U.S. Factory Output Likely Rose in July as Auto Plants Reopened

By Bob Willis

Aug. 14 (Bloomberg) -- U.S. industrial production probably rose for the first time in nine months after mid-year retooling at automakers and as a federal “cash-for-clunkers” program spurred demand for cars, economists said before reports today.

Output at manufacturers, mines and utilities climbed 0.4 percent, erasing the previous month’s decline, according to the median forecast in a Bloomberg News survey ahead of today’s report from the Federal Reserve. Other data may show the cost of living was unchanged in July while consumer confidence rose this month.

General Motors Co. and Chrysler Group LLC, the two U.S. automakers that emerged from bankruptcy, reopened plants and benefited from cash incentives to buy fuel-efficient cars. A record-breaking drawdown in inventories in the first half of 2009 has set the stage for a ramp-up in output that will help pull the economy out of the worst recession since the 1930s.

“The reason for the big spike is mostly the revival of GM and Chrysler from shutdowns, and recovery from inventory adjustment” at other factories, Mike Montgomery, a U.S. economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “July is probably the start of the manufacturing recovery.”

The Fed’s production figures are due at 9:15 a.m. in Washington. Estimates from the 71 economists surveyed ranged from a decline of 0.2 percent to an increase of 2.5 percent. The projected gain would be the first since October, the month after Lehman Brothers Holdings Inc. collapsed, accelerating a meltdown in markets that rippled through the global economy.

Auto Restructuring

GM emerged from 39 days of restructuring on July 10 as a leaner company majority-owned by the U.S. government. Chrysler left court protection on June 10 under an alliance with Italy’s Fiat SpA. The Treasury Department helped bankroll the reorganizations, with $65 billion for Detroit-based GM and $12 billion for Auburn Hills, Michigan-based Chrysler.

They are joining other carmakers such as South Korea’s Hyundai Motor Co. in renewing output after slashing stockpiles. Automakers added 28,200 workers in July, the biggest 1-month gain in more than a decade, the Labor Department said last week.

Industry data showed sales of cars and light trucks rose to an 11.2 million unit annual pace in July, the highest since September, after the Obama administration offered credits of as much as $4,500 to trade in gas-guzzlers for more fuel-efficient vehicles.

‘Booster Shot’

The jump in sales may prompt further gains in production this month. GM will look at introducing third shifts, paying overtime and reopening more closed plants as a result of the incentives, Mike DiGiovanni, a sales analyst for the company, said last week in a Bloomberg Television interview.

“We are looking at the cash-for-clunkers as a booster shot to get us through the fragile economic recovery,” he said.

Higher consumer confidence also would give factories a reason to produce. The Reuters/University of Michigan preliminary survey on consumer sentiment for this month may show at about 10 a.m. that confidence rose to 69 from 66 at the end of July, according to the survey median.

The Standard & Poor’s 500 Index has soared 50 percent from its 12-year low on March 9, on forecasts that the economic contraction is slowing. It closed up 0.7 percent yesterday at 1,012.73 in New York.

Capacity Use

The industrial production report may show capacity utilization, or the proportion of plants in use, rose to 68.3 percent from a record low of 68 percent reached the month before, according to the survey.

Economists track plant operating rates to gauge factories’ ability to produce goods with existing resources. Lower rates reduce the risk of bottlenecks that can force prices higher.

At 8:30 a.m., Labor Department figures may show the consumer-price index was unchanged last month after gaining 0.7 percent in June. So-called core prices, which exclude food and fuel, probably increased 0.1 percent after gaining 0.2 percent, the survey showed.

Prices likely fell from the same time last year by the most in six decades, reinforcing projections that inflation will be contained. A report yesterday from Labor showed prices of imported goods dropped in July as the cost of commodities such as petroleum and chemicals decreased.

“Substantial resource slack is likely to dampen cost pressures,” Fed policy makers said Aug. 12 at the end of a two-day meeting in Washington as they kept interest rates unchanged near zero. Fed officials said the central bank’s monetary policy committee “expects that inflation will remain subdued for some time.”

                        Bloomberg Survey

===============================================================
                              CPI     Core     Ind. U of Mich
                                       CPI    Prod.    Conf.
                             MOM%     MOM%     MOM%    Index
===============================================================

Date of Release              08/14    08/14    08/14    08/14
Observation Period            July     July     July   Aug. P
---------------------------------------------------------------
Median                        0.0%     0.1%     0.4%     69.0
Average                       0.0%     0.1%     0.5%     68.9
High Forecast                 0.3%     0.2%     2.5%     75.0
Low Forecast                 -0.3%    -0.1%    -0.2%     64.0
Number of Participants          76       75       71       61
Previous                      0.7%     0.2%    -0.4%     66.0
---------------------------------------------------------------
4CAST Ltd.                    0.0%     0.1%     0.2%     69.5
Action Economics              0.1%     0.2%     1.8%     68.0
AIG Investments              -0.2%     0.0%     0.8%     68.0
Ameriprise Financial Inc     -0.1%     0.2%     0.4%     69.0
Argus Research Corp.          0.3%     0.2%    -0.1%     70.0
Banesto                       ---      ---      0.0%     67.9
Bank of Tokyo- Mitsubishi     0.3%     0.2%     0.0%     64.6
Bantleon Bank AG              0.0%     0.2%     0.1%     69.0
Barclays Capital              0.1%     0.1%     1.5%     69.0
BBVA                         -0.1%     0.2%    -0.1%     68.4
BMO Capital Markets          -0.1%     0.0%     0.4%     69.0
BNP Paribas                   0.0%     0.1%     0.3%     69.0
Briefing.com                  0.0%     0.1%     0.5%     70.0
C I T I C Securities          0.1%     ---      ---      68.0
Calyon                        0.0%     0.2%     1.2%     68.0
Capital Economics            -0.1%     0.1%     1.0%     68.0
CIBC World Markets            0.1%     0.2%     0.6%     68.0
Citi                         -0.1%     0.1%     ---      ---
ClearView Economics           0.1%     0.1%     0.0%     ---
Commerzbank AG                0.0%     0.1%     2.5%     70.0
Credit Suisse                 0.0%     0.1%     1.6%     70.0
Daiwa Securities America      0.0%     0.2%     1.0%     68.5
Danske Bank                   0.3%     0.2%    -0.2%     72.0
DekaBank                      0.1%     0.2%     0.3%     70.0
Desjardins Group             -0.1%     0.2%     0.3%     67.0
Deutsche Bank Securities      0.0%     0.2%     0.4%     75.0
Deutsche Postbank AG         -0.1%     0.1%     0.2%     ---
DZ Bank                       0.1%     0.2%     0.5%     70.0
Exane                         0.1%     0.0%     1.0%     64.0
First Trust Advisors          0.1%     0.2%     1.2%     70.0
Fortis                        0.1%     0.2%     0.0%     ---
FTN Financial                 0.1%     0.0%     0.2%     70.0
Goldman, Sachs & Co.          0.0%     0.1%     0.3%     ---
Helaba                        0.0%     0.1%     0.2%     68.0
Herrmann Forecasting         -0.1%     0.0%     0.6%     69.0
High Frequency Economics      0.0%     0.1%     0.4%     68.0
HSBC Markets                  0.1%     0.1%     0.3%     69.0
IDEAglobal                   -0.1%     0.1%     0.5%     68.0
IHS Global Insight            0.1%     0.2%     0.8%     70.0
Informa Global Markets        0.0%     0.1%     0.5%     67.0
ING Financial Markets         0.2%     0.2%     0.3%     69.0
Insight Economics            -0.2%     0.1%     0.5%     68.0
Intesa-SanPaulo              -0.3%     0.1%     0.2%     66.0
J.P. Morgan Chase             0.1%     0.1%     1.5%     68.0
Janney Montgomery Scott L    -0.3%     0.0%     0.2%     ---
Landesbank Berlin             0.1%     0.0%     0.3%     64.0
Maria Fiorini Ramirez Inc     0.0%     0.1%     ---      ---
Merrill Lynch/BAS             0.0%     0.0%     0.8%     72.0
MFC Global Investment Man     0.0%     0.2%     0.5%     69.0
Moody’s Economy.com           0.0%     0.1%     1.5%     68.5
Morgan Keegan & Co.           0.0%     0.1%     0.2%     ---
Morgan Stanley & Co.          0.0%     0.1%     0.7%     ---
National Bank Financial      -0.1%     0.2%     ---      68.0
Natixis                      -0.1%     0.1%     ---      ---
Newedge                       0.1%     0.2%     0.2%     ---
Nomura Securities Intl.       0.0%     0.2%     0.6%     ---
Nord/LB                       0.2%     0.2%     0.0%     70.0
PNC Bank                      0.1%     0.2%     1.0%     ---
Raymond James                 0.0%     0.1%     0.1%     68.2
RBC Capital Markets           0.1%     0.2%     1.0%     67.0
RBS Securities Inc.          -0.1%     0.0%     0.3%     69.0
Ried, Thunberg & Co.          0.0%     0.2%     1.2%     70.0
Schneider Foreign Exchang     0.2%     0.2%     ---      74.2
Scotia Capital                0.0%     0.2%     0.4%     ---
Societe Generale              0.2%     0.1%     0.1%     68.0
Stone & McCarthy Research    -0.1%     0.1%     0.0%     70.0
TD Securities                 0.2%     0.2%     0.5%     70.0
Thomson Reuters/IFR          -0.2%     0.0%     0.1%     71.0
UBS Securities LLC            0.0%     0.1%     0.7%     71.0
UniCredit Research            0.0%     0.1%     2.0%     71.0
Union Investment              0.2%     0.1%     0.1%     ---
University of Maryland        0.1%     0.2%    -0.1%     68.0
Wells Fargo & Co.            -0.2%     0.1%     0.1%     ---
WestLB AG                     0.0%     0.1%    -0.1%     68.0
Westpac Banking Co.          -0.1%    -0.1%     0.5%     70.0
Woodley Park Research         0.1%     0.2%     0.1%     68.5
Wrightson Associates          0.0%     0.2%     1.2%     70.0
===============================================================

