U.S. Treasury Opens Distressed-Debt Program Without Pimco

By Sree Vidya Bhaktavatsalam

July 9 (Bloomberg) -- The U.S. plan to help buy as much as $40 billion in assets from banks got started almost four months after it was proposed and without Pacific Investment Management Co., the world’s biggest bond manager and an early supporter.

The U.S. Treasury Department picked nine money managers yesterday for the Public-Private Investment Program, or PPIP, including BlackRock Inc. and Invesco Ltd. Pimco, which in March announced plans to apply, said it withdrew its application in June because of “uncertainties” about the plan’s design.

The government’s plan is a scaled-down version of a program that was once envisioned to buy as much as $1 trillion in devalued real-estate loans and mortgage-backed assets. Pimco’s reversal raises questions about the complexity and potential returns from the program, said Eric Petroff, director of research at Wurts & Associates, a Seattle-based consultant to institutional investors.

“My initial concern is that institutional investors will be a lot more cautious signing up,” Petroff said. “The mosaic is more complicated and the expected returns are less clear” than those from other government programs such as the Term Asset-Backed Securities Loan Facility, he said.

Treasury Secretary Timothy Geithner in March promoted PPIP as a way to help speed recovery of the financial markets by removing distressed debt from bank balance sheets and spurring purchases of mortgage-linked securities. At the time, Bill Gross, Pimco’s co-chief investment officer, described the program in an interview as “win-win-win.”

Pimco’s Plans

Mark Porterfield, a spokesman for Pimco, the Newport Beach, California-based unit of insurer Allianz SE of Munich, declined to comment on specific reasons that prompted the firm to withdraw. He said in an e-mail that Pimco plans to continue taking part in other financial-rescue efforts, such as TALF, designed to restart the market for consumer loans.

The 19 largest U.S. banks have raised more than $100 billion since March by selling equity, debt and assets, and some have repaid government rescue funds, easing concerns that they couldn’t handle a severe recession. The Federal Reserve has trimmed its emergency programs as the financial crisis has lessened.

“The program is a mere shadow of the original thought,” Geoff Bobroff, an independent fund consultant in East Greenwich, Rhode Island, said in an interview.

The government will invest as much as $30 billion and the nine participants may raise $10 billion or more.

Rival Managers

Pimco’s withdrawal opens the field to competitors such as New York-based BlackRock, which said it plans to raise $4 billion to $5 billion from investors. The company is eligible for as much as $1.1 billion in government funds, according to Bobbie Collins, a BlackRock spokeswoman.

The Treasury requires companies to raise at least $500 million from private investors within 12 weeks to participate.

Pimco was interested in two parts of PPIP, one buying whole loans and the other managing funds that purchase mortgage-backed securities, Gross said in March. The Treasury delayed the portion of the program targeting whole mortgages last month.

The program will start out targeting commercial mortgage- backed securities and non-agency mortgage-backed securities issued before 2009, with an initial rating of AAA or its equivalent, the Treasury said.

Pimco manages $756 billion in assets, including the largest bond fund, Pimco Total Return. The company was selected to manage other programs for the government, including one to purchase mortgage-backed securities.

To contact the reporters on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net.

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Bank of Korea Keeps Rate at 2% Amid Signs of Recovery

By Seyoon Kim

July 9 (Bloomberg) -- The Bank of Korea left its interest rate unchanged at a record low for a fifth month today, saying it will keep an accommodative policy as the economy recovers from the global recession.

“South Korea’s economy and the global economies may improve next year, but it seems that it’ll be hard for global trade to recover in a short time,” Governor Lee Seong Tae told reporters in Seoul after he held the seven-day repurchase rate at 2 percent.

The central bank follows counterparts in Australia and Europe, which both kept borrowing costs at historic lows in the past week to support their economies. The International Monetary Fund and Goldman Sachs Group Inc. this week upgraded forecasts for the South Korea’s gross domestic product in 2009, citing stimulus from rate cuts and government spending.

“Governor Lee has made it clear that the central bank will leave rates unchanged at least through the end of the year,” said Oh Suktae, an economist at Citigroup Inc. in Seoul. “The bank may raise rates early next year when there are more visible signs of a solid recovery.”

Today’s decision was expected by all 15 economists surveyed by Bloomberg News.

Leaders from the Group of Eight nations said yesterday the global economic pickup from the steepest recession since World War II was too fragile for them to consider reversing efforts to pump money into the economy. The group includes the U.S., Germany and Russia.

Shares Gain

South Korea’s Kospi stock index rose 0.4 percent to 1,437.03 at 1:57 p.m. in Seoul today. The index climbed 15 percent in the three months ended June 30, the most since the second quarter of 2007. The won fell 0.1 percent to 1,277.57 against the dollar.

Policy makers “will maintain an accommodative policy stance for the time being,” the Bank of Korea said in a statement today. Governor Lee said the board needs to take a “cautious stance” on interest-rate decisions because growth may be weak in the second half.

The bank reduced the benchmark rate by 3.25 percentage points between October and February, the most aggressive easing since it began setting a policy rate a decade ago.

South Korea joined India, China and Australia as one of the few major economies to grow in the first quarter, with GDP expanding 0.1 percent from the previous three months. Consumer confidence jumped to the highest in almost two years in June.

Export Recovery

Exports, which are equivalent to 50 percent of GDP, gained 17 percent in June from May to an eight-month high. The won has fallen 27 percent versus the dollar since the start of last year, boosting overseas earnings for exporters.

Samsung Electronics Co., the world’s second-largest chipmaker, said this week that second-quarter operating profit probably jumped more than fivefold from the previous quarter.

South Korea’s “rapid and comprehensive fiscal, monetary and financial policy response helped limit the depth of the downturn,” the IMF said on July 7. “With little inflationary pressures, the current stance would need to be maintained until a self-sustained recovery is clearly established.”

Economists are debating when the central bank will begin to unwind its interest-rate cuts.

Kwon Young Sun, an economist at Nomura Holdings Inc., said last week he expects the bank to raise borrowing costs in November, because keeping rates low for too long could fan excessive borrowing and stoke an asset-price bubble.

Governor Lee said today the bank is monitoring a “big” increase in mortgage lending and a pickup in real estate prices.

Bank lending to households expanded in June by the most in more than two years on increased demand for mortgages.

The financial regulator said this week it will tighten loan regulations for people purchasing homes in the capital Seoul and surrounding areas to stem a surge in borrowing.

“The economy is recovering faster than we expected thanks to a good mix of strong fiscal stimulus, a weak Korean won and monetary easing,” said Kwon Goohoon, an economist at Goldman Sachs in Seoul. A rate rise may come “as early as in the first quarter of 2010, but the tightening cycle will likely be slow.”

