Fed Likely to Signal Economy Improving, Keep Interest Rates Low

By Vivien Lou Chen and Scott Lanman

Nov. 4 (Bloomberg) -- Federal Reserve officials may today indicate their $1 trillion injection into the economy is helping to revive growth without requiring an increase in interest rates from near zero, economists said.

Policy makers will probably maintain their commitment to keeping rates low for an “extended period,” said Laurence Meyer, vice chairman of Macroeconomic Advisers LLC in Washington and a former Fed governor. They may also start a discussion about altering the wording of their policy statement, to leave them more leeway to signal a change in the future.

Chairman Ben S. Bernanke and his colleagues are reluctant to raise rates until the labor market shows signs of recovery, even though a report last week showed the economy resumed growth after 12 months of contraction. The Fed isn’t yet willing to signal that it’s ready to join central banks in Australia, Norway and Israel in pushing borrowing costs higher.

“They’ve got, for a lot of reasons, to say that it looks like what we’ve been doing has been working,” said former Atlanta Fed research director Robert Eisenbeis, now chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey. “But if they’re too exuberant about it, it’s going to trigger expectations of a policy move quicker than perhaps they might like to do.”

Members of the Federal Open Market Committee, whose two-day meeting ends today, may be concerned any hint of a change in policy would prompt investors to sell Treasury bonds, sending rates higher on consumer and business loans and endangering the recovery, analysts said. A statement is due around 2:15 p.m.

Worst Recession

The Fed, while trying to pull the economy from its worst recession since the Great Depression, has held the benchmark lending rate close to zero since December while using asset purchases as its main policy tool. The unprecedented monetary stimulus helped fuel 3.5 percent growth during the third quarter.

Much of the expansion stemmed from government incentives for the purchase of cars and homes that boosted consumer spending, which accounts for about 70 percent of the economy. Excluding sales, production and inventories of automobiles, the economy grew 1.9 percent last quarter.

Growth “looks really good on the face of it, but the key question is whether it is sustainable,” said Tom Porcelli, a senior economist at RBC Capital Markets in New York. “A large chunk of the gain was stimulus related. A lot of it was artificially generated.”

The economy will probably expand at a 2.4 percent annual rate from October through December, according to the median forecast in a survey of economists last month.

‘Uneven Recovery’

Bernanke and Fed Vice Chairman Donald Kohn “expect a very fragile and uneven recovery,” said former Fed economist David Milton Jones, president of Denver-based DMJ Advisors and author of four books on the central bank.

Policy makers will probably reiterate that slack in the economy and stable expectations for inflation will limit a broad increase in prices “for some time,” analysts said.

Inflation “will be low in the near term,” said Eisenbeis, adding that the doubling in the Fed’s assets since September 2008 to $2.16 trillion may spark higher prices in the longer term. “I see, with the buildup in the Federal Reserve’s balance sheet, a lot of threats there,” he said.

Investors are pouring money into inflation-linked debt to prepare for a surge in the cost of living spurred by the $11.6 trillion the Fed and government lent, spent or guaranteed to bolster the economy and financial system.

Inflation Expectations

The difference between rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, widened to 2.06 percentage points yesterday from 1.80 points on Sept. 23. The TIPS spread is a sign that long-term inflation expectations are rising, challenging Fed efforts to keep policy accommodative.

Record central bank liquidity has also stoked a rise in asset prices. The Standard & Poor’s 500 Index has rallied 55 percent from a 12-year low in March, while crude-oil futures are up 78 percent this year.

Investors, reacting to signs of a recovery, have created “bubbles in oil prices” and equities, Jones said. “Bubbles are a nightmare for the Fed.”

Still, with unemployment rising, policy makers will reiterate their intent to hold the federal funds rate at “exceptionally low levels,” analysts said. The jobless rate reached a 26-year high of 9.8 percent in September and economists project it will exceed 10 percent by early next year.

‘Very Accommodative’

“The Fed’s dual mandate includes full employment, and as long as the jobless rate is in its present vicinity, then monetary policy has to stay very accommodative,” said Richard DeKaser, chief economist at Woodley Park Research in Washington.

Since their previous meeting in September, central bankers have voiced differing views on the pace and timing of a change in monetary policy.

Fed Governor Kevin Warsh said Sept. 25 interest rates may need to rise “with greater force” than usual, while New York Fed President William Dudley said Oct. 5 the recovery’s pace “is not likely to be robust” and inflation risks are “on the downside.”

An increase in the main interest rate is “a long ways off,” Gramley said. The economy “needs continued sustenance.”

To contact the reporters on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.netScott Lanman in Washington at slanman@bloomberg.net.

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East Asia’s Growth Adds Risk of Asset Bubbles, World Bank Says

By Shamim Adam

Nov. 4 (Bloomberg) -- East Asian economies will grow faster than initially estimated this year, adding pressure on central banks to tighten policy and allow currency flexibility to prevent asset bubbles, the World Bank said.

Developing East Asia, which excludes Japan, Hong Kong, Taiwan, South Korea, Singapore and the Indian subcontinent, will expand 6.7 percent this year, more than an April estimate of 5.3 percent, the Washington-based lender said its semi-annual report today. Growth may accelerate to 7.8 percent next year, it said.

Asian governments have pumped more than $950 billion into their economies after the global credit crunch cut demand for the region’s cars and flat-panel televisions. Australia has begun raising interest rates, while central banks including India’s and South Korea’s have signaled a readiness to raise borrowing costs in the coming months.

“As growth recovers broadly and inflation pressures begin to materialize, monetary policy may need to be tightened sooner rather than later in East Asia,” the World Bank said. “Exchange-rate flexibility will be critical in managing foreign-exchange inflows while keeping inflation and asset-price increases in check.”

Policy makers are concerned that an appreciation in their exchange rates will stymie the potential recovery in exports and encourage capital inflows that may “bring instability to financial systems and exert further upward pressure on currencies,” the World Bank said.

China’s Yuan

Asian nations also don’t want their currencies to lose out to China’s as the world’s third-largest economy has prevented the yuan from appreciating since July 2008, after it advanced 21 percent against the dollar over the previous three years.

“Authorities in many East Asian countries are concerned about losing competitiveness against China should they allow their currencies to strengthen at a time when China has effectively re-pegged the renminbi to the weakening dollar since mid-2008,” the World Bank said. “Some observers have suggested that if such concerns persist, countries in the region may consider intervening jointly to appreciate their currencies against the dollar.”

Global capital flows are likely to recover from this year’s lows as the world economy emerges from the deepest recession since the 1930s, according to the World Bank report. The global equity rally has added more than $17 trillion to the value of stocks since this year’s low on March 9.

“East Asia may receive a larger share of these inflows because of a combination of investor expectations of stronger growth in the region than the rest of the world, the potential for currency appreciation and the growing liquidity and sophistication of the region’s financial markets,” the World Bank said.

Housing Prices

Central banks around the region lowered interest rates and loosened other policy requirements to kick-start local consumer and business spending.

