Geithner Says Banks’ Stress-Test Results Will Be ‘Reassuring’

By Michael McKee

May 7 (Bloomberg) -- Treasury Secretary Timothy Geithner said none of the 19 banks subjected to government stress tests are insolvent, which should reassure investors and the public that the U.S. financial system is sound.

While some banks will need to raise more capital, there are a number of ways they can do that and most should be able to do it in the private sector, Geithner said yesterday in an interview with Charlie Rose.

“I think the results will be, on balance, reassuring,” Geithner said. “None of those 19 banks are at risk for insolvency.”

U.S. banks may outline their strategies for adding capital after the Federal Reserve publishes the stress-test results today. The Treasury secretary did not say how many of the 19 will need additional capital.

Geithner said those that do require more funds can raise new common equity from existing shareholders or new investors, convert preferred shares held by private investors or the government into common equity, sell additional assets or, failing that, apply for additional capital from the government.

Bank of America Corp. may need $34 billion, the largest requirement among the biggest banks subjected to the tests, said a person with knowledge of the matter. Citigroup Inc., Wells Fargo & Co. and GMAC LLC are also among the companies judged to need more capital.

Private Capital

Geithner, speaking in Washington, said he expects the “vast bulk” of banks will be able to raise needed capital “through private sources” instead of getting government financing.

“There is very significant cushions in these institutions today, and all Americans should be confident that these institutions are going to be viable institutions going forward,” Geithner said. “What we want to do is make sure that people have confidence that our financial system is going to be able to get through this and going to be able to lend.”

The government will take larger stakes in the banks, either by adding capital or converting preferred shares, “if necessary,” Geithner said, “but we’ll be reluctant to do that” and “we’ll get out as quickly as possible.”

He did not rule out forcing management changes at banks in which the government has a sizeable holding.

Corporate Boards

“We’ll have to make judgments about whether the quality of leadership of those boards is strong enough so that again our interests are met best,” Geithner said. “And our interests are not just as a shareholder, as an investor. We want to make sure the institutions will be strong enough so that we can get out, the private capital will come replace us over time.”

Geithner said he’d welcome banks that want to repay money the government provided through the $700 billion Troubled Asset Relief Program, adding that he expects more than $25 billion will be repaid in the next six to 12 months.

“I think we’ll get significantly more than that back,” Geithner said. “So we have a substantial amount of resources to backstop the system.”

Several banks, including Goldman Sachs Group Inc. and JPMorgan Chase & Co. have said they want to repay TARP funds immediately. If the stress test shows they have enough capital they will be allowed to do that, Geithner said, provided they can borrow in the market without using a Federal Deposit Insurance Corp. guarantee.

Although a big reason the banks want to repay the funds is to end government restrictions on their compensation practices, Geithner suggested the administration is still looking to set parameters for pay at financial institutions.

Excessive Pay

“We had a period where compensation packages just became completely unmoored from reality,” he said. “We’re not going to go back to that system.”

Bank supervisors and the Securities and Exchange Commission will set out “broad standards and principles” for compensation, Geithner said. While they won’t put limits on pay, government has to ensure compensation incentives “don’t create too much risk of excessive risk-taking in the future.”

Release of the stress tests will help the Treasury’s Public-Private Investment Program, designed to help remove bad assets from bank balance sheets by offering government loans to investors willing to purchase them, Geithner said.

Because banks will want to raise capital, “they’ll have strong incentive” to sell those assets at reasonable prices, Geithner said. The PPIP should be “up and running in the next four to six weeks.”

Recession

The biggest U.S. banks went through stress tests to see how they’d weather a broader downturn in a recession that started in December 2007.

The economy shrank at a 6.1 percent annual pace in the first three months of the year, after contracting 6.3 percent in the fourth quarter of 2008. About 5.1 million jobs have been lost since the recession began in December 2007, marking the biggest employment drop in any postwar economic slump.

Geithner said he sees “important signs of some stability” returning to the economy.

A private report yesterday showed companies in the U.S. cut an estimated 491,000 workers from payrolls in April, indicating the worst of the recession’s job losses may have passed. The drop in the ADP Employer Services gauge was smaller than economists forecast and the fewest since October.

“Things feel a little better; people sense a bit more stability and you can see it in behavior,” Geithner said, noting “sustained, day-by-day, week-by-week improvement in consumer and business confidence now for several weeks.”

‘Uncertainty’

Geithner tempered his optimism by saying there’s “a lot of pain across this country” and still “enormous uncertainty.” The nation’s unemployment rate, which reached a 25-year high of 8.5 percent in March, may still rise as the economy recovers.

“It’s not going to feel dramatically better for a while.”

Geithner called the Fed’s outlook for “slightly positive” growth in the second half of this year and an expansion that will “strengthen” next year a “good, independent, credible forecast.”

“The pace of decline is slowing, here and around the world,” Geithner said. “The main thing is a sense of stability.”

Geithner said the economy doesn’t need another stimulus package “at this stage, but that’s something we’ve got to keep an eye on carefully.” Governments have made mistakes in the past by removing extraordinary aid to growth before recovery fully takes hold, he said.

To contact the reporter on this story: Michael McKee in New York at mmckee@bloomberg.net.

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Singapore to Refine Islamic Finance Rules to Boost Industry

By Shamim Adam

May 7 (Bloomberg) -- The Monetary Authority of Singapore said it plans to refine its Islamic finance regulations to boost the industry, betting demand will grow as investors seek alternative assets.

There’s still interest in bonds and other products that comply with Muslim Shariah law amid the global financial crisis, the central bank’s Managing Director Heng Swee Keat said in an interview in Singapore yesterday. The city state will maintain its regulation standards as it grows its Islamic finance market, he said.

“Maintaining a very high standard of regulation is a very important part of this whole development effort,” Heng said. “It’s undesirable to pull the shoots to get it to grow faster. It has to be organic.”

Rising oil wealth and government initiatives have turned Islamic banking and insurance into an industry with $1 trillion in assets globally. Singapore, among Asian nations seeking a larger share of Muslim wealth, is giving incentives for Islamic services as it encourages financial institutions to introduce more products that comply with Shariah law.

“We’ll issue a consolidated set of guidelines to clarify the treatment of Islamic financial activities and how our regulatory rules apply,” Heng said. “We want to make sure that the ground is fertile for various forms of activities.”

Central bank officials from the Middle East and Asia are gathering in Singapore this week for the annual Islamic Financial Services Board summit to discuss the direction and development of the industry.

Sukuk Program

Singapore announced a sukuk, or Islamic bond program, in January as it sought a larger pool of international investors. It issued the debt to the Islamic Bank of Asia, and is “evaluating” requests from others for more of the bonds, Heng said yesterday.

