Oil From Canada’s Tar Sands Can Be Made ‘Clean,’ Obama Says

By Jim Efstathiou Jr.

Feb. 18 (Bloomberg) -- Oil extracted from tar sands in Canada can be made a clean energy source, and the U.S. will work with its northern neighbor to develop the technology, President Barack Obama said.

A joint effort by the U.S. and Canada, its biggest trading partner, on ways to capture and store carbon dioxide underground would “be good for everybody,” Obama said yesterday in an interview with the Canadian Broadcasting Corp. Obama will make his first journey as president outside the U.S. tomorrow to meet with Canadian Prime Minister Stephen Harper.

Conservationists on both sides of the border have called on Obama to reject any bid to exempt tar-sands oil from proposed climate-protection rules. Government officials in Canada say restrictions on oil-sands exports would increase U.S. dependence on oil from unfriendly countries. The oil is separated from sand and clay with intense heat in a process that releases more greenhouse gases than pumping conventional crude.

“The United States is the Saudi Arabia of coal, but we have our own homegrown problems in terms of dealing with a cheap energy source that creates a big carbon footprint,” said Obama, who has backed “clean-coal” technology in the U.S. over skepticism about its prospects from environmentalists such as former Vice President Al Gore.

Reducing greenhouse-gas emissions from energy sources such as coal and oil sands will promote economic growth in both countries, Obama said.

‘Ceiling’ on Growth

“If we don’t, then we’re going to have a ceiling at some point in terms of our ability to expand our economies and maintain the standard of living that’s so important, particularly when you’ve got countries like China and India that are obviously interested in catching up,” the president said.

The U.S. imported about 780,000 barrels a day of tar-sands oil in 2008, 60 percent of total production, according to the Canadian Association of Petroleum Producers. Petro-Canada, the country’s third-largest oil company, and other producers expect to more than double industry output to 3.3 million barrels a day by 2020.

Alberta’s oil sands may hold the equivalent of 173 billion barrels, enough to supply the U.S. for 24 years, according to some government estimates. Only Saudi Arabia, the biggest producer in the Organization of Petroleum Exporting Countries, has more reserves.

“Canada’s energy industry is willing to invest money, technology, know-how and time in this effort, but we really can’t do it alone,” Petro-Canada Chief Executive Officer Ronald Brenneman told reporters last week in New York. “It will take the combined efforts of the industry, government, regulators and consumers.”

Environment Minister

Canadian Environment Minister Jim Prentice has said Canada and the U.S. should work together to develop systems to capture and sequester underground carbon-dioxide emissions. The total “life- cycle” of emissions released, all the way to filling a car’s tank with gasoline, are 20 percent more than conventional oil, the Rand Corp. research organization of Santa Monica, California, said in a 2008 report.

Carbon capture would help “transition from a high-carbon present to a low-carbon future while avoiding a disruptive and dislocative period,” Prentice said on Jan. 20.

Obama backs slashing emissions of heat-trapping gases to 1990 levels. The new president will have to square his environmental agenda with his call to trim dependence on oil supplies from the Mideast and with the U.S.’s longstanding policy to treat Canada as a commercial and strategic ally.

“Would I rather rely on Canada for my energy security or would I rather rely on Hugo Chavez?” Gordon Giffin, U.S. ambassador to Canada during President Bill Clinton’s second term, said in an interview, referring to Venezuela’s president. “What Canada is saying to the United States is we now believe that we ought to be developing a North American approach to energy and to the environment. Our energy issues are not identically connected, but they’re logically connected.”

To contact the reporter on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net

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Woodside May Sell Assets, Seeks Debt to Fund Growth

By Angela Macdonald-Smith

Feb. 18 (Bloomberg) -- Woodside Petroleum Ltd., Australia’s second-largest oil and gas producer, may sell some assets and will take on more debt to help fund its expansion in liquefied natural gas.

Depending on the price of oil and on exchange rates, the company will need as much as $1.7 billion of “external additional funding” this year, Perth-based Woodside said today in a presentation. It reported record full-year profit of A$1.79 billion ($1.1 billion), matching analyst estimates.

Chief Executive Officer Don Voelte, 56, said in November 2009 capital spending may jump 33 percent to A$7.3 billion ($4.7 billion), mostly because of the construction of the Pluto LNG project in Western Australia. Oil prices have slumped more than 76 percent since reaching a record in July of $147.27 a barrel, prompting expectations by analysts including JPMorgan Chase & Co. the company may need to divest some fields or sell shares.

“Depending on what price they get, probably the most favored option is to sell down non-core assets and raise a bit of debt” to fund the investment program, said Mark Greenwood, a Sydney-based energy analyst at JPMorgan. The company’s interest in the Otway natural gas project off southeastern Australia is probably a candidate for sale, he said.

Woodside, 34 percent owned by Royal Dutch Shell Plc, gained 51 cents, or 1.6 percent, to A$32.91 in Sydney trading at 3:06 p.m. local time, after earlier falling as low as A$31.95. The gain compared with a drop of as much as 3.2 percent in the exchange’s benchmark energy index.

More Debt

The company signed loan agreements of $1.5 billion last year and agreed additional debt of $800 million in January. “Further debt facilities are under consideration,” Chief Financial Officer Mark Chatterji said today. The company has no plans for a share sale, he said.

Woodside will probably turn to the U.S. bond market for the debt, Greenwood said.

The company has also cut or deferred A$500 million of “non- critical” spending since November, and is considering “several hundred million dollars” of additional reductions, Chatterji said on a conference call. The cutbacks won’t slow progress on any of Woodside’s LNG development ventures or affect oil drilling plans in Western Australia, Voelte said.

All assets outside the company’s LNG-focused regions of Western Australia and the Timor Sea are under review for potential divestment, Voelte said, adding there will be no “fire sale.” None of the LNG assets, including Pluto and stakes in the Browse and Sunrise ventures, are for sale, he said.

Algeria, U.S.

Woodside has stakes in ventures in Algeria and Libya, and a business in the Gulf of Mexico, where exploration has been slowed, Voelte said. A dividend reinvestment plan will be maintained during the construction of Pluto to boost funds.

Full-year profit jumped 73 percent in the year ended Dec. 31 after prices and production rose, from A$1.03 billion, Woodside said in a separate statement to the exchange. The profit was within Woodside’s forecast last month of A$1.75 billion to A$1.8 billion.

Net income was cut by one-time charges of A$46 million, mostly for the suspension of an LNG import project in California. Before one-time items, profit gained 55 percent to A$1.83 billion. Sales rose 56 percent to A$5.99 billion on output that advanced 15 percent to 81.3 million barrels of oil equivalent.

Production Forecast

Woodside today maintained a forecast for production this year of between 81 million and 86 million barrels.

The start-up of the 90 percent-owned Pluto project, due in late 2010, will more than double Woodside’s production of LNG, demand for which may rise at 7 percent a year through 2020, the company estimates. An expansion of Pluto, for which Woodside has yet to secure gas supply, may start up in the first half of 2013, Voelte said. The company is also seeking to develop the Browse LNG project off the far northwest coast and the Sunrise venture in the Timor Sea.

Woodside expects to drill as many as 12 exploration wells this year, mostly in Australia, and also in Libya, the U.K., Sierra Leone and Brazil, it said.

