Consumer Spending in U.S. Probably Rose at Slower Pace in July

By Shobhana Chandra

Aug. 28 (Bloomberg) -- Consumer spending probably increased in July at half the pace of the previous month, a sign the biggest part of the economy will be slow to rebound, economists said ahead of reports today.

Purchases rose 0.2 percent after gaining 0.4 percent in June, according to the median forecast of 75 economists surveyed by Bloomberg News. Another report may show consumer sentiment fell in August for a second month.

Spending is projected to rise this quarter as auto dealers benefit from the government’s “cash-for-clunkers” plan, while retailers such as Kohl’s Corp. and J.C. Penney Co. struggle to lure households shaken by mounting job losses. A record drop in wealth may prompt Americans to reduce debt and boost savings, signaling consumers will play a smaller role in the recovery.

“Consumer spending is going to be pretty lackluster,” said Robert Mellman, an economist at JPMorgan Chase & Co. in New York. “Employment is contracting, and people are still pretty shell-shocked from the past decline in stock prices and home prices. The recovery is on track the rest of this year, but we really need the consumer to come on in 2010.”

The Commerce Department report is due at 8:30 a.m. in Washington. Spending estimates in the Bloomberg survey ranged from no change to a 0.6 percent increase.

The report is also projected to show incomes rose 0.1 percent in July after decreasing 1.3 percent the previous month, the most in four years. The drop reflected the fading boost from government stimulus-related tax cuts and transfers.

Sentiment Falls

At 10 a.m., Reuters/University of Michigan figures may show the index of consumer sentiment dropped to 64 from 66 in July, according to the Bloomberg survey median. Estimates ranged from 62 to 68. The measure would be up from a preliminary reading of 63.2 issued earlier this month.

Stocks are rising as reports indicate the economy is pulling out of the recession. The Dow Jones Industrial Average advanced 0.4 percent yesterday, rallying for the eighth straight day, the longest winning streak since April 2007.

Consumer spending, which accounts for about 70 percent of the economy, fell at a 1 percent pace in the second quarter, revised figures from the Commerce Department showed yesterday. Economists in a Bloomberg survey anticipated a 1.3 percent drop. The economy shrank at a 1 percent annual rate from April to June, also less than analysts’ median forecast.

While economists project that spending will start growing again this quarter, much of the gain will be driven by programs such as the Obama administration’s cash-for-clunkers plan.

Trade in Clunkers

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

Sales at retailers in July fell 0.1 percent, the first drop in three months, as the boost from the automobile plan failed to overcome cuts at other merchants, according to government figures released on Aug. 13.

Forecasts call for below-average gains in spending due to stagnant incomes, a lack of jobs and an unemployment rate that may reach 10 percent early next year for the first time since 1983, according to a Bloomberg survey taken this month.

Purchases will probably climb at an average 1.6 percent quarterly rate through June 2010, compared with a 2.8 percent gain on average during the six-year expansion that ended in December 2007, the survey showed.

Company results signal shoppers are under pressure. J.C. Penney, the third-largest U.S. department-store chain, issued a third-quarter earnings forecast that trailed analysts’ estimates and said sales may fall 3 percent to 5 percent from the same period last year. Smaller rival Kohl’s said second- quarter profit fell 3 percent as sales at stores open for at least a year declined.

“People are still going to shop a little less and spend a little less than they have in the past,” Kevin Mansell, chief executive officer of Menomonee Falls, Wisconsin-based Kohl’s, said in a telephone interview on Aug. 13.

                         Bloomberg Survey

===============================================================
                             Pers     Pers Core PCE  U of Mich
                              Inc    Spend   Prices    Conf.
                             MOM%     MOM%     MOM%    Index
===============================================================
Date of Release              08/28    08/28    08/28    08/28
Observation Period            July     July     July   Aug. F
---------------------------------------------------------------
Median                        0.1%     0.2%     0.1%     64.0
Average                       0.1%     0.2%     0.1%     64.4
High Forecast                 0.4%     0.6%     0.2%     68.0
Low Forecast                 -0.5%     0.0%     0.0%     62.0
Number of Participants          73       75       54       59
Previous                     -1.3%     0.4%     0.2%     63.2
---------------------------------------------------------------
4CAST Ltd.                    0.3%     0.1%     0.1%     65.5
Action Economics              0.1%     0.1%     0.1%     63.2
AIG Investments               0.0%     0.2%     ---      65.0
Aletti Gestielle SGR          0.2%     0.1%     0.1%     64.0
Ameriprise Financial Inc     -0.1%     0.1%     0.1%     64.5
Argus Research Corp.          0.1%     0.2%     ---      68.0
Banesto                       0.1%     0.2%     ---      64.0
Bank of Tokyo- Mitsubishi     0.1%     0.2%     0.1%     65.0
Bantleon Bank AG              0.1%     0.3%     0.1%     64.0
Barclays Capital              0.2%     0.4%     0.1%     64.0
BBVA                         -0.1%     0.2%     0.1%     66.0
BMO Capital Markets          -0.1%     0.2%     0.1%     64.0
BNP Paribas                   0.1%     0.2%     ---      63.1
Briefing.com                 -0.1%     0.3%     0.1%     64.8
Calyon                        0.2%     0.3%     0.1%     64.0
Capital Economics             0.2%     0.2%     0.1%     63.2
CIBC World Markets            0.0%     0.3%     ---      64.0
Citi                          0.2%     0.2%     ---      65.0
ClearView Economics           0.4%     0.2%     0.1%     ---
Commerzbank AG                0.1%     0.3%     0.1%     63.2
Credit Suisse                 0.4%     0.4%     0.1%     65.0
Daiwa Securities America      0.3%     0.4%     0.1%     ---
Danske Bank                   0.3%     0.6%     ---      65.0
DekaBank                      0.1%     0.1%     0.1%     64.0
Desjardins Group              0.0%     0.2%     0.1%     63.2
Deutsche Bank Securities      0.1%     0.2%     0.0%     65.0
Deutsche Postbank AG          ---      0.2%     ---      63.2
DZ Bank                       0.2%     0.3%     0.1%     65.0
Exane                         ---      0.4%     0.1%     ---
First Trust Advisors          0.1%     0.4%     ---      66.0
Fortis                        0.2%     ---      ---      ---
FTN Financial                 0.0%     0.2%     0.1%     65.0
Goldman, Sachs & Co.          0.1%     0.2%     0.1%     ---
Helaba                        0.2%     0.3%     0.1%     ---
Herrmann Forecasting          0.3%     0.2%     0.1%     64.6
HSBC Markets                  0.1%     0.5%     0.2%     64.0
IDEAglobal                    0.2%     0.3%     0.1%     66.0
IHS Global Insight            0.1%     0.3%     0.1%     64.0
Informa Global Markets       -0.1%     0.2%     0.2%     64.0
ING Financial Markets         0.0%     0.2%     0.1%     64.0
J.P. Morgan Chase             0.2%     0.3%     0.1%     63.5
Janney Montgomery Scott L     0.2%     0.2%     0.1%     ---
Landesbank Berlin            -0.1%     0.2%     ---      63.2
Landesbank BW                 0.4%     0.1%     ---      64.0
Maria Fiorini Ramirez Inc     0.2%     0.2%     0.1%     ---
Merrill Lynch/BAS            -0.1%     0.1%     ---      67.0
MFC Global Investment Man     0.0%     0.1%     0.0%     64.0
Mizuho Securities            -0.5%     0.0%     ---      63.0
Moody’s Economy.com           0.0%     0.2%     ---      63.5
Morgan Keegan & Co.           0.3%     0.1%     ---      ---
Morgan Stanley & Co.          0.3%     0.3%     ---      ---
Newedge                       0.1%     0.2%     ---      64.0
Nomura Securities Intl.       0.1%     0.2%     0.1%     ---
Nord/LB                      -0.2%     0.3%     0.1%     64.5
PNC Bank                      0.0%     0.2%     0.1%     ---
Raymond James                 0.3%     0.3%     0.1%     63.5
RBC Capital Markets           0.1%     0.5%     0.1%     64.5
RBS Securities Inc.           0.1%     0.2%     0.1%     63.2
Ried, Thunberg & Co.          ---      0.3%     0.1%     65.0
Schneider Foreign Exchang     0.3%     0.0%     0.1%     62.0
Scotia Capital                0.1%     0.1%     ---      ---
Societe Generale              0.2%     0.3%     0.1%     65.0
Standard Chartered            0.1%     0.3%     0.1%     65.0
Stone & McCarthy Research     0.3%     0.2%     ---      64.5
TD Securities                 0.2%     0.2%     0.1%     ---
Thomson Reuters/IFR           0.2%     0.1%     0.1%     64.8
Tullett Prebon                0.2%     0.2%     0.1%     64.5
UBS                           0.2%     0.4%     0.1%     65.0
UniCredit Research            0.1%     0.4%     0.1%     ---
Union Investment              0.0%     0.3%     ---      ---
University of Maryland        0.3%     0.2%     0.1%     64.0
Wells Fargo & Co.             0.4%     0.3%     0.1%     ---
WestLB AG                     0.1%     0.2%     0.1%     65.0
Westpac Banking Co.           0.0%     0.0%     0.1%     64.0
Woodley Park Research         0.3%     0.3%     ---      64.1
Wrightson Associates          0.2%     0.3%     0.1%     65.0
===============================================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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Euro Rises, Heads for Second Monthly Gain, on Recovery Optimism