Sales of sukuk worldwide plunged in 2008 as tumbling crude oil prices sapped demand from the Middle East, falling to $13.9 billion from a record $31 billion in 2007, according to data compiled by Bloomberg. Sales have reached $3.4 billion so far this year.

About $1.5 billion of sukuk bonds may be issued in Indonesia, Malaysia and Singapore this year, Heng said.

“That’s not a bad development considering the state” of the global economy, Heng said. “It shows a certain fundamental momentum.”

Indonesia’s first international sale of dollar sukuk drew orders for $4.7 billion, seven times the $650 million of securities on offer, the nation’s debt management office Director General Rahmat Waluyanto said April 17.

Islamic REITs

In June 2008, the Singapore monetary authority said it was seeking to develop a market in Islamic real-estate investment trusts to attract funds from the wealthy in Asia and the Middle East. That may be delayed and the central bank has no plans to hurry the development, Heng said.

“It’s not a good time because the global property market has come down significantly,” he said. “It’s really up to the investors and the financial institutions as they assess the demand for this.”

The central bank is also planning to issue more licenses for Shariah-compliant funds, depending on demand for the products, Heng said.

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

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Asia’s Export-Driven Growth Model Is ‘Broken,’ Roubini Says

By Liza Lin

May 7 (Bloomberg) -- Asia’s export-driven growth model is “broken” and nations in the region need to do more to boost domestic demand, said Nouriel Roubini, the New York University economics professor who predicted the financial crisis.

“The old model of export-led growth is broken,” Roubini said in an interview with Bloomberg in Singapore yesterday. “Unless policy makers find ways of stimulating consumption and private domestic demand, then the growth recovery is going to be, even over the medium term, weaker than otherwise.”

Asia’s developing economies are almost twice as reliant on exports as the rest of the world, with 60 percent of their overseas sales ultimately destined for the U.S., Europe and Japan. The International Monetary Fund yesterday said it expects recessions this year in South Korea, Singapore, Taiwan, Malaysia and Thailand.

“Asia has to find a new model of growth,” said Roubini. “This is happening too slowly and this will make Asia’s recovery lag.”

Asian nations must implement more policies to boost domestic consumption as advanced nations are unlikely to absorb the region’s excess production, Asian Development Bank President Haruhiko Kuroda said May 4. To boost local demand, Asian governments need to spend more on health and education and boost social safety nets to encourage consumer spending and reduce precautionary savings, he said.

‘Weak Outlook’

Exports by developing Asian economies may shrink 10.3 percent this year, after growing 14.7 percent in 2008, the Manila-based ADB predicts. Global trade may contract for the first time since World War II this year, according to the World Trade Organization, as U.S. and European demand slumps.

“A good chunk of Asia is going to be in recession this year, with the exception of China and India,” Roubini said. “Recovery is going to occur next year, but even then I see a weak outlook for the U.S., Europe and Japan, and unless there is a recovery in these economies, the recovery in Asia is going to be less than otherwise.”

Asian policymakers have been responding to the global recession by slashing interest rates and implementing fiscal stimulus packages. Governments in the region have pledged to pump more than $950 billion into their economies through increased expenditure, tax cuts and cash handouts to kick-start local consumer and business spending.

Further fiscal stimulus may be required in Asia given the likely weakness of the recovery in the U.S., Europe and Japan, Roubini said.

‘Long Recovery’

“Greater fiscal stimulus might be necessary,” he said. “One way to stimulate domestic demand in the short run is domestic public demand.”

Economies in Asia face a “long recovery ahead” from the global slowdown and “forceful” fiscal measures are still needed to lift the region out of the recession quickly, the IMF said in a report yesterday.

“Asia’s strong reliance on external demand weigh against the prospects of a speedy turnaround,” the IMF said. “Despite governments’ efforts to invigorate domestic demand, the prospects of a recovery at this stage hinge critically on a rebound in global activity.”

The IMF last month lowered its world economic growth forecasts and said the global recession will be deeper and the recovery slower than previously thought as financial markets take longer to stabilize. The world economy will contract 1.3 percent, it predicts.

The U.S. remains weak and the consensus among analysts that the world’s largest economy may expand in the third and fourth quarter is “too optimistic,” Roubini said.

“Certainly the rate of economic contraction is slowing down from the freefall of the last two quarters,” he said. “We are going to have negative growth to the end of the year and next year the recovery is going to be weak.”

To contact the reporter on this story: Liza Lin in Singapore at Llin15@bloomberg.net.

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Singapore Says Monetary Policy Appropriate Amid Slow Recovery

By Shamim Adam

May 7 (Bloomberg) -- Singapore’s central bank, which devalued the country’s currency last month, said monetary policy remains “appropriate” amid signs the economy may be past the worst of its recession.

“Our assessment at this point is our policy remains appropriate,” Monetary Authority of Singapore Managing Director Heng Swee Keat said in an interview yesterday. “We expect a gradual recovery. It’s not likely to be a sharp rebound.”

The worst global recession since World War II has led to an 11-month slump in Singapore exports, forcing companies including Chartered Semiconductor Manufacturing Ltd. to fire workers and prompting authorities to cut taxes and subsidize jobs. The International Monetary Fund said yesterday the Southeast Asian economy may shrink 10 percent this year.

Prime Minister Lee Hsien Loong’s government expects the economy to contract as much as 9 percent in 2009, the most since independence in 1965. Still, exports rose 10.8 percent in March from the previous month, suggesting the worst may be over. The IMF expects the decline in Singapore’s gross domestic product to narrow to 0.1 percent next year.

It’s “still too early” to predict if GDP will grow in 2010, Heng said. “We will need a recovery in advanced economies before our exports will recover strongly. The good thing is, because we are so open when the global economy recovers, we will be among the first to bounce back quickly.”

Singapore is the worst hit by the global slump among Asia’s export-dependent economies, and is forecast to post the deepest GDP contraction in the region this year, according to the IMF.

No Alternative

Still, there is limited room for the nation to move away from an export-led growth model, and Singapore is better off with its existing economic structure, Heng said.

“There is not a meaningful alternative model than remaining integrated in the global economy,” Nouriel Roubini, the New York University economics professor who predicted the financial crisis, said in Singapore yesterday. “Being open and integrated has been beneficial to this country, apart from the temporary bumps that occur once in a while.”

Singapore’s gross domestic product has shrunk 11.7 percent since the first three months of 2008, according to the central bank. Industrial production fell the most in at least 13 years in March, and exports dropped 17 percent from a year earlier.

