Sri Lanka Lowers Rates for Second Time in Two Months

By Cherian Thomas

Feb. 11 (Bloomberg) -- Sri Lanka’s central bank lowered its overnight lending rate for the second time in two months to support the island’s economic growth amid a global recession.

The Central Bank of Sri Lanka cut the penal interest rate to 16.5 percent from 17 percent, according to a statement posted on the bank’s Web site today. The repurchase rate was also reduced by a quarter point to 10.25 percent, the statement said.

The Colombo-based bank may cut rates further after Governor Nivard Cabraal said this week that a slowdown in inflation allows for “less tight” monetary policy. Sri Lanka’s inflation has halved since October as oil and other commodity prices plunged due to the global economic slump.

“The retreating inflation will enable monetary authorities to gradually reduce the penal rate,” said Danushka Samarasinghe, research manager at Asia Securities Co. in Colombo. “Sri Lankan interest rates have shown signs of weakening.”

The penal rate now serves as a ceiling on overnight interest rates and as a benchmark rate for other market rates, the central bank said Jan. 12.

Consumer prices in the capital Colombo rose 10.7 percent in January from a year earlier, after increasing 14.4 percent in December, the statistics department said Jan. 30.

‘Single Digit’

“It is expected that inflation will fall to a single digit in February and continue its decline in the coming months,” the central bank said in its statement today. “These interest rate reductions will lead to significant reduction in the cost of borrowing, resulting in economic activity being stimulated.”

To support growth, Sri Lanka in December unveiled a 16 billion rupees ($140 million) stimulus package that includes cutting retail fuel prices and removing some taxes.

The nation’s economic growth slowed to 6.3 percent in the third quarter of 2008 from 7 percent in the previous three-month period as declining overseas demand eroded the nation’s tea, rubber and textile exports.

Still, Cabraal said Feb. 7 Sri Lanka’s economy may expand faster than previously estimated in 2009 as the government adds stimulus measures and prospects of peace spur investment. Growth may be 6 percent this year, more than an earlier forecast of between 5 percent and 5.5 percent, Cabraal told Bloomberg News in Kuala Lumpur.

President Mahinda Rajapaksa on Feb. 4 said the government will decisively defeat the Liberation Tigers of Tamil Eelam rebels within “a few days” and free the South Asian nation from the “dark shadow of terrorism.” The Tamil Tigers have been fighting for 25 years for a separate homeland in the island nation, in a conflict that has killed more than 70,000 people.

The army says it has driven the Tamil Tigers from their main bases into an area of less than 200 square kilometers (77 square miles) in the northeast.

To contact the reporter on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net.

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Australian Consumer Sentiment Falls as More Jobs Lost

By Jacob Greber

Feb. 11 (Bloomberg) -- Australian consumer confidence slumped in February as rising unemployment and falling property prices threaten to push the economy into its first recession in almost two decades.

The sentiment index declined 4.6 percent to 85.8 points, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Feb. 2 and Feb. 8 and released today in Sydney. The index has been below 100 since February 2008, indicating pessimists outnumber optimists.

Today’s survey suggests the central bank’s decision to slash borrowing costs last week to a 45-year low and government plans to spend A$42 billion ($28 billion) on infrastructure and cash handouts to households may not be enough to offset the economic impact of slumping demand for Australia’s commodity exports.

Consumers are “unusually fearful of the future,” said Bill Evans, chief economist at Westpac in Sydney. “This represents a serious challenge for policy” at the central bank.

“Logically it points to consumers saving any excess income” rather than boosting spending, Evans added.

The Australian dollar traded at 65.74 U.S. cents at 10:36 a.m. in Sydney from 65.68 cents before the report was released. The two-year government bond yield was unchanged at 2.7 percent.

Economic Outlook

An index measuring consumers’ expectations about economic conditions over the next 12 months dropped 7.6 percent in February from January, the report showed.

Despite “record largesse” from the government and the central bank, consumer confidence has fallen 7 percent below the level the index was at just before central bank Governor Glenn Stevens began cutting borrowing costs in early September, Westpac said in today’s report.

Stevens and his board have reduced the benchmark interest rate since early September by four percentage points to 3.25 percent.

Slumping consumer confidence echoes a plunge in business sentiment last month to a record low, according to a National Australia Bank Ltd. report published yesterday.

The business confidence index dropped 12 points to minus 32, the lowest level since the series began in 1989, National Australia said.

Rising Unemployment

Commonwealth Bank of Australia, the nation’s second-largest bank, said today that bad debts rose almost five-fold to A$1.6 billion as loans to failed companies including ABC Learning Centres Ltd. soured.

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.

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

The jobless rate probably rose last month to 4.7 percent, according to the median estimate of 14 economists surveyed by Bloomberg. Employment figures will be released tomorrow.

Lending by banks to consumers buying houses rose 7.6 percent last year, the weakest growth since 1983, home-building approvals fell in December for a sixth month and property prices tumbled 3.3 percent in 2008, recent reports showed.

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

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

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Russia Economy May Grow 3% in 2009, 2010 Troika’s Osborne Says

By Halia Pavliva

Feb. 11 (Bloomberg) -- Russia’s economy may expand this year and next because demand for oil, the nation’s biggest export earner, will probably pick up and local products will replace some imports, according to Troika Dialog.

Urals crude, Russia’s main export blend, will probably average about $50 a barrel in 2010, compared with $40 forecast for 2009, said Chris Osborne, chief executive officer for Russian brokerage Troika Dialog’s U.S. unit. The country’s $1.7 trillion gross domestic product may grow 3 percent this year, and accelerate above that in 2010, he said.

“As the ruble devalues we should see some import substitution,” Osborne said at a press briefing yesterday at the company’s Manhattan office. “Russia can grow at $40 a barrel, and at $30 a barrel.”

Russian Finance Minister Alexei Kudrin reiterated on Feb. 4 that the economy may stagnate this year after Urals crude slumped 69 percent from a July record and the global credit crisis pushed up borrowing costs. The ruble slumped 36 percent against the dollar-euro basket since August as oil price fell.

Nouriel Roubini, the New York University professor who forecast the U.S. recession two years ago, said on Feb. 4 that the Russian economy may contract by 3 percent or 4 percent this year. Russia is the world’s biggest energy exporter.

The economy expanded 5.6 percent in 2008, the slowest pace since at least 2004. Russian GDP will contract 0.7 percent this year and grow 3.15 percent in 2010, according to the median estimate of 13 economists surveyed by Bloomberg.