Housing prices in some Asian nations are rising, while the region’s stock markets have surged in the past six months. As economies recover and banks extend more loans, some of the stimulus needs to be pulled back, the World Bank said.

Central banks may tighten policy by “removing some of the support for liquidity in domestic and foreign currencies, returning reserve requirements to pre-crisis levels and scaling back the scope for collateral eligible for accessing central bank facilities before hiking rates,” it said.

China Growth

China’s economy will expand 8.4 percent this year, and the pace will accelerate to 8.7 percent in 2010, according to the report. Asia’s second-largest economy still makes up most of the region’s growth, the World Bank said.

“Take China out of the equation, and the rest of the region is recovering with less vigor,” the lender said. “Even with solid growth in Indonesia and Vietnam, developing East Asia excluding China is projected to grow more slowly in 2009 than South Asia, the Middle East and North Africa, and only modestly faster than Sub-Saharan Africa.”

Asian governments must maintain fiscal support to spur their economies as world export demand remains sluggish, the International Monetary Fund said last week. Some countries have more room than others in maintaining such stimulus, the World Bank said today.

“Governments are aware that fiscal and monetary stimulus alone cannot sustain domestic demand for an extended period of time,” it said. That’s “especially if investors are not reassured that the authorities will have viable exit strategies in place and will bring government debt to levels that will not jeopardize long-term debt sustainability.”

High Growth Rates

Asia can maintain “high growth rates” by depending less on exports and boosting domestic demand, the World Bank said. Many nations had imitated strategies by Japan, Taiwan and South Korea of relying on export-led growth without regard to the distortions such policies caused, it said.

“Governments are realizing that more growth can be extracted from domestic demand if they ease or eliminate incentives that favor the quick buildup of export-led, investment-heavy manufacturing supported by undervalued exchange rates and suppressed domestic consumption and services,” the lender said.

To contact the reporter on this story: Shamim Adam in Singapore sadam2@bloomberg.net

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Indonesia Keeps Key Interest Rate Unchanged at 6.5%

By Aloysius Unditu and Novrida Manurung

Nov. 4 (Bloomberg) -- Indonesia’s central bank refrained from raising interest rates, judging that inflation isn’t yet enough of a risk to warrant higher borrowing costs.

Bank Indonesia maintained its reference rate at 6.5 percent, the lowest level since the measure was introduced in May 2005, the central bank said in a statement released in Jakarta today. All 24 economists in a Bloomberg News survey predicted the decision.

The current monetary policy direction is still “conducive for the process of economic recovery,” the central bank said, adding that inflation will continue to ease in the medium term. Consumer prices may rise at the lower end of Bank Indonesia’s 3.5 percent-to-5.5 percent target this year, it said.

Indonesia’s inflation unexpectedly slowed to a nine-year low of 2.57 percent in October, giving policy makers more time before they follow other Asian central banks in exiting monetary stimulus. Prices may start to climb faster in the coming months, according to economists, forcing Bank Indonesia to raise borrowing costs early next year.

“We expect inflation to head higher on account of commodity price movements, mainly food and oil,” said Prakriti Sofat, an economist at Barclays Capital Research in Singapore. “We think tightening will begin in the second quarter next year.”

The Indonesian rupiah rose 0.9 percent to 9,555 against the dollar at 12:31 p.m. in Jakarta today as investors bet the country’s assets will maintain their yield advantage over the U.S., where the benchmark interest rate is near zero.

Australia Rates

The Reserve Bank of Australia yesterday raised interest rates for the second time in four weeks, citing “stronger-than- expected” economic conditions for its decision to raise the overnight cash rate target by a quarter point to 3.5 percent. Australia last month became the first among Group of 20 nations to increase borrowing costs since the height of the global credit squeeze.

The Reserve Bank of India in its Oct. 27 monetary policy statement said the “unconventional” steps taken during the global slump can now be reversed. Governor Duvvuri Subbarao ordered lenders to keep more cash in government bonds, increasing the central bank’s statutory liquidity ratio to 25 percent from 24 percent.

East Asian economies will grow faster than initially estimated this year, adding pressure on central banks to tighten policy and allow currency flexibility to prevent asset bubbles, the World Bank said today.

Limited Scope

Bank Indonesia stopped cutting rates in August after slashing borrowing costs for nine straight months to help shield Southeast Asia’s largest economy from the worst global recession since the 1930s.

Deputy Governor Hartadi Sarwono on Oct. 22 said that Bank Indonesia’s scope to lower rates has become “limited,” indicating that borrowing cost are now more likely to go up rather than down. Inflation may accelerate to between 4 percent and 6 percent next year, the central bank said.

Indonesia’s $514 billion economy is forecast to expand 5.5 percent next year from an estimated 4.3 percent this year, driven by consumer demand, according to the central bank. Indonesian President Susilo Bambang Yudhoyono said last week his government aims to achieve economic growth of 7 percent by the end of his second five-year term in 2014.

Toyota Cars

The economy may expand faster in the fourth quarter than in the previous three months, the central bank said today. The World Bank may raise the country’s 2009 growth forecast from the current estimate of more than 4.3 percent in December, said William Wallace, lead economist in the Washington-based lender’s office in Jakarta.

Car sales in Indonesia may reach 550,000 to 600,000 next year from between 460,000 and 475,000 vehicles in 2009, PT Toyota Astra Motor’s marketing director Joko Trisanyoto said in Bandung on Oct. 22.

“Having weathered the global crisis well, Indonesia looks on course to be one of the fastest-growing economies in the world in 2010,” said James Lord, an economist at Capital Economics Ltd. in London.

To contact the reporter on this story: Aloysius Unditu in Jakarta at aunditu@blomberg.net

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Iran Raises Uranium Output as Photos Show Need for Wider Checks

By Jonathan Tirone

Nov. 4 (Bloomberg) -- Satellite photos indicate that Iran has increased production at a uranium mine, underscoring the need for wider UN inspections to determine whether the country is trying to build a nuclear weapon.

Evidence of stepped-up activity at the Gchine mine, near the Persian Gulf coast city of Bandar Abbas, is seen in pictures obtained by Bloomberg News and the Washington-based New America Foundation, according to four nuclear analysts who examined the images. The mine could produce enough uranium to craft at least two atomic bombs a year, experts said.

The photographs, taken on April 26 and Oct. 3 by DigitalGlobe Inc. and GeoEye Inc., two U.S. commercial satellite companies, show Iran increased the rate at which it pumps waste from the mine during the intervening months. Iran has filled one waste pool since November 2008, when a previous photograph was taken, and built a second pond with pipes connecting it to processing tanks that separate the metal from rock.

“Iran’s decision to expand mining and milling at Bandar Abbas seems to validate the suspicions of those who think it was the main uranium site for a covert program,” Jeffrey G. Lewis, nuclear strategy and non-proliferation director at the New America Foundation, a public policy institute, said in an Oct. 20 interview.

The increased uranium production indicates that United Nations inspectors need to widen their field of vision beyond facilities such as Iran’s uranium-enrichment plant in Natanz and its Esfahan conversion facility, Lewis and other analysts said. The UN’s nuclear agency should renew demands to inspect research labs, machine shops and mines including Gchine, they added.