Woodside increased its proven reserves by 8.2 percent last year to 1.33 billion barrels of oil equivalent, buoyed by a gain at Pluto and the acquisition of Shell’s North West Shelf oil assets, while gas reserves at Otway were revised lower. Proven and probable reserves edged up 0.9 percent to 1.7 billion barrels.

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

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Pakistan Petroleum Gas Output Plan Hurt by Rebels

By Naween A. Mangi and Khaleeq Ahmed

Feb. 18 (Bloomberg) -- Pakistan Petroleum Ltd., the nation’s biggest gas producer, said deteriorating security may jeopardize plans to increase output by as much as 30 percent over the next three years to plug a shortage of energy.

“I’m hungry to explore and I can afford it but it’s getting tougher,” Chief Executive Officer Khalid Rahman said in an interview at his Karachi office yesterday. “There has to be an environment where we can operate.”

An insurgency in the southwestern province of Baluchistan, home to half of Pakistan’s estimated gas reserves, impedes exploration and raises the cost of production. The inability to replace aging fields threatens to widen the nation’s gas deficit from 1 billion cubic feet a day, equivalent to 20 percent of total consumption.

Output from the company’s Sui gas field in Baluchistan, which accounts for a quarter of Pakistan’s total, is declining by as much as 5 percent a year, Rahman said. Gas production from Sui began in 1955.

“The company needs to be more aggressive in exploration,” said Hamad Aslam, a research analyst at BMA Capital Management Ltd. in Karachi. “The security situation is tricky and how much they can explore is largely dependent on security.”

Pakistan Petroleum shares rose 1 percent to 155 rupees at 9:46 a.m. local time, extending this year’s advance to 57 percent. Pakistan Petroleum is the second-best performer on the benchmark Karachi 100 Index after Fauji Fertilizer Co. The KSE 100 Index gained 0.6 percent.

Gas Reserves

Pakistan has estimated gas reserves of 200 trillion cubic feet, he said. About 100 trillion cubic feet may be in Baluchistan, which can’t be confirmed until the security situation improves, Aslam said.

China’s largest gas field, Sulige in the north, has reserves of 533.6 billion cubic meters (19 trillion cubic feet).

Baluch tribal chief Nawab Akbar Khan Bugti was killed by Pakistani security forces in August 2006 after he led the struggle for political autonomy and demanded a share of the province’s gas and mineral wealth. The government blamed Bugti for ordering attacks on gas pipelines and oil installations in Baluchistan, which borders Iran and Afghanistan.

Pakistan Petroleum’s net profit rose 49 percent to 13.8 billion rupees ($173 million) in the six months ended Dec. 31, driven by rising gas prices.

The price at which Pakistan Petroleum sells gas to the government was increased by as much as 40 percent on July 1, according to the Oil and Gas Regulatory Authority.

Increased Spending

Record profits at the company will fund an increase in exploration spending to as much as $130 million a day, from $60 million, said Rahman, 52, who took the helm in August after 17 years at the company.

The drop in Sui’s production will be partly compensated by higher output from the Manzalai area of the Tal block in the North West Frontier Province, Rahman said.

Production from Manzalai, with reserves of 1.3 trillion cubic feet, is scheduled to rise to 250 million cubic feet a day by June, from 39 million cubic feet, he said. Pakistan Petroleum owns 27 percent of the Tal block.

The gas producer, 78.4 percent owned by the government, is also in negotiations to acquire a small reserve to improve supplies, Rahman said. The acquisition is expected to be completed “very soon” he said, without providing details.

Exploration Licenses

Pakistan will invite bids for exploration licenses in 50 areas in a few months, Rahman said. Pakistan Petroleum plans to apply for licenses in at least nine areas.

The government simplified the process of awarding licenses to exploration companies as part of a policy aimed at boosting production. Regulators will process licenses within 60 days rather than 90 days, the petroleum ministry said last month.

The company may diversify into refining and power generation to increase revenue, Rahman said. Pakistan Petroleum produces 1 billion cubic feet of gas a day. That compares with an output of 1.55 billion cubic feet a day at Oil & Natural Gas Corp., India’s biggest exploration company.

Pakistan Petroleum is looking for opportunities in Africa, Central Asia and the Middle East after the Pakistan government approved exploration in Yemen, Rahman said.

To contact the reporters on this story: Naween A. Mangi in Karachi at nmangi1@bloomberg.net; Khaleeq Ahmed in Karachi at paknews@bloomberg.net.

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Asian Currencies: Taiwan Dollar Slumps Before GDP; Won Falls

By Lilian Karunungan

Feb. 18 (Bloomberg) -- Asian currencies fell, with Taiwan’s dollar dropping to a five-year low before a government report today that economists say will show the island’s gross domestic product shrank by a record.

South Korea’s won slid to the weakest level in more than two months and Malaysia’s ringgit declined to the lowest since November 2006, on speculation investors are shunning emerging- market assets as exports and regional economies slump. The MSCI Asia-Pacific Index of stocks traded at the lowest in three months and is down 13 percent this year.

“The unrest in global markets is spreading, shaking investor confidence in emerging markets,” said Kim Jae Eun, an economist with Hana Daetoo Securities Co. in Seoul. “A deepening slowdown will make financial firms more vulnerable.”

Taiwan’s dollar fell to NT$34.682 versus the U.S. currency, the weakest since June 2003, and traded at NT$34.650 as of 11:30 a.m. local time, according to Taipei Forex Inc. The won dropped 0.5 percent to 1,462.45 and touched 1,477.30, the lowest since Dec. 5. Malaysia’s ringgit declined as much as 0.5 percent to 3.6615.

Taiwan’s government may say today that GDP plunged 6.82 percent in the fourth quarter from a year earlier, the biggest contraction since records began in 1952, according to the median estimate of 18 economists surveyed by Bloomberg News. The statistics bureau releases the report at 4.30 p.m. in Taipei.

“The moves in these currencies like the ringgit, Korean won, Taiwan dollar, and even the Singapore dollar are probably quite overdone already,” said Wai Ho Leong, a regional economist in Singapore at Barclays Plc, the third-biggest foreign-exchange trader. “We’re pretty close to a technical retracement.”

Dollar Demand

The won extended this year’s loss to 14 percent as Finance Minister Yoon Jeung Hyun said today the economic slump is accelerating and that the government will place its priority on stabilizing financial markets.

Korea’s Kospi stock index fell 1.6 percent as global funds sold more shares than they bought for a seventh day, the longest run of net sales since Nov. 20.

Demand for dollars is decreasing in Korea as the amount of foreign-currency debt maturing every month this year is half the levels of the fourth quarter, a central bank official said.

Monthly foreign-debt payments by local banks have dropped to about $4 billion, from between $8 billion and $9 billion in the final three months of 2008, Ahn Byung Chan, director general of the Bank of Korea’s international bureau, said in an interview yesterday from Seoul.

Malaysia Economy

Indonesia’s rupiah is down 8.7 percent this year, and the ringgit 5.6 percent, the second and third-worst performing Asian currencies after the won.

Malaysia will revise its forecast for an economic expansion of 3.5 percent this year, Deputy Prime Minister Najib Razak said in parliament yesterday. The government is set to unveil on March 10 a “bigger and more comprehensive” stimulus program than the 7 billion ringgit ($1.9 billion) unveiled in November, he said.