The central bank said last month it would adjust the trading range for the island’s currency, a move economists say effectively devalued the exchange rate. The depreciation was less than what traders were expecting, and Heng said April 18 those who expected more were wrong because there was no reason for “any undue weakening.”

Stick to Stance

Changing monetary policy is “not something we do in response to short-term data,” Heng said yesterday. “As long as it’s appropriate, as we take into account medium-term inflation and growth, we will stick to our stance.”

The central bank expects consumer prices to remain unchanged or fall 1 percent this year. Inflation slowed to a 21- month low of 1.6 percent in March.

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

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N.Z. Jobless Rate Rises to 5%, Less Than Central Bank Expected

By Tracy Withers

May 7 (Bloomberg) -- New Zealand’s jobless rate rose less than economists and the central bank expected in the first quarter, driving up the nation’s currency on signs the economy may be heading out of recession.

The unemployment rate increased to a six-year-high 5 percent, Statistics New Zealand said in Wellington today, citing seasonally adjusted figures. The central bank had predicted 5.2 percent and the median estimate of 13 economists surveyed by Bloomberg News was for 5.3 percent.

Signs the worst of New Zealand’s recession may be past prompted currency investors to bet that Reserve Bank Governor Alan Bollard may have finished cutting interest rates. Bollard has reduced the official cash rate by 5.75 percentage points to a record low of 2.5 percent since July to support an economy that is entering is sixth quarter of recession.

“The economy has been in recession for a while now, so it is not a bad outcome,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “The labor market has been deteriorating, but it is happening at a slower pace.”

New Zealand’s dollar rose to 58.77 U.S. cents at 11:55 a.m. in Wellington from 58.35 cents immediately before the report was released. Earlier, it reached a three-week high of 59.04 cents. The yield on a three-year government bond climbed 3 basis points, or 0.03 percentage points, to 3.64 percent.

Bollard last week cut the benchmark interest rate by half a percentage point. He said he was unlikely to raise the rate before late 2010 and may need to lower it further.

Discouraged Workers

To be sure, investors may be misreading the outlook for the labor market and the economy, said Annette Beacher, senior economist at TD Securities in Singapore.

“The unemployment rate rise was capped as the participation rate always declines during a cyclical downturn” in the New Zealand economy, Beacher said.

The participation rate, which measures the proportion of the population working or seeking employment, dropped to 68.4 percent from 69.1 percent in the fourth quarter, matching economists’ median expectation.

The falling participation rate reflects “discouraged workers,” who drop out of the workforce, Beacher said.

The number of people working or seeking work fell 17,000 to 2,297,000 as people who lost jobs moved out of the labor force, the statistics agency said. The number not looking for work or unavailable to work increased 24,000 to 1,061,000.

Employment Slumps

Economists said the jobless rate will keep rising amid a slump in business confidence and hiring intentions, which is prompting companies to fire workers.

Employment fell 1.1 percent, or about 24,000 jobs, in the first quarter, the statistics agency said today. Economists expected employers would shed 22,000 jobs. The decline is the most since the second quarter of 1989.

Business confidence slumped to the lowest since 1974 in the first three months of this year, the New Zealand Institute of Economic Research Inc. said on April 7. A net 65 percent of firms expect the economy will worsen over the next six months.

The same survey showed a net 36 percent expect to fire workers in the next three months, the most since 1991. The net is calculated by subtracting the pessimists from optimists.

Tourism Holdings Ltd., the nation’s largest campervan company, yesterday said it fired 64 workers at its CI Munro manufacturing unit amid slowing demand. Ports of Auckland Ltd., New Zealand’s largest port, will fire about 30 workers to reduce costs amid a slump in shipments, it said last month.

Wage Pressure

The rising unemployment rate will ease pressure on wages and slow spending, justifying Bollard’s decision to cut borrowing costs.

Wages for non-government workers rose 0.5 percent in the first quarter, the slowest pace in five years, the statistics agency said yesterday.

Total actual hours worked gained 0.2 percent from the fourth quarter, the agency said.

Full-time employment fell by 11,000 jobs, or 0.7 percent, in the first quarter after seasonal adjustments.

Part-time employment slumped by 16,000 jobs, or 3.1 percent. Statistics New Zealand adjusts the full-time and part-time employment figures separately, which means they may not add to the total change in employment.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

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Australia Unexpectedly Adds 27,300 Jobs, Pushing Up Currency

By Jacob Greber and Gemma Daley

May 7 (Bloomberg) -- Australian employers unexpectedly added workers in April and the jobless rate dropped, driving the local currency to a seven-month high on signs the nation’s economy is skirting the worst of a global recession.

The number of people employed climbed 27,300 from March, the statistics bureau said in Sydney today. The median estimate of 19 economists surveyed by Bloomberg was for a decline of 25,000. The jobless rate fell to 5.4 percent from 5.7 percent.

Bonds yields rose on speculation the Reserve Bank of Australia’s record round of interest-rate cuts may be close to an end. A New Zealand report today showed that nation’s unemployment rate increased less than expected and U.S. figures yesterday revealed companies cut fewer jobs in April, adding to evidence the global contraction may be abating.

“We’re starting to see signs the global economy is recovering,” said Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney. “The fundamentals for the Australian economy were very sound before this global economic crisis. Employers are a lot more hesitant in culling staff.”

Central bank Governor Glenn Stevens said this week that the effect on the economy of six interest-rate cuts since early September, which have taken the benchmark to a 49-year low of 3 percent, and government spending are “yet to be observed.”

Supermarket chains Woolworths Ltd. and Aldi are among companies that have announced plans to hire more workers in Australia.

Rate Expectations

The Australian dollar jumped to 75.57 U.S. cents at 12:11 p.m. in Sydney from 74.72 cents before the report was released. The two-year government bond yield climbed 11 basis points, or 0.11 percentage point, to 3.47 percent.

Traders now expect Australia’s benchmark interest rate will be higher in a year, according to a Credit Suisse Group index based on swaps trading.

Traders forecast the overnight cash rate target will be 8 basis points higher in 12 months, the index showed at 12:19 p.m. today in Sydney. Earlier today, they expected it to be 13 basis points lower and at the start of April, they forecast 37 basis points in reductions.

Reports yesterday showed Australian retail sales surged 2.2 percent in March from February, more than four times the increase that economists had forecast, and the trade surplus widened to the second highest on record as farm exports jumped.

Full-Time Jobs

The number of full-time jobs gained 49,100 in April and part-time employment decreased 21,800, today’s report showed.

“These are extraordinary numbers,” said Brian Redican, senior economist at Macquarie Group Ltd. in Sydney. “Things are not as bad in the economy as some people thought.”

To underpin the economy, Prime Minister Kevin Rudd is spending almost A$90 billion ($66 billion) on infrastructure, bond-market guarantees and cash handouts to consumers.

