Goldman Recommends South African Options on Election ‘Surprise’

By Adam Haigh

Jan. 9 (Bloomberg) -- Investors should buy stock options on South African shares before the country’s elections to take advantage of one of the potential “top surprises” of the year, Goldman Sachs Group Inc. said.

Implied volatility for 12-month options on the FTSE/JSE Top40 Index is “inexpensive” because the market hasn’t taken into account the potential risk surrounding the election, London- based Goldman Sachs equity-derivatives analysts led by Jason Cuttler wrote in a note to clients dated yesterday.

“Policies resulting form South African elections and political transitions could prove to be one of the ‘top surprises’ of 2009,” especially if the leader of the ruling African National Congress, the likely winner, turns out to astonish observers in the same way that Brazilian President Luiz Inacio Lula da Silva did, according to Goldman.

After Lula came to office in 2003 he paid debts owed to the International Monetary Fund earlier than expected and succeeded in taming inflation and trimming the budget gap in his first term.

South Africa will hold elections by the middle of the year on a date that has yet to be announced by the Independent Electoral Commission. Jacob Zuma ousted Thabo Mbeki as ANC leader in December and is the party’s candidate to become South African president.

By August, the government should have made key appointments in the finance ministry and central bank. Options on the equity index expiring in December 2009 will capture “post-election catalysts,” Goldman wrote.

The country’s FTSE/JSE Top40 index dropped 26 percent last year, less than the 54 percent decline for the MSCI Emerging Markets Index.

For Related News:

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net.

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U.K. Stocks Erase Declines After U.S. Jobs Report; HBOS Gains

By Andrew Rummer

Jan. 9 (Bloomberg) -- U.K. stocks erased earlier losses after a report said the U.S. lost 524,000 jobs in December.

Payrolls were forecast to drop 525,000 after a previously reported 533,000 decline in November, according to the median estimate of 73 economists surveyed by Bloomberg News.

The benchmark FTSE 100 Index added 1.96, or less than 0.1 percent, to 4,507.12 at 1: 42 p.m. in London. The measure had earlier fallen as much as 0.7 percent.

HBOS Plc, the U.K. bank being bought by LLoyds TSB Plc, lead gains on the FTSE 100, rising 7.8 percent to 79.8 pence.

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European Stocks, U.S. Index Futures Advance After Jobs Report

By Adria Cimino

Jan. 9 (Bloomberg) -- European stocks and U.S. index futures climbed after a report showed the American economy lost fewer jobs last month than some economists forecast.

Daimler AG and Michelin & Cie., which both make more than 20 percent of their sales in North America, advanced at least 3.1 percent.

The MSCI World Index has decreased 1 percent this week as signs from Wal-Mart Stores Inc. and Intel Corp. that profits are deteriorating overshadowed government efforts to revive growth with stimulus packages and interest-rate cuts. Stocks pared their weekly slide after the Labor Department said the U.S. shed 524,000 jobs in December, 1,000 less than economists estimated in a Bloomberg survey. A private report from ADP Employer Services on Jan. 7 had showed payrolls shrank by 693,000 jobs, the most since records began in 2001.

“The good news is that it didn’t decline more or more rapidly,” said Franz Wenzel, Paris-based deputy director for investment strategy at Axa Investment Managers, which oversees $770 billion. “The ADP report earlier this week was fairly bad. Against that backdrop, this is OK. We shouldn’t be overly optimistic.”

Europe’s Dow Jones Stoxx 600 Index rose 0.9 percent to 210.64 at 2:05 p.m. in London after earlier falling as much as 0.6 percent.

Standard & Poor’s 500 Index futures added 0.3 percent, indicating the benchmark index for U.S. equities may trim this week’s 2.4 percent slide.

$1 Trillion

The MSCI World Index of 23 developed countries slumped 41 percent since the start of last year as $1 trillion in losses at financial companies eroded profits and the U.S., Europe and Japan fell into simultaneous recessions.

Economists had projected a decline of 525,000 U.S. jobs. December’s decrease brought last year’s payroll drop to 2.589 million, the most since 1945. The unemployment rate jumped to a 15-year high of 7.2 percent.

Daimler rose 3.7 percent to 28.16 euros. The world’s largest truckmaker makes 20 percent of its sales in the U.S.

Michelin advanced 3.1 percent to 39.41 euros. The second- biggest tiremaker makes 33 percent of its revenue in North America.

Obama’s $775 Billion

President-elect Barack Obama warned in a speech yesterday that the U.S. risks sinking deeper into an economic crisis without an infusion of government spending and urged Congress to act quickly on his $775 billion stimulus package.

Earnings at S&P 500 companies have fallen for five straight quarters, matching the longest streaks of declines on record, and the slump is forecast to continue. According to estimates compiled by Bloomberg, profits probably decreased 12 percent last quarter and will drop 11 percent in the first quarter and 6.2 percent in the following three months before rebounding in the second half of the year.

