Dollar Advances Before German Investor Confidence Data, Italian Bill Sale

By Masaki Kondo and Monami Yui - Dec 12, 2011 2:00 PM GMT+0700

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Dec. 12 (Bloomberg) -- Russell Jones, global head of fixed-income strategy at Westpac Banking Corp., talks about Europe's sovereign debt crisis. Germany’s top central banker cooled speculation that the European Central Bank will extend its role as European leaders pressed their case that a new fiscal accord will deliver the region from its two-year-old debt crisis. Jones speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

The dollar gained against most of its major counterparts before a German report tomorrow that may show investor confidence in Europe’s largest economy slid to a three-year low, boosting demand for safer assets.

The euro slid versus the yen as Italy and France prepare to sell bills amid concern the region’s debt crisis is spreading to bigger nations. Australia’s dollar declined after a report showed the nation’s trade surplus narrowed by more than economists estimated. China’s yuan rose after the central bank set the strongest reference rate in a month and signaled the currency will be allowed to trade more freely.

“The dollar is strong as it is the only viable safe-haven currency at the moment,” said Jesper Bargmann, regional head of spot trading for major currencies in Singapore at Royal Bank of Scotland Plc. “There’s still plenty to worry about.”

The dollar advanced 0.3 percent to $1.3349 per euro at 6:48 a.m. in London. The euro fell 0.2 percent to 103.65 yen. The yen was unchanged at 77.65 per dollar.

The ZEW Center for European Economic Research may say its index of German investor and analyst expectations, which aims to predict developments six months in advance, declined to minus 55.8 in December, according to the median estimate in a Bloomberg News survey of economists. That would be the lowest reading since October 2008.

Bill Auctions

Italy will sell 7 billion euros ($9.3 billion) of 365-day bills today, while France is scheduled to auction 6.5 billion euros of short-term debt.

European Union leaders committed “to establishing a new fiscal rule” which curbs a nation’s annual structural deficit below 0.5 percent of nominal gross domestic product, according to a statement from the European Council released on Dec. 9 after a summit in Brussels. The meeting offered few new measures and doesn’t diminish the risk of credit-ranking revisions, Moody’s Investors Service said in its Weekly Credit Outlook.

“While the fiscal compact is a step in the right direction, it’s not aimed at addressing the immediate issue of the sovereign debt crisis which is threatening to plunge the euro-zone into a deep recession,” John Kyriakopoulos, Sydney- based head of currency strategy at National Australia Bank Ltd., wrote in a research note today.

The euro has fallen 1.2 percent in the past month, according to Bloomberg Correlation-Weighted Indexes tracking 10 developed-nation currencies. The dollar has strengthened 2.1 percent, the best performance, and the yen has advanced 1.4 percent.

Narrower Trade Surplus

Australia’s dollar weakened against 10 of its 16 major peers after a government report showed the nation’s trade surplus narrowed to A$1.6 billion ($1.63 billion) in October from a revised A$2.25 billion in September. The median estimate in a Bloomberg survey was for a surplus of A$2 billion.

The so-called Aussie declined 0.3 percent to $1.0182 and also dropped 0.3 percent to 79.06 yen.

Demand for the yen and dollar was limited as Asian stocks extended a global rally and before a U.S. report tomorrow projected to show retail sales rose in November.

The MSCI Asia Pacific Index (MXAP) of shares advanced 0.9 percent after the Standard & Poor’s 500 Index climbed 1.7 percent in New York on Dec. 9. U.S. retail sales probably increased 0.6 percent last month after a 0.5 percent gain in October, a Bloomberg poll of economists indicates.

A report on Dec. 9 that showed the Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to a six-month high of 67.7 in December from 64.1 in November, beating estimates.

Yuan Advances

“Higher stock prices signal the market may continue to lean toward risk-on in the short term,” said Tohru Sasaki, head of Japan rates and foreign-exchange research at JPMorgan Chase & Co. in Tokyo. “The improving economic data from the U.S. is supportive of stocks, causing some dollar-selling.”

The Federal Reserve will hold a policy meeting tomorrow, at which the U.S. central bank is expected to keep its target rate in a range of zero to 0.25 percent, according to another survey of economists.

China’s yuan gained 0.07 percent to 6.3605 per dollar, set for the biggest percentage advance since Dec. 1.

Policy makers will maintain flexibility based on the country’s situation while pushing forward with interest-rate and exchange-rate reform, the Financial News reported, citing Xuan Changneng, head of the People’s Bank of China’s financial stability bureau. The central bank raised its daily fixing 0.09 percent to the highest level since Nov. 9.

The nation’s exports rose 13.8 percent in November from a year earlier, the smallest gain since 2009, according to customs data released Dec. 10.

“The PBOC’s comment quelled investors’ depreciation expectations after the weaker export growth,” said Kenix Lai, a Hong Kong-based currency analyst at Bank of East Asia Ltd. “The stronger fixing also shows that China will still allow gains in the currency, even though the pace may slow.”

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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Medvedev Orders Russia Vote-Fraud Probe

By Ilya Arkhipov and Henry Meyer - Dec 12, 2011 4:37 AM GMT+0700

Russian President Dmitry Medvedev ordered an investigation of alleged parliamentary election fraud after Prime Minister Vladimir Putin faced the biggest protests in his 12 years in power.

Twenty-five thousand people gathered in the center of Moscow on Dec. 10 in near-freezing temperatures and dispersed without detentions or violence, police said. Several thousand demonstrated in St. Petersburg and more than 15,000 in about 30 other cities across the world’s biggest country by area, RIA Novosti reported.

The swelling resentment threatens to weaken Putin’s bid to return to the Kremlin in a presidential contest in March, which may allow him to have almost a quarter-century in power. His United Russia party retained a narrow majority in the State Duma, the lower house of parliament, amid accusations of vote rigging in the Dec. 4 parliamentary ballot.

“We are for free elections, we are for democracy,” Ilya Ponomaryov, a Duma lawmaker and one of the protest organizers, told the crowd in Bolotnaya Square, on an island just south of the Kremlin. “We want a recount of the vote.”

As many as 150,000 people turned out for the biggest rally in the capital in two decades, said Vladimir Ryzhkov, a former lawmaker. The organizers are planning to stage protests the next two weekends and will apply for a permit to hold a rally with 500,000 protesters on Sakharov Prospekt, he said.

‘Russia Without Putin’

Organizers handed out white ribbons to participants, a color that has started to become a symbol of the protests. People at the square chanted: “Russia without Putin!”

Putin, 59, announced in September he plans to return as president next year. The Russian leader, who in 2008 handed over the presidency to Dmitry Medvedev because of a constitutional ban on three consecutive terms, has seen his popularity fall amid voter discontent at stalling wage growth and corruption.

“I wanted Medvedev to run again as president instead of Putin, but he turned out to be an actor in a puppet show,” Katya, 24, a dental technician, said while eating french fries at a diner on the west side of the square. She declined to give her surname, saying her father is a government official and a United Russia member.

Protests began in Vladivostok on the Pacific coast, spreading west through Siberian cities such as Ulan Ude and Omsk, before starting in Moscow, St. Petersburg and other European Russian cities, RIA Novosti reported. Police detained dozens of people at unsanctioned rallies, the state news service said.

‘Sands Shifting’

“The sands are definitely shifting and we are seeing Russia’s fledgling democracy mature by the hour,” Liam Halligan, chief economist at Prosperity Capital in Moscow, which oversees more than $5 billion in Russia, said by phone. “What has changed now is that the opposition are being heard to a greater extent and the government will have to respond by spending more on social policy.”

The Organization for Security and Cooperation in Europe, the continent’s democracy watchdog, the U.S., Germany and the European Union criticized violations during the Dec. 4 vote.

Putin said Dec. 8 that U.S. Secretary of State Hillary Clinton’s remarks of the vote emboldened protesters. Clinton mentioned publicly the OSCE’s criticism that the election was marred by fraud. The comments “sent a signal” to activists, Putin said on Dec. 8.

Accusations of fraud in connection with Russia parliamentary elections that have led to large protests should be investigated, Medvedev said yesterday.

Medvedev on Facebook

“People have a right to express their position, which they did” Dec. 10, Medvedev said on his Facebook page. “I do not agree with any slogans or statements made at rallies. Nevertheless, I have been instructed to check the procedures with the polling stations regarding compliance with the legislation on elections.”

Konstantin Kosachyov, the head of the Duma’s foreign- affairs committee, accused unidentified foreign powers of seeking to destabilize Russia.

