Romanian Leu Drops After S&P Downgrades Foreign-Currency Debt

By Yon Pulkrabek

Oct. 27 (Bloomberg) -- The Romanian leu tumbled against the euro to trade at its lowest level since Oct. 17 after Standard & Poor's cut the nation's foreign-currency debt rating to junk.

The leu weakened as much as to 3.5 percent to trade at 3.7700 per euro as of 5 p.m. in Bucharest today.

To contact the reporter on this story: Yon Pulkrabek in Prague at ypulkrabek@bloomberg.net



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Australia Intervenes as Currency Slips; New Zealand's Declines

By Candice Zachariahs

Oct. 27 (Bloomberg) -- The Australian dollar slid against the yen and the U.S. currency on concern the global economy is slipping into a recession, prompting the central bank to stem declines. New Zealand's dollar also fell against the yen.

Australia's dollar and New Zealand's have plunged more than 20 percent against the yen in the past week as investors bought back Japanese currency borrowed in so-called carry trades to purchase high-yielding assets in the South Pacific nations. The Australian currency traded near record lows against the yen touched on Oct. 24.

``Investor confidence is shot to ribbons and it's the carry trades that are copping it fair and square in the face,'' said Paul Milton, chief foreign-exchange dealer at Societe Generale SA in Sydney. ``We're approaching levels where we should start finding some natural support in the Aussie. However, it's a brave man who buys Aussie in this environment,'' he said, referring to the currency by its nickname.

The Australian dollar fell 3.2 percent to 56.79 yen as of 1:03 p.m. in London from 58.68 yen in New York on Oct. 24, when it had touched 55.14 yen, the weakest since the Australian currency started trading freely. The currency slid 1.5 percent to 61.26 U.S. cents from 62.23 cents in New York last week, when it touched the lowest since April 2003.

New Zealand's dollar dropped 4.1 percent to 50.31 yen from 52.48 late last week in New York. The currency fell 2.7 percent to 54.17 U.S. cents from 55.67 cents.

RBA Intervention

Australia's dollar pared declines after the nation's central bank intervened as the currency neared its weakest level in five years against the U.S. dollar and a record low versus the yen. The Group of Seven industrialized nations are concerned about excessive moves in the yen, according to a joint statement read out by Japan's Finance Minister Shoichi Nakagawa today.

The central bank ``provided more liquidity to the foreign exchange market,'' a spokesman for the Sydney-based Reserve Bank of Australia said today by phone. He declined to be identified. The intervention came amid similar circumstances to those on Oct. 24 when the RBA bought Australian dollars, according to the spokesman.

The Australian dollar has tumbled 35.6 percent against the yen and 26.5 percent versus the greenback over the past month as investors have dumped equities amid widespread concern that the global economy will fall into recession. New Zealand's currency has fallen 31 percent and 21 percent against the yen and dollar, respectively.

Ready to Act

A coordinated currency intervention ``is possible, if other countries agree that the yen is too expensive, but it seems unlikely,'' said Tatsuo Ichikawa, a senior strategist in Tokyo at RBS Securities Japan Ltd., one of the 24 primary dealers required to bid at government auctions.

Japan's Nakagawa said the nation was ready to take action on the yen if needed.

``We reaffirm our shared interest in a strong and stable international financial system,'' the G-7 said. ``We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability.''

The VIX volatility index, a gauge reflecting expectations for stock-market price changes and risk aversion, reached a record of 79.13 on Friday.

The yen and the U.S. dollar rallied this month as the credit crunch shattered confidence in riskier assets such as South Korean shares and so-called carry trades.

The yen advanced this month against all of some 170 currencies tracked by Bloomberg, prompting speculation central banks may take coordinated action to drive down the yen and the dollar, after central bank policymakers cut borrowing costs together three weeks ago.

Cutting Rates

In carry trades, investors get funds in nations such as Japan that have low borrowing costs and buy assets where returns are higher. The risk is that currency moves erase the profits.

The RBA on Oct. 7 cut its benchmark interest rate by 1 percentage point, twice as much as economists had estimated, to 6 percent. That reduction, the central bank's biggest since a recession in 1992, was followed by a round of cuts two days later from central banks in Europe and the U.S.

Australia's benchmark interest rate is 6 percent, compared with 0.5 percent in Japan, 1.5 percent in the U.S. and the European Central Bank's 3.75 percent rate.

The Bank of Korea slashed interest rates today by a record 0.75 percentage point at an emergency meeting in an attempt to restore confidence after stocks lost a fifth of their value and the won fell to a decade low last week.

Governor Lee Seong Tae lowered the seven-day repurchase rate to 4.25 percent after returning from a two-day summit in Beijing that was the first meeting of Asian and European Union chiefs since calls for coordinated action mounted over the past month along with bank failures and plunging stock prices.

Sarkozy on Currencies

President George W. Bush will host a financial summit in Washington next month to address the fallout from the credit crunch. Future gatherings may also address foreign-exchange rates, according to French President Nicolas Sarkozy, who said talks about currencies may be put off until after Nov. 15.

``It is simply impossible to talk about the financial crisis without discussing currencies and the way in which they interact,'' Sarkozy said in Beijing yesterday.

South Korea last week pledged $130 billion to support lenders struggling to obtain foreign funds and said it will spend as much as 8 trillion won ($5.5 billion) to rescue builders struggling with unsold homes. The central bank said Oct. 24 it will inject 2 trillion won into the financial system through repurchase-agreement operations.

Central banks intervene in currency markets by arranging sales or purchases of foreign exchange.

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

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Pound Slides Against Dollar, Euro as Recession Concern Deepens

By Agnes Lovasz

Oct. 27 (Bloomberg) -- The pound traded near the weakest in five years against the dollar and close to an all-time low versus the euro after a report on house prices added to evidence Britain's economy is sliding into a recession.

The currency declined for a seventh day against the dollar after Hometrack Ltd. said house prices dropped this month by the most since at least 2001 and U.K. stocks declined for a second day. The Sunday Times said yesterday Chancellor of the Exchequer Alistair Darling will say in a speech this week the economic crisis will be deeper and longer-lasting than first predicted.

``Whenever recession fears become the main issue, the pound depreciates,'' said Lutz Karpowitz, a currency strategist in Frankfurt at Commerzbank AG, Germany's second-biggest lender. ``The pound is in a very uncomfortable position.''

The pound fell against all 16 of its most-traded counterparts, dropping l.3 percent to $1.5420 as of 11:43 a.m. in London, from $1.5897 last week, when it had its biggest intraday decline in at least 37 years. Against the euro, the currency slipped to 80.73 pence, from 79.31. It traded at a record low of 81.96 pence per euro on Oct. 24.

The average cost of a residential property in England and Wales slipped 7.3 percent from a year earlier to 163,200 pounds ($254,000), London-based Hometrack said today. That's the biggest annual drop since the index started in 2001. Prices fell 1.3 percent from September.

`Undermine Demand'

``The expectation of a forthcoming recession and rising unemployment will further undermine demand for housing,'' Richard Donnell, director of research at Hometrack, said in a statement. ``Continued price falls are inevitable.''