The S&P 500 has rebounded 21 percent from an 11-year low on Nov. 20 on optimism the recession will end this year after the Federal Reserve cut interest rates to as low as zero and Obama proposed the largest infrastructure investment since the 1950s.

The deepening economic contraction in the U.K. spurred the Bank of England yesterday to slash its benchmark interest rate to the lowest since the central bank was founded in 1694.

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

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Brazilian Stocks Rise After U.S. Economy Loses Fewer Jobs

By Alexander Ragir and James Attwood

Jan. 9 (Bloomberg) -- Brazilian stocks rose for a second day after the U.S. economy lost fewer jobs than economists estimated last month.

Banco do Brasil SA climbed the most on the Bovespa index after the largest government-controlled lender agreed to buy a 50 percent stake of Banco Votorantim SA. Telemar Norte Leste SA gained after it acquired 61 percent of Brasil Telecom Participacoes SA’s voting shares.

The Bovespa climbed 1.1 percent to 42,452.64 at 8:49 a.m. New York time. It dropped as much as 0.9 percent earlier.

The U.S. lost 524,000 jobs in December. It was less than forecasts and followed a drop of 584,000 in November, bringing job losses for 2008 to 2.589 million, according to a Labor Department report today in Washington.

Banco do Brasil surged 5.8 percent to 16.29 reais, the highest intraday price since Dec. 11. The lender agreed to buy a 50 percent stake of Banco Votorantim SA for 4.2 billion reais ($1.8 billion).

Telemar gained 0.7 percent to 53.42 reais, after rising as much as 1.8 percent earlier. Brazil’s largest telephone company said it paid 5.37 billion reais ($2.3 billion) for 61 percent of Brasil Telecom voting shares.

Chile

In Chile, the benchmark index rose today for its fifth straight weekly gain, as a bigger-than-forecast interest-rate cut boosted consumer stocks.

Chile’s Ipsa Index rose 0.2 percent to 2,490.59 as retailers Cencosud SA and Ripley Corp SA climbed about 3 percent.

The index extended a gain this week to 2.2 percent after the central bank lowered its benchmark interest rate by a full percentage point, surprising all 20 economists in a Bloomberg survey. The decision was announced after markets closed yesterday.

“The market likes lower interest rates, so I would expect it to react pretty well,” Matthew Hickman, who manages $500 million in Latin American assets at Credit Suisse Asset Management, said by phone last night from New York.

Cencosud, the country’s biggest retailer, rose 2.8 percent to 1,065 pesos, extending this week’s gain to 11 percent.

The Ipsa dropped 22 percent last year as retailers including Cencosud and La Polar SA lost more than half their value on concern tightening credit conditions and a slowing economy are stifling spending.

To contact the reporter on this story: James Attwood in Santiago at jattwood3@bloomberg.net

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Apollo, BPZ, Cadence, Orexigen, Siemens: U.S. Equity Preview

By Cordell Eddings

Jan. 9 (Bloomberg) -- The following companies may have unusual price changes in U.S. trading today. Stock symbols are in parentheses, and share prices are as of 7:45 p.m. in New York, unless otherwise specified.

Airgas Inc. (ARG US): The packaged-gas distributor said fiscal third-quarter profit was 74 cents to 76 cents a share, trailing the previous forecast of as much as 84 cents and the 78-cent average analyst estimate in a Bloomberg survey. The shares slipped 13 cents to $38.17 yesterday.

Apollo Group Inc. (APOL US) rose 10 percent to $85. The owner of the for-profit University of Phoenix said it had first quarter earnings of $1.12 a share, higher than the 97 cents analysts expected. The company also announced degreed enrollment was up 18 percent.

BPZ Resources Inc. (BPZ US) fell 16 percent to $7. The U.S. oil and natural-gas producer said yesterday it stopped discussions with Royal Dutch Shell Plc on a Peru venture.

Cadence Design Systems Inc. (CDNS US): The maker of programs for creating computer chips named board member Lip-Bu Tan as its new chief executive officer, ending a search for a new leader. The stock rose 2.2 percent to $4.12 in regular trading.

Coach Inc. (COH US) fell $1, or 4.8 percent, to $19.90. The largest U.S. maker of luxury leather handbags lowered its second-quarter profit forecast because of “depressed” store traffic and discounts.

Orexigen Therapeutics Inc. (OREX US) tumbled 33 percent to $4.04. The pharmaceutical company released study results on its Contrave obesity pill that failed to show enough difference between patients taking the drug and those taking a placebo.

Palm Inc. (PALM US) climbed 10 percent to $4.69. The money- losing maker of the Treo and Centro mobile phones extended yesterday’s gains after unveiling a new touch-screen phone, called the Pre, to compete with Apple Inc.’s best-selling iPhone.