Top Priority

The international community’s top priority should be to gain “considerably more access into the Iranian program as a whole so that there is a verifiable distance between Iran’s option to build a bomb and the exercise of that option,” said Lewis, who formerly ran the nuclear non-proliferation research program at Harvard University in Cambridge, Massachusetts.

The U.S. and several allies say Iran’s atomic work is cover for the development of a weapon, while the government in Tehran insists that the program is peaceful and intended for civilian purposes such as electricity generation.

Iran has been under investigation by the UN since 2003 because it concealed nuclear work from the world body’s International Atomic Energy Agency for two decades. It is subject to three sets of UN economic sanctions for ignoring Security Council demands that it suspend uranium enrichment and related work and allow wider inspections.

Weapon Fears

The IAEA said Oct. 29 that it would consult with world powers and Iran after the country failed to fully accept a UN- brokered plan for Russia to process nuclear fuel for a medical- research reactor in Tehran. Iran said its “technical and economic concerns” had to be addressed.

The proposal would slow any effort by Iran to make a weapon with its 1,500-kilogram (3,300-pound) stockpile of low-enriched uranium and, if accepted, improve prospects for international talks aimed at ensuring that the country doesn’t produce a bomb.

Holder of the world’s No. 2 oil and natural gas reserves, Iran has been using about 530 tons of uranium obtained from South Africa in 1982 to fuel its declared enrichment program, centered at the Natanz plant, about 210 kilometers (130 miles) south of Tehran. IAEA inspectors have long sought to establish whether Iran has an alternative fuel source for a nuclear effort running in parallel with the declared program.

Yellowcake

The Gchine site, which Iran no longer allows the IAEA to visit, could produce enough raw uranium for processing into two warheads a year if Iran chose to secretly enrich the uranium to weapons grade, according to calculations by the Verification Research, Training and Information Center, a London-based institute that is a non-governmental observer at the IAEA and funded by European governments.

Gchine has the capacity to produce annually up to 21 tons of milled uranium, or yellowcake, Iran told the Paris-based Nuclear Energy Agency, part of the Organization for Economic Cooperation and Development, in 2007. Satellite photographs taken last year showed that the mine was only beginning operations and not working at capacity.

“Although the mill has a design capacity of 21 tons of yellowcake per year, it has actually operated at much lower levels,” Lewis said. “The construction of a much larger pond suggests Iran is moving toward operating the mill at its design capacity.”

About half that amount, or 9,000 kilograms of yellowcake, would be needed to produce the 25 kilograms (55 pounds) of 93 percent enriched uranium required for a weapon, according to the verification center.

History of Concealment

The satellite photos, while showing that Iran is ramping up capacity, can’t pinpoint the amount of uranium being produced, the analysts said. Inspections would be needed to find out how close to production capacity Iran is at the mine.

“Given Iran’s history of concealing nuclear facilities, an effective safeguards regime needs to cover all of Iran’s nuclear activities from the moment the ore comes out of the earth at Bandar Abbas and elsewhere,” Lewis said.

An IAEA agreement with Iran, which allows inspection of declared nuclear sites such as Natanz and Esfahan, located about 340 kilometers south of Tehran, doesn’t extend to mining operations.

Inspectors gained some access to Gchine from 2003 until 2006, when Iran stopped complying with an IAEA agreement that allowed for more stringent investigations. President Mahmoud Ahmadinejad ceased Iran’s cooperation with the so-called Additional Protocol in 2006 in retaliation for the IAEA’s referral of the dispute over Iran’s nuclear work to the Security Council.

Heavy-Water Reactor

The agency has repeatedly requested more access to the mine as well as other sites involved in Iran’s atomic work, most recently in a Sept. 9 report.

The Additional Protocol, created in 1997 after the discovery that Iraq and North Korea had atomic programs, would give inspectors access to places beyond Gchine, such as an incomplete heavy-water reactor in Arak, 240 kilometers south of Tehran, and plants that make centrifuges used in uranium enrichment. Inspectors would also be allowed to take water and soil samples and talk with key figures in Iran’s nuclear program.

What the international community “would like to know now is where all that uranium yellowcake is going,” Andreas Persbo, executive director of the verification institute, said in an Oct. 21 interview.

Chain Reaction

Two of the four analysts who examined the satellite images and confirmed the production increase declined to be identified because they aren’t authorized to speak publicly on the issue. The two satellite image companies regularly take pictures of countries such as Iran and sell the photographs to interested governments and scientists.

Inspectors don’t know whether all of the mine’s output is going to Esfahan for conversion, whether some is being stockpiled at the mine or whether it is being secretly transferred to an undeclared site, said Persbo. Iran hasn’t reported details of the output.

At the conversion stage, yellowcake is turned into uranium hexafluoride gas. It is then transported in casks to Natanz, where centrifuges isolate the uranium-235 isotope used in a nuclear chain reaction.

Iran could produce a warhead without the IAEA’s knowledge if secret facilities to convert and enrich the uranium mined at Gchine were used, according to the analysts.

Underground Facility

Iran told the IAEA about a previously secret underground enrichment plant, called Fordo, some 160 kilometers south of Tehran, in September. IAEA inspectors undertook a four-day visit to the site and will report their findings to the organization’s 35-member board of governors.

Iran’s ambassador to the IAEA, Aliasghar Soltanieh, when reached by telephone yesterday, wouldn’t confirm that production had increased at Gchine or comment on whether the country would submit to wider inspections.

The IAEA declined to comment on the satellite photographs. U.S. diplomats also declined to comment and referred Bloomberg News to an Oct. 21 speech by Secretary of State Hillary Clinton.

“The International Atomic Energy Agency doesn’t have the tools or authority to carry out its mission effectively,” Clinton said in the Washington speech. “We saw this in the institution’s failure to detect Iran’s covert enrichment plant.”

To contact the reporter on this story: Jonathan Tirone at jtirone@bloomberg.net.

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China Must Avert Loan-Fueled Bubbles, World Bank Says

By Bloomberg News

Nov. 4 (Bloomberg) -- China’s policy makers must avert stock and property market bubbles after lending swelled to a record $1.27 trillion this year, the World Bank said.

The Washington-based lender raised China’s economic growth forecast for this year to 8.4 percent from 7.2 percent and Beijing-based senior economist Louis Kuijs said the central bank will “eventually” have to rein in credit to ensure resources are properly allocated.

The Shanghai Composite Index has surged 72 percent this year after Chinese authorities enacted a $586 billion stimulus plan, lowered banks’ cash reserve requirements and reduced the one-year lending rate to a five-year low. The World Bank also said China will need to do more to rebalance the economy toward consumption and services and away from investment and industry.

“Risks of asset-price bubbles and misallocation of resources amidst abundant liquidity need to be addressed,” Kuijs said. While there’s currently no need for a “major tightening,” the costs of sustaining the current expansionary policy stance “will increase over time,” he said.

China may tighten monetary policy from the second quarter of next year because of stronger growth and rising consumer prices, Goldman Sachs Group Inc. said Oct. 29. Li Dongrong, an assistant governor at the central bank, said on Nov. 1 that China will maintain a “relatively loose monetary policy.”