By Yasuhiko Seki and Ron Harui

Aug. 28 (Bloomberg) -- The euro rose, headed for its first two-month advance against the dollar since March 2008, on growing evidence Europe is emerging from its worst recession.

The 16-nation currency gained for an eighth day versus the pound, its longest streak in four years, before a European report forecast to show business and consumer confidence rose to the highest level in 10 months. The yen fell against 15 of 16 major counterparts after Japanese government reports showed unemployment rose to a record and consumer prices slumped. Japan’s opposition party may win elections on Aug. 30, polls show, halting the ruling party’s half-century grip on power.

“The euro-zone economies look like they’re starting to recover,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The euro is easy to buy, given higher interest rates there than in the U.S. and Japan.”

The euro rose to $1.4355 as of 1:14 p.m. in Tokyo from $1.4341 in New York yesterday, when it reached $1.4406, the highest level since Aug. 7. The currency has advanced 0.7 percent this month. It climbed to 134.53 yen from 134.14 yen, and strengthened to 88.24 British pence from 88.07 pence.

The yen weakened to 93.71 per dollar from 93.52 yesterday. It declined to 64.34 versus New Zealand’s dollar from 64.28 yesterday, and fell to 78.63 per Australian dollar from 78.48.

Executive, Consumer Sentiment

Europe’s single currency strengthened as an index of executive and consumer sentiment in the 16-nation region climbed to 78 in August, the highest since October, from 76 in July, according to a Bloomberg News survey of economists. The European Commission will release the data today in Brussels.

European Central Bank board member Mario Draghi said on Aug. 26 that the global economy appears to be recovering from its first recession since World War II even though “strong uncertainties” remain.

The yen may decline for a second-straight week versus the New Zealand dollar on speculation investors sold the Japanese currency to buy higher-yielding assets.

Japan’s jobless rate rose to 5.7 percent in July, eclipsing the previous worst of 5.5 percent seen in April 2003, the statistics bureau said today in Tokyo. Consumer prices excluding fresh food declined 2.2 percent in July from a year earlier after dropping 1.7 percent in the previous month, the statistics bureau also said today.

“The markets seem to be perceiving the data as a negative for the safe-haven status of the currency,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “This is probably why the yen is being sold.”

U.S. Confidence

The benchmark interest rate is 0.1 percent in Japan and as low as zero in the U.S., compared with 2.5 percent in New Zealand and 3 percent in Australia, attracting investors to the South Pacific nations’ assets.

The dollar may head for a third weekly loss versus the Swiss franc before a U.S. report forecast to show a gauge of consumer confidence rose this month, sparking an increase in risk appetite.

A Bloomberg News survey of economists showed that the Reuters/University of Michigan gauge on Aug. 28 is projected to rise. The barometer of confidence among U.S. consumers probably rose to 64.0 in August from 63.2 in the previous month.

The dollar was at 1.0588 francs, down from 1.0594 francs yesterday, holding near the year-to-date low of 1.0531 touched on Aug. 27.

‘Gradually Improving’

“The overall picture that the global economy is gradually improving remains intact,” said Tomokazu Matsufuji, a dealer in Tokyo at SBI Liquidity Markets Co., a unit of financier SBI Holdings Inc. “The safe-haven currencies are likely to weaken against higher-yielding ones as risk sentiment is on the mend.”

Adding to signs the recession is easing, the U.S. economy, the world’s largest, contracted less than economists forecast as companies reduced inventories, spending started to climb and profits grew, a Commerce Department report said yesterday.

Gross domestic product shrank 1 percent in the three months ended in June, matching the initial estimate on July 31. The contraction was less than the 1.5 percent median forecast in a Bloomberg News survey of 75 economists.

The main opposition Democratic Party of Japan may win more than 320 of the 480 seats at the election Aug. 30, the Asahi newspaper reported yesterday. Prime Minister Taro Aso dissolved parliament on July 21, triggering the general election.

“The DPJ lacks policies which can re-invigorate the corporate sector as it focuses on households,” said Kazuto Uchida, chief economist in Tokyo at Bank of Tokyo Mitsubishi UFJ Ltd., a unit of Japan’s biggest banking group. “The limited prospect of an acceleration in growth expectations may prevent foreign investors from buying into Japanese assets.”

Spending Policies

DPJ President Yukio Hatoyama and his party have pledged cash for child care and an abolition of highway tolls among their spending policies.