“What’s happening now was planned long before the elections, irrespective of the outcome, to discredit them,” Kosachyov said in a phone interview Dec. 10. “The aim is to place in doubt the legitimacy of the Russian leadership. It’s a geopolitical game.”

A map on Yandex, Russia’s largest search engine, showed the locations of planned protests in almost 100 cities around the country, with links to pages on social networking site Vkontakte for details of each event.

Credit Risk

Russia’s credit risk rose the most among emerging markets since protests started, while the ruble weakened for seven days.

“The market is only now starting to price in the return of top-level political risk for the first time in 12 years,” Kingsmill Bond and Andrey Kuznetsov, analysts at Citigroup Inc. in Moscow, wrote Dec. 9 in an e-mailed note. “We are likely to see continued downward pressure on the market as those investors not prepared for this or not willing to stomach the risk, exit the market.”

United Russia lost the two-thirds majority that had given it the power to alter the constitution unilaterally, winning 238 seats in the election for the 450-member Duma, the Central Elections Commission said. The Communists got 92 seats, Just Russia won 64 and the nationalist Liberal Democratic Party 56 seats.

The Communists denounced the vote as “illegitimate,” without endorsing demands for a re-run by the organizers of most of yesterday’s rallies, the Solidarity movement, an umbrella opposition group. Just Russia will seek a vote recount in a number of regions, lawmaker Gennady Gudkov said.

United Russia

The ruling party benefited from uneven access to state resources and the media before the vote, the OSCE said Dec. 5. Election observers also saw evidence of ballot-box stuffing and other irregularities at the polls, it said.

In Moscow, Europe’s largest city, the official results gave United Russia more than 46 percent of the vote, compared with 27.5 percent in an exit poll by the Public Opinion Foundation. The Russian capital has a population of 11.5 million, according to last year’s census.

Medvedev’s human-rights council said it was “extremely concerned” about fraud complaints about the parliamentary poll and the vote should be repeated if the violations were serious enough to alter the results, according to a statement on the panel’s website.

Moscow Protests

Thousands of people took to Moscow’s streets in the days after the vote to protest against the election results and police detained several hundred people.

That action “was spontaneous, with much fewer people,” said Yekaterina Goncharenko, who stood holding white flowers on Bolotnaya Square Dec. 10. “Now it is much more peaceful.”

While the demonstrations are “clearly” the biggest ever against Putin, they are “nowhere near” the size of rallies that toppled governments in the Middle East this year, Neil Shearing, senior emerging-market analyst at Capital Economics in London, said Dec. 8 in a telephone interview.

“I don’t think we will see anything like the Arab spring,” said Dmitry Oreshkin, an independent political analyst in Moscow. “No one is in a rush to run into machine-gun fire.”

To contact the reporters on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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Euro Drops Before German Confidence Data

By Masaki Kondo and Monami Yui - Dec 12, 2011 8:01 AM GMT+0700

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Dec. 12 (Bloomberg) -- Russell Jones, global head of fixed-income strategy at Westpac Banking Corp., talks about Europe's sovereign debt crisis. Germany’s top central banker cooled speculation that the European Central Bank will extend its role as European leaders pressed their case that a new fiscal accord will deliver the region from its two-year-old debt crisis. Jones speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

The euro fell against the dollar before a German report tomorrow that economists say will show investor confidence in the region’s largest economy slid to a three-year low.

The 17-nation currency was 0.5 percent from a one-month low against the pound as Italy and France prepare to sell bills amid concern the euro-area’s debt crisis is spreading to bigger nations. Demand for the yen and dollar was limited as Asian stocks extended a global rally and before a U.S. report tomorrow projected to show retail sales rose in November, reducing the allure of lower-yielding, haven currencies.

“The euro is likely to fall gradually,” said Kengo Suzuki, manager of the foreign-bond department in Tokyo at Mizuho Securities Co., a unit of Japan’s third-biggest listed bank by market value. “The outlook for the European economy remains weak.”

The euro lost 0.2 percent to $1.3356 as of 9:59 a.m. in Tokyo from the close in New York on Dec. 9. The common currency was little changed at 85.39 pence after falling to 84.96 on Dec. 8, the lowest since Nov. 10. The yen traded at 103.71 per euro from 103.89 on Dec. 9 and was unchanged at 77.65 per dollar.

The ZEW Center for European Economic Research may say its index of investor and analyst expectations, which aims to predict developments six months in advance, declined to minus 55.8 in December, the lowest since October 2008, according to a Bloomberg News survey of economists.

Bill Auctions

Italy will sell 7 billion euros ($9.4 billion) of 365-day bills today, while France is scheduled to auction 6.5 billion euros of short-term debt.

European Union leaders committed “to establishing a new fiscal rule,” which curbs a nation’s annual structural deficit below 0.5 percent of nominal gross domestic product, according to a statement from the European Council released on Dec. 9 after a summit in Brussels.

“While the fiscal compact is a step in the right direction, it’s not aimed at addressing the immediate issue of the sovereign debt crisis which is threatening to plunge the euro-zone into a deep recession and potentially lead to the break of the euro,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in a research note today.

U.S. Economy

U.S. retail sales probably increased 0.6 percent last month after a 0.5 percent gain in October, a Bloomberg poll of economists indicates. The Commerce Department data is due tomorrow.

The MSCI Asia Pacific Index (MXAP) of shares advanced 0.9 percent after the Standard & Poor’s 500 Index climbed 1.7 percent in New York on Dec. 9.

“Higher stock prices signal the market may continue to lean toward risk-on in the short term,” said Tohru Sasaki, head of Japan rates and foreign-exchange research at JPMorgan Chase & Co. in Tokyo. “The improving economic data from the U.S. is supportive of stocks, causing some dollar-selling.”

The Federal Reserve will hold a policy meeting tomorrow, where the U.S. central bank is expected to keep its target rate in a range of zero to 0.25 percent, according to another survey of economists.

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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Bundesbank Cools ECB Bond-Buying Talk

By Patrick Donahue - Dec 12, 2011 6:00 AM GMT+0700

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Dec. 12 (Bloomberg) -- Russell Jones, global head of fixed-income strategy at Westpac Banking Corp., talks about Europe's sovereign debt crisis. Germany’s top central banker cooled speculation that the European Central Bank will extend its role as European leaders pressed their case that a new fiscal accord will deliver the region from its two-year-old debt crisis. Jones speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Germany’s top central banker cooled speculation that the European Central Bank will extend its role as European leaders pressed their case that a new fiscal accord will deliver the region from its two-year-old debt crisis.

Bundesbank President Jens Weidmann told the Frankfurter Allgemeine Sonntagszeitung that while the new accord represents “progress,” the onus is on governments rather than the Frankfurt-based ECB to resolve the crisis with financial backing. German Finance Minister Wolfgang Schaeuble said euro- area policy makers will now focus on implementing the Dec. 9 pact to strengthen budget rules as quickly as possible.

“The mandate for redistributing taxpayer money among member states clearly does not lie in monetary policy,” Weidmann told the newspaper in an interview published yesterday. “Financing of sovereign debt through central banks is and remains forbidden by treaty,” the central banker said.

The Franco-German-led agreement, which provides tighter budget rules and an additional 200 billion euros ($267 billion) to the euro war chest, is part of an effort to reassure investors that European leaders can master the crisis. ECB President Mario Draghi lauded the accord, stoking hopes among investors that the central bank might step up bond purchases.

‘Lastingly Stable Euro’

Chancellor Angela Merkel said the accord set the region on a path to a “lastingly stable euro” after European leaders convened in Brussels, adding that “the breakthrough to a stable union has been achieved.” The single currency will now be “more robust” after the acute stage of the crisis subsides, Finland’s Prime Minister Jyrki Katainen told YLE Radio Suomi yesterday.

The accord opens the way for the ECB to intensify its role in the crisis, Irish Deputy Prime Minister Eamon Gilmore said in an interview with Dublin-based broadcaster RTE yesterday. The ECB has signaled “that it would strengthen its role and enhance its role following the conclusion of an agreement,” Gilmore said.

“The ECB will have to gear up its purchases should market tension increase, there is simply no other option available,” Thomas Costerg, an economist at Standard Chartered Bank in London, wrote in e-mailed response to a Bloomberg News query.

Investors gave a mixed reaction before the weekend. European stocks rose, while the euro pared gains on speculation that national authorities will struggle to implement the agreement. Yields on Italy’s 10-year notes rose 8 basis points to 6.53 percent, while Spain’s gained 3 basis points to 5.85 percent.