The government hasn't lost control of the public finances, although the crisis has hurt its revenue, Darling will say in a speech at the annual Mais lecture in London on Oct. 29, the Sunday Times reported, without saying how it got the information.

Prime Minister Gordon Brown and Bank of England Governor Mervyn King said for the first time last week that Britain is headed for a recession, while Charlie Bean, the central bank's governor for financial stability, said in an Oct. 24 interview with the Scarborough Evening News that the turmoil in the banking industry is the worst ever.

`Short at $1.60'

``The market continues to sell the pound across the board,'' Hans-Guenter Redeker, London-based global head of currency strategy at BNP Paribas SA, wrote in a note to clients. ``We suggest using rallies in the pound against the dollar to the $1.60 handle as an opportunity to form short positions.'' A short position is a bet that an asset's price will fall.

A collapse in credit markets and the worst housing slump in a generation have rocked the British economy, Europe's second- biggest. The U.K. is already in a recession and the economy will contract for the next three quarters, Ernst & Young's ITEM Club, which uses the same forecasting model as the Treasury, said in a report on Oct. 20.

The currency may fall below $1.50 in coming weeks and will move in a range of 79 pence to 81.50 pence per euro during the same period, Karpowitz forecast.

The pound had its biggest weekly loss last week since Black Wednesday in 1992 after a report on Oct. 24 showed the economy shrank 0.5 in the third quarter, more than the 0.2 percent forecast.

U.K. government notes were little changed, with the yield on the 10-year gilt at 4.36 percent. The 5 percent security due March 2018 fell 0.05, or 50 pence per 1,000-pound ($1,543) face amount, to 104.84. The yield on the two-year note held at 3.09 percent. Bond yields move inversely to prices.

To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net

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Ukraine Gets $16.5 Billion IMF Loan; Hungary Is Next

By Daryna Krasnolutska and John Martens

Oct. 27 (Bloomberg) -- The International Monetary Fund agreed to loans for Ukraine and Hungary to keep the turmoil in global credit markets and recession concerns from decimating Europe's emerging markets.

The IMF agreed to lend $16.5 billion to Ukraine for 24 months and will announce a ``substantial financing package'' for Hungary in the ``next few days,''' the Washington-based lender said yesterday in a statement. Iceland already received a loan, while Belarus and Pakistan are also seeking help.

The IMF is helping shore up economies in eastern Europe as investors, stung by losses in developed nations, sell riskier emerging-market stocks, bonds and currencies. The lender moved to prop up the region's most afflicted countries to help avoid the effects spreading.

``For emerging Europe, clearly this is good news to the extent that it reduces risk in one of the region's more vulnerable countries, reducing contagion risk,'' Martin Blum, an economist at UniCredit SpA in Vienna, wrote in a note today. ``Look for the IMF to continue at a fast pace to ensure countries with underlying vulnerabilities are supported.''

Stocks Plunge

The MSCI Emerging Market Index lost 42 percent of its value this month. The gauge today fell as much as 5 percent, extending its loss to a fifth day. Over the past three months, the three worst-performing currencies against the euro are the Polish Zloty, the Icelandic krona and the Hungarian forint.

Hungary's currency, which fell to a record against the euro on Oct. 23, rose as much as 1.6 percent today and traded at 272.81 at 1:35 p.m., near a week high. The country's IMF agreement, which will be ``convincing in size and strength,'' is within reach, Prime Minister Ferenc Gyurcsany said today.

``We have agreed on a policy package, which is very good,'' Christoph Rosenberg, the IMF's senior representative to eastern Europe and the Baltic countries, said in a phone interview. ``Putting together a financing package will require a few more days.''

The loan for Ukraine, the first nation in the region to receive IMF help in the crisis, is pending parliamentary approval of legislation to support the country's banks. The government must do more to reverse the flight of capital, economists said.

`Half the Issue'

``The money is only half of the issue, conditionality is key,'' said Timothy Ash, head of emerging-market research at Royal Bank of Scotland Group Plc in London. ``We hope the fund is maintaining its push for a more flexible exchange rate, far- reaching reforms in the banking sector and more privatization.''

Ukrainian President Viktor Yushchenko faces an economic meltdown as prices for Ukraine's main exports, including steel, drop and a weakening currency makes imports more costly. The country will hold the second national elections in so many years in December after Yushchenko dissolved parliament following a clash with Prime Minister Yulia Timoshenko, a former ally.

The country will set up a fund to buy stakes in banks and pass legislation that forces lenders to halt dividend payments to retain capital, central bank official Serhiy Kruhlik said in a phone interview. The central bank took control of closely held Prominvestbank, Ukraine's sixth-biggest bank, on Oct. 7 after a run by depositors.

`Prevent Devaluation'

The current-account deficit may widen to $15 billion this year, the central bank governor Volodymyr Stelmakh said this month. The hryvnia tumbled 13 percent last week and touched a record 6.0812 per dollar on Oct. 24. Annual inflation accelerated to a record 31.1 percent in May before slipping to 24.6 percent in September.

``The loan will strengthen the position of the central bank and help prevent sharp devaluation,'' Olena Bilan, an economist at Dragon Capital in Kiev, said in a phone interview. ``The hryvnia isn't likely to decline as it did recently.''

Hungary turned to the IMF as stocks, bonds and the forint plunged in the past two weeks on concern the country will face difficulties financing its current account and budget deficits with global credit drying up. Markets continued to slide even after the European Central Bank and the IMF pledged support.

The central bank on Oct. 22 raised the benchmark interest rate by 3 percentage points, the biggest increase in five years, to 11.5 percent to defend the forint.

Sandor Csanyi, head of the country's largest lender OTP Bank Nyrt., urged the government to peg the forint to the euro next year to stabilize it. Euro adoption at a ``good time'' can be an ``anchor'' to financial stability and the government will work to reach terms ``as soon as possible,'' Gyurcsany said.

To contact the reporter on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net; John Martens in Brussels at jmartens1@bloomberg.net

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France's Lagarde Says G-7 Doesn't Plan Intervention

By Sandrine Rastello

Oct. 27 (Bloomberg) -- French Finance Minister Christine Lagarde said the Group of Seven nations don't plan to intervene to sell the yen, while signaling Japanese authorities may still do so.

``We wished to support this possible intervention of Japanese authorities, knowing this would be about a purely Japanese intervention,'' Lagarde said in an interview with Bloomberg News in Montpellier, France. Asked specifically if the G-7 nations would sell the yen together, she said ``no.''

The comments may encourage investors to continue buying the yen after they ignored the G-7's unscheduled warning today that its surge to the highest in almost 13 years had generated ``excessive volatility.'' They still may run into resistance from the Bank of Japan.

``Lagarde has weakened the force of the G-7's statement and any sense of coordination it was trying to achieve,'' said Chris Turner, head of foreign-exchange strategy at ING Groep NV in London. ``It still suggests the Japanese wanted permission to intervene so it provides some approval for going ahead with unilateral action.''

