Japan’s Wages Drop as Companies Cut Costs Amid Mounting Losses

By Jason Clenfield

Feb. 3 (Bloomberg) -- Japan’s wages fell for a second month in December as manufacturers slashed production and overtime pay amid mounting losses.

Monthly wages, including overtime and bonuses, fell 1.4 percent from a year earlier, after dropping 0.7 percent in November, the Labor Ministry said in Tokyo today. Overtime compensation dropped 11.2 percent, the most since 1992.

A wave of firings and shift cuts by Japan’s biggest companies is heightening the risk the nation’s economic slump will deepen as consumers spend less. Hitachi Ltd. last week forecast a 700 billion yen ($7.8 billion) loss for this fiscal year and said it will eliminate 7,000 jobs; Toyota Motor Corp., facing its first loss in 71 years, will shut domestic factory lines for 14 extra days this quarter.

“We will now see the recession being driven by a domestic slump, not just falling global demand,” said Martin Schulz, a senior economist at Fujitsu Research Ltd. in Tokyo. He said the pace of recent job cuts makes the current recession more alarming for households than previous slumps, during which companies held on to workers.

Japanese manufacturers last week announced at least 30,000 job cuts. The unemployment rate jumped to 4.4 percent in December from 3.9 percent a month earlier, the biggest increase in 41 years.

NEC Corp., Japan’s largest maker of personal computers, said last week that it will fire 20,000 workers worldwide by March 2010. Sony Corp. is shedding 16,000 jobs. Both companies forecast losses for the year ending March.

Temporary Workers

The increased use of temporary workers, who make up more than a third of the workforce compared with 20 percent two decades ago, has cut labor costs for companies and given them more flexibility in firing workers. The wave of job losses that has resulted could give “an entirely new dimension” to what began as export-driven recession, according to Fujitsu’s Schulz.

“Unlike before, companies have started to lay off people immediately,” he said. “This is scary to households. They’re used to coping with flat or falling wages, but not unemployment.”

People are also working fewer hours as their employers shut factory lines to cope with a record plunge in export demand. Overtime hours at manufacturers dropped 30.6 percent in the month, the most since the government started the survey in 1990. The average year-end bonus, which typically amounts to about two months of salary, fell 1.7 percent.

Honda Motor Co., which slashed its earnings forecast by half, is reducing pay for some 4,800 managers by 5 percent through at least May.

Industrial production fell 9.6 percent in December, the most in more than 50 years and exports plummeted 35 percent, the most ever.

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net

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Bank of Japan to Buy Shares in Companies From Banks

By Keiko Ujikane and Toru Fujioka

Feb. 3 (Bloomberg) -- The Bank of Japan will resume a program of buying corporate shares held by financial institutions to shore up their capital, which has been decimated by the global stock-market rout.

The central bank will buy 1 trillion yen ($11.1 billion) in shares through April 2010 and will hold onto them until March 2012 at the earliest, it said in a statement after its policy board met in Tokyo today.

The bank said it resumed the purchases “to support financial institutions’ future endeavors to reduce market risk associated with stockholdings, and through which to ensure the stability of the financial system.”

The plan is smaller than the last time the central bank purchased shares from 2002 to 2004, when it pledged to buy up to 3 trillion yen in equities. The bank started selling those shares in October 2007.

It stopped the sales last October, after the collapr="return escape( popwQuoteShort( this, 'LEH:US' ))">Lehman Brothers Holdings Inc.sparked a global share-market slump that helped the Nikkei 225 Stock Average fall a record 42 percent in 2008. The average has extended those losses by 11 percent this year.

Japan’s central bank held 1.27 trillion yen in shares as of Jan. 31.

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

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IMF Forecasts South Korea’s Economy Will Contract 4% in 2009

By Seyoon Kim

Feb. 3 (Bloomberg) -- The International Monetary Fund expects South Korea’s economy will contract this year for the first time since the Asian financial crisis a decade ago, according to a statement from the nation’s finance ministry.

The economy will shrink 4 percent in 2009, the IMF forecast, compared with its November prediction of a 2 percent expansion, according to the statement distributed by the ministry in Gwacheon. The IMF expects a recovery in 2010 with growth of 4.2 percent, the statement showed.

Declining exports and weakening consumer spending prompted the Washington-based fund to reduce its forecasts for Asia’s fourth-largest economy, the ministry said. Overseas shipments tumbled by a record 32.8 percent last month and industrial production fell an unprecedented 18.6 percent in December as exporters Hyundai Motor Co., Hynix Semiconductor Inc. and LG Display Co. reduced output to cope with faltering demand.

“The IMF expects the South Korean economy to hit the bottom in the second quarter and start to pick up in the third quarter,” Vice Finance Minister Hur Kyung Wook told reporters yesterday in comments that were embargoed until today. “We have sufficient room both on the fiscal and financial side to increase spending and cut rates if needed.”

South Korea has allocated about 140 trillion won ($102 billion), or 15 percent of gross domestic product, in liquidity injections, tax cuts and stimulus spending. The central bank cut its interest rate to a record low of 2.5 percent in January.

“The main reason for the IMF revision is the export drop and weakening domestic demand following the global slump,” the ministry said. “The IMF said they are fundamentally optimistic about South Korea’s medium- and longer-term outlook.”

The IMF expects the economy will shrink 0.8 percent this quarter from the previous three months and stagnate in the second quarter, Hur said. The fund forecasts growth of 0.7 percent and 1.1 percent in the third and fourth quarters of 2009 respectively, he added.

South Korea’s gross domestic product declined 5.6 percent in the fourth quarter of last year from the previous quarter as exports, consumer spending and business investment dropped.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net

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Reserve Bank of Australia’s Stevens Explains Rate Cut (Text)

By Victoria Batchelor

Feb. 3 (Bloomberg) -- Following is the text of a statement by the Reserve Bank of Australia Governor Glenn Stevens explaining the decision to cut the benchmark interest rate by 1 percentage point to 3.25 percent in Sydney today. The statement was published on the bank’s Web site:

At its meeting today, the Board decided to reduce the cash rate by a further 100 basis points, to 3.25 percent, effective 4 February 2009.

There was a significant deterioration in world economic conditions late in 2008. The effects on household and business confidence of the financial turmoil following Lehman’s collapse, and continuing strains on major financial institutions, saw a significant downturn in demand around the world. As a result, the major advanced economies contracted sharply in the December quarter, as did a number of emerging market economies. The Chinese economy, though still growing, has slowed markedly. Global inflation, having reached high rates during the middle of 2008, is now declining.

Measures to stabilize financial systems have contributed to an improvement in the functioning of credit markets over the past couple of months. This, in conjunction with expansionary macroeconomic policy measures being taken around the world, should assist in promoting global recovery over time. But the near-term outlook for the global economy is the weakest for many years.

