Daily Technical Analysis

Daily Forex Technicals | Written by FX Instructor | Aug 12 09 02:59 GMT |

EURUSD Outlook The EURUSD made indecisive movement yesterday, by opened and closed at almost the same price, formed a Doji on daily chart. The market is likely to wait for FMOC meeting tomorrow regarding rate decision and quantitative easing program before making the next steps. The Fed is expected to keep the rate at 0.25% and keep it's 1.75T asset purchase program. I will write more details about this matter tomorrow. On h4 chart below we can see that the trendline support still hold preventing further downside pressure. The bias remains neutral in nearest term and I think it's better to stay out from the market for now until FMOC decision tomorrow. I am expecting range area between 1.4220 - 1.4100 today. GBPUSD Outlook The GBPUSD also made indecisive market, formed a Doji on daily chart. Today we will have BoE inflation report that should be an important catalyst to move the market significantly. After decided to continue it's quantitative easing program to GBP 175b last Thursday, I am expecting a dovish report and Sterling should remains under pressure. Technically on h1 chart below we can see that the pair is consolidating after significant bearish momentum, moving in rectangle area. A break on either side should give us clearer direction. I am expecting a breakdown and continue the bearish scenario towards 1.4350. However, a breakout to the upside should trigger further upside pullback toward 1.6660 area USDJPY Outlook The USDJPY continued it's bearish momentum yesterday, break below 96.70, bottomed at 95.75 and closed at 95.94. This fact change my nearest term outlook from bullish to bearish testing 95.00 area, but remains neutral in medium term. On daily chart below we can see that the price seems ready to test the trendline support. The CCI is about to cross the -100 line down on daily chart support the bearish scenario. A break below the trendline support and 95.00 area should trigger further bearish scenario towards 93.00. However hourly CCI just cross the -100 line up so watch out for potential upside pullback testing 96.20/50 resistance area. USDCHF Outlook The USDCHF was corrected lower yesterday, bottomed at 1.0789 and closed at 1.0818. On daily chart below we can see that actually in longer term outlook, the pair is still in range bound area. A breakout above 1.0940 should confirm further bullish scenario. However, a break below 1.0750 could bring the pair back testing 1.0589 area. The market is likely to wait for FOMC meeting tomorrow before take the next steps, so it's better to stay out for now. I am expecting a choppy market between 1.0750 - 1.0850 today. EURJPY Outlook The EURJPY continued it's bearish momentum yesterday. The pair hit my short target at 136.00 even lower, bottomed at 135.24 and closed at 135.80. On h4 chart below we can see that the trendline support has been violated to the downside indicating bullish failure and potential bearish scenario. The bias remains bearish in nearest term targeting 134.50. However, CCI in oversold area and heading don on h4 chart so watch out for potential upside rebound testing 136.50 area. Break above that area should lead us into no trading zone. After violated the trendline support to the downside, I will not surprised if the price make a pullback to the upside around the trendline area but long position is not recommended at this phase. GBPJPY Outlook The GBPJPY continued it's bearish momentum yesterday, bottomed at 157.81 and closed at 158.07. On 4h chart below we can see that the price made breakdown from the broadening formation, but retreat back inside the formation. The bias remains bearish in nearest term. However, we seem to have good support around 157.80 area. Now that the price is back inside the broadening formation and CCI about to cross the -100 line up on h4 chart, watch out for potential upside pullback testing 160.00 area. Break below 157.80 would be a bearish medium term confirmation for me towards 153.00 area. AUSUSD Outlook The AUDUSD had a significant bearish momentum yesterday, bottomed at 0.8274 and closed at 0.8288. The pair is in critical phase now, where bearish momentum seems ready to challenge 0.8261 key level in nearest term. As long as 0.8261 support area hold the bullish medium term remains intact, but as you can see on h4 chart below, the fact that the trendline support has been violated to the downside should be considered as potential threat to the medium bullish outlook. CCI in oversold area and heading up on h4 chart suggesting potential upside pressure testing 0.8350 resistance area. FX Instructor LLC www.fxinstructor.com The information has been prepared for information purposes only. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. This information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FXInstructor LLC assumes no responsibilities for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person's reliance upon this information. FXInstructor LLC does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FXInstructor LLC shall not be liable for any indirect, incidental, or consequential damages including without limitation losses, lost revenues or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results

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Forex and Dow Jones Recommended Levels

Daily Forex Technicals | Written by FXtechtrade | Aug 12 09 03:06 GMT |

EUR/USD Today's support: - 1.4110, 1.4086 and 1.4060(main), where correction is possible. Break would give 1.4040, where correction also may be. Then follows 1.4018. Break of the latter would result in 1.3994. If a strong impulse, we would see 1.3966. Continuation will give 1.3950. Today's resistance: - 1.4186 and 1.4224(main). Break would give 1.4250, where a correction is possible. Then goes 1.4268. Break of the latter would result in 1.4285. If a strong impulse, we'd see 1.4298. Continuation will give 1.4312. USD/JPY Today's support: - 95.40 and 95.18(main). Break would bring 94.94, where correction is possible. Then 94.66, where a correction may also happen. Break of the latter will give 94.48. If a strong impulse, we would see 94.20. Continuation would give 94.02. Today's resistance: - 96.13, 96.30 and 96.53(main), where a correction may happen. Break would bring 96.82, where also a correction may be. Then 97.04. If a strong impulse, we would see 97.25. Continuation will give 97.48 and 97.87. DOW JONES INDEX Today's support: - 9212.40 and 9202.50(main), where a delay and correction may happen. Break of the latter will give 9181.30, where correction also can be. Then follows 9154.46. Be there a strong impulse, we would see 9129.37. Continuation will bring 9113.50. Today's resistance: - 9326.27, 9342.12 and 9360.00(main), where a delay and correction may happen. Break would bring 9387.72, where a correction may happen. Then follows 9413.44, where a delay and correction could also be. Be there a strong impulse, we'd see 9438.65. Continuation would bring 9450.00 and 9469.68. FXtechtrade http://www.fxtechtrade.com Disclaimer: Any information presented by Nikolajs Serikovs at this very website should be in no way understood as an offer, promise or guarantee for receiving a profit or avoiding the losses. Stated here levels of support and resistance must not be construed as an investment advice or endorsement for any financial instrument. There exists no guarantee that the market would behave in accordance with the information stated here Prepared in Republic of Latvia for the worldwide distribution.

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Australian Wages Growth Stalls at 0.8% on Job Losses

By Jacob Greber

Aug. 12 (Bloomberg) -- Australian wages growth stalled last quarter as the worst global slump since the Great Depression drove up unemployment.

Hourly pay rates excluding bonuses climbed 0.8 percent from the first quarter, when they rose by the same amount, the statistics bureau said today in Sydney. The result matched the median estimate of 12 economists surveyed by Bloomberg News.