A convincing victory by the DPJ may turn out be positive for the yen in the short term, according to Koji Fukaya, a senior currency strategist at the Tokyo unit of Deutsche Bank AG, the world’s largest currency trader.

“The DPJ won’t block the Bank of Japan from hiking interest rates when the right time comes, and it will be reluctant to intervene currency markets,” he said.

The Bank of Japan, which gained independence from the government in 1998, has kept its benchmark overnight lending rate at 0.1 percent since December. The rate has remained at 0.5 percent or lower since 1995.

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

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Rubber Rises to Two-Week High as Oil, Equity Gain Lifts Demand

By Jae Hur

Aug. 28 (Bloomberg) -- Rubber advanced to a two-week high, heading for a second monthly gain, as rallies in crude oil and stocks boosted optimism for an economic recovery, increasing demand for the commodity used to make tires.

Natural rubber in Tokyo added as much as 2.7 percent after oil rose 1.5 percent yesterday as equity gains lifted investor sentiment and the dollar weakened, boosting the appeal of commodities as a hedge against inflation. Oil has risen 4.9 percent this month, boosting the cost of synthetic products.

“Oil’s rally and rising equities have bolstered investor sentiment,” Hiroyuki Kikukawa, general manager of research at IDO Securities Co., said today by phone. “Futures may test the recent high of 214 yen.”

February-delivery rubber, which was listed on Aug. 26, rose as much as 5.6 yen to 212.4 yen a kilogram ($2,265 a metric ton), the highest intraday level since Aug. 14, on the Tokyo Commodity Exchange and was at 211.5 yen at 10:22 a.m. The most-active contract has gained 8.2 percent this month after jumping 20 percent in July.

Crude oil for October delivery gained 0.4 percent to $72.80 a barrel on the New York Mercantile Exchange after rising $1.06 to $72.49 yesterday.

The MSCI Asia Pacific Index rose 0.7 percent to 113.79 as of 10:28 a.m. in Tokyo. The gauge has jumped 62 percent from a more than five-year low on March 9 on speculation government stimulus packages and lower borrowing costs will revive the global economy.

In the U.S., the Standard & Poor’s 500 Index added 0.3 percent yesterday and the Dow Jones Industrial Average advanced 0.4 percent, rallying for the eighth straight day.

A report showing that the U.S. economy contracted less than anticipated in the second quarter amid a jump in government spending and smaller cutbacks by consumers also supported oil prices. The total number of people collecting unemployment insurance fell to the lowest level since April, in a sign that the economy is pulling out of the recession.

January-delivery rubber on the Shanghai Futures Exchange added 2.1 percent to 19,080 yuan ($2,793) a ton at 9:35 a.m. local time.

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

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Food, Water, Energy Shortages Threaten India Security

By Gopal Ratnam and Abhay Singh

Aug. 28 (Bloomberg) -- India’s future is threatened by shortages of food, water and energy and these should be addressed on a priority basis, the Prime Minister’s security adviser said.

“These are part of a broad national security plan, and defense is only one aspect of it,” Shekhar Dutt, India’s deputy national security adviser, said in an interview in New Delhi yesterday. “We think water is going to be a very severe determinant of prosperity and well-being.”

Inadequate rainfall has led to a drought in as many as 278 of India’s 626 districts, according to the farm ministry. This has sparked concern over food shortages and rising prices, prompting authorities to raid wholesalers hoarding commodities. Raw sugar futures have soared 90 percent this year.

“Unless we drive in the fear of god among hoarders, the man on the street will suffer from rising prices,” Ashok Das, principal secretary of food, civil supplies and consumer protection in the central Madhya Pradesh state, said in a phone interview from Bhopal today. Authorities seized 480 metric tons of sugar in the past week, he said.

Prime Minister Manmohan Singh last year imposed stockpiling limits on food items such as wheat and sugar to curb hoarding as inflation surged to a 16-year high. The government ended import taxes on edible oils, banned exports of rice and halted futures trading in commodities including soybean oil and potatoes to cool prices and avert riots that broke out in more than 30 developing countries including Haiti and Pakistan.

Water Harvesting

This year’s drought has underscored the need for India to improve collection of rainwater. With dam-based irrigation having nearly reached capacity of about 50 million hectares, additional water storage can be possible only with harvesting, Dutt said.

“In the next 20 years water harvesting will become the most important feature to generate groundwater storage more effectively than major dams,” he said.

Three northwest Indian states lost a volume of water from underground supplies equal to more than twice the capacity of Lake Mead, the biggest U.S. reservoir, between August 2002 and October 2008, scientists said in the Aug. 12 issue of the journal Nature.

Without measures to curb demand, dwindling groundwater supplies may cause drinking-water shortages and erode crop production in a region inhabited by 114 million people, the authors said. Water harvesting involves collecting rain from rooftops and local catchments and capturing seasonal floodwaters.

Internal Security

With more than 70 percent of India’s population living on less than $2 a day, the government is addressing internal security including jobs, infrastructure and literacy in addition to defense. In the next five years India plans to invest as much as $35 billion on weapons to modernize its military.

Power shortages impede development in India as more than 400 million people lack electricity and supply falls short of peak demand by 16.6 percent, the World Bank said in June.

An agreement with the U.S. that gave India access to nuclear technology and fuel for power generation also fits into the national security energy mix, Dutt said. The accord signed last year ended India’s nuclear isolation dating back to 1974, when it tested its first atomic bomb.

In 2008, India’s installed capacity in wind-energy was the fifth largest after U.S., Germany, Spain and China, according to the Global Wind 2008 report by Brussels-based Global Wind Energy Council. The government is also putting the final touches to a national plan aimed at boosting solar energy.

To contact the reporters on this story: Gopal Ratnam in New Delhi via gratnam1@bloomberg.net; Abhay Singh in New Delhi at abhaysingh@bloomberg.net

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Baosteel Buys 15% Stake in Iron Ore Company Aquila

By Jesse Riseborough

Aug. 28 (Bloomberg) -- Baosteel Group Corp., China’s largest steelmaker, agreed to buy a 15 percent stake in iron ore and coal company Aquila Resources Ltd., adding to investments in Australia, the biggest producer of the materials.

State-owned Baosteel will pay A$286 million ($240 million) for the stake, the Perth-based company said today in a statement. It will also help Aquila get “low-cost” Chinese financing for some projects, according to the statement.

China, the biggest buyer of iron ore, has invested in $56 billion of projects globally to try to reduce dependence on Vale SA, Rio Tinto Group and BHP Billiton Ltd., the world’s three largest suppliers. Aquila has announced plans to develop a A$4.1 billion iron ore mine, port and rail project in Western Australia and coal mines in Queensland.

“It’s good news for Baosteel as it will help secure iron ore and coal,” Zhou Xizeng, Beijing-based analyst with Citic Securities Co., said today by phone. “It’s difficult for Chinese steelmakers to buy stakes in large iron ore miners, so a stakeholding in a medium-sized or a small-sized mine would also be welcome.”

