Currency ‘Protectionism’ Will Strengthen U.S. Dollar

By Liz Capo McCormick

March 2 (Bloomberg) -- John Taylor says three decades of currency trading taught him financial turmoil prompts large banks to favor local lending, and that’s why he’s buying U.S. dollars for the biggest foreign-exchange hedge fund.

“Whenever a banking system realizes it’s in big trouble, it says, ‘I have to take care of my next door neighbors and the businesses down the block,” said Taylor, who manages $11.4 billion as chairman of New York-based FX Concepts Inc. “Then that currency of that country, if its banks are big in international lending like in the U.S., will strengthen.”

Evidence of so-called financial protectionism surfaced last week. Stephen Hester, chief executive officer of Royal Bank of Scotland Group Plc, said Feb. 26 that the U.K.’s largest government-controlled bank will cut back or withdraw from 36 of 54 countries where it operates to focus on its “heartland.”

The pound and franc will also benefit from such moves, while currencies of New Zealand and other nations dependant on international banking will suffer, said Hans-Guenter Redeker, BNP Paribas SA’s chief currency strategist in London. He predicts the dollar will strengthen about 4.8 percent to 1.20 per euro by June 30.

Concern about home-lending favoritism follow pledges by governments around the world of more than $10 trillion to prop up banking systems. More than $1.1 trillion of writedowns and losses created the worst financial crisis since the 1930s and triggered a global recession.

Protectionist Measures

U.S. President Barack Obama’s $787 billion stimulus plan, enacted last month, includes “Buy American” provisions. French President Nicolas Sarkozy created a fund in November to protect “strategic” companies from “foreign predators.” Russia increased duties on automobile imports in December, while India limited steel imports and imposed tariffs on soybean oil.

Historians blame a trade war during the Great Depression, starting with the U.S. passage of the Smoot-Hawley Tariff Act in 1930, for deepening the worldwide economic slump. History also shows that exchange rates are vulnerable to protectionist threats, said Derek Halpenny, the London-based European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. The dollar slid to a record low in April 1995 of 79.75 yen after the U.S. threatened to impose tariffs on Japan.

Redeker said financial protectionism adds a layer of danger to foreign exchange markets, where trading increased to $3.2 trillion a day as international banks expanded.

Royal Bank of Scotland

“The problem is that many banks that operate internationally have received government funds,” Redeker said. Those banks will be pressured into “prioritizing local markets and withdrawing from abroad at an increasingly rapid rate. This will be quite negative for those countries that don’t have a strong enough banking system on their own and have in the past relied on banking from abroad.”

After posting the biggest loss in U.K. history, Edinburgh- based Royal Bank of Scotland plans to boost lending to U.K. homeowners and businesses by 50 billion pounds ($71.1 billion) as part of an agreement with the government to shift 325 billion pounds of investments into a state insurance program.

Declines in the shares of financial companies helped push the Standard & Poor’s 500 Index to a 12-year low last week, on concern the deepening recession will force banks to seek more government aid. The premium banks charge each other for short- term loans, a barometer of willingness to lend known as the Libor-OIS spread, was 1.02 percentage points Feb. 27, about 10 times the average for the decade before August 2007.

Dollar Index

The dollar rose to the highest in almost three years against the currencies of six major U.S. trading partners on Feb. 27 as investors sought refuge in the world’s preferred reserve currency. The Dollar Index, which the ICE exchange uses to track the U.S. currency versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, reached 88.490, the highest level since April 2006. It’s up 8.2 percent this year.

Last month was the worst for the yen against the dollar since 1995 as Japan’s currency weakened 7.85 percent. The euro depreciated versus the dollar too, losing 1.2 percent last week and New Zealand dollar declined 2.1 percent against its U.S. counterpart.

The yen was little changed today at 97.46 per dollar as of 12:46 p.m. in Tokyo. The euro fell 0.7 percent to $1.2579.

For Taylor of FX Concepts, who worked at Citibank until 1979, today’s markets are reminiscent of the late 1970s and early 1980s. Oil prices more than doubled and the Federal Reserve lifted its target rate for overnight loans to 20 percent by March 1980 from 10 percent at the beginning of 1979, leading the U.S. into a recession that lasted from January to July 1980. The Dollar Index surged 22 percent between the end of 1979 and the close of 1981.

‘Road to Disaster’

Damage caused by past bouts of trade restrictions may limit barriers from rising. After a January gathering in Rome, policy makers from Group of Seven nations said in a statement that they were “committed to avoiding protectionist measures, which risks exacerbating the downturn.”

“World leaders recognize that any kind of protectionism leads us down the same road to disaster,” said Ward McCarthy, a former Fed economist who is now a principal at Stone & McCarthy Research Associates in Skillman, New Jersey. “Even though this ugly word -- protectionism -- has cropped up, it doesn’t seem to be gaining any momentum as far as government economic or financial stability programs are concerned.”

Citigroup Inc. CEO Vikram Pandit said in a Jan. 16 conference call that the U.S. wasn’t pressuring the bank to restrict international lending. The government ratcheted up its effort to save Citigroup on Feb. 27, agreeing to a third rescue attempt that will cut existing shareholders’ stake in the New York-based company by 74 percent.

Helping the Economy

Kenneth D. Lewis, CEO of Bank of America Corp., the largest U.S. bank by assets, acknowledged that helping the U.S. economy goes hand in hand with accepting federal funding.

“With expanded investment in our company by the federal government, we intend to play a major role in restoring the economy of United States to a healthy rate of growth,” he said during a Jan. 16 conference call. “We will do this by providing credit to consumers, small and large businesses and state and local governments. Bank of America acknowledges the responsibilities of the company in the use of public funds.”

The World Bank, the European Bank for Reconstruction and Development and the European Investment Bank said Feb. 27 they will provide as much as 24.5 billion euros ($30.8 billion) to help central and east European banks and businesses cope with the global financial crisis and refinance foreign-currency loans.

Ratings Cuts

Shares of eastern European banks touched six-year lows and the Polish zloty, Hungarian forint, and Czech koruna slid after Moody’s Investors Service said in a Feb. 17 report that it may cut the debt ratings of western European banks exposed to mounting bad debts in the continent’s developing economies.

The South Korean won, Australian dollar, and currencies of smaller countries dependant on trade are most at risk from a rise in protectionism, said David Woo, the London-based global head of foreign-exchange strategy at Barclays Plc.

The International Monetary Fund cut its estimate for world growth to 0.5 percent in January from 2.2 percent, the weakest pace since World War II. South Korea’s economy will shrink 4 percent this year, the IMF forecasts.

“As governments direct significant amounts of public money to shore up the banking system and in an attempt to stabilize domestic job markets, there is increasing political pressure to appear to focus on domestic problems,” said Mark Konyn, Hong Kong-based chief executive officer of RCM Asia Pacific Ltd., which oversees $11 billion in assets. “Protectionism is a threat to the recovery.”

To contact the reporter on this story: Liz Capo McCormick in New York at Emccormick7@bloomberg.net.

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Copper Leads Industrial Metals Lower on Slumping U.S. Economy

By Glenys Sim

March 2 (Bloomberg) -- Copper fell in Asia, leading a decline in most industrial metals, as the U.S. economy contracted at the steepest rate in more than 25 years, renewing concern the global recession is deepening.

