U.S. May Strip SEC of Powers in Regulatory Overhaul

By Robert Schmidt and Jesse Westbrook

May 20 (Bloomberg) -- The Obama administration may call for stripping the Securities and Exchange Commission of some of its powers under a regulatory reorganization that could be unveiled as soon as next week, people familiar with the matter said.

The proposal, still being drafted, is likely to give the Federal Reserve more authority to supervise financial firms deemed too big to fail. The Fed may inherit some SEC functions, with others going to other agencies, the people said. On the table: giving oversight of mutual funds to a bank regulator or a new agency to police consumer-finance products, two people said.

The 75-year-old SEC, chartered to oversee Wall Street and safeguard investors, has seen its reputation tarnished as some lawmakers blamed it for missing the incipient financial crisis and failing to detect Bernard Madoff’s $65 billion Ponzi scheme. Any move to rein in the agency is likely to provoke a battle in Congress, which would need to approve the changes, and draw the ire of union pension funds and other advocates for shareholders.

“It would be a terrible mistake,” said Stanley Sporkin, a former federal judge and enforcement chief at the SEC. “Whatever the SEC has done or didn’t do, it is still the premier investor protection agency around.”

Schapiro Determination

SEC Chairman Mary Schapiro’s agency has been mostly absent from negotiations within the administration on the regulatory overhaul, and she has expressed frustration about not being consulted, according to people who have spoken with her. She has pledged to fight any attempt to diminish the SEC, they said.

Treasury Secretary Timothy Geithner was set to discuss proposals to change financial regulations at a dinner last night with National Economic Council Director Lawrence Summers, former Fed Chairman Paul Volcker, ex-SEC Chairman Arthur Levitt and Elizabeth Warren, the Harvard University law professor who heads the congressional watchdog group for the $700 billion Troubled Asset Relief Program.

Levitt, in an interview today with Bloomberg Television, said it’s unlikely the SEC will ultimately be stripped of its responsibilities.

“I don’t think it’s a great idea nor do I necessarily think it’s going to happen,” Levitt said. The SEC “is a pretty powerful unit and to substitute that for a new bureaucracy is a mistake. I don’t think policy makers are likely to go down that path.”

More Resources

Levitt added that the SEC needs stronger resources to make up for “nearly 15 years of deregulatory efforts.”

Geithner and Summers are leading the administration’s effort to redraw the lines of authority for policing the financial system.

“We’re going to have to bring about a lot of changes to the basic framework of oversight, so there’s better enforcement,” Geithner, said May 18 at the National Press Club in Washington. “That’s going to require simplifying, consolidating this enormously complicated, segmented structure.”

Geithner may be asked about his plans for a regulatory revamp at a Senate Banking Committee hearing on financial-rescue efforts in Washington today.

“The Administration has been holding series of meetings with various parts of the government -- including regulators -- as it crafts its proposal for regulatory reform,” Treasury spokesman Andrew Williams said. “No decisions have been made but” the administration “is seeking views as it puts together its framework.”

The SEC didn’t immediately respond to a request for comment.

Frank Hearings

President Barack Obama has said he wants to sign legislation on regulatory changes by year-end. House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, is planning hearings with the aim of drafting a bill by the end of June.

The SEC’s job is to regulate stock markets, police securities sales and make sure public companies make adequate disclosures to investors about their finances. The commission has five members, with the chairman and two commissioners typically from the president’s political party and the other two from the party not in the White House.

Schapiro was appointed by Obama to replace Christopher Cox, who was named by President George W. Bush.

Cox Legacy

Under Cox, the SEC ceded some of its authority to the Fed after the central bank responded to Bear Stearns Cos.’ near collapse last year by inserting its own examiners into Wall Street securities firms.

Former Treasury Secretary Henry Paulson, Geithner’s predecessor, urged Congress in a March 2008 “blueprint” for overhauling financial rules to give the Fed broader powers to oversee risk in the system.

Opponents of giving the Fed more authority, such as former SEC chief Levitt, have said the central bank’s focus on keeping the financial system solvent may trump efforts to punish companies for violating securities laws. Levitt is a board member of Bloomberg LP, the parent company of Bloomberg News.

The SEC’s reputation took a hit last week when U.S. Senator Charles Grassley, an Iowa Republican, released a report saying two of its enforcement attorneys face an insider-trading investigation by the Federal Bureau of Investigation.

Trades Questioned

The report, written by the SEC inspector general’s office, faulted the SEC for inadequately monitoring trades by the employees and said one of them sold shares in companies after co-workers opened probes into the firms. Both employees, who are enforcement attorneys in the SEC division that investigates securities fraud, denied any wrongdoing.

While the agency has been battered recently, it still has powerful supporters, including a number of Democrats on the Senate Banking Committee who aren’t likely to support having an agency they oversee cut back.

In addition, public pension funds that hold $872 billion of assets urged lawmakers this month to protect the SEC’s turf in any legislation overhauling financial regulation.

The California Public Employees’ Retirement System, the New York retirement fund and 12 other pension funds wrote letters to Frank and Senate Banking Committee Chairman Christopher Dodd, arguing that the SEC “must maintain robust regulatory and enforcement authority” over securities trading, brokers, money managers, corporate disclosures and accounting rules.

To contact the reporters on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.



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Japan Economy Shrinks Record 15.2% as Exports, Spending Plunge

By Jason Clenfield

May 20 (Bloomberg) -- Japan’s economy shrank by a record last quarter as exports collapsed and consumers and businesses slashed spending, a decline that probably marked the low point in the country’s worst recession since World War II.

Gross domestic product fell an annualized 15.2 percent in the three months ended March 31, following a revised fourth- quarter drop of 14.4 percent, the Cabinet Office said today in Tokyo. The economy contracted 3.5 percent in the year ended March 31, the most since records began in 1955.

Exports plunged an unprecedented 26 percent last quarter, forcing companies from Toyota Motor Corp. to Hitachi Ltd. to cut production, workers and wages. Stocks have gained 32 percent since reaching a 26-year low in March on speculation worldwide interest-rate reductions and spending by governments will halt the slide in the world’s second-largest economy.

“There was a collapse across the board,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. Still, he added, there’s “light at the end of the tunnel” and the economy will resume growing this quarter as companies replenish inventories and stimulus plans at home and abroad take effect.

The yen traded at 95.59 per dollar at 12:56 p.m. in Tokyo from 96.16 before the report was published. The Nikkei 225 Stock Average rose 0.3 percent. Economists surveyed predicted the economy would shrink 16.1 percent.

Worse Than U.S.

GDP fell 4 percent on a non-annualized basis, more than double the U.S.’s 1.6 percent slide. It’s also worse than Europe’s record 2.5 percent contraction. Without adjusting for price changes, Japan shrank 2.9 percent last quarter.

Weaker domestic demand was the biggest contributor to the decline, shaving 2.6 percentage points off GDP, the most since 1974. Net exports -- the difference between exports and imports -- was responsible for 1.4 percentage points of the drop.

Consumer spending slid 1.1 percent and business investment plunged a record 10.4 percent. Economists say companies will keep cutting spending because the decline in demand has left factories and workers underused.

