Economic Calendar

Tuesday, June 30, 2009

Platinum Heads for Second Quarterly Gain on Dollar Weakness

By Glenys Sim

June 30 (Bloomberg) -- Platinum gained in Asia, heading for a second quarterly increase, as investment demand boosted by dollar weakness offset a slump in consumption by the auto industry.

The metal, used mainly in catalytic converters, is up 5.8 percent this quarter as the Dollar Index, which measures the greenback’s value against six major trading partners, slid 6.8 percent. Some investors buy precious metals as an alternative investment to a declining U.S. currency.

“Most commodities have benefited from the weaker U.S. dollar, as investors put aside weak fundamentals,” Yang Jun, an analyst at China Futures Co., said from Chongqing today.

Platinum for immediate delivery gained 0.6 percent to $1,194 an ounce at 10:59 a.m. Singapore time, up 28 percent this year. The metal lost 39 percent last year as a global recession curbed demand. Palladium lost 0.7 percent to $248.25 an ounce, still up 15 percent this quarter.

Platinum held in ETF Securities Ltd.’s exchange-traded fund backed by the metal stood at 322,865 ounces on June 26, up 89 percent since the start of the year. Palladium assets rose to a record 319,451 ounces June 19.

Still, a slump in the automotive sector may limit both metals’ gains. About half of platinum and palladium use is for auto parts, according to Johnson Matthey Plc, a London-based researcher and metal refiner.

Global vehicle output will drop as much as 20 percent this year, Robert Bosch GmbH, the world’s largest automotive supplier, said June 16. Japan’s 12 automakers decreased domestic production of cars, light trucks and commercial vehicles 41.4% to 542,282 units in May from a year earlier, according to the Japan Automobile Manufacturers Association yesterday.

“Platinum group metals are essential for construction of autocatalytic converters, which are required by law in virtually all auto producing nations,” said HSBC Securities analyst James Steel. “Any sign of a recovery in global auto demand would likely translate into higher platinum group metal prices.”

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





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Rio Tinto Iron Ore Prices May Revert to Spot Level Tomorrow

By Rebecca Keenan and Jesse Riseborough

June 30 (Bloomberg) -- Rio Tinto Group, the world’s second biggest iron-ore producer, said some contracts may revert to spot market pricing tomorrow as China’s steelmakers argue for a deeper cut than Asian rivals agreed.

Talks with Chinese steelmakers are continuing, Gervase Greene, a Perth-based spokesman for Rio said by phone. Nippon Steel Corp., JFE Holdings Inc. and Posco, Asia’s three biggest steelmakers, last month agreed to a 33 percent cut in the annual contract price for benchmark iron ore.

For about 40 years, iron-ore suppliers have held annual talks with steelmakers to fix prices for the next 12 months. The 2008 round splintered, and this year China’s steel association says Rio’s price agreement isn’t a benchmark. This year would be the first in at least a decade that Rio hadn’t agreed to prices with most customers by June 30, when some contracts can revert to prices for immediate delivery, known as the spot market.

“Rio Tinto has long been a supporter of the benchmark system but if customers choose to buy on the spot market instead they will,” Rio’s Greene said by phone.

Abandoning annual pricing agreements may increase earnings volatility for London-based Rio, JPMorgan Chase & Co. said last month. Rio said June 1 that about half the ore it produced this year has been sold at spot prices.

China overtook Japan as the single biggest buyer of iron ore in 2003. Until then, benchmark prices had usually been set by Japanese or European steelmakers. China was the first nation to settle for the 2007 Japanese financial year, agreeing to a 9.5 percent increase in prices with Vale SA, the world’s biggest iron ore exporter.

Rising Prices

Spot prices for iron ore into China gained 20 percent since Rio settled prices with Japanese steel mills on May 26, the first settlement of the year. Spot prices in China are currently similar to the annual contract price for the year to March 31 accepted by steel mills in Japan, Korea and Taiwan.

China has rejected the annual price accord and called for contract prices to drop as much as 45 percent.

“We have a number of contracts that when they get to June 30 there is the potentiality for those agreements falling away and then moving to spot,” Sam Walsh, chief executive officer of the London-based company’s iron ore unit, said on May 26. “I don’t think that would be a good thing for either iron ore producers or steel producers but that’s the reality.”

Vale is waiting for Australian iron-ore producers to settle contract prices with China before concluding its own agreements, Chief Executive Officer Roger Agnelli said last week. It has agreed to cut prices by 28 percent for ArcelorMittal.

BHP Billiton Ltd., the world’s third largest iron ore producer, doesn’t make any announcements about the pricing of its long term contracts until the majority of its contracts are settled, BHP spokeswoman Samantha Evans said by phone from Melbourne.

To contact the reporters on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net; Jesse Riseborough in Melbourne at jriseborough@bloomberg.net





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Oil Rises to Eight-Month High on Weaker Dollar, Nigeria Attacks

By Ann Koh

June 30 (Bloomberg) -- Crude oil rose to the highest in eight months, set for its biggest quarterly gain since 1990, as the U.S. dollar declined and militant attacks in Nigeria raised concern that supplies may be disrupted.

Oil jumped as much as 2.6 percent in New York, adding to yesterday’s 3.4 percent gain, as investors sought commodities as a hedge against inflation. The dollar fell as much as 0.3 percent against major currencies. Royal Dutch Shell Plc shut a field after an attack by Nigerian rebels, disrupting supply from Africa’s largest producer.

“Now people are starting to pay attention to supply-side developments on the assumption that demand will rise from here onwards,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “Oil prices are always going to be linked to fundamentals, but in recent times, there is still a high correlation with movements in currency.”

Crude oil for August delivery gained as much as $1.89, or 2.6 percent, to $73.38 a barrel on the New York Mercantile Exchange, the highest since Oct. 21. It was at $72.90 a barrel at 1:57 p.m. in Singapore.

Oil has risen 64 percent since the beginning of this year. It rebounded from $32.70 a barrel on Jan. 20 on optimism that the global economic recession is easing.

China, the world’s second-biggest energy consumer, raised domestic fuel prices today by as much as 11 percent to encourage refiners to produce more fuels amid higher crude costs.

Gold Advances

Gold for immediate delivery gained 0.4 percent to $941.42 an ounce at 9:40 a.m. in Singapore, gaining for a third quarter. Copper headed for its best six months in 22 years. The metal for delivery in three months on the London Metal Exchange climbed as much as 1 percent to $5,150 a metric ton.

