Stocks Rising 17% Since Bernanke Disclosed QE2 Disarms Fed's Worst Critics

Ben S. Bernanke, chairman of the U.S. Federal Reserve. Photographer: Joshua Roberts/Bloomberg

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Dec. 16 (Bloomberg) -- John Taylor, a professor of economics at Stanford University and a former Treasury undersecretary, discusses Federal Reserve monetary policy and the outlook for U.S. economic recovery. Taylor speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

Republican leaders in Congress say they have “deep concerns” about Ben S. Bernanke’s second round of quantitative easing. The U.S. stock and credit markets don’t share those reservations.

The Standard & Poor’s 500 Index has climbed 17 percent since the Federal Reserve chairman first indicated on Aug. 27 that the central bank might buy more securities to boost the economy. Junk bonds rallied, with the extra yield that investors demand to own the securities instead of government debt shrinking to 5.45 percentage points yesterday from 6.81 points, according to Bank of America Merrill Lynch index data.

“It has been successful,” Peter Hooper, chief economist at Deutsche Bank Securities Inc. in New York, said of Bernanke’s policy of pumping money into the financial system, dubbed QE2. “It’s contributed to the rally in the stock market” and has “been important in reducing substantially the downside risk of deflation.”

Economic reports signal the recovery is gaining strength. A bigger-than-projected increase in retail sales in November prompted Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, to raise his outlook for fourth-quarter consumer spending. Industrial production in November also exceeded forecasts, and a gauge of consumer confidence rose to a six-month high in December.

The data, coupled with the prospect Congress will pass an $858 billion plan to extend Bush-era tax cuts, has prompted economists to boost their estimates for growth next year. The economy will expand by 2.6 percent in 2011, according to the median forecast in a Bloomberg News survey of 66 economists this month, up from a 2.5 percent prediction in November.

Confidence Grows

“As people get more confident about the economy, money is coming into the stock market,” said Jeremy Siegel, a finance professor at the University of Pennsylvania’s Wharton School in Philadelphia. “The most important way quantitative easing works is the provision of liquidity.”

New York Fed President William Dudley said Oct. 1 that asset purchases would reduce borrowing costs and support the value of homes and stocks, leaving consumers with more money to spend and lowering the cost of capital for businesses.

The extra yield investors demand to own investment-grade corporate bonds instead of government debt narrowed to 1.7 percentage points yesterday from 1.91 percentage points on Aug. 27, Bank of America Merrill Lynch index data show.

“Markets in general have moved in a growth-friendly direction,” said Dean Maki, chief U.S. economist at Barclays Capital in New York.

Contrast With Summer

The latest economic data are in contrast to a drumbeat of negative economic reports last summer, including declines in home sales and payrolls, that prompted economists such as Harvard University’s Martin Feldstein to warn that the risks of a renewed recession were rising.

On Aug. 27, Bernanke said the Fed “will do all that it can” to support the recovery and signaled it was ready to start a second round of securities purchases, in addition to the $1.7 trillion it bought through last March to pull the nation out of the worst recession since the Great Depression.

The Fed’s Nov. 3 announcement that it will buy $600 billion of Treasuries through June came a day after Congressional elections gave Republicans a majority of seats in the House of Representatives.

‘Dangerous Experiment’

Sarah Palin, the 2008 vice presidential nominee who says she’s considering a run for president in 2012, wrote to the Wall Street Journal last month, saying “it’s time for us to ‘refudiate’ the notion that this dangerous experiment in printing $600 billion out of thin air, with nothing to back it up, will magically fix economic problems.”

Representative John Boehner of Ohio, nominated to be House speaker, and three other Republican leaders sent Bernanke a letter Nov. 17 expressing “our deep concerns over the recent announcement that the Federal Reserve will purchase additional U.S. Treasury bonds.”

“Such a measure introduces significant uncertainty regarding the future strength of the dollar and could result both in hard-to-control, long-term inflation and potentially generate artificial asset bubbles that could cause further economic disruptions,” they wrote.

Since then, the dollar has gained about 1.8 percent against the currencies of six major trading partners as measured by IntercontinentalExchange Inc.’s Dollar Index as of 1:19 p.m. in New York. The dollar is down 2.9 percent since Aug. 27.

The cost of living increased 0.1 percent in November, less than forecast, indicating higher prices for commodities aren’t filtering through into other goods and services, according to a Dec. 15 Labor Department report.

Seen as Favorable

“We don’t expect a rapid move higher in inflation anytime soon,” said Maki, who was the No. 2 forecaster overall for the U.S. economy in the two-year period ended on Sept. 30, according to data compiled by Bloomberg. “What we’re expecting is a very gradual upward trend that is likely to be seen by the Fed as favorable.”

Policy makers are concerned that too-low inflation will push up borrowing costs and increase the risk of deflation, or a debilitating decline in prices that boosts debt and reduces wages and profits.

The Fed’s policies have led inflation expectations to increase. The breakeven rate for 10-year Treasury Inflation Protected Securities, the yield difference between the inflation-linked debt and comparable maturity Treasuries, has risen to 2.3 percentage points from 1.63 percentage points on Aug. 27, according to data compiled by Bloomberg. The rate is a measure of the outlook for consumer prices over the life of the securities.

Diminished Risk

“Because the Fed is acting, I would say the risk is pretty low” of deflation, Bernanke said in an interview with CBS Corp.’s “60 Minutes” program broadcast Dec. 5. “But if the Fed did not act, then given how much inflation has come down since the beginning of the recession, I think it would be a more serious concern.”

Not every indicator is going Bernanke’s way. Payrolls in November increased by 39,000 jobs, less than the most pessimistic forecast in a Bloomberg News survey of economists, and the unemployment rate rose to 9.8 percent from 9.6 percent.

The pace of economic growth is “insufficient to bring down unemployment,” the Federal Open Market Committee said this week as it affirmed its bond-buying plan and renewed a pledge for an “extended period” of low interest rates.

An increase in Treasury bond yields has provided fodder to critics such as Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut.

‘Dismal Failure’

“Their effort to achieve the stated objective of pressing long-term yields lower has been a dismal failure,” Stanley said in a Dec. 14 report. The yield on the benchmark 10-year Treasury note has climbed to 3.36 percent from 2.64 percent on Aug. 27, according to data compiled by Bloomberg.

Kevin Hassett, director of economic-policy studies at the American Enterprise Institute in Washington and a former Fed economist, said the central bank can’t take sole credit for the stock rally, which he said was caused by “a slew of slightly better economic data.”

Hassett, one of 23 mainly Republican academics and former policy makers who signed a letter last month to Bernanke telling him to arrest his expansion of monetary stimulus because it will cause a surge in inflation, also questioned whether stock gains will spur consumer spending through the so-called wealth effect.

While consumers’ stock investments have gained in value, “their bonds are going down,” said Hassett, who is also a columnist for Bloomberg News.

Too Early to Judge

Former Fed Governor Lyle Gramley said it’s “too early to make any definitive judgment” on the Fed’s bond purchases.

“I don’t know how you parse out the effects of QE2 given the changes in the environment,” including the sovereign-debt crisis in Europe and prospects for an extension of tax cuts in the U.S., said Gramley, senior adviser at Potomac Research Group in Washington.

Others say the rise in bond yields is a positive signal that reflects the outlook for faster economic growth and rising inflation expectations.

Fed asset purchases are keeping yields lower than they otherwise would be, Citigroup Inc. analysts led by Robert DiClemente said in a Dec. 10 report. At 3.36 percent, the yield on the 10-year Treasury note is below its 10-year average of about 4.16 percent, Bloomberg data show.

‘Bad Mistake’

“Looking only at the long-term rate is a bad mistake on those interpreting this policy” because quantitative easing works by increasing liquidity, University of Pennsylvania’s Siegel said.

Siegel pointed to the rise in commodity prices as another sign of increased confidence in the economy. Oil futures increased 17 percent since Aug. 27 to settle at $87.70 yesterday on the New York Mercantile Exchange.

“What the Fed is trying to do is reflate the economy,” said Ward McCarthy, chief financial economist at Jefferies & Co. in New York. “To the extent it has prevented expectations of outright deflation and encouraged an increase in the stock market, then it’s been a success.”

To contact the reporter on this story: Caroline Salas in New York at csalas1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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Gold Climbs After IMF Says Sales of Reserves Conclude; Platinum Advances

Gold gained after the International Monetary Fund said that it had finished a program of sales of the metal to boost its finances, removing a source of supply from the global market. Platinum prices also rose.

Immediate-delivery gold advanced as much as 0.4 percent to $1,391.02 an ounce and traded at $1,389.25 at 2:53 p.m. in Singapore. The IMF concluded sales of about 403.3 metric tons, or 13 percent of its reserves, to central banks and other market participants, it said yesterday in a statement, without disclosing the total amount raised.

“The last of the overhang has now gone,” Peter Richardson, chief metals economist at Morgan Stanley in Melbourne, said by phone today. “The market will take that as a positive development,” said Richardson.

More than half of the IMF gold was acquired by the central banks of India, Sri Lanka, Mauritius and Bangladesh, according to past announcements. The disposal plan was announced in September 2009.

Gold has climbed 27 percent this year, gaining to a record $1,431.25 an ounce this month, and is poised to rise for a 10th consecutive year. Purchases by central banks as part of their efforts to diversify their reserves away from currencies have contributed to the metal’s advance.

The contract for February delivery on the Comex in New York was little changed at $1,390.10 an ounce.

‘In the Wings’

“It’s not clear whether there are new sellers waiting in the wings,” said Morgan Stanley’s Richardson. “The official sector is likely to be net buyers,” he said, referring to central banks.

Gold assets held in exchange-traded products fell about 1 ton to 2,113.7 tons as of Dec. 21 from a record the day before, according to data collected by Bloomberg from 10 providers. Holdings have climbed more than 17 percent this year.

U.S. gross domestic product may have expanded 2.8 percent in the third quarter on an annualized basis, according to the median of a 71-analyst survey by Bloomberg News. That would be more than a previously calculated 2.5 percent gain for the period. The Commerce Department will publish the data today.

“We could see some of today’s gold rally cut by a strong U.S. GDP,” Jeremy Friesen, an analyst at Societe Generale SA in Hong Kong, said today in an e-mail. “But I think global uncertainty on the fiscal, monetary and geopolitical front will remain supportive for gold well into 2011.”

The Dollar Index, which gauges the currency’s movement against six major counterparts, dropped as much as 0.3 percent today, declining for the first day in four. Precious metals usually move inversely to the dollar.

Immediate-delivery silver was little changed at $29.3312 an ounce. The metal, which has gained 74 percent this year, is likely to gain more than gold in 2011 as industrial demand strengthens, Credit Agricole SA said in a report yesterday.

Platinum rose 0.3 percent to $1,728.10 an ounce and palladium was little changed at $753.70 an ounce.

-- With assistance from Sandrine Rastello in Washington. Editor: Jake Lloyd-Smith

To contact the reporter on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@Bloomberg.net

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Copper, Sugar, Rubber Futures Drop Limit in China as Wen Vows Price Curbs

Copper, sugar and rubber futures slumped their daily limit in China, with copper set for its biggest four-day slide since 2008, on speculation the government will take steps to cool inflation, damping commodity demand.

Copper for February delivery dropped 5 percent, the maximum allowed by the Shanghai Futures Exchange, to 61,550 yuan ($9,259) per metric ton before trading at 61,560 yuan. Soybeans fell 4 percent and cotton, sugar and rubber declined 5 percent.

China is drafting measures to curb excessive price gains, Premier Wen Jiabao said yesterday, suggesting the government may raise interest rates and introduce price controls. Inflation in October was 4.4 percent, boosted by a 10.1 percent increase in food costs, statistics bureau data show. The futures exchanges have already announced moves to cool speculation.

“The precipitous fall indicates investors have become increasingly risk-averse, as the strong rally in the past few months seems vulnerable,” Wang Ning, an analyst at Xiangyu Futures Co., said by phone from Shanghai.

Commodities worldwide capped the biggest five-session slide since July 2009 yesterday. The Thomson Reuters/Jefferies CRB Index of 19 raw materials fell 3.2 percent to 296.22, bringing its decline since Nov. 9 to 7.2 percent. Three-month copper lost 0.3 percent to $8,124 a ton today on the London Metal Exchange after tumbling 5.7 percent yesterday.

Investor Retreat

A Chinese consumer confidence index fell for the first time in six quarters on expectations that the price of goods and services will keep increasing. The measure dropped to 104 in the third quarter from 109 in the previous three months, according to a statement from Nielsen Co. and the Chinese statistics bureau’s Economic Monitoring and Analysis Center.

“What I’ve seen was a lot of liquidation of long positions as investors retreat from the market and wait until they get a clearer macro picture,” Wang said.

Soybean futures jumped as much as 12 percent in Dalian this month and dropped 9.2 percent in the past four days, the biggest such decline since October 2008. Rubber soared as much as 28 percent in Shanghai, and fell 12 percent in the past four days, the most since December 2008.

Copper futures in Shanghai declined 10.4 percent in the past four sessions, heading for the biggest four-day slide since December 2008. Zinc slid 15 percent in the period, and was poised for the largest drop since November 2007.

Rate Speculation

China’s central bank may raise rates as soon as Nov. 19 because of sustained inflationary pressure, the China Securities Journal said today. Earlier announcements also indicate that rate decisions are often released on Fridays or around the 20th of the month, the newspaper reported.

Exchanges have introduced measures to cool speculation. The Dalian bourse said last week it will curb “abnormal” trading to prevent price manipulation and other activities that disrupt an orderly market. The Zhengzhou Commodity Exchange and Shanghai Futures Exchange have announced similar steps.

Stocks in China declined, with the Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, down 1.3 percent to 2,856.96. Aluminum in London gained 0.5 percent to $2,254 a ton, while zinc declined 1.8 percent to $2,100 a ton.

Corn for March delivery on the Chicago Board of Trade fell as much as 3.3 percent to $5.22 a bushel today, the lowest level for the most-active contract since Oct. 8, and traded at $5.29.

--Helen Sun, William Bi. Editor: James Poole

To contact the Bloomberg News staff on this story: Helen Sun in Shanghai at hsun30@bloomberg.net

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Gold Imports by India Already Surpass 2009 Levels, World Gold Council Says

Gold imports this year by India, the largest consumer, have already exceeded 2009 levels as consumers boost jewelry purchases, according to the World Gold Council.

Imports totaled 624 metric tons by the end of the third quarter, compared with 559 tons in all of 2009, according to data released in a report by the London-based industry group today. India bought 214 tons in the third quarter, up from 176 tons a year earlier, it said.

Jewelry demand in India surged 36 percent in the third quarter even as gold prices gained, the council said. Bullion futures in New York reached a record $1,424.30 on Nov. 9 and are up 22 percent this year.

“Given the dual purpose of Indian jewelry, as both an adornment and an investment, the rising price helped to support demand for jewelry,” the council said in the report. “Furthermore, consumers have adjusted their price expectations and are anticipating yet higher prices.”

Consumers in India purchased 184.5 tons of gold in the third-quarter for jewelry, up from 135.2 tons a year ago, the report said. Total gold demand in India rose 28 percent in the period, it said.

To contact the reporter on this story: Madelene Pearson in Mumbai on mpearson1@bloomberg.net

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Oil Declines a Fourth Day on China Rate Speculation, Europe Debt Concerns

Oil fell for a fourth day as speculation that fuel demand will drop on China’s steps to cool its economy outweighed signs that U.S. consumption is rising.

Futures retreated as much as 1.4 percent, extending the biggest three-day decline since August, after Chinese Premier Wen Jiabao said the government was drafting measures to counter inflation in the world’s biggest energy consumer. Prices also fell on concern Europe’s debt crisis is worsening as ministers considered a rescue package for Irish banks. U.S. crude inventories dropped the most since September 2008 and gasoline demand increased, reports showed yesterday.

“Finally we have some good news on the fundamental front and everything else is undermining it,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “Part of it seems to be some concern that China might tighten policy. You have what markets perceive to be an increased probability of a further loss of global confidence with the European debt concerns resurfacing.”

Crude for December delivery fell as much as $1.16 to $81.18 a barrel in electronic trading on the New York Mercantile Exchange. It was at $81.46 at 3:52 p.m. Singapore time. Yesterday, the contract fell $2.52 to $82.34, the lowest settlement since Oct. 29. Prices are up 2.7 percent this year.

Oil dropped as Wen’s comments, broadcast yesterday on state television, stoked speculation the government may raise interest rates to damp economic growth. The Bank of Korea yesterday increased borrowing costs after inflation surged past the central bank’s ceiling.

Europe’s Crisis

European finance ministers started work on possible aid for Ireland’s debt-laden banks, stopping short of an immediate bailout package. The country’s crisis is stoking concern that Europe’s debt problems are spreading, weakening the euro versus the dollar and reducing investor demand for commodities priced in the U.S. currency.

The dollar climbed as much as 1 percent to $1.3448 against the euro yesterday, the highest level since Sept. 28. It was little changed today.

Brent crude for January settlement traded at $83.81, down 92 cents, on the ICE Futures Europe exchange in London. Yesterday, the contract lost $2.03, or 2.3 percent, to $84.73.

U.S. Demand

Crude inventories dropped 7.7 million barrels last week, the American Petroleum Institute said yesterday. An Energy Department report today will probably show that supplies were unchanged, according to a Bloomberg News survey. Oil-supply estimates from the two organizations have moved in the same direction in seven of the past eight weeks.

U.S. travel during the Thanksgiving holiday weekend will rise 11 percent from last year on improved economic conditions, AAA, the nation’s biggest motoring organization, said yesterday. Gasoline consumption at the pump climbed for the first time in four weeks, MasterCard Inc. said in its SpendingPulse report.

U.S. gasoline inventories dropped 1.65 million barrels to 214.6 million last week, the API report showed. Supplies probably fell by 750,000 barrels, according the survey of the Energy Department report.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net

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S&P 500 Drops Most Since August on Concern Over Irish Debt, China Growth

U.S. stocks sank, sending the Standard & Poor’s 500 Index to the biggest slump since August, amid concern that the debt crisis in Ireland and Greece is worsening and that China will act to slow its economy.

Freeport-McMoRan Copper & Gold Inc. and Nucor Corp. fell at least 3.5 percent as metals plunged. Travelers Cos. dropped 3.6 percent, leading losses in the Dow Jones Industrial Average as it slipped below 11,000 for the first time in a month, after declines in municipal bonds hurt its investments. Regions Financial Corp. slumped 4.5 percent after three executives overseeing risk and souring assets at the bank quit.

The S&P 500 decreased 1.6 percent to 1,178.34 at 4 p.m. in New York. The drop follows a late-day selloff yesterday triggered by growing criticism of the Federal Reserve’s plan to spur growth using a technique called quantitative easing. The Dow fell 178.47 points, or 1.6 percent, to 11,023.50. The MSCI World Index of shares in 24 developed nations slumped for a seventh straight day, the longest losing streak since January.

“It will be a choppy ride before we find some footing,” said Burt White, who helps oversee $284 billion as chief investment officer at LPL Financial Corp. in Boston. “The market is really trying to get its arms around a few lingering questions -- China, Europe, or whether or not QE2 is going to work or if it’s even necessary.”

Restraining Prices

The S&P 500 slid to the lowest level since Oct. 20 after the China Securities Journal reported that the country will introduce measures to control rising food prices in the world’s fastest-growing major economy. Equities extended losses as Austria threatened to block its next transfer of financial rescue funds to Greece.

The Fed has begun a second round of quantitative easing, known by investors as QE2, with plans to buy as much as $600 billion of Treasuries in coming months to lower long-term interest rates and boost the economy.

Fed Bank of Boston President Eric Rosengren said today in an interview with Bloomberg News that he expects the central bank to buy the entire $600 billion of Treasuries authorized Nov. 3, while St. Louis Fed President James Bullard said there’s a possibility that all of the purchases may not be needed or the Fed could even add to the easing program.

On U.S. stock exchanges, 5.7 companies fell for each that rallied, the most since Oct. 19, according to data compiled by Bloomberg. Declines in the 10 main S&P 500 industries ranged between 2.2 percent for raw-material companies and 1.1 percent for consumer staples.

Freeport, Nucor

Freeport, the largest publicly traded copper producer, slumped 4.3 percent to $97.61. Nucor, the biggest U.S. steelmaker, sank 3.5 percent to $37.97.

Stocks also fell on growing concern that Europe’s debt crisis is worsening.

Ireland is in talks with European and International Monetary Fund officials about a bailout that would enable it to inject capital into the country’s banks, said a European official with direct knowledge of the talks. The two-part funding package would mean Ireland wouldn’t have to tap the bond market for an extended period as it tries to cut the budget deficit, said the person, who spoke on condition of anonymity.

“Concern about China tightening and the Ireland debt situation is hitting sentiment big-time,” said Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust Co. in Boston. “We’re in the middle of a pullback.”

Austria Threat

Stocks extended declines as Austria threatened to block its next transfer of rescue funds to Greece unless the government gets a deficit-cutting plan back on track.

“We are getting indications that the Greeks can’t stick to their plan in a sufficient manner, in particular on the revenue side,” Finance Minister Josef Proell said, according to a government e-mail that confirmed remarks made after a cabinet meeting today. “The data we have at the moment doesn’t give any reason to approve the December tranche from the Austrian point of view.”

Travelers sank 3.6 percent to $54.73 after a selloff in municipal bonds. The New York-based insurer held municipal debt valued at $41.4 billion at the end of third quarter.

Regions Financial dropped 4.5 percent to $5.92. The lender said Chief Risk Officer Bill Wells resigned. The Birmingham, Alabama-based company also said Michael Willoughby, director of credit risk, retired and Tom Neely, head of problem asset management, left the company. Chief risk officer duties are being divided between Barb Godin and John Haley.

Wal-Mart, Home Depot

Wal-Mart Stores Inc. rose 0.6 percent to $54.26 after the world’s largest retailer reported a 9.3 percent gain in third- quarter profit as growth abroad helped make up for sales declines at U.S. stores.

Home Depot Inc. advanced 1 percent to $31.71 after reporting third-quarter profit that topped analyst estimates and increasing its earnings forecast for the year after curbing expenses.

U.S. closed-end funds fell the most in five months as a weeklong selloff in stocks and bonds convinced buyers they were paying too much for the assets that underlie the investment products.

The S-Network Composite Closed-End Fund Index lost 1.7 percent, the biggest retreat since June 4 and its seventh day of declines, data compiled by Bloomberg show. John Hancock Investors Trust dropped 6.3 percent, the most since Nov. 21, 2008, and Pimco Corporate Income Fund fell 3.7 percent, the biggest decrease since May 6.

Closed-end mutual funds, unlike their open-ended competitors, sell common shares to investors that are publicly traded on exchanges and often borrow to boost returns. The tumble over the last week reflected declines in their holdings as well as a widening discount in the funds’ market price compared with the value of the assets they own.

“It’s like a fire spreading,” said Richard A. Barone, chairman of Cleveland-based The Ancora Group Inc. which manages about $3 billion. “There’s a general sense that risk is coming back into to certain areas of the bond market, and perhaps that we’ve come to the end of the line in terms of interest rates coming down. So there’s profit-taking going on.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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McDonald's Raises Prices in China Restaurants on Higher Raw Material Costs

McDonald's employees serve a customer in Shenzhen. Photographer: Kevin Lee/Bloomberg

McDonald’s Corp., the world’s largest restaurant chain, increased prices for its burgers, drinks and snacks in China to offset costs after the country’s inflation surged to a two-year high.

Product prices were raised by 0.5 yuan to 1 yuan (15 cents) today at the more than 1,200 McDonald’s restaurants in the country because of higher raw material costs, said Sophia Luan, the Oak Brook, Illinois-based company’s China spokeswoman. She declined to provide an average percentage increase when interviewed by phone today.

Premier Wen Jiabao said China’s Cabinet is drafting measures to counter excessive price increases, according to state television yesterday, and inflation grew to 4.4 percent last month, the highest in more than two years. McDonald’s opened its first 1,000 restaurants in China in 19 years, faster than in any other country outside the U.S., and plans to have 2,000 within four years, according to Asia President Tim Fenton.

“Everybody is getting used to price increases nowadays,” said Zhang Chen while ordering a fish burger and grapefruit tea at a McDonald’s restaurant at the Shanghai International Finance Center. “One yuan or half a yuan isn’t a big deal.”

Big Mac Index

Zhang, a 27-year-old administrative assistant at a financial company, said she didn’t notice the increase in prices. The restaurant raised the price of its cheese burger by 0.5 yuan while a corn cup was 1 yuan more expensive than yesterday.

McDonald’s fell 2.1 percent to $77.42 yesterday in New York trading.

China has the world’s cheapest Big Mac burgers partly because of a weak yuan, according to The Economist’s Big Mac Index as of Oct. 14. The sandwiches cost $2.18 each on average in Beijing and Shenzhen, compared with $3.71 in the U.S.

Big Macs are most expensive in Switzerland at $6.78, according to the magazine’s index, which uses the concept of purchasing power parity that states the dollar should buy the same amount in all countries.

“If consumers see justifications for price increases, such as value and product safety, they will be willing to pay for it,” Vinay Dixit, senior director of Asia consumer centers at McKinsey & Co., said in an interview in Shanghai.

Consumer Confidence

A Chinese consumer confidence index fell in the three months ended September, the first decline in six quarters, on expectations the costs of goods and services will keep rising.

A total of 76 percent of Chinese consumers expect prices will increase over the next year, up from 70 percent in the previous quarter, according to a statement from Nielsen Co. and the Chinese statistics bureau’s Economic Monitoring and Analysis Center today. Concerns about inflation are strongest among rural and first-tier city consumers, the survey said.

China may impose price limits on food and toughen punishment of those found speculating on agriculture futures including corn and cotton, the China Securities Journal reported, citing an unidentified person.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, fell 1.9 percent to 2,838.86 at the 3 p.m. close of trading, the lowest level in a month.

--Michael Wei, Li Yanping and Stephanie Wong. Editors: Frank Longid, Stephanie Wong

To contact the Bloomberg News staff on this story: Michael Wei in Beijing at mwei13@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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Euro Trades Near Seven-Week Low on Concern Ireland Debt Crisis May Spread

The euro traded near a seven-week low against the dollar amid concern a failure to craft a rescue package for Ireland will allow the nation’s banking crisis to spread to other member states of the common currency.

The dollar rose versus the yen for a seventh straight day, marking a six-week high and the longest run of gains since 1995. The Australian and New Zealand dollars traded near the lowest levels in more than two weeks as declines in stocks and concern that China will take measures to cool inflation damped demand for higher-yielding assets.

“Concerns about the region’s debt crisis weigh on the euro,” said Jeremy Stretch, executive director of foreign- exchange strategy at Canadian Imperial Bank of Commerce in London. “That’s given the dollar a boost, and the euro stays under pressure. Ireland’s problem is not so much a sovereign issue as a banking issue.”

The euro was at $1.3487 as of 8:01 a.m. in London from $1.3489 in New York yesterday, when it touched $1.3448, the weakest level since Sept. 28. The shared currency traded at 112.55 yen from 112.38 yen after dropping 0.4 percent yesterday. The greenback fetched 83.43 yen from 83.29 yen. Yesterday, it reached 83.59 yen, the highest level since Oct. 5.

“The rebound in the dollar is beneficial for the Japanese economy,” Stretch said. “Dollar-yen is squeezing up and that will help alleviate some of the nation’s export pressures.”

EU, IMF Talks

Ireland is negotiating with the European Union and International Monetary Fund about aid to shore up the state’s finances, furnish capital for the country’s banks and spare the nation from tapping the bond market for an extended period, a European official said on condition of anonymity.

European finance ministers started work on possible aid for Ireland’s debt-laden banks, stopping short of an immediate bailout package. Finance chiefs from the 16-country euro region lauded Ireland’s budget cuts, echoing the rhetorical support offered in the early stages of Greece’s debt trauma before a rescue became necessary. Ireland said it doesn’t need EU money.

Irish Prime Minister Brian Cowen told Parliament in Dublin the nation hasn’t lodged an aid request and the goal is “a credible, efficient and above all workable solution that will provide assurance to the markets.”

Dollar ‘Bias’

“Investors are poised to unwind their positions rather than adding new ones amid Europe’s lingering issues, and the bias is for the dollar to be bought,” said Kuniyuki Hirai, manager of foreign-exchange trading at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest lender. “The euro will struggle to rise toward year-end.”

Austrian Finance Minister Josef Proell said he’s considering withholding his country’s share of the next part of Greece’s 110 billion-euro ($148 billion) rescue, saying the Athens government missed a revenue-raising target. Greece’s near-default in May triggered Europe’s sovereign-debt crisis.

The euro has lost 7.4 percent this year against its developed-nation counterparts, Bloomberg Correlation-Weighted Currency Indexes show. The dollar is down 1 percent, while the yen has gained 12 percent, the indexes show.

The dollar was supported as Atlanta Federal Reserve President Dennis Lockhart said additional bond purchases by the central bank aren’t intended to weaken the greenback.

Fed Outlook

Lockhart said the program to buy $600 billion in Treasuries is not intended to weaken the dollar or monetize the debt. The effect of the policy would be “measured,” Lockhart said in remarks prepared for a speech in Montgomery, Alabama.

The Fed announced on Nov. 3 it would make the bond purchases, a program known as quantitative easing, through June. Boston Fed President Eric Rosengren is set to speak at a chamber of commerce breakfast in Providence, R.I., and St. Louis Fed President James Bullard will speak in St. Louis today.

The dollar’s gains may be limited as reports today are forecast to show U.S. inflation was contained and housing starts dropped to a three-month low.

“Employment and housing haven’t recovered much at all,” said Tetsuya Inoue, chief researcher for financial markets at Nomura Research Institute in Tokyo, a unit of Japan’s largest brokerage. “Weak credit conditions in the U.S. may prompt people to invest money abroad. As a result, the dollar will be under downward pressure.”

Inflation, Housing

U.S. consumer prices, excluding food and fuel costs, rose 0.7 percent in October from a year ago after gaining 0.8 percent in September, according to the median estimate of economists in a Bloomberg News survey before today’s data. Housing starts grew at a 598,000 annual rate last month, the least since July and down from a 610,000 rate in September, another survey showed.

The euro gained against the yen as the common currency climbed above the so-called cloud of the daily ichimoku chart after entering it yesterday.

Ichimoku analysis, developed by a Japanese journalist, is used to predict a currency’s direction through analyzing the midpoints of historical highs and lows.

Australia’s currency touched 97.25 U.S. cents yesterday, the weakest since Oct. 29, after Chinese Premier Wen Jiabao said the cabinet is drafting steps to counter excessive price gains.

“The Aussie dollar has been directly affected by the movement we’ve seen in risk appetite because of China tightening concerns and news from the euro zone,” said Ray Attrill, head of macro strategy in Sydney at Tallship Investments, a currency fund manager.

Australia’s currency traded at 97.38 U.S. cents from 97.67 cents. New Zealand’s dollar was at 76.41 cents from 76.78 cents. The so-called kiwi reached 76.39 cents earlier today, the lowest since Nov. 2.

The MSCI World Index of shares fell for the eighth straight day, dropping 0.3 percent.

To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Apr 27 10 04:07 GMT |

The euro remained under pressure yesterday, as concerns about the Greek economic situation intensified, particularly on conditions that may be attached to the IMF-EU bailout package. €/£ fell to a 3-month low of 0.8607, with sterling also shaking off last week's weak first estimate of Q1 GDP and ongoing concerns about a hung parliament. Ahead today, the key data releases are the UK CBI distributive trades, BBA loans and US Conf. Board consumer confidence surveys. We expect the CBI survey's reported sales balance to have fallen to 10 in March, but basically remaining in line with the long-term average. We should get a rise in BBA loans for house purchase. In the US, the Conf. Board consumer confidence index has underperformed the Univ. of Michigan sentiment survey recently and may rise to around 55. Chart: UK confidence among retailers has improved, according to both the CBI and our own in-house surveys Lloyds TSB Bank http://www.lloydstsbfinancialmarkets.com Disclaimer: Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. Expressions of opinion may be subject to change without notice. Although warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. The facts and data contained are therefore not intended for the use of private customers (as defined by the FSA Handbook) of Lloyds TSB Bank plc. Lloyds TSB Bank plc is authorised and regulated by the Financial Services Authority and is a signatory to the Banking Codes, and represents only the Scottish Widows and Lloyds TSB Marketing Group for life assurance, pension and investment business.

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Germany Proving To Be The Last Hurdle In Greek Bailout Plans

Daily Forex Fundamentals | Written by AC-Markets | Apr 27 10 06:11 GMT |

Market Brief EURJPY weakened 0.2% to 125.51 as the JPY rose against all of its major counterparts and Asian stocks declined as concern about Greece's bailout plan and the effect of tightening measures in China drove investors away from higher-yielding assets and after reports that BOJ may upgrade its 2011 CPI forecast on April 30. Investor sentiment turned bearish after German Chancellor Angela Merkel said she won't release funds for Greece until the nation has a 'sustainable' plan to reduce its deficit. The USDJPY traded near its strongest level in almost three weeks to 93.81, the most since April 6 on speculation the Fed is moving closer to withdrawing stimulus as the US economic recovery gathers momentum. After the market closed, US Senate Republicans blocked Democrats from advancing their plan to overhaul Wall Street regulation, saying they want to force changes before beginning full debate. The NZDJPY fell to 67.53 after trading 68.31, the highest since Jan. 14 and AUDJPY fell to 86.76 after touching 87.77 yesterday, the strongest since Sept. 29, 2008 on concerns the EU aid package for Greece won't keep the deficit crisis from spreading, damping demand for higher-yielding currencies. The AUDJPY also retreated from an 18 month high as Asian stocks dropped. The NZDUSD dropped to 0.7201 after it reached 0.7256, the most since Jan. 20 while AUDUSD traded 0.9251 after German Chancellor Angela Merkel yesterday said she won't release Greek rescue funds until the country shows it's got a 'sustainable, credible' plan to cut its budget deficit. Australia's producer prices index gained 1% in Q1 (prev. -0.4%) as cost of petroleum refining advanced 8.1%, building construction prices gained 0.6% while utilities rose 3.3%. The EURUSD may weaken to less than 1.3000 this year should the Fed start raising interest rates before the ECB, according to market estimates. If the Fed does hike before the ECB, BOJ and BOE, the USD could become a growth currency again rather than a safe haven suggesting EURUSD and GBPUSD remain at risk in 2010 of falling well below estimated targets of 1.3000 and 1.4800. The FOMC will probably hold its target rate at a range of zero to 0.25% on April 28. USDKRW strengthened 0.5% to 1,103.80 to a 19-month high before a report forecast to show the nation's GDP expanded 7.5% in Q1 annualized, the most since Q4 2002. Yuan forwards climbed 0.1% to 6.6065, reflecting speculation that China's currency will strengthen 3.3% and it's expected that the government will allow it to gain this year with a 5% revaluation narrowing the US trade deficit with China by $61 billion. 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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Technical Analysis for Major Currencies

Daily Forex Technicals | Written by ecPulse.com | Apr 27 10 06:31 GMT |

EURO The pair managed to breach resistance line for the descending channel that has currently turned into support at 1.3355. We expect some fluctuation to rid of the negative signs evident on momentum indicators, before resuming the expected bullish intraday direction that targets levels 1.3445 then 1.3495. It is vital that 1.3290 remain intact so these expectations may prevail. The trading range for today is among the key support at 1.3290 and the key resistance at 1.3495. The short term trend is to the downside as far as 1.4410 remains intact with targets at 1.2450. Support: 1.3355, 1.3290, 1.3225, 1.3190, 1.3115 Resistance: 1.3400, 1.3445, 1.3495, 1.3570, 1.3635 Recommendation Based on the charts and explanations above our opinion is buying the pair from 1.3355 targeting 1.3445 and stop loss below 1.3290, might be appropriate. GBP Resistance level of 1.5475 is still a strong barrier in front of the pair's attempts to ascend. Through the image above, we find that the pair has stabilized above the breached pivotal resistance that has currently turned into support at 1.5410, supported by Stochastic which is approaching oversold areas; thus, encouraging us to expect more bullish intraday movement where its key targets start at 1.5555. This scenario requires 1.5325 to remain intact. The trading range for today is among the key support at 1.5325 and the key resistance at 1.5555. The short term trend is to the upside as far as 1.4850 remains intact with targets at 1.7000. Support: 1.5410, 1.5365, 1.5325, 1.5280, 1.5255 Resistance: 1.5475, 1.5500, 1.5555, 1.5605, 1.5665 Recommendation Based on the charts and explanations above our opinion is buying the pair from 1.5410 targeting 1.5555 and stop loss below 1.5325, might be appropriate. JPY The pair has been bearishly correcting since yesterday, while it approaches the retesting level from the previously breached neckline at 93.45. The stochastic is showing positive signs that support continuing the expected bullish direction over an intraday basis; requiring the retest level to maintain its stance to head towards 94.80 mainly. The trading range for today is among the key support at 93.20 and the key resistance at 94.80. The short term trend is to the downside as far as 101.65 remains intact with targets at 82.60. Support: 93.45, 92.70, 92.25, 91.60, 90.90 Resistance: 94.00, 94.80, 95.55, 96.00, 96.35 Recommendation Based on the charts and explanations above our opinion is buying the pair from 93.45 target 94.80 and stop loss below 92.70, might be appropriate. CHF The pair has returned to trade below the ascending channel's support level, while a sign of a bearish technical target is appearing where its neckline is at 1.0715. These signs point to a bearish intraday direction that will start with a clear breach of the neckline to pave the way towards 1.0605 then 1.0565. These expectations require the four-hour candlestick closing to remain below 1.0760 to prevail. The trading range for today is among the key support at 1.0605 and the key resistance at 1.0850. The short term trend is to the downside as far as 1.1095 remains intact with targets at 0.9910. Support: 1.0705, 1.0670, 1.0605, 1.0565, 1.0505 Resistance: 1.0740, 1.0790, 1.0850, 1.0895, 1.0945 Recommendation Based on the charts and explanations above our opinion is selling the pair from 1.0715 targeting 1.0605 and stop loss above 1.0790, might be appropriate. CAD The pair continues its sideway trading, while it nears this range's resistance at 1.0045 and therefore meets with MA 100. We still see that chances of a bearish trend over an intraday basis remains intact and requires the breach of support between 0.9950 – 0.9930 to head towards 0.9805. It is vital that trading remain below 1.0120 to achieve these expectations. The trading range for today is among the key support at 0.9805 and the key resistance at 1.0120. The short term trend is to the downside as far as 1.0780 remains intact with targets at 0.9705. Support: 0.9950, 0.9930, 0.9865, 0.9805, 0.9750 Resistance: 1.0045, 1.0120, 1.0200, 1.0240, 1.0320 Recommendation Based on the charts and explanations above our opinion is selling the pair from 1.0045 targeting 0.9930 and stop loss above 1.0120, might be appropriate. Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk

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Asian Currencies Halt Gains Near 2008 Highs on Greece Concern

By Lilian Karunungan

April 27 (Bloomberg) -- Asian currencies halted gains near the highest levels in at least 19 months after German Chancellor Angela Merkel said a rescue package for Greece wasn’t guaranteed, reducing demand for emerging-market assets.

A technical gauge for the Bloomberg-JPMorgan Asia Dollar Index signaled the measure was poised to fall after rallying to a 20-month high yesterday. Regional stocks declined after Merkel said yesterday she won’t release funds for Greece without a “sustainable” plan to cut the shortfall. The Standard & Poor’s 500 Index dropped yesterday on concern about a proposed overhaul of the U.S. financial system.

“Currencies are in a consolidation phase as mostly these have factored in the Greece financial issue,” said Mirza Baig, a foreign-exchange analyst at Deutsche Bank AG in Singapore. “The overnight weakness in equities, including the U.S. markets,” affected Asian currencies, he said.

The won weakened 0.6 percent to 1,110.90 per dollar as of 2:12 p.m. in Seoul, according to data compiled by Bloomberg. The currency yesterday touched 1,102.85, its strongest level since Sept. 12, 2008. The Philippine peso dropped 0.2 percent to 44.275 and the Malaysian ringgit fell 0.1 percent to 3.1835.

The Asia Dollar Index, which tracks the region’s 10 most- traded currencies excluding the yen, was little changed after yesterday reaching 113.29, the highest level since August 2008. Its 14-day relative-strength index touched 69 yesterday, just shy of the 70 level that signals the gauge may reverse direction. The MSCI Asia-Pacific index of regional shares dropped 0.3 percent today.

Korea’s currency extended losses after the government said recent gains in the currency were “excessive.” We will take measures to counter herd behavior in the foreign-exchange market, Kim Ik Joo, director-general at the Ministry of Strategy and Finance, said by phone today.

Korea GDP

Asian currencies have rallied this year, led by Malaysia’s ringgit and the won, as the region’s economic recovery attracts global investors to local assets. Prospects China will revalue the yuan are also bolstering demand.

The ringgit reached 3.1710 per dollar yesterday, the highest level since May 2008, and the peso touched 44.158, the strongest since August of that year.

South Korea’s gross domestic product growth exceeded analysts’ estimates in the first quarter. GDP increased 1.8 percent from the final three months of last year, when it rose 0.2 percent, and beating the median forecast for a 1.5 percent rise in a Bloomberg News survey.

“Strong gross domestic product data was good but the market will be dominated by sentiment factors,” said Thomas Harr, senior currency-strategist at Standard Chartered Plc in Singapore.

Europe Woes

Germany’s reluctance to guarantee aid for Greece has led to concern a rescue package headed by the International Monetary Fund may stall. Yields on Greece and Portugal’s bonds have surged on concern the country’s credit woes will spread to other nations in the European Union.

“Investors are nervous about the contagion risk from the Greek situation, whether the other euro countries like Portugal will also be similarly affected,” said Penn Nee Chow, an economist at United Overseas Bank Ltd. in Singapore. “They are just waiting to see how things will play out. Asian currencies are still looking strong because of the very positive economic indicators in Asia.”

Taiwan’s dollar rose to a 20-month high as overseas investors increased holdings of the island’s stocks to take advantage of a planned trade accord with China.

Funds based abroad bought NT$26.8 billion ($857 million) more local shares than they sold yesterday, the biggest net purchases since Sept. 10. Taiwan President Ma Ying-jeou said April 25 that the next round of talks with China will likely be held before the end of the month or early in May.

China-Taiwan

A trade agreement with China “will help Taiwan’s exports and the economy,” said Tarsicio Tong, a foreign-exchange trader at Union Bank of Taiwan in Taipei. Capital inflows “will test the defenses of the central bank” to prevent the currency from rising beyond NT$31, he said.

The currency strengthened 0.2 percent to NT$31.290 against its U.S. counterpart, according to Taipei Forex Inc. It reached NT$31.269, the highest level since August 2008, the same month the island’s dollar last broke NT$31.

The Philippine peso declined on concern investors will trim holdings of the nation’s assets in the run-up to next month’s general election.

Presidential frontrunner Benigno Aquino yesterday said only fraud can stop him winning at the polls and such an event would trigger unrest comparable with the protests that swept his mother to power 24 years ago.

Philippine Election

Benigno Aquino, the 50-year-old son of former president Corazon Aquino, has led opinion surveys since entering the race last year and criticized how a switch to electronic voting machines is being implemented.

“Everyone is staying liquid as the election nears,” said Yvette Marquez, who helps manage 470 billion pesos ($10.6 billion) at BPI Asset Management in Manila. “It’s always better to be safe and hold off from investing until people are convinced elections are credible.”

Elsewhere in the region, the Singapore dollar and Indonesian rupiah were little changed versus the U.S. currency at S$1.3680 and 9,006, respectively. The Thai baht was unchanged at 32.24 and China’s yuan traded at 6.8266.

To contact the reporter on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net.

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Euro Near 3-Month Low Versus Pound on Greece Aid Plan Concern

By Yasuhiko Seki and Ron Harui

April 27 (Bloomberg) -- The euro traded near a three-month low against the pound on concern a European Union-led 45 billion euro ($60.2 billion) aid package for Greece won’t stop the deficit crisis from spreading.

Demand for Europe’s currency weakened before Greek transport workers go on strike today and after German Chancellor Angela Merkel said she won’t release funds for Greece until the nation has a “sustainable” plan to reduce its shortfall. Australia’s dollar fell from a 19-month high against the yen as Asian equities declined, damping the appetite for riskier assets.

“There is concern that the German government may delay the extension of financial aid for Greece,” said Akane Vallery Uchida, a currency strategist at Royal Bank of Scotland Group Plc in Tokyo. “This led to resumed selling of the euro.”

The euro traded at 86.59 pence as of 6:58 a.m. in London from 86.58 pence yesterday in New York, when it declined to 86.04 pence, the lowest since Jan. 28. The 16-nation currency was at 125.60 yen from 125.73, and traded at $1.3373 from $1.3383. The dollar was at 93.95 yen from 93.96 yen.

Australia’s dollar fell 0.2 percent to 86.90 yen and slipped 0.2 percent to 92.51 U.S. cents.

“I’ve said for weeks that Greece must do its homework first,” Merkel said yesterday, drawing applause from an audience in Soest in North Rhine-Westphalia, where state elections are due on May 9.

No Decision

There will be no decision on aid for Greece until the International Monetary Fund works out a plan of cuts with the government in Athens, Merkel told reporters earlier yesterday in Berlin. Germany will assist Greece only after it agrees to take “tough” measures, she said.

Greece has 8.5 billion euros of bonds maturing 10 days after the regional election and the extra yield investors demand to hold its 10-year bonds over German bunds jumped 93 basis points yesterday to 652 basis points.

Greek Prime Minister George Papandreou will today brief lawmakers on the nation’s economic outlook. Transport workers are expected to hold a strike and a civil service union plans to stage a rally.

The yen and dollar strengthened against higher-yielding currencies as the MSCI Asia Pacific Index lost 0.3 percent.

“Lingering woes over Greece’s debt crisis seem to be dragging down Asian equities,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This is causing safe- haven buying of the yen and the dollar.”

The yen typically strengthens in times of financial turmoil as Japan’s trade surplus frees the nation from dependence on overseas capital. The dollar benefits as the world’s main reserve currency.

Japan’s Economy

Japan’s currency also gained after the Nikkei English News reported, without saying how it obtained the information, that the central bank may upgrade its fiscal 2011 consumer price index forecast. BOJ policy makers will release their semiannual economic forecasts after their April 30 meeting in Tokyo.

“The Nikkei report on a possible upgrade in the BOJ’s forecasts suggests an improvement in fundamentals,” said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust & Banking Co. in Tokyo. “This is a yen-buying factor.”

‘Impetus’ for Dollar

The dollar advanced on speculation U.S. reports this week will show the nation’s economic recovery is gathering momentum, backing the case for the Federal Reserve to move closer to withdrawing stimulus.

The S&P/Case-Shiller home-price index in the U.S. climbed 1.3 percent in February, the first increase since December 2006, according to a Bloomberg survey before today’s report. Consumer spending increased at a 3.3 percent annual rate last quarter, more than double the 1.6 percent pace the previous three months, according to a separate survey before the April 30 report.

“The recent set of good U.S. data will fuel speculation about rises in interest rates there, providing some impetus to the dollar,” said Shuzo Kakuta, a senior foreign-exchange adviser at Tokyo Tomin Bank Ltd.

Futures on the CME Group Inc. exchange show a 72 percent chance the Fed will raise its benchmark rate by at least a quarter-percentage point by its December meeting, compared with 60 percent odds a week ago.

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

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Gold Approaches One-Week High as Greece Woes Spur Haven Demand

By Kim Kyoungwha

April 27 (Bloomberg) -- Gold advanced to near the highest level in more than a week on speculation Greece’s budget woes will prompt investors to seek a refuge in safer assets.

Gold for immediate delivery rose 0.2 percent to $1,155.75 an ounce at 8:23 a.m. in Singapore, after climbing to $1,160.10 yesterday, the highest price since April 16. Bullion in euro and Swiss francs rose to records yesterday on concern that a European Union-led 45 billion euro ($60 billion) aid package for Greece won’t prevent the deficit crisis from spreading.

“The price of gold has edged to just under $1,160 an ounce against the backdrop of Greece’s uncertain financial situation,” Eugen Weinberg, senior analyst with Commerzbank AG, wrote in a report. “Gold is thus showing its attraction as a safe haven once again.”

Greece needs to repay 8.5 billion euros of bonds on May 19. German Chancellor Angela Merkel warned Greece and the rest of the euro region that a bailout of the debt-stricken nation isn’t a done deal.

The Dollar Index also advanced, ending a two-day decline, Asian stocks were little changed after jumping the most since March 17 yesterday on optimism about a firmer economic recovery.

Silver increased 0.1 percent to $18.315 an ounce, and platinum added 0.4 percent to $1,751.75 an ounce, approaching a 20-month high of $1,754.85 touched on April 22. Palladium gained 0.6 percent at $568.50 an ounce, nearing the 25-month high of $572 also reached on April 22.

To contact the reporter on this story: Kyoungwha Kim in Singapore at Kkim19@bloomberg.net

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Asian Stocks Decline on China Real-Estate Concern; CSL Slumps

By Jonathan Burgos

April 27 (Bloomberg) -- Asian stocks declined, dragging the MSCI Asia Pacific Index lower for the third time in four days, as concern deepened that China’s steps to cool its property market will curb growth in the world’s third-largest economy.

Industrial & Commercial Bank of China Ltd. sank 2 percent in Shanghai on concern lending will slow. PetroChina Co., China’s largest oil producer, lost 1.9 percent on lower oil prices. CSL Ltd., the world’s No. 2 maker of treatments made from blood, slipped 3.7 percent in Sydney after Credit Suisse Group AG downgraded the stock. Elpida Memory Inc. dropped 2.2 percent in Tokyo as memory-chip prices declined.

The MSCI Asia Pacific Index lost 0.2 percent to 126.97 as of 2:44 p.m. in Tokyo, with two stocks falling for each one that rose. The gauge has climbed 11 percent from its low this year on Feb. 8 as better-than-estimated economic and earnings reports offset concerns Greece will default on its debt. German Chancellor Angela Merkel said yesterday a Greek bailout isn’t a done deal.

“Concerns about potential delays in financial aid for Greece as well as further monetary tightening in China continue to dampen investor sentiment,’ said Michiya Tomita, a Hong Kong- based fund manager for Mitsubishi UFJ Management Co., which holds $65 billion in assets. “Valuations are still expensive. We need to see more earnings improvement.”

China’s Shanghai Composite Index slumped 2.7 percent. Hong Kong’s Hang Seng Index dropped 1 percent. South Korea’s Kospi Index lost 0.3 percent. Japan’s Nikkei 225 Stock Average rose 0.3 percent, led by Fanuc Ltd., which climbed 9.9 percent after reporting earnings.

U.S. Earnings

Futures on the Standard & Poor’s 500 Index were little changed today. The index fell 0.4 percent yesterday in New York as concern that proposed legislation will hurt banks overshadowed improving earnings at Caterpillar Inc. and Whirlpool Corp. After markets closed, U.S. Senate Republicans blocked Democrats from advancing their plan to overhaul Wall Street regulation.

Industrial & Commercial Bank lost 2 percent to 4.44 yuan. China Vanke Co., the country’s largest listed property developer, lost 1.2 percent to 7.71 yuan in the southern city of Shenzhen after reporting a decline in first-quarter sales.

In Hong Kong, China Resources Land Ltd., a state-controlled developer, slid 1.9 percent to HK$14.18. Hang Lung Properties Ltd., a Hong Kong developer which generated 40 percent of its fiscal 2009 revenue in China, sank 2.5 percent to HK$29.25.

Capital Requirements

“The market is worried China is over-tightening,” said Grace Tam, Hong Kong-based vice president of investment services at JPMorgan Asset Management Ltd., which manages about $102 billion in Asia-Pacific assets. “The concern is that this could result in a worse-than-expected impact on China’s growth.”

China may use capital requirements for developers as a policy tool to cool the property market, Ba Shusong, deputy director general of the State Council’s Development Research Center, told Shanghai Securities News in an interview.

The Shanghai Composite Index has slumped 11 percent in 2010 as the government unwinds monetary stimulus and steps up measures to prevent a housing bubble inflated by record lending last year.

Oil producers fell after crude prices in New York lost 0.7 percent to $83.64 in after-hours trading, extending yesterday’s 1.1 percent drop. PetroChina lost 1.9 percent to 11.97 yuan in Shanghai, while Inpex Corp., Japan’s largest oil explorer, sank 1.4 percent to 689,000 yen.

Higher Valuations

The MSCI Asia Pacific Index rose 1.6 percent yesterday, its biggest gain since March 17, as speculation mounted earnings will benefit from the global economic recovery. Stocks in the index trade at 16.1 times estimated earnings, compared with 15.2 times for the S&P 500 Index, according to data compiled by Bloomberg.

Government data last week showed sales of new homes in the U.S. soared 27 percent in March, climbing the most in 47 years. Service industries in the U.S. expanded last month at the fastest pace since May 2006, indicating the U.S. recovery is spreading beyond manufacturing and starting to create jobs, data from the Institute for Supply Management on April 5 showed.

A pledge by European governments to put together a loan package for Greece has also boosted share prices. Germany is prepared to release funds to Greece, but “first I want to see the program,” the country’s Chancellor Merkel said late yesterday.

Elpida, Japan’s biggest maker of computer memory, lost 1.9 percent to 2,031 yen, while Hynix Semiconductor Inc. slumped 3.3 percent to 27,550 won in Seoul. The spot price for the benchmark dynamic random access memory chip sank 0.7 percent yesterday to the lowest level since March 22, according to Dramexchange Technology Inc.

Lower Chip Prices

Phison Electronics Corp., a maker of computer data storage devices, slumped 6.9 percent in Taipei. Chairman Pua Khien-Seng said NAND flash chip prices may decline this quarter, the Commercial Times reported. The company’s spokesman Yu Zhi-Chyang didn’t answer calls at his office.

Semiconductor Manufacturing International Corp., China’s buggest chipmaker, dropped 2.2 percent to 90 Hong Kong cents. The company reported a net loss in 2009 as sales dropped 21 percent.

CSL fell 3.4 percent to A$32.78 after Credit Suisse cut the stock to “neutral” from “outperform,” citing the impact from U.S. health-care reforms. CSL tumbled 7.3 percent on April 23 when it last traded, after larger rival Baxter International Inc. cut its 2010 earnings forecast.

Among stocks that gained, IHI Corp., Japan’s second-largest maker of heavy machinery, climbed 9.9 percent to 189 yen in Tokyo. The company said in a preliminary earnings statement its full-year net income was 17 billion yen ($180 million), compared with its forecast of 7 billion yen.

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

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U.S. Stocks Set to Fall on Deepening Unemployment: Chart of Day

By Hideki Sagiike and Masaki Kondo

April 27 (Bloomberg) -- The Standard & Poor’s 500 Index is poised to fall as chronic unemployment rises to a record among jobless Americans, according to Mitsubishi UFJ Securities Co. the brokerage unit of Japan’s biggest bank by market value.

The CHART OF THE DAY shows the S&P 500 and ratio of Americans jobless for more than 27 weeks relative to the total number of unemployed. The equities gauge has jumped 80 percent from a more than 12-year low on March 9, 2009, even as long-term joblessness surged to 44.1 percent in March, almost double the level a year earlier and highest since records began in 1948. The lower panel tracks overall unemployment, which has declined 0.4 percentage point since reaching a 26-year peak in October.

“The government’s stimulus measures have driven up stock prices” and helped disguise the unemployment problem, said Seiki Orimi, a senior investment strategist at Tokyo-based Mitsubishi UFJ. “Stocks will fall, at some point. For now, people in the market are tricking themselves” into believing in a U.S. jobs recovery.

Consumer spending accounted for about 70 percent of the world’s largest economy in the fourth quarter, when gross domestic product expanded at a 5.6 percent annual rate, the fastest pace in more than six years. Output in the three months to March probably expanded 3 percent, based on the median forecast of 60 economists surveyed by Bloomberg. The S&P 500 may fall as much as 5 percent in an “overdue” decline, according to a technical analysis this month by Thomas Schroeder, managing director at Chart Partners Group Ltd.

Jobless Benefits

The U.S. posted a budget deficit for a record 18th straight month in March, reflecting gains in government spending to boost the economy. President Barack Obama signed a bill on April 15 extending jobless benefits for hundreds of thousands of Americans to June 2, and urged Congress to pass another measure offering them for the rest of the year.

“Historically, people unemployed for more than six months experience a significant deterioration of vocational skills and face severe difficulties in finding their next job,” Richard Koo, chief economist at Tokyo-based Nomura Research Institute Ltd., wrote in a report on April 20.

(To save a copy of the chart, click here.)

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

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