Avoiding Risk

The global credit crunch is forcing investors to race from risk, prompting them to repay loans they previously took out in Japan to take advantage of the lowest interest rates in the industrialized world. As a result, the yen has climbed 14 percent against the dollar this month and 30 percent versus the euro. The yen climbed 1.5 percent to 92.91 per dollar at 9:16 a.m. in New York, from 94.32 on Oct. 24, when it touched 90.93, the strongest since 1995.

That is also generating volatility in foreign exchange markets with a JPMorgan Chase & Co. index showing the major currencies whipsawing the most today in at least 16 years.

``The yen has over the past 48 hours seen brutal trading that reflects a great volatility that's linked to current market moves,'' Lagarde said in the interview.

Even without the support of counterparts, Japanese authorities may still act alone as they last did in March 2004, when they sold the yen at 103.52 per dollar. Japan's Nikkei 225 Stock Average slid 6.4 percent today to a 26-year low as the soaring yen eroded earnings of exporters such as Canon Inc.

Vice Finance Minister Kazuyuki Sugimoto said today that the government was prepared to act ``quickly'' in the currency market.

Coordinated Action

``The Bank of Japan is best placed to intervene in the yen,'' said Robert Minikin, currency strategist at Standard Chartered in London. ``Nevertheless, coordinated intervention would give a strong signal to the market and help stabilize foreign exchange markets as a whole.''

The G-7 nations haven't intervened together in currency markets since September 2000 when they sought to buoy the euro after it fell as low as 82.30 U.S. cents. A study published this month by European Central Bank economist Marcel Fratzscher found the G-7's currency statements since 1975 proved most effective when followed by action such as the 1985 Plaza Accord to weaken the dollar and the Louvre Accord of two years later to boost it.

Eisuke Sakakibara, who was the Finance Ministry's top currency official from 1997 to 1999, said prior to Lagarde's interview that the statement may have been all Japan was able to secure from its G-7 colleagues. The U.S. is wary of selling dollars as it relies on foreign capital to support its own markets, while intervening would also undermine the G-7's five- year lobbying of China to stop managing its currency, economists said.

``Issuing such a statement is a sign of failure to intervene,'' said Sakakibara said. ``The Japanese government may have consulted with their counterparts in the EU and the U.S. and they couldn't persuade them to intervene.''

To contact the reporter on this story: Sandrine Rastello in Montpellier, France, at srastello@bloomberg.net

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Brazilian Real Gains as Central Bank Buys Reais, Sells Swaps

By Adriana Brasileiro

Oct. 27 (Bloomberg) -- Brazil's real strengthened on expectations central bank efforts to shore up the currency will mitigate investor aversion to higher-yielding assets.

The real rose 1 percent to 2.2830 per dollar at 9:52 a.m. New York time compared with 2.3075 on Oct. 24. Brazil's currency has plunged almost 32 percent from a nine-year high on Aug. 1.

Banco Central do Brasil will offer as many as 30,000 currency swap contracts at an auction today. The bank also bought $1.25 billion worth of reais today with an agreement to re-sell them at a future date.

``The central bank moves are tempering some of the speculative impetus of investors betting against the real,'' said Jorge Knauer, manager of the foreign-exchange trading desk at Rio de Janeiro-based Banco Prosper SA. ``But the market has no parameters, so this improvement in sentiment will probably be short-lived.''

The bank will continue to draw on its $204.9 billion of international reserves to sell dollars in the spot market, Knauer said.

Yields on Brazil's local-currency bonds and rate future contracts fell on growing bets the central bank will halt six months of interest-rate increases as the global credit crisis slows economic growth in Latin America's biggest economy.

The central bank will keep the benchmark overnight rate at 13.75 percent at its Oct. 28-29 meeting, according to 24 of 41 economists surveyed by Bloomberg. The other economists expect the central bank to raise the rate for a fifth straight time since April.

Economists in a weekly central bank survey see the central bank raising the benchmark rate to 14 percent this week, compared with last week's forecast for a half-point increase to 14.25 percent. The survey, taken on Oct. 24, included about 100 economists and was published today.

The yield on Brazil's overnight futures contract for January 2009 delivery dropped 39 basis points to 14.02 percent.

The yield on Brazil's zero-coupon bond due in January 2010 fell 17 basis points to 16.81 percent, according to Banco Votorantim.

To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net

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Yen Rises as Carry Trade Evaporates on Tumbling Global Stocks

By Ye Xie and Lukanyo Mnyanda

Oct. 27 (Bloomberg) -- The yen rose to the strongest level versus the euro since May 2002 and traded near a 13-year high against the dollar as tumbling stocks encouraged investors to sell higher-yielding assets funded by low-cost loans in Japan.

French Finance Minister Christine Lagarde said in an interview with Bloomberg News that the Group of Seven doesn't plan to intervene to weaken the yen after the G-7 said in an unscheduled statement that excessive movements in the currency may threaten financial stability. The pound slid after an industry report showed U.K. house prices slumped.

``It's a combination of unwinding carry positions and money going home to Japan and the U.S.,'' said Tom Fitzpatrick, global head of currency strategy at Citigroup Global Markets Inc. in New York. ``It's not an environment where one should be looking for return on capital, but for return of capital.''

The yen gained 2.2 percent to 116.33 per euro at 10:31 a.m. in New York, from 118.96 on Oct. 24, and reached 113.64, the strongest since May 2002. The yen climbed 0.9 percent to 93.50 per dollar from 94.32 at the end of last week, when it touched 90.93, the strongest since 1995. The euro fell as much as 2.3 percent to $1.2334, the weakest in 2 1/2 years, from $1.2623.

In the past month, Japan's currency has increased 14 percent against the dollar, 34 percent versus the euro, 55 percent versus the Australian dollar and 44 percent against the New Zealand dollar on speculation investors will unwind carry trades, in which they get loans in countries with low borrowing costs and seek higher returns elsewhere.

Stronger Yen

The yen gained 3.1 percent to 56.92 against the Aussie and 3.9 percent to 50.44 versus the New Zealand dollar today. The Bank of Japan's 0.5 percent target lending rate compares with 3.75 percent in Europe, 6 percent in Australia and 6.5 percent in New Zealand.

The Standard & Poor's 500 Index dropped 1.3 percent and stocks in Asia and Europe tumbled as investors bet the credit crisis and mounting bank losses will push the global economy into a recession. Hong Kong's Hang Seng Index sank as much as 15 percent, and trading was halted in the Philippines and Thailand.

The G-7 made its statement after a request from Japan, said Finance Minister Shoichi Nakagawa in Tokyo, adding that his government was ready to act if needed.

``We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability,'' the G-7 said in its statement, read by Japan's Nakagawa. The group comprises Canada, France, Germany, Italy, Japan, the U.K. and the U.S. Japan last sold its own currency in March 2004.

Lagarde on Yen

Asked by Bloomberg News in an interview in Montpellier, France, if the G-7 will intervene to sell Japan's currency, French Finance Minister Lagarde said no.

The possibility of intervention is ``still low,'' because the ``sharp appreciation'' of the yen is not caused by ``speculation,'' wrote Tohru Sasaki, chief strategist in Tokyo at JPMorgan Chase & Co., in a research note today.

``The financial system and economic problems in U.S. and Europe are probably in more severe conditions than in Japan,'' Sasaki wrote. ``Therefore, it is difficult for Japan to sell the yen only out of self-interest.''