“There is a huge problem of over-capacity,” said Hiromichi Shirakawa, chief economist at Credit Suisse Group AG in Tokyo. “That means capital spending is not likely to pick up.”

Hitachi, a maker of nuclear reactors, home appliances and hard-disk drives, will trim costs by 500 billion yen ($5.2 billion) this fiscal year to minimize losses after a record 787.3 billion yen deficit last year. The Tokyo-based company said in January it plans to cut 7,000 jobs.

May Grow

Still, reports in the past month suggest the world’s second-largest economy may grow for the first time in a year this quarter, albeit from a low point, as exports stabilize and Prime Minister Taro Aso’s 15.4 trillion yen stimulus plan, announced in April, takes effect.

Consumer confidence climbed to a 10-month high in April. Exports increased in March from a month earlier, and factory output rose for the first time since September.

“Japan, first of all, will get a big boost from fiscal stimulus,” Thomas Byrne, senior vice president of Moody’s Investors Service, said in an interview in Tokyo. “Second, if the global economy picks up a little bit, that will help tremendously in Japan because of its dependence on exports.”

Byrne said Moody’s is unlikely to cut Japan’s debt rating over the next year because investors are willing to buy bonds that will fund the stimulus plans. Moody’s unified Japan’s ratings at Aa2 this week, raising the local-currency assessment from Aa3 and lowering the foreign-currency view from Aaa.

Replenishing Inventories

“While the economy will continue to be in a severe state, I expect less pressure from inventory adjustments and the stimulus package to provide support,” Economy and Fiscal Policy Minister Kaoru Yosano said after today’s report.

Falling inventories accounted for 0.3 percentage point, or about a tenth, of last quarter’s contraction. Companies including Honda Motor Corp. have cut stockpiles at a quicker rate than sales have declined, giving them room to boost output.

Honda plans to increase production in Japan this quarter as dealerships clear inventories, the Wall Street Journal reported last week. Auto sales in Japan and the U.S. may have “bottomed,” Fuji Heavy Industries Ltd. President Ikuo Mori said in Tokyo today. Fuji Heavy makes Subaru-brand cars.

Still, the failure of export demand to do better than simply stabilize will probably limit the scope of Japan’s recovery. Toyota, Hitachi, and Panasonic Corp. all forecast continued losses in the current business year. Panasonic said last week it plans to close about 20 factories this year and proceed with the 15,000 job cuts announced in February.

“We basically bottomed out,” said Jesper Koll, chief executive officer of hedge fund adviser TRJ Tantallon Research Japan. Even so, “on the consumer spending side you’ve got a very clear negative from the severe labor market adjustment.”

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

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Japan Economy Shrinks Record 15.2% as Exports, Spending Plunge

By Jason Clenfield

May 20 (Bloomberg) -- Japan’s economy shrank by a record last quarter as exports collapsed and consumers and businesses slashed spending, a decline that probably marked the low point in the country’s worst recession since World War II.

Gross domestic product fell an annualized 15.2 percent in the three months ended March 31, following a revised fourth- quarter drop of 14.4 percent, the Cabinet Office said today in Tokyo. The economy contracted 3.5 percent in the year ended March 31, the most since records began in 1955.

Exports plunged an unprecedented 26 percent last quarter, forcing companies from Toyota Motor Corp. to Hitachi Ltd. to cut production, workers and wages. Stocks have gained 32 percent since reaching a 26-year low in March on speculation worldwide interest-rate reductions and spending by governments will halt the slide in the world’s second-largest economy.

“There was a collapse across the board,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. Still, he added, there’s “light at the end of the tunnel” and the economy will resume growing this quarter as companies replenish inventories and stimulus plans at home and abroad take effect.

The yen traded at 95.59 per dollar at 12:56 p.m. in Tokyo from 96.16 before the report was published. The Nikkei 225 Stock Average rose 0.3 percent. Economists surveyed predicted the economy would shrink 16.1 percent.

Worse Than U.S.

GDP fell 4 percent on a non-annualized basis, more than double the U.S.’s 1.6 percent slide. It’s also worse than Europe’s record 2.5 percent contraction. Without adjusting for price changes, Japan shrank 2.9 percent last quarter.

Weaker domestic demand was the biggest contributor to the decline, shaving 2.6 percentage points off GDP, the most since 1974. Net exports -- the difference between exports and imports -- was responsible for 1.4 percentage points of the drop.

Consumer spending slid 1.1 percent and business investment plunged a record 10.4 percent. Economists say companies will keep cutting spending because the decline in demand has left factories and workers underused.

“There is a huge problem of over-capacity,” said Hiromichi Shirakawa, chief economist at Credit Suisse Group AG in Tokyo. “That means capital spending is not likely to pick up.”

Hitachi, a maker of nuclear reactors, home appliances and hard-disk drives, will trim costs by 500 billion yen ($5.2 billion) this fiscal year to minimize losses after a record 787.3 billion yen deficit last year. The Tokyo-based company said in January it plans to cut 7,000 jobs.

May Grow

Still, reports in the past month suggest the world’s second-largest economy may grow for the first time in a year this quarter, albeit from a low point, as exports stabilize and Prime Minister Taro Aso’s 15.4 trillion yen stimulus plan, announced in April, takes effect.

Consumer confidence climbed to a 10-month high in April. Exports increased in March from a month earlier, and factory output rose for the first time since September.

“Japan, first of all, will get a big boost from fiscal stimulus,” Thomas Byrne, senior vice president of Moody’s Investors Service, said in an interview in Tokyo. “Second, if the global economy picks up a little bit, that will help tremendously in Japan because of its dependence on exports.”

Byrne said Moody’s is unlikely to cut Japan’s debt rating over the next year because investors are willing to buy bonds that will fund the stimulus plans. Moody’s unified Japan’s ratings at Aa2 this week, raising the local-currency assessment from Aa3 and lowering the foreign-currency view from Aaa.

Replenishing Inventories

“While the economy will continue to be in a severe state, I expect less pressure from inventory adjustments and the stimulus package to provide support,” Economy and Fiscal Policy Minister Kaoru Yosano said after today’s report.

Falling inventories accounted for 0.3 percentage point, or about a tenth, of last quarter’s contraction. Companies including Honda Motor Corp. have cut stockpiles at a quicker rate than sales have declined, giving them room to boost output.

Honda plans to increase production in Japan this quarter as dealerships clear inventories, the Wall Street Journal reported last week. Auto sales in Japan and the U.S. may have “bottomed,” Fuji Heavy Industries Ltd. President Ikuo Mori said in Tokyo today. Fuji Heavy makes Subaru-brand cars.

Still, the failure of export demand to do better than simply stabilize will probably limit the scope of Japan’s recovery. Toyota, Hitachi, and Panasonic Corp. all forecast continued losses in the current business year. Panasonic said last week it plans to close about 20 factories this year and proceed with the 15,000 job cuts announced in February.

“We basically bottomed out,” said Jesper Koll, chief executive officer of hedge fund adviser TRJ Tantallon Research Japan. Even so, “on the consumer spending side you’ve got a very clear negative from the severe labor market adjustment.”