The slump in prices also triggered losses in related equities. Consumer spending in the U.S., the largest buyer after China, fell at the fastest pace in almost 30 years, according to Commerce Department data. Japan’s manufacturers cut production by a record in January, the Trade Ministry said in a report Feb. 27.

“Economic data continues to be poor as the effects of government spending will only become more apparent in the second half of the year,” Chen Yonglin, an analyst at Citic Securities Co., said from Shanghai today. “Coupled with expectations for a weaker dollar ahead, we may start seeing support for metal prices only at the end of the year.”

London Metal Exchange copper fell as much as 2.9 percent to $3,350 a metric ton and was at $3,365 as of 11:11 a.m. Singapore time, extending a 1.5 percent decline Feb. 27. Copper for May delivery on the Shanghai Futures Exchange dropped as much as 2 percent to 27,300 yuan ($3,990) a ton before trading at 27,500 yuan.

“The domestic market will continue to consolidate in the 26,000 to 28,000 yuan range in the near term,” said Chen. “Downstream consumers are not willing to buy above 30,000 yuan, while we see purchasing activity pick up when prices fall near 25,000 yuan,” said Chen.

Jiangxi Copper

Jiangxi Copper Co., China’s largest copper producer by output, dropped 2.3 percent to 15.12 yuan, after declining as much as 6.5 percent, at 11:16 a.m. in Shanghai. In Hong Kong trading, the stock tumbled 6.5 percent.

Aluminum Corp. of China Ltd., the nation’s biggest producer of the metal, dropped 2.7 percent to 8.82 yuan, after slipping as much as 6.6 percent. In Hong Kong the stock dropped 5.1 percent.

The Commerce Department said on Feb. 27 that the U.S. economy shrank at a 6.2 percent annual pace in the three months to December, the most since 1982 and more than the government had previously estimated.

Nickel, the worst performer on the LME this year, fell for a third day, dropping as much as 0.3 percent to $9,975 a ton as the global recession cut demand for the metal used in stainless steel.

There is speculation that China’s State Reserve Bureau may buy 10,000 to 20,000 tons of nickel, according to Southwest Futures Co.’s analyst Jia Zheng.

“It isn’t a lot so I doubt it will impact prices, but I think the main reason would be to support domestic producers, which have acquired a lot of mines in peripheral regions in the past few years,” said Jia.

Among other LME-traded metals, aluminum was down 0.5 percent at $1,335 a ton, zinc dropped 0.3 percent to $1,125 a ton and lead gained 0.8 percent to $1,054 a ton.

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

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Euro Slides to One-Week Low as EU Rejects East Europe Aid Call

By Ron Harui

March 2 (Bloomberg) -- The euro fell to a one-week low against the dollar after European Union leaders rejected calls to back an aid package for eastern Europe, fueling concern the financial crisis will deepen the region’s recession.

Europe’s single currency dropped for a second day versus the greenback as EU leaders vetoed Hungary’s proposals for 180 billion euros ($227 billion) of loans to ex-communist economies in eastern Europe. The Dollar Index rose to a 2 1/2-year high as declines in Asian stocks stoked demand for safety. New Zealand’s dollar slid to a 6 1/2-year low as its Treasury Department said the country’s economy may shrink more than expected this year.

“There’s disappointment that nothing really concrete came out of the EU’s weekend meeting and their failure to address eastern Europe’s problems,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The bias is for the euro to be sold” to $1.2528 today, he said.

The euro fell to $1.2585 as of 3:01 p.m. in Tokyo from $1.2669 late in New York on Feb. 27. It earlier reached $1.2546, the weakest since Feb. 19. It dropped to 122.68 yen from 123.61 yen. The currency traded at 88.47 British pence from 88.51 pence.

The yen traded at 97.48 per dollar from 97.57 in New York on Feb. 27. It climbed 1.6 percent to 48.15 against New Zealand’s dollar and gained 1 percent to 61.73 versus Australia’s dollar.

Japan’s currency rose to a record high of 16.34974 against South Korea’s won from 15.77687 late in Asia on Feb. 27. The won weakened on concern that sliding exports will starve the nation of foreign exchange banks need to make payments on overseas debt.

The ICE’s Dollar Index, which tracks the greenback versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, gained to 88.822, the highest level since April 2006.

‘Very Different’

The euro declined for a second day versus the yen as EU leaders also told automakers such as General Motors Corp.’s European arm to look to national governments for help.

“I would advise against taking huge numbers into the debate,” German Chancellor Angela Merkel told reporters at an EU summit in Brussels yesterday. “I see a very different situation -- you can compare neither Slovenia nor Slovakia with Hungary.”

Government steps to stabilize the credit and money markets have “appeared to gain traction” in recent months, the Bank for International Settlements said today in its quarterly report.

At the same time, “signs of dysfunction continued,” the Switzerland-based BIS said.

The U.S. and Japanese currencies strengthened as Asian equities slumped, with the Nikkei 225 Stock Average falling 3.9 percent and the MSCI Asia-Pacific Index of regional shares dropping 3.6 percent.

“Risk aversion is re-emerging, so the dollar and the yen are being bought,” said Yuji Saito, head of the foreign- exchange group in Tokyo at Societe Generale SA, France’s third- largest bank. “Investors appear to be repatriating funds.”

Rising Volatility

Implied volatility on one-month euro-yen options rose to 24.15 percent today from 23.38 percent on Feb. 27, suggesting a greater risk of exchange-rate fluctuations that can erode profit on so-called carry trades.

In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher rates. The risk is that market moves can erase those profits. Japan’s benchmark interest rate is 0.1 percent, compared with 3.25 percent in Australia and 3.50 percent in New Zealand.

Australia’s central bank will lower rates to 3 percent or less at a meeting tomorrow, according to 14 of the 18 economists surveyed by Bloomberg News. New Zealand policy makers will lower benchmark borrowing costs by at least 0.75 percentage point on March 12, a separate Bloomberg News survey shows.

The Australian dollar fell 0.8 percent to 63.35 U.S. cents, and the New Zealand dollar declined 1.4 percent to 49.40 cents after touching 49.12 cents, the lowest since November 2002.

‘Big Trouble’

The dollar also rose on concerns banks will restrict lending abroad amid the global recession.

“Whenever a banking system realizes it’s in big trouble, it says, ‘I have to take care of my next door neighbors and the businesses down the block,’” said John Taylor, who manages $11.4 billion as chairman of New York-based FX Concepts Inc. “Then that currency of that country, if its banks are big in international lending like in the U.S., will strengthen.”

Evidence of so-called financial protectionism surfaced last week. Stephen Hester, chief executive officer of Royal Bank of Scotland Group Plc, said Feb. 26 that the U.K.’s largest government-controlled bank will cut back or withdraw from 36 of 54 countries where it operates to focus on its “heartland.”

‘More Unwinding’

The yen may extend its worst month in 13 years into March on speculation traders will keep reducing holdings of long positions in the currency that bet on a rise in the exchange rate, according to Standard Chartered Plc.

