Aussie Options Turn Bearish as Rate-Rise Odds Drop

By Candice Zachariahs

Aug. 24 (Bloomberg) -- Currency traders who’ve made Australia’s dollar the third-best performer in the world this year say the rally may be over.

The Aussie is little changed this month after rising 19 percent through July as China, the nation’s largest trading partner, slowed spending that spurred gains in commodities and bets Australia would be among the first to raise interest rates. Options show traders are the most bearish since Feb. 17, when the currency was in the midst of a two-month, 13 percent slide.

“We find it difficult to see the Aussie dollar going up,” said Anthony Michael, the Singapore-based head of fixed income at Aberdeen Asset Management Asia Ltd. Aberdeen manages $167 billion globally. “We’re pretty much sitting on our hands at current levels” and would only be interested in buying the currency “at lower levels around 80 cents,” he said. It traded at 83.93 U.S. cents as of 12:49 p.m. in Sydney.

Growing bearishness contrasts with optimism in the second quarter, when traders and investors piled into the Australian dollar on speculation spending on raw materials would increase as central banks printed unprecedented amounts of cash to rescue their economies. Australia relies on exports of iron ore, coal and other products for 21 percent of gross domestic product.

China Stocks Drop

The Australian dollar’s 29 percent gain the past six months as prices rose for raw materials trailed only the 33 percent rally by New Zealand’s currency and the 30 percent appreciation of Brazil’s real among the 16 most-traded currencies tracked by Bloomberg.

Now, a 14 percent drop in China’s Shanghai Composite Index from this year’s high on Aug. 4 shows the Australian currency may be hard pressed to extend its longest monthly winning streak in 20 years. The index gained 87 percent through July, bolstering the Aussie.

The Australian dollar climbed for a fifth day, adding 0.6 percent to 84.01 U.S. cents as of 10:48 a.m. in London, for its longest run of gains since June. The Standard & Poor’s 500 Index rose on Aug. 21 to its highest level since October following a report showing that sales of existing U.S. homes increased to the most in almost two years.

“Prospects for a return to growth in the near term appear good,” while “critical challenges remain,” including possible further losses for financial firms, Federal Reserve Chairman Ben S. Bernanke said Aug. 21 at a symposium in Jackson Hole, Wyoming.

Bearish Options

Options to sell the Australian dollar in the next month cost 2.32 percentage points more than contracts to buy the currency on Aug. 18, a day after the Shanghai Composite dropped by the most in nine months. That’s the biggest premium on puts since Feb. 17, reversing the 0.445 percentage point extra that traders were willing to pay for the right to buy the Aussie in March, when it gained 8 percent.

“The Australian dollar has run very hard with the share market and is showing some potential for a correction,” said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney. The nation’s biggest provider of pension plans cut its “overweight” position in the currency by about 75 percent, selling it at prices between 83 and 84 U.S. cents.

Cutting Estimates

The median forecast of 38 analysts polled by Bloomberg News is for Australia’s dollar to end the third quarter at 81 cents and trade at the same level by the end of 2009. The year-end forecast fell last week from 82 cents, the first decline in more than a month, according to Bloomberg data.

“We have increased our exposure to the yen as a hedge since risk aversion might be creeping back into the market,” Oliver said. AMP still expects the Australian currency to test parity against the U.S. dollar next year.

Investors betting on a reversal will be disappointed as Australia’s dollar climbs “well into the 90s” over the next six months, said Stephen Miller, a managing director in Sydney at BlackRock Inc. The firm oversees $1.4 trillion.

“In the immediate term, it looks as though we’re going to be an ongoing beneficiary of stronger demand in China,” Miller said. “We are long carry currencies as a theme and those positions are more focused in the Aussie dollar than anything else.”

Carry trades use funds in countries with lower borrowing costs such as in the U.S. and Japan to invest in those with higher rates, allowing investors to pocket the difference. Speculators fled the strategy last year as central banks cut rates to revive growth, narrowing spreads, and currency swings raised the risk that any gains will be erased.

Relative Yields

Australia’s A$1 trillion ($838 million) economy unexpectedly expanded in the first quarter, skirting recession as China bought 47 percent more from the South Pacific nation in the six months ended June 30 than in the same period of 2008. The world’s largest consumer of iron ore bought a record 131 million metric tons from Australia, its biggest shipper.

Even at a half-century low of 3 percent, Australia’s benchmark interest rate is still the highest among the Group of 10 nations.

The nation’s two-year government debt yields 3.43 percentage points more than Treasuries, 1.53 percentage points more than the average over the past 10 years as traders bet Reserve Bank of Australia Governor Glenn Stevens will take the lead in lifting rates. The interbank lending market shows an 88 percent chance that the first increase will come in November.

Bets that policy makers will raise rates over the next 12 months by the most since 1994 were trimmed last week, with traders expecting an increase of 1.59 percentage points on Aug. 21, down from as high as 1.87 percentage points on Aug. 11.

‘Too Aggressively’

“The market’s pricing in rate hikes a little too aggressively and a little too early,” said Adrian Owens, a London-based fund manager who oversees $700 million in currency and interest-rate funds at Augustus Asset Managers Ltd., which has about $7.6 billion in assets. “It is more likely to be the middle of next year before the RBA starts hiking because they’re going to want to be really sure that recovery is entrenched.”

Owens said he bought interest-rate futures on that view and is betting the Aussie will fall against Norway’s krone.

The Reserve Bank of Australia said this month its decision on when to raise borrowing costs will need to balance the risk of stoking inflation with damaging confidence and demand.

“A particular source of uncertainty was whether the recent growth in household spending was due mainly to temporary” government handouts, “in which case it would probably soon fade,” policy makers said in minutes of their Aug. 4 meeting, released Aug. 18.

Baltic Dry Index

The Baltic Dry Index, a measure of shipping costs for commodities, dropped this month to the lowest since May as Chinese demand for shipments of coal and iron ore slowed. That gauge and Australia’s dollar have moved in tandem 86 percent of the time on a weekly basis over the past 10 years, according to data compiled by Bloomberg.

“Commodity currencies are still at risk” and gains “are going to prove unsustainable,” said Ian Stannard, the London- based currency strategist at BNP Paribas SA, France’s largest bank. “We are still very much of the view that any gains” in the Aussie and New Zealand dollars “should be used to establish bearish positions,” he said.

China may seek to buy fewer raw materials from Australia and pay less for those it does purchase, threatening to crimp the South Pacific nation’s export revenue. China pledged this month to bankroll a $6 billion iron ore expansion by Fortescue Metals Group Ltd. in Australia, winning a 35 percent cut in prices paid for the steelmaking material.

‘Undermine Highs’

“China’s strategic aim to encourage as much iron ore production as possible has the ability to undermine the historical high returns that iron ore has generated,” Citigroup Inc.’s Clarke Wilkins said Aug. 17 in a report.

In November China pledged 4 trillion yuan ($585 billion) in spending on housing, highways, airports and power grids designed to steer the economy through the global financial crisis.

Some investors are concerned that much of the stimulus went straight into equities. An estimated 1.16 trillion yuan of loans were invested in the stock market in the first five months, China Business News reported on June 29, citing Wei Jianing, a deputy director at the Development and Research Center under the State Council, China’s Cabinet.