The central bank also moved to stoke domestic demand after the economy shrank in the fourth quarter for the first time in eight years. Policy makers cut the benchmark rate by a record 4.25 percentage points between September and April.

“The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead,” Governor Stevens said on May 5, when he left the rate unchanged.

Aldi said in February it will hire 2,600 people along Australia’s eastern coast this year as it opens as many as 30 new supermarkets. Woolworths, Australia’s biggest retailer, has said it expects to add 7,000 workers and reaffirmed its forecast for an increase in annual profit of as much as 12 percent.

Outlook May Worsen

Still, some executives expect Australia’s jobless rate will rise in coming months and the central bank will need to cut borrowing costs again.

Advertisements for job vacancies tumbled to a record low in April, falling 7.5 percent from March and 49.9 percent from a year earlier, according to a Australia & New Zealand Banking Group Ltd. report released in Melbourne on May 4.

“We will see unemployment increase,” Westpac Banking Corp. Chief Executive Officer Gail Kelly said today. “It’s dreadful to think about it, but unemployment could get as high as 8.5 percent by the end of 2010,” she told Australian Broadcasting Corp. “I think there are more cuts to come in interest rates.”

Unlike his counterparts in the U.S., Europe and Japan, Governor Stevens has scope to lower borrowing costs further. The Federal Reserve’s benchmark rate is close to zero, the Bank of England’s is the lowest since its creation in 1694 and the European Central Bank trimmed its rate by a quarter point to 1.25 percent on April 2. Japan’s rate is 0.1 percent.

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

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More News • Oil Rises After U.S. Refiners Boost Gasoline Output to Meet Summer Demand Oil & Natural Gas Offers to Sell Naphtha for Loading in June

By Ann Koh

May 7 (Bloomberg) -- Oil & Natural Gas Corp., India’s largest oil and gas producer, is offering to sell naphtha for loading in June, the company said in an e-mailed document.

Details of the company’s offer are as follows:

-----------------------------------------------------------
Product:      Naphtha
Quantity:     35,000 metric tons
Loading:      June 3 to June 4
Port:         Mumbai, west coast of India
Bid opening:  May 12
Bid closing:  May 13, 5:30 p.m. India time
-----------------------------------------------------------
-

Naphtha, distilled from crude oil, is used in the making of chemicals, plastics and gasoline.

To contact the reporter on this story: Ann Koh in Singapore at akoh15@bloomberg.net

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Tokyo Electric Quake-Hit Reactor Safe, Governor Says

By Michio Nakayama and Shigeru Sato

May 7 (Bloomberg) -- Tokyo Electric Power Co.’s nuclear reactor in Niigata prefecture is safe to restart, the local governor said, paving the way to reopen the world’s biggest atomic power station, which was shut after an earthquake triggered a fire and radiation leaks.

Governor Hirohiko Izumida will meet Tokyo Electric officials in the prefecture tomorrow to grant approval for the restart of the No. 7 reactor, he told reporters after a meeting with local assembly members today. All seven reactors at the Kashiwazaki Kariwa plant were shut after the 6.8-magnitude earthquake in July 2007 shook it more than assumed possible in its design.

Asia’s biggest utility posted its second annual loss on April 30 because of costs related to the shutdown. Japan’s central government and two local mayors have already said the reactor is safe to restart, and assent by Niigata prefecture is the final approval needed. Izumida on April 10 postponed a decision on the reactor’s safety. The following day a fire broke out at the facility, the ninth since the shutdown.

Tokyo Electric pledged to make “safety the top priority,” it said in a faxed statement after the governor’s comments. Niigata’s approval is conditional on Tokyo Electric doing additional safety checks, Izumida said. The utility may run a test of the reactor as soon as this week and restart commercial operations in June, Nikkei English News reported yesterday without citing anyone.

Shares Rise

The company’s shares climbed 1.5 percent to 2,360 yen at the noon trading break on the Tokyo Stock Exchange. They’ve lost 17 percent in six months compared with a 0.7 percent gain in the benchmark Topix index.

The federal Nuclear and Industrial Safety Agency has signed off on the work done to strengthen the structure of the No. 7 reactor, and the mayors of Kashiwazaki city and Kariwa village have already agreed to the restart.

The trade ministry on April 13 ordered the utility to probe the cause of a blaze two days earlier at a warehouse at the station and prevent a recurrence. Kashiwazaki city also told the company to review fire safety.

The fire stoked mistrust among local residents, who were concerned about the plant even before the earthquake. In 2002 Tokyo Electric revealed it had fabricated safety reports as far back as the 1980s, and the chairman and president resigned. In February 2007, five months before the earthquake, then-president Tsunehisa Katsumata said the company had found hundreds more incidents of faked safety data.

After the quake, in December, 2007, the utility said it had known since 2003 that a fault running near the site was active, contradicting a survey previously submitted to the trade ministry.

Tokyo Electric posted its first loss in 28 years in the year ended March 2008 and had a 84.5 billion yen ($856 million) loss last year because of the cost of buying fossil fuel at peak prices to boost thermal generation. The 8,212-megawatt Kashiwazaki Kariwa station accounts for more than 10 percent of the utility’s total capacity.

To contact the reporter on this story: Michio Nakayama in Tokyo at mnakayama4@bloomberg.net; Shigeru Sato in Tokyo at ssato10@bloomberg.net

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Oil Rises as Refiners Expand Output to Meet U.S. Summer Demand

By Christian Schmollinger and Ben Sharples

May 7 (Bloomberg) -- Crude oil extended yesterday’s 4.6 percent gain after an Energy Department report showed U.S. refinery demand climbed as output ramped up to meet fuel consumption ahead of the summer peak.

Refineries operated at 85.3 percent of capacity last week, up 2.7 percentage points from the week before and the highest since December, according to the report. Overall oil stockpiles rose by a less-than-expected 605,000 barrels. Inventories along the Gulf Coast, home to the bulk of U.S. crude processors, fell 1.85 million barrels, the first drop in nine weeks.

“It’s only natural that at this time of year the refiners start pumping out more gasoline,” said Jonathan Kornafel, a director for Asia at options traders Hudson Capital Energy. “I’d expect refiners to draw down their crude inventories to put out more gasoline. We’ve broken through some resistance levels and they start to become support levels.”

Crude oil for June delivery rose as much as 56 cents, or 1 percent, to $56.90 a barrel on the New York Mercantile Exchange. It was at $56.80 a barrel at 10:17 a.m. Singapore time. Yesterday, the contract climbed $2.50 to $56.34, the highest settlement since Nov. 14. Futures are up 26 percent this year.