“With the yen continuing to weaken, we would expect to see more unwinding of yen long positions in the coming weeks,” analysts led by Callum Henderson, Singapore-based head of global currency strategy at Standard Chartered, wrote in a research note today.

Figures from the Washington-based Commodity Futures Trading Commission showed on Feb. 27 the difference in the number of wagers by hedge funds and other large speculators on a gain in the yen compared with those on a drop -- so-called net longs -- was 28,635 on Feb. 24, compared with net longs of 36,188 a week earlier.

Japan’s currency weakened 7.9 percent versus the dollar in February, the poorest month since August 1995.

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

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AIG May Get $30 Billion, Loan Relief in Latest U.S. Bailout

By Hugh Son, Zachary R. Mider, and Rebecca Christie

March 2 (Bloomberg) -- American International Group Inc., the insurer deemed too important to fail, may get as much as $30 billion in new capital and have debts to the U.S. forgiven in the firm’s third bailout, people familiar with the matter said.

AIG agreed to give stakes in its two biggest international life insurance divisions to the government to erase some of the New York-based firm’s approximately $37 billion in debt, said three people, who declined to be named because the plan hasn’t been announced yet. AIG may post a record fourth-quarter loss of about $60 billion, the people said.

The insurer, first saved from collapse in September with a package that grew to $150 billion last year, had to ask for help again after failing to sell enough units to repay the U.S. Firms including banks relied on AIG to back more than $300 billion of assets through derivative contracts as of Sept. 30, making the company a “systemically significant failing institution” that has to be propped up, according to the Treasury.

“The government has accepted all the downside with little chance of upside,” said Phillip Phan, professor of management at the Johns Hopkins Carey Business School in Baltimore. “They are trying to protect the global financial system from a complete meltdown.”

The U.S. will be entitled to proceeds from the eventual sale of the two life units, American Life Insurance Co. and American International Assurance Co., and a 5 percent dividend from the new trusts that will hold the businesses, the people said. AIG continues to seek bidders for the operations, which span five continents, a person said.

Life Insurance

AIG may try to pay back the $37 billion within two months, partly by turning over the life units and giving the government rights to the cash flow from tens of thousands of life insurance policies, said one of the people. The insurer may wind up having to put up cash as well to retire the debt, the person said.

AIG will be subject to the most severe of compensation limits on companies getting government aid, according to another person familiar with the situation. Those restrictions were strengthened in the $787 billion stimulus bill enacted last month. The Treasury may release new guidelines on the limits as soon as this week, the person said.

Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben S. Bernanke concluded AIG’s latest rescue was the least costly of several alternatives the U.S. had to prevent an economic collapse caused by the firm’s failure, the person said.

The role of the government has shifted from that of short- term lender -- entitled to interest at the 3-month London Interbank offered rate plus 8.5 percent for a two-year loan under the first bailout -- to a longer-term equity investor.

More Capital

“We priced their capital punitively and forced them to sell things fast; that hasn’t worked either so we’re having to pump in more capital,” said Haag Sherman, who helps oversee $8 billion as chief investment officer of Houston-based Salient Partners. “This probably won’t be the last time AIG has to come to the trough.”

AIG will also separate the unit that provides property and liability coverage for commercial clients and may sell a 19.9 percent stake to the public within 12 months, one of the people said. That business, which was previously intended to be the core of AIG after the U.S. rescue, has lost employees and may get a new brand to distance itself from AIG. The insurer’s shares plunged about 90 percent since its September bailout.

The U.S. Treasury agreed to pump as much as $30 billion more into the company by buying preferred equity of AIG if the insurer needs it, one person said, adding to the $40 billion capital investment the government made last year. David Monfried, an AIG spokesman, and Isaac Baker of the Treasury declined to comment.

Global Decline

AIG sought a revised bailout after the global decline in financial firms thinned the pool of potential buyers for units, increasing the chance that auctions wouldn’t raise enough money to pay back AIG’s loans. Under the new plan, AIG will be under less pressure to divest assets as it continues to seek buyers for operations including an aircraft-leasing business, an auto insurer, and a retirement-services operation.

The insurer had been in talks in the past week with regulators to restructure its bailout to stave off credit-rating downgrades that would have caused further costs tied to credit- default swaps. AIG got an $85 billion federal loan in September after credit-rating downgrades left the company facing more than $10 billion in potential payments to debt investors who bought swaps from the insurer to protect against losses.

Downgrades by Moody’s Investors Service and Standard & Poor’s would force AIG to post more than $7 billion in collateral to counterparties, the insurer said in a November filing. AIG’s units may also lose access to the U.S. commercial paper program if they are downgraded, the company said.

Liddy’s Plan

Chief Executive Officer Edward Liddy, appointed by the government to run AIG in September when the insurer agreed to turn over an 80 percent stake to the U.S., had struck deals to raise about $2.4 billion through asset sales. Under Liddy’s plan, revealed in October, AIG was to emerge as a firm mostly providing property-casualty coverage to businesses.

Liddy said AIG was on the “road to recovery” after securing a bailout valued at $150 billion in November. That package included the $60 billion credit line, a $40 billion capital investment and $50 billion to wind down liabilities tied to mortgage-backed securities the insurer owned or backed through swaps. Liddy said then that terms of the original rescue, disclosed a day after Lehman Brothers Holdings Inc. collapsed, were unsustainable.

Under Investigation

AIG is winding down the trades and closing the unit that sold the swaps. The unit is under investigation by the U.S. Department of Justice, the Securities and Exchange Commission and U.K.’s Serious Fraud Office. The U.S. probes involve how AIG executives valued its swap portfolio and disclosed information about the contracts to investors, AIG said in a November regulatory filing.

AIG, once the world’s largest insurer, operates in more than 100 countries, providing protection to individuals and businesses. It insures against some of the biggest risks, covering planes and commercial shipping and providing protection against terrorist attacks.

The biggest insurers in North America posted more than $150 billion in writedowns and unrealized losses linked to the collapse of the mortgage market from the start of 2007, with AIG representing more than a third of that total. The company has units that insure, originate and invest in home loans.

The U.S. Senate’s banking committee has scheduled a hearing for March 5 to discuss AIG’s bailout and the government involvement. New York Insurance Superintendent Eric Dinallo and Donald Kohn, vice-chairman of the Federal Reserve Board of Governors, were scheduled to testify.

To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Zachary R. Mider in New York at zmider1@bloomberg.net; Rebecca Christie in Washington at rchristie4@bloomberg.net

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Palm Oil Futures in Malaysia Slump on Concern Demand May Drop

By Claire Leow and Pratik Parija

March 2 (Bloomberg) -- Palm oil futures dropped in Kuala Lumpur on investors’ concerns that the global recession may curb demand for the commodity, including in China and India, the world’s two most populous nations.

“The China-India story, which drove the commodity price rally in 2007, 2008, appears to have fizzled out with the current economic crisis,” said Chan Wei Siang, a soft commodities analyst at Rabobank International in Singapore. There was an “uncertain demand picture,” said Chan.

Exports of palm oil from Malaysia, the world’s second- largest producer after Indonesia, fell 8.3 percent in February to 1.17 million metric tons from the previous month, independent surveyor Intertek said on Feb. 28. China and India are the biggest consumers of palm oil.