‘Effect Fading’

“China’s fiscal stimulus has peaked and its effect now seems to be fading,” Stephen Green, the Shanghai-based head of China research at Standard Chartered Bank Plc wrote in a report to clients on Aug 19. “This slowdown is not positive for asset prices generally, and may add to concerns about the second half.”

A return of risk aversion has the potential to push the Aussie to between 70 U.S. cents and 75 U.S. cents before year- end, said Mansoor Mohi-uddin, the chief currency strategist in Zurich at UBS AG, the world’s second-biggest currency trader as listed by Euromoney Institutional Investor Plc.

“China since the start of this month has indicated that government-backed projects will probably be fewer than in the first half and that the robust lending numbers are showing signs of slowing,” said Philip Wee, senior currency economist at DBS Group Holdings Ltd., Southeast Asia’s biggest regional bank, in a Bloomberg Television interview. “The market needs a stable U.S. and a growing China to take risk.”

New York-based Citigroup recommended selling the Aussie against Japan’s currency on Aug. 19 on expectations it would slide toward 70 yen. The exchange rate ended last week at 78.79 yen.

“We’ve probably built in so much positive news that the risk of disappointment is high,” said Henrik Pedersen, the London-based chief investment officer at Pareto Investment Management Ltd., which oversees $41 billion. “We’ll buy some protection through options. There’s some risk of a reversal.”

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

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Gold May Decline in London as Rebounding Dollar Erodes Demand

By Nicholas Larkin

Aug. 24 (Bloomberg) -- Gold, little changed in London today, may decline as a stronger dollar erodes the metal’s appeal as an alternative investment. Palladium rose to the highest price in almost a year.

The U.S. Dollar Index, a six-currency gauge of the greenback’s value, rebounded from a two-week low, gaining as much as 0.4 percent. Gold, which typically moves inversely to the dollar, added 1.4 percent on Aug. 21, the most this month.

“The market is likely to retreat toward $925 to $930 an ounce, provided the dollar rebounds from current lows,” Andrey Kryuchenkov, a VTB Capital analyst in London, wrote in a note.

Immediate-delivery bullion slipped 65 cents, or 0.1 percent, to $953.20 an ounce at 11:21 a.m. local time after advancing 0.6 percent last week. December gold futures were unchanged at $954.70 an ounce on the New York Mercantile Exchange’s Comex division.

The metal rose to $953.75 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $952.50 at the afternoon fixing on Aug. 21.

Hedge-fund managers and other large speculators reduced their net-long position in New York gold futures by 7 percent in the week ended Aug. 18, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets that prices will rise, outnumbered short positions by 177,530 contracts on Comex.

$930 to $960

“Longer term, changes will continue to depend particularly on the dollar,” Wolfgang Wrzesniok-Rossbach, head of marketing and sales at Hanau, Germany-based Heraeus Metallhandels GmbH, said in a report dated Aug. 20. Bullion will trade between $930 an ounce and $960 an ounce “in coming days,” he said.

Gold may be little changed this week, according to 11 of 29 traders, investors and analysts, or 38 percent, surveyed by Bloomberg. Ten forecast higher prices and eight said they would decline.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by the metal, added 0.92 metric ton to 1,066.41 tons on Aug. 21, data on the company’s Web site show. That’s the first increase since July 16. The fund reached a record 1,134.03 tons on June 1.

The MSCI World Index of shares today gained for a fifth day, while crude-oil futures traded near a 10-month high. The global economy is pulling out of recession, Federal Reserve Chairman Ben S. Bernanke and European Central Bank President Jean-Claude Trichet said last week at the annual central bankers’ symposium in Jackson Hole, Wyoming.

Silver, Palladium

“Hopes for an improvement in the global economy and fears regarding the emergence of inflation are leading to higher commodity prices,” GoldCore Ltd., a brokerage in Dublin, said in a note today.

An economic rebound may buoy prices of silver and platinum- group metals, which have more industrial uses than gold. Silver for immediate delivery in London rose 1.4 percent to $14.38 an ounce. Platinum was 0.8 percent lower at $1,245.75 an ounce. Palladium rose as much as 1.7 percent to $285.75 an ounce, the highest since Sept. 5, and last traded at $282.

Silver held in ETF Securities Ltd.’s exchange-traded commodities fell 0.8 percent to 19.876 million ounces on Aug. 21, according to the company’s Web site.

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

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Soybeans Advance 2.5 Percent on Smaller U.S. Harvest Estimate

By Luzi Ann Javier and Jae Hur

Aug. 24 (Bloomberg) -- Soybean futures gained for a second day, jumping as much as 2.5 percent, after the Professional Farmers of America said U.S. harvests may be smaller than expected. Corn and wheat also climbed.

Pro Farmer’s survey last week of soybean fields in the world’s biggest grower and exporter forecast output will be 3.15 billion bushels, less than the government estimate of 3.199 billion bushels.

“It’s a late crop this year,” John Reeve, director of agricultural commodities for Standard Chartered Plc, said today. “There are some early signs that’s not going very well.”

December-delivery soybeans rose as high as $9.975 a bushel in electronic trading on the Chicago Board of Trade and traded at $9.9450 a bushel at 3:16 p.m. in Singapore.

Soybeans for May delivery on the Dalian Commodity Exchange rallied as much as 2.9 percent to 3,733 yuan ($546) a metric ton before closing at 3,711 yuan.

The oilseed may rise to a record $20 a bushel amid low stockpiles in the U.S., a weaker dollar and increased demand as the global economy recovers, Standard Chartered’s Reeve said.

“Historically, August is the most volatile time for beans because that’s the pod-setting period in the U.S.,” Reeve said, referring to the crop development stage that helps to determine final yields. Soybeans touched a record $16.3675 in July 2008.

Corn Output

Pro Farmer, a marketing and information company, also forecast corn output in the world’s biggest grower and exporter will be 12.807 billion bushels, more than the 12.761 billion estimated by the U.S. Department of Agriculture on Aug. 12. The USDA’s next output estimate will be released Sept. 11.

Corn for December delivery added as much as 1.7 percent to $3.3175 a bushel in Chicago, before trading at $3.2975 bushel.

“If a Sept. 25 frost ends the season, neither corn nor soybeans will reach these levels,” Pro Farmer said. “A two- week-late frost could pump up final yields.” Many farmers will begin harvesting next month.

Wheat for December delivery in Chicago added 0.6 percent to $4.90 a bushel at 3:28 p.m. Singapore time. The price touched $4.855 on Aug. 19, the lowest in more than eight months.

Australia, the world’s fourth-largest wheat exporter, “urgently” needs rain in eastern grain regions as hot, dry weather damages the chance of meeting a government forecast for the biggest crop in four years, Luke Mathews, agri-commodity strategist with Commonwealth Bank of Australia, said in an e-mailed report.

“Extremely hot conditions in northern New South Wales and Queensland over the weekend will have cut yield prospects,” Mathews wrote. “Widespread rain is urgently needed in those regions but no relief is in sight.”