Siemens AG American depositary receipts (SI US) fell 2.74 percent to $71.76. Europe’s largest engineering company said it supports a plan by German Chancellor Angela Merkel to limit firings until the end of the year. Siemens will avoid firings except in an emergency or if it makes an acquisition or sells a unit.

To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net

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U.S. Stock Futures Advance on Jobs Data; Goldman, Google Rise

By Lynn Thomasson

Jan. 9 (Bloomberg) -- U.S. stock futures rose after a government report showed firings were in line with forecasts last month, spurring speculation that share prices have fallen enough to reflect the recession.

Goldman Sachs Group Inc., Google Inc. and Honeywell International Inc. helped lead gains after the Labor Department said employers cut 524,000 jobs last month, 1,000 fewer than the average projection in a Bloomberg survey.

“It helps everyone breathe a sigh of relief,” said Diane Garnick, who helps oversee $500 billion as an investment strategist at Invesco Ltd. in New York. “The market had priced in the worst-case scenario and with 524,000 it’s a lot better than some of us expected.”

Futures on the S&P 500 added 0.4 percent to 910.1 at 9:13 a.m. in New York, erasing a 0.7 percent retreat. Dow Jones Industrial Average futures climbed 29 points, or 0.3 percent, to 8,725 after sliding 0.6 percent earlier.

The 21 percent rally in the S&P 500 since Nov. 20 reflects speculation the worst of the recession is over, according to Barton Biggs, managing partner at hedge fund Traxis Partners LLC, and Robert Doll, chief investment officer for BlackRock Inc. Equities will probably keep rising, they said on Bloomberg Television.

‘Carries Further’

“Sometime around the middle of the year there’s going to be pretty conclusive evidence that the economy has stabilized,” Biggs said. “That’s what the stock market is now looking forward and seeing, and that’s why I think that this rally carries further.”

The S&P 500 gained yesterday as an advance in energy shares and Citigroup Inc.’s agreement to allow some homeowners to avoid foreclosure offset a worsening earnings outlook for retailers.

Earnings at S&P 500 companies have fallen for five straight quarters, matching the longest streaks of declines on record, and the slump is forecast to continue. According to estimates compiled by Bloomberg, profits probably decreased 12 percent last quarter and will drop 11 percent in the first quarter and 6.2 percent in the following three months before rebounding in the second half of the year. President-elect Barack Obama warned in a speech in Fairfax, Virginia, yesterday that the U.S. risks sinking deeper into an economic crisis without an infusion of government spending and urged Congress to act quickly on his $775 billion stimulus package.

Concern that global stock losses will deepen remains elevated even after falling from record levels in October and November. The Chicago Board of Option Exchange Volatility Index yesterday fell 1.9 percent to 42.56 after climbing 13 percent the previous day. The benchmark index for U.S. stock options had lost more than half of its value since Nov. 20 as stocks rose.

The difference between what the U.S. government and banks pay to borrow for three months, the so-called TED Spread, is still about three times higher than before credit markets started freezing in August 2007, according to data compiled by Bloomberg.

A report scheduled for 10 a.m. Washington time may show wholesale inventories in November fell 0.7 percent, according to a Bloomberg survey of economists.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