The Shanghai Composite climbed 0.2 percent at 2:43 p.m., little changed from before the report was released.

Overheating Concern

“Policy makers have been quite successful in bottoming out the economy,” said Tomo Kinoshita, an economist at Nomura Holdings Inc. in Hong Kong. “Next year, there’ll be concerns over overheating, particularly when we see asset prices going up further. There’ll be talk of tightening and policy makers have more work to do.”

China’s banking regulator plans to review debt levels at some real-estate developers on concern the companies’ borrowings are fueling excessive gains in property prices, according to a person familiar with the matter. Home prices rose at the fastest pace in a year in September.

“If there’s not a bubble now it’s building up,” said Ardo Hansson, the World Bank’s chief economist on China in Beijing. “More and more” of the new credit is going into mortgages and “the view that something should be done is quite right.”

Hong Kong Bubble

In Hong Kong, authorities have tightened lending to rein in home prices. The International Monetary Fund said yesterday it shares the Hong Kong government’s concerns that there could be a sharp run-up in prices for property and financial assets.

Stimulus spending and the surge in lending helped China’s gross domestic product grow 8.9 percent in the three months to Sept. 30, the fastest expansion in a year.

The World Bank said the economy will grow 8.7 percent in 2010, more than an earlier estimate of 7.7 percent. Rebounding housing construction and a turnaround for exports will help the economy pick up next year even as overall growth in investment falls by about half, the lender said in today’s report.

“More policy measures will be needed to rebalance growth in China,” the World Bank said. “Structural reforms to unleash more growth and competition in the service sector and stimulate more successful, permanent migration would be particularly welcome.”

Stronger Safety Net

Recent initiatives to increase investment in health, education and the social safety net, as well as improving access to finance for smaller companies, are steps in the right direction, the World Bank said. China is likely to post growth over the next five years of about 8 percent annually, it said.

International Monetary Fund Managing Director Dominique Strauss-Kahn said he anticipates China will address its “undervalued” currency to achieve greater dependence on domestic demand rather than exports.

The global financial crisis has already started rebalancing the world economy as U.S. consumers are saving more and China moves toward a “more domestic-led” growth model, Strauss-Kahn said in an interview yesterday on Bloomberg Television in Washington.

China has prevented the yuan from appreciating since July 2008, stoking tensions with American manufacturers.

“On trade matters there are tensions building up and there are risks of various tit-for-tat measures,” said Hansson.

Because China needs to reduce its trade surplus and boost domestic demand an appreciation of the yuan “is probably something that is in the pipeline,” while a depreciation of the dollar is “probably going to be part of the natural order of things,” Hansson said.

Manufacturing investment will remain under pressure next year because of spare capacity in China and abroad, the World Bank said. That will help keep “underlying inflationary pressures” largely absent, the report said.

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

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Supreme Court Says New Panel to Hear Ambani Gas Case

By P.S. Patnaik

Nov. 4 (Bloomberg) -- India’s Supreme Court said a new panel of judges will hear arguments afresh in the Ambani gas lawsuit, starting tomorrow, after one member withdrew from the case to avoid a potential conflict of interest.

Justice R.V. Raveendran stepped down from the panel of three judges headed by Chief Justice K.G. Balakrishnan that’s hearing the case, saying his daughter works with a law company that advises Reliance Industries Ltd., controlled by billionaire Mukesh Ambani.

“I do not want to be a party to this case,” Raveendran said. “Yesterday, I spoke to my daughter who is in Bangalore and she works with AZB & Partners, which is advising Reliance Industries on other projects for global acquisitions.”

The Supreme Court is hearing a plea by Reliance Industries to overturn a lower-court order to supply gas to a company owned by Mukesh’s younger brother Anil Ambani at 44 percent less than a price set by the government in 2007. Raveendran previously offered to withdraw from the hearings after saying he owns shares in Reliance Industries and Reliance Natural Resources.

Reliance shares gained 4 percent to 1,891 rupees at 11:56 a.m. in Mumbai trading compared with a 2.2 percent increase in the benchmark Sensitive Index. Reliance Natural shares rose 1.9 percent to 67.70 rupees.

Lawyers for both companies said they had no objection to Raveendran continuing on the panel. Raveendran holds 772 shares of Reliance Industries and 783 shares of Reliance Natural, according to a list of assets owned by judges on the Web site of the Supreme Court.

The nation’s top court started hearings on the dispute on Oct. 20 after agreeing to skip preliminary hearings.

The case is SLP(C) No. 14997/2009 between Reliance Natural Resources and Reliance Industries in India’s Supreme Court.

To contact the reporter on this story: P.S. Patnaik in New Delhi at ppatnaik2@bloomberg.net.

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Pound to Drop to Euro Parity, Become Funding Currency, LGT Says

By Candice Zachariahs and Susan Li

Nov. 4 (Bloomberg) -- The U.K. pound may replace the dollar and the yen as the world’s biggest funding currency, dropping sterling to parity against the euro as the Bank of England buys more bonds to combat a recession, LGT Group said.

Britain’s economy shrank for a sixth consecutive quarter in the three months to Sept. 30, the longest contraction since records began in 1955. The Bank of England will expand its bond purchase program to 225 billion pounds ($369 billion) from 175 billion pounds on Nov. 5, according to the median estimate of 48 economists in a Bloomberg News survey.

“The pound could take over even from the U.S. dollar and Japanese yen as the main funding currency,” said Simon Grose- Hodge, a strategist in Singapore at LGT Group, the bank owned by Liechtenstein’s royal family. “Some central banks have already got to the stage where they’re beginning to withdraw stimulus and tighten policy and the U.K. now stands out as the only one that’s still on an easing bias.”

The pound fell 0.2 percent to 89.74 pence against the euro as of 12:45 p.m. in Tokyo from 89.58 pence yesterday. It declined 0.2 percent against the greenback to $1.6409. The U.K. economy shrank 0.4 percent in the third quarter, the statistics bureau said Oct. 3

Sterling will likely trade at parity with Europe’s single currency in six months to a year as the U.K. government’s debt expands and Britain’s financial industry remains weak.

The pound fell yesterday after the government announced a second bailout for Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc amounting to 31.3 billion pounds.

Aussie Set for Parity

Grose-Hodge also said Australia’s dollar -- the world’s best-performing currency against the greenback over the past 12 months -- will likely climb to parity against its U.S. counterpart by the middle of next year.

“There’s very good demand for the Australian dollar and we’re still bullish,” he said.

The Reserve Bank of Australia yesterday raised interest rates for the second time in four weeks, after an Oct. 6 decision that made it the first Group of 20 central bank to raise borrowing costs this year.

Benchmark interest rates are 3.5 percent in Australia, compared with 0.1 percent in Japan, 0.5 percent in the U.K. and as low as zero in the U.S., attracting investors to the South Pacific nation’s higher-yielding assets in so-called carry trades. The risk in such trades is that currency market moves will erase profits.