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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Stevens Says RBA May Raise Rate From Emergency Level

By Jacob Greber

Aug. 14 (Bloomberg) -- The Reserve Bank of Australia will have to raise the benchmark interest rate from its “emergency” level at some stage as the economy rebounds from the global recession, bank Governor Glenn Stevens said.

“There will come a time when the exceptional monetary stimulus in place at present will no longer be needed,” Stevens said in his half-yearly testimony to parliament’s economics committee in Sydney today. “It will then be appropriate for the board to do what it has done on past such occasions, namely to start adjusting interest rates back towards normal levels.”

The Australian dollar and bond yields jumped on mounting speculation the central bank may increase borrowing costs before the end of the year. A more normal level for the overnight cash rate target is “a good deal north” of the current 49-year low of 3 percent, Stevens said today.

“The bank is clearly going to hike rates soon -- year end is the most likely time,” said Adam Carr, an economist at ICAP Australia Ltd. in Sydney. Stevens points out that “the economy is more resilient than most thought it would be, global growth is leveling out and financial markets have stabilized,” he said.

The economy grew 0.4 percent in the first quarter, rebounding from its first contraction in eight years in the previous three months, as lower borrowing costs and government spending stoked domestic demand. Stevens said today it appears that gross domestic product also expanded in the second quarter.

Currency Climbs

Australia’s currency advanced to 84.65 U.S. cents at 11:20 a.m. in Sydney from 84.17 cents before the governor’s testimony began. The two-year government bond yield rose 8 basis points to 4.53 percent.

Traders have a more than 90 percent expectation that the central bank will raise the benchmark rate by half a percentage point before the end of 2009, according to interbank futures on the Sydney Futures Exchange as of 11:36 a.m. local time. A month ago, the futures implied the rate would remain unchanged.

“What we’ve got is an emergency setting” for the benchmark rate that was “put in place in anticipation that the economy would be seriously weak,” Stevens said. “As the set of risks that we think you face start to shift, at some point you have to move away from the emergency setting.”

Last week, the central bank scrapped its forecast for the economy to contract this year, instead predicting GDP will expand 0.5 percent. The bank expects growth to accelerate to 2.25 percent in 2010 and 3.75 percent in 2011.

Shallow Slowdown

“On the basis of the information to hand at present, this may well turn out to be one of the shallower recessions Australia has experienced,” Stevens said. Low interest rates risked stoking economic imbalances, he added.

The Reserve Bank board slashed the overnight cash rate target by 4.25 percentage points between September and April. As well, the government distributed A$12 billion ($10.2 billion) to households and pledged to spend A$22 billion on roads, ports, railways, schools and hospitals.

Stevens didn’t provide a timeframe for when the central bank may begin raising rates.

“It’ll be the right thing to start removing it before it’s excessive,” Stevens said in response to questions. Policy makers will remove monetary policy stimulus “in a timely fashion and when the time is right,” he added.

“The emphasis on removing the ‘emergency’ setting of the cash rate was emphasized and re-emphasized” by Stevens, said Annette Beacher, an economist at TD Securities Ltd. in Singapore.

“While coy about timing, there is no doubt that at this point the governor is looking to withdraw the extraordinary stimulus in the economy.”

Stevens declined to identify what policy makers regard as a so-called normal or neutral policy setting, though he said the benchmark rate has averaged in the 5 percent range for the last 20 years, which he characterized as the “low inflation world.”

He added that a more normal level for the key rate is “a good deal north of what the cash rate is now” and borrowing costs could go “noticeably” higher.

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

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Germany, France Put Europe on Course For Recovery

By Matthew Brockett

Aug. 14 (Bloomberg) -- Germany and France are hauling Europe out of its worst recession since World War II, aiding a global economic recovery.

The euro region’s two largest economies, among the nations labeled “Old Europe” by former U.S. Defense Secretary Donald Rumsfeld in 2003, unexpectedly returned to growth in the second quarter. That cut the drop in the 16-nation bloc’s gross domestic product to just 0.1 percent, helping it outperform the U.S. and the U.K.

“It’s France and Germany that are pushing things up,” said Erik Nielsen, London-based chief European economist at Goldman Sachs Group Inc., which now predicts euro-region growth of 0.5 percent in the third quarter instead of stagnation. “But the recovery is still fragile, and it will be at least a year before the European Central Bank raises interest rates.”

Global stimulus measures to battle the deepest slump since the Great Depression have boosted demand for European exports, and government packages are supporting spending at home. The danger is that the rebound will run out of steam as those policies expire.

“These are short-term positive signs, but the French and the Germans have thrown a lot at it,” former Bank of England policy maker David Blanchflower said yesterday in a Bloomberg Television interview. “They’ve got the cash-for-clunkers program and subsidies in the labor market. My view is: early days. One quarter doesn’t make a trend.”

Cash for Clunkers

Government and household spending were among the main drivers of second-quarter growth in Germany and France. German Chancellor Angela Merkel, who faces national elections next month, has committed 85 billion euros ($121 billion) to revive the economy. French President Nicolas Sarkozy’s stimulus package is worth about 30 billion euros.

Both countries have turned to vehicle-scrapping subsidies as one way of encouraging consumers to spend. Germany offers a 2,500-euro payment to people who junk old cars to buy a new one, while France offers 1,000 euros. The subsidies are due to be withdrawn at the end of this year.