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net

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Australian Employers Cut 21,400 Jobs as Exports Slow

By Jacob Greber

July 9 (Bloomberg) -- Australian employment fell in June, pushing the jobless rate to the highest in almost six years, as the global recession reduced demand for iron ore and coal exports and prompted mining companies to fire workers.

The number of people employed dropped 21,400 from May, the statistics bureau said in Sydney today. The median estimate of 21 economists surveyed by Bloomberg was for a decline of 20,000. The jobless rate rose to 5.8 percent from 5.7 percent.

Central bank Governor Glenn Stevens left borrowing costs at a half-century low of 3 percent this week for a third month to help stem firings at companies including BHP Billiton Ltd. Advertisements for job vacancies tumbled in June for a 14th month, a sign unemployment may rise in coming months.

“Full-time employment continues to fall so there is weakness there,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. Still, the “rate of deterioration hasn’t increased as most people thought.”

The number of full-time jobs dropped 21,900 in June and part-time employment increased 400, today’s report showed.

The Australian dollar traded at 78.11 U.S. cents at 12:28 p.m. in Sydney from 78.04 cents before the report was released. The currency has jumped 8.5 percent in the past three months, making it the second-best performer against the U.S. dollar among the currencies of the major industrialized nations.

Consumer Confidence

Australia’s economy has so far skirted the worst global recession since the Great Depression. Gross domestic product rose 0.4 percent in the first quarter, making it one of the few major economies including China and India to expand.

Consumer confidence jumped to the highest level since December 2007 and home-loan approvals rose for an eighth month, reports showed yesterday.

“Leading indicators suggest we should be losing around 30,000 to 40,000 jobs per month, so the Reserve Bank would be happy with the recent performance of the labor market where trend losses are just 5,000 per month,” said Spiros Papadopoulos, an economist at National Australia Bank Ltd. in Melbourne.

To help boost employment and cushion the economy against slower global demand for natural resources, central bank policy makers slashed the overnight cash rate target by a record 4.25 percentage points to 3 percent between September and April.

Cash Handouts

Prime Minister Kevin Rudd’s government has also distributed A$12 billion ($9.4 billion) in cash handouts to households this year and is spending A$22 billion to upgrade roads, railways, hospitals and ports.

BHP Billiton, the world’s biggest mining company, is shedding 3,400 workers in Australia after shuttering a nickel mine in January and reducing coking coal output. Qantas Airways, the nation’s largest carrier, said in April that it will cut 1,750 jobs as demand for business and first-class travel wanes.

ANZ Bank said today it will scrap 248 jobs as it closes mortgage administration offices in cities including Sydney, Brisbane and Perth. The bank is Australia’s fourth largest.

“Weaker demand for labor is leading to lower growth in labor costs,” Reserve Bank Governor Glenn Stevens said on July 7. That gives policy makers “some scope for further easing of monetary policy, if needed,” he added.

Reports this month showed the construction industry shrank in June at a faster pace, exports slumped 5 percent in May from April and home-building approvals tumbled 12.5 percent, the biggest drop since November 2002.

Job Advertisements

Jobs advertisements dropped 6.7 percent last month from May and 51.4 percent from a year earlier, the largest annual decline since ANZ Bank began recording the figures in 1998.

Still, other reports suggest Australia’s economy will continue expanding this year. An index of consumer sentiment published yesterday by Westpac Banking Corp. climbed 23.2 percent in June and July, the largest two-month gain since the survey began in 1975.

The International Monetary Fund said the global economic rebound next year will be stronger than it forecast in April as the financial system stabilizes and the pace of contractions from the U.S. to Japan moderates.

The Washington-based lender said in a revised forecast released yesterday that the world economy will expand 2.5 percent in 2010, compared with its April projection of 1.9 percent growth.

Woolworths, Australia’s biggest retailer, has said it expects to add 7,000 workers and reaffirmed its forecast for an increase in annual profit of as much as 12 percent.

Rate Outlook

David Jones Ltd., Australia’s second-biggest department store chain, said last week that earnings after tax will rise by between 20 percent and 30 percent in the six months ending July 25. “The stimulus package has been good for confidence,” Chief Executive Officer Mark McInnes told reporters on June 30.

Investors expect Australia’s overnight cash rate target will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading. Traders forecast the key interest rate will be 44 basis points higher in a year, the index showed at 12:22 p.m. in Sydney from 46 basis points just before the report was released and 48 basis points late yesterday.

The participation rate, which measures the labor force as a percentage of the population aged over 15, fell to 65.3 percent in June from a revised 65.4 percent, today’s report showed.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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G-8 Says Recovery Is Too Weak to Withdraw Stimulus

By Helene Fouquet and James G. Neuger

July 9 (Bloomberg) -- Group of Eight leaders said the economic recovery from the steepest recession since World War II was too fragile for them to consider reversing efforts to pump money into the economy.

President Barack Obama pressed for the door to remain open to more stimulus measures as a renewed stock-market drop stirred concern that $2 trillion spent worldwide so far hasn’t jolted consumers and businesses back to life.

“The G-8 needed to sound a second wakeup call for the world economy,” British Prime Minister Gordon Brown told reporters yesterday in L’Aquila, Italy, after the opening sessions of the leaders’ annual gathering. “There are warning signals about the world economy that we cannot ignore.”

Divergences over what to do next and calls from developing nations to do more to counter the slump underscored the G-8’s limited room for maneuver. The biggest borrowing spree in 60 years has failed to halt rising unemployment and left investors doubting the strength of the recovery. The MSCI World Index of stocks slid for a fifth day. The 23-nation index has dropped 8 percent since a three-month rally ended on June 2.

“We’ve been advocating stimulate now, consolidate later,” Angel Gurria, secretary general of the Organization for Economic Cooperation and Development, told Bloomberg Television today from the summit. “You’re not going to remove the stimulus now. It’s too early.”

IMF Forecasts

The International Monetary Fund echoed that skepticism, upgrading its 2010 growth forecast while saying the rebound will be “sluggish” and urging governments to stay the economic- stimulus course.

Emerging countries like China will lead the way, expanding 4.7 percent next year, the IMF said yesterday, up from an April prediction of 4 percent. The Washington-based lender forecast growth of 0.6 percent in the advanced economies, up from expectations of stagnation.

“It’s a very volatile situation,” European Commission President Jose Barroso said in a Bloomberg Television interview in L’Aquila. “We are not yet out of the crisis, but it seems now that the free fall is over.”

In the U.S., a jump in the jobless rate to a 26-year-high of 9.5 percent in June and a 6.9 percent drop in the Standard & Poor’s 500 Index in the past month raised questions whether Obama’s $787 billion stimulus package is turning the world’s largest economy around.

Democrats in Congress are split over whether to spend more, adding to a deficit that the IMF puts at 13.6 percent of gross domestic product in 2009, the highest since World War II.

‘Potentially Counterproductive’

Obama has straddled the issue, telling ABC News this week that spending more borrowed money is “potentially counterproductive.”