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

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British Pound Rises Against Dollar, Little Changed Versus Euro

By Daniel Tilles

Nov. 4 (Bloomberg) -- The pound rose against the dollar and was little changed versus the euro.

The British currency advanced 0.2 percent to $1.6468 as of 7:02 a.m. in London. Sterling traded at 89.52 pence per euro, from 89.59 pence yesterday.

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

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Euro Advances Against Yen, Dollar Before German Factory Orders

By Yoshiaki Nohara and Ron Harui

Nov. 4 (Bloomberg) -- The euro gained against the yen before a German report this week that may show factory orders rose for a seventh month, backing the case for the European Central Bank to refrain from lowering borrowing costs.

The yen traded near a three-week high against the dollar on speculation the Federal Reserve will today repeat its pledge to keep interest rates low for an “extended period,” diminishing the appeal of U.S. assets. Australia’s dollar was set for two days of losses against the greenback after a government report showed the nation’s retail sales unexpectedly dropped, raising concern its central bank will temper the pace of rate increases.

“The euro-zone economy seems to be doing well, compared with economies in the U.S. and Japan,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The bias is for the euro to be bought and the dollar and the yen to be sold.”

The euro rose to 133.34 yen at 7:04 a.m. in London from from 133.01 in New York yesterday. It climbed to $1.4739 from $1.4724. The U.S. currency fetched $1.6468 per pound from $1.6436, and was at 1.0254 Swiss franc from 1.0259 franc.

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

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Crude Oil Trades Above $79 on Economic Growth Data, Gold Gains

By Christian Schmollinger

Nov. 4 (Bloomberg) -- Crude oil traded little changed above $79 a barrel after rising yesterday on signs the U.S. economic expansion may spur fuel demand in the world’s largest energy consumer.

Oil climbed 1.9 percent after India’s central bank bought 200 metric tons of gold from the International Monetary Fund. Factory orders in the U.S., the world’s biggest crude consumer, rose in September for the fifth time in six months.

“People that are investing in gold are also investing in oil as a hard commodity hedge against dollar weakness,” said Anthony Nunan, an assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “So oil just feeds off of gold and vice-versa. In general it’s the same commodity play.”

Crude oil for December delivery traded at $79.39 a barrel, down 21 cents, in electronic trading on the New York Mercantile Exchange at 1:28 p.m. Singapore time. Oil has risen 78 percent this year. Yesterday, the contract settled up $1.47 at $79.60.

Oil fell as much as 2 percent earlier yesterday on the announcement that Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc received a second bailout from U.K. taxpayers, signaling the economy may take longer to recover from the worst recession since the 1930s.

Record Gold

“Commodities overall last night seemed to take the lead from the strong move in gold prices, and that came despite the strength in the dollar,” Toby Hassall, a research analyst with CWA Global Markets, said by phone from Sydney. “Oil probably tapped some strength from the economic data as well.”

Gold futures for December delivery rose $30.90, or 2.9 percent, to $1,084.90 an ounce yesterday on the Comex division of the New York Mercantile Exchange, a record settlement price. The contract touched $1,088.50, the all-time high intraday price. The previous record was $1,072 an ounce, set on Oct. 14.

The Reuters/Jefferies CRB Index of 19 commodities advanced 1.1 percent to 276.43.

The U.S. dollar was at $1.4730 to the euro at 1:30 p.m. Singapore time from $1.4724 yesterday. The greenback fell as low as $1.5016 on Oct. 21.

Prices were also supported by an industry-funded report showing U.S. crude stockpiles declined last week.

Crude inventories fell 3.28 million barrels last week to 336.2 million, the American Petroleum Institute said yesterday.

U.S. Inventories

The U.S. Energy Department is scheduled to release its supply report for the week ended Oct. 30 today at 10:30 a.m. in Washington. Analysts forecast that stockpiles would increase by 1.5 million barrels, according to the median of 16 responses in a survey conducted by Bloomberg News.

By Christian Schmollinger

Nov. 4 (Bloomberg) -- Crude oil traded little changed above $79 a barrel after rising yesterday on signs the U.S. economic expansion may spur fuel demand in the world’s largest energy consumer.

Oil climbed 1.9 percent after India’s central bank bought 200 metric tons of gold from the International Monetary Fund. Factory orders in the U.S., the world’s biggest crude consumer, rose in September for the fifth time in six months.

“People that are investing in gold are also investing in oil as a hard commodity hedge against dollar weakness,” said Anthony Nunan, an assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “So oil just feeds off of gold and vice-versa. In general it’s the same commodity play.”

Crude oil for December delivery traded at $79.39 a barrel, down 21 cents, in electronic trading on the New York Mercantile Exchange at 1:28 p.m. Singapore time. Oil has risen 78 percent this year. Yesterday, the contract settled up $1.47 at $79.60.

Oil fell as much as 2 percent earlier yesterday on the announcement that Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc received a second bailout from U.K. taxpayers, signaling the economy may take longer to recover from the worst recession since the 1930s.

Record Gold

“Commodities overall last night seemed to take the lead from the strong move in gold prices, and that came despite the strength in the dollar,” Toby Hassall, a research analyst with CWA Global Markets, said by phone from Sydney. “Oil probably tapped some strength from the economic data as well.”

Gold futures for December delivery rose $30.90, or 2.9 percent, to $1,084.90 an ounce yesterday on the Comex division of the New York Mercantile Exchange, a record settlement price. The contract touched $1,088.50, the all-time high intraday price. The previous record was $1,072 an ounce, set on Oct. 14.

The Reuters/Jefferies CRB Index of 19 commodities advanced 1.1 percent to 276.43.

The U.S. dollar was at $1.4730 to the euro at 1:30 p.m. Singapore time from $1.4724 yesterday. The greenback fell as low as $1.5016 on Oct. 21.

Prices were also supported by an industry-funded report showing U.S. crude stockpiles declined last week.

Crude inventories fell 3.28 million barrels last week to 336.2 million, the American Petroleum Institute said yesterday.

U.S. Inventories

The U.S. Energy Department is scheduled to release its supply report for the week ended Oct. 30 today at 10:30 a.m. in Washington. Analysts forecast that stockpiles would increase by 1.5 million barrels, according to the median of 16 responses in a survey conducted by Bloomberg News.

Oil-supply totals from the API and DOE moved in the same direction 75 percent of the time over the past four years, according to data compiled by Bloomberg.

The Department of Energy report is expected to show that distillate fuel inventories, including heating oil and diesel, probably declined 1 million barrels. Gasoline supplies probably increased 400,000 barrels, the survey showed.

Brent crude for December settlement was at $77.90 a barrel, down 21 cents, on the London-based ICE Futures Europe exchange at 1:28 p.m. Singapore time. The contract increased $1.56, or 2 percent, to end the session at $78.11 a barrel.

China’s Demand

China’s domestic apparent fuel demand rose 0.7 percent in the first nine months of this year from a year earlier, spurred by the economic recovery, the China Petroleum and Chemical Industry Association said in a report today.

Apparent crude demand, which includes domestic output and net imports and excludes inventories, rose 3.3 percent during the nine-month period, compared with a 1 percent decline in the first half, the Beijing-based association said in a monthly report, without giving exact demand figures.