The global recession has eroded demand for Australian exports of coal and iron ore, forcing companies to postpone investment plans and hire fewer workers. Wage pressures may ease further as unemployment climbs, the central bank said last week after policy makers left the benchmark interest rate unchanged for a fourth month at a half-century low of 3 percent.

“Today’s figures will reaffirm the view held by Reserve Bank officials that current policy settings are appropriate,” said Helen Kevans, an economist at JPMorgan Chase & Co. in Sydney. “Economy-wide price pressures remain subdued.”

The Australian dollar fell to 82.67 U.S. cents at 12:17 p.m. in Sydney from 82.97 cents just before the report was released. The two-year government bond yield shed 1 basis point to 4.52 percent. A basis point is 0.01 percentage point.

The so-called wage price index advanced 3.8 percent in the second quarter from a year earlier, slowing from an annual increase of 4.2 in the previous quarter, today’s report showed.

Job Losses

Australia’s unemployment rate has risen to 5.8 percent, the highest level in almost six years, from 4.9 percent in January. Advertisements for job vacancies on the Internet and newspapers tumbled a record 51.9 percent last month from a year earlier, an Australia & New Zealand Banking Group Ltd. index showed.

A Reserve Bank survey shows the proportion of companies expecting to increase wages this year has fallen from over 90 percent to around two-thirds, the central bank said last week.

“Business surveys taken in the March and June quarters also suggest that labor-cost growth is likely to continue to moderate over the period ahead,” the central bank said in its quarterly monetary policy statement on Aug. 7.

Australia’s lowest paid workers will get no increase in the minimum wage after the Fair Pay Commission in July maintained the hourly rate at A$14.31 ($11.84).

Easing wage pressure may give central bank Governor Glenn Stevens scope to keep borrowing costs unchanged in coming months, even as evidence mounts of an economic rebound.

Consumer Confidence

The central bank said last week its next move on interest rates, which policy makers slashed by a record 4.25 percentage points between April and September, is likely to be an increase after it scrapped a prediction the economy will fall into a recession.

“The Reserve Bank will sit on the sidelines during the remainder of the year, before embarking on the next tightening cycle in early 2010,” JPMorgan’s Kevans said.

Rising consumer and business confidence have “reduced the likelihood” Stevens will cut the benchmark rate below 3 percent, the bank said. The current rate is “appropriate.”

Consumer confidence jumped 3.7 percent in August from July to close to a two-year high, according to an index released today by Westpac Banking Corp.

Business sentiment jumped in July to the highest level in almost two years, adding to evidence the economy is rebounding from the global recession, a survey by National Australia Bank Ltd. showed yesterday.

Hourly rates of pay at manufacturers increased 2.7 percent from a year earlier, the smallest gain among the 16 industries surveyed by the statistics bureau. Salaries at utility companies rose 4.6 percent from a year earlier, to register the largest gain.

Traders forecast the central bank’s overnight cash rate target will be 180 basis points higher in 12 months, according to a Credit Suisse Group AG index based on interest-rate swaps at 12:11 p.m. in Sydney. They tipped 177 basis points of gains before today’s release.

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

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South Korean Minister Sees Exports Rising More Than 10% in 2010

By Seyoon Kim and Shinhye Kang

Aug. 12 (Bloomberg) -- South Korea’s exports may increase by more than a tenth next year as demand from global customers picks up, Minister of Knowledge Economy Lee Youn Ho said.

“Our export competitiveness and technology have been strengthened over the years and this will play a big role once global economies pick up,” Lee, 61, said in an interview yesterday in Gwacheon. “We’re looking at an increase of about 10 percent, but we’re hoping for more” depending the world recovery, he said.

Exports, which make up more than half of Asia’s fourth- largest economy, will start rising from October, boosted by a weaker currency earlier in the year and a recovery in demand, the government said in June. The economy expanded at the fastest pace in almost six years in the second quarter as overseas shipments and household spending rose.

The ministry, which oversees trade, industry and energy policies, predicted last month that exports will fall 14.4 percent this year.

A weaker currency has helped South Korean exporters fare better than their Asian neighbors during the deepest global recession since the Great Depression. The won tumbled 28 percent against the dollar from the beginning of last year through April. Overseas shipments fell 12.4 percent in June, while Japan’s exports declined 36 percent and Taiwan’s slid 30 percent.

Higher Profits

Profits are growing thanks to robust demand for Korean-made products. Kia Motors Corp., South Korea’s second-biggest carmaker, today said its second-quarter profit more than quadrupled, helped by local and Chinese sales. Second-quarter profit at Samsung Electronics Co. climbed to the highest in more than two years, boosted by higher sales of televisions and mobile phones.

Lee said fiscal and monetary policy helped the nation’s economy weather the global slowdown, adding that policy makers shouldn’t rush to unwind measures that have supported growth.

The central bank kept its benchmark interest rate unchanged at a record-low 2 percent for a sixth straight month yesterday after cutting it by 3.25 percentage points between October and February. The government said it spent 68 percent of this year’s budget through July in an effort to frontload government sending and help the economy.

“Our fiscal and monetary policies have been prepared and implemented in a very sophisticated manner,” Lee said. “Of course, we need an exit strategy for the economy, but I don’t think this year would be a good time as the recovery isn’t strong yet. Preparation is needed, but an implementation of the exit strategy should be cautiously done.”

Stocks have soared 39 percent this year on rising investor confidence in the economy while the International Monetary Fund upgraded its forecasts this week for South Korea’s economic growth in 2009. The government on June 25 raised its 2009 GDP forecast, predicting the economy will shrink 1.5 percent this year, less than a previous estimate for a 2 percent decline.

Lee, who became minister in February 2008 with the start of President Lee Myung Bak’s administration, was chief executive officer at LG Economic Research Institute and also worked at the Federation of Korean Industries. He holds a PhD in economics from the University of Wisconsin-Madison.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net; Shinhye Kang in Seoul at skang24@bloomberg.net

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Australian Consumer Optimism Rises to Two-Year High

By Jacob Greber

Aug. 12 (Bloomberg) -- Australian consumer confidence jumped this month to the highest level in almost two years, adding to signs the nation’s economy has skirted the worst global slump since the Great Depression.

The sentiment index gained 3.7 percent to 113.4 points, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Aug. 3 and Aug. 9.

Rising consumer confidence will help Australia’s economy expand faster than expected six months ago, according to central bank Governor Glenn Stevens, who said the bank’s next move may be to increase borrowing costs from a half-century low of 3 percent. The index has climbed 27.8 percent since May, the largest three-month gain since the survey began in 1975.

“The current surge has seen sentiment rise back into solidly optimistic territory,” said Matthew Hassan, a Westpac economist in Sydney. “As far as consumers are concerned, the worst of the current downturn appears to have passed.”