Crude had been trading between $43.83 a barrel and $53.90 a barrel in April on higher U.S. inventories and as equity markets gained on speculation the economy will recover later this year.

Overall U.S. crude supplies rose to 375.3 million last week, the highest since 1990, the Energy Department said yesterday.

West Coast Gain

A gain in oil supplies on the U.S. West Coast was responsible for the nationwide increase, the Energy Department report showed. Stockpiles there rose 2.31 million barrels to 60.8 million. The region’s distribution system is isolated from the rest of the country.

The U.S. Gulf Coast states are home to 56 of the country’s 146 refineries totaling 8.4 million barrels a day of capacity.

U.S. equities advanced as investors speculated banks don’t need as much capital as had been projected and a report showed employers cut fewer jobs than economists estimated.

ADP Employer Services said U.S. companies eliminated 491,000 positions last month, less than the 645,000 estimated in a Bloomberg News survey of economists.

“The macro-economic optimism is continuing to build,” said Toby Hassall, research analyst at Commodity Warrants Australia Pty in Sydney. “You would have to be looking at $60 a barrel as the next upside target.”

Gasoline Crack

Gasoline supplies fell 167,000 barrels to 212.4 million in the week ended May 1, the Energy Department report showed. A 550,000-barrel gain was forecast, according to the median of 16 analyst responses in the Bloomberg News survey.

Supplies of distillate fuel, a category that includes heating oil and diesel, rose 2.43 million barrels to 146.5 million last week, the highest since October 2006, according to the department. A 900,000-barrel gain was forecast.

Refiners have more incentive to produce gasoline as the processing profit, or crack spread, for the motor fuel has climbed 37 percent since April 24 to $12.73 a barrel today. That price is 70 percent higher than the same time last year.

“The surest sign that you’ll start to see the refiners come back is the strength in the gasoline crack,” said Hudson Capital’s Kornafel. “The crack has been soft for so long now and now that it’s coming back the refiners are going to want to put out some product.”

Gasoline futures for June delivery were at $1.6530 a gallon, up 2.5 cents, on the Nymex at 10:13 a.m. Singapore time. It climbed 5.58 cents, or 3.5 percent, to $1.628 a gallon yesterday in New York, the highest settlement since Oct. 21.

Heating oil for June delivery rose 4.51 cents, or 3.2 percent, to end the session at $1.4713 a gallon, the highest since March 26.

Brent crude oil for June settlement rose as much as 73 cents, or 1.3 percent, to $56.88 a barrel on London’s ICE Futures Europe exchange. It was at $56.74 a barrel at 10:16 a.m. Singapore time. It increased $2.03, or 3.8 percent, to end yesterday’s session at $56.15, the highest since Nov. 10.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Ben Sharples in Melbourne bsharples@bloomberg.net.

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Euro May Drop on ECB Moves Like Dollar After March 18, Citi Says

By Garfield Reynolds

May 7 (Bloomberg) -- The Euro may be set for a sudden slide if the European Central Bank announces plans to buy debt at today’s policy meeting, Citigroup says.

The U.S. dollar dropped after the Federal Reserve announced March 18 it would start buying Treasuries to hold down consumer borrowing costs.

“The present Euro-dollar setup up suggests a non-linear reaction,” analysts led by New York-based Tom Fitzpatrick wrote in a note yesterday. “A dovish surprise looks much more likely to illicit a sharp move to the down side while an as expected outcome may have little material effect.”

To contact the reporter on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net

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Sell Indian Bonds, Buy Equities as Rate Cuts End, SocGen Says

By Patricia Lui

May 7 (Bloomberg) -- India’s bond rally is ending as the central bank stops cutting interest rates and the government steps up debt sales to fund its budget deficit, Societe Generale SA said.

Indian equities now represent a better investment given the Reserve Bank of India has limited room to reduce borrowing costs further and global funds and overseas Indians are returning to the stock market, said Balakrishnan Kunnambath, head of the Indian subcontinent region at SG Private Banking, SocGen’s wealth management unit.

“It’s time to slowly start moving out” of Indian debt, Kunnambath said in an interview in Singapore yesterday. “There’s no point in going in now as rate cuts are limited.”

India reduced its overnight lending rate, or repurchase rate, six times since mid-October to 4.75 percent and cut the reverse-repurchase rate four times to 3.25 percent. Both are at their lowest levels since they were introduced in 2000. Policy makers may lower the rates further by no more than half a percentage point, Kunnambath said.

Indian bonds have returned 21 percent since the end of June, the third-best performance among 10 local-currency debt markets in Asia, according to indexes compiled by HSBC Holdings Plc.

The 6.05 percent note maturing in February 2019 yielded 6.17 percent yesterday and touched 4.96 percent on Jan. 2, near a record low reached in October 2003. Benchmark 10-year yields are down from as high as 9.48 percent on July 15.

The government plans to sell a record 2.41 trillion rupees ($48.6 billion) of local-currency bonds in the six months through September.

Rupee, Equities

India’s rupee may appreciate 5 percent to 6 percent in 12 months as signs of a global economic recovery increase demand for riskier assets, Kunnambath said.

“Offshore sentiment on the rupee has improved and non- resident individuals seem more willing to take on exposure as risk appetite improves,” said Kunnambath, who advises both onshore and offshore Indian clients at the bank.

The benchmark Bombay Stock Exchange Sensitive Index, or Sensex, has rallied 24 percent this year, following a 52 percent plunge in 2008. Overseas investors have bought $457 million more Indian shares than they sold this year, compared with a record $13.3 billion in net sales last year.

The rupee traded at 49.62 per dollar yesterday after climbing more than 4 percent in the past two months. The currency tumbled 19 percent last year, the biggest drop since 1991.

To contact the reporters on this story: Patricia Lui at plui4@bloomberg.net

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Yen Falls on Speculation Banks Need Less Capital Than Forecast

By Theresa Barraclough and Ron Harui

May 7 (Bloomberg) -- The yen weakened against the dollar and the euro on speculation U.S. banks need less new capital than was projected, sapping demand for Japan’s currency as a refuge from the global financial crisis.

Japan’s yen fell against 15 of the 16 major currencies after Treasury Secretary Timothy Geithner said none of the 19 banks that underwent stress tests are insolvent, spurring gains in stocks on optimism investors will buy higher-yielding assets. The euro slid versus the greenback on concern European Central Bank policy makers may decide to buy debt to stimulate growth. Australia’s dollar climbed to a seven-month high against the yen after the nation’s employers unexpectedly added workers in April.

“The results of the stress tests don’t look as bad as the markets had feared, so the pessimistic mood is likely to ease,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “Such improvement in risk appetite will probably be a yen-negative.”