March Deadline

European leaders have given themselves until March to complete the language for the new rulebook and plan to set up the region’s permanent rescue fund, the European Stability Mechanism, a year earlier than planned in 2012. Leaders also plan to reassess plans to cap the overall lending of the ESM at 500 billion euros.

“We need to work on making this happen quickly, because we have to regain the lost trust of the financial markets and investors across the globe,” Schaeuble said in an interview on Germany’s ARD television late yesterday. “We can’t lean back.”

Retiring European Central Bank Executive Board member Juergen Stark said EU and euro-area institutions needed to take a “quantum leap” forward to overcome the crisis. In an interview with Germany’s Sueddeutsche Zeitung published yesterday Stark called for a panel of experts to review budgets in the euro area, which could form the “nucleus for a future European finance ministry.”

‘Disappointed’ Clegg

The accord forged in Brussels came at the cost of marginalizing the U.K. after Prime Minister David Cameron refused to back the effort. The rift left leaders of the single- currency union with the prospect of fashioning an accord among themselves rather than amending the EU treaties. Nine of the other 10 non-euro members signaled they’ll go along with the pact after consulting their parliaments.

U.K. Deputy Prime Minister Nick Clegg, speaking on British Broadcasting Corp.’s “Andrew Marr” program yesterday, said he was “bitterly disappointed” by the summit result, which left the U.K. “isolated and marginalized” in the EU. Still, the leader of Britain’s smaller coalition party, the pro-EU Liberal Democrats, ruled out a breakup of Britain’s ruling coalition.

Leaders for the first time extracted a contribution from euro central banks of 150 billion euros toward the International Monetary Fund’s general resources. Another 50 billion euros will come from non-euro EU states. The accord’s signatories will confirm within 10 days how they will channel funds to the IMF, which could then be used to aid troubled European states.

China

Chinese Vice Foreign Minister Fu Ying said that China will be part of international efforts to assist Europe.

“Europe needs a partner, they come to sell their bonds, that’s a partnership,” Fu, whose portfolio is European affairs, told reporters in Vienna two days ago. “They have to work out the terms, it should be a kind of relationship of cooperation.”

Draghi praised a “very good outcome” in Brussels, a day after he dampened expectations that a deal would prompt the ECB to step up its bond-buying activities. Europe’s top central banker said the European bailout fund had to provide the firewall.

Austrian Chancellor Werner Faymann cast doubt on the arrangement, telling the Salzburger Nachrichten newspaper that the accord struck in Brussels lacked “firepower.”

“The decisions don’t have enough firepower to have a sustainable effect,” Faymann told the Salzburg-based paper. While the measures on budget discipline are a “big step forward,” rules on regulating financial markets, a European rating company and “European income via a financial transaction tax” are still missing, he said.

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

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Republicans Say Pay Tax Cut Extension Will Pass

By Andrew Zajac and Jim Snyder - Dec 12, 2011 12:36 AM GMT+0700

Senate Minority Leader Mitch McConnell said Congress will reach an agreement that extends the payroll tax cut even as he defended provisions in the House proposal opposed by the Obama administration.

“I believe we should extend the payroll tax holiday another year,” McConnell, a Kentucky Republican, said today on “Fox News Sunday.”

Senator Lindsey Graham, a South Carolina Republican, also predicted that the payroll tax measure will pass.

“It won’t get expanded, it’ll get extended,” Graham said in an appearance on NBC’s “Meet the Press.”

If allowed to expire on Dec. 31, the payroll tax would revert to 6.2 percent on the first $110,100 in wages for 2012, up from 4.2 percent this year.

Extending the tax cut is “is the highest priority of the president and of the Democrats in Congress,” Illinois Democratic Senator Richard Durbin said on “Meet the Press.”

If the tax cut is allowed to expire, “it’s a new tax, an added tax for average working people,” said Durbin, the Senate’s second-ranking Democrat.

The issue of payroll taxes divided the six contenders at the Republican debate in Iowa on last night.

Former Massachusetts Governor Mitt Romney, former Speaker of the House Newt Gingrich and Texas Representative Ron Paul support its extension. Texas Governor Rick Perry, former Pennsylvania Senator Rick Santorum and Minnesota Representative Michelle Bachmann are opposed.

Pipeline Project

The House bill containing the payroll tax cut would also expedite a decision by the administration on TransCanada Corp.’s proposed Keystone XL pipeline, which would connect Canada’s oil sands to refineries on the Gulf Coast. Environmental groups are opposing the project.

The State Department, which has jurisdiction because the pipeline crosses an international border, has said it will rule on plan in 2013 to allow time to study a new route that avoids the environmentally sensitive Sandhills region in Nebraska.

President Barack Obama has said he’ll reject legislation to extend the payroll tax if the pipeline language is attached.

“We’d like to create some jobs and so we have the Keystone pipeline in there,” McConnell said. “It’s a shovel-ready project.”

While he Labor Department last week said the unemployment rate fell to 8.6 percent in November, the lowest since March 2009, Obama administration officials such as Alan Kreuger, chairman of the White House Council of Economic Advisers, said the global economy remains “in a fragile state.”

The legislation would also require the Environmental Protection Agency to delay new pollution rules for industrial boilers. That proposal will save jobs, McConnell said.

Obama advisers have said they would recommend the president veto a delay on the boiler rule.

To contact the reporter on this story: Andrew Zajac in Washington at azajac@bloomberg.net; Jim Snyder in Washington at jsnyder24@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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China May Add Reserve-Ratio Cuts as Exports Slow

By Bloomberg News - Dec 12, 2011 9:00 AM GMT+0700

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Dec. 12 (Bloomberg) -- Nicholas Kwan, Hong Kong-based head of East Asia research at Standard Chartered Plc, talks about China's economy and central bank monetary policy. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

China’s shrinking trade surplus and the weakest export growth since 2009 may encourage Premier Wen Jiabao to keep cutting banks’ reserve requirements to sustain expansion in the world’s second-biggest economy.

Overseas shipments rose 13.8 percent in November from a year earlier, according to customs data released Dec. 10 in Beijing. The excess of exports over imports fell by 35 percent.

A smaller trade surplus and signs that capital has started to flow out of the country may encourage the ruling Communist Party to add to a Nov. 30 cut in bank reserve requirements that was the first since 2008. Sliding exports to Germany and Italy weighed on gains in shipments to emerging nations, and President Hu Jintao yesterday marked 10 years in the World Trade Organization by warning that the global economy faces “severe” challenges.

“China’s capital outflows will continue and the trade surplus may shrink further, forcing the central bank to cut reserve ratios” and use bill sales to inject liquidity and bolster growth, said Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd. “It’s very likely China will see a trade deficit in the next quarter,” said Shen, who previously worked at the International Monetary Fund and the European Central Bank.

Emerging-Market Gains

Last month’s gain in overseas shipments compared with the 10.9 percent median estimate in a Bloomberg News survey and a 15.9 percent increase in October. Excluding distortions in January and February each year, the rise was the smallest since export growth resumed in December 2009. The expansion in imports slowed to 22.1 percent and the trade surplus narrowed more than estimated to $14.5 billion.

Shipments to the European Union, China’s biggest market, rose 5 percent from a year earlier, a quarter of the pace reported in July and August. Sales to Germany, Europe’s biggest economy, fell 1.6 percent and those to Italy dropped for a third month. In contrast, exports to Malaysia rose 34.9 percent and those to Brazil gained 26.4 percent.

China Cosco Holdings Co. (601919), the nation’s largest operator of dry-bulk and container vessels, warned on Oct. 27 it will report a full-year loss as rates for carrying commodities and containers have plunged.

China’s economic expansion could decline to 7.5 percent in the three months through March from 9.1 percent in this year’s third quarter, as export growth slows and the government’s campaign to curb property prices damps investment, according to Nomura Holdings Inc. The country may post a $28.8 billion trade deficit next quarter, according to Zhang Zhiwei, the bank’s chief China economist in Hong Kong. That would be a record quarterly shortfall, according to data compiled by Bloomberg that goes back to January 1994.

Adding Liquidity

Zhang estimates banks’ reserve requirements, currently 21 percent of deposits for the biggest lenders, will be lowered by 150 basis points in the first half of next year. Standard Chartered Plc last week raised its projection for the number of cuts by the end of 2012 to six from four, with the first coming by the end of this year, providing an extra 2.4 trillion yuan ($378 billion) of liquidity for banks.