The Australian dollar fell to 82.62 U.S. cents at 12:26 p.m. in Sydney from 82.99 cents just before the report was released. The two-year government bond yield shed 2 basis points to 4.51 percent. A basis point is 0.01 percentage point.

Higher consumer and business confidence have “reduced the likelihood” Stevens will cut the benchmark rate below 3 percent, the bank said on Aug. 7.

Wages Growth

With “the cash rate at an unusually low level and the global economy stabilizing, movement towards a more normal setting of monetary policy could be expected at some point,” the bank said.

A report published today showing wages growth stalled last quarter may give Governor Stevens scope to keep borrowing costs unchanged in coming months.

Hourly pay rates excluding bonuses climbed 0.8 percent from the first quarter, when they rose by the same amount, the statistics bureau said today. The result matched the median estimate of 12 economists surveyed by Bloomberg News.

Traders forecast the central bank’s overnight cash rate target will be 179 basis points higher in 12 months, according to a Credit Suisse Group AG index based on interest-rate swaps at 12:21 p.m. in Sydney.

Cash Handouts

Prime Minister Kevin Rudd’s government distributed A$12 billion ($9.9 billion) in cash handouts to households this year and is spending A$22 billion to upgrade roads, railways, hospitals and ports.

Westpac’s Hassan said confidence has also been boosted by a report on Aug. 4 showing house prices rose 4.2 percent in the second quarter, helping pare most of the decline since the start of 2008.

“The other major positive was the surprisingly strong July labor-market result, which showed an unexpected rise in employment,” Hassan said.

All five components in Westpac’s confidence index rose this month. Expectations for economic conditions over the next 12 months jumped 11.2 percent after gaining 19.6 percent in July.

“We expect the Reserve Bank to begin the cautious process of ‘normalizing’ rates in early 2010 with a quarter percentage point increase in February,” Hassan said.

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

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Japan Producer Prices Slide a Record 8.5% Amid Slump

By Mayumi Otsuma

Aug. 12 (Bloomberg) -- Japan’s producer prices fell at a record pace in July as oil traded lower than last year and companies required fewer materials amid a recession.

The costs companies pay for energy and unfinished goods declined 8.5 percent from a year earlier after sliding a revised 6.7 percent in June, the Bank of Japan said today in Tokyo. The median estimate of 24 economists surveyed by Bloomberg News was for an 8.7 percent drop.

The report highlights concern that deflation will become entrenched and hamper a rebound from the nation’s worst postwar recession. Bank of Japan Governor Masaaki Shirakawa said yesterday that his policy board is closely watching the decline in prices, while adding that there’s little risk of a deflationary spiral now.

“It will take a long time before producer prices return to positive territory,” said Taisuke Nakamoto, an economist at Dai-Ichi Life Research Institute in Tokyo. Weak demand “will continue to exercise downward pressure on prices.”

The year-on-year decline in costs was the biggest since the central bank started compiling the report in 1960. From June, prices rose 0.4 percent, today’s report showed.

Signs of deflation are spreading. Consumer prices excluding fresh food, the central bank’s preferred gauge of inflation, fell a record 1.7 percent in June from a year earlier. The central bank may forecast later this year that consumer prices will keep falling in the year ending March 2012 even as the economy recovers.

Delay Purchases

Expectations for lower prices ahead may prompt companies and consumers to delay purchases, eroding profits and forcing firms to cut wages. That would threaten an economy that analysts say grew at an annual 3.9 percent pace last quarter, the first expansion in a year.

A rebound in growth “will do little to counter deflationary pressure,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “It’s difficult to anticipate a change in the price environment anytime soon.”

Most of the drop in producer prices has been in reaction to record oil costs in 2008, and declines may moderate in coming months because crude plunged late last year, falling as low as $32.40 a barrel in December from $147.27 in July.

The central bank’s overseas commodity index, which shows changes in costs including oil, steel, copper and wheat, slid 44.6 percent in July from a year earlier.

Producer prices will probably decline 5.9 percent in the year to March 2010 and 2.1 percent in the following 12 months, Bank of Japan board members forecast last month.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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China May Delay Monetary Tightening as Exports, New Loans Drop

By Bloomberg News

Aug. 12 (Bloomberg) -- The People’s Bank of China may delay tightening monetary policy until the fourth quarter after exports dropped in July, lending fell and investment growth slowed, economists said.

Exports fell 23 percent from a year earlier, the government said yesterday. Urban fixed-asset investment rose a less-than- estimated 32.9 percent in the first seven months from a year earlier. New loans plunged to 355.9 billion yuan ($52 billion), less than a quarter of advances in June.

China’s economy, which avoided following the U.S. and Europe into recession, is yet to cement a recovery because factories have too much capacity and exports are weakening, officials said this month. The Shanghai Composite Index rose 0.5 percent yesterday, snapping a four-day slide, as investors speculated that the government will refrain from reducing capital inflows.

“The slightly weaker-than-expected data means an even smaller chance of an imminent change in macro policy and lends weight to those who argue that it is too early to tighten,” said Stephen Green, head of China research at Standard Chartered Bank in Shanghai. “What was a V-shaped recovery now seems to be experiencing a little gravitational pull.”

Consumer prices will start to rise again in November, helping to trigger a shift in monetary policy, with banks’ reserve requirements rising in the fourth quarter, an interest- rate increase in the first half of next year, and “even possibly loan quotas,” Green said.

Intel, General Motors

Prices slid 1.8 percent in July from a year earlier, the biggest decline since 1999, yesterday’s data showed.

Government efforts to create jobs and stoke growth with a 4 trillion yuan stimulus package are helping the sales of companies from Intel Corp. to construction equipment-maker Komatsu Ltd. General Motors Co. reported a 78 percent increase in vehicle sales in China in July.

Retail sales rose 15.2 percent in July, more than economists forecast, the statistics bureau said yesterday.

The People’s Bank of China scrapped lending quotas in November, triggering a record 7.73 trillion yuan ($1.3 trillion) of new loans this year. M2, the broadest measure of money supply, rose 28.4 percent in July from a year earlier, yesterday’s data showed.

The central bank also slashed reserve requirements and interest rates in the final four months of last year, as the global credit crisis deepened after the collapse of Lehman Brothers Holdings Inc. The reserve ratio is 15.5 percent for big banks and 13.5 percent for small lenders. The key one-year lending rate is 5.31 percent.

Property, Stock Bubbles

Shanghai’s stock index has rallied almost 80 percent in 2009 and real-estate sales and prices have rebounded, adding to concern that asset bubbles may hamper the recovery.

China’s stock market performance is closely tracking “local perception” of monetary policy, said Howard Wang, head of the Greater China team at JF Asset Management, which oversees $50 billion. Falling exports “comfort the local market” by adding to signs that the government will not tighten policy, Wang said.