The yen weakened to 98.68 per dollar at 11:18 a.m. in Tokyo, from 98.31 yesterday in New York. The currency fell to 131.31 per euro from 131.10 yesterday. Europe’s single-currency weakened to $1.3307 from $1.3334.

Australia’s dollar climbed 1.2 percent to 74.47 yen and advanced 0.9 percent to 75.47 U.S. cents after a government report showed the jobless rate declined for the first time since August. New Zealand’s dollar advanced to 59.01 U.S. cents from 58.37 cents after the nation’s unemployment rate climbed by less than economists estimated.

Asian stocks advanced, with the MSCI Asia Pacific Index of regional shares adding 3.3 percent and the Nikkei 225 Stock Average gaining 4.5 percent. The dollar-yen had a correlation of 0.85 with the Nikkei 225 Average in the past year, according to data compiled by Bloomberg. A value of 1 means the two move in lockstep. Japanese financial markets were closed from May 4 until today for the Golden Week holidays.

The Standard & Poor’s 500 Index rose 1.7 percent yesterday to the highest since Jan. 6.

The results of the stress tests, due out at 5 p.m. in Washington today, will show Citigroup Inc. needs only about $5 billion and JPMorgan Chase & Co. doesn’t need a deeper reserve against losses, people familiar with the matter said yesterday.

The ECB will reduce borrowing costs by a quarter-percentage point to 1 percent today, according to all economists surveyed by Bloomberg.

Drastic Measures

The financial crisis needs “drastic” measures, Athanasios Orphanides, an ECB council member, said in Nicosia on May 5. Orphanides and George Provopoulos, another member, have indicated they may support cutting the target rate to less than 1 percent and buying debt to pump money into the economy.

“Some people expect a dramatic move by the ECB, such as a big purchase of bonds,” said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo and a former Bank of Japan currency trader. That “is why the euro is suffering.”

Europe’s single-currency may be set for a sudden slide if the ECB announces plans to buy debt at today’s policy meeting, Citigroup Inc. said. The U.S. dollar dropped after the Federal Reserve announced March 18 it would start buying Treasuries to hold down consumer borrowing costs.

“The present euro-dollar setup suggests a non-linear reaction,” Citigroup Inc. analysts led by New York-based Tom Fitzpatrick wrote in a note yesterday. “A dovish surprise looks much more likely to illicit a sharp move to the down side while an as expected outcome may have little material effect.”

Jobs Data

Australia’s dollar also gained versus the greenback on optimism the U.S. cut workers at a slower pace in April, after a report yesterday signaled the labor market may be recovering.

“Economic data helped give some support to risk appetite,” Mitul Kotecha, head of global foreign-exchange strategy at Calyon in Hong Kong wrote in a report today. The Australian and New Zealand dollars “will continue to benefit from improved carry appetite, higher commodity prices and easing risk aversion.”

In carry trades, investors get funds in a country with relatively low borrowing costs and invest in another with higher interest rates. The risk is market moves can erase those profits.

ADP Employer Services reported that U.S. companies eliminated 491,000 jobs in April, less than the 645,000 jobs forecast in a Bloomberg survey. A U.S. Labor Department report tomorrow is estimated by economists to show companies and government agencies shed 600,000 jobs last month, compared with 663,000 in March.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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Gold Trades Little Changed in Asia as Investment Demand Fades

By Glenys Sim

May 7 (Bloomberg) -- Gold traded little changed in Asia as investment demand faltered after gains in equities dimmed demand for the precious metal as an alternative investment.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, decreased 0.36 metric tons to 1,104.09 tons as of May 6, the first decline since April 23, according to figures on the company’s Web site. Asian stocks advanced after U.S. Treasury Secretary Timothy Geithner said results of bank stress tests will reassure investors.

“For the rest of the week, gold will be subject to two factors: the results of the banking stress tests and Friday’s U.S. employment release for April,” James Steel, analyst at HSBC Securities, wrote in an e-mailed note.

Gold for immediate delivery rose 0.1 percent to $911.79 an ounce at 9:51 a.m. Singapore time, up 2.9 percent for the week.

Asian stocks also jumped after a report showed American companies eliminated fewer-than-estimated jobs in April. Geithner said in an interview to air in full on PBS that none of the 19 banks that underwent government stress tests are insolvent. U.S. stocks advanced to a four-month high yesterday.

ADP Employer Services said yesterday companies eliminated 491,000 jobs in April, 154,000 fewer than the average economist estimate in a Bloomberg survey.

Unemployment in the U.S. probably climbed in April to a 25- year high, showing the labor market will be one of the last areas to emerge from the worst recession in at least 50 years, economists said before a payrolls report tomorrow.

“The gold market may react negatively if the stress tests are better than expected,” said Steel. “If the unemployment numbers are worse than expected, then gold may rally.”

Among other precious metals for immediate delivery, silver gained 0.1 percent to $13.7475 an ounce, platinum rose 0.9 percent to $1,149.25 an ounce, and palladium added 0.3 percent to $229.75 an ounce.

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

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Platinum Faces ‘Bear Trend,’ StanChart Says: Technical Analysis

By Glenys Sim

May 7 (Bloomberg) -- Platinum may decline toward $800 an ounce, reversing this year’s 23 percent gain, as the metal slumps into a “bear trend,” Standard Chartered Bank forecast, citing trading patterns.

“Spot platinum is resuming the bear trend, with trendline support giving way and a slide below $1,002 and $999 to build,” David Barclay, the bank’s commodity strategist, wrote in a report yesterday. “A break down towards $800 should follow.”

So-called trendlines, used to determine momentum, are found by connecting an asset’s high prices over a period, and its lower prices to form a channel. Technical analysis is founded on the assumption that an asset’s past trading patterns may be used to predict future moves.

Platinum for immediate delivery rose as much as 0.8 percent to $1,148.50 an ounce, and was at $1,147 at 8:40 a.m. Singapore time. The metal hasn’t traded at $800 an ounce since Dec. 12, and last fell below $1,000 an ounce on Feb. 10.

Most of the metal’s so-called daily momentum indicators such as the 14-day relative strength index and the stochastic oscillator are bearish, London-based Barclay wrote. The 50-week momentum oscillator is also starting to turn lower after nearly reaching zero, and should add “bear pressure,” he wrote.

The 250-day moving average of $1,266.99 is “looming above” the 20-day and 60-day moving averages, which highlights the potential for declines, the report said. “The break down in the spot metal price is consistent with the long term trend -- down,” wrote Barclay.

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

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Equinox Agrees to Sell Copper From Zambian Mine to Vedanta

By Jesse Riseborough

May 7 (Bloomberg) -- Equinox Minerals Ltd., owner of the Lumwana copper mine in Zambia, agreed to sell output to Vedanta Resources Plc.