Economic conditions in Australia have also been affected, though less than in other advanced economies. Australia’s financial system remains in a strong condition and large interest rate reductions over recent months have been passed through in substantial measure to end borrowers. Nonetheless, the combination of last year’s financial turmoil, a severe global downturn and substantial falls in commodity prices has had a significant dampening effect on confidence, and therefore on prospects for growth in demand. Inflation has begun to moderate and, given recent developments, it is likely to continue to decline.

In these circumstances, the Board judged that a further sizable reduction in the cash rate was appropriate, to give further support to demand. In making its decision, the Board took into account the package of measures announced by the Government earlier today.

The combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionary forces coming from abroad.

To contact the reporter for this story: Victoria Batchelor in Sydney at vbatchelor@bloomberg.net.

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Australia Cuts Key Interest Rate to 45-Year-Low 3.25%

By Jacob Greber

Feb. 3 (Bloomberg) -- Australia’s central bank cut its benchmark interest rate by 100 basis points to the lowest level in more than four decades and the government announced it will spend another A$42 billion ($26 billion) to ward off a recession.

Governor Glenn Stevens lowered the overnight cash rate target to 3.25 percent in Sydney today, two hours after Treasurer Wayne Swan said the government will spend A$12.7 billion in handouts to families and A$28.8 billion on infrastructure, sending the budget into its first deficit since 2001-2002.

A slump in global demand for exports is cutting profits at companies including Alumina Ltd. and Incitec Pivot Ltd., driving up unemployment and eroding household sentiment. The bank’s five interest-rate reductions since September save borrowers with an average A$250,000 home loan more than A$680 a month.

“It’s all about maintaining the growth in the economy,” said Bill Evans, chief economist at Westpac Banking Corp. in Sydney. “Unfortunately, we’re getting to the point where monetary policy can do no more” and the government needed to increase spending to stoke growth.

The Australian dollar rose to 64.16 U.S. cents at 2:44 p.m. in Sydney from 63.50 cents just before the decision was announced. The two-year government bond yield gained 3 basis points to 2.45 percent. A basis point is 0.01 percentage point.

‘Cushion Economy’

“The combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionary forces coming from abroad,” Stevens said today.

Central bank policy makers “took into account the package of measures announced by the government earlier today,” Stevens added.

The economy would have contracted in fiscal 2010 without today’s stimulus, the government said. Swan estimates the extra spending will create 90,000 jobs over two years and help the economy grow 1 percent in the 12 months through June 2009 and 0.75 percent the following year.

“The weight of the global recession is now bearing down on the Australian economy,” Swan said. “It would be irresponsible not to act swiftly.”

Australia’s economy may already have followed the U.S., U.K., Japan and Europe into its first recession since 1991 after gross domestic product rose 0.1 percent in the third quarter, the weakest pace in eight years.

Companies Firing

GDP in Australia will probably shrink 0.2 percent this year, according to the International Monetary Fund, which last week revised its previous prediction of a 1.8 percent expansion. The IMF said global growth in 2009 will be the weakest in 60 years.

Miners BHP Billiton Ltd. and Rio Tinto Group, retailer Harvey Norman Holdings Ltd. and banks such as Australia & New Zealand Banking Group Ltd. are among companies firing workers as profits decline.

Reports published this year show the jobless rate rose to a two-year high of 4.5 percent in December as companies slashed 43,900 full-time jobs, bank lending unexpectedly fell for the first time since 1992, manufacturing contracted in January for an eighth month and house prices dropped for a third straight quarter.

“Things are going to be very difficult indeed,” said John Edwards, chief economist at HSBC Bank Australia Ltd. in Sydney. “But we also need to be conscious that our circumstances are very different” to other parts of the world.

“We limped through the fourth quarter last year, whereas other countries were in the most desperate circumstances.”

Profit Warnings

Alumina, partner in the world’s biggest producer of the material used to make aluminum, said today it had an 18 percent decline in second-half profit because of lower prices and higher costs. Fertilizer maker Incitec Pivot shares plunged to a record low after saying profit will fall.

The threat of a long and deep economic slump may prompt the Reserve Bank to cut the benchmark interest rate to less than 2 percent, former Governor Bernie Fraser said in an interview on Jan. 23.

“This recession will be deeper and longer than the last recession in 1991,” Fraser told Bloomberg News.

To offset stalling growth, Stevens and his board lowered borrowing costs in the last four months of 2008 by three percentage points. Today’s one-percentage-point reduction cuts the benchmark rate to the lowest level since February 1964, according to historical figures provided by the Reserve Bank.

Eleven of 20 economists surveyed by Bloomberg News forecast a one-percentage-point reduction and nine tipped a three- quarter-point adjustment.

Global Rates

Still, the nation’s benchmark rate remains among the highest in the developed world, dwarfing the U.S. Federal Reserve’s rate of as low as zero and higher than the European Central Bank’s 2 percent setting.

New Zealand Reserve Bank Governor Alan Bollard cut his benchmark last week to a record-low 3.5 percent and said he has scope for further reductions.

The Bank of England cut its benchmark last month to 1.5 percent, the lowest since the central bank was founded in 1694. The Bank of Japan has reduced its key lending rate close to zero.

Stevens also has the flexibility to cut borrowing costs again in coming months after the inflation rate fell last quarter by the most in 11 years. Consumer prices gained 3.7 percent from a year earlier, cooling from the third quarter’s 5 percent increase.

The Reserve Bank in December said it expects the inflation rate to fall back within its target range of 2 percent to 3 percent this year. Policy makers will publish new forecasts for inflation and growth on Feb. 6.

Budget Deficits

“Our economy has only started to feel the heat over the last three or four months,” John Symond, executive chairman of mortgage broker Aussie Group, said in an interview yesterday. “Unemployment is the danger and that’s spooking consumers. Over the next six months, we’ll probably see an ugly picture.”

Government spending to stimulate the economy, as well as a forecast A$115 billion drop in tax receipts over the fiscal years through June 2012, will result in deficits of A$22.5 billion in the 12 months through June 2009 and A$35.5 billion in 2009-10, Swan said.

Since October, the government has offered almost A$87 billion in aid for families, pensioners, bond markets, home buyers and extra spending on schools and roads.

Today’s spending is “a very aggressive fiscal stimulus, but given the state of the global economy, it’s completely warranted,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney.

For Related News and Information: Most-read Australia economy stories: TNI AUECO MOSTREAD BN Top economic stories: TOP ECO For stories about the Reserve Bank of Australia NI RBA Benchmark interest-rate graph: RBATCTR GP M ROLL Quarter-on-Quarter Inflation Graph: AUCPICHG GP

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‘Queen for a Day’ Presidency Puts EU in Bind: Celestine Bohlen

Commentary by Celestine Bohlen

Feb. 3 (Bloomberg) -- Ask a random sample of Britons, Danes, Latvians and Italians who the president of the United States is, and you’ll hear an Obama chorus.