A G-8 statement yesterday embraced options ranging from the second U.S. stimulus package some lawmakers and economists are advocating to Germany’s emphasis on shifting the focus to deficit reduction.

“Exit strategies will vary from country to country depending on domestic economic conditions and public finances,” leaders of the eight economies -- the U.S., Japan, Germany, Britain, France, Italy, Canada and Russia -- said in the statement.

“There is still uncertainty and risk in the system,” Mike Froman, deputy U.S. national security adviser, told reporters in L’Aquila. While exit strategies can be drawn up, it’s not “time to put them into place.”

Bank bailouts and recession-fighting measures will explode the debt of the advanced economies to at least 114 percent of gross domestic product in 2014, the IMF forecasts.

‘Exit Strategy’

German Chancellor Angela Merkel is the leading opponent of additional stimulus, pushing through a statement at last month’s European Union summit that called for “a reliable and credible exit strategy.”

Merkel, campaigning for re-election in September, has warned against billowing budget deficits, which will rise in the EU to an average of 6 percent of GDP in 2009 from 2.3 percent last year, the EU forecasts.

“We have to get back on course with a sustainable budget, but with the emphasis on when the crisis is over,” Merkel said.

The 16-nation euro economy has shown some signs of resilience since shrinking 2.5 percent in the first quarter, the most since the currency’s birth in 1999. While measures of business confidence, manufacturing and services have ticked up, job cuts by companies from Austrian Airlines AG to ThyssenKrupp AG pushed up unemployment to 9.5 percent in May, a 10-year high.

Asian Resilience

Further signs of a resilience also emerged in the Asia- Pacific region, where governments including China and Australia have boosted spending to increase economic growth. Australia’s jobless rate rose in June by less than forecast, climbing to 5.8 percent from 5.7 percent, a report showed today. Analysts tipped a 5.9 percent rate.

In China, new loans rose almost fivefold in June from a year earlier to 1.53 trillion yuan ($224 billion), the central bank said on its Web site yesterday. China’s passenger-vehicle sales rose 48 percent in June, the biggest jump since February 2006.

Canadian Prime Minister Stephen Harper occupied the middle ground, saying the first priority is to spend wisely what has already been committed.

“Before there’s talk of additional stimulus, I would urge all leaders to focus first on making sure that the stimulus that’s been announced actually gets delivered,” Harper said.

Russia, a G-8 member generally classified as an “emerging” economy, also believes that exit strategies “have to be developed already now,” said Andrei Bokarev, a Russian official.

To contact the reporters on this story: Helene Fouquet in L’Aquila, Italy at hfouquet1@bloomberg.net; James G. Neuger in Rome at jneuger@bloomberg.net

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China Coal Cargo Rejection May Not Signal Market Turn, RBC Says

By Ben Sharples

July 9 (Bloomberg) -- The reported cancellation by a Chinese buyer of an Australian coal cargo during shipment may not signal a slump in demand from power-plant operators in the Asian nation, RBC Capital Markets said.

An Australian cargo is being offered after a Chinese customer pulled out of a sale, Reuters reported yesterday, citing unnamed traders. The product appears to be coking coal used by steelmakers that has been marketed as thermal coal, RBC said today.

Chinese buying has almost single-handedly sustained the international coal trade and prices, RBC analyst David Haddad wrote in a note to clients. Early figures for June suggest Australian exports to China will be another record, he said.

“There is not enough evidence to suggest that Australia’s record coal trade with China is over and the market in general remains bullish on this trade,” Sydney-based Haddad said.

Weaker global steel demand has let to “dumping and rebadging” of coking coal as power-station fuel, mainly by suppliers based in Queensland state, Haddad said.

Power-station coal prices in Asia may increase in 2010 because of higher demand from China, the second-largest energy- consuming nation, and supply constraints, UBS AG said July 6. China burns coal to generate about 80 percent of its electricity.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net.

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Soybeans, Corn, Wheat Futures Advance Ahead of USDA Report

By Luzi Ann Javier

July 9 (Bloomberg) -- Soybean and corn futures rose, set for the first gain in five sessions, and wheat futures gained, on speculation the U.S. may lower its estimate of global supply of the crops.

The U.S. Department of Agriculture is scheduled tomorrow to release its latest estimates on global supply and demand for crops including soybeans, wheat and corn. The new estimate may reflect the lower production forecast in Brazil, the world’s second-largest exporter of soybeans and corn, and Argentina.

“We’re likely to see the markets factoring in their projections of what the USDA might say,” Luke Mathews, a commodity strategist at Commonwealth Bank of Australia in Sydney, said by phone today.

Soybeans for November delivery, after the U.S. harvest, rallied as much as 1.8 percent to $9.0775 a bushel in after- hours electronic trading. The most-active contract was at $9.0525 a bushel at 10:19 a.m. Singapore time.

Corn for December delivery added 0.5 percent to $3.36 a bushel after earlier gaining as much as 1.4 percent to $3.3875.

Wheat for September delivery rose for a second day, gaining as much as 1.1 percent to $5.23 a bushel, before trading at $5.22 a bushel.

The USDA on June 10 lowered its 2010 global soybean inventory forecast to 51.02 million tons, from 51.88 million tons in May, on lower carry-over stocks from this year, because of increased purchases from China. It also lowered its forecast for corn inventories to 125.46 million tons, from 128.19 million tons a month earlier, as it reduced its production estimate.

The latest USDA estimate was released before Brazil cut its production forecasts for corn and soybeans, and the Buenos Aires Cereals Exchange said Argentina’s wheat output may drop in 2009- 2010 to 6 million tons, equal to the amount consumed by local millers, raising concern it may withdraw from world markets.

Brazil’s Agriculture Ministry crop-forecasting agency said July 7 it lowered its soybean forecast for the year to 57.13 million tons, from 57.14 million tons in June. It also reduced the corn output estimate to 49.45 million tons, from 49.88 million tons in June.

To contact the reporter on this story: Luzi Ann Javier in Singapore at javier@bloomberg.net

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More News • Gold Advances From Two-Month Low in Asia As Weaker Dollar Spurs Rebound • Oil Rebounds From Seven-Week Low as Longest Drop This Year D

By Claire Leow

July 9 (Bloomberg) -- Palm oil futures gained for the first time in four days on speculation that an 8 percent drop in the previous three days was excessive and may lure buyers.

The futures slipped below 2,000 ringgit ($559) yesterday for the first time since March 31 on concern a seasonal increase in production in the second half would swell stockpiles and after soybeans, crushed to produce a rival edible oil, dropped to the lowest in more than three months.

“While we are of the view that prices are not likely to turn around in a significant manner from current levels over the next few months, we believe that the 2,000 ringgit a ton mark is a good fundamental support level,” a report by RHB Research Institute Sdn. analyst Hoe Lee Leng said today.