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Forex Technical Analytics

Daily Forex Technicals | Written by FOREX Ltd | Jan 09 09 09:03 GMT |

CHF The assumed test of key resistance range for the realization of the pre-planned positions for sell was not confirmed but result of the previous trading day through activity decrease does not give definiteness in the choice of planning priorities for today. Hence and considering assumptions about possible range rate movement within Ichimoku cloud we assume the possibility of upper boundary test at 1.1010/30, where it is recommended to evaluate the activity development of both parties according to the charts of shorter time interval. For short-term sells on condition of formation of topping signals the targets will be 1.0940/60, 1.0880/1.0900, 1.0800/30 and/or further breakout variant up to 1.0720/40, 1.0640/60, 1.0560/80. An alternative for buyers will be above 1.1100 with targets 1.1160/80, 1.1240/60, 1.1280/1.1300. GBP The pre-planned breakout variant for buyers was realized with attainment of minimal assumed target. OsMA trend indicator, having marked activity fall of both parties does not give definiteness in the choice of planning priorities for today. Nevertheless considering the chosen strategy we assume the possibility of rising tendency preservation with its return to close 1.5100/20 supports, where it is recommended to evaluate the activity development of both parties according to the charts of shorter time interval. For short-term buying positions on condition of formation of topping signals the targets will be 1.5180/1.5200, 1.5250/70, 1.5300/20 and/or further breakout variant up to 1.5360/80, 1.5480/1.5520, 1.5600/40, 1.5700/20. An alternative for sells will be below 1.4960 with targets 1.4900/20, 1.4820/40, 1.4700/40. JPY The pre-planned breakout variant for sells was realized with attainment of minimal assumed target. OsMA trend indicator, having marked preservation of bearish activity minimal advantage at the break of key supports formally gives reasons for supporting sells planning priorities for today. But considering signs of bullish cycle incompleteness with tendency of its strengthening we assume the possibility of rate return to the bottom of Ichimoku cloud at 92.00/20, where it is recommended to evaluate the activity development of both parties according to the charts of shorter time interval. For short-term sells on condition of formation of topping signals the targets will be 91.20/40, 90.60/80 and/or further breakout variant up to 90.00/20, 80.60/80. An alternative for buyers will be above 92.60 with targets 93.00/20, 93.60/80, 94.00/20. EUR The pre-planned buying positions from key supports were realized with attainment of basic assumed targets. OsMA trend indicator, having marked general low activity parity of both parties gives reasons for assumptions about possible range rate movement without definiteness in the choice of planning priorities for today. Hence and considering the chosen strategy and taking into account bearish sign of indicator chart we assume the possibility of rate return to the bottom of Ichimoku cloud at 1.3580/1.3600, where it is recommended to evaluate the activity development of both parties according to the charts of shorter time interval. For short-term buying positions on condition of formation of topping signals the targets will be 1.3660/80, 1.3720/40, 1.3800/40 and/or further breakout variant up to 1.3880/1.3900, 1.3960/80, 1.4000/20. An alternative for sells will be below 1.3520 with targets 1.3440/60, 1.3360/80, 1.3300/20. FOREX Ltd www.forexltd.co.uk

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Major Market Mover: US Non-Farm Payroll

Daily Forex Fundamentals | Written by Crown Forex | Jan 09 09 09:07 GMT |

Again we are back to the optimism, markets along with analysts believe that a recovery will be seen later this year, believing that the fourth quarter contraction will be the worst to come as the ongoing support and interventions from governments might cushion economies from more destruction. Indices boosted by the slender optimism which diffused in markets yesterday, the S&P 500 inclined 0.34% or 3.08 points reaching 909.73 levels, NASDAQ composite inclined 1.12% or 17.95 points reaching 1617.01 levels, yet Dow Jones Industrial average lost 0.31% or 27.24 points reaching 8742.46 levels. But all this optimism might be wiped out later on today as markets are waiting for the majors market mover which is the US Non-Farm Payroll, expectations clears out that more job termination took place in December due to the weakening global demand and the intensified Credit Crisis. It's been a whole year of termination; all sectors of the economy along with the financial institutions that were obligated to file for bankruptcy had resulted in escalating the unemployment rates in the United States. But it did not really stop at the financial sector in December two of the largest US car manufacturers were on the brink of officially admitting that they have no money to keep functioning, which made them terminate a portion of workers just to ease down their expenses. General Motors and Chrysler faced a harsh month in December, which obligated them to run for the congress in order to ask them for a bailout to keep them going, yet the bailout was stamped with disapproval by the senates saying that they can't keep on bailing out all the huge companies in the States. Markets got struck with the disapproval where the Bush administration had to move fast just to prevent a second fallout after Lehman Brothers that slipped all the confidence out from the markets leaving the stocks markets with huge losses. Bush agreed to give them a total of 17.8 billion dollars yet on one condition that before 31st of March 2009 the two companies must be ready with a restructuring plan, or they have to give back the money. Due to the stunning harsh times the economy lived in expectations of the non-farm payroll varies, the range falls between lowest -750 terminated job to the highest -350 thousand job; pessimist analysts believe that the weakness seen in the past month managed to create more job terminations yet the optimist say that the worse is almost over. Paulson the US treasury secretary was considered the most powerful official where he tried his best in salvaging the economy with the 700 billion dollars plan; he prevented some fallout by purchasing preferred stocks in various financial institutions reaching to more than 170 companies, in addition to bailing out the largest banks such as Citigroup, yet he did not really achieve in restoring backing the long lost confidence which made most indices across the world to close the prior years trading with more than 40% of losses. With the fear taking place in markets, future indices fell 15 points reaching 8681 levels, along with the S&P 500 falling 0.70 point reaching 906.00 levels and NASDAQ fell 1.00 points reaching 1248.50. Also the hesitation was seen in the Asian markets, the Japanese Nikkei Index lost 0.45% or 39.62 point reaching 8836.80 levels and Hang Seng index lost 0.63% or 91.85 points reaching 14323.34 levels. But before we see the Non Farm Payroll reading markets will see some other fundamentals from the European Continent which will continue to clear out that economies are still struggling with the falling demand levels in addition to the rapid fall in inflationary pressures. We will start with the Royal Producer Prices, the input prices eased to 3.0% in December from the previous 7.5%, the monthly input climbed slightly to -2.0% from the previous -3.3%, the output prices fell 0.6% on the month easing to 4.0% on the year, also the core PPI reading fell 0.2% on the month with the yearly core output easing down to 4.7% from the previous 5.1%. The fall in commodity prices and the dropping demand pressured prices to fall down, where crude prices fell from the all time high which was recorded last year to close at $42.00 per barrel, easing down the elevated energy bills which was seen earlier in the prior year. Its not just prices or inflation, the housing sector in the United Kingdom is still under huge pressures, where now the Central bank must start considering a new intervention just to buy some homes in order to salvage the left over from the falling financial sector. The situation remains gloomy and the economies no longer can survive this harsh downfall in demand levels which are threatening them with a bigger demon which is known by deflation, based on those fears central banks are heading now toward a zero interest rates policy in order to revive back their economies. Crown Forex disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.