Australia's central bank bought its currency for a second day. Central banks intervene in foreign-exchange markets when they arrange purchases and sales of currencies. The Aussie dropped 2.7 percent to 60.58 U.S. cents.

Volatility on major currencies touched 26.55 on Oct. 24, according to a JPMorgan Chase & Co. index, the highest level since its inception in 1992.

Weaker Pound

The pound fell 3.2 percent versus the dollar to $1.5384, near the lowest in five years, as London-based Hometrack Ltd. said the average cost of a residential property in England and Wales slipped 7.3 percent from a year earlier. Sterling decreased 1.7 percent against the euro to 80.67 pence.

The euro stayed lower against the dollar and the yen after a survey by the Ifo institute showed business confidence in Germany, the largest of the 15 economies sharing the currency, declined to the lowest level in more than five years in October. European Central Bank President Jean-Claude Trichet said policy makers may cut interest rates at their Nov. 6 meeting.

The dollar is reasserting its status as the world's reserve currency as investors seek a haven from plunging emerging-market stocks and bonds. The ICE futures exchange's U.S. Dollar Index, which tracks the greenback against the currencies of six major trading partners, soared to the highest in more than two years. The sell-off in emerging markets may ``set the stage'' for bigger gains, according to Barclays Capital.

Sales of new houses in the U.S. unexpectedly rose in September from a 17-year low, propelled by a drop in prices before the latest turmoil in financial markets. Purchases increased 2.7 percent to an annual rate of 464,000 from 452,000 the prior month that was less than previously estimated, the Commerce Department said today in Washington.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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China Copper Demand Growth to Slow to 5% in 2008

By Xiao Yu

Oct. 27 (Bloomberg) -- Copper demand in China, the world's biggest consumer, may grow at 5 percent this year, half the previous forecast, as the deepening global financial crisis curbs exports, an industry executive said.

Overseas buying of Chinese copper tubes used in construction and air conditioners has dropped as the world economy slows, said Duan Shaofu, copper division chief at the China Nonferrous Metal Industry Association. The group had forecast demand to grow at 10 percent.

Chinese copper producers have reduced output as the world tilts toward recession, curbing demand from builders and electric appliance makers. Tongling Nonferrous Metals Group Co., China's biggest copper smelter, and Yunnan Copper Industry Co. cut production last month. Jiangxi Copper Co. has said the financial turmoil hurt sales and raw material purchases.

``We heard from some processors that overseas orders have dropped significantly recently, forcing them to cut production,'' said Yang Changhua, analyst at Beijing Antaike Information Development Co. in Jiangxi. ``Slowing demand will lead to output cuts among smelters, and therefore falling demand for raw material imports.''

Copper in London tumbled below $4,000 a ton for the first time since November 2005 last week on deepening concern a global economic slump will damp commodities demand. The metal traded 4.5 percent lower at $3,600 a ton at 11:08 a.m. in London.

`Most Difficult'

Next year will be the ``most difficult,'' Duan said today at the China International Copper Conference in Jiangxi.

Chinese copper demand may rise between 5 percent to 6 percent in 2009, Paul Robinson, manager of CRU's nonferrous metals research, said in an interview on Oct. 23. That compares with its July forecast of 11 percent. Demand may rise 5.1 percent this year after climbing 19 percent last year, he said.

Chinese copper producers have reported declining profits because of lower processing fees and slumping prices.

Smelting capacity in China and India has expanded faster than mine production, increasing competition for raw material supplies and enabling miners to cut fees they pay smelters to make the refined metal.

Global smelters are ``suffering'' from ``historically low' fees for treating and refining concentrate, Shigeru Oi, director and executive officer, raw materials department, at Japan's Pan Pacific Copper Co. said Sept. 12. Mining companies need to understand that ``if they push TC/RCs any lower, it will kill smelters,'' he said.

Processors settled mid-year fees with mining companies at around $42 a ton and 4.2 cents a pound, according to industry executives involved in the negotiations.

Jiangxi Expands

Still, Jiangxi Copper Co., China's second-biggest smelter of the metal, is continuing with plans to expand smelter capacity by 29 percent this year to 900,000 tons, said a company executive. That would exceed Tongling Nonferrous' planned capacity of 710,000 tons, according to estimates from Beijing Antaike Information Development Co., making it the largest.

Jiangxi Copper's output for 2009 remained undecided because of a slump in prices, which had been ``too sudden and dramatic'' over past weeks, Wu Jimeng, assistant to the general manager, said today in an interview in Jiangxi.

The company said Oct. 23 it would take measures to ensure production wasn't disrupted after Tongling Nonferrous and Yunnan Copper Industry Co. cut output.

China's total smelting capacity will reach 4.8 million tons by the end of this year, growing to exceed 5 million tons by 2010, China Nonferrous's Duan said. Copper mine output will reach 1.05 million tons by 2010, meeting 26 percent of raw material needs for domestic smelting, Duan added.

To contact the reporter on this story: Xiao Yu in Beijing at yxiao@bloomberg.net



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Dollar Regains Haven Status as Deutsche Bank Says Buy

By Agnes Lovasz

Oct. 27 (Bloomberg) -- The dollar is reasserting its status as the world's reserve currency as investors seek a haven from plunging emerging-market stocks and bonds.

The ICE futures exchange's U.S. Dollar Index, which tracks the greenback against six trading partners, rose last week the most in more than four decades as the dollar soared to a two- year high versus the euro and reached its strongest in six years against the U.K. pound. A global grab for dollars has pushed the index up 22 percent since July 15 to the highest since April 2006.

The sell-off in emerging markets may ``set the stage'' for bigger gains, says Barclays Capital in London. Demand for the safety of Treasuries is turning the foreign-exchange market into a ``one-way street,'' according to Frankfurt-based Deutsche Bank AG, the world's biggest currency trader. BNP Paribas SA, the most-accurate forecaster in a 2007 Bloomberg survey, says the dollar may return to parity with the euro in coming months.

The global crisis ``is manifesting into dollar strength,'' said Hans-Guenter Redeker, the London-based global head of currency strategy at BNP Paribas.

Last week the Dollar Index surged 4.9 percent to 86.44, as the greenback climbed 5.9 percent to $1.2623 per euro and strengthened 8 percent to $1.5897 to the pound. Its biggest gain came against the Australia dollar, rising 11.6 percent, followed by a 10.7 percent increase versus the New Zealand dollar and an 8.8 percent advance versus the South Africa rand.

Crisis Intensifies

Investors, banks and even companies are scooping up dollars to repay loans denominated in the currency as the 14-month-long credit crisis intensifies.

Banks have extended about $2.5 trillion in foreign-currency loans to emerging markets, according to Barclays, which cited data compiled by the Bank for International Settlements in Basel, Switzerland. Some 70 percent of the claims on developing nations in Asia mature in less than one year, while the amount for emerging European countries is 43 percent.

``Deleveraging, which has been going on in developed countries for at least 12 months, has just begun in the developing world,'' a Barclays team led by London-based David Woo wrote in an Oct. 23 report. ``The increasing difficulty facing developing countries to roll over their foreign-currency loans may set the stage for even greater strengthening of the dollar.''

