Australian Consumer Prices Index Rises 0.5% on Health

By Jacob Greber

July 22 (Bloomberg) -- Australian consumer prices rose in the three months through June, stoking speculation the central bank has finished a record round of interest-rate cuts.

The consumer prices index gained 0.5 percent from the first quarter, when it advanced 0.1 percent, the Bureau of Statistics said in Sydney today. That matched the median estimate of 19 economists surveyed by Bloomberg. Annual core inflation was 4.2 percent, which is above the central bank’s target range of 2 percent to 3 percent.

Traders raised bets on the size of future interest-rate increases after today’s report showed costs rose for health care, household contents and clothing. Australia’s economy was one of few including China to expand in the first quarter, helped by Governor Glenn Stevens’ decision to slash borrowing costs to a 49-year low of 3 percent.

“It’s becoming increasingly difficult to make a case for further rate cuts,” said Stephen Walters, chief economist at JPMorgan Chase & Co. in Sydney. Policy makers will be “thinking ‘do we want policy at 3 percent when all these green shots are growing into trees?’. The answer is no,” he said.

Investors increased bets Australia’s overnight cash rate target will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading.

Currency Rises

Traders forecast the key rate will be 86 basis points higher in a year, the index showed at 12:30 p.m. in Sydney, compared with 82 basis points of gains before today’s report was released. At the start of June, they forecast 3 basis points of reductions. A basis point is 0.01 percentage point.

Australia’s currency rose to 81.56 U.S. cents at 12:35 p.m. in Sydney from 81.47 cents just before the report was released. The two-year government bond yield was unchanged at 4.13 percent.

Health costs rose 2.3 percent in the second quarter and prices of household contents and services advanced 2.2 percent, today’s report showed. By contrast, banking services charges fell 1.7 percent and food slipped 0.9 percent. The annual headline inflation rate slowed to 1.5 percent from 2.5 percent.

The Reserve Bank’s core inflation measures, which exclude the largest price increases and declines, were also published today. The weighted-median gauge of inflation advanced 0.8 percent in the quarter for an annual increase of 4.2 percent, the eighth quarter that the measure has held above the Reserve Bank’s target range.

Rate Cuts

“The very sticky core inflation measure means the Reserve Bank has been correct to remain on hold for the last couple of months,” said Annette Beacher, senior fixed-income strategist at TD Securities Ltd. in Singapore. “Moving aggressively last year has given them time to assess the data” this year.

Governor Stevens and his board left the overnight cash rate target at 3 percent on July 7 for a third month after cutting it by a record 4.25 percentage points between September and April.

The interest-rate cuts and A$22 billion ($18 billion) in government cash handouts to low and middle-income households are helping the economy rebound from the financial crisis, recent reports suggest.

Gross domestic product unexpectedly rose 0.4 percent in the first quarter from the previous three months, when it shrank 0.6 percent, unemployment has climbed less than forecast by the government, and business and consumer confidence have jumped.

Job Losses

“The early and substantial easing of both monetary and fiscal policy had been effective in supporting demand, which, if anything, had been more resilient than expected,” policy makers said in the minutes of their July 7 meeting released yesterday.

The jobless rate averaged less than 5.7 percent in the June quarter, below the 6 percent predicted by the Treasury department in May. Canberra-based Access Economics forecast yesterday that the unemployment rate will peak at 7.5 percent, a percentage point lower than the government’s prediction.

Still, central bank policy makers said yesterday they expect inflation to cool in coming months, increasing their scope to cut borrowing costs if needed to spur growth.

The Reserve Bank predicted in May that annual headline inflation will fall to within or below its target range of between 2 percent and 3 percent this year, after holding above 3 percent in 2008. The bank is due to revise its forecasts on Aug. 7.

“The current inflation outlook afforded scope for some further easing of monetary policy, if that were needed to give further support to demand at a later stage,” yesterday’s minutes said.

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

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Bernanke Gets Top Marks as Investors Say Economy Is Past Worst

By Rich Miller

July 22 (Bloomberg) -- Global investors give Federal Reserve Chairman Ben S. Bernanke top marks for combating the worst financial crisis since the Great Depression and overwhelmingly favor his reappointment amid optimism that the world economy is on the mend.

Sixty-one percent of investors surveyed in the first Quarterly Bloomberg Global Poll say the world economy is stable or improving and almost 75 percent take a favorable view of the 55-year-old chairman. By almost a three-to-one margin, they say Bernanke has earned another four-year term when his current one expires in January.

“He’s the best, maybe around the world,” said Wallace Lin, an investment manager with Euro Asset Management in Hong Kong, who participated in the poll. Investors ranked Bernanke higher than his counterparts at other major central banks, including European Central Bank President Jean-Claude Trichet.

The vote of confidence strengthens Bernanke’s hand as he faces congressional criticism that the Fed overstepped its authority by helping to rescue failing financial institutions in the midst of the crisis. It also gives his bid for another term a boost. President Barack Obama has praised Bernanke’s performance atop the central bank without saying whether he wants him to stay.

Market Repercussions

“If he weren’t renominated, it could have potentially very serious and severe repercussions on the stock market and the economy,” said Jack Liebau, a poll participant and president of Pasadena, California-based Liebau Asset Management Co.

Investors consider recession a bigger threat to the U.S. economy than rising prices over the next two years, the poll showed. Sixty-one percent cite recession as the greater risk, compared with 37 percent who name inflation.

Martin Feldstein, a professor of economics at Harvard University who was considered for the position of Fed chairman before Bernanke took over in 2006, praised the policy maker. Bernanke has “done a very good job and I think he should be reappointed,” Feldstein said in an interview yesterday on Bloomberg Television.

The first Quarterly Bloomberg Global Poll is a survey of investors and analysts on six continents. It is based on interviews from July 14 to July 17 with a random sample of 1,076 Bloomberg subscribers, who represent leading decision makers in markets, finance and economics.

Trichet, King, Zhou

The poll showed Trichet received a favorable rating of 54 percent, while Bank of England Governor Mervyn King garnered 50 percent approval and China’s central-bank governor, Zhou Xiaochuan, received 42 percent. Bernanke outpolled the other central bank chiefs even in their own regions.

Bernanke also received a higher rating than U.S. Treasury Secretary Timothy Geithner, who formerly ran the New York Federal Reserve Bank. The Treasury secretary got a 57 percent rating worldwide -- even though a majority of investors in the U.S. view him unfavorably. More than 52 percent of American respondents take a negative view of Geithner, compared with about 32 percent in Europe and 24 percent in Asia.

Bernanke has countered the credit crisis with actions unprecedented in the central bank’s 95-year history. He cut the benchmark lending rate to as low as zero and expanded credit to the economy by $1.1 trillion over the past year.

U.S. Banks Recovering

More than three-quarters of investors expect U.S. financial institutions will be in better shape a year from now, though only 2 percent say they will be back to full health. Just 10 percent think they will be in worse shape.

Respondents aren’t as sanguine about European banks, with 23 percent saying their condition will deteriorate in the next year.

