset-Purchase Plan

European government bonds dropped as the U.K. announced a second bank bailout package and gave the Bank of England unprecedented power to buy securities.

Crude Falls on Forecasts Global Recession Will Cut Fuel Demand

Crude oil futures fell below $34 a barrel in New York on forecasts faltering global economic growth will drive down fuel consumption for a second year.

Gold Drops in London on Slumping Oil Prices, Stronger Dollar

Gold fell in London as crude oil slumped and the dollar gained against the euro, reducing the metal’s appeal as an inflation hedge and alternative investment.

HIGHLIGHTS FROM NEWSPAPERS

Gazprom Says Ukraine Gas Price May Be Under $250, UNIAN Reports

OAO Gazprom Deputy Chief Executive Officer Alexander Medvedev said the price Ukraine pays for gas under a new deal may be less than $250 per 1,000 cubic meters, the UNIAN news service reported.

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Oil Falls Below $35 as Global Recession Reduces Fuel Demand

By Gavin Evans

Jan. 20 (Bloomberg) -- Crude oil fell below $35 a barrel in New York on speculation faltering global economic growth will drive down fuel consumption for a second year.

Slowing world demand, reduced tension in the Middle East and settlement of Russia’s gas dispute with Ukraine could push prices toward last month’s four-year low of $32.40 a barrel, Goldman Sachs Group Inc. said yesterday. OPEC may have to cut output again should prices fall further, Algerian Oil Minister Chakib Khelil said Jan. 17.

“We’re pretty close to the bottom if we’re not there already,” Michael Lynch, president of Strategic Energy & Economic Research Inc. in Winchester, Massachusetts, said in a Bloomberg Television interview. “I don’t think the market can sustain a price much below this.”

Crude oil for February traded at $34.54 a barrel, down 5.4 percent from last week’s close, in after-hours trading on the New York Mercantile Exchange at 8:54 a.m. Singapore time. The contract, which expires today, fell as low as $33.89 yesterday, when floor trading was closed for the Martin Luther King holiday. Yesterday’s trades will be booked today for settlement.

“There’s light trading volume and the economic numbers are bearish globally,” Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire, said yesterday. The February contract prices should be taken “with a grain of salt,” he said.

Oil Forecasts

The more-actively traded March contract was at $40.84, down 4.1 percent, after falling as low as $40.21 yesterday.

Near-term oil prices have been forced artificially low as the global financial crisis prompted fund managers to sell assets to generate cash, Strategic’s Lynch said. Prices need to rise and will probably reach $60 a barrel by year’s end, he said.

Brent crude oil for March settlement fell $2.07 or 4.4 percent, to $44.50 a barrel on London’s ICE Futures Europe exchange yesterday.

Stocks in Europe, Brazil and Canada fell yesterday as investors speculated government efforts to shore up the financial industry will fail to stem the deepening global recession.

The settlement of Russia’s natural gas dispute with Ukraine, and a cease-fire in the Gaza Strip had also increased selling pressure, Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois, said yesterday.

“There was a reduction of the geopolitical risk premium,” he said in a telephone interview.

Rising U.S. stockpiles and forecasts from the International Energy Agency and OPEC on declining world demand contributed to an 11 percent decline in Nymex crude last week. Prices are down 20 percent this year, after tumbling 54 percent in 2008.

Oil may make a “swift and violent rebound” to $65 a barrel in the second half as OPEC production cuts take effect and other producers also trim output, Goldman Sachs analyst Jeffrey Currie said at a conference in London yesterday.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net

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N.Z. Fourth-Quarter Consumer Prices Fall, Led by Fuel

By Tracy Withers

Jan. 20 (Bloomberg) -- New Zealand consumer prices fell in the fourth quarter as fuel prices slumped, adding to signs the central bank will cut the benchmark interest rate to a record low next week.

The consumer prices index declined 0.5 percent from the third quarter, Statistics New Zealand said in Wellington today. The median estimate in a Bloomberg News survey of nine economists was a 0.4 percent drop. From a year earlier, prices rose 3.4 percent.