Emerging Markets Tumble

Yields on emerging-market dollar-denominated bonds climbed to 8.62 percentage points more than Treasuries last week as investors dumped the securities, up from 3 percentage points at the start of September, according to the JPMorgan Chase & Co. EMBI+ Index. The MSCI Emerging Markets Index fell to a five-year low as stocks from Brazil to Korea tumbled on speculation developing nations will find it harder to service foreign debt.

Demand for dollars can be seen in the Treasury market, where the Federal Reserve's holdings of U.S. government debt on behalf of foreign central banks and institutions have increased by $60.1 billion this month to $1.56 trillion. That's the biggest monthly gain on record.

``Combined with rapid dollar repatriation and U.S. banks having grown increasingly reluctant to lend dollars to banks abroad, this has generated a sustained demand for dollars,'' a Deutsche Bank team led by Bilal Hafeez, global head of currency strategy in London, wrote in an Oct. 24 report.

Dollar Questioned

When the euro was rallying 38 percent from November 2005 through July, economists said the dollar was in danger of losing its primacy. The euro's share of global central bank reserves rose to 27 percent at the end of March from 17 percent in 2000, according to the International Monetary Fund in Washington. The dollar's share fell to 62.5 percent from 72.1 percent.

As recently as April, the National Bureau of Economic Research, the group that determines when recessions begin and end, said the euro may become the world's reserve currency in the next seven years. Jeffrey Garten, a professor of international trade at the Yale School of Management in New Haven, Connecticut, and undersecretary for commerce and international trade in the Clinton administration, said in November the world was undergoing a ``rebalancing'' of economic power.

The prospect of falling U.S. interest rates may offset some of the demand for the dollar. The odds on the Fed halving its target rate for overnight bank loans to 0.75 percent on Oct. 29 rose to 26 percent last week, futures on the Chicago Board of Trade showed. The chances were zero a week earlier.

Dollar `Pullback'

The U.S. already has the lowest rates of any Group of Seven industrialized nation except Japan, where the key rate is 0.5 percent. That means even dollar bulls expect the gains may slow before picking up again later in the year or in 2009.

``We will look for a pullback,'' said Meg Browne, vice president of foreign-exchange research at Brown Brothers Harriman & Co. in New York. Still, ``we haven't ended this period of unwinding'' and over the next two to three years ``the dollar will strengthen,'' she said.

Another obstacle for the dollar is the flood of debt the U.S. will sell to finance the budget deficit and bank bailouts. Gross issuance of Treasury coupon securities will rise to about $1.15 trillion in the 2009 fiscal year from $724 billion last year, according to Credit Suisse Securities USA LLC, one of the 17 primary dealers of U.S. government securities obligated to bid at Treasury auctions.

``The true test whether the dollar really is a safe haven has yet to come,'' Deutsche Bank's London-based currency strategist Henrik Gullberg wrote in an Oct. 24 report to clients.

Commodity Currencies

A survey dated Oct. 27 of 30 fund managers overseeing $1.45 trillion by Jersey City, New Jersey-based Ried Thunberg & Co. found that 59 percent expect the dollar to strengthen against the euro over the next three months, down from 71 percent last week.

As the dollar gains, the currencies of commodity-exporting nations including Australia and Canada are likely to suffer most, according to Citigroup Inc. The Australian currency has dropped 23 percent versus the greenback in the past month, while Canada's dollar has slumped 19 percent as commodities tumbled.

``Dollar repatriation overtakes coordinated policy action at the heart of the radar,'' analysts led by London-based Tom Fitzpatrick, global head of currency strategy at Citigroup, wrote in a report Oct. 24. ``Capitulation on long positions in foreign assets is gaining pace. Risk reduction should continue to dominate. Commodity currencies should suffer the most.''

Morgan Stanley recommends currencies in countries with low interest rates, such as Japan and the U.S., where investors sought loans to purchase assets in countries with higher rates.

Foreign exchange ``market dynamics suggest the frictions are not over yet,'' Sophia Drossos, a currency strategist at Morgan Stanley in New York, said in an Oct. 22 report to clients. ``Flows appear consistent with continued delivering and we expect this trend has further to run.''

To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net

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Copper Falls to 3-Year Low in London on Outlook for Recession

By Chanyaporn Chanjaroen

Oct. 27 (Bloomberg) -- Copper and aluminum fell to a three- year low in London, leading a decline in most industrial metals, on concern that a recession will sap demand for products such as housing and cars.

Copper extended last week's 22 percent drop, the biggest decline since at least 1986. The U.S. economy probably shrank at a 0.5 percent annual rate in the last quarter, the second retreat in a year, the median estimate in a Bloomberg survey indicated.

``As long as the economic picture isn't clear, investors are going to sell into any rally,'' said Lars Steffensen, managing director of Ebullio Capital Management LLP, which runs a $20 million commodity hedge fund. Only ``a meteorite hitting earth'' could make things worse, he said today from Southend-on-Sea, England.

Copper for delivery in three months fell $120, or 3.2 percent, to $3,650 a metric ton as of 1:34 p.m. on the London Metal Exchange. The contract earlier lost as much as 4.8 percent to $3,590, the lowest intraday price since Sept. 19, 2005.

The metal has fallen 45 percent this year as demand growth shrinks in China, the world's biggest user. Declines today pushed mining stocks lower, including BHP Billiton Ltd., which owns the world's largest copper mine, Escondida in Chile.

Consumption growth in China may slow to 5 percent this year, said Duan Shuaofu, copper division chief at the China Nonferrous Metal Industry Association, half the previous forecast.

Merrill Lynch & Co. today cut its 2009 forecast for copper by 41 percent, aluminum 19 percent and nickel by 36 percent.

Copper will average $2.25 a pound next year, analysts including Vicky Binns said in a note dated Oct. 25.

`Trading Illiquidity'

``We expect China's data to look worse before it gets better,'' Binns said in the report. ``Some small end consumers can't secure bank guarantees for letters of credit, and coupled with trading illiquidity, this has resulted in even softer underlying demand.''

Copper stockpiles monitored by the LME rose 0.7 percent to 213,375 tons, the highest since Feb. 16. The implied volatility of the contract for immediate delivery soared to 84 percent on Oct. 24, the highest since at least 2004.

Aluminum dropped $27.75, or 1.4 percent, to $1,943.25 a ton, the lowest since Oct. 26, 2005. Aluminum Corp. of China Ltd., the nation's largest producer, dropped to the lowest in more than five years in Hong Kong trading after the company reported third- quarter profit slumped 93 percent.

Tin, the only industrial metal that gained today, rose $450, or 3.8 percent, to $12,200 a ton as inventories declined 11 percent to 4,080 tons, the lowest since Aug. 4, 2005.

Tin Smelters

Nine tin smelters in Indonesia, the world's largest exporter of the metal, agreed to halt production to help stem this year's 26 percent price plunge, PT Bangka Belitung Timah Sejahtera, a producer group set up in 2007, said last week. The group produces about 3,000 tons a month.