Ask them who the president of the European Union is, and you will probably draw a blank. Told it is Vaclav Klaus, they’d most likely say: Who?

The Europeans have only themselves to blame for such ignorance, given a system that allows the EU presidency to change hands every six months.

Now, at a time when the region is reeling from back-to-back crises, topped by the worst economic downtown in decades, it is the turn of the Czech Republic, a country of 10 million with a record as a reluctant EU member, let alone leader.

Their leadership -- or lack of it -- should clinch the argument for a permanent EU presidency that could give the continent the kind of clout it deserves and needs.

The current rotation system was originally devised to give each EU member a chance to be the region’s equivalent of “Queen for a Day,” and it worked well enough when the EU had just six members.

But now with 27, it is something of a crapshoot, given the huge disparities between say, Germany with 82 million people and a $3.3 trillion GDP and the island nation of Malta with 403,000 people and a GDP of $7.5 billion.

Sarkozy’s Reign

The Czech Republic wouldn’t be an obvious choice to lead Europe even in the best of times. The Czechs haven’t ratified a treaty designed to restructure the EU’s institutions; nor has it adopted the euro, the common currency now shared by 16 EU members, including as of Jan. 1, their neighbor and ex-partner, Slovakia.

The Czechs’ ambivalence about the EU is in stark contrast to the French who in July 2008 embraced their EU duties with obvious glee.

President Nicolas Sarkozy gave the job new heft and focus, and dashed around the world, negotiating a cease-fire here and organizing a global economic summit there. The Eiffel Tower turned a pretty shade of royal blue -- an EU color -- every night during the French presidency, which ended on Dec. 31.

Europe can surely do better than Czech President Klaus, a grumpy euro-skeptic, who seems bent on keeping a low-profile -- refusing even to fly the blue-and-yellow EU flag from the top of the Prague Castle.

‘Big Boys’

It takes a world-class crisis to throw the EU’s asymmetry into relief: small nations do better in boring times. It’s not the Czechs’ fault their presidency ran head-long into a war in the Middle East and a replay of the Russian-Ukrainian gas war.

In both cases, Czech Prime Minister Mirek Topolanek threw himself into the job, but in the end, these issues were turned over to Europe’s major powers. Russian Prime Minister Vladimir Putin gave the Czech premier a symbolic pat on the back during his mission to Moscow, but paid greater heed to intermittent phone calls from German Chancellor Angela Merkel.

“The big boys will never let a Topolanek decide anything,” said Dusan Triska, an economist who shares Klaus’ concern about the “democratic deficit” of EU institutions.

France’s snubbing of the Czech Republic began even before the handover took place. A leak from the Czech Embassy in Paris last October, showed that Sarkozy offered Topolanek a deal: France would take charge of the EU’s Union for the Mediterranean, leaving the Czechs a free hand in Eastern Europe.

The funny thing about this embarrassing disclosure was that it was confirmed twice, first by the Czech Foreign Ministry, which issued a formal apology, and then by the Czech National Security office which on Jan. 27 fined the embassy 77,000 koruna ($3,530).

Egg on Face

Usually, governments don’t go out of their way to acknowledge responsibility for minor accidents that have left egg all over their face, and the face of a major ally. It seems the concept of “plausible deniability” -- well-developed in advanced democracies -- has yet to reach Prague.

The Czechs, an ex-Soviet satellite, almost didn’t get a chance at the EU presidency. Under the EU’s proposed Lisbon Treaty, the rotating presidency would be dumped in favor of a full-time president, to be elected by national leaders for a maximum of two 2 1/2 year terms.

That treaty -- yet another attempt to consolidate the EU’s political infrastructure -- would have already been in effect had all 27 members ratified it last year. But the Irish rejected it and the Czechs delayed their ratification, leaving the rotating system in place for at least the rest of this year.

On the bright side, the current economic crisis is showing signs of concentrating people’s minds, both in Ireland and in the Czech Republic, raising expectations that the Lisbon Treaty and its permanent presidency will finally be approved, perhaps even this year.

Just so long as it’s adopted before January 2017, when Malta is due to take over.

(Celestine Bohlen is a Bloomberg News columnist. The opinions expressed are her own.)

To contact the writer of this column: Celestine Bohlen in Paris at cbohlen1@bloomberg.net

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Power Grid May Revoke Contracts Awarded to Maytas, Mint Reports

By M.C. Govardhana Rangan

Feb. 3 (Bloomberg) -- India’s Power Grid Corp. may revoke seven contracts awarded to Maytas Infra Ltd., Mint reported.

The states of Orissa and West Bengal have asked Power Grid to cancel the contracts, according to the report, which quoted an unidentified official from Power Grid. The contracts are worth 3.95 billion rupees ($81 million), the newspaper said.

Delaying the projects may affect the federal government’s plan to provide electricity to 125,000 villages, Mint said.

Maytas is associated with Satyam Computer Services Ltd., which is embroiled in India’s biggest fraud inquiry.

To contact the reporter on this story: M.C. Govardhana Rangan in Mumbai at grangan@bloomberg.net.

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Obama May Embrace Emirates Deal as Model for Nuclear Agreements

By Indira A.R. Lakshmanan

Feb. 3 (Bloomberg) -- In her final days as secretary of state, Condoleezza Rice signed a nuclear-energy accord with a Persian Gulf ally 50 miles from Iran, calling the measure “a powerful and timely model for the world.”

President Barack Obama is likely to agree.

The deal with the United Arab Emirates is designed to assist the Arab nation in starting a nuclear-power industry that can’t be converted into a weapon-making enterprise. The agreement may help Obama keep his pledge to crack down on the production and smuggling of nuclear materials.

He has called the spread of nuclear weapons “the gravest danger we face.” That threat is increasing: With global electricity demand projected to double by 2030, dozens of countries across Asia, the Middle East, Africa and Latin America have expressed interest in nuclear power -- and with any nuclear program comes the risk of proliferation.

“The U.A.E. is doing it absolutely the right way,” says Jon Wolfsthal, a former U.S. government monitor at North Korean and Russian nuclear facilities will be advising Vice President Joe Biden on proliferation. “We should not only support the U.A.E. deal, but it could be used as a model” for other countries to pursue nuclear power in a way that doesn’t raise fears of clandestine weapons programs.

A federation of Arab sheikdoms that borders Saudi Arabia and produces as much oil as Iraq, the U.A.E. has committed to buy nuclear fuel from foreign countries and send back spent supplies.

Bomb Material

It is the first country to pledge that it won’t exercise its right under the Nuclear Nonproliferation Treaty to enrich uranium or reprocess plutonium to make its own fuel. Those are also the only ways to create fissile material for bombs.

In exchange, the Bush administration supported allowing U.S. companies to sell the Abu Dhabi government nuclear technology.

