European Stocks Retreat; Hennes & Mauritz, Air France Decline

By Daniela Silberstein

Sept. 24 (Bloomberg) -- European stocks fell for the first time in three days as German business confidence rose less than forecast, adding to speculation a six-month rally has outpaced prospects for the economy.

Hennes & Mauritz AG led retailers lower as a sales decline worsened. Air France-KLM Group dropped 2.8 percent after UBS AG recommended selling shares of Europe’s largest airline. 3i Group Plc sank 3.3 percent as the pace of new investments dropped. Aiful Corp., Japan’s second-biggest consumer lender by assets, tumbled 24 percent after forecasting a full-year loss.

Europe’s Dow Jones Stoxx 600 Index slipped 0.7 percent to 243.16 at 10:54 a.m. in London as 17 out of 19 industry groups retreated. The gauge has soared 54 percent since March 9 as the Group of 20 nations committed about $12 trillion to revive growth and the Federal Reserve kept overnight borrowing costs near zero to unlock credit markets.

“The market is ripe for a few weaker days in a row,” said Rudolf Buxtorf, who manages about $114 million at RBS Coutts Bank in Zurich. “The advances are saturated and any negative news can trigger momentum to the downside. Stocks are no longer cheap.”

The rally has pushed valuations on the Stoxx 600 to more than 50 times the profit of its companies, the most expensive level since 2003, according to data compiled by Bloomberg.

German business confidence rose to a 12-month high of 91.3 from 90.5 in August, according to the Ifo institute in Munich. Economists had forecast a reading of 92, the median of 40 projections in a Bloomberg News survey showed.

U.S. Futures

Standard & Poor’s 500 Index futures advanced 0.1 percent. The benchmark index for U.S. equities slid yesterday as the Fed signaled it will use fewer tools to bolster economic growth.

The central bank, following a two-day policy meeting, changed the wording in the final paragraph of its statement to say it will continue to employ a “wide range of tools” to bolster the economy. In its August statement, it said it would use “all available” tools.

The Fed left its target rate for overnight loans between banks in a record-low range between zero and 0.25 percent, and said it will stay “exceptionally low” for an “extended period.” The central bank said the economy has “picked up,” activity in the housing industry has increased, household spending seems to have stabilized and businesses are cutting back on investments and staffing at a slower pace.

The MSCI Asia Pacific Index rose 0.3 percent today as trading in Japan resumed after a three-day holiday.

G-20 Meeting

Leaders from the G-20 nations are meeting in Pittsburgh today and tomorrow to work on an accord to prevent a repeat of the worst financial crisis since the Great Depression and ensure a sustained recovery. U.S. President Barack Obama and his counterparts may be saddled with the weakest recovery since World War II if they are to pay off the $9 trillion tab they ran up rescuing the world economy.

H&M slid 2.6 percent to 398 kronor, pulling a gauge of retail stock to the biggest decline among 19 industry groups on the Stoxx 600. Europe’s second-largest clothing retailer said revenue at stores open at least a year fell 11 percent last month, the fourth consecutive drop and worse than July’s 3 percent decrease. Third-quarter net income of 3.46 billion kronor ($504 million) missed the 3.5 billion-krona average estimate of 11 analysts compiled by Bloomberg.

Airlines Fall

Air France slid 2.8 percent to 12.47 euros after UBS gave the airline a “sell” recommendation in new coverage.

British Airways Plc dropped 3.7 percent to 221.4 pence. Europe’s third-largest carrier was downgraded to “hold” from “buy” at Citigroup Inc., which said mid-cycle share-price valuations were reached “far earlier than expected.”

3i sank 3.3 percent to 278.5 pence. Europe’s biggest publicly traded private-equity firm said the pace of new investments dropped 75 percent as a lack of debt financing brought the buyout market nearly to a near-halt.

Aiful plummeted 24 percent to 102 yen in Tokyo on its loss forecast and plans to cut as much as 44 percent of its workforce.

London Stock Exchange Group Plc slid 3.1 percent to 852 pence. Europe’s oldest independent bourse said trading dropped 43 percent in the five months ended Aug. 31 as stocks slumped amid the worst financial crisis since the Great Depression and the company lost market share.

Carlsberg, Solvay

Carlsberg A/S, the Danish brewer that’s also the biggest beer producer in Russia, fell 2.5 percent to 383.25 kroner after the Russian government raised beer taxes. Duty will rise 50 percent a year in 2010 through 2012, Finance Minister Alexei Kudrin said, reaching 10 rubles (33 cents) a liter in three years from 3 rubles now, according to remarks posted on the ministry’s Web site.

Solvay SA rallied 3.8 percent to 76.95 euros, paring four days of declines. Abbott Laboratories made a bid to purchase the pharmaceutical unit of the Belgian company, the Wall Street Journal reported, citing people familiar with the matter.

A report today may show sales of existing U.S. homes climbed in August to the highest level in two years, another sign the real-estate collapse that triggered the global recession is abating, economists said. Separate data from the Labor Department is projected to show the number of Americans seeking jobless benefits rose last week.

A repeat of the grand coalition between German Chancellor Angela Merkel’s Christian Democrats and the Social Democrats may be the best election outcome for the country’s stock market, if history is any guide. Since, 1987, the only time Germany’s 30- company DAX Index advanced in the two months surrounding a vote was 2005, the only election resulting in a coalition between the CDU and the SPD.

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

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German Business Confidence Rises to 12-Month High

By Frances Robinson

Sept. 24 (Bloomberg) -- German business confidence rose to a 12-month high in September, indicating Europe’s largest economy will gather strength after exiting its worst recession since World War II.

The Ifo institute in Munich said today its business climate index, based on a survey of 7,000 executives, rose to 91.3 from 90.5 in August. That’s the highest reading since September last year. Economists expected a gain to 92, the median of 40 forecasts in a Bloomberg News survey showed. The index reached a 26-year low of 82.2 in March.

The confidence report comes as Chancellor Angela Merkel enters the final leg of her re-election campaign. The government’s “cash-for-clunkers” program and improving global trade helped the economy expand 0.3 percent in the second quarter from the first. While the Bundesbank predicts a “strong pickup” in the third quarter, the recovery could falter when stimulus measures expire and as unemployment rises.

“Overall, the German economy is expected to recover in the next four quarters, but fiscal stimulus will be one the main drivers of this recovery,” said Stefan Bielmeier, chief German economist at Deutsche Bank AG in Frankfurt. “The risk is that the recovery is not sustainable when stimulus packages expire.”

Election Looms

Merkel, who leads opinion polls for the Sept. 27 election, has approved spending of about 85 billion euros ($126 billion) to rekindle growth. The measures include tax breaks, infrastructure investment and a 2,500-euro payment to people who scrap an old car and buy a new one. The car-scrappage fund ran dry earlier this month.

The euro was little changed after Ifo’s report at $1.4760.

Ifo’s gauge of the current situation rose to 87 from 86.2, while an index of executives’ expectations advanced to 95.7 from 95, the institute said.