Russia’s economy last shrunk in 1998 as the government defaulted on $40 billion of debt and the currency tumbled.

Urals crude had surged more than 10-fold since 1998 to $104.72 a barrel in April 2008, helping the economy expand more than 6 percent every quarter between mid-2005 and September last year.

Russian stocks may “outperform quite a few markets” this year should global equities stabilize, said Osborne, who recommended investors buy OAO Lukoil. Russia’s dollar-denominated RTS stock index is down 4.6 percent this year after tumbling 72.4 percent in 2008. Moscow-based Lukoil has climbed 12.8 percent this year.

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net.

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Titanic Sails Again to Sink Deck-Chair Economy: William Pesek

Commentary by William Pesek

Feb. 11 (Bloomberg) -- NEC Corp. started a trend that will forever change Japan.

The nation’s largest personal-computer maker on Jan. 30 said it will fire more than 20,000 employees. That announcement would have been shocking enough had it not opened the floodgates. Since then, Panasonic Corp. said it will cut 15,000 jobs. Nissan Motor Co. is cutting 20,000.

Even during the darkest days of the 1990s -- deflation, bank failures, public bailouts -- companies avoided mass layoffs. NEC’s precedent seems to have made it fashionable to do just that. What’s next? Sony Corp. firing 50,000?

The psychological blow to Japan’s already skeptical consumers is sure to deepen the recession at a speed few thought remotely possible just two months ago.

“Japan’s recent economic decline is faster than that of the U.S., which has been experiencing the worst financial crisis in a century,” Kazuo Momma, head of research and statistics at the Bank of Japan, said in Tokyo on Feb. 9.

Momma said the world’s second-largest economy may have shrunk at an “unimaginable” speed last quarter. Gross domestic product fell at an annual 11.7 percent pace in the fourth quarter of 2008, according to the median estimate of 23 economists surveyed by Bloomberg News. That would be the steepest decline since 1974.

Like the Titanic

There would be only one way to describe such a figure: Wow! Remember Japan was supposed to avoid the worst of the global credit crisis. Its cash-rich banks were expected to help recapitalize Wall Street. Its companies were set to go on a merger-and-acquisitions tear.

Now, prospects for Japan are sinking like, well, the Titanic. That’s Yoshimi Watanabe’s word, not mine, but in some ways it’s an apt description of where Japan finds itself.

The former financial-services minister is referring to the ruling Liberal Democratic Party, and Prime Minister Taro Aso’s stubborn refusal to resign or call an election. Aso’s approval ratings are below 20 percent, and sinking.

“The LDP is like the Titanic heading into a huge iceberg that is the general election,” Watanabe told reporters in Tokyo on Feb. 9.

It’s the latest Titanic analogy to be applied to Japan. Many articulated the futility of Japan’s efforts to boost growth over the last 10 years as being akin to rearranging the deck chairs on an ill-fated ocean liner. Massive public-works spending and zero interest rates didn’t revitalize growth. It took an export boom to do it.

Change Needed

As Japan enters its worst slump since World War II, it does so with a dearth of leadership or fresh ideas. Whether you support them or not, U.S. President Barack Obama and Treasury Secretary Timothy Geithner see the world and economics differently than predecessors George W. Bush and Henry Paulson. Change is undoubtedly afoot in America.

Japan desperately needs a change of leadership with fresh ideas. Yet opposition leaders aren’t offering new policy direction for a nation in complete political drift. A few years ago, this gridlock wasn’t considered a problem. The recovery that began in 2002 convinced politicians that their job was done.

Efforts to trim the biggest public debt in the industrial world -- the Organization for Economic Cooperation and Development puts it at more than 170 percent of GDP -- never took off. Neither did plans to enhance national competitiveness, raise productivity, increase entrepreneurship or grapple with the mismatch of a rapidly aging population and a declining birthrate.

Exports Sputter

As a result, Japan’s growth in the 2000s didn’t fatten paychecks. As the key driver -- exports -- sputtered, its $4.4 trillion economy ground to a halt. Japan is left with dying trade prospects, sliding household spending and banks weighed down by the weak stock market.

And then there’s the yen. Toyota Motor Corp., the largest carmaker, said its loss this year may be three times earlier estimates as car sales in the U.S. and Japan plunge and the yen’s gains erode earnings. The yen’s 17 percent surge against the dollar and 18 percent jump against the euro in the last quarter of 2008 are hammering corporate Japan.

How bad things could get in Japan always requires perspective. About $15 trillion of household savings may be a cushion that economies as diverse as the U.S. and Indonesia don’t have. Japan’s government also has shown an aptitude for getting its 127 million people through slumps. Like the RMS Titanic in 1912, many see Japan as unsinkable.

Out of Work

Recent layoffs are sure to be followed by other huge job-cut announcements. Japan’s lifetime employment system is being replaced by more-flexible work contracts. This recession will be unprecedented in terms of how quickly workers find themselves jobless. Japan’s unemployment safety net is more patchwork than cohesive national strategy.

It’s not clear the government understands how bad things could get. Take Economic and Fiscal Policy Minister Kaoru Yosano, who on Feb. 8 said the economy was probably “pretty bad” last quarter. Pretty bad? Yosano may want to check with labor unions, which expect a spike in homelessness and suicide numbers as companies shed tens of thousands of workers.

Japan’s economy is taking on more water by the day. This is no time to rearrange deck chairs.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in Kuala Lumpur at wpesek@bloomberg.net

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Commodity Prices Likely Bottomed, West Australia Says

By Jason Scott and Madelene Pearson

Feb. 11 (Bloomberg) -- Commodity prices, down 62 percent from last year’s record, have probably bottomed as mining companies cut production and stockpiles decrease, said Colin Barnett, premier of Western Australia state.

“There’s some evidence that volume is starting to increase again and prices are starting to edge up,” Barnett, 58, said in an interview in Perth. The state produces 15 percent of the world’s iron ore and nickel, and 10 percent of its gold, he said.

Western Australia accounts for more than half of the nation’s exports to China, where the government’s 4 trillion yuan ($585 billion) spending plan is boosting demand for steel and iron ore. Developing Asian economies will probably expand 5.5 percent this year, according to the International Monetary Fund, as the U.S., Japan and the euro zone combat the first simultaneous recessions since World War II.

