Banking Stocks Slammed In US

Daily Forex Fundamentals | Written by Easy Forex | Jan 21 09 01:25 GMT |

U.S. Dollar Trading (USD) Accelerated recent gains as Key levels on multiple majors were breached. US banking sector fell 20% as European banking concerns overflowed onto the US. Barack Obama became the 44th President of the USA but this failed to help the markets bounce with the Dow Jones slipping below 8000. Feb Contract Crude Oil closed up $2.23 ending the New York session at $38.74 per barrel. In US share markets, the Dow Jones dropped -332 points or -4.01% and the NASDAQ dropped -88 points or -5.79%. Looking ahead, January NAHB Housing Market Index expected at 9 in January. The Euro (EUR) came under pressure as the key 1.3000 level gave way in Asia and the heavy stocks saw the pair dip in 1.28's. EUR/JPY dropped hard falling to 115 as risk aversion surged higher. EUR/GBP jumped higher as the Pound continued to plummet. January German ZEW Survey showed a bounce to -31 vs. -43.5% expected as recent rate cuts improved the business outlook. Overall the EUR/USD traded with a low of 1.3847 and a high of 1.3100 before closing the day at 1.2860. Looking ahead, Germna PPI is expected to drop -1.2% in December. ECB President Trichet also speaks today. The Japanese Yen (JPY) was the biggest gainer surpassing the USD as the major recipient of safe haven flows. Heavy GBP/JPY and EUR/JPY selling forced the USD/JPY back through the key 90 level although further weakness did not eventuate. Japanese Consumer Confidence hit 26.2 in December. Overall the USDJPY traded with a low of 89.70 and a high of 90.96 before closing the day around 89.85 in the New York session. The Sterling (GBP) near capitulated coming under heavy selling pressure all day as the market continued to factor in a deteriorating UK banking sector. The 1.4000 level broke and the market traded down to 1.3810 in late US trading. December CPI lost -0.4% vs. -0.8% forecast. GBP/JPY hit all time lows under 125 Yen. Overall the GDP/USD traded with a low of 1.3810 and a high of 1.4426 before closing the day at 1.3890 in the New York session. Looking ahead, December Claimant Count is forecast at 85k vs. 75.7k. The November ILO Unemployment rate is forecast 6.1%. The Australian Dollar (AUD) succumbed to USD strength although held up better than others as Oil and Gold showed some buoyancy. AUD/JPY selling was heavy as the Dow Jones slipped below 8000 but the AUD/USD found support at 0.6500. Overall the AUD/USD traded with a low of 0.6677 and a high of 0.6459 before closing the US session at 0.6510. Gold (XAU) jumped higher as banking risk saw investors flood into the alternate investment, overwhelming USD strength. Overall trading with a low of USD$824.6 and high of USD$865.95 before ending the New York session at USD$855 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 21 09 01:20 GMT |

News And Views Bank and sovereign credit risk heightened this week, the market wondering which country will receive the next downgrade. Standard & Poor's and Fitch both dismissed rumours that the UK was next on the block. The sentiment surrounding banks was illustrated by the US S&P banks index falling 16% last night, against the broader S&P500 down 3.8% at the NZ open. Bank and sovereign credit spreads have also widened significantly, in this latest wave of risk-aversion to grip the world. The remaining asset classes behaved much as one would expect against this backdrop - the dollar index (DXY) around 2% higher, gold the same, and copper -3%. Oil bucked the trend, partly due to wintry weather in the northern hemisphere, and futures contracts rolling from February into March. The NZD is in free-fall, with no positive fundamentals to support it. Yesterday's weakerthan- expected CPI number was the second negative data shock to the currency this year (the first was the NZIER survey), and offshore markets are only too happy to sell any short-term strength. A range of 0.53 to 0.5350 held until Europe's mid-morning, when it broke down in accelerated fashion, and sits at the low of 0.5200 as we write. AUD approximated the same pattern, ranging between 0.6570 and 0.6670, before the break down took it to the 0.6490 current low. AUD/NZD stepped higher last night, finding resistance at 1.25, and settling back at the current 1.2450. Look for higher levels here, as the interest rate differential between NZ and Australia will reduce further next week. EUR continued to be punished on news of European economic deterioration gathered steam, and on rumours the Russian central bank sold EUR heavily to support the rouble. From the Europe open, it was a steady decline from 1.30 to 1.2850. GBP was the subject of sell recommendations from leading pundits, and once historical support at 1.4350 broke, there was daylight until 1.39. The JPY was a rock of strength, outpacing even the USD, from 91 during Europe, to 89.80 here. No US data to report. Japan tertiary index falls close to expectations. The November tertiary index declined 0.9%mth, close to median projection for -0.8%, and left this gauge of service sector activity slipping to -2.4%yr from -1.4%yr in October. Together with the record 8.5%mth plunge reported in November industrial production, it is projected translating into a steep 2.5%mth drop in the all-industry index in November. German ZEW analysts' survey up from -45 to -31 in Jan. This survey of German analysts showed less pessimism re the outlook, no doubt reflecting the latest rate cuts and the second fiscal package. However the current assessment fell from -65 to -77, as analysts acknowledged the likely steep drop in Q4 GDP growth. UK CPI falls from 4.1% yr to 3.1% yr in Dec. Earlier than usual December sales and the VAT cut were the main factors behind the CPI decline. However the VAT cut was not passed on immediately by all retailers, so there is a likelihood of a further steep VAT-related decline in the CPI in coming months, in addition to the downward impact from favourable base effects and lower food and fuel prices. Bank of Canada cuts rate 50bp to 1.00%. The statement noted that 'Guided by Canada's inflation-targeting framework, the Bank will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve the 2 per cent target over the medium term.' That is a soft hint that rates could be cut even further. Canadian manufacturing shipments slump 6.4% in Nov. Down for four months running now, the latest drop was largely energy and aerospace related. Outlook There should be some support at 0.5190 today, but the market will see any such rally as an opportunity to sell more NZD. After that, 0.50 should be a congested area, and ultimately we continue to target around 0.48. Retail sales this morning has a risk of being weaker than expected, which would punish the currency further. Country Release Last Forecast NZ Nov Retail Sales –1.3% –1.5% Aus Jan Westpac-MI Consumer Sentiment 92 – US Jan NAHB Housing Activity Index 9 7 Ger Dec Producer Prices %yr 5.30% 3.80% UK Dec BoE Minutes Dec Unemployment Change 76k 100k Dec Money Supply M4 %yr 16.40% 16.00% Dec PSNCR £bn 10.3 18 Can Nov Wholesale Sales –1.8% –1.5% 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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Singapore's Fourth Quarter Real GDP: Summary (Table)

By Marco Babic

Jan. 21 (Bloomberg) -- Following is Singapore's GDP growth by sector for the fourth quarter released by the Ministry of Trade & Industry.