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Technical Analysis Daily: GBP/USD

Daily Forex Technicals | Written by iFOREX.bg | Jan 09 09 09:11 GMT |

GBP/USD 1.5214 GBP/USD Open 1.5221 High 1.5372 Low 1.4985 Close 1.5214 As a result of the BOE's decision to lower interest rates with 50 b.p., to 1.5%, the Pound/Dollar increased sharply yesterday to the top 1.5372 and closed the day of 1.5214. Although the current short term upward impulse is quite significant, technically, it is too early to say that long term bearish scenario is completed. Critical level at this phase is 1.5353. Break above this level can potentially break the downward trend. Immediate support is seen at 1.5125 followed by 1.5045. CCI is in the overbought zone and about to pass down the 100 line on the four hour chart, suggesting potential decreasing pressure. Technical resistance levels: 1.5355 1. 5480 1.5600 Technical support levels: 1.5125 1.5045 1.4930 Trading range: 1.5225 - 1.5150 Trend: Downward Sell at 1.5214 SL 1.5244 TP 1.5164 iFOREX.bg Forecasts and Trading Signals http://www.zifx.com

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India’s Inflation Slows, Giving Room for Stimulus

By Kartik Goyal

Jan. 9 (Bloomberg) -- India’s inflation slowed to a 10- month low, giving policy makers room to implement further measures to stimulate economic growth without fanning prices.

Wholesale prices rose 5.91 percent in the week to Dec. 27 from a year earlier after gaining 6.38 percent the previous week, the commerce ministry said in New Delhi today. Economists expected an increase of 6.14 percent.

Governor Duvvuri Subbarao has lowered the Reserve Bank of India’s benchmark interest rate four times since October to protect Asia’s third-largest economy from a deepening global recession. Lower oil prices may allow for even more cuts from the central bank, which is due to release its next quarterly policy statement on Jan. 27.

“We expect further monetary easing over the next three months,” said Robert Prior-Wandesforde, senior Asia economist at HSBC Group Plc in Singapore. “India has not been able to escape the aftershocks of the global financial crisis.”

Bonds were unchanged, with the yield on the 8.24 percent note due April 2018 holding at 6.04 percent as of 12:02 p.m. in Mumbai, according to the central bank’s trading system.

Growth in India’s economy has slowed for two straight quarters, and the government is forecasting an expansion of 7 percent this fiscal year, the weakest since 2003. Growth may ease to 6.2 percent in the year from April 1, according to HSBC.

India’s central bank has responded to weakening growth by reducing its benchmark repurchase rate by 350 basis points to 5.5 percent in the past four months. The proportion of deposits that lenders need to set aside as cash reserves has also been cut to 5 percent from 9 percent.

Global Recession

Prime Minister Manmohan Singh’s government, facing elections before May, is also spending more to shield India from the world economy’s worst crisis since the Great Depression.

Singh’s administration on Jan. 2 unveiled a second stimulus package to inject capital into banks and allow overseas investors to double purchases of debt. An initial plan released on Dec. 7 allocated an additional 200 billion rupees ($4 billion) in spending in the year ending March 31.

India’s $1.2 trillion economy may expand “close to” 7.5 percent this fiscal year, aided by the extra government spending, Trade Minister Kamal Nath said in an interview with Bloomberg Television in Paris yesterday.

“The stimulus that we have provided for generating domestic demand will be able to address the slowdown to some extent,” Nath said.

‘Further Easing’

The government should have more room to adopt measures to help growth as inflation is unlikely to be a problem for at least another six to eight months, according to Montek Singh Ahluwalia, the prime minister’s top economic adviser.

“Slowing inflation may prompt policy makers to favor further monetary easing,” said Rajeev Malik, an economist at Macquarie Group Ltd. in Singapore. “The Reserve Bank will continue with its aggressive monetary easing by cutting the rates by another 100 basis points in the current quarter.”