Investors in Asia are more optimistic than those in the U.S. and Europe about the outlook for the global economy, the poll showed. More than three-quarters of Asian investors say the world economy is stable or improving, compared with 62 percent in Europe and 50 percent in the U.S.

Regional differences in the global outlook “may be a matter of what they see around them,” said J. Ann Selzer, president of Selzer & Co. of Des Moines, Iowa, which conducted the poll for Bloomberg. Half of Asian investors “say the economy in their region is improving -- more than three times as many as say that in the U.S.,” she said.

The International Monetary Fund said July 8 that emerging- market economies including China will help pull the world out of the deepest contraction in six decades.

China’s Recovery

China’s gross domestic product grew 7.9 percent in the second quarter, the government reported last week in Beijing, making the nation the first major economy to rebound from the global recession.

“Fiscal policy and monetary stimulus have been introduced around the world, and we are seeing signs, particularly in China, that they are beginning to work,” Jim Owens, chief executive officer of Caterpillar Inc., said in a statement yesterday. Peoria, Illinois-based Caterpillar, the world’s largest maker of construction equipment, reported second-quarter profit that exceeded analysts’ forecasts.

More than half the investors polled expect long-term interest rates to rise over the next six months as global growth picks up. Among equity investors, 52 percent foresee higher yields, compared with 49 percent of fixed-income investors.

Higher Long-Term Rates

“I don’t see them going anywhere but up,” said David Jaderlund, municipal bond portfolio manager with Jaderlund Investments in Albuquerque, New Mexico. Currently, he said, Treasury securities “aren’t paying anything.”

Benchmark 10-year notes yielded 3.48 percent at 5:15 p.m. yesterday in New York, compared with an average 4.56 percent over the last decade.

Investors expect short-term interest rates to be little changed over the next six months, the poll showed. Almost three quarters say central banks will hold rates near current levels to support growth.

“Monetary policy remains focused on fostering economic recovery,” Bernanke said in his semi-annual report to Congress yesterday. The Fed intends to maintain a “highly accommodative” monetary policy for “an extended period,” he said.

“The U.S. economy may be ailing,” said Selzer. “But these financial leaders agree the man at the helm of the economy is the right guy for the job, for now and for another term.”

To contact the reporter on this story: Rich Miller in Washington rmiller28@bloomberg.netAlison Sider in Washington asider@bloomberg.net

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Yen, Dollar Rise as CIT Bankruptcy Concern Spurs Safety Demand

By Yasuhiko Seki and Ron Harui

July 22 (Bloomberg) -- The yen and the dollar strengthened for a second day against the euro on renewed concern U.S. commercial lender CIT Group Inc. will file for bankruptcy, boosting demand for safer assets.

The yen rose against all 16 major currencies after CIT said it expected to post a loss of more than $1.5 billion and its “existing liquidity” is not enough to repay maturing notes. The pound weakened after an industry group said the U.K. house- price slump will persist, backing the case for the central bank to keep borrowing costs low. The Australian and New Zealand dollars declined after Federal Reserve Chairman Ben S. Bernanke said dangers to the U.S. economy remain.

“Worries over a possible insolvency of CIT appear to be returning,” said Akifumi Uchida, a Tokyo-based deputy general manager of the marketing unit at Sumitomo Trust & Banking Co., Japan’s fifth-largest bank. “This is a minus for sentiment and may cause buying of the yen versus the dollar and the dollar against European currencies.”

The yen strengthened to 132.77 per euro as of 12:02 p.m. in Tokyo from 133.36 in New York yesterday, when it gained 0.5 percent. Japan’s currency climbed to 93.57 versus the dollar from 93.73. The dollar rose to $1.4192 per euro from $1.4226.

The pound dropped to $1.6405 from $1.6459. Australia’s dollar fell 0.5 percent to 76.35 yen and slipped 0.3 percent to 81.61 U.S. cents. New Zealand’s dollar lost 0.4 percent to 65.56 cents and slid 0.6 percent to 61.32 yen.

Bernanke Comments

The Australian and New Zealand dollars dropped for the first time in three days against the greenback after Bernanke said yesterday financial markets remained “stressed,” encouraging demand for safer assets.

Household spending is an “important” risk to the outlook because of continued job losses and declines in home values, Bernanke said on the first day of a two-day congressional testimony in Washington.

“A bit of risk aversion is creeping back into the market,” said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore. Bernanke “was more dovish on the economy and on the economic recovery and a little bit of risk has been taken off the table which is weakening the Aussie.”

The pound dropped against 13 of the 16 major currencies after the National Institute of Economic and Social Research said today that home values will resume their decline because recent gains were driven by a lack of available homes.

The institute also predicted gross domestic product will keep falling until the final quarter of this year. It forecast GDP will shrink 0.4 percent in the second quarter. The median estimate of 32 economists in a Bloomberg News survey is for a 0.3 percent drop. The Office for National Statistics will release the data on July 24.

‘Not Good News’

“All of this is not good news for Britain,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “This is leading to selling of the pound.”

Gains in the Japanese and U.S. currencies were tempered on speculation an advance in Asian stocks will spur investors to increase holdings of higher-yielding assets. The Nikkei 225 Stock Average rose 0.2 percent and the MSCI Asia-Pacific Index of regional shares climbed 0.4 percent.

“Rising equities are likely to lead to selling of the yen,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The stock markets are considered to be a barometer of risk appetite.”

Technical Analysis

The Australian dollar may advance toward a 10-month high after the currency climbed above a “pivotal resistance” point at 81.55 U.S. cents, BNP Paribas SA said, citing trading patterns.

The so-called Aussie dollar has slipped 1.2 percent from this year’s high of 82.63 U.S. cents on June 3 as investors sold higher-yielding assets on concern that the second-quarter corporate earnings season would disappoint. The break above 81.55 cents suggests the recent “corrective pullback” is over, Andrew Chaveriat, a technical strategist at BNP Paribas in New York, wrote in a note to clients yesterday.

“Aussie should make a new cycle high,” Chaveriat wrote. Weekly momentum is expected to turn bullish, which “would increase the odds of hitting 83.80-85.20 cents.”

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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Gold, Little Changed in Asia, May Decline as Dollar Strengthens

By Kim Kyoungwha

July 22 (Bloomberg) -- Gold, little changed in Asian trading, may decline as inflation concerns eased and the dollar strengthened, reducing the appeal of the precious metal as a store of value.

Bullion extended its retreat from the highest in almost six weeks as the Dollar Index, which gauges the strength of the U.S. currency against those of six major trading partners, gained for the first time in three days and U.S. Federal Reserve Chairman Ben S. Bernanke said inflation pressures are limited.

“I guess that the inflation argument is a longer term story for gold,” said Toby Hassall, a Sydney-based research analyst with Commodity Warrants Australia. “So for now the direction of the dollar will be a key factor for gold.”

Gold for immediate delivery declined as much as 0.2 percent to $946.84 an ounce and last traded little changed at $948.10 at 9:55 a.m. in Singapore. Bullion, which has climbed 7.7 percent this year, reached $954.99 on July 20, the highest since June 12.