“Expectations have run so far ahead of current conditions that it makes me pause for thought as to whether this is sustainable,” said David Milleker, chief economist at Union Investment in Frankfurt. “Germany is very dependent on exports to euro-area countries, and there are structural problems in Spain and elsewhere.”

The Spanish and Irish economies will contract 0.9 percent and 1.5 percent respectively in 2010, according to the Organization for Economic Cooperation and Development.

By contrast, Germany’s will grow 1.5 percent next year after contracting about 4.5 percent in 2009, the IW economic institute in Cologne forecast on Sept. 21.

German investor confidence rose to the highest level in more than three years in September, and the benchmark DAX share index has rebounded more than 50 percent from its March trough.

“We do see light at the end of the tunnel, there are more and more signs that the economy is improving,” HeidelbergCement AG Chief Executive Officer Bernd Scheifele said in an interview on Sept. 22. The cement maker, which this week raised 2.25 billion euros selling new shares, will benefit “noticeably” from the government’s stimulus programs, Scheifele added.

To contact the reporter on this story: Frances Robinson in Frankfurt at frobinson6@bloomberg.net

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Russia Risks Prolonged Slump as Asset Quality Worsens

By Alex Nicholson and Paul Abelsky

Sept. 24 (Bloomberg) -- Russian government and central bank assurances that the nation’s financial industry is on the brink of recovery may be premature as asset quality continues to deteriorate, industry executives said.

“There are few quality borrowers, and banks may cease lending to most companies until market conditions improve,” Andrei Sharonov, managing director of Moscow- based Troika Dialog, Russia’s oldest investment bank, said in an interview in the Black Sea coast city of Sochi. “Companies are losing cash flow and becoming unable to service debt.”

Lenders are amassing bad debts at a pace of $2 billion a month, according to Sharonov. Russia’s faltering banking sector threatens to prolong a decline in the world’s biggest energy exporter after oil, gas and metals prices slumped, sending gross domestic product plunging a record 10.9 percent last quarter. The government’s “anti-crisis” program earmarked 495 billion rubles ($16.5 billion) to shore up the financial industry.

The support measures didn’t prevent overdue bank loans from rising to 5.5 percent of total lending in July, compared with 5 percent a month earlier. Bank interest rates on corporate loans rose last month for the first time this year, rising to 15.1 percent on average in August, even after the central bank cut rates, Bank Rossii data show.

Delinquency

The pace of increases in delinquent loans will accelerate until the middle of next year, according to Mikhail Zadornov, a former Finance Minister and chairman of VTB-24, the retail unit of VTB Group, Interfax reported yesterday. Overdue loans at the country’s 30 biggest banks jumped 8.5 percent in August, the news wire cited Zadornov as saying.

Bank St. Petersburg, the biggest private lender in northwestern Russia and one of the country’s two traded private banks, said today that the share of delinquent loans jumped to 7.5 percent of total lending as of July 1, compared with 0.7 percent at the end of last year.

“Given that Bank Saint Petersburg’s loan portfolio has a 30-percent exposure to the high-risk construction and real estate sectors, the rapid increase in non-performing loans is one of the main concerns,” said Yulia Rusanova, a banking analyst at Deutsche Bank AG in Moscow.

Putin Calls

Prime Minister Vladimir Putin has repeatedly called on the recipients of state bailout funds to boost lending and cut interest rates. Russia’s three biggest banks, which are majority-owned by the government, have dragged their feet on increasing lending in an effort to protect their asset quality.

The central bank, which has lowered the key refinancing rate six times since April to 10.5 percent, has sought to assure markets that Russia’s banks are over the worst.

Growth in non-performing loans “slowed quite considerably” last month, bank Chairman Sergey Ignatievsaid on Sept. 9. Overdue corporate debt rose 5 percent in August from July, the smallest monthly rise this year, he said.

Banks’ average capital adequacy ratio is now at about 19 percent, compared with the required 10 percent, the central bank said on Sept. 9. Loan books expanded 0.8 percent last month after state-run OAO Sberbank, the country’s largest bank, boosted its portfolio by 1.9 percent, according to Ignatiev.

“I can speak about the gradual breaking of the vicious circle,” Ignatiev said.

Out of Step

The picture painted by policy makers is also out of step with what rating companies say.

Russian banks may face a surge in “troubled assets” that could total $213 billion, Standard & Poor’s said in June. As much as 38 percent of all assets held by banks at the end of last year may become “problematic” by the end of 2011, S&P said.

Stubborn bad debt may derail the central bank’s bid to unlock credit markets, said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG.

“The central bank will start to consider if cutting rates at a high speed is really a useful means for providing the economy with more credit volumes in the situation where the banking sector has its problems with non-performing loans,” Leuchtmann said in a phone interview from Frankfurt. “Therefore, even despite the fact that the central bank is cutting rates, lenders might not be as willing to increase credit volume to the economy.”

‘Year of Losses’

Russian banks face a “year of losses” in 2009 before they can start to generate profits next year, Andrei Kostin, chief executive officer of VTB Group, Russia’s second biggest lender, said in an interview with Bloomberg Television on Sept. 16. The number of lenders that posted losses through July 2009 rose to 180 from 119 a month earlier, according to Bank Rossii.

“The fall of economic growth affected the Russian banking sector very much, so we still feel the consequences of this,” Kostin said.

Since the failure of Lehman Brothers Holdings Inc. in September, Russia has made available 4 trillion rubles of central bank funding, including uncollateralized loans. So far, the industry has been spared a run on lenders like the one it suffered after the government’s 1998 default on $40 billion of debt that forced a ruble devaluation.

Problems

“Last year we had problems,” First Deputy Prime Minister Igor Shuvalov said in an interview with Bloomberg Television in Washington on Sept. 21. “Russian citizens were queuing in the banks in order to take out their money, liquidity was very short and interbank loans were cut immediately,” he said. Quick steps by the Finance Ministry and the central bank meant “very quickly, the situation changed,” he said.

Since then, the government has also provided 410 billion rubles in subordinated loans, and plans to offer 300 billion rubles in loan guarantees by the end of 2009. The government has also earmarked 150 billion rubles in this year’s budget to swap government bonds for bank shares.

“In spring, when the decline curve was very deep, we thought that the portfolio of bad debts will be enormous,” Shuvalov said. “Possibly we will face another phase of banking crisis.”

To contact the reporter on this story: Paul Abelsky in Moscow at pabelsky@bloomberg.net.

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King Says British Banks Got Within Hours of Collapse

By Brian Swint

Sept. 24 (Bloomberg) -- Bank of England Governor Mervyn King said two British banks got within hours of a liquidity shortfall on Oct. 6, 2008, and the day after as the U.K. financial system came to the brink of collapse.

“Two of our major banks which had had difficulty in obtaining funding could raise money only for one week then only for one day, and then on that Monday and Tuesday it was not possible even for those two banks really to be confident they could get to the end of the day,” the BBC cited King as saying in an interview to be broadcast later today.