The index of manufactured price inflation, with a 64 percent weight in the inflation basket, fell 0.3 percent in the week to Dec. 27, from a decline of 0.15 percent in the previous week, today’s report showed. Prices of fruits, vegetables, eggs, edible oil, clothing and chemicals declined.

Inflation has eased amid weaker oil prices. Crude costs have tumbled more than 50 percent from a year ago, allowing the Indian government to cut retail prices of gasoline and diesel on Dec. 5 by as much as 10 percent.

Today’s inflation rate may be revised in two months, after the government receives additional price data. The commerce ministry today revised the inflation rate for the week ended Nov. 1 to 8.70 percent from 8.98 percent.

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.

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Brown Should Buy Britons’ Homes, Ex-BOE Officials Say

By Gonzalo Vina and Brian Swint

Jan. 9 (Bloomberg) -- Prime Minister Gordon Brown should buy homes on the verge of repossession to add money to the British economy and save families from being thrown out onto the street, two former Bank of England economists said.

The plan would cost about 50 billion pounds ($76 billion) over five years, Fathom Financial Consulting economists Shamik Dhar and Danny Gabay said in a report today. The program would also provide a new economic policy tool as the central bank’s interest rate approaches zero.

The Bank of England yesterday cut its benchmark rate to 1.5 percent, the lowest since the bank was founded in 1694, bringing it closer to the limits of conventional monetary policy. U.K. officials are considering other measures such as buying assets to pump money into the economy as the recession deepens and threatens to exacerbate the housing-market slump.

“The smart asset to buy would be housing directly,” Gabay said in an interview. “The ideal thing is to go at the core of the problem. This would bring forward the necessary correction. It would to a great extent put a bottom to it.”

The government would finance the program by selling bonds, which the Bank of England could buy up to expand the supply of money, Fathom said. The proposals are a more direct intervention in the housing market than measures planned by the U.S. Federal Reserve, which this week started buying up securities backed by mortgages after bringing the interest rate close to zero.

‘Social Landlord’

Brown’s government would become a “social landlord,” charging rent to families and saving them from eviction, Fathom said. The plan would also allow banks to benefit through the removal of outstanding bad debts as financial institutions worldwide nurse more than $1 trillion in losses and writedowns from the credit crisis.

The ruling Labour Party’s surge of support from Brown’s handling of the economic crisis has started to wane. It narrowed the opposition Conservatives’ lead to as little as 1 percentage point in November from a gap of 28 points in September. Labour trailed by 5 points in the most recent poll of voters by ComRes Ltd. published on Dec. 22.

“We can’t solve every problem,” Chancellor of the Exchequer Alistair Darling said yesterday as he urged mortgage lenders to pass on the central bank’s interest-rate reductions. “There are areas, if we can help, then we’ll do it.”

Property Crash

House prices had the biggest drop since at least 1991 last year, declining 15.9 percent, Nationwide Building Society said Jan. 6. Banks are forcing potential buyers to raise down payments and are charging more for mortgages, pushing property prices down further.

The government should step in and “set a floor” under house prices, protecting taxpayers by paying below-market prices for houses and distressed homeowners by paying more than “vulture purchasers,” Fathom said.

“The average discount will probably be in the region of 10 percent to 20 percent below what asking prices are in the locality for similar properties,” the report said.

Fathom also suggested that any shortfall owed to a bank, if the value of the homes were less than the original loan, should be repaid from a share of the rent collected by the government.

“The way people are talking about it now is to say: We have a big problem, let’s print money,” Gabay said. “But many bailouts haven’t had the desired effect. Investors are still fearful of potential losses. We’re trying to say: If we’re going to do it, how would it work?”

To contact the reporters on this story: Gonzalo Vina in London at gvina@bloomberg.net; Brian Swint in London at bswint@bloomberg.net.

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U.S. Job-Market Collapse in 2008 Was Probably Biggest Since ’45

By Shobhana Chandra

Jan. 9 (Bloomberg) -- The U.S. probably lost 525,000 jobs in December, capping the biggest collapse in employment since the end of World War II, economists said before a report today.

The projected decline, based on the median estimate of 73 economists surveyed by Bloomberg News, would bring last year’s payroll drop to 2.4 million, the most since 1945. The unemployment rate likely jumped to a 15-year high of 7 percent.

The outlook for 2009 is no brighter as retailers from Wal- Mart Stores Inc. to Macy’s Inc. slash profit forecasts and manufacturers including Alcoa Inc. cut output and staff. The figures are likely to intensify pressure on U.S. lawmakers to speed President-elect Barack Obama’s proposed fiscal stimulus through Congress in an effort to save or create 3 million jobs.

“The labor market is clearly not functioning at all,” said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. “This will be a big hit to consumer spending and confidence. It suggests a very long, challenging recession.”