Vedanta’s local unit, Konkola Copper Mines Plc, agreed to buy between 70,000 dry metric tons and 80,000 dry metric tons of concentrates annually over five years, Perth-based Equinox said today in a statement.

The accord comes after Glencore International AG, which agreed in 2007 to refine about 80,000 metric tons of concentrate annually from Lumwana, refused to accept deliveries because of uranium contamination, Equinox Chief Executive Officer Craig Williams said in March.

Equinox is also continuing to sell copper concentrates to international metals traders under short-term contracts, Williams said in the statement. Equinox reported a net loss of $60.6 million in the three months ended March 31 and sold 23,966 tons of copper, it said in a separate statement.

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

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Swine Flu Has Little Impact on China Pork Demand, Zhongpin Says

By Richard Dobson

May 7 (Bloomberg) -- Pork demand in China, the world’s largest producer and consumer, will be largely unaffected by swine flu in the long term and prices are likely to rebound in the third quarter, an executive from Zhongpin Inc. said.

“We did see a dip in both pork prices and demand in the first week” after the news of the outbreak appeared in the Chinese media, Ben Baoke, executive vice president at China’s fourth-largest pork producer, said yesterday. “Yet both demand and prices have recovered to levels prior to the outbreak.”

Hog futures in Chicago jumped 5.2 percent in the last two sessions on speculation that demand will rebound after the outbreak of swine flu drove the price of the meat down. China is battling to keep the virus from entering its borders after it infected 1,658 patients in 23 countries, killing 30 people.

“China’s pork consumption won’t see much decline, mainly because consumers are unlikely to change their diet,” Tian Feng, an analyst at BOC International (China) Ltd., said by phone from Shanghai. “The initial fear of eating pork has also dissipated now that they know the virus has little to do with pigs.”

No cases of swine flu, formally known as influenza H1N1, have been confirmed in humans in China. There also hasn’t been any mutated strains found among its pigs, Gao Hongbin, the vice agricultural minister, said April 30 in Beijing.

‘Prices Stabilizing’

“We’ve started to see signs of pork prices stabilizing in the past month and I think there’s a possibility prices will start to climb in the third quarter,” Ben said in an interview. China consumed about 43 million metric tons of pork and pork products last year, Ben said. The consumption this year “will not decline from the 2008 level,” he said.

Chinese consumers realize they will not contract the virus by eating pork, Ben added.

Still, Yao Minpu, vice chairman of Charoen Pokphand’s China subsidiary was quoted by the 21st Century Herald on May 5 saying that swine flu may reduce China’s pork consumption by as much as 20 percent.

Pork prices in China “have been on the decline since the fourth quarter last year despite a small rebound during the Lunar New Year holiday in January this year,” Ben said.

Meat prices may rise from the current “historically-low” level as pork remains the primary source of protein for the Chinese population, the world’s largest, and the government may boost prices by stockpiling the meat, he added.

Hog futures for June settlement rose 3.6 percent to 67.1 cents a pound on the Chicago Mercantile Exchange yesterday. Futures are still down about 7 percent since April 23, after the first reports of the flu in Mexico.

‘Hard Times’

“Hog farms in China are having a hard time as some are struggling to breakeven while others started to suffer losses,” Ben said. China’s economy grew at the slowest pace in almost 10 years in the first quarter, forcing many as 30 million rural migrant workers out of jobs.

The government is watching the market situation to assess the possibility of stockpiling, Ben said. It will start considering stockpiling the meat if live hog prices fall to below 5.5 times the cost of corn, a major ingredient in animal feed, he said. The ratio is currently around that level, he said. The government has yet to begin stockpiling.

Zhongpin is one of the companies the government might select to stockpile meat as the company has up to 20,000 tons of spare refrigerated warehouse capacity, he said. The company slaughtered 2.5 million pigs last year and produced about 240,000 tons of pork and pork products, he added.

To contact the reporter on this story: Richard Dobson in Shanghai at rdobson4@bloomberg.net

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China Steel Has No Plans to Sell Stakes to Mainland Rivals

By Yu-huay Sun

May 7 (Bloomberg) -- China Steel Corp., Taiwan’s biggest steel mill, has no plans to sell stakes to mainland Chinese rivals after cross-straits investment rules eased, a company executive said.

China from May 1 allowed investments in Taiwan’s industries, as part of plans to foster more cross-border business ties. China Steel has gained 11 percent since the announcement on speculation rivals including Baosteel Group Corp., the mainland’s largest steelmaker, will expand overseas to counter slowing demand and lower prices at home.

“We don’t need the money,” Executive Vice President Chung Le-min said in a telephone interview. “Some investment bankers have approached us in the past for possible cross-shareholdings with mainland Chinese steelmakers, wanting to earn commissions of 3 percent, 5 percent. ‘It won’t happen,’ we already said.”

China Steel, which posted a first-quarter loss of NT$7.18 billion ($216 million), has dropped 44 percent in the past year to NT$26.60 a share, giving it a market value of NT$334 billion.

The Kaohsiung-based mill, which makes half of the alloy used in Taiwan, isn’t in talks to sell shares to Chinese rivals, Chung said. The Taiwanese government, which owns 21 percent, would probably want to retain control of the only steelmaker owning blast furnaces in the island, he said. The share price decline also meant any sale won’t be seen as attractive, he said.

“Baosteel and domestic mills would pay more attention to the acquisition of resource companies than buying an overseas rival now because the steel market is weak,” said Zheng Dong, a Beijing-based analyst at Guosen Securities Co.

Investment Plans

China Steel had NT$2.59 billion in cash as of the end of March, and NT$113 billion in liabilities. The mill is planning NT$24 billion of capital expenditure this year, Chung said.

The company has no need for an external cash infusion as it is planning to sell NT$30 billion of bonds, as previously announced, and has $2 billion of bank credit available, he said.

“Our focus now is the expansion of the Dragon Steel unit and we don’t have any other plans,” Chung said.

Dragon Steel Corp. expects to complete construction of a 2.5 million-ton-a-year blast furnace before the end of the year, he said.

Aluminum Corp. of China is leading Chinese companies in a resource acquisition spree of at least $21 billion this year, investing in debt-laden commodity producers including Rio Tinto Group. Anshan Iron & Steel Group and Hunan Valin Iron & Steel Group are buying stakes in iron ore producers in Australia, securing supplies of the steelmaking ingredient.

No ‘Current’ Plans

Shanghai-based Baoshan Iron & Steel Co., the listed unit of Baosteel Group, doesn’t have “current investment plans” in China Steel, Vice President Chen Ying said in a phone interview.