“As the schemes expire, households will have to face up to high and rising unemployment and weak earnings,” said Colin Ellis, an economist at Daiwa Securities in London. “We still think that the euro area will fall back into its old habits, with exports having to take up the mantle of growth again.”

Fewer Jobs

The euro area’s jobless rate of 9.4 percent is the highest since 1999. The region’s potential growth rate may slide to 1.3 percent from 2 percent, UniCredit Group estimates. The rate at which the U.S. can grow without inflation may drop to 2.5 percent from about 3.25 percent, the bank says.

There are signs that Europe’s exports are picking up. German sales abroad gained 7 percent in June and French exports rose 1 percent in the second quarter.

The German and France economies both expanded 0.3 percent in the three months through June after four consecutive quarters of contraction. Almost all forecasters in Bloomberg News surveys had predicted GDP would decline.

By comparison, the U.S. economy shrank 0.3 percent in the second quarter from the first three months of the year and British GDP dropped 0.8 percent. Japan will report second- quarter figures on Aug. 17.

Not all euro-area countries are growing. Italy’s economy contracted 0.5 percent in the second quarter, Dutch GDP declined 0.9 percent, and Spain is also forecast to post a 0.9 percent drop today, according to the median forecast of 12 economists in a Bloomberg News survey. That report is due at 9 a.m. in Madrid.

Exit Strategy

“In 2003, Germany was the sick man of Europe; now it’s Italy and Spain,” said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt. “Structural imbalances are not resolved, but growth will return earlier than expected.”

While signs of a global recovery have prompted speculation about central banks’ exit strategies, the ECB is showing little willingness to depart from its current policy of offering banks unlimited cash and keeping its benchmark interest rate at a record low of 1 percent.

ECB President Jean-Claude Trichet said last week officials “never pre-commit in any respect on the timing of various measures” after the bank started buying covered bonds to boost the flow of credit. Federal Reserve policy makers on Aug. 12 signaled they will avoid any rush to end their own efforts to strengthen a U.S. recovery.

The euro region’s surprise upturn will require most economists to raise forecasts for Europe. Goldman said it now expects the economy to shrink 3.8 percent in 2009 instead of 4.4 percent. The bank lifted its 2010 growth forecast to 1.2 percent from 0.7 percent.

“Germany and France have surprised massively,” said Sunil Kapadia, an economist at UBS AG in London. “We’re a bit wary of how sustainable this growth is, but we think an export recovery is quite likely and we think this will continue into 2010.”

----With assistance from Brian Swint in London and Frances Robinson, Simone Meier, Christian Vits and Jana Randow in Frankfurt. Editors: John Fraher, Reed Landberg

To contact the reporter on this story: Matthew Brockett in Frankfurt at mbrockett1@bloomberg.net.

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Spanish Economy Contracted More Than Forecast in Second Quarter

By Emma Ross-Thomas

Aug. 14 (Bloomberg) -- Spain’s economy contracted more than forecast in the second quarter, suggesting a recovery in Germany and France has yet to reach a country that was once an engine of growth for the euro region.

Gross domestic product declined 1.0 percent from the previous quarter, when it shrank 1.9 percent, the Madrid-based National Statistics Institute said in an e-mailed statement today. From a year earlier, it contracted 4.1 percent. The Bank of Spain estimated on July 30 that the economy contracted 0.9 percent in the second quarter and 4 percent from a year earlier.

Spain’s recovery is lagging behind that of other European countries as data yesterday showed the German and French economies both resumed expansion in the second quarter. Battling the highest unemployment rate in Europe at 18 percent, Spain has pumped money into the economy and is putting builders to work on public projects across the country.

“In the third quarter, you may get another contraction and after that some ups and downs, or flat readings,” said Dominic Bryant, an economist at BNP Paribas in London. “I just don’t think the recovery will gain any traction.”

Even as the government plans to inject 2.3 percent of GDP into the economy this year and further stimulus in 2010, Spain’s economy will continue to contract next year, the Organization for Economic Cooperation and Development forecast on June 24. It projects the Spanish economy will contract 4.2 percent this year and 0.9 percent in 2010, which would make it the worst performer of the 30 OECD nations after Hungary and Ireland.

Boom to Bust

As well as the global crisis, Spain is suffering from the collapse of a debt-fueled construction boom that has left around 1 million newly built homes unsold. Unemployment has doubled in two years, with construction workers leading the job losses, and Spain accounts for about half of the euro region’s increase in unemployed in the last year, according to Eurostat, the European Union’s statistics office.

International companies have cited Spanish business as a weak spot. Coca-Cola Co. said on July 21 that it saw weakness in Spain due to “significant macroeconomic challenges,” and Vodafone Group Plc said in May it had an impairment charge of 5.9 billion pounds ($9.7 billion), most of it related to Spain.

The economic slump has had a political cost as the ruling Socialist Party now trails the opposition in popular support, a poll by the state-run Center for Sociological Research showed on July 27.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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Japan’s Service Demand Unexpectedly Rises on Stimulus

By Aki Ito

Aug. 14 (Bloomberg) -- Japan’s demand for services rose unexpectedly in June as government stimulus measures spurred consumer spending, another sign that the economy is emerging from a recession.

The tertiary index, which captures 63 percent of the economy, climbed 0.1 percent from May, when it slid a revised 0.3 percent, the Trade Ministry said today in Tokyo. The median estimate of surveyed was for a 0.3 percent drop.

Prime Minister Taro Aso’s 25 trillion yen ($262 billion) stimulus has helped counter Japan’s deepest postwar recession by providing people with cash handouts and incentives to buy energy-efficient cars and electronics. Worsening job prospects and falling wages make it unlikely consumers will lead a recovery once the government spending runs out.

“The improvement in consumer spending was largely bolstered by the government’s stimulus measures,” said Yoshiki Shinke, a senior economist at Dai-ichi Life Research Institute in Tokyo. “It’s unclear whether consumers will continue spending after the measures are withdrawn.”

A separate report today showed Bank of Japan policy makers are cautious about the outlook. Some members said last month emergency credit programs may need to be extended into 2010, according to minutes from a July 14-15 meeting published today. The central bank extended measures to buy corporate debt from lenders for three months until Dec. 31 at the gathering.

Nikkei Climbs

The Nikkei 225 Stock Average rose 0.9 percent to 10,612.92 at 10:42 a.m. in Tokyo. The gauge has climbed 49 percent since touching a 26-year low on March 10.

Business at service providers is growing. Fast Retailing Co. reported sales at its Uniqlo stores rose 6.4 percent in June. Softbank Corp., Japan’s third-largest mobile-phone company, said profit rose 41 percent last quarter amid subscriber growth.

The stimulus package and a rebound in stock prices drove consumer confidence to a 20-month high in July, the Cabinet Office said this week. An increase in stock transactions and higher demand for engineering services related to public-works projects led the gains in the tertiary index, the report showed.

A rebound in exports and production probably helped the economy expand for the first time in a year last quarter. Gross domestic product rose at a 3.9 percent annual pace in the three months ended June after contracting a record 14.2 percent in the first quarter, analysts expect a report will show Aug. 17.

Remains Sluggish

The Bank of Japan said this week that while shipments abroad and factory output are improving, domestic demand remains sluggish and the outlook for a recovery is uncertain.

Wages fell at a record pace of 7.1 percent in June, and the jobless rate reached a six-year high of 5.4 percent. Economists expect the jobless rate to climb to an unprecedented 5.9 percent by next year, according to a Bloomberg News survey.

“For a strong recovery, we need to see improvements in the jobless rate and wages,” Shinke said. “We probably won’t see that until the end of 2010.”

To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

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Euro Reversal to Mark Risk Aversion Return: Technical Analysis

By Candice Zachariahs

Aug. 14 (Bloomberg) -- The euro may fall towards 130.85 yen with a close below 135.34 signaling a “bearish trend reversal” and the return of higher levels of risk aversion across equity, commodity and currency markets, RBC Capital Markets said.