“China will lead Western Australia out of this because they still need the resources we’ve got,” said Peter Kenyon, professor of economic policy at Curtin University’s Graduate School of Business. “Whether it’s one year or three, it’s too early to call. The premier’s comments sound pretty optimistic.”

Barnett’s forecast tallies with a prediction from investor Jim Rogers, who has said supply cutbacks will pave the way for a rebound in prices. The supply of everything is going to be in “even worse shape coming out of this,” Rogers said in December.

China’s Stimulus

China, which buys more than 50 percent of Australia’s iron ore exports, has cut the key lending rate five times since September to help boost the world’s third-largest economy. The benchmark stock index climbed to a four-month high on Feb. 9, making the nation’s stocks the world’s best performers this year.

“Asia will continue to grow,” said Barnett, a former resources minister in the state. “The fundamentals of Asia haven’t changed and the Western Australian economy” is heavily entwined with the region, he said yesterday.

The Baltic Dry Index, a measure of commodity-shipping costs has more than doubled this year. Iron ore is recovering from a three-year low, with prices for immediate delivery to China adding 33 percent since October to $84.50 a metric ton.

Raw material prices, measured by the Standard & Poor’s GSCI Index of 24 commodities, plunged from a high reached on July 3 as the global economy slowed. That slump has already taken a toll on Western Australia’s economy as BHP Billiton Ltd., the world’s biggest mining company, closed its $2.2 billion Ravensthorpe nickel mine in the state last month.

Rio Tinto Group, the world’s third-largest miner, halted iron ore mines in the state over Christmas, slashing targeted output 10 percent last year. It may slow or defer $3.9 billion of iron ore expansions in Western Australia, according to UBS AG.

‘Bad News’

“There’s probably been the loss of about 5,000 to 6,000 jobs in the mining industry” in Western Australia, Barnett said. “Most of the bad news for Western Australia will be in the first half of this year. Unemployment will edge up, but remain significantly below the national average.”

There are also signs that the decline in the Australian dollar, which fell 28 percent against the U.S. currency in the past 12 months, will boost investment, Barnett said.

A “small but steady procession of companies looking at major new projects or expansions” has been evident in the past few weeks as the slump in the Australian dollar and commodity prices eases construction and wage costs for companies working in U.S. dollars, he said, without identifying anyone.

The Australian dollar “is a bit low,” he said. “I don’t want it to go higher but I think its true value is 70 to 75 cents because people are undervaluing commodities.” The currency traded at 66.85 U.S. cents Feb. 10.

Western Australia provides more than a third of Australia’s exports to Japan and more than half of those to China, the country’s top two customers, Barnett said.

To contact the reporters on this story: Jason Scott in Perth at Jscott14@bloomberg.net; Madelene Pearson in Melbourne on mpearson1@bloomberg.net

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West Australia Premier to Meet Inpex in Japan on Gas Plant Site

By Jason Scott and Madelene Pearson

Feb. 11 (Bloomberg) -- Western Australia’s Premier Colin Barnett will meet Inpex Corp., Japan’s largest oil explorer, next week in a bid to win back a proposed $20 billion liquefied natural gas project from the neighboring Northern Territory.

“I’m trying to encourage Inpex to have a rethink,” Barnett said in an interview. “I’m going to Japan next week.”

Inpex picked Darwin to build the plant as Western Australia didn’t have a site, and the Japanese company’s proposal of the Maret Islands off the state drew opposition from environmental groups. Inpex and partner Total SA will decide whether to build the Ichthys project late in 2009 or early 2010.

The plant in Darwin would be about 800 kilometers (500 miles) from the offshore gas site. Barnett in December announced plans to build a liquefied natural gas production hub at James Price Point, less than half that distance, in the state’s far northwest Kimberley region.

“We believe they would save in the order of A$1 billion by bringing their LNG to James Price Point rather than Darwin,” Barnett said in Perth yesterday.

To contact the reporter on this story: Jason Scott in Perth at Jscott14@bloomberg.net; To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net

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Qatargas 4 LNG Start Up Delayed By at Least One Year, BASF Says

By Ayesha Daya

Feb. 11 (Bloomberg) -- Qatar, the world’s biggest exporter of liquefied natural gas, and Royal Dutch Shell Plc, will probably delay the start of their Qatargas 4 LNG project by at least a year until 2011, an official working on the project said.

“Qatargas 4 won’t be ready before 2011 or 2012,” Nawid Kashani-Shirazi, senior process manager of gas treatment at BASF SE, which is handling process technology licensing for parts of the plant, said in an interview in Abu Dhabi yesterday.

Qatar is building a series of gas export facilities, the biggest of their kind, that are all suffering delays as the nation considers the demands on its gas fields and the cost of building complex projects simultaneously.

“Qatargas 2 has been in commissioning phase for the past two months, and the first drop of LNG is expected this month, and Qatargas 3 is planned to start sometime in the first half of next year,” Kashani-Shirazi said, while attending The Energy Exchange’s Gas Arabia conference.

State-run Qatar Petroleum is the majority shareholder in four projects operated by Qatargas Operating Co. in partnership with various foreign oil companies. The 7.8 million tons-a-year Qatargas 4 facility, in partnership with Shell, was expected to begin supplying LNG to the U.S., Europe, China and Dubai at the end of the decade, according to its owners.

The first project, Qatargas 1, has been in operation since 1996, consisting of three production units, or trains.

The next, Qatargas 2, is building two trains in partnership with Exxon Mobil Corp. and Total SA. It was scheduled to start in 2008 and faced contracting delays, Saad Sherida Al Kaabi, the head of gas ventures at state-owned Qatar Petroleum, said last month.

Labor, Equipment

A shortage of labor and equipment is stalling work. Shell’s nearby Pearl project, which is building a facility to turn gas into liquid fuels, employs 40,000 construction workers alone.

Qatargas 3, a venture between Qatar Petroleum and ConocoPhillips due to start late this year, was postponed to 2010 because of industry shortages, Ryan Lance, Conoco’s president of exploration and production, said last November.

Shell Chief Financial Officer Peter Voser said on a Jan. 29 conference call that Qatargas 4 was “within the kind of framework we have set ourselves, both in terms of budget and timing.”

“The schedule is broadly in line with the timings discussed at the time of launch in 2005,” Shell spokeswoman Kirsten Smart said by phone from The Hague yesterday when asked about Qatargas 4. “Supplies are expected to commence at the end of the decade.”

Qatar Petroleum officials couldn’t immediately be reached for comment by phone. BASF, the world’s largest chemical company, is based in Ludwigshafen, Germany.