The U.A.E. commitment is “a counterpoint to what Iran is doing,” says Wolfsthal, 42. Although Iran contracted to buy supplies from Russia and send spent fuel back, it has also insisted on enriching uranium, claiming it needs its own fuel. Like North Korea, which clandestinely reprocessed plutonium, Iran’s suspected dual-use facilities have triggered international sanctions, and leaders of both countries have resisted economic incentives to close them.

Ben Chang, Obama’s National Security Council spokesman, says the administration is studying the U.A.E. deal before deciding whether to send it to Congress, which will have 90 legislative days to block the agreement before it becomes law.

‘Undermine’ Efforts

Rejecting the accord would be counterproductive, says Andrew Grotto, a security analyst at the Center for American Progress in Washington, a public-policy group with ties to the Obama administration. Since the U.A.E. can legally buy nuclear- power technology from companies in France, Britain, Japan and other nations, blocking a U.S. agreement that includes safeguards against proliferation “would undermine our efforts to set a high bar for transparency,” he says.

The U.A.E. arrangement has won an unusual combination of support from both the U.S. nuclear-power industry -- which stands to gain billions of dollars from selling technology and materials worldwide -- and from nonproliferation experts including former United Nations chief weapons inspector Hans Blix, who is now chairman of the Stockholm-based Weapons of Mass Destruction Commission.

Blueprint for Programs

At the McLean, Virginia, headquarters of Thorium Power Ltd., a nuclear-energy company that’s advising the U.A.E. on building its industry, the deal was celebrated as a blueprint for prospective programs in Saudi Arabia, Ukraine and elsewhere.

Chief Executive Officer Seth Grae, 45, is trying to develop a “proliferation-proof” fuel based on thorium, a metallic element that theoretically couldn’t be reprocessed for weapons use. The company’s advisers include Blix, 80, who is also a former director general of the International Atomic Energy Agency in Vienna.

Other ideas to halt proliferation include creating an international fuel bank to discourage countries from making their own fuel, a proposal Obama, 47, supports. The project, spearheaded by the Washington-based Nuclear Threat Initiative, has been funded by billionaire investor Warren Buffett, the U.S. government, the U.A.E., the European Union and Norway.

Tighten Export Controls

Many nonproliferation experts say the 45 nations that sell nuclear-energy technology need to tighten their export controls. George Perkovich, director of the nonproliferation program at the Carnegie Endowment for International Peace in Washington, says all suppliers, including in the U.S., should take back spent fuel so plutonium can’t be reprocessed.

By voluntarily pledging not to seek sensitive nuclear technology, the U.A.E. sets “the gold standard” that other nations should emulate, says Thomas Graham Jr., 75, a former top U.S. arms-control negotiator who is now Thorium’s executive chairman.

There are some objections to the agreement. Representative Ileana Ros-Lehtinen, a Florida Republican, has questioned security at the U.A.E.’s port of Dubai, a nexus for the proliferation network once run by Pakistani nuclear scientist A.Q. Khan that supplied Iran, North Korea and Libya with sensitive nuclear material.

Blix says there are ways to avoid this problem: If “Congress has concerns about leakage of technology to Iran, assurances of export controls would be in order.”

Ulterior Motives

Joseph Cirincione, president of the San Francisco-based Ploughshares Fund, a nonproliferation foundation, says he worries that power plants can be “the starter kits for nuclear weapons,” and that some nations may have ulterior motives in seeking nuclear energy.

“Iran’s rivals cannot afford to let it gain the military, political and diplomatic leverage conveyed by nuclear weapons,” he says. “What’s to stop them once they’ve built the reactors from adding on a fuel-making facility?”

The U.A.E.’s ambassador to the IAEA, Hamad Al Kaabi, says his nation’s “decision has nothing to do with Iran.” If the U.A.E. wanted weapons, it wouldn’t have become the first nation “to forgo enrichment and reprocessing,” he says. Since 2007, the U.A.E. has enhanced export controls through new laws, prosecutions, interdictions and the banning of companies involved in proliferation, adds Al Kaabi, a U.S.-trained nuclear engineer.

The U.A.E. deal probably comes too late to serve as a road map for negotiations with Iran, Perkovich says. “But it could work for the next country.”

To contact the reporter on this story: Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net

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Chinese Oil Refineries Post Loss of $21.8 Billion

By Wang Ying

Feb. 3 (Bloomberg) -- China’s oil refineries posted a loss of 149.3 billion yuan ($22 billion) in the first 11 months of last year because of higher raw material costs, the government said.

China faced an energy shortage in the first half though supplies became ample in the second half as the economy slowed, the Ministry of Industry and Information Technology said in a statement on its Web site yesterday.

The Chinese government controls fuel prices to limit their impact on inflation. China Petroleum & Chemical Corp., Asia’s biggest refiner, said last month that it expects 2008 profit to drop more than 50 percent because of higher crude oil costs in the first six months.

China’s oil and gas explorers, led by PetroChina Co., had a profit of 456.6 billion yuan in the first 11 months of last year, the ministry said. The country’s coal-fired power plants had a net loss of 39.2 billion yuan.

The coal industry earned 200 billion yuan between January and November, it said.

In December, the country’s oil-processing volume fell 7.4 percent to 27.16 million metric tons as the economic slowdown sapped demand, the biggest drop since at least 2003, according to the China Mainland Marketing Research Co., which compiles data for the National Bureau of Statistics in Beijing.

Oil refining in 2008 rose 3.7 percent to 342 million tons, compared with a 6.4 percent expansion in 2007, according to China Mainland Marketing.

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

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Chubu Electric in Talks to Buy Hydro Plants in Japan

By Shigeru Sato and Michio Nakayama

Feb. 3 (Bloomberg) -- Chubu Electric Power Co., Japan’s third-biggest utility, is in talks to buy hydropower plants from two regional governments that are raising funds for stimulus packages to cope with a deepening recession.

Nagano and Mie prefectures in central Japan plan to sell 24 plants, said officials familiar with the deals, who asked not to be named as contracts haven’t been signed. Noriyuki Narugami, a Chubu Electric spokesman, confirmed by phone from Nagoya that the regional governments are in talks on the sales.

Japanese utilities want to increase generation from renewable resources such as hydropower to meet goals for reducing carbon-dioxide emissions. Local governments are trying to fund stimulus programs aimed at lifting their economies and are finding it difficult to profit from hydropower since the electricity market was deregulated in 1995, lowering power prices.

“These hydro businesses haven’t been contributing to municipal governments’ finances, and they should be sold off to private entities if they can’t make a profit,” said Hirofumi Kawachi, a senior energy analyst at Mizuho Investors Securities Co. in Tokyo.

Nagano will sell all of its 14 hydroelectric plants, officials with direct knowledge of the talks said. Mie prefecture started talks to sell 10 hydro plants late last year and will finish negotiations by March 2010, said an official familiar with the deal who asked not to be named until an agreement is reached.

Hokuriku Purchase

All 24 generators may cost about 28 billion yen ($313 million), according to Bloomberg calculations based on the total capacity and using the price Hokuriku Electric paid Fukui prefecture for its assets.