===============================================================================
                      4Q Adv      4Q     3Q     2Q     1Q     4Q     3Q     2Q
                       Est.*    2008   2008   2008   2008   2007   2007   2007
===============================================================================
Year-on-year growth     -2.6%   -3.7%  -0.2%   2.2%   6.9%   5.4%   9.5%   9.1%
Annualized QoQ growth -12.5%   -16.9%  -5.1%  -5.5%  15.8%  -4.8%   5.1%  13.4%
                      ----------------------- YoY% ---------------------------
Goods Producing           n/a   -7.1%  -6.6%  -2.0%  12.6%   2.9%  11.6%   9.7%
Manufacturing          -9.0%  -10.7% -10.9%  -5.5%  12.6%   0.2%  11.0%   8.6%
Construction           13.3%   14.1%  20.3%  21.0%  16.9%  24.3%  20.1%  22.4%
Services Producing       1.1%   -0.1%   5.4%   7.1%   7.7%   7.7%   8.5%   8.6%
Wholesale/Retail         n/a   -5.4%   4.4%   6.0%   5.5%   6.0%   6.8%   8.5%
Transport/Storage        n/a   -2.1%   3.7%   5.8%   5.4%   5.4%   5.0%   5.5%
Hotels/Restaurants       n/a    0.1%  -0.1%   2.1%   3.2%   2.5%   4.9%   5.6%
Information/Comm.        n/a    5.6%   7.4%   7.8%   6.8%   6.1%   6.6%   6.5%
Financial Services       n/a   -1.8%   6.0%  10.6%  14.0%  15.9%  20.1%  17.0%
===============================================================================
                      4Q Adv      4Q     3Q     2Q     1Q     4Q     3Q     2Q
                       Est.*    2008   2008   2008   2008   2007   2007   2007
===============================================================================
                      ----------------------- YoY% ---------------------------
Business Services        n/a    5.5%   7.7%   7.6%   8.6%   8.7%   7.5%   7.6%
                      ------------------ Annualized QoQ% ----------------------
Goods Producing           n/a  -19.1%  -4.5% -34.1%  47.4% -18.6%  17.5%  14.6%
Manufacturing            n/a  -23.2%  -7.5% -43.5%  59.1% -24.9%  19.1%  14.0%
Construction             n/a    2.3%  11.0%  44.2%   3.2%  27.3%  13.3%  24.7%
Services Producing        n/a  -14.5%  -5.5%  10.5%  11.5%   5.8%   1.0%  12.8%
Wholesale/Retail         n/a  -31.9%  -4.7%  11.6%  10.9%   0.4%   1.9%   8.1%
Transport/Storage        n/a  -14.9%  -7.2%   7.3%   8.6%   7.3%   0.3%   5.6%
Hotels/Restaurants       n/a    0.1%  -5.6%   1.6%   4.6%  -0.5%   2.6%   6.5%
Information/Comm.        n/a   -0.4%   7.0%  11.6%   4.5%   6.7%   8.6%   8.2%
Financial Services       n/a  -18.9% -21.6%  14.1%  28.0%  10.3%  -7.3%  21.0%
Business Services        n/a    0.2%   4.7%  12.1%   5.1%   8.8%   4.5%   8.1%
===============================================================================

Note: Advance estimates are for fourth quarter and were released in January.

Figures are based at 2000=100.

Source: Ministry of Trade & Industry, Singapore

To contact the reporter on this story: Marco Babic in Singapore at mbabic@bloomberg.net

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Singapore Forecasts Deflation in 2009 as Prices Cool Further

By Shamim Adam

Jan. 21 (Bloomberg) -- Singapore’s government forecast consumer prices may fall this year after inflation eased in December for a third month, giving the central bank room to allow the currency to weaken further and boost the economy.

Consumer prices may hold steady or fall 1 percent this year, the government said today. The consumer price index increased 4.3 percent last month from a year earlier, after gaining 5.5 percent in November, the Department of Statistics said. That was slower than the 4.7 percent median forecast of 12 economists in a Bloomberg News survey.

Easing prices have allowed policy makers worldwide to cut interest rates and increase public spending to stimulate their economies amid a deepening global recession. The Monetary Authority of Singapore, which uses the currency to manage inflation, stopped favoring gains in the local dollar in October.

“With the grim economic outlook for an open economy like Singapore this year, and the relentless decline in exports, the pressure is on for MAS to ease monetary policy to help with exports,” said Chow Penn Nee, an economist at United Overseas Bank Ltd. in Singapore.

Singapore’s economy may shrink as much as 5 percent this year, the most on record, the government said today. Finance Minister Tharman Shanmugaratnam will unveil the government’s plans to help companies and consumers in the 2009 budget tomorrow.

Inflation averaged 6.5 percent in 2008, within the central bank’s forecast of 6 percent to 7 percent. Consumer price gains reached 7.5 percent from April to June, the highest since 1982.

2009 Inflation

Food prices, which make up 23 percent of the index, rose 6.5 percent in December from a year earlier, following November’s 6.9 percent increase. Transport and communication costs fell 5.7 percent as gasoline prices dropped.

Inflation may ease in the coming months as electricity prices are reduced. Singapore Power Ltd., the island’s main electricity provider, cut charges for the January-to-March quarter by an average 24.7 percent.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

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Australian Consumer Sentiment Falls on Recession Fear

By Jacob Greber

Jan. 21 (Bloomberg) -- Australian consumer confidence fell in January for the first time in three months, increasing pressure on the central bank to extend the biggest round of interest-rate cuts since a recession in 1991.

The sentiment index declined 2.2 percent to 89.9 points, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Jan. 12 and Jan. 18 and released today in Sydney. Since February 2008, the index has held below 100, indicating pessimists outnumber optimists.

Reserve Bank of Australia Governor Glenn Stevens has cut borrowing costs by three percentage points since early September on concern waning consumer spending will tip Australia into a recession. The government also distributed A$8.9 billion ($5.8 billion) at the start of last month to the elderly and families amid waning sales at retailers including David Jones Ltd. and Harvey Norman Holdings Ltd.

“Consumers are entering 2009 with great trepidation,” said Matthew Hassan, a senior economist at Westpac in Sydney. Today’s survey also suggests “the initial boost from aggressive rate cuts and fiscal bonus payments may be starting to wane.”

The Australian dollar fell to 64.80 U.S. cents at 10:45 a.m. in Sydney from 64.86 cents just before today’s report was released. The two-year government bond yield gained 1 basis point, or 0.01 percentage point, to 2.55 percent.

