Bernanke Gains More Senate Support, Plans Additional Meetings

By Scott Lanman, Joshua Zumbrun and Vivien Lou Chen

Jan. 26 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke gained more support from U.S. senators for a second term and prepared to work around a two-day policy meeting that starts today to visit lawmakers.

Democrats including Missouri’s Claire McCaskill and Maryland’s Barbara Mikulski were among the senators who said yesterday they would vote for the 56-year-old Fed chief or were leaning in his favor, along with Utah Republican Robert Bennett. Republicans Tom Coburn of Oklahoma and Florida’s George LeMieux said they would decide after meeting with Bernanke this week.

Stocks rebounded from the biggest three-day decline since March amid growing confidence Bernanke will be confirmed. The number of likely Bernanke supporters rose to 42 from 31 the day before, while about 17 senators remained opposed or leaning against the former Princeton University economist.

“I encouraged Chairman Bernanke to meet with as many members as possible,” Senate Majority Whip Richard Durbin, an Illinois Democrat and supporter, said after they met. “He has an Open Market Committee meeting this week that he said he can’t miss and I said, ‘Well, I sure don’t want the economy to come down, that’s not good for either one of us.’ So he’s going to try to balance that but spend as much time on the Hill as he can.”

The Standard & Poor’s 500 Index advanced 0.5 percent to 1,096.78 yesterday in New York, trimming a 1 percent gain after a report showed sales of existing homes fell more than estimated. Wavering support for Bernanke among some Democrats helped drive stock prices lower on Jan. 22, triggering a 2.2 percent plunge in the S&P 500.

Fed Independence

The timing of the confirmation vote, which may occur just before Bernanke’s four-year term ends on Jan. 31, and the controversy it has generated in the Senate highlight the risks to the central bank’s independence at a time when policy makers are considering their strategy for an eventual exit from record low interest rates.

“The fact he’s taking a hit on so much of this and so many senators think they can score short-term political points from beating up on him” means the U.S. risks losing “the benefits of having an independent central bank,” said Anil Kashyap, a former Fed economist who teaches at the University of Chicago.

“The impulse to use Mr. Bernanke as a political punching bag raises the specter that, instead of doing the right thing, Congress may seek to pressure the Fed to print its way out of this crisis,” Richard Fisher, president of the Federal Reserve Bank of Dallas, said in an opinion piece posted on the Wall Street Journal’s Web site.

Interest Rates

Bernanke and fellow members of the Federal Open Market Committee are likely to keep interest rates close to zero after their meeting ends tomorrow and to repeat a pledge to leave borrowing costs unchanged for an “extended period,” economists said.

Bernanke has drawn fire from some lawmakers for lax bank regulation prior to the financial crisis and for bailouts of firms such as American International Group Inc. The Democratic party’s loss of a seat in Massachusetts last week added to pressure on senators facing re-election at a time of rising voter anger over the economy.

“Both Democrats and Republicans have run for cover, given the result of that Massachusetts election, and sought to make a populist case against Wall Street and by association the Fed chairman,” said former Fed economist David M. Jones, 71, president of Denver-based DMJ Advisors and author of four books on the central bank.

Split With Obama

Last week, two Democrats who face re-election this year, Barbara Boxer of California and Russ Feingold of Wisconsin, said they will oppose Bernanke, splitting with President Barack Obama, who nominated him for a second term in August. Bernanke, a Republican, was first picked by President George W. Bush.

Opponents including John McCain of Arizona, who lost the 2008 presidential election to Obama, blame Bernanke for failing to avert the financial crisis that plunged the nation into the worst recession since World War II.

“While I appreciate the service that Chairman Bernanke has performed as Federal Reserve Chairman, I believe that he must be held accountable for many of the decisions that contributed to our financial meltdown,” McCain said yesterday in a statement.

Durbin and other supporters, including Christopher Dodd, the Senate Banking Committee chairman, say the Fed’s unprecedented actions to pump money into the economy saved the nation from a more severe recession after the bankruptcy of Lehman Brothers Holdings Inc. in September 2008.

‘Darkest Days’

“I have some concerns about some of the past decisions that have been made, but there’s one thing I know for certain: During the darkest days of this economic recession, when this country was teetering on a depression, this man and his leadership at the Federal Reserve made a difference,” Durbin said yesterday after meeting with Bernanke.

“I thought he was very frank and candid in acknowledging that mistakes were made at many different levels, including in Congress,” Durbin said.

Bernanke pledged “transparency and accountability” at the central bank, especially on the bailout of New York-based insurer AIG, while reiterating his opposition to Congressional audits of monetary policy, Durbin said. The House Oversight Committee holds a hearing this week after getting 250,000 pages of documents from the New York Fed on the AIG rescue.

Under Senate rules, Bernanke’s supporters need 60 votes for a motion to limit debate on the confirmation, which then would need a majority.

Durbin said some Democrats who oppose Bernanke will vote to end debate, allowing his nomination to move forward. In addition, “We will need some Republican support.”

Democrat Sheldon Whitehouse of Rhode Island has “serious concerns about” Bernanke yet “will not join any filibuster” on the nomination, according to Matt Thornton, a spokesman.

To contact the reporters on this story: Scott Lanman in Washington at slanman@bloomberg.net; Joshua Zumbrun in Washington at jzumbrun@bloomberg.net; Vivien Lou Chen in San Francisco at vchen1@bloomberg.net.

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German Business Confidence Rises to 18-Month High

By Gabi Thesing

Jan. 26 (Bloomberg) -- German business confidence rose more than economists forecast to an 18-month high in January as the global economic recovery boosted exports.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, increased to 95.8 from 94.6 in December. That’s the highest since July 2008 and the tenth straight increase. Economists expected a gain to 95.1, according to the median of 41 forecasts in a Bloomberg News survey. The index reached a 26-year low of 82.2 in March last year.

Rising foreign sales, fueled by Asian demand, may help offset a slide in domestic spending and ensure Germany’s economy continues to expand. The government said last week it will raise its 2010 growth forecast to 1.5 percent from 1.2 percent even as some of its stimulus measures expire. Europe’s largest economy shrank 5 percent last year, the most since World War II.

Today’s report “laid to rest some of the concerns that the economy is running out of steam,” Carsten Brzeski, an economist ING Group in Brussels, said in a telephone interview. “The recovery is still very strong. It’s industry-led, which should hopefully also support the labor market.”

Ifo’s gauge of executives’ expectations jumped to 100.6, the highest since July 2007, from 98.9. A measure of current conditions gained to 91.2 from 90.4.