Aquila shares jumped 7.5 percent to A$7.04 at 1:04 p.m. Sydney time on the Australian stock exchange. Baosteel agreed to buy 43.95 million new Aquila shares at A$6.50 each.

The stock has more than doubled this year amid a rebound in demand and prices of the steelmaking raw materials. The company has a market value of A$1.8 billion.

“Baosteel values the growth potential of Aquila assets,” the Shanghai-based company said in a statement on its Web site, adding that also agreed to explore for minerals with Aquila.

Funding Help

Baosteel overtook Japan’s JFE Holdings Inc. and South Korea’s Posco to become the world’s third-largest steelmaker last year as China’s economic expansion fuelled demand for construction and automobiles. Steel production in China rose to record in July as fixed-asset investment increased 33.5 percent in the first half. Local banks made a record $1.1 trillion of new loans in the first six months.

“They are going to be a supportive shareholder and will help Aquila source funding over time for what is a pretty capital intensive development pipeline,” Alex Passmore, head of metals and mining research at Patersons Securities Ltd. in Perth, said today by phone.

Aquila’s share of capital spending for its three biggest projects, including West Pilbara iron ore, is about A$2.9 billion over the next five years, said Passmore, who has a “buy” rating on the stock and a A$9.35 target price.

Production Target

“We would expect to be producing iron ore in 2013,” Aquila Chief Executive Officer Tony Poli said today in an interview with Bloomberg Television. Aquila aims to produce as much as 40 million metric tons of iron ore a year at West Pilbara, he said.

Aquila’s development projects include iron ore, steelmaking coal and manganese prospects in Australia and South Africa. Australia is the biggest exporter of coal and iron ore.

The company’s Eagle Downs coking coal project will cost A$977 million to build and the mine could start production in 2012, Aquila said Aug. 17.

China, the world’s biggest buyer of iron ore, is Australia’s second-biggest trading partner, with two-way trade valued at A$68 billion in 2008, and is its largest source of foreign investment. Yanzhou Coal Mining Co., China’s fourth- biggest coal producer, is also in talks to buy Felix Resources Ltd. for A$3.5 billion.

The Chinese steelmaker already has a 46 percent stake in Rio Tinto’s Eastern Range iron ore mine in Western Australia, according to the Register of Australian Mining. It also has a joint venture exploration agreement with Australia’s third largest iron ore producer Fortescue Metals Group Ltd.

Baosteel nominated Vice President Dai Zhihao to Aquila’s board as part of the investment agreement, Aquila said.

To contact the reporters on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.netXiao Yu in Beijing on yxiao@bloomberg.net;

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Soybeans Rise as U.S. Overseas Sales Jump, Cutting Supplies

By Luzi Ann Javier

Aug. 28 (Bloomberg) -- Soybeans rose, set for the first weekly gain in three, after exports from the U.S. expanded, boosting optimism demand growth may be sustained, further tightening global supplies.

Exporters in the U.S., the world’s biggest grower and supplier, have sold about 13 million metric tons of soybeans as of Aug. 20 for delivery beginning Sept. 1, up 76 percent from a year earlier, the Department of Agriculture said yesterday. Overseas sales more than tripled to 1.97 million tons in the week ended Aug. 20, from a week earlier, it said.

“Orders like that are helping the oilseed and grain complex,” Jonathan Barratt, managing director at Commodity Broking Services Pty. in Sydney, said by phone today. “That should extend the gains in the next week.”

Soybeans for November delivery, after the U.S. harvest, rallied as much as 1 percent to $10.06 a bushel in after-hours electronic trading on the Chicago Board of Trade. The most- active contract traded at $10.0775 a bushel at 11:15 a.m. Singapore time, set for a 3.6 percent gain this week.

The government lowered its estimate for ending stockpiles in the U.S. to 210 million bushels on Aug. 12, from 250 million bushels a month earlier.

The U.S. gross domestic product shrank less than expected, as spending started to climb and profits grew, signaling the world’s biggest economy may be recovering from the worst recession since the 1930s.

The economy contracted at an annual pace of 1 percent from April to June, less than the 1.5 percent decline projected by economists in a Bloomberg News survey, according to a Commerce Department report in Washington yesterday.

Economic Pickup

“The global economy is picking up and that’s helping” sustain demand for soybeans, corn and wheat, Commodity Broking’s Barratt said. “The dollar weakness is also helping.”

The Dollar Index, which tracks the value of the greenback against six major currencies, is little changed and may close lower for a third week, making supplies from the U.S. cheaper for importers.

Corn for December delivery gained 0.5 percent to $3.3075 a bushel in Chicago at 11:14 a.m. Singapore time, lifting the weekly gain to 1.4 percent.

December delivery wheat advanced 1 percent to $5.0775 a bushel, taking the weekly rise to 4.1 percent, the first gain this month.

-- Editors: Richard Dobson, Matthew Oakley.

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

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Regulating Derivatives Is Accepted After Crisis, Gensler Says

By Tina Seeley and Dawn Kopecki

Aug. 28 (Bloomberg) -- A consensus has emerged in Washington on the need to regulate the derivatives market, a reversal of the political climate in which restrictions were rejected in 2000, Commodity Futures Trading Commission Chairman Gary Gensler said.

“We should have banged the table harder and pushed harder” for regulation then, said Gensler, who worked at the Treasury Department during the Clinton administration.

The subsequent financial crisis has led to wide political support for regulations, Gensler said in an interview yesterday.

The financial industry recognizes “that there’s a consensus in Washington, both in the administration and on Capitol Hill that we have to bring the full over-the-counter derivatives marketplace under regulation,” Gensler said. That market has swelled to $592 trillion from $95 trillion in 2000, according to industry data.

Gensler, 51, said there was little support in Congress to enact regulatory changes in 2000, when a law was passed exempting most derivatives from regulation. Gensler worked at Treasury from 1997 until 2001, when President Bill Clinton left office.

“Those of us who were involved at the time, looking back, there’s no doubt that all of us should have done more to protect the American public, knowing what we know now,” Gensler said. “There was no regulatory structure at the time, nor was there support in political Washington to do that.”

Opaque financial products, including some derivatives, have contributed to almost $1.6 trillion in writedowns and losses at the world’s biggest banks, brokers and insurers since the start of 2007, according to data compiled by Bloomberg.

AIG as ‘Exhibit A’

Among the fallen companies are Lehman Brothers Holdings Inc., the investment bank that filed for bankruptcy, and insurer American International Group Inc., which has been surviving on government loans.

“All of us in this room put money into AIG -- we’re all taxpayers -- and $173 billion went into a very ineffectively regulated insurance company,” Gensler said. “It had no effective federal regulation. If that’s not exhibit A on why we have to cover this marketplace, I don’t know what is.”

Gensler, who spent 18 years working at Goldman Sachs Group Inc. before joining the Treasury, became CFTC chairman in May after being nominated by President Barack Obama.