Hokuriku Electric Power Co. agreed in October to buy hydropower stations with capacity totaling 50 megawatts from Fukui for 7.2 billion yen. Nagano’s 14 plants have a total capacity of 99 megawatts and Mie’s 10 generators have 98 megawatts.

Ishikawa prefecture, with a population of 1.17 million, last week agreed to start talks with Hokuriku Electric for the sale of its five hydropower plants with total capacity of 36.1 megawatts, an official familiar with the discussions said. The two sides aim to agree on a deal by March 2010.

Chubu Electric shares lost 2.6 percent to 2,440 yen at the 11 a.m. morning break in Tokyo trading, in line with the 1.9 percent decline in the 17-member Topix utilities index. Hokuriku Electric fell 1.6 percent to 2,500 yen.

Stimulus Measures

Japan is facing its worst recession since World War II, with factory production dropping in December by an unprecedented 9.6 percent and companies from Hitachi Ltd. to Nippon Oil Corp. cutting earnings targets, prompting state and local governments to hammer out emergency rescue plans.

The Nagano assembly last month passed a 5.9 billion yen supplementary budget to its 833 billion yen budget for this fiscal year to provide low-interest loans to farmers and small- and medium-sized enterprises. Mie will vote this month on a package of relief measures. Details of the plan have yet to be decided, according to the government’s Web site.

Japanese utilities have said they will cut the amount of carbon they produce to generate a kilowatt-hour of electricity by 20 percent from the 1990 level by 2012. Japan, a signatory to the Kyoto Protocol on climate change, pledged to cut emissions of gases blamed for global warming by 6 percent from the 1990 level by 2012. The country’s total emissions rose 2.3 percent last financial year because generators burned more fossil fuels.

“Our purchase last year of the Fukui prefecture plants was part of efforts to buy up generators run on renewable energy as we increase the use of hydro, solar, wind and biomass fuel,” said Tomonobu Yoshida, spokesman for Hokuriku Electric, which supplies customers in central Japan’s Toyama, Ishikawa and Fukui.

Hydroelectric power costs about 11.9 yen a kilowatt-hour, according to Chubu Electric. That compares with 5.3 yen for atomic power, 5.7 yen for coal-fired generation, 6.2 yen for natural gas and 10.7 yen for oil.

To contact the reporter on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net.

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Won to Strengthen 16% on Exports, Intervention, Kia, Kepco Say

By Kim Kyoungwha

Feb. 3 (Bloomberg) -- South Korea’s won will be 16 percent stronger on average this year as the currency’s biggest loss in a decade revives exports and prompts intervention, according to Kia Motors Corp. and Korea Electric Power Corp.

Kia, the nation’s second-largest automaker, Kepco, the biggest power producer, and Korean Air Lines Co., the leading airline, are basing their financial projections on an average exchange rate of 1,200 per dollar, a gain of 16 percent from yesterday’s close of 1,390. By contrast, Deutsche Bank AG predicts a 7 percent gain by the end of the year and UBS AG predicts a decline of 2.5 percent.

The won tumbled 26 percent in 2008, the most since the International Monetary Fund bailed the nation out in 1997 and the worst performance among Asia’s 10 most-active currencies. South Korea’s currency soared 41 percent in 1998, aided in part by a turnaround in overseas sales after the value of the won almost halved the previous year.

“What helped Korea stage a V-shaped recovery from the IMF crisis was the foreign exchange,” said David Kim, head of Kia’s treasury department in Seoul. “A stroke of good luck in the midst of misfortune is the won’s weakness, which puts exporters at a price advantage. How to increase volume is now key.”

Cho Hyun Jin, deputy head of the budget team at Korea Electric Power, known as Kepco, forecasts the government will intervene to ensure the currency strengthens. Higher fuel-import costs last year contributed to the biggest quarterly loss in the company’s 26-year history.

“We don’t see the government letting the won have a rough ride again, even though analysts are quite pessimistic on the outlook,” Cho said.

Modest Gains

President Lee Myung Bak last month appointed Yoon Jeung Hyun as finance minister, replacing Kang Man Soo who had been criticized for pursuing a weaker currency to help exporters weather a global economic slump.

Kang’s policy benefited Kia, boosting the local-currency value of the carmaker’s overseas sales and helping it almost double net income to 74.8 billion won ($534 million) in the fourth quarter.

Deutsche Bank, the biggest currency trader, predicts the won will rise to 1,300 by the end of the year, while UBS, the second-largest, predicts a drop to 1,425. The median estimate of 22 strategists surveyed by Bloomberg News is for 1,260.

Oh Suk Tae, a Seoul-based economist with Citigroup Inc., says the sharp pickup in exports that helped the won recover from the Asian financial crisis may not materialize this time.

‘Unchartered Waters’

“We only feel that the bottom may be nearing since it fell too much,” Oh said. “The thing is we’re in unchartered waters, unprecedented conditions that set the current situation apart from 10 years ago when there was external demand.”

The U.S., Europe and Japan are all in recession and South Korea yesterday reported a record 32 percent drop in overseas sales for January. The International Monetary Fund last week cut its 2009 global economic growth projection to 0.5 percent, from a November estimate of 2.2 percent.

Korean Air has based its 2009 business plan on an average exchange rate of 1,200 won per dollar, according to Oh Moon Kwon, senior manager of investor relations. SK Energy Co., the largest oil refiner, said its projections have been worked out using an exchange rate of 1,300.

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

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Indonesia’s Rupiah Gains as Central Bank Signals Intervention

By Lilian Karunungan

Feb. 3 (Bloomberg) -- Indonesia’s rupiah rose for the first time in four days after the central bank said yesterday that it may use bilateral swap agreements to help boost the currency.

The rupiah has declined 7 percent so far this year, the second-biggest loser among Asia’s 10 most-active currencies outside Japan, as the global economic slump reduced investor appetite for riskier emerging-market assets. Bank Indonesia is concerned about the slump in the global economy, said Benny Santoso at PT Bank Rakyat.

“BI has promised they will still be in the market,” said Santoso, treasury manager in Jakarta at the nation’s second- largest bank. “They’re pushing the rupiah to be below 12,000.”

The rupiah rose 0.5 percent to 11,690 per dollar as of 9:57 a.m. in Jakarta, from 11,750 yesterday, according to data compiled by Bloomberg. The currency, which yesterday touched 12,000, the lowest level since Dec. 5, may trade between 11,500 and 12,000 today, Santoso forecast.

The central bank will sign a currency swap agreement with Japan this month for “additional ammunition from outside our foreign-exchange reserves,” Governor Boediono told reporters in Jakarta yesterday, without providing details.

“Bank Indonesia is threatening to use bilateral foreign- exchange swap lines to help support the rupiah, but this won’t do anything but smooth the moves,” Win Thin, a senior foreign- exchange strategist at Brown Brothers Harriman & Co. in New York, wrote in a note to clients yesterday.