China’s growth in crude demand isn’t matched by developed economies such as the U.S. and Europe.

The International Energy Agency will lower its long-term forecast for oil demand in its annual World Energy Outlook next week, predicting that energy-efficiency efforts will slow consumption growth, the Wall Street Journal reported today, citing an unidentified person.

“Demand management policies” are reducing the need for crude in some countries, the report said.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.

Oil-supply totals from the API and DOE moved in the same direction 75 percent of the time over the past four years, according to data compiled by Bloomberg.

The Department of Energy report is expected to show that distillate fuel inventories, including heating oil and diesel, probably declined 1 million barrels. Gasoline supplies probably increased 400,000 barrels, the survey showed.

Brent crude for December settlement was at $77.90 a barrel, down 21 cents, on the London-based ICE Futures Europe exchange at 1:28 p.m. Singapore time. The contract increased $1.56, or 2 percent, to end the session at $78.11 a barrel.

China’s Demand

China’s domestic apparent fuel demand rose 0.7 percent in the first nine months of this year from a year earlier, spurred by the economic recovery, the China Petroleum and Chemical Industry Association said in a report today.

Apparent crude demand, which includes domestic output and net imports and excludes inventories, rose 3.3 percent during the nine-month period, compared with a 1 percent decline in the first half, the Beijing-based association said in a monthly report, without giving exact demand figures.

China’s growth in crude demand isn’t matched by developed economies such as the U.S. and Europe.

The International Energy Agency will lower its long-term forecast for oil demand in its annual World Energy Outlook next week, predicting that energy-efficiency efforts will slow consumption growth, the Wall Street Journal reported today, citing an unidentified person.

“Demand management policies” are reducing the need for crude in some countries, the report said.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.

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China Rejects Canadian Request on Canola Import Rule

By Bloomberg News

Nov. 4 (Bloomberg) -- China has rejected a Canadian request for a six-month delay in implementing a new rule requiring canola imports be certified free from blackleg disease, the China National Grain & Oils Information Center said.

The new rule is slated to become effective Nov. 15, it said in an e-mailed statement, citing the Canola Council of Canada. Discussions between the two sides are continuing this week, it said. Canada is the world’s largest canola exporter.

The Canadian Food Inspection Agency has said it will not be able to issue a certificate certifying shipments are free of blackleg, as it is a common plant disease of canola in Canada, the council said in a statement dated Nov. 2.

“China has not shown any willingness to consider blackleg risk mitigation steps developed by Canadian industry,” the statement said.

Canada exported over 10 million metric tons of canola to China in the last 10 years, the council said. Blackleg is a serious plant disease affecting canola and is caused by the fungus leptosphaeria maculans, according to the Government of Saskatchewan’s Web site. The disease can result in significant yield loss in susceptible varieties, it said.

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

To contact the Bloomberg News Staff on this story: Feiwen Rong in Beijing at frong2@bloomberg.net

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Milk May Reach $4,000 a Ton in 2010 on Demand, Westpac Predicts

By Gavin Evans

Nov. 4 (Bloomberg) -- Global milk-powder prices may gain more than 20 percent to exceed $4,000 a metric ton early next year as supply drops and demand from food processors rebounds, according to Westpac Banking Corp.

Whole-milk powder for January delivery rose 11 percent to a 15-month high of $3,352 a ton, Fonterra Cooperative Group Ltd., the world’s largest exporter, said today after an auction. The stronger-than expected gain, and the 21 percent jump for mid- 2010 product, shows the degree of concern that supply from major producers is slowing, Westpac’s Doug Steel said.

“I wouldn’t be surprised to see $4,000 within the next few months,” said Steel, a senior economist, who had expected an average 7 percent gain in Fonterra’s latest monthly sale. “It’s not only demand, but there is this expectation of a tightening in supply,” Steel said from Wellington.

Milk powder reached a record $5,050 a ton in October 2007, according to U.S. Department of Agriculture data, as drought in Australia cut supplies and rising land and feed prices in Europe and the U.S. increased production costs. After plunging to a five-year low with the global recession, prices have rebounded 82 percent in Fonterra’s past four monthly auctions.

“We are beginning to see some clear signs of increased demand,” Nigel Kuzemko, strategy director at Auckland-based Fonterra’s trade and operations unit, said in an interview today. “Before, we felt it was primarily a drop off in supply” driving prices higher, he said.

Global Trade

Fonterra accounts for about 40 percent of global trade in butter, milk powder and cheese, and in September the cooperative raised the price it expects to pay New Zealand farmers for milk by 12 percent, citing a recovery in the world economy.

Farmers worldwide are reducing herds after dairy prices plunged late last year, making use of supplementary feed unprofitable for many.

U.S. output of raw milk will drop 0.6 percent to 188.9 billion pounds this year, the Department of Agriculture said Oct. 9. Output will drop to 187.2 billion pounds in 2010, the first back-to-back decrease since 1969, according to department data.

Raw-milk production since July in Australia, the second- largest exporter after New Zealand, is running 1.6 percent behind year-earlier levels, according to industry body Dairy Australia. It is forecasting a 4 percent decline this season.

While it’s still early in the season, unusually cold weather in October may leave New Zealand’s production for the year through May unchanged or slightly lower than last year, Westpac’s Steel said. Farmers in the U.S. are still reducing herds and output among the “big players” is likely to be “flat or down” over the next 12 to 18 months, he said.

‘Demand is Increasing’

“Demand is increasing quite rapidly” and higher oil prices will also contribute by boosting incomes in key dairy markets in the Middle East and Russia, he said. Crude futures in New York have surged 78 percent this year.

Fonterra’s Internet-based auctions offer a one-month contract, with delivery starting two months after the sale, and two three-month contracts with delivery starting three and six months later.

Average prices across all contracts rose 14 percent in yesterday’s sale. Milk powder for delivery from February through April rose 13 percent to $3,393 a ton. Powder for shipment May through July sold at $3,684 a ton, a 21 percent gain and a $332 premium to the January contract. The premium a year earlier was $188, according to data on Fonterra’s GlobalDairyTrade Web site.

Supplies of most products are already tight and weather conditions remain a risk in many producing countries, Fonterra’s Kuzemko said. The premium for May-to-July shipments also coincides with New Zealand’s lower end-of-season output, he said.

Still, while real demand has returned, it’s impossible to know how much higher prices will go, Kuzemko said. The global economy is still fragile and the company is getting “mixed messages” across markets, he said.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net

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Japanese Stocks Gain on Commodity Prices; Automakers Advance

By Kana Nishizawa

Nov. 4 (Bloomberg) -- Japan’s benchmark stock indexes rose, led by commodity companies after oil and gold prices climbed. Banks fell after UBS AG reported a wider-than-estimated loss.

Sumitomo Metal Mining Co., Japan’s second-largest copper smelter and its top producer of nickel, gained 2.6 percent. Nissan Motor Co., Japan’s third-largest carmaker, added 1.7 percent after U.S. sales increased in October. Japan Steel Works Ltd. jumped 10 percent after the maker of forged-steel products lifted its profit forecast. Sumitomo Trust & Banking Co., Japan’s fifth-largest bank, lost 2.9 percent.