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

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Euro May Fall to 3-Month Low Against Pound: Technical Analysis

By Ron Harui

May 20 (Bloomberg) -- The euro may fall to three-month low against the British pound should the currency drop below so- called support between 87.65 pence and 87.85 pence, Citigroup Inc. said, citing trading patterns.

Support at 87.85 pence represents an ascending trend line that connects the lows of Feb. 10 and May 7, while the 87.65 pence level is the May 7 low, based on Citigroup’s chart. Support is where buy orders may be clustered.

The euro-pound is “now testing a strong support between 87.65 and 87.85, which has been sticky in the past,” New York- based Tom Fitzpatrick and London-based Shyam Devani, wrote in a research note yesterday. “A break below here would open up for a test of the much more significant support in the 86.35-86.75 area.”

Europe’s single currency dropped to 87.84 pence as of 7:35 a.m. in London from 88.08 pence in New York yesterday when it reached 87.65 pence, the lowest level since May 7. The 86.75 pence level was last traded on Feb. 10.

Support at 86.75 pence is a horizontal trend line that connects the Nov. 13 high and the Feb. 6 low, while the 86.35 pence level is the Feb. 10 low, based on Citigroup’s chart. The Nov. 13 high is a previous level of resistance. When so-called resistance is breached, that level becomes support. Resistance is where sell orders may be clustered.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

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

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Pound Holds Near Highest Level This Year as Stocks, Oil Advance

By Gavin Finch

May 20 (Bloomberg) -- The pound traded near the highest level this year against the dollar as oil traded above $60 a barrel and U.S. stock-index futures gained on speculation the worst of the global recession is over.

The pound advanced earlier after an industry report showed U.K. manufacturers were the least pessimistic on the outlook for production in eight months in May. The MSCI World Index of stocks climbed for a third day after Bank of America Corp. raised about $13.5 billion in a stock sale, indicating the U.S. financial industry may be stabilizing.

“Sterling is benefiting from the return of risk appetite which has seen stocks outperform,” said Daragh Maher, deputy head of global foreign-exchange strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “A lot of bad news has already been priced into the pound, making it one of the most undervalued currencies.”

The pound advanced as much as 0.4 percent to $1.5536, the strongest since Dec. 18, and was at $1.5490 by 12:22 p.m. in London. It declined 0.1 percent to 88.15 pence per euro.

The pound pared gains and two-year gilts reversed declines after the minutes of the Bank of England’s last rate-setting meeting showed policy makers voted unanimously to extend their money-printing plan to 125 billion pounds ($193 billion). They discussed increasing the program to 150 billion pounds.

An index of expectations for U.K. output in the next quarter rose to minus 17 in May, the highest since September, from minus 32 in April, the Confederation of British Industry said today. An index of factories’ order books was at minus 56 after minus 57 in April.

Record Sale

The yield on the two-year gilt fell two basis points to 0.99 percent. Five-year gilt yields rose four basis points to 2.50 percent before a record 5 billion pound sale of the securities tomorrow. Bond yields move inversely to prices.

Tomorrow’s debt sale is part of a plan to auction 220 billion pounds of gilts this fiscal year, 50 percent more than last year, to help drag the economy out of the recession. The Debt Management Office didn’t find enough buyers at a sale of gilts on March 25, the first so-called failed auction since 2002.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

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Canadian Dollar Rises for Third Day as Stock-Index Futures Gain

By Chris Fournier

May 20 (Bloomberg) -- Canada’s currency climbed for a third straight day as an increase in U.S. stock-index futures spurred demand for higher-yielding assets.

“The Canadian dollar will continue to take its cue from global risk factors, primarily measured by equities,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “The loonie is really being influenced by macro risk factors rather than by domestic economic data.”

The Canadian currency, known as the loonie, appreciated 0.5 percent to C$1.1503 per U.S. dollar at 8:12 a.m. in Toronto, from C$1.1558 yesterday. It touched C$1.1478, the strongest since May 11. One Canadian dollar buys 86.93 U.S. cents.

Consumer prices rose 0.4 percent in April from a year earlier after a 1.2 percent increase in the previous month, Statistics Canada said today in Ottawa. The median forecast of 21 economists surveyed by Bloomberg was a 0.6 percent advance.

“Diminished inflation helps to maintain the value of money invested in a country,” said Eric Lascelles, Toronto-based chief economics and rates strategist at TD Securities Inc.

Futures on the Standard & Poor’s 500 Index expiring in June added 0.7 percent.

The loonie will weaken to C$1.19 versus the U.S. dollar by year-end, according to the median forecast in a Bloomberg survey of 42 analysts and economists.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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Deutsche Bank Says Borrow Australian Dollars, Buy Brazil’s Real

By Oliver Biggadike

May 20 (Bloomberg) -- Deutsche Bank AG, the world’s biggest currency trader, recommends buying the Brazilian real with funds borrowed in currencies such as the Australian, New Zealand and Canadian dollars.

The Aussie’s exchange rate against the real has a lower correlation with stocks than other currency pairs such as the dollar and yen, lowering the risk that swings in equity markets wipe out profits on the trades, Deutsche Bank’s Adam Boyton told reporters yesterday at a briefing. Speculators bought Japan’s currency last year as the decline in global stock markets pushed them out of investments in Australia and New Zealand that were funded with yen-denominated loans.

“The market’s pricing too much recovery, but whenever you go and express that trade in the market, you’re up against this correlation of foreign exchange to equities,” Boyton, a currency strategist in New York, told reporters at a briefing to discuss his outlook for currencies this year. “You’ll see a lot more interest in carry with G-10 on the funding side and emerging markets on the investing side.”

The Australian dollar was little changed at 77.44 U.S. cents as of 8:34 a.m. in Sydney, after reaching 77.84 cents yesterday, the highest since October. The Aussie fell 0.1 percent to 1.585 reais, extending its decline this year against the Brazilian currency to 2.9 percent.

Carry is the income earned from investing at a higher rate of interest than the cost of borrowing to finance the investment. It declines as the value of the funding currency increases, and vice versa. Investors who borrowed in Australian dollars to buy in Brazil on Dec. 31 would have earned 5.9 percent so far this year, the best Australian dollar-funded return among the 16 most-traded currencies, according to data compiled by Bloomberg.

Rate Advantage

Australia’s benchmark interest rate of 3 percent is 7.25 percentage points lower than Brazil’s 10.25 percent. The 30-day correlation coefficient between the Australian dollar-real exchange rate and the Standard & Poor’s 500 Index is close to zero at 0.03, and below the 0.78 correlation between the yen- Aussie cross rate and stocks. A correlation of 1 would mean the currencies moved in lockstep with the equity index.

“What’s the point of picking up a 3 percent interest-rate differential by being long Aussie and short Japan in a world where the exchange rate can move by that much in two days?” Boyton said at the briefing. Japan’s benchmark rate is 0.1 percent.

The Aussie-yen exchange rate has bigger swings than Aussie- real, which has risen or fallen more than 3 percent in a single day only twice this year, Bloomberg data show. By contrast, Aussie-yen experienced such swings 12 times, as well as having more consecutive two-day or three-day increases or decreases exceeding 3 percent.