To contact the reporter on this story: Ayesha Daya in Abu Dhabi at adaya1@bloomberg.net

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Reliance Power’s Plants Face Delay as Credit Crunch Slows Loans

By Archana Chaudhary

Feb. 11 (Bloomberg) -- Reliance Power Ltd., the utility that sold shares in India’s biggest initial public offering last year, may face delays in building its largest coal-fired plants as the global credit crunch holds up loan approvals.

“The lead time for getting loans has increased,” Chief Executive Officer Jayarama Chalasani said by telephone in Mumbai.

The Mumbai-based company is 25 billion rupees short of the 145 billion rupees ($3 billion) it needs to borrow for its first 4,000 megawatt plant at Sasan in central India, Chalasani said in an interview. Reliance Power expects to raise funds for a similar plant at Krishnapatnam in the south by June, he said.

Reliance Power, controlled by billionaire Anil Ambani, sought to borrow $4 billion overseas for the projects by December and was forced to seek rupee loans instead after banks led by Standard Chartered Plc asked for more time to study proposals. A dispute over the supply of natural gas has stalled the utility’s largest plant in northern India and contributed to the 56 percent slump in its shares since they started trading a year earlier.

“The delay in raising funds may hurt Sasan’s completion schedule,” said Abhineet Anand, Mumbai-based analyst at Antique Broking Ltd. “The timing of raising funds is key to Sasan and other large Indian power projects.”

The company, which is yet to start producing power, has borrowed 120 billion rupees for Sasan from a group of 12 banks led by the State Bank of India and expects to get the rest by the end of this month, Chalasani said. Work on the plant in Madhya Pradesh state has already started to ensure that loan delays don’t affect the completion schedule, he said.

Overseas Loans

The rupee debt will be repaid when the company secures dollar-denominated loans from overseas banks, the CEO said. Reliance Power has appointed Standard Chartered as lead banker and China Development Bank Corp. for the overseas borrowings.

The overseas loan for Sasan was delayed because it is “the largest to be raised on a project-finance basis,” Chalasani said yesterday. “Banks, therefore, need more time to examine the expense side of the business including mining technology and capital and operating expenses. This is much more complicated and is completely different from financing any other power project.”

He declined to give a timeline for obtaining overseas loans.

The first phase of the Sasan project is scheduled to be completed by December 2011 and the second by March 2013. The Krishnapatnam plant in Andhra Pradesh is due to start in 2013.

The company was the lowest bidder for a similar-sized project at Tilaiya in the eastern state of Jharkhand, which is yet to be awarded by the federal Power Ministry. Each project may cost as much as 200 billion rupees, Chairman Ambani said Sept. 23.

Ultra Mega Projects

The three coal-fired plants are among the 12 so-called ultra mega power projects that the government is auctioning to help increase India’s generation capacity by 33 percent.

Reliance Power spent 26.86 billion rupees from the proceeds of last year’s share sale on the Sasan and Krishnapatnam plants and on other smaller projects as of Dec. 31, the company said in a Jan. 22 statement to the Bombay Stock Exchange.

“They will have to ensure that fund raising shouldn’t disturb project schedules,” said Mahesh Patil, who helps manage an equivalent of $8.8 billion at Birla Sunlife Asset Management in Mumbai.

Reliance Power’s 7,480-megawatt, gas-fired station at Dadri in Uttar Pradesh has been stalled because of a gas-supply dispute with Reliance Industries Ltd., India’s biggest company by market value, controlled by Anil Ambani’s estranged brother, Mukesh.

Gas Dispute

The dispute arose after the brothers split the Reliance group in 2005 following a family feud. Reliance Industries, an energy explorer and oil refiner, sought prices higher than contracted levels for gas to be sold to Reliance Natural Resources Ltd., which is controlled by Anil Ambani and procures fuel for his group’s power projects.

The Bombay High Court, which banned gas sales from Reliance Industries’ field in June 2007, temporarily lifted the restriction on Jan. 30. The fuel can now be supplied to customers other than Reliance Natural and state-owned NTPC Ltd.

Reliance Power raised $3 billion in India’s biggest share sale in February last year to help fund its $28 billion plan to build power plants. The company will install 28,200 megawatts, or 19 percent of India’s current capacity, in five years, according to proposals announced during the share sale.

The IPO attracted $189 billion of bids and shares were sold at as much as 450 rupees apiece. The stock fell as much as 21 percent on its Feb. 11 trading debut, prompting Reliance Power to give investors free shares to compensate them for the loss.

Investors got three free shares for every five held on May 30. The bonus issue reduced the cost of acquiring Reliance Power shares to 269 rupees for individual investors, 40 percent lower than the IPO price of 430 rupees. For large shareholders, who paid 450 rupees a share, the rate fell to 281 rupees a share.

No free shares were given to Ambani or the founder group. The stock closed at 103.25 rupees in Mumbai yesterday.

To contact the reporter on this story: Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net.

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Australia Dollar to Benefit on Yen Drop, China Rally, BNP Says

By Candice Zachariahs

Feb. 11 (Bloomberg) -- The Australian dollar should “benefit most” as the yen is set to weaken and China’s economy may be heading for an early rebound, BNP Paribas SA said.

Japan’s economy may have shrunk 12 percent in the fourth quarter, France’s largest bank said yesterday in a note to clients. China’s money supply grew 18.4 percent in January, according to a Bloomberg News survey of economists, aiding government efforts to boost growth.

“The trigger of the anticipated yen decline may well be related to Japan being at risk of moving into a depression,” foreign-exchange analysts led by London-based Hans-Guenter Redeker wrote in a report. “If we are correct in our interpretation concerning Japan and China, the Australian dollar should benefit most.”

Australia’s currency fell 1.5 percent to 65.82 U.S. cents as of 11:35 a.m. in Sydney from 66.85 cents late in Asia yesterday. It has slumped 5 percent this year.

The Australian dollar dropped 21 percent in 2008 as commodity prices fell and investors unwound so-called carry trades, where borrowings in low-cost countries such as Japan are invested in higher-yielding assets. Raw materials account for 60 percent of Australia’s exports and benchmark interest rates are at 3.25 percent, compared with 0.1 percent in Japan.

The yen may also slide as Japan buys its own currency ahead of the financial year-end in March to aid businesses hurt by the yen’s 22 percent advance against the greenback over the past six months, the bank said.