Gold holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, decreased 2.13 metric tons to 1,092.41 tons yesterday, according to data on the company’s Web site.

Among other precious metals for immediate delivery, silver was little changed at $13.55 an ounce, platinum gained 0.2 percent to $1,177.50 an ounce and palladium slid 1 percent to to $253.50 an ounce as of 9:57 a.m. in Singapore.

To contact the reporter on this story: Kyoungwha Kim in Singapore at Kkim19@bloomberg.net

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China Should Curtail ‘Reckless’ Steel Capacity Growth

By Bloomberg News

July 22 (Bloomberg) -- China, the world’s largest steel producing nation, should curtail “reckless investments” in the industry by withholding project approvals.

China’s demand for steel is about 500 million metric tons, less than the annual output capacity of 660 million tons, Zhu Hongren, spokesman for the Ministry of Industry & Information Technology, said at a conference in Beijing today. Zhu is reiterating figures given by the China Iron & Steel Association in February for last year.

Crude steel output in China rose to a record 266.6 million tons in the first half as the nation’s $586 billion stimulus package spurred demand from builders and carmakers. Annualized, this would beat the 460 million tons output forecast by the steel association for this year.

“The industry must produce according to market needs, and avoid adding to the excess capacity,” Zhu said. “They should avoid reckless investments. The government must also take action to curtail additional investments by companies that are already in excess.”

--Eugene Tang.Editors: Tan Hwee Ann, Indranil Ghosh.

To contact the Bloomberg News staff on this story: Eugene Tang in Beijing at eugenetang@bloomberg.net

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Silver Struggles to Gain Foothold, May Drop: Technical Analysis

By Glenys Sim

July 22 (Bloomberg) -- Silver may falter as the metal struggles to gain a foothold above its 55-day moving average, Commerzbank AG said, citing trading patterns.

The metal’s recent strength is only “upside corrective” and its rally may extend toward $14.18 and $14.35, Karen Jones, the bank’s head of markets analysis, said in a report yesterday.

“This is the location of the 55-day moving average and the 50 percent retracement of the move down from June,” Jones said, referring to a percentage that’s part of the Fibonacci sequence. “This is expected to cap the topside and provoke failure.”

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break of a level of support indicates a price may move to the next level. A failure indicates a trend may stall. Other key Fibonacci levels include 23.6 percent and 38.2 percent.

Silver for immediate delivery traded little changed at $13.5575 an ounce at 10:05 a.m. Singapore time. The metal has fallen 17 percent from this year’s intra-day peak of $16.245 an ounce reached June 3. It is up 19 percent this year.

Silver continues to rebound from its $12.35-an-ounce 200- day moving average, said Jones. This is in “close proximity” to the $12.33 support, which represents a 50 percent retracement of the October-to-June rally. Failure at $12.35/$12.33 would “trigger another leg lower” to the April 2009 low of $11.79, then $11.40, a level not seen since Jan. 23.

To contact the reporter on this story: Glenys Sim in Singapore at Gsim4@bloomberg.net

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Japan Real Estate Shares Slump; Chip Component Shares Gain

By Patrick Rial and Satoshi Kawano

July 22 (Bloomberg) -- Japanese property developer shares slumped amid concern the economy won’t stage a quick recovery, offsetting gains by makers of semiconductor materials after Shin-Etsu Chemical Co. said it is seeking to boost prices.

Tokyo Tatemono Co. lost 2.8 percent after the property developer’s president told the Nikkei on July 20 he doesn’t expect a sharp economic rebound in Japan. Mitsui O.S.K. Lines Ltd., the world’s largest merchant fleet operator, fell 1.3 percent, following a 1.6 percent retreat by the Baltic Dry Index. Shin-Etsu, the world’s largest maker of silicon wafers, jumped 4.7 percent after the Nikkei newspaper said the company may boost wafer prices by 40 percent.

About four shares rose for every three that fell on the broad Topix index. The gauge was little changed at 901.50 as of 10:43 a.m. in Tokyo, after advancing as much as 0.3 percent. The Nikkei 225 Stock Average was little changed at 9,648.66.

“Real estate is among the industries hardest hit by the recession,” said Kiyoshi Ishigane, a senior strategist at Tokyo-based Mitsubishi UFJ Asset Management Co., which oversees about $52 billion. “We’ll see decent earnings for the moment, but I question whether companies can keep improving their bottom line.”

Tokyo Tatemono President Makoto Hatanaka said in an interview with the Nikkei published July 20 that Japan’s economy will not have a “V-shaped” recovery and office vacancy rates are likely to continue rising outside of Tokyo. The shares fell 2.8 percent to 456 yen.

NTT Urban Development Corp., which manages properties for Japan’s former telephone monopoly, dropped 3.9 percent to 89,400 yen. K.K. DaVinci Advisors, which runs Japan’s biggest private real estate fund, slumped 6.4 percent to 11,770 yen.

Land Prices

Nationwide land prices posted gains of 8.6 percent and 10 percent in 2006 and 2007, according to the National Tax Agency, as the property market began a recovery from a decade-long slump.

Shin-Etsu jumped 4.7 percent to 4,730 yen. The Nikkei newspaper reported earlier that the company is in talks with customers to raise the price of 300 millimeter wafers by as much as 40 percent. Shin-Etsu said it is in negotiations, but declined to say how much of an increase it is seeking.

Sumco Corp., the world’s second-largest maker of silicon wafers, advanced 4 percent to 1,569 yen.

Stock gains were curbed after the yen strengthened against the dollar, reducing the value of sales generated overseas. The yen rose to as high as 93.40 per dollar, from 93.98 at the close of stock trading in Tokyo yesterday.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Satoshi Kawano in Tokyo at Skawano1@bloomberg.net

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Most Asian Stocks Rise; Shin-Etsu Chemical Gains, Banks Retreat

By Masaki Kondo and Shani Raja

July 22 (Bloomberg) -- Most Asian stocks rose, led by material producers after Shin-Etsu Chemical Co. said it will seek a price increase. Banks fell as National Australia Bank Ltd. said it will sell stock.

Shin-Etsu Chemical, the world’s largest maker of silicon wafers, climbed 5.1 percent in Tokyo after saying its unit will start talks with chipmakers for a price increase. Hon Hai Precision Industry Co., which makes Apple Inc.’s iPhone, gained 1.4 percent in Taipei after Apple’s earnings beat analyst estimates. Sydney-based Westpac Banking Corp. sank 1.5 percent, while National Australia Bank, the nation’s largest lender by assets, was suspended from trading.

Five stocks rose for every three that fell on the MSCI Asia Pacific Index, which added 0.3 percent to 106.96 as of 11:27 a.m. in Tokyo. An 8.7 percent increase in the past six days lifted the measure yesterday to its highest close since Oct. 2. The gauge has gained 52 percent from a five-year low on March 9.

“The underlying economy is better than people anticipated and the market is pricing for a recovery,” said Matt Riordan, who helps manage about $3.2 billion at Paradice Investment Management in Sydney.