To contact the reporters on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net; Jae Hur in Singapore at jhur1@bloomberg.net

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Copper Advances for a Third Day in London on Economic Recovery

By Anna Stablum

Aug. 24 (Bloomberg) -- Copper rose for a third day and lead to the highest since September in London as U.S. Federal Reserve Chairman Ben Bernanke said the world is emerging from its deepest recession since the 1930s.

The MSCI World Index of stocks advanced for a fifth day after sales of existing homes in the U.S. surged by a record last week. The prospects for a return to growth “appear good,” Bernanke said at a meeting of the world’s central bankers in Jackson Hole, Wyoming, on Aug. 21.

“We had nothing negative out of Jackson Hole and the central bank meeting over the weekend and that would imply they are all in general agreement the worst is over,” Alex Heath, head of industrial-metals trading at RBC Capital Markets in London, said by phone today. “The market has taken into its head we are going to see a recovery in the fourth quarter.”

Copper for three-month delivery gained $100, or 1.6 percent, to $6,370 a metric ton by 9:55 a.m. on the London Metal Exchange, adding to six weeks of gains. The metal for December delivery advanced 0.7 percent to $2.9135 a pound on the New York Mercantile Exchange’s Comex division. Copper prices have doubled this year in London and New York.

Lead rose 5.7 percent to $1,970 a ton after earlier gaining as much as 7.3 percent to $1,999.50, the highest since Sept. 26.

“You are not going to find many of the other metals bucking the trend,” Heath said. “People look at them and think there is more value in the cheaper ones.”

Investment Community

European industrial orders increased more than economists forecast in June, according to a report today from the European Union’s statistics office in Luxembourg.

Hedge-fund managers and other large speculators decreased their net-short position, or a bet prices will fall, in New York copper by 88 percent in the week ended Aug. 18, according to U.S. Commodity Futures Trading Commission data.

Imports of refined copper from China more than doubled in the first half of this year. Imports dropped by 23 percent in July from a record the previous month, the Beijing-based customs office said today, citing revised final data.

“There was roughly 300,000-400,000 tons of stock built in China over the first half of 2009,” Max Layton, an analyst at Macquarie Bank Group Ltd. in London, said in a report today.

Global copper usage is up 4.1 percent over the first five months of the year from a year ago, he said. “The strength of Chinese apparent demand” had been enough to more than offset weak consumption in the 30 member countries of the Organization for Economic Co-operation and Development, Layton said.

In Chile, Codelco, the world’s largest copper producer, will close the smelter at its Chuquicamata mine by December because of high fuel costs, El Mercurio reported today.

Nickel Scrap Tightness

Among other LME metals for three-month delivery, nickel rose 3.1 percent to $19,890 a ton. The nickel market will be in a 29,000-ton deficit next year versus a 28,000-ton surplus this year, Michael Widmer, an analyst at Bank of America Securities- Merrill Lynch, wrote in a report on Aug. 21.

“We expect a pick-up in stainless steel end-user demand through 2010, which could push the nickel market into deficit,” he said. About two-thirds of all nickel produced is used to make stainless steel more durable. “Stainless steel scrap makes up almost half of the nickel units used by stainless steel mills.”

The tightness in the scrap market through to 2010 would force “stainless steel mills to use more refined nickel and ferronickel,” Widmer said.

Aluminum rose 0.5 percent to $1,937 a ton, zinc advanced 2.2 percent to $1,875 and tin gained 0.4 percent to $14,350.

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

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Ivory Coast’s New Cocoa Crop May Not Be Bigger, Saf-Cacao Says

By Monica Mark

Aug. 24 (Bloomberg) -- Cocoa production in Ivory Coast, the world’s largest grower of the beans, may not be larger in the 2009/2010 season than this year as trees remain hindered by black pod disease, according to Ali Lakiss, director of San Pedro-based cocoa exporter Saf-Cacao.

The crop year that ends in September will probably reach 1.1 million metric tons and the new crop “won’t be any higher than that,” Lakiss said by phone from San Pedro, a port town in western Ivory Coast. BNP Paribas Fortis said in July output may rise to 1.37 million tons from 1.29 million tons for 2008/2009.

“Many beans will not be of a commercial standard” for the 2009-2010 season, Lakiss said. The harvest may still start earlier than the normal October beginning when the government sets the price because some beans are ripe for picking, he said.

Saf-Cacao exported 77,217 tons of cocoa in the 2007/2008 season, making it the country’s sixth-largest cocoa-bean shipper, according to the country’s cocoa and coffee exchange, known as the BCC.

Cocoa prices in London jumped 71 percent last year. Global production fell 7.2 percent to 3.5 million tons in 2008/2009 from 3.7 million a year earlier, according to the International Cocoa Organization.

Cocoa production in the Ivory Coast for 2008/2009 was estimated in May at 1.21 million tons by the London-based cocoa organization, down from 1.38 million the year before, partly because higher-than-normal rainfall during May to September 2008 provided grounds for diseases such as black pod and swollen shoot virus to spread.

Rainfall this year has been mixed. The Daloa region, the biggest growing region in the Ivory Coast, had 24.9 millimeters (0.98 inch) of rainfall in the first 10 days of August compared with 69 millimeters in the same period last year, while Sassandra had 26.2 millimeters compared with seven millimeters last year, according to the National Meteorological Service.

The Ivory Coast government in July said it would increase the amount of pesticides distributed to farmers.

“Black pod disease has already resurfaced and it’s worrying,” grower Maurice Savadogo said by phone from Abengourou, in the southeast of the country. The chemicals and pesticides distributed by the government “won’t be enough,” he said.

Ivory Coast’s mid-crop is collected from April through September after the main harvest is completed in March. Archer- Daniels-Midland Co. and Cargill Inc. were the largest exporters of the 2007/2008 crop, according to the BCC.

To contact the reporter on this story: Monica Mark in Abidjan via Johannesburg on amonteiro4@bloomberg.net

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Soybeans May Surge to Record $20, StanChart’s Reeve Forecasts

By Claire Leow and Susan Li

Aug. 24 (Bloomberg) -- Soybeans may rise to a record $20 a bushel, more than double today’s price, amid low stockpiles in the U.S., a weaker dollar and increased demand as the global economy recovers, according to Standard Chartered Plc.

“Historically, August is the most volatile time for beans because that’s the pod-setting period in the U.S.,” John Reeve, the bank’s director for agricultural commodities, said today, referring to the period that helps to determine final crop yields. “It’s a late crop this year,” he said.

The U.S. grows more than a third of the world’s soybeans and the country’s inventories are at a five-year low, according to Department of Agriculture data. Prices may swing between $8 a bushel and $20, Reeve said. The crop, crushed to make animal feed and cooking oil, touched a record $16.3675 a bushel in 2008.

“I am little bit more bullish than bearish” on soybeans, Reeve said in an interview. “An economic recovery, particularly in Asia, which of course is the majority market for exported beans out of the Americas, a lower dollar, all that macro stuff, given the tight stocks of beans in the U.S.” may boost prices.

Soybeans for December delivery, the most-active contract, climbed as high as $9.975 a bushel today on the Chicago Board of Trade. The contract is little changed this year, having risen about 1.4 percent.