King was referring to Royal Bank of Scotland Group Plc and HBOS Plc, the BBC said. Prime Minister Gordon Brown’s government pledged to invest about 50 billion ($82 billion) pounds in the banking system on Oct. 8, 2008, to save it from meltdown in the aftermath of Lehman Brothers Holdings Inc.’s bankruptcy declared that September.

“It was, it is, probably the worst situation, as I say, we faced in peacetime,” Chancellor of the Exchequer Alistair Darling said, according to a press release from the BBC.

The BBC corrected its original release to say that RBS was one of the two banks in trouble, and not Lloyds TSB Group Plc. In the wake of Lehman’s collapse, Lloyds TSB took over HBOS Plc, the nation’s biggest mortgage lender, to form Lloyds Banking Group Plc. An RBS spokesman declined to comment on the story.

The television program, The Love of Money, is the third in a series looking back on the financial crisis. It will be broadcast on BBC Two today at 9 p.m. in the U.K.

Great Depression

Edward Lazear, chairman of George W. Bush’s Council of Economic Advisers at the time, told the program: “We literally thought that we were on the verge of the Great Depression, and looking back I think we probably were.”

King said that allowing the banks to fail would have brought the economy to a halt, the BBC said.

“Individuals would not have had access to the money in that bank,” he was cited as saying. “Their deposits would have been frozen. The accounts would have not been there for salaries to be paid in to, so many people would not have been paid their salary.

“In turn, they wouldn’t have been able to pay bills to businesses so the businesses would have found that their flow of payments would have come to an end,” King said, according to the BBC.

Emergency Meeting

U.K. business minister Shriti Vadera called a meeting of senior bankers on Oct. 7, 2008, to advise the government on the bailout plan.

“We really only knew by probably about 7 o’clock at night that we, that everyone, was going to get through the next day,” David Soanes, a managing director at UBS AG in London, was quoted as saying in the program.

On Oct. 2, 2008, the Irish government guaranteed all deposits and borrowings at six of its biggest banks to assure customers they could withdraw their money and avoid a bank run. The decision rattled other European governments because it encouraged depositors to move their holdings to Ireland.

Irish Finance Minister Brian Lenihan told the BBC that there was no other choice because of the risk of panic.

“We were anxious to avoid that at all costs,” Lenihan was quoted as saying. “The policy options available to us were to immediately nationalize an institution. If we immediately nationalized that institution the risk was that it could lead to a systemic collapse of all the other institutions.”

French Finance Minister Christine Lagarde said the decision was “a bit of a shock,” the BBC said. Darling told the program that “the lesson that you draw here is you can’t do these things on your own.”

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.

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G-20 Presents Risks for Commodity-Currency Rally, RBC Says

By Daniel Tilles

Sept. 24 (Bloomberg) -- The Group of 20 meeting starting today poses risks for further gains by commodity currencies, according to RBC Capital Markets.

“Beware also of any toughened stance from the authorities on tackling financial-market speculation on commodities and oil in particular,” Sue Trinh, a senior currency strategist in Sydney, wrote today in a report. “Further discussion on placing position limits on speculative positions could stop the current commodity-price rally in its tracks, with bearish consequences for commodity-leveraged currencies such as the Australian dollar and Canadian dollar.”

The euro may weaken as the G-20 starts, RBC also said.

“Following reports that France was worried about the euro’s strength yesterday, the euro may be on the defensive into the G-20,” Trinh wrote.

To contact the reporter on this story: Daniel Tilles in London at dtilles@bloomberg.net

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Fed Signals Growth Return Insufficient to End Monetary Stimulus

By Scott Lanman

Sept. 24 (Bloomberg) -- The Federal Reserve signaled that the U.S. economy’s return to growth is insufficient to withdraw stimulus as officials seek to reduce the highest unemployment rate in a quarter century.

While the economy has “picked up,” the central bank’s planned asset purchases will help ensure a “gradual return to higher levels of resource utilization,” the Fed’s Open Market Committee said yesterday. Policy makers committed to complete their $1.25 trillion in purchases of mortgage securities and extended the end-date of the program to March from December.

“They’re going to be in that accommodative phase for a while,” said Vincent Reinhart, a former Fed monetary-affairs director who’s now a resident scholar at the American Enterprise Institute in Washington. The Fed’s “tactical goal isn’t just to get to the rate of growth of potential,” he said. “It’s to work down the level of slack.”

The FOMC statement, while offering the most favorable economic outlook since Lehman Brothers Holdings Inc. failed a year ago, means Chairman Ben S. Bernanke may delay raising interest rates and shrinking the Fed’s $2.1 trillion balance sheet until he secures a recovery.

Policy makers, as part of a unanimous decision, kept the main interest rate in a range of zero to 0.25 percent and reiterated that rates will stay low for an “extended period.”

The central bank pledged to purchase “a total of” $1.25 trillion of mortgage debt, changing prior language saying it will buy “up to” that amount.

Traders yesterday marked down expectations for Fed interest-rate increases next year, based on futures contracts on the Chicago Board of Trade.

Stocks, Treasuries

Treasuries rose yesterday, pushing the yield on the benchmark 10-year note down three basis points to 3.42 percent in New York, according to BGCantor Market Data. The Standard & Poor’s 500 Index lost 10.79, or 1 percent, to 1060.87, paring its gain this year to 17 percent.

The FOMC said the economy showed signs of “substantial resource slack.” The unemployment rate rose to 9.7 percent last month, the highest since June 1983, when it reached 10.1 percent. Employers eliminated 216,000 jobs in August, the 20th straight month of losses, and the Fed acknowledged yesterday that businesses are “still cutting back on fixed investment and staffing, though at a slower pace.”

Capacity utilization, the proportion of industrial volume in use, rose in August to 69.6 percent from 68.3 percent in June, its lowest level since record-keeping began in 1967. The figure averaged about 81 percent from 2005 to 2007.

‘Cost Pressures’

“Slack is important to their thinking about inflation and inflation expectations,” said Mark Spindel, chief investment officer at Potomac River Capital LLC in Washington, a hedge fund with about $100 million under management.

“They are sending a clear message that rates will stay low for longer,” said Spindel, a former deputy treasurer at the World Bank’s International Finance Corp.

The weakness in the economy is “likely to continue to dampen cost pressures” and keep inflation “subdued for some time,” policy makers said yesterday. Public expectations for price trends are “stable,” they said.

At the same time, housing market has started to stabilize. Home prices rose 0.3 percent in July from the previous month, the Federal Housing Finance Agency said this week. Housing starts rose in August to the highest level in nine months.

“Activity in the housing sector has increased,” the central bank said.

‘More Optimistic’

“They have gotten progressively more optimistic over the last several statements, and this is the most optimistic since the financial crisis intensified last September,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York.

“The economic data will be improving quite sharply over the next few quarters,” said Maki, a former Fed researcher.