Inflation is easing after New Zealand’s economy slumped into its first recession in 10 years, curbing consumer spending and slowing the housing market. Reserve Bank Governor Alan Bollard, who began cutting interest rates in July to kick-start spending and investment, forecasts inflation will slow over the next year.

“All the things that caused higher inflation are now going into reverse,” said Robin Clements, chief economist at UBS AG in Christchurch. “A lower inflation rate makes it easier to cut rates.”

New Zealand’s dollar fell to 53.62 U.S. cents at 11:30 a.m. in Wellington from 54.20 cents immediately before the report.

Bollard has cut the official cash rate 3.25 percentage points to 5 percent since July. He will probably lower it by 1 percentage point to 4 percent on Jan. 29, the lowest level since the benchmark was introduced in March 1999, according to six of eight economists surveyed by Bloomberg. One expects a half-point cut and one predicts a three-quarter-point reduction.

Inflation Target

Bollard, who is required to keep annual inflation between 1 percent and 3 percent, said last month that slowing growth will return inflation to his target range by the middle of 2009. He forecast prices fell 0.3 percent in the fourth quarter.

Prime Minister John Key last week said the economy may not grow in 2009 as a deepening global recession curbs exports and prompts companies to fire workers.

Inflation is slowing after reaching an 18-year high of 5.1 percent in the year ended Sept. 30, 2008, amid soaring fuel and food and air travel costs.

Fuel prices are now falling. Gasoline prices dropped 22 percent from the third quarter, the statistics agency said today. Excluding fuel, consumer prices rose 0.9 percent, it said.

Appliances, computers and digital cameras were also cheaper. Vegetable prices fell 16 percent.

Food Prices

Still, the cost of international air travel and package holidays increased in the quarter, while overall food prices rose 1.5 percent, the agency said.

From a year earlier, fuel prices have fallen while food has increased 9.4 percent, accounting for half the increase in overall consumer prices, the agency said.

Bollard’s primary focus is on non-tradable inflation, a core measure of prices that are not influenced by currency fluctuations and fuel.

Non-tradable prices rose 0.8 percent from the third quarter. The measure gained 4.3 percent from a year earlier, the fastest pace in three years, after rising 4.1 percent in the year to September.

Non-tradables inflation was underpinned by rising rents and the cost of water and electricity. The cost of buying and building a new house fell 0.2 percent, the first decline in almost 10 years.

From a year earlier, power prices gained 7.7 percent while rents and the cost of buying a house also increased.

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

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New Zealand Dollar Extends Decline on Rate-Cut Expectations

By Candice Zachariahs

Jan. 20 (Bloomberg) -- The New Zealand dollar fell after a government report said consumer prices declined in the fourth quarter as fuel prices slumped, adding to signs the central bank will cut the benchmark interest rate to a record low next week.

The currency slid to 53.59 U.S. cents at 9:35 a.m. in Sydney from 54.20 cents just before Statistics New Zealand said the consumer prices index declined 0.5 percent from the third quarter. The Australian and New Zealand dollars also dropped for the first day in three after the European Commission lowered its forecast for the euro-area economy, raising concerns a global slowdown will worsen.

“This reinforces the theme that the Reserve Bank of New Zealand will cut rates when they meet,” said Danica Hampton, a strategist at Bank of New Zealand Ltd. in Wellington. “The global backdrop is very heavy. People are keen to sell growth- sensitive currencies like the kiwi dollar,” she said referring to the currency by its nickname.

Australia’s currency slid 1.6 percent to 66.67 U.S. cents from 67.76 cents late in Asia yesterday. The currency dropped 1.6 percent to 60.42 yen. New Zealand’s dollar dropped 2.2 percent to 48.60 yen from 49.67 in Asia yesterday.