The Nikkei 225 Stock Average gained 0.4 percent to 9,844.31 at the close in Tokyo. The broader Topix index added 0.1 percent to 881.27, reversing a drop in the last two minutes of trading. About eight stocks declined for seven that advanced. Shares in the Topix are valued at 37 times estimated earnings, compared with 20.1 at the start of 2009.

To contact the reporter for this story: Kana Nishizawa in Tokyo at knishizawa5@bloomberg.net.

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Daimler, BMW, United Internet, Adidas: German Equity Preview

By Patrick Donahue

Nov. 4 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in Germany. Stock symbols are in parentheses, and share prices are from the previous close.

The DAX Index slid 1.4 percent to 5,353.35.

Adidas AG (ADS GY): The world’s second-largest maker of sporting equipment signed a “long-term” endorsement contract with Andy Murray, the world’s fourth-ranked tennis player. The shares fell 6 cents, or 0.2 percent, to 32.64 euros.

Bayerische Motoren Werke AG (BMW GY): The world’s largest maker of luxury vehicles said its U.S. sales fell 19 percent in October to 20,619 cars and sport-utility vehicles, bringing the year-to-date decline to 24 percent. The shares fell 2.11 euros, or 6.3 percent, to 31.50 euros.

Daimler AG (DAI GY): The world’s second-largest maker of luxury vehicles said U.S. sales of Mercedes-Benz brand cars jumped 21 percent following a surge in demand for autos including the GLK sport-utility vehicle. The shares declined 1.47 euros, or 4.4 percent, to 31.58 euros.

Porsche SE (PAH3 GY): The importer and distributor of Porsche sports cars and Cayenne SUVs said U.S. sales for October rose 15 percent from a year earlier to 1,642. The shares fell 1.29 euros, or 2.4 percent, to 51.51.

United Internet AG (UTDI GY): The Web-access provider raised its full-year profit forecast for the second time this year. The shares fell 1 cent to 8.92 euros.

Volkswagen AG (VOW GY): Europe’s largest carmaker said sales in the U.S. rose 7.2 percent last month, helped by such models as the four-door CC and the Jetta. The shares fell 3.68 euros, or 3.4 percent, to 106.17.

To contact the reporter on this story: Patrick Donahue in Berlin at at pdonahue1@bloomberg.net.

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Asian Stocks Gain on Profit Optimism; Newcrest, Toyota Advance

By Masaki Kondo

Nov. 4 (Bloomberg) -- Asian stocks rose for the first time in three days, led by banks and mining companies, as Korea Exchange Bank and Westpac Banking Corp. posted better-than- estimated earnings and gold prices climbed to a record.

Korea Exchange Bank jumped 7.8 percent after saying third- quarter profit almost tripled. Westpac, Australia’s No. 2 bank, added 1.4 percent in Sydney. Zijin Mining Group Co., China’s largest gold company, and Sumitomo Metal Mining Co., Japan’s top producer, gained at least 2.6 percent. Toyota Motor Corp. added 1.1 percent in Tokyo after the Yomiuri newspaper said the carmaker raised production.

“Company earnings are improving faster than the global economy,” said Junichi Misawa, head of the equity investment division at Tokyo-based STB Asset Management Co., which manages the equivalent of $14 billion. “This scenario still remains intact, though valuations aren’t enticing.”

The MSCI Asia Pacific Index rose 0.8 percent to 115.22 as of 4:14 p.m. in Tokyo, with five stocks advancing for every two that declined. The gauge has surged 63 percent from a more than five-year low on March 9 on signs government stimulus measures are reviving the global economy.

The World Bank said today that East Asian economies will grow faster than initially estimated this year, adding pressure on central banks to tighten policy. The bank urged China’s policymakers to avoid stock and property-market bubbles.

Nikkei, Hang Seng

Hong Kong’s Hang Seng Index climbed 1.5 percent. South Korea’s Kospi Index gained 1.9 percent. The Nikkei 225 Stock Average added 0.4 percent in Tokyo. Japan Steel Works Ltd. climbed 10 percent after raising its earnings forecast.

Casino operator Galaxy Entertainment Group Ltd. jumped 4.8 percent in Hong Kong after the Macao Daily News said gaming revenue swelled in the city. Seoul Semiconductor Co. rose 5.4 percent after saying Temasek Holdings Pte will invest in the manufacturer. Tokyo Electron Ltd. slumped 5.1 percent as Morgan Stanley downgraded U.S. semiconductor companies.

Futures on the U.S. Standard & Poor’s 500 Index added 0.4 percent, while Treasuries were little changed before U.S. reports that economists expect will show service industries expanded and companies cut fewer jobs. The S&P 500 rose 0.2 percent yesterday amid takeover announcements.

Korea Exchange Bank jumped 7.8 percent to 13,800 won after its third-quarter net income of 422.1 billion won ($357 million) beat the 223.7 billion won expected by analysts.

Stimulus Withdrawal

In Sydney, Westpac added 1.4 percent to A$25.79 as its second-half profit fell 10 percent, less than analysts expected. The lender joined Australia & New Zealand Banking Group Ltd. in saying bad debts have peaked as the economy recovers.

Australia raised its benchmark interest rate yesterday, the second increase in four weeks, amid signs of strength in the country’s economy. The MSCI Asia Pacific Index has fallen 4.9 percent from this year’s high on Oct. 20 as investor concern grew that governments will withdraw their stimulus policies.

Stock declines dragged the average price of companies in the MSCI gauge to 22 times estimated earnings yesterday, a level not seen since May 1, according to data compiled by Bloomberg. Bank of Japan Governor Masaaki Shirakawa was cited by the Yomiuri newspaper yesterday as saying problems would occur “if we take inflation measures to reduce the value of government bonds.”

“Governments can’t continue to give these shots in the arm in the face of budget deficits, and investors aren’t confident in a sustained recovery after the shots run out,” STB Asset’s Misawa said.

Gold Producers

Developing East Asia, which excludes Japan, Hong Kong, Taiwan, South Korea, Singapore and the Indian subcontinent, will expand 6.7 percent this year, more than an April estimate of 5.3 percent, the World Bank said in its semi-annual report.

In Hong Kong, Zijin Mining climbed 5 percent to HK$8.16, while in Tokyo, Sumitomo Metal Mining added 2.6 percent to 1,476 yen. Gold jumped to a record $1,088.50 an ounce in New York yesterday after India’s central bank purchased the metal from the International Monetary Fund.

Newcrest Mining Ltd., Australia’s largest gold producer, gained 3.2 percent to A$34.45, while Lihir Gold Ltd. added 4.4 percent to A$3.31. Material producers accounted for 15 percent of the MSCI Asia Pacific Index’s advance.

Japan Steel Works, the MSCI gauge’s second-best performer today, surged 10 percent to 1,096 yen. The company, which makes nuclear-reactor parts for Toshiba Corp. and Paris-based Areva SA, lifted its net income target by 6.4 percent for the year to March 2010, citing cost cuts.