The S&P/ASX 200 index declined 1.4 percent to 3,429.20. Shares in Harvey Norman, the nation’s largest furniture and electronics retailer, dropped 5.7 percent and those in David Jones, the nation’s second-biggest department store operator, slumped 8.7 percent.

Profit Forecast

David Jones cut its earnings forecast today. First-half profit growth may stagnate in the first half of fiscal 2009, the Sydney-based company said, revising a previous prediction annual earnings growth will total as much as 10 percent.

“Consumers have become increasingly pessimistic about the economic outlook for the year ahead,” Hassan said.

Governor Stevens and his board reduced the benchmark lending rate last year to a six-year low of 4.25 percent and said last month that monetary policy was now “expansionary.”

Investors have a 100 percent expectation Stevens will extend the cuts by reducing 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.

Evidence is mounting that Australia’s economy may be contracting after gross domestic product rose 0.1 percent in the third quarter, the weakest pace in eight years.

Rising Unemployment

The jobless rate climbed in December to 4.5 percent, the highest in almost two years, as mining companies, airlines and automakers fired full-time workers.

BHP Billiton Ltd., the world’s largest mining company, said today it will cut 800 employees and 1,000 contractors from its $2.2 billion Ravensthorpe mine and office workers in Western Australia and its Yabulu plant in Queensland.

Rio Tinto, the world’s third-largest mining company, said last month it will eliminate 14,000 jobs globally, reduce capital spending by more than half and sell “significant assets” as demand for metals wanes.

To ensure Australia doesn’t follow the U.S., U.K., Europe and Japan into a recession, Prime Minister Kevin Rudd has announced almost A$45 billion in aid for families, pensioners, bond markets, home buyers, coupled with extra spending on schools and roads.

“The global recession that took hold in 2008 is deepening and broadening at a rapid pace,” Westpac’s Hassan said. “With the full impact of this weakening yet to be felt in Australia, fear of what lies ahead may continue to stifle the consumer response to aggressive policy stimulus.”

An index measuring consumers’ expectations about economic conditions over the next 12 months slumped 18.4 percent in January from the previous month, today’s report said.

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

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South Korea Economy Probably Shrank in Fourth Quarter

By William Sim

Jan. 21 (Bloomberg) -- South Korea's economy probably contracted for the first time in 10 years last quarter as the global economic slump cooled demand at home and abroad.

Gross domestic product declined 0.3 percent from a year earlier, compared with the third quarter when it advanced 3.8 percent, according to the median estimate of 13 economists surveyed by Bloomberg News. A year-on-year contraction would be the first since 1998. The report is due at 8 a.m. in Seoul tomorrow.

President Lee Myung Bak, whose approval rating has fallen by half in the past year, replaced this week the four top members of his economic team to combat the economic slowdown. South Korea's benchmark Kospi index yesterday erased all of its gains for 2009 on concern that recessions in the U.S., Europe and Japan and weaker growth in China will take their toll of corporate earnings.

“The economy is cooling much faster than expected,” said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. “Policy makers need to take stronger action to spur local demand as a buffer against falling exports.”

The Kospi index fell 2.2 percent to 1,102.15 at 9:55 a.m. in Seoul, for a 2 percent drop this year. The index had gained as much as 9 percent this year on Jan. 7.

To revive the economy, South Korea has allocated about 140 trillion won ($102 billion), or 15 percent of gross domestic product, in extra liquidity, tax cuts and stimulus spending. The central bank this month cut its key interest rate to a record low of 2.5 percent, the fifth reduction since October.

Economic growth shrank 2.1 percent from the third quarter, the first contraction since 2003, according to the survey. The economy almost certainly posted a large contraction last quarter, Bank of Korea Governor Lee Seong Tae said on Jan. 9, adding that 2009 will be a “very bad” year.

Exports Falter

Evidence is mounting that the economy may cool further as both local demand and exports falter.

South Korea's exports, which are equivalent to about 50 percent of the economy, declined 17.4 percent in December from a year earlier, the biggest drop since 2001.

That prompted Renault Samsung Motors Co. to idle plants in December. Ssangyong Motor Co., 51 percent owned by China's SAIC Motor Corp., applied for bankruptcy protection on Jan. 9 as plunging vehicle sales caused a “serious liquidity crisis.”

Other companies are cutting jobs. Hynix Semiconductor, the world's second-biggest maker of memory chips, said last month it would eliminate 30 percent of its executives. Hyundai Motor Co. and Kia Motors Corp. have reduced their employees' working hours.

Employment fell last month for the first time since October 2003. Consumer confidence in December fell to the lowest level since the fourth quarter of 1998, and manufacturers' confidence tumbled to a record low.

Bank of Korea

The central bank forecast last month that annual economic growth will slow to an 11-year low of 2 percent in 2009 from an estimated 3.7 percent last year.

Goldman Sachs Group Inc., UBS AG and Nomura International Ltd. all predict the economy will contract in 2009 for the first time since the 1997-1998 Asian financial crisis.

“Economic deceleration will prove sharper than expected,” Daniel Soh, an economist at Forecast Pte Ltd. in Singapore. “The recent cabinet reshuffle signals more forceful measures to spur growth in the pipeline.”

President Lee named Yoon Jeung Hyun, 62, as finance minister on Jan. 19, replacing Kang Man Soo, who was voted the worst minister in the economic team in a December poll of 82 economic professionals by Citizens' Coalition for Economic Justice, a civic group.

The following table shows estimates for GDP from the previous quarter and from a year earlier, as well as predictions for 2009.

South Korea GDP Estimates
---------------------------------------------------------
Firm                          QoQ     YoY    2008    2009
---------------------------------------------------------
Median                      -2.1%   -0.3%    3.5%    0.7%
Average                     -2.4%   -0.6%    3.5%    0.4%
High                        -0.5%    1.7%    4.0%    1.8%
Low                         -5.4%   -3.3%    3.0%   -1.5%
Number of Estimates            10      13       9       8
---------------------------------------------------------
Action Economics           -2.50%  -0.30%   3.40%  -1.50%
Capital Economics          -0.50%   1.70%    n/a     n/a
Forecast Ltd.                n/a    0.50%   3.70%   1.10%
Good Morning Shinhan Secs  -1.50%  -1.00%   3.20%   1.50%
HI Investment & Securities -3.50%  -2.20%   3.00%   0.20%
Hyundai Securities         -1.90%   0.50%   3.60%   1.80%
Ideaglobal                   n/a   -1.20%   3.20%    n/a
ING Groep NV               -5.40%  -3.30%    n/a     n/a
Moody's Economy.com        -2.30%  -0.10%   3.50%  -0.20%
Nomura International Ltd   -4.50%  -2.40%    n/a     n/a
Reuters IFR                -0.50%   1.70%   4.00%  -1.50%
SC First Bank              -1.50%   0.80%   3.70%   1.40%
UBS                          n/a   -2.00%    n/a     n/a
---------------------------------------------------------

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

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Rudd to Take ’Whatever Action Necessary’ on Markets

By Gemma Daley and Jacob Greber

Jan. 21 (Bloomberg) -- Australian Prime Minister Kevin Rudd will take “whatever action is necessary” to stabilize financial markets should foreign banks fail to roll over up to A$75 billion ($49 billion) in business loans.