Japan’s Nikkei 225 Stock Average advanced 0.2 percent. Australia’s S&P/ASX 200 Index added 0.5 percent, while South Korea’s Kospi Index lost 0.1 percent.

Futures on the U.S. Standard & Poor’s 500 Index fell 0.3 percent. The gauge gained 0.4 percent yesterday as Federal Reserve Chairman Ben S. Bernanke said the country’s economy is showing “tentative signs of stabilization.”

Silicon Wafers

Shin-Etsu Chemical climbed 5.1 percent to 4,750 yen, while closest rival Sumco Corp. rose 4.5 percent to 1,577 yen in Tokyo.

Shin-Etsu Chemical said today Shin-Etsu Handotai Co., its wholly owned subsidiary, will start negotiations with chipmakers to raise prices for silicon wafers. The Nikkei newspaper earlier said the company will seek a price increase of as much as 40 percent.

Hon Hai gained 1.4 percent to NT$112.5 as Apple became the latest U.S. company to report better-than-expected earnings. Apple’s third-quarter sales and profit beat analysts’ estimates, as the iPhone and cheaper computers lured customers.

Optimism of a rebound in corporate profits has helped fuel a global stock rally in the past week. The average valuation of companies in the MSCI Asia Pacific Index has risen to 24 times estimated net income, higher than the S&P 500’s 15 times and 13.7 times for Europe’s Dow Jones Stoxx 600 Index.

The first Quarterly Bloomberg Global Poll of financial investors and analysts showed more than a third of investors see greater opportunity and are taking more risk. Seventy percent of participants in the survey are optimistic about China’s prospects.

Westpac fell 1.5 percent to A$20.01. National Australia Bank said it will raise A$2.75 billion ($1.63 billion) from selling equity to help it weather rising bad loans and finance potential acquisitions.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

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Soybeans Drop in Chicago as China Poised to Release Stockpiles

By Luzi Ann Javier

July 21 (Bloomberg) -- Soybean futures in Chicago declined on speculation that crushers in China, the world’s biggest importer, may slow overseas purchases as the government releases local stockpiles for sale into the domestic market.

China will auction 500,000 metric tons of soybeans on July 23, the state-backed China National Grain and Oils Information Center said yesterday. The sale is meant to ensure local supplies are adequate and to stabilize prices, the center said in a separate report July 17.

“That’s one of the main reasons” soybean prices fell, Jonathan Barratt, managing director at Commodity Broking Services Pty in Sydney, said today. Prices are “coming back from an awful big high. This is just a correction,” he said.

Soybeans for November delivery fell as much as 0.8 percent to $9.1550 a bushel in after-hours electronic trade on the Chicago Board of Trade, after adding 0.2 percent earlier. The contract traded at $9.1650 at 2:40 p.m. in Singapore.

The most-active soybean futures contract has fallen 26 percent from a nine-month high of $12.365 on June 5 on concern that favorable weather in the U.S. will boost yields in the world’s biggest grower and exporter, increasing global supplies.

China’s soybean imports totaled a record 4.71 million tons in June, according to customs data. The sale from state stockpiles planned for next week would be 11 percent of that figure, according to Bloomberg calculations.

Wheat Declines

Wheat for September delivery was little changed at $5.4275 a bushel in Chicago at 2:41 p.m. Singapore time, after declining as much as 0.4 percent earlier.

Weather in the northern plains of the U.S. will help developing wheat crops, DTN Meteorlogix LLC said in a report yesterday. No significant delays to the remaining harvest are expected in the eastern Midwest, it said. The Midwest is the largest growing region in the U.S.

About 72 percent of the winter-wheat crop was harvested as of July 19, up from 66 percent a week earlier, the U.S. Department of Agriculture said yesterday.

Wheat exports from the U.K. expanded 11 percent to 233,238 tons in May from 209,295 tons a month earlier, according to customs data released yesterday.

Morocco’s soft-wheat harvest more than doubled in June through the first half of July to 1.51 million tons from 713,000 tons a year earlier, ONICL, the government grain office, said in a report.

Corn for December delivery lost as much as 1 percent to $3.3050 a bushel in Chicago at 2:36 p.m. Singapore time after rising as much as 0.4 percent earlier.

Cool temperatures in the Midwest will be favorable for pollinating the corn crop, Meteorlogix said in a separate report. Rain has come in time to ease the stress to corn crops in the northern plains of China, it said. China is the world’s second- biggest corn grower and consumer, according to the USDA.

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

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Bernanke Says Fed ‘Confident’ of Ability to Stem Inflation

By Scott Lanman

July 21 (Bloomberg) -- The U.S. Federal Reserve is “confident” of its ability to stem inflation after what’s likely to be an “extended period” for policies aimed at restarting lending, Chairman Ben S. Bernanke said.

“When the economic outlook requires us to do so,” the central bank will employ a series of tools to tighten policy, Bernanke said, writing in an opinion piece in the Wall Street Journal.

Bernanke outlined five ways the central bank will be able to prevent the record reserves that banks have accumulated from causing money supply and inflation to surge. Officials will use the interest rate on banks’ deposits with the Fed as a principal tool, which they can supplement with other means, including reverse-repurchase agreements and term deposits, he said.

The opinion piece, published late yesterday, before Bernanke’s semiannual monetary-policy testimony to Congress today, signals he’s seeking to reassure investors that the Fed will contain consumer prices when the economy recovers.

“Bernanke is preparing the market by communicating at an early stage,” said Seiji Shiraishi, chief economist for Japan at HSBC Securities Japan Ltd. in Tokyo. “Whether they can do that will depend on the strength of the cyclical recovery and the soundness of the banks.”

The 10-year note yield fell three basis points to 3.58 percent at 12:53 p.m. in Tokyo, according to data compiled by Bloomberg.

‘Top Priority’

The Fed said in minutes of last month’s policy meeting that making sure it has the ability to tighten credit at some point is a “top priority.” Officials discussed their options at the session, even as most policy makers judged the economy at risk to further shocks, the minutes showed last week.

“We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner,” Bernanke said in the opinion article.

Since March 2008, the Fed has taken steps to combat the credit crisis that included expanded emergency lending to banks, support for the commercial-paper market and a lifeline to insurer American International Group Inc. Total assets on the Fed’s balance sheet now stand at $2.07 trillion, up $1.16 trillion over the past year. The central bank has also cut the benchmark lending rate to a range of zero to 0.25 percent.

Need for Strategy

Without an exit strategy, the increase in bank reserves could cause inflation because banks would be able to lend on the money, potentially fueling a surge in money growth. The Fed, then, must either shrink the amount of reserves or find a way to keep banks from lending them for bigger yields.

“We will calibrate the timing and pace of any future tightening, together with the mix of tools to best foster our dual objectives of maximum employment and price stability,” Bernanke said.

To keep interest rates low and credit flowing to housing markets, the Fed plans this year to buy as much as $1.75 trillion of mortgage-backed securities, housing-agency debt and Treasuries. The last exit option, “if necessary,” would be to sell some of the securities on the open market, Bernanke said.