Professional Farmers of America, an information company that produces crop estimates, said last week that the U.S. soybean harvest may be 3.15 billion bushels this year. That compares with a government estimate of 3.199 billion bushels.

‘Early Signs’

“There are some early signs that’s not going very well,” Reeve said, referring to the U.S. soybean crop. The focus for supply then shifts to South America, he said.

Argentina, suffering from drought, and Brazil are the largest producers after the U.S. The South American crop is planted in the fourth quarter, after the U.S. crop is harvested.

“We could see higher corn prices” should demand pick up amid the economic recovery and a weaker dollar, Reeve said. Still, “at this stage, the crop is looking very healthy, I think there’s a potential of lower corn prices.”

Corn prices in Chicago have dropped 19 percent this year and last traded at $3.29 a bushel. Pro Farmer forecast U.S. corn output at 12.807 billion bushels, more than the 12.761 billion estimated by the Department of Agriculture on Aug. 12.

“An interesting dynamic we’ve got at the moment is extremely high sugar prices and very low corn prices -- remember one of the substitutes for sugar is high-fructose corn syrup,” Reeve said. Sugar may advance on the potential for increased purchases by the Indian government, he said.

“Back in the last spike of the 70s, we had sugar at 66 cents a pound,” Reeve said. “Adjusted for inflation, that’s $1.70 a pound. Today, we’re in the low 20s, so the sky is the limit” for sugar, he said.

Sugar futures have jumped 85 percent this year, reaching a 28-year high of 23.33 cents a pound on Aug. 12 on speculation that adverse weather was reducing output in India and Brazil, the largest producers. The contract traded today at 21.84 cents.

India had its driest June in 83 years and parts of Brazil, the sugar largest grower, were hit by rainfall four times more than normal, hurting harvests. India is the biggest sugar user.

To contact the reporters on this story: Claire Leow in Singapore at cleow@bloomberg.net; Susan Li at sli31@bloomberg.net

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Japan’s Nikkei Jumps Most Since May on U.S. Homes, Commodities

By Masaki Kondo

Aug. 24 (Bloomberg) -- Japanese stocks rose, lifting the Nikkei 225 Stock Average to its biggest jump in more than three months, after sales of existing homes in the U.S. surged the most on record, the yen weakened and commodities gained.

Canon Inc., the world’s biggest digital-camera maker, added 6.3 percent. Honda Motor Co., which gets more than half its sales in North America, climbed 3.2 percent. Mitsubishi Corp., a trading company that gets more than a third of its sales from commodities, advanced 3.9 percent.

“The housing report confirmed the U.S. is clearly on a path to recovery,” said Yoshinori Nagano, a senior strategist at Tokyo-based Daiwa Asset Management Co., which oversees the equivalent of $91 billion. “The fundamentals of the global economy and corporate earnings are improving, supporting the resilience of the market.”

The Nikkei 225 Stock Average climbed 342.85, or 3.4 percent, to 10,581.05 in Tokyo, the steepest climb since May 7. The broader Topix index added 22.93, or 2.4 percent, to 970.27, with all of its 33 industry groups advancing.

Shares on the Nikkei traded at 44.6 times their estimated net income on Aug. 21, the lowest level in a month. The gauge dropped 3.4 percent last week, the first weekly decline since the five days ended July 10 as the U.S. said it would close a “cash for clunker” car-financing program and on concern China will curb bank lending, hampering growth.

In New York, the Standard & Poor’s 500 Index climbed 1.9 percent on Aug. 21 to a level not seen since Oct. 6. Purchases of existing U.S. homes jumped 7.2 percent in July, the most since the tallies began in 1999, the National Association of Realtors said. Federal Reserve Chairman Ben S. Bernanke said the global economy is “beginning to emerge” from recession.

Slowing Trading

“Japanese companies can’t count on domestic demand as a growth driver but have to rely on China and the U.S.,” said Koji Toda, chief fund manager at Resona Bank Ltd. “People’s sentiment here is easily influenced by overseas markets.”

The value of Topix-listed shares traded today fell to the lowest level since July 28.

Canon, which gets a third of its sales from the Americas, jumped 6.3 percent to 3,720 yen, while Toyota Motor Corp. rose 2.3 percent to 4,070 yen. Honda, Japan’s No. 2 automaker, gained 3.2 percent to 3,050 yen. The three stocks were the biggest contributors to the Topix’s advance.

The yen depreciated against the dollar to as much as 94.93 today from 93.77 at the close of Tokyo stock trading on Aug. 21. A weaker yen lifts the value of overseas sales at Japanese companies when converted into their home currency.

Mitsubishi, Japan’s biggest trading house by value, rose 3.9 percent to 1,914 yen. Mitsui Mining & Smelting Co., which owns a third of unlisted Pan Pacific Copper Co., Japan’s biggest smelter of the metal, surged 6 percent to 285 yen. Inpex Corp., the nation’s top oil explorer, jumped 5.4 percent to 758,000 yen.

Copper futures climbed 5.1 percent in New York on Aug. 21, the steepest gain since June 1, while oil added 1.3 percent.

Nikkei futures expiring in September rose 2.9 percent to 10,580 in Osaka and gained 3 percent to 10,580 in Singapore.

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

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Asian Stocks Advance on Signs Global Recovery Is Strengthening

By Shani Raja and Masaki Kondo

Aug. 24 (Bloomberg) -- Asian stocks rose, with the MSCI Asia Pacific Index advancing the most in three months, after sales of existing homes in the U.S. surged by a record and China Construction Bank Corp. reported higher-than-estimated profit.

BHP Billiton Ltd., the world’s biggest mining company, gained 4.3 percent in Sydney after copper and oil prices climbed in New York. China Construction Bank rose 2.6 percent in Hong Kong. James Hardie Industries NV, the largest supplier of siding to U.S. homes, added 6.9 percent in Sydney. In Tokyo Canon Inc., the world’s biggest maker of digital cameras, surged 6.3 percent.

“The fundamentals of the global economy and corporate earnings are improving, supporting the resilience of the market,” said Yoshinori Nagano, a senior strategist at Tokyo- based Daiwa Asset Management Co., which oversees the equivalent of $91 billion. “The housing report confirmed the U.S. is clearly on a path to recovery.”

The MSCI Asia Pacific Index rose 2.5 percent to 113.40 as of 7:20 p.m. in Tokyo, the steepest increase since May 19. Almost nine times as many stocks gained as retreated, and all 10 industry groups climbed, led by commodities producers.

Japan’s Nikkei 225 Stock Average added 3.4 percent to 10,581.05, with only 6 stocks declining. All Asian benchmark gauges advanced, led by a 5.1 percent gain in the Philippines.

In New York, the Standard & Poor’s 500 Index climbed 1.9 percent on Aug. 21 to a level not seen since Oct. 6. September futures for the S&P 500 added 0.4 percent today. Purchases of existing U.S. homes jumped 7.2 percent in July, the most since the tallies began in 1999, according to the National Association of Realtors.

Global Recovery?

James Hardie climbed for the first time in four days, adding 6.9 percent to A$7.14 in Sydney.

The global economy is “beginning to emerge” from recession after “aggressive” action by central banks and governments, Federal Reserve Chairman Ben S. Bernanke said Aug. 21. He made the comments in a speech at the Kansas City Fed’s annual meeting of policy makers in Jackson Hole, Wyoming.