RBNZ Governor Alan Bollard will cut the benchmark rate 100 basis points to 4 percent when the bank meets Jan. 29, according to the median forecast of eight economist surveyed by Bloomberg News. Traders raised bets that the bank will slash rates nearly 2 percentage points over the next 12 months to restore domestic demand, according to a Credit Suisse index based on overnight swaps trading.

Downside Risks

Risks to the New Zealand dollar are to the “downside,” said Hampton before the release of retail data tomorrow that economists expect to show sales slid 1.2 percent in November.

“Sentiment towards the kiwi dollar really turned last week,” Hampton said.

Standard & Poor’s revised the nation’s AA+ foreign-currency credit rating outlook to negative from stable on Jan. 13 citing concern over its current-account deficit and overseas debt.

Higher interest rates in New Zealand and Australia, compared with 0.1 percent in Japan and as low as zero percent in the U.S., are attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits. The benchmark rate in Australia is 4.25 percent.

European Slowdown

The Brussels-based European Commission said yesterday that the economy of the 16 countries sharing the euro will shrink 1.9 percent in 2009, revising a November estimate for growth of 0.1 percent. European Central Bank President Jean-Claude Trichet said yesterday economic prospects are “substantially” worse than the ECB predicted just last month.

Australia’s dollar also slipped as the price of oil, the nation’s fourth most-valuable commodity export, dropped below $34 a barrel in New York.

“There’s a more negative outlook globally and oil prices were also weaker,” said Tony Morriss, a senior markets strategist at Australia & New Zealand Banking Group Ltd. in Sydney. The Australian dollar is likely to fall toward 66.50 U.S. cents “with the risk that we move lower over the next few days,” he said.

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

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Yen Gains to Near Record Versus Pound on Rising Credit Concerns

By Ron Harui and Lukanyo Mnyanda

Jan. 20 (Bloomberg) -- The yen rose to near a record high against the British pound on speculation widening credit-market losses will hurt corporate earnings, reducing demand for higher- yielding assets.

Japan’s currency gained for a second day versus the pound and climbed versus the euro on concern the U.K. government will have to take full control of Royal Bank of Scotland Group Plc after the bank yesterday forecast the biggest loss ever reported by a British company. The euro fell to a five-week low against the dollar before a German report today that economists say will show investor confidence fell for an 18th month in January.

“Investors are risk averse, given ongoing worries that credit losses will spread,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The markets are concerned whether the government can resolve this crisis. The bias is for the yen to be bought.”

The yen climbed to 129.28 per pound as of 9:51 a.m. in Tokyo from 130.71 late in London yesterday. It reached 128.84 on Jan. 13, a record high according to data compiled by Bloomberg. Japan’s currency rose to 117.66 per euro from 118.47 and advanced to 90.38 against the dollar from 90.64. Japan’s currency may gain to 90 per dollar today, Ishikawa said.

The euro declined to $1.3023 from $1.3069 late in London yesterday. It reached $1.3007, the weakest since Dec. 11. Europe’s single currency advanced to 91.00 pence from 90.59 pence. The pound fell to $1.4292 from $1.4420. It touched $1.4282, the lowest since April 2002.

Carry Trades

Benchmark interest rates are 4.25 percent in Australia and 5 percent in New Zealand, compared with 0.1 percent in Japan, encouraging investors to borrow in yen and buy higher-yielding assets elsewhere.

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

The U.K. currency declined for a third day against the euro and a second versus the dollar on speculation British Chancellor of the Exchequer Alistair Darling’s second bank rescue in three months won’t be sufficient to revive the recession-mired economy.

The pound weakened versus 15 of the 16 most-active currencies today after Darling said yesterday the government will extend a Bank of England program to inject money into the financial system and proposed insurance to underwrite mortgage- backed debt and toxic assets.

“There’s a distinct souring of investor sentiment toward the U.K. economy,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “Sterling will stay under pressure.”

RBS Stake

The British government said in a statement yesterday it will increase its stake in Royal Bank of Scotland as it converts the 5 billion pounds ($7.2 billion) of preferred shares it bought last year to ordinary stock.