A U.S. government report released tomorrow may show crude oil inventories falling for the seventh time in eight weeks, as refineries ramp up operation rates in anticipation of higher fuel demand during the Independence Day holiday, the second- busiest period for travel in the U.S. apart from Christmas.

Supplies probably fell 1.6 million barrels in the week ended June 26, according to the median of nine estimates by analysts surveyed by Bloomberg News. The Energy Department is scheduled to release its weekly report at 10:30 a.m. in Washington.

Still, the World Bank said June 22 that the recession was deeper than it expected three months ago. The International Energy Agency’s Medium-Term Oil Market Report yesterday cut oil- consumption estimates for every year through 2013 by about 3 million barrels a day. Consumption will average 86.76 million barrels a day in 2012, the first year demand will rise above 2008’s level of 85.76 million, the IEA said.

Shell’s Field

Brent crude oil for August settlement rose as much as $2.51, or 3.5 percent, to $73.50 a barrel on London’s ICE Futures Europe exchange. Yesterday, it gained $2.07, or 3 percent, to $70.99 a barrel, the biggest gain since June 4.

“The rise in crude is suggesting we’re not in a recession,” said Jonathan Barratt, a managing director at Commodity Broking Services Pty in Sydney. “We’ve got these geopolitical twinges that are helping it along.”

Indian refiners bought more crude in May after returning from maintenance shutdowns. The Indian Oil Ministry released provisional data showing that crude imports rose 19 percent to 12.02 million metric tons from 10.12 million tons a year earlier.

Shell, Europe’s biggest oil company, shut its Estuary oil field in Nigeria’s southern delta region after a militant attack.

The strike targeted two well clusters in the western Niger River delta, Tony Okonedo, a Shell spokesman, said by phone from Lagos yesterday.

The Movement for the Emancipation of the Niger Delta, the main rebel group in Nigeria’s oil region, said it attacked the oil field near Shell’s Forcados oil export terminal and set it ablaze.

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





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Rubber Futures Track Crude’s Advance, Increase to Two-Week High

By Rattaphol Onsanit

June 30 (Bloomberg) -- Natural rubber futures advanced to the highest level in almost two weeks and were set for a second quarterly rise after oil prices gained, boosting the cost of making the synthetic substitute.

Prices in Tokyo rose as much as 3.4 percent, tracking crude, which gained to an eight-month high as the dollar declined. Synthetic rubber is made from naphtha, which is distilled from petroleum.

“Rubber is following the sentiment toward oil,” Rewat Yenchai, an analyst at Bangkok-based AGROW Enterprise Ltd., said by phone today.

The December-delivery contract, the most active, increased 3 percent to 162.2 yen a kilogram ($1,691 a metric ton) on the Tokyo Commodity Exchange at 11:40 a.m. local time. Earlier, it reached 162.9 yen, highest since June 17.

Rubber futures have gained about 5.7 percent this quarter on speculation demand may revive as the global economy recovers. Prices climbed about 13 percent in the first three months of the year after plunging 46 percent in the final quarter of 2008.

Crude oil for August has gained as much as 6.1 percent this week, buoyed by the weaker dollar and after Nigerian militants shut an oil field operated by Royal Dutch Shell Plc. Prices today climbed to more than $73 a barrel.

Rubber for November delivery on the Shanghai Futures Exchange, the most-active contract, gained 1.2 percent to 15,690 yuan ($2,296) a ton at 10:40 a.m. local time.

Japan’s Yokohama Rubber Co. may post an operating loss of about 1.5 billion yen ($15.6 million) for the quarter ending today on lower sales, the Nikkei English News reported, without saying how it obtained the information.

To contact the reporter on this story: Rattaphol Onsanit in Bangkok at ronsanit@bloomberg.net





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Gold Climbs Over $940 in Asia, Heading for Third Quarterly Gain

By Glenys Sim

June 30 (Bloomberg) -- Gold climbed above $940 an ounce in Asia, heading for a third quarterly increase, as the weakening dollar fueled demand for the precious metal as a store of value.

Bullion, which typically moves inversely to the U.S. currency, has climbed 2.4 percent in the quarter, while the dollar fell against all 16 major currencies as increased investor risk appetite spurred demand for higher-yielding assets. Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged for a second day at 1,125.74 metric tons yesterday.

“The main driver of gold at the moment is moves in the U.S. dollar and its impact on Comex and over-the-counter investors,” John Reade, UBS AG’s head metals strategist, said in an e-mail. “Exchange-traded fund flows remain subdued, jewelry demand is weak, coin and investment bar buying is subdued.”

Gold for immediate delivery gained 0.4 percent to $941.42 an ounce at 9:40 a.m. in Singapore. The metal is up 6.7 percent this year as longer-term inflationary expectations boosted demand for a hedge against accelerating consumer prices. Gold futures for August delivery were little changed at $941.30 an ounce on the New York Mercantile Exchange’s Comex division, up 1.8 percent this quarter.

“Latest positioning data indicates that speculators have reduced net-long positions in the market significantly, which should limit downside risks somewhat,” Stefan Graber, analyst at Credit Suisse Group in Singapore, said in a note today. “As long as the important support at $925 holds, the short-term outlook remains positive.”

Net-long positions in New York gold futures decreased by 5 percent in the week ended June 23, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 166,294 contracts in New York.

Silver climbed 0.8 percent to $13.9775 an ounce, up 7.8 percent since March 31 and heading for second quarterly increase.

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





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Adobe Systems, Apollo, Ctrip, H&R Block: U.S. Equity Preview

By Lu Wang

June 30 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

Adobe Systems Inc. (ADBE US): The biggest maker of graphic- design programs said it will idle its U.S. operations for one week in the second, third and fourth quarters of its fiscal year. Employees will be asked to take time off as paid time off, the company said.

Apollo Group Inc. (APOL US): The owner of the University of Phoenix reported third-quarter profit that beat analysts’ estimate and said it will increase its share buyback to $500 million.

Ctrip.com International Ltd. (CTRP US): China’s biggest online hotel and airline ticketing agent was upgraded to “buy” from “neutral” by Nomura International (HK) Ltd.

General Mills Inc. (GIS US): The maker of Cheerios and Hamburger Helper said it raised its quarterly dividend by 4 cents a share to 47 cents.

H&R Block Inc. (HRB US): The biggest U.S. tax preparer said fourth-quarter profit from continuing operations was $2.09 a share, topping the average analyst estimate by 2 percent, as fees from consumer financial services increased.

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





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Brazilian Futures Pit Empties as Open Outcry Ends in ‘Sadness’

By Alexander Ragir

June 30 (Bloomberg) -- Fernando Tadeo Gaspar remembers the rush he’d get when he started trading futures contracts a decade ago on the floor of Brazil’s derivatives exchange.