“If foreign banks do not roll over their share of these loans, it will be difficult for Australia’s four major banks to fill the gap on their own,” Rudd said in a speech in the South Australian capital of Adelaide last night.

A shortfall in credit could push Australia’s economy into its first recession since 1991, worsening a surge in job cuts at companies including BHP Billiton Ltd. following a drop in demand from China and waning consumer spending. Governments in the U.S. and Europe are bolstering measures to underwrite bank lending after recapitalization efforts failed to restore credit flow.

“If that money doesn’t come through, there will be less investment, less growth and fewer jobs,” said Stephen Halmarick, co-head of economic and market analysis at Citigroup in Sydney. “The only liquidity in the market at the moment is coming from governments and ours may follow suit.”

Overseas banks accounted for more than half of the A$285 billion in syndicated loans that have been issued to Australian businesses since 2006, Rudd said, citing Merrill Lynch & Co. figures.

“Of those outstanding loans, A$75 billion is scheduled to fall due over the next two years,” Rudd said.

Adequate Supply

Treasurer Wayne Swan, speaking in Sydney today, wouldn’t speculate on the potential mechanisms the government could use to bolster business loans. There is currently “an adequate supply of credit flowing through the economy,” he said.

Australian banks, led by its four largest -- Commonwealth Bank of Australia, Australia & New Zealand Banking Group Ltd., Westpac Banking Corp., and National Australia Bank Ltd. -- have raised more than $30 billion since the beginning of December using bond sales guaranteed by Rudd’s government, which has AAA credit rating, data compiled by Bloomberg show.

Still, recent Reserve Bank of Australia figures show that lending growth to businesses rose 10.7 percent in November from a year earlier, the smallest increase in almost four years.

“The government stands ready to take whatever further action is necessary to stabilize financial markets and help reopen the private lines of government to business to get blood flowing through the arteries of the economy,” Rudd said.

Recession Risk

Since October, Rudd and Treasurer Wayne Swan have announced almost A$45 billion in aid for families, pensioners, bond markets, home buyers, and extra spending on schools and roads to ensure the economy doesn’t enter its first recession in 17 years. Reserve Bank of Australia Governor Glenn Stevens has embarked on the biggest round of interest-rate cuts in almost two decades.

The recent spending boost came after credit markets froze following the bankruptcy of Lehman Brothers Holdings Inc. on Sept. 15, prompting governments and central banks around the world to bail out financial institutions and try to revive growth.

Concern about credit markets has deepened after the U.K.’s second bank bailout in three months. The British government on Jan. 19 announced a 50 billion pound ($73 billion) plan to stabilize the financial industry, following a 50 billion pound bank recapitalization in October.

“The impact of this crisis will be huge,” Rudd said. “When markets fail, governments must act.”

Job Cuts

Australia’s economy expanded at its weakest pace in eight years in the third quarter. The unemployment rate rose to 4.5 percent in December, the highest in almost two years, as mining companies, airlines, and automakers fired full-time workers, adding to signs the economy faces its first recession since 1991.

BHP Billiton, the world’s largest mining company, said today it will cut 800 employees and 1,000 contractors at its A$2.2 billion Ravensthorpe mine and office workers in Western Australia and its Yabulu plant in Queensland.

Employment will decline in manufacturing, construction and services in 2009, according to a survey released today by the Australian Industry Group and Deloitte Touche Tohmatsu Australia. The survey questioned 480 chief executive officers of companies with a total revenue of A$31 billion that employ 84,000 people.

A separate report published by Westpac today showed Australian consumer confidence fell in January for the first time in three months.

To contact the reporters on this story: Gemma Daley in Canberra at gdaley@bloomberg.net; Jacob Greber in Sydney at jgreber@bloomberg.net.

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Malaysia May Lower Rate Second Time Running as Inflation Cools

By Stephanie Phang and Michael Munoz

Jan. 21 (Bloomberg) -- Malaysia’s central bank may lower its benchmark interest rate for a second straight meeting as easing inflation allows it to focus on sustaining economic growth amid the deepening global recession.

Bank Negara Malaysia may reduce its overnight policy rate by half of a percentage point to 2.75 percent today, according to 12 of 19 economists surveyed by Bloomberg News. The other seven expected a quarter-point cut in the decision due at 6 p.m.

Malaysia’s 2009 growth will probably miss the government’s 3.5 percent forecast, adding pressure on policy makers to boost spending and lower borrowing costs, the Malaysian Institute of Economic Research said last week. Exports have fallen as demand for electronics and commodities slumps, prompting Citigroup Inc. to predict a recession this quarter.

“Fears of a recession are very real and it is likely that the central bank will move aggressively if the situation turns dour,” said Nikhilesh Bhattacharyya, an economist at Moody’s Economy.com in Sydney. “The outlook for inflation gives Bank Negara plenty of room to move.”

Malaysia’s inflation rate probably fell to a seven-month low of 5 percent in December, according to the median forecast of 15 economists in a Bloomberg News survey. The government will release consumer-price data at 5 p.m. today.

Malaysia’s government, which subsidizes retail fuel prices to keep them below market rates, cut gasoline prices seven times since late August as crude oil costs fell. The state-controlled power company may reduce electricity prices next month, the Star newspaper reported Jan. 16, citing people it didn’t identify.

‘Pre-Emptive’

Malaysia’s central bank, which avoided raising interest rates earlier last year when others were doing so to tame inflation, joined nations around the world in lowering borrowing costs in November. The quarter-point cut on Nov. 24 was the first since 2003 and accompanied a reduction in the amount lenders need to set aside as reserves.

The last rate cut was “a pre-emptive measure,” Bank Negara said then, citing signs that Malaysia’s labor market was weakening and business activity was slowing. Sustaining domestic demand was crucial to ensure growth in 2009, it said.

The global economic slump is hurting orders at the Malaysian factories of companies such as Dell Inc. and Intel Corp., causing overseas shipments to fall the most in almost seven years in November.