Palm oil for September delivery on the Malaysia Derivatives Exchange gained as much as 1.8 percent to 2,037 ringgit a metric ton after earlier touching 2,000 ringgit. The contract paused at 2,022 ringgit at the 12:30 p.m. break in trading.

Prices won’t “fall substantially below” 2,000 ringgit in the short term, the RHB Research report said.

Palm oil for January delivery in Dalian rose for the first time in six days, advancing 0.4 percent to 5,566 yuan ($815) a ton at the 11:30 a.m. trading break. China is the biggest consumer of edible oils and the largest importer of palm oil.

Oil crushed from soybeans competes with palm oil as the two are used in applications including cooking and biofuel. Soybean oil is trading at a premium of about 30 percent to palm oil, according to Bloomberg data.

Soybeans Gain

Soybeans for November delivery on the Chicago Board of Trade rose as much as 1.8 percent to $9.0775 a bushel. Soybean oil for December delivery rallied as much as 2 percent to 33.56 cents a pound in Asian trading and was at 33.25 cents at 12:57 p.m. Singapore time.

Indonesia and Malaysia, which account for about 90 percent of palm oil production, have forecast record output this year. More than half the annual output in the countries is usually produced in the second half.

Stockpiles in Malaysia gained for the first time in six months in May as production climbed 8.5 percent, the biggest month-on-month increase in a year, the Malaysian Palm Oil Board said on June 10. It will announce June data tomorrow.

To contact the reporters for this story: Claire Leow in Singapore at cleow@bloomberg.net

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Rubber Drops for Sixth Time in Seven Days Amid Demand Concern

By Rattaphol Onsanit

July 9 (Bloomberg) -- Rubber dropped for a sixth time in seven days in Tokyo on concern demand from China may not be enough to counter falling consumption elsewhere.

The commodity, used to produce tires, lost as much as 2 percent today as shares of Japanese car makers slid on speculation a strengthening yen will crimp sales. China’s passenger-vehicle sales rose 48 percent in June, the biggest jump since February 2006.

“Investors are looking at how Japan is doing economically,” Navarat Kaewpratarn, marketing official at Future Agri Trade Co. said by phone from Bangkok. “That sometimes has a greater weight than positive news about demand from China.”

Natural rubber for December delivery lost 0.3 percent to 156.7 yen a kilogram ($1,681 a metric ton) on the Tokyo Commodity Exchange at 12:45 p.m. local time.

Prices slumped as much as 4.7 percent yesterday on concern that demand for the raw material may falter amid a global recession.

Honda Motor Co., which makes 51 percent of its revenue in North America, dropped 2.3 percent after the yen rose to a four- month high against the dollar. Japan’s Nikkei 225 Stock Average fell as much as 1.2 percent today.

Rubber for November delivery on the Shanghai Futures Exchange, the most-active contract, added 0.8 percent to 15,355 yuan ($2,247) a ton at the 11:30 a.m. local time break.

China’s passenger-vehicle sales advanced in June as tax cuts and government subsidies helped the nation extend its lead over the U.S. as the world’s largest auto market this year.

Chinese motorists bought 872,900 cars, sport-utility vehicles and other passenger vehicles last month, the China Association of Automobile Manufacturers said in a statement today. In the first half, vehicle sales surpassed the tally in the U.S. by about 27 percent.

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

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Oil Rebounds From Seven-Week Low as Slump Is Viewed as Overdone

By Ann Koh and Christian Schmollinger

July 9 (Bloomberg) -- Crude oil rebounded from a seven-week low as traders took the view that the decline in prices during the longest losing streak this year was overdone.

Oil snapped a six-day slump as traders bought contracts based on technical indicators. Crude has fallen below $62.55 a barrel yesterday, the lower resistance level of the Bollinger Band, indicating it was oversold.

“In the short term, $60 may be the intraday support level, but in the longer term we have to go back to fundamentals, which are weak,” said Clarence Chu, an options trader at Hudson Capital Energy in Singapore.

Crude oil for August delivery gained as much as 85 cents, or 1.4 percent, to $60.99 a barrel on the New York Mercantile Exchange, and traded at $60.81 at 3:30 p.m. Singapore time. Futures touched $60.01 yesterday before closing down 4.4 percent at $60.14, the lowest settlement since May 19. Crude has fallen 15 percent since June 29.

Oil “got very close to $60 and probably attracted a bit of buying support around that level,” said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney.

Crude also gained as the Washington-based International Monetary Fund said in a revised forecast yesterday that the world economy will expand 2.5 percent in 2010, compared with its April projection of 1.9 percent growth. A contraction this year will be 1.4 percent, worse than an April forecast for a 1.3 percent drop, the IMF said.

China’s passenger-vehicle sales rose 48 percent in June, the biggest jump since February 2006, as government stimulus spending spurred a revival in the world’s third-largest economy.

Gasoline Supplies

U.S. oil inventories dropped 2.9 million barrels to 347.3 million last week, the lowest since January, an Energy Department report showed yesterday. Refineries operated at 86.8 percent of capacity, down 0.2 percentage point from the previous week, the department said.

Gasoline stockpiles climbed 1.9 million barrels to 213.1 million in the week ended July 3, more than twice the increase forecast in a Bloomberg News survey, the Energy Department said. Motor fuel inventories were forecast to increase 900,000 barrels last week, according to the median of 16 responses in a Bloomberg News survey.

Gasoline for August delivery rose as much as 2.47 cents, or 1.5 percent, to $1.6580 a gallon in New York. Yesterday, it declined 5.7 percent to settle at $1.6333, the lowest settlement since May 6 and the biggest one-day drop since March 30.

Inventories of distillate fuel, a category that includes heating oil and diesel, rose to the highest since 1985 as consumption dropped to a 10-year low.

Distillate Overhang

Distillate fuel inventories rose 3.74 million barrels to 158.7 million, the biggest gain since January, the report showed. The increase left supplies last week 30 percent higher than the five-year average for the period. Supplies were estimated to rise 1.83 million barrels.

“We may see further price drops, especially for distillates as we have an acute overhang in the U.S. and Europe,” Antoine Halff, head of energy research at Newedge USA LLC in New York, said in an interview with Bloomberg Television.

Total U.S. daily fuel demand averaged 18.4 million barrels in the past four weeks, down 5.9 percent from a year earlier, the report showed. Distillate consumption fell 12 percent to 3.27 million over the period, the lowest since July 1999.

Brent crude for August settlement rose as much as 94 cents, 1.6 percent, to $61.37 a barrel on London’s ICE Futures Europe exchange and was at $61 at 3:06. p.m. in Singapore. Yesterday, it declined $2.80, or 4.4 percent, to $60.43, the lowest settlement since May 25.

Brent is trading at a 32 cent premium to crude oil offered in New York. The West Texas Intermediate contract traded on Nymex is typically priced higher than its European counterpart.