“Given the yen long positioning, the impact on yen crosses may be quite significant,” BNP analysts said. A long position is a bet an asset will gain.

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

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Asian Currencies Decline, Led by Korean Won, on Risk Aversion

By Judy Chen

Feb. 11 (Bloomberg) -- Asian currencies declined, led by South Korea’s won, on speculation that the U.S. bank rescue plan will fail to end the global financial crisis, sapping demand for emerging-market investments.

The Malaysian ringgit, the Philippine peso and the Taiwan dollar also dropped against the greenback after the Standard & Poor’s 500 Index of U.S. equities slipped by the most in three weeks. The Korean currency weakened to the lowest in two months, extending this year’s loss to 10 percent, as the Kospi index tumbled 2.6 percent.

“Asian currencies will be under pressure against the U.S. dollar given a sharp increase in safe-haven demand following the disappointment in the equity market,” said Sean Callow, a Sydney-based currency strategist at Westpac Banking Corp., Australia’s biggest lender by market value.

The won slid as much as 2.6 percent to 1,420, the weakest since Dec. 10, before trading at 1,399.10 per dollar as of 10:03 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. The Malaysia ringgit dropped 0.6 percent to 3.6098. The Philippine peso declined 0.3 percent to 47.025 and the Taiwan dollar fell 0.1 percent to 34.035.

The S&P 500 Index dropped 4.9 percent as investors expressed concern about a lack of specifics on plans for addressing the distressed assets choking banks’ balance sheets.

Malaysian Ringgit

The Malaysian ringgit headed for the biggest drop in three weeks as economists forecast manufacturers idled more factories as exports extended a slump into December because economies contracted in Singapore, the U.S. and Japan.

Industrial production fell for a fourth month in December by 10.7 percent from a year earlier, the most since at least 2002, according to a Bloomberg News survey before a statistics department report at 12:01 p.m. in Kuala Lumpur today.

The trade ministry may say tomorrow exports declined for a third month by 9 percent in December, the biggest drop since February 2002, a separate survey showed.

“The weakness in production is the slump in external demand and we don’t expect demand in the U.S. to come back until the fourth quarter,” said Nikhilesh Bhattacharyya, an economist in Sydney at Moody’s Economy.com. “Emerging-market currencies can still depreciate until we see some kind of traction in economic recovery.”

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

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Australian, New Zealand Dollars Slide on U.S. Rescue Concerns

By Candice Zachariahs

Feb. 11 (Bloomberg) -- The Australian and New Zealand dollars slumped the most in a month against the Japanese yen as U.S. equities slid, damping demand for higher-yielding assets.

The currencies fell versus the U.S. dollar after Treasury Secretary Timothy Geithner pledged government financing for as much as $2 trillion of efforts to spur new lending. Australian consumer confidence slumped in February, a report showed today.

“There’s broad brush strokes and good-feeling words, but the reality that you need a plan like this is not good for markets and not good for holding risk,” said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. The Australian dollar will find support at 64.70 U.S. cents and New Zealand’s at 51.69 cents, he said.

Australia’s currency slid for a second day, falling 1.7 percent to 65.71 U.S. cents as of 10:40 a.m. in Sydney from 66.85 cents late in Asia yesterday. The currency declined as much as 4.1 percent to 58.46 yen, the biggest drop since Jan. 8, before trading at 59.40 yen.

New Zealand’s dollar slipped 2.1 percent to 52.40 U.S. cents from 53.51 in Asia yesterday. It bought 47.37 yen from 48.82.

Currency movements in Asia may be volatile as a national holiday in Japan reduces liquidity, Sinton said.

The Standard & Poor’s 500 Index dropped the most since President Barack Obama’s inauguration on concern the plan won’t stop an extended recession in the world’s largest economy.

Benchmark interest rates of 3.25 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. attract investors to the South Pacific nations’ assets. The risk in such trades is that currency market moves will erase profits.

Australian Sentiment

A sentiment index in Australia declined 4.6 percent to 85.8 points, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Feb. 2 and Feb. 8 and released today in Sydney. The index has held below 100 since February 2008, indicating pessimists outnumber optimists, as rising unemployment and falling property prices sap household confidence.

Reserve Bank of Australia Governor Glenn Stevens yesterday said a worldwide retreat from risk-taking would be “even more damaging than what we have seen to date,” in a speech in Kuala Lumpur, Malaysia. “The problem in the next couple of years will not be too many cross-border capital flows, but too few; not too much risk-taking, but too little,” he said.

The RBA lowered borrowing costs to a 45-year low this month in an effort to boost domestic demand while the Australian government announced a A$42 billion ($28 billion) stimulus package.

Bond Sales

Australia sold A$601 million of 2013 bonds at a weighted average yield of 3.46 percent today in the second auction of its expanded borrowing program to raise as much as A$24 billion in five months.

Buyers bid for 2.6 times the amount offered in the sale of 6.5 percent bonds, the Australian Office of Financial Management said today. That matched the so-called bid-to-cover ratio at the Feb. 6 sale of April 2015 securities.

Australian government bonds rose for a third day with the yield on the 10-year note falling six basis points, or 0.06 percentage point, to 4.28 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 advanced 0.496, or A$4.96 per A$1,000 face amount, to 107.885.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.36 percent from 3.48 yesterday.

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

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Dollar, Yen Gain a Second Day on Concern U.S. Plan Will Fail

By Ron Harui

Feb. 11 (Bloomberg) -- The dollar and the yen rose for a second day against the euro on speculation the U.S. government’s bank rescue plan will fail to revive lending, boosting demand for the two currencies as a haven.

The yen gained versus South Korea’s won and Sweden’s krona on the prospect investors will sell higher-yielding assets after Treasury Secretary Timothy Geithner pledged as much as $2 trillion in financing without providing details on how he will help banks cope with toxic assets. The euro also fell before a report tomorrow that may show European industrial production fell the most in almost 23 years.

“The plan is not the quick fix investors were hoping for, so there’s obvious disappointment,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Risk aversion will probably spur them to seek the relative safety of the dollar and the yen in the near term.”

The dollar rose to $1.2874 per euro as of 10:55 a.m. in Singapore, after gaining 0.7 percent yesterday. The yen climbed to 116.32 per euro after appreciating 1.8 percent, the first advance in four days. Japan’s currency traded at 90.35 per dollar from 90.47.

Trading may be subdued today because of a public holiday in Japan, Hampton said.