There were “people sweating and pushing each other, yelling out their trades,” Gaspar, 28, said during a lunch break last week in Sao Paulo. Now, “it’s complete sadness over there,” he said as he pointed to the market’s main entrance down the street.

For Gaspar and the 359 other floor traders who remain from a peak of 1,300 in 2007, today is their last day. BM&FBovespa SA, the operator of Latin America’s biggest stock and futures exchange, is ending two decades of derivatives pit trading following a push by brokerages into electronic trading that made the so-called open-outcry sessions irrelevant.

Floor trading at BM&FBovespa accounted for 2.7 percent of all derivatives trading in the first six months of this year, down from 27 percent in 2007 and 100 percent in 1999. The closing of the derivatives pit, where contracts such as Bovespa index futures and currency futures are traded, follows the exchange’s elimination of stock trading on the floor in 2005, part of a global move toward automated trading.

Trading on all major stock and derivatives exchanges, with the exception of markets in the U.S. and Germany, is now done entirely electronically, according to Peter Clifford, deputy secretary general at the Paris-based World Federation of Exchanges.

Chicago, New York

About 3,000 people work in the pits of the CME Group Inc.’s derivatives markets in Chicago while the New York Stock Exchange has about 1,200 floor traders. NYSE traders topped 3,200 in September 2006, according to a filing with the Securities and Exchange Commission.

In Brazil, the move away from open-outcry trading “was a decision made by the market itself,” Andre Demarco, 39, director of operations at BM&FBovespa, said in a telephone interview from Sao Paulo. “This is a natural process that exchanges around the world are going through.”

Daily trading volume in Brazilian derivatives this year has averaged 118 billion reais ($60 billion), according to BM&FBovespa. Derivatives are contracts whose value is derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or the weather.

Marcio Andre Mieza, president of the union representing floor traders, says BM&FBovespa failed to provide workers with training for other trading positions and hasn’t offered a cash payout to help them as they shift into other careers. Floor traders earned about 5,000 reais a month on average, according to the union.

‘Clean-Cut and Younger’

BM&FBovespa isn’t responsible for the transition of floor traders into other jobs because the brokerages, not the exchange, employ the workers, the company wrote in an e-mail to Bloomberg News. The exchange said it’s offering floor traders two years of capital markets classes at no cost.

Helio Silverio, a 39-year-old floor trader, said BM&FBovespa’s training is of no use to him. The classes are aimed at helping the traders apply for sales positions in financial markets -- jobs that he said will go to “clean-cut and younger” candidates than himself.

“All I’ve been thinking about the past two weeks is: ‘What am I going to do?’” Silverio said after meeting up with Gaspar on the Portuguese brick-tiled boulevard that surrounds the exchange. About 25 feet (7.6 meters) away, a handful of traders crowded around the main entrance and dragged on cigarettes during the midday break in trading.

‘Empty’

Silverio, who has been working on the floor for 10 years, said he will start dipping into his savings to pay bills.

“They said it was just a natural process and that all the traders should have known, but it happened really fast,” he said. “Three years ago there were more than 1,000 traders. Now the pits are empty.”

The shift away from floor trading accelerated after the derivatives exchange, then known as Bolsa de Mercadorias & Futuros-BM&F SA, created a cross-holding agreement last year with CME Group, operator of the world’s largest futures exchange. The agreement facilitated electronic trading and gave international investors more access to Brazil’s derivatives markets, according to the exchange.

CM Capital Markets plans to move its seven floor traders into electronic-trading positions or other jobs, said Everaldo Oliveira, president of the Madrid-based brokerage’s Brazil unit.

Mock Cheer

Oliveira said he identifies with the floor traders after spending his first 10 years in the industry in the pit. One of his father’s friends landed him a job on the floor at age 16 in 1986, he said. Oliveira traded during the day to help his parents pay for the private high school he attended at night.

“I’m very nostalgic,” Oliveira said in a telephone interview from Sao Paulo. “But I wouldn’t say I miss it because electronic trading is just the direction the world is going.”

Gaspar said his brokerage, Sao Paulo-based Maxima DVTM, offered him a spot on its electronic-trading desk.

“I’m OK because I’m young and went to college,” Gaspar said. “But for most of these guys, this is all they know.”

Down the block, 12 traders gathered at an open-air restaurant and raised longneck bottles of Anheuser-Busch InBev NV’s Brahma beer in a mock toast.

“Here’s to unemployment,” they shouted.

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





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Jobs’s Return to Apple Greeted With Little Fanfare by Investors

By Connie Guglielmo

June 30 (Bloomberg) -- Steve Jobs’s return from medical leave was greeted with little fanfare by investors.

Apple, up 67 percent since Jobs went on leave Jan. 14, fell 47 cents to $141.97 yesterday in Nasdaq Stock Market trading. That compares with gains in the Standard & Poor’s 500 Index and the Nasdaq Composite Index.

Investors have gotten comfortable with Apple’s management team and its ability to run the company without Jobs’s oversight, said Ryan Jacob, head of the Jacob Internet Fund in Los Angeles. Jobs, a cancer survivor, received a liver transplant during his five-and-a-half-month leave. His doctors said last week that he was recovering well.

“If you look at how the stock has performed as the ultimate barometer, one of the reasons it held up is that the company performed well during his absence,” Jacob said. Apple’s stock is his firm’s biggest holding. “If we were talking last year or even six to nine months ago, I’d be complaining that they weren’t doing enough to show off the depth of the team behind Steve Jobs.”

Jobs, 54, was back at work yesterday, making good on a promise to return by the end of June. He will come to the office a few days a week and work from home the rest of the time, said Steve Dowling, a spokesman for the Cupertino, California-based company.

Few Details

Apple hasn’t provided details on Jobs’s current medical condition. Last week, the Memphis hospital where he had his liver transplant said Jobs has an “excellent” prognosis. He was the sickest patient on the waiting list at the time a liver was available, the hospital said.

The disclosures about Apple’s CEO should come from the company and not from outside sources, corporate-governance experts said. Since Jobs is so closely aligned with Apple’s brand, and since speculation about his health caused the company’s shares to fluctuate last year, investors should be kept apprised of his health, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.


“They need to put out a statement to explain what happened during his departure, to explain what happened between now and then to put him in good health,” Elson said. “It has to come from Apple.”

Dowling declined to comment on Apple’s disclosures.

If Jobs is fully capable of doing his job, the company may feel it doesn’t need to disclose specifics about his health, said James Balassone, executive in residence at the Markkula Center for Applied Ethics at Santa Clara University in California.