The government is planning a second economic stimulus package, in addition to the 7 billion ringgit ($2 billion) spending plan unveiled in November, Finance Minister Najib Razak said yesterday.

Malaysia’s 2009 economic growth may slow to an eight-year low of 2.5 percent should the government fail to effectively implement the November package, the Business Times reported Jan. 16, citing Sulaiman Mahbob, director-general of the Economic Planning Unit.

Central banks from India to Taiwan also lowered borrowing costs in recent months to spur growth as the U.S., Japan and the euro region slipped into recessions.

To contact the reporter on this story: Stephanie Phang in Kuala Lumpur at sphang@bloomberg.net

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Japan’s ‘Severe’ Recession May Last Three Years, Yoshikawa Says

By Toru Fujioka and Tatsuo Ito

Jan. 21 (Bloomberg) -- Japan’s recession may become the longest in the postwar era, according to Hiroshi Yoshikawa, head of the government committee that charts the economic cycle.

“We’d better get ready for a three-year recession,” the Tokyo University professor said in an interview in Tokyo this week. The decline “will be very severe, not only in terms of duration but also depth,” he said.

The downturn probably began in the fourth quarter of 2007 and may exceed the 36-month slump that ended in 1983 because demand from abroad will remain weak, Yoshikawa said. Japan has yet to shake off its dependence on exports, which collapsed last quarter as the global financial crisis intensified.

The world’s second-largest economy will probably shrink about 1 percent in each of the two years ending March 2010, said Yoshikawa, 57, who is also a member of Prime Minister Taro Aso’s economic advisory panel. He said the ensuing recovery will be driven by sales to Asia rather than the U.S. and Europe.

While economies such as China and India will probably slow in coming months, they’re still growing at a “very different level” than in the developed world, Yoshikawa said. China probably expanded 6.8 percent last quarter, economists estimate a report will show on Jan. 22. The U.S., Europe and Japan all contracted in the third quarter of 2008.

‘Too Optimistic’

It’s “too optimistic” to expect a U.S. recovery this year because financial problems linger in the world’s biggest economy, he said. Asian economies have a relatively healthy banking sector and Japan can benefit from its close proximity to the region, said Yoshikawa, who earned a Ph.D. at Yale University under James Tobin, a Nobel Prize-winning economist.

Japan’s average recession lasts 16 months. While the economy shrank in two consecutive quarters since last April -- one definition of a recession -- the committee headed by Yoshikawa has yet to formally mark the beginning of the slump.

The economy is “worsening rapidly,” the government said yesterday after exports and factory output dropped the most on record in November. Overseas shipments accounted for 61 percent of growth in the most recent expansion, the longest in more than 60 years, according to Dai-Ichi Life Research Institute in Tokyo.

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

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King Says BOE Asset Buying May Start Soon as Rate Effects Wane

By Brian Swint

Jan. 21 (Bloomberg) -- Bank of England Governor Mervyn King said officials may start buying assets within weeks to loosen credit markets as the lowest interest rates since 1694 fail to avert a “marked” recession.

The U.K. central bank may acquire securities such as corporate bonds and commercial paper to bolster lending to companies and consumers as banks rebuild balance sheets damaged by the global financial crisis, King said yesterday. He said interest-rate reductions to the current 1.5 percent won’t prevent a contraction in the first half of the year.

“Despite those big cuts, there remains a risk that inflation will fall below 2 percent,” the target rate, King said in a speech in Nottingham, England. “It is sensible for the Monetary Policy Committee to prepare for the possibility -- and I stress that we are not there yet -- that it may need to move beyond the conventional instrument” of the bank’s benchmark interest rate.

King backed Prime Minister Gordon Brown’s plan to give the Bank of England unprecedented powers to buy securities, unveiled on Jan. 19 along with a 100-billion pound ($140 billion) bailout for banks. Those tools may later be expanded to fight deflation as the British economy faces a recession this year that may be the worst since the aftermath of World War II.

“This is a momentous speech that sets the policy agenda for the next decade,” said Lena Komileva, an economist at Tullett Prebon in London. “More rate cuts are likely but before long, the Bank of England may reach the point of using quantitative easing to target inflation, in effect to prevent deflation.”

Pound, Oil Prices

The pound fell to a record low against the yen yesterday and slipped below $1.40 for the first time since 2001. “Since the summer, the exchange rate has fallen by almost 20 percent, and oil prices have fallen by around two-thirds, both of which will boost demand,” King said in the speech.

“A pronounced contraction in spending and output is under way,” King said. “Total output in the fourth quarter is expected to have fallen sharply. In the first half of this year, the rate of contraction is likely to continue to be marked.”

The inflation rate declined to 3.1 percent in December from 4.1 percent the month before, the biggest drop since records began in 1997. The economy may shrink 2.7 percent this year, the most since 1946, the Ernst & Young Item Club said this week.

“The bank is almost ready, but very willing, to engage in unconventional monetary policy techniques,” said Philip Shaw, chief economist at Investec Securities in London. “There is still some room for interest rates to come down. But there’s a good chance they’ll use this facility.”

‘Adjustment’ Needed

Commercial banks still need to pay down their debts to put their balance sheets in order, King said. “Leverage ratios of large banks remain at remarkably high levels, and the required adjustment will not happen quickly,” he said.

The Treasury said that the central bank can make asset purchases of up to 50 billion pounds and the government will indemnify the bank against any losses, starting on Feb. 2. King said officials “will consider purchasing only high-quality assets” and that any such actions would seek “to complement and stimulate private demand, not substitute for it.”

“In each case the bank will keep the market fully informed,” King said. “It will be a matter of weeks not days before a program of purchases can begin, but it will be weeks and not months.”

Fed Purchases

Any purchases by the Bank of England would follow similar moves by the U.S. Federal Reserve, which has started buying securities after cutting its benchmark interest rate to a target range of zero to 0.25 percent.

Policy makers will watch measures of lending to non- financial companies to gauge how well the asset purchases and the government’s capital injections and loan guarantees are working, King said.

The measures “are not designed to protect the banks,” King said. “They are designed to protect the economy from the banks.”

The economy may still take some time to recover, he said. “The lags in economic policy are notoriously long and unpredictable. But well-designed policies implemented within a consistent policy framework will eventually work.”

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

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Singapore Economy May Post Biggest Decline on Record

By Shamim Adam and Chen Shiyin

Jan. 21 (Bloomberg) -- Singapore’s economy may shrink a record 5 percent this year as exports slump, increasing pressure on the government to take steps to help businesses and consumers.