To contact the reporter on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net

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Timah Expects Tin Prices to Top $15,000 a Ton

By Yoga Rusmana

May 20 (Bloomberg) -- PT Timah, the world’s second-largest tin producer, expects prices of the metal to top $15,000 a ton in the second half of the year, Corporate Secretary Abrun Abubakar said.

The Indonesian company may sell about 46,000 tons of the metal this year, Abubakar told reporters in Jakarta today. Timah sold 46,438 tons of the metal in 2008.

“Prices will stabilize in the second half as economic conditions are improving,” Wachid Usman, the company’s president director, said.

Tin for three-month delivery on the London Metal Exchange rose 2.5 percent to close at $13,650 a ton on Tuesday.

The state-owned company would allocate 700 billion rupiah ($68 million) for capital spending this year compared with 1.4 trillion rupiah in 2008, Abubakar said.

To contact the reporter on this story: Yoga Rusmana in Jakarta at yrusmana@bloomberg.net

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Dollar Falls as Lower Volatility, Libor Erode Safety Demand

By Ye Xie

May 20 (Bloomberg) -- The dollar declined beyond $1.37 per euro for the first time in a week as falling volatility of currencies and stocks spurred speculation investors will seek higher-yielding assets.

New Zealand’s and Canada’s dollars gained versus the greenback as crude oil prices rose above $60 a barrel and copper advanced, encouraging demand for currencies of commodity producers. The pound traded near the highest level this year as U.S. stock-index futures gained and the cost of borrowing in dollars between banks dropped.

“The currency market is very much influenced by the temperature of risk,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “Overall sentiment is building on itself, contributing to dollar selling.”

The euro advanced 0.4 percent to $1.3685 at 8:22 a.m. in New York, from $1.3630 yesterday. It earlier touched $1.3707, the highest level since May 13. Japan’s currency appreciated 0.3 percent to 95.71 per dollar from 95.97. The common European currency increased 0.1 percent to 130.99 yen from 130.81.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, and Europe’s VStoxx Index have both retreated to their lowest levels since Sept. 12, the last trading day before Lehman Brothers Holdings Inc. filed the biggest bankruptcy in U.S. history.

The London interbank offered rate, or Libor, for three- month dollar loans decreased 0.04 percentage point to 0.72 percent, bringing its drop over the past four days to almost 0.14 percentage point, according to the British Bankers’ Association. The rate was 1.43 percent at the end of 2008.

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net

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India May Raise Sugar Cane Prices to Boost Output, Pare Imports

By Pratik Parija

May 20 (Bloomberg) -- India, the world’s biggest consumer of sugar, may increase the price of cane it pays farmers by 33 percent to increase plantings and stem a decline in production of the sweetener, a government official said.

The food ministry may recommend to the cabinet a price of 107.76 rupees for 100 kilograms (220 pounds), compared with 81.18 rupees paid a year ago, said the official, who didn’t want to be identified because the information isn’t public.

A decline in sugar production for a second year has forced the South Asian country to become a net importer for the first time since 2006, and fueled a 31 percent rally this year in raw- sugar prices. Worldwide demand may exceed output by 12.3 million tons in the year ending Aug. 31, according to Barclays Capital.

The proposal comes as the Congress party returned to power with its allies in elections that ended May 16, winning 21 seats in Uttar Pradesh, India’s biggest sugar cane producer, compared with nine in 2004. The country’s 50 million sugar cane farmers, a powerful voting block, shifted to grains and oilseeds last year because of a delay in payments by mills.

India’s sugar output is forecast to drop to 14.7 million tons in the year ending Sept. 30, the second year of decline. Cane production may be 289.2 million tons, down from a February estimate of 290.45 million tons, the farm ministry said May 12.

To contact the reporter on this story: Pratik Parija in New Delhi at pparija@bloomberg.net.

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India May Raise Sugar Cane Prices to Boost Output, Pare Imports

By Pratik Parija

May 20 (Bloomberg) -- India, the world’s biggest consumer of sugar, may increase the price of cane it pays farmers by 33 percent to increase plantings and stem a decline in production of the sweetener, a government official said.

The food ministry may recommend to the cabinet a price of 107.76 rupees for 100 kilograms (220 pounds), compared with 81.18 rupees paid a year ago, said the official, who didn’t want to be identified because the information isn’t public.

A decline in sugar production for a second year has forced the South Asian country to become a net importer for the first time since 2006, and fueled a 31 percent rally this year in raw- sugar prices. Worldwide demand may exceed output by 12.3 million tons in the year ending Aug. 31, according to Barclays Capital.

The proposal comes as the Congress party returned to power with its allies in elections that ended May 16, winning 21 seats in Uttar Pradesh, India’s biggest sugar cane producer, compared with nine in 2004. The country’s 50 million sugar cane farmers, a powerful voting block, shifted to grains and oilseeds last year because of a delay in payments by mills.

India’s sugar output is forecast to drop to 14.7 million tons in the year ending Sept. 30, the second year of decline. Cane production may be 289.2 million tons, down from a February estimate of 290.45 million tons, the farm ministry said May 12.

To contact the reporter on this story: Pratik Parija in New Delhi at pparija@bloomberg.net.

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Copper Advances for a Fifth Day in London on Equities, Dollar

By Anna Stablum

May 20 (Bloomberg) -- Copper advanced for a fifth day in London, the longest winning streak in a month, on a weaker dollar, rising global equities and falling stockpiles.

The MSCI World Index of shares rose for a third day, jumping 3.2 percent this week. Copper inventories in warehouses monitored by the London Metal Exchange fell for a tenth day. The Dollar Index, a gauge of the currency’s value against six major counterparts, also dropped for a third day, making dollar- denominated metals cheaper for holders of the euro and pound.

“Copper and the other metals are taking their cue from equities and I think a big factor here is the weaker dollar that is supportive,” Robin Bhar, an analyst at Credit Agricole SA’s Calyon unit in London, said by phone today.

Copper for three-month delivery rose $60, or 1.3 percent, to $4,590 a metric ton by 9:51 a.m. on the LME, delivering the longest winning streak since April 15. The metal for July delivery climbed 1 percent to $2.0905 a pound on the New York Mercantile Exchange’s Comex division.

Stockpiles of copper in LME-monitored warehouses fell 2 percent to 341,475 tons, for a 16 percent decline in May.

“There is still room to be bullish” with stockpiles falling, William Adams, an analyst at BaseMetals.com, said in a report. Still, “too much optimism is already priced into the markets,” he said, making them “vulnerable to setbacks.”

Copper has gained 3.5 percent on the LME so far in May, after four straight months of gains because of restocking by China, the world’s largest consumer of the metal.

Looking Forward

The more forward looking data suggest “that we are bottoming out here,” Bhar said. Germany investor confidence climbed to a three-year high yesterday.

Aluminum for three-month delivery climbed 0.1 percent to $1,501 a ton. LME-monitored inventories of the lightweight metal rose 2 percent today to a record 4.14 million tons.