Need to Know?

“Given technology, he doesn’t need to be in the office, so location isn’t the issue,” Balassone said. “What do we need to know about the liver transplant? Is he able to perform his role? If the answer is, ‘He is,’ there may not be any more need for more information.”

Jobs’s return was a missed opportunity for him to shift into more of a design role, leaving day-to-day management to others, said Apple investor Michael Obuchowski. When he went on leave, Jobs handed the reins to Chief Operating Officer Tim Cook. In 2004, Cook also filled in for Jobs, while the CEO recuperated from surgery for a tumor in his pancreas.

Cook has been running the company with a team of executives, including marketing chief Phil Schiller, design leader Jonathan Ive and retail manager Ron Johnson. Under their guidance, Apple introduced Mac computers, redesigned its iPod media player and began selling a faster version of the iPhone.

‘Strong Culture’

In April, the company reported profit and revenue that topped analysts’ estimates. Apple releases third-quarter results next month.

“Steve Jobs created a great team with a very strong culture,” said Obuchowski, chief investment officer at First Empire Asset Management Inc. in Hauppauge, New York. “I believe that this team is more than capable of functioning really well without a need for daily supervision.”

Jobs first talked about potential successors in March 2008, saying Apple’s board would have “great choices” among the executive team if he decided to leave for any reason. The board told shareholders at their annual meeting in February that the company has a succession plan, which is confidential.

“As a public company with a celebrity CEO, Apple really should directly address Steve’s health and present a transparent succession plan,” Obuchowski said.

To contact the reporter on this story: Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net


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VIX Below Lehman Bankruptcy Level Leaves ‘Wall of Worry’ Intact

By Jeff Kearns

June 30 (Bloomberg) -- The drop in the Chicago Board Options Exchange Volatility Index below its level when Lehman Brothers Holdings Inc. collapsed leaves the benchmark gauge of U.S. options prices 26 percent above its average.

A four-month rally in equities pushed the VIX to 25.35 yesterday, down 37 percent for the year and giving it the first close below 25.66, the level before Lehman filed the biggest- ever bankruptcy on Sept. 15, 2008. The index has declined 69 percent from its record of 80.86 on Nov. 20, 2008.

Above-average volatility shows traders are still paying up for insurance to protect against losses in the Standard & Poor’s 500 Index. More gains depend on investors overcoming the remaining skepticism, sometimes called the “wall of worry,” spurred by last year’s 38 percent slump in the equity index, the steepest since 1937.

“It’s still elevated because people aren’t 100 percent sure this is all over,” said Stefen Choy, founder of Livevol Inc., a San Francisco-based provider of options market data and analytics. “Everyone is waiting because they know the worst is over, but they don’t know how fast the recovery is going to be.”

The VIX slipped 2.2 percent to 25.35 yesterday. The S&P 500 added 0.9 percent to 927.23, extending its best quarterly advance since 1998, as energy producers gained with the price of oil. The benchmark index for U.S. equities has climbed 37 percent from a 12-year low on March 9 on speculation that the first global contraction since World War II is easing.

Signs of Recovery

In the U.S., the Conference Board’s measure of leading economic indicators increased in April for the first time since June 2008 and rose again last month. Analysts covering S&P 500 companies boosted 2009 profit estimates for the first time this year in May, weekly data compiled by Bloomberg show.

Lehman, once the fourth-largest U.S. securities firm, filed the largest bankruptcy in U.S. history on Sept. 15, prompting a freeze in credit markets. The VIX surged 24 percent to 31.70 that day.

The VIX averaged 20.18 in its history stretching back to the start of 1990 before yesterday. After peaking in November, it dipped below 30 in May for the first time in eight months. The index reached an intraday record of 89.53 on Oct. 24.

The stock market has slumped in the past when the VIX traded at this level. It closed at 25.95 on June 15, 1998. The S&P 500 retreated 11 percent in the next 2 1/2 months as Russia’s debt default and Long-Term Capital Management’s failure caused losses at financial firms. The VIX stood at 25.47 on March 30, 2000, as the Internet bubble was bursting in a collapse that erased 49 percent from the benchmark index for U.S. stocks through October 2002.

Smaller Swings

The VIX is also dropping because stock-market swings are decreasing, which means dealers aren’t able to charge as much for contracts. Twenty-day historic volatility, a gauge of past price swings, for the S&P 500 has declined from this year’s peak of 50.36 on March 24 to a nearly 10-month low of 19.61.

“Option market makers have to maintain option prices at a level that reflects the actual volatility of the market,” said Dan Hutchinson, head of derivatives at Meridian Equity Partners Inc. in New York.

In February, Congress approved a $787 billion economic stimulus plan to help jump start growth and end the longest recession since World War II.

Federal Reserve Chairman Ben S. Bernanke has made unprecedented use of the central bank’s powers as the lender of last resort. He kept banks liquid by accepting bonds they can’t trade as collateral for Treasuries and bailed out the nation’s biggest insurer, American International Group Inc.

“Fear of the doomsday scenario has definitely subsided,” said Jeremy Wien, a VIX options trader at Societe Generale SA in New York. “Given the steps the government has taken and the decrease in huge market swings, it’s entirely reasonable for the VIX to drop to these levels and possibly even lower.”

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.





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Madoff Faces Harsher Imprisonment Than Corporate Predecessors

By David Glovin, Patricia Hurtado and Thom Weidlich

June 30 (Bloomberg) -- Bernard Madoff, sentenced to a prison term six times longer than those given the chief executives of WorldCom Inc. and Enron Corp., will likely serve his time in a harsher prison than those white-collar inmates.

Sentenced to 150 years, Madoff will probably be sent to a medium- or high-security prison, probably in the northeastern U.S, according to lawyers and prison consultants. Even worse for Madoff, fellow inmates serving life sentences may want “to make a name for themselves” by harming the ex-money manager, a former inmate said. The Federal Bureau of Prisons, which will decide where he’s jailed, may isolate Madoff to protect him from other prisoners.

“If they see an opportunity to take that man out and be in the paper and make a name for themselves, what do they have to lose,” Steve Vincent, a former police officer jailed for theft who now runs Federal Prison Consultant Services in Louisville, Kentucky, said in an interview. “Wherever he goes, they’re going to put him in solitary.”

The Bureau of Prisons hasn’t decided where Madoff will be jailed, said spokeswoman Felicia Ponce. Madoff’s 150-year term, the seriousness of his crimes and the judge’s recommendation that he be jailed in the northeast will be factors in the decision. Madoff asked to do his time in Otisville, New York, a medium-security lockup 70 miles northwest of Manhattan.