BHP added 4.3 percent to A$38.18 after copper futures climbed 5.1 percent in New York on Aug. 21, the steepest gain since June 1. Rio Tinto Group, the world’s third-biggest mining company, advanced 4.7 percent to A$59.98.

Komatsu Ltd., the world’s second-largest maker of construction machinery, rose 2.7 percent in Tokyo, and Mitsubishi Corp., a Japanese trading company that gets more than a third of its sales from commodities, advanced 3.9 percent.

Oil Stocks Rise

Oil traded near a 10-month high in New York today on speculation demand will increase as the global economy emerges from the deepest recession since World War II.

Woodside Petroleum Ltd., Australia’s second-largest oil and gas producer, rose 5.3 percent to A$49.08. Also in Sydney, Santos Ltd., an explorer seeking to develop three liquefied- natural-gas projects, climbed 4.8 percent. Inpex Corp., Japan’s biggest energy explorer, surged 5.4 percent to 758,000 yen.

Wilmar International Ltd., the world’s largest trader of palm oil, climbed 5.4 percent, leading gains in Singapore, after the ingredient climbed to its highest level since Aug. 14.

Commodities stocks in the S&P 500 are trading on average at 33.1 times this year’s estimated earnings and at 17.7 times next year’s profits, the widest gap among the gauge’s 10 industry groups, according to data compiled by Bloomberg.

Australian banks rallied on speculation a recovery will reduce loan losses and spur credit growth. National Australia Bank Ltd., the nation’s largest by assets, climbed 3.9 percent to A$26.68. Australia & New Zealand Banking Group Ltd., Australia’s fourth-biggest lender, gained 4.1 percent to A$19.81.

Asian Valuations

China Construction Bank Corp., the nation’s second largest, rose 2.6 percent to HK$5.99 in Hong Kong after first-half profit beat analysts’ estimates on higher fee income and lower operating costs and bad-loan provisions.

Shares on the MSCI Asia Pacific Index traded at 23.7 times their estimated net income on Aug. 21, the lowest level in a month. The gauge dropped 3.2 percent last week, the most since the five days ended June 19, on concern China will curb bank lending, hampering growth.

“We see some signs confirming that the real economy is starting to get out of the period of freefall,” European Central Bank President Jean-Claude Trichet said on Aug. 22 at the Jackson Hole symposium. This “does not mean at all that we do not have a very bumpy road ahead of us.”

Among stocks that fell, WorleyParsons Ltd., Australia’s biggest engineering company, dropped 3.8 percent to A$25.83 in Sydney. The company forecast full-year profit will decline from a record on project delays. DUET Group fell 2.2 percent to A$1.54 after Credit Suisse Group AG cut the Australian energy asset investor’s stock rating to “neutral.”

Japanese Exporters

Hyundai Motor Co., South Korea’s largest automaker, climbed 4.4 percent to 107,500 won, after the company named Chung Eui Sun, the only son of the company’s chairman, vice chairman in charge of planning and sales.

Japanese exporters got a boost from the strengthening dollar, which lifts the value of their overseas sales when converted into their home currency. The dollar gained to about 94.93 yen at today’s close of Tokyo trading from 93.77 at close on Aug. 21.

Canon, the world’s biggest maker of digital cameras and which gets a third of its sales from the Americas, added 6.3 percent to 3,720 yen. Honda Motor Co., a carmaker that generates more than half its sales in North America, gained 3.2 percent to 3,050 yen, and bigger rival Toyota Motor Corp. rose 2.3 percent to 4,070 yen. BHP, Toyota and Canon were the biggest contributors to the MSCI Asia Pacific Index’s increase.

“Japanese exporters are discounted as investors are wary of U.S. consumer spending,” said Tomochika Kitaoka, a senior strategist at Mizuho Securities Co. in Tokyo. “The home-sales report will likely help narrow this discount.”

Yakult Honsha Co. jumped 9.8 percent to 2,295 yen in Tokyo after a report in the Nikkei newspaper speculated that profit at the Japanese maker of soft drinks may gain on overseas sales.

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

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DAX Poised for Highest Close Since October; BASF, MAN Climb

By Julie Cruz

Aug. 24 (Bloomberg) -- German stocks advanced as leaders of the world’s biggest central banks buttressed confidence in the global economic recovery and European industrial orders rose more than economists forecast in June.

BASF SE rose to its highest level in almost a year after its chief executive officer said a takeover of the company may be possible. ThyssenKrupp AG and Salzgitter AG, Germany’s biggest steelmakers, also advanced. MAN SE climbed for a third day, adding 4.5 percent.

The benchmark DAX Index added 0.7 percent to 5,500.62 as of 11:39 a.m. in Frankfurt, on course for the highest close since October, after trading started with a delay today due to a technical problem at the exchange. The broader HDAX Index gained 0.8 percent.

Germany’s benchmark index has rallied 50 percent since March 6 as companies worldwide from Goldman Sachs Group Inc. to Bayer AG reported better-than-projected earnings and economic data signaled improvement.

“We continue to see positive surprises in the economic data,” wrote Tammo Greetfeld, senior equity strategist at UniCredit Markets & Investment Banking in Munich, in a note to clients today. “A sudden sharp deterioration of the stock market environment in 2009 is very unlikely.”

Federal Reserve Chairman Ben S. Bernanke and European Central Bank President Jean-Claude Trichet, speaking at the annual central bankers’ symposium in Jackson Hole, Wyoming, said the world economy is pulling out of recession. The Commerce Department on Aug. 26 may report that purchases of new U.S. houses rose 1.6 percent in July to 390,000, the highest level since November, a Bloomberg survey of economists showed.

Oil Prices

ThyssenKrupp and Salzgitter increased 1 percent to 24.73 euros and 1.5 percent to 69.30 euros, respectively. Oil traded near a 10-month high and metal prices rose in London.

BASF SE, the world’s biggest chemical company, added 2.2 percent to 36.98 euros. Chief Executive Officer Juergen Hambrecht said the company may become the target of a hostile takeover. “Of course, an attack is possible,” German weekly Wirtschaftswoche quoted him as saying in an interview. It would take 70 billion euros ($100 billion) for a hostile bid to succeed, he said, adding that this sum would be difficult to raise.

Separately, BASF said it is increasing the price for carbonates worldwide.

MAN SE, Europe’s third-largest truckmaker, jumped 4.5 percent to 52.63 euros, on course for the highest close in more than 11 months.

Siemens AG increased 1.2 percent to 59.83 euros. Europe’s largest engineering company and Germany’s state-owned railway Deutsche Bahn AG may jointly pursue orders for U.S. high-speed trains, Der Spiegel reported, without saying where it obtained the information.

Deutsche Bank

Orders to industrial companies in the euro region rose 3.1 percent from May to June, the biggest gain in 19 months, the European Union’s statistics office in Luxembourg said today. Economists forecast a 1.8 percent rise, according to the median of 20 estimates in a Bloomberg survey. From a year earlier, June orders fell 25.1 percent, less than economists had projected.

Deutsche Bank AG added 1.5 percent to 48.82 euros. Smaller competitor Commerzbank AG also gained 1.5 percent.