Yesterday’s affirmation that the Fed would buy the full amount of mortgage backed securities eased concerns that any reduction of the program might undermine a recovery in the housing market. The Fed’s purchases of the securities have pushed down mortgage rates, helping spur demand for homes.

“They probably recognize exiting is much more difficult than entering into the program,” said Torsten Slok, senior economist at Deutsche Bank AG in New York. “They’re very worried about what the reaction will be when it fades, so they’re pushing it into 2010,” he said. “For now, that’s pushed the problem ahead of them.”

The average rate on a 30-year mortgage dropped to 5.04 percent in the week ending Sept. 17 from 5.07 percent the week before, according to mortgage buyer Freddie Mac.

The Fed has announced $861.9 billion of mortgage-backed securities purchases and completed $685.1 billion. It’s bought $125.2 billion of agency debt and $289.2 billion of the planned purchases of $300 billion in Treasuries, which will end next month.

The tapering in housing debt purchases will begin today, the New York Fed said in a separate statement after the meeting.

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

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Yen Climbs Amid Speculation Japan Companies Bringing Funds Home

By Anchalee Worrachate and Yasuhiko Seki

Sept. 24 (Bloomberg) -- The yen rose against the dollar and the euro amid speculation Japanese companies returned from a three-day holiday to repatriate funds before the end of the fiscal first half.

The Japanese currency climbed most against the British pound and South Korean won after a government report showed Japan’s exports fell for an 11th month in August, curbing demand for higher-yielding assets. The Australian dollar advanced toward a 13-month high as the central bank said the nation’s lenders are weathering the global recession.

“Japan is very much in repatriation mode now and this is driving the yen higher,” said Neil Jones, head of European hedge-fund sales in London at Mizuho Corporate Bank Ltd. “People have just returned from three days of holiday and there are probably a lot of buy orders ahead of the end of their first half of the financial year.”

The yen appreciated to 90.53 per dollar as of 9:47 a.m. in London, from 91.29 in New York yesterday, and reached 90.42, the strongest since Sept. 16. It was at 133.54 per euro, from 134.52. The euro rose to $1.4759, from $1.4735 yesterday, when it advanced to $1.4844, its highest level since Sept. 22, 2008.

Japan’s currency has risen 6.5 percent against the dollar this quarter. A strengthening yen reduces the value of overseas sales by Japanese companies when converted into their home currency. Large manufacturers expected the yen to trade at an average of 94.85 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released July 1.

Exports Tumble

The Japanese government announced this year that it would waive taxes on repatriated profits from April 1 to help support the economy. Under previous laws, companies had to pay a combined 40 percent tax on overseas earnings. The country’s fiscal first half ends on Sept. 30. Japanese markets were closed Sept. 21-23 for national holidays.

Japan’s shipments abroad dropped 36 percent from a year earlier, compared with a 36.5 percent decline in July, the Finance Ministry said today in Tokyo. From a month earlier, exports fell 0.7 percent, the second-straight decrease.

Today’s report suggests the boost in overseas demand that helped the economy expand in the second quarter may be moderating as governments exhaust stimulus spending. New Japanese Prime Minister Yukio Hatoyama meets his counterparts from Group of 20 nations in Pittsburgh today to discuss how to sustain a recovery from the worst global recession since the 1930s.

Aussie Dollar

The Australian dollar strengthened against 15 of the 16 major currencies after the Reserve Bank of Australia said the nation’s four largest banks, including Westpac Banking Corp. and Commonwealth Bank of Australia, posted combined after-tax profits of A$8.6 billion ($7.5 billion) in the latest half year.

“The economy and the financial structure were more resilient than the market had anticipated,” Claudio Piron, Singapore-based head of Asia currency research at JPMorgan Chase & Co., said in a Bloomberg Television interview. “It really underpins the Aussie.”

Australia’s currency traded at 87.41 U.S. cents, from 86.97 cents in New York yesterday, when it rose to 87.89 cents, the highest level since Aug. 22, 2008. The New Zealand dollar was at 72.32 U.S. cents, from 71.97 cents yesterday, when it climbed to 73.12 cents, the strongest since Aug. 4, 2008.

“The Australian financial system has remained resilient,” the RBA said in its half-yearly financial stability review released today in Sydney. “Banks have experienced only a modest decline in profitability” and are better placed than those in other economies to weather any further global turmoil, it added.

Business Confidence

The euro advanced after a report showed German business confidence rose to a 12-month high this month. The Munich-based Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 91.3 in September, from 90.5 in the previous month. Economists expected a gain to 92, the median of 40 forecasts in a Bloomberg survey showed.

“The underlying bias for the dollar is to weaken as the risk sentiment remains intact,” Yuichiro Harada, senior vice president in Tokyo of the foreign-exchange division at Mizuho Corporate Bank, a unit of Japan’s second-largest banking group.

The euro dropped against the dollar earlier after Reuters cited a French government official as saying the country is concerned about the currency’s strength. France intends to press governments attending this week’s G-20 meeting to set a timeframe for a discussion on exchange rates, the report said.

Market ‘Sensitive’

“The market is becoming sensitive to comments from monetary authorities as the G-20 meeting approaches,” said Kosei Fujita, a foreign-currency dealer in Tokyo at SBI Liquidity Markets Co., a unit of financier SBI Holdings Inc. “As comments from French government officials added to concerns, people are inclined to close long positions on the euro.” A long position is a bet that an asset will rise.

G-20 leaders are meeting in Pittsburgh to discuss the latest developments of the global economy and financial markets.

Demand for the dollar waned after the Federal Reserve said yesterday it will keep interest rates low for an “extended period.” The central bank also said it will slow its purchases of mortgage securities, seeking to avoid disrupting the housing market as an economic recovery takes hold.

“The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010,” the Federal Open Market Committee said in a statement yesterday after meeting in Washington. The $1.45 trillion program was scheduled to cease by the end of this year.

Signs of Recovery

Chairman Ben S. Bernanke and fellow policy makers indicated for the first time since August 2008 that the economy is recovering from the recession.

Purchases of existing U.S. homes climbed to a 5.35 million annual rate in August, the most since August 2007, from a 5.24 million rate in July, according to a Bloomberg survey of economists. The National Association of Realtors will release the report at 10 a.m. in Washington.

“Signs of an improvement in the U.S. economy have so far failed to boost inflation expectations or hopes for an early exit from the current policy,” said Jitsuo Tachibana, senior manager for marketing at Sumitomo Trust & Banking Co. “As interest rates in the U.S. remain low, the hyper-liquid dollar will continue to trickle down into higher-yielding currencies.”

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

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China Non-Ferrous Barred From Taking Control of Lynas

By Jason Scott

Sept. 24 (Bloomberg) -- China Non-Ferrous Metal Mining Co. was blocked by Australia from buying a majority stake in rare-earth producer Lynas Corp. as the government seeks to preserve local control of the nation’s resources.

Australia’s Foreign Investment Review Board ordered China Non-Ferrous to limit its stake in Lynas to less than 50 percent, the Sydney-based company said today in a statement. China accounts for more than 90 percent of global output of rare earths, used in iPod music players, liquid crystal displays, hybrid cars and wind turbines.