The currency will fall to 12,188, Thin predicted, without providing a timeframe.

Non-deliverable forwards contracts signal traders are betting the rupiah will weaken to 12,370 per dollar in three months, compared with odds yesterday for a rate of 12,625. Forwards are agreements in which assets are bought and sold at current prices for delivery at a future specified time and date.

Central banks intervene by arranging purchases or sales of currencies to influence an exchange rate. Indonesia’s foreign- exchange reserves fell to $51.64 billion in December from $57.11 billion in late September, a sign that Bank Indonesia may have intervened to support its currency.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net.

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Korean Won Trades Near Two-Month Low as Global Slump Deepens

By Kim Kyoungwha

Feb. 3 (Bloomberg) -- South Korea’s won traded near the weakest in almost two months on concern a deepening global economic slump will hurt exports.

The Korean currency, Asia’s worst performer last year, briefly fell beyond 1,400 per dollar for the first time since Dec. 10 after U.S. reports showed manufacturing shrank and consumer spending slid for an unprecedented sixth month.

“Offshore players, unnerved by gloomy data, are pushing the won lower,” said Jo Hyun Suk, a currency dealer with Korea Exchange Bank in Seoul. “Still, dollar sales emerge near 1,400 which is perceived to be its peak for the time being.”

The won fell 0.1 percent to 1,391.50 per dollar as of 9:43 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. It earlier declined to as low as 1,404.55.

The currency pared losses as Korea Exchange data showed global funds bought more Korean shares than they sold for a fifth straight day, the longest run of net purchases in a month.

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

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Australia Dollar Gains After Government Announces Stimulus Plan

By Candice Zachariahs

Feb. 3 (Bloomberg) -- The Australian dollar rose after the government said it will spend A$42 billion ($26.7 billion) on grants and infrastructure to prevent a recession. New Zealand’s currency climbed from near a six-year low.

Australia’s currency ended three days of losses on speculation the extra outlays lasting through June 2012 will help the nation counter a recession. Australia’s dollar earlier traded near a two-month low on concern the central bank will cut interest rates by more than forecast to the lowest since the 1960s at a meeting today.

“The Australian dollar can rally a bit further up to 64 to 66 U.S. cents,” said Greg Gibbs, director of foreign-exchange strategy at ABN Amro Australia Ltd. in Sydney. “From there the realities of a slowing global economy and worsening terms of trade will remain important factors driving the currency lower again.”

Australia’s currency climbed to 63.70 U.S. cents as of 1:23 p.m. in Sydney from 62.72 cents late in Asia yesterday. It earlier touched 62.57 U.S. cents, close to yesterday’s two-month low of 62.49 cents. The currency advanced 2.5 percent to 57.21 yen after falling 3 percent yesterday.

New Zealand’s dollar gained to 50.93 U.S. cents from 49.92 cents yesterday. It touched 49.62 U.S. cents, the weakest since November 2002. It rose to 45.74 yen from 44.40 yen yesterday.

Australia’s stimulus package includes A$12.7 billion in grants from next month to families and low-income earners and A$28.8 billion on infrastructure. It will help send the nation’s budget into a A$22.5 billion deficit, the first shortfall since fiscal 2001-02.

Trade Surplus

The nation’s trade surplus narrowed in December by more than forecast as coal and metal exports declined, a government report showed today. The surplus shrank in December to A$589 million from a revised A$979 million in November.

Australia’s currency tumbled 32 percent over the past six months as the central bank lowered borrowing costs by 3 percentage points since September.

The RBA will cut its benchmark rate 1 percentage point to 3.25 percent, according to the median forecast of 20 economists surveyed by Bloomberg News. Traders are betting on a 34 percent change of a bigger cut, down from 54 percent before the stimulus was announced, a Credit Suisse Group index based on swaps trading shows.

Benchmark interest rates are 4.25 percent in Australia and 3.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero percent in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. New Zealand’s central bank cut its benchmark 1.5 percentage points on Jan. 29.

‘Relatively Well’

Investors should buy the Australian dollar against New Zealand’s as it may rise as much as 4 percent toward NZ$1.30, Barclays Capital said today. They should exit the trade if the currency weakens to NZ$1.2390 per Australian dollar. It traded at NZ$1.2506 today.

“We do not think that the RBA has to follow the RBNZ as Australian economic data have been holding up relatively well and there is more room for fiscal stimulus in Australia,” David Forrester, a currency economist at Barclays in Singapore, wrote in a research note sent to clients today.

Consumer confidence in New Zealand sank to a 10-year low amid a deepening recession, according to a survey by UMR Research. Seventy-two percent of 750 people surveyed in late January expect the economy to get worse this year, up from 56 percent in December, UMR said in a report.

New Zealand’s economy will remain in recession until at least March 31, the Treasury Department said yesterday.

Australian government bonds were little changed with the yield on the 10-year note at 4.10 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.009, or A$0.09 per A$1,000 face amount, to 109.448.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.28 percent from 3.32 percent.

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

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Yen Weakens as BOJ Share Purchase Plan Revives Demand for Yield

By Ron Harui

Feb. 3 (Bloomberg) -- The yen fell after the Bank of Japan said it will resume a program of buying corporate shares held by financial institutions, helping revive demand for higher- yielding assets.

Japan’s currency ended a three-day winning streak against the dollar and the euro as the nation’s central bank said in a statement today that it will purchase 1 trillion yen ($11.1 billion) in equities through April 2010. The Australian and New Zealand dollars also climbed versus the yen after Australia’s government said it will spend A$42 billion to help prevent the economy entering a recession.

“The packages being announced by governments worldwide are likely to have a large positive impact on market sentiment,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-biggest lender. “The yen may be sold.”

The yen declined 0.4 percent to 89.85 against the dollar as of 11:42 a.m. in Tokyo, from 89.45 late in New York yesterday. The currency dropped 0.6 percent to 115.53 per euro.

Against the yen, Australia’s dollar advanced 1.5 percent to 57.35 from 56.49, and New Zealand’s dollar strengthened 1.6 percent to 45.82 from late in New York yesterday.

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

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Rubber Drops Fifth Day as U.S. Spending Deepens Growth Concern

By Aya Takada

Feb. 3 (Bloomberg) -- Natural rubber futures dropped for a fifth day after U.S. consumer spending recorded an unprecedented sixth monthly decline in December, deepening concern car sales may drop further and erode demand for the commodity used in tires.

Prices in Tokyo lost as much as 2.8 percent to the lowest since Dec. 26. The U.S. Commerce Department said yesterday personal spending fell 1 percent in December. A Federal Reserve report showed a majority of U.S. banks made it tougher for consumers to get credit in the past three months even as lenders received infusions of taxpayer funds.

“The data strengthened concern auto sales may decrease further, leading to a deeper drop in rubber demand,” Takaki Shigemoto, an analyst at Tokyo-based commodity broker Okachi & Co., said today by phone.