Singapore is going through its sharpest and deepest recession, which may be the longest in the country’s history, said Ravi Menon, an official at the trade ministry. Gross domestic product may shrink 2 percent to 5 percent this year, the ministry said today.

The Singapore dollar fell after the government cut its economic forecast for the second time in less than three weeks. Finance Minister Tharman Shanmugaratnam will unveil this year’s budget plan tomorrow to speed up aid to companies hurt by the global recession and minimize job cuts by manufacturers such as Creative Technology Ltd.

“All the government can do is to ensure that citizens and businesses cope with the recession because it’s not possible to counteract the drop in external demand,” said Chow Penn Nee, an economist at United Overseas Bank Ltd. in Singapore. “The situation may start to improve only in the fourth quarter.”

The Singapore dollar declined as much as 0.3 percent versus the U.S. currency to S$1.5120, according to data compiled by Bloomberg. That was the weakest since Dec. 8. It traded at S$1.5041 as at 9:39 a.m. local time.

The Southeast Asian economy has contracted for three straight quarters, sliding into recession along with Japan, Hong Kong and New Zealand. The likelihood of a sharp rebound in growth “appears low,” Menon told reporters in Singapore today.

Job Losses

The economy grew 1.2 percent last year, less than earlier estimated. A decline of 5 percent this year would be the worst since the nation gained independence in 1965, according to Bloomberg data.

“2009 will definitely be a tough year for Singapore and most of export-oriented Asia,” said Manpreet Gill, a strategist at Barclays Wealth in Singapore. “In Asia, I won’t expect a sharp recovery. It will be a bit more drawn out.”

More than 10,000 people were retrenched last year and a worsening economy may result in job losses tripling in 2009, reaching numbers not seen since the Asian financial crisis a decade ago, the government said this week.

The government said today the nation may experience deflation this year, with consumer prices falling as much as 1 percent or staying unchanged.

Gross domestic product declined an annualized 16.9 percent last quarter from the previous three months, after shrinking a revised 5.1 percent between July and September, the trade ministry said. The contraction in the fourth quarter was worse than a Jan. 2 estimate of 12.5 percent.

Manufacturing

“The economic downturn has spread to all the key sectors of the economy,” Trade Minister Lim Hng Kiang said Jan. 19. “Our manufacturing sector is likely to continue facing a slowdown this year.”

Manufacturing, which accounts for a quarter of the economy, fell a revised 10.7 percent in the three months ended December from a year earlier, and shrank 4.1 percent in 2008, the trade ministry said.

The export-dependent nation has been battered by declining orders for electronics goods and pharmaceuticals from its biggest customers in the U.S. and Europe, as well as emerging markets. Creative Technology, the Singaporean maker of accessories for Apple Inc.’s iPod, said Dec. 31 it eliminated 2,700 jobs or almost half its workforce last fiscal year after demand for its own music players tumbled.

Weak Sentiment

Overseas shipments may drop as much as 11 percent in 2009, the government said today, after a 7.9 percent decline last year that was the worst performance since 2001.

Growth in the services and construction industries slowed. Services dropped 0.1 percent in the fourth quarter from a year earlier, and grew 5 percent last year. Construction gained a revised 14.1 percent, and rose 17.9 percent in 2008.

“Weaker consumer sentiments among Singaporeans have affected the retail sector and the property market,” Trade Minister Lim said. “Retailers and restaurants are seeing slower business as consumers are reining in discretionary spending.”

Singapore’s visitor arrivals and tourism receipts missed government targets last year and the nation expects a “challenging year” for the industry in 2009 as the global recession curtails consumer spending and holiday plans.

Companies such as lender DBS Group Holdings Ltd. and manufacturer Stats Chippac Ltd. are firing workers as demand for goods and services ebb. About 4,800 people were retrenched last quarter, acting Minister for Manpower Gan Kim Yong said Jan. 19.

Government Spending

Credit Suisse Group predicts up to 300,000 positions may be shed by end-2010, compared with the government’s estimate of as many as 30,000 jobs lost this year.

The government may announce as much as S$20 billion ($13 billion) in additional spending tomorrow when it unveils its budget, said Selena Ling, head of treasury research at Oversea- Chinese Banking Corp. in Singapore.

Businesses will get help with rental and wage bills, Prime Minister Lee Hsien Loong said Dec. 31. The government in November said it will extend more loans to local companies and spend S$600 million over the next two years on worker training.

Measures to help citizens survive the recession may include as much as S$7.5 billion of cash handouts, tax and utility rebates, said Ling at Oversea-Chinese Banking Corp.

“The budget would likely take an aggressive and multi- pronged approach to reduce costs, assist businesses and Singaporeans, and pump-prime the economy while not forgetting medium-term competitiveness,” Ling said. It will “only partially mitigate the economic downturn.”

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

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A $17 Trillion Alliance Can Save World Economies: William Pesek

Commentary by William Pesek

Jan. 21 (Bloomberg) -- China’s economy overtook Germany’s to become the third-largest in 2007. Japan may be next to be leapfrogged, if China can sort out its relationship with the U.S.

The Chinese economy is now 70 times bigger than when leader Deng Xiaoping traded hard-line communist policies for free-market ideas in 1978. No nation in history has raised more out of poverty in so short a time.

That leaves the Group of Seven nations with quite a dilemma: Who draws the short straw and informs Canada that it’s out of the club? Yet the real issue is one of relevance in a world now dominated by the Group of Two -- the U.S. and China.

It’s a crucial point as 2009 unfolds and the old leadership framework loses more teeth, if that’s even possible. The G-7 -- Canada, France, Germany, Italy, Japan, the U.K. and the U.S. -- has been completely useless over the last two years as markets crashed and economies plunged.

The Group of Eight -- the G-7 plus Russia -- is an even bigger waste of energy and travel budgets. It wasn’t created because of Russia’s commercial might, but fears that the 11th- biggest economy was too nuclear to fail. G-8 summits are only memorable for photos of world leaders awkwardly donning local costumes. Conference call, anyone?

G-2 World

The U.S. and China should do the global economy a favor and formalize the G-2 process. Summit meetings, communiques, press conferences, the works. Only, this framework must be about more than photo ops, vague language and polite discussion. It must be about the world’s two most important economies working together to avoid disaster.

“There’s no more important economic relationship, and 2009 will prove it,” says John Calverley, Toronto-based head of North American research at Standard Chartered Plc. “The world will be watching as never before.”

U.S. President George W. Bush should have done it. Some argue that the “strategic economic dialogue” initiated by former Treasury Secretary Henry Paulson amounted to a G-2. Not so. It wasn’t a meeting of equals, but a way to cow China into boosting its currency. U.S. officials seemed aghast that China came to the table with demands of its own.