Palm oil for May delivery fell 5 ringgit, or 0.3 percent, to 1,890 ringgit ($507) a ton at the 12:30 p.m. trading break on the Malaysia Derivatives Exchange. The most-active contract, which dropped as much as 0.9 percent today, has slumped 56 percent over the past year.

China’s economy, the world’s third-largest, expanded 6.8 percent in the fourth quarter, the slowest pace in seven years. India’s economy grew 5.3 percent in the last quarter, the slowest pace since 2003, according to data released Feb. 27 by the country’s statistics agency.

Palm oil also dropped today as crude prices fell. Palm oil can be used as a fuel additive as well as a cooking ingredient, and declines in energy prices can drive palm futures lower.

Crude oil for April delivery fell as much as $1.23, or 2.8 percent, to $43.53 a barrel in electronic trading on the New York Mercantile Exchange. The contract was at $43.62 a barrel at 1:24 p.m. Singapore time.

To contact the reporters for this story: Claire Leow in Singapore at cleow@bloomberg.net; Pratik Parija in New Delhi at pparija@bloomberg.net

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West Australian Oil, Iron Ore Operations Restart After Storm

By Jesse Riseborough

March 2 (Bloomberg) -- Santos Ltd., Australia’s third- biggest oil and gas producer, resumed output at its Mutineer- Exeter oil field off the nation’s northwest coast after the storm threat that closed the operation last week eased.

Output from the field was halted for three days and resumed late last night, Matthew Doman, a spokesman at Adelaide-based Santos, said today by telephone.

A tropical low weather system formed off the northwest coast last week, closing rigs, dumping rain on mines, forcing an iron ore port to close and disrupting rail services. Australia’s northwest, where most of the nation’s oil and gas is pumped, may have more cyclones than average this season, according to a forecast by the Bureau of Meteorology.

A new tropical low has formed off the northwest coast of Western Australia and is expected to develop into a tropical cyclone in the next 12 to 18 hours, the bureau said today in a warning on its Web site.

Woodside Petroleum Ltd., the country’s second-largest oil and gas producer and operator of the North West Shelf liquefied natural gas venture, hasn’t lost any output, Roger Martin, a Perth-based spokesman, said today by phone. Staff evacuated from three rigs in the area during the weekend will return today.

Apache Corp. last week halted production at its Stag and Legendre platforms and removed non-essential staff from its Varanus Island gas facility. Perth-based Apache spokesman David Parker wasn’t immediately able to comment on whether operations had resumed.

BHP, Rio, Fortescue

BHP Billiton Ltd.’s operations in the region were unaffected, Peter Ogden, a Melbourne-based spokesman for the world’s biggest mining company, said today by phone.

All Rio Tinto Group iron ore mines are working and all rail services, except for the Mesa J line, are returning to normal, Gervase Greene, a Perth-based spokesman for the world’s second- largest iron ore exporter, said today in an e-mailed statement.

Fortescue Metals Group Ltd., Australia’s third-largest iron ore miner, is loading ships with ore though mining at its Cloud Break operations were suspended yesterday because of water in the mine’s pit, spokesman Cameron Morse said.

Port Hedland, used by BHP and Fortescue to ship iron ore out of the Pilbara, and nearby Port Dampier reopened yesterday after being closed a day earlier.

To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net;

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Dongkuk Steel Cuts Ship-Plate Price 21% on Economy

By Sungwoo Park

March 2 (Bloomberg) -- Dongkuk Steel Mill Co., South Korea’s third-largest steelmaker, said it slashed ship-plate price by 21 percent, the second reduction this year, to help customers suffering from the global economic recession.

The price dropped by 240,000 won ($153) a metric ton to 920,000 won a ton, the Seoul-based company said in an e-mailed statement today. The mill, which gets more than half its sales from selling plates, reduced the price by as much as 18 percent in January.

“The company actually brought forward the price-cut timing for about a month than originally planned and expanded the degree of reduction to help ease the cost burden on end-users and share in the economic hardship,” the statement said.

Hyundai Heavy Industries Co., the world’s largest shipbuilder, last week said orders dropped 54 percent in January as the recession reduced demand. Dongkuk accounts for almost 30 percent of ship-plate needs of South Korea, the biggest shipbuilding nation.

Dongkuk Steel lost 5.4 percent to 20,250 won in Seoul today, worse than a 3.7 percent fall in the benchmark stock index Kospi.

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

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Gold Increases as Investors Seek Haven From Financial Turmoil

By Glenys Sim

March 2 (Bloomberg) -- Gold gained in Asia as investors deemed five straight days of losses as excessive amid turmoil in the financial markets.

Bullion tumbled 5.1 percent last week and touched $927.76 an ounce, the lowest since Feb. 11, after a rally to $1,006.29 an ounce on Feb. 20 spurred sales of scrap metal. The Standard & Poor’s 500 Index fell to a 12-year low on Feb. 27 as U.S. equities tumbled.

“The market is still consolidating, investors seem to think around $930 is a good entry level for now,” Dick Poon, manager of the precious metals trading desk at Heraeus Ltd., said from Hong Kong today. “Any negative news will continue to drive investors towards a safe haven.”

Immediate-delivery gold climbed as much as $11.35, or 1.2 percent, to $953.70 an ounce, before trading at $950.60 at 9:52 a.m. in Singapore.

Equities slumped after the U.S. Commerce Department said gross domestic product contracted at a 6.2 percent annual pace in the fourth quarter, the fastest in more than a quarter century. Gold is up 7.8 percent this year as the S&P 500 plunged 19 percent in the same period.

“We’re still seeing a lot of scrap coming onto the market, which is keeping a lid on prices,” said Poon. “Jewelry and manufacturing demand is slow, it’s only the ETF demand that’s driving the market now.”

Assets in the SPDR Gold Trust, the biggest such fund backed by bullion, held at a record 1,029.29 metric tons Feb. 27. Holdings in the fund have increased 32 percent since the start of the year as investors sought haven assets.

Among other precious metals for immediate delivery, silver added 0.9 percent to $13.24 an ounce, platinum gained 1.1 percent to $1,085 an ounce, and palladium was up 0.5 percent at $197 an ounce.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

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China Has No Plans to Buy Nickel for Reserves Now

By Xiao Yu and Glenys Sim

March 2 (Bloomberg) -- China, the world’s largest metals consumer, has no plans to buy nickel for its strategic reserves now, according to the China Nonferrous Metal Industry Association.

There’s “no such plan” for the State Reserve Bureau to buy the metal from domestic smelters, said the association’s Deputy Chairman Wen Xianjun, over the phone in Beijing. Wen didn’t give details. The group advises on government policies.

Wen’s denial comes after Reuters said the country may buy 10,000 metric tons to 20,000 tons of the metal to bolster local smelters, citing unidentified people. China has bought aluminum, zinc, corn and cotton to support domestic producers as prices dropped and exports fell the most in almost 13 years in January.

“We suggested that the government buy about 20,000 tons of nickel around the end of last year when prices were very low,” said Xu Aidong of Antaike. Prices have “recovered a bit,” Xu said.