Zinc production beat consumption by 108,000 tons in the first eight months, doubling from a year ago, the Lisbon-based International Lead and Zinc Study Group said today in a monthly report. Lead's oversupply was 34,000 tons, a switch from a shortfall of 40,000 tons.

Lead lost as much as $101, or 8 percent, to $1,170 a ton and zinc was $75 lower at $1,090 a ton. Nickel fell $150, or 1.7 percent, to $9,830.

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

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Oil Falls to 17-Month Low as Recession Concern Intensifies

By Mark Shenk

Oct. 27 (Bloomberg) -- Crude oil fell to a 17-month low in New York as plunging stock markets heightened concern that a global recession will slash fuel consumption.

Oil, copper and gold led a drop in commodities, heading for the worst month in at least 38 years, on signs raw-material demand will decline. OPEC may make an additional output cut if its Oct. 24 decision to lower production fails to bolster prices, said Mohammad Ali Khatibi, Iran's representative to the group, according to the country's state-run Mehr news agency.

``Everyone is watching stock-market tickers and not OPEC,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``We want to see the full effect of the recession on demand and until that happens prices will trend lower.''

Crude oil for December delivery fell 86 cents, or 1.3 percent, to $63.29 a barrel at 9:57 a.m. on the New York Mercantile Exchange. Futures touched $61.30, the lowest since May 9, 2007. Prices, which have tumbled 57 percent since reaching a record $147.27 on July 11, are down 31 percent from a year ago.

``With all of the stock markets going down, there's going to continue to be downward pressure,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. ``There's not a lot that can be done to stop this downward spiral right now.''

The S&P GSCI index of 24 raw materials fell 1.1 percent, extending its retreat this month to 32 percent, the most since at least 1970.

OPEC Cut

Oil is heading for a 37 percent drop this month, the steepest since at least 1988 in New York, as the Organization of Petroleum Exporting Countries cut oil production for the first time in almost two years. The 13 OPEC nations agreed to reduce supply by 1.5 million barrels a day starting in November.

The OPEC price basket, an average of 11 crude-oil grades sold by the group, dropped to $57.57 a barrel on Oct. 24, the lowest since March 21, 2007.

The decline in the basket price ``increases the likelihood that they will be forced to cut production again,'' said Addison Armstrong, director of market research for Tradition Energy in Stamford, Connecticut. ``They now have to worry about their economic health because a vast majority of their income comes from oil.''

Global oil demand may fall for the first time in 15 years in 2008 and stagnate next year, the Centre for Global Energy Studies said Oct. 20. OPEC, the International Energy Agency and the U.S. Energy Department all cut their forecasts for growth earlier this month.

Brent crude oil for December settlement declined $1.03, or 1.7 percent, to $61.02 a barrel on London's ICE Futures Europe exchange. Futures touched $59.02, the lowest since Feb. 22, 2007.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

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‘Panic’ in U.S. Futures Rattles Investors Worldwide

By Eric Martin and Lynn Thomasson

Oct. 27 (Bloomberg) -- U.S. stock-index futures are becoming less reliable as predictors of market moves.

With equity investors around the world contending with the worst drop since the Great Depression, futures on the Standard & Poor’s 500 Index misstated gains or losses by an average 1.4 percentage point in October, twice the gap in the third quarter, data compiled by Bloomberg show. One of the biggest misses was Oct. 24, when futures fell as much as 60 points, while the index itself dropped 37 points in the first half hour of trading, before closing down 31.

The pre-market readings may be adding to volatility during a month poised to be the worst in the 38-year history of MSCI Inc.’s index for developed countries, investors said. While fundamental concerns about the health of the global economy and solvency of banks are weighing on investors, the false cues are adding to uncertainty, said Arthur Cashin, director of floor operations for UBS Financial Services at the New York Stock Exchange.

“It’s a state of permanent anxiety, because you don’t know where things are going to go,” said Cashin, a member of the NYSE for 44 years. “People are scrambling to try to stay up with it, so far unsuccessfully.”

The MSCI World lost more than a quarter of its value this month as subprime-related credit losses topped $680 billion and global economic growth slowed. The S&P 500’s 40 percent loss in 2008 would be the most since 1931. December futures on the U.S. benchmark fell 1.4 percent today before trading began on the NYSE, more than double the index’s 0.6 percent decline at 10 a.m. in New York.

European Signals

With trading in U.S. stock-index futures running more than 23 hours a day on weekdays, their movement can affect sentiment around the world.

Trading in Europe’s Dow Jones Stoxx 600 Index 15 minutes before the U.S. market opens has also been a poor indicator for how equities on the continent will end the day. In July, August and September, its move at that hour differed from the index’s close by less than 1 percentage point, according to data compiled by Bloomberg. The gap grew to 2.2 percentage points this month.

While futures may be becoming a worse predictor amid unprecedented actions by central banks to bail out the financial system, pre-market trading is only an indication of what might happen, said John Carey, a Boston-based fund manager at Pioneer Investment Management, which oversees $300 billion.

“They’re just people’s best idea on the market at a time when there are no actual trades,” he said.

Loss to Gain

This month’s biggest swing in S&P 500 futures was on Oct. 8, when a decline of 3.7 percent in the December contract became a 1.4 percent gain in the benchmark index by 10 a.m. after six central banks announced coordinated interest-rate cuts. The change, twice as large as any in the previous three months, gave way to a 1.1 percent decline at the close amid growing evidence the global economy is sliding into a recession.

“There was a sense of panic,” said Frederic Dickson, who helps oversee about $20 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. “In the futures markets there are huge swings ahead of the opening. It looks like a casino for global traders.”

The Chicago Board Options Exchange Volatility Index more than tripled in the past two months and last closed at 79.13, the highest in its 18-year history. The index measures the cost of using options as insurance against declines in the S&P 500.

Rescue Rally

Traders who leave their desks risk missing advances or drops. The Dow Jones Industrial Average tumbled more than 300 points in the hour after the U.S. House of Representatives rejected the $700 billion plan to rescue the financial system on Sept. 29. The S&P 500 finished the day with an 8.8 percent decline as U.S. stocks lost more than $1 trillion in market value.

S&P 500 futures surged more than 3 percent on Oct. 12 as the U.S. government moved to buy stakes in financial companies and European central banks took steps to prevent lenders from collapsing. When U.S. exchanges opened the following day, the S&P 500 rallied the most in seven decades, adding 11 percent.

“The stress is exhausting,” Cashin said. “You can’t afford to relax and take your eye off the ball for even a minute with the wild swings going on, lest you miss an opportunity or incur a major loss.”

Trading has been interrupted on exchanges from Indonesia to Iceland over the past month in attempts to stem global declines. Russia’s RTS exchange and Micex Stock Exchange suspended trading on Oct. 24 after slumps of more than 10 percent triggered halts.

“It’s a 24-hour watch,” said Walter “Bucky” Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Alabama. “I check the futures when I go to bed. I check them when I get up and sometimes I even get up and check them in the middle of the night.”