The report, the last one under President George W. Bush’s watch, is due from the Labor Department at 8:30 a.m. in Washington. Economists’ estimates for December ranged from job losses of 350,000 to 750,000. Forecasts for the unemployment rate ranged from 6.5 percent to 7.1 percent.

The projected decline would be the 12th consecutive loss, and follow a 533,000 November decrease that was the largest in three decades. The economy created 1.1 million jobs in 2007.

Obama Plan

Obama is pressing for a stimulus plan of about $775 billion, including tax cuts and spending on everything from roads and schools to the energy network. Yesterday he called for “dramatic action as soon as possible” to help pull the world’s largest economy out of a slump that’s into its second year. “If nothing is done, this recession could linger for years,” Obama said in Fairfax, Virginia.

With today’s report, the Labor Department will also revise figures from its household survey, which includes the unemployment rate, going back five years. Benchmark revisions to the payroll figures will be announced in February.

Federal Reserve staff last month cut their projections for gross domestic product and the job market, stating the unemployment rate was “likely to rise significantly into 2010,” according to minutes of policy makers’ December meeting.

Reports this week indicated payroll losses accelerated in December. ADP Employer Services estimated companies cut the most jobs since its records began in 2001, and Challenger, Gray & Christmas Inc., a Chicago-based placement firm, said announced firings rose 275 percent from December 2007.

Negative Cycle

Analysts said the economy is in danger of a reinforcing cycle of rising unemployment and declining household spending, what policy makers call a negative feedback loop, which is difficult to snap once it’s begun.

Wal-Mart, the world’s biggest retail chain, yesterday said fourth-quarter profit will miss its earlier forecasts after sales rose less than analysts anticipated. Macy’s said December revenue slipped 4 percent and announced it would close 11 properties.

Sales at stores open at least a year dropped 2.2 percent in the last two month months of 2008, the biggest holiday-season decline since the International Council of Shopping Centers started keeping records in 1970, the group said yesterday.

Economists also projected manufacturers cut 100,000 workers last month, according to the survey median. Factories, which make up 12 percent of the economy, shrank in December at the fastest pace in 28 years, Institute for Supply Management figures showed.

“These are extraordinary times, requiring speed and decisiveness to address the current economic downturn,” Klaus Kleinfeld, chief executive officer of Alcoa Inc., said in a Jan. 6 statement announcing 13,500 job cuts worldwide. The world’s largest aluminum producer said it will trim an additional 1,700 contractor positions and froze hiring and salaries in some areas.

Some companies have taken other steps to lower costs. Caterpillar Inc., the world’s largest maker of construction equipment, will put 814 workers on an “indefinite” layoff, shipper FedEx Corp. cut the pay of Chief Executive Officer Fred Smith and other employees, and auto-parts supplier Visteon Corp. said it will trim its workweek and some salaries.

                    Bloomberg Survey

================================================================
                          Nonfarm Unemploy     Manu   Hourly
                         Payrolls     Rate Payrolls Earnings
                           ,000’s        %   ,000’s     MOM%
================================================================