In a term reverse-repurchase agreement, the central bank would enter into a longer-term contract to sell securities to primary dealers, in effect removing money from the banking system temporarily, and repurchase them at a later date.

Term Deposits

The Fed’s proposed term deposits would be similar to banks’ certificates of deposit for customers, and funds held at the Fed would not be available to lend in the overnight federal funds market, Bernanke said.

Another option would be for the Treasury to sell bills and deposit the funds with the Fed, Bernanke wrote.

“Although the Treasury’s operations are helpful, to protect the independence of monetary policy, we must take care to ensure that we can achieve our policy objectives without reliance on the Treasury,” the Fed chief said.

The Fed received legislative authority to begin paying interest on reserves in October as part of legislation creating the $700 billion financial-rescue fund.

Fed officials hoped that would help keep the benchmark interest rate stable while the central bank flooded the banking system with cash. The authority failed to keep the main federal- funds rate from declining almost to zero before the Fed officially lowered it that far. The Fed currently pays 0.25 percent on required and excess reserve balances.

Banks’ deposits with the Fed increased to $772 billion in June from $9.3 billion a year earlier.

Bernanke said the deposit rate will work better “under more normal financial conditions” and limit the gap between that and the federal funds rate. “If that gap persists,” the Fed will use the other tools, he said.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

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California Budget Deal Reached By Legislators, Schwarzenegger

By Michael B. Marois and William Selway

July 21 (Bloomberg) -- California lawmakers reached an agreement with Governor Arnold Schwarzenegger over how to close a $26 billion budget deficit that pushed the most-populous U.S. state to the brink of insolvency.

The deal, reached by legislative leaders after two months of frequently acrimonious negotiations, would slash spending for schools, public works and welfare programs amid the longest recession since the 1930s. If approved by the full Senate and Assembly, the agreement will also siphon money from municipalities, force companies and individuals to pay income taxes sooner and make it more difficult to receive state aid.

“We came to a basic agreement, a budget agreement,” Schwarzenegger told reporters outside his office last evening. “This is a budget that has no tax increases and this is a budget that is cutting spending and it deals with the entire $26 billion deficit.”

The agreement promises to end a battle over the $100 billion budget that forced California to pay some bills with IOUs, pushed debt ratings on $72 billion of bonds closer to non- investment grade and threatened to further batter the state’s economy. It is the second time this year that the government redrew the budget amid job losses that pushed unemployment to 11.5 percent in May and declining incomes that lowered tax collections 15 percent from a year earlier.

Senate and Assembly leaders said they will seek to put the proposals to a vote by July 23. It would require passage of more than a dozen bills by a two-thirds margin. While Democrats control both chambers of the Legislature, they are six votes shy of such a supermajority.

Spending Cuts

The agreement calls for cutting spending by $15 billion, including $6 billion from schools, $3 billion from colleges and $1.2 billion from prisons. Schools will be repaid $11 billion once the state’s economy turns around. It also raises $4 billion by in part accelerating personal and corporate income tax withholdings and increasing income tax withholding schedules by 10 percent.

It also calls for the state to divert more than $2 billion of tax receipts meant for local governments, redevelopment agencies and transportation districts. That money would be repaid with interest. Local governments could sell bonds backed by the promise of repayments. The agreement also shifts $1.5 billion between accounts to save money and moves the last payday for state workers in the current fiscal year into the next.

Restore Funding

“I hope sincerely that once we are past this recession, we will be able to restore some of the funding that was cut,” said Senate President Darrell Steinberg, a Democrat from Sacramento.

A budget deal struck in February nearly faltered in the Legislature, only to pass after a weekend of all-night sessions when enough Republicans agreed to what Schwarzenegger called the largest tax increase in California history. Still, the deficits reappeared as the economy failed to emerge from the now 20-month recession.

The magnitude of the slump made it difficult for Democrats and Republicans to agree on a response. Schwarzenegger, who bucked his party by supporting February’s increase, and his fellow Republicans ruled out another round of raising taxes. Voters in May defeated a proposal to extend the tax increase and borrow money to shore up the budget, an outcome Schwarzenegger said was a message that politicians needed to scale back government.

Cash Borrowing

“We were able to resolve California’s 26.3 billion dollar budget deficit without raising taxes,” Senate Minority Leader Dennis Hollingsworth, a Republican from San Diego, told reporters. “It solves our cash-flow issues and saves money by reforming key government programs so they operate more efficiently.”

Democrats contested the scope of his proposed cuts, which would have eliminated welfare programs that provide aid to jobless families and health insurance to nearly a million children.

Passage of a budget would also clear the way for Treasurer Bill Lockyer to borrow the billions California needs to pay its bills until the bulk of taxes are collected later in the year.

Without a balanced budget, officials said such a borrowing would be costly, if not impossible, because of the state’s tumbling credit rating and concerns among investors about how they would be repaid. Instead, California began issuing IOUs to businesses and individuals to ensure that it has enough cash to meet key obligations -- including interest on its bonds -- that are given high priority under the constitution.

The use of IOUs has been done only one other time since the Great Depression and it brought unfavorable attention to the state.

Credit Downgrades

On July 14, Moody’s Investors Service cut California’s bond rating by two steps to Baa1, three ranks above speculative ratings and said the state may face further downgrades. That followed Fitch Ratings, which on July 6 lowered its rating on California debt to BBB, just two ranks above high-yield, high- risk junk.

California bond yields, which move in the opposite direction as price, have jumped compared with top-rated municipal bonds. The difference between a 10-year California bond and a top-rated municipal security reached as much as 1.71 percentage points on July 1, when the California debt yielded 5.21 percent, according to Bloomberg data. The difference has since slipped to 1.57 percent as investors speculated that prices would improve once a budget deal is struck.

California, the world’s eighth-largest economy, was already the lowest-rated U.S. state. Standard & Poor’s gives the state it’s A grade, the sixth-highest of 10 investment levels. The firm reaffirmed that assessment on July 1.

Several banks also exerted pressure on lawmakers to act quickly by refusing to exchange IOUs for cash, threatening to deal a blow to businesses that work for the state. Among the banks were JPMorgan Chase & Co. and Bank of America Corp.

To contact the reporters on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net; William Selway in San Francisco at wselway@bloomberg.net.

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Dollar May Weaken Against Euro, Yen, Citigroup Says

By Candice Zachariahs

July 21 (Bloomberg) -- The U.S. dollar may weaken against the euro, the yen and the Australian dollar as global sentiment turns against the greenback, according to Citigroup Inc.

The euro may extend this month’s gains versus the dollar as buying by sovereign wealth managers and central banks bolsters the 16-nation currency, Citigroup said in a monthly note on its foreign-exchange forecasts. The yen may strengthen against the dollar as Japan’s economy begins to rebound, attracting investors to the Asian nation’s assets, the bank said.

“We detect evidence that underlying sentiment remains U.S. dollar negative,” Citigroup analysts including Jeremy Hale, London-based head of macro strategy, wrote in the note to clients yesterday.