The chairman was asked why he sent a letter to lawmakers on Aug. 17 seeking to strengthen some of the administration’s derivatives proposals. Treasury Secretary Timothy Geithner told regulatory chiefs in July to stop campaigning for changes in Obama’s revamp of financial industry rules, a person familiar with the matter has said.

The proposed legislation crafted by the administration is “strong and comprehensive,” Gensler said.

Proposed ‘Enhancements’

His agency “sent additional comments where we thought they would be appropriate for enhancements,” he said. “As an independent regulator, we are asked by Congress specifically to share assistance, whether it’s technical assistance or assistance where there should be enhancements.”

The administration is seeking to impose higher capital and margin requirements, move most derivatives to regulated exchanges and clearinghouses and impose supervision over all dealers.

“It’s interesting how aggressive the CFTC is being in asserting its view outside the administration,” said Craig Pirrong, a finance professor at the University of Houston, in an interview yesterday. “It’s sort of out of character for the CFTC of the past.”

Derivatives are financial contracts that can be used to hedge against changes in stocks, bonds, currencies, commodities, interest rates and weather.

Missing a Deadline

Gensler will hold joint meetings next week with Securities and Exchange Commission Chairman Mary Schapiro to discuss regulatory gaps between the two agencies. Gensler said the CFTC and SEC may not meet a presidential deadline of Sept. 30 to deliver a report to Congress on regulatory cooperation.

“It may be an interim report,” Gensler said. “That’s a very tight schedule.”

Gensler said the CFTC won’t need to revoke more “no- action” letters that the agency’s staff granted index investors from limitations on holdings in agriculture markets. On Aug. 19, the agency said it was revoking exemptions for two Deutsche Bank AG PowerShares commodity index funds and Gresham Investment Management LLC.

“Those are the only two so-to-speak no-action letters that I’m aware of,” Gensler said.

He rejected the idea that by limiting index fund holdings he might prevent smaller investors from participating in commodity markets. The commission is also considering whether to impose new federal limits on holdings in energy markets.

‘America Works’

“America works pretty well when there’s broad-based competition in financial markets,” Gensler said. “And even liquidity is promoted when there’s more market participants coming in that might have disparate views.”

The agency is preparing “shortly” to expand its reporting of large trader holdings, breaking out what hedge funds and swap dealers hold, he said. The agency will also release updated data showing the holdings of index investors, following up on a report issued last September that showed those holdings were declining as crude oil futures prices rose.

To contact the reporters on this story: Tina Seeley in Washington at tseeley@bloomberg.net; Dawn Kopecki in Washington at dkopecki@bloomberg.net.

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Japan Stocks Fluctuate, Heading for Weekly Gain Before Election

By Masaki Kondo

Aug. 28 (Bloomberg) -- Japanese stocks fluctuated on the last trading day before an election that newspaper polls suggest will result in the current ruling party being ousted.

Inpex Corp., Japan’s largest oil explorer, climbed 1.8 percent following the first increase in U.S. oil prices in three days. Obayashi Corp. dragged construction companies lower as the party favored to win the vote has vowed to cut spending on public works. Meidensha Corp., a machinery maker that trades at 236 times estimated earnings, fell 5 percent.

“Institutional investors have missed out on opportunities to buy because the recent rally was too rapid and valuations have risen to a prohibitive level,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co., which oversees the equivalent of $3.8 billion. “They want to buy on dips.”

The Nikkei 225 Stock Average added 0.4 percent to 10,518.55 as of 1:09 p.m. in Tokyo, putting it on course for a 2.8 percent climb this week. The broader Topix index added 0.4 percent to 967.69, with four stocks gaining for every three that fell.

On Aug. 30, Japan will hold parliamentary elections, and newspaper polls suggest the opposition Democratic Party of Japan will win by a landslide. The ruling Liberal Democratic Party has governed Japan for all but 10 months since 1955.

“People are preferring to stay on the sidelines ahead of Japan’s national election,” said Kiichi Fujita, a strategist at Nomura Holdings Inc., the nation’s largest brokerage.

‘Prohibitive’ Valuations

The Nikkei gained 48 percent from a more than quarter- century low on March 10 through yesterday, outperforming the Standard & Poor’s 500 Index in the U.S. and China’s Shanghai Stock Exchange Composite Index. The rally lifted the Nikkei’s estimated price-earnings ratio to the highest level among the world’s biggest stock markets, according to Bloomberg data.

In New York, the S&P 500 climbed 0.3 percent yesterday as crude oil advanced for the first time in three days with a 1.5 percent increase.

Inpex added 1.8 percent to 748,000 yen, lifting a gauge of mining companies to the biggest gain among the Topix’s 33 industry groups. Mitsui O.S.K. Lines Ltd., which operates oil tankers, rose 2.1 percent to 584 yen.

Casio Computer Co., the maker of the world’s first waterproof mobile phone, surged 6.6 percent to 903 yen, the steepest advance in the Nikkei 225. The company is in talks with NEC Corp. and Hitachi Ltd. to merge their mobile-phone businesses by April, the Yomiuri reported. NEC rose 0.3 percent, and Hitachi gained 1.2 percent.

Casio owns 51 percent of the handset-production venture with Hitachi, which was set up in 2004.

Unemployment, Deflation

Shipments of mobile phones in Japan dropped by a fourth in June, marking a 12th month of declines, according to the latest data compiled by the Japan Electronics and Information Technology Industries Association.

Government reports released this morning weighed on the market as they rekindled concern rising unemployment and falling prices will hamper Japan’s economic recovery. The joblessness rate rose to a record 5.7 percent last month, the statistics bureau said. Consumer prices excluding fresh food declined 2.2 percent in July from a year earlier, the steepest drop on record, the bureau also said.

Meidensha slid 5 percent to 519 yen. GS Yuasa Corp., whose price was 138 times its estimated net income for this year, dropped 1.9 percent to 827 yen.

Obayashi fell 1.7 percent to 418 yen. Rival Okumura Corp. dropped 1.5 percent to 384 yen. Japan’s infrastructure spending amounted to 4.4 percent of gross domestic product last year, and the Democratic Party of Japan has vowed to slash public-works spending if it wins the election.

The Nikkei and Topix have risen and fallen on alternate days since Aug. 14, as prospects for the global economy remain hazy, said Shinkin’s Fujiwara.

“Opinions are divided among investors about the economic outlook, which is leading to this directionless market and pushing people to focus on individual shares with news,” Fujiwara said.

Nikkei futures expiring in September slipped 0.1 percent to 10,500 in Osaka and retreated 0.1 to 10,505 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 Higher Commodity Prices, Dell Earnings

By Jonathan Burgos and Shani Raja

Aug. 28 (Bloomberg) -- Asian stocks rose, sending the MSCI Asia Pacific Index to its second weekly advance in three, as increased commodity prices and Dell Inc.’s better-than-estimated profit added to signs that the global economy is recovering.

