Oil Heads for Biggest Monthly Gain Since 1999 on OPEC Output

By Ben Sharples and Ann Koh

May 29 (Bloomberg) -- Crude oil headed for its biggest monthly gain in a decade after OPEC kept its output unchanged amid signs the global economy is recovering.

Oil has gained 27 percent in May as equities rose and the U.S. dollar weakened, spurring demand for commodities. Japan said today that its industrial output climbed the most in at least six years in April, improving the outlook for a rebound in fuel demand.

“Oil has followed equities primarily because investors have cash on hand on the sidelines,” Victor Shum, a senior principal at Purvin & Gertz Inc., said in Singapore. “They are counting on some of the positive economic indicators, and are placing bets.”

Crude oil for July delivery was at $65.20 a barrel, up 12 cents, on the New York Mercantile Exchange at 1:25 p.m. in Singapore. Yesterday, the contract rose $1.63, or 2.6 percent, to settle at $65.08 a barrel, the highest since Nov. 5.

Oil is poised for the largest increase since March 1999, when Asia was recovering from the 1997-1998 financial crisis and fuel demand started rising in China and India. Oil gained 37 percent, according to Bloomberg data.

Saudi Arabian Oil Minister Ali al-Naimi said that the Organization of Petroleum Exporting Countries opted not to alter its output targets because “prices are good, the market is in good shape.”

Dollar, Stocks

Crude should stay in a $60-to-$70 a barrel range for the rest of the year, OPEC Secretary General Abdalla el-Badri said. The Energy Department said yesterday that U.S. oil supplies fell the most since September.

“If we are able to keep this $60 to $70 price for the remainder of the year, it will be fine,” OPEC’s El-Badri said in a Bloomberg Television interview.

The dollar is set for the first decline in two months versus the euro, falling to $1.3987 per euro at 1:51 p.m. in Tokyo from $1.3941 in New York yesterday.

U.S. stocks rallied, led by banking and energy shares, as a rebound in 10-year Treasuries eased concern record government debt sales will trigger higher borrowing. The Standard & Poor’s 500 Index added 1.5 percent and the Dow Jones Industrial Average advanced 1.3 percent.

Japan’s factory production climbed 5.2 percent from March, when it gained 1.6 percent, the Trade Ministry said today in Tokyo. The increase was faster than the 3.3 percent expected by economists. Companies said they planned to increase output in May and June as well, the report showed.

U.S. Inventories

Oil jumped to a six-month high yesterday after the Energy Department weekly reported showed a drop in inventories.

U.S. crude inventories declined 5.41 million barrels to 363.1 million last week, according to the department. It was the biggest drop since September, when hurricanes hit the Gulf of Mexico coast. A 150,000-barrel reduction was forecast, according to the median of 12 analyst responses in a Bloomberg News survey.

The decline left inventories 27 percent higher than the five-year average, up from a 23 percent surplus a week earlier. Stockpiles were the highest since 1990 in the week ended May 1.

“The oil market fundamentals still remain relatively fragile, notwithstanding the gains in the oil price,” said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney.

Refineries operated at 85.1 percent of capacity, up 3.3 percentage points from the previous week, the biggest gain since October, the report showed.

Gasoline stockpiles dropped 537,000 barrels to 203.4 million, the lowest since the week ended Dec. 5, according to the report.

OPEC Limits

Gasoline for June delivery rose 0.2 cent, or 0.1 percent, to $1.9125 a gallon in New York at 12:51 p.m. in Singapore. It gained 1.88 cents, or 1 percent, to end yesterday’s session at $1.9105 in New York, the highest settlement since Oct. 13.

Saudi Arabia’s Al-Naimi forecast that oil may rise to $75 a barrel by this year’s third or fourth quarter. The group’s next meeting will be on Sept. 9, he said.

Other OPEC ministers said the group would work toward finishing previously announced reductions. OPEC has yet to complete output cuts totaling 4.2 million barrels a day agreed to last year.

“I don’t buy the story that we are going to go to $150 next week,” Jan Stuart, Macquarie Group Ltd.’s oil analyst in New York, said in an interview with Bloomberg Television. “What I do buy is that there is the beginning of a recovery.”

The production ceiling is 24.845 million barrels a day for 11 of its members. They pumped 25.812 million a day in April, a May 13 report from the group showed. Iraq has no quota.

Brent crude for July settlement was 11 cents higher at $64.50 a barrel on London’s ICE Futures Europe exchange at 1:31 p.m. Singapore time.

To contact the reporters on this story: Ben Sharples in Melbourne bsharples@bloomberg.net; Ann Koh in Singapore at akoh15@bloomberg.net

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Emerging-Market Bonds Post Best 3 Months Since 2002

By Lester Pimentel and Michael Patterson

May 29 (Bloomberg) -- Emerging-market bonds are headed for their biggest three-month rally in seven years, led by Argentina and Ukraine, as higher commodities prices and international bailouts improve the outlook for the nations to repay debts.

Bonds sold by developing countries returned 3.4 percent in May, extending their gain since March 1 to 12 percent, according to Merrill Lynch & Co. indexes. That marks the best performance since October to December 2002, when concern eased that Brazil would default after the election of President Luiz Inacio Lula da Silva. Argentine debt climbed 28 percent this month while Ukraine gained 17 percent, the indexes show.

“We’re seeing a lot of money come into the market,” said Pablo Cisilino, who manages $10 billion in emerging-market debt at Stone Harbor Asset Management in New York.

Investors snapped up debt in May from raw-material exporting nations such as Brazil, Russia and Indonesia as signs the global recession may be easing helped lift the UBS Bloomberg Constant Maturity Commodity Index 13.1 percent, the most since February 2008. Any indication of a slower economic rebound may hurt emerging-market debt, Cisilino said. Data on durable-goods orders and unemployment yesterday offered no sign of an imminent rebound from the worst U.S. recession in half a century.

“We may have a pullback in the summer,” Cisilino said. “A lot depends on what happens to the global economy.”

Argentina reduced default concerns after extending maturities on 15.1 billion pesos ($4.3 billion) of debt this year. Emerging-market investors are “most bullish” on that country’s bonds, according to a survey by Barclays Plc published this week. 1

Ukraine’s IMF Accord

Ukraine’s financing improved after the country won approval for the second part of a $16.5 billion International Monetary Fund loan. JPMorgan Chase & Co. upgraded Ukraine’s bonds to “marketweight” from “underweight” on May 19, citing the IMF’s support.

The extra yield investors demand to own Argentine bonds instead of U.S. Treasuries has shrunk 4.6 percentage points in May to 13.06 percentage points, the smallest gap since October, according to JPMorgan Chase & Co.

The rally in Ukraine’s dollar bonds pushed yields down by 5.2 percentage points this month to 11.50 percentage points, according to JPMorgan. That’s the smallest gap since October.

Emerging-market bonds’ three-month rally since February compares with a 13 percent rise in the three months ended in December 2002, just after Lula’s election to a first term, Merrill indexes show.

‘Come a Long Way’

The average yield spread on emerging-market dollar bonds has narrowed 84 basis points this month to 4.46 percentage points, according to JPMorgan’s EMBI+ Index. A basis point equals 0.01 percentage point. The so-called spread has tumbled from a six-year high of 8.65 percentage points in October.