To contact the reporters on this story: Eric Martin in New York at emartin21@bloomberg.net; Lynn Thomasson in New York at lthomasson@bloomberg.net

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Volkswagen Doubles as Porsche's Stake Move Reduces Free Float

By Alexis Xydias and Andreas Cremer

Oct. 27 (Bloomberg) -- Volkswagen AG almost doubled in Frankfurt trading as Porsche SE's plan to achieve a 75 percent stake in the carmaker prompted short-sellers to purchase from a shrinking pool of stock to close their positions.

Volkswagen jumped as much as 203.90 euros, or 97 percent, to 414.75 euros and was up 82 percent as of 1:58 p.m. The stock has risen 145 percent this year, valuing the Wolfsburg, Germany-based company at 116.6 billion euros ($145.3 billion). Investors including hedge funds may hold 8.67 billion euros in borrowed stock that they must buy and return, according to Bloomberg calculations based on Data Explorers research firm estimates.

Porsche, maker of the 911 sports car, said yesterday that it has raised its stake to 42.6 percent of Volkswagen's ordinary stock from 35 percent, and that it holds options for another 31.5 percent. Porsche said the disclosure was aimed at giving short- sellers a chance to close positions ``unhurriedly'' following stock moves of the past two months. The German state of Lower Saxony owns 20.1 percent of Volkswagen's common shares.

``This is panic buying and the low free float complicates things,'' said Jens Schattner, an analyst at Sal. Oppenheim in Frankfurt who upgraded Volkswagen's common shares to ``neutral'' from ``reduce'' today. ``We know nothing or very little about Porsche's investment. Until all these short positions are closed, we'll see Volkswagen shares rise.''

12.9% On Loan

About 12.9 percent of Volkswagen's common stock, or 37.9 million shares, was on loan as of Oct. 23, mostly for short sales, according to London-based Data Explorers, which surveys lenders and clearing agencies. That's the highest proportion for any company on Germany's 30-member benchmark DAX Index. The Oct. 23 closing price for Volkswagen, Europe's biggest carmaker, would have given the short positions a value of 8.67 billion euros.

There may be almost no ordinary stock freely traded in Volkswagen because most is now in the hands of Porsche, Lower Saxony and the banks that underwrote Porsche's options, Adam Jonas, a London-based analyst at Morgan Stanley, wrote in a research report today.

Index-tracking funds also hold stakes in Volkswagen, the DAX's most-weighted stock, and must retain the holdings as long as the carmaker remains a member. That would leave short-sellers with no supply to buy back and close their trades. Short sales have largely been undertaken by investors betting on a decline in the common stock or its underperformance relative to the preferred shares, analysts have said.

`Narrow' Market

``Those who believed that the share price would drop when we passed the threshold of 50 percent should be aware of the narrowness of the market,'' said Frank Gaube, head of investor relations at Porsche's Stuttgart, Germany, headquarters. ``We would expect our counterparties in the options agreement to be covered'' with their own earlier purchases of Volkswagen stock.

Michael Brendel, a spokesman for Volkswagen in Wolfsburg, declined to confirm the current free float and reiterated Volkswagen's comment of recent months that it ``appreciates'' Porsche's interest.

Porsche has said until now that it was seeking only a majority stake in Volkswagen, with a larger holding unlikely because of financial-market volatility. It reiterated yesterday that it aims to own more than 50 percent by the end of this year.

When exercising the options, the underlying Volkswagen shares will be bought at the market price, Porsche said in the announcement. Porsche will receive the difference between the market price and the option strike price, the company said.

Gaube declined today to say how much Porsche had paid for the options, what strike price they have or which banks underwrote the contracts. Porsche hasn't lent Volkswagen shares on the market, Gaube said.

`Sell' Recommendations

Short-sellers borrow stock on expectations they can repurchase the shares later at a lower price. Of 39 analysts covering Volkswagen, 32 have ``sell'' recommendations on the stock and only one advises buying.

``Those still short on Volkswagen shares might have to finally cover their positions,'' said Christian Falkner, a trader at Alpha Wertpapierhandel in Frankfurt. ``The reaction for Porsche is largely dependent on the strike price their option position has.''

Hedge-fund traders have wagered that the difference between Volkswagen's common shares, which carry voting rights, and its preferred shares, which don't, will narrow in favor of the latter. The common shares, which outnumber the preferred equity almost three to one, are the only gainers this year on either the DAX or the nine-member Bloomberg Europe Autos Index. In contrast, Volkswagen's preferred stock has dropped 60 percent, including a 6.2 percent decline today, to 41.50 euros.

``The situation remains highly fluid and opaque,'' Morgan Stanley's Jonas said in the report. ``We advise investors to apply a very high-risk premium to any trade involving VW or Porsche securities.''

Porsche fell as much as 8.42 euros, or 18 percent, to 37.61 euros and was down 17 percent in Frankfurt trading. The stock has dropped 72 percent this year.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net; Andreas Cremer in Berlin at acremer@bloomberg.net

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Platinum, Palladium Prices Tumble on Concern Auto Sales to Slow

By Millie Munshi

Oct. 27 (Bloomberg) -- Platinum tumbled to a five-year low in New York on concern that a slowing global economy may reduce demand for the metal from automakers. Palladium also dropped.

The U.S. auto market may shrink this year to the smallest since 1993 as the credit crunch and a slowing economy curb sales. Carmakers use platinum for pollution-control devices and account for more than 60 percent of demand. Before today, the metal's price plunged 47 percent this year.

``The auto industry is in a decline right now,'' said Tetsuya Yoshii, vice president for derivative products at Mizuho Corporate Bank Ltd. in Tokyo. ``That will be a very bearish factor for platinum and palladium.''

Platinum futures for January delivery dropped $33.70, or 4.2 percent, to $768.60 an ounce at 9:38 a.m. on the New York Mercantile Exchange. Earlier, the price touched $752.10, the lowest for a most-active contract since Nov. 18, 2003.

Palladium futures for December delivery fell $3.95, or 2.3 percent, to $170 an ounce in New York. The metal sank 54 percent this year before today.

To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net.

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U.K. Stocks Drop for Second Day; Cairn, Vedanta, Aviva Decline

By Sarah Jones

Oct. 27 (Bloomberg) -- U.K. stocks dropped for a second day, led by commodity producers and financial companies, as concern deepened that the global economy is slipping into a recession.

Cairn Energy Plc lost 7.6 percent as oil fell below $63 a barrel and after Credit Suisse Group AG downgraded the shares. Vedanta Resources Plc slipped 6 percent as copper dropped. HSBC Holdings Plc led a selloff in banks, falling 8.8 percent. Standard Chartered Plc sank 6.9 after Citigroup Inc. said the bank's capital position was ``too weak.'' Insurer Aviva Plc dropped 12 percent, also on concern about the company's capital.

The FTSE 100 Index sank 157.21, or 4.1 percent, to 3,726.15 at 11:38 a.m. in London as all but 10 stocks fell, bringing its loss for the month so far to 24 percent.

``This is a market in search of a floor,'' said Manoj Ladwa, senior trader at ETX Capital in London. ``Many investors thought we'd found one at about 4,000 but we've plunged well below that level now, driven by fears of a global recession.''

The FTSE All-Share Index sank 4 percent, while Ireland's ISEQ Index decreased 4.6 percent.