Nickel futures in London have gained 8 percent since Dec. 5, joining other metals in a rally on expectations that China’s planned 4 trillion yuan ($585 billion) stimulus package may increase demand. China plans to build railways, housing and other infrastructure to support sagging growth.

Buying 20,000 tons of the metal would equate to about 10 percent of China’s 2008 production, according to Antaike’s data.

“It isn’t a lot so I doubt it will impact prices, but I think the main reason would be to support domestic producers, which have acquired a lot of mines in the peripheral regions in the past few years,” Jia Zheng, an analyst at Southwest Futures Co., said from Shanghai today.

To contact the reporters on this story: Glenys Sim in Singapore at Gsim4@bloomberg.net; Xiao Yu in Beijing at yxiao@bloomberg.net;

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OSK Says Malaysian Stocks Face ‘Wild Ride’ on Earnings, Economy

By Chan Tien Hin

March 2 (Bloomberg) -- Malaysia’s stocks are in for a “wild ride” this month, said OSK Research Sdn., after the economy expanded at the slowest pace in seven years in the past quarter and companies reported weaker-than-expected earnings.

“We see a lot of uncertainties in March,” OSK analysts Chris Eng and Loke Siew Ting wrote in a report today. The market “appears overpriced and is ripe for a sell-down,” they said.

Companies from casino operator Genting Bhd. to AirAsia Bhd. reported losses in the final quarter of 2008 while Malayan Banking Bhd., the biggest bank, and TM International Bhd. last week said they are seeking a combined 11.3 billion ringgit ($3 billion) from shareholders to boost capital as the worsening global recession erodes earnings.

Malaysia’s central bank last week cut borrowing costs for a third time in consecutive meetings, saying the risk that the economy will shrink in 2009 has risen. The government is preparing to announce a stimulus package on March 10, after saying Feb. 27 gross domestic product grew 0.1 percent in the fourth quarter from a year earlier.

“Corporate news was largely disappointing,” the OSK report said. “Overall, we saw more than 50 percent of the companies under our coverage having their earnings downgraded.”

Malaysia’s benchmark Kuala Lumpur Composite Index slumped 2.1 percent to 872.09 as of 12:21 p.m. local time, set for the biggest decline since Nov. 6. The measure climbed 0.7 percent last month.

The gains last month resulted in the stock index becoming “substantially more expensive than most bourses in the region,” OSK said.

‘Buying Interest’

Malaysia’s stocks are priced at 11.7 times current-year earnings estimates, compared with 9.6 times for Singapore, 9.1 times for the Philippines, and 7.5 times for Thailand, according to data compiled by Bloomberg.

“We see buying interest resuming” ahead of the stimulus package to be announced on March 10 and the party elections by the United Malays National Organization, OSK said, referring to the governing political party. Still, “there is a risk of a sharp sell-down” toward the end of the month after stocks outperformed other regional markets in February, limiting the “upside,” it said.

To contact the reporters on this story: Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net

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Hong Kong Stocks Drop as U.S. Economy Shrinks, Commodities Fall

By Shani Raja

March 2 (Bloomberg) -- Hong Kong stocks fell for the third- straight day, led by exporters and materials companies, as the U.S. economy contracted at the fastest pace in more than 25 years and commodity prices dropped.

Li & Fung Ltd., the biggest supplier of toys and clothing to Wal-Mart Stores Inc. and Target Corp., slumped 6.2 percent. Aluminum Corp. of China, seeking approval for a $19.5 billion investment in Rio Tinto Group, dropped 6 percent. Cnooc Ltd., the biggest Chinese offshore oil producer, lost 5.9 percent after oil retreated. Hang Seng Bank Ltd., the biggest Hong Kong-based bank by market value, dipped 4.4 percent.

“U.S. economic data confirms that things are still accelerating on the downside,” said Nader Naeimi, an investment strategist at AMP Capital Investors in Sydney, which manages about $85 billion. “You’re seeing generalized weakness, where banks are under pressure and commodities have fallen off.” AMP Capital owns shares in Hong Kong.

The Hang Seng Index slumped 3.8 percent to 12,321.04 as of the 12:30 p.m. local-time break, the biggest drop since Dec. 12. The Hang Seng China Enterprise Index, which tracks so-called H- shares, slumped 4.7 percent to 6,576.59.

The Hang Seng Index has lost 14 percent this year, dragging its valuation to 10 times estimated earnings, down from 18.7 times at the beginning of 2008.

GDP Contracts

Li & Fung fell 6.2 percent to HK$16.16. Esprit Holdings Ltd., Hong Kong’s biggest listed clothing retailer, declined 4.6 percent to HK$40.30.

The Standard & Poor’s 500 Index lost 2.4 percent to a 12- year low on Feb. 27 after the Commerce Department said the U.S. economy shrank at a 6.2 percent annual pace in the three months to December, the most since 1982. GDP was projected to contract 5.4 percent, according to the median of 74 estimates in a Bloomberg News survey.

Aluminum Corp., or Chinalco, fell 6 percent to HK$3.48. The metal dropped 1.6 percent to $1,342.25 a ton on Friday, and slipped a further 0.9 percent today. Separately, a measure of six primary metals traded in London declined 1.3 percent.

Cnooc shares dived 5.9 percent to HK$6.40. China Petroleum & Chemical Corp., Asia’s biggest refiner, dipped 4.7 percent to HK$3.86. China Shenhua Energy Co., China’s biggest coal company, slumped 6.6 percent to HK$14.38.

Oil dropped as much as 2.4 percent on the New York Mercantile Exchange on concern energy demand will decline after the U.S. economy contracted faster than anticipated. Power- station coal prices at Australia’s Newcastle port, a benchmark for Asia, last week declined 14 percent to the lowest level since the week ended June. 15.

Banks Drop

Hang Seng Bank, which said after the lunch break that profit declined 46 percent, lost 4.4 percent to HK$83.20. Bank of China Ltd., the nation’s No. 3 lender, fell 3.2 percent to HK$2.10. Trading in shares of HSBC Holdings Plc, Europe’s biggest bank, was halted amid speculation it will raise $17 billion to bolster capital.

“Investors once again are starting to speculate who will be next to go belly up, who will need to raise capital and how much more is to be written off from banks’ books,” said Naeimi.

Hong Kong Exchanges & Clearing Ltd. dropped 7.4 percent to HK$57.90 after Morgan Stanley cut its price estimate on the stock by 13 percent to HK$33, saying the shares are too expensive relative to profit.

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

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Japanese Stocks Fall on Wage Drop, U.S. GDP; Inpex Declines

By Masaki Kondo

March 2 (Bloomberg) -- Japanese stocks fell, sending the Nikkei 225 Stock Average to its sharpest drop in six weeks, as contractions in the U.S. economy, domestic wages and commodities prices signaled a deepening of the global recession.

Canon Inc., which gets a third of its sales from the Americas, sank 4.9 percent after the U.S. gross domestic product shrank the most in a quarter century. Isetan Mitsukoshi Holdings Ltd., Japan’s No. 1 department store operator, plunged 7 percent as the nation’s wages fell for a third month. Mitsubishi UFJ Financial Group Inc. lost 6.8 percent after a government move that cut shareholders’ stake in Citigroup Inc. drove down U.S. bank stocks. Inpex Corp. lost 7.8 percent after crude fell.