Emerging-market bonds slumped yesterday after reports showed durable-goods orders in the U.S. hovered near a 13-year low in April and the number of Americans collecting unemployment insurance reached a record. The spread widened 13 basis points from 4.52 percentage points.

A retreat in global stock markets may also spark declines in emerging-market bonds, according to Prudential Financial Inc. The MSCI Emerging Markets Index rallied 53 percent since Feb. 27, the best three-month performance since its inception in December 1987. The 23-country measure now trades at 14.7 times reported earnings, the priciest since January 2008.

‘Overbought’

Emerging-market stocks are “technically overbought” after 12 straight weeks of fund inflows drove the benchmark index above its 200-day moving average, analysts led by Jonathan Garner at Morgan Stanley wrote in a report dated yesterday.

Bank of America-Merrill Lynch and Morgan Stanley are predicting a sell-off in developing-nation stocks after inflows into emerging-market funds climbed to levels that foreshadowed previous retreats.

“Stocks have come a long way awfully quick,” said David Bessey, who manages $8 billion of emerging-market debt for Prudential Financial in Newark, New Jersey. “Can’t rule out the potential for a pullback there. If that happens, spreads in emerging markets might sell off as well. The correlation between risk markets has been pretty high.”

To contact the reporters on this story: Lester Pimentel in New York at lpimentel1@bloomberg.net; Michael Patterson in London at mpatterson10@bloomberg.net

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U.K. May Consumer Confidence Matches 11-Month High, GfK Says

By Svenja O’Donnell

May 29 (Bloomberg) -- U.K. consumer confidence matched the highest level in almost a year this month as people became more optimistic that they can weather the recession, GfK NOP said.

An index of sentiment stayed at minus 27, the same as in April, when it was the strongest in 11 months, the market researcher said in a statement today in London. The survey of 2,005 people was conducted between May 1 and May 10.

Retailers’ sentiment about their businesses rose to the highest level since 2007, the Confederation of British Industry said yesterday. Prime Minister Gordon Brown’s government predicts the British economy will endure its worst recession since World War II this year, pushing up unemployment and deepening the property slump.

Sentiment “is still very low historically, but is at least standing firm in the face of continuing depressed markets and May’s warnings of a possible pandemic,” Rachael Joy, an analyst at GfK, said in the statement. While “worries about job losses and harder times are still very much alive,” the U.K. “appears to be stoical about the continuing economic situation.”

Confidence withstood concern on the global spread of swine flu in May. Britain has the sixth-highest total of confirmed swine flu cases, with 137 people diagnosed with the strain of influenza formally known as H1N1 as of May 27, according to World Health Organization data released yesterday.

Personal Finances

The index of confidence in personal finances for the next year rose two points to minus one, GfK said. That outweighed declines in the gauges for finances in the past year and consumers’ views on the economy.

The housing-market slump has also shown signs of easing. Rightmove Plc says home sellers raised asking prices this month by the most in more than a year. Mortgage approvals rose in April from the previous month, the British Bankers Association said this week.

Unemployment still jumped in the first quarter by the most since 1981 and consumer slumped as the recession intensified.

“Market conditions remain difficult, not least as a result of rising unemployment,” Stephen Goodyear, Chief Executive Officer of Young & Co.’s Brewery Plc, said yesterday in a statement. The company has more pubs on England’s River Thames than any rival.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net.

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Fisher Says U.S. Faces ‘A Very Slow Slog’ to Recovery

By Steve Matthews and Timothy R. Homan

May 29 (Bloomberg) -- Federal Reserve Bank of Dallas President Richard Fisher said the U.S. slump will probably persist until next year as consumers restrain spending, while the outlook for inflation remains “meek.”

The economy faces a “very slow slog” to recovery, Fisher said yesterday in a speech in Washington. The recession “will moderate in the current quarter, and then we are likely to bounce along the bottom for a while,” with sustained growth doubtful before the end of this year, he said.

Fisher urged Congress not to “politicize” the central bank by taking a role in selecting Fed district bank presidents. Some lawmakers suggested such a role over concerns that Stephen Friedman, former chairman of the New York Fed’s board of directors, also served as a director of the board of Goldman Sachs Group Inc. Friedman quit the Fed post this month.

The central bank may step up purchases of assets to secure a stronger economic recovery, minutes of the April 28-29 meeting released last week showed. The Fed’s Open Market Committee voted unanimously to keep unchanged its targets for purchases of housing debt and long-term Treasuries amid signs the economic contraction may be easing.

“We’re not done with that program,” Fisher said in response to an audience question after the speech, referring to plans to buy $300 billion in Treasuries.

Fisher repeated his view that the U.S. unemployment rate will reach 10 percent, more than most of his colleagues. Fed officials projected a deeper U.S. contraction with a 9 percent unemployment rate lasting through the end of 2010, according to the minutes.

More Pessimistic

Fisher’s view on the economy is more pessimistic than private forecasters. The U.S. recession will probably end in the third quarter, according to a survey by the National Association for Business Economics.

The economy will shrink at a 1.8 percent annual rate from April to June, and then grow at a 0.7 percent pace in the next three months, the survey showed. Growth will accelerate to a 1.8 percent rate by the final quarter.

“Given the vast amount of slack worldwide, the near-term outlook for inflation is meek,” Fisher said to the Washington Association of Money Managers. “Indeed, the recent pressures have been to the deflationary side. It is doubtful that inflation will raise its ugly head until employment and capacity utilization tighten.”

Fisher dissented five times against easing of monetary policy in 2008 because of concern over higher prices, giving him the reputation as one of the most “hawkish” of U.S. policy makers.

‘Aware of Doubts’

The Fed official said he was “well aware of doubts” that some analysts have expressed about the Fed’s ability to withdraw its monetary stimulus to keep prices from rising too much, saying the central bank is now “studying ways to unwind our balance sheet in a timely way.”

“There are concerns in some quarters that the Federal Reserve will be politicized,” Fisher said. “For example, there have been suggestions that Congress should be involved in the selection of Federal Reserve Bank presidents.”

“I trust that Congress will resist this initiative and not upset the careful federation that has for so long balanced the interests of Main Street with those of Washington,” he said.

Stable Relations

Fisher, answering an audience question, said China has become dependent on stable relations with the U.S. in finance and other areas.

“They have no desire to inflict harm on the United States because they would inflict harm on themselves,” he said. The interests of China and the U.S. are “interconnected and intertwined.”

The Fed official cited some “green shoots,” Fed Chairman Ben S. Bernanke’s term for signs of recovery, while adding the sprouts are not “spreading like kudzu.”

In the past few weeks, reports have pointed to a thawing in credit markets and an easing of the pace of the recession that began in December 2007.

Home resales in the U.S. rose for the second time in three months in April as foreclosure auctions and cheaper prices spurred bargain hunters, the National Association of Realtors reported May 27.

Confidence among U.S. consumers jumped in May by the most in six years, according to the Conference Board’s sentiment index. Manufacturing in the Philadelphia region contracted in May at the slowest pace in eight months as shipments and employment improved, the Philadelphia Fed reported.