Inpex Corp., Japan’s largest oil explorer, gained 1.9 percent. Acer Inc., the world’s third-largest computer maker, climbed 3.1 percent. Casio Computer Co. surged 6.9 percent in Tokyo after the Yomiuri newspaper reported the company is merging its mobile phone business with NEC Corp. and Hitachi Ltd. Japanese equities rose before an election that opinion polls suggest will end the ruling coalition’s 50-year hold on power.

“Risk appetite has recovered from the depths that we had in March and people are looking at fundamentals,” said Prasad Patkar, who helps manage about $1.1 billion at Platypus Asset Management in Sydney. “Confidence is there for the right reasons. Economies are stabilizing and things are starting to normalize.”

The MSCI Asia Pacific Index advanced 0.4 percent to 113.43 as of 1:52 p.m. in Tokyo, taking its gain this week to 2.5 percent. The gauge has climbed 61 percent from a more than five- year low on March 9 on speculation government stimulus packages and lower borrowing costs will revive the global economy.

Japan’s Nikkei 225 Stock Average added 0.3 percent. The country holds parliamentary elections on Aug. 30, in which the opposition Democratic Party of Japan is expected to win by a landslide, newspaper polls show. The ruling Liberal Democratic Party has governed Japan for all but 10 months since 1955.

Shanghai Composite

Australia’s S&P/ASX 200 Index gained 0.4 percent, while South Korea’s Kospi Index added 0.4 percent. Harvey Norman Holdings Ltd., Australia’s biggest electronics retailer, surged 16 percent, while BOC Hong Kong Holdings Ltd., Hong Kong’s second-largest publicly traded bank by market value, climbed 6.1 percent on better-than-estimated earnings.

China’s Shanghai Composite Index dropped 2.5 percent and Hong Kong’s Hang Seng Index fell 0.5 percent on concern Chinese measures to curb lending and overcapacity in some industries will slow economic growth. China Cosco Holdings Ltd., Asia’s biggest shipping company by market value, sank 3.8 percent in Shanghai after posting a first-half loss.

Futures on the U.S. Standard & Poor’s 500 Index lost 0.1 percent. The gauge rose 0.3 percent yesterday as oil futures climbed for the first time in three days with a 1.5 percent gain. Separately, a Commerce Department report showed the U.S. economy contracted at a 1 percent annual rate from April to June, less than the 1.5 percent contraction estimated by economists.

Global Recovery

Signs the global recovery is gaining traction has fueled the MSCI Asia Pacific Index’s rally since March. Malaysia’s gross domestic product shrank less than estimated in the three months to June 30, data released on Aug. 26 show. The Philippine economy expanded in the second quarter at three times the pace expected by economists, the government reported yesterday.

Inpex gained 1.8 percent to 748,000 yen in Tokyo. Woodside Petroleum Ltd., Australia’s second-largest oil producer, added 1.2 percent to A$49.39 in Sydney.

“Investors are putting their money in risk assets such as oil and stocks,” said Kiichi Fujita, a strategist at Nomura Holdings Inc. in Tokyo.

BHP Billiton Ltd., the world’s biggest mining company, added 0.5 percent to A$37.82. Copper for September delivery in New York increased 1.7 percent in after-hours trading.

Dell Earnings

Samsung Electronics Co., the world’s largest maker of computer-memory chips, rose 0.5 percent to 771,000 won in Seoul. Dell, the world’s No. 2 maker of personal computers, reported second-quarter sales and profit that beat estimates after the Texas-based company cut manufacturing costs and attracting buyers with low-priced notebooks.

Dell suppliers in Taiwan gained. Quanta Computer Inc., the world’s largest laptop maker, climbed 2.7 percent to NT$69.1. Compal Electronics Inc., the world’s second-largest laptop maker, advanced 1.9 percent to NT$32.60.

Acer climbed 3.1 percent to NT$73. HSBC Holdings Plc upgraded the stock to “neutral” from “underweight” and Goldman Sachs Group Inc. raised its share-price estimate by 19 percent to NT$74.

In Sydney, Harvey Norman surged 16 percent to A$3.71, the most in more than 20 years. The company’s net income of A$214.4 million ($180 million) in the year ended June beat the A$199.3 million average of analyst estimates in a Bloomberg survey.

Beating Estimates

Some 34 percent of the 586 companies in the MSCI Asia Pacific Index that have reported net income since early July have beaten analyst estimates, while 19 percent have missed, according to data compiled by Bloomberg.

BOC Hong Kong advanced 6.1 percent to HK$16.04. The bank said yesterday first-half profit fell 5.6 percent to HK$6.69 billion ($863 million). That topped the HK$4.49 billion average estimate of four analysts surveyed by Bloomberg.

Casio Computer Co., the maker of digital cameras and mobile phones, surged 6.9 percent to 905 yen in Tokyo. Casio, NEC Corp. and Hitachi Ltd. are in talks to merge their mobile-phone businesses by April, the Yomiuri newspaper reported. The venture, of which NEC may own more than a half, would have more than 20 percent of Japan’s mobile-phone market, the newspaper said.

NEC added 0.9 percent to 334 yen. Hitachi gained 1.6 percent to 327 yen.

In Shanghai, China Cosco sank 3.8 percent to 13.82 yuan. The company said it may cancel container-vessel orders after reporting a first-half net loss.

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

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Aeroports de Paris, Intesa, Sofina: European Equity Preview

By Whitney Kisling

Aug. 28 (Bloomberg) -- The following companies may have unusual price changes in Europe trading. Stock symbols are in parentheses, and share prices are from the previous close.

Europe’s Dow Jones Stoxx 600 lost 0.5 percent to 235.24. The Dow Jones Stoxx 50 Index declined 0.3 percent to 2,394.84. The Euro Stoxx 50 Index, a benchmark for nations using the euro, fell 0.4 percent to 2,777.62.

Aeroports de Paris (ADP FP): The operator of the French capital’s Roissy-Charles de Gaulle and Orly airports reports first-half earnings before the market opens in Paris. The shares lost 85 cents, or 1.4 percent, to 59.67 euros.

Banca Monte dei Paschi di Siena SpA (BMPS IM): Italy’s third-biggest bank is scheduled to release first-half results before the market opens. The shares advanced 1.1 percent to 1.53 euros.

Bayer AG (BAY GY): The drugmaker’s material science unit will reduce costs by moving its research center in Uerdingen, Germany to a site in Leverkusen, Rheinische Post said, citing Guenter Hilken, the company’s head of polycarbonates. The stock fell 4.1 percent to 42.32 euros.

Bouygues SA (EN FP): The builder and mobile phone operator increased its sales forecast for 2009, helped by a “slight” improvement in the outlook for its construction business. First- half net income fell 22 percent to 547 million euros. The shares dropped 84.5 cents, or 2.6 percent, to 32.16 euros.

Carrefour SA (CA FP): Europe’s biggest retailer reports first-half earnings before the market opens in Paris. The shares fell 90.5 cents, or 2.8 percent, to 31.66 euros.