The new U.K. measures would add at least 100 billion pounds to the 250 billion pounds committed by Prime Minister Gordon Brown in October to underwrite a financial system choked with bad debt and reeling under the first recession in two decades. They increase the government’s grip on consumer and corporate banking and expose taxpayers to hundreds of billions in losses.

The euro fell for a second day against the dollar as the ZEW Center for European Economic Research may say at 11 a.m. in Mannheim that its index of investor and analyst expectations was at minus 43.1 in January, from minus 45.2 the prior month, according to a Bloomberg News survey of economists.

European Recession

“The survey may add to evidence that the euro zone is in recession,” Tokyo Forex & Ueda Harlow’s Ishikawa said. “The euro may be sold” to $1.30 today, he said.

European Central Bank President Jean-Claude Trichet said yesterday the outlook for the euro-region economy is “substantially” worse than the bank predicted a month ago.

While the ECB is not scheduled to revise its forecasts before March, Trichet said the bank’s 22-member Governing Council took account of the deteriorating outlook in deciding to cut its benchmark interest rate to 2 percent last week. That matched a record low last seen in 2005.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net.

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South Korea’s Won Weakens for Second Day on Recession Concerns

By Judy Chen

Jan. 20 (Bloomberg) -- South Korea’s won fell against the dollar for a second day on speculation the economy will slip into its first recession in a decade as the global financial crisis deepens.

The won has dropped 8.5 percent already this year, after a 26 percent drop in 2008 that marked its worst annual performance since 1997, as the government said economic growth will likely fall short of the central bank’s 2 percent forecast. President Lee Myung Bak yesterday sacked Finance Minister Kang Man Soo, who has been criticized since the beginning of last year for favoring a weaker currency.

“The won is probably going to be weak in the first half of this year as a more positive economic outlook isn’t likely,” said Nizam Idris, a currency strategist at UBS AG in Singapore. But “in the second half, things could be slightly better than the current situation.”

The won dropped 1.2 percent to 1,379.3 per dollar as of 9:53 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. Idris said the won will probably fall to 1,450 per dollar in three months.

The number of businesses whose checking account transactions with banks were newly suspended jumped to 345 last month, the most since March 2005, the Bank of Korea said yesterday in a statement. Around 297 companies went out of business in November, the report said.

The benchmark Kospi index slid 2.8 percent, dropping for the first time in three days.

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

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Furukawa, Showa Denko May Merge Aluminum Units, Nikkei Says

By Tak Kumakura

Jan. 20 (Bloomberg) -- Furukawa Electric Co. and Showa Denko KK are in talks to merge their aluminum businesses, the Nikkei newspaper reported, without citing anyone.

The merger would create Japan’s biggest aluminum maker with a domestic market share of more than 20 percent, the report said. The two companies seek to reach an agreement by summer and complete the integration by 2010, the Nikkei said.

Under the plan, Furukawa’s Furukawa-Sky Aluminum unit would take a majority stake in Showa Denko’s aluminum business, the newspaper reported. Showa Denko may receive Furukawa-Sky shares in exchange instead of cash, Nikkei said.

Furukawa and Showa Denko didn’t answer telephone calls made by Bloomberg News before regular business hours.

To contact the reporter on this story: Tak Kumakura in Tokyo tkumakura@bloomberg.net.

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India May End Wheat, Rice Futures Ban Next Month on Record Crop

By Thomas Kutty Abraham

Jan. 20 (Bloomberg) -- India, the world’s second-largest grower of rice and wheat, may next month lift a two-year ban on futures trading in the cereals as record harvests cool domestic food prices.

The Forward Markets Commission, the market regulator, will write to the federal government seeking an end to the curbs tomorrow, Chairman B.C. Khatua said in an interview yesterday.

Resuming trading may help the National Commodity & Derivatives Exchange Ltd., partly owned by Goldman Sachs Group Inc., to stem a decline in the turnover of agricultural goods. Prime Minister Manmohan Singh’s government in December lifted a seven-month ban on trading rubber, soybean oil, potatoes and chickpeas after inflation halved from a 16-year high in August.