The euro rose after the report to $1.4103 from $1.4084.

Mixed Picture

Recent data have painted a mixed picture of the state of the German recovery. While investor and consumer confidence declined this month, the country’s manufacturing industries expanded more than economists expected and the Economy Ministry unexpectedly revised up its estimate of November factory orders last week.

That prompted Bundesbank President Axel Weber to say on Jan. 22 that he’s “a bit more optimistic” about the outlook for German growth. At the same time, cold weather and weak consumption “speak against too much euphoria,” he said.

Ifo economist Gernot Nerb said the increase in business confidence was partly due to exports boosting manufacturing. Sentiment in the construction sector also improved, he told Bloomberg Television in an interview.

Government Subsidy

Germany’s Volkswagen AG, Europe’s largest carmaker, said on Jan. 11 it wants to increase its worldwide market share further in 2010 after reporting record sales for 2009. Sales in China surged 37 percent. Still, the company’s Skoda Auto division forecasts sales in Germany, the brand’s largest market, will fall 37 percent this year after a government subsidy on new car purchases expired.

The prospect of rising unemployment will weigh on household spending in Germany, Klaus Baader, co-chief European economist at Societe Generale SA in London, wrote in a note to investors. There is “virtually no scope for gains in private consumption in 2010,” he said.

Metro AG, Germany’s largest retailer, said on Jan. 12 it expects economic conditions to “remain challenging” this year.

The outlook for the global economy and the euro’s 7 percent drop against the dollar since November bode well for exporters. The U.K., Germany’s fourth-largest export destination, exited recession in the fourth quarter, a report showed today.

Confidence in the world economy rose in January, the Bloomberg Professional Global Confidence Index showed Jan. 14, with Asia’s index outpacing those of other economic blocs.

The International Monetary Fund will probably raise its estimate for 2010 world growth this month from a 3.1 percent forecast in October, John Lipsky, the organization’s first deputy managing director, said Jan. 6.

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

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U.K. Economy Resumes Growth By Less Than Forecast

By Scott Hamilton

Jan. 26 (Bloomberg) -- The U.K. economy resumed growth by less than economists forecast in the fourth quarter as service industries and manufacturing expanded just enough to pull Britain out of its longest recession on record.

Gross domestic product rose 0.1 percent from the third quarter, the Office for National Statistics said today in London. The median forecast in a Bloomberg News survey of 33 economists was for a 0.4 percent increase and the lowest prediction was for a result of 0.2 percent.

Bank of England policy makers will study the data as they assess the strength of the recovery and decide next week whether to halt bond purchases and prepare to withdraw emergency stimulus measures. The weakness of the pickup may hamper Prime Minister Gordon Brown’s efforts to win an election by June as he campaigns on his plans to curb the budget deficit.

“It’s clearly disappointing,” Simon Hayes, chief U.K. economist at Barclays Capital and a former Bank of England official, said in a telephone interview. “The recovery is going to be uneven. I think the Bank of England will halt quantitative easing in February, but if we don’t see sustained growth it’s likely we may see them extend it in the middle of the year.”

The pound fell as much as 0.4 percent after the release and traded at $1.6147 as of 9:44 a.m. in London. The yield on the two-year government bond was down 1 basis point at 1.202 percent.

Record Drop

The recession, which lasted for six consecutive quarters, has shaved 6 percent off GDP, the statistics office said. The economy shrank 4.8 percent in 2009, the biggest annual drop since records began in 1949, officials said.

The economy contracted 3.2 percent from a year earlier in the fourth quarter, compared with a median decline of 3 percent forecast in a Bloomberg News survey of 30 economists.

The data, the first for the fourth quarter from a Group of Seven nation, means Britain is the last of them to exit the recession sparked by the worst financial crisis since the Great Depression. The U.S. will release GDP data for the fourth quarter on Jan. 29.

Brown said yesterday that he is confident the U.K. is emerging from recession, though the economy “remains fragile” and the biggest mistake Britain could make would be to withdraw economic stimulus measures too early. Brown and Conservative leader David Cameron are battling to convince voters they are best placed to cut the ballooning budget deficit without hurting the economic recovery.

Services, Manufacturing

Services, which make up 76 percent of GDP, expanded 0.1 percent on the quarter. Industrial production grew 0.1 percent and within that, manufacturing rose 0.4 percent, the statistics office said. Construction output stayed unchanged from the previous three months.

Close Brothers Group Plc, the 131 year-old London-based investment bank, said last week earnings this year will be “solid” after reporting a “good” end to the year. “However, this will depend on the prevailing economic environment and financial market conditions,” the company said Jan. 22.

Bank of England Governor Mervyn King said last week the U.K. faces “a long period of healing” as “at this very early stage of the recovery, it is particularly difficult to judge the medium-term prospects for the economy.” Policy makers will decide next week whether to halt bond purchases after buying 200 billion pounds ($325 billion) so far.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

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Pound Drops Versus Dollar, Euro as GDP Falls Short of Estimates

By Matthew Brown

Jan. 26 (Bloomberg) -- The pound fell against the dollar and the euro and gilts rose after a report showed the U.K. economy grew less than forecast in the fourth quarter, even as it exited its longest recession on record.

Sterling weakened from within half a penny of the strongest level against the 16-nation currency in five months. Gross domestic product expanded 0.1 percent in the final three months of 2009 after contracting 0.2 percent in the third quarter, the Office for National Statistics said today. The U.K. faces a “fragile” recovery as the government addresses the record budget deficit, Confederation of British Industry director general Richard Lambert said yesterday.

“Growth is slow and inflation is rising, and weakness of the exchange rate has to happen,” said Hans-Guenter Redeker, head of foreign-exchange strategy in London at BNP Paribas SA. “We are massively bearish on the pound.”

The pound depreciated 0.3 percent to 87.34 pence per euro as of 10:13 a.m. in London. It strengthened to 86.51 pence on Jan. 20, the strongest level since Aug. 21. The British currency dropped 0.7 percent to $1.6127.

Economists predicted a 0.4 percent increase in fourth- quarter U.K. GDP, according to a Bloomberg survey. The lowest forecast was for 0.2 percent growth.

Government bonds rose, sending the yield on the 10-year gilt down 4 basis points to 3.87 percent. The 4.5 percent security due March 2019 rose 0.27, or 2.7 pounds per 1,000-pound face amount, to 104.76. The two-year note yield declined 3 basis points to 1.20 percent.

U.K. government bonds returned 0.7 percent this year, compared with 1.2 percent for German bunds and 1.4 percent for U.S. Treasuries, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit.