Deutsche Lufthansa AG (LHA GY): Europe’s second-biggest airline had its credit rating cut to BBB- from BBB by Standard & Poor’s Ratings Services. The outlook is negative. The shares fell 0.6 percent to 11.14 euros.

E.ON AG (EOAN GY): German utilities may be charged on at least half of their earnings from running nuclear power plants past scheduled shutdown dates if the next government overturns a phase-out of nuclear energy, Handelsblatt reported. E.ON added 1.4 percent to 29.83 euros. RWE AG (RWE GY) gained 1 percent to 65.12 euros.

Iberia Lineas Aereas de Espana SA (IBLA SM): Spain’s largest carrier may post a second-quarter loss of 71.4 million euros ($101.9 million), the average of analysts’ estimates collected by Bloomberg. The shares lost 2.5 cents, or 1.5 percent, to 1.70 euros.

Infineon Technologies AG (IFX GY): Europe’s second-biggest maker of semiconductors will seek to slash the pension benefits of former Chief Executive Officer Wolfgang Ziebart, Financial Times Deutschland reported without saying where it got the information. The company’s press department didn’t return a call seeking comment. A call to Ziebart’s home wasn’t answered. The stock added 0.8 percent to 3.37 euros.

Intesa Sanpaolo SpA (ISP IM): Italy’s second-biggest bank, may say second-quarter profit fell as it put aside more money to cover an increase in bad loans. Net income may decline to 407 million euros ($583 million) from 1.36 billion euros a year earlier, according to the median estimate of 13 analysts surveyed by Bloomberg. The shares rose 0.3 percent to 2.98 euros.

L’Oreal SA (OR FP): The world’s largest cosmetics maker said first-half profit fell 14 percent to 1.08 billion euros as European and U.S. shoppers bought less makeup and perfume. The shares declined 3 cents to 64.69 euros.

Royal Vopak NV (VPK NA): The world’s largest chemical and oil storage company is due to report first-half earnings before the market opens. The company had net income of 107.5 million euros a year earlier. Vopak advanced 40 cents, or 0.9 percent, to 45.50 euros.

Sofina SA (SOF BB): The investment firm controlled by the Boel family is scheduled to report first-half earnings. Sofina dropped 31 cents, or 0.5 percent, to 62.55 euros.

TUI AG (TUI1 GY): The biggest stakeholder in the Hapag- Lloyd AG container line expects an operating loss of between $700 million and $1 billion in the second half, Platow Brief reported, citing internal company documents. TUI’s press department wasn’t immediately available for comment. Hapag-Lloyd spokesman Klaus Heims declined to comment. TUI fell 1.5 percent to 5.90 euros.

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net.

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Argentina May Lure $10 Billion to Stocks If Restrictions Lifted

By Eliana Raszewski and James Attwood

Aug. 28 (Bloomberg) -- Argentina’s stock exchange called on the government to lift capital controls that caused it to become the only major Latin America market classified as “frontier,” adding the move may help lure $10 billion in foreign investment.

A requirement for international investors to deposit 30 percent of what they put in Argentina with the central bank for a year “have stopped making sense,” Adelmo Gabbi, the Buenos Aires stock exchange’s chairman, said yesterday in a speech.

Capital controls prompted MSCI Inc. to remove Argentina from its benchmark emerging-market index in June, assigning it the so-called frontier status along with the world’s least developed markets. The controls have helped Argentina avoid volatility, said President Cristina Fernandez de Kirchner.

“We have to seek a rule so that the inflow of funds won’t be speculative,” she said, without elaborating.

New York-based MSCI, which estimates its indexes are tracked by funds with $3 trillion, classifies its markets based on size, liquidity and economic development. Argentina’s demotion also followed Fernandez’s seizure of about $24 billion in assets held by private pension funds, the country’s biggest stockholders.

“We want to stop being the only country in the region that participates in the frontier index because we feel that we have more in common with Latin America than with Nigeria, Ghana and Kenya,” Gabbi said.

Merval’s Rally

Argentina’s Merval stock index has rallied 65 percent this year after last year’s 50 percent slump. It’s little changed over the last 12 months. A return to emerging market status would bring back about $10 billion in foreign funds to the market, Gabbi said.

MSCI said in December it would keep Colombia classified as an emerging market after the country removed restrictions on foreign investment in its stock market. Colombia in September lifted requirements that foreigners deposit 50 percent of stock and convertible bond investments with the central bank for six months.

“The deposit requirement was imposed in 2005 and was one of the forces that allowed us to confront the brutal volatility of the markets during the crisis,” Fernandez responded yesterday in a speech at the Buenos Aires stock exchange.

Fernandez’s husband and predecessor Nestor Kirchner imposed deposit requirement in order to discourage speculators from investing in local markets after the country restructured about $104 billion in bonds.

The measure aimed to cap a rise in the peso that would make Argentine goods less competitive abroad. Argentina’s currency has weakened 10 percent against the U.S. dollar this year as other currencies in the region have strengthened.

Fernandez said yesterday that the arrival of funds aimed at increasing production and creating jobs in South America’s second-biggest economy may be excluded from restrictions.

To contact the reporter on this story: Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.netJames Attwood in Santiago at jattwood3@bloomberg.net;

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Aruba Networks, J.Crew, Marvell, Netezza: U.S. Equity Preview

By Lu Wang

Aug. 28 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

Aruba Networks Inc. (ARUN US): The builder of wireless networks posted fourth-quarter earnings, excluding some items, of 3 cents a share, topping the average analyst estimate by 50 percent.

J.Crew Group Inc. (JCG US): The U.S. clothing retailer reported second-quarter profit that exceeded analysts’ estimates after the company added stores.

Marvell Technology Group Ltd. (MRVL US): The maker of chips for computers and mobile phones reported 30 percent more per- share earnings than analysts anticipated in the second quarter.

Netezza Corp. (NZ US): The maker of data-storage appliances reported second-quarter profit and sales that missed analysts’ estimates.

OmniVision Technologies Inc. (OVTI US): The maker of image sensors for camera phones forecast second-quarter profit excluding some items of at least 10 cents a share. Analysts, on average, expected the company to report a loss of 4 cents, according to a Bloomberg survey.

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

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Brazil Stock Futures Rise as U.S. Economy Overshadows Oil Drop

By Allen Wan

Aug. 27 (Bloomberg) -- Brazilian stock futures rose as a smaller-than-estimated decline in U.S. gross domestic product overshadowed sliding oil prices.

Bovespa index futures added 0.2 percent to 58,420 at 8:38 a.m. New York time.

To contact the reporter on this story: Allen Wan in New York at awan3@bloomberg.net

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AIG, Jo-Ann Stores, Toll Brothers, Wyeth: U.S. Equity

By Whitney Kisling

Aug. 27 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses and share prices are as of 8:10 a.m. New York time.

Alkermes Inc. (ALKS US) plunged 13 percent to $9. The developer of an inhaled insulin said Ortho-McNeil-Janssen Pharmaceuticals Inc. and Janssen Pharmaceutica International decided not to pursue further development of the four-week long- acting injectable formulation of risperidone.