The euro will climb to $1.43 in three months and reach $1.45 in six to 12 months, Citigroup said in the note. The yen will rise to 93 per dollar in three months and strengthen to 90 in six to 12 months, the company said.

The dollar traded at $1.4200 per euro and 93.94 yen as of 8:28 a.m. in London.

The Australian dollar is likely to lead gains among so- called commodity currencies, the analysts wrote.

Australia’s currency will advance to 83 U.S. cents in six to 12 months and New Zealand’s currency will rise to 66 cents, the company said. The so-called Aussie traded at 81.21 U.S. cents and New Zealand’s dollar was at 65.30 cents.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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SNB Boosts Currency Holdings to 12-Year High to Weaken Franc

By Simone Meier and Klaus Wille

July 21 (Bloomberg) -- The Swiss central bank raised its foreign currency holdings in the second quarter to the highest in at least 12 years to weaken the franc.

Currency holdings rose 46 percent to 81.7 billion Swiss francs ($76 billion) from 55.8 billion francs at the end of the first quarter, the Swiss National Bank said today on its Web site. That’s the highest since at least 1997. Dollar holdings rose to $19.9 billion from $13.2 billion and euro investments surged to 32 billion ($45 billion) from 20.3 billion.

The SNB in March started buying foreign currencies after an appreciating franc eroded exports and threatened to push the economy into deflation. The Zurich-based bank said last month that it will continue to take “firm action” to prevent any further gains in the Swiss currency to bolster the economy.

The SNB’s holdings of British pounds rose to 2.97 billion ($4.9 billion) from 2.93 billion in the first quarter, today’s report showed. Yen reserves increased to 426.7 billion ($4.5 billion) from 373.9 billion.

To contact the reporters on this story: Klaus Wille in Zurich at kwille@bloomberg.net; Simone Meier at smeier@bloomberg.net.

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Pound Slides Against Dollar, Euro Amid Swelling Budget Deficit

By Lukanyo Mnyanda

July 21 (Bloomberg) -- The pound fell against the dollar as a report showed the U.K.’s budget deficit climbed in June to the most for that month since records began in 1993, fueling concern the government may struggle to find buyers for its assets.

The decline pushed the U.K. currency down from near the highest level this month against the dollar. The budget shortfall climbed to 13 billion pounds ($21.3 billion), compared with 7.5 billion pounds a year earlier, the Office for National Statistics said in London today. Britain’s Treasury sold 4 billion pounds of 2016 gilts today.

“The question mark over public finances remains a short- term negative for sterling,” said Jeremy Stretch, a senior strategist at Rabobank International in London. “It’s hardly likely to boost sentiment with risk appetite” waning, he said.

The pound slid to $1.6431 as of 10:57 a.m. in London, from $1.6547 yesterday, when it reached the highest level since June 30. Britain’s currency depreciated to 86.57 pence per euro, from 86 pence yesterday.

Sterling may receive so-called support at $1.6395, Stretch said. Support is an area where buy orders for the currency may be clustered. The median forecast of 33 analysts and strategists compiled by Bloomberg is for the pound to weaken to $1.60 by year-end.

U.K. government bonds dropped, pushing the yield on the two-year gilt 4 basis points higher to 1.26 percent. The 4.25 percent security due March 2011 declined 0.08, or 80 pence per 1,000-pound face amount, to 104.80. The 10-year yield increased 2 basis points to 3.85 percent.

Budget Deficit

The budget shortfall increased as tax income fell 5.7 percent and spending increased 2.8 percent, the Office for National Statistics said. The median of 13 forecasts in a Bloomberg News survey was for a deficit of 15.5 billion pounds.

Investors bid for 1.7 times the gilts on offer today, according to the Debt Management Office in London. That compared with 1.6 times at the previous sale in October. The securities were priced to yield an average 3.37 percent. Germany’s 4 percent note maturing July 2016 yielded 3.03 percent.

Gilts also dropped as the Nottingham Evening Post cited Bank of England Deputy Governor Charles Bean as saying the central bank may lift its benchmark interest rate in a first move as it exits its asset-purchasing program.

“It is quite likely we will in the first instance raise bank rate,” the newspaper quoted Bean as saying in an interview.

Investors should sell U.K. two-year gilts as accelerating inflation prompts the central bank to lift interest rates next year, according to JPMorgan Chase & Co.

“Rising inflation should force the MPC to hike rates early next year,” a team including Jan Loeys, global head of market strategy in London, wrote in a report received yesterday. “Accordingly, go short the short end in the U.K.”

To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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Euro May Rise to 7-Month High Versus Dollar: Technical Analysis

By Ron Harui

July 21 (Bloomberg) -- The euro may extend its rally to a seven-month high against the dollar within two weeks after the currency rose above resistance at $1.4120, said Pak Lai Ng, a technical analyst at Forecast Pte, citing trading patterns.

Resistance at $1.4120 represents a descending trend line on a so-called triangle pattern, Ng said. The triangle is formed by the descending trend line, which connects the highs of June 3 and July 1, and by an ascending trend line, which connects the lows of June 16 and July 8, according to Ng. Resistance is where sell orders may be clustered.

“The euro has broken the triangle pattern to the upside,” Singapore-based Ng said in an interview. “It should see quite a quick run-up. The target is $1.4650.”

The euro fell to $1.4213 as of 12:35 p.m. in Tokyo from $1.4231 in New York yesterday, when it advanced to $1.4249, the highest level since June 5. The currency has risen 2.7 percent against the greenback since dropping to a two-week low of $1.3833 on July 8. The $1.4650 level was last seen on Dec. 18.

Daily momentum indicators such as the moving average convergence/divergence, or MACD, also show a buy signal for the euro against the dollar, according to Ng. “All of them are positive,” he said.

The euro’s MACD versus the dollar was 0.0062, compared with 0.0043 for the so-called signal line, based on data compiled by Bloomberg. A rise of the MACD above the signal line suggests the currency is in an “upward” trend, Ng said.

MACD charts can indicate whether a price shift is a change in trend or a short-term deviation by comparing moving averages based on nine-, 12- and 26-day periods.

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

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

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Oil Is Little Changed on Forecast for Rising Gasoline Supplies

By Grant Smith

July 21 (Bloomberg) -- Crude oil traded little changed around $64 a barrel in New York before a report forecast to show that gasoline supplies expanded in the U.S.

Gasoline inventories in the world’s largest energy market probably rose by 850,000 barrels from 214.6 million barrels, a Bloomberg survey showed. That would be the sixth week of gains during what is typically peak time for demand. Stockpiles of crude likely fell for a 10th week out of 11, the survey showed.

“We haven’t yet seen the optimism materialize in increased consumption of oil,” said Thina Saltvedt, an analyst at Nordea Bank AB in Oslo. “Better than expected macro indicators are keeping hopes up, but we need to see some improvement in demand.”

Crude oil for August delivery was at $64.21 a barrel, 36 cents higher on the New York Mercantile Exchange at 11:18 a.m. London time. Oil has fallen 12 percent from an eight-month closing high of $72.68 on June 11.