Elsewhere, the Philippine peso declined 0.1 percent to 47.787 per dollar. The rupiah dropped 0.8 percent to 11,938, while the Thai baht traded 0.2 percent lower at 35.34. Vietnam’s dong was little changed at 17,484.50.

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

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Australian, N.Z. Dollars Near 2-Week Lows on Europe Concern

By Candice Zachariahs

Feb. 18 (Bloomberg) -- The Australian and New Zealand dollars traded near two-week lows on concern slumping eastern European economies will exacerbate the global recession, prompting investors to dump riskier assets.

The currencies weakened as commodities slipped the most in a month and crude oil, Australia’s fourth most valuable raw material export, fell below $35 a barrel in New York. A gauge of future economic growth in Australia declined for a second month in December and New Zealand’s Finance Minister said his country’s economy was shrinking for a fifth straight quarter.

Eastern Europe’s problems “darken the outlook a little bit more for small, open economies that are very heavily geared to the global growth cycle,” said Tony Morriss, a senior markets strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “The way for Australia to address this is to have lower rates, a lower currency and further stimulus.”

Australia’s currency slid 0.2 percent to 63.93 U.S. cents at 2:23 p.m. in Sydney from 64.06 cents late in Asia yesterday. It earlier touched 63.34 cents, the lowest since Feb. 3. The currency added 0.3 percent to 58.90 yen.

New Zealand’s dollar touched 50.61 U.S. cents, the lowest since Feb. 5, before trading at 50.93 cents from 50.92 in Asia yesterday. It bought 46.93 yen from 46.69.

The euro fell as low as $1.2559 today, the weakest since Dec. 4, as Moody’s Investors Service said it may cut the ratings of several banks with units in eastern Europe.

The currencies weakened as the MSCI World Index slid for a seventh day, the longest losing streak since Jan. 15. Banks that have subsidiaries in eastern European, including Austrian and Swedish lenders, may face rating downgrades as economies in the region deteriorate, Moody’s said.

Aussie May Drop

Australia’s currency may drop as low as 50 U.S. cents as the global recession drives down commodity prices and the central bank may lower borrowing costs to a record, TD Securities Ltd. said in a research note today.

Traders are betting the central bank will cut its benchmark to 2.25 percent over the next 12 months to spur domestic demand, according to a Credit Suisse index based on swaps trading.

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.

“There are reasons to expect that the Australian economy can continue to perform better than its international counterparts,” Reserve Bank of Australia Assistant Governor Malcolm Edey said in Sydney today. The nation will operate in “a difficult international environment this year,” he said.

The Australian currency has declined 26 percent against the greenback over the past six months, while New Zealand’s has dropped 28 percent, as the global recession dulls demand for commodities and riskier assets.

New Zealand Economy

Australia’s dollar may fall to 60 U.S. cents by mid-2009, and New Zealand’s may end the year near 41 cents, Morriss said.

New Zealand’s economy risks further contraction as the nation’s trading partners head into “deeper recession,” Finance Minister Bill English told parliament’s finance and expenditure select committee in Wellington today.

“It is highly unusual for all our trading partners to go into coordinated recession,” English said. The fourth quarter “was pretty much disastrous and most of these economies just hit the wall. The question is whether in the first quarter this has continued or bottomed out.”

Bond Sales

Australia sold A$600 million ($383 million) of bonds today at a weighted average yield of 2.99 percent. Buyers sought 4.8 times the amount offered in the sale of 5.75 percent debt maturing 2012, the Australian Office of Financial Management said.

Australian government bonds rose for a second day. The yield on the 10-year note fell by the most since October, declining 20 basis points, or 0.20 percentage point, to 4.06 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 advanced 1.71, or A$17.1 per A$1,000 face amount, to 109.74.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.23 percent from 3.29 yesterday.

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

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Korea Banks’ Foreign Debt Burden Has Fallen, Ahn Says

By Kim Kyoungwha and Bomi Lim

Feb. 18 (Bloomberg) -- South Korean banks’ demand for dollars is decreasing as foreign-currency debt maturing every month this year is at least 50 percent lower than in the fourth quarter, a central bank official said.

Monthly foreign debt payments due have dropped to about $4 billion, from between $8 billion and $9 billion in the final three months of 2008, Ahn Byung Chan, director general of the Bank of Korea’s international bureau, said in an interview from Seoul yesterday. Concerns that Korean banks are facing a shortage of funds deepened after Woori Bank’s failure to meet an early repayment of 2014 debt roiled investors.

“Our banks are not having trouble getting foreign funding now,” Ahn said. “They are facing less need for foreign borrowing compared with the final quarter of last year.”

South Korea’s won has slumped 34 percent against the dollar in the past year, the worst-performing of the world’s 16 most- active currencies, on concern banks will run short of the greenback as exports slump and global funds dump emerging-market assets. South Korea has as much as $160 billion of external debt maturing over the next two years, compared with foreign-exchange reserves that shrank 23 percent in the past year to $200 billion, according to UBS AG, the world’s second-largest currency trader.

“They are left with no choice but to maintain a strong front,” said Nizam Idris, a currency strategist with UBS in Singapore. “The relative shortage of dollar liquidity domestically has remained strong, although not yet as bad as it was in November.”

Won Decline

The won weakened 0.5 percent to 1,462.60 per dollar as of 11:31 a.m. in Seoul, extending this year’s loss to 14 percent. The one-year cross-currency swap rate, a gauge of availability of dollars, slid to a record minus 1.7 percent yesterday, indicating Korean banks need to pay extra interest on top of floating rates to borrow dollars. It was at minus 1.6 percent today. In such swaps, two parties agree to exchange payments in one currency for payments in another.

“The shortage of dollars has become more acute in South Korea as evident in the cost for banks to swap won for dollars,” Marc Chandler, global head of currency strategy at Brown Brothers in New York, wrote in a note today. “The dollar has near term scope towards 1,500.”

The slump in the Korean won was compounded by concerns that a prolonged global recession may “hurt the export-driven Korean economy,” starving banks of foreign exchange, Ahn said. He forecast the nation will post a trade surplus of as much as $2 billion this month after a shortfall of $3.3 billion in January.

March Crisis?

Speculation the country is headed for a “March crisis” when Japanese financial institutions close their books is groundless, Ahn said. Banks in Korea, including local branches of foreign financial institutions, have about $6 billion of yen debt due to be paid by March, he said. Their total yen denominated debt stands at $25 billion.

Nomura Holdings Inc. cut its forecast for South Korea’s gross domestic product for the second time in a month, predicting the economy will shrink 6 percent in 2009, a deeper contraction than the 2 percent decline forecast in January.

The government is close to setting limits for how much individual banks can draw from a 20 trillion won ($14 billion) state-backed recapitalization fund, Shin Dong Kyu, chairman of the Korea Federation of Banks, said in an interview yesterday.

Getting money from the fund may help Korean banks avoid skipping options to redeem their subordinated debt, Shin said. A decision by Woori Bank, the nation’s second-biggest lender, not to redeem $400 million of callable debt drove up the cost for Korean lenders to borrow dollars in the swap market.

The Bank of Korea will provide 10 trillion won for the recapitalization fund and state-owned Korea Development Bank will put in 2 trillion won. The remainder will come from private investors. The fund will be used for buying banks’ preferred shares and subordinated debt.