The following stocks also rose or fell in German markets. Symbols are in parentheses.

Arcandor AG (ARO GY) slumped 16 percent to 26 cents. The insolvent retailer was cut to “sell” from “underperform” at Credit Agricole-Cheuvreux SA.

Separately, Madeleine Schickedanz, the retailer’s major shareholder, and Sal. Oppenheim Jr. & Cie. probably won’t receive anything in the company’s insolvency plan, Handelsblatt reported, citing Rolf Weidmann, a partner at the law firm overseeing the proceedings.

IKB Deutsche Industriebank AG (IKB GY) rose 1.7 percent to 60 cents. The bank reported first-quarter net income of 19.4 million euros, compared with a loss of 517.1 million euros a year earlier.

Pfleiderer AG (PFD4 GY) sank 6.5 percent to 6.29 euros, a second straight decline. The laminate-flooring maker posted a second-quarter loss per share of 6 cents compared with a breakeven as sales slid 26 percent to 334.5 million euros.

Porsche SE (PAH3 GY) lost 4.5 percent to 50.40 euros. The sports-car maker’s former chief executive officer, Wendelin Wiedeking, and ex-Chief Financial Officer Holger Haerter had their homes searched during the raid by German prosecutors, a spokeswoman for the Stuttgart-based prosecutor’s office said.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net.

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U.K. Stocks Rise to 10-Month High; BHP Billiton, Rio Tinto Gain

By Adam Haigh

Aug. 24 (Bloomberg) -- U.K. stocks rose for a fifth day to a 10-month high as higher commodity prices boosted the earnings outlook for raw-material producers.

BHP Billiton Ltd. and Rio Tinto Group both advanced more than 2.5 percent as metals prices climbed in London. WPP Plc gained 5.2 percent as Deutsche Bank AG advised buying the shares.

The benchmark FTSE 100 Index climbed 33.49, or 0.7 percent, to 4,884.38 as of 11:35 a.m. in London. A close at this level would be the highest since Oct. 3 last year. The FTSE All-Share Index rose 0.7 percent today and Ireland’s ISEQ Index added 0.4 percent.

“The miners are very strong again and momentum is very firmly the word of the day so far,” said London-based Joshua Raymond, a market strategist at City Index Ltd.

The FTSE 100 index has rebounded 39 percent since March 3 as the German and French economies unexpectedly grew last quarter and better-than-forecast earnings from Goldman Sachs Group Inc. to Roche Holding AG boosted global stock markets. The global economy is “beginning to emerge” from a recession after aggressive action by central banks and governments, Federal Reserve Chairman Ben S. Bernanke said at a symposium in Jackson Hole, Wyoming last week.

BHP Billiton, the world’s largest mining company, added 2.6 percent to 1,633 pence. Rio Tinto, the third biggest, climbed 3.7 percent to 2,485 pence.

WPP added 5.2 percent to 530.5 as Deutsche Bank upgraded the shares to “buy” from “hold.”

Amlin

Amlin Plc added 3 percent to 365.7 pence as the biggest insurer in the Lloyd’s of London insurance market said first- half pretax profit rose 29 percent to 177.1 million pounds ($291.8 million). That beat the 133.5 million-pound median estimate of six analysts surveyed by Bloomberg.

Bunzl Plc, the biggest U.K. supplier of vending machines, advanced 4.5 percent to 577 pence as it said it is seeking acquisitions to spur growth in new regions and countries where it already operates.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net.

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European, Asian Shares, U.S. Futures Climb; BHP Billiton Gains

By Sarah Jones

Aug. 24 (Bloomberg) -- Stocks in Europe and Asia rose, pushing the MSCI World Index higher for a fifth day, as an advance in commodities boosted the earnings outlook for metal producers. U.S. index futures climbed.

BHP Billiton Ltd. and Rio Tinto Group gained more than 2 percent as copper rallied. Sulzer AG increased 2.7 percent after the Swiss maker of textile machines reported profit that beat analysts’ estimates. WPP Plc surged 5.1 percent as Deutsche Bank AG recommended the shares before the world’s largest advertising company reports earnings this week.

The MSCI World added 0.6 percent as of 11:43 a.m. in London for the longest stretch of gains in four weeks. The measure has rebounded 58 percent since March 9 to a 10-month high after companies from Goldman Sachs Group Inc. to GlaxoSmithKline Plc posted better-than-estimated earnings and the German and French economies unexpectedly expanded.

“People are relieved that we are no longer talking about the ‘D-word’ of depression and rather that we are now coming out of recession,” said Rupert Armitage, head of equities at Shore Capital Group Plc in London, which has about $2.3 billion in assets under management. “Ultimately it’s aboutw confidence and investors now are feeling much better than they did 9-to-12 months ago.”

Federal Reserve Chairman Ben S. Bernanke said at a meeting in Jackson Hole, Wyoming last week that the global economy is “beginning to emerge” from a recession after aggressive action by central banks and governments. European industrial orders increased more than economists forecast in June, the latest indication that the worst slump in six decades is easing.

European, Asian Shares

Europe’s Dow Jones Stoxx 600 Index added 0.7 percent today and the MSCI Asia Pacific Index jumped 2.5 percent. Standard & Poor’s 500 Index futures expiring in September gained 0.3 percent, indicating the benchmark gauge for U.S. equities may extend last week’s increase that sent the measure to the highest level since October.

Governments around the world have pledged about $2 trillion in stimulus measures to help end the worldwide recession. Bernanke and other global policy makers have cautioned that the recovery is likely to be muted, indicating they would not soon remove all the stimulus injected into the financial system. European Central Bank President Jean-Claude Trichet said “green shoots” aren’t enough for him to declare the recovery sustainable.

Double Dip

Nouriel Roubini, the New York University professor who predicted the financial crisis, said the chance of a double-dip recession is increasing because of risks related to ending global monetary and fiscal stimulus. Still, the global economy will bottom out in the second half of 2009, Roubini wrote in a Financial Times commentary today.

BHP Billiton, the world’s largest mining company, gained 2.3 percent to 1,627 pence, while Rio Tinto, the third-biggest, soared 3.6 percent to 2,483.5 pence. Copper rose as much as 2.3 percent on the London Metal Exchange amid speculation the demand outlook for industrial metals is improving.

Eramet SA, operator of the world’s biggest ferronickel plant, jumped 9.2 percent to 223.20 euros after Nomura Holdings Inc. upgraded the shares to “buy” from “neutral” and nickel prices gained.

Alcoa Inc., the largest U.S. aluminum producer, increased 1.8 percent to $12.78 in German trading. Freeport McMoRan Copper & Gold Inc. the world’s biggest publicly traded copper producer, advanced 1.8 percent to $66.21.

Relative Bargains

Commodity companies, the most-expensive stocks in the S&P 500, are turning into relative bargains, data compiled by Bloomberg show.

While investors are paying an average 33.1 times earnings this year for copper, plastic and seed producers, the premium drops to 17.7 based on 2010 analyst estimates that call for profits to almost double. The decline is the steepest for any group in the S&P 500 and would leave the companies 23 percent less expensive than their historical average of 23.2 times.