To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net

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Euro May Fall to 7-Month Low Against Dollar: Technical Analysis

By Ron Harui

Jan. 26 (Bloomberg) -- The euro may fall to a seven-month low of $1.38 should it close below so-called support at $1.4118, said Pak Lai Ng, a technical analyst at Forecast Pte in Singapore, citing trading patterns.

Europe’s currency is likely to test the $1.4118 level in coming days because daily momentum charts such as the moving average convergence/divergence, or MACD, show a sell signal for the euro versus the dollar, Ng said. The support is a 38.2 percent retracement of the euro’s rise from its March low of $1.2457 to the November high of $1.5144, based on a series of numbers known as the Fibonacci sequence.

“The focus is still on the downside for the euro-dollar,” Ng said in an interview. “Momentum indicators are all on the negative side.”

The euro bought $1.4157 as of 9:15 a.m. in Tokyo from $1.4151 in New York yesterday. It dropped to $1.4029 on Jan. 21, the lowest level since July 30. The 16-nation currency has weakened 1.2 percent in January and is heading for a second monthly loss, its longest since February 2009.

The target of $1.38 represents a 50 percent retracement of the euro’s rally from the March low, Ng said. That level was last reached on June 16, according to data compiled by Bloomberg.

MACD charts can indicate whether a price shift is a change in trend or a short-term deviation by comparing moving averages based on 9-, 12- and 26-day periods. Fibonacci charts are based on the theory that securities tend to rise or fall by specific percentages after reaching a new high or low. A break below support or above resistance indicates a currency may move to the next level.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Support is a level where buy orders may be clustered, while resistance is where there may be sell orders.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net.

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Dollar to Benefit From Japan Outlook Cut, Mizuho Asset Says

By Theresa Barraclough

Jan. 26 (Bloomberg) -- The dollar and U.S. Treasuries are likely to benefit from Japan’s outlook downgrade by Standard & Poor’s, according to Mizuho Asset Management Co., a unit of Japan’s second-largest bank.

S&P cut Japan’s outlook to “negative” citing diminishing “flexibility” to cope with the nation’s swelling debt load. The credit-rating company said the Democratic Party of Japan’s policies “point to a slower pace of fiscal consolidation than we had previously expected,” adding that the rating could be cut if the government fails to come up with measures to spur growth and economic data remains weak.

The outlook revision is likely to push 10-year Treasury yields down to 3 percent by the end of March as investors seek safer assets, said Akira Takei, a fund manager in Tokyo at Mizuho Asset. The company has reallocated about 5 percent of its European holdings to U.S. Treasuries, he said.

“The knee-jerk reaction is the weaker yen, but the big winner is the dollar,” Takei said. “It’s caused a flight-to- quality bid, and the dollar will be stronger against other major currencies. Treasuries are the best place to be during turmoil.”

The dollar pared earlier losses versus the yen after the announcement, strengthening as much as 0.3 percent before trading at 90.22 yen at 7:19 a.m. in London, from 90.28 yesterday in New York.

Ten-year Treasury yields declined five basis points to 3.58 percent, according to BGCantor Market Data.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net

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Fed Weighs Interest on Reserves as New Benchmark Rate

By Scott Lanman

Jan. 26 (Bloomberg) -- Federal Reserve policy makers are considering adopting a new benchmark interest rate to replace the one they’ve used for the last two decades.

The central bank has been unable to control the federal funds rate since the September 2008 bankruptcy of Lehman Brothers Holdings Inc., when it began flooding financial markets with $1 trillion to prevent the economy from collapsing. Officials, who start a two-day meeting today, have said they may replace or supplement the fed funds rate with interest paid on excess bank reserves.

“One option you might want to consider is that our policy rate is the interest rate on excess reserves and we let the fed funds rate trade with some spread to that,” Richmond Fed President Jeffrey Lacker told reporters on Jan. 8 in Linthicum, Maryland.

The central bank needs to have an effective policy rate in place when it starts to raise interest rates from record lows to keep inflation in check, said Marvin Goodfriend, a former Fed economist. Policy makers are concerned that the Fed funds rate, at which banks borrow from each other in the overnight market, may fail to meet the new target, damaging their credibility and their ability to control inflation as the economy recovers.

‘Extended Period’

The choice of a benchmark is the “front line of defense against inflation, and also it’s at the heart of the central bank being able to precisely and flexibly guide interest-rate policy in the recovery,” said Goodfriend, now a professor at Carnegie Mellon University in Pittsburgh.

The Federal Open Market Committee is likely to maintain its pledge to keep interest rates “exceptionally low” for an “extended period” in a statement at about 2:15 p.m. tomorrow, economists said. The Fed probably won’t raise interest rates from record lows until the November meeting, according to the median of 51 forecasts in a Bloomberg survey of economists this month.

Fed Chairman Ben S. Bernanke, in July Congressional testimony, called interest on reserves “perhaps the most important” tool for tightening credit.

Inflation Concerns

Banks’ excess reserves, or deposits held with the Fed above required amounts, totaled $1 trillion in the two weeks ended Jan. 13, compared with $2.2 billion at the start of 2007. The Fed created the reserves through emergency loans and a $1.7 trillion purchase program of mortgage-backed securities, federal agency and Treasury debt.

By raising the deposit rate, now at 0.25 percent, officials reckon banks will keep money at the Fed and not stoke inflation by lending out too much as the economy recovers.

The new policy may be similar to what the Bank of England does now, said Philip Shaw, chief economist at Investec Securities in London. The U.K. central bank’s benchmark interest rate, now at 0.5 percent, is the rate it pays on the reserves it holds for commercial banks. It may drain excess liquidity from the system by selling back the gilts it has purchased through its so-called quantitative easing program, Shaw said.

Communications Strategy

Policy makers will need to adopt a communications strategy to explain the new benchmark because “people might have had a hard time getting their mind around the idea that the official rate had become the interest on reserves rate,” said Kenneth Kuttner, a former Fed economist who has co-written research with Bernanke and now teaches at Williams College in Williamstown, Massachusetts.

Without a federal funds target, banks might have to find a new way to set the prime borrowing rate, the figure most familiar to consumers that that is now pegged at three percentage points above the fed funds target.

In the past, the Fed had controlled the rate by buying or selling Treasury securities, adding or withdrawing cash from the system. That mechanism broke down when the Fed started flooding the system with cash after the bankruptcy of Lehman Brothers to prevent a financial meltdown.

The deposit rate would help set a floor under the fed funds rate because the Fed would lock up funds by offering a fixed rate of interest for a defined period and prohibiting early withdrawals.