Shin, 57, dismissed concerns that Korean banks may struggle to repay overseas debt, saying foreign-exchange reserves will allow the country to help them meet obligations if necessary.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net; Bomi Lim in Seoul at blim30@bloomberg.net

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Dollar May Rise 11 Percent Against Yen, Standard Chartered Says

By Yasuhiko Seki

Feb. 18 (Bloomberg) -- The dollar may gain 11 percent against the yen in the next three months should it rise above so-called resistance at 94.63 yen, based on trading patterns, Standard Chartered Plc said. in Singapore.

The 94.63 yen level would match the greenback’s highest this year, reached Jan. 6, as well as creating potential for a so-called double bottom on a daily chart using 13-week moving averages, Callum Henderson, head of global currency strategy at Standard Chartered in Singapore, wrote in a note to clients. A double bottom forms when a currency makes two successive troughs of similar depth, indicating potential for it to rebound.

“Recent chart activity does suggest buyers are active above the 87 double lows from December 2008 and January,” Henderson wrote. “The 89.60 level just below this has marked dollar buying when reached and if this continues to be the case over the coming sessions then the double bottom pattern should continue to unfold, with extension targets pointing to 102.20.”

The dollar fell to 92.23 yen as of 12:54 p.m. in Tokyo from 92.41 yen late in New York yesterday. The currency touched a 13- year low of 87.13 on Jan. 21. The yen strengthened versus 13 of the 16 most-active currencies today on concern stock declines will spur investors to sell higher-yielding assets they bought with funds from Japan.

“The dollar is expected to trend higher over the next three months toward 101 and higher,” Henderson wrote. Investors may benefit if they exit trades betting on U.S. dollar declines and buy the greenback any time it falls toward the support level of 90.30 yen, he said.

Momentum Indicators

Momentum indicators such as the relative strength index, which compares the magnitude of gains and losses, as well as the stochastic oscillator signal it may be time to buy the dollar, while moving average convergence/divergence may also show a “buy” signal shortly, he said.

A stochastic oscillator chart measures the closing price of a security relative to its highs and lows during a particular period to try to predict whether it will rise or fall. MACD charts can indicate whether a price shift is a change in trend or a short-term deviation by comparing moving averages based on nine-, 12- and 26-day periods.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Resistance points represent levels where sell orders may be clustered and buy orders may be linked to support levels.

To contact the reporter on this story: Yasuhiko Seki in Tokyo at Yseki5@bloomberg.net

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Euro Trades Near 10-Week Low on Bets Europe’s Turmoil to Worsen

By Ron Harui and Yasuhiko Seki

Feb. 18 (Bloomberg) -- The euro traded near a 10-week low against the dollar on concern the region’s banks will disclose increasing losses due to the deepening financial crisis in central and Eastern Europe.

The European currency may weaken for a third day versus the greenback on speculation Commerzbank AG, Germany’s second- largest bank, and ING Groep NV, the biggest Dutch financial company, will report combined losses of more than 4 billion euros ($5 billion) when they release earnings today, according to Bloomberg News surveys. The yen may gain for a third day against the euro on the prospect that stock declines will spur investors to sell higher-yielding assets.

“Worries are mounting over the financial situation in central and eastern Europe, especially about countries that have large exposure to those regions,” said Akifumi Uchida, deputy general manager of the marketing unit in Tokyo at Sumitomo Trust & Banking Co., Japan’s fifth-largest bank. “The euro is likely to depreciate” to $1.25 and 115.50 yen today, he said.

The euro traded at $1.2583 as of 2:33 p.m. in Tokyo from $1.2582 late in New York yesterday. It earlier touched $1.2559, the lowest level since Dec. 4. The currency was at 116.25 yen from 116.27 yen, and at 88.44 British pence from 88.37 pence.

The dollar was at 92.43 yen from 92.41 yen yesterday when it reached 92.75 yen, the strongest since Jan. 8. It traded at $1.4231 versus the pound from $1.4238, and was at 1.1696 Swiss francs from 1.1694. The yen advanced 0.8 percent to 15.88436 versus South Korea’s won, and climbed 0.2 percent to 2.668 against Taiwan’s dollar.

Dollar Index

The ICE’s Dollar Index, which tracks the greenback versus the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, rose to 87.746 from 87.581 yesterday when it reached 87.864, the highest level since Nov. 21. The index gained 7.9 percent this year.

The euro may fall as Frankfurt-based Commerzbank probably had a net loss of 851 million euros last quarter, according to the median estimate of analysts surveyed by Bloomberg before today’s announcement. That compares with net income of 201 million euros a year earlier. ING Groep, which also releases fourth-quarter earnings today, forecast last month it will make a preliminary pretax loss of 3.3 billion euros, because of writedowns on mortgage securities, debt and equities.

“Investors are keen to know how the spreading economic woes in neighboring countries will affect the earnings of European financial institutions, which are already saddled with heavy credit losses,” said Takashi Kudo, director of foreign- exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph and Telephone Corp. “Growing uncertainties about the financial system in Europe may continue to pose downside risks to the euro.”

Moody’s Report

Moody’s Investors Service said yesterday it may cut the ratings of several banks with units in eastern Europe, adding to concern financial turmoil in the region will deepen. Eastern European banks, which are mainly subsidiaries of financial institutions such as Vienna-based Raiffeisen Zentralbank Oesterreich AG and Stockholm-based Swedbank AB, are likely to come under “downward pressure” that may weaken their parent companies, Moody’s said.

Poland’s zloty declined 0.3 percent to 4.9161 per euro and weakened 0.3 percent to 3.9065 against the dollar. The currency reached 4.9307 versus the euro yesterday, near the all-time low touched in March 2004.

Demand for the yen may increase after Asian equities fell. The Nikkei 225 Stock Average slipped 1.5 percent and the MSCI Asia-Pacific Index of regional shares weakened 1.2 percent, prompting investors to reduce holdings of higher-yielding assets.

Repatriation Flows

“We continue to think that dollar-yen will decline below 90 over the coming three months, mainly because of repatriation by Japanese institutional investors toward the Japanese fiscal year-end,” analysts led by David Woo, London-based global head of foreign-exchange strategy at Barclays Capital, wrote in a research note today.

The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock price changes that’s used as a measure of risk aversion, rose 13.35 percent, the most since Jan. 20, to 48.66 yesterday.

Losses in the euro may be tempered on speculation the currency’s 1.7 percent decline against the dollar yesterday was excessive, according to Minoru Shioiri, senior manager of currency trading at Mitsubishi UFJ Securities Co. in Tokyo.

The euro’s 14-day stochastic oscillator, a technical indicator that measures momentum, was about 5 today, according to data compiled by Bloomberg. A level below 20 suggests a currency may have weakened too quickly and is poised to rebound.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net.

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Goldman Cuts Copper Forecast as Global Economy, Demand Slumps

By Glenys Sim

Feb. 18 (Bloomberg) -- Goldman Sachs JBWere Pty lowered its copper price forecast as the global economy deteriorates, and projected that there will be a surplus of all industrial metals this year.

Copper, used in pipes and wires, will average $1.50 a pound ($3,308 a metric ton) this year, down 21 percent from a previous estimate, the Australian affiliate of the U.S. bank said yesterday in a report. Goldman’s revised forecast is in line with the average price so far this year of $1.50 a pound.