To contact the reporters on this story: Ann Koh in Singapore at akoh15@bloomberg.net; Christian Schmollinger in Singapore at Christian.s@bloomberg.net

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Gold Climbs From Two-Month Low in Asia as Commodities Rebound

By Glenys Sim

July 9 (Bloomberg) -- Gold advanced from a two-month low in Asia as commodities rebounded and the dollar fell against the euro, boosting demand for the metal as a hedge against rising consumer prices.

Bullion, which dropped to $905.10 an ounce yesterday, the lowest since May 6, climbed on inflation expectations as the U.S. government considers more stimulus measures to revive the world’s largest economy. The dollar fell for the first time in six days against a basket of six currencies.

“Those who believe that the printing presses of the governments are going to eventually lead to an out of control inflationary spiral are going to want to accumulate gold, silver and to some extent platinum,” Philip Gotthelf, president of Equidex Brokerage Group in Closter, New Jersey, said in a Bloomberg Television interview.

Gold for immediate delivery rose as much as 0.5 percent to $913.60 an ounce, and traded at $913.08 at 2:21 p.m. in Singapore. Gold for August delivery on the Comex division of the New York Mercantile Exchange was up 0.4 percent at $913.

The U.S. should consider drafting a second stimulus package focusing on infrastructure projects because the $787 billion approved in February was “a bit too small,” Laura Tyson, an outside adviser to President Barack Obama, said July 7.

Crude oil yesterday led a drop in commodities, on speculation a faltering global economy will damp demand for raw materials from copper to gasoline. The contract for August delivery gained as much as 1.2 percent to $60.87 a barrel today.

The dollar index fell 0.4 percent to 80.411 by 2:22 p.m. in Singapore, aiding the rebound in commodities. A weaker U.S. currency helps boost demand for raw materials priced in dollars.

Among other precious metals for immediate delivery, silver gained 0.3 percent to $12.925 an ounce, platinum rose 0.7 percent to $1,109.50 an ounce and palladium added 0.2 percent to $236.75 an ounce.

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

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Japanese Stocks Fall for Seventh Day on Yen, Earnings Concern

By Patrick Rial and Kotaro Tsunetomi

July 9 (Bloomberg) -- Japanese stocks slumped for a seventh day on the strong yen and concern the economic recovery will be delayed as companies report falling profits.

Honda Motor Co., which generates almost half its sales in North America, declined 2.7 percent. Electronics retailer Bic Camera Inc. fell 5.1 percent after posting a 57 percent drop in nine-month profit. Chuo Mitsui Trust Holdings Inc., the country’s sixth-largest bank, dropped 5.1 percent after the Nikkei newspaper said a government agency will order the lender to improve its business.

The Nikkei 225 Stock Average fell 129.69, or 1.4 percent, to 9,291.06 at the close of trading in Tokyo, extending its decline to 6.7 percent during the seven-day losing streak. The broader Topix index lost 1.7 percent to 873.91, the lowest close since May 18.

“The market is becoming cautious with regards to the outlook for earnings and the economy,” said Fujio Ando, a fund manager at Tokyo-based Chibagin Asset Management Co. “If this level of the yen continues, we could see some exporters be forced to cut their profit outlooks.”

Mitsui O.S.K. Lines Ltd. climbed after Nikko Citigroup Ltd. said China’s demand for high quality iron ore should push freight charges up.

In New York, the Standard & Poor’s 500 Index slipped 0.2 percent, led by telecommunications companies after a brokerage cut their profit estimates. Alcoa Inc., which kicked off second- quarter earnings announcements yesterday, gained 4 percent in after-hours trading after reporting a narrower loss than analysts expected.

Yamaha Motor

The Topix soared as much as 36 percent from a quarter- century low reached in March on rising confidence government stimulus steps would revive growth. Worse-than-expected U.S. unemployment data on July 2 prompted concern the recovery will be delayed and helped send the gauge lower for seven-straight days, its longest losing streak since July 2008.

“The economy isn’t going to embark on a sustainable recovery, so we shouldn’t expect stock prices to do so either,” said Kazuyuki Terao, a Tokyo-based manager at the Japanese unit of Allianz SE, which oversees $1.6 trillion.

Honda fell 2.7 percent to 2,325 yen. Ricoh Co., Japan’s second-largest office-equipment maker, declined 3.6 percent to 1,129 yen.

Yamaha Motor Co., the world’s second-largest motorcycle maker, dropped 1.3 percent after Nomura Holdings Inc. gave the stock a “reduce” recommendation. The company’s earnings from U.S. motorcycle and boat sales have suffered as a result of the recession, Nomura’s Shotaro Noguchi wrote in a report dated yesterday. Noguchi began coverage yesterday of the auto industry with a “neutral” stance.

Demand ‘Gloomy’

“While the demand outlook remains gloomy, we consider automakers capable of transforming Japan’s industrial landscape if that is the price of survival,” the analyst wrote, adding that foreign exchange movements “represent the greatest risk.”

The yen rose to as high as 91.81 against the dollar, a level not seen since February, amid concern U.S. earnings will show weakness. The currency later weakened to as low as 93.52, helping export-related shares to pare declines.

Bic Camera tumbled 5.1 percent to 36,100 yen after sluggish sales of air conditioners and personal computers caused earnings to fall for the nine months to May 31. Union Tool Co., a maker of drill bits used for piercing printed circuit boards, plunged 7 percent to 2,315 yen after swinging to a net loss in the first half of the year. Shiseido Co., Japan’s largest maker of cosmetics and toiletries, fell 2.7 percent after Nomura cut the stock to “neutral” on the view that domestic sales will likely remain weak.

Banks, Brokerages

Chuo Mitsui slumped 5.1 percent to 316 yen. Aozora Bank Ltd. dropped 4.6 percent, while Shinsei Bank Ltd. fell 3.6 percent. The Financial Services Agency will force the three banks to submit business improvement plans after they failed to hit profit targets for companies receiving public funds, the Nikkei reported.

Daiwa Securities Group Inc., Japan’s second-largest brokerage, slipped 2.4 percent to 519 yen after the company said it will raise about 40 billion yen less in a new share sale than originally targeted.

Mitsui O.S.K., the world’s largest operator of iron-ore vessels, rose 0.5 percent to 558 yen. Naoko Matsumoto, an analyst at Nikko Citigroup, lifted her recommendation on the company to “buy.” The decline in quality of China’s domestically produced iron ore should lead to more imports from countries such as Brazil, boosting cargo rates, the analyst wrote.

“Equities are now at the level where the probability of further gains seems about even with the chance of losses, prompting some investors to lock in profits,” said Yuichi Chiguchi, who helps manage about $8.6 billion at Diam Co. in Tokyo. “From a very long-term perspective this is a good time to be a buyer.”

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Kotaro Tsunetomi in Tokyo at ktsunetomi@bloomberg.net.