Lead rose 0.3 percent to $1,490 a ton, while zinc held at $1,523 a ton. Nickel gained 1.4 percent to $12,650 a ton. Tin rose 0.4 percent to $13,700 a ton.

To contact the reporters on this story: Anna Stablum in London at astablum@bloomberg.net.

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Gold Demand Surges 38% on Investment, Council Says

By Claudia Carpenter

May 20 (Bloomberg) -- Gold purchases rose 38 percent in the first quarter, led by investment demand that exceeded usage by jewelers for the first time since at least 2004, according to the World Gold Council.

Global demand increased to 1,015.5 metric tons, from 733.9 tons a year earlier, the London-based council said today in a report based on figures from research company GFMS Ltd. Investment purchases more than tripled to 595.9 tons while jewelry demand fell 24 percent to 339.4 tons.

Gold rose to an 11-month high of $1,006.29 an ounce on Feb. 20 as governments spent trillions of dollars to fight recession, sparking speculation inflation will accelerate. In India, the world’s largest gold buyer last year, jewelry demand was the lowest in at least 20 years and net retail investment turned negative for the first time as holders sold metal for recycling, the council said. Chinese demand was six times that of India.

“In the current environment, investment demand is part of the diversification of assets in portfolios and therefore is less sensitive to price than jewelry demand,” said John Meyer, research director at Fairfax IS in London.

Investment demand for coins, bars and exchange-traded funds was the highest since at least 2004, when GFMS began tracking them, and “could well be” a record, GFMS senior metals analyst Philip Newman said. Jewelry demand had accounted for about two- thirds of gold demand in the past 30 years, he said.

Investment Flows

“Investment flows in the first quarter of this year were unprecedented and, based on an analysis of the past 30 years of the gold market, probably unsustainable in the long term,” UBS AG analyst John Reade wrote in an e-mail. Concerns about inflation and currencies “are likely to continue for the next year or so and this should keep investment flows strong, if not perhaps at the super-strong levels seen in the first quarter.”

The U.K. Royal Mint used 75 percent more gold in the first quarter than a year earlier and the U.S. Mint’s sales of 1-ounce American Eagle gold coins more than quadrupled in January.

Gold for immediate delivery climbed $2.98, or 0.3 percent, to $928.04 an ounce by 8:24 a.m. in London.

Total demand from India fell 83 percent to 17.7 tons, from 107.2 tons a year earlier. In Thailand, total usage was a negative 16.9 tons, compared with net demand of 2.1 tons a year earlier. Purchases in China rose 1.8 percent to 105.2 tons from 103.3 tons. In the U.S., demand rose 15 percent to 55.2 tons.

‘A Bigger Role’

“Certainly over the long run, you’re going to see China permanently taking a bigger role,” said Rozanna Wozniak, London-based investment manager at the council. “Across the world, there has been an increase in recycled gold sales, due to a combination of profit taking and distress selling due to difficult economic conditions.”

Demand in Germany for bars and coins expanded fivefold in the first quarter to 59 tons, according to the report.

“Throughout the western world, the safe-haven motive to buy gold was very strong due to economic uncertainty,” Wozniak said. “In Germany, it also appears to be motivated by inflation.”

Owners of gold sold a record 558 tons of metal back into the market, with net retail investment a negative 17 tons in India and 19.9 tons in Thailand, according to the report.

Gold mine production rose 2.9 percent to 560 tons from 544 tons. Central bank sales slumped 55 percent to 35 tons from 77 tons.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net

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Asian Stocks Rise, Led by Mitsubishi, Shipping Lines; HTC Gains

By Jonathan Burgos and Masaki Kondo

May 20 (Bloomberg) -- Asian shares rose, driving the MSCI Asia Pacific Index to a seven-month high, as oil traded above $60 a barrel and Goldman, Sachs & Co. said it was turning more positive on the transportation sector.

Mitsubishi Corp., a trading house that gets more than half its profit from commodities, climbed 5 percent in Tokyo as Goldman Sachs said stocks and commodity prices have bottomed. China Shipping Container Lines Co., the country’s No. 2 cargo- box carrier, jumped 4.7 percent in Hong Kong. Handset maker HTC Corp. surged 4.9 percent in Taipei on optimism it will benefit from increased sales in Japan.

The MSCI Asia Pacific Index rose 0.5 percent to 99.83 at 7:15 p.m. in Tokyo, the highest level since Oct. 6. Japan’s Nikkei 225 Stock Average advanced 0.6 percent even after a government report showed the nation’s economy shrank by a record last quarter, triggering a gain in the yen and dollar.

Markets in China, Hong Kong, Indonesia, India, and Pakistan declined, while all others advanced.

“Risk appetite is coming back,” Khiem Do, head of the multi-asset group at Baring Asset Management (Asia) Ltd. in Hong Kong, which oversees $7 billion, told Bloomberg Television today. “There’s greater optimism about the green shoots of economic recovery around the world.”

T&D Holdings Inc., Japan’s biggest life insurer, slumped 15 percent after posting a wider-than-estimated full-year loss. Billabong International Ltd., Australia’s largest surfwear maker, tumbled 17 percent after a share sale.

Futures on the Standard & Poor’s 500 Index added 0.3 percent. The gauge dropped 0.2 percent in New York yesterday as a Commerce Department report showed housing starts sank 13 percent in April, while economists had expected an increase.

Brokerage Upgrade

Goldman Sachs upgraded Mitsubishi to “buy” and lifted its view on Japanese trading houses to “attractive” on expectations growth in China will support demand for commodities.

Mitsubishi jumped 5 percent to 1,744 yen in Tokyo. Mitsui & Co., Mitsubishi’s closest rival, rose 5.9 percent to 1,176 yen.

“Negatives are fading, as the bottoming out of global stock markets is bringing the asset deflation trend to a halt, while commodity prices have also bottomed,” Goldman Sachs analysts Kenichiro Yoshida and Kazuhisa Mori wrote in a report dated yesterday.

The MSCI Asia Pacific Index had its biggest weekly decline in two months last week amid concern the rally since March had overpriced earnings prospects. Companies on the gauge are valued at an average 1.4 times the book value of assets, the highest since Oct. 3, according to data compiled by Bloomberg.

Crude oil for July delivery rose as much as 1.7 percent to $60.65 a barrel on the New York Mercantile Exchange after a U.S. industry report showed crude inventories declined and a fire at a Texas refinery curbed production. Crude closed at the highest since Nov. 10 yesterday.

Shipping Companies

Goldman Sachs raised its rating on the container-ship industry to “attractive” from “neutral” and upgraded Mitsui O.S.K. to “buy” from “neutral.” The brokerage lifted its share-price forecast for Pacific Basin by 20 percent.

Kawasaki Kisen Kaisha Ltd., Japan’s No. 3 shipping line, added 4.7 percent to 404 yen. The Baltic Dry Index, a measure of shipping costs for commodities, jumped for a 13th-straight session to a level not seen since Oct. 8.

China Shipping Container Lines jumped 4.7 percent to HK$2.23. Mitsui O.S.K. Lines Ltd., Japan’s No. 2 shipping company, gained 2.1 percent to 633 yen. Pacific Basin Shipping Ltd., Hong Kong’s largest operator of commodity vessels, added 2 percent to HK$4.67.