Foreign-exchange reserves dropped in September for the first time in 16 months and continued to decline through early this month, Li Yang, a former central bank adviser, said Dec. 7, without specifying the source of his information.

A People’s Bank of China report last month showed financial institutions’ purchases of foreign exchange dropped in October, the first decline since December 2007, according to China International Capital Corp. Analysts watch the number for signs of so-called hot money flows.

Policy Fine Tuning

Purchases may remain low or even turn negative next year, reflecting further declines in the trade surplus, a slowdown in property investment and a worsening euro-area economy, Peng Wensheng, a Hong Kong-based economist with CICC, said in a Dec. 8 note.

Countries should strengthen monitoring of systemic risks, central bank Governor Zhou Xiaochuan said at a conference in Shanghai last week, according to a copy of his speech posted on the PBOC’s website yesterday.

The Communist Party’s Politburo, the 25-member body that oversees policy-making, said Dec. 9 it will “fine tune” economic policies next year “as conditions change,” and will make them more “targeted, flexible and forward-looking.” The nation will maintain a “prudent” monetary policy and a “proactive” fiscal policy, it said after a meeting chaired by President Hu Jintao, the official Xinhua News Agency reported.

Inflation Cools

The meeting preceded the annual economic work conference that the Economic Observer newspaper said may take place Dec. 12-14.

“The government is leaving its boilerplate language on policy unchanged,” London-based Capital Economics Ltd. said in a note. “In practice, easing has begun.”

Inflation cooled to 4.2 percent last month from a year earlier and industrial output growth weakened, according to statistics bureau data released Dec. 9, giving the government more room to loosen policies.

The benchmark Shanghai Composite Index (SHCOMP) fell on Dec. 9 to its lowest level since March 2009 as commodity producers Jiangxi Copper Co. and Tongling Nonferrous Metals Group Co. slid. The gauge has declined for five straight weeks.

Investors have pared expectations for gains in the yuan, with 12-month non-deliverable forwards dropping 0.5 percent to 6.4130 per dollar last week. The spot rate for the currency fell 0.1 percent to close at 6.3647 per dollar in Shanghai.

Depreciation Pressure

China’s trade surplus, a source of friction with nations including the U.S., has fallen from a peak of almost $300 billion in 2008. The commerce ministry said last month that it may be as small as $150 billion this year.

In a speech yesterday, President Hu pledged to “actively” expand imports to resolve imbalances with nations that have “substantial” deficits with China.

The excess may disappear within two years as domestic demand rises, making the yuan’s value less of an issue with trading partners, Li Daokui, an academic adviser to the central bank, said last month. The currency may even face depreciation pressure, he said in an interview.

--Li Yanping. With assistance from Victoria Ruan in Beijing. Editors: Nerys Avery, Steve Bailey

To contact Bloomberg News staff for this story: Li Yanping in Beijing at yli16@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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Gingrich, Romney Targeted by GOP Rivals in Debate

By John McCormick and Kristin Jensen - Dec 12, 2011 12:40 AM GMT+0700

Newt Gingrich came under fire in a debate yesterday as the front-runner in the Republican presidential race, while top rival Mitt Romney opened himself to attacks of being out of touch with ordinary Americans by offering a $10,000 wager onstage.

Gingrich, whose temperament for the presidency has been questioned by his opponents, mostly maintained a cool demeanor in fielding criticisms focused on his record. Romney found himself immediately mocked after he denied an assertion by Texas Governor Rick Perry that he had supported broadly requiring individuals to have health insurance.

“I’ll bet you 10,000 bucks,” Romney said.

Perry replied, “I’m not in the betting business.”

Appearing on “Fox News Sunday,” Perry said the wager showed Romney was “a little out of touch with the normal Iowa citizen.”

The Democratic National Committee also jumped on the $10,000 offer, a sum it said in an e-mail to reporters was more than four months’ pay for most people and more than a year’s worth of mortgage payments.

Romney, the founder of the Boston-based venture capital firm Bain Capital LLC, is worth as much as $250 million, according to a personal financial disclosure he filed in August.

Gingrich Polling Lead

An NBC News/Marist poll released today shows Gingrich leading in South Carolina and Florida, states that also vote in January after Iowa and New Hampshire. Gingrich leads Romney by 19 percentage points in South Carolina and 15 percentage points in Florida among likely Republican primary voters, including those who are undecided, yet leaning toward a candidate.

Former Utah Governor Jon Huntsman, who isn’t actively campaigning in Iowa and didn’t meet polling criteria to participate in the debate, said Republican voters haven’t made up their minds yet.

“There have been so many ups and downs in this race, I’m getting whiplashed,” Huntsman said today in an appearance on ABC’s “This Week” program. “The marketplace is still open. People are shopping.”

Huntsman and Gingrich will meet tomorrow for a 90-minute debate at St. Anselm College in Manchester, New Hampshire.

Gingrich, the former U.S. House speaker, had been largely ignored by his Republican rivals in many of this year’s previous debates and often assumed the role of scold, berating the questioners at the forums. That wasn’t the case last night following his surge during the past month in polls.

He and Romney, the former governor of Massachusetts, each faced attacks last night from rivals, as both assailed each other.

Palestinian People

One exchange concerned Gingrich calling the Palestinians an “invented people” in a recent interview with the Jewish Channel cable television network.

Romney called the statement a “mistake” that would make relations with the Palestinians more difficult for Israel.

“I’m not a bomb thrower, rhetorically or literally,” he said, seeking to contrast his personality with Gingrich’s.

“Sometimes it is helpful to have a president of the United States with the courage to tell the truth,” Gingrich responded as he stood by his statement. “I will tell the truth even if it’s at the risk of causing some confusion sometimes.”

Obama Targeted

Romney earlier had contrasted his background with that of Gingrich’s, who he has derided as a career politician and Washington insider.

“The real difference I believe is our backgrounds,” he said. “I spent my life in the private sector. I understand how the economy works.”

Gingrich sought to turn the tables on Romney, saying he would have been a Washington insider himself if he had won an election in Massachusetts almost 20 years ago against then- Senator Edward Kennedy, a Democrat.

“Let’s be candid, the only reason you didn’t become a career politician is you lost to Teddy Kennedy in 1994,” Gingrich said. “You’d have been a 17-year career politician by now if you’d won.”

Appearing on NBC’s “Meet the Press,” Senator Lindsey Graham, a South Carolina Republican, said that Gingrich would win the state, the third to vote on the nomination, if the election were held tomorrow.

‘Leveled Out’

Graham said he thinks Gingrich has “leveled out as a person” from his days as House Speaker when he was criticized for being unpredictable.

“I’m not going to endorse him, but I think he could beat President Obama,” Graham said.

Rival Republican candidate Representative Michele Bachmann of Minnesota last night targeted Gingrich and Romney on the issue of a government requirement that people purchase health insurance.

She criticized Gingrich for his support in 1993 of the so- called individual mandate for purchasing health insurance when then-President Bill Clinton’s administration unsuccessfully tried to redesign the nation’s health-care system. And she attacked Romney for helping push into law, as governor of Massachusetts, a state law with an insurance mandate.

Romney reiterated that it should be up to each state to decide whether to adopt the mandate, and that it was wrong for Obama to make it the centerpiece of the 2010 federal law overhauling the U.S. health-care system.

Wager Offer

Perry argued during the debate that Romney had asserted in a book he wrote that other states should embrace the mandate provision. Romney disputed Perry’s claim, and it was then that he offered the bet.

Bachmann repeatedly called the front-runners “Newt- Romney,” suggesting that they aren’t true conservatives and that she is “the proven, consistent conservative” in the Republican contest.

“He and I are not clones,” Romney replied.

Gingrich, who has been married three times and acknowledged being unfaithful to a previous spouse, faced implied criticism of his personal life.

“If you cheat on your wife, you’ll cheat on your business partner,” Perry said when asked whether infidelity should disqualify someone for the presidency.

Former U.S. Senator Rick Santorum of Pennsylvania said it shouldn’t be a disqualifier, while adding that a person’s character should be weighed.

‘Character Issues’

“Character issues do count,” he said. “Trust is everything.”

Gingrich said his personal life should be viewed in its entirety.

“I’ve made mistakes at times,” he said. “I’ve had to go to God for forgiveness. I’ve had to seek reconciliation. But I’m also a 68-year-old grandfather. And I think people have to measure who I am now and whether I’m a person they can trust.”