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Air France, ArcelorMittal, EDF, Sperian: French Stocks Preview

By Laurence Frost

July 9 (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 fell 38.86, or 1.3 percent, to 3,009.71, the lowest since April 23. The gauge has slumped 11 percent from its high on June 1 amid speculation a three-month rally in equity prices has outpaced expectations for a recovery in the economy and earnings.

Air France-KLM Group (AF FP): Europe’s biggest carrier sees no sign of a recovery in traffic and may resort to temporary layoffs later in the year, Le Figaro said, citing Chief Executive Officer Pierre-Henri Gourgeon. The shares dropped 24.4 cents, or 2.8 percent, to 8.34 euros.

Air Liquide SA (AI FP): The world’s biggest maker of industrial gases purchased a 75 percent stake in Saudi Arabia- based Al Khafrah Industrial Gases. It didn’t give financial terms. The shares lost 61 cents, or 1 percent, to 62.54 euros.

ArcelorMittal (MT NA): The world’s biggest steelmaker said it’s in “advanced discussions” with lenders to change the leverage covenant for its main banking facilities for a year. The company said it doesn’t anticipate breaching the existing covenant. The shares dropped 1.07 euros, or 4.9 percent, to 21.01 euros.

Electricite de France SA (EDF FP): Europe’s biggest power producer may sell all or part of its RTE power-distribution network, La Tribune reported, citing an interview with Chief Executive Officer Pierre Gadonneix. The company also thinks it will receive the necessary approvals in the U.S. to buy 50 percent of Constellation Energy Group Inc.’s nuclear-power business “by the fall,” according to the newspaper. The shares gained 4.5 cents, or 0.2 percent, to 30.95 euros.

Kaufman & Broad SA (KOF FP): The real-estate developer swung to a loss of 27.5 million euros in the first half from a year-earlier profit of 11.7 million euros. The shares added 6 cents, or 0.5 percent, to 12.36 euros.

Maurel & Prom SA (MAU FP): The oil exploration company started buying back its 2010 exchangeable bonds for 22.80 euros each. The results of the buyback will be published on July 15. The shares fell 49 cents, or 4.4 percent, to 10.77 euros.

NRJ Group SA (NRG FP): The operator of French commercial radio station NRJ signed a licensing accord with Canadian broadcaster Astral Media Inc. The shares closed unchanged at 4.84 euros.

Sperian Protection SA (SPR FP): The company, which manufactures equipment designed to protect people in hazardous work environments, won a 25 million-euro order for respiratory masks from the French government. The shares declined 1.18 euros, or 3.2 percent, to 35.60 euros.

To contact the reporter on this story: Laurence Frost in Paris at lfrost4@bloomberg.net.

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Asian Stocks Fall for Seventh Day; Honda Motor, Wesfarmers Drop

By Jonathan Burgos

July 9 (Bloomberg) -- Asian stocks fell for a seventh day, the longest losing streak since December 2007, as a stronger yen threatened the value of Japanese exports and Australian unemployment rose.

Honda Motor Co., which makes 51 percent of its revenue in North America, dropped 2.9 percent as the yen rose to a four- month high against the dollar. Wesfarmers Ltd., Australia’s second-largest retailer, sank 3 percent as the statistics bureau said the jobless rate climbed to the highest in almost six years. Hang Lung Properties Ltd., a developer with investments in China, slid 3.6 percent in Hong Kong on speculation the Chinese central bank will curb lending, damping demand for real estate.

The MSCI Asia Pacific Index lost 0.4 percent to 100.14 as of 3:10 p.m. in Tokyo, taking its seven-day decline to 3 percent. The gauge had climbed as much as 49 percent from a more than five-year low on March 9 on optimism government stimulus measures will revive global growth.

“Markets need to come off some more before people start buying,” said John Koh, who helps manage $1.1 billion at MEAG Hong Kong Ltd. “There is no real reason to come back in. Investors are waiting for earnings to show a recovery is on track.”

Japan’s Nikkei 225 Stock Average declined 1.4 percent, while Hong Kong’s Hang Seng Index lost 0.6 percent. Taiwan’s Taiex Index climbed 1.2 percent.

Taiwan Semiconductor Manufacturing Co. Ltd. climbed 2 percent after Bank of America Corp.’s Merrill Lynch unit recommended investors buy the stock. Chunghwa Picture Tubes Ltd. surged 6.8 percent as the Economic Daily News reported a partner will invest in company. Manila Electric Co. jumped 4.1 percent while CSR Ltd., Australia’s second-largest maker of building products, advanced 5.3 percent on forecasts of higher earnings.

Government Stimulus

Futures on the Standard & Poor’s 500 Index added 0.4 percent after Alcoa Inc., which kicked off second-quarter earnings announcements in the U.S. yesterday, posted a narrower loss than analysts expected. The S&P 500 fell 0.2 percent yesterday, led by telecommunications companies after Sanford C. Bernstein & Co. cut their profit estimates.

Optimism government stimulus measures will revive global growth has fueled the MSCI Asia Pacific Index’s rally since March. Group of Eight leaders said yesterday the economic recovery from the steepest recession since World War II was too fragile for them to consider reversing efforts to pump money into the economy.

The Bank of Korea left the benchmark interest rate unchanged at a record low for a fifth month today. The central bank follows counterparts in Australia and Europe, which both kept borrowing costs at historic lows in the past week to support their economies.

Stronger Yen

Japanese exporters declined as the yen rose to as high as 91.80 against the dollar, a level not seen since February, amid concern U.S. earnings will show weakness. The currency most recently changed hands at 92.98 per dollar, compared with 94.24 at the close of equity trading yesterday.

Honda dropped 2.9 percent to 2,320 yen. Toyota Motor Corp., the world’s largest automaker, fell 1.7 percent to 3,410 yen. Nissan Motor Co. Ltd., Japan’s No. 3 automaker, dropped 2.9 percent to 532 yen.

“If this level of the yen continues, we could see some exporters be forced to cut their profit outlooks,” said Fujio Ando, a fund manager at Tokyo-based Chibagin Asset Management Co. “The market is becoming cautious with regards to the outlook for earnings and the economy.”

Australian Unemployment

The number of Australians employed dropped 21,400 from May, the country’s statistics bureau said in Sydney today. The median estimate of 21 economists surveyed by Bloomberg was for a decline of 20,000. The jobless rate rose to 5.8 percent from 5.7 percent.

Wesfarmers, which runs businesses from mining to insurance, sank 3.2 percent to A$22.06. Australia & New Zealand Group Ltd. declined 2.6 percent to A$15.88.

In Hong Kong, Hang Lung fell 3.6 percent to HK$22.70. China Overseas Land & Investment Ltd., a developer controlled by the country’s construction ministry, dropped 3.5 percent to HK$16.18.