“Shares of companies that rely on demand in emerging markets, such as trading houses, show resilience, reflecting growth prospects for China’s economy,” said Yoshihiro Ito, senior strategist at Tokyo-based Okasan Asset Management Co., which oversees the equivalent of $9.3 billion.

Shipments Rebound

Singapore’s shipments to China jumped 29 percent in March from February, and those from Japan, South Korea and Taiwan also increased. The Purchasing Manager’s Index rose to a seasonally adjusted 53.5 in April from 52.4 in March, China’s Federation of Logistics and Purchasing said on May 1. A reading above 50 indicates an expansion.

“Demand for resources looks likely to rebound and investors are willing to buy commodity-related companies on expectations for an earnings recovery,” said Hiroichi Nishi, general manager at Nikko Cordial Securities Co.

HTC climbed 4.9 percent to NT$513. The stock surged 6.3 percent yesterday after NTT DoCoMo Inc., Japan’s largest mobile- phone operator, said that it plans to sell a HTC handset that uses Google Inc.’s Android software in Japan.

Billabong Shares

“The DoCoMo sale does help,” said Kevin Chang, an analyst at Citigroup Inc. “More importantly, with Taiwan’s bull market, investors are looking for tech shares to buy.” Taiwan’s Taiex Index surged 16 percent in the month through yesterday amid optimism closer ties with China will boost economic growth.

T&D Holdings slumped 15 percent to 2,760 yen. The company reported a loss of 89.1 billion yen ($931 million) in the 12 months ended March 31, compared with a 36.7 billion yen profit the previous year. Nomura Holdings Inc. downgraded T&D’s stock to “reduce” from “buy” after the results, which compared with a February forecast for an 84 billion yen loss.

Australia’s Billabong tumbled 17 percent to A$8.45. The company sold about A$230 million ($177 million) in new stock to institutional holders at A$7.50 a share.

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

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European Stocks Fluctuate; Shell, K+S Advance, Swedbank Drops

By Adam Haigh

May 20 (Bloomberg) -- European stocks fluctuated between gains and losses as concern a two-month equity rally is poised to wither overshadowed gains by oil and chemical producers.

Royal Dutch Shell Plc climbed as crude traded above $60 a barrel. K+S AG rose 7.7 percent as HSBC Holdings Plc recommended the shares. Air France-KLM Group jumped 10 percent after Europe’s biggest airline reported a narrower-than-estimated loss. Swedbank AB led a measure of European bank shares lower for the first time in five days, dropping 3.1 percent.

The Dow Jones Stoxx 600 Index was little changed at 210.72 as of 1:04 p.m. in London. The regional benchmark has advanced 33 percent from this year’s low on March 9 as speculation mounted that U.S. government measures to purchase illiquid assets from banks will pull the global economy out of recession.

Stocks will pull back to their March levels as a rally led by the most highly shorted stocks ends, according to David Rosenberg, chief economist and strategist at Gluskin Sheff.

“As doubts emerge over whether in fact the green shoots amount to anything more than dandelions, it now looks as though the major averages are about to embark on the fabled retesting phase towards the March lows,” Rosenberg, a former Merrill Lynch & Co. economist, wrote in a report dated yesterday.

Shell, Europe’s largest oil producer, gained 2 percent to 1,668 pence. BP, the second-biggest, added 1.3 percent to 516 pence. Oil rose for a third day before a report forecast to show that U.S. crude inventories dropped from their highest level in nearly 19 years.

K+S, Air France

K+S rallied 7.7 percent to 53.73 euros as HSBC upgraded the shares to “outperform” from “neutral.” There is “strong underlying demand in the Potash industry,” HSBC analyst Jesko Mayer-Wegelin wrote in a report. Europe’s largest producer of potash used in fertilizers led a rally among chemicals companies, which posted the steepest advance of all 19 industry groups on the Stoxx 600.

Air France surged 10 percent to 11.18 euros. The net loss for the year ended March 31 was 814 million euros ($1.1 billion), while analysts had predicted a loss of 902 million euros.

Swedbank, the largest lender in the Baltic states, slid 3.1 percent to 54.50 kronor. KBC Group NV sank 1.9 percent to 14.86 euros. A measure of banks shares on the Stoxx 600 fell 1 percent after climbing for four days.

‘Defensively Positioned’

“From this point we have two tasks: to determine whether the economic recovery is really real and whether we are defensive enough if it doesn’t pan out as a full recovery,” said Gunnar Miller, Frankfurt-based global head of European sector research at RCM, where he helps oversee about $176 billion. “With equities we want to remain relatively defensively positioned to see how this pans out,” he told Bloomberg Television.

U.S. and European options are trading at their lowest levels since Lehman Brothers Holdings Inc.’s collapse last year after benchmark stock indexes rallied more than 33 percent over the last 10 weeks. The VIX, as the Chicago Board Options Exchange Volatility Index is known, and Europe’s VStoxx Index have both retreated to their lowest levels since Sept. 12, the last trading day before Lehman filed the biggest bankruptcy in U.S. history.

The cost of insurance against companies defaulting on debt and money market rates also indicate the worst of the recession may have passed. The London interbank offered rate, or Libor, for three-month loans in dollars fell more than three basis points to 0.72 percent today. The cost of protecting European corporate bonds from default slipped, according to traders of credit-default swaps.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net.

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London Stock Exchange Posts Loss After Borsa Italiana Writedown

By Nandini Sukumar

May 20 (Bloomberg) -- London Stock Exchange Group Plc, the operator of the London and Milan bourses, reported an annual loss after the exchange wrote down its purchase of Borsa Italiana SpA.

The net loss for the 12 months ended March 31 was 338 million pounds ($523 million) compared with a profit of 168.3 million pounds the year before, LSE said in a Regulatory News Service statement today. The U.K. bourse took an impairment charge of 484 million pounds related to the acquisition of the Milan exchange.

LSE, led by Clara Furse who’s leaving today, bought Borsa Italiana in 2007 after rejecting five takeover approaches from rivals including Euronext NV, Deutsche Boerse AG and Nasdaq Stock Market Inc. The company, along with other traditional exchanges, is confronting declining profits as it contends with tumbling equity markets and fights alternative trading systems such as Bats Trading Inc. and Chi-X Europe Ltd. The bourse, which is replacing Furse with Xavier Rolet, has lost about 30 percent of its market share for FTSE 100 Index stocks to new competitors.

“The goodwill impairment arising from the all share merger is a technical accounting adjustment reflecting the major deterioration in current economic conditions,” Chairman Chris Gibson-Smith said in the statement. “Although market conditions are expected to remain testing, the board believes the group is well placed for the future.”

Writedowns

Companies are being forced to write down the value of acquisitions after global equity markets slid last year. LSE, which paid 1.63 billion euros ($2.2 billion) for Borsa Italiana, joins NYSE Euronext, which took a $1.59 billion charge resulting from the 2007 acquisition of Euronext in February.