‘Risk Free’

“In general, banks will not lend funds in the money market at an interest rate lower than the rate they can earn risk-free at the Federal Reserve,” Bernanke said in an October speech in Washington.

The New York Fed has been testing another tool, reverse repurchase agreements, as a way of pulling cash out of the financial system. In that case, the Fed would sell securities and buy them back at an agreed-upon later date.

There could be complications to using the deposit rate. Banks may be able to generate more revenue by lending at prime rate rather than by earning interest at the Fed, said William Ford, a former Atlanta Fed president at Middle Tennessee State University in Murfreesboro.

Also, the Fed’s direct control over a policy rate --instead of targeting a market rate -- could skew trading and financing toward short-term borrowing once investors know the rate won’t change between Fed meetings, said Vincent Reinhart, a former Fed monetary-affairs director.

The new reliance on reserve interest could also increase the policy clout of Fed governors in Washington at the expense of the 12 regional Fed bank presidents, Reinhart said.

Congress gave only the Fed governors the authority to set the deposit rate. The presidents have historically favored higher rates and voiced more concern about inflation.

“The Federal Reserve Act puts a very high weight on comity,” said Reinhart, now a resident scholar at the American Enterprise Institute in Washington. Using interest on reserves for setting policy “can change the tenor of the discussions, and I don’t know how they get around it.”

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

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BHP, Rio Face EU Investigation of Australia Iron Ore Venture

By Rebecca Keenan and Brett Foley

Jan. 26 (Bloomberg) -- BHP Billiton Ltd. and Rio Tinto Group face a European Union investigation into whether their Australian iron-ore joint venture curbs competition.

Regulators will probe whether the deal between the world’s second- and third-largest iron-ore producers is a restrictive business agreement, the European Commission, the EU antitrust authority in Brussels, said in a statement yesterday. It didn’t give a deadline to complete the investigation.

BHP and Rio say the 50-50 venture, combining mines, rail, ports and workforces in Western Australia’s Pilbara region, will save them at least $10 billion. The agreement will also concentrate power in the market for the steelmaking ingredient and result in higher prices for customers, steel industry group Eurofer, representing producers including ArcelorMittal and ThyssenKrupp AG, said in a statement.

“We expect them to get it approved despite the opposition,” said Tony Robson, a Toronto-based analyst at BMO Capital Markets. “Given that BHP and Rio Tinto have canned plans to jointly market a fraction of their output and given that we also see rising production from others globally, then it looks in part that the potential is the other way around. The market is actually fragmenting.”

BHP and Rio Tinto, amid pressure from steelmakers, in October scrapped a plan to jointly market as much as 15 percent of ore from their planned venture.

The companies said on Dec. 5 that they expected to complete the deal by the end of 2010. The venture will also be reviewed by the Australian Competition and Consumer Commission, as well as antitrust authorities in Japan and Germany.

Second Attempt

“It’s impossible to put specific timing on how long this investigation will take,” commission spokesman Jonathan Todd told reporters in Brussels yesterday. “The commission will try to complete the investigation as quickly as possible.”

The proposed venture is the second attempt to combine the mining companies’ iron-ore operations in Western Australia. Melbourne-based BHP abandoned a hostile bid for Rio in November 2008, citing Rio’s debt, falling commodity prices and regulatory hurdles. The bid faced a probe from the commission, which had “serious doubts” over a combination that would control more than a third of global iron-ore exports.

“The Japanese steel industry continues to view the establishment of the JV as a move that would restrict competition just as last year’s proposed acquisition of Rio Tinto by BHP Billiton would have,” Shoji Muneoka, chairman of the Japan Iron & Steel Federation, said in a Dec. 7 statement on the group’s Web site.

Steelmakers Contend

Brazil’s Vale SA, the largest iron-ore producer, BHP and Rio account for 68.5 percent of iron ore shipped by sea, according to the Brussels-based World Steel Association.

“If the planned merger is approved, mining companies will likely have more influence on pricing,” said Yoshiyuki Takano, a Tokyo-based analyst at Tokai Tokyo Securities Co. “Steelmakers would need to strengthen partnerships to contend with miners.”

The EU investigation will probe “the effects of the proposed joint venture on the worldwide market for iron ore transported by sea,” it said in the statement.

“This is very much a production joint venture only, between ourselves and BHP Billiton which will enable us to deliver more iron ore to the market, faster and at lower costs,” Rio spokesman Nick Cobban said by phone yesterday. “It won’t affect pricing as pricing will continue to be decided by the market as a whole with both ourselves and BHP competing.”

Iron Ore Prices

Iron ore for immediate delivery into China surged to $131.20 a metric ton on Jan. 8, the highest in at least 13 months, according to data compiled by The Steel Index, a venture of Steel Business Briefing Ltd.

Producers may benefit from a 31 percent jump in contract prices in the year starting April 1 to the second-highest level on record, according to the mean estimate of 17 analysts surveyed by Bloomberg. Nomura Holdings Inc. and Bank of America Merrill Lynch see gains of as much as 50 percent.

“We will continue to work with the European Commission and aim to convince them of the benefits for the venture and why it will not raise competition concerns,” BHP’s London-based spokesman Ruban Yogarajah said by phone.

To contact the reporters on this story: Brett Foley in London at bfoley8@bloomberg.net; Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net

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Malaysia Palm Oil Exports to Gain in 2010 on Recovery

By Ranjeetha Pakiam

Jan. 26 (Bloomberg) -- Palm oil exports from Malaysia, the world’s second-largest producer, may gain this year as the global economy recovers and China’s demand rises, according to Plantation Industries and Commodities Minister Bernard Dompok.

Malaysia plans to export more to China in 2010, Dompok said today. The government would be “happy” if prices ranged from 2,400 ringgit ($706) to 2,600 ringgit a metric ton this year, he said. Futures prices ended yesterday at 2,469 ringgit.

Palm oil in Kuala Lumpur surged 57 percent last year as demand recovered, benefiting Malaysian producers including IOI Corp. and Sime Darby Bhd. Dompok’s preferred price range tallies with his comments from last July, when he said that a level of at least 2,500 ringgit would suit the government.

“I don’t think we see a future of palm oil prices that is lower than what you see” at present, Dompok said at a media conference in Kuala Lumpur after a speech. “We’re certainly hopeful that this year, in view of recoveries of other economies around the globe, it has a potential of being a better year.”

Palm oil on the Malaysia Derivatives Exchange -- the benchmark price in Asia -- averaged 2,233 ringgit a ton last year, and traded at 2,426 ringgit at 3:03 p.m. local time today. The commodity, about 90 percent of which is produced in Indonesia and Malaysia, is used in foods and as a fuel additive.