Investments by Chinese companies have faced scrutiny from Australia as the biggest metals consumer accelerates takeovers. Australia blocked a A$2.6 billion ($2.3 billion) bid by state- owned China Minmetals Corp. for OZ Minerals Ltd. in March on national-security concern and review board director Patrick Colmer said today overseas investors should limit proposed stakes in major mining companies to no more than 15 percent.

“What FIRB doesn’t want to see is something as significant as a rare-earths project, where China controls so much of the world’s production, fall under the control of one country,” said Peter Strachan, a Perth-based analyst for independent company StockAnalysis.

Lynas, which says it owns the world’s richest deposit of rare earths, has risen more than threefold since China Non- Ferrous agreed May 1 to pay A$252 million for a 51.6 percent stake. It advanced 3.5 percent today in Sydney trading to 90 cents.

Board Directors

The Chinese company terminated the entire purchase. It was also ordered to cut the number of directors it planned to appoint to Lynas’s board to less than half, Lynas said.

“These were in addition to already agreed undertakings between Lynas and CNMC aimed at ensuring independent director control of all marketing of rare earths products,” Lynas said.

Lynas planned to use the money from the sale to resume work on the Mount Weld project, near Laverton in Western Australia. The company suspended work in February while it sought development funding.

The company said it’s well advanced in getting interim funding to ensure it has sufficient working capital.

‘Without Difficulty’

The review board has processed about 90 proposed Chinese investments in Australia valued at about A$34 billion in the past 18 months, Colmer said. China is now probably the third- biggest foreign investor in Australia after the U.S. and the U.K., he said, adding it may climb further up the rankings in coming years.

After initially blocking China Minmetal’s offer for OZ Minerals it allowed the sale of most of its other assets to the Chinese company.

The “vast majority” of Chinese investments are in Australian resources and most of them are cleared without difficulty, Colmer said.

“It’s very dangerous and counter-productive to see something like this as anti-Chinese as Australia also needs to protect its interests,” StockAnalysis’s Strachan said.

China’s Ministry of Industry and Information Technology said Sept. 3 supplies of dysprosium and terbium, minerals needed to make hybrid cars and televisions, may be inadequate for its needs, amid concerns that exports from the largest rare-earths producer may decline.

Export Curbs

China has about half of the world’s rare-earths reserves. The government started to curb output and exports in 2006 as prices dropped.

Chinese exports of rare earths fell 35 percent to 34,600 metric tons in 2008 from 53,300 tons in 2006, according to Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., which owns the largest rare-earths mine.

Demand for rare earths may grow more than 40 percent by 2014, Arafura Resources Ltd. Managing Director Alistair Stephens said Sept 10, citing BCC Research. Arafura is planning a A$600 million rare earths mine in Australia.

China may spend more than $500 billion on overseas resources investments over the next eight years, according to Deloitte Touche Tohmatsu.

To contact the reporter on this story: Jason Scott in Perth at Jscott14@bloomberg.net

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Soybeans Slump as Risk of Frost Damage to U.S. Crops Recedes

By William Bi and Luzi Ann Javier

Sept. 24 (Bloomberg) -- Soybeans declined for the fourth time in five days on speculation that freezing weather in the Midwest will cause little damage to the crop in the U.S., the biggest exporter.

The biggest soybean and corn growing states in the U.S., including Iowa, Illinois and Indiana will have near- to above- normal temperatures from Sept. 29 through Oct. 7, according to a National Weather Service forecast yesterday. About 40 percent of the crop was beginning to drop leaves as of Sept. 20, the U.S. Department of Agriculture said yesterday. That’s a sign the plants are mature and ready for harvest.

“The risk of early frost keeps falling,” Tommy Xiao, analyst at Shanghai JC Intelligence Co., said by phone from Shanghai. “The trend toward a bumper crop is inevitable.”

November-delivery soybeans dropped as much as 1.2 percent, $9.0925 a bushel in after-hours trading on the Chicago Board of Trade. The contract was at $9.0925 at 1:18 p.m. Singapore time.

May-delivery soybeans traded on the Dalian Commodity Exchange fell as much as 2.6 percent to 3,605 yuan ($528) a metric ton, before trading at 3,616 yuan.

Soybean production will jump to a record 3.245 billion bushels, up 9.7 percent from last year, the USDA said in a Sept. 11 report. Yields will rise to 42.3 bushels an acre from 39.6 bushels last year, the department said.

Corn for December delivery fell as much as 2 percent, to $3.235 a bushel before trading at $3.235.

There’s a “good chance” corn yields in the U.S. will be higher than USDA’s estimate of 161.9 bushels an acre, Kona Haque, analyst at Macquarie Bank Ltd. wrote in a report. Macquarie raised its yield estimate to 162.4 bushels an acre.

Record Yield

A record average yield of 161.9 bushels an acre will push output in the world’s largest grower and exporter to 12.954 billion bushels in the year that began Sept. 1, the second- largest on record, according to the USDA forecast on Sept. 11.

Wheat for December delivery fell as much as 1.2 percent, to $4.545 a bushel in Chicago, before trading at $4.5575 a bushel.

West Australia’s wheat crop, the nation’s biggest, is starting to dry out “a little more than desired,” the Commonwealth Bank of Australia said in an e-mailed note today. Australia is forecast to be the world’s fourth-largest wheat exporter in the 2009-10 marketing year, with shipments expected at 14.5 million tons.

To contact the reporters on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net; William Bi in Beijing at wbi@bloomberg.net

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Gold Rises 0.4% to $1,012.11 an Ounce in London Trading

By Nicholas Larkin

Sept. 24 (Bloomberg) -- Gold for immediate delivery in London rose 0.4 percent to $1,012.10 an ounce as of 10:20 a.m. local time.

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Most Asian Stock Markets Fall on Commodities; Japan Advances

By Shani Raja

Sept. 24 (Bloomberg) -- Most Asian stock markets fell, led by commodity and finance companies, as raw-material prices declined and Aiful Corp. forecast a full-year loss. Japan stocks rose as brokerages upgraded Toshiba Corp. and Fast Retailing Co.

Jiangxi Copper Co., China’s biggest producer of the metal, lost 3.6 percent in Hong Kong. Aiful, Japan’s second-largest consumer lender by assets, tumbled 24 percent. Toshiba, Japan’s biggest chipmaker, added 3.8 percent after Credit Suisse Group AG more than doubled its price estimate. Fast Retailing, the operator of the nation’s biggest casual clothing chain, jumped 5.3 percent after Goldman Sachs Group Inc. recommended the stock.

Stocks that fell about matched those that that rose on the MSCI Asia Pacific Index, which added 0.3 percent to 119.08 as of 6:39 p.m. in Tokyo. Japan resumed trading after a three-day holiday, during which the MSCI gauge rose 0.3 percent. The measure surged 42 percent in the past six months as stimulus measures around the world dragged economies out of recession.