U.S. Representative Ron Paul of Texas, whose campaign is running an ad in Iowa labeling Gingrich a “serial hypocrite,” spotlighted the constancy theme. Reiterating his long-held opposition to an assertive government role in the economy, he said there would “be a little bit of trouble with anybody competing with me on consistency.”

Paul said Gingrich has been “on different positions on so many issues,” as he criticized him for supporting the bank bailout in 2008 and for working as a consultant to the government-backed home mortgage company Freddie Mac.

Gingrich received about $1.6 million from Freddie Mac through two contracts. Gingrich has said he did no lobbying for the company, which he now criticizes as a candidate.

Third-Party Candidate

Appearing today on “Meet the Press,” Paul refused to rule out a run as a third-party candidate.

“I’m not going to rule anything out or anything in,” Paul said. He said he had no plans to run as a third-party candidate.

The debate was moderated by George Stephanopoulos and Diane Sawyer of ABC News and broadcast on that network live from Drake University in Des Moines. It was also sponsored by the Des Moines Register newspaper, Yahoo.com, the Republican Party of Iowa and WOI-TV, an Iowa ABC affiliate.

It was the 12th formal debate this year for the Republican candidates, who will meet again on Dec. 15 for a session in Sioux City, Iowa. The state conducts caucuses where voting in the nomination race starts.

The debate was the first since businessman Herman Cain’s departure from the race on Dec. 3 amid allegations of sexual indiscretions.

Gingrich had the support of 25 percent of likely caucus participants in the latest Iowa Poll from the Des Moines Register. Paul was next with 18 percent, followed by Romney at 16 percent. Sixty percent of poll participants said they could change their minds, while 11 percent said they are undecided.

Perry’s Decline

Perry, who has fallen in polls after poor debate performances that included an “oops” moment when he couldn’t name all three federal agencies he would cut as president, is trying to reestablish momentum before the Iowa caucus with a two-week bus tour through the state.

His campaign may have suffered another setback when he struggled during an editorial board meeting with the Des Moines Register to remember the name of Supreme Court Justice Sonia Sotomayor, who he has called the type of “activist judge” he wouldn’t nominate as president.

On “Fox News Sunday today,” Perry said he hadn’t “memorized all of the Supreme Court judges.”

Voters “aren’t looking for a robot that can spit out the name of every Supreme Court justice,” he said. “They are looking for somebody who’s got values that are based with a deep rudder in the water.”

To contact the reporters on this story: John McCormick in Des Moines, Iowa, at jmccormick16@bloomberg.net; Kristin Jensen in Washington at kjensen@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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Euro Leaders Hail Accord as Bundesbank Cools

By Patrick Donahue - Dec 12, 2011 12:15 AM GMT+0700

European leaders pressed the case that a new fiscal accord will deliver the region from its two- year debt crisis, as Germany’s top central banker cooled speculation the European Central Bank will extend its role.

The post-crisis single currency will be “more robust” following the Dec. 9 agreement to strengthen budget rules, Finland’s Prime Minister Jyrki Katainen told YLE Radio Suomi. Bundesbank President Jens Weidmann told the Frankfurter Allgemeine Sonntagszeitung that while the new accord represents progress, the onus is on governments rather than the Frankfurt- based ECB to resolve the crisis with financial backing.

“The mandate for redistributing taxpayer money among member states clearly does not lie in monetary policy,” Weidmann told the newspaper in an interview published today. “Financing of sovereign debt through central banks is and remains forbidden by treaty.”

The Franco-German-led agreement, which provides tighter budget rules and an additional 200 billion euros ($267 billion) to the euro warchest, is part of an effort to reassure investors that European leaders are able to master the crisis. ECB President Mario Draghi lauded the accord, stoking hopes among investors that the central bank might step up bond purchases.

Chancellor Angela Merkel said the accord set the region on a path to a “lastingly stable euro” after European leaders convened in Brussels, adding that “the breakthrough to a stable union has been achieved.” The U.K. decided to remain outside the new framework.

Mixed Response

Investors gave a mixed reaction before the weekend. European stocks rose, while the euro pared gains on speculation that national authorities will struggle to implement the agreement. Yields on Italy’s 10-year notes rose 8 basis points to 6.53 percent, while Spain’s gained 3 basis points to 5.85 percent.

The accord opens the way for the ECB to intensify its role in the crisis, Irish Deputy Prime Minister Eamon Gilmore said in an interview with Dublin-based broadcaster RTE. He also said the country could hold a referendum on the new pact if needed, once the final text of the new rules was agreed.

“If in certain circumstances that requires a referendum, then we’ll we have a referendum,” Gilmore said.

The British Prime Minister David Cameron’s refusal to back the effort opened a rift in the 27-member block, leaving the leaders of the single-currency union to fashion an accord among each other rather than amending the EU treaties. Nine of the other 10 non-euro members signaled they’ll go along with the pact after consulting their parliaments.

‘Isolated and Marginalized’

U.K. Deputy Prime Minister Nick Clegg, speaking on British Broadcasting Corp.’s “Marr” program today, said he was “bitterly disappointed” by the summit result, which left the U.K. “isolated and marginalized within the European Union.” Still, the leader of Britain’s smaller coalition party, the pro- EU Liberal Democrats, ruled out a breakup of Britain’s ruling coalition.

Leaders for the first time extracted a contribution from euro central banks of 150 billion euros toward the International Monetary Fund’s general resources. Another 50 billion euros will come from non-euro EU states. The accord’s signatories will confirm within 10 days how they will channel funds to the IMF, which could then be used to aid troubled European states.

Chinese Vice Foreign Minister Fu Ying said that China will be part of international efforts to assist Europe.

‘Very Good Outcome’

“Europe needs a partner, they come to sell their bonds, that’s a partnership,” Fu, whose portfolio is European affairs, told reporters in Vienna yesterday. “They have to work out the terms, it should be a kind of relationship of cooperation.”

Europe will complete the language of the new rulebook by March and will reassess plans to cap the overall lending of the permanent rescue facility, the European Stability Mechanism, at 500 billion euros. They brought forward the operation of the fund to next year.

Draghi praised a “very good outcome” in Brussels, a day after he dampened expectations that a deal would prompt the ECB to step up its bond-buying activities. Europe’s top central banker said the European bailout fund had to provide the firewall.

Austrian Chancellor Werner Faymann cast doubt on the arrangement, telling the Salzburger Nachrichten newspaper that the accord struck in Brussels lacked “firepower.”

“The decisions don’t have enough firepower to have a sustainable effect,” Faymann told the Salzburg-based paper. While the measures on budget discipline are a “big step forward,” rules on regulating financial markets, a European rating company and “European income via a financial transaction tax” are still missing, he said.

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

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Clegg Says Coalition Breakup Would be ‘Disaster’

By Svenja O’Donnell - Dec 12, 2011 7:01 AM GMT+0700

U.K. Prime MinisterDavid Cameron’s refusal to back a European Union accord has caused a rift with the Liberal Democrats as their leader, Nick Clegg, warned a breakup of the coalition would lead to “economic disaster.”

Clegg, the deputy prime minister, said he was “bitterly disappointed” by Cameron’s refusal to endorse a 27-nation pact to tighten budget rules at an EU summit in Brussels last week. Cameron will make a statement to lawmakers about the talks at 3:30 p.m. in London today.

The move will leave the U.K. “isolated and marginalized within the European Union,” Clegg told the British Broadcasting Corp.’s “Marr” program yesterday. Still, he said “it would be even more damaging for us as a country if the coalition government was now to fall apart. It would create economic disaster.”

The coalition’s austerity drive has helped push the yield on 10-year bonds close to those of German bunds as investors speculate the government will slash the budget deficit. The challenge for Cameron will be to keep the pro-EU Liberal Democrats and anti-EU members of his own Conservative Party -- whom Clegg called “spectacularly misguided” -- inside the same government.

“I’m bitterly disappointed by the outcome of last week’s summit, precisely because I think now there is a danger that the U.K. will be isolated and marginalized within the EU,” Clegg said. “I don’t think that’s good for jobs, in the City or elsewhere. I don’t think it’s good for growth or for families up and down the country.”

Coalition Rift

By refusing to join the fiscal accord, Cameron strengthened the wing of his Conservative party that wants Britain to leave the EU. He also caused the biggest divide with his coalition partners since both parties campaigned on opposite sides of a May referendum on overhauling the voting system.

“The biggest shock for the Liberal Democrats is the realization that they are less important to the survival of the government than the conservative backbenchers,” said Andrew Russell, professor of politics at Manchester University. “The collapse of the coalition would not just be an economic disaster, it would be an electoral disaster” for Clegg’s party, he said.