Madoff won’t wind up in the minimum-security camp that’s next to the tougher prison. Inmates serving more than 10 years aren’t eligible for the unfenced and un-walled camps, Ponce said.

‘Violent Offenses’

“The vast majority of people he’ll be incarcerated with will be people who committed violent offenses,” said Barry Pollack, a lawyer who represents white-collar defendants and isn’t involved in the Madoff case.

Madoff, 71, was sentenced yesterday for a decades-long fraud that cheated investors of billions of dollars. Prosecutors said Madoff’s investors lost at least $13 billion. Investors were told they had about $65 billion before the fraud came to light.

If sent to a medium- or high-security prison, Madoff will join other non-violent criminals who have wound up in the harshest of confines.

Former Federal Bureau of Investigation agent Robert Hanssen, convicted of spying for the Soviet Union, is now at the so-called Supermax penitentiary in Florence, Colorado. Former Tyco International Ltd. Chief Executive Officer L. Dennis Kozlowski is doing 8 1/3 years at a medium-security state prison in New York.

“A ‘Camp Fed’ is out of the question,” said Alan Ellis, a Mill Valley, California-based attorney and co-author of “Federal Prison Guidebook.” “He’s never going to get to a federal prison camp like Martha Stewart.”

Locked Cells

Former WorldCom CEO Bernard Ebbers and former Enron CEO Jeffrey Skilling are jailed at low-security facilities. Camps and low-security prisons provide dormitory or cubicle housing. Camps have no fencing around their perimeter. The tougher prisons that await Madoff are surrounded by electronic detection systems and house inmates in locked cells.

Ellis said he expected Madoff, who has spent the last three months in a Manhattan lockup, to be moved to a high-security penitentiary because of his notoriety and his lengthy term. Although he’d be with lifers who may want to harm him, he’d have more security, Ellis said. If threatened, Madoff would be moved to isolation by prison officials, he said.

High-Profile Inmate

“With any high-profile inmate, they have concerns that someone might do something to gain the notoriety of harming, hurting or killing” him, said Pollack, of Miller & Chevalier Chartered in Washington.

Kirby Behre, a sentencing expert at law firm Paul, Hastings, Janofsky & Walker LLP, was less convinced that Madoff would find himself walled off from other prisoners. Such “virtual solitary confinement” is “very onerous” for a prisoner and would likely result only if he requested it, Behre said.

“What he should expect is a relatively dank facility where he’s going to be integrated and treated no differently than other prisoners,” Behre said.

Inside prison, Madoff will begin a life of unending sameness. He’d wake at 6 a.m., be put to work until 3:30 p.m., have free time until 9 p.m., and go to bed at 11:30 p.m., Ponce said. His job will pay from 12 cents to 40 cents an hour, depending on his assignment and its seniority. He’ll be allotted 300 minutes of phone calls a month.

“There’s generally a walking track they can use, a basketball court,” Ponce said.

In isolation, Madoff would be in his cell 23 hours a day, and his hour outside would be spent alone, in a space that Vincent compared to “a dog pen.”

“He’s going to be a real headache for the Bureau of Prisons for the rest of his life,” Ellis said.

The case is U.S. v. Madoff, 09-cr-00213, U.S. District Court for the Southern District of New York (Manhattan).

To contact the reporters on this story: David Glovin in U.S. District Court for the Southern District of New York in Manhattan at dglovin@bloomberg.net; Thom Weidlich in U.S. District Court for the Southern District of New York in Manhattan at tweidlich@bloomberg.net; Patricia Hurtado in U.S. District Court for the Southern District of New York in Manhattan at phurtado@bloomberg.net.





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Carpetright, Chaucer, HMV, Petrofac: U.K., Irish Equity Preview

By Howard Mustoe and Adam Haigh

June 30 (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 advanced 53.02, or 1.25 percent, to 4,294.03. The FTSE All-Share Index rose 1.2 percent, and Ireland’s ISEQ Index gained 1.2 percent.

Carpetright Plc (CPR LN): The U.K.’s largest carpet retailer said annual profit declined as Britons pared spending on their homes. Carpetright rose 6 pence, or 1 percent, to 598 pence.

Chaucer Holdings Plc (CHU LN): Pamplona Capital Management LLP will not make an offer for the Lloyds of London insurer and will not seek to acquire more than 29.9 percent of the company, it said in an e-mailed statement. Chaucer confirmed that talks with third parties over a potential offer for the company have been terminated, it also said. Chaucer rose 0.75 pence, or 1.7 percent, to 43.75 pence.

HMV Group Plc (HMV LN): The U.K.’s largest CD retailer said full-year profit before tax and exceptional items increased 11.5 percent to 63 million pounds. HMV rose 4 pence, or 3.5 percent, to 118.75 pence.

HSBC Holdings Plc (HSBA LN): Europe’s largest bank’s Indian unit reported an 8 percent rise in full-year net profit for 2009, to 12.9 billion rupees ($270 million), the Economic Times of India reported. HSBC rose 1.25 pence, or 0.25 percent, to 511.25 pence.

Petrofac Plc (PFC LN): The U.K. oil-services provider with projects in the Middle East, Africa and North Sea said it’s had a “good start” to the year. Petrofac rose 3.5 pence, or 0.5 percent, to 658.5 pence.

Royal Bank of Scotland Group Plc (RBS LN): Environmental groups are suing the U.K. Treasury department in order to ensure that taxpayers’ money invested in the government-owned bank supports only projects that satisfy “minimum” green and human- rights standards, the Financial Times reported, citing Leigh Day & Co., a law firm representing the groups. RBS shares rose 0.88 pence, or 2.3 percent, to 39 pence.

To contact the reporters on this story: Howard Mustoe in London at hmustoe@bloomberg.net; Adam Haigh in London at ahaigh1@bloomberg.net





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D+S Europe AG, Porsche SE: German Equity Preview for June 30

By Nadja Brandt

June 30 (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 2.7 percent to 4,869.44. The measure, derived from trading in DAX Index futures, provides an estimate of Germany’s benchmark index. The DAX advanced 2.3 percent to 4,885.09.

D+S Europe AG (DSJ GY): The customer support service provider for companies including Deutsche Telekom AG said it named Joachim Reinhardt as chief financial officer. The shares declined 5.6 percent to 10.33 euros.

Porsche SE (PAH3 GY): The Qatar Investment Authority has made an offer for a stake in Porsche as well as options that can be converted into Volkswagen AG shares, Frank Gaube, a spokesman for Porsche, said in an interview. Porsche shares advanced 2.1 percent to 46.46 euros.