“The consensus view now is that the worst is over,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne. “We need further evidence that the underlying economy is more self-sustaining and less reliant on stimulus in order to justify higher prices from here.”

Hong Kong’s Hang Seng Index slumped 2.5 percent as Metallurgical Corporation of China Ltd. sank 11 percent on its first day of trading. China’s Shanghai Composite Index gained 0.4 percent. Japan, India, Pakistan, and Indonesia also fell, while all other markets rose.

Earnings Forecast

Japan’s Nikkei 225 Stock Average climbed 1.7 percent, even as a government report showed exports declined for an 11th month in August. Japan Airlines Corp. fell 16 percent ahead of a transport ministry meeting to discuss restructuring. David Jones Ltd., Australia’s second-biggest department store, sank 3.9 percent after a profit forecast disappointed some investors.

Futures on the Standard & Poor’s 500 Index lost 0.1 percent. The gauge dropped 1 percent yesterday as the Federal Reserve signaled it will use fewer tools to bolster growth.

The Fed, following a two-day policy meeting, changed the wording in the final paragraph of its statement to say it will continue to employ a “wide range of tools” to bolster the economy. In its August statement, it said it would use “all available” tools.

The MSCI Asia Pacific Index has gained 69 percent from a five-year low on March 9 on speculation improved global growth will boost corporate earnings. The advance has driven the average price of the gauge’s members to 1.6 times book value, up from 1 at the low in March.

‘Clouding The Picture’

“The markets have priced in a fair degree of good news, but discerning how strong the recovery’s going to be is still problematic,” said Pengana’s Schroeders. “Uncertainty about when the government stimulus starts to be withdrawn is clouding the picture somewhat.” Jiangxi Copper sank 3.6 percent to HK$17.60. Copper futures lost 0.3 percent in after-hours trading, following yesterday’s 2 percent drop in New York. A gauge of six metals fell 1.6 percent in London yesterday, the most this week.

BHP Billiton Ltd., the world’s biggest mining company, dropped 1.6 percent to A$37.72. The stock also fell after Andres Ramirez, president of a union representing miners at one of BHP’s copper mines in Chile, said workers will vote on a strike next week after rejecting the company’s latest pay offer.

Woodside Petroleum Ltd., Australia’s No. 2 oil and gas producer, sank 2.6 percent to A$51.71 as crude oil lost 0.5 percent in after-hours trading, adding to yesterday’s 3.9 percent slump in New York. Inpex Corp., Japan’s largest oil explorer, dropped 0.7 percent to 809,000 yen.

Aiful Job Cuts

“Resource-related shares will be inevitably affected by the drop in commodity prices,” said Mitsushige Akino, who oversees the equivalent of $656 million at Ichiyoshi Investment Management Co. in Tokyo.

Aiful sank 24 percent to 102 yen on its loss forecast and plans to cut as much as 44 percent of its workforce.

The company said last week it plans to seek a reprieve on 280 billion yen of debt repayments after failure to tap credit markets left it struggling to finance an expected increase in claims for interest refunds from its customers.

The global credit crunch, worsened by the collapse of Lehman Brothers Holdings Inc. a year ago, has caused more than $1.6 trillion of writedowns and losses at the world’s biggest financial institutions. The MSCI Asia Pacific Index slumped by a record 43 percent in 2008.

Government Supervision

The resulting economic slowdown prompted a series of stimulus packages, government bailouts and interest-rate cuts around the world to revive global growth. Leaders from the Group of 20 countries will meet in Pittsburgh on Sept. 24-25 to work on an accord to prevent a repeat of the crisis.

Japan Air, which is under government supervision following state bailouts, fell 16 percent to 144 yen. President Haruka Nishimatsu will meet today with Transport Minister Seiji Maehara to discuss the airline, Asia’s most indebted carrier. The carrier’s lenders may ask the government to split the company up, Nikkei reported earlier this week.

Toshiba climbed 3.8 percent to 496 yen. Credit Suisse raised the stock to “outperform” from “neutral” and increased its price estimate more than twofold to 640 yen. Fast Retailing rallied 5.3 percent to 11,140 yen after it was boosted to “buy” from “neutral” by Sho Kawano, a Tokyo-based analyst at Goldman Sachs.

David Jones lost 3.9 percent to A$5.44. The company reported net income of A$65.4 million ($57 million) in the six months ended July 25 and maintained its earnings growth forecast for the current year.

‘High Expectations’

“The market had very high expectations and expected that they would upgrade guidance, which they didn’t,” said Angus Gluskie, who manages about $300 million at White Funds Management Pty. in Sydney.

In Hong Kong, Metallurgical Corporation, which helped build the “Bird’s Nest” Olympic stadium in Beijing, sank 11 percent to HK$5.63 on its first day of trading. The company’s shares surged 28 percent when it debuted in Shanghai on Sept. 21.

Samsung SDI Co., the world’s second-largest maker of plasma displays, fell 4 percent to 168,500 in Seoul. Samsung Securities Co. cut the stock to “hold” from “buy,” saying the company’s shares reflected the value of its electric-car battery business.

In Wellington, Hallenstein Glasson Holdings Ltd. rose 3.7 percent to NZ$3.05 after the clothing retailer reported greater- than-forecast full-year profit.

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

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Buyout Firms Return to Market as Select Medical Readies IPO

By Jason Kelly, Cristina Alesci and Michael Tsang

Sept. 24 (Bloomberg) -- The owners of Select Medical Holdings Inc. may almost double their money when the hospital operator goes public tomorrow as leveraged buyout firms take advantage of the steepest stock market rally in 70 years.

Welsh Carson Anderson & Stowe and Thoma Cressey Bravo LLC will hold a stake valued at more than $1 billion if Select Medical fetches $12 a share, the midpoint for its initial public offering price. The private-equity firms invested $617 million in cash when acquiring the Mechanicsburg, Pennsylvania-based company in February 2005, according to a regulatory filing.

Buyout firms are lining up IPOs to repay debt used to purchase companies and return profits to their investors. KKR & Co., Silver Lake and Fortress Investment Group LLC are among those planning share sales amid a 57 percent gain by the Standard & Poor’s 500 Index since March 9.

“In an environment in which private-equity performance has suffered, the ability to demonstrate cash-on-cash returns by exiting investments at an attractive valuation is compelling and may help firms raise future funds,” said Andrew Wright, a partner at law firm Kirkland & Ellis LLP in New York.

Select Medical plans to sell 33.3 million shares today at $11 to $13 apiece, raising as much as $433.3 million, according to a U.S. Securities and Exchange Commission filing. The stock is set to begin trading tomorrow on the New York Stock Exchange.

Bankers arranged about $1.5 billion in financing for the Select Medical purchase by New York-based Welsh Carson and Thoma Cressey of Chicago, which subsequently split into two firms. The transaction was valued at $2.1 billion including assumed debt, according to data compiled by Bloomberg.