Sulzer gained 2.7 percent to 84.25 Swiss francs after reporting first-half net income of 155.6 million francs ($146 million). Analysts in a Bloomberg survey had predicted 128 million francs.

WPP advanced 5.1 percent to 530 pence after Deutsche Bank upgraded the advertising company to “buy” from “hold” and increased its share-price estimate by 31 percent to 610 pence.

Amlin Gains

Amlin Plc rallied 2.9 percent to 365.6 pence after the biggest insurer in the Lloyd’s of London market posted a 54 percent increase in first-half net income as gross written premiums increased and investment returns doubled. Pretax profit rose 29 percent to 177.1 million pounds, beating the 133.5 million-pound median estimate of six analysts surveyed by Bloomberg.

Swiss Life Holding AG soared 5.6 percent to 123.8 francs after Sonntagszeitung reported the nation’s largest life insurer may this week announce cost cut measures of 200 million to 300 million francs.

Centrica Group Plc climbed 3.4 percent to 236.5 pence as the company won control of 50.3 percent of Venture Production Plc following a five-month takeover battle for the oil and gas explorer. Britain’s biggest energy supplier bought 8.4 percent of Venture today for 845 pence a share, in line with the price it has offered for all outstanding Venture shares.

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

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Highest P/Es for Commodity Companies Hide Bargains

By Michael Tsang and Lynn Thomasson

Aug. 24 (Bloomberg) -- Commodity companies, the most- expensive stocks in the Standard & Poor’s 500 Index, are turning into relative bargains.

While investors are paying an average 33.1 times earnings this year for copper, plastic and seed producers, the premium drops to 17.7 based on 2010 analyst estimates that call for profits to almost double, data compiled by Bloomberg show. The decline in the price-earnings ratio is the steepest for any group in the S&P 500 and would leave the companies 23 percent less expensive than their historical average of 23.2 times.

To some of the world’s biggest hedge funds, that opportunity is too good to pass up, especially as brokerages boost forecasts following second-quarter profits that were 60 percent higher than estimates, the most of any industry. At a time when bears say China’s moves to rein in speculative investments may curb demand, Harbinger Capital Partners, D.E. Shaw & Co. and Marshall Wace LLP all bought commodity producers last quarter amid signs the global economy is emerging from its first recession since World War II.

“You tend to want to buy these stocks when the multiples are high and about to move lower,” said Leo Grohowski, who oversees $142 billion as the New York-based chief investment officer at BNY Mellon Wealth Management. “You’ve got these huge earnings swings coming up, and a lot of investors, like us, are looking ahead for a better 2010.”

115% Profit Surge

The firm has been buying more commodities and commodity stocks, including Phoenix-based Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper producer, Grohowski said. Freeport will earn “between $5 and $6 a share next year,” or an increase of as much as 115 percent, he said.

Companies in the raw-materials industry have gained 67 percent from the S&P 500’s 12-year low of 676.53 on March 9, led by Memphis, Tennessee-based International Paper Co.’s 381 percent gain and Perrysburg, Ohio-based Owens-Illinois Inc.’s 259 percent increase. Only banks and brokerages have rallied more, rising 134 percent on average. The S&P 500 has advanced 52 percent in that period.

A gauge of raw-material shares led today’s advance in the MSCI World Index, as copper jumped by the daily limit in Shanghai and climbed 1.9 percent on the London Metal Exchange. The MSCI World Materials Index added 1.6 percent at 8:22 a.m. in London, while the MSCI World increased 0.6 percent. Futures on the S&P 500 rose 0.5 percent.

Contraction Stops

Analysts expect that the 29 commodity producers in the S&P 500 will earn an adjusted $10.26 per share in 2010, share- weighted data compiled by Bloomberg show. The 87 percent increase from this year’s estimate of $5.50 is the biggest of any S&P 500 industry. The shares would trade at bigger discounts than seven of the 10 industries that make up the S&P 500 even if earnings growth is half the rate forecast.

The Organization for Economic Cooperation and Development said last week the economies of its 30 members collectively stopped shrinking in the second quarter as Japan, France and Germany exited recessions. Renewed demand from China, the only economy among the world’s 10 largest that hasn’t shrunk in the last two years, helped end the contraction.

The price of copper has more than doubled from a four-year low in December, while aluminum and soybeans had each risen at least 24 percent from their lows through last week. The UBS Bloomberg Constant Maturity Commodity Index of more than 20 raw materials rebounded 49 percent since December after losing 55 percent of its value in the prior five months.

China’s Expansion

Shares of commodity producers are almost twice as expensive as those in the S&P 500, which trade at 17.2 times this year’s expected profit, and almost a third more than the next highest- priced industry, financial companies. Commodity producers in the MSCI World Index of 23 developed nations trade at 36.8 times earnings from the past year, the highest valuation versus the broader index since at least 1995, Bloomberg data show.

China’s economy, the world’s third-largest, may expand 8.7 percent this year and growth may accelerate to 9.8 percent next year, according to Citigroup Inc. in New York, which raised its 2010 forecast by 1 percentage point. The world’s most-populous nation is the biggest consumer of copper, aluminum, nickel, hogs, soybeans, vegetable oil and potash, and the second-biggest user of crude oil, data compiled by Bloomberg show.

‘Next Step’

“We’re on the cusp of an improvement in global demand,” said Ron Rimkus, a money manager for BB&T Asset Management. He helps oversee more than $15 billion in Raleigh, North Carolina, including shares of Freeport. “The first thing that happens is asset prices increase. The next step is demand will increase and we’re starting to see signs of that,” he said.

The discount for raw-material stocks relative to projected profits is justified because those earnings won’t materialize if metals retreat and demand from China slows, said Rafi Zaman, who helps oversee $22.5 billion as managing director of global equities at DuPont Capital Management in Wilmington, Delaware.

“The valuations are really, really overly optimistic relative to the earnings of these companies going forward,” he said. “China has a fair amount of these commodities already stocked up.”

Copper inventories monitored by the London Metal Exchange have climbed for six consecutive weeks, the longest span of increases since February. Scrap-copper imports tumbled 18 percent in May and 15 percent in June after rising for three months, government data show.

Yunnan Copper

New lending in China fell in July to less than a quarter of June’s level, as the government worked to avert speculation in stocks and property without choking off the nation’s economic growth. China consumes more than a third of the world’s aluminum output and a quarter of its copper production.

Yunnan Copper Industry Co., China’s third-biggest smelter of the metal, said last week that there were “no clear signs” of a recovery after the Kunming, Yunnan province-based company reported a first-half loss.

As China spends more of the 4 trillion yuan ($586 billion) announced last November for projects such as low-rent housing, infrastructure in rural areas, roads, railways, machinery and grain subsidies, commodity producers will benefit, said David Hussey, the London-based head of European equities at MFC Global Investment Management.

“China is going to continue to suck in materials,” said Hussey, whose parent company had $250 billion in assets under management as of June 30. “Infrastructure spending and all the projects that the Chinese government are putting in has at least a couple of years of very good growth to come.”

Freeport Estimates

Analysts’ 2010 earnings estimates for Freeport have increased by almost threefold this year, to $4.80 a share from $1.73 a share in January. That would be a 72 percent increase from this year’s consensus estimate, Bloomberg data show.