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





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Areva, Carrefour, Gecina, LDC, Sanofi: French Stocks Preview

By Fabio Benedetti-Valentini

June 30 (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 increased 63.95, or 2 percent, to 3,193.68 in Paris, advancing for the first time in three days. The SBF 120 Index gained 1.9 percent.

Areva SA (CEI FP): The world’s largest nuclear-reactor builder is holding a board meeting in Paris, where it’s expected to discuss plans to raise capital and sell a power-grid equipment unit, according to people familiar with the situation. The company’s investment certificates gained 21.80 euros, or 5.4 percent, to 424.80 euros.

Carrefour SA (CA FP): Europe’s largest retailer is holding an analysts day in Paris. The shares added 13.5 cents, or 0.4 percent, to 31.38 euros.

Faiveley SA (LEY FP): The railroad-equipment maker reported a 42 percent rise in full-year net income to 51.5 million euros and forecast a “stable level of business” for the current year. The shares rose 30 cents, or 0.6 percent, to 55.24 euros.

Gecina SA (GFC FP): The French capital’s largest office landlord reports first-half earnings before the market opens in Paris. The shares advanced 7 cents, or 0.2 percent, to 43.60 euros.

Latecoere SA (LAT FP): The company, which makes parts for Airbus SAS and Boeing Co. planes, said its supervisory board approved a plan to transfer some production from its Cornebarrieu, France site to other factories. It also named Jean-Claude Chaussonnet as supervisory board chairman, replacing Francois Junca who is stepping down. The shares closed unchanged at 4.10 euros.

LDC SA (LOUP FP): Europe’s largest publicly traded poultry processor said first-quarter revenue rose 0.6 percent to 473.3 million euros and repeated its forecast for full-year operating profit to rise more than 20 percent. The shares gained 72 cents, or 0.9 percent, to 82.30 euros.

PSA Peugeot Citroen (UG FP): Europe’s second-largest carmaker increased its exchangeable bond offer to 575 million euros from 500 million euros previously. The shares added 34.5 cents, or 1.9 percent, to 18.70 euros.

Cie. de Saint-Gobain SA (SGO FP): Europe’s biggest supplier of building materials said nearly 65 percent of its dividend payout will be in new shares. The company has issued 13.8 million new shares which will trade for the first time on July 2. The stock rose 89 cents, or 3.8 percent, to 24.40 euros.

Sanofi-Aventis SA (SAN FP): France’s biggest drugmaker said studies published in the journal Diabetologia are “poor quality” and don’t show evidence of an increased cancer risk from the use of its diabetes drug Lantus. The shares gained 60 cents, or 1.5 percent, to 41.45 euros.

To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at fbenedettiva@bloomberg.net.





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Xstrata Bid for Anglo May Herald Revival of Moribund M&A Market

By Serena Saitto and Poppy Trowbridge

June 30 (Bloomberg) -- Mergers and acquisitions may show signs of recovering from a six-year low as the credit freeze thaws and chief executive officers such as Xstrata Plc’s Mick Davis gain confidence to do deals.

Record bond sales and the Standard & Poor’s 500 Index’s 40 percent gain from a 12-year low in March are fueling optimism that deals can be funded again. Any rebound may be fragile, bankers say.

“Financing is now available for strategic buyers,” said Rob Kindler, global head of mergers and acquisitions at New York-based Morgan Stanley, the No. 1 adviser in the first half of this year. “What is less positive is that the stock market, a proxy for M&A, continues to be volatile.”

Companies announced $773 billion of takeovers in the first half, the slowest period for mergers since 2003, data compiled by Bloomberg show. Xstrata’s 24 billion-pound ($40 billion) bid for miner Anglo American Plc, and takeovers by companies such as Cisco Systems Inc. may be among second-half deals.

The S&P 500 has moved by more than 3 percent on 23 trading days this year. That’s the third-most volatile period in the benchmark’s 81-year history after 1932 and 1933, said Howard Silverblatt, senior index analyst at S&P in New York. The VIX, the Chicago Board Options Exchange Volatility Index, returned yesterday to levels that prevailed before the collapse of Lehman Brothers Holdings Inc. in September.

‘Recovery of Confidence’

Goldman Sachs Group Inc. and JPMorgan Chase & Co. were the second and third-placed advisers after Morgan Stanley this year. Goldman Sachs, Citigroup Inc. and Merrill Lynch & Co. were the top advisers in the same period a year earlier. All are based in New York.

Mergers and acquisitions dropped 42 percent in the U.S., 58 percent in Europe, and about 50 percent in Asia in the first half, Bloomberg data show. U.S. firms led $350 billion of takeovers, topping $260 billion for Europe.

BlackRock Inc., the New York-based money manager started by Laurence Fink, agreed this month to buy Barclays Plc’s asset management division for $13.5 billion. China Petrochemical Corp. agreed last week to buy Swiss explorer Addax Petroleum Corp. for C$8.3 billion ($7.2 billion) to tap oil reserves in Iraq’s Kurdish region and Africa.

“In the second half of 2009 and in 2010 the number of active sectors will become broader,” said Jeff Stute, co-head of North American mergers at JPMorgan Chase & Co. in New York.

Xstrata, Vodafone

The technology industry may be ripe for takeovers. Cisco, which has made more than 130 purchases since 1995 and has $34 billion in cash, will be “aggressive” in making acquisitions to fuel growth, CEO John Chambers said May 7. EMC Corp., the world’s largest maker of data-storage computers, is vying with NetApp Inc. to acquire Data Domain Inc., in a deal valued at about $1.7 billion.

Successful fundraisings helped boost investor confidence, according to Steve Wallace, Citigroup’s head of mergers and acquisitions for the Asia Pacific region outside Japan. More Asian firms are now raising money because they see opportunities to make acquisitions, rather than repair losses from the credit crisis, he said.

“People are generally feeling that the worst is over,” Wallace said. “They’re feeling that the financial system is more stable than it was and that there is a path to recovery.”

Rio Tinto, Chinalco

Rio Tinto Group is selling $15.2 billion of stock in the U.K. and Australia to help pay debt of the London-based mining company. Aluminum Corp. of China, also known as Chinalco, plans to buy 880 million pounds ($1.5 billion) of shares to maintain a 9 percent stake after its proposed $19.5 billion investment in Rio, the single largest foreign investment by a Chinese company, was rebuffed.

Investment-grade U.S. companies sold $667 billion of bonds this year, 23 percent more than in the same period in 2008, Bloomberg data show. European companies sold more than 680 billion euros ($949 billion) of bonds this year, a 52 percent increase on the year-earlier period.