The firms will use IPO proceeds mostly to reduce Select Medical’s debt, they said in the filing. Officials didn’t return phone calls seeking comment.

KKR’s Pair

KKR, based in New York, and Menlo Park, California-based Silver Lake, took Avago Technologies Ltd. public last month in a $745 million deal. The Singapore-based semiconductor maker has gained 16 percent since it began trading in early August. KKR subsequently filed an initial public offering for discount retailer Dollar General Corp. of Goodlettsville, Tennessee.

RailAmerica Inc., a Jacksonville, Florida-based railroad operator owned by Fortress, said Sept. 22 it increased the size of its IPO to $450 million from $300 million. New York-based Fortress bought the company in February 2007.

Private-equity firms bought a record $1.4 trillion of companies in 2006 and 2007, the height of the leveraged-buyout boom. The global credit crisis brought dealmaking to a halt and prevented firms from selling companies they already owned.

‘Pent-Up Demand’

“There is a pent-up supply of portfolio companies, many of which will go public,” said Jay Ritter, a professor of finance at the University of Florida. “During the last year, exits had ground to a halt.”

Companies are selling shares after the S&P 500 climbed in six straight months, restoring about $4.9 trillion to U.S. equity markets. The advance since the gauge fell to a 12-month low in March represents the steepest rally since the Great Depression, according to data compiled by Bloomberg.

Health-care stocks are the third best-performing industry behind household-product makers and technology companies in the S&P 500 since it climbed to a record 1,565.15 on Oct. 9, 2007.

Ten companies may sell shares to the public this month, the most since January 2008, according to data compiled by Bloomberg. Together, the deals may raise $3.86 billion, the most since March 2008, when Visa Inc.’s $17.9 billion IPO accounted for almost all the money raised.

Five companies, including KAR Holdings Inc., a vehicle- auction company based in Carmel, Indiana, and Houston-based Cobalt International Energy Inc., an energy-exploration firm, filed this month to raise as much as $1.82 billion.

Talecris

Among the biggest scheduled IPOs this month is Talecris Biotherapeutics Holdings Corp., the drugmaker controlled by private-equity firm Cerberus Capital Management LP and Ampersand Ventures, which plans to raise $850 million on Sept. 30, according to data compiled by Bloomberg.

The Research Triangle Park, North Carolina-based maker of protein therapies derived from blood plasma said in its Sept. 10 filing that it seeks to sell 44.7 million common shares at $18 to $20 apiece.

At $19 a share, Cerberus and Ampersand would reap a profit of $300 million for their investors by selling 15.8 million shares. After the IPO, the private-equity firms will own 60.5 percent of Talecris, valued at $1.38 billion based on a $19 IPO price.

Peter Duda, a spokesman for New York-based Cerberus, declined to comment, as did Becky Levin, a spokeswoman for Talecris, citing the quiet period before the IPO.

Past Dividends

Cerberus and Ampersand of Wellesley, Massachusetts, created Talecris after buying Bayer AG’s plasma business in 2005. At the time, the purchase was valued at $590 million, with the private- equity firms investing a combined $125 million in cash.

Talecris has paid its owners at least $833.2 million in dividends since then, mainly funded by a $1.35 billion loan. Including the payouts, Cerberus and Ampersand are set to earn 20 times their initial cash investment in the company.

The company will use its share of IPO proceeds to pay down debt. It doesn’t plan to pay shareholder dividends after the IPO, using all earnings to finance operations, according to its prospectus.

To contact the reporters on this story: Jason Kelly in New York at jkelly14@bloomberg.net; Cristina Alesci in New York at Calesci2@bloomberg.net; Michael Tsang in New York at mtsang1@bloomberg.net.

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U.S. Stock-Index Futures Fluctuate; Electronic Arts Declines

By Sarah Jones

Sept. 24 (Bloomberg) -- U.S. stock-index futures drifted between gains and losses before a report on existing home sales and the Group of 20 meeting in Pittsburgh.

Electronic Arts Inc. slid 3.2 percent in Germany after Microsoft Corp. said it’s not seeking to buy the video-game publisher. Red Hat Inc. rose 3.4 percent as the biggest seller of the Linux operating system reported earnings that beat estimates and Bank of America Corp. recommended the shares.

Futures on the Standard & Poor’s 500 Index expiring in December added less than 0.1 percent to 1,059.20 at 10:18 a.m. in London, after dropping as much as 0.6 percent earlier. Dow Jones Industrial Average futures were little changed at 9,715. Nasdaq-100 Index futures gained 0.1 percent to 1,726.50.

U.S. President Barack Obama and his counterparts from G-20 nations meet today warning that the recovery is still too weak to start reversing lifelines to banks and the broader economy.

“I think there is a growing feeling that the markets have got ahead of economic reality,” said David Morrison, a London- based market strategist at GFT. “There is also a bit of nervousness ahead of G-20 as there is likely to be something about financial regulation.”

The S&P 500 yesterday dropped from its highest level since October. A 57 percent rally since March 9 has left the measure valued at about 20 times the reported earnings of its companies, the most expensive level since 2004, according to weekly data compiled by Bloomberg.

Year-End Forecast

The Federal Reserve signaled that the U.S. economy’s return to growth is insufficient to withdraw stimulus as officials seek to reduce the highest unemployment rate in a quarter century. While the economy has “picked up,” the central bank’s planned asset purchases will help ensure a “gradual return to higher levels of resource utilization,” the Fed’s Open Market Committee said yesterday.

Sales of existing U.S. homes probably climbed in August to the highest level in two years, economists said before a report today. Purchases rose 2.1 percent to a 5.35 million annual rate, according to the median forecast of 74 economists in a Bloomberg News survey. It would be the fifth consecutive gain, capping the longest stretch of increases since 2004. The report is due at 10 a.m. Washington time.

Morgan Stanley strategist Jason Todd today raised his year- end forecast for the S&P 500 to 1,050 from a previous estimate of 900. That’s still 1 percent below yesterday’s closing price.

‘Bull Market’

“The current rally is typical of what follows major bear markets and is not, in our view, the start of a new multi-year bull market,” New York-based Todd wrote in a report to clients.

Electronic Arts fell 3.2 percent to $19.19 in German trading, following a 7.1 percent rally yesterday, as Microsoft said it isn’t seeking to buy the video-game publisher.

“There’s no truth” to the speculation, David Dennis, a Microsoft spokesman, said late yesterday. “We have no plans to purchase EA.”

Red Hat climbed 3.4 percent to $25.72 as sales rose 12 percent to $183.6 million. Analysts predicted $179.4 million. Excluding stock compensation and other costs, profit was 20 cents a share, compared with the 15-cent average estimate of analysts in a Bloomberg survey.

Bank of America raised its recommendation on the stock to “buy” from “neutral.”

The owners of Select Medical Holdings Inc. may almost double their money when the hospital operator goes public tomorrow as leveraged buyout firms take advantage of the steepest stock market rally in 70 years. Welsh Carson Anderson & Stowe and Thoma Cressey Bravo LLC will hold a stake valued at more than $1 billion if Select Medical fetches $12 a share, the midpoint for its initial public offering price. The private- equity firms invested $617 million in cash when acquiring the company in February 2005.