The euro is testing the base of an ascending channel with daily momentum charts showing a “double top in overbought territory,” George Davis, chief technical analyst for fixed- income and currency strategy in Toronto at the unit of Canada’s biggest lender, wrote in a note to clients yesterday.

“A daily close below 135.34 would produce a bearish trend reversal that would have significant cross-asset implications,” Davies said. That “would push risk aversion levels higher and project additional losses toward support at 132.81, followed by 130.85.”

The euro slipped 0.2 percent to 136.14 yen from 136.46 yen as of 8:29 a.m. in Tokyo. It declined 0.1 percent to $1.4283.

The Dollar Index, which the ICE uses to track the dollar against currencies of six major U.S. trading partners, has formed a double bottom near 77.69, Davies wrote. A gauge of commodity prices is charting a double top in the 269.18 area, he said.

The euro will have to close above 139.14 yen to “to generate new upward price momentum that is required to sustain the recent rally in stock and commodity markets.”

A double top is made up of two consecutive peaks that are approximately equal, with a moderate trough in between, and can be used as a sell signal. A double bottom is made up of two consecutive troughs and may indicate a rebound.

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: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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Yen Gains Amid Speculation Japan Investors Bringing Back Funds

By Ron Harui and Yoshiaki Nohara

Aug. 14 (Bloomberg) -- The yen rose for a second day against the dollar amid speculation Japanese investors are bringing back income they will receive from U.S. government debt.

The yen headed for its biggest weekly gain in a month against the dollar before the U.S. makes $79.2 billion in redemption and coupon payments for Treasuries, according to estimates from Bank of Tokyo-Mitsubishi UFJ Ltd. The euro was poised for a weekly loss versus the yen before a European report forecast to show consumer prices fell. The dollar ended three days of losses against the euro before a U.S. report that may show consumer confidence improved in August.

“The yen is being bought as Japanese investors may bring home redemptions and coupons from Treasuries,” said Takashi Kudo, director of foreign-exchange sales at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “That’s been happening throughout this week.”

The yen climbed to 135.91 per euro as of 7:45 a.m. in London from 136.46 in New York yesterday. It rose to 134.09 on Aug. 12, the strongest since July 30. Japan’s currency gained to 95.21 yen against the dollar from 95.48. The euro declined to $1.4274 from $1.4292.

The yen may rise to as high as 94 versus the dollar next week, Kudo said.

Asian equities advanced, with Japan’s Nikkei 225 Stock Average rising 0.8 percent and the MSCI Asia Pacific Index of regional shares adding 0.4 percent.

European Prices

Foreign investors bought 292.9 billion yen ($3.07 billion) more Japanese stocks than they sold during the week ended Aug. 8 and domestic investors were net buyers of 125 billion yen in overseas bonds and notes, according to figures from Japan’s Ministry of Finance yesterday.

Japanese investors are the biggest foreign holders of Treasuries after China with $677.2 billion of the securities in May. Japan’s foreign reserves total $1.02 trillion.

The euro weakened as consumer prices in the euro area dropped 0.6 percent in July, unchanged from the preliminary estimate, according to a Bloomberg News survey of economists. The European Union’s statistics office will release the data today in Luxembourg.

“The European report may suggest deflation is becoming entrenched in the euro area, which would be very bad for the economy,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “A weaker euro would be better in a deflationary situation and any interest-rate hikes would be off the table.”

The European Union’s statistics office said yesterday gross domestic product in the region fell 0.1 percent last quarter following a 2.5 percent decline in the previous three months.

Australia Rates

The Australian and New Zealand dollars touched the highest level since September after Reserve Bank of Australia Governor Glenn Stevens said today it will be appropriate to increase interest rates in the future.

“Stevens’ upbeat testimony has helped lift the Aussie dollar,” said Sue Trinh, a senior currency strategist at RBC Capital Markets, a unit of Canada’s biggest lender. “That barrier at 85 cents is still ripe for the picking but the real question is whether the Aussie can sustain those levels over the shorter term.”

Benchmark interest rates of 3 percent in Australia and 2.5 percent in New Zealand compare with as low as zero in the U.S. and 0.1 percent in Japan, making the South Pacific nations’ assets attractive to investors seeking higher returns.

The Australian dollar traded at 84.31 U.S. cents, after reaching 84.78 cents, the highest since Sept. 22. New Zealand’s currency was at 68.01 U.S. cents. It earlier reached 68.31 cents, the highest since Sept. 29.

‘Floor for Dollar’

Losses in the U.S. dollar were tempered before a report that economists say will show confidence among U.S. consumers gained this month, adding to signs the recession is easing in the world’s largest economy.

The Reuters/University of Michigan final index of consumer sentiment probably rose to 69 in August from 66 in July, a Bloomberg News survey of economists showed before the data due today.

“Michigan confidence data are showing signs of stabilization in the economy, providing a floor for the dollar against the euro,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo.

The dollar may trade between $1.4 and $1.435 per euro next week, Nihei said.

The Dollar Index, which the ICE uses to track the dollar against the currencies of six major U.S. trading partners, was at 78.418 from 78.489 yesterday.

‘Bearish Trend Reversal’

The euro may fall toward 130.85 yen with a close below 135.34 signaling a “bearish trend reversal” and the return of higher levels of risk aversion across equity, commodity and currency markets, RBC Capital Markets said.

The euro is testing the base of an ascending channel with daily momentum charts showing a “double top in overbought territory,” George Davis, chief technical analyst for fixed- income and currency strategy in Toronto at the unit of Canada’s biggest lender, wrote in a note to clients yesterday.

“A daily close below 135.34 would produce a bearish trend reversal that would have significant cross-asset implications,” Davies said. That “would push risk aversion levels higher and project additional losses toward support at 132.81, followed by 130.85.”

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

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Top Brazil Real Forecaster Says Currency to Reach 11-Year High

By Fabio Alves

Aug. 14 (Bloomberg) -- Brazil’s real, the best-performing currency this year, will climb 18 percent by the end of 2010 as exports to China surge and stock inflows grow, said Standard Chartered Plc, the firm that most accurately forecast the rally.

The real will rise to 1.8 per dollar by the end of this year from 1.8236 and reach an 11-year high of 1.55 by December 2010, according to the London-based bank that gets most of its revenue from developing nations. The real gained 27 percent this year, more than all other 171 currencies tracked by Bloomberg.

Rising demand for Brazilian sugar, coffee and orange juice helped the trade surplus expand 16 percent between January and July from the same period in 2008 as China overtook the U.S. as the country’s biggest export market, according to Brazil’s Trade Ministry. The dollar revenue likely will overwhelm central bank efforts to staunch the real’s advance by intervening in the foreign-exchange market, said Mike Moran, a senior currency strategist at Standard Chartered in New York.

“We’re going to see a tremendous amount of more trade between Brazil and China,” Moran said in a telephone interview. “The positive trade flows will be quite supportive for the currency.”

Central bank President Henrique Meirelles told Brazilian President Luiz Inacio Lula da Silva that he plans to step up dollar purchases to quell the real’s gains, Folha de S. Paulo reported yesterday, without saying how it obtained the information.

‘Excess Euphoria’

Asked about the report yesterday, Meirelles told reporters in Goiania, a city in central Brazil, that “the central bank buys according to market flows and doesn’t try to influence the rate.” Last week he said investors needed to be cautious about “excess euphoria” as the nation’s currency and stocks surge, reiterating a concern he’s stated several times this year.

Brazil’s foreign reserves climbed to a record $213 billion from $199 billion at the end of February after the central bank re-started its dollar-purchasing program in May.