“Financing has always been the tail on the M&A dog,” said Bruce Evans, head of Americas mergers at Deutsche Bank AG. “Today, however, the tail is clearly wagging the dog.”

To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net; Poppy Trowbridge in London at ptrowbridge@bloomberg.net





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Asian Stocks Extend Record Quarterly Gain on Higher Commodities

By Patrick Rial and Shani Raja

June 30 (Bloomberg) -- Asian stocks rose, with the regional benchmark index set for a record quarterly gain, on optimism a recovery in the global economy will lift earnings for producers of commodities and electronics.

Rio Tinto Group, the world’s No. 3 mining company, climbed 3.7 percent as copper headed for its best six months in 22 years. David Jones Ltd., Australia’s No. 2 department store, soared 11 percent after raising its profit estimate, while NEC Electronics Corp. jumped 3.1 percent on comments by its president that “the worst is over.” Fujifilm Holdings Corp. and Nikon Corp., which get more than half their revenue overseas, rallied more than 6 percent after Mizuho Securities Co. rated them “strong buy”

The MSCI Asia Pacific Index advanced 1.2 percent to 103.89 as of 1:27 p.m. in Tokyo. The index is set for a 28 percent gain for the past three months, the biggest quarterly rally since the gauge started in 1988, as economic indicators pointed to an easing of the global recession.

“You’re seeing a clear improvement in macro indicators pointing to a recovery later in the year,” said Nader Naeimi, a strategist at AMP Capital Investors in Sydney, which manages about $95 billion. “A falling yen signals that risk appetite is returning, which is good for equities.”

Companies on the MSCI Asia trade at 23.8 times estimated net income, making stocks in the region more expensive than in Europe and North America. MSCI’s Asian gauge is also set for its best first half since 1999 with a 16 percent advance.

Top Gainer

Taiwan’s Farglory Land Development Co. rose 195 percent this quarter, the leading stock on the MSCI Asia. Warming relations between Taiwan and China fueled speculation mainland companies will be able to invest in Taiwanese real estate, lifting shares in the developer and its peers.

Japan’s Nikkei 225 Stock Average climbed 2 percent to 9,975.21 today as the government said household spending unexpectedly increased in May, even as unemployment reached a five-year high. Shares rose in most markets open for trading in the region, except in the Philippines, China and Vietnam.

India’s Sensex Index has trailed only Vietnam in gains this quarter with a 52 percent surge, the most since 1992. An election victory by India’s ruling party in May has spurred optimism economic reforms will follow and keep the world’s No. 2 most populous nation expanding. Jaiprakash Associates Ltd., India’s largest builder of dams, is the biggest winner on the Sensex this year, having risen 165 percent.

The outlook for emerging markets is “far more optimistic” than for developed economies, investor Marc Faber said at a conference in Seoul today. Faber also recommended investments in commodities and tourism industries.

Commodities Rise

Futures on the Standard & Poor’s 500 Index were little- changed. The gauge added 0.9 percent in New York yesterday on the back of a 3.4 percent increase in the price of crude oil.

Copper gained as much as 1 percent today, bringing its first-half surge to 68 percent, the best six-month rally in 22 years. and the Baltic Dry Index, a measure of shipping costs for commodities, added 0.8 percent, the first climb in seven days.

Rio Tinto increased 3.7 percent to A$52.15. Inpex Corp., Japan’s biggest oil explorer, jumped 4.6 percent to 769,000 yen. China Petroleum & Chemical Corp., also known as Sinopec, added 4.7 percent to HK$5.99 after the country lifted fuel prices by as much as 11 percent to allow refiners to stay profitable.

Earnings Revision

David Jones rallied 11 percent to A$4.58 after saying profit will rise by 20 percent to 30 percent in the six months ending July 25, compared with an earlier forecast for earnings to be little changed. Harvey Norman Holdings Ltd., Australia’s biggest electronics retailer, soared 9.9 percent to A$3.34. Credit Suisse Group AG raised ratings on both companies, citing an expected recovery among Australian discretionary retailers.

NEC Electronics, Japan’s fourth-largest chipmaker, gained 3.4 percent to 871 yen. President Junshi Yamaguchi said “the worst is over,” and orders probably jumped 150 percent in the current quarter as companies rebuilt inventories. Elpida Memory Inc., Japan’s largest computer memory maker, gained 2.7 percent to 1,059 yen after saying it will get 50 billion yen ($521 million) from the Japanese government and a Taiwanese partner.

Fujifilm, the world’s second-largest maker of camera film, surged 6.5 percent to 3,050 yen. Nikon, the world’s largest maker of machines that etch circuitry onto silicon wafers, jumped 6.2 percent to 1,671 yen.

Ryosuke Katsura, an analyst at Mizuho Securities in Tokyo, lifted shares of both companies two levels to “strong buy” from “hold.”

Pumpkin Patch

Pumpkin Patch Ltd. jumped 8.2 percent to NZ$1.46 after New Zealand’s second-largest publicly traded retailer said it plans to shut 20 of its 35 stores in the U.S. to reduce losses.

Japanese consumer lender Aiful Corp. surged 24 percent to 384 yen after Goldman Sachs Group Inc. boosted the stock to “buy” from “neutral.” The shares, trading at 0.2 times book value, are overly cheap, Goldman Sachs analyst Takehito Yamanaka wrote in a report.

To contact the reporters for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.





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Japan Stocks Advance; Topix Set for Best Quarter in 21 Years

By Masaki Kondo

June 30 (Bloomberg) -- Japanese stocks rose, sending the Topix index toward its biggest quarterly gain in more than two decades, after commodity prices climbed, the outlook for steel improved and the yen weakened.

Japan Petroleum Exploration Co., the nation’s second- biggest oil explorer, climbed 6.6 percent. Nippon Steel Corp., Japan’s largest maker of the alloy, added 2.8 percent after a government report said declines in steel output are expected to slow. Nissan Motor Co., which earns about a third of its sales in North America, gained 1.9 percent. Fujifilm Holdings Corp. and Nikon Corp. jumped after Mizuho Securities Co. raised their ratings to “strong buy.”

“With China’s and India’s economies remaining resilient, some investors believe demand for crude will balloon,” said Kiyoshi Ishigane, a senior strategist at Tokyo-based Mitsubishi UFJ Asset Management Co., which oversees about $52 billion. “Governments are investing in infrastructure globally and a vast amount of alloy is needed.”