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

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German Stocks Fall for Second Day; Steelmakers, Infineon Drop

By Adria Cimino

Sept. 24 (Bloomberg) -- German stocks fell for a second day amid speculation a six-month rally in equities has outpaced the outlook for economic growth and corporate earnings.

Salzgitter AG and ThyssenKrupp AG, Germany’s biggest steelmakers, dropped at least 1.5 percent as metals declined. Infineon Technologies AG, Europe’s second-largest semiconductor maker, also retreated.

The benchmark DAX Index lost 1.2 percent to 5,633.16 as of 10:06 a.m. in Frankfurt. The rally since March left the DAX valued at about 48.7 times its companies’ reported earnings as of Sept. 18, the highest level since December 2003, according to weekly data compiled by Bloomberg. The broader HDAX Index fell 1.2 percent today.

German business confidence rose less than economists estimated, while reaching a 12-month high in September. The Ifo institute in Munich said today its business climate index, based on a survey of 7,000 executives, climbed to 91.3 from 90.5 in August. Economists expected a gain to 92, the median of 40 forecasts in a Bloomberg News survey showed.

The Federal Reserve yesterday left its target rate for overnight loans between banks in a record-low range between zero and 0.25 percent, and said it will stay “exceptionally low” for an “extended period.” The central bank changed the wording in the final paragraph of its statement to say it will continue to employ a “wide range of tools” to bolster the economy. In August, it said it would use “all available” tools.

“No move on interest rates from the Fed yesterday left investors worried that the recent recovery is looking a little distorted,” James Hughes, a market analyst at CMC Markets in London, wrote in a note to clients.

Salzgitter retreated 2.1 percent to 69.47 euros, while ThyssenKrupp declined 1.5 percent to 23.87 euros. Copper, lead, nickel and tin all slid on the London Metal Exchange.

Infineon sank 2.3 percent to 3.65 euros, snapping a three- day gain. Siemens AG, Europe’s biggest engineering company, dropped 1.4 percent to 65.12 euros.

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

Fresenius SE (FRE3 GY) climbed 56 cents, or 1.4 percent, to 39.40 euros, set for the highest close in a week. The owner of the world’s largest provider of kidney dialysis had its recommendation raised to “buy” from “neutral” at Goldman Sachs Group Inc.

Interseroh SE (ITS GY) added 48 cents, or 1.1 percent, to 44.96 euros, gaining for a second day this week. Alba AG & Co. KG is considering a domination agreement with Interseroh or the purchase of more shares, Handelsblatt reported, citing an interview with Interseroh Chief Executive Officer and Alba Co- Owner Axel Schweitzer.

Porsche SE (PAH3 GY) added 73 cents, or 1.4 percent, to 51.63 euros, breaking a four-day losing streak. The carmaker’s preferred shares were raised to “buy” from “neutral” at Nomura Holdings Inc.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.

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LSE Trading Declines 43% on Equity Slump, Loss of Market Share

By Nandini Sukumar

Sept. 24 (Bloomberg) -- London Stock Exchange Group Plc said trading dropped 43 percent as stocks slumped amid the worst financial crisis since the Great Depression and Europe’s oldest independent bourse lost market share.

The average daily value of trades on LSE’s markets for the five months ended Aug. 31 fell to 4.6 billion pounds ($7.5 billion) from the year-earlier period, the London-based exchange said in a Regulatory News Service statement today.

LSE, along with other traditional exchanges such as Deutsche Boerse AG and NYSE Euronext, has been losing market share to so-called multilateral trading facilities including Chi-X Europe Ltd., Bats Europe and Turquoise. Chief Executive Officer Xavier Rolet, who started in May, is attempting to stanch the decline by changing the way LSE charges and looking to diversify into markets such as corporate bonds for retail investors.

“Although market conditions remain challenging, the group continues to see good levels of activity in many parts of the business,” Rolet said in the statement. “We continue to take actions to ensure the group is well placed to compete and develop.”

Rolet has been cutting jobs as he attempts to reduce costs. The exchange said today that 133 people, or 12 percent of the workforce, have left the company, saving close to 11 million pounds a year from the second half.

Market Share

LSE’s share of trading in FTSE 100 Index stocks fell below 60 percent on Aug. 4 for the first time as Europe’s oldest independent bourse lost more ground to alternative trading systems. LSE accounted for as little as 59.92 percent of FTSE 100 trading on an intraday basis, according to data from Bats Global Markets.

This month, LSE agreed to buy Sri Lankan technology services company MillenniumIT for $30 million to gain access to its trading systems.

“The acquisition of MillenniumIT is an exciting and important step, that will provide a more flexible, efficient and high performance trading platform,” Rolet said today.

To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net

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U.K. Stocks Drop, Led by British Airways; 3i Group Declines

By Adam Haigh

Sept. 24 (Bloomberg) -- U.K. stocks fell amid concern a six-month rally in equities has outpaced the prospects for growth in earnings and the economy.

British Airways Plc sank 2.8 percent as Citigroup Inc. downgraded the shares. 3i Group Plc, Europe’s biggest publicly traded private equity firm, declined 3.8 percent after the pace of new investments dropped 75 percent as a lack of debt financing brought the buyout market close to a near-halt.

The benchmark FTSE 100 Index slipped 41.61, or 0.8 percent, to 5,097.76 as of 8:31 a.m. in London, bringing this week’s retreat to 1.5 percent so far. The FTSE All-Share Index fell 0.8 percent and Ireland’s ISEQ Index dropped 1.4 percent.

The FTSE 100 index has rebounded 45 percent since March 3 as companies from HSBC Holdings Plc to GlaxoSmithKline Plc reported results that beat estimates and economic releases added to evidence that the worst of the global recession may be over.

British Airways sank 2.8 percent to 223.5 pence. Citigroup Inc. downgraded the shares to “hold” from “buy,” saying mid- cycle share-price valuations were reached “far earlier than expected,” according to a note to clients.

3i Group dropped 3.8 percent to 277 pence. 3i spent 155 million pounds ($254 million) on new investments in the five months through August, compared with 622 million in the same period a year earlier.

London Stock Exchange Group Plc lost 2.7 percent to 855.5 pence as Europe’s oldest independent bourse said the daily value of its trades declined 43 percent for the five months ending Aug. 31.

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

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Morgan Stanley Sees S&P 500 End-2009 Fair Value at 1,050

By Sarah Jones

Sept. 24 (Bloomberg) -- Morgan Stanley strategist Jason Todd said he now estimates that fair value for the Standard & Poor’s 500 Index by year end is 1,050, 1 percent below yesterday’s close.

Todd previously forecast the U.S. benchmark index would end the year at 900. He also raised his earnings forecast for the gauge by 7.8 percent to $55 for 2009 and by 13 percent to $70 for 2010, in a note dated today.

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