U.K. Polls

A poll by Survation for the Mail on Sunday yesterday showed that almost two-thirds of voters said Cameron was right to back out of the EU accord, while 48 percent said Britain should leave the EU altogether. Survation interviewed 1,020 people online on the evening of Dec. 9 and on Dec. 10, just after the summit. A poll by ComRes, carried out just before the summit for the Independent on Sunday, showed 52 percent of Britons say the euro crisis is an ideal opportunity for the U.K. to leave the EU. Neither newspaper provided a margin of error for the polls.

Clegg said that Cameron had been placed in a “difficult position” at the Dec. 8 to Dec. 9 EU meeting because he faced “intransigence” from France and Germany. Nevertheless, he added that the government should now “fight, fight and fight again” for Britain’s interests within the EU.

After Britain refused to back a 27-nation agreement without guarantees about future regulations affecting Britain’s financial firms, the 17 euro countries opted to enshrine closer fiscal accord in a new deal that leaves out the U.K. instead of amending EU agreements that date back to the 1950s.

Not Good Enough

Cameron told reporters following the all-night talks that “what was on offer just wasn’t good enough for Britain. It’s better to allow those countries to do their own thing on their own.”

Paddy Ashdown, a former Liberal Democrat leader, criticized the move, saying Cameron’s decision “doesn’t make it easier” to get the U.K. through the economic crisis. “Cameron has acted as the leader of the Conservative Party and not the prime minister of Great Britain,” he told Sky News yesterday.

The EU is the U.K.’s largest market and took 54 percent of its exports last year. The Organization for Economic Cooperation and Development said on Nov. 28 that Britain’s economy may already be shrinking in the current quarter and will contract in the first three months of 2012, pushing it into a recession.

Dutch Finance Minister Jan Kees de Jager said yesterday that Cameron’s decision had isolated Britain.

“It’s at least the case that Cameron and the Britons isolated themselves enormously and actually they got zero twice,” he said in an interview on Dutch television program “Buitenhof.” “The first zero is that they got nothing they wanted for their finance industry. And it may be that in the end only Great Britain won’t take part in a new European treaty.”

Clegg said he will do “everything I can to ensure this setback does not become a permanent divide.”

“A Britain which leaves the EU will be considered to be irrelevant by Washington and will be a pygmy in the world,” he told the “Marr” show.

-- with reporting from Martijn van der Starre in Amsterdam. Editors: Steve Bailey, Francis Harris

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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Ex-FDIC Chief Bair Top Pick for Bank Monitor

By Thom Weidlich and David McLaughlin - Dec 11, 2011 12:01 PM GMT+0700

Sheila Bair, the former Federal Deposit Insurance Corp. chairman, is a leading candidate among state officials to ensure banks comply with any settlement of a nationwide foreclosure probe, a person familiar with the matter said.

Bair, who led the agency from 2006 until stepping down this year, is supported by some state officials as a third-party monitor of any settlement with mortgage servicers, including Bank of America Corp. (BAC), the person said. At least one bank in the talks, Citigroup Inc. (C), opposes her selection, said the person, who didn’t want to be named because the talks are private.

Selection of the monitor is among the last issues still to be worked out between the banks and state and federal officials before a final agreement is reached, according to that person and another person familiar with the matter who also didn’t want to be identified because the talks are private.

All 50 states last year said they were investigating bank foreclosure practices following disclosures that the companies were using faulty documents in seizing homes. State and federal officials leading the talks are seeking an agreement that provides mortgage relief to homeowners and sets standards for foreclosure practices.

The monitor would ensure compliance with any agreement, according to a settlement proposal offered to the banks in March.

Records, Penalties

The monitor will have authority to access records and audit a servicer’s performance, according to the document. Banks would be subject to penalties for failure to meet performance measures and timelines.

Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, declined to comment on whether Bair is a candidate for the monitor position. Miller is leading the talks for the states.

Bair didn’t immediately return phone or e-mail messages seeking comment yesterday on the appointment of a monitor.

Mark Rodgers, a spokesman for New York-based Citigroup, didn’t immediately respond to an e-mail seeking comment or return a phone message left at his office yesterday. A representative of the bank also didn’t immediately return a message seeking comment on the talks left with Citigroup’s main media line. Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment on the negotiations.

$25 Billion Possible

Both sides in the negotiations have agreed to the framework of a deal, according to the two people familiar with the talks. The deal with the five largest mortgage servicers could amount to $25 billion with banks agreeing to fund refinancings and writedowns of loan principal balances, among other steps, the people said.

The other companies involved in the talks are New York- based JPMorgan Chase & Co. (JPM), San Francisco-based Wells Fargo & Co. (WFC) and Detroit-based Ally Financial Inc.

The value of a deal would be less if California Attorney General Kamala Harris doesn’t sign on. She announced in September that she was breaking away from the talks to conduct her own investigation. The agreement would increase if more servicers are included in the agreement, the people said.

“We’re certainly hopeful we’ll reach an agreement by Christmas, but there are no guarantees,” Greenwood said.

To contact the reporters on this story: Thom Weidlich in Brooklyn, New York, at tweidlich@bloomberg.net; David McLaughlin in New York at dmclaughlin9@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; John Pickering at jpickering@bloomberg.net

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China, India Pledge Pollution Cuts in Climate Pact

By Kim Chipman and Alex Morales - Dec 11, 2011 11:02 AM GMT+0700

Developing nations led by China and India pledged they’d work toward an agreement that would limit their fossil fuel emissions for the first time, the biggest advance in the fight against global warming in 14 years.

Envoys from more than 190 nations also extended the Kyoto Protocol, the only ratified treaty limiting greenhouse gases. They will develop a document with “legal force” by 2015 that would curb pollution for all nations, according to a text adopted today in Durban, South Africa.

The move breaks a division enshrined in the United Nations- led discussions since 1992 that allowed the poorest nations to escape commitments on burning coal and oil while requiring industrial nations to clean up the atmosphere. That rift prevented the U.S. from ratifying Kyoto, which is the heart of the international effort to protect the environment.

“Historic is the word,” Grenadian ambassador Dessima Williams, lead negotiator for a coalition of 42 island nations, said in an interview. “The idea that we got everybody to agree to take some form of legal commitment is a major outcome.”

The talks dragged more than 28 hours past their scheduled Dec. 9 finish as a division emerged between a coalition of more than 120 nations backing a road map to a legally-binding deal and China and India, which sought weaker language on the eventual legal form of the pact. It was the longest meeting since the climate talks began in 1992.

Near Collapse

Delegates slept in the corridors as the talks teetered on the brink of collapse after the European Union, 42 island nations and 48 of the poorest states said they couldn’t accept a watered-down deal. India refused to sign an agreement that would bind it to an unwritten treaty and threaten its economy.

“India will never be intimidated by threats,” India’s Environment Minister Jayanthi Natarajan said in a passionate speech to delegates this morning. “How do I give a blank check and give a legally-binding agreement to sign away the rights of 1.2 billion people?”

The dispute exploded at a 3 a.m. and was defused when the EU agreed to substitute language calling for a treaty with “legal force” instead of a “legal instrument.” The latter construction echoed the 1995 Berlin Mandate that set the course for delegates adopting Kyoto two years later.

“This is a breakthrough decision,” said Tomasz Chruszczow, the envoy from Poland, which holds the rotating presidency of the European Union. “Efforts to fight climate change will be made by all countries, not only the EU. This won’t happen right now, but a process has been started.”

Wiggle Room

The U.S. initially suggested the “legal instrument” words and backed the compromise, saying it was important to keep the package of Durban measures on track. Environmental groups said the words may let nations wiggle out of commitments.

“This weak compromise is a victory for the fossil industry, which is successfully controlling the U.S. government not agreeing to a legally binding protocol,” said Martin Kaiser, who analysis international climate policy for Greenpeace.

Delegates who were mainly national environment ministers agreed to work toward bringing the next treaty into effect from 2020. That proposal allowed the EU almost alone to say it would make further commitments under Kyoto.

Boost for CDM

Extending Kyoto supports the Clean Development Mechanism, a pillar of the global carbon market that came out of the treaty. Prices of CDM certificates issued have fallen 54 percent in the past year as the weaker economy cut demand for the offsets and concern mounted about the continuation of the program.

Diplomats scaled back ambitions for this year’s meeting and didn’t fix new commitments for doubling pledges to curtail greenhouse gases by 2020, a measure the UN Environment Program says is needed to keep global warming from exceeding 2 degrees Celsius (3.6 degrees Fahrenheit) since industrialization. That infuriated the blocs of Latin American and island nations.

“We all know this is a very bad agreement that will need more work,” Claudia Salerno, the Venezuelan envoy who helped derail a decision at the talks in Copenhagen two years ago, said during the debate last night. “We need to stop this farce of lack of shame.”

Emissions of carbon dioxide from fossil fuels hit a record last year, and 2011 is on track to be the 11th warmest ever. Glaciers are retreating from Tibet to the Alps and Mount Kilimanjaro in Tanzania, and sea levels are rising, causing concern among island nations at risk of disappearing.

Low Ambition

“The ambition of the package is extremely low,” Nicaraguan minister Paul Oquist Kelley said in an interview. “It says this is a critical problem that’s time urgent, so let’s do something about it in 10 years. You have low ambition, low urgency. We’re ignoring what’s happening before our eyes.”

The meeting also:

To contact the reporters on this story: Kim Chipman in Durban, South Africa at kchipman@bloomberg.net; Alex Morales in Durban, South Africa at amorales2@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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Romney Offers $10,000 Debate Wager as Gingrich Weathers Attacks

By John McCormick and Kristin Jensen - Dec 11, 2011 10:17 PM GMT+0700

Newt Gingrich came under persistent fire in a debate yesterday as the latest front-runner in the Republican presidential race, while top rival Mitt Romney opened himself up for attacks of being out of touch with ordinary Americans by offering a $10,000 wager onstage.

Gingrich, whose temperament for the presidency has been questioned by his opponents, mostly maintained a cool demeanor in fielding criticisms focused on his record. Romney found himself immediately mocked by Democrats after he denied Texas Governor Rick Perry’s assertion that he had broadly supported requiring individuals to have health insurance.

“I’ll bet you 10,000 bucks,” Romney said.

Perry replied, “I’m not in the betting business.”

The Democratic National Committee jumped on the $10,000 offer, suggesting it showed Romney is out of touch with middle- class Americans. That sum is more than four months’ pay for most and more than a year’s worth of mortgage payments, the DNC said in an e-mail to reporters.

Romney, the founder of the Boston-based venture capital firm Bain Capital LLC, is worth as much as $250 million, according to a personal financial disclosure he filed in August.

Gingrich, the former U.S. House speaker, had been largely ignored by his Republican rivals in many of this year’s previous debates and often assumed the role of scold, berating the questioners at the forums. That wasn’t the case last night following his surge during the past month in polls of the Republican race.

He and Romney, the former governor of Massachusetts, each faced attacks from rivals, as both also assailed each other.

Palestinian People

One exchange concerned Gingrich calling the Palestinians an “invented people” in a recent interview with the Jewish Channel cable television network.

Romney called the statement a “mistake” that would make relations with the Palestinians more difficult for Israel.

“I’m not a bomb thrower, rhetorically or literally,” he said, seeking to contrast his personality with Gingrich’s.

“Sometimes it is helpful to have a president of the United States with the courage to tell the truth,” Gingrich responded as he stood by his statement. “I will tell the truth even if it’s at the risk of causing some confusion sometimes.”

Obama Targeted

Perry came to Gingrich’s defense by saying the media was making too much out of the statement and that the focus in discussing the Israeli-Palestinian issue should be on President Barack Obama.

“This president is the problem,” he said. “Not something that Newt Gingrich said.”

Romney earlier had contrasted his background with that of Gingrich’s, who he has derided as a career politician and Washington insider.

“The real difference I believe is our backgrounds,” he said. “I spent my life in the private sector. I understand how the economy works. I believe that for Americans to say goodbye to President Obama and elect a Republican, they need to have confidence that the person they’re electing knows how to make this economy work again.”

Gingrich sought to turn the tables on Romney, saying he would have been a Washington insider himself if he had won an election in Massachusetts almost 20 years ago against then- Senator Edward Kennedy, a Democrat.

“Let’s be candid, the only reason you didn’t become a career politician is you lost to Teddy Kennedy in 1994,” Gingrich said. “You’d have been a 17-year career politician by now if you’d won.”

Insurance Issue

U.S. Representative Michele Bachmann of Minnesota targeted Gingrich and Romney on the issue of a government requirement that people purchase health insurance.

She took Gingrich to task for his support in 1993 of the so-called individual mandate for purchasing health insurance when then-President Bill Clinton’s administration unsuccessfully tried to redesign the nation’s health-care system. And she attacked Romney for helping push into law, as governor of Massachusetts, a state law with an insurance mandate.

Romney reiterated that it should be up to each state to decide whether to adopt the mandate, and that it was wrong for Obama to make it the centerpiece of the 2010 federal law overhauling the U.S. health-care system.

Wager Offer

Perry argued that Romney had asserted in a book he wrote that other states should embrace the mandate provision. Romney disputed Perry’s claim, and it was then that he offered the bet.

Bachmann repeatedly called the front-runners “Newt- Romney,” suggesting that they aren’t true conservatives and that she is.

“He and I are not clones,” Romney replied.

Bachmann later offered herself as “the proven, consistent conservative” in the Republican contest.

Gingrich, who has been married three times and acknowledged being unfaithful to a previous spouse, faced implied criticism of his personal life.

“If you cheat on your wife, you’ll cheat on your business partner,” Perry said when asked whether infidelity should disqualify someone for the presidency.

Former U.S. Senator Rick Santorum of Pennsylvania said it shouldn’t be a disqualifier, while adding that a person’s character should be weighed.

‘Character Issues’

“Character issues do count,” he said. “Trust is everything.”

Gingrich said his personal life should be viewed in its entirety, as he addressed the question in a state where social conservatives hold great sway in the Republican Party.

“I’ve made mistakes at times,” he said. “I’ve had to go to God for forgiveness. I’ve had to seek reconciliation. But I’m also a 68-year-old grandfather. And I think people have to measure who I am now and whether I’m a person they can trust.

U.S. Representative Ron Paul of Texas, whose campaign is running an ad in Iowa labeling Gingrich a “serial hypocrite,” spotlighted the constancy theme. Reiterating his long-held opposition to an assertive government role in the economy, he said there would “be a little bit of trouble with anybody competing with me on consistency.”

Paul charged that Gingrich has been “on different positions on so many issues,” as he criticized him for supporting the bank bailout in 2008 and for working as a consultant to the government-backed home mortgage company Freddie Mac.

Fee From Freddie

Gingrich received about $1.6 million from Freddie Mac through two contracts. Asked about a $300,000 fee during a November debate, Gingrich said he was acting as a “historian” who warned the company that its business model was “insane.”

Former Freddie Mac officials familiar with the consulting work Gingrich was hired to perform in 2006 said he was brought aboard to build bridges on Capitol Hill. Gingrich has said he did no lobbying for the company, which he now criticizes as a candidate.

Romney and Gingrich agree on an issue bogged down in the U.S. Congress, a proposed extension of the payroll tax cut. Both favor it. Paul said last night he also wants to extend it; Perry, Bachmann and Santorum oppose that move.

“This year alone, this will also cost the Social Security Trust Fund another $112 billion, and we don’t have enough money this year in the Social Security Trust Fund to put out those checks,” Bachmann said.

Republican Party

The debate was moderated by George Stephanopoulos and Diane Sawyer of ABC News and broadcast on that network live from Drake University in Des Moines. It was also sponsored by the Des Moines Register newspaper, Yahoo.com, the Republican Party of Iowa and WOI-TV, an Iowa ABC affiliate.

It’s the 12th formal debate this year for the Republican candidates, who will meet again on Dec. 15 for a session in Sioux City, Iowa. The state conducts caucuses where voting in the nomination race starts.

The debate was the first since businessman Herman Cain’s departure from the race on Dec. 3 amid allegations of sexual indiscretions. Former Utah Governor Jon Huntsman Jr., who isn’t actively campaigning in Iowa while focusing on New Hampshire -- site of the race’s first primary -- didn’t meet polling criteria for being part the debate.

Gingrich had the support of 25 percent of likely caucus participants in the latest Iowa Poll from the Des Moines Register. Paul was next with 18 percent, followed by Romney at 16 percent. Sixty percent of poll participants said they could change their minds, while 11 percent said they are undecided.