“The prospects for the winter crop are very good and the resumption in trading will not go against the producers or the consumers,” Khatua said.

Wheat output may exceed last year’s 78.4 million metric tons and production of monsoon-sown rice may reach 83.3 million tons, both records, according to the farm ministry. The winter-sown rice harvest may rise 3 percent to 14 million tons, it said.

Monsoon-sown rice contributes more than 85 percent of the country’s production of the cereal. The winter crop, planted in October, makes up the remainder.

“Ideally, we would like to resume trading before the winter crop arrives in the market,” toward the end of February, Khatua said. “The market doesn’t trade any major cereals at the moment and wheat and rice would be good additions.”

Turnover Drop

Turnover in farm commodity futures dropped by a third to 4.4 trillion rupees ($90 billion) in the nine months ended December because of the ban. The restrictions on soybean oil, natural rubber, potatoes and chickpeas were imposed in May and extended in September by three months to cool inflation.

India’s inflation rate has slowed to an 11-month low, helped by the slump in prices of crude oil and other commodities.

Rice has tumbled 46 percent from a record $25.07 per 100 pounds last April, while wheat has plunged 57 percent from its peak of $13.495 on Feb. 27.

Turnover of all commodities, including bullion, may reach 47 trillion rupees in the year to March, up from 36.8 trillion rupees in the nine months ended Dec. 31, Khatua said.

Domestic traders, producers and consuming companies are the main participants in India’s commodity exchanges, compared with the 13 million people in the country who trade stocks. Overseas funds aren’t allowed to trade commodity futures.

To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net.

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Australia Stocks: Alumina, BHP, Minara, Rio, Telstra, Woodside

By Shani Raja

Jan. 20 (Bloomberg) -- The S&P/ASX 200 Index fell 127.60 points, or 3.6 percent, to 3,461 at 12:43 p.m. in Sydney, the lowest since Nov. 24.

Financial stocks: Banks fell after Royal Bank of Scotland Group Plc slumped the most in two decades in London trading on concern the government may have to take control of the bank after forecasting the biggest loss ever by a U.K. company.

Australia & New Zealand Banking Group Ltd. (ANZ AU), Australia’s fourth-biggest bank, slumped 67 cents, or 4.6 percent, to A$13.76, the lowest since Dec. 17. National Australia Bank Ltd. (NAB AU), the country’s biggest lender by assets, dropped A$1.06, or 5.5 percent, to A$18.38, the lowest since May 21, 1997.

Mining shares: Mining stocks dropped after aluminum fell to a five-year low in London as cheaper oil prices reduced production costs, spurring speculation that supply will expand. Aluminum fell 2.8 percent to $1,424 a metric ton at 5:10 p.m. on the London Metal Exchange.

Alumina Ltd. (AWC AU), partner in the world’s biggest producer of the material used to make aluminum, declined 7 cents, or 5.3 percent, to A$1.24, the lowest since Dec. 24. Separately, Alumina may turn to a loss this year and cut its dividend because of forecasts of lower prices of the metal, according to by Amro Holding NV.

BHP Billiton Ltd. (BHP AU), the world’s largest mining company, fell A$1.49, or 4.9 percent, to A$28.89. Rio Tinto Group (RIO AU), the third biggest, plunged A$2, or 4.9 percent, to A$38.55, the most since Jan. 15.

Oil companies: Energy stocks fell after crude oil futures fell below $34 a barrel in New York on forecasts faltering global economic growth will drive down fuel consumption for a second year.

Woodside Petroleum Ltd. (WPL AU) fell A$1.14, or 3.3 percent, to A$33.15, the lowest since Dec. 24, as crude fell as low as $33.89 a barrel in electronic trading. Santos Ltd. (STO AU) slipped 74 cents, or 5 percent, to A$13.99.

Minara Resources Ltd. (MRE AU), the Australian nickel producer controlled by Glencore International AG, gained 1 cent, or 3.2 percent, to 32 cents, the most since Jan. 7.