When it comes to global stability, few things matter more than China’s massive holdings of U.S. Treasuries. That may be seen in Paulson’s need to liaise with Chinese officials before the U.S.’s stimulus plans were announced. If China doesn’t buy much of the debt the U.S. issues, who will? And if China balks, the rest of Asia may, too.

China’s Money

That’s why the G-2 needs to be a genuinely equal partnership. It can’t be a developed nation holding more chips than a poorer one. That was fine two years ago, before a meltdown in the U.S. imperiled global growth. Now that the U.S. is arguably looking a bit like a developing economy itself, the high horse has to go.

At least $650 billion of China’s $1.9 trillion of reserves are in U.S. Treasuries. A move to sell those assets would boost interest rates and further damage China’s export industries. Mutually assured economic destruction limits options and leverage in Washington and Beijing. President Barack Obama should act fast to hold this arrangement together.

Japan has problems of its own. It is back in recession, and deflation is sure to follow. Even though Japan steered clear of the toxic debt killing the U.S., the stocks that banks hold in friendly institutions -- so-called cross-shareholding -- are plunging in value and weighing on profits.

Japan’s Woes

Now, Japan is about to churn out loads of bonds to pay for stimulus plans. China also will be issuing ever-growing amounts of debt to boost domestic growth as its export industries collapse. The 4 trillion-yuan ($586 billion) stimulus plan announced in November is just the beginning.

Premier Wen Jiabao said as much on Jan. 19 when he warned that China faces a “very grim” job market in 2009. Wen added that the government must pay more attention to public welfare and social stability. That’s a vital, yet pricy, proposition for the nation of 1.3 billion people.

Add in Europe’s stimulus needs, and the world is about to see a “crowding out” phenomenon unlike any other in history. Governments will leave little room for private debt issuers.

While no big economy is blameless, the U.S. caused this crisis with an all-regulations-are-bad fanaticism, irresponsible central banking and basic greed. It’s now the world’s problem and it will take global efforts to restore calm, particularly from the U.S. and China.

Europe is an important economic region, and one grappling to cooperate for the sake of prosperity. Its fortunes rely on how well the U.S. and China can catch their collective breaths and start growing again.

The U.S. economy is worth $14 trillion, while China’s is worth $3.3 trillion. The G-7 was yesterday. The G-2 is today and tomorrow. It’s time for folks in Washington and Beijing to stop pointing fingers and get to work.

(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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N.Z. Dollar Declines to Six-Year Low; Australian Dollar Weakens

By Candice Zachariahs

Jan. 21 (Bloomberg) -- The New Zealand dollar weakened to a six-year low against the U.S. currency on concern the nation will have trouble funding its current-account deficit as the global slowdown deepens. Australia’s currency also fell.

The currencies slid as the Dow Jones Industrial Average had its worst Presidential Inauguration Day decline and financial shares fell to an almost 14-year low. New Zealand’s dollar has dropped 11 percent since Standard & Poor’s lowered the nation’s foreign-currency credit-rating outlook to negative on Jan. 13, citing risks from its deficit and overseas debt.

“There are concerns about New Zealand’s current-account funding” and that is hurting the currency, said Tony Allen, head of currency trading at ANZ National Bank Ltd. in Wellington. The local dollar may decline to 49 cents in January, he said.

New Zealand’s dollar dropped 2.3 percent to 51.85 U.S. cents as of 10:53 a.m. in Sydney, after touching 51.69 cents, the lowest level since December 2002. It declined 2.8 percent to 46.59 yen and earlier fell as low as 46.37 yen, the weakest since September 2001.

Australia’s currency fell 2.1 percent to 64.81 U.S. cents from late in Asia yesterday, after touching a six-week low of 64.57 cents. The currency slipped 2.7 percent to 58.22 yen.

The kiwi, as New Zealand’s dollar is called, briefly lifted off its lows after a government report showed retail sales were unexpectedly unchanged in November from the prior month as income-tax cuts, lower interest rates and fuel prices boosted demand. Retail sales declined 1.3 percent in October, seasonally adjusted, Statistics New Zealand said in Wellington.

Significant Downside

“The data was supportive of a squeeze higher from this morning lows,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. The currency still has “significant downside” and may drop to 43 cents by mid-2009, she said.

New Zealand’s currency also fell against the yen on speculation central bank Governor Alan Bollard will lower benchmark interest rates 100 basis point when policy makers meet Jan. 29, according to a Bloomberg News survey of economists.

A cut to 4 percent is “the minimum,” ANZ National Bank’s Allen said. There is a 12 percent chance of a bigger reduction, according to a Credit Suisse index.

Higher interest rates in Australia and New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attract investors to the South Pacific nations’ assets. The risk in these so-called carry trades is that currency market moves will erase profits. Australia’s benchmark interest rate is 4.25 percent.

Consumer Confidence

The Australian dollar dropped for a second day as a gauge of consumer confidence fell in January for the first time in three months. The sentiment index declined 2.2 percent to 89.9 points, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Jan. 12 and Jan. 18 and released in Sydney. The index has held below 100 since February, indicating pessimists outnumber optimists.

The Australian and New Zealand dollars also declined as prices of commodities the two nations export fell. The UBS Bloomberg Constant Maturity Commodity index of 26 raw materials slid the most in a week yesterday. Raw materials account for 60 percent of Australia’s exports and 70 percent of New Zealand’s.

Australian government bonds fell, pushing the yield on the 10-year note up three basis points to 4.02 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.234, or A$2.34 per A$1,000 face amount, to 110.130. A basis point is 0.01 percentage point.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.54 percent from 3.63 yesterday.

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

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South Korea’s Won Weakens for Third Day on Recession Concern

By Judy Chen

Jan. 21 (Bloomberg) -- South Korea’s won weakened for a third day, the longest losing streak in more than one month, on concern that Asia’s fourth-largest economy will face a prolonged recession.

South Korea’s economy will grow 0.7 percent this year, lower than a November forecast of 3.3 percent, the state-run Korea Development Institute said in a report from Seoul. Local shares dropped for a second day as a government report tomorrow will probably show that gross domestic product contracted for the first time in a decade last quarter.

“The won is sometimes sensitive to weak economic data,” said Ko Yun Jin, a currency dealer at Kookmin Bank in Seoul, the country’s largest lender. “The won is losing strength, but we are not so sure if it will fall below the 1,400 level.”

The won fell 0.6 percent to 1,382.25 per dollar as of 9:16 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. The benchmark Kospi index dropped 2.8 percent, set for its lowest close since Dec. 5.