Industrial output grew 10.8 percent in July from a year earlier. That compared with a 10.7 percent advance in June and economists’ median forecast for an 11.5 percent increase.

China’s government may end the current “extremely loose” monetary policy in the fourth quarter, when the recovery is on a stronger footing, said Helen Qiao, a Hong Kong-based economist for Goldman Sachs Group Inc.

Global Weakness

The tools may include a 50 basis-point increase in banks’ reserve requirements, higher money market rates and more government guidance of lending, Qiao said.

Goldman this week raised its forecast for China’s gross domestic product growth this year to 9.4 percent, noting that weakness in the global economy would deter policy makers from tightening too soon.

Premier Wen Jiabao reaffirmed Aug. 9 that China will maintain a “moderately loose” monetary policy and “proactive” fiscal stance.

The central bank stepped up bill sales from July to mop up liquidity and the banking regulator has increased checks to ensure that lending flows into the real economy, rather than speculation. China Construction Bank Corp. President Zhang Jianguo said last week that the nation’s second-largest bank will cut new lending in the second half by about 70 percent to avert a surge in bad debt.

China’s economy expanded 7.9 percent in the second quarter from a year earlier, rebounding from the weakest growth in almost a decade.

To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net;

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India’s 7% Growth Target Threatened as Rain Gods ‘Play Hooky’

By Kartik Goyal

Aug. 12 (Bloomberg) -- India’s 7 percent economic growth target may be jeopardized as the weakest monsoon rains in five years threaten harvests, according to economists.

The India Meteorological Department on Aug. 10 lowered its monsoon forecast for a second time this season, saying showers in the June-September season will be 13 percent below average, compared with a 7 percent shortfall estimated in June.

Deficient rains may reduce crops as India, where more than half the arable land isn’t irrigated, relies on the monsoon to produce food for its 1.2 billion people. Lower farm output may erode the purchasing power of 742 million Indians who live in the countryside, hurting Prime Minster Manmohan Singh’s efforts to revive growth in order to create jobs and cut poverty.

“The rain gods continue to play hooky,” said Rajeev Malik, a regional economist at Macquarie Group Ltd. in Singapore. A poor monsoon that results in a sizeable shortfall in farm production would “definitely reduce economic growth,” he added.

As many as 161 of India’s 626 districts have been declared drought prone, the government said yesterday. Areas under rice cultivation have declined 20 percent to 22.82 million hectares, the farm ministry said.

A below-average monsoon may shave as much as one percentage point off India’s growth in the year to March 2010, Raghuram Rajan, a former chief economist at the International Monetary Fund said on Aug. 10. India’s economy, the third-largest in Asia, may expand 6 percent in the current fiscal year, Rajan said.

2002 Drought

A drought in 2002 pared economic growth to 3.8 percent, the lowest in 11 years. The following year, the pace of expansion accelerated to 8.5 percent, the fastest since 1989, as sufficient rains returned.

A 20 percent rain shortfall may chop 2 percentage points off India’s economic growth, according to Philip Wyatt, a senior economist at UBS AG in Hong Kong. A 2 percent drop in farm output may lower gross domestic product by 1 percentage point, said economist Robert Prior-Wandesforde of HSBC Group Plc.

“We think rural demand will be negatively impacted and this is a significant negative shock,” said Tushar Poddar, an economist at Goldman Sachs Group Inc. in Mumbai. Industries catering to rural consumers will be the hardest hit, he said. Poddar estimates GDP growth would be reduced by 0.3 percentage point in the case of a 2 percent decline in farm production.

Insufficient rain has caused acreage of all major crops to lag behind year-ago levels, denting prospects for bigger harvests of rice, oilseeds and sugar cane. India, the world’s second-biggest rice producer, planted monsoon paddy crops on 5.8 million hectares less area this year because of scant rain in the main growing regions, according to the farm ministry.

Food Prices

Reduced harvests this year may also have an inflationary impact on food prices in the coming months, Prime Minister Singh said Aug. 8.

Consumer prices paid by farm workers jumped 11.52 percent in June from a year earlier after gaining 10.21 percent in May. Prices paid by industrial workers rose 9.26 percent in June from a year earlier, according to the latest government data.

The showers in June-September period are critical as abundant rains boosts farm output, putting more money in the hands of rural consumers to spend on goods such as tractors made by Mahindra & Mahindra Ltd. and soaps and personal-care products from Hindustan Unilever Ltd.

“As food prices go up, this will have a significant negative impact on rural demand,” Poddar from Goldman Sachs said. “Additionally, the summer rains prepare the ground for the winter crop, which may also be affected due to the shortfall.”

Cars, Tractors

Indian stocks fell by 1 percent on Aug. 10 on concern shortfalls in agricultural production may slow the country’s economic growth. Mahindra & Mahindra, the nation’s largest maker of sport-utility vehicles and tractors, sank 9 percent and Hindustan Unilever Ltd. declined 3.3 percent.

Still, economists such as Macquarie’s Malik said accelerating industrial output and higher government spending on rural jobs and infrastructure may help offset the impact of lower farm output on the economy.

“The share of agriculture in India’s GDP has declined to 17.5 percent from 34 percent in 1980,” Malik said. “Hence minor variations in farm output increasingly matter less for overall GDP growth.”

Malik has kept his economic growth estimate unchanged at 7 percent, saying he’ll make a final call on the forecast after a more complete report of the sowing season through August.

Finance Minister Pranab Mukherjee in his July 6 budget speech raised spending on a guaranteed-rural jobs program by 144 percent to 391 billion rupees ($8.15 billion) in the year to March 2010 and promised to provide rice and wheat to the poor at 3 rupees a kilogram.

Deficient rainfall may pose a problem to India’s economic recovery but there is no need to “press the panic button,” Mukherjee said. The government has contingency plans to deal with the situation, he added.

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net

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Japan Economy Probably Expanded for First Time in Five Quarters

By Jason Clenfield and Tatsuo Ito

Aug. 12 (Bloomberg) -- Japan’s economy grew last quarter for the first time in more than a year as rebounds in exports and consumer spending helped the country climb out of its worst postwar recession, the government is expected to say next week.

Gross domestic product expanded an annualized 3.9 percent in the second quarter, following a record drop of 14.2 percent in the three months ended March 31, according to the median estimate of 22 analysts surveyed before the report due Aug. 17.

More than $2 trillion in emergency spending by governments worldwide has buoyed sales for car and electronic-makers, and companies like Nippon Steel Corp. are filling orders from manufacturers restocking inventories depleted during the recession. Some 40 percent of Japan’s factories still sit idle, forcing firms to cut jobs and investment to eek out profits.

“The positive side of the story is that the worst is over,” said Tetsuro Sugiura, chief economist at Mizuho Securities Research Institute in Tokyo. “But the sustainability of the recovery is questionable. The second quarter is likely to be as good as it gets.”