New loans in China rose almost fivefold in June, central bank figures showed yesterday. Chinese banks have extended 47 percent more loans this year than the central bank’s minimum target for 2009, after the government eased lending restrictions to counter an export collapse.

“The rise in new loans is much larger than expected,” said Francis Lun, general manager of Fulbright Securities Ltd. in Hong Kong. “People are worrying that the banks are taking too much risk now. The impact will be on banks and developers because their earnings will suffer.”

‘Apparently Improving’

Taiwan Semiconductor climbed 2 percent NT$55.5 after Merrill upgraded the stock to “buy” from “neutral.” United Microelectronics Corp., which Merrill raised to “buy” from “underperform,” was unchanged at NT$11.65 after earlier climbing 2.2 percent.

Prospects for demand in the second half of this year and for 2010 “are apparently improving,” analysts including Daniel Heyler wrote in a note dated today.

Chunghwa Picture Tubes surged 6.8 percent to NT$5.17. The company will have a strategic partner investing in the company in two months, the Economic Daily News reported, citing Chairman Lin Wei-shan. Chunghwa aims to swing to profit in the fourth quarter, the newspaper reported Lin said.

AU Optronics Corp., Taiwan’s biggest liquid-crystal display maker, climbed 5.4 percent to NT$36.15, while Chi Mei Optoelectronics Corp., Taiwan’s second-biggest liquid-crystal display maker, rose 5 percent to NT$19.05. The companies said they expect third-quarter revenue to rise from the previous three-month period on a global glass shortage.

Higher Profit?

Manila Electric jumped 4.1 percent to 176 pesos, a record high. Profit may rise to between 13 billion pesos ($270 million) and 15 billion pesos this year from 3.14 billion pesos in 2008 after the company received government approval in April to increase electricity tariffs for the first time in six years, Director Alan Ortiz said yesterday in a phone interview.

In Sydney, CSR advanced 5.3 percent to A$1.60. There is “a reasonable prospect” that earnings before interest and tax, before significant items, will be “slightly higher than last year,” in the year ending March 31, 2010, Managing Director Jerry Maycock said today in a presentation.

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

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Barratt, Hays, Premier Oil, Xstrata: U.K., Irish Equity Preview

By Charlie Duxbury and Adam Haigh

July 9 (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 fell 46.77, or 1.1 percent, to 4140.23. The FTSE All-Share Index dropped 1.2 percent and Ireland’s ISEQ Index rose 0.5 percent.

Associated British Foods Plc (ABF LN): The owner of the Primark discount fashion chain said sales from continuing operations rose 19 percent in the year to date. The shares slipped 3 pence, or 0.4 percent to 765 pence.

Barratt Developments Plc (BDEV LN): The biggest U.K. homebuilder said it has begun to start building on new developments following signs the housing market is stabilizing. The shares fell 5.5 pence, 3.4 percent, to 154.5.

Hays Plc (HAS LN): The U.K.’s largest recruitment agency said fourth-quarter net fees fell 40 percent on a like-for-like basis as the company faced “another tough quarter” with continued reductions in demand across all of the 28 countries in which it operates. Shares dropped 0.75 pence, or 0.9 percent, to 81 pence.

JJB Sports Plc (JJB LN): The sports retailer will seek shareholder support for a change in rules that permit conflicts of interest where they are in the company’s broader interests, the Financial Times reported, without saying where it got the information. The shares fell 2.75 pence, or 11 percent, to 21.75 pence.

Man Group Plc (EMG LN): The largest traded hedge fund manager said funds under management declined to $43.3 billion at the end of June from $46.8 billion at the end of March. The shares were down 6.75 pence, or 2.7 percent, to 239.25 pence.

Marks & Spencer Group Plc (MKS LN): The U.K.’s biggest clothing retailer and Home Retail Group Plc were raised to “buy” at Citigroup Inc., which cited a “rapid improvement in consumer cashflow prospects.” Marks & Spencer shares slid 2 pence, or 0.7 percent, to 306.25. Home Retail lost 1.75 pence, or 0.7 percent, to 260.

PartyGaming Plc (PRTY LN): The owner of the PartyPoker.com online-gambling brand said sales remained “robust” since April 6 and are “in line” with the first quarter of 2009. The shares fell 4.25 pence, or 1.7 percent, to 240.5 pence.

Premier Oil Plc (PMO LN): The U.K. explorer with projects in Europe, Asia and Africa said production rose to 39,700 barrels of oil equivalent a day in the first half of this year from 38,000 barrels a day in the year-earlier period. The company’s shares declined 27 pence, or 2.6 percent to 1,026 pence.

Redrow Plc (RDW LN): The U.K. homebuilder said its full- year results are set to be at the lower end of analysts’ estimates. The company said net debt at June 30 was 215 million pounds, below its 225 million-pound target. The shares fell 0.75 pence, or 0.4 percent, to 212.5 pence.

Xstrata Plc (XTA LN): The world’s biggest ferrochrome producer’s offer to combine with Anglo American Plc (AAL LN) may collapse as all of Anglo’s leading institutional shareholders are understood to have turned down the nil-premium merger of equals, the London-based Times reported, citing unnamed shareholders. Anglo’s shares fell 0.64 pence, or 3.9 percent, to 1,563.5 pence. Xstrata shares fell 22.9 pence, or 3.8 percent, to 587.1 pence.

To contact the reporters responsible for this story: Charlie Duxbury in London cduxbury@bloomberg.net; Adam Haigh in London at ahaigh1@bloomberg.net

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European, U.S. Stock Futures Rise; Asia Shares Fall for 7th Day

By Sarah Jones

July 9 (Bloomberg) -- European and U.S. stock futures climbed after Alcoa Inc. kicked off the second-quarter earnings season by reporting results that beat analysts’ estimates.

BHP Billiton Ltd. and Anglo American Plc may be active after Alcoa, the largest U.S. aluminum producer, posted a smaller-than-estimated loss. Daimler AG and PSA Peugeot Citroen may climb after Bank of America Corp. raised European automakers to “overweight” and data showed car sales in China surged the most in more than three years last month.

Futures on the Dow Jones Euro Stoxx 50 Index added 0.8 percent to 2,300 at 7:19 a.m. in London. The U.K.’s FTSE 100 Index may open 15 points higher, according to CMC Markets, before the Bank of England announces its decision on interest rates today.

Standard & Poor’s 500 Index futures climbed 0.6 percent, indicating the benchmark gauge for U.S. equities may rebound from its lowest level since May 1. The MSCI Asia Pacific Index slipped 0.4 percent today, falling for a seventh straight day for the first time since 2007.

Europe’s Stoxx 600, which yesterday fell for a fifth consecutive day, has retreated 7.8 percent since June 11 on speculation share prices have outpaced the outlook for the economy after a three-month rally pushed valuations to the highest level since 2004.