The real is benefiting from a rebound in commodities, which account for about two-thirds of Brazilian exports. Prices have climbed 31 percent since the end of February, according to the UBS Bloomberg Constant Index of 26 raw materials.

Increased demand for Brazilian stocks and bonds also is lifting the real as Latin America’s largest economy recovers from a recession and interest rates remain high relative to developed markets, said Douglas Smith, Standard Chartered’s chief economist for the Americas in New York.

Stocks Rally

The Bovespa stock index has risen 52 percent this year, the world’s 12th-best performer among 89 measures tracked by Bloomberg, as foreign investors moved 13.7 billion reais into the market through July, the most since the exchange began tracking data in 1993. Brazilian local bonds returned 37 percent in dollar terms after falling 13.8 percent in 2008, according to JPMorgan Chase & Co.’s ELMI+ index.

The nation’s 8.75 percent benchmark interest rate, while down from 13 percent a year ago, remains the second-highest among the 10 countries in the Americas tracked by Bloomberg. Only Argentina’s benchmark rate is higher at 11.5 percent.

Standard Chartered’s real forecast for the end of 2010 would surpass the 1.5545 level it reached in August 2008 before tumbling 33 percent over the next five months as credit markets seized up and commodities tumbled.

In January, when the real traded as weak as 2.3996, Moran and Smith predicted it would rebound to 1.9 by the end of this year, compared with the 2.24 median forecast in a Bloomberg survey. The median forecast since has shifted to match Standard Chartered’s initial outlook, highlighting how the real’s rally caught most economists off guard. Moran and Smith, meanwhile, adjusted their year-end call in June to 1.8 per dollar.

‘Severe Undervaluation’

“We saw a severe undervaluation of the currency at the end of 2008,” said Moran, 35. “The real was heavily oversold.”

The real has soared 34 percent since sliding to a 2 1/2- month low of 2.4501 per dollar on March 2. It touched a 10-month high of 1.8065 last week.

“Everybody was surprised by the rally,” said Aryam Vazquez, an emerging-market economist at Wells Fargo & Co. in New York. He’s changed his year-end real forecast to 1.8 from 2.5 at the start of the year. “The resilience of the Brazilian economy to weather this crisis has been spectacular and has been the driving force behind the real,” Vazquez said.

Retail Sales

The International Monetary Fund predicts Brazil’s gross domestic product will shrink 1.3 percent this year, less than the 7.3 percent contraction it forecasts for Mexico, Latin America’s second-biggest economy, and the 3.8 percent drop projected for advanced economies. Brazilian retail sales rose 5.6 percent in June, almost double the 2.9 percent pace in May, a government report showed yesterday.

A recovering economy “supports the strong direct investment in Brazil,” said Smith, 39, who began covering Brazil as an economist at the U.S. Treasury Department in 1998.

Standard Chartered’s projection for the real at the end of 2010 is more bullish than the 1.8 per dollar median forecast of analysts surveyed by Bloomberg.

“The outlook for Brazil remains positive,” said Smith. It “highlights Brazil as a good destination” for foreign investment, he said.

To contact the reporter on this story: Fabio Alves in New York at falves3@bloomberg.net

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China May Boost Energy, Mining Acquisitions by Half

By John Duce

Aug. 14 (Bloomberg) -- China, unfazed by failures to invest in Rio Tinto Group and Unocal Corp., will boost spending on oil and mining acquisitions by at least half this year to take advantage of lower valuations after commodity prices slumped.

State-owned Yanzhou Coal Mining Co. yesterday agreed to buy Australia’s Felix Resources Ltd. for about A$3.5 billion ($2.9 billion), a day after Sinochem Corp., China’s biggest chemicals trader, offered to buy Emerald Energy Plc for 532 million pounds ($881 million) to gain oil fields in Syria and Colombia.

China National Petroleum Corp.’s plan to buy Repsol YPF SA’s Argentine unit may push Chinese purchases of overseas commodity assets to $43 billion this year, a 48 percent increase on 2008, according to data compiled by Bloomberg.

“The Chinese don’t have enough nickel, don’t have enough oil, and they don’t have enough copper,” Jim Rogers, chairman of Rogers Holdings and the author of books including “Investment Biker” and “Adventure Capitalist”, said in a telephone interview yesterday. “There’s a crisis coming. They are going around the world buying up what they can. They’re preparing for a rainy day.”

Bids for resources by China, whose $2.1 trillion in currency reserves are the world’s largest, have been met with opposition in the U.S. and Australia. Neither concern over its growing influence nor the arrest of four Rio executives in Shanghai have stopped Chinese companies from buying assets abroad as the nation’s 4 trillion yuan ($585 billion) economic stimulus spurs demand.

‘Bolder Deals’

“China will see larger and bolder deals,” said Brian Gu, the Hong Kong-based head of mergers and acquisitions for greater China at JPMorgan Chase & Co., the third-ranked adviser by transaction value this year. “The growing outbound mergers and acquisitions activity is going to be a long-term trend and the volume and activity are here to stay.”

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, dropped 36 percent last year, the biggest annual decline since at least 1957. The measure has gained 15 percent this year on signs that the recession may be ending.

Chinese energy companies have spent at least $13 billion on overseas assets since December as they take advantage of lower valuations caused by the slowdown.

Yanzhou, China’s fourth-biggest coal miner, is offering A$18 a share for Felix, including a dividend and stock in a spin off of a unit of the Australian company.

‘Inferior’ Offer

The offer, recommended by Felix’s board, is “inferior” and shareholders should reject it, Sophie Spartalis, an analyst with Macquarie Group Ltd., said in a report today. A bid of between A$23 to A$25 a share would be “more reasonable,” she wrote.

Felix rose 4.4 percent to A$17.64 at 1:30 p.m. Sydney time. Yanzhou climbed as much as 7.3 percent in Hong Kong trading to HK$13 and was at HK$12.23, while its Shanghai shares rose 4 percent to 20.79 yuan.

The state-owned parents of PetroChina Co., China Petroleum & Chemical Corp. and Cnooc Ltd. are studying investments in companies in Africa, Latin America, the Middle East and Central Asia, according to JPMorgan’s Gu and Mike Arruda, a lawyer at Jones Day in Hong Kong who advises on mergers and acquisitions in the oil and gas industry. Both declined to disclose details of deals they are advising on.

Controlling Stake

China National Petroleum, the parent of PetroChina and the nation’s biggest oil company, is considering offering $13 billion to $14.5 billion for a controlling stake in Repsol’s unit, three people familiar with the matter said last month.

China Petrochemical Corp., the country’s second-biggest oil company, in June agreed to buy Geneva-based Addax Petroleum Corp. for C$8.3 billion ($7.6 billion) in China’s biggest overseas takeover to date.

Purchasing Addax, which has oil reserves in Iraq’s Kurdish territory, shows Chinese oil companies are “going for bigger transactions,” said Arruda, who is advising on what he described as “significant” acquisitions. “These deals seem to reflect an appetite we have not seen before.”

China bought record volumes of oil and iron ore in July, according to customs figures released Aug. 11.

The world’s fastest-growing major economy consumes more than a third of the world’s aluminum output, a quarter of its copper production, almost a tenth of its oil and accounts for more than half of trading in iron ore. Last year, China bought $211 billion worth of iron ore, refined copper, crude oil and alumina, according to government data.

Demand, Imports

China’s oil consumption doubled in the last decade, rising to 8 million barrels a day last year from 4.2 million barrels in 1998, according to BP Plc’s Statistical Review. The world’s third-largest economy imported 3.6 million barrels of oil a day last year, meeting about 45 percent of its needs.

China’s increasing reliance on imported crude means the scale of acquisition deals has to increase, said Paul Ting, president of New Jersey-based Paul Ting Energy Vision LLC, a consulting company specializing in Chinese oil and gas markets.