The August contract expires today. The more-active September contract fell as much as 76 cents, or 1.2 percent, to $64.53 a barrel.

U.S. crude oil stockpiles probably declined by 2.25 million barrels in the week ended July 17, according to the median of 12 estimates by analysts before an Energy Department report scheduled for 10:30 a.m. tomorrow in Washington.

Supplies of distillate fuel, a category that includes heating oil and diesel, probably rose by 1.5 million barrels from 159.3 million.

Equity-Driven Rally

“We may be recovering and we may have sequential changes that are positive, but year-on-year levels of activity are showing wide output gaps,” Harry Tchilinguirian, a senior oil markets analyst at BNP Paribas, said in a Bloomberg Television interview. “You have to stop and think if the rally we’ve been having, of course equity-driven, is going to be sustainable.”

Refiners in China, the world’s largest energy consumer after the U.S., increased operating rates for an eighth week to 85.1 percent of capacity on July 16, said CBI China, a Shanghai- based commodities researcher.

Brent crude for September settlement rose 0.3 percent to $66.61 a barrel on London’s ICE Futures Europe Exchange at 11:18 a.m. local time.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.netGrant Smith in London at gsmith52@bloomberg.net

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Dollar Climbs Versus High-Yielding Currencies Before Bernanke

By Gavin Finch

July 21 (Bloomberg) -- The dollar rose against higher- yielding currencies on speculation Federal Reserve Chairman Ben S. Bernanke may present to Congress a plan for preventing inflation as the economy begins to recover.

The U.S. currency advanced against the South African rand and the Australian and New Zealand dollars after Bernanke said in an opinion article in the Wall Street Journal that the Fed is confident it has “the necessary tools to withdraw policy accommodation when that becomes appropriate.” The dollar pared gains as stocks rose, sapping demand for relative safety.

“By setting out how the Fed is going to exit its program of asset purchases and keep a lid on inflation, Bernanke is removing some of the negatives for the dollar,” said Derek Halpenny, European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The focus now will be on what Bernanke says later today and whether he mentions a timescale.”

The dollar advanced 0.8 percent to 7.8920 rand at 7:23 a.m. in New York, from 7.8294 yesterday. Against the Australian dollar, the greenback climbed 0.5 percent to 81.30 U.S. cents, while it strengthened 0.6 percent to 65.40 cents versus the New Zealand dollar.

Benchmark interest rates of 2.5 percent in New Zealand, 3 percent in Australia and 7.5 percent in South Africa compare with 0.1 percent in Japan and as a low as zero in the U.S.

The dollar advanced 0.2 percent to $1.4205 per euro after reaching $1.4249 yesterday, the weakest level since June 5. It was little changed at 94.23 yen. The Japanese currency appreciated 0.1 percent to 133.86 per euro.

‘Accommodative Policies’

The Fed will maintain “accommodative policies” aimed at reviving the U.S. economy for an “extended period,” including holding its benchmark interest rate near zero, Bernanke wrote in the Wall Street Journal.

Bernanke outlined five ways the central bank will be able to prevent the record reserves that banks have accumulated from causing money supply and inflation to surge. Officials will use the interest rate on banks’ deposits with the Fed as a main tool, which they can supplement with other means, including reverse-repurchase agreements and term deposits, he wrote.

“As economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road,” Bernanke wrote.

He will deliver his semiannual report to the House Financial Services Committee starting at 10 a.m. in Washington.

Stock Gains

European stocks advanced for a seventh day, the longest run of gains since August 2007, driving the Dow Jones Stoxx 600 Index up 0.6 percent.

The dollar and yen may struggle to gain should earnings from companies including Morgan Stanley, Microsoft Corp. and Apple Inc. beat analysts’ expectations, according to RBC Capital Markets.

“A continuation of the general trend of upside surprises seen in last week’s earnings reports would keep the dollar and yen under pressure,” Adam Cole, global head of currency strategy at RBC in London, wrote in a report. “The major macro event risk for the markets” will be Bernanke’s congressional testimony, he wrote.

The yen typically rises during times of financial turmoil because Japan’s trade surplus means the nation doesn’t have to rely on overseas lenders. The dollar tends to benefit from its status as the world’s main reserve currency.

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

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China Steel Rebounds Back to Profit in Second Quarter

By Yu-huay Sun

July 21 (Bloomberg) -- China Steel Corp., Taiwan’s biggest mill, beat analysts’ expectations after it swung to a second- quarter pretax profit on revalued inventories.

Profit was NT$774 million ($24 million) before taxes for the three months ended June 30, compared with a pretax loss of NT$9.57 billion in the first quarter, the Kaohsiung, Taiwan- based company said in an e-mailed statement today, without giving a year-earlier comparison.

Orders rebounded after customers depleted stockpiles, Executive Vice President Chung Le-min said last month. The company posted losses for two straight quarters as the global recession reduced demand from builders and automakers, and falling prices forced it to cut the value of inventories.

“People have expected China Steel to return to profit in the second half,” Ernest Chiang, who helps manage $61 million for IBT Asset Management Co., said in Taipei. “The profit for the second quarter was a surprise as we overlooked non-operating earnings.”

The writeback of stockpiles and raw materials was NT$6.16 billion, the statement said. China Steel was expected to post a loss of NT$633 million in the April-June period, according to the median estimate of nine analysts in a Bloomberg survey.

Shares Climb

China Steel climbed 0.5 percent to close at NT$30.2 in Taipei trading before the announcement. The stock has risen 31 percent this year, compared with a 51 percent gain in the benchmark Taiex index.

Spending on public works and infrastructure projects by nations including China, Taiwan’s biggest overseas market, is lifting steel demand globally. Steel prices in the mainland have gained 21 percent since April 1, according to the Beijing Antaike Information Development Co.

China Steel announced on June 10 a price increase of an average 7 percent for July and August, the first gain this year. That came after it reported a 52 percent plunge in May sales, according to a June 9 stock exchange filing.

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

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Gold, Little Changed in London, May Decline on Stronger Dollar

By Nicholas Larkin

July 21 (Bloomberg) -- Gold, little changed in London today, may fall as a stronger dollar reduces demand for the metal as an alternative investment.

The dollar gained as much as 0.3 percent against the euro after Federal Reserve Chairman Ben S. Bernanke said the central bank will be able to stem inflation once it begins to raise interest rates. Gold, which tends to move inversely to the greenback, has added 2.4 percent this month as the dollar has lost 1.3 percent against the single European currency.

The dollar is “continuing to drive bullion,” Pradeep Unni, a Richcomm Global Services analyst in Dubai, said today in a report. “Gold is struggling again to break and hold above resistance” at $957 an ounce, he said.

Bullion for immediate delivery fell 25 cents to $948.45 an ounce by 11:35 a.m. in London. August gold futures slipped 40 cents to $948.40 an ounce on the New York Mercantile Exchange’s Comex division.

The metal dropped to $947.75 in the morning “fixing” in London, used by some mining companies to sell production, from $952.75 at yesterday’s afternoon fixing. Spot prices rose for the first week in three last week.