“Our economic growth will see a drastic drop in accordance with the global economic slump,” Korea Development Institute said. “As a result, there’s a need to aggressively pursue an expansionary economic policy.”

Gross domestic product declined 0.3 percent in the fourth quarter from a year earlier, compared with the 3.8 percent third-quarter expansion, according to the median estimate of 13 economists surveyed by Bloomberg News. The report is due at 8 a.m. in Seoul tomorrow.

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

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Yen Falls as Gain in U.S. Stock Futures Spurs Demand for Yield

By Ron Harui

Jan. 21 (Bloomberg) -- The yen fell, reversing a gain, on speculation an advance in U.S. stock futures will give investors more confidence to buy higher-yielding assets funded in the Japanese currency.

The yen snapped a two-day winning streak against the dollar after U.S. President Barack Obama called on Americans to take responsibility for rebuilding the economy. Japan’s currency also ended two days of gains versus the euro after a technical chart signaled its 9 percent advance this month was excessive.

“There’s talk that some investors are selling the yen for dollars and euros as they seem to perceive the dollar-yen and the euro-yen reached attractive buying levels,” said Toshihiko Sakai, head of trading for foreign exchange and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s biggest bank. “The yen has also risen quite a bit so some players may be reducing long positions in the currency.” A long position is a bet an asset will gain.

The yen fell to 90.05 versus the dollar as of 11:27 a.m. in Tokyo from 89.76 late in New York yesterday. It earlier rose as high as 89.69. Japan’s currency dropped to 116.41 per euro from 115.85 late yesterday, after touching 115.30.

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

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Singapore Dollar Gains on Speculation Central Bank Intervened

By Patricia Lui

Jan. 21 (Bloomberg) -- The Singapore dollar rose for the first time in three days on speculation that the central bank intervened to support the local currency after it fell to a six- week low.

The Singapore dollar also gained after the central bank said that its monetary policy stance for zero appreciation of the currency remains intact and it will keep to its half-yearly policy review schedule. The next meeting on its foreign-exchange stance is due in April. Central banks intervene in currency markets by buying or selling foreign exchange.

“The Singapore dollar recovered on suspected central bank intervention,” said Joanna Tan, a regional economist at Forecast Pte in Singapore. “The currency was also given a boost by the central bank comments that there was no policy change and they are not bringing forward the April meeting. That squashed speculation of any inter-meeting move.”

Singapore’s dollar rose 0.3 percent to S$1.5035 to the U.S. currency as of 8:57 a.m. local time, according to data compiled by Bloomberg. It fell as much as 0.3 percent to $1.5120 earlier, the weakest level since Dec. 8.

There’s no reason for a persistent weakening in the Singapore dollar, Monetary Authority of Singapore Deputy Managing Director Ong Chong Tee told reporters in Singapore today.

Earlier Declines

The currency earlier fell on speculation that the central bank will adopt a weak currency policy after the government forecast an economic contraction of much as 5 percent this year.

Gross domestic product grew a worse than expected 1.2 percent last year, the trade ministry said today. It had predicted a 2009 contraction of as much as 2 percent on Jan. 2.

“It’s a near certainty now that they will move towards a weaker currency policy stance come April,” said Dwyfor Evans a strategist with State Street Global Markets in Hong Kong. “The question now is if they will opt for a one-off depreciation in addition to the weaker currency stance, the opposite of what they did last April.”

Singapore’s central bank manages its monetary policy by guiding the currency within an undisclosed band based on a weighted basket of major trading partners’ currencies. Policy adjustments are made by changing the slope, width and center of the band.

The authorities stopped seeking currency gains at the October policy review after the country fell into a recession in the third quarter, replacing it with a zero appreciation stance.

Singapore’s dollar may fall to as low as S$1.60 to the U.S. currency in the run-up to the April policy review, Evans said. Economists are forecasting the currency will fall to S$1.55 against the U.S. dollar by June, according to the median estimate of a Bloomberg survey of 22 banks and brokerages.

To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.net

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Oil Rises as Traders Buy Back Contracts to Profit From Declines

By Christian Schmollinger

Jan. 21 (Bloomberg) -- Crude oil rose in New York as traders bought contracts to close out bets that prices would decline amid the global economic recession.

Market participants who held short positions, or bets that prices would fall, are purchasing futures after oil for March delivery dropped 23 percent over the preceding 10 trading days. U.S. crude oil inventories probably increased for the 15th time in the past 17 weeks, a Bloomberg survey showed.

“What we’re seeing is a bit of short-covering,” said Clarence Chu, a trader at options dealer Hudson Capital Energy in Singapore. “I don’t expect this to be any other than a short- term rally, a bit of a dead-cat bounce. Without any new news it will be short-lived.”

Crude oil for March delivery rose as much as 62 cents, or 1.5 percent, to $41.46 a barrel in electronic trading on the New York Mercantile Exchange. It was at $41.11 a barrel at 9:46 a.m. Singapore time. Futures are down 54 percent from a year ago.

The February contract expired yesterday up $2.23, or 6.1 percent, at $38.74 a barrel, the biggest gain since Dec. 31. Sales volume in the contract was less than March as traders avoided taking supplies at the Cushing, Oklahoma, delivery point for Nymex futures.

Crude oil stockpiles at Cushing, where West Texas Intermediate traded on the Nymex is stored, climbed 2.5 percent to 33 million barrels during the week of Jan. 9, the Energy Department said last week. It was the highest since at least April 2004, when the department began keeping records for the location. Total capacity there is 47.7 million barrels, according to data from Lipow Oil Associates LLC.

Inventories Gain

U.S. crude inventories probably rose 1.5 million barrels last week, according to the median of analyst estimates in a Bloomberg News survey. The Energy Department is scheduled to release its weekly inventory report on Jan. 22, a day later than usual because of the Jan. 19 Martin Luther King Jr. holiday.

Gasoline stockpiles increased 2.25 million barrels from 213.5 million, according to the survey. Supplies of distillate fuel, a category that includes heating oil and diesel, probably declined 1 million barrels from 144.2 million.

Two geopolitical crises that bolstered prices earlier this month appear to have been resolved since Jan. 16.

Russia and Ukraine signed 10-year natural-gas contracts, ending a dispute that squeezed supplies to the European Union for almost two weeks. Shipments resumed yesterday. More than 20 European countries were affected, as 80 percent of Russian gas exports pass through Ukraine’s pipeline network.

Israel began pulling its troops from the Gaza Strip after it declared a unilateral truce Jan. 18, ending a military operation to stop Hamas and other Palestinian militant groups from shooting rockets into the country. The fighting began on Dec. 27. Concern that the unrest would disrupt Middle East supplies has helped bolster prices this month.

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

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