The country’s crude needs may rise to more than 11 million barrels a day in five years with China’s ageing oilfields unable to produce the extra capacity needed, Ting said.

China National Petroleum said on May 13 it wants overseas crude production to match domestic output by 2020. Chairman Jiang Jiemin said CNPC produces less than 8 percent of its oil overseas and foreign acquisitions and ventures must be increased. “We want overseas production to contribute half,” he said at the time.

Australian Opposition

Bids for resources by China have been met with opposition from lawmakers in Australia.

Melbourne-based Rio, the world’s third-largest mining company, abandoned a tie-up with Aluminum Corp. of China, or Chinalco, in June. The arrest of four Rio executives in July has strained relations between the countries. They were formally arrested on charges of trade secrets infringement and bribery, China’s Supreme People’s Procuratorate said Aug. 11, according to a Xinhua report.

Some 57 percent of Australians said Chinese mining investments should be resisted because the nation’s interests would be “better served” with local ownership, according to a poll of 890 people conducted by Essential Research in April.

Opposition to Chinese investment helped block Cnooc’s $18.5 billion bid for Unocal in 2005 while Haier Group Corp. lost out in the race to acquire U.S. appliance maker Maytag Corp. in the same year.

Unocal, Repsol

Cnooc, 66 percent-controlled by state-owned China National Offshore Oil Corp., abandoned its cash offer for Unocal after being outmaneuvered by Chevron Corp, the second-largest U.S. oil company. Chevron purchased the El Segundo, California-based oil and gas producer for $17.8 billion amid political opposition to the Chinese approach in Washington.

CNPC’s approach for Repsol’s Argentine unit is unlikely to face such obstacles from Spain, according to Nitin Sharma, an analyst at JPMorgan Cazenove Ltd. in London.

“We do not believe that the Spanish government will veto Repsol YPF plans to divest a controlling stake in YPF,” Sharma wrote in a report last month.

To contact the reporter on this story: John Duce in Hong Kongt . Jduce1@bloomberg.net

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Gold Heads for Fifth Weekly Gain as Dollar Drop Fuels Demand

By Kim Kyoungwha

Aug. 14 (Bloomberg) -- Gold climbed for a third day and headed for a fifth weekly advance as investors sought an alternative to a weakening dollar and commodities rose on signs of an economic turnaround.

Bullion is on course for the longest weekly winning streak since November 2007. The Dollar Index, a six-currency gauge of the greenback’s value, fell as much as 0.7 percent yesterday after the German economy, Europe’s largest, unexpectedly expanded in the second quarter. Hong Kong’s economy probably grew 1.2 percent last quarter from the previous three months, a Bloomberg survey showed.

“Investors are seeking shelter from a weakening dollar,” said Steve Chun, a trader with Hyundai Futures Co. in Seoul. “We expect physical demand for gold to rebound, with some gap of time, as global economies are recovering gradually.”

Gold for immediate delivery rose 0.2 percent to $956.47 an ounce at 2:03 p.m. in Singapore. The metal is up 8.4 percent this year and 0.2 percent this week. Crude oil for September delivery rose 0.5 percent to $70.89 a barrel.

Thirteen of 27 traders, investors and analysts surveyed by Bloomberg News, or 48 percent, said bullion would gain next week. Six forecast lower prices and eight were neutral.

There remains the risk of a gold price decline on the back of the liquidation of speculative long positions that are “at a high level at present,” Eugen Weinberg and other analysts with Commerzbank AG wrote in a note yesterday. “The prevalent dollar weakness is currently preventing this development,” they said. Long positions are bets that prices will gain.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged at 1,065.49 metric tons as of Aug. 13, according to the company’s Web site.

Among other precious metals for immediate delivery, silver was up 0.3 percent at $15.075 an ounce, platinum rose 0.6 percent to $1,275.25 an ounce and palladium added 0.9 percent to $278.75.

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

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Corn Heads for Weekly Gain on Crude Oil Rally, Dollar Weakness

By Jae Hur

Aug. 14 (Bloomberg) -- Corn headed for its second weekly gain in three as rising crude oil prices and a weaker dollar increased the grain’s appeal to investors and purchasers outside the U.S.

Futures have gained 1.7 percent this week as a three-day rally in oil prices made the grain more attractive as a source of biofuel. The Dollar Index, a six-currency gauge of the greenback’s strength, fell for a fourth day, boosting demand from overseas importers holding other currencies.

“Corn and soybeans got a boost from higher oil prices and the dollar’s weakness,” Toshimitsu Kawanabe, an analyst at Tokyo-based commodity broker Central Shoji Co., said today. “Favorable crop weather in the U.S. Midwest may limit further gains in the grain and oilseed complex.”

Corn for December delivery was unchanged at $3.32 a bushel at 1:52 p.m. in Singapore after gaining as much as 1.1 percent earlier in after-hours electronic trading on the Chicago Board of Trade.

The grain dropped 1.3 percent yesterday on speculation warm, wet weather in the U.S. would boost the crop before farmers begin harvesting next month.

Crude oil for September delivery rose 0.4 percent to $70.83 a barrel on the New York Mercantile Exchange. The Dollar Index slipped to 78.456 after declining to 78.235 yesterday, the lowest level since Aug. 7.

U.S. exporters reported sales of 116,000 metric tons of corn to South Korea, the U.S. Department of Agriculture said yesterday. The corn is for delivery in the year that begins Sept. 1, the USDA said.

Favorable Weather

Soybeans for November delivery dropped 0.6 percent to $10.13 a bushel after trading between $10.01 and $10.31. The oilseed lost 2.4 percent yesterday and has lost 2.5 percent this week, headed for its first decline in three weeks.

Warm temperatures and mostly adequate soil moisture favors late pollinating and filling corn in the U.S. Midwest and increases crop development, weather forecaster DTN Meteorlogix LLC said in a report yesterday. The weather also favors pod setting and filling soybeans.

Wheat for December delivery in Chicago slipped 0.3 percent to $5.08 a bushel after losing 1.6 percent yesterday as favorable weather improved prospects for the spring crop in the U.S. The contract declined 1.6 percent this week, extending last week’s 2.2 percent drop.

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

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Corn Heads for Weekly Gain on Crude Oil Rally, Dollar Weakness

By Jae Hur

Aug. 14 (Bloomberg) -- Corn headed for its second weekly gain in three as rising crude oil prices and a weaker dollar increased the grain’s appeal to investors and purchasers outside the U.S.

Futures have gained 1.7 percent this week as a three-day rally in oil prices made the grain more attractive as a source of biofuel. The Dollar Index, a six-currency gauge of the greenback’s strength, fell for a fourth day, boosting demand from overseas importers holding other currencies.

“Corn and soybeans got a boost from higher oil prices and the dollar’s weakness,” Toshimitsu Kawanabe, an analyst at Tokyo-based commodity broker Central Shoji Co., said today. “Favorable crop weather in the U.S. Midwest may limit further gains in the grain and oilseed complex.”

Corn for December delivery was unchanged at $3.32 a bushel at 1:52 p.m. in Singapore after gaining as much as 1.1 percent earlier in after-hours electronic trading on the Chicago Board of Trade.

The grain dropped 1.3 percent yesterday on speculation warm, wet weather in the U.S. would boost the crop before farmers begin harvesting next month.

Crude oil for September delivery rose 0.4 percent to $70.83 a barrel on the New York Mercantile Exchange. The Dollar Index slipped to 78.456 after declining to 78.235 yesterday, the lowest level since Aug. 7.

U.S. exporters reported sales of 116,000 metric tons of corn to South Korea, the U.S. Department of Agriculture said yesterday. The corn is for delivery in the year that begins Sept. 1, the USDA said.