“We don’t know yet how long this global recession will last,” said Hisakazu Amano, head of fund management at Tokyo- based T&D Asset Management Co., which oversees about $39 billion. “With the market dominated by an atmosphere of malaise and despair, there are few people who dare to buy.”

The Nikkei 225 declined 288.27, or 3.8 percent, to close at 7,280.15 in Tokyo, the steepest drop since Jan. 15. The broader Topix index fell 22.12, or 2.9 percent, to 734.59, with all but one of its 33 industry groups retreating.

The Nikkei lost 15 percent this year through Feb. 27 as concern grew that government and central bank measures will fail to prevent a prolonged global economic slump. Almost 50 percent of the gauge’s constituents have seen their values fall by at least half in the 12 months to Feb. 27, according to data compiled by Bloomberg news.

The Commerce Department said on Feb. 27 that the U.S. economy shrank at a 6.2 percent annual pace in the three months to December, the most since 1982 and more than the government had previously estimated. The same day, Standard & Poor’s 500 Index fell 2.4 percent to a 12-year low in New York.

Japanese wages sank 1.3 percent in January from a year earlier, the third-straight monthly decline, the Labor Ministry said today. Overtime pay retreated at the fastest pace ever, indicating manufacturers are paring output.

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

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Asian Stocks Fall as Global Recession Deepens; Samsung Declines

By Jonathan Burgos and Masaki Kondo

March 2 (Bloomberg) -- Asian stocks tumbled, dragging the Nikkei 225 Stock Average down the most in six weeks, and U.S. futures fell as declines in Japanese wages and South Korean exports fueled concerns the global recession is deepening.

Mitsubishi UFJ Financial Group Inc., Japan’s largest bank, retreated 6.8 percent as bond risk rose and the nation’s wage declines accelerated in January. Hynix Semiconductor Inc., Asia’s second-biggest maker of memory chips, slumped 4.2 percent in Seoul after the country’s exports dropped for a fourth month in February. BHP Billiton Ltd., the world’s largest mining company, lost 3.1 percent in Sydney as metal and oil prices slumped. Treasuries rose for the first time in a week.

“We don’t know yet how long this global recession will last,” said Hisakazu Amano, head of fund management at Tokyo- based T&D Asset Management Co., which oversees about $39 billion. “With the market dominated by an atmosphere of malaise and despair, there are few people who dare to buy.”

The MSCI Asia Pacific Index dropped 3.6 percent to 72.48 at 2:13 p.m. in Tokyo. The gauge has fallen 19 percent in 2009, extending last year’s record 43 percent tumble, as recessions in the world’s largest economies hurt earnings at companies from BHP to Toyota Motor Corp., the world’s largest automaker.

The Nikkei 225 Stock Average declined 4 percent, the most since Jan. 15, to 7,272.42. Hong Kong’s Hang Seng Index sank 3.8 percent, while South Korea’s Kospi slid 3.7 percent. All markets open for trading declined.

Commonwealth Bank of Australia fell 4.6 percent after Moody’s Investors Service downgraded the ratings outlook for the nation’s three biggest banks. Macquarie Group Ltd., Australia’s No. 1 investment bank, sank 7.1 percent, as it said it had no outstanding capital commitments to its listed funds. HSBC Holdings Plc, Europe’s biggest bank, was halted from trading in Hong Kong on speculation it may raise funds to bolster capital.

Worsening Recession

Futures on the Standard & Poor’s 500 Index dropped 1.7 percent today. The gauge fell 2.4 percent to a 12-year low on Feb. 27 after the Commerce Department said the U.S. economy shrank in the three months to December by the most since 1982. Citigroup Inc. tumbled 39 percent the same day as a government move to cut shareholders’ stakes in the company by 74 percent drove down U.S. bank stocks.

The worsening global recession has pummeled Asian exports, prompting companies from Toyota to Sony Corp. to fire workers and halt factory lines. Monthly wages in Japan fell 1.3 percent from a year earlier, after declining 0.8 percent in December, the Labor Ministry said in Tokyo today.

Mitsubishi UFJ tumbled 6.8 percent to 423 yen in Tokyo. Mizuho Financial Group Inc., Japan’s second-largest bank, lost 4.3 percent to 180 yen.

Government Support?

Governments from the U.S. to China and Australia have introduced policies this year to ease the financial crisis and revive the global economy. Japan may buy as much as 10 trillion yen ($102 billion) in corporate bonds held by banks, the Mainichi newspaper reported today.

“We’ll see more statistics that show the deterioration of the global economy,” Seiji Arai, a strategist at Mitsubishi UFJ Securities Co., said in an interview with Bloomberg Television. “In Tokyo, there is growing optimism that the government will take measures to shore up the stock market and implement additional economic measures.”

Even so, the European Union leaders spurned pleas for special aid for eastern Europe and a rescue package for automakers amid concerns over surging budget deficits.

The cost of protecting Asia-Pacific bonds from default jumped, according to traders of credit-default swaps. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 17.5 basis points, according to ICAP Plc.

Copper, Oil

Hynix slumped 4.2 percent to 8,280 won. Samsung Electronics Co., the world’s biggest memory-chip maker, sank 2.3 percent to 466,000 won. South Korea’s overseas shipments decreased 17.1 percent in February from a year earlier following January’s record 33.8 percent slump, the government reported today.

BHP dropped 3.1 percent to A$27.95 as copper futures in New York lost 0.9 percent in after-hours trading, extending Feb. 27’s 2.6 percent drop. Oil in New York slipped 1.9 percent today.

Rio Tinto Group, the world’s third-largest miner, slumped 6.9 percent to A$44.01. Cnooc Ltd., China’s largest offshore oil producer, fell 5.9 percent to HK$6.40 in Hong Kong. Inpex Corp., Japan’s No. 1 oil explorer, lost 6.8 percent to 632,000 yen.

An index of finance stocks on MSCI’s Asia Pacific gauge was the biggest contributor to the regional measure’s decline today. The finance index is the worst performer of 10 industry measures this year, as credit-related losses at institutions worldwide swelled to more than $1.1 trillion.

Raising Capital

In Sydney, Commonwealth Bank fell 4.6 percent to A$28.43, Australia & New Zealand Banking Group slipped 2 percent to A$13.05, while Westpac Banking Corp. lost 3.9 percent to A$16.24. Moody’s downgraded its ratings outlook on the three banks to negative from stable as the economy slows and bad debts rise.

Macquarie, which last week said it had no plans to raise capital, fell for a 10th day, slumping 7.1 percent to A$15.78. The company said today it wasn’t planning to increase its investment in its listed funds.

HSBC’s Hong Kong shares, which were suspended today, ended last week at HK$56.95. The bank’s U.S.-traded receipts fell 5.1 percent to the equivalent of HK$53.99 on Feb. 27.

The lender may raise about 12 billion pounds ($17 billion) to bolster capital as bad U.S. loans erode earnings, said two people with knowledge of the situation. The lender will consider a rights offering, the people said.

Malayan Banking Bhd., Malaysia’s largest bank by assets, dropped 3.9 percent to 4.90 ringgit after announcing a $1.6 billion share sale to existing shareholders.