Date of Release              01/09    01/09    01/09    01/09
Observation Period            Dec.     Dec.     Dec.     Dec.
----------------------------------------------------------------
Median                        -525     7.0%     -100     0.2%
Average                       -536     7.0%     -104     0.2%
High Forecast                 -350     7.1%      -75     0.3%
Low Forecast                  -750     6.8%     -180     0.1%
Number of Participants          73       71       18       52
Previous                      -533     6.7%     -104     0.4%
----------------------------------------------------------------
4CAST Ltd.                    -570     7.1%     ---      0.2%
Action Economics              -480     7.1%     -110     0.2%
AIG Investments               -551     7.0%     ---      0.3%
Aletti Gestielle SGR          -580     7.0%     -100     ---
Ameriprise Financial Inc      -510     7.0%     -115     0.2%
Argus Research Corp.          -567     6.8%      -80     0.3%
Banc of America Securitie     -475     7.0%     ---      0.2%
Bancolombia SA                -620     6.9%     ---      ---
Bank of Tokyo- Mitsubishi     -636     7.1%     ---      0.2%
Barclays Capital              -500     7.0%     ---      0.1%
BMO Capital Markets           -600     7.0%     ---      0.2%
BNP Paribas                   -650     7.0%     ---      0.2%
Briefing.com                  -520     7.0%     ---      0.2%
Calyon                        -600     6.9%     ---      0.2%
CIBC World Markets            -500     7.0%     ---      0.2%
Citi                          -425     7.1%     ---      0.2%
ClearView Economics           -450     6.9%      -75     0.2%
Commerzbank AG                -550     7.1%     ---      0.2%
Credit Suisse                 -475     7.0%     ---      0.1%
Danske Bank                   -502     ---      ---      ---
DekaBank                      -485     7.0%     ---      0.2%
Desjardins Group              -400     6.9%     ---      0.2%
Deutsche Bank Securities      -600     7.0%     ---      ---
Dresdner Kleinwort            -490     7.0%     -125     0.2%
DZ Bank                       -520     7.0%     ---      ---
Exane                         -550     7.0%     ---      0.2%
First Trust Advisors          -578     6.9%     -120     0.3%
Fortis                        -430     6.9%     ---      ---
FTN Financial                 -550     6.9%     ---      0.3%
Gain Capital                  -615     7.0%     ---      ---
Goldman, Sachs & Co.          -550     7.1%     ---      0.2%
Helaba                        -350     6.8%     ---      0.2%
Herrmann Forecasting          -572     7.1%     ---      0.2%
High Frequency Economics      -600     7.0%     ---      0.2%
Horizon Investments           -600     7.1%     ---      ---
HSBC Markets                  -530     6.9%     ---      ---
IDEAglobal                    -500     6.9%     -110     0.3%
IHS Global Insight            -625     7.1%     ---      0.2%
Informa Global Markets        -500     7.0%     -100     0.2%
ING Financial Markets         -750     7.1%     -180     0.2%
Insight Economics             -525     6.9%     ---      0.2%
Intesa-SanPaulo               -430     6.9%     ---      ---
J.P. Morgan Chase             -500     7.0%     ---      0.2%
Janney Montgomery Scott L     -540     7.1%     ---      ---
Landesbank Berlin             -500     6.9%     ---      0.1%
Maria Fiorini Ramirez Inc     -600     7.0%     ---      0.2%
Merrill Lynch                 -550     7.1%     ---      0.1%
MF Global                     -645     ---      ---      ---
Moody’s Economy.com           -500     6.9%      -80     0.2%
Morgan Keegan & Co.           -578     7.1%     ---      ---
Morgan Stanley & Co.          -450     7.0%     ---      0.3%
National City Bank            -554     6.9%     ---      0.1%
Natixis                       -500     7.0%     ---      0.2%
Newedge                       -510     7.0%      -80     ---
Nomura Securities Intl.       -475     7.0%     -100     0.2%
Nord/LB                       -475     7.0%     -100     ---
PNC Bank                      -450     7.1%      -90     0.2%
RBC Capital Markets           -460     7.1%     ---      ---
RBS Greenwich Capital         -500     7.0%     ---      0.2%
Ried, Thunberg & Co.          -600     7.1%     ---      ---
Schneider Foreign Exchang     -515     7.1%     ---      0.1%
Scotia Capital                -750     7.1%     ---      0.2%
Societe Generale              -500     7.1%     ---      0.2%
Standard Chartered            -600     7.1%     ---      ---
Stone & McCarthy Research     -475     7.0%     -100     0.3%
TD Securities                 -600     7.1%     ---      ---
Thomson Financial/IFR         -505     7.0%     ---      0.2%
UBS Securities LLC            -525     7.1%     ---      0.2%
University of Maryland        -480     7.0%     -105     0.2%
Wachovia Corp.                -550     7.0%     ---      ---
Wells Fargo & Co.             -600     7.1%     -110     0.2%
Westpac Banking Co.           -600     6.9%     ---      ---
Wrightson Associates          -500     7.1%     ---      0.3%
================================================================

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

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Fed’s Rosengren Calls for ‘Concerted’ Fiscal, Monetary Policies

By Anthony Massucci and Craig Torres

Jan. 9 (Bloomberg) -- The U.S. government needs to pursue “concerted” fiscal and monetary policies to revive housing finance, Federal Reserve Bank of Boston President Eric Rosengren said.

“We have seen improvements of late in the functioning of many short-term credit markets” as the Fed cut interest rates, Rosengren said yesterday. “However, many interest rates remained relatively unresponsive.”

Stabilizing home values and restoring housing finance may be prerequisites to ending the longest recession in a quarter century, according to several economists. Home prices continued to fall, unemployment rose and the economy decelerated faster in the last quarter of 2008 after interest-rate cuts and about $1 trillion in fiscal and monetary support for the financial system.

The Federal Open Market Committee cut the benchmark lending rate to a range of zero to 0.25 percent Dec. 16. Still, “it seems that improving housing finance is likely to take concerted fiscal and monetary policy actions,” Rosengren said in a speech to the Massachusetts Mortgage Bankers Association annual dinner in West Newton, Massachusetts.

On the fiscal side, Fannie Mae and Freddie Mac could help provide a secondary market for mortgages “that reflect the lower cost of funds in many credit markets,” Rosengren said.

U.S. Treasury Secretary Henry Paulson said on Jan. 7 that Congress could, under existing authority, use the two government-sponsored enterprises, or GSEs, to make large purchases of mortgages at a targeted rate of 4 percent.

Encourage Borrