Yen Rises as Greek Downgrade Concern Boosts Demand for Safety

By Inyoung Hwang and Anchalee Worrachate

Feb. 25 (Bloomberg) -- The yen climbed to a one-year high against the euro as investors sought the safest currencies amid concern Greece’s credit rating will be lowered and its woes will spread to other nations in the currency group.

The yen advanced against all 16 major counterparts after Standard & Poor’s and Moody’s Investors Service said Greece faces further downgrades as early as next month amid Prime Minister George Papandreou’s struggle to cut the European Union’s largest budget deficit. The pound slid to a nine-month low against the dollar as investors bet the Bank of England will need to keep interest rates near record-low levels this year.

“The market is concerned Greece is still not behind us and could have an impact on global growth,” said Jens Nordvig, a managing director of currency research in New York at Nomura International Plc. “Unless we see more positive economic data points, there’ll be doubt that underlining growth momentum is picking up.”

The yen appreciated 1.8 percent to 119.90 per euro at 8:33 in New York from 122.03 yen yesterday. That’s the first time the currency has fallen below the 120 yen level since Feb. 24, 2009. The dollar climbed to $1.5271 per British pound, the strongest level since May 18, from $1.5408.

The euro declined to $1.3478 from $1.3538. It touched $1.3444 on Feb. 19, the lowest since May 18. The European currency has fallen 2.8 percent versus the dollar in February, heading for a third monthly loss, its longest stretch since November 2008.

Euro Carry Trades

The dollar weakened against the yen as a government report showed U.S. initial jobless claims unexpectedly increased last week.

Initial jobless claims rose by 22,000 to 496,000 in the week ended Feb. 20, the Labor Department said. The median estimate of 43 economists in a Bloomberg survey was for news claims to fall to 460,000. The dollar declined 1.2 percent to 89.07 yen, from 90.15.

The euro will become a favorite funding currency for carry trades as Greece’s crisis weighs on regional interest rates, Deutsche Bank AG said. The three-month London interbank offered rate, or Libor, for euro loans sank below 0.6 percent for the first time last week, down from more than 5 percent after the collapse of Lehman Brothers Holdings Inc. in September 2008.

“Greece’s crisis has highlighted political and structural weakness in the euro zone,” said Koji Fukaya, a senior currency strategist for Deutsche Bank in Tokyo. “First, it remains unclear whether any aid will be available. And even if any rescue plan comes out, it will take time to see if it’d work.”

The currency may slump further to $1.25, Fukaya said, a level last seen in March 2009.

Pound’s Slide

In carry trades, investors get funds in a country with relatively low borrowing costs and invest in another with higher interest rates, increasing sales of the borrowed currency.

Sterling also fell against 13 of its 16 most-traded peers as concern about the potential downgrades of Greek debt stirred concern Britain may struggle to tackle its own record deficit.

Bruce Stout, who runs Aberdeen Asset Management Plc’s Murray International Trust, said he’s concerned Britain’s widening debt gap will hamper economic growth.

“Sterling is being seen in the risk bucket and risk is off the agenda right now,” said Jeremy Stretch, a currency strategist at Rabobank International in London. Investors are taking bets on rate hikes “off the table,” he said.

The pound may fall to $1.50, should it drop below $1.5275, which would be a 50 percent retracement of its advance from last year’s low to its high, Stretch said, citing Fibonacci numbers.

The U.K. currency weakened 0.4 percent to 88.19 pence per euro and 1.7 percent versus the yen, to 136.49.

Rating Downgrade

The cost of protecting against default on Greek government bonds increased 10 basis points to 392, the highest in more than two weeks, according to CMA DataVision prices.

“We believe that a further downgrade of Greece of one to two notches is possible within a month,” S&P analysts led by Marko Mrsnik in London said in a statement late yesterday. Pierre Cailleteau, managing director of sovereign risk at Moody’s, said in Tokyo today Greece faces a downgrade of “a couple of notches” within a few months.

S&P, Moody’s and Fitch Ratings downgraded Greece’s credit rating in December as its deficit approached 13 percent of gross domestic product. Germany has denied that there are concrete plans to aid Greece, and former European Central Bank Chief Economist Otmar Issing said yesterday granting assistance would “open the flood gates” for other euro-area nations with soaring deficits.

Moody’s rating of Greece is the sixth highest, two notches above the BBB+ held by Standard & Poor’s and Fitch Ratings.

If Moody’s cuts its credit rating to the same level as the other major ratings companies it could exacerbate Greece’s financial distress at the end of this year, when the European Central Bank is due to revert to old collateral rules that were loosened during the global recession. Greek government bonds would then no longer be eligible as collateral at the ECB, making it more difficult for the nation to borrow.

To contact the reporters on this story:
Inyoung Hwang in New York at
ihwang7@bloomberg.net;
Anchalee Worrachate in London at
aworrachate@bloomberg.net

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U.K. Pound Falls to 9-Month Low Versus Dollar on Debt Concerns

By Paul Dobson

Feb. 25 (Bloomberg) -- The pound slid to a nine-month low against the dollar as ratings companies said they may downgrade Greece’s debt, stirring concern Britain may struggle to tackle its own record deficit.

Sterling fell against 14 of its 16 most-traded peers as investors added to bets the Bank of England will need to keep interest rates near record-low levels this year. Standard & Poor’s and Moody’s Investors Service said Greece, which has the European Union’s largest budget deficit, faces downgrades as early as next month. At more than 12 percent of gross domestic product, the U.K. deficit is on a par with that of Greece.

“Sterling is being seen in the risk bucket and risk is off the agenda right now,” said Jeremy Stretch, a currency strategist at Rabobank International in London. Investors are taking bets on rate hikes “off the table,” he said.

The pound fell as much as 0.9 percent to $1.5273, the lowest level since May 18, and was at $1.5283 as of 12:25 p.m. in London. The U.K. currency weakened 0.4 percent to 88.25 pence per euro.

Prime Minister Gordon Brown is selling a record amount of debt to finance stimulus measures that were introduced to help the economy recover from the longest recession on record. The government in December increased its planned gilt sales for the fiscal year that will end in March to a record 225.1 billion pounds from the 220 billion pounds announced in April.

Bruce Stout, who runs Aberdeen Asset Management Plc’s Murray International Trust, said he’s concerned Britain’s widening debt gap will hamper economic growth.

‘Horrible Thing’

“We’re very, very aware of the risk the U.K. is carrying,” Stout said. “Debt is a horrible thing. Sterling is a very vulnerable currency.”

The pounds may fall below parity with the euro and drop to $1.05 if the government tackles the country’s debt burden too early, UBS AG said yesterday.

“If the next government was to prematurely curb the fiscal deficit after the elections, without the economy reaching a surer footing, the consequences for sterling, financial markets and public confidence would be grave,” Mansoor Mohi-Uddin, chief currency strategist at UBS in Singapore, said in a research note.

While the opposition Conservatives, who have called for government spending cuts to start this year, are still ahead of the ruling Labour Party in opinion polls, the gap has narrowed. A poll by YouGov Plc in the Sunday Times newspaper showed the Conservative lead over Labour at its narrowest since December 2008.

‘Big Psychological Mark’

The pound may fall to $1.50, should it drop below $1.5275, which would be a 50 percent retracement of its advance from last year’s low to its high, Stretch said, citing so-called Fibonacci numbers.

“That’s the path of least resistance,” he said. “The big psychological mark of $1.50 is close at hand.”

U.K. government bonds rose after a government report showed business investment fell 5.8 percent in the fourth quarter, compared with analyst estimates for a 0.1 percent gain.

The yield on the benchmark 10-year gilt dropped 3 basis points to 4.04 percent. The yield on the short-sterling futures contract expiring in December fell 4 basis points to 1.12 percent as investors added to bets interest rates will stay lower for longer.

The U.K. sold 7.5 billion pounds of gilts this week.

The rally in gilts “is down to the Greek story, which has lifted risk aversion,” said Jason Simpson, an interest-rate strategist at Royal Bank of Scotland Plc in London. “We’ve got past this week’s supply and gilts have bounced quite nicely.’

To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Keith Jenkins in London at Kjenkins3@bloomberg.net

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Swiss Stocks Fluctuate; Swisscom Declines, Roche Advances

By Daniela Silberstein

Feb. 25 (Bloomberg) -- Swiss stocks swung between gains and losses as Moody’s Investors Service followed Standard & Poor’s in warning Greece’s debt rating may be cut, overshadowing gains by drugmakers.

Swisscom AG, the country’s biggest telephone company, fell for a fourth day. Roche Holding AG advanced 0.5 percent after the drugmaker’s Avastin met its main goal in a study for ovarian cancer.

The benchmark Swiss Market Index, a gauge of the biggest and most actively traded companies, gained 3.1, or less than 0.1 percent, to 6,691.05 at 9:49 a.m. in Zurich. The broader Swiss Performance Index was little changed at 5,742.81.

Greece’s sovereign debt rating may be cut within months unless the country meets the objectives of its fiscal deficit reduction plan, Moody’s said today. If Moody’s cuts its credit rating to the same level as the other major ratings companies, Greek government bonds would no longer be eligible as collateral at the European Central Bank, making it more difficult for the nation to borrow.

Standard & Poor’s said yesterday it may lower Greece’s credit rating by the end of March.

Swisscom dropped 1 percent to 367.9 Swiss francs. Switzerland’s largest telephone company’s Italian unit, Fastweb SpA, was downgraded to “underweight” from “buy” at Banca Leonardo. Swisscom shares have dropped 3.2 percent this week so far after an announcement that Fastweb’s founder and chief executive are under tax fraud investigation.

Roche

Roche advanced 0.5 percent to 180.3 francs. The world’s biggest maker of cancer medicines said its Avastin tumor drug kept ovarian cancer at bay in a clinical trial.

“This is a positive catalyst for Roche and further supports the Avastin franchise,” Silvia Schanz, an analyst at Bank Vontobel AG in Zurich, wrote in a note.

Allreal Holding AG dropped 0.6 percent to 124.9 francs. The Swiss property company said full-year profit before revaluation effects dropped to 88.6 million francs ($81.5 million) from 90.7 million francs a year earlier.

Micronas Semiconductor Holding AG slid 7.3 percent to 4.05 francs. The company in a restructuring to concentrate on the automotive sector said full-year sales fell to 241.2 million francs.

BKW FMB Energie

BKW FMB Energie AG increased 0.8 percent to 79 francs. The utility owned by the canton of Bern said full-year profit rose to 298 million francs from 139 million francs a year earlier.

Rieter Holding AG climbed 3.8 percent to 264.5 francs. The world’s biggest maker of staple-fiber spinning machines was rated “outperform” in new coverage at Credit Suisse Group AG.

Sulzer AG advanced 1 percent to 95.75 francs. The world’s second-biggest maker of pumps said full-year net income fell 16.3 percent to 270.4 million francs.

Vontobel Holding AG gained 1.1 percent to 32.6 francs. The bank that specializes in derivatives said full-year profit increased 23 percent to 138.9 million francs on higher trading income.

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

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U.K. Stocks Extend Decline After U.S. Economic Reports

By David Merritt

Feb. 25 (Bloomberg) -- U.K. stocks extended declines after a report showed the number of Americans filing first-time claims for unemployment insurance unexpectedly increased last week.

The benchmark FTSE 100 Index fell 0.7 percent to 5,304.68 ar 1:35 p.m. in London.

A separate report showed orders for U.S. durable goods rose more than forecast in January, boosted by a surge in bookings for commercial aircraft that masked a decline in demand for some business equipment.

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European Stocks Decline; Asian Shares, U.S. Futures Retreat

By Adria Cimino

Feb. 25 (Bloomberg) -- European stocks slipped as concern that Moody’s Investors Service may cut Greece’s debt rating overshadowed better-than-expected earnings from Royal Bank of Scotland Group Plc and France Telecom SA. Asian stocks and U.S. index futures fell.

Xstrata Plc, the largest exporter of coal used for power, led basic-resources shares lower as metals prices fell. RWE AG slid 1.7 percent after Germany’s second-biggest utility cut its earnings growth forecast. RBS, Britain’s largest government- controlled lender, and France Telecom, the country’s biggest phone company, climbed more than 2.5 percent.

Europe’s Dow Jones Stoxx 600 Index fell 0.3 percent to 246.41 at 1:02 p.m. in London. The benchmark gauge has retreated 5.3 percent from this year’s high on Jan. 19 amid concern over budget deficits in Greece, Spain and Portugal and as China moved to restrict lending and stop its economy from overheating. The measure has still rallied 56 percent since March last year.

“Any new element linked to Greece can have an impact on market sentiment and the outlook for growth,” said Guillaume Duchesne, a Luxembourg-based equity strategist at Fortis Private Banking, which oversees about $117 billion. “It’s a problem, especially in light of the mixed economic data that we’ve seen. Earnings are an element of support for the market. We’re very satisfied with the results.”

Greek Rating

Greece’s ASE Index slid 1.8 percent, the most among 18 western European markets, after Moody’s said the nation’s sovereign debt rating may be cut within months unless it meets the objectives of its deficit reduction plan. If Moody’s reduces its credit rating to the same level as the other major ratings companies, Greek government bonds would no longer be eligible as collateral at the European Central Bank, making it more difficult for the country to borrow.

Yesterday, after the close of Greek trading though while other European markets were still open, Standard & Poor’s said it may lower Greece’s credit rating again by the end of March as a weak economy and political opposition threaten the country’s ability to cut the European Union’s largest budget deficit.

Futures on the S&P 500 Index slid 0.6 percent before reports on durable-goods orders and jobless claims. The MSCI Asia Pacific Index fell 0.8 percent, a second day of losses.

European Confidence

European confidence in the economic outlook unexpectedly worsened in February after the euro region’s recovery almost stalled in the fourth quarter, according to the European Commission’s index of executive and consumer sentiment. The region’s economic recovery may fail to gather strength for most of 2010 as governments phase out stimulus measures and domestic demand remains “subdued,” the Commission said today in its semi- annual economic forecasts.

Xstrata sank 3.4 percent to 1,014.5 pence. Rio Tinto Group, the world’s third-biggest mining company, lost 2.6 percent to 3,274 pence. Copper, lead and nickel were among metals falling in London.

RWE slid 1.7 percent to 62.25 euros. The company said recurrent net income, which is used to calculate its dividend, will grow by an average of about 5 percent a year in the four years through 2012, down from an earlier target of about 10 percent.

RBS surged 6.6 percent to 38.53 pence, the largest gain in more than three weeks. The bank reported a narrower-than- expected full-year net loss and said impairments for bad loans are likely to have peaked.

France Telecom

France Telecom climbed 2.6 percent to 17.28 euros, the biggest intraday gain in more than three months. The company said full-year adjusted net income declined to 4.85 billion euros ($6.5 billion), beating the average analyst estimate of 4.6 billion euros.

Piraeus Bank SA lost 7.5 percent to 5.64 euros, leading Greek banks lower. The country’s fourth-biggest lender reported its lowest annual profit in five years after impairment losses increased amid mounting concern about Greece’s economic slump and the size of its budget deficit.

National Bank of Greece SA, the nation’s largest lender, fell 4 percent to 13.35 euros and EFG Eurobank Ergasias SA, the second-largest, slid 5 percent to 5.55 euros.

Hays Plc sank 9 percent to 103.1 pence, the largest intraday slide in more than two months, after the U.K.’s biggest recruitment company reported first-half profit that missed analysts’ estimates.

BAT, Tenaris

British American Tobacco Plc, Europe’s second-largest largest cigarette maker, dropped 1.9 percent to 2,1898 pence. The company posted full-year net income of 2.71 billion pounds ($4.16 billion), trailing the 2.95 billion-pound average estimate of six analysts surveyed by Bloomberg.

Tenaris SA sank 7 percent to 15.84 euros. The world’s biggest maker of seamless pipes used to extract oil and gas said four-quarter net income increased to $222.4 million. BofA- Merrill Lynch Global Research said the results were “weak” and the “outlook for 2010 stays cautious.”

BASF SE, the world’s largest chemical company, rallied 4.4 percent to 42.43 euros after cutting its dividend less than estimated. Shareholders will get a dividend of 1.70 euros a share, down from 1.95 euros in the prior year, the company said. Analysts had forecast a cut to 1.55 euros, according to a Bloomberg survey.

Safran SA, Europe’s second-largest maker of aircraft engines, jumped 9.4 percent to 16.47 euros. Adjusted net income for 2009 rose to 376 million euros, up from a restated 297 million euros, as the manufacturer benefited from higher defense and security sales.

Valeo, GKN

Valeo SA surged 5.9 percent to 21.87 euros. France’s second-largest car-parts maker reported a fourth-quarter profit as government-backed incentives spurred auto-industry sales. The company vowed to double its operating margin.

GKN Plc soared 7.4 percent to 111.3 pence. The U.K. maker of car parts for Volkswagen AG said it will make “significant progress” in 2010 and plans to restore dividend payments.

In the U.S., orders for durable goods probably rose in January by the most in four months, economists said before a Commerce Department report due at 8:30 a.m. in Washington. Bookings for goods meant to last several years increased 1.5 percent last month, according to the median estimate of 72 economists surveyed by Bloomberg News.

Labor Department figures at the same time may show that U.S. initial jobless claims fell to 460,000 last week from 473,000 the prior week.

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

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U.S. Stock-Index Futures Extend Declines After Economic Reports

By Nick Baker

Feb. 25 (Bloomberg) -- U.S. stock-index futures extended their declines after reports showed unemployment claims increased more than forecast and orders for durable goods excluding transportation equipment trailed estimates.

Standard & Poor’s 500 Index futures expiring in March lost 0.9 percent to 1,093.80 at 8:31 a.m. in New York.

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Asian Stocks Fall on Greece Concern; Commonwealth, Hynix Drop

By Shani Raja

Feb. 25 (Bloomberg) -- Asian stocks fell for a second day, led by finance and technology companies, amid speculation Greece’s credit rating will be downgraded, putting the global economic recovery at risk.

Commonwealth Bank of Australia, the nation’s biggest lender, lost 1.5 percent. Toll Holdings Ltd. slumped 18 percent in Sydney after the air-freight and logistics company posted lower profit. Hynix Semiconductor Inc. fell 2.3 percent in Seoul on speculation creditors will sell a stake in the company. Contact Energy Ltd., New Zealand’s biggest publicly traded electricity company, climbed 4.2 percent as investors sought haven from risk.

The MSCI Asia Pacific Index fell 0.7 percent to 116.94 at 7:19 p.m. in Tokyo. Concern that Greece, Spain and Portugal will struggle to curb deficits contributed to the gauge’s 7.8 percent drop from a 17-month high on Jan. 15. Standard & Poor’s said late yesterday it may lower Greece’s credit rating by the end of March. The country may see its sovereign debt rating cut within months, Moody’s Investors Service said in Tokyo today.

“The Greece issue just seems to drag on,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which oversees about $90 billion. “When issues like potential defaults come up, you see an escalation of nervousness. Investors are worried things might fall back again.”

Japan’s Nikkei 225 Stock Average dropped 1 percent, while Hong Kong’s Hang Seng Index sank 0.3 percent. South Korea’s Kospi Index and Taiwan’s Taiex declined more than 1.3 percent. Australia’s S&P/ASX 200 Index fell 1.2 percent.

Low Rates

The Shanghai Composite Index rose 1.3 percent after China’s government said it will extend support for the country’s industries amid weak global demand. Qingdao Haier Co., the air- conditioner and refrigerator unit of China’s biggest appliance maker, climbed 2.4 percent.

Futures on the Standard & Poor’s 500 Index lost 0.3 percent. The gauge rose 1 percent yesterday after U.S. Federal Reserve Chairman Ben S. Bernanke said the economy still needs low interest rates.

The MSCI Asia Pacific Index erased an earlier 0.2 percent advance as Greece concerns mounted. S&P cut Greece’s credit rating in December and yesterday flagged another possible downgrade. Greece may see its debt rating lowered within months should it fail to meet the objectives in its fiscal deficit reduction plan, Pierre Cailleteau, managing director of sovereign risk at Moody’s, said in Tokyo today.

Commonwealth Bank sank 1.5 percent to A$53.18. KB Financial Group Inc., owner of South Korea’s largest lender, slumped 4 percent to 48,950 won as the financial regulator said it found some accounting discrepancies at the company’s Kookmin Bank unit. Woori Finance Holdings Co., South Korea’s second-biggest financial company by assets, lost 3.7 percent to 13,000 won.

Safe Haven

“The concern is that the size of the bailout for Greece will be limited,” said Tahnoon Pasha, regional head of equities at MFC Global Investment Management in Hong Kong, which oversees $30 billion. “It’s reinforcing the ongoing process of taking risk off the table.”

Contact Energy Ltd. gained 4.2 percent to NZ$6.14 in Wellington as investors sought stocks less tied to economic growth. Tohoku Electric Power Co. climbed 1.4 percent to 1,933 yen in Tokyo. Manila Electric Co., the Philippines’ largest power retailer, jumped 4.1 percent to 177 pesos.

In Sydney, Toll Holdings plunged 18 percent to A$7.10 after the company reported that first-half net income fell 32 percent. Also in Sydney, Iluka Resources Ltd. dropped 3.5 percent to A$3.62. The world’s biggest zircon producer swung to a full-year loss after a decline in demand cut sales and forced the company to write down the value of deposits and close mines.

Analyst Estimates

Goodman Fielder Ltd., Australia’s largest baker, slumped 4.2 percent to A$1.48. The company said first-half profit rose 25 percent to A$90.3 million ($81 million). Earnings were expected to rise to A$92.4 million, the median estimate of analysts surveyed by Bloomberg.

Hynix lost 2.3 percent to 21,700 won in Seoul. The world’s second-largest computer-memory chipmaker slumped after Yonhap News reported that creditors will sell as much as 13 percent of the company this year.

In Tokyo, Denso Corp. declined 2.8 percent to 2,418 yen after one of the autoparts maker’s units was inspected by the U.S. Federal Bureau of Investigation. The unit in America is cooperating with the investigation, said Bridgette Gollinger, a spokeswoman for the subsidiary.

Low Interest Rates?

The MSCI Asia Pacific Index had risen earlier on Bernanke’s comments that a slack labor market and low inflation will allow the Federal Open Market Committee to keep the benchmark lending rate low “for an extended period.”

The gauge dropped the most in two weeks on Feb. 19 after the Fed raised the discount rate from 0.5 percent to 0.75 percent on Feb. 18, triggering concern stimulus programs are winding down. Companies in the MSCI measure trade at 18 times estimated earnings, compared with 14.2 times for the S&P 500 and 12.4 times for the Dow Jones Stoxx 600 in Europe.

“Bernanke stuck to the script and emphasized the Fed’s commitment to maintaining interest rates at low levels until the economic recovery becomes self-sustaining,” said Tim Schroeders, who helps manage about $1.1 billion of equity investments at Pengana Capital Ltd. in Melbourne.

In Shanghai, Qingdao Haier rose 2.4 percent to 21.91 yuan, leading consumer-related companies higher after China’s State Council, or Cabinet, said it will maintain measures to boost car and home-appliance sales in rural areas.

GD Midea Holding Co., China’s second-biggest publicly traded appliance maker, climbed 3 percent to 21.11 yuan.

“Boosting consumption is the government’s key task this year and that investment theme will persist throughout the year,” said Yan Ji, who helps oversee about $1.2 billion at HSBC Jintrust Fund Management Co. in Shanghai. “Some big-cap stocks are bargains given they will see continuing earnings growth and economic fundamentals are still sound.”

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

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Australia’s Rate Pause May Be Short-lived Amid Employment Boom

By Jacob Greber

Feb. 12 (Bloomberg) -- The biggest Australian jobs boom in five years may make it harder for central bank Governor Glenn Stevens to extend a pause in recent interest-rate gains.

Investors doubled bets the Reserve Bank of Australia will raise the overnight cash rate target by a quarter percentage point to 4 percent next month after a report yesterday showed employers added 52,700 workers in December, more than three times the 15,000 median estimate of 21 economists surveyed by Bloomberg News.

The fifth straight month of employment increases drove the jobless rate to an 11-month low of 5.3 percent, almost half European Union and U.S. levels, and stoked gains in Australia’s currency. Rising demand from mining companies such as Chevron Corp. for skilled workers threatens to push up wages and adds to signs the $1 trillion economy is robust enough to weather higher borrowing costs.

“The sting in the tail is that the job market is tightening, potentially causing employers to bid up for staff,” said Craig James, a senior economist at Commonwealth Bank of Australia who says the odds of a rate increase next month are about even.

Traders say there is a 46 percent chance of a quarter-point increase on March 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 4:03 p.m. yesterday. Prior to the jobs report, the chance of a move stood at 24 percent.

Stevens will raise the central bank’s key rate to 4 percent next month, according to eight of 17 economists surveyed by Bloomberg News yesterday. All expect an increase in borrowing costs by the end of next quarter.

Stronger Currency

The Australian dollar, which has jumped 36 percent in the last 12 months, rose to 88.85 U.S. cents in Sydney yesterday from 87.72 cents just before the report was released. The S&P/ASX 200 index of stocks rose 0.9 percent to 4,554.30.

Australian employers have added 194,600 jobs since August, the biggest five-month surge since employers created 214,000 jobs between September 2004 and January 2005.

Stevens unexpectedly kept the overnight cash rate target unchanged at 3.75 percent last week, saying information about the impact on the economy of quarter-point gains every month last quarter is still limited.

Yesterday’s report means “it’s now likely that the Reserve Bank will make a further cautious adjustment” next month, said Matthew Johnson, an interest-rate strategist at UBS AG in Sydney. “While the bank need not push too hard in response to this labor-market report, if employment growth sustains this pace, we’ll obviously be wrong about their gradualism,” Johnson said.

Resources Boom

Yesterday’s report reinforces the central bank’s prediction last week that Australia’s economic growth will accelerate this year as resources companies boost investment in mines and gas fields to meet rising global demand for iron ore, coal and energy.

The nation’s unemployment rate has tumbled from 5.8 percent in October, after Prime Minister Kevin Rudd’s government stoked the economy by distributing more than A$20 billion ($18 billion) in cash to consumers. Another A$22 billion is being spent on roads, railways and schools.

In contrast, the unemployment rate in the U.S. was 9.7 percent in January, and 10 percent in November among European Union countries, the highest rate in more than 11 years. New Zealand’s jobless rate climbed to 7.3 percent in the fourth quarter, the highest in more than 10 years, and Japan’s rate was 5.1 percent in December.

Faster Growth

The rebound in Australia’s economy, one of the few to skirt last year’s global recession, is being driven by a combination of the government’s stimulus package, Governor Stevens’ decision to slash interest rates to a half-century low of 3 percent in April last year, a stronger currency and the resilience of China, Treasury Secretary Ken Henry said yesterday in Canberra.

Gross domestic product will climb 3.25 percent in the three months through December 2010 from a year earlier, after gaining an annual 2 percent in the fourth quarter of 2009, the bank said in its quarterly monetary policy statement published last week.

“It now looks likely that the unemployment rate has peaked around 5.75 percent, a much better outcome than thought likely early last year,” when the government forecast the jobless rate would reach 8.5 percent in 2010, the central bank said on Feb. 5.

The number of full-time jobs gained 15,900 in January and part-time employment increased 36,900, yesterday’s report showed.

A shortage of workers may increase costs and cause delays at the nation’s liquefied natural gas projects, Fitch Ratings said on Feb. 8.

Pay Rise

The Maritime Workers Union of Australia has secured a A$50,000 pay increase over three years for workers at Total Marine Services Ltd., the Australian Broadcasting Corp. reported last week.

Marius Kloppers, chief executive officer of BHP Billiton Ltd., the world’s biggest mining company, said this week that the skills shortage in Australia’s resources industry is emerging faster than expected.

Chevron in December announced it signed an $82 billion deal with Japan’s Tokyo Electric Power Co. to supply liquefied natural gas from its Wheatstone field in Western Australia. The project is forecast to generate 6,500 jobs during construction.

It is in addition to the Chevron-led Gorgon gas venture, which is forecast to create another 10,000 jobs when construction starts this year.

Still, not all analysts are convinced that yesterday’s jobs report will prompt Stevens to raise borrowing costs next month.

“Despite the strength of the employment numbers over recent months, there is a soft underbelly” to the labor market, said Stephen Roberts, an economist at Nomura Ltd. in Sydney.

The number of hours worked declined 1 percent in January from December and 1.2 percent from a year earlier, which “will ultimately affect growth in household disposable income,” Roberts said. “The next cash rate hike is likely to be in May.”

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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U.S. Economy to Strengthen, Reducing Unemployment, Survey Says

By Bob Willis and Alex Tanzi

Feb. 11 (Bloomberg) -- U.S. unemployment peaked in October and will retreat through 2011 as the economy strengthens, according to economists surveyed by Bloomberg News.

The world’s largest economy will grow 3 percent this year and next, more than anticipated a month ago, according to the median estimate of 62 economists polled this month. The jobless rate, which reached a 26-year high of 10.1 percent in October, will end the year at 9.5 percent.

Efforts to rebuild inventories, investments in new equipment and software and improving sales overseas will spur employment and household spending. Scant inflation will give Federal Reserve policy makers room to keep the target interest rate near zero through the third quarter, buying the economy enough time to reach a self-sustaining expansion.

“It’s a matter of time before strength in the economy effectively feeds on itself, with more employment leading to stronger spending, which in turn leads to more employment,” said James O’Sullivan, global chief economist at MF Global Ltd. in New York. “The key is going to be the business sector leading the way and consumer spending following.”

Consumer purchases, which account for 70 percent of the economy, will grow 2 percent this year and expand 2.5 percent in 2011. By comparison, spending rose 3.3 percent on average over the two decades through 2007.

“Consumption has been on an uptrend,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. “The main reason for the pickup in recent months has been an improvement in the labor market.”

Less Unemployment

Unemployment fell to 9.7 percent last month from 10 percent in December, according to the Labor Department. Joblessness will average 9.1 percent in 2011.

A growing economy this year may generate 1.4 million jobs, according to the median estimate of economists surveyed this month by Blue Chip Economic Indicators. The U.S. has lost 8.4 million jobs since the recession began in December 2007, the most in the post-World War II period.

President Barack Obama last week announced he will back a temporary increase in Small Business Administration loans to $1 million from $350,000 to encourage hiring after government figures showed an unexpected loss of 20,000 jobs in January,

The administration says the $787 billion stimulus plan passed one year ago this month has funded up to 2 million jobs, yet more needs to be done.

Obama Proposals

“Far too many of our neighbors and friends and family are still out of work,” Obama said after touring a small business in the Washington suburb of Lanham, Maryland, last week.

The lack of jobs means companies will have to carry the economy in coming months by updating equipment, said David Resler, chief economist at Nomura Securities International Inc. in New York.

“Businesses simply haven’t invested enough in new Equipment, and I think there is pent-up demand,” said Resler.

Purchases of equipment and software increased at a 13 percent pace in the fourth quarter, the most since 2006, the government reported Jan. 29.

W.R. Grace & Co., the maker of catalysts and construction materials that is preparing to exit bankruptcy protection, is among companies planning to boost investments as global demand improves.

Sales volumes will rise 3 percent to 7 percent this year as spending on construction projects in Asia, the Middle East and Latin America rises, the Columbia, Maryland-based company said Feb. 2. It plans a 44 percent increase in capital spending to better support the projected sales gains.

Growth Accelerates

The U.S. economy grew at a 5.7 percent annual pace in last year’s fourth quarter, the best performance in six years, the government reported Jan. 29. Efforts to stabilize inventories contributed 3.4 percentage points to growth.

While the amount of the contribution will slow, the need to replenish stockpiles will keep factories growing. Manufacturing expanded in January at the fastest pace since 2004 as orders and production increased, the Institute for Supply Management said this month.

Households are still trying to overcome a record loss of wealth during the recession as home values and stock prices slumped, one reason why spending will be slow to recover.

Rising stocks are helping mend tattered balance sheets. The Standard & Poor’s 500 Index rose 65 percent last year from its 12-year low reached on March 9. The rebound has stalled with the gauge falling 4.2 percent so far this year as China stepped up efforts to curb lending, the Obama administration proposed rules to rein in risk-taking at banks and concern grew over government debt levels in Greece, Spain and Portugal.

Less Inflation

Little inflation on the horizon means the Fed will hold the target rate for overnight loans between banks at its current range of zero to 0.25 percent through the first nine months of the year, according the median estimate of economists surveyed this month, the same as in the prior survey. The rate will rise to 0.75 percentage point by the end of the year.

The central bank’s preferred price gauge, which tracks consumer spending and excludes food and fuel costs, will rise 1.3 percent this year, the smallest gain since 1964, according to the survey median.

To contact the reporters on this story: Bob Willis in Washington bwillis@bloomberg.net; Alex Tanzi in Washington at atanzi@bloomberg.net

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Jobless Claims in U.S. Decrease More Than Anticipated

By Courtney Schlisserman

Feb. 11 (Bloomberg) -- Fewer Americans than anticipated filed claims for unemployment insurance last week as an administrative backlog subsided and indicating companies are nearing the end of major staff cuts as the economy recovers.

Initial jobless applications declined by 43,000 to 440,000 in the week ended Feb. 6, the lowest level in five weeks, from 483,000 the prior week, Labor Department figures showed today in Washington. The total number of people receiving unemployment insurance and those receiving extended benefits decreased.

The fastest pace of growth in six years last quarter means the economy may be poised to add jobs as companies restock shelves to keep pace with increased sales. At the same time, with an unemployment rate projected to average almost 10 percent this year, consumer spending may be slow to recover.

“Things have not really deteriorated,” said Stephen Gallagher, chief U.S. economist at Societe Generale SA in New York. “Unfortunately it doesn’t show much improvement either.”

Stock-index futures extended earlier gains after the report. The contract on the Standard & Poor’s 500 Index climbed 0.4 percent to 1,067.3 at 8:42 a.m. in New York. Treasury securities fell.

Less Than Anticipated

Economists forecast claims would fall to 465,000, from a previously estimated 480,000 for the week ended Jan. 30, according to the median of 47 projections in a Bloomberg News survey. Estimates ranged from 440,000 to 485,000.

The drop in applications represents the end of an ‘administrative backlog’ that built up when government offices were closed during the year-end holidays, a Labor Department spokesman said in a press conference. The current figures signal a return to a more “normal” level of claims, he said.

Continuing claims decreased to 4.54 million in the week ended Jan. 30, the fewest since January 2009. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs.

The number of people who’ve used up their traditional benefits and are now collecting extended payments dropped by about 171,000 to 5.68 million in the week ended Jan. 23.

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.5 percent in the week ended Jan. 30, today’s report showed. Thirty-six states and territories had an increase in claims for that same week, while 17 had a decrease.

Unemployment Declines

The unemployment rate in the U.S. unexpectedly dropped to 9.7 percent in January, while payrolls declined by 20,000, Labor Department figures showed Feb. 6. Manufacturers added to payrolls for the first time in three years and that may provide some spark to revive the rest of the labor market.

Even so, companies continue to cut staff.

United Parcel Service Inc., the world’s largest package- delivery company, said Feb. 8 it plans to furlough at least 300 pilots unless it can find more savings in a joint effort with the employees’ union. The company already is cutting 1,800 small-package jobs.

“Even though the economy has begun to turn around, UPS anticipates a very gradual recovery and a continued need for belt-tightening,” Bob Lekites, president of UPS Airlines, said in a statement.

News on the U.S. labor market: {TNI US LABOR } Stories on the U.S. economy: {TNI US ECO } Stories on consumers: {TNI US CONS } For a news search on the recession: {STNI USRECESSION }

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Indian Wheat Crop May Suffer From Drought, Meteorologist Says

By Rudy Ruitenberg

Feb. 11 (Bloomberg) -- The wheat harvest in India, the world’s second-biggest grower, may suffer from drought in the country’s western cultivation regions, agricultural meteorologist Gail Martell said.

Northwest India’s vegetation index, an indication of plant growth, is lower than a year ago because of stress to crops in December and January, Martell, who heads Whitefish Bay, Wisconsin-based Martell Crop Projections, said in a report. The country had a “very poor” summer monsoon, with the lowest rainfall in 37 years, according to the report.

“The Indian government is hoping for a bountiful wheat harvest to offset a serious shortage in summer rice,” Martell said. “Dry conditions in western India are tainting the outlook, spoiling chances for a bumper wheat harvest.”

Estimates for an Indian wheat crop of 82.4 million metric tons are “overly optimistic” because of the weather stress in the western states, according to Martell. The wheat harvest will start in central India in March and move north in April, according to the report.

Sub-par wheat yields are likely in the normally productive irrigated states of Punjab and Haryana, while Madhya Pradesh has the best potential for the grain, the meteorologist said.

“Pakistan wheat potential looks terrible in the northern growing regions bordering India,” Martell said. “January was particularly dry.”

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net

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Gold May Gain in New York on Concern Dollar Has Rallied Too Far

By Nicholas Larkin and Kyoungwha Kim

Feb. 11 (Bloomberg) -- Gold, little changed in New York today, may climb on speculation the dollar’s strength is overdone, increasing bullion’s appeal as an alternative asset.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, added 0.2 percent after the agreement brokered by the European Union to help Greece weather its debt crisis offered few details. Industrial commodities including copper rose as reports in Australia and China signaled a stronger economic recovery.

“A lot of people believe that the dollar’s risen too far too fast and are flocking to gold,” said Tom Schweer, a senior market strategist at LaSalle Futures Group Inc. in Chicago. Gold may also be benefiting from higher prices of other commodities, he said.

Gold futures for April delivery added $3.10, or 0.3 percent, to $1,079.40 an ounce on the New York Mercantile Exchange’s Comex unit at 9:26 a.m. local time. Gold for immediate delivery in London was 0.7 percent higher at $1,079.10.

The metal increased to $1,079.50 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $1,069.50 at yesterday’s afternoon fixing. The dollar has gained as concern about Greece’s finances weighed on the euro.

“We expect dips to continue to draw investment interest” on sovereign debt concerns, while “the positive economic outlook in the Asian region has given gold a lift,” James Moore, an analyst at TheBullionDesk.com in London, said in a report.

Greece, Spain, Portugal

The dollar has climbed 4.8 percent against the euro this year on concern that fiscal gaps in Greece, Spain and Portugal may widen. Euro-region leaders including German Chancellor Angela Merkel ordered Greece to get the bloc’s highest budget deficit under control and said they are prepared to take “determined” action to staunch the worst crisis in the currency’s 11-year history.

Fewer Americans than anticipated filed claims for unemployment insurance last week, the Labor Department said today. Australia’s jobless rate unexpectedly fell last month amid the country’s biggest hiring boom in five years, while China’s statistics bureau said lending surged to 1.39 trillion yuan ($204 billion) in January and property prices climbed the most in 21 months.

“I won’t rule out that gold will go down to $950 or $1,000, but I don’t expect more downside,” investor Marc Faber, who publishes the “Gloom, Boom and Doom Report,” said in an interview with Bloomberg Television in Hong Kong. “I don’t see any scenario where gold will collapse.”

Central Banks

Gold advanced 24 percent in 2009, a ninth consecutive gain, as governments cut interest rates and spent trillions of dollars to prop up economies and central banks in nations including India and China boosted bullion reserves. Gold futures are down 1.5 percent this year.

The Federal Reserve may raise its discount rate “before long” as part of the “normalization” of lending, Chairman Ben S. Bernanke said yesterday in testimony for Congress. A change in the rate, currently at 0.5 percent, won’t signal an altered outlook for monetary policy, he said, repeating that low rates are warranted “for an extended period.”

Silver for March delivery in New York lost 0.2 percent to $15.27 an ounce. Platinum for April delivery fell 0.4 percent to $1,506.80 an ounce. Palladium for March delivery gained 0.9 percent to $417.05 an ounce.

To contact the reporters on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net; Nicholas Larkin at nlarkin1@bloomberg.net.

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Asian Stocks Rise on China Consumer Prices, Australian Jobs

By Jonathan Burgos

Feb. 11 (Bloomberg) -- Asian stocks rose for a third day, led by materials producers and banks, as lower-than-estimated inflation in China and an increase in Australian jobs eased concern tighter monetary policy in the region will hurt growth.

Baoshan Iron & Steel Co. climbed 5.7 percent in Shanghai as pressure eased for the central bank to raise interest rates. Commonwealth Bank of Australia gained 2.3 percent after the country’s employers added more jobs last month than economists expected. Wumart Stores Inc. surged 11 percent in Hong Kong after MSCI Inc. said it will add the company to its indexes. Korea Electric Power Corp. jumped 4.8 percent after winning approval to adjust tariffs.

The MSCI Asia Pacific excluding Japan Index added 1.8 percent to 388.44 as of 6:19 p.m. in Hong Kong. Japan and Taiwan are closed today. The MSCI gauge has lost 10 percent from an 18- month high on Jan. 11 as China and India took steps to curb inflation and concern grew Greece, Spain and Portugal will struggle to trim budget deficits.

“Over the next few months we’ll start to see a fading of concerns about a hard landing in China, the issue of Greece will be dealt with and issues concerning growth in the U.S. will also start to fade,” Shane Oliver, head of investment strategy at AMP Capital Investors, which oversees about $90 billion globally, told Bloomberg Television in Sydney. “Investors should be using this market weakness as a buying opportunity.”

Hong Kong’s Hang Seng Index rose 1.9 percent. Australia’s S&P/ASX 200 Index gained 0.9 percent. New Zealand’s NZX 50 Index fell 0.7 percent as the country’s manufacturing industry expanded at a slower pace in January.

Missing Estimates

The Kospi Index increased 1.8 percent in South Korea, where the central bank left its key interest rate unchanged today. STX Offshore & Shipbuilding Co. jumped 6.3 percent, leading the country’s shipyards higher, after winning a $700 million order.

Futures on the U.S. Standard & Poor’s 500 Index advanced 0.5 percent. The gauge fell 0.2 percent yesterday as results at Sprint Nextel Corp. and Dean Foods Co. trailed estimates and concern grew that the economic recovery may slow as the Federal Reserve withdraws stimulus measures.

The MSCI Asia Pacific Index, which includes Japan, completed its third weekly decline last week as concerns over debt in Europe dented investor confidence. That cut the average price of stocks in the gauge to 18 times estimated earnings, the lowest level since February 2009, according to data compiled by Bloomberg.

Baoshan Iron & Steel, China’s biggest steelmaker, gained 5.7 percent to 7.83 yuan and Hebei Iron & Steel Co., the listed unit of the No. 2, advanced 2.7 percent to 5.74 yuan.

Tightening Measures

China’s government said consumer prices rose 1.5 percent in January, lower than the 2.1 percent median forecast in a Bloomberg News survey of economists. China has been taking steps to cool an economy that expanded 10.7 percent in the fourth quarter, the fastest pace in two years. The central bank ordered lenders on Jan. 12 to set aside larger reserves.

“The urgency for immediate interest rate increases has receded as consumer prices look stable,” said Ally Wang, who helps oversee about $1.2 billion at HSBC Jintrust Fund Management Co. “But the tightening concern is still there and data for the following months still needs to be closely watched.”

The People’s Bank of China said today that China’s lending surged to 1.39 trillion yuan ($203 billion) in January, more than in the previous three months combined.

Inner Mongolia Yitai Coal Co.’s dollar-denominated B shares jumped 5.6 percent to $9.125 in Shanghai after the company, a coal producer, reported an increase in 2009 net income.

Lower Jobless Rate

Optimism for growth in Australia’s economy boosted Commonwealth Bank by 2.3 percent to A$53. Australia & New Zealand Banking Group Ltd. added 2.7 percent to A$20.75.

Australian employers added 52,700 jobs from December, the fifth-straight monthly gain, the statistics bureau said in Sydney today. The median estimate of 21 economists surveyed by Bloomberg was for 15,000 new positions. The jobless rate fell to 5.3 percent from 5.5 percent.

James Hardie Industries NV, the biggest seller of home siding in the U.S., advanced 2.4 percent to A$7.85. The company said operating profit rose 66 percent in the third quarter and expects full-year operating profit to be close to the top range of analyst estimates.

“People are more optimistic for the time being and a bit happier the way the world is panning out,” said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne.

Material, Energy Shares

Material and energy shares posted the biggest advances of the MSCI Asia Pacific excluding Japan Index’s 10 industry groups. Oil producers gained as crude futures rose 1 percent to $74.52 a barrel in New York yesterday. Prices added 0.5 percent today, the fourth-consecutive advance.

Woodside Petroleum Ltd., Australia’s No. 2 oil producer, rose 3.2 percent to A$43. Santos Ltd., Australia’s No. 3 oil producer, climbed 1.6 percent to A$13.25. PetroChina Co., China’s largest oil producer, gained 2 percent to HK$8.68.

Korea Electric, supplier of almost all of South Korea’s electricity, gained 4.8 percent to 39,200 won after the government allowed it to adjust tariffs to reflect changes in fuel costs starting July 2011.

Wumart jumped 11 percent to HK$14.62 after MSCI said it will include the company in its indexes. Skyworth Digital Holdings Ltd. and Semiconductor Manufacturing International Corp., which will also be added, both surged more than 5 percent. The changes will be made at the close of Feb. 26.

MSCI Additions

“People are going to be pretty cautious today with Japan and Taiwan shut and a lot of volume will be off on that,” said Andrew Sullivan, a sales trader at Mainfirst Securities Hong Kong Ltd. “Chinese New Year is starting this weekend, so you won’t get a lot of bets being put on before that. On the positive side, you’ve got the MSCI additions.”

In Seoul, STX Offshore climbed 6.3 percent to 11,900 won after a unit won an order to build a liquefied natural gas terminal in Mexico. Hyundai Heavy Industries Co., the world’s No. 1 shipbuilder, jumped 7.1 percent to 220,000 won. Its subsidiary Hyundai Mipo Dockyard Co. climbed 10 percent to 123,500 won.

“The order has increased expectations that there could be more in the coming months,” said Lee Jae Won, an analyst at Tong Yang Securities Inc. in Seoul.

Telstra Corp. and Malaysian Airline System Bhd. posted the biggest declines on the MSCI Asia Pacific excluding Japan Index. Telstra sank 5 percent to A$3.22 in Sydney after cutting its annual revenue forecast for a second time in two months. The company also said first-half profit fell 3.3 percent.

Malaysian Airline, the country’s national carrier, slumped 5.9 percent to 1.92 ringgit after investors sold the stock to seek out cheaper rights shares. The company had raised funds through a rights offer at 1.60 ringgit each. Its rights entitlement began trading today at 16.5 sen each.

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

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German Stocks End Three-Day Winning Streak; Deutsche Bank Falls

By Alexis Xydias and Julie Cruz

Feb. 11 (Bloomberg) -- German stocks dropped, driving the benchmark DAX Index to its first decline this week, as investors weighed an agreement by European leaders to tackle Greece’s budget deficit.

Deutsche Bank AG and Commerzbank AG, the country’s biggest banks, lost at least 2 percent. Deutsche Lufthansa AG fell as rival Air France-KLM Group forecast a worse-than-expected loss for the fourth quarter.

The DAX Index lost 1.2 percent to 5,469.49 as of 3:44 p.m. in Frankfurt, the first decline since Feb. 2. The gauge has fallen 9.6 percent since this year’s high in January on concern governments and central banks will withdraw stimulus measures and speculation Greece will struggle to tame its deficit. The broader HDAX Index lost also lost 1.2 percent.

European leaders ordered Greece to get the bloc’s highest budget deficit under control and said they were prepared to take “determined” action to staunch the worst crisis in the euro currency’s 11-year history.

The agreement, brokered by German Chancellor Angela Merkel, Greek Prime Minister George Papandreou, and European Central Bank President Jean-Claude Trichet, stopped short of offering concrete measures to help Greece handle a debt load that exceeds its annual economic output.

“The escalation of the tensions in EMU and the uncertain prospect of a near-term and sustainable positive resolution of the underlying causes make a more cautious strategy appear advisable,” wrote Munich-based Tammo Greetfeld of UniCredit SpA in a strategy report. “Capital preservation now has priority.”

German Banks

Deutsche Bank and Commerzbank lost 2.8 percent to 44.39 euros and 2 percent to 5.57 euros, respectively.

German banks had foreign claims of $330.8 billion related to the three countries on Sept. 30, according to the most recent data from the Bank for International Settlements in Basel, Switzerland. French banks had $306.8 billion of claims and U.K. lenders $156.3 billion, the data show.

Lufthansa, Germany’s largest airline, dropped 3.7 percent to 10.91 euros. Air France tumbled 7 percent after the company reported a third-quarter loss that was wider than the average analyst and projected a worse-than-expected result for the current period.

Daimler AG, the world’s biggest maker of luxury cars, fell 3.3 percent to 32.54 euros, while Bayerische Motoren Werke AG declined 1.9 percent to 29.11 euros. The Dow Jones Stoxx 600 Automobiles & Parts Index fell as much as 3.2 percent today, the worst performance among 19 industry groups in Europe’s Dow Jones Stoxx 600 Index.

Aurubis AG surged 4.4 percent to 31.40 euros. The company posted first-quarter net income of 90 million euros ($124 million) compared with a net loss of 98 million euros in the year-ago period. Aurubis said it expects demand for copper products to rise “in the mid-term” and sees full-year operating profit rising.

The following shares also rose or fell in German markets. Stocks symbols are in parentheses.

Celesio AG (CLS1 GY) dropped 1.2 percent to 20.49 euros. The German drug wholesaler was rated “underweight” in new coverage at Morgan Stanley, with a share price estimate of 19 euros.

Dialog Semiconductor Plc (DLG GY) climbed 11 percent to 10.70 euros, the biggest one-day gain in more than a month. Chief Executive Officer Jalal Bagherli said he’s relaxed about analyst predictions for the German chipmaker’s revenue to rise as much as 38 percent this year.

Fresenius SE (FRE3 GY) rose 2 percent to 49.23 euros. The health-care company was rated “overweight” in new coverage at Morgan Stanley, which set a share-price estimate of 60 euros.

Gerresheimer AG (GXI GY) slumped 4.4 percent to 22.35 euros, on course for the lowest close since November. The German medical-packaging company was cut to “neutral” from “overweight” at Piper Jaffray.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net; Julie Cruz in Frankfurt at jcruz6@bloomberg.net

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U.K. Stocks Fluctuate; Lloyds, Barclays Fall, Rio Tinto Gains

By Adria Cimino

Feb. 11 (Bloomberg) -- U.K. stocks fluctuated between gains and losses as investors weighed a European Union agreement to deal with Greece’s debt crisis.

Lloyds Banking Group Plc led financial shares lower. BT Group Plc sank 8.2 percent after saying the regulator has concerns about the valuation and recovery plan of its pension program. Rio Tinto Group, the world’s third-largest mining company, advanced after swinging to a profit in the second half.

The benchmark FTSE 100 Index added 7.59, or 0.2 percent, to 5,139.58 as of 3:07 p.m. in London after swinging between gains and losses at least 12 times. The index has lost 7.3 percent since this year’s high on Jan. 11 amid concern Greece, Spain and Portugal will struggle to curb their budget shortfalls. The FTSE All-Share Index rose 0.2 percent and Ireland’s ISEQ Index slid 0.4 percent.

The EU deal is “a first step, a first bit of good news,” said Arnaud Scarpaci, a fund manager at Agilis Gestion in Paris, which oversees about $150 million. “Now we have to see how it will be done and over what time frame. The stock market remains nervous.”

EU leaders meeting in Brussels today ordered Greece to get the bloc’s highest budget deficit under control and said they were prepared to take “determined” action to staunch the worst crisis in the euro currency’s 11-year history. The agreement stopped short of offering concrete measures to help Greece handle a debt load that exceeds its annual economic output.

Lloyds, Barclays

Lloyds, the U.K.’s biggest mortgage lender, lost 4.8 percent to 47.61 pence. Barclays Plc, Britain’s third-largest bank, slid 4 percent to 266.8 pence.

BT Group sank 8.2 percent to 120.6 pence. The U.K.’s largest fixed-line phone company said the pensions regulator has “substantial concerns with certain features of the agreement” between the company and the trustee of the BT pension plan on the triennial actuarial funding valuation and recovery program.

Rio Tinto advanced 1.4 percent to 3,182 pence. The company reinstated the payment of a dividend after swinging to a second- half profit as prices increased because of the global economic recovery.

The following shares also rose or fell in London. Stock symbols are in parentheses.

Catlin Group Ltd. (CGL LN) jumped 3.4 percent to 336 pence for the biggest gain since December. The owner of the largest insurance unit at Lloyd’s of London reported a 2009 profit on lower claims resulting from a benign U.S. hurricane season.

Diageo Plc (DGE LN) slipped 1.9 percent to 1,006 pence after three days of gains. The maker of Smirnoff vodka and Captain Morgan rum said first-half operating profit fell 6 percent to 1.54 billion pounds, missing analyst estimates.

Halma Plc (HLMA LN) soared 5.7 percent to 240.7 pence, for the biggest gain since December. The world’s second-biggest maker of smoke detectors expects its full-year net income to exceed market expectations as average weekly revenue rose 3 percent in the last four months compared with the first half of its financial year.

Rolls-Royce Plc (RR/ LN) rallied 6 percent to 518 pence, for the biggest gain since July. The world’s second-largest maker of aircraft engines reported annual profit ahead of analyst estimates and said it will raise the planned payout to investors after winning more defense contracts.

Smith & Nephew Plc (SN/ LN) increased 4.6 percent to 662 pence for its biggest gain since September. Europe’s largest maker of shoulder and knee implants said fourth-quarter operating profit rose 5.6 percent to $189 million.

Sports Direct International Plc (SPD LN) jumped 7.3 percent to 104.1 pence, the biggest gain since November. The largest U.K. sporting-goods retailer said group total sales in the 13 weeks to Jan. 24 were 370 million pounds ($577 million).

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

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Greece Bailout Rumors Continue To Swirl

Daily Forex Fundamentals | Written by AC-Markets | Feb 10 10 11:14 GMT |

Market Brief Stocks rallied, with emerging-market equities recovering from the worst three-day slide in a year, and the EUR and commodities gained as European officials said they were considering financial assistance for Greece (but since has been heavily refuted). The S&P 500 Index rose 1.3% while the MSCI Emerging Markets Index increased 1.9% after falling 6.1% in the past three sessions. The EUR strengthened the most in more than five months against the USD, snapping four days of declines, and ended a three-day drop against the JPY. Oil, copper and aluminum surged at least 2.2% to help lead gains in commodities. The S&P 500 erased yesterday's 0.9% drop and the DJIA rallied above 10,000, increased 150.25 points, or 1.5%, to 10,058.64 for its biggest gain since Nov. 9. The EUR climbed as much as 1.4% against the USD, its biggest gain since Sept. 8. The EUR appreciated 1.4% versus the JPY and 0.2% compared with the GBP. US wholesalers unexpectedly fell in December after the biggest increase in more than five years, indicating distributors had trouble keeping up with demand. The 0.8% decrease in stockpiles followed a revised 1.6% gain in November that was the largest since July 2004. ACM FOREX Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

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