Sanford C. Bernstein & Co. analysts Dirk Hoffmann-Becking and Richard Perrot had estimated LSE’s impairment at as much as 380 million pounds before today’s earnings report.

Total sales climbed 23 percent to 671.4 million pounds, Europe’s oldest independent bourse said today. Revenue from the issuer-services division, which makes money from companies listing on its markets and then paying to stay listed, rose 10 percent to 90.4 million pounds.

Sales from the trading-services division, consisting of the cash equities, derivatives and fixed-income trading, advanced 4 percent to 275.3 million pounds.

Revenue from information services added 27 percent to 182.9 million pounds. Post-trade sales more than doubled to 104 million pounds.

To contact the reporters on this story: Nandini Sukumar in London at nsukumar@bloomberg.net

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VIX Falls to Lowest Level Since Lehman’s Bankruptcy

By Jeff Kearns and Gareth Gore

May 20 (Bloomberg) -- U.S. and European options are trading at their lowest levels since Lehman Brothers Holdings Inc.’s September collapse after benchmark indexes rallied more than 33 percent over the last 10 weeks.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, and Europe’s VStoxx Index have both retreated to their lowest levels since Sept. 12, the last trading day before Lehman filed the biggest bankruptcy in U.S. history.

“Volatility fell off a cliff,” said Carl Mason, head of U.S. equity derivatives strategy at BNP Paribas in New York. “I don’t get the sense that many investors are putting on new hedges, but if they are they’re not hedging against a complete meltdown.”

The VIX’s 13 percent decline so far this week dwarfs the 3.8 percent drop in the VStoxx through yesterday. The VStoxx hasn’t fallen below the U.S. gauge in more than three weeks.

Traders are paying less for U.S. options after government stress tests of banks reassured investors and better-than- forecast corporate earnings propelled the Standard & Poor’s 500 Index to a 34 percent rally from its 12-year low on March 9. The VIX has slipped 42 percent in the same period and bank stocks almost doubled.

‘More Clarity’

“There’s more comfort, there’s more clarity, there’s less fear, there’s less panic,” said Neil Davies, a volatility trader and head of structured equity products at SunTrust Robinson Humphrey Capital Markets in Atlanta. “Options are getting cheaper because people don’t feel like they need as much protection as they did in February.”

The VIX dropped 4.8 percent to 28.80 yesterday, while the VStoxx slumped 1.2 percent to 31.54 at 1:01 p.m. today in London. Both remain above their average levels of 19.9 and 25.6, respectively, according to data compiled by Bloomberg.

Stocks haven’t recovered all the ground lost since Lehman’s bankruptcy. The S&P 500, which closed yesterday at 908.13, must rally 38 percent to reach its level from before the bank’s collapse.

The VIX is calculated from S&P 500 options no more than 30 days from expiration. The VStoxx gauges the cost of contracts on the region’s Dow Jones Euro Stoxx 50 Index. Options are derivatives that give the right though not the obligation to buy or sell a security at a set price and date.

Price Swings Narrow

“The ongoing drop in the VStoxx comes down to a combination of lower levels of general risk aversion as markets move higher and sentiment improves, and lower levels of daily jumps in share prices during the last month,” said Pete Clarke, an options strategist at Citigroup Inc. in London.

Options prices also are decreasing because stock-market swings are narrowing. The S&P 500 traded in a 1.23 percent range between yesterday’s intraday high and low, the second-narrowest span in 2009. This year’s 2.91 percent average daily swing is down from 5.1 percent in the fourth quarter of 2008.

The VIX has tumbled 64 percent since jumping to 80.86, the highest in its 19-year history, on Nov. 20. The gauge reached an intraday record of 89.53 on Oct. 24.

“If you look at what shot it to 90, it was the fear of the entire banking system imploding, not recession,” said Peter Boockvar, the equity strategist at Miller Tabak & Co. in New York. “Now it’s the hopes and wishes that we’ve seen the worst and that less-bad turns to good sooner rather than later.”

Bank Stress Tests

U.S. regulators released stress test results May 7 for 19 lenders and ordered 10 institutions to raise a total of $74.6 billion in capital to withstand a deeper recession. Banks and brokerages in the S&P 500 have soared 93 percent since the benchmark’s March low, the best gain of 10 industry groups, according to data compiled by Bloomberg.

Two-thirds of the 450 companies in the S&P 500 that have released first-quarter results beat analysts’ projections, the data show.

June VIX futures slid 1.5 percent to 30.40 yesterday, while July’s contracts lost 0.3 percent to 30.90. August and September futures gained 0.2 percent.

Europe’s VStoxx dropped 32 percent through yesterday since the 12-year low for European stocks on March 9. The Euro Stoxx 50, a gauge of the largest companies in the euro region, rose 36 percent over the same period on growing optimism that Europe’s worst recession since the World War II is easing.

The VStoxx decreased 64 percent since closing at a record 87.51 on Oct. 16. The U.K.’s FTSE100 Volatility Index, Germany’s VDAX-New, and France’s CAC 40 Volatility Index have all slipped more than 61 percent from their October records.

“The recent downward trend for volatility has proved to be robust,” Societe Generale analysts, led by Paris-based Vincent Cassot, wrote in a May 19 note to clients. The report cited the decline in European option prices last week even as the Euro Stoxx 50 posted its worst weekly drop since March. The VStoxx retreated 8 percent last week.

To contact the reporters on this story: Jeff Kearns in New York at jkearns3@bloomberg.net; Gareth Gore in Madrid ggore1@bloomberg.net.

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Bank of America, BJ’s, Tata Motors: U.S. Equity Preview

By Matt Townsend

May 20 (Bloomberg) -- The following companies may have unusual price changes in U.S. markets. Stock symbols are in parentheses after company names, and prices are as of 7:41 a.m. in New York.

Analog Devices Inc. (ADI US) jumped 10 percent to $22.65. The maker of semiconductors for companies such as Cisco Systems Inc. forecast third-quarter earnings of 17 cents to 19 cents a share, more than the 11-cent average estimate of analysts surveyed by Bloomberg.

Bank of America Corp. (BAC US) advanced 6.3 percent to $11.96. The biggest U.S. bank by assets raised about $13.5 billion by selling stock after U.S. regulators determined it needed more cash to weather an extended recession.

BJ’s Wholesale Club Inc. (BJ US): The third-largest U.S. wholesale club chain posted first-quarter earnings excluding some items of 45 cents a share, beating the average analyst estimate by 3.5 percent.

Hewlett-Packard Co. (HPQ US) fell 3.9 percent to $35.14. The world’s largest maker of personal computers forecast third- quarter sales that missed analysts’ estimates, a sign that recession-wary customers continue to shun new technology purchases. Sales will be unchanged or drop as much as 2 percent from last quarter. That signals revenue of as low as $26.9 billion, missing the $27.5 billion average analyst estimate.

Regions Financial Corp. (RF US) dropped 4.6 percent to $5. The Alabama bank said it began selling $1 billion of common shares and $250 million of new mandatory convertible preferred shares after the government said it needs $2.5 billion to weather a worsening recession. The bank is a potential takeover target with BB&T Corp. and JPMorgan Chase & Co. the most logical bidders, Fox-Pitt Kelton Cochran Caronia Waller said in a report yesterday.