American International Group Inc. (AIG US) surged 12 percent to $42.09. The insurer bailed out by the U.S. rose on speculation it may benefit from improved relations with former Chief Executive Officer Maurice “Hank” Greenberg, who led the company for almost four decades.

Guess? Inc. (GES US) added 3.5 percent to $33.28. The clothing maker reported second-quarter profit of 64 cents a share, topping the average analyst estimate by 47 percent.

Jo-Ann Stores Inc. (JAS US) climbed 6 percent to $27.19. The largest U.S. fabric retailer boosted its full-year forecast after reporting a narrower loss in the second quarter than analysts expected.

Northrop Grumman Corp. (NOC US) added 2 percent to $49.90. The third-largest U.S. defense company won a $3.44 billion contract from the U.S. Air Force to support the B-2 weapon system and a $2.43 billon Navy contract for work on the U.S.S. Theodore Roosevelt, the Pentagon said.

Precision Castparts Corp. (PCP US): The maker of metal forgings for jet engines agreed to buy Carlton Forge Works and another manufacturing plant for $850 million to gain seamless rolled rings used in aircraft engines and gas turbines.

Sigma Designs Inc. (SIGM US) fell 11 percent to $15.25. The maker of chips for Internet television set-top boxes and Blu-ray video players reported second-quarter profit that was in line with analysts’ estimates.

Toll Brothers Inc. (TOL US) declined 2.3 percent to $22.60. The largest U.S. builder of luxury homes posted a wider quarterly loss, which was also bigger than analysts’ estimates.

Wyeth (WYE US) added 2 percent to $48.98. The drugmaker set to be acquired by Pfizer Inc. won final approval to sell the Torisel medicine in Europe for patients with relapsed and refractory mantle cell lymphoma.

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net.

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U.S. Stock-Index Futures Fluctuate Before Reports on Economy

By Adam Haigh

Aug. 27 (Bloomberg) -- U.S. stock-index futures drifted between gains and losses before a report that may show the world’s largest economy shrank at a faster pace in the second quarter than previously estimated.

Citigroup Inc. advanced 1.9 percent as the New York Post reported billionaire hedge fund investor John Paulson bought shares in the bank. Sigma Designs Inc. declined 5.1 percent after the maker of chips for Internet television set-top boxes and Blu-ray video players reported second-quarter profit that was in line with analysts’ estimates.

Futures on the Standard & Poor’s 500 Index expiring in September slipped 0.1 percent to 1,025.3 at 7:11 a.m. in New York, having risen as much as 0.2 percent earlier. Dow Jones Industrial Average futures decreased less than 0.1 percent to 9,517. Nasdaq-100 Index futures dropped 0.2 percent to 1,633.75. Stocks in Europe and Asia declined.

The S&P 500’s 52 percent rally since March 9 left the gauge valued at about 19 times the earnings of its companies, the most expensive level since 2004. About 76 percent of companies in the index that have reported results since June 17 beat the average analyst estimate for second-quarter per-share profits, according to Bloomberg data.

“The key driver for the next leg of the market is confirmation that earnings numbers are improving,” said James Bevan, who helps oversee about $10 billion as chief investment officer of CCLA Investment Management in London. “The earnings numbers that are currently on the table are some 10 to 15 percent shy of where they should be given the scale of the recovery consistent with lead indicators.”

Economy Watch

A decline in the S&P 500 below its 200-month average would probably signal an additional slump of as much as 6.5 percent, according to Chicago-based Technical Analytics Inc. The index, which closed at 1,028.12 yesterday, has traded higher than its 200-day moving average since July 13 and rose 17 percent above it yesterday, the most since April 1999.

U.S. gross domestic product shrank at a 1.5 percent annual rate from April to June compared with the 1 percent drop reported last month, according to the median forecast of 75 economists surveyed by Bloomberg News. The Commerce Department’s GDP data is due at 8:30 a.m. in Washington.

Another report may show claims for unemployment benefits fell for the first time in three weeks and consumer spending, which accounts for 70 percent of the economy, probably slipped last quarter at a 1.3 percent annual pace, a bigger drop than first estimated, according to a Bloomberg survey of economists.

‘Attractive’

Citigroup added 1.9 percent to $4.72 in pre-market New York trading. Paulson has acquired about a 2 percent stake in the New-York based bank, the New York Post reported today, citing unidentified people.

Sigma Designs slid 5.1 percent to $16.24 in Germany. Second-quarter adjusted earnings per share of 28 cents matched the average analyst estimate.

Piper Jaffray Cos. and Greenhill & Co. may be active after Goldman Sachs Group Inc. raised its recommendation for U.S. mid- capitalization brokerages to “attractive” from “neutral,” citing possible growth in merger and acquisitions and new equity issuances in the third quarter of 2009.

Greenhill was upgraded to “neutral” from “sell,” while Goldman Sachs reiterated its “buy” recommendation for Piper Jaffray. The stocks didn’t trade in Europe.

Guess? Inc. will probably move after reporting second- quarter adjusted profit of 64 cents a share, topping the average analyst projection. The stock didn’t trade in Europe.

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

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Upbeat US Data amid Lackluster FX

by Korman Tam

The dollar was mixed against the majors in the Wednesday session, largely confined within recent ranges in lackluster trading. The greenback recovered from its session lows versus the euro at 1.4350 to hover near the 1.4230-level, while pushing the Canadian dollar just shy of the 1.10-figure.

New home sales posted a strong reading in July, surging by its largest figure in nearly 4-years, up by 9.6% to 433k units versus 384k units from June. Building permits were drifted by 1.1% to 564k units in July. Meanwhile, durable goods orders were sharply better than expected, posting a gain of 4.9% versus a 2.2% decline a month earlier in June. The excluding transports July durable goods orders also improved, edging higher by 0.8% compared with a 1.6% increase a month earlier.

In the coming session, traders will look ahead to weekly jobless claims and more importantly, the preliminary reading for Q2 GDP. Weekly jobless claims are expected improve to 565k from 576k a week earlier. Meanwhile, economic growth in the second quarter is expected to post a 1.4% contraction, deteriorating further from a 1.0% contraction in the previous quarter. The Q2 PCE is expected to hold steady at 1.3%.

Euro Trades Sideways

The euro continues to hover around the 1.4240 figure after pulling back from the session high near 1.4350. Eurozone economic reports released overnight saw Germany’s August Ifo index improved by more than expected to 90.5 from 87.3 in July while the expectations index jumped to 95.0 from 90.4. Germany’s CPI figures are due out in early Thursday trading and are seen remaining tempered in August.

EURUSD trades sideways, remaining confined within recent ranges. Interim resistance is seen at 1.4270, followed by 1.43 and 1.4350. Subsequent ceilings are eyed at 1.4380, backed by 1.44 and 1.4440. On the downside, support begins at 1.42, followed by 1.4160 and 1.4120. Additional floors will emerge at 1.41, followed by 1.4065 and 1.4030.

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