Cairn Energy slid 7.6 percent to 1,161 pence. Credit Suisse downgraded the U.K. oil and gas explorer in India to ``underperform'' from ``neutral.''

Royal Dutch Shell Plc, Europe's largest oil company, declined 4.1 percent to 1,411 pence. BP Plc, Europe's second- largest oil company by market value, dropped 5.3 percent to 416.75 pence.

Vedanta, HSBC

Crude oil for December delivery fell as much as 4.4 percent to $61.30 on the New York Mercantile Exchange on concerns that OPEC's production cut may fail to arrest a slump in prices.

Vedanta Resources, India's largest copper producer, dropped 5.9 percent to 565 pence. Antofagasta Plc, owner of copper mines in Chile, lost 5 percent to 262.75 pence. BHP Billiton Ltd., the world's largest mining company, fell 6.7 percent to 810 pence.

Copper and zinc tumbled by the exchange-imposed daily limit for a fourth day in Shanghai, while copper fell to the lowest in three years in London amid sales of industrial metals, oil and gold as the threat of a recession in U.S. and European economies curbs demand.

HSBC, Europe's largest bank, fell 8.8 percent to 635 pence amid concerns over a slowdown in Asia after Hong Kong's Hang Seng Index sank as much as 15 percent.

Standard Chartered Plc sank 6.9 percent to 706 pence after the U.K.'s third-biggest bank had its price estimate slashed by 42 percent to 750 pence at Citigroup Inc., which said that the bank's capital position was ``too weak'' as global markets continue to deteriorate.

Aviva

Aviva fell 29.75 pence to 217.5 pence before the U.K.'S biggest insurer by premiums reports third-quarter sales tomorrow. ``This decline is part of general market concerns that center around capital,'' said Tony Silverman, a London-based analyst at S&P Equity Research.

Aviva's 1.9 billion pounds of surplus capital ``looks fragile'' compared with its 25.6 billion pounds of corporate bond assets and commercial loans, Silverman wrote in a note to clients last week. JPMorgan Chase & Co. cut its price forecast for the insurer by 37 percent to 440 pence today, citing lower earnings due to weaker equity markets.

The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.

BG Group Plc (BG/ LN) lost 72 pence, or 10 percent, to 645. The third-largest U.K. oil and natural-gas producer will pay about A$5 billion ($3.1 billion) for the whole of Queensland Gas Co., the Australian Financial Review reported, without citing anyone.

Eurasian Natural Resources Corp. (ENRC LN) lost 27 pence, or 8.2 percent, to 302 after Merrill Lynch & Co. downgraded the world's third-largest ferrochrome producer to ``neutral'' from ``underperform.''

GKN Plc (GKN LN) sank 34.5 pence, or 30 percent, to 82.75. The U.K. maker of car parts and aircraft components expects full- year profit before tax to be about 20 percent lower than 2007 after experiencing a ``significant'' further deterioration in demand in global automotive markets.

Persimmon Plc (PSN LN) increased 7.5 pence, or 3.5 percent, to 224.75. The U.K.'s biggest homebuilder by market value said it will book 600 million pounds ($938.9 million) in land writedowns after house prices fell during the U.K.'s worst housing slump in 25 years. The provision represents about 19 percent of the company's land stock value as of the end of June.

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

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Emerging-Market Stocks, Currencies Drop; Hungary's BUX Slides

By Laura Cochrane

Oct. 27 (Bloomberg) -- Emerging-market stocks dropped to a four-year low as Ukraine and Hungary became the latest countries to receive help from the International Monetary Fund and concern deepened that the global economy will fall into a recession.

Ukraine's hryvnia slid to a record low against the dollar, while Hungary's BUX Index lost as much as 11 percent as the IMF said it will lend Ukraine $16.5 billion and give Hungary ``a substantial financing package.'' Equity indexes in the Philippines and Romania tumbled more than 6 percent, while Persian Gulf shares fell as customers rushed to withdraw money from Gulf Bank KSC, Kuwait's second-biggest bank.

Investors are selling emerging-market stocks, currencies and bonds as the rout that began with the collapse of U.S. subprime mortgages last year pushes the world toward a recession. The Bank of Korea slashed interest rates by a record today as the nation faces its biggest crisis since requiring an IMF bailout a decade ago.

``In more normal times a package from the IMF would be enough,'' said Beat Siegenthaler, chief strategist for emerging markets at TD Securities Ltd. in London. ``But now we have the worst-case scenario of people pulling out of emerging markets and selling any holding that is not U.S. dollars.''

The MSCI Emerging Markets Index dropped 3.7 percent to 456.65 at 1:53 p.m. in London, the lowest since September 2004. The gauge has lost 63 percent this year, the biggest retreat on record dating back to 1988.

The slump has left the index valued at 6.9 times the profits of its 788 companies, the cheapest since 1998.

IMF Bailouts

Hungary's BUX Index slumped for a seventh straight day, losing 6.6 percent after a four-day holiday weekend. The IMF's deal with Hungary was reached in cooperation with the European Union and the 24-month Ukrainian loan is conditional on parliamentary approval of legislation to support the country's banks, the lender said yesterday.

The Washington-based fund last week agreed to lend Iceland $2.1 billion and is also in talks with Pakistan and Belarus.

``As long as people were investing in emerging markets, the economies could sustain higher imbalances,'' Siegenthaler said. ``Now that no one is investing any more, the countries have to cut their imbalances dramatically and just like any bank, they are now in need of a lender of last resort.''

The Philippine central bank is considering more measures to boost liquidity after the nation's PSEi Index fell 12 percent, its biggest one-day drop since July 1987, and the peso slid to a 22-month low. Trading in stocks was suspended for 15 minutes at 11:23 a.m. in Manila after the index dropped 10 percent.

`High' Risks

``The risks associated with emerging markets are quite high,'' said Winson Fong, who helps oversee more than $3 billion at SG Asset Management Hong Kong Ltd. ``Because of perceived risks, emerging markets like the Philippines will be affected severely by the fallout from the global credit crunch.''

The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries fell 14 basis points to 8.51 percentage points, according to JPMorgan Chase & Co.'s EMBI+ Index.

Ukraine was the first nation in eastern Europe to receive IMF help in the crisis. Details of Hungary's agreement will be announced in coming days. Belarus last week asked the IMF for at least $2 billion after its banks lost access to financing.

Ukraine's hryvnia, which the central bank aims to keep within a trading band 8 percent either side of 4.95 per dollar, weakened as much as 4.9 percent to 6.1625 per dollar, a record low.

Romania's leu dropped 3.8 percent against the dollar, while the country's benchmark stock index slid 7.4 percent.

The Kuwait Stock Exchange Index lost 2.2 percent, bringing the decline this month to 23 percent. Customers rushed to withdraw money from Gulf Bank KSC after clients defaulted on currency contracts and the central bank was forced to guarantee deposits. Kuwait stock traders marched to the Emir's office to demand that the government intervene to halt the stock decline.

The Dubai Financial Market General Index tumbled 5.8 percent, the most since Oct. 16.

To contact the reporter on this story: Laura Cochrane in London at lcochrane3@bloomberg.net

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