Toyota’s Production

Toyota, the world’s largest carmaker, added 1.1 percent to 3,610 yen. The company lifted its global production plan for fiscal 2009 to 7 million vehicles from the previous target of 6.67 million units, the Yomiuri newspaper reported.

In Hong Kong, Galaxy Entertainment rose 4.8 percent to HK$3.49 in Hong Kong. SJM Holdings Ltd., billionaire Stanley Ho’s casino holding company, climbed 4.7 percent to HK$4.02. Macau’s casino revenue rose 42 percent in October from a year earlier, Macao Daily News reported, citing Portuguese news agency Lusa.

Seoul Semiconductor, which produces light-emitting diodes, climbed 5.4 percent to 42,300 won. The company said yesterday it will issue new shares to Temasek, which will own about 12 percent of Seoul Semiconductor after the investment.

Tokyo Electron, the world’s second-largest maker of semiconductor equipment, sank 5.1 percent to 4,850 yen, while Sumco Corp., which makes silicon wafers, retreated 3.7 percent to 1,648 yen. Morgan Stanley reduced its rating on U.S. semiconductor shares to “cautious” and downgraded Intel Corp. to “equal-weight.”

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

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RBS Sacrifices More Than Lloyds to Get Biggest Banking Bailout

By Jon Menon

Nov. 4 (Bloomberg) -- Royal Bank of Scotland Plc will sacrifice more than Lloyds Banking Group Plc to secure its bailout by the British government.

RBS said yesterday that asset sales and limits on its banking activities imposed by its rescue may curb pretax profit by 1.1 billion pounds ($1.8 billion) a year. Lloyds’s bailout, also announced yesterday, will erase about 500 million pounds of pretax profit, finance director Tim Tookey told analysts on a conference call.

Lloyds Chief Executive Officer Eric Daniels is raising money from institutional investors to avoid insuring the bank’s riskiest assets with the government. The bank said yesterday that loan impairments will drop in the second half. By contrast, Stephen Hester, RBS’s CEO, will insure 282 billion pounds of assets through the U.K.’s Asset Protection Scheme.

“RBS has been more severely treated,” said Robert Talbut, who helps manage about 32 billion pounds at Royal London Asset Management. “The earnings power of the new group has been pretty severely diluted.”

RBS fell 7 percent to 35.93 pence in London trading yesterday, for a market value of 20.3 billion pounds. Lloyds rose 2.7 percent to 87.33 pence.

RBS agreed to sell its Churchill, Direct Line and Green Flag insurance units, its commodities trading unit and 318 branches in return for 25.5 billion pounds of state aid, the Edinburgh-based bank said in a statement. The units on sale generated about a fifth of RBS’s revenue in 2008. In return, RBS secured the costliest bailout of a bank in the world.

EU Pressure

The European Union is forcing banks that had government help to sell assets to stop them having an unfair advantage and boost competition. Last month, it forced ING Groep NV, the biggest Dutch financial services company, to sell its insurance units to win approval for a bailout. By contrast, U.S. regulators have provided financial assistance to banks that expanded during the crisis through acquisitions.

“It’s far more onerous for RBS,” than Lloyds, said Joe Dickerson, an analyst at Execution Ltd. in London who has a “sell” rating on RBS and a “buy” on Lloyds. “Visibility on the earnings prospects of RBS is very low.”

Both RBS and Lloyds yesterday agreed they won’t pay cash bonuses to workers earning more than 39,000 pounds a year. RBS will also be banned from being ranked higher than fifth in debt league tables as one of the conditions of its bailout. RBS is the top arranger of company bonds in Bloomberg’s Euromarket Corporates league table, beating Deutsche Bank AG.

Bonus Curbs

The bonus decision will place RBS’s investment bank at a “material disadvantage,” Dickerson added. The asset sales will also make it harder for the bank to raise capital, he said.

CEO Stephen Hester is unwinding acquisitions made by his predecessor, Fred Goodwin, who helped lead RBS through $140 billion of takeovers, swelling the balance to 2.2 trillion pounds, exceeding Britain’s annual economic output.

The “one positive” for RBS is it wasn’t forced to sell its Citizens Financial Group unit in the U.S., said Danny Clarke, a Liverpool-based analyst at Shore Capital Group Plc. “They will be grateful to hold onto it.”

Lloyds, which kept the government’s stake at 43 percent, will also sell 600 branches to gain EU approval for state aid. The outlets will include 164 Cheltenham & Gloucester branches it had earmarked for closure in June, a decision it reversed in August. The bank also planned to cut branches to reduce costs by more than 1.5 billion pounds after its acquired HBOS Plc, the U.K.’s biggest mortgage lender in January, according to analysts.

‘Greatest Triumph’

“The greatest ‘triumph’ of this entire episode for Lloyds is probably the capitulation by Brussels, possibly assisted by the U.K. government, apparently choosing to give Lloyds special treatment in comparison with other state-aided banks,” wrote Ian Gordon, an analyst at Exane BNP Paribas SA in London. Lloyds will sell assets “it might well have chosen to sell anyway.”

“We have neither sought nor received special treatment,” Lloyds spokesman Shane O’Riordain said in a telephone interview. “We believe we had a fair an appropriate deal.”

Lloyds will relinquish 4.6 percentage points of its 30 percent share of the U.K. current account market. Officials at the bank declined to comment.

“In terms of what would have happened had we entered into the APS, what we do know from Europe, we received very specific guidance that the remedies would have been more, considerably more,” Daniels told analysts yesterday.

RBS will be forced by the EU to reduce its market share in retail banking by 2 percentage points and SME banking by 5 percentage points. The bank had a 20 percent market share of current accounts, 10 percent of savings and 6 percent of mortgages at the end of 2008, Hester said in a presentation last month.

“The damage in the long term is much more severe at RBS than Lloyds,” said Richard Champion, who helps manage about $2 billion at Principal Asset Management in Sevenoaks, England.

To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net

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Hartford, Maxwell, Pacer, True Religion: U.S. Equity Preview

By Lu Wang

Nov. 4 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

Hartford Financial Services Group Inc. (HIG US): The insurer boosted its full-year profit forecast after third- quarter adjusted earnings exceeded analysts’ estimates.

Maxwell Technologies Inc. (MXWL US): The maker of electronic components posted a loss excluding some items of 7 cents a share in the third quarter, 84 percent wider than the average analyst estimate in a Bloomberg survey.

Pacer International Inc. (PACR US): The provider of trucking, freight and transportation logistics services posted third-quarter profit of 2 cents a share. Analysts surveyed by Bloomberg on average estimated the company would have a 2 cent per-share loss.

Stec Inc. (STEC US): The maker of memory chips forecast fourth-quarter sales of $103 million at most, trailing the $106.6 million average estimate of analysts surveyed by Bloomberg.

True Religion Apparel Inc. (TRLG US): The seller of jeans forecast 2009 profit of $1.86 a share at most, missing the $1.87 average per-share estimate of analysts surveyed by Bloomberg.

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

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