Biodiesel Blend

The government may introduce later this year a 5 percent biodiesel blend that uses palm oil for vehicle owners in four states -- Selangor, Johor, Negeri Sembilan and Pahang, Dompok said. A cabinet paper was being prepared on the extension of the so-called B5 mandate, he said. At present, only military and government vehicles use the mix.

Malaysia’s palm oil production is forecast to gain 4.9 percent this year to a record 17.8 million tons, according to an October forecast from the Finance Ministry.

Between 2,400 and 2,600 ringgit per ton, “the farmers and plantation owners should be happy,” Dompok told reporters after the speech. “If they’re happy, I’m happy. I’ll be happy with that, and everything else is a bonus.”

Exports of palm oil products may be worth more than 100 billion ringgit by 2020 compared with 62.5 billion in 2008, he said in the address. “The focus by 2020 is to generate exports of more value-added products, services and palm-oil-related technologies,” Dompok said in the speech.

To contact the reporter on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net

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Rubber Falls to Near Three-Week Low on China Tightening Concern

By Aya Takada

Jan. 26 (Bloomberg) -- Rubber dropped for a third day to near the lowest level in three weeks as concern that China will step up measures to slow economic expansion spurred a rally in the Japanese currency, cutting the appeal of yen-based contracts.

Rubber for June delivery fell 0.7 percent to 284 yen per kilogram on the Tokyo Commodity Exchange. The contract dropped as much as 0.8 percent to 283.8 yen ($3,164 a metric ton).

Several Chinese banks will face an additional increase in their reserve ratios, Reuters reported, citing sources it didn’t identify. China has already taken action to restrict record bank loans, while President Barack Obama plans to limit the size and trading activities of financial institutions. China is the world’s largest rubber consumer.

“Caution about China’s tightening of its monetary policy put a drag on the price of rubber futures,” Hisaaki Tasaka, an analyst at Tokyo-based commodity broker ACE Koeki Co., said today by phone. Futures also “took a cue for direction from the volatile currency market,” he added.

The contract earlier gained 2.1 percent to 292.0 yen as the yen declined after Obama’s endorsement of a second term for Federal Reserve Chairman Ben S. Bernanke, boosting demand for higher-yielding currencies.

Prices fell to 281.5 yen yesterday, their lowest level since Jan. 4, after Obama last week called for investment limits on banks to help prevent another financial crisis. Rubber for July delivery, listed on the exchange today, settled at 286.2 yen per kilogram after opening at 290 yen.

China Growth

China’s central bank has driven bill yields higher to reduce funds in the banking system on concern record loan growth will fan inflation and lead to bubbles in the property market. Chinese banks have suspended new lending since Jan. 19 across the country, Dong Tao, a Hong Kong-based economist at Credit Suisse Group AG, wrote in a note to clients.

May-delivery rubber on the Shanghai Futures Exchange lost as much as 1.9 percent to 24,120 yuan ($3,533) a ton before trading at 24,200 yuan at 2:36 p.m. local time. Prices slumped to a one-month low of 24,105 yuan on Jan. 22.

In the cash market, shippers in Thailand, the biggest exporter, are offering RSS-3 grade rubber for March shipment at $3.13 a kilogram, from last week’s peak of $3.25 reached Jan. 20, Tasaka at ACE Koeki said. Lower prices may be attracting physical buying, he added.

Supplies in the global natural rubber market are tight and the fundamentals are favorable for prices, the Association of Natural Rubber Producing Countries said in a newsletter today.

The association estimated Indonesian output at 2.77 million metric tons in 2010, India’s at 853,000 tons and Vietnam’s at 770,000 tons.

To contact the reporter on this story: Aya Takada in Tokyo at atakada2@bloomberg.net

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Dubai Stocks Fall to December Low as Oil, Global Markets Drop

By Zahra Hankir

Jan. 26 (Bloomberg) -- Dubai’s shares fell to their lowest in more than a month, leading the drop in the Gulf, as oil declined and stocks retreated globally amid mounting concern that China is stepping up measures to cool its economy.

Emaar Properties PJSC, the United Emirates’ biggest developer, retreated the most in more than a month. Union Properties PJSC tumbled 10 percent after Credit Suisse Group AG yesterday slashed its share-price estimate. The DFM General Index dropped 3.9 percent to 1,552.01 at 12:50 p.m. in Dubai, the lowest since Dec. 10. The measure has fluctuated so far this week, alternating between losses and gains of as much as 5 percent.

“Volatility will continue” as any weakness in global markets leads to a “selloff” in the U.A.E. and good news leads to “some buying from day traders,” said Julian Bruce, director of equity sales at EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank. The longer-term performance will depend on fourth-quarter earnings and “if and when we see some developments in the Dubai World debt restructuring,” he said.

Stocks in Europe and Asia posted the longest losing streaks in more than six months on concern China will slow the world’s fastest-growing major economy. U.S. index futures also retreated. Crude oil fell as much as 1.5 percent to $74.14 a barrel.

Debt

The Dubai government said Nov. 25 the state-run holding company, Dubai World, is seeking a “standstill” accord on its debt. Dubai World failed to present a standstill offer at a Dec. 21 meeting with more than 90 lenders because it hadn’t reached an agreement on the terms of government support. Dubai World announced Dec. 1 it was seeking to alter terms on about $26 billion of debt.

Emaar dropped as much as 9.9 percent, the biggest intraday slump since Dec. 7, to 2.83 dirhams. It last traded at 2.89 dirhams.

Union Properties, Dubai’s second biggest developer by assets, tumbled the most since October 2008 to 0.54 dirham. The developer had its share-price estimate cut to 3 fils by Credit Suisse, which said the company’s debt wipes out its value.

In Qatar, the Doha Securities Market 20 Index retreated 1.7 percent. Abu Dhabi’s ADX General Index fell 0.4 percent, the Kuwait Stock Exchange Index slid 0.3 percent and Bahrain’s measure lost 0.2 percent. Saudi Arabia’s Tadawul All Share Index dropped less than 0.1 percent.

Oman’s measure climbed 0.5 percent, led by Bank Muscat SAOG. The sultanate’s biggest bank gained 4.5 percent, the most since Jan. 7, to 0.889 rial after full-year operating profit rose 37 percent. Net income for the period dropped 21 percent after the bank’s provisions for bad loans almost quadrupled.

To contact the reporters on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net

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German Stocks Retreat for Fifth Day; K+S, Daimler, BMW Decline

By Julie Cruz

Jan. 26 (Bloomberg) -- German stocks declined for a fifth day, driving the benchmark DAX Index to the longest falling streak in three months, as carmakers and steelmakers declined.