To contact the reporter on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net

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BNP Paribas, GDF Suez, Renault, Vivendi: French Equity Preview

By Sandrine Rastello

March 2 (Bloomberg) -- The following is a list of companies whose stocks may have unusual changes in Paris. Symbols are in parentheses after company names and prices are from the last close.

The CAC 40 Index fell 42.36, or 1.5 percent, to 2,702.48, taking last week’s drop to 1.8 percent. The measure declined 9 percent in February. The SBF-120 Index slid 1.3 percent.

BNP Paribas SA (BNP FP): The Belgian state and the bank agreed to extend their takeover accord that was due to expire Feb. 28 until March 6. BNP shares fell 1.21 euros, or 4.4 percent, to 25.99 euros.

GDF Suez SA (GSZ FP): OAO Gazprom is in talks with the French utility to have it join the group that will build the Nord Stream gas pipeline, La Tribune reported, citing the Russian company’s Deputy Chairman Alexander Medvedev. Gazprom also wants GDF Suez to take part in the South Stream pipeline, according to the newspaper. GDF Suez shares fell 19 cents, or 0.8 percent, to 25.29 euros.

PSA Peugeot Citroen (UG FP): European Union regulators said Feb. 28 that they have obtained guarantees from France that its plan of 6 billion euros ($7.6 billion) in loans to two leading carmakers doesn’t have conditions on keeping factories open in the country. Peugeot shares fell 25 cents, or 1.8 percent, to 13.65 euros. Renault SA (RNO FP) shares slipped 25 cents, or 2.1 percent, to 11.53 euros.

Vivendi SA (VIV FP): France’s biggest media company reports full-year earnings before the market opens. The shares rose 18 cents, or 0.9 percent, to 18.97 euros.

To contact the reporter on this story: Sandrine Rastello in Paris at srastello@bloomberg.net.

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Commerzbank, Deutsche Bank, Volkswagen: German Equity Preview

By Andreas Cremer

March 2 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in Germany. Stock symbols are in parentheses and share prices are from the previous close.

The DAX fell 2.5 percent to 3,843.74 on Feb. 27.

Commerzbank AG (CBK GY): Chief Executive Officer Martin Blessing said Germany’s second-largest bank may need more cash from the government, though it’s fine for now, Frankfurter Allgemeine Sonntagszeitung reported. The shares slipped 4 cents, or 1.4 percent, to 2.79 euros.

Deutsche Bank AG (DBK GY): Chief Executive Officer Josef Ackermann feels he has an “obligation” to Germany’s biggest lender, a spokesman for Deutsche Bank said after Sonntag reported that Ackermann is willing to step in as UBS AG’s new chairman. The shares dropped 1.12 euros, or 5.1 percent, to 20.78 euros.

Volkswagen AG (VOW GY): Europe’s largest carmaker said it will cut all 16,500 temporary jobs in global operations this year as the recession and tight credit sap purchases. The shares fell 14.10 euros, or 7 percent, to 188 euros.

To contact the reporter on this story: Andreas Cremer in Berlin at acremer@bloomberg.net.

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Amlin, HSBC, Old Mutual, Kingspan: U.K., Irish Equity Preview

By Thomas Biesheuvel

March 2 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in U.K. and Irish markets today. Stock symbols are in parentheses and prices are from the last market close.

The benchmark FTSE 100 Index slipped 85.55, or 2.2 percent, to 3,830.09. The FTSE All-Share Index fell 2.1 percent to 1,929.75, and Ireland’s ISEQ Index rose 1.2 percent to 2,074.32.

Allied Irish Banks Plc (ALBK ID): Ireland’s biggest lender is scheduled to report earnings. The shares slipped 9.3 cents, or 19 percent, to 38.5 cents.

Amlin Plc (AML LN): Lloyd’s of London’s biggest insurer by market value is scheduled to report earnings. The shares fell 13 pence, or 3.7 percent, to 343 pence.

Keller Group Plc (KLR LN): The company that is building the foundations for the main stadium of London’s 2012 Olympic Games is scheduled to report earnings. The shares advanced 14.5 pence, or 2.5 percent, to 584.5 pence.

Kingspan Group Plc (KSP ID): Europe’s largest maker of flooring and insulation panels is scheduled to report earnings. The shares advanced 6.7 cents, or 3.1 percent, to 2.21 euros.

HSBC Holdings Plc (HSBA): Europe’s biggest bank by market value is scheduled to report earnings. HSBC may also raise about 12 billion pounds ($17 billion) to bolster capital as bad U.S. loans erode earnings, said two people with knowledge of the situation. The shares fell 35.75 pence, or 6.8 percent, to 491.25 pence.

Lloyds Banking Group Plc (LLOY LN): The U.K. lender that took over HBOS Plc last month may have to revise its bonus structure to receive government insurance for more than 250 billion pounds of assets, the Sunday Telegraph said, citing unidentified people familiar with the matter. The shares slipped 16.7 pence, or 22 percent, to 58.3 pence.

Old Mutual Plc (OML LN): Britain’s fourth-biggest insurer, plans to sell its 53 percent stake in South Africa’s Nedbank Group Ltd., the Observer reported, without citing anyone. The shares dropped 5.5 pence, or 12 percent, to 41.5 pence.

Paddy Power Plc (PWL ID): Ireland’s largest bookmaker is scheduled to report earnings. The shares fell 51 cents, or 4.4 percent, to 11 euros.

Pearson Plc (PSON LN): The publisher of the Financial Times is scheduled to report earnings. The shares rose 5 pence, or 0.8 percent, to 659.5 pence.

Premier Foods Plc (PFD LN): The second-largest U.K. bread baker will seek to raise 400 million pounds in a rights offer to reduce debt, the Sunday Times said, without saying where it got the information. The shares dropped 2 pence, or 6.25 pence, to 30 pence.

Royal Bank of Scotland Group Plc (RBS LN): The biggest government-controlled U.K. bank may receive a bid for its Asian units of as much as $3 billion from Australia & New Zealand Banking Group Ltd., South China Morning Post reported, citing people it didn’t identify. The shares fell 5.8 pence, or 20 percent, to 23.2 pence.

Ultra Electronics Holdings Plc (ULE LN): The world’s largest supplier of submarine detection buoys is scheduled to report earnings. The shares advanced 28 pence, or 2.6 percent, to 1,104 pence.

Whitbread Plc (WTB LN): The owner of Premier Inn budget hotels is scheduled to release a trading update. The shares dropped 2 pence, or 0.3 percent, to 746.5 pence.

Xchanging Plc (XCH LN): The U.K. provider of back-office services is scheduled to report earnings. The shares fell 3 pence, or 1.5 percent, to 203 pence.

To contact the reporter on this story: Tom Biesheuvel in London tbiesheuvel@bloomberg.net.

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Accentis, Ahold, BNP, Eni, Fortis, UBS: European Equity Preview

By Nadja Brandt

March 2 (Bloomberg) -- The following companies’ shares may have unusual price changes in European trading. Stock symbols are in parentheses, and prices are from the previous close.

The Dow Jones Stoxx 600 lost 1.8 percent to 172.92. The Dow Jones Stoxx 50 Index dropped 2.3 percent to 1,770.41. The Euro Stoxx 50 Index, a benchmark for the nations using the euro, decreased 2.2 percent to 1,976.23.