The world’s second-largest economy is emerging from recession ahead of a national election on Aug. 30 that polls show Prime Minister Taro Aso’s ruling Liberal Democratic Party is expected to lose. The opposition Democratic Party of Japan, which has never held power, would inherit a jobless rate near a postwar high and a public debt twice the size of GDP.

The economy’s recovery hinges largely on the growth of its export markets. China, Japan’s top customer, expanded 7.9 percent last quarter from a year earlier, propelled by government spending and a boom in bank lending that some economists say may lead to a bubble. The U.S. shrank an annualized 1 percent, its best performance since the second quarter of 2008.

Export Driven

Japan’s growth last quarter was driven by exports that jumped 9.2 percent versus the previous three months, the first gain in three quarters, according to economist forecasts. Demand from China has helped to limit losses for companies including Komatsu Ltd. and Nissan Motor Co.

Consumer spending, which makes up about 60 percent of the economy, probably rose 0.9 percent. Aso’s 25 trillion yen ($258 billion) in stimulus has lifted household confidence to its highest level since 2007. The packages, which include incentives to encourage the purchase of eco-friendly products, are the main reason Toyota Motor Corp. is predicting its domestic sales will rise for the first time in five years.

Weak Recovery

Optimism about the nation’s recovery has helped the Nikkei 225 Stock Average advance 50 percent since it touched a 26-year low on March 10. Some 15 percent of firms listed on the first section of the Tokyo Stock Exchange raised first-half earnings estimates since June, according to Tokyo-based Shinko Research.

To be sure, Japan’s expansion in the three months through June 30 doesn’t make up the ground lost during the previous four quarters of contraction that shrank the economy to its 2003 size. Bank of Japan Governor Masaaki Shirakawa said yesterday there’s no guarantee that demand will gain momentum.

“The bounce will recoup only a tenth of what we lost,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. “If sales recover only to 80 percent of peak levels -- and that’s what we expect -- then quite a few firms will find it difficult to cover fixed costs. They’ll need to do more aggressive restructuring.”

Nippon Steel, the country’s biggest mill, this month restarted one of its idled furnaces to fill orders from makers of cars and electronics rebuilding inventories. The company is still running 25 percent below full capacity.

Record Unemployment

Economists predict low production levels will drive the jobless rate to a record 5.8 percent next year from the current 5.4 percent. Japanese workers are also suffering unprecedented wage cuts that are likely to damp spending once the effect of the government’s stimulus package tapers off.

Business investment, which makes up about 15 percent of the economy, probably fell 5.4 percent in the second quarter, economist predict the GDP report will show.

Cost cuts by corporate Japan are taking a toll on companies such as Canon Inc. The nation’s biggest maker of office equipment last month forecast sales will drop 22 percent this year as clients limit spending on copiers and other business tools. To cope with that, Canon said it will pare its own expenses by 220 billion yen.

“Once the impact of the inventory rebuild and fiscal stimulus fades, you’ll start to see the more negative side of the adjustment,” said BNP’s Shiraishi, referring to the job and investment cuts that companies are making. “It’s already happening underneath, but once the temporary factors supporting growth fade it’ll be more clear.”

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net; Tatsuo Ito in Tokyo at tito2@bloomberg.net

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Developing Nations to Boost ‘Defensive’ Reserves, Spence Says

By Bob Chen

Aug. 12 (Bloomberg) -- Developing countries are likely to focus on increasing their foreign-currency reserves, an “element of self-insurance,” in the aftermath of the financial crisis, said Nobel Prize-winning economist Michael Spence.

Nations will look to protect themselves from money outflows by building up reserves after emerging markets saw their currencies weaken due to a “rapid exodus of capital” as developed economies withdrew funds amid the slump, Spence said in a commentary posted on the Web site of Pacific Investment Management Co.

“The use of reserves to stabilize the net capital flows is the most important domestically controlled circuit breaker,” Spence, professor emeritus of management in the Graduate School of Business at Stanford University, said in the article. “Countries without reserves had few options and remain highly vulnerable and dependent on a recovery of the international system.”

China and Russia have put forward the idea of replacing the dollar as the world’s reserve currency because of concern the value of their investments in U.S. assets will fall. The U.S. Treasury is selling record amounts of debt to fund its stimulus spending and rescue the economy from recession.

The People’s Bank of China suggested the option of expanding the use of the International Monetary Fund’s special drawing rights, a unit of account based on a basket of currencies. Premier Wen Jiabao said in March that he was concerned U.S. borrowing would erode the value of the $801.5 billion in Treasuries held by his nation’s investors.

‘Defensive Weapon’

The dollar accounted for 64 percent of the world’s reserves at the end of 2008, down from 73 percent in 2001, according to the IMF.

The U.S. dollar is unlikely to be replaced by a “super- sovereign currency,” according to Spence.

The global financial crisis caused South Korea’s reserves to drop to the lowest levels in almost four years in November as the won fell 12 percent that month. Russia spent more than a third of its foreign-exchange holdings to help stem a 35 percent devaluation in the ruble from last August to January.

“The importance of reserves as a defensive weapon will be elevated,” Spence said. “Management of the current and capital account will be carried out in such a way as to include or expand this element of self-insurance.”

To contact the reporter on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net

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Yen Rises as Asian Stock Losses Spur Demand for Safer Assets

By Theresa Barraclough and Ron Harui

Aug. 12 (Bloomberg) -- The yen rose against all 16 major currencies as Asian stocks extended a global slide in equities, spurring demand for the relative safety of Japan’s currency.

The yen also gained for a third day versus the euro after CIT Group Inc. said it was delaying a quarterly report, reviving concern the commercial lender needs more time to raise funds. The dollar fell for a third day against the yen on speculation the Federal Reserve will today affirm its commitment to keeping interest rates low, reducing the appeal of holding U.S. bonds.

“The market is feeling that the recovery in financial institutions may be limited,” said Satoru Ogasawara, a foreign- exchange analyst and economist in Tokyo at Credit Suisse Group AG. “It’s reasonable to expect market participants being risk averse and turning to the yen.”

The yen advanced to 135.16 per euro as of 12:54 p.m. in Tokyo from 135.82 in New York yesterday, after earlier rising to 135.03, the highest level since Aug. 3. Japan’s currency climbed to 95.56 per dollar from 95.99. The dollar traded at $1.4144 per euro from $1.4149.

Most Asian currencies weakened against the dollar and yen as equities in the region dropped, prompting investors to sell emerging-market securities.

“Falling shares would imply risk aversion, sparking buying of the yen,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “The yen may move in line with stocks.”