K+S AG led declines in the benchmark index, falling 2.2 percent. Bayerische Motoren Werke AG and Daimler AG slipped more than 1 percent. ThyssenKrupp AG and Salzgitter AG fell with metal prices. Siemens AG advanced as the company reported the highest quarterly profit in more than two years.

The DAX lost 0.8 percent to 5,589.33 at 9:30 a.m. in Frankfurt, on course for the lowest close since November. The gauge has fallen 6.2 percent this year as U.S. President Barack Obama called for a limit on risk-taking by banks and concern mounted that China will raise interest rates to keep economic growth from igniting inflation. The broader HDAX Index lost 0.7 percent today.

K+S AG slid 2.6 percent to 41.04 euros. The world´s biggest salt producer may be banned from dumping minerals into a German river and forced to build a sewer line to the North Sea costing $700 million, about twice its annual operating profit.

Deutsche Boerse AG fell 1.7 percent to 50.04 euros. The operator of the Frankfurt stock exchange plans to focus on “cost discipline” in 2010 as global economies confront a “difficult” year, Chief Executive Officer Reto Francioni said.

Carmakers Decline

BMW and Daimler, the world’s biggest makers of luxury cars, declined 1.5 percent to 29.69 euros and 1.6 percent to 32.96 euros, respectively. The Dow Jones Stoxx 600 Automobiles & Parts Index fell 1.2 percent, the second-worst performance among 19 industry groups.

ThyssenKrupp, Germany’s biggest steelmaker, lost 1.6 percent to 23.71 euros, while smaller competitor Salzgitter dropped 1.1 percent. Copper, lead, nickel, tin and zinc all fell on the London Metal Exchange.

Siemens jumped 2.9 percent to 66.49 euros. Europe’s largest engineering company said so-called sector profit, or operating earnings at the main industry, energy, and health care units, rose 11 percent to 2.26 billion euros ($3.2 billion), beating the mean of 1.82 billion euros in a Bloomberg survey of 10 analysts. Net income in the quarter ended Dec. 31 rose 23 percent to 1.48 billion euros, the company said.

Munich Re AG climbed 0.6 percent to 109.10 euros as the world’s biggest reinsurer said Warren Buffett’s stake in the company rose above 3 percent as of Jan. 18.

A report today may show German business confidence rose to an 18-month high in January as the global economic recovery boosted exports. The Ifo institute in Munich will say its business climate index, based on a survey of 7,000 executives, increased to 95.1 from 94.7 in December, according to the median of 41 forecasts in a Bloomberg News survey. That would be the highest reading since July 2008. The index reached a 26-year low of 82.2 in March last year. Ifo releases the report at 10 a.m. today.

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

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Hang Seng Index Losing 10% Shows China Risks to Banks

By Jonathan Burgos

Jan. 26 (Bloomberg) -- The 10 percent drop in Hong Kong equities since November underscores the increasing threat to valuations as China curbs growth and the U.S. proposes limits on the banking industry.

Financial firms and property developers led the Hang Seng Index down from a peak on Nov. 16 after China mandated higher loan reserves and U.S. President Barack Obama sought to bar banks from proprietary trading. The Hang Seng fell ten of the last 11 days into the first so-called correction among developed markets in 2010, after a 128 percent gain in lenders last year spurred the biggest advance in a decade. It closed 2.4 percent lower at 20,109.33 in Hong Kong today.

Hong Kong is retreating more than twice as fast as other industrialized nations and may rebound just as quickly, according to Henrik Degrer, a fund manager at Svenska Handelsbanken in Stockholm, which oversees $36 billion. Financial companies account for a bigger proportion of equity value than in any developed country except Greece, exaggerating the Hang Seng’s swings and giving it the worst drop among the world’s 10 largest markets this year, data compiled by Bloomberg and MSCI show.

“It’s quite a volatile market, so 10 percent there does not mean much,” Degrer said. “The problems that you have in China spill over there more than other markets, and the financial sector exposure is quite important. If you take a long view, we are still bullish on emerging-markets growth, but in terms of timing you should be more cautious about it.”

Annual Gain

The Hong Kong gauge slid 0.6 percent yesterday on concern Chinese companies may need more capital after Bank of China Ltd. announced plans to raise 40 billion yuan ($5.86 billion) selling convertible bonds. The 5.8 percent decline in 2010 through yesterday compares with a 1.7 percent retreat in the MSCI World Index, data compiled by Bloomberg show.

The decrease follows a 52 percent gain in the Hang Seng last year, the biggest since 1999, as record new loans in China and a $586 billion stimulus package helped the nation ride out the global recession. The return was almost double the MSCI World’s 27 percent climb.

China is starting to take steps to cool the economy, which grew in the fourth quarter at the fastest pace since 2007. Gross domestic product expanded 10.7 percent while consumer prices rose a higher-than-estimated 1.9 percent in December from a year earlier, according to government data on Jan. 21.

Bank Reserves

Chinese banks have begun restricting new loans, responding to a push by regulators to contain credit, people familiar with the matter said. The central bank raised the proportion of deposits banks must set aside as reserves on Jan. 12, triggering a 3.1 percent decline for the Shanghai Composite Index the following day, the gauge’s biggest loss this year.

Banking and property stocks have led the decline in the Hang Seng Index since Nov. 16 on concern monetary tightening in China will hurt demand for loans and real estate. Financial companies account for 60 percent of the MSCI Hong Kong Index, the second-heaviest weighting among developed markets.

Bank of China slumped 23 percent from the peak on Nov. 16 through yesterday. The lender is seeking shareholder approval to issue six-year convertible bonds, according to a filing to the Hong Kong stock exchange on Jan. 22. China Construction Bank Corp., the nation’s No. 2 lender, slumped 17 percent since peaking on Nov. 23 to yesterday.

Buying China

“Investors who have been bullish on China have been buying Chinese stocks in Hong Kong as well,” said Daphne Roth, the Singapore-based head of Asian equity research at ABN Amro Private Banking, which oversees about $21 billion in the region. “Anything that has to do with China will come down.”

The declines have brought the average valuation for companies on the Hang Seng Index to 13.5 times estimated earnings, compared with 17.9 percent for the Shanghai Composite Index and 14.5 times for the MSCI World Index.

Hong Kong shares have not benefited from China’s approval of an overhaul of trading laws on Jan. 8 that will pave the way for short sales and stock index futures. The Hang Seng has fallen 5.8 percent since they were approved. For ABN Amro’s Roth, the declines are temporary and create opportunities to pick up stocks cheaply.