To contact the reporters on this story: John McCormick in Des Moines, Iowa, at jmccormick16@bloomberg.net; Kristin Jensen in Washington at kjensen@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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Mexico City Shaken by Magnitude-6.5 Quake

By Nacha Cattan and Ben Bain - Dec 11, 2011 12:54 PM GMT+0700

A magnitude 6.5 earthquake centered in the southern Mexican state of Guerrero shook the capital of Latin America’s second-biggest economy. Two people were killed in Guerrero, the country’s civil protection agency said.

The quake occurred at 7:47 p.m. local time and was centered 166 kilometers (103 miles) southwest of Mexico City, according to the U.S. Geological Survey.

“All services in Mexico City are functioning normally,” Mexican President Felipe Calderon said via the Twitter website at approximately 10 p.m. An 18-year old was killed in Iguala, Guerrero, when a restaurant roof collapsed, and a 25-year old was killed on the Chilpancingo-Acapulco highway, the civil protection agency said in an e-mailed statement.

Petroleos Mexicanos, the state-controlled oil company known as Pemex, said its infrastructure wasn’t damaged. Mexico City Mayor Marcelo Ebrard said on Twitter that the capital’s airport, subway and the water systems are functioning normally.

The temblor left 30 neighborhoods in Mexico City without power, the Excelsior newspaper reported, citing the federal electricity commission. Police chief Manuel Mondragon y Kalb said in an interview with Foro TV two buildings in the city were reported to be damaged, including one that was leaning on another structure. He confirmed power outages in some parts of the city.

To contact the reporter on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net; Ben Bain in New York at bbain2@bloomberg.net

To contact the editor responsible for this story: Jim McDonald at jmcdonald8@bloomberg.net

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IMF Seeks Funds for European Debt Crisis

By Sandrine Rastello and Ian Katz - Dec 11, 2011 2:21 AM GMT+0700

In 2009, the U.S. led a global drive to increase the International Monetary Fund’s firepower to help pull the world out of recession, pitching in $100 billion. This time, it’s a bystander in a similar effort to counter the European debt crisis.

European leaders meeting in Brussels agreed to lend the IMF as much as 200 billion euros ($268 billion), opening the way for aid from nations such as Brazil and South Korea. While the U.S. supports the effort, it won’t participate, an administration official said in Washington yesterday.

Any solution to the crisis should be led by European nations themselves, not the IMF, to assure financial markets, said the official, who spoke to reporters on condition of anonymity. What’s more, the administration of President Barack Obama would be unlikely to convince a Congress divided between Democrats and Republicans to approve money for the fund.

“Obama had a lot more political capital coming in 2009 when he was just elected,” said Julie Chon, a former adviser at the Senate Banking Committee, which authorizes contributions to the IMF. “The crisis that’s confronting the world today is a European-born crisis, so it requires European leadership, while in 2009 we were still fighting the remnants of a U.S. subprime crisis.”

While bilateral loans can be helpful, the IMF can’t substitute for a show of force from European nations, the administration official said. U.S. officials have said in the past that the IMF has adequate resources, thanks to the 2009 campaign.

‘Wealthy Enough’

“Europe is wealthy enough that there’s no reason why they can’t solve this problem,” Obama said Dec. 8 at a White House press conference. “It’s not as if we’re talking about some impoverished country that doesn’t have any resources.”

The pledge by Europeans would provide temporary bilateral loans to the IMF to help it meet a potential increase in loan demand or a request from Spain and Italy for precautionary lending.

The agreement also raises the odds of help from the Group of 20 nations, which held back last month because they said Europe wasn’t doing enough to help itself. The G-20 comprises the world’s leading industrial and developing economies accounting for about 85 percent of global gross domestic product.

“We can contribute if some conditions are met,” Sohn Byung Doo, director general of the G-20 bureau at South Korea’s finance ministry, said in a telephone interview yesterday.

China’s Reserves

China, whose foreign-exchange reserves of $3.2 trillion as of September were the world’s biggest, reiterated its willingness to help, while stopping short of any indication of when it’s prepared to announce an IMF contribution.

“China has been part of the international effort to counter the financial crisis and China will continue to be part of the effort, because we are interrelated, interdependent,” Vice Foreign Minister Fu Ying said today. “We are in it together. We are in one boat.”

“Europe needs a partner, they come to sell their bonds, that’s a partnership,” Fu, whose portfolio is European affairs, told reporters in Vienna today. “They have to work out the terms, it should be a kind of relationship of cooperation.”

Stocks climbed (SPX) yesterday, sending the Standard & Poor’s 500 Index up for the week, Treasuries fell and the euro rose after Europe set plans to boost its rescue fund and tightened anti-deficit rules.

Stocks Climb

The S&P 500 climbed 1.7 percent to close at 1,255.19 at 4 p.m. in New York. The euro increased 0.3 percent to $1.3375. Ten-year Treasury yields rose nine basis points to 2.07 percent. The 10-year Italian bond yield fell 10 basis points to 6.36 percent, reversing a 23-point increase.

Obama and Treasury Secretary Timothy F. Geithner, while refraining from committing cash, have pushed European leaders to resolve a crisis that threatens to derail the U.S. economic recovery.

Geithner this week met with European Central Bank President Mario Draghi, French President Nicolas Sarkozy, Italian Prime Minister Mario Monti and German Finance Minister Wolfgang Schaeuble during a three-nation visit to Europe to discuss possible solutions to the crisis. Geithner said he was “encouraged” by efforts by euro zone leaders though their work “will take time.”

Congressional Gridlock

With Congress gridlocked on deficit-cutting measures, “the idea of voting to spend money helping advanced economies in Europe would be very difficult,” said Phillip Swagel, a professor of international economic policy at the University of Maryland in College Park and a former assistant Treasury secretary. “We have so many problems at home, including reducing the fiscal deficit,” he said.

Twenty-six Republican senators, including Jim DeMint of South Carolina and Tom Coburn of Oklahoma, introduced a bill yesterday to stop the IMF from using U.S. taxpayer dollars to bail out euro-region countries. The bill also seeks to rescind the credit line the U.S. gave in 2009.

The IMF “has substantial resources, and American taxpayers are not going to have to make any more commitments to the IMF,” White House press secretary Jay Carney told reporters yesterday.

Losing Clout

The U.S. may find itself losing clout at the IMF, while emerging markets gain influence with their contributions, said Chon, now senior fellow at the Washington-based Atlantic Council, which promotes U.S.-European relations. She led the banking committee’s negotiations to obtain congressional funding for the IMF in 2009.

“The emerging-market countries know that they will gain reputational benefits by participating in these bilateral loans,” Chon said. “If the U.S. isn’t putting money in the pot, it is also not at the table making influential decisions.”

Brazil and other fast-growing developing nations are seeking a greater voice at the Washington-based fund, which was set up at the end of World War II to help ensure stability of the global monetary system.

Emerging markets, which are growing twice as fast as their developed counterparts, say that their voting power doesn’t reflect their weight in the global economy. They also want to end the tradition of selecting a European to head the institution. The managing director is Christine Lagarde, a former French finance minister.

Biggest Shareholder

The U.S. still is the biggest shareholder in the IMF, with a 17 percent vote that allows it to block major decisions. Because bilateral loans will likely go to IMF general resources, the U.S. will maintain a say on which countries get help.

In April 2009, G-20 leaders agreed to triple the fund’s resources to about $750 billion after a surge in requests for loans from crisis-stricken countries such as Hungary and Iceland.

The U.S. supported the increase. Dominique Strauss-Kahn, then the managing director, had been calling for a doubling of resources when he heard from the U.K. and U.S. leaders, as well as from Geithner.

“There was a discussion with Gordon Brown and Barack Obama and Tim Geithner,” Strauss-Kahn recalled in an interview this year, referring to the U.K. prime minister at the time. “They were almost reproaching me, saying, ‘Now, you have announced a doubling; if you want to have an impact, you need more than a doubling.’ I said, ‘Fine, let’s do it.’”

Emergency Lending Pool

The U.S. and Japan each ended up lending about $100 billion and the EU $178 billion. For the first time in the fund’s history, large emerging markets also pitched in, with China pledging as much as $50 billion and Brazil, India and Russia as much as $10 billion each.

These contributions, which are temporary, were subsequently folded into an emergency lending pool. That pool supplements the fund’s permanent resources, also called quotas, which alone would not have sufficed to meet all the bailouts the IMF finances.

The IMF has co-financed bailouts to Greece, Ireland and Portugal and currently has about $390 billion available for lending, which Lagarde has said may not be enough.

To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net; Ian Katz in Washington at ikatz2@bloomberg.net

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

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