Rubber for July delivery, the most-active contract, fell 0.8 percent to 133.5 yen a kilogram ($1,487 a metric ton) on the Tokyo Commodity Exchange at the 11 a.m. local time break.

Rubber futures lost 1.9 percent this year as a deepening recession spurred investors to cut holdings of the industrial commodity.

In Japan, the world’s third-biggest rubber importer, sales of cars, trucks and buses fell 28 percent to 174,281 vehicles in January, excluding minicars, the Tokyo-based Japan Automobile Dealers Association said in a statement yesterday. It was the biggest monthly drop since May 1974.

India Production

Natural rubber output in India, the world’s fourth-biggest producer, declined 9 percent last month after dry weather and a slump in prices prompted growers to extract less latex, the Rubber Board said yesterday.

Production in January fell to 94,000 tons, compared with 103,515 tons a year ago, G. Mohana Chandran, joint director at the state-owned Rubber Board said, citing preliminary data.

Natural rubber demand in India will decline to 862,000 tons in the year ending March from 899,000 tons estimated in April as demand from tire producers slows amid a drop in car sales, Rubber Board Chairman Sajen Peter said last week.

May-delivery rubber on the Shanghai Futures Exchange, the most-active contract, added 0.9 percent to 12,645 yuan ($1,847) a ton at 10:55 a.m. local time.

To contact the reporter on this story: Aya Takada in Tokyo atakada2@bloomberg.net

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Corn Rises as Argentina Drought Damages Crops; Soybeans Advance

By William Bi

Feb. 3 (Bloomberg) -- Corn rose for the first time in four days on concerns rains forecast in Argentina, the world’s third- biggest producer of the grain, may not undo damages to the crops. Soybeans also gained.

Significant stress has impacted corn in central parts of the South American country during the main pollination period, with major crop losses likely, even as less heat and dryness are in forecast, Meterologix LLC said in a report dated yesterday.

“The insufficient rains that crops in Argentina received have caused material damages,” said Chen Baomin, analyst at Jilin Grain Group Co., in Changchun. “This may bring back the rally in agricultural commodities we saw last year.”

Corn futures for March delivery rose as much as 0.5 percent to $3.7225 a bushel on the Chicago Board of Trade, and was at $3.72 at 10:49 a.m. Beijing time.

Soybean futures for March delivery gained as much as 0.3 percent to $9.6225 a bushel and last traded at $9.615.

To contact the reporter on this story: William Bi in Beijing at wbi@bloomberg.net

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Copper Rises on Stockpile Decline, U.S. Manufacturing Data

By Li Xiaowei

Feb. 3 (Bloomberg) -- Copper climbed in London after global stockpiles fell for the first time in seven weeks and as manufacturing in the U.S., the world’s second-largest user after China, shrank less than economists forecast.

London Metal Exchange-monitored inventory fell 325 metric tons to 491,200 tons yesterday, the first decline since Dec. 11. The U.S. Institute for Supply Management’s factory index rose to 35.6 in January from 32.9 in the prior month, as a decline in new orders moderated. Readings less than 50 signal a contraction.

“The unexpected inventory decline and the factory index rebound supported copper,” Chen Yonglin, an analyst with Citic Futures Co., said from Shanghai today.

Copper for three-month delivery rose 1.7 percent to $3,230 a ton on the London Metal Exchange at 10:42 a.m. in Shanghai.

April-delivery copper on the Shanghai Futures Exchange rose 2.9 percent to 25,960 yuan ($3,793) at the same time.

Among other LME-traded metals, aluminum fell 0.5 percent to $1,383 a ton and zinc added 2.8 percent to $1,145.

To contact the reporter for this story: Li Xiaowei in Shanghai at xli12@bloomberg.net

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Crude Oil Rises as OPEC Cuts Output in January to Avoid a Glut

By Christian Schmollinger

Feb. 3 (Bloomberg) -- Crude oil rose in New York on speculation that OPEC, led by Saudi Arabia, cut its output in January to avoid a supply glut and bolster prices.

Production from the Organization of Petroleum Exporting Countries averaged 28.565 million barrels a day last month, down 3.5 percent from December, according to a Bloomberg News survey of oil companies, producers and analysts. A government report yesterday showed U.S. consumer spending fell in December for a record sixth consecutive month, cutting fuel consumption.

“The OPEC cuts have been a factor that has sustained prices,” said Tetsu Emori, a fund manager with Astmax Ltd. in Tokyo. “Global demand is getting smaller and that’s running fast against the pace of the production cuts.”

Crude oil for March delivery gained as much as 63 cents, or 1.6 percent, to $40.71 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $40.33 a barrel at 10:10 a.m. Singapore time.

Yesterday, futures fell $1.60, or 3.8 percent, to $40.08, the lowest settlement since Jan. 20. Prices are down 9.4 percent this year and are 55 percent lower than a year ago.

Brent crude oil for March settlement rose as much as $1.03, or 2.4 percent, to $44.85 a barrel on London’s ICE Futures Europe exchange. The contract yesterday declined $2.06, or 4.5 percent, to settle at $43.82 a barrel.

Saudi Arabia, OPEC’s biggest producer and the world’s top oil exporter, reduced output by 375,000 barrels a day last month to an average 8.025 million barrels a day, the lowest since December 2002. Production was 26,000 barrels a day less than its target of 8.051 million barrels a day, the survey showed.

OPEC Supply

OPEC, responsible for more than 40 percent of global oil supply, agreed Dec. 17 in Oran, Algeria, to reduce supply as oil prices headed for their first annual decline since 2001. Producers with output quotas, all members except Iraq, pumped 26.2 million barrels a day, 1.355 million more than their target of 24.845 million barrels a day.

The 1 percent drop in U.S. consumer purchases was larger than forecast and followed a 0.8 percent decrease in November, the Commerce Department said in Washington. The Institute for Supply Management’s factory index was 35.6 in January. Readings less than 50 signal a contraction and the measure has been below that level since February 2008.

Australia’s government will spend A$42 billion ($26.5 billion) on grants and infrastructure to prevent the economy from entering recession amid the global financial crisis, Treasurer Wayne Swan said today.

The nation’s trade surplus narrowed in December by more than economists forecast as coal and metal exports declined.

Workers’ Strike

Gasoline and heating-oil futures fell yesterday because U.S. refiners and the United Steelworkers union extended negotiations on a new contract over the weekend, delaying a potential strike. Royal Dutch Shell Plc and the union representing 30,000 U.S. refinery workers said they made progress in the second day of their extended contract talks.

“Deliberations are continuing and we feel that progress is being made,” said Lynne Baker, a spokeswoman for the United Steelworkers union. “We think we will be in a better position to know exactly where we’re at in the morning.” Stan Mays, a Shell spokesman, agreed the talks are progressing.

The union is seeking higher wages, a cost-of-living adjustment, and full medical, dental and vision-care benefits for employees and retirees. Workers also want improvements in plant safety practices after a March 2005 explosion at BP Plc’s refinery in Texas City, Texas, killed 15 people and injured 170.

Gasoline, Heating Oil

Gasoline futures for March delivery was at $1.1690 a gallon in New York. The contract declined 11.95 cents, or 9.4 percent, to settle at $1.1492 a gallon yesterday. Heating oil for March fell 9.16 cents, or 6.4 percent, to end the session at $1.3424 a gallon, the lowest since Dec. 30. It was at $1.3575 a gallon today.

U.S. crude-oil inventories probably rose last week as refineries reduced operating rates, a Bloomberg News survey of analysts showed.

Crude-oil stockpiles increased 2.75 million barrels in the week ended Jan. 23 from 338.9 million the week before, according to the median of analyst estimates before an Energy Department report tomorrow. It would be the 17th gain in 19 weeks.

Gasoline stockpiles rose 1 million barrels from 219.9 million, according to the survey. Supplies of distillate fuel, a category that includes heating oil and diesel, probably fell 1.4 million barrels from 144 million.

The Energy Department is scheduled to release its weekly report on Feb. 4 at 10:30 a.m. in Washington.

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

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China Stocks Rise; Nanjing Textiles Gains on Stimulus Report

By Zhang Shidong

Feb. 3 (Bloomberg) -- China’s stocks rose for a second day, taking the benchmark index to the highest in seven weeks. Youngor Group Co. and Nanjing Textiles Import & Export Corp. led textile makers’ gains on speculation the government will support the industry.

Youngor Group, China’s biggest maker of men’s clothing by sales, and Nanjing Textiles rose more than 5 percent after Shanghai Securities News said a stimulus plan for the textile and machinery industries will be submitted to the nation’s Cabinet for discussion tomorrow.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, rose 19.98, or 1 percent, to 2,031.67 as of 10:39 a.m. local time, set for the highest close since Dec. 10. The CSI 300 Index gained 1.2 percent to 2,082.09.

“The market has heightened expectations that more measures and policies will come along to boost economic growth and various industries,” said Zhang Ling, who manages the equivalent of $1.1 billion at ICBC Credit Suisse Asset Management Co. in Beijing.

The Shanghai Composite Index, the world’s second-best performer this year, has rebounded 17 percent since the government pledged 4 trillion yuan ($584 billion) of spending to revive economic growth. The central bank has also cut the key lending rate five times since September to support industries and stem job losses.

Youngor Group

Youngor Group advanced 5.3 percent to 8.94 yuan. Nanjing Textile gained 5 percent to 4.24 yuan. Shenzhen Textile (Holdings) Co. jumped by the maximum 10 percent daily cap to 5.89 yuan. Luthai Textile Co., a textile maker in the eastern province of Shandong, added 6.7 percent to 7.50 yuan.

The plan may include raising export rebates for textile companies to as much as 17 percent, Shanghai Securities News said. The current rate is 14 percent. The plan may provide support to help develop the machinery industry, reducing reliance on imports, the report said.

Changsha Zoomlion Heavy Industry Science & Technology Development Co., China’s second-biggest maker of concrete- handling machinery, advanced 2.2 percent to 15.92 yuan. Xuzhou Construction Machinery Science & Technology Co., the publicly traded unit of China’s biggest building equipment maker, rose 1.9 percent to 19.65 yuan.

To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

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Asian Stocks Rise on Government Stimulus Plans, Chip Prices

By Jonathan Burgos and Shani Raja

Feb. 3 (Bloomberg) -- Asian stocks rose for the first time in three days, led by bank and technology shares, as Japan and Australia widened efforts to revive economic growth and memory- chip prices surged.

Commonwealth Bank of Australia, Australia’s No. 1 mortgage lender, soared 9.2 percent in Sydney after saying profit will beat analysts’ estimates. Hynix Semiconductor Inc. jumped 3 percent in Seoul as chip prices climbed the most since November 2007. Stocks gained as Australia announced $26.5 billion in extra spending and the Bank of Japan said it will buy shares held by financial institutions.

“These sorts of stimulus measures are steps in the right direction,” said Nader Naeimi, an investment strategist at AMP Capital Investors in Sydney, which manages about $85 billion. “We need circuit-breakers to unlock the credit logjam.”

The MSCI Asia Pacific Index rose 1 percent to 82.08 as of 11:24 a.m. in Tokyo, with two stocks advancing for each that declined. The gauge is down 8.4 percent this year amid mounting signs the global recession is pummeling corporate profits.

Australia’s S&P/ASX 200 Index added 1.5 percent to 3,549.90, while the Nikkei 225 Stock Average gained 0.1 percent. All markets open for trading advanced except Malaysia, Indonesia, the Philippines and Vietnam.

Futures on the Standard & Poor’s 500 Index gained 0.7 percent. The gauge dropped 0.1 percent yesterday as a government report showed that consumer spending slumped for a sixth straight month and companies from Mattel Inc. to Rockwell Automation Inc. posted lower-than-estimated profit.

Government Intervention

Governments around the world are stepping up efforts to revive a global economy burdened by more than $1 trillion of losses tied to the credit crisis. Global growth will almost grind to a halt this year, the International Monetary Fund said last week. South Korea’s finance ministry said today that the IMF expects the country’s economy to contract this year for the first time in 10 years.

Australia today announced its second stimulus package since October to prevent its economy entering the first recession since 1991. Economists in a Bloomberg News survey also expect the Reserve Bank of Australia to cut borrowing costs later today to the lowest level since the 1960s.

“Every little bit helps,” said Rob Patterson, who manages about $2 billion at Argo Investments in Adelaide, Australia. “We’re trying not to join the rest of the world in a recession.”

Japan’s central bank said it will buy 1 trillion yen ($11.1 billion) in shares through April 2010 and will hold onto them until March 2012 at the earliest.

Computer Chips

Commonwealth Bank jumped 9.2 percent to A$28.87 after saying first-half profit will be about 20 percent higher than analysts have estimated. National Australia Bank Ltd., the country’s biggest by assets, added 4.9 percent to A$19.62. Woolworths Ltd., Australia’s largest retailer, gained 2.8 percent to A$27.90.

Hynix, the world’s second-biggest computer-memory maker, climbed 3 percent to 9,170 won in Seoul. Samsung Electronics Co., Hynix’s larger rival, gained 4.1 percent to 493,000 won. Advantest Corp., the world’s biggest maker of memory-chip testers, rose 3.6 percent to 1,275 yen in Tokyo.

Average prices of the benchmark dynamic random access memory, or DRAM, jumped 27 percent yesterday, the most since November 2007, according to Dramexchange Technology Inc., Asia’s largest spot market for the chips. Germany-based Qimonda AG’s insolvency filing last month raised expectations a glut will ease.

-- Editors: Darren Boey, Tony Jordan.

To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

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