Favorable Weather

Soybeans for November delivery dropped 0.6 percent to $10.13 a bushel after trading between $10.01 and $10.31. The oilseed lost 2.4 percent yesterday and has lost 2.5 percent this week, headed for its first decline in three weeks.

Warm temperatures and mostly adequate soil moisture favors late pollinating and filling corn in the U.S. Midwest and increases crop development, weather forecaster DTN Meteorlogix LLC said in a report yesterday. The weather also favors pod setting and filling soybeans.

Wheat for December delivery in Chicago slipped 0.3 percent to $5.08 a bushel after losing 1.6 percent yesterday as favorable weather improved prospects for the spring crop in the U.S. The contract declined 1.6 percent this week, extending last week’s 2.2 percent drop.

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

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Rubber Heads for Biggest Weekly Advance in Seven Months on Oil

By Jae Hur

Aug. 14 (Bloomberg) -- Rubber advanced to a 10-month high and is poised for the biggest weekly gain in seven months, as crude oil extended gains, increasing demand for the commodity used to make tires.

Futures in Tokyo advanced as much as 2.4 percent to the highest since Oct. 8 as oil rose for a third day after U.S. stocks rallied and the German and French economies unexpectedly grew, sparking hopes for an economic recovery. A rise in crude prices boosts the appeal of rubber against synthetic product.

“Higher oil prices and rising stock markets have fueled optimism that the global economy may rebound and demand for rubber and other commodities will increase,” Shuji Sugata, research manager at Mitsubishi Corp. Futures & Securities Ltd., said today.

January-delivery rubber climbed as much as 5.0 yen to 214.0 yen a kilogram ($2,246 a metric ton) on the Tokyo Commodity Exchange. The price was up 0.5 percent at 210.1 yen at 11:15 a.m. in Tokyo. The most-active contract has gained 9.5 percent this week, the most since Jan. 9.

Rubber in Tokyo has risen 54 percent this year as crude oil has gained 60 percent and car sales in China have jumped. Crude oil for September delivery added 1.2 percent to $71.36 a barrel on the New York Mercantile Exchange.

The 14-day relative strength index for rubber futures, a gauge of momentum, has risen above 70 since yesterday, a level some investors use as an indicator that prices may decline.

The MSCI Asia Pacific Index gained 1 percent to 114.50 as of 11:18 a.m. in Tokyo, on course for its highest close since Sept. 25, after the Standard & Poor’s 500 Index added 0.7 percent yesterday.

Shippers in Thailand raised offers for RSS-3 grade rubber for September shipment to $2.05 a kilogram yesterday from $1.98 on Aug. 12, according to Takaki Shigemoto, an analyst at Tokyo- based commodity broker Okachi & Co.

Rubber for January delivery on the Shanghai Futures Exchange, the most-active contract, fell for the first time in five days, losing 0.9 percent to 19,480 yuan ($2,851) a ton by 10:14 a.m. local time. The most-active contract has jumped 80 percent this year.

Rubber inventories grew 6,644 tons to 62,778 tons, based on a survey of 10 warehouses in Shanghai, Shandong, Yunnan, Hainan and Tianjin, the exchange said Aug. 7. That was the sixth weekly increase and up 52 percent from 41,393 tons on June 25.

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

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Sugar Production in Indonesia May Rise 7% in 2010 on Prices

By Yoga Rusmana

Aug. 14 (Bloomberg) -- Sugar mills in Indonesia, Southeast Asia’s biggest buyer, may raise production of white sugar as much as 7 percent next year because of higher prices.

The nation may produce between 2.9 million and 3 million metric tons of the refined product in 2010 compared with an estimated 2.8 million tons for this year, said Colosewoko, senior adviser of the Indonesian Sugar Association.

White sugar futures in London’s Liffe Exchange jumped yesterday to the highest price since the contract started trading in 1983 on expectations an improving economic outlook may buoy demand amid a supply shortfall. Indonesia’s retail price has risen 31 percent this year, according to data from the Ministry of Trade.

“Surging local prices will encourage farmers to grow more sugar cane next year,” Colosewoko, who uses only one name, said in a telephone interview in Jakarta yesterday.

Indonesia may produce 36 million tons of sugar cane next year, up from this year’s target of 34.8 million tons, said Colosewoko. The area planted with the sweeteners may increase to 450,000 hectares (1.1 million acres) next year from 444,500 hectares, he said.

“The use of proper fertilizers and good irrigation systems will boost productivity and reduce the impact of dry weather should the El Nino occur,” Colosewoko said, adding yield is expected to rise 2 percent to 80 tons per hectare.

Mills had produced 43 percent of this year’s output target, or 1.2 million tons, until the end of July, he said.

Indonesia has 61 mills located in Java, Sumatra and Sulawesi islands. The crushing season runs from April until October. Sugar produced from farms is used for domestic household consumption. Industrial users must import refined sugar or buy from domestic processors.

To contact the reporters on this story: Yoga Rusmana in Jakarta at yrusmana@bloomberg.net.

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Japan Stocks Rise on Metal Prices, Outlook for Chinese Demand

By Masaki Kondo

Aug. 14 (Bloomberg) -- Japanese stocks rose, capping a fifth weekly gain, as commodities companies and machinery makers advanced on higher metal prices and speculation Chinese demand will boost earnings.

Mitsubishi Corp., a trading company that gets more than a third of sales from commodities, added 3.3 percent after a top- ranked analyst at Goldman Sachs Group Inc. said a recovery in steel production made trading companies more attractive. Komatsu Ltd. the world’s No. 2 maker of earthmoving equipment, and Hitachi Construction Machinery Co., a smaller rival, gained more than 5 percent after analysts said demand is picking up in China.

The Nikkei 225 Stock Average added 80.14, or 0.8 percent, to close at 10,597.33 in Tokyo. The broader Topix index rose 5.16, or 0.5 percent, to 973.57.

“Demand for construction machinery will likely hold up for some time in China,” said Naoki Fujiwara, chief fund manager at Tokyo-based Shinkin Asset Management Co., which oversees the equivalent of $3.7 billion. “The point is whether the recovery in demand will spread across countries such as Brazil or Middle Eastern nations as commodities prices pick up.”

For the week, both benchmark gauges advanced 1.8 percent for a fifth week of gains, the longest streak since the five weeks ended April 10.

The Nikkei has climbed 50 percent from a more than quarter- century low on March 10, as improved economic statistics and corporate earnings fanned optimism the global economy is recovering. Stocks on the gauge traded at 1.41 times their corporate net worth, a level not seen in 11 months, according to data compiled by Bloomberg.

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

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Asian Stocks Gain on Earnings Speculation; Leighton Advances

By Jonathan Burgos

Aug. 14 (Bloomberg) -- Asian stocks advanced, driving the MSCI Asia Pacific Index to a 10-month high, after increased earnings and profit forecasts from the construction industry and Wal-Mart Inc.’s biggest clothing and toys supplier.

Leighton Holdings Ltd., Australia’s biggest construction company, surged 7.3 percent after predicting higher earnings. Hong Kong’s Li & Fung Ltd., which sells its products to Wal-Mart and Target Corp., gained 7.7 percent on better-than-estimated profit. Mitsubishi Corp., which gets more than a third of its sales from resources, climbed 3.3 percent in Tokyo after metal prices rose. Yanzhou Coal Mining Co. rallied 6.3 percent in Shanghai after agreeing to buy Felix Resources Ltd.

“Potential earnings estimate upgrades will help support a bull run in equities as long as interest rates remain low,” said Khiem Do, head of the multi-asset group at Baring Asset Management (Asia) Ltd., which holds $7 billion of assets.