Accentis NV (ACCB BB): The real-estate developer said 2008 net income fell 23 percent to 748,000 euros. The company expects 2009 profit before markdowns of 3.9 million euros with rental income of 19.6 million euros. Accentis shares were unchanged at 3 cents.

BNP Paribas SA (BNP FP): The Belgian state and the bank agreed to extend a takeover accord, due to expire Feb. 28, until March 6. BNP shares fell 1.21 euros, or 4.4 percent, to 25.99 euros.

Brisa-Auto Estradas de Portugal SA (BRI PL): Portugal’s biggest highway operator said full-year net income fell 42 percent to 151.8 million euros. The stock declined 4 cents, or 0.9 percent, to 4.66 euros.

Commerzbank AG (CBK GY): Chief Executive Officer Martin Blessing said Germany’s second-largest bank may need more cash from the government, though it’s fine for now, Frankfurter Allgemeine Sonntagszeitung reported. The shares slipped 4 cents, or 1.4 percent, to 2.79 euros.

Deutsche Bank AG (DBK GY): Chief Executive Officer Josef Ackermann feels he has an “obligation” to Germany’s biggest lender, a spokesman for Deutsche Bank said after Sonntag reported that Ackermann is willing to step in as UBS AG’s new chairman. The shares dropped 1.12 euros, or 5.1 percent, to 20.78 euros.

Eni SpA (ENI IM): Italy’s biggest energy company supports the planned trans-Saharan pipeline that would carry natural gas from Nigeria to Europe through Algeria, Chief Executive Officer Paolo Scaroni said. Eni fell 0.5 percent to 15.86 euros.

Fortis (FORB BB): The financial-services company, the Belgian state and BNP Paribas SA agreed to extend their takeover accord that was due to expire on Feb. 28 until March 6. The agreement was extended “in view of the continued discussions between the parties,” Fortis said. Fortis shares rose 7.1 cents, or 5.7 percent, to 1.322 euros.

GDF Suez SA (GSZ FP): OAO Gazprom is in talks with the French utility to have it join the group that will build the Nord Stream gas pipeline, La Tribune reported, citing the Russian company’s Deputy Chairman Alexander Medvedev. Gazprom also wants GDF Suez to take part in the South Stream pipeline, according to the newspaper. GDF Suez shares fell 19 cents, or 0.8 percent, to 25.29 euros.

HSBC Holdings Plc (HSBA): Europe’s biggest bank by market value is scheduled to report earnings. HSBC may also raise about 12 billion pounds ($17 billion) to bolster capital as bad U.S. loans erode earnings, said two people with knowledge of the situation. The shares fell 35.75 pence, or 6.8 percent, to 491.25 pence.

Lloyds Banking Group Plc (LLOY LN): The U.K. lender that took over HBOS Plc last month may have to revise its bonus structure to receive government insurance for more than 250 billion pounds of assets, the Sunday Telegraph said, citing unidentified people familiar with the matter. The shares slipped 16.7 pence, or 22 percent, to 58.3 pence.

Inmobiliaria Colonial SA (COL SM): The property developer taken over by its lenders in April posted a full-year loss of 3.98 billion euros, compared with a year-earlier profit of 74.1 million euros, as the company sold off assets at a loss to repay debt. The stock fell 1 cent, or 7.1 percent, to 13 cents.

PSA Peugeot Citroen (UG FP): European Union regulators said they have obtained guarantees from France that its plan of 6 billion euros ($7.6 billion) in loans to two leading carmakers doesn’t have conditions on keeping factories open in the country. Peugeot shares fell 25 cents, or 1.8 percent, to 13.65 euros. Renault SA (RNO FP) shares slipped 25 cents, or 2.1 percent, to 11.53 euros.

Royal Ahold NV (AH NA): The Dutch owner of the U.S. Stop & Shop supermarket chain may say fourth-quarter profit fell 12 percent to 230 million euros after the company sold its controlling stake in Schuitema NV. Ahold shares advanced 26.7 cents, or 3.1 percent, to 8.86 euros.

StatoilHydro ASA (STL NO): A suspected fire on oil production ship Aasgard A in the Norwegian Sea on Feb. 28 forced the crew of 48 to man the life boats, Aftenbladet reported citing StatoilHydro ASA spokesperson Gine Wang. The largest Nordic oil and gas producer retreated 2.3 percent to 118 kroner.

Telecom Italia SpA (TIT IM): A merger between Italy’s biggest phone company and Mediaset SpA would be “difficult to bring about” and would run into antitrust problems, Telecom Italia Chief Executive Officer Franco Bernabe told Il Sole 24 Ore. “I don’t think it’s even feasible on a legislative front,” the financial newspaper cited Bernabe as saying in an interview. Telecom Italia fell 0.3 percent to 97 euro cents.

UBS AG (UBSN VX): It’s “impossible” to know when Switzerland’s biggest bank will return to profitability, Chief Executive Officer Oswald Gruebel told Finanz & Wirtschaft. Margins at the private banking division will “fall sharply” and the bank is planning to shed most of its structured-products business, Gruebel said. The stock dropped 68 centimes, or 5.8 percent, to 11.06 francs.

Vivendi SA (VIV FP): France’s biggest media company reports full-year earnings on March 2 before the market opens. The shares rose 18 cents, or 0.9 percent, to 18.97 euros.

To contact the reporter on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net

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Canada's Fourth-Quarter Current Account Moves into Deficit after Nine Years of Surpluses

Daily Forex Fundamentals | Written by RBC Financial Group | Feb 27 09 14:43 GMT |

The current account deficit totaled a seasonally adjusted C$7.486 billion in the fourth quarter, bigger than the consensus forecast for a $5.1 billion shortfall. A slump in the goods trade account combined with a widening investment income deficit resulted in the largest current account deficit since 1993. The weakening in Canada's traded goods surplus was due to declines in both the volume of exports as well as lower prices for commodities like energy. Imports were lower as well, led by declining purchases of energy products and declining imports of auto products, which fell to a 10-year low. In the investment account, lower receipts due to falling yields outside of Canada and higher payments to foreign investors who owned U.S.-dollar-denominated debt (the Canadian dollar lost ground against the U.S. dollar in the quarter), resulted in the deficit rising in the fourth quarter The current account deficit reflects the impact that the slide in commodity prices is having on Canada's economy, with the trade sector's surplus narrowing substantially in the quarter. In the investment account, the flows reflected the impact of the uncertainty in the global financial market as well as the weakening Canadian dollar and low interest rates. In all, this report highlights the erosion in the trade sector and weakening in economic activity in the quarter. Our monitoring of the economy points to a 4% annualized contraction in real GDP in the fourth quarter, sharper than the Bank of Canada's forecast, and data for January are flagging that another hefty decline is likely. While the Bank anticipated that the economy was sliding into recession in late 2008, recent data reports have erred on the weak side and, combined with persistent uncertainty in financial markets, will likely to see policymakers lower the overnight rate one more time when they meet next week. RBC forecasts the Bank will cut in the overnight rate to 0.50% next Tuesday. RBC Financial Group http://www.rbc.com The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.

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