Asian Currencies Weaken

South Korea’s won slid 1 percent to 1,251.35 per dollar and Indonesia’s rupiah declined 0.5 percent to 9,965. The MSCI Asia- Pacific Index of regional shares declined 1.2 percent. The euro- yen had a correlation of 0.88 with the MSCI Asia-Pacific Index in the past year, according to data compiled by Bloomberg. A value of 1 would mean the two moved in lockstep.

The yen strengthened to a one-week high against the euro after CIT said in a filing yesterday it expects to file the so- called 10Q statement with the Securities and Exchange Commission by Aug. 17. It repeated a statement from July 23 that bondholders don’t plan to push for a bankruptcy filing.

The New York-based lender, which turned to bondholders for a $3 billion rescue financing after failing to get a second government bailout, said last month it didn’t have the money to repay securities maturing Aug. 17.

The Dollar Index dropped for a second day. Fed policy makers will announce more details about their asset-purchase program at the end of their two-day meeting in Washington.

‘Still Concern’

“The Fed will be positive on the economy but they most likely won’t change their quantitative easing program,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. “There’s still concern about the outlook and whether they’ve done enough and if lending is picking up. If you had to be short or long, I would be short on the dollar.” A short position is a bet an asset will decline.

The greenback is likely to depreciate to 92 yen by year-end, Westpac’s Callow said. That compares with a forecast of 98 yen in a Bloomberg News survey of economists and analysts with a heavier weighting on more recent forecasts.

The Fed has kept its target rate for overnight loans between banks in a range from zero to 0.25 percent since December. The Federal Open Market Committee will keep rates unchanged today, according to all economists surveyed by Bloomberg. The central bank has bought $252.761 billion of U.S. Treasuries since it announced a six-month plan in March to purchase $300 million of Treasuries to help keep borrowing low.

Yield Spread

“If the Fed provides no hints of when it’s planning to exit its quantitative-easing program, this could weigh on the U.S. dollar,” analysts led by John Kyriakopoulos, head of currency strategy at National Australia Bank Ltd. in Sydney, wrote in a note today.

The difference in yield between 10-year Treasuries and similar-maturity German debt held at 19 basis points today, about half the 41 basis-point spread on Aug. 5. The spread between U.S. and Japanese debt was at 220 basis points today. A basis point is 0.01 percentage point.

The Dollar Index, which the ICE uses to track the dollar against currencies of six major U.S. trading partners including the euro and the yen, to 79.146.

Industrial Production

The euro traded near a seven-week high against the Swiss franc before a report that economists say will show European industrial production rose 0.2 percent in June, after increasing 0.5 percent the previous month.

An index measuring investor sentiment in the euro area rose to minus 17 in August from minus 31.3 in July, the Limburg, Germany-based Sentix research institute said on Aug. 10. The gauge added to signs the economy is recovering from its worst slump since World War II.

“Evidence is mounting that economies around the world, including those in the euro-zone, are coming out of recession,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “That means the euro is still likely to be strong.”

European Central Bank President Jean-Claude Trichet said last week he sees some “clearly less negative” economic signs.

The euro traded at 1.5308 francs from 1.5307 yesterday. It rose to 1.5364 on Aug. 10, the strongest since June 25. The currency was at 85.79 British pence from 85.86 pence yesterday, when it advanced to 86.16 pence, the highest since July 29.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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China Iron-Ore Import Growth ‘Too High’ This Year, Official Says

By Bloomberg News

Aug. 12 (Bloomberg) -- China’s iron-ore import growth of 31 percent in the first seven months of this year was “a bit too high” and worrisome, Vice Commerce Minister Fu Ziying said at a briefing in Beijing today. He cited “irrational” behaviour by importers in the context of steel overcapacity in China.

To contact the reporter on this story: Paul Panckhurst in Beijing at ppanckhurst@bloomberg.net

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Fortescue Reviewing Expansion Financing Options

By Jesse Riseborough

Aug. 12 (Bloomberg) -- Fortescue Metals Group Ltd., Australia’s third-largest iron ore exporter, is reviewing financing options for planned expansions of its mine, port and rail operations in Western Australia.

The company “holds discussions with a range of parties in regards to matters including finance opportunities,” Perth- based Fortescue said today in a statement, responding to unspecified media reports about potential transactions. “Discussions on finance are confidential and incomplete.”

Fortescue is in talks with China Investment Corp. to sell convertible bonds worth about $1 billion, Reuters reported yesterday, citing two unidentified people familiar with the deal.

CIC, as China’s $200 billion sovereign wealth fund is known, is in talks with Fortescue to invest about $3 billion in the company, three people familiar with the deal said in February. Talks with CIC were continuing, director Chris Catlow said in March. Fortescue may need between $3 billion and $4 billion to proceed with expansion, China’s Hunan Valin Iron & Steel Group, the company’s second-largest shareholder, said in May.

Fortescue, which started shipments in May last year, advanced 4 percent to A$4.38 at 12:50 p.m. Sydney time on the Australian stock exchange.

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

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Copper in Shanghai Falls for Second Day as Loan Growth Slows

By Bloomberg News

Aug. 12 (Bloomberg) -- Copper in Shanghai fell for the second day as a decline in China’s new loan growth in July stoked concern that investment demand for the metal may slow.

The metal fell as much as 1.6 percent after China’s central bank said yesterday new loans plunged to 355.9 billion yuan ($52 billion), less than a quarter of advances in June. Industrial production climbed 10.8 percent in July, less than economists’ median forecast for an 11.5 percent increase in a Bloomberg survey.

“A decline in the July lending figure may spark concerns in the Shanghai copper market, pressuring the market to have a correction after the recent rally,” Tian Gangfeng, analyst at Haitong Futures Co., said in an e-mailed report today.

November-delivery copper on the Shanghai Futures Exchange fell to as low as 47,710 yuan a metric ton and traded at 48,090 yuan at 11:16 a.m. local time. It fell 0.4 percent yesterday.

Three-month delivery copper on the London Metal Exchange rose 0.6 percent to $6,072 a ton. Copper for September delivery in New York gained 0.6 percent at $2.7560 a pound.

Still, some analysts said the increase in China’s scrap copper imports in July was encouraging. China’s scrap copper imports jumped by 61 percent to 450,000 tons in July, from 278,922 tons in June, customs said yesterday.

“Imports of scrap surged by two-thirds and domestic production of refined copper products continued to climb, showing that demand from the world’s top consumer of the metal stayed hot in the summer,” analysts at Investec Bank (Australia) Ltd., said in a report today.

Among other LME-traded metals, aluminum traded unchanged at $1,930 a ton, and zinc was up 0.8 percent at $1,830 a ton. Nickel was up 0.5 percent at $19,600 a ton. Lead and tin hadn’t traded by 9:59 a.m. in Singapore.

--Feiwen Rong. Editors: Richard Dobson, Tan Hwee Ann.