“The market is a little panicky because investors are not sure how much tightening China will implement,” she said. “China is trying to slow the acceleration in the economy, but I don’t think they will slam the brakes.”

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

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European, Asian Stocks Drop on China Concern; U.S. Futures Fall

By Sarah Jones

Jan. 26 (Bloomberg) -- Stocks in Europe and Asia posted the longest losing streaks in more than six months amid mounting concern China is stepping up measures to cool the world’s fastest growing major economy. U.S. index futures retreated.

BHP Billiton Ltd., the world’s largest mining company, led basic-resource producers lower as metals slid. Bank of China Ltd. and Bank of Communications Co. sank more than 3 percent in Hong Kong after Chinese banks began restricting new loans. Siemens AG rallied the most in a month after Europe’s largest engineering company reported increased profit.

Europe’s Dow Jones Stoxx 600 Index lost 0.4 percent to 247.33 at 9:39 a.m. in London. The measure is falling for a fifth straight day, the longest stretch of declines since July, as U.S. President Barack Obama called for a limit on risk-taking by banks and China started to take steps to avert asset bubbles. The benchmark gauge for European equities is still up 57 percent since March.

“Equity markets are at the moment playing a very pronounced recovery so we think the markets have got a bit ahead of themselves,” Matthias Joerss, head of equity strategy at Sal. Oppenheim Jr. & Cie in Frankfurt, said in a Bloomberg Television interview. “We are more on the cautious side. We don’t think there are any gains to made in the first half.”

Asian stocks fell for a seventh day today, the longest losing streak in two years. The MSCI Asia Pacific Index slid 1.7 percent as Bank of China, the nation’s third-largest lender, retreated 3.4 percent to HK$3.68, and Bank of Communications, the fourth-largest, dropped 3.4 percent to HK$7.90.

Rein In Lending

Bank of China has stopped extending new corporate loans in the Shanghai area and China Construction Bank’s branch in the city has been told to screen applications for personal loans and mortgages more carefully and to stop new lending once a monthly quota is met, according to people familiar with the situation. Liu Mingkang, chairman of the China Banking Regulatory Commission, last week said some banks were asked to rein in lending because they failed to meet regulatory requirements.

Japan’s sovereign credit rating outlook was lowered to “negative” by Standard and Poor’s today because of diminishing “flexibility” to cope with a swelling debt load and concern about the lack of a plan to rein in budget deficits.

Futures on the Standard & Poor’s 500 Index declined 0.5 percent, indicating the benchmark measure for U.S. equities may resume its retreat. The gauge yesterday rebounded from a three- day decline amid signs Ben S. Bernanke will be reconfirmed as Federal Reserve chairman.

Apple Advances

Apple Inc. gained 1.5 percent to $206.20 in German trading after reporting a 50 percent jump in first-quarter profit late yesterday, buoyed by holiday orders for Macintosh computers and iPhones.

Texas Instruments Inc. fell 2.7 percent to $23.05 even after the second-largest U.S. chipmaker forecast earnings and sales that beat analysts’ estimates.

BHP Billiton sank 1.7 percent to 1,882.5 pence and Rio Tinto Group, the third-biggest mining company, fell 1.3 percent to 3,178.5 pence as copper declined on the London Metal Exchange. The metal is heading for the first monthly drop in four months on concern China and the U.S., the world’s two biggest users, may take steps to rein in liquidity.

U.S. Fed policy makers are considering adopting a new benchmark interest rate to replace the federal funds rate, which they’ve used for the last two decades. The central bank needs to have an effective policy rate in place when it starts to raise interest rates from record lows to keep inflation in check, said Marvin Goodfriend, a former Fed economist.

Siemens Surges

Siemens gained 2.6 percent to 66.26 euros after the engineering company reported the highest quarterly profit in more than two years. So-called sector profit, or operating earnings at the main industry, energy, and health care units, rose 11 percent to 2.26 billion euros ($3.2 billion). That beat the average estimate of 1.82 billion euros, according to a Bloomberg survey of economists.

The U.K. economy resumed growth by less than forecast in the fourth quarter as service industries and manufacturing expanded enough to pull Britain out of its longest recession on record. Gross domestic product rose 0.1 percent from the third quarter, the Office for National Statistics said today. The median forecast in a Bloomberg News survey of 33 economists was for a 0.4 percent increase.

German business confidence rose more than economists forecast to an 18-month high in January as the global economic recovery boosted exports. The Ifo institute in Munich said its business climate index increased to 95.8, the highest reading since July 2008.

Novartis, Novo Nordisk

Novartis AG added 1.7 percent to 56.65 Swiss francs. The drugmaker named Joe Jimenez, head of the company’s pharmaceuticals division, as its new chief executive officer and reported a 49 percent increase in fourth-quarter net income.

Novo Nordisk A/S jumped 6.6 percent to 370.5 kroner, the highest level since at least 1991. The world’s largest maker of insulin won U.S. Food and Drug Administration approval for its diabetes drug Victoza after safety concerns delayed the agency’s decision by about 10 months.

K+S AG dropped 1.5 percent to 41.54 euros amid concerns the world´s biggest salt producer may be forced to build a sewer line to the North Sea costing $700 million, about twice its annual operating profit. The state of Thuringia, where K+S operates mines, wants the company to pump its saline waste offshore rather than release it in the Werra River.

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

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U.K.’s FTSE 100 Retreats for Fifth Day; BHP, Rio Tinto Slide

By Adria Cimino

Jan. 26 (Bloomberg) -- U.K. stocks declined for a fifth day, the longest losing streak in 11 months, as Britain’s gross domestic product rose less than forecast and concern mounted that China’s efforts to cool growth may hurt the global economy.

BHP Billiton Ltd., the world’s biggest mining company, and Rio Tinto Plc, the third-largest, dropped at least 1.6 percent as metals retreated.

The benchmark FTSE 100 Index tumbled 33.5, or 0.6 percent, to 5,226.81 at 10:12 a.m. in London. The FTSE All-Share Index also fell 0.6 percent. Ireland’s ISEQ Index added 0.1 percent.

The FTSE 100 is declining for a fifth consecutive day, the longest losing streak since February, as U.S. President Barack Obama called for a limit on risk-taking by banks and speculation grew that China may raise interest rates after the world’s third-biggest economy expanded at the fastest pace since 2007 in the fourth quarter.