The MSCI Asia Pacific Index rose 0.4 percent to 113.85 as of 3:33 p.m. in Tokyo, on course for its highest close since Sept. 25. The gauge has gained 61 percent from a more than five- year low on March 9 amid speculation stimulus measures and lower borrowing costs worldwide will help revive the global economy. The measure added 2.8 percent this week.

Japan’s Nikkei 225 Stock Average added 0.8 percent to 10,597.33. Australia’s S&P/ASX 200 Index climbed 0.6 percent, while South Korea’s Kospi Index advanced 1.7 percent.

Hong Kong’s Hang Seng Index slipped 0.7 percent. China’s Shanghai Composite Index sank 2.2 percent, set for the biggest weekly decline since February, amid concern its 68 percent rally this year had overvalued earnings prospects.

Noble, Nexus

Noble Group Ltd., the Hong Kong-based supplier of raw materials from soybeans to coal, advanced 3.5 percent in Singapore after reporting higher earnings. Nexus Energy Ltd. jumped 20 percent on speculation it will find a partner for a venture in Australia. LG Display Co., the world’s No. 2 liquid- crystal-display maker, gained 3.3 percent in Seoul after Nomura Holdings Inc. recommended investors buy the stock.

Futures on the Standard & Poor’s 500 Index lost 0.2 percent. The gauge rose 0.7 percent yesterday as better-than-estimated earnings from Wal-Mart Stores Inc. overshadowed an unexpected decline in retail sales. Banks gained after investor John Paulson’s hedge fund bought stakes in lenders.

The S&P 500 had dropped as much as 0.5 percent following government reports on retail sales and initial jobless claims that were worse than economists had predicted.

Mergers, Acquisitions

Confidence in the global economy and better-than-estimated earnings have driven the equity rally 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. Stocks on the gauge now trade at 24.8 times earnings, higher than the MSCI World Index’s 17 times.

Data in the past week show that the euro-region economy barely contracted in the second quarter as Germany and France unexpectedly returned to growth. The U.S. jobless rate dropped and Japanese machinery orders increased.

Leighton climbed 7.3 percent to A$33.30. The company said net income may rise to about A$600 million ($507 million) in the year ending June 30, similar to 2008’s record earnings.

Li & Fung, which supplies retailers including Wal-Mart Stores and Target Corp., advanced 7.7 percent to HK$27.40. The company said first-half profit rose 13 percent to HK$1.4 billion ($181 million) after it cut costs. That beat the average estimate of HK$1.2 billion in a Bloomberg News analyst survey.

A third of the 490 companies in the MSCI Asia Pacific Index that have reported quarterly results in the latest earnings season have beaten analysts’ profit estimates, while 17 percent have missed, according to data compiled by Bloomberg.

One-Time Gain

Noble Group rose 3.5 percent to S$2.07. The company said second-quarter profit more than doubled to $248.8 million, from $122.5 million, a year earlier, helped by a one-time gain from the acquisition of Gloucester Coal Ltd.

Chiangmai Frozen Foods Pcl advanced 8.3 percent to 3.64 baht in Bangkok. The exporter of frozen vegetables and fruits said second-quarter profit increased 46 percent.

Mitsubishi gained 3.3 percent to 1,994 yen. Rio Tinto Group, the world’s third-largest mining company, added 2 percent to A$59.99 in Sydney. A gauge of six metals in London climbed 3.6 percent yesterday to the highest level since Sept. 30. Copper rose 3.2 percent in New York.

Yanzhou Coal, China’s fourth-biggest producer of the fuel, gained 6.3 percent to 21.24 yuan. The company will pay about A$3.5 billion ($2.9 billion), or A$18 a share for Felix, including a dividend and stock in a unit. Felix rose 4.1 percent to A$17.60.

Mergers, Acquisitions

“China has been trying to accumulate resources to support its economic growth,” Baring Asset’s Do said. “That will continue to drive M&A activities in the resource sector, supporting valuations.”

Nexus Energy jumped 20 percent to 41.5 Australian cents, amid speculation it’s close to finding a partner for its Crux condensate venture in northern Australia. Jodie Phillips, a Melbourne-based spokeswoman for Nexus, couldn’t immediately be reached for comment.

LG Display climbed 3.3 percent to 37,200 won, taking gains in the past four days to 10 percent. Nomura raised its rating on the stock to “buy’ from “reduce”

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

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Coloplast, LVMH Moet, Swatch, Volkswagen: Europe Equity Preview

By Nadja Brandt

Aug. 14 (Bloomberg) -- The following companies may have unusual price changes in European trading. Stock symbols are in parentheses, and share prices are from the previous close.

The Dow Jones Stoxx 600 climbed 0.8 percent to 230.48. The Dow Jones Stoxx 50 Index increased 0.5 percent to 2,347.13. The Euro Stoxx 50 Index, a benchmark for the nations using the euro, added 0.7 percent to 2,705.74.

Coloplast A/S (COLOB DC): The world’s largest provider of ostomy and urology products may report third-quarter net income of 217.4 million kroner ($41.7 million), according to analysts’ estimates compiled by Bloomberg. Its shares rose 5.5 kroner, or 1.4 percent, to 389.50 kroner.

Hochtief AG (HOT GY): Germany’s biggest builder is scheduled to release second-quarter results. The shares increased 3.5 percent to 44.32 euros.

Huegli Holding AG (HUE SW): The Swiss maker of soups and sauces reports first-half earnings. The shares rose 6 francs, or 1.1 percent, to 540 francs.

LVMH Moet Hennessy Louis Vuitton SA (MC FP): The world’s largest luxury company bought 50 percent stakes in French winemakers Cheval Blanc and SAS La Tour du Pin, both producers of Saint-Emilion wines. It didn’t give financial terms. The shares gained 48 cents, or 0.8 percent, to 63.50 euros.

Swatch Group AG (UHR VX): The world’s biggest watchmaker reports first-half earnings. The shares gained 4.5 franc, or 2.2 percent, to 210.1 francs.

ThyssenKrupp AG (TKA GY): Germany’s largest steelmaker is scheduled to report quarterly results.

Separately, Wirtschaftswoche reported the company has changed strategy and now plans to hold on to its Blohm + Voss shipyard unit. The publication cited an unidentified member of the shipyard supervisory board. The shares advanced 2.9 percent to 22.68 euros.

Unique Zurich Airport AG (UZAN SW): The operator of Switzerland’s busiest airport said passenger traffic fell 0.8 percent in July from a year earlier. The shares rose 50 centimes, or 0.2 percent, to 293 francs.

Volkswagen AG (VOW GY): Europe’s largest carmaker will pay about 3.3 billion euros ($4.71 billion) for a 42 percent stake in Porsche SE’s automotive unit as part of a plan for the gradual merger of the two manufacturers. Volkswagen shares fell 0.1 percent to 226 euros. Porsche (PAH3 GY) shares advanced 1.6 percent to 44.60 euros.

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

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Blockbuster, China GrenTech, King, Lifeway: U.S. Equity Preview

By Lu Wang

Aug. 14 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

Ares Capital Corp. (ARCC US): The investment company said it’s offering to sell 8 million shares and plans to use part of the money to pay debt. The creation of additional shares may dilute future earnings for existing shareholders.

Blockbuster Inc. (BBI US): The largest movie-rental chain reported a loss excluding some items of 19 cents a share, 62 percent wider than the average analyst estimate, according to Bloomberg data.

China GrenTech Corp. (GRRF US): The wireless products and services company reported second-quarter profit of 8 cents a share, four times the average analyst estimate.

King Pharmaceuticals Inc. (KG US): The drugmaker betting its future on safer painkillers won U.S. approval to sell the first pain pill that users can’t easily manipulate to get high.

Lifeway Foods Inc. (LWAY US): The maker of dairy products said it earned 15 cents a share in the second quarter, more than double Taglich Brothers’ estimate.

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

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