The yen advanced 0.9 percent to 15.42456 against the won and strengthened 0.5 percent to 10.916 versus the krona. Japan’s benchmark interest rate of 0.1 percent compares with 2.5 percent in South Korea and 2 percent in Sweden, encouraging investors to borrow in yen and invest in assets elsewhere.

Stocks Fall

Asian stocks fell for a second day, with the MSCI Asia- Pacific excluding Japan Index tumbling 2.4 percent. U.S. shares slid yesterday as the Standard & Poor’s 500 Index lost 4.9 percent, the most since President Barack Obama was inaugurated, on concern the government’s bank rescue won’t work.

Implied volatility on one-month euro-yen options rose to 26.3 percent from 26.2 percent, indicating the risk remains high of exchange-rate fluctuations that can erode profit on so-called carry trades. The level was 13.9 percent a year ago.

The U.S. Treasury is creating a Public-Private Investment fund, with an initial capacity of $500 billion that may grow to $1 trillion, to provide financing for private investors to buy distressed securities, Geithner said in Washington yesterday.

The pound weakened versus 10 of the 16 most-active currencies today. Sterling declined 0.2 percent to $1.4511, and dropped 0.3 percent to 131.17 yen.

Gains Reversed

“A number of currencies have benefited in recent days from anticipation that a bad bank structure would put a floor under U.S. asset prices,” Daniel Katzive, a senior currency strategist in New York at Credit Suisse Group, wrote in a research note yesterday. “A primary beneficiary of bad bank anticipation has been the British pound, and the lack of a convincing plan at this time should result in a reversal of recent pound gains.”

The U.S. Senate voted 61-37 to approve a separate $838 billion economic stimulus package yesterday, clearing the way for negotiations with the House over a compromise plan lawmakers said they want to send to President Barack Obama quickly.

The euro declined on speculation industrial output in the region dropped by the most since January 1986 when Bloomberg began compiling the data, backing the case for the European Central Bank to cut interest rates.

‘Weakening Trend’

“Growth conditions will remain in a clear weakening trend,” Ashley Davies, a currency strategist in Singapore at UBS AG, the world’s second-largest foreign-exchange trader, wrote in a research note today. “We remain of the view that the single currency will remain in a broad downtrend, in particular versus the dollar.”

The European Union’s statistics office may say tomorrow that industrial production fell 9.5 percent in December from a year earlier, after a 7.7 percent decline in November, according to a Bloomberg News survey of economists.

Investors added to bets the ECB will lower borrowing costs from 2 percent at its March 5 meeting. The yield on the three- month Euribor interest rate futures contract due in March fell to 1.745 percent yesterday from 1.855 percent a week earlier.

The euro weakened versus 13 of the 16 major currencies on concern the financial turmoil in Europe will worsen. Poland may introduce as early as next month a regulation canceling some currency option transactions, Economy Ministry Waldemar Pawlak said in Warsaw yesterday.

Polish companies lost on contracts designed to protect them from a strengthening zloty, when expectations of convergence with the euro reversed last year because of a slump in the economy. Regulators almost tripled their estimate of companies’ potential losses to as much as 15 billion zloty ($4.34 billion).

“There is talk of various issues” in Poland, said John Horner, a currency strategist in Sydney at Deutsche Bank AG, the world’s biggest foreign-exchange trader. “The euro is likely to remain under some pressure.”

Poland’s zloty traded at 3.5299 against the dollar from 3.5255 yesterday, and was at 4.5499 per euro from 4.5525.

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

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West Australia May Allow GM Canola Production After Trials

By Madelene Pearson and Jason Scott

Feb. 11 (Bloomberg) -- Western Australia, the nation’s largest grain growing state, may start commercial production of genetically modified canola as long as trials are successful, state Premier Colin Barnett said.

The state approved its first commercial trials of so-called GM canola last year and will allow them to go ahead on 1,000 hectares (2,470 acres), involving 20 farms in 2009.

“If the trials are conducted successfully and show that you can stop contamination for those that want to remain GM-free, and I think that will be demonstrated that it can be done, then I would expect GM canola would be in production,” Barnett said in an interview in Perth. The likelihood of commercial scale development in the state is “very strong”, he said.

Australia, the world’s third-largest canola exporter, began growing GM canola in the most recent harvest after bans on the crop were lifted in Victoria and New South Wales. An easing of state bans on GM canola paves the way for Monsanto Co. and Bayer AG to expand seed sales.

The bulk of local farmers are supportive, Barnett said.

“There are some concerns and there will always be a group that will object to GM products,” he said. “West Australians are basically large farmers, broad-acre farmers, and to remain competitive they will need to use GM strains.”

To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net; Madelene Pearson in Melbourne on mpearson1@bloomberg.net

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Oil Rises as Stimulus Plan Passage May Lead to Fuel Demand Gain

By Christian Schmollinger

Feb. 11 (Bloomberg) -- Crude oil rose in New York, partly retracing yesterday’s 5.1 percent loss, as the U.S. Senate passed an economic stimulus plan, raising expectations for increases in fuel demand.

The Senate plan provides more than $500 billion in new spending that supporters call critical to preventing the world’s largest oil user from sinking deeper into a recession. Saudi Arabia, the biggest global producer, will more than double its spare capacity by mid-year, Oil Minister Ali al-Naimi said at a conference in Houston.

“There’s a lot of wishful thinking that this stimulus package is going to come to the rescue and that’s driven prices higher,” said Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne. “We’ve been seeing some big numbers in the past weeks on the inventories, around 6 or 7 million barrels, and I wouldn’t be surprised if we see something similar.”

Crude oil for March delivery rose as much as 67 cents, or 1.8 percent, to $38.22 a barrel on the New York Mercantile Exchange. It was at $37.89 a barrel at 11:10 a.m. Singapore time.

Yesterday, crude oil for March delivery fell $2.01 to $37.55 a barrel in New York, the lowest settlement since Jan. 16. It was the biggest drop since Jan. 27. Oil is down 15 percent this year and has declined 60 percent from a year ago.

Oil dropped yesterday on skepticism over the government’s plan to bailout banks and on expectations a report today will show inventories climbed.

The Senate approval clears the way for negotiations with the House over a compromise plan that President Barack Obama wants lawmakers to send to him within days. Only three Republicans voted for the plan and divisions remain on the package’s size.