Bank of China Ltd. has stopped extending new corporate loans in the Shanghai area and China Construction Bank Corp.’s branch in the city has been told to screen applications for personal loans and mortgages more carefully and to stop new lending once a monthly quota is met, according to people familiar with the situation. Liu Mingkang, chairman of the China Banking Regulatory Commission, last week said some banks were asked to rein in lending because they failed to meet regulatory requirements.

U.K. Economy

The U.K. economy grew 0.1 percent in the fourth quarter from the previous period, the Office for National Statistics said today. The median forecast in a Bloomberg News survey of 33 economists was for a 0.4 percent increase and the lowest prediction was for a result of 0.2 percent.

BHP Billiton fell 1.7 percent to 1,881.5 pence and Rio Tinto lost 1.6 percent to 3,169 pence. Antofagasta Plc, owner of copper mines in Chile, slumped 2.1 percent to 914 pence and Xstrata Plc sank 2.4 percent to 1,076 pence.

Copper dropped for the first time in three days in London trading on speculation that China’s moves to curb lending may hurt demand in the world’s largest consumer of the metal.

Intermediate Capital Group Plc advanced 3.1 percent to 275.8 pence, gaining for a second day. The London-based provider of loans for private equity firms said it expects to reap bigger profits from asset sales after stock and bond markets rebounded.

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

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Asia Stocks Fall for Seventh Day on China Concern; KDDI Tumbles

By Shani Raja and Kana Nishizawa

Jan. 26 (Bloomberg) -- Asian stocks fell for a seventh day, the longest losing streak in two years, on mounting concern China will step up measures to slow its economic growth and as companies forecast declining profits.

Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. retreated more than 3 percent in Hong Kong as Chinese lenders began restricting new loans. KDDI Corp., Asia’s fourth- biggest wireless-network operator, sank 8.6 percent in Tokyo after cutting its profit forecast and agreeing to buy a stake in a cable-television company. Foxconn International Holdings Ltd. slumped 8.7 percent in Hong Kong after saying it expects a “significant” drop in earnings.

The MSCI Asia Pacific Index fell 2 percent to 119.17 as of 5:53 p.m. in Tokyo, erasing this year’s gain. The gauge sank 6 percent in the past seven days as U.S. President Barack Obama proposed measures to limit risk taking at banks and concern grew that China will rein in growth.

“The market is having trouble rebounding from its slump because of all the uncertainties,” said Koji Toda, chief fund manager at Resona Bank Ltd., which oversees about $55 billion in assets. “People are still worried, and yet clinging to the hope that policy support will continue to support global recovery.”

The seven days of losses for the MSCI Asia Pacific Index mark its longest retreat since December 2007. All 10 of its industry groups dropped, led by technology-related companies. All major markets in the Asia-Pacific region fell more than 1.5 percent.

Credit Rating Downgrade

Japan’s Nikkei 225 Stock Average dropped 1.8 percent. Standard & Poor’s lowered its outlook for the country’s credit rating after trading closed. The company cited diminishing “flexibility” to cope with swelling debt and the lack of a plan to rein in budget deficits.

Hong Kong’s Hang Seng Index sank 2.4 percent, extending its slump from a 16-month high on Nov. 16 to 12 percent. The Shanghai Composite Index slumped 2.4 percent. Taiwan’s Taiex Index fell 3.5 percent, dropping for a seventh day, the longest losing streak since August 2005. Australia was closed for a holiday.

Futures on the U.S. Standard & Poor’s 500 Index fell 0.6 percent. The gauge advanced 0.5 percent yesterday in New York amid signs Ben S. Bernanke will be reconfirmed as Federal Reserve chairman.

Concerns about tighter monetary policy in China have dragged the MSCI World Index down for the past five days. Goldman Sachs Group Inc. downgraded Chinese banks today.

International & Commercial Bank of China, the world’s largest bank by market value, retreated 3.4 percent to HK$5.61. Bank of China sank 3.4 percent to HK$3.68, while China Construction Bank Corp. lost 2.9 percent to HK$5.95.

Monetary Tightening

Bank of China has stopped extending new corporate loans in the Shanghai area, said a person familiar with the matter who declined to be identified. China Construction Bank’s branch in the city has been told to screen applications for personal loans and mortgages more carefully and to stop new lending once a monthly quota is met, another person said.

China is starting to take steps to cool the economy, which grew in the fourth quarter at the fastest pace since 2007. Gross domestic product expanded 10.7 percent while consumer prices rose a higher-than-estimated 1.9 percent in December from a year earlier, according to government data on Jan. 21.

“The correction is likely to carry on,” said Zhang Xiuqi, a Shanghai-based strategist at China International Fund Management Co., which oversees about $10.2 billion. “Investors have begun to revaluate their previous projections for earnings growth as the government’s tightening has come faster than expected.”

Shipping Stocks Fall

Mitsui O.S.K. Lines Ltd., the operator of the world’s biggest merchant fleet, lost 4 percent to 576 yen. Korea Line Corp. slid 4.4 percent to 43,000 won in Seoul, while STX Pan Ocean Co. lost 5.2 percent to S$14.74 in Singapore.

“Shipping will slow if China’s growth falters,” said Goya Nakao, senior investment manager at Sompo Japan Asset Management Co., which oversees more than $11 billion in Tokyo.

In Tokyo, KDDI slumped 8.6 percent to 482,500 yen. The company cut its full-year profit forecast to 225 billion yen ($2.5 billion) from 255 billion yen projected in October. KDDI also agreed to buy Liberty Global Inc.’s 38 percent stake in Jupiter Telecommunications Co. for $4 billion. Jupiter fell 6.6 percent to 90,600 yen.

“Without a sufficient explanation from KDDI it is difficult to evaluate the purchase amount,” Shinji Moriyuki, an analyst at Mitsubishi UFJ Financial Group Inc. in Tokyo, wrote in a report yesterday. Nippon Telegraph & Telephone Corp., Japan’s largest fixed-line phone operator, dropped 2.2 percent to 3,865 yen.

Lower Profit

Foxconn, the world’s biggest contract maker of mobile phones, slumped 8.7 percent to HK$8.08, the steepest drop on the Hang Seng Index. The company forecast a “significant” decline in profit for 2009, even as the second half showed “encouraging improvements.”

ASM Pacific Technology Ltd. tumbled 9.9 percent to HK$64 in Hong Kong, the second-biggest decline on the MSCI Asia Pacific Index. Goldman Sachs cut the world’s biggest maker of semiconductor-wiring machines to “sell” from “neutral.”

To contact the reporter for this story: Shani Raja in Sydney at sraja4@bloomberg.net; Kana Nishizawa in Tokyo at knishizawa5@bloomberg.net.

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