Raymond James Financial Inc. (RJF US): The biggest U.S. regional brokerage is withdrawing its application for the capital purchase program of the Troubled Asset Relief Program, saying it has “adequate internal funds.”

Tata Motors Ltd. (TTM US) surged 13 percent to $10.20. India’s largest truckmaker rose after a credit rating company said the automaker plans to sell 42 billion rupees ($879 million) of debentures.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net.

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U.S. Stock-Index Futures Gain as Exxon, Bank of America Advance

By Daniela Silberstein

May 20 (Bloomberg) -- U.S. stock-index futures gained as higher oil and metal prices lifted commodity producers, overshadowing a weaker-than-expected sales forecast from Hewlett-Packard Co.

Exxon Mobil Corp., Alcoa Inc. and Freeport-McMoRan Copper & Gold Inc. rose after crude traded above $60 a barrel and copper rallied for a fifth day. Bank of America Corp. added 3.4 percent following its $13.5 billion share sale. Hewlett-Packard, the largest maker of personal computers, retreated 4.6 percent after saying sales haven’t shown signs of rebounding.

Standard & Poor’s 500 Indexfutures expiring in June added 0.3 percent to 909.10 at 7:28 a.m. in New York. Dow Jones Industrial Average futures gained 0.2 percent to 8,469. The MSCI Asia Pacific Index advanced 0.6 percent, while Europe’s Dow Jones Stoxx 600 Index lost 0.4 percent.

“With every day investors are becoming a little bit more positive and more willing to take risks,” said Claudio Meiger, who manages about $100 million at Basel, Switzerland-based CIC Schweiz AG. “Momentum in the market is encouraging. The next few days will determine whether the upward trend continues.”

The benchmark index for U.S. stock options slipped below 30 for the first time in eight months, as traders paid less for insurance against declines in the S&P 500. The last close below yesterday’s VIX level was 25.66 on Sept. 12, the session before Lehman Brothers Holdings Inc. filed for bankruptcy.

U.S. stocks declined yesterday as banks fell after Moody’s Investors Service said commercial property values plunged and Home Depot Inc. retreated following an unexpected slump in housing starts. The S&P 500 has still surged 34 percent since March 9 on signs the global recession is easing.

Oil, Metals

Exxon, the oil producer that’s the largest company by market value, rose 0.7 percent to $71. Schlumberger Ltd., the world’s biggest oilfield-services provider, added 0.7 percent to $54.40 in France.

Crude oil rose to its highest in six months before a report forecast to show that U.S. crude inventories dropped from their highest level in nearly 19 years. Oil for July delivery added 1.3 percent to $60.43 a barrel in New York.

Alcoa, the biggest U.S. aluminum producer, rose 1.2 percent to $9.80 in Germany. Freeport-McMoRan, the world’s largest publicly traded copper producer, added 1.8 percent to $50.43.

Copper rose for a fifth day, extending its longest advance in a month, on speculation the worst of the financial crisis is over. The metal climbed 0.9 percent in London.

No Improvement

Hewlett-Packard dropped 4.6 percent to $34.91. The computer maker said revenue will drop 4 percent to 5 percent this year, the lower end of a forecast range given in February. Chief Executive Officer Mark Hurd said he’s basing the forecast on the expectation that the economy won’t improve in coming months.

Dell Inc., the world’s second-largest maker of personal computers, slipped 1.4 percent to $11.40.

Net income at 450 companies in the S&P 500 that have reported results since April 7 declined 35 percent on average, Bloomberg data show. Analysts estimate full-year earnings in the measure to drop 16 percent before rebounding 24 percent in 2010, according to estimates compiled by Bloomberg.

Bank of America added 3.4 percent to $11.63. The biggest U.S. bank by assets raised money in a stock offering after regulators determined it needed more cash to weather an extended recession. Bank of America issued 1.25 billion shares after the stock surged 258 percent since March 6.

Procter & Gamble Co. rose 1.2 percent to $53.60. The world’s largest household-products maker was raised to “overweight” at Barclays Plc, which cited “the potential for sales and earnings reacceleration.”

To contact the reporter on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net.

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U.K.’s Stocks Retreat, Led by Banks; Lloyds Banking, HSBC Drop

By Alexis Xydias

May 20 (Bloomberg) -- U.K. stocks declined, retreating from a four-month high, as an index of banking stocks fell for the first time in three days, overshadowing a rally in energy producers.

Lloyds Banking Group Plc slumped as investors lost the right to new shares while HSBC Holdings Plc declined as it traded without the right to the latest dividend. Royal Dutch Shell Group Plc and BP Plc climbed as oil rose for a third day.

The FTSE 100 Index fell 17.04, or 0.4 percent, to 4,465.21 at 11:37 a.m. in London, having risen to a four-month high earlier. The FTSE All-Share Index lost 0.3 percent, while Ireland’s ISEQ Index added 0.7 percent.

Global stock indexes are poised to pull back to their March lows as a rally led by so-called short-covering ends, according to David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates Inc. in Toronto.

“As doubts emerge over whether in fact the green shoots amount to anything more than dandelions, it now looks as though the major averages are about to embark on the fabled retesting phase towards the March lows,” Rosenberg, a former Merrill Lynch & Co. economist, wrote in a report dated yesterday, the first for his new employer.

The FTSE 100 has rallied 27 percent since the low this year on March 3, led by banks and companies most exposed to economic growth, on expectations the worst of a global recession is over. The FTSE 350 Banks Index has jumped 86 percent in the period.

“We may see a modest pull back,” said Lawrence Peterman, a strategist at Eden Financial in London. “We may see some rotation into defensives and out of financials in the short term.”

Lloyds Retreats

Lloyds, 43 percent owned by the government, fell 29 percent to 71.4 pence as it traded without the right to new shares the company is selling. Investors who held the stock until yesterday are entitled to 0.62 new shares at a price of 38.43 pence each. When adjusted for the right, the stock dropped 6.5 percent.

HSBC, Europe’s biggest bank, fell 2.1 percent to 562.75 pence, or 1 percent when adjusted for the latest dividend. Investors who buy the shares today will not get the payment.

Barclays Plc, the U.K.’s third-largest bank, declined 4.2 percent to 282.5 pence, dropping for the first day in five sessions. Standard Chartered Plc, which makes more than half of its earnings in Asia, declined 3.2 percent to 1,243 pence. The stock has gained 48 percent in 2009.

An index of banks, the FTSE 350 Banks Index, lost 4 percent today, snapping two days of gains.

Shell, Europe’s largest oil company, gained 1.6 percent to 1,662 pence. BP, the second’s biggest, added 0.8 percent to 513.5 pence.

Oil rose to its highest in six months before a report forecast to show that U.S. crude inventories dropped from their highest level in nearly 19 years.

British Airways Plc, Europe’s third-biggest airline, jumped 2.7 percent to 170.1 pence. Air France-KLM, the region’s largest carrier, reported a smaller full-year net loss than analysts had estimated and pledged to cut about 3,000 jobs. British Airways is scheduled to report earnings on May 22.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.

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