Goldman joins Standard Chartered Plc and Barclays Capital in lowering metals targets with the U.S., Europe and Japan in recession. David Threlkeld, president of trader Resolved Inc., forecast in November that copper may plunge to less than $1 a pound, below mining companies’ average cost of production.

“Weak demand applies across all commodities, and we expect all of the base metals to record surpluses in 2009,” analysts led by Melbourne-based Malcolm Southwood wrote in the Goldman report. Global gross domestic product would expand 0.2 percent in 2009, before rebounding to 3 percent in 2010, Goldman said.

“Such a recovery would almost certainly require a rebuild in inventories of raw materials, semi-manufactured goods, and finished products, which we assume will result in a year of above-trend growth in base metals demand,” Southwood wrote.

Copper may average $1.92 a pound in 2010, $2.35 in 2011, and $2.50 in 2012, the report said. Still, the forecasts are down 27, 22 and 24 percent respectively from earlier predictions.

Commodity Rout

Commodities plunged to their lowest level since June 2002 yesterday, led by energy and industrial metals. The Reuters/Jefferies CRB Index of 19 prices dropped for the sixth straight session, losing 4.6 percent.

If copper prices “decline sharply from current levels, it is likely to trigger a significant and quick supply response,” Natixis Commodity Markets Ltd. said yesterday in a report. “Prices are still fairly close to marginal production costs.”

Goldman Sachs JBWere cut its forecast for aluminum by 17 percent to 70 cents a pound for this year, and targeted 85 cents in 2010, 88 cents in 2011 and 91 cents in 2012. The prediction for nickel was cut by 3.5 percent to $5.47 a pound in 2009, with a call of $6 in 2010, $6.38 in 2011, and $7.15 in 2012.

Zinc may average 12 percent below a previous forecast at 53 cents a pound this year, and average 55 cents next year, 58 cents in 2011, and 68 cents in 2012. The lead forecasts were cut to 49 cents a pound this year, 50 cents next year, 54 cents in 2011, and 63 cents in 2012.

To contact the reporter on this story: Glenys Sim in Singapore at Gsim4@bloomberg.net

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Rubber Reaches Two-Week Low on Concern Recession to Cut Demand

By Aya Takada

Feb. 18 (Bloomberg) -- Natural rubber futures tumbled to a two-week low on concern a worsening slump in global economies will slash demand for the commodity used to make vehicle tires.

Prices in Tokyo lost as much as 4.6 percent to the lowest since Feb. 4 after manufacturing in New York declined in February at the fastest pace on record. The Reuters/Jefferies CRB Index of 19 prices dropped yesterday for a sixth day, the longest slump since December and reached the lowest since June 21, 2002.

“Industrial commodities came under pressure as data this week showed a recession worsened in Japan and the U.S.,” Kazuhiko Saito, an analyst at Tokyo-based commodity broker Fujitomi Co., said today by phone.

Rubber for July delivery, the most-active contract, lost 3.4 percent to 138.3 yen a kilogram ($1,501 a metric ton) on the Tokyo Commodity Exchange at the 11 a.m. local time break.

Former Federal Reserve Chairman Alan Greenspan said the U.S. may be doing too little to repair its financial system and promote an economic recovery.

The comments highlight the difficulties President Barack Obama faces in fighting the steepest recession in a generation. The economy contracted at an annual pace of 3.8 percent in the fourth quarter of last year, the most since 1982. Greenspan spoke in an interview before a speech prepared for yesterday to the Economic Club of New York.

Japan’s economy shrank in the fourth quarter at an annualized rate of 12.7 percent, the most severe contraction since 1974, government data showed Feb. 16.

Production Cuts

Rubber futures also declined on concern carmakers may accelerate production cuts as consumption drops, Saito said.

General Motors Corp., the largest U.S. carmaker, said yesterday it needs as much as $16.6 billion in new U.S. loans, more than doubling the aid to date, and must get some of the cash next month to survive. GM plans 47,000 more job cuts worldwide this year and is closing five more U.S. plants by 2012.

Chrysler LLC said it’s seeking $5 billion more from the government and will shed 3,000 more positions. The automakers met a deadline to report progress in revamping operations with $17.4 billion in loans granted so far, and now they must show the U.S. by March 31 that they can become profitable and be allowed to keep the money.

“Uncertainty about whether the U.S. carmakers can survive is another drag on prices of rubber,” Saito said.

May-delivery rubber on the Shanghai Futures Exchange, the most-active contract, lost 3.8 percent to 13,360 yuan ($1,954) a ton at 11:16 a.m. local time.

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

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Corn Declines as U.S., European Recessions Curb Demand Outlook

By Sungwoo Park

Feb. 18 (Bloomberg) -- Corn declined after plunging the most in three weeks yesterday as a worsening global recession curtails demand for the crop used in food and livestock feed. Soybeans were little changed.

German Finance Minister Peer Steinbrueck said euro-region countries may be forced to bail out other members of the 16- nation bloc that face problems refinancing their debt. The Reuters/Jefferies CRB Index of 19 raw materials yesterday touched the lowest since June 2002. U.S. soybean processing fell 8.8 percent in January as demand slowed for soybean meal.

“Demand has frozen,” said C.S. Oh, head of the overseas futures team with NH Investment & Futures in Seoul. “The situation in Europe is really bad as concerns over liquidity, especially in grain-rich East Europe, are mounting and the U.S. is suffering.”

Corn for May delivery fell 0.2 percent to $3.5825 a bushel on the Chicago Board of Trade at 11:25 a.m. Seoul time. The contract tumbled 3.8 percent yesterday, the biggest loss since Jan. 27. The grain has fallen for six straight weeks and is down 55 percent from a record $7.9925 on June 27.

Soybeans for May delivery were little changed at $9.05 a bushel after dropping to as low as $9.005 yesterday, the lowest for a most-active contract since Dec. 24. The price has dropped 45 percent from a record $16.3675 on July 3.

Processors including Bunge Ltd. and Archer Daniels Midland Co. crushed 139.1 million bushels of soybeans last month, down from 152.44 million a year earlier, the National Oilseed Processors Association said yesterday in a report.

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

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Copper Gains as Drop to 2 1/2-Week Low Attracts Chinese Buyers

By Glenys Sim

Feb. 18 (Bloomberg) -- Copper rebounded in Asia as Chinese investors bought the metal after it declined to the lowest in 2 1/2 weeks.

The metal lost 7 percent in the past two days on speculation waning demand will add to stockpiles that are at a five-year high of 526,425 metric tons.

“Price sensitive Chinese buyers always enter when there’s a large fall,” said Li Rong, chief analyst at Great Wall Futures Co. from Shanghai. “We’re also seeing some shorts buying back their positions to lock in profits.”

London Metal Exchange copper rose as much as 1.5 percent to $3,233 a ton and was at $3,220 as of 11 a.m. Singapore time. It dropped to $3,170 earlier in the day, the lowest since Feb. 2.

Copper for May delivery on the Shanghai Futures Exchange dropped as much as 4.9 percent to 26,050 yuan ($3,810) a ton, before trading at 26,660 yuan at the same time.

China’s apparent consumption of the metal will hold up “relatively well” this year as the government takes advantage of the current low price to rebuild stockpiles, according to Goldman Sachs JBWere Pty.

Still, like other base metals, global demand for copper will fall this year and the market will record a surplus, Goldman’s analysts led by Malcolm Southwood said in a report yesterday.