Minara said its share of fourth-quarter production from the Murrin Murrin operation increased 30 percent as performance at its plant improved. The Perth-based company’s 60 percent share of output rose to 4,702 metric tons, from 3,612 tons a year earlier, the company said.

Qantas Airways Ltd. (QAN AU) dropped 11 cents, or 4.3 percent, to A$2.47, rolling back yesterday’s 4.5 percent advance.

Premium air travel slumped in November as global trade slowed and business confidence waned, adding to carrier woes, the International Air Transport Association said. The number of passengers with first- and business-class tickets fell 11.5 percent in November compared with a year earlier, IATA said.

Telstra Corp. (TLS AU), Australia’s biggest telephone company, declined 4 cents, or 1.1 percent, to A$3.50, the lowest since Aug. 28, 2006. The company was downgraded to “underperform” at Macquarie Group Ltd., which cited uncertainty over the government’s plans for a national broadband network.

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

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Asia Stocks Decline as RBS Forecast Signals Deepening Recession

By Shani Raja

Jan. 20 (Bloomberg) -- Asian stocks slumped, led by commodity producers and banks, after Royal Bank of Scotland Group Plc’s forecast of the biggest loss in U.K. corporate history heightened concern the global recession is deepening.

BHP Billiton Ltd., the world’s largest mining company, dropped 4.9 percent in Sydney after oil and aluminum prices fell. Westpac Banking Corp., Australia’s biggest bank by value, slumped 5.5 percent after corporate bond risk increased. Elpida Memory Inc., Japan’s biggest memory-chip maker, plunged 7.3 percent after postponing its earnings announcement.

“The RBS forecast has hit already fragile sentiment,” said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $85 billion. “It brings back all the doubts about more writedowns. If you can’t get stabilization in the credit markets, it’s hard to get any traction in economic activity.”

The MSCI Asia Pacific Index dropped 2.5 percent to 82.89 as of 10:41 a.m. in Tokyo, as 12 of its constituents fell for each one that advanced. Japan’s Nikkei 225 Stock Average lost 3.4 percent to 7,979.81. All markets open for trading declined except the Philippines.

Europe’s Dow Jones Stoxx 600 Index slid 1.7 percent yesterday, with RBS plunging 67 percent after saying it expects to post a loss of as much as 28 billion pounds ($40 billion) this year.

Futures on the Standard & Poor’s 500 Index fell 1.6 percent today, pointing to declines when U.S. markets reopen following yesterday’s holiday for Martin Luther King Day. Barack Obama’s inauguration later today as the 44th president of the U.S. will likely be a focus for U.S. traders.

‘Economic Pearl Harbor’

His administration inherits an economy struggling to cope with the worst financial crisis since the Great Depression. The world’s largest economy will contract 1.5 percent this year, a half percentage point more than projected last month, according to economists surveyed by Bloomberg last week.

MSCI’s Asian gauge slumped 43 percent in 2008, its worst year on record, as the global recession curbed demand for the region’s raw materials, automobiles and computers. The average valuation of the measure’s constituents has fallen about two- fifths in the past year to 10 times reported profit.

“We are in the middle of the economic Pearl Harbor right now,” billionaire investor and Berkshire Hathaway Inc. Chairman Warren Buffett told NBC in an interview aired on Jan. 18. “Now we have to get mobilized to win the war, which we will.”

BHP slumped 4.9 percent to A$28.88. Alumina Ltd., a partner in the world’s biggest producer of the material used to make aluminum, lost 5.3 percent to A$1.24.

Corporate Bond Risk

Crude oil for February delivery dropped 5.8 percent to $34.40 a barrel in New York yesterday, the sharpest decline since Jan. 12. Aluminum for delivery in three months dived as much as 3.9 percent to the lowest level since September 2003 in London.

Westpac dipped 4.6 percent to A$15.35 in Sydney. Mizuho Financial Group Inc., Japan’s second-largest bank by revenue, fell 6.2 percent to 228 yen.