Second-Quarter Earnings

BHP, the world’s largest mining company, and Anglo American may be active. Alcoa’s results beat estimates after production cuts and workforce reductions helped the company save money. The aluminum producer posted a loss excluding certain items of 26 cents a share, narrower than analysts’ average estimate for a 38-cent loss.

Profits fell an average 34 percent at S&P 500 companies in the second quarter and will decrease 21 percent from July through September, according to analyst projections compiled by Bloomberg. Earnings slumped 33 percent during the first three months of 2009, and plunged 61 percent from October through December 2008.

Daimler and Peugeot may gain. Bank of America raised European automakers to “overweight” from “neutral” on optimism the economy will recover this year.

Separately, China’s passenger-vehicle sales surged 48 percent in June, as government stimulus spending spurred a revival in the world’s third-largest economy.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.

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Walmex Upgraded to ‘Overweight’ at Morgan Stanley

By Shiyin Chen

July 9 (Bloomberg) -- Wal-Mart de Mexico SAB, Latin America’s largest retailer, was upgraded at Morgan Stanley, which cited the company’s ability to control costs and the prospects for improving operating momentum.

Walmex, as the company is known, was raised to “overweight” from “equal-weight,” Morgan Stanley analysts led by Lore Serra wrote in a report today. The company’s American depositary shares may rise to $35 apiece by the middle of 2010, they added.

Walmex slipped 1.8 percent to $28 yesterday, trimming its gains this year to 3.7 percent. Second-quarter profit rose 16 percent to 3.8 billion pesos ($281 million) on higher sales related to the swine-flu outbreak.

“Second-quarter results, released last night, mark two consecutive quarters of strong expense control, a positive sign,” the analysts wrote. “Valuation seems reasonable relative to the retailer’s medium-term growth potential.”

Revenue climbed 11 percent to 64 billion pesos, the Mexico City-based company said in an e-mailed statement yesterday.

Walmex benefited in April and May as consumers stocked up on food and medical supplies amid “panic buying” following the swine-flu outbreak, which brought the country to a standstill, said Raquel Moscoso, an analyst at IXE Grupo Financiero SA in Mexico City.

The company was projected to post profit of 3.6 billion pesos, according to the median estimate of six analysts surveyed by Bloomberg.

Walmex said that sales at stores open at least one year dropped 0.1 percent in June, compared with the year-earlier period, dragged by a 2.2 percent decline in the value of the average purchase. The company’s banking unit posted a loss of 133 million pesos for the quarter.

Wal-Mart Stores Inc., the world’s biggest retailer, owns two-thirds of Walmex.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

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AIG Stock May Have Zero Value After U.S. Repaid, Citigroup Says

By Erik Holm and Hugh Son

July 9 (Bloomberg) -- American International Group Inc., the insurer bailed out four times by the government, will likely have no value left for private shareholders after repaying the U.S., Citigroup Inc. said.

“Our valuation includes a 70 percent chance that the equity at AIG is zero,” said Joshua Shanker, an analyst at Citigroup, in a note to investors late yesterday cutting his price target on the New York-based insurer by more than half.

Outgoing Chief Executive Officer Edward Liddy is under pressure from lawmakers to sell assets to help repay the $182.5 billion rescue package that was required to prop up the insurer after losses on credit-default swaps tied to U.S. home loans. The company said last week that other derivatives, backing about $193 billion in assets for European banks, could have a “material adverse effect” on AIG’s results.

“The company has not been forthcoming about the sequence of events that would result in a loss” on the European contracts, Shanker said. “Even a proportionally small loss could be significant.”

Liddy said last month at the firm’s annual meeting that the insurer has an “excellent chance” of repaying the government. Liddy’s remarks echo comments he made to Congress in May when he said the company can pay back a government credit line and $40 billion stock investment within five years. The insurer may need more time if markets worsen, he said then. Christina Pretto, a spokeswoman for AIG, had no comment yesterday.

Liddy has announced deals to raise about $6.7 billion in asset sales since the first rescue in September and said he may hold public offerings for stakes in AIG units after the company struggled to sell the businesses in their entirety. Liddy, appointed to run the company after AIG agreed to turn over a stake of almost 80 percent to the U.S., said in May he plans to step down once a successor is found.

Motivation ‘Compromised’

“The CEO’s motivation and ability to lead may be compromised by his preparations to transition the company’s top seat to another,” Shanker said.

AIG dropped 65 cents, or 4.7 percent, to $13.10 yesterday in New York Stock Exchange composite trading, and has declined 44 percent since the firm implemented a 1-for-20 reverse stock split after the close of trading June 30.

AIG split the stock after the company plunged more than 95 percent in the past two years, saying that a higher price may attract institutional investors who don’t typically buy shares trading for less than $5.

“We believe investors have come in on the short side in anticipation of future financial woes,” Shanker said, lowering his price target to $14 from $36. He said the company has a 20 percent chance of continuing to operate as a scaled-back commercial insurer, a 5 percent chance of restructuring its government agreement again, and a 5 percent chance of restructuring its capital position using divestitures.

Short Selling

Short selling is when hedge funds and other investors borrow shares and then sell them betting their price will fall. If it does, they buy the shares back at the cheaper price, return them to the lender of the shares and keep the difference.

AIG was cut to “sell” by Standard & Poor’s equity analyst Catherine Seifert yesterday on the prospect that more investors will bet against the shares. The split “may ease the mechanics of shorting AIG shares,” Seifert said. She previously rated the shares “hold.”

The government’s rescue includes a $60 billion credit line, $52.5 billion to buy mortgage-linked assets owned or insured by the company, and an investment of as much as $70 billion. AIG plans to reduce its debt under the credit line by $25 billion by handing over stakes in two non-U.S. life insurance units, the insurer said last month. AIG has tapped about $40 billion from the line.

To contact the reporters on this story: Erik Holm in New York at eholm2@bloomberg.net; Hugh Son in New York at hson1@bloomberg.net.

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Alcoa, Human Genome, Kennametal, Verigy: U.S. Equity Preview

By Lu Wang

July 9 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

Alcoa Inc. (AA US): The largest U.S. aluminum producer reported a second-quarter loss that was narrower than analysts estimated after production cuts and workforce reductions helped the company save money.

Data Domain Inc. (DDUP US): The maker of technology that conserves storage space agreed to a $2.1 billion acquisition by EMC Corp. (EMC US), backing out of a previous deal with NetApp Inc. (NTAP US).

Human Genome Sciences Inc. (HGSI US): The company’s experimental anthrax treatment, raxibacumab, increased survival in animals infected with the deadly disease, a U.S.-funded study said.

Kennametal Inc. (KMT US): The company, which supplies tools to the mining and energy industries, said it plans to sell 6.5 million shares, raising money to pay debt.

Verigy Ltd. (VRGY US): The maker of semiconductor-testing equipment said it plans to sell $110 million of convertible notes. Proceeds may be used to fund potential purchases.

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

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