The bank expects copper supplies to exceed demand by 192,000 tons this year, before moving to an 11,000-ton deficit next year as output falls.

Copper may average $1.50 a pound ($3,308 a ton) this year, down 21 percent from a previous estimate. It will average $1.92 a pound in 2010, $2.35 in 2011, and $2.50 in 2012, down 27, 22 and 24 percent respectively from an earlier prediction.

The metal reached a record $8,940 a metric ton on July 2 and averaged $6,886 last year.

Among other LME-traded metals, aluminum rose 0.8 percent to $1,340.50 a ton and zinc added 1.1 percent to $1,122 a ton. Lead, nickel and tin had not traded as of 11:08 a.m. in Singapore.

To contact the reporter on this story: Glenys Sim in Singapore at Gsim4@bloomberg.net

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Oil Trades Below $35 on Speculation U.S. Stockpiles to Climb

By Christian Schmollinger

Feb. 18 (Bloomberg) -- Crude oil traded below $35 a barrel in New York on speculation that U.S. stockpiles climbed for the 19th time in 21 weeks amid a drop in demand because of the deepening global recession.

An Energy Department report tomorrow will probably show U.S. crude-oil inventories rose 3.2 million barrels last week, according to the median of 11 analyst responses in a Bloomberg News survey. The Reuters/Jefferies CRB Index of 19 commodities prices fell yesterday to 203.25, the lowest since June 21, 2002, and has slipped 11 percent this year.

“The stockpiles are building in large part because consumption is weak,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. “It hasn’t been just oil, we saw base metals and other commodities were down. People are just focused on the negative international economic environment.”

Crude oil for March delivery was at $34.81 a barrel, down 12 cents, in electronic trading at 12:09 p.m. Singapore time on the New York Mercantile Exchange.

In New York yesterday, futures fell $2.58, or 6.9 percent, to settle at $34.93 a barrel, the biggest decline since Jan. 27. Prices are down 22 percent this year.

The March contract expires on Feb. 20. The more active April contract was at $38.28 a barrel, down 26 cents, at 11:58 a.m. Singapore time.

Manufacturing in New York declined in February at the fastest pace on record, and Japan’s economy shrank in the fourth quarter at an annualized rate of 12.7 percent, the most severe contraction since 1974, government reports showed over the past two days.

“Bad economic data continues to come out so there’s no signs of a recovery,” said Victor Shum, a senior principal at Purvin & Gertz Inc. in Singapore. “Demand is slow worldwide.”

Contango

Prices for oil to be delivered in future months are higher than for earlier ones, a situation known as contango, allowing buyers to profit from hoarding oil. The price of oil for delivery in April is $3.47 a barrel higher than for March. December futures are up $13.55 a barrel from the front month.

The build in supplies at Cushing, Oklahoma, where West Texas Intermediate, the U.S. benchmark grade, is stored, has contributed to the contango. Inventories there climbed 1.7 percent to 34.9 million barrels last week, the Energy Department said on Feb. 11. It was the highest since at least April 2004, when the department began keeping records for the location.

“Concerns about the inventories are weighing on the oil price,” said Purvin & Gertz’s Shum. “In the case of Nymex crude oil, the inventories as Cushing are particularly weighing on the front month contract.”

Gasoline Stockpiles

Gasoline stockpiles probably declined 300,000 barrels in the week ended Feb. 13, the survey showed. Supplies of distillate fuel, a category that includes heating oil and diesel, probably dropped 1.5 million barrels.

Gasoline futures for March delivery were at $1.11 a gallon, down 18 cents, at 11:10 a.m. Singapore time. The contract yesterday fell 9.45 cents, or 7.8 percent, to $1.1118 a gallon in New York, the lowest settlement since Jan. 27.

Brent crude oil for April settlement was at $40.58 a barrel, down 45 cents, at 12:18 p.m. Singapore time on London’s ICE Futures Europe exchange. It declined yesterday $2.25, or 5.2 percent, to end the session at $41.03 a barrel, the lowest since Dec. 30.

OPEC, supplier of more than 40 percent of the world’s oil, may cut production at a March 15 meeting if prices and markets are unstable, Iraqi Oil Minister Hussain al-Shahristani said.

“If demand is going to stay down as it has done, then obviously we will need to cut production,” he said at a conference in Doha, Qatar, yesterday.

The 12-member group cut oil production 3.5 percent in January, according to a Bloomberg News survey. 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.

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

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Gold’s Rally Pauses in Asia After Surge to Seven-Month High

By Glenys Sim

Feb. 18 (Bloomberg) -- Gold declined in Asia after climbing to the highest price since July as the deepening global financial crisis drove investors to buy gold as a store of value.

Low interest rate environments and spending by governments also prompted investors to purchase gold as an alternative to declining currencies. Gold priced in euros, pounds, Australian and New Zealand dollars, and South African rand all hit records yesterday.

“Safe haven or flight-to-quality demand remains the driving force behind rising gold prices, as global economic and financial market uncertainties continue,” Toby Hassall, research analyst at Commodity Warrants Australia, said in a weekly note today.

Gold for immediate delivery fell 0.2 percent to $968.21 an ounce at 10:17 a.m. in Singapore. The metal rose to $974.20 yesterday, the highest since July. Gold for April delivery was little changed at $969.30 in after-hours electronic trading on the Comex division of the New York Mercantile Exchange.

“Investment demand for gold is also benefiting from increased inflationary concerns resulting from expansionary monetary and fiscal policies,” said Hassall.

Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, gained to a record 1,008.8 metric tons as of yesterday, placing it just behind the 1,040 tons held by Switzerland, the world’s sixth-largest stockpile.

December-delivery gold in Tokyo was up 0.7 percent at 2,873 yen a gram ($969 an ounce), while Shanghai gold for June delivery gained 0.8 percent to 212.52 yuan a gram ($965 an ounce).

Gold Record

Gold futures in Dubai and India also climbed to their highest yesterday, tracking gains in the international markets.

Bullion for April delivery on the Dubai Gold and Commodities Exchange surged to $970.00 per ounce yesterday, the highest since the exchange began trading gold futures in 2006. April-delivery gold on the Multi Commodity Exchange of India Ltd. gained to 15,563 rupees ($313) for 10 grams, the highest since trading started in 2003.

“As government treasuries increase money supply and central banks lower the price of money via interest rate reductions, the relatively finite supply of gold means the yellow metal is less prone to devaluation in high inflation environments,” said Hassall. “Silver prices should also benefit from strong investment demand which is likely to more than offset weak industrial demand prospects.”

Among other precious metals for immediate delivery, silver fell 0.5 percent to $14.06 an ounce, platinum was little changed at $1,092.50 an ounce, and palladium declined 0.3 percent to $218.75 an ounce as of 9:56 a.m. in Singapore.

To contact the reporter on this story: Glenys Sim in Singapore at Gsim4@bloomberg.net

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China Share Rally Overshot Earnings Prospects, HSBC, CLSA Say

By Chua Kong Ho

Feb. 18 (Bloomberg) -- China’s yuan-denominated shares have soared higher than warranted by earnings prospects, aided by increased bank lending, HSBC Holdings Plc and CLSA Asia-Pacific Markets said.