Bernanke is scheduled to begin his semiannual monetary- policy testimony to Congress in Washington today. The market will be “cautious” before his remarks, Richcomm’s Unni said.

Oil Prices

The central bank is “confident we have the necessary tools to withdraw policy accommodation when that becomes appropriate,” the Fed chairman said in an opinion article in the Wall Street Journal.

Oil futures, used by some investors as an indicator of the outlook for inflation, added 0.3 percent to $64.16 a barrel in New York, erasing a drop of as much as 0.7 percent.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, was unchanged at 1,094.54 metric tons yesterday, the company’s Web site showed.

“Investment is needed to drive gold higher,” John Reade, UBS AG’s head metals strategist in London, said today in a report. “We will not see a strong year for global jewelry demand this year: the gold price is too high.”

Silver for immediate delivery in London slipped 0.4 percent to $13.605 an ounce. Platinum lost 0.7 percent to $1,175 an ounce after an eight-day advance, its longest since September 2007. Palladium was unchanged at $254.50 an ounce.

Platinum is “still gaining on firmer gold prices and overall positive sentiment,” Andrey Kryuchenkov, a VTB Capital analyst in London, said in today in a note. “Gains beyond $1,200 an ounce are questionable and would require significant support from improving macro data.”

The MSCI World Index of shares climbed as much as 0.6 percent, a seventh consecutive increase and the longest streak of gains in four months. A global economic recovery may increase demand for metals used more in industry.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

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Soybeans Drop in Chicago as China Poised to Release Stockpiles

By Luzi Ann Javier

July 21 (Bloomberg) -- Soybean futures in Chicago declined on speculation that crushers in China, the world’s biggest importer, may slow overseas purchases as the government releases local stockpiles for sale into the domestic market.

China will auction 500,000 metric tons of soybeans on July 23, the state-backed China National Grain and Oils Information Center said yesterday. The sale is meant to ensure local supplies are adequate and to stabilize prices, the center said in a separate report July 17.

“That’s one of the main reasons” soybean prices fell, Jonathan Barratt, managing director at Commodity Broking Services Pty in Sydney, said today. Prices are “coming back from an awful big high. This is just a correction,” he said.

Soybeans for November delivery fell as much as 0.8 percent to $9.1550 a bushel in after-hours electronic trade on the Chicago Board of Trade, after adding 0.2 percent earlier. The contract traded at $9.1650 at 2:40 p.m. in Singapore.

The most-active soybean futures contract has fallen 26 percent from a nine-month high of $12.365 on June 5 on concern that favorable weather in the U.S. will boost yields in the world’s biggest grower and exporter, increasing global supplies.

China’s soybean imports totaled a record 4.71 million tons in June, according to customs data. The sale from state stockpiles planned for next week would be 11 percent of that figure, according to Bloomberg calculations.

Wheat Declines

Wheat for September delivery was little changed at $5.4275 a bushel in Chicago at 2:41 p.m. Singapore time, after declining as much as 0.4 percent earlier.

Weather in the northern plains of the U.S. will help developing wheat crops, DTN Meteorlogix LLC said in a report yesterday. No significant delays to the remaining harvest are expected in the eastern Midwest, it said. The Midwest is the largest growing region in the U.S.

About 72 percent of the winter-wheat crop was harvested as of July 19, up from 66 percent a week earlier, the U.S. Department of Agriculture said yesterday.

Wheat exports from the U.K. expanded 11 percent to 233,238 tons in May from 209,295 tons a month earlier, according to customs data released yesterday.

Morocco’s soft-wheat harvest more than doubled in June through the first half of July to 1.51 million tons from 713,000 tons a year earlier, ONICL, the government grain office, said in a report.

Corn for December delivery lost as much as 1 percent to $3.3050 a bushel in Chicago at 2:36 p.m. Singapore time after rising as much as 0.4 percent earlier.

Cool temperatures in the Midwest will be favorable for pollinating the corn crop, Meteorlogix said in a separate report. Rain has come in time to ease the stress to corn crops in the northern plains of China, it said. China is the world’s second- biggest corn grower and consumer, according to the USDA.

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

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Copper Rises in London as Recovering Economies May Spur Demand

By Anna Stablum

July 21 (Bloomberg) -- Copper and aluminum rose in London on speculation recovering economies will spur demand for metals used in construction and automobiles. Lead and nickel fell.

The index of leading indicators in the U.S., the world’s second-largest copper consumer, increased in June for a third consecutive month, according to the U.S. Conference Board. Copper slumped 54 percent last year as recessions in Japan, Europe and the U.S. curbed consumption.

“The evidence of a turnaround is quite convincing,” Dan Smith, an analyst at Standard Chartered Plc in London, said by phone. “It is pretty clear that places like the U.S., Japan and Europe are bottoming out in terms of the cycle.”

Copper for three-month delivery gained $28, or 0.5 percent, to $5,378 a metric ton as of 11:15 a.m. on the London Metal Exchange. Yesterday the metal rose to $5,464.75, the highest intraday price since Oct. 14.

Copper futures for September delivery declined 0.7 percent to $2.452 a pound on the Comex division of the New York Mercantile Exchange.

Aluminum rose 0.8 percent to $1,724 a ton. The metal, used in transport, packaging and power lines, rose to $1,787 yesterday, the highest intraday price since Dec. 1.

“We have been quite bullish on aluminum for the last few months,” Smith said.

Backwardation Disappears

Copper has jumped 75 percent this year on demand from China, the world’s largest consumer of the metal. The LME copper market moved into so-called backwardation last week for the first time since May 1 as metal for nearby delivery traded at a premium to three-month copper, indicating scarce supplies. The spread moved into a discount yesterday of $11.25 a ton from this year’s high of a $21 premium on July 14.

There is one party holding 50 percent to 79 percent of LME copper inventories, LME data from July 17 showed.

Copper inventories rose to 266,425 tons today, the third consecutive gain. So-called canceled warrants, or metal earmarked for delivery from the total stockpile monitored by the LME, fell to 8,725 tons or 3.3 percent of total inventories, today’s daily LME report showed. This is down from 21 percent at the start of May.

Aluminum stockpiles booked for delivery out of warehouses monitored by the LME have risen 28 percent this month. During the same period, total inventories have risen 3.6 percent to a record of 4.6 million tons.

“The large volume of metal tied up in financing deals will put growing upward pressure” on prices for contracts closest to delivery, Gayle Berry, an analyst at Barclays Capital in London, said in a report yesterday.

Aluminum Contango

The contango, with metal for immediate delivery cheaper than supplies with the three-month delivery contract, has narrowed 29 percent since this year’s low on March 25.

Aluminum supplies will exceed demand by 1.1 million tons this year and 799,000 tons next year, Barclays forecast.

Among other LME metals, nickel fell 1.6 percent to $15,970 a ton. Lead dropped 0.9 percent to $1,699 a ton, zinc declined 1.4 percent to $1,642 a ton, and tin was 0.8 percent lower at $13,890 a ton.

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

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