While Freeport is valued at 23.3 times analysts’ consensus estimates for 2009, close to the most expensive level since 2005, it sells for 13.6 times next year’s projected income. That’s 40 percent less than the median over the past 14 years.

Even if Freeport generates only half the earnings growth that analysts expect, the stock would still be valued below its historical median of 22.6 times earnings. Goldman Sachs Group Inc. recommended buying Freeport last week, saying China will drive global demand for copper that will result in a shortfall by 2011. The New York-based bank estimates Freeport’s profit will rise to $7.30 a share next year, a 162 percent increase from the 2009 consensus estimate of $2.79 compiled by Bloomberg.

Corn, Soybeans

Shares of Wilmington, Delaware-based DuPont Co., the third- largest U.S. chemicals maker, trade at 18.3 times this year’s estimated profit. Rising sales of its Pioneer brand corn and soybean seeds will help lift per-share income by 13 percent in 2010, analysts’ estimates compiled by Bloomberg show.

That implies a price-earnings ratio of 16.2 times, or 14 percent below the historical median based on data since 1990.

During the second quarter, 75 percent of commodity suppliers in the S&P 500 beat analysts’ estimates. Freeport’s results surpassed forecasts by 90 percent, while DuPont was bolstered by its agriculture unit, the world’s second-largest seedmaker behind St. Louis-based Monsanto Co.

Some of the biggest hedge funds have taken notice. Philip Falcone’s $7 billion Harbinger Capital Partners hedge-fund firm snapped up 1 million shares of Freeport in the second quarter, according to U.S. Securities and Exchange Commission filings compiled by Bloomberg.

The New York-based firm’s holding in Freeport was valued at about $50 million as of June 30, making it Falcone’s biggest new equity purchase during the quarter, the data show. The stock has since climbed 30 percent.

D.E. Shaw, Obama

Overall, the value of Harbinger’s shareholdings in material suppliers increased by 2.4 percent last quarter, the second- biggest jump behind the firm’s utilities holdings. Harbinger spokesman Charles Zehren declined to comment.

D.E. Shaw, the $29 billion hedge-fund firm founded by David Shaw, who advises President Barack Obama on science and technology, more than doubled his holdings in DuPont to 830,007 shares last quarter, while Marshall Wace, the London-based hedge-fund firm that oversees about $15 billion, established a 88,739 share position, regulatory filings show.

DuPont’s stock has climbed 28 percent this quarter.

Paul Welsh, a spokesman at D.E. Shaw, and Richard Farnsworth, a spokesman for Marshall Wace, declined to comment.

“There’s still more upside,” said Kevin Shacknofsky, who manages $2 billion for Alpine Mutual Funds in Purchase, New York. “You have the developed world emerging out of a recession and this huge Chinese demand. You could have a big supply-demand imbalance. The real demand will hit next year.”

To contact the reporters on this story: Michael Tsang in New York at mtsang1@bloomberg.net; Lynn Thomasson in New York at lthomasson@bloomberg.net.

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U.S. Stock-Index Futures Gain; Alcoa, Citigroup, AMD Advance

By Daniela Silberstein

Aug. 24 (Bloomberg) -- U.S. stock-index futures rose, indicating the Standard & Poor’s 500 Index will gain for a fifth day, the longest winning streak since November, as higher commodity prices boosted the outlook for raw-material producers.

Alcoa Inc., the largest U.S. aluminum producer, and ConocoPhillips climbed in Germany as copper rallied and oil traded near a 10-month high. Citigroup Inc. and Bank of America Corp. both gained more than 1.5 percent in pre-market trading in New York. Advanced Micro Devices Inc. climbed 5.1 percent after Citigroup recommended buying the shares.

Futures on the S&P 500 expiring in September added 0.2 percent to 1,027.7 at 11:57 a.m. in London. Dow Jones Industrial Average futures advanced 0.3 percent to 9,519, while Nasdaq-100 Index futures gained 0.1 percent to 1,637. Stocks in Asia and Europe also increased.

“The hope that the recovery is beginning to show is driving equities,” said Gregor Mast, an equity strategist at Clariden Leu AG in Zurich, which oversees about $88 billion. “Sentiment is improving but what is more important is the participation. A lot of people are still on the sidelines and underinvested. The current valuations anticipate a recovery in profits and we now need to see confirmation from the corporate side that we have seen the low points and the recovery is sustainable.”

Stocks last week rose for the fifth time in six weeks, sending the S&P 500 to the highest level since October, as rising commodity prices and a surge in home sales signaled an economic recovery. A 52 percent rebound from a 12-year low on March 9 left the measure valued at 18.92 times the profits of its companies, the highest ratio since 2004, weekly data compiled by Bloomberg show.

Bernanke, Trichet

Federal Reserve Chairman Ben S. Bernanke and European Central Bank President Jean-Claude Trichet, speaking at the annual central bankers’ symposium in Jackson Hole, Wyoming last week, said the world economy is pulling out of its deepest recession since the 1930s.

Nouriel Roubini, the New York University professor who predicted the credit crisis, wrote in today’s Financial Times that he sees increased risks of a double-dip recession as governments try to unwind economic stimulus packages.

Alcoa rose 1.4 percent to $12.73 in Germany. Freeport- McMoRan Copper & Gold Inc., the world’s largest publicly traded copper producer, advanced 1.8 percent to $66.20. Industrial metals rose in London and Shanghai on signs that the global economy is recovering, improving the demand outlook.

ConocoPhillips

ConocoPhillips, the second-largest U.S. refiner, added 1.1 percent to $44.68 as crude oil traded above $73 a barrel in New York.

Commodity companies, the most-expensive stocks in the S&P 500, are turning into relative bargains. While investors are paying an average 33.1 times earnings this year for copper, plastic and seed producers, the premium drops to 17.7 based on 2010 analyst estimates that call for profits to almost double, data compiled by Bloomberg show. The decline in the price- earnings ratio is the steepest for any group in the S&P 500 and would leave the companies 23 percent less expensive than their historical average of 23.2 times.

Citigroup, the bank rescued by a $45 billion U.S. bailout, surged 4.5 percent to $4.91 in New York. Bank of America added 1.7 percent to $17.75. Bank of America, which has lost 10 directors through resignations or retirement since April, elected former Morgan Stanley executive Robert Scully to its board, which now has 14 members.

AMD

Advanced Micro Devices climbed 5.1 percent to $3.89. The second-largest maker of personal-computer processors was raised to “buy” from “hold” at Citigroup, which said the company’s competitive position and gross margin will likely improve.

American Express Co. gained 2.8 percent to $33.77 in Germany. The largest credit-card company by purchases, Capital One Financial Corp. and Discover Financial Services were raised to “overweight” at Barclays Capital Inc., which said a peak in charge-offs is near and the companies will benefit from declining credit costs.

Procter & Gamble Co. increased 0.8 percent to $54 in New York. Warner Chilcott Ltd., a maker of birth-control pills and acne medication, plans to buy the world’s biggest household- goods maker’s prescription-drug business for about $3.1 billion, according to a person familiar with the matter.

To contact the reporter on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net.

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