The Shanghai Composite Index yesterday closed above the year-end target, making Chinese shares listed in Hong Kong a safer bet, HSBC strategist Steven Sun said in a note dated yesterday. The CSI 300 Index is “expensive” at 19 times 2009 earnings after a “stellar rally,” CLSA analyst Manop Sangiambut wrote yesterday, adding “we doubt the sustainability.”

While mainland stocks may have “further room to run” before the National People’s Congress next month as the government adds stimulus programs, the rally may falter as “we do not believe it is supported by fundamentals,” Sun wrote.

The Shanghai benchmark is the best performer among 90 global stock gauges this year. Record growth in bank lending in January and a rebound in a manufacturing index fueled speculation the government’s 4 trillion yuan ($585 billion) stimulus plan is working.

The A-share market has been mainly driven by improved liquidity “as witnessed by a surge in loan growth, reportedly high cash level among mutual funds in the fourth quarter of 2008, and industry specific stimulus plans,” CLSA’s Sangiambut said. While the rally may continue “for some time,” aided by liquidity conditions and stimulus news, earnings reports from companies “are bound for disappointments,” Sangiambut said.

Shanghai, Hong Kong

The Shanghai Composite Index today fell for a second day from the five-month high of 2,389.39 on Feb. 16, above HSBC’s 2,300 year-end target. The Hang Seng China Enterprises Index, in contrast, is 20 percent short of its 9,000 estimate for end-2009, HSBC’s report showed. The gauge of so-called H shares of Chinese companies traded in Hong Kong has declined 8.9 percent this year and is valued at 9.1 times reported earnings, less than half the 18.3 times for the Shanghai index.

H shares have “priced in a much deeper economic slowdown and profit deterioration outlook,” and have a “higher safety margin for error” than yuan-denominated mainland shares, HSBC’s Sun said.

In China, M1, which includes notes, coins and demand deposits, rose 6.7 percent in January from a year ago, compared to the 18.8 percent increase in M2, the broadest measure of money supply. Banks extended 1.62 trillion yuan of new local-currency loans in January, twice the record set a year earlier.

‘Worrisome’

It is a “worrisome development that exceptional loan growth has yet to drive up M1 growth, which is a better indicator of aggregate demand, pricing power, corporate profits and therefore market performance,” Sun said.

As much as 660 billion yuan ($97 billion) may have been converted by companies into term deposits or used to buy equities, Li Huiyong, Shanghai-based analyst at Shenyin Wanguo, said yesterday, citing money supply figures.

To contact the reporter on this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net

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Hong Kong’s Hang Seng Index Falls to 3-Week Low; Chalco Drops

By Hanny Wan

Feb. 18 (Bloomberg) -- Hong Kong stocks fell, dragging the benchmark Hang Seng index to the lowest in more than three weeks on signs the global recession is deepening.

Hang Lung Properties Ltd., Hong Kong’s fourth-largest developer by market value, slumped 4.8 percent after the city’s unemployment rate rose to the highest in 28 months, heightening concern demand for real estate will slow. Aluminum Corp. of China Ltd., the nation’s No. 1 producer of the metal, lost 3.2 percent and PetroChina Co., the country’s largest oil producer, retreated 3.2 percent after metal and oil prices slumped.

“Hong Kong’s continual downslide is just indicative of global sentiment,” said Christian Kielland, managing director of brokerage BTIG Hong Kong Ltd. “There seem to be zero catalysts in the future to give the market legs.”

The Hang Seng Index dropped 202.16, or 1.6 percent, to 12,743.24 as of the 12:30 p.m. break local time, taking its slide in the past three days to 6 percent. The benchmark gauge is headed for its lowest close since Jan. 23. The Hang Seng China Enterprise Index, which tracks so-called H-shares, retreated 1.6 percent to 7,081.15.

Both indexes have slumped more than 10 percent this year as the deepening global slowdown caused corporate profits worldwide to sink. Hong Kong’s economy, which slid into a recession in the third quarter of last year, may deteriorate in 2009 because of the crisis, Financial Secretary John Tsang said Feb. 6.

The city’s unemployment rate for the three months through January climbed to 4.6 percent, the government said yesterday, up from 4.1 percent through December. That was more than the 4.3 percent median estimate of economists in a Bloomberg News survey.

Falling Home Prices

Hang Lung Properties slumped 4.8 percent to HK$14.04. Sun Hung Kai Properties Ltd. lost 3.5 percent to HK$60.10. The Hang Seng Property Index, which tracks six developers, dropped 3 percent, taking its slump this year to 12 percent amid concerns real-estate demand will drop.

Home prices on the Peak, Hong Kong’s most expensive residential area, tumbled 31 percent in the fourth quarter from a year earlier, real estate agency CB Richard Ellis Group Inc. said yesterday.

Chalco, as Aluminum Corp. is known, fell 3.2 percent to HK$3.93. PetroChina dropped 3.2 percent to HK$5.81. Cnooc Ltd., China’s largest offshore oil producer, dropped 2.2 percent to HK$6.74.

Concern the global economic slump will deepen drove down commodity prices. Crude oil tumbled 6.9 percent to settle at $34.93 a barrel in New York, the steepest drop since Jan. 27. Copper futures slumped 7.2 percent, the most since Oct. 30.

All but nine stocks on the 42-member Hang Seng Index declined. February futures slipped 1.5 percent to 12,690.

The following stocks rose or fell. Stock symbols are in brackets after company names.

China Cosco Holdings Co. (1919 HK) rose 1.1 percent to HK$4.74. The world’s largest dry-bulk carrier was raised to “outperform” from “neutral” at Macquarie Group Ltd. on the view that dry bulk lo1sses may be limited by an agreement with its parent company.

Hang Seng Bank Ltd. (11 HK) lost 1.6 percent to HK$83.70. Hong Kong’s second-largest bank by assets completed the purchase of a 20 percent stake in China’s Yantai City Commercial Bank Co. for 800 million yuan ($117 million). Hang Seng will nominate directors to Yantai Bank after becoming its largest shareholder, the bank said yesterday.

Lenovo Group Ltd. (992 HK) dropped 2 percent to HK$1.46. The personal-computer maker will continue to consider merger and acquisitions, and plans to be more aggressive in developing sales in emerging markets such as India, Russia and Brazil, the South China Morning Post reported, citing Chief Executive Officer Yang Yuanqing.

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

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Japan Stocks Drop on Recession Fear; Topix Touches 25-Year Low

By Masaki Kondo

Feb. 18 (Bloomberg) -- Japanese stocks fell, sending the Topix index toward the lowest close in 25 years, on concern a deepening slump in the global economy will further crimp demand for resources and hurt company earnings.

Inpex Corp., Japan’s No. 1 oil explorer, lost 3.4 percent after crude prices dropped the most in three weeks. Oji Paper Co. and Hokuetsu Paper Mills Ltd. led declines by their peers after UBS AG lowered the stocks to “neutral” on falling paper prices. Toyota Motor Corp. rose 2 percent on a Nikkei newspaper report the carmaker will boost output after reducing inventory.

“Economies are bad everywhere and we can’t yet tell when they may recover,” said Hideyuki Ookoshi, who helps oversee about $365 million at Tokyo-based Chiba-Gin Asset Management Co. “With so much uncertainty ahead, we can’t predict how good or bad company earnings will be.”