“China Steel is excellent in management and technology,” Chen said. “Our cooperation so far is limited to technology.”

The two companies have allied on environmental protection, plant efficiencies and computer setups. China Steel’s Chung and Baoshan’s Chen didn’t provide more details.

Standard & Poor’s Ratings Services on May 5 cut the credit outlook for Baosteel and Baoshan to “negative” from “stable” on concern overcapacity in China would hurt earnings. Baosteel has 5.57 billion yuan ($816 million) in cash and 79.67 billion yuan in unused bank facilities, against 28.95 billion yuan of debt due in 12 months, the ratings company said.

Executives of Sinosteel Corp., China’s second-largest iron- ore trader, will visit Taiwanese companies including China Steel this month, Sinosteel spokesman Li Kejie said May 4. Li declined to comment on investment plans.

Improving Ties

Ties between China and Taiwan have improved since the Kuomintang party’s Ma Ying-jeou took office a year ago as the island’s president and dropped the pro-independence stance of his predecessor Chen Shui-bian. While China says Taiwan is part of its territory, the two have been administered separately since 1949.

China Mobile Ltd. on April 29 agreed to buy a stake in Far EasTone Telecommunications Co., the first investment by a Chinese state-owned company on the island since a civil war ended six decades ago. Taiwan and China signed an agreement on April 26, allowing mainland Chinese investment in Taiwan.

The Taiwan cabinet is set to consider opening up 65 industries, including the auto sector, to mainland investors within two months, Fan Liang-tung, executive secretary at the Investment Commission, said May 6.

“It’s companies that may create synergy that’ll be targeted, for example competitors, or suppliers and customers,” Ernest Chiang, who manages NT$2 billion for IBT Asset Management Co., said in Taipei. “The mainland’s steel companies may be buying shares in China Steel.”

Still, losses at Chinese mills may preclude any overseas investments. China’s steel industry posted an aggregate first- quarter loss of 3.3 billion yuan as prices plunged to 1994 levels, the China Iron and Steel Association said last month.

“Because the market is very weak, I don’t think Baosteel and other domestic mills have time and money to consider acquisitions in Taiwan,” Guosen’s Zheng said.

To contact the reporter for this story: Yu-huay Sun in Taipei ysun7@bloomberg.net.

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Asian Stocks Jump on U.S. Jobs Report, Stress Tests Results

By Shani Raja

May 7 (Bloomberg) -- Asian stocks jumped on better-than- estimated U.S. and Australian jobs reports and an assurance from U.S. Treasury Secretary Timothy Geithner that none of the country’s biggest banks are insolvent.

Honda Motor Co., which gets 45 percent of its sales in the North America, climbed 6.8 percent in Tokyo, where markets reopened after a three-day holiday. Mitsubishi UFJ Financial Group Inc., Japan’s largest listed lender, surged 12 percent as Geithner said results of bank stress tests will reassure investors. BHP Billiton Ltd., the world’s largest mining company, gained 4.9 percent as oil and copper prices surged.

“A lot of people that doubted the rally are becoming more positive on it,” said Scott Tully, a Sydney-based portfolio manager at Colonial First State Global Asset Management, which holds about $100 billion. “Does that make it sustainable? I don’t know. But it does mean people are becoming a bit less shell-shocked, even though they are still fairly fragile.”

The MSCI Asia Pacific Index gained 3.4 percent to 97.52 as of 11:18 a.m. in Tokyo. The gauge has rallied 38 percent from a five-year low on March 9 on speculation the worst of the global financial crisis had passed.

The Nikkei 225 Stock Average climbed 4.5 percent to 9,379.02 after a holiday in which the Asian MSCI index that excludes Japan gained 6.6 percent. Australia’s S&P/ASX 200 Index added 2.2 percent as a statistics bureau report said employers unexpectedly added workers in April, buoying optimism the economy will avoid the worst of the global recession. All Asian markets open for trading rose.

Economic Recovery?

Futures on the U.S. Standard & Poor’s 500 Index lost 0.2 percent. The gauge climbed 1.7 percent yesterday as investors speculated banks will need less capital than expected and ADP Employer Services said companies eliminated fewer jobs in April than the average economist estimate in a Bloomberg survey.

The results of the stress tests will be “reassuring,” Geithner said in an interview that’s scheduled to air on PBS. While some banks will need to raise more capital, there are a number of ways they can do that and most should be able to do it in the private sector, he said.

Government reports last week showed consumer spending in the U.S. grew at the fastest pace in two years during the first quarter while Japanese industrial output posted its first advance in six months in March. A Chinese purchasing managers’ index from CLSA Pacific Markets released on May 4 showed manufacturing expanded for the first time in nine months.

‘More Confident’

Honda climbed 6.8 percent to 3,050 yen. Nissan Motor Co., Japan’s third-largest automaker, added 3.3 percent to 527 yen, after it denied a Nikkei newspaper report it had approached the Development Bank of Japan for an extra 100 billion yen ($1 billion) in new emergency loans.

BHP Billiton rose 4.9 percent to A$35.55 after crude oil climbed 4.6 percent to $56.34 a barrel in New York yesterday, the highest settlement since Nov. 14, and copper futures jumped 5 percent, the biggest gain since April 3. Rio Tinto Group, the world’s No. 3 mining company, gained 3.7 percent to A$71.63.

Sims Metal Management Ltd., the world’s biggest recycler of scrap metal, surged 8.2 percent to A$22.69 in Sydney after saying it may return to profitability this quarter.

“As various indicators improve, market players are getting more and more confident the global economy is bottoming out,” said Mitsushige Akino, who oversees about $615 million at Ichiyoshi Investment Management Co. in Tokyo. “Investors are more confident the U.S. financial crisis will come to an end after the stress tests and subsequent capital injections.”

Banks Advance

Finance companies accounted for 35 percent of the MSCI Asia Pacific Index’s advance today. The shares are the worst performing of 10 industry groups in the past year as losses from the credit crisis swelled to more than $1.3 trillion.

Mitsubishi UFJ advanced 12 percent to 599 yen. Australia & New Zealand Banking Group Ltd., the nation’s fourth-largest lender, gaining 2.9 percent to A$16.65 Westpac Banking Corp., the biggest by market value, added 2.9 percent to A$20.54.

Korea Exchange Bank, controlled by U.S. buyout firm Lone Star Funds, rose 13 percent to 8,610 won in Seoul after Edaily reported Korea Development Bank is interested in taking over the lender.

CSK Holdings Corp. plunged 8.6 percent to 479 yen, after the computer-services company after reporting a wider-than- expected loss in the year ended in March, for which it blamed inventory, tax and asset-sale charges.

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

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