To contact Bloomberg News staff for this story: Feiwen Rong in Beijing at +86-10-6649-7563 or frong2@bloomberg.net

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Gold Rises, Snapping 5-Day Drop, as Bank Woes Drive Dollar Down

By Kim Kyoungwha

Aug. 12 (Bloomberg) -- Gold advanced after U.S. stocks fell and the dollar depreciated on concern that bank earnings won’t improve in the second half.

Bullion snapped a five-day decline, the longest run of losses in five months, as the Dollar Index also fell on speculation the Federal Reserve will affirm its commitment to keeping interest rates low. The Standard & Poor’s 500 Index slid 1.3 percent in New York, driven by a slump in bank shares.

“The revival of bank woes in the U.S. weighed on both stocks and the dollar which is helping to fuel buying sentiment for gold and some commodities,” said Chris Yu, head of trading with Samsung Futures Co. in Seoul. “Gold will see a seesaw in prices until a clear direction over the mid-to-long term is set,” he said.

Gold for immediate delivery rose as much as 0.3 percent to $948.45 an ounce before trading at $947.35 at 9:09 a.m. in Singapore. The metal is up 7.4 percent this year.

The Dollar Index declined yesterday, snapping a three-day gain, as Fed Chairman Ben S. Bernanke and fellow policy makers started a two-day meeting to discuss interest rates and their asset purchase program.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, decreased 3.06 metric tons to 1,065.49 tons as of Aug. 11, according to figures on the company’s Web site.

Among other precious metals for immediate delivery, silver added 0.2 percent at $14.355 an ounce, platinum rose 0.6 percent to $1,245.75 an ounce and palladium added 0.7 percent to $275.50.

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

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Soybean Futures Rise on Speculation of Sustained China Imports

By Luzi Ann Javier

Aug. 12 (Bloomberg) -- Soybean futures rose for a second day on speculation demand from importers including China, the world’s biggest, will be sustained, draining supplies in the U.S.

China purchased 110,000 metric tons of U.S. soybeans for delivery in the marketing year that begins Sept. 1, the U.S. Department of Agriculture said yesterday. The Asian nation’s imports of the oilseed from all origins surged 28 percent to 26.5 million tons in the first seven months of the year, data from the Beijing-based customs office showed.

“There’s probably more upside” for prices of soybeans and all grains, Peter McGuire, managing director of CWA World Markets Pty, said by phone from Sydney. “I haven’t seen any demand destruction. I think the whole view of the market is quite strong at the moment.”

Soybeans for November delivery gained 1.1 percent to $10.50 a bushel in after-hours electronic trading on the Chicago Board of Trade at 10:34 a.m. Singapore time.

China’s monthly soybean imports may be less than 3 million tons this month and the next, Li Jianlei, an analyst at Cofco Futures Co., said yesterday.

The USDA may lower its estimate for soybean stockpiles at Aug. 31, before the start of harvest, to 103.75 million bushels, from a July projection of 110 million bushels, according to the average forecast of 12 analysts surveyed by Bloomberg News.

The estimate for next year’s ending inventory may be cut to 221.06 million bushels, from 250 million bushels last month, according to the average estimate of 16 analysts.

The USDA is scheduled to release its new estimates for global and U.S. supplies of soybeans, corn and wheat at 8:30 a.m. Washington time.

Dalian Soybeans

May-delivery soybeans jumped as much as 3 percent to 3,882 yuan ($568) on the Dalian Commodity Exchange before trading at 3,857 yuan, up 2.3 percent at 10:58 a.m. Singapore time.

Wheat for December delivery rose as much as 0.2 percent to $5.1375 a bushel, and was at $513.25 a bushel at 10:39 a.m. Singapore time.

Russia’s wheat exports will likely decline this month because domestic prices are too high to make shipments profitable, Dmitry Rylko, director of the Institute for Agriculture Market Studies, said yesterday. Russia is the world’s second-largest exporter of the grain.

Wheat output has reached 34.1 million tons so far this season, from 36.6 million tons a year, Russia’s Agriculture Ministry said.

Corn for December delivery fell 0.1 percent to $3.3075 a bushel at 10:44 a.m. Singapore time.

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

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Japan Stocks Drop on Dollar, U.S. Bank Concern; NEC Retreats

By Masaki Kondo

Aug. 12 (Bloomberg) -- Japanese stocks retreated from a 10- month high as a weaker dollar reduced overseas earnings prospects for automakers and after concern that profits won’t improve this year drove down U.S. financial shares.

Honda Motor Co., which gets almost half its sales in North America, slid 2.2 percent after the yen rose to a three-day high against the U.S. currency. Sumitomo Mitsui Financial Group Inc. sank 1.7 percent. Mitsui & Co., which generates most of its profit from commodities, lost 3 percent after oil and metals fell. NEC Corp. slumped 4.4 percent after people familiar with the plan said the computer maker will sell stock and bonds.

The Nikkei 225 Stock Average declined 82.50, or 0.8 percent, to 10,502.96 at the 11 a.m. break in Tokyo. The broader Topix index fell 8.73, or 0.9 percent, to 964.78, with about three times as many stocks retreating as advancing. Yesterday, both gauges rose to their highest closing levels since October.

“Given the recent rally, it’s no surprise that investors are booking profits,” said Masaru Hamasaki, a senior strategist at Tokyo-based Toyota Asset Management Co., which oversees the equivalent of $13 billion. “After what people are calling the once-in-a-century crisis, there is a sense of exhaustion among investors. Current valuations are prohibitive for them to buy more.”

Through yesterday, the Nikkei rallied 50 percent from a more than 26-year low on March 10 as better-than-estimated results from Japanese and U.S. companies raised expectations profits are recovering. That swelled average prices in the index to 47.5 times estimated earnings, the highest level in almost three weeks, according to data compiled by Bloomberg.

Sign of Decline

The Nikkei 225 finished 7.2 percent higher than its 25-day moving average yesterday, wider than the 5 percent gap that Nomura Holdings Inc., Japan’s largest brokerage, considers as a signal for a near-term decline.

Honda, which trades at 102 times its estimated net income, dropped 2.2 percent to 3,050 yen. Toyota Motor Corp., the world’s biggest automaker, fell 1.5 percent to 4,070 yen. Automakers weighed the most on the Topix.

The yen strengthened against the dollar to as much as 95.51 from 96.81 at the 3 p.m. close of Tokyo stock trading yesterday. A stronger local currency reduces the value of overseas sales at Japanese companies when converted into yen.

Sumitomo Mitsui, the nation’s No. 3 listed bank, slid 1.7 percent to 4,090 yen. Orix Corp., Japan’s largest non-bank financial company, dropped 2.7 percent. Sompo Japan Insurance Inc. dropped 4.6 percent after swinging to a first-quarter loss from a year-earlier profit.