The Nikkei 225 Stock Average declined 93.80, or 1.2 percent, to 7,551.71 as of 12:36 p.m. in Tokyo. The broader Topix lost 6.68, or 0.9 percent, to 749.85, and sank to as low as 744.37, which would be the lowest close since January 1984.

Japanese Finance Minister Shoichi Nakagawa resigned yesterday amid accusations he was drunk at a Group of Seven press conference, undermining confidence the government can tackle a recession that’s dragged the Nikkei down by 15 percent this year. Nakagawa’s departure came a day after the Cabinet Office reported the nation’s economy shrank at an annual rate of 12.7 percent last quarter, the most since the 1974 oil shock.

The Nikkei fell by a record last year as the world’s largest economies slipped into recession, and more than two-thirds of the gauge’s members trade at below book value. In the past two days, the value of stocks traded in Tokyo was about 40 percent below the six-month average as investors waited for details on restructuring plans for U.S. automakers.

Stimulus Bill

The Federal Reserve Bank of New York yesterday said its general economic index sank to the lowest level this month since the tally started in 2001. Also, U.S. President Barack Obama signed into law a $787 billion stimulus plan to revive the world’s biggest economy.

Concern the global economic slump will deepen drove down commodity prices. Crude oil for March delivery sank 6.9 percent to settle at $34.93 a barrel in New York yesterday, the steepest drop since Jan. 27. Copper futures plummeted 7.2 percent, the sharpest dive since Oct. 30.

Inpex lost 3.4 percent to 656,000 yen, while closest domestic rival Japan Petroleum Exploration Co. sank 2.6 percent to 3,690 yen. Nippon Mining Holdings Inc., the nation’s biggest copper producer, fell 4.4 percent to 372 yen. Oil and copper prices rebounded in Asian trading today.

Paper Prices

Oji Paper retreated 5.4 percent to 385 yen, and Hokuetsu Paper Mills Ltd. fell 2.9 percent to 407 yen. UBS cut its ratings on the stocks from “buy,” saying a faster-than-expected drop in paper prices will likely lead to lower profits.

Toyota added 2 percent to 3,070 yen, while Fuji Heavy Industries Ltd., partly owned by Toyota, climbed 3.8 percent to 300 yen.

Toyota, the world’s No. 1 automaker, will increase domestic production in May by about 30 percent from the previous three months because its inventory is expected to fall, the Nikkei newspaper said today. Earlier this month, waning demand in the U.S. and Japan prompted the carmaker to triple its loss forecast for the business year to March 31.

“After manufacturers cut output and clear inventory, the economy may enter a trend where companies can boost production again,” said Chiba-Gin’s Ookoshi.

Detroit-based General Motors Corp. and Chrysler LLC met a deadline today to report progress in revamping operations with $17.4 billion in U.S. government loans. GM said it needs as much as $16.6 billion in fresh loans, while Chrysler said it’s seeking $5 billion more.

Nikkei futures expiring in March retreated 1.2 percent to 7,550 in Osaka and fell 1.3 percent to 7,540 in Singapore.

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

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Asian Stocks Decline for Third Day as Global Recession Deepens

By Shani Raja

Feb. 18 (Bloomberg) -- Asian stocks dropped for a third day, driving Japan’s Topix index toward the lowest close in 25 years, as the deepening global recession hurts corporate earnings and demand for commodities.

Westpac Banking Corp., Australia’s biggest lender by market value, slipped 2.6 percent as a fivefold surge in bad-debt charges dragged quarterly profit lower. BHP Billiton Ltd., the world’s largest mining company, lost 4.3 percent in Sydney after metal and oil prices declined. Sony Corp., which gets a quarter of its sales from the U.S., fell 3.1 percent after manufacturing in New York shrank at the fastest pace on record.

“I’d be very surprised if profit numbers didn’t keep on coming down,” said San Francisco-based Robert Horrocks, who helps manage $4.7 billion including Asian equities at Matthews International Capital Management LLC. “You’re seeing the ripples from the credit shock, where the medium-term effect on demand is a chronic problem that governments are trying to combat.”

The MSCI Asia Pacific Index declined 0.9 percent to 78 as of 11:53 a.m. in Tokyo, set to close at the lowest level since Nov. 24. Finance and commodity shares were the biggest drag on the gauge, which has lost 13 percent this year. The measure tumbled by a record 43 percent in 2008, as the credit crisis dragged the world’s biggest economies into recession.

Japan’s Topix lost 1 percent to 749.04 and earlier sank to as low as 744.37, which would be the lowest close since January 1984. Hong Kong’s Hang Seng Index dropped 1.3 percent, while Australia’s S&P/ASX 200 Index fell 2.6 percent.

Government Action

Futures on the Standard & Poor’s 500 Index rose 0.3 percent today. The gauge slumped 4.6 percent yesterday as U.S. President Barack Obama signed a $787 billion stimulus bill into law. After U.S. markets closed, General Motors Corp. said it needs as much as $16.6 billion in new U.S. loans, more than doubling the aid to date it needs to survive.

Governments and central banks have been cutting interest rates and introducing spending packages to reverse the worst global slump since World War II. International Monetary Fund Managing Director Dominique Strauss-Kahn said last week that he expects more countries to apply to the IMF for aid.

The Japanese government, which yesterday appointed Kaoru Yosano as its new finance minister, said two days ago that gross domestic product contracted 12.7 percent in the fourth quarter, the most since the 1974 oil shock. The Federal Reserve Bank of New York’s general economic index sank to the lowest level since records began in 2001, according to a report yesterday.

A gauge of finance companies on the MSCI index dropped 1.4 percent. The finance measure is the second-worst performer in the past 12 months of 10 industry groups as the credit crisis caused losses at institutions worldwide to swell to more than $1 trillion.

‘Volatile’ Conditions

Westpac Banking Corp. declined 2.6 percent to A$16.34 after profit fell 2 percent in the three months to Dec. 31 as bad debts outweighed increased fee income from last year’s purchase of St. George Bank Ltd.

“With global economic conditions continuing to be volatile, operating conditions will remain difficult,” Chief Executive Officer Gail Kelly, said in a statement.

Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, fell 2 percent to 442 yen. Sony Financial Holdings, which cut its profit forecast last week, lost 6.7 percent to 256,000 yen.

The Markit iTraxx Japan index of credit-default swaps, which measures the cost of protecting investors in Japanese corporate bonds from default, rose to a record today, Barclays Capital prices show.

BHP fell 4.3 percent to A$30.36 in Sydney. Rio Tinto Group, the world’s third-largest mining company, dropped 2.4 percent to A$47.86.

Slowing Global Demand

Concern the global economic slump will deepen drove down commodity prices. Crude oil tumbled 6.9 percent to settle at $34.93 a barrel in New York, the steepest drop since Jan. 27. Copper futures slumped 7.2 percent, the most since Oct. 30.

Sony lost 3.1 percent to 1,608 yen on concern global demand for its televisions and video-game consoles will slow further. The company reported a 95 percent plunge in third-quarter profit on Jan. 29. Canon Inc., the world’s biggest digital-camera maker, slid 2.3 percent to 2,310 yen.

“There are looming prospects that corporate earnings will deteriorate even further,” Hiroichi Nishi, an equities manager at Nikko Cordial Securities Inc., said in an interview with Bloomberg Television. “We’re getting ever closer to historic lows, and that weighs on investor sentiment as well.”

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

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