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net; Timothy R. Homan in Washington at Thoman1@bloomberg.net

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Emerging-Market Equity Funds Draw Cash, Pace Slows, EPFR Says

By Patricia Lui and Garfield Reynolds

May 29 (Bloomberg) -- Investors poured money into emerging- market equity funds for a 12th week, albeit at a slower pace, led by a surge in U.S. consumer confidence and rising commodity prices, research firm EPFR Global said.

Inflows slowed to $2.1 billion in the week to May 27 from $2.5 billion the previous week, as China “exerted less of an influence,” according to a report from the Cambridge, Massachusetts-based company published yesterday. Cash flowing into Chinese equity funds dropped to a nine-week low of $18 million from $273 million the previous week, EPFR said.

The MSCI Asia-Pacific Index of regional shares and the emerging-markets gauge headed for the highest close since October as the biggest jump in U.S. consumer confidence in six years and signs the housing market is stabilizing boosted risk appetite. There was no data out of China this week to guide investors following a May 15 report that showed retail sales growth accelerated in April.

“There was a clear preference for more diversified exposure,” EPFR said. “Other fund groups geared to developed markets posted inflows,” as declines in U.S. unemployment, confidence and exports started to “level off.”

Taiwan and Russia continued to draw money, EPFR said. Taiwan equity funds have attracted more than $1 billion over the past 12 weeks, and Russia posted an 11th week of inflows as oil prices rose above $60 a barrel, the company said.

High-Yield Bonds

Global emerging-market funds received $1 billion in the week, with $647 million going to Asia ex-Japan, down from $933 million. Latin America took in $242 million and Emerging Europe, Middle East and Africa $123 million, EPFR said.

Money market funds had the best showing since the first week of March, taking in $7.3 billion compared with a net outflow of $21 billion the prior week, the research firm said.

Emerging-market equity funds tracked by EPFR attracted $23.2 billion of investment in the 12 weeks to May 27, giving net inflows for the year of $22.3 billion compared with $53.8 billion flowing out of developed markets, the company said.

Investors also showed a preference for High Yield Bond Funds, Global Bond Funds and Emerging Market Bond funds, the EPFR report showed.

U.S. Bond Funds took in $1 billion for 13 of the past 16 weeks, it said. High Yield Bond Funds absorbed $872 million, the second-best week of the year, bringing total inflows in 2009 to $9.6 billion.

To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.net; Garfield Reynolds in Sydney at greynolds1@bloomberg.net

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Morgan Stanley Sees 10% Dollar Drop, Recommends Yuan

By Sandy Hendry

May 29 (Bloomberg) -- The U.S. dollar may drop another 10 percent on a trade-weighted basis by the end of next year, prompting traders to price in a stronger Chinese yuan, Morgan Stanley said.

“If market participants start believing that a sharp dollar decline is likely then we would expect increased questioning of the sustainability of U.S. currency pegs,” analysts led by Yilin Nie wrote in a report dated yesterday. An “increase in capital flows in such an environment would put severe upward pressure on the yuan,” they wrote.

The Dollar Index, which tracks the currency against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, tumbled 3.7 percent last week on concern the U.S.’s AAA credit rating may be jeopardized by record bond sales. It rose 0.4 percent this week.

Morgan Stanley said investors should buy forwards in the yuan and Hong Kong dollar, noting that the two currencies’ exchange-rate links would not have to break for the trade to make money. “Markets only need to price in the risk of a break,” the report said.

Yuan Halted

China has kept yuan appreciation in check since July to support exports after the economy’s growth rate slowed to 6.1 percent in the first quarter, the least in almost a decade. U.S. Treasury Secretary Timothy Geithner pledged last week that the U.S. will urge China to allow more gains in the yuan, even after the currency rose 21 percent since a peg to the dollar was ended in July 2005.

The yuan’s 12-month non-deliverable forward has gained 9 percent since Dec. 1 to 6.695 per dollar on speculation a weakening U.S. currency would prompt China’s government to resume a policy of allowing appreciation. The spot rate has risen just 0.8 percent in that time to 6.828.

Forwards are agreements to buy and sell assets at current prices for delivery at a specified time and date. Non- deliverable contracts are settled in dollars.

Hong Kong has linked its dollar to the U.S. currency since 1983, allowing it to trade 5 cents on either side of HK$7.80. The exchange rate has held around the HK$7.75 upper limit of its permitted range since October.

Morgan Stanley also recommended buying the yen, Canadian dollar and Norwegian krona against the dollar.

To contact the reporter on this story: Sandy Hendry in Hong Kong at shendry@bloomberg.net

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Yen Rises as Improving Japan Economy Set to Fuel Fund Inflows

By Yasuhiko Seki

May 29 (Bloomberg) -- The yen climbed from a two-week low against the dollar after a Japanese report showed industrial production rose the most in 56 years, fueling optimism funds will flow back into the nation’s assets.

The yen extended a second monthly gain versus the U.S. currency, paring yesterday’s biggest drop in eight weeks, after the Trade Ministry report also showed companies planned to increase output. The dollar weakened versus the euro as South Korea said the National Pension Service will cut its weighting of U.S. Treasuries. The Australian and New Zealand dollars advanced for a third month as rising commodity prices boosted demand for the two currencies.

“The strong output data raised expectations for rises in capital inflow into Japanese assets,” said Masashi Hashimoto, Tokyo-based senior foreign-exchange analyst at Bank of Tokyo- Mitsubishi UFJ Ltd., a unit of Japan’s largest lender. “As worries about the global gloom ease, the correlation between the yen and economic data and stock prices may turn positive.”

Japan’s currency climbed to 96.49 per dollar as of 1:51 p.m. in Tokyo from 96.85 in New York yesterday, when it fell to 97.24, the weakest since May 12. The yen traded at 134.96 per euro from 135.04 yesterday, when it touched 135.29, the lowest since April 7. The dollar fell to $1.3987 per euro from $1.3941.

Australia’s currency advanced to 78.95 U.S. cents from 78.40 cents yesterday, after rising to 79.16 cents, the strongest since Oct. 2. It has risen 8.9 percent this month. New Zealand’s dollar climbed to 62.80 U.S. cents from 62.33 cents. It climbed 11.1 percent this month.

Factory Production

The yen gained versus 11 of the 16 most-traded currencies after the Trade Ministry said factory production climbed 5.2 percent in April from March, when it rose 1.6 percent. The median estimate of 30 economists surveyed by Bloomberg News was for a 3.3 percent increase.

Bank of Japan Governor Masaaki Shirakawa said this week the world’s second-largest economy will grow this quarter after contracting a record 15.2 percent in the three months ended March 31.

“The better-than-expected output data seem to suggest the Japanese economy has bottomed out and may continue to surprise in coming months,” said Taro Saito, senior economist in Tokyo at NLI Research Institute Ltd., a unit of Japan’s biggest life insurer.

Dollar Falls

The dollar dropped for a second day versus the euro, losing 5.4 percent this month, after the Korean Health Ministry said the national pension fund plans to hold fewer U.S. Treasuries relative to other assets.

“The report of the Korean pension fund’s plan to reduce its weighting of U.S. Treasuries triggered buying of the euro against the dollar,” said Takashi Kudo, director of foreign- exchange Sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “With the dollar still sensitive to speculation related to its debt finances, the market is waiting for the visit to China next week by U.S. Treasury Secretary Timothy Geithner for fresh trading leads.”

China is the biggest holder of U.S. government debt.

The euro also advanced versus the dollar as crude oil traded near a six-month high, adding to speculation the European Central Bank will avoid cutting interest rates so as to avoid stoking inflation.

‘Support the Euro’

“Rising crude oil prices give little reason for the ECB to take action on interest rates,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co. “The yield advantage will support the euro.”

The ECB’s benchmark policy rate is 1 percent, compared with as low as zero in the U.S. and 0.1 percent in Japan. Crude oil rose as high as $65.44 a barrel in New York yesterday, the most since Nov. 5. Crude oil prices have doubled from their low of $32.40 on Dec. 19, 2008, heading for their biggest monthly gain since March 1999.

The Australian and New Zealand dollars strengthened as investor confidence in a global recovery buoyed prices of raw materials and higher-yielding assets. Prices of commodities, which account for more than half of the two South Pacific nations’ exports, climbed 12 percent this month, the most since 1974, Bloomberg data show.

Best Monthly Performer

New Zealand’s dollar is the best performer this month among the most-active currencies against the U.S. dollar and yen after Finance Minister Bill English yesterday unveiled a budget that deferred tax cuts to avert the threat of a credit-rating downgrade that would have driven borrowing costs higher and delayed a recovery from the worst recession in three decades.

Australia’s dollar is the third-biggest gainer versus the U.S. and Japanese currencies in May as the Standard & Poor’s 500 Index added 3.9 percent since the end of April for a third straight monthly advance.

“There is no reason to sell the Australian dollar right now,” said Morio Okayasu, chief analyst at Monex FX Inc., a unit of Japan’s third-largest online broker. “Investors now want to take risks, such as commodities, assets in Australia, New Zealand and South Africa.”

The yen declined 1.8 percent against the dollar this week as optimism about a global recovery spurred Japan’s investors to look abroad for higher returns.

Japanese investors bought 641.1 billion yen ($6.61 billion) more overseas bonds and notes than they sold in the week ended May 23, the biggest net purchases in a month, according to the finance ministry.

“Japanese investors are now willing to take risks,” said Kengo Suzuki, manager of the foreign bond trading department in Tokyo at Mizuho Securities Co., a unit of Japan’s second-largest banking group. “The yen is likely to be sandwiched by capital inflow into Japan and capital outflow from Japan.”

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net.

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Sumitomo Metal Plans $3 Billion Philippine Plant, World Says

By Cecilia Yap

May 29 (Bloomberg) -- Sumitomo Metal Mining Co. Ltd. plans to build a $3 billion nickel ore processing plant on the southern Philippine island of Mindanao next year, BusinessWorld reported.

Sumitomo and local partner Nickel Asia Corp will operate the facility by 2013, the newspaper reported, citing Rogelio Cadano, technical services manager of Taganito Mining Corp., a unit of Nickel Asia.

To contact the reporter on this story: Cecilia Yap in Manila at cyap19@bloomberg.net

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Lion Industries Has Largest Drop in Eight Days on Quarterly Loss

By Tien Hin Chan

May 29 (Bloomberg) -- Lion Industries Corp., a Malaysian steelmaker, fell the most in eight days in Kuala Lumpur trading after the company reported a loss of 259.9 million ringgit in the fiscal third quarter ended March.

The stock slid 5.9 percent to 1.27 ringgit at 9:59 a.m. local time, set for the biggest decline since May 21.

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Mt. Gibson Passes on Iron Ore Settlement to China

By Jesse Riseborough

May 29 (Bloomberg) -- Mt. Gibson Iron Ltd., Australia’s fourth-biggest iron ore producer by market value, passed on the 33 percent cut in benchmark prices agreed by Rio Tinto Group and Japanese steel mills this week to customers in China.

“They don’t need to respond, the fact of the matter is that’s what we invoice them at and that’s what they will be paying,” Luke Tonkin, managing director of the Perth-based company, said today in a phone interview.

Steel mills in China, the world’s biggest buyers, have called for contract prices to be cut by as much as 50 percent and may resist the Rio accord. Tonkin said he didn’t foresee any issue with his Chinese customers agreeing to the new prices under the terms of their existing long-term contracts.

“Our major shareholder has acknowledged that there has been a change in the benchmark price,” said Tonkin, referring to Shougang Concord International Enterprises Co., a unit of China’s ninth-largest steelmaker.

Mt. Gibson rose 3.9 percent to 79.5 cents at 1:42 p.m. Sydney time on the Australian stock exchange. APAC Resources Ltd., a Hong Kong-based investment company, owns a 26 percent stake and Shougang, a unit of Shougang Corp., owns 14.3 percent.

Calls to Shougang’s offices in Beijing and Hong Kong weren’t immediately returned. China has a public holiday today.

Interim Prices

Rio agreed to cut prices to about $61 a metric ton for its benchmark Hamersley ore from about $91 a ton for the year started April 1, bettering forecasts from Goldman Sachs JBWere Pty, UBS AG and Morgan Stanley for a 40 percent drop. Mt. Gibson had agreed to an interim price cut of 30 percent for its customers when the old contract year ended March 31, Tonkin said.

“Our customers certainly didn’t have problems with the interim prices and I’m sure they are probably relieved that the final settled price is probably a little lower than the interim price,” Tonkin said. “Our contracts are very clear, it is based on a Hamersley price into Asia, it doesn’t relate to whether it goes into China, blue sky or Europe.”

Mt. Gibson is seeking to ship about 5.2 million metric tons of iron ore for the year ending June 30, Tonkin said today. The company expects to export “just short” of 6 million tons next year, he said.

-- With assistance from Sophie Leung in Hong Kong. Editors: Keith Gosman, Teo Chian Wei

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

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Soybeans Set for Third Monthly Gain as Demand Curbs U.S. Supply

By Jae Hur

May 29 (Bloomberg) -- Soybeans were poised for the third straight monthly advance on speculation that demand from China, the world’s top importer, may reduce inventories of the oilseed in the U.S. amid lower production in South America.

Before today soybeans had advanced 12 percent this month, heading for the largest gain since June 2008. U.S. inventories on Aug. 31, before the harvest, will drop to 130 million bushels (3.5 million metric tons) from 205 million bushels a year earlier, the Department of Agriculture said May 12.

“Soybeans may gain to test the $12 a bushel level before facing a technical correction,” said Toshimitsu Kawanabe, an analyst at Tokyo-based commodity broker Central Shoji Co. “From now, crop weather in the U.S. will be a major factor for seeding of the oilseed as corn planting will finish soon.”

Soybeans for July delivery were little changed at $11.805 a bushel on the Chicago Board of Trade at 11:01 a.m. Singapore time. Before today the contract had advanced 1.1 percent this week, the fifth straight weekly gain and touched $12.0075 a bushel on May 27, the highest since Sept. 25.

U.S. inventories for soybeans represent 4.3 percent of projected annual use, the tightest ratio since 1966, USDA data show. Estimated global production this year will fall to 212.8 million metric tons, compared with a record 221.1 million tons harvested last year, because of smaller crops in South America, the USDA said this month.

Global inventories on Oct. 1, before the Northern Hemisphere harvest, will fall to 42.6 million tons from 53.1 million tons last year, the USDA said.

China Imports

China imported a record 13.9 million tons in the first four months of the year, government data show. China’s imports may exceed 4.5 million metric tons this month and reach 4.2 million tons in June, the National Grain and Oils Information Center said this week.

Corn for July delivery fell 0.4 percent to $4.2725 a bushel at 10:50 a.m. Singapore time. The price, which reached $4.3475 on May 20, the highest since Oct. 9, has gained 5.8 percent this month on speculation planting delays would reduce acreage and yields in the U.S.

July-delivery wheat was 0.5 percent lower at $6.2725 a bushel by 10:50 a.m. Singapore time. Before today the contract had risen 2.9 percent this week, gaining for the second straight week, and added 18 percent this month, set for the largest monthly advance since September 2007.

Wheat reached $6.4625 yesterday, the highest since Jan. 7, on speculation that wet weather in the northern Great Plains will delay spring seeding, forcing U.S. growers to plant alternative crops in some fields.

To contact the reporter for this story: Jae Hur in Singapore at jhur1@bloomberg.net

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Rubber Set for Fifth Monthly Advance on Oil Rally, Japan Output

By Aya Takada

May 29 (Bloomberg) -- Rubber reached a two-week high and headed for a fifth straight monthly gain as a rally in oil boosted the cost of making rival synthetic products and Japan’s industrial output data raised speculation demand may improve.

Futures in Tokyo gained as much as 0.9 percent to 168.5 yen, the highest since May 14. Crude oil reached a six-month high yesterday as a government report showed U.S. inventories dropped. Japan’s factory production rose the most in at least six years in April as companies replenished inventories amid evidence the global recession is easing.

“Data showing the economy may have bottomed raises the possibility that demand for the raw material will recover,” Hisaaki Tasaka, an analyst at Tokyo-based commodity broker ACE Koeki Co., said today in a phone interview.

Natural rubber for November delivery added 0.7 percent to 168.2 yen a kilogram ($1,744 a metric ton) on the Tokyo Commodity Exchange at 11:27 a.m. local time.

Japan’s factory output climbed 5.2 percent in April from March, when it gained 1.6 percent, the Trade Ministry said today in Tokyo. The increase was faster than the 3.3 percent expected by economists. Companies said they planned to increase output in May and June as well, the report showed.

Toyota Motor Corp., the world’s largest carmaker, will increase production 38 percent in Japan as inventories fall, President Katsuaki Watanabe told reporters in Tokyo yesterday.

The carmaker will raise daily production to 11,000 vehicles a day in June and July from an average of 8,000 vehicles in the three months ended March, Watanabe said. Toyota is increasing domestic production after cutting it for nine straight months through April to reduce dealers’ inventories.

Gains in rubber futures were limited as the Japanese currency increased against the dollar, cutting the appeal of yen-denominated contracts. The yen rebounded from a two-week low against the dollar as the increase in industrial production fueled speculation funds will flow into Japanese assets.

The Shanghai Futures Exchange was closed for a holiday.

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

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Japan’s Retail Stocks Fall on Unemployment; Shipping Lines Gain

By Jason Clenfield and Masaki Kondo

May 29 (Bloomberg) -- Japanese retailer shares fell as employment and household spending worsened, overshadowing an increase in factory production. Resource and shipping stocks gained after oil hit a six-month high and transport rates surged.

Yamada Denki Co., Japan’s biggest electronics retailer, lost 3.2 percent. Aiful Corp. lost 3.2 percent after Moody’s Investors Service cut the consumer lender’s debt rating. Inpex Corp., Japan’s No. 1 oil explorer, gained 6.6 percent, while Mitsui O.S.K. Lines Ltd., the world’s largest merchant fleet operator, added 4.5 percent.

The Nikkei 225 Stock Average drifted between gains and losses, and was up 12.8, or 0.1 percent, to 9,464.19 at 12:44 p.m. in Tokyo. The broader Topix index dipped 1.24, or 0.1 percent, to 894.35, with two stocks falling for each that advanced. On the week, the Nikkei headed for a 2.6 percent increase, while the Topix added 2.1 percent.

“Companies that have drawn down inventories too fast will be replenishing through June, but the job market suggests they won’t be adding to their stockpiles,” said Akio Yoshino, chief economist at Societe Generale Asset Management (Japan) Co., which oversees about $25 Billion. “As long as investors stay bullish on China, people will expect shipping volumes to rise. That should boost rates.”

The Topix is poised to add 6.7 percent in May for a third- straight monthly gain, the longest stretch since the three months ended June 2007. Companies on the gauge traded at 1.15 times book value yesterday, the highest level since Oct. 6.

Jobless Rate

Yamada Denki lost 3.2 percent to 5,410 yen after the government statistics bureau said Japan’s jobless rate rose to a five-year high of 5 percent in April, and household spending fell for a 14th month. Aeon Co., Japan’s largest general merchandise retailer, fell 0.9 percent to 878 yen.

A separate report from the Trade Ministry showed industrial production advanced 5.2 percent in April from the previous month, while economists had estimated a 3.3 percent increase. That was the fastest increase in 56 years.

The production report prompted the yen to rise from a two- week low against the dollar on speculation funds will flow into the nation’s assets. Major exporters gave up gains as the stronger yen diminished the value of overseas sales. Honda Motor Corp. fell 1.3 percent, reversing an early 0.5 percent advance. Canon Inc. fell 1.2 percent.

Toshiba Corp. added 2.6 percent to 357 yen after public broadcaster NHK said Japan’s biggest chipmaker will raise output of flash-memory chips as demand recovers. That would reverse a production cut in January.

Debt Rating

Aiful lost 3.2 percent, after Moody’s yesterday cut the company’s long-term debt rating two levels to non-investment grade. Moody’s also said it’s considering downgrading rival Takefuji Corp. to junk level. Takefuji slumped 2.8 percent to 557 yen.

Inpex Corp. gained 6.8 percent to 774,000 yen, while rival Japan Petroleum Exploration Co. climbed 8.9 percent to 4,870 yen. Crude rose to a six-month high yesterday after The Organization of Petroleum Exporting Countries decided to leave production quotas unchanged. Oil for July delivery rose to $65.08 a barrel in New York, the highest settlement since Nov. 5.

Mitsui O.S.K. added 4.5 percent to 672 yen, after the Baltic Dry Index, a measure of commodity-shipping fees, climbed for a 19th day to an eight-month high. Rival Nippon Yusen K.K. rose 4.2 percent to 451 yen.

To contact the reporters for this story: Jason Clenfield in Tokyo at Jclenfield@bloomberg.net; Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

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Asian Stocks Gain on Japan Industrial Production; BHP Advances

By Shani Raja and Jonathan Burgos

May 29 (Bloomberg) -- Asian stocks rose and were poised for the longest streak of monthly gains since the credit crisis began in 2007, as a better-than-forecast report on Japanese industrial production lifted mining and energy stocks.

BHP Billiton Ltd., the world’s biggest mining company and Australia’s top oil producer, gained 2.3 percent as copper prices rose on the Japanese report. Mitsui O.S.K. Lines Ltd. added 4.8 percent after commodity-shipping fees climbed to an eight-month high. Bank of China Ltd., the nation’s third-largest bank, climbed 3.4 percent in Hong Kong after Deutsche Bank AG recommended investors buy the stock.

“People are anticipating a recovery and demand for commodities going up on the back of that.” said Matt Riordan, who helps manage about $3.2 billion at Paradice Investment Management in Sydney. “Things are getting less worse. It’s still going to be a rocky road, and there’s always the risk of some sort of shock to the negative.”

The MSCI Asia Pacific Index climbed 0.6 percent to 100.8 as of 1:02 p.m. in Tokyo. The gauge rose 1.5 percent this week, taking its rally from a five-year low on March 9 to 43 percent.

Australia’s S&P/ASX 200 Index increased 1.7 percent. Hong Kong’s Hang Seng Index added 0.5 percent. Japan’s Nikkei 225 Stock Average added 0.1 percent as gains in the yen after the production report dimmed exporters’ earnings prospects.

MSCI’s Asian index has climbed 11 percent in May, its third month of gains and the longest winning streak since Bear Stearns Cos. filed for bankruptcy protection in July 2007 for two hedge funds. India’s Reliance Infrastructure Ltd. and Kotak Mahindra Bank Ltd. surged more than 70 percent this month, leading gains on the gauge amid speculation the government’s election victory will accelerate policies to boost economic growth.

Increased Output

In Sydney, Commonwealth Bank of Australia rose 2.4 percent after the country’s bank lending increased. Singapore’s Chartered Semiconductor Manufacturing Ltd. gained 2.3 percent as the Business Times reported the company received a takeover bid. AirAsia Bhd. climbed 4 percent in Kuala Lumpur after first- quarter profit jumped.

Futures on the Standard & Poor’s 500 Index lost 0.1 percent. The gauge climbed 1.5 percent yesterday as oil prices jumped and a rebound in 10-year Treasuries eased concern record government debt sales will trigger higher borrowing costs.

Copper futures in New York gained as much as 1 percent today after Japan’s Trade Ministry said industrial production advanced 5.2 percent last month from March. Economists had estimated a 3.3 percent increase. Companies said they planned to increase output in May and June as well, the report showed.

‘More Confidence’

U.S. reports this week added to confidence the worst global slowdown since World War II is easing. The Conference Board’s index of consumer confidence showed sentiment surged to the highest since September. Durable goods orders gained 1.9 percent in April, more than some economists expected. Economists also upgraded their forecasts for Chinese economic growth.

BHP rose 2.3 percent to A$34.80. Mitsui & Co., a trading company that gets more than half its profit from commodities, gained 1.8 percent to 1,219 yen.

Toshiba Corp., Japan’s biggest chipmaker, climbed 2.6 percent to 357 yen after NHK television said the company will raise output of flash memory chips.

“The market is gaining more confidence as we haven’t seen bad economic news lately,” said Yoji Takeda, who manages $1.1 billion at RBC Investment (Asia) Ltd. in Hong Kong.

Asian stocks were poised to rise for the fourth time in five weeks as speculation the worst of the recession is over boosted retailers, mining companies and banks. Hong Kong-based property developers had three of the six biggest advances in the MSCI Asia index. Guangzhou R&F Properties Ltd., Sino Land Co. and Shimao Property Holdings Ltd. gained more than 20 percent.

Baltic Dry

The index’s climb since March has driven the average valuation of its companies to 1.4 times the book value of assets, 17 percent higher than at the end of 2008.

Inpex Corp., Japan’s largest oil explorer, climbed 6.8 percent to 774,000 yen. Woodside Petroleum Ltd., Australia’s No. 2 oil company, added 1.4 percent to A$43.58.

Crude oil rose to a six-month high yesterday after the Organization of Petroleum Exporting Countries decided to leave production quotas unchanged. Crude for July delivery rose to $65.08 a barrel in New York, the highest settlement since Nov. 5.

Mitsui O.S.K. jumped 4.8 percent to 674 yen. The Baltic Dry Index, which measures the cost of shipping commodities, gained 4.2 percent yesterday to the highest since Sept. 29.

Pacific Basin Shipping Ltd., which operates bulk cargo ships, surged 12 percent to HK$5.41 in Hong Kong.

Mounting Losses

Bank of China climbed 3.4 percent to HK$3.34. The stock was upgraded to “buy” from “hold” by Deutsche Bank AG on expectation its foray into the international yuan settlement business will boost earnings.

Finance companies accounted for 36 percent of the MSCI Asia Pacific’s advance today. The group is the third-worst performing of 10 industry gauges in the past year as losses from the credit crisis since the start of 2007 swelled to almost $1.5 trillion.

Commonwealth Bank of Australia, the nation’s second-biggest bank by market value, rose 2.4 percent to A$34.78. Australia & New Zealand Banking Group Ltd. climbed 3.3 percent to A$15.88.

Loans provided by banks and other finance companies climbed 0.1 percent in April from the previous month, according to the Reserve Bank of Australia.

Chartered, the world’s third-largest contract chipmaker, gained 2.3 percent to S$2.23. Abu Dhabi’s Advanced Technology Investment Co. offered to buy Chartered shares from Temasek Holdings Pte, which owns a stake of about 60 percent, the Business Times said. Chartered denied the report.

AirAsia, Southeast Asia’s largest low-cost airline, climbed 4 percent to 1.30 ringgit. Profit at Malaysian airline climbed 26 percent in the first quarter from a year earlier to 203.2 million ringgit ($58 million), the company said late yesterday.

Demand in the second quarter “looks good” and the airline won’t slow down its expansion, Chief Executive Officer Tony Fernandes said in a Bloomberg Television interview today.

To contact the reporters for this story: Shani Raja in Sydney at sraja4@bloomberg.net; Jonathan Burgos in Singapore at jburgos4@bloomberg.net.

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Gazprom, Rosneft, Lukoil, Razgulay: Russia Equity Preview

By Yuriy Humber

May 29 (Bloomberg) -- The following companies may have unusual price changes in Russia trading. Stock symbols are in parentheses and share prices are from the previous close.

Russia’s 30-stock Micex Index climbed for a second day, adding 1.5 percent to 1,075.02 at the close in Moscow. The index has advanced 17 percent this month. The dollar-denominated RTS Index gained 2.2 percent to 1,053.73, the highest this year. The Russian Depositary Index, a measure of global depositary receipts trading in London, rose 0.8 percent.

OAO Gazprom (GAZP RX): Edison SpA, a Milan-based utility, may have to cancel a planned pipeline between Italy and Greece and buy natural-gas from Gazprom if it can’t secure supplies from the Shah Deniz field in Azerbaijan, Edison Development Manager Mario Cumbat said. Supply talks have been stalled by Turkey, which wants to be a gas trader rather than a transit state, he said at a conference in Paris. Gazprom gained 0.5 percent to 172.48 rubles in Moscow on the Micex Stock Exchange.

OAO Rosneft (ROSN RX): Russia plans a 2.2 percent decrease in daily shipments of Urals and Siberian light crude from five Baltic and Black Sea ports in June, according to the final loading schedule of OAO Transneft, the state oil-pipeline operator. Rosneft, the country’s biggest oil producer, rose 3.3 percent to 197 rubles in Moscow on the Micex Stock Exchange.

OAO Lukoil (LKOH RX): The Caspian Pipeline Consortium, in which Lukoil has a stake, saw 2008 profit decline 57 percent to $182 million, said CPC General Director Vladimir Razdukhov. Sales rose 20 percent to $1 billion, he told reporters in Paris at an oil conference. CPC partners may approve expansion of the pipeline by July 2010, he said. Lukoil advanced 1.5 percent to 1,554.67 rubles in Moscow on the Micex Stock Exchange.

OAO Razgulay (GRAZ RX): Russia plans to as much as double its grain exports in as little as a decade, Deputy Agriculture Minister Alexander Petrikov said. Razgulay declined 0.1 percent to 41.493 rubles in Moscow on the Micex Stock Exchange.

To contact the reporter on this story: Yuriy Humber in Moscow at yhumber@bloomberg.net

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Areva, Credit Agricole, Societe Generale: French Stocks Preview

By Rudy Ruitenberg

May 29 (Bloomberg) -- The following is a list of companies whose stocks may have unusual changes in Paris. Symbols are in parentheses after company names and prices are from the last close.

France’s CAC 40 Index dropped 31.16, or 1 percent, to 3,263.70 in Paris, snapping four days of gains. The SBF 120 Index retreated 0.9 percent to 2,363.82.

Air Liquide SA (AI FP): The world’s biggest maker of industrial gases bought Torrance, California-based cryobiology company Pacific Science Inc. It didn’t give financial terms. The shares fell 29.5 cents, or 0.5 percent, to 64.85 euros.

Areva SA (CEI FP): The Transmission & Distribution division of the world’s biggest builder of nuclear reactors won an 80 million-euro converter stations contract from South Korea’s KEPCO. The company’s publicly traded investment certificates gained 3.55 euros, or 0.8 percent, to 424.55 euros.

Credit Agricole SA (ACA FP): France’s second-biggest bank suspended an accord with Assicurazioni Generali SpA on their stakes in Italy’s No. 2 lender Intesa Sanpaolo SpA until June 30, while they try and find a solution acceptable to Italian regulators. The shares lost 18 cents, or 1.7 percent, to 10.17 euros.

Electricite de France SA (EDF FP): Europe’s biggest power producer has been named as a material witness by French judges investigating an alleged espionage plot against Greenpeace, Le Monde reported, citing the company’s lawyer. The shares fell 85 cents, or 2.2 percent, to 37.63 euros.

Imerys SA (NK FP): The building-materials manufacturer raised 251 million euros selling new shares to existing investors. The shares declined 77 cents, or 2.5 percent, to 30.21 euros.

NetBooster (ALNBT FP): The Internet consultant whose clients include Expedia Inc. raised 2.5 million euros selling new shares to existing investors. The stock closed unchanged at 2.60 euros.

Orchestra-Kazibao SA (KAZI FP): The maker of children’s clothing named Bernard Joinet as its new chief executive and said Pierre Mestret will continue as chairman. Mestret previously held both posts. The shares added 21 cents, or 3 percent, to 7.21 euros.

Societe Generale SA (GLE FP): France’s third-biggest bank issued 1.7 billion euros of preference shares to a French government holding company. The shares have no voting rights and cannot be converted into ordinary stock, the bank said. The shares dropped 70.5 cents, or 1.7 percent, to 39.80 euros.

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net.

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C.A.T. Oil, E.ON AG, Munich Re, SAP AG: German Equity Preview

By Nadja Brandt

May 29 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in Germany. Stock symbols are in parentheses, and share prices are from the previous close.

The X-DAX Index rose 0.2 percent to 4,967.96. The measure, derived from trading in DAX Index futures, provides an estimate of Germany’s benchmark index. The DAX dropped 1.4 percent to 4,932.88.

C.A.T. Oil AG (O2C GY): The Austrian oil-services company operating in Russia and Kazakhstan plans to release first- quarter results. The shares fell 0.7 percent to 4.03 euros.

E.ON AG (EOAN GY): German regional energy supplier HEAG Suedhessische Energie AG may join a group of utilities preparing an offer for E.ON AG’s Thuega unit, Dow Jones Newswires said, citing two unidentified people familiar with the matter. E.ON shares declined 0.4 percent to 25.21 euros.

Munich Re (MUV2 GY): The world’s biggest reinsurer said U.S. reinsurance rates rose in the renewals for July. The shares fell 0.1 percent to 97.66 euros.

SAP AG (SAP GY): Outgoing Co-Chief Executive Officer Henning Kagermann forecast double-digit growth at the world’s biggest maker of business-management software, Frankfurter Allgemeine Zeitung said.

Growth will primarily be driven by product sales rather than license revenue, the chief told the newspaper in an interview. He didn’t specify the time frame. The shares were little changed at 30.22 euros.

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

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British Airways, Sky, Severn Trent: U.K., Irish Equity Preview

By Howard Mustoe

May 29 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in U.K. and Irish markets today. Stock symbols are in parentheses and prices are from the last market close.

The benchmark FTSE 100 Index declined 28.69, or 0.7 percent, to 4,387.54. The FTSE All-Share Index fell 0.7 percent and Ireland’s ISEQ Index fell 2.1 percent.

British Airways Plc (BAY LN): Moody’s Investors Service lowered the corporate family and probability of default ratings of British Airways to Ba2. The senior unsecured and subordinate ratings have been lowered to Ba3 and B1, respectively. British Airways fell 2.5 pence, or 1.6 percent, to 156.8 pence.

British Sky Broadcasting Group Plc (BSY LN): The U.K.’s biggest pay-television provider bid about 60 percent more than its nearest rival for seven digital channels owned by rival Virgin Media Inc., the Financial Times reported, citing people familiar with the auction. Sky fell 10 percent, or 2.2 percent, to 452.5 pence.

Brixton Plc (BXTN LN): The U.K.’s largest owner of warehouses is in talks to sell more than 200 million pounds ($319 million) of properties held in a joint venture to private equity company Westbrook Partners LLC, the Financial Times said, without saying where it got the information. Brixton fell 3.75 pence, or 5.2 percent, to 68.75 pence.

Electrocomponents Plc (ECM LN): The U.K. supplier of 350,000 products ranging from cables to calculators releases results. Electrocomponents fell 5 pence, or 3.2 percent, to 149.25 pence.

Serco Group Plc (SRP LN): The operator of London’s Docklands Light Railway and a service provider for the U.K. and U.S. navies, may be the most successful bidder for contracts tied to the U.K. government’s new long-term unemployment plan, the Financial Times reported. Serco rose 1.25 pence, or 0.3 percent, to 392.5 pence.

Serica Energy Plc (SQZ LN): The U.K. oil and gas explorer announces earnings. Serica declined 3.5 pence, or 5.1 percent, to 65.5 pence.

Severn Trent Plc (SVT LN): The U.K.’s second-biggest water company releases earnings. Severn Trent fell 18 pence, or 1.6 percent, to 1,140 pence.

To contact the reporters on this story: Howard Mustoe in London at hmustoe@bloomberg.net;

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E.ON, Royal Dutch Shell Plc, SAP AG: Europe Equity Preview

By Nadja Brandt

May 29 (Bloomberg) -- The following companies may have unusual price changes in European trading. Stock symbols are in parentheses, and share prices are from the previous close.

The Dow Jones Stoxx 600 dropped 1.2 percent to 207.93. The Dow Jones Stoxx 50 Index fell 1 percent to 2,117.79. The Euro Stoxx 50 Index, a benchmark for the nations using the euro, decreased 1.1 percent to 2,453.15.

E.ON AG (EOAN GY): German regional energy supplier HEAG Suedhessische Energie AG may join a group of utilities preparing an offer for E.ON AG’s Thuega unit, Dow Jones Newswires said, citing two unidentified people familiar with the matter. E.ON shares declined 0.4 percent to 25.21 euros.

Munich Re (MUV2 GY): The world’s biggest reinsurer said U.S. reinsurance rates rose in the renewals for July. The shares fell 0.1 percent to 97.66 euros.

Royal Dutch Shell Plc (RDSA NA): An Amsterdam court is scheduled to rule whether a $353 million settlement with shareholders outside the U.S. following a restatement of proven oil and gas reserve estimates in January 2004 is binding. Shell was unchanged at 18.76 euros in Amsterdam.

SAP AG (SAP GY): Outgoing Co-Chief Executive Officer Henning Kagermann forecast double-digit growth at the world’s biggest maker of business-management software, Frankfurter Allgemeine Zeitung said.

Growth will primarily be driven by product sales rather than license revenue, the chief told the newspaper in an interview to be published tomorrow. He didn’t specify the time frame. The shares were little changed at 30.22 euros.

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

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Dell, Esterline, FMC, J.Crew, OmniVision: U.S. Equity Preview

By Lu Wang

May 29 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

Dell Inc. (DELL US): The world’s second-largest maker of personal computers reported first-quarter earnings that topped analysts’ estimates, helped by cost cuts.

Esterline Technologies Corp. (ESL US): The manufacturer of jet-engine parts reduced its 2009 earnings forecast, projecting $3.20 a share at most. Analysts, on average, estimated profit of $3.68, according to a Bloomberg survey.

FMC Technologies Inc. (FTI US): The world largest provider of subsea systems for oil and natural-gas will replace Covidien Ltd. (COV US) in the Standard & Poor’s 500 Index, effective after the close of trading on June 4, S&P said in a statement.

J.Crew Group Inc. (JCG US): The U.S. clothing retailer forecast second-quarter profit excluding some items of at least 8 cents a share. Analysts expected a 3-cent loss, based on the average estimate in a Bloomberg survey.

OmniVision Technologies Inc. (OVTI US): The maker of image sensors for camera phones forecast first-quarter sales of at least $90 million. That beat the average estimate of $74.5 million from analysts in a Bloomberg survey.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

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ICAP Uses ‘Radiohead’ Commissions to Lure Brazil Stock Buyers

By Alexander Ragir

May 29 (Bloomberg) -- ICAP Plc, the newest arrival to Brazilian stock trading, is offering discounts on commissions to attract individual investors in Latin America’s biggest market.

The world’s largest broker of transactions between banks is charging fees as much as 75 percent below those offered by its largest competitor to gain customers in a market where equity transactions climbed to a record and the benchmark stock index rose 41 percent this year.

The London-based firm opened in Brazil in April, trailing behind Goldman Sachs Group Inc., Credit Suisse Group AG and Morgan Stanley. ICAP’s customers can choose the fee they’ll pay, from as little as 5 reais ($2.50) per trade, compared with 20 reais charged by Agora Corretora, the country’s largest electronic broker for individual investors. The strategy is meant to mimick British rock band Radiohead’s pay-what-you-want offer for digital downloads of its “In Rainbows” album.

“The philosophy with Radiohead is that people react by saying: ‘that’s awesome,’” Alan Gandelman, president of ICAP Do Brasil DTVM Ltda, said in an interview from the company’s Rio de Janeiro headquarters. “They like the idea. They like to choose.”

So far, ICAP’s trading of stocks and derivatives totals 7 percent of the volume handled by Credit Suisse, the country’s biggest brokerage, according to BM&FBovespa SA exchange data provided to local firms. Derivatives are financial instruments whose value is based on another security or benchmark.

Video Chats

Equity trading in Brazil rose to an average 339,901 trades a day this month through May 27, a 28 percent increase from January and 0.7 percent above the previous record in October, according to exchange data.

The Bovespa index rebounded from last year’s 41 percent tumble on signs the economy is recovering after the central bank cut interest rates to a record low. Policy makers reduced the benchmark rate to 10.25 percent in April from 13.75 percent at the end of 2008 and 19.75 percent four years earlier, making stocks more attractive relative to bonds, said Gandelman, 39.

ICAP’s discounts may not be enough to gain market share, said Alvaro Bandeira, a director at Agora, a unit of Banco Bradesco SA, Brazil’s second-largest non-government bank.

“Individual investors are looking for help and advice more than a lower price,” said Bandeira, whose Rio-based firm charges 20 reais per online trade. “We have a TV station, analyst reports, forums, chats and even video chats with experts.”

Credit Suisse, Itau

Electronic trading accounts for 14 percent of all volume on BM&FBovespa, according to exchange data. Another 13 percent of trading comes from individual investors who call through to brokerages, said Paulo Levy, the head of investing for private investors at ICAP in Brazil.

Levy, a Radiohead fan who helped set up London-based HSBC Holdings Plc’s online trading in Brazil before joining ICAP, said he pitched the pay-what-you-want campaign to Gandelman. ICAP offers investors a fee range of 5 reais to 20 reais.

“We needed a way to differentiate ourselves,” Levy said.

ICAP Do Brasil, which employs 90 people, traded 935.5 million reais of securities in the first four weeks of operations that began April 22, Gandelman said. Zurich-based Credit Suisse’s average monthly volume in Brazil this year was 12.6 billion reais compared with 9.7 billion reais for Sao Paulo-based Itau Unibanco Holding SA, according to BM&FBovespa data.

Expansion, Consolidation

In addition to setting up services for individual investors, ICAP acquired Arkhe DTVM, a Rio-based brokerage that focuses on futures trading, in November for $17 million. That purchase is still subject to central bank approval.

ICAP fell 1.5 percent to 394.5 pence yesterday and is up 37.2 percent this year, compared with a 1.1 percent decline in the FTSE 100 Index. The stock dropped 60 percent in 2008.

Madrid-based CM Capital Markets Holdings SA expanded its local brokerage in February. Carlos Kawall, the chief financial officer for BM&FBovespa, said in a May 20 interview that more foreign financial firms may move into the country.

London-based Barclays Plc will open a local brokerage this year, Valor Economico reported in February. Sarah Naegele, a New York-based spokeswoman for Barclays, declined to comment.

“Everyone’s now coming in,” said Francisco Mussnich, a mergers and acquisitions lawyer at Barbosa Mussnich & Aragao in Rio. “Expanding will be the first step and consolidation will be the second. It’ll take a few years.”

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net

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