The Nikkei 225 Stock Average rose 188.27, or 1.9 percent, to 9,971.74 as of 12:40 p.m. in Tokyo. The broader Topix Index added 15.42, or 1.7 percent, to 930.74, with almost four stocks advancing for each that slid. The Nikkei briefly advanced above 10,000 for the first time since June 15.

Japanese stocks also got a boost from a statistics bureau report that household spending edged up 0.3 percent in May from a year earlier, marking the first gain in 15 months. Economists had estimated a 1.5 percent drop.

Quarterly Surge

The Topix has gained 20 percent this quarter, poised for its biggest three-month advance since the period ended March 1988, as economic indicators pointed to the easing of the global recession. Companies on the gauge traded at 43 times estimated net income, making Japanese equities more expensive than those in the U.S. and Europe, according to Bloomberg data.

Japan Petroleum surged 6.6 percent to 5,320 yen. Market leader Inpex Corp. rose 4.4 percent to 767,000 yen. Mitsubishi Corp., a trading company that gets more than half its sales from resources, added 1.6 percent to 1,787 yen.

Crude oil jumped 3.4 percent to $71.49 a barrel in New York yesterday, the highest settlement since June 12. Oil climbed as much as 2.2 percent today and is poised for a 47 percent quarterly leap, the most since 1990. Copper rose for a second session today.

Nippon Steel advanced 2.8 percent to 367 yen, and smaller rival JFE Holdings Inc. rose 2.5 percent to 3,260 yen. Production of crude steel will probably drop 29 percent in the three months to Sept. 30 from a year earlier, the Trade Ministry said yesterday. The estimate compares with a 39 percent tumble for this quarter.

Confidence in Dollar

Nissan, Japan’s No. 3 automaker, gained 1.9 percent to 589 yen, while bigger rival Toyota Motor Co. rose 2.8 percent to 3,670 yen. Sony Corp., maker of the Vaio personal computer, added 2 percent to 2,550 yen. Makers of cars and electronics contributed the most to the Topix’s advance.

The yen weakened against the dollar to as much as 96.31 from 95.44 at the close of stock trading in Tokyo yesterday. People’s Bank of China Governor Zhou Xiaochuan told reporters at a central bankers’ meeting in Switzerland that the country won’t change its currency reserve policy suddenly.

Zhou’s comment suggests “China has confidence in the authority of the dollar, which shores up credibility in the U.S. currency,” said Fumiyuki Nakanishi, a strategist at SMBC Friend Securities Co.

Fujifilm, the world’s biggest maker of film used in liquid- crystal-display panels, surged 6.8 percent to 3,060 yen, and camera maker Nikon jumped 6.7 percent to 1,678 yen. Mizuho lifted the stocks from “hold.”

Nikkei futures expiring in September advanced 1.5 percent to 9,970 in Osaka and increased 1.5 percent to 9,965 in Singapore.

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





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Monday, June 29, 2009

Bulgaria to Be Next EEU Nation to Get IMF Aid, Brezinschek Says

By Tasneem Brogger and Michael McKee

June 29 (Bloomberg) -- The Bulgarian government that emerges after July 5 elections will seek an international bailout to repay the country’s short-term debt, Raiffeisen Centrobank SA Chief Economist Peter Brezinschek predicted.

The ruling coalition of Socialist Prime Minister Sergei Stanishev may be defeated by GERB, a party set up by Sofia Mayor Boiko Borissov, who won European Parliament elections on June 7, polls show. Borissov said on June 18 his country needs to “immediately” sign a deal with the IMF.

“There are informal discussions with the IMF -- this is not official yet, they haven’t reached a conclusion,” Brezinschek said in a June 26 interview in New York. “After the elections, a new government will be in power and we’ll have an official announcement that Bulgaria will get assistance from the IMF in conjunction with the European Union.”

Bulgaria, like Latvia and Belarus, lacks sufficient reserves to cover debt coming due this year and may have to tap “official sources” for more capital, the World Bank said on June 22. The Balkan state, which joined the EU in 2007 and pegs the lev to the euro in a currency board, will have “the majority of the short-term refinancing needs met by the financial aid from the IMF,” Brezinschek said.

Gross foreign debt is equivalent to 107 percent of the economy and foreign reserves slumped 16 percent in the second half of last year. The budget surplus fell 83 percent in the first four months to 352 million lev ($249 million) and may be wiped out by year-end.

New Government

The government and the central bank have rejected calls for an international bailout similar to those received by fellow EU states Hungary, Latvia and Romania and by Belarus, Serbia and Ukraine outside the bloc. Bulgarian officials maintain the currency peg is backed by central bank reserves of $16 billion.

GERB led in a June 24 opinion poll by Mbmd agency, with 24 percent, while the Socialists were second with 18.5 percent, and the Movement for Rights and Freedoms, a junior coalition partner that represents ethnic Turks, were third with 14 percent. The survey of 1,202 people was conducted between June 18 and June 22 and had a margin of error of 2.8 percentage points.

“The development for Bulgaria principally depends on the new government, how the new government will create an environment for foreign direct investors to invest,” Brezinschek said.

‘Diminishing’

The country’s investment inflows “are diminishing, and the risks to Bulgaria’s ability to access the external financing it needs to cover its external debts have risen,” the Economist Intelligence Unit said in a June 26 report.

Foreign direct investment shrank to 955 million euros from 1.92 billion euros in the same period a year ago, the central bank said on June 17.

Most of Bulgaria’s FDI is channeled toward industries that support domestic demand such as banking, real-estate and utilities. The country must divert FDI flows into more industries that support exports to achieve more a sustainable expansion, Brezinschek said.

“If they can manage that, and maintain the currency board until this change in the industrial structure takes place, I would feel confident,” he said. “Otherwise they have to give it up because it’s too confident.”

Croatia Bailout

Croatia will also “definitely” need an IMF bailout, Brezinschek said, adding there are “some indications there have been contacts” between the government and the IMF.

“We have packages for Hungary and Romania of about $25 billion,” he said. “I would say it’s half to two-thirds of that amount that would be sufficient to stabilize them. It’s a question also of how long the aid will be provided. If it’s just two years, like Hungary, then it’s not more than $15 billion to $20 billion.”

Bulgaria’s economy shrank an annual 3.5 percent in the first quarter, the first contraction in 11 years. Croatia’s gross domestic product may drop as much as 4 percent this year as consumption and investments decline, central bank Governor Zeljko Rohatinski said in May.

East European nations have received more than $90 billion in international aid since September to avoid defaults.

To contact the reporter on this story: Tasneem Brogger in London at tbrogger@bloomberg.net;





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