Saudi Capacity

The new capacity will come from the kingdom’s Khurais project, which will bring on stream 1.2 million barrels a day of oil, more than the production of OPEC nations Qatar or Ecuador, al-Naimi told the Cambridge Energy Research Associates conference in Houston late yesterday.

“The most powerful tool we have for achieving a balanced market is our maintenance of spare production capacity,” he said. “Such capacity has helped to counter market volatility.”

Khurais, with a reserve of 27 billion barrels, began producing in the 1960s and was mothballed by Saudi Aramco in the early 1990s, Amin al-Nasser, senior vice president of exploration and production at Saudi Aramco, said last year. It is a satellite of the Ghawar field, the world’s biggest.

Oil prices, which soared as high as $147.27 a barrel on the New York Mercantile Exchange in July, were “unsustainable,” al- Naimi said. He blamed the rally in part on market speculators. From a fundamental standpoint, prices will be “just as unsustainable” at current low levels as they were at the “stratospherically high levels experienced last year,” he said.

API Supplies

The industry-funded American Petroleum Institute reported that U.S. supplies declined 2 million barrels to 344.3 million last week. The API published its weekly report on oil inventories at 4:30 p.m. in Washington yesterday.

Energy Department figures, to be released at 10:30 a.m. in Washington today, may show that crude-oil stockpiles increased 2.75 million barrels in the week ended Feb. 6 from 346.1 million the week before, according to the median of 14 analyst estimates. It would be the 18th gain in 20 weeks. All of the analysts said supplies rose.

Gasoline stockpiles gained 500,000 barrels from 220.2 million, according to the survey. Supplies of distillate fuel, a category that includes heating oil and diesel, probably fell 1.5 million barrels from 142.6 million.

Brent crude oil for March settlement climbed as much as 50 cents, or 1.1 percent, to $45.11 a barrel on London’s ICE Futures Europe exchange. It was at $44.73 at 11:08 a.m. Singapore time.

The contract yesterday fell $1.41, or 3.1 percent, to end the session at $44.61 a barrel. Brent futures closed at a $7.06 premium to West Texas Intermediate, the grade that’s traded in New York.

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

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Hamon Investment Group Buys Stake in H.K. Fund Manager Doric

By Bei Hu

Feb. 11 (Bloomberg) -- Hamon Investment Group, an Asia- focused money manager minority-owned by Bank of New York Mellon Corp., bought a stake in Hong Kong-based hedge fund manager Doric Capital Corp.

Doric managing director Howard Wong, Rajesh Ranganathan and Jeff Liu formed an “equal partnership” with Hamon after a management buyout, Hong Kong-based Doric said in an e-mailed statement late yesterday. Hamon, also located in Hong Kong, injected new capital into Doric, said the statement.

Asian hedge fund managers are seeking alliances with larger institutions after tumbling markets triggered the industry’s worst return in history last year, led investor to withdraw money and slowed new fundraising.

The Eurekahedge Asian Hedge Fund Index retreated 21 percent last year, the first annual loss since records began in 2000. Assets managed by Asian hedge funds shrank 36 percent, according to Chicago-based Hedge Fund Research Inc.

The partnership with Hamon would allow Doric to reach out to “a much broader client base,” Wong said in the statement. Wong was not immediately available for comment today.

Hamon will help develop the strategic direction of Doric and its marketing, the statement said. Wong will take charge of the fund manager’s day-to-day operations and investment with Ranganathan and Liu, it added.

Michael Nock, who founded Doric in 1999, is retiring from the company, though will retain a stake in the firm, stay on its board as a non-executive director and act as an adviser, the statement said.

Doric manages the Doric Focus Fund and Doric Asia-Pacific Small Cap Fund, the statement said. It managed $400 million in March 2008, it said in a statement then. A more updated figure was not immediately available.

Hamon was established in 1989 and focuses on trading stocks in Asia. It is majority-owned by its management. Bank of New York Mellon bought a minority stake in 1998, according to Hamon’s Web site.

To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net

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Hong Kong Stocks Fall, Halting Five-Day Advance; HSBC Declines

By Hanny Wan

Feb. 11 (Bloomberg) -- Hong Kong stocks fell for the first time in six days, led by financial shares, on concern a plan to revive the economy by U.S. President Barack Obama may fail to ease the recession.

HSBC Holdings Plc, Europe’s biggest bank, retreated 3.8 percent after U.S. Treasury Secretary Timothy Geithner said the recovery plan will “take time” to bear fruit. Hang Lung Properties Ltd. dropped for a second day after reporting yesterday its first decline in semi-annual profit in three years. Chairman Ronnie Chan told Bloomberg today the company plans to invest HK$13 billion ($1.68 billion) on projects in China in the next three years. Cnooc Ltd., China’s biggest offshore oil producer, slipped 2.9 percent after crude oil prices dropped yesterday to the lowest settlement since Jan. 16.

The Hang Seng Index lost 321.28, or 2.3 percent, to 13,559.36 as of 10:13 a.m. local time, halting a five-day, 8.6 percent advance.

The Hang Seng China Enterprise Index, which tracks so-called H-shares, lost 2.5 percent to 7,617.99.

To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net

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Australian Stocks Drop on Concern U.S. Plan Won’t Ease Crisis

By Shani Raja

Feb. 11 (Bloomberg) -- Australian stocks fell, led by banks and commodity producers, on concern U.S. President Barack Obama’s plan to revive the economy and financial system may not be enough to stem the global recession.

National Australia Bank Ltd., the nation’s biggest by assets, dropped 1.3 percent, following U.S. banks lower after U.S. Treasury Secretary Timothy Geithner said the recovery plan, including limits on bank dividends and acquisitions, will “take time” to bear fruit. BHP Billiton Ltd., the world’s largest mining company, slid 2.7 percent as oil and metals prices plunged.

“It’s almost as if the market seems to be unhappy with any solution that doesn’t involve full nationalization of the banks,” said San Francisco-based Robert Horrocks, who helps manage about $4.7 billion at Matthews International Capital Management LLC. “You’re starting to see some life in the credit markets, but most of the leading indicators are still pointing downwards.”

The S&P/ASX 200 Index lost 1.1 percent to 3,450.20 as of 12:14 p.m. in Sydney, erasing gains earlier in the week. The index has declined 7.3 percent this year after tumbling 41 percent in 2008, the biggest annual drop in its history dating back to 1992, as the credit crisis tipped the world’s biggest economies into recession.