Banks dropped as the cost of protecting investors in corporate bonds from default rose. The Markit iTraxx Australia index was quoted 5 basis points higher at 310 in Sydney, Australia & New Zealand Banking Group Ltd. prices show. The Markit iTraxx Japan index added 2.5 basis points to 297.5, according to Barclays Capital prices.

The indexes are benchmarks for protecting bonds against default and traders use it to speculate on changes in credit quality. Credit-default swaps pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements.

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

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Japan Stocks Dive as Lower Demand Indicates Slump Is Deepening

By Masaki Kondo

Jan. 20 (Bloomberg) -- Japanese stocks dropped, sending the Nikkei 225 Stock Average to the lowest level in more than a month, as falling demand for services and commodities indicated the global economic slump is deepening.

Inpex Corp., Japan’s largest oil and gas explorer, retreated 5.2 percent after oil prices slid the most in a week. Kawasaki Kisen Kaisha Ltd. fell 6.2 percent after shipping fees for commodities declined for a third day. Chuo Mitsui Trust Holdings Inc. plunged 6.8 percent after KBC Securities recommended selling the stock and Royal Bank of Scotland Group Plc forecast the biggest loss ever reported by a U.K. company.

The Nikkei lost 257.67, or 3.1 percent, to 7,999.18 as of 10:25 a.m. in Tokyo, set for the lowest since Dec. 5. The broader Topix index dropped 18.65, or 2.3 percent, to 799.08, with almost six stocks declining for each that rose. U.S. markets were closed yesterday for a holiday and President-elect Barack Obama will be sworn in today.

The Nikkei dived by a record 42 percent last year when the collapse of the American mortgage market sparked a global financial crisis. Companies such as Toyota Motor Corp. and Sony Corp. are firing workers to cope with shrinking demand, and household spending on services fell 0.9 percent in November from the previous month as consumers cut back due to concern about the economy, according to today’s Trade Ministry report.

Inpex dropped 5.2 percent to 672,000 yen, sending a gauge of mining companies to the biggest decline among 33 industry groups on the Topix. Closest domestic rival Japan Petroleum Exploration Co. slipped 4.9 percent to 4,290 yen. Crude oil for February delivery plunged 5.8 percent to $34.40 a barrel in New York yesterday, the sharpest decline since Jan. 12.

Shipping Lines

Kawasaki Kisen, Japan’s third-largest shipping line, retreated 6.2 percent to 346 yen, and market leader Nippon Yusen K.K. lost 3.4 percent to 480 yen. Mitsui O.S.K. Lines Ltd., the nation’s second biggest, dropped 3.9 percent to 542 yen. The Baltic Dry Index, a measure of shipping costs for commodities, fell 1.5 percent yesterday.

Chuo Mitsui, the nation’s sixth-largest listed bank by assets, tumbled 6.8 percent to 331 yen. KBC cut its rating on the stock to “sell” from “hold” yesterday. Mizuho Financial Group Inc. lost 5.4 percent to 230 yen, and market leader Mitsubishi UFJ Financial Group Inc. fell 2.5 percent to 504 yen.

Royal Bank of Scotland yesterday said it may post a loss of as much as 28 billion pounds ($40 billion) this year, surpassing Vodafone Group Plc’s 22 billion-pound net loss in 2006. The stock plummeted 67 percent, the most since September 1988.

Bridgestone Corp., the world’s biggest tiremaker, slumped 4.8 percent after rubber prices gained for a second day yesterday. Sumitomo Rubber Industries Ltd. fell 5.5 percent to 657 yen. Yokohama Rubber Co., Japan’s second-biggest tiremaker, sank 4.1 percent to 371 yen. Rubber for June delivery rose 1.2 percent yesterday, bringing a two-day gain to 5 percent. It fell 2.1 percent today.

Nikkei futures expiring in March retreated 3.2 percent to 7,990 in Osaka and slumped 3.6 percent to 7,985 in Singapore.

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

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