U.S. Financials

In New York, the Standard & Poor’s 500 Index slid 1.3 percent, with the KBW Bank Index losing 4.4 percent, the most in almost two months. Dick Bove, an analyst at Rochdale Securities, said the recent rally in banking shares was driven by a change in investor sentiment and earnings in the industry won’t improve in the third and fourth quarters.

Mitsui, Japan’s No. 2 trading company by market value, fell 3 percent to 1,259 yen. Market leader Mitsubishi Corp. slid 2 percent to 1,934 yen.

Crude oil dropped for a fourth day with a 1.6 percent decline in New York yesterday. A gauge of six metals in London fell 2 percent.

NEC, Japan’s largest personal-computer maker, slumped 4.4 percent to 329 yen after people familiar with the plan said the company will sell as much as 200 billion yen ($2.1 billion) in stock and bonds.

Nikkei futures expiring in September retreated 0.7 percent to 10,510 in Osaka and declined 1 percent to 10,480 in Singapore.

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

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Asian Stocks Drop as Commodity Prices Decline; Mitsubishi Falls

By Shani Raja

Aug. 12 (Bloomberg) -- Asian stocks fell for the first time in three days, as commodity prices declined and a weaker dollar reduced Japanese automakers’ overseas earnings prospects.

Mitsubishi Corp., a Japanese trading company that gets more than a third of its sales from commodities, lost 2 percent. Honda Motor Co., which generates 45 percent of its sales in North America, dropped 2.2 percent in Tokyo. Ascendas Real Estate Investment Trust slumped 5.1 percent in Singapore after selling shares at a discount.

“We’ve had an incredible run the last few months,” said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne. “We need to see economic growth exceed the improved expectations that have flowed through to the market. Any disappointment will see stock prices fall back significantly from current levels.”

The MSCI Asia Pacific Index dropped 0.8 percent to 111.82 as of 11:08 a.m. in Tokyo, following a two-day, 1.8 percent advance. The gauge has climbed 59 percent from a five-year low on March 9 amid speculation the global economy is recovering.

Japan’s Nikkei 225 Stock Average dropped 0.8 percent, while Hong Kong’s Hang Seng Index slumped 2 percent. China’s Shanghai Composite Index dropped 1.2 percent. South Korea’s Kospi Index sank 1.1 percent.

Australia’s S&P/ASX 200 Index rose 0.1 percent as better- than-estimated profit lifted Commonwealth Bank of Australia by 2.5 percent. Limiting gains in Sydney, developer Stockland sank 3.4 percent after reporting a full-year loss.

Futures on the Standard & Poor’s 500 Index added 0.2 percent. The gauge slid 1.3 percent yesterday as Dick Bove, an analyst at Rochdale Securities, said the recent rally in banking shares was driven by a change in investor sentiment and earnings in the industry won’t improve in the third and fourth quarters.

Oil, Metals

Mitsubishi sank 2 percent to 1,934 yen. Mitsui & Co., a rival trading house, fell 3 percent to 1,259 yen. Crude oil dropped for a fourth day with a 1.6 percent decline in New York yesterday. A gauge of six metals in London fell 2 percent.

Rio Tinto Group, the world’s third-largest mining company, lost 0.7 percent to A$57.52 as China’s official Xinhua News Agency reported four of the company’s workers had been arrested for infringing trade secrets.

Honda dropped 2.2 percent to 3,050 yen as the stronger yen threatens to reduce the value of dollar-denominated sales. The yen strengthened against the dollar to as much as 95.91 from 96.81 at the 3 p.m. close of Tokyo stock trading yesterday. Toyota Motor Corp. fell 1.5 percent to 4,070 yen.

Ascendas slumped 5.1 percent to S$1.67. The company said it sold 185 million shares at S$1.63 each, raising S$296 million ($204 million) in net proceeds. The stock last traded at S$1.76 on Aug. 7.

Commonwealth Bank Earnings

Commonwealth Bank, Australia’s No. 2 lender by market value, gained 2.5 percent to A$45.01. The bank posted full-year earnings of A$4.72 billion, compared with the median estimate of eight analysts surveyed by Bloomberg for A$4.64 billion.

A third of the 457 companies in the MSCI Asia Pacific Index that have reported quarterly results so far have beaten analysts’ profit estimates, while 17 percent have missed, according to data compiled by Bloomberg.

Better-than-expected earnings and economic reports worldwide have driven stocks higher since March, lifting the average valuation of the MSCI Asia Pacific’s companies to a four-month high of 25 times estimated profit on July 28.

Data last week showed Australian employers unexpectedly added jobs and pointed to improving manufacturing industries in China, Europe and the U.S.

“Investors are wary of the pace of the recent gain and they’ll likely book profits,” said Hiroichi Nishi, an equities manager at Tokyo-based Nikko Cordial Securities Inc.

Stockland, Australia’s biggest housing developer, sank 3.2 percent to A$3.30. The company reported a full-year loss because of writedowns related to a slump in the value of property assets.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.

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Short Selling of S&P 500 Drops to Lowest Level Since February

By Lynn Thomasson

Aug. 12 (Bloomberg) -- Wagers against the Standard & Poor’s 500 Index fell to the lowest level since February as investors shorted fewer shares of financial stocks.

Short interest on the S&P 500 declined to 8.77 billion shares as of July 31, a 12 percent decrease from two weeks earlier, according to data compiled by U.S. exchanges and Bloomberg yesterday. That’s the steepest drop since Sept. 30. Investors reduced bearish bets on financial stocks the most, slashing them by 31 percent to 2.05 billion shares.

Better-than-estimated profit reports and economic data have sent the S&P 500 to a 47 percent rally since March 9, causing losses for investors who sold borrowed stock in the hope of buying it back later at a lower price. There were fewer bets against 9 of the 10 main industries in the S&P 500 during the two weeks that ended July 31, the broadest decline this year.

“People don’t want to get in front of a market that’s going the other way,” said Michael Cuggino, who helps oversee $4.1 billion at Pacific Heights Asset Management LLC in San Francisco. “I view it as a potentially contrarian indicator in that if you have, on a macro level, more people betting that stocks are going to go up, maybe you should start thinking the other way.”

Citigroup Inc. shares sold short fell 72 percent to 343.3 million, the steepest decrease of any S&P 500 company. Traders closing out an arbitrage bet involving the U.S. government’s exchange of preferred stock for common equity may have driven reduction.

Banks, brokerages and insurers are still the most shorted industry, even after financial institutions in the S&P 500 surged 126 percent in five months.

Intel Corp. and Red Hat Inc. had the biggest increases in short interest. At Intel, the world’s biggest computer-chip maker, it surged 65 percent to 131.4 million shares. For Red Hat, the largest seller of the Linux operating system, it jumped 66 percent to 9.17 million shares.

U.S. stock exchanges release data on short selling every two weeks.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

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