U.S. stocks fell yesterday, sending the Standard & Poor’s 500 Index to its biggest decline since Obama’s inauguration, while Treasuries rallied and the dollar rose on skepticism the government’s bank rescue will work. The S&P 500 Financials index in the U.S. declined the most among 10 industries, while futures on the index added 0.2 percent today.

Too Little

Geithner pledged as much as $2 trillion in government financing for programs aimed at spurring new lending and addressing banks’ toxic assets.

National Australia Bank fell 1.3 percent to A$18.51. Australia & New Zealand Banking Group Ltd., Australia’s fourth biggest lender, dropped 2.3 percent to A$12.16.

“What’s bad for the market is there’s no silver bullet,” said Robert Harrington, managing director for equity trading at UBS AG in Stamford, Connecticut. “We’re in uncharted waters and we’re trying to take steps to help the process, but there’s no guarantee as to how well it will work.”

Metals Slump

BHP declined 2.7 percent to A$32.46 after a measure of six primary metals traded in London dropped 3.3 percent. Copper fell 2.7 percent, zinc 2.4 percent and nickel 6.1 percent. Woodside Petroleum Ltd., Australia’s second-largest oil and gas producer, lost 1.9 percent to A$31.76 as crude oil fell to a three-week low, slumping 5.1 percent to $37.55 a barrel yesterday in New York. Crude traded at $37.99 a barrel as of 12:45 p.m. Sydney time.

PMP Ltd., Australia’s biggest contract printer, tumbled 15 percent to 33 cents after reporting a first-half loss of A$11 million ($7.2 million) and failing to declare a dividend.

Computershare Ltd., the world’s biggest share registrar, rallied 9.4 percent to A$7.13 after increasing its first-half dividend to 11 Australian cents, from 10 cents a year earlier. Net income fell to $130.9 million in the six months ended Dec. 31 from $154.9 million a year earlier, the Melbourne-based company said in a statement.

The following companies were among those that had unusual price changes today on the Australian stock exchange.

Emeco Holdings Ltd. (EHL AU), an Australian mining services company, soared 31 percent to 27.5 cents, a record gain. Emeco said it expects to report record net profit for the six months ending December, and that it remains well capitalized.

Lynas Corp. (LYC AU), an Australian miner of minerals used in iPod music players and liquid crystal displays, plunged 6.3 percent to 15 cents, the lowest since December 2005. The shares tumbled a record 40 percent yesterday after the company said it’s proposing to suspend work on its Rare Earths project as a result of “uncertainty” over funding.

Rio Tinto Group (RIO AU), the world’s third-largest mining company, gained 1.5 percent to A$49.70. Aluminum Corp. of China, the nation’s biggest producer of the metal, may invest as much as $20 billion in Rio to gain more access to commodities, a person with knowledge of the matter said.

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

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Asian Stocks Drop on Concern Obama Bank Plan Won’t Ease Crisis

By Jonathan Burgos and Shani Raja

Feb. 11 (Bloomberg) -- Asian stocks fell, led by banks and commodity companies, on concern U.S. President Barack Obama’s plan to revive the economy and financial system may not be enough to ease the recession.

National Australia Bank Ltd., the nation’s biggest by assets, lost 1.3 percent, after U.S. Treasury Secretary Timothy Geithner said the recovery plan will “take time” to bear fruit. BHP Billiton Ltd., the world’s largest mining company, fell 2.8 percent in Sydney on concern commodity demand will drop. Neptune Orient Lines Ltd., Southeast Asia’s biggest container carrier, slumped 3.2 percent in Singapore after forecasting a loss.

“It’s almost as if the market seems to be unhappy with any solution that doesn’t involve full nationalization of the banks,” said San Francisco-based Robert Horrocks, who helps manage about $4.7 billion including Asian equities at Matthews International Capital Management LLC. “You’re starting to see some life in the credit markets, but most of the leading indicators are still pointing downwards.”

The MSCI Asia Pacific Index that excludes Japan fell 2 percent to 232.20 at 9:51 a.m. in Singapore. The gauge that includes Japan has fallen 7.6 percent this year, extending 2008’s record 43 percent decline as the world’s biggest economies sank into recession.

Japan’s stock market, the world’s second largest, is closed today for a holiday. All other markets open for trading dropped, led by a 1.3 percent drop in South Korea’s Kospi Index. The S&P/ASX 200 Index lost 0.8 percent.

Rio Tinto Ltd., BHP’s smaller rival, rose 2.3 percent on speculation Aluminum Corp. of China, the nation’s biggest producer of the metal, may invest as much as to $20 billion.

Falling Demand

U.S. stocks fell yesterday, sending the Standard & Poor’s 500 Index to its biggest decline since Obama’s inauguration, while Treasuries rallied and the dollar rose on skepticism that the government’s bank rescue will work. Futures on the S&P 500 added 0.4 percent today.

Treasury Secretary Timothy Geithner pledged up to $2 trillion in government financing for programs aimed at spurring new lending and addressing banks’ toxic assets. The plan includes limits on bank dividends and acquisitions.

National Australia Bank fell 1.3 percent to A$18.50 after a report showed Australian consumer confidence slumped in February as rising unemployment and falling property prices eroded households’ view of the economic outlook for the next 12 months. Australia New Zealand Banking Group Ltd., Australia’s fourth- biggest lender, slipped 2.1 percent to A$12.19.

BHP Billiton slid 2.8 percent to A$32.42 as metal and oil prices fell in New York, with copper sliding 1.6 percent and crude oil slumping 5.1 percent. Oil futures rose 1.2 percent to $38 a barrel in after-hours trading.

Rio Investment?

Samsung Electronics Co., the world’s No. 1 memory-chip maker, fell 1.2 percent to 514,000 won in Seoul. The stock paced declines among technology companies amid concern demand for computer components and consumer electronics products made in Asia will decline.

Hyundai Motor Co., the biggest South Korean carmaker, dropped 1.7 percent to 50,700 won in Seoul. The stock was cut to “equal-weight” from “overweight” at Morgan Stanley, which said access to auto financing in the country remains difficult.

Neptune slumped 3.2 percent to S$1.20 after forecasting a fourth-quarter loss as the global recession damps demand for transporting Asian-made goods.

Rio Tinto rose 2.3 percent to A$50.09. Aluminium Corp. of China is in talks to buy bonds that will convert into Rio shares and purchase stakes in Rio mines, a person with knowledge of the matter told Bloomberg News. An announcement is planned for Feb. 12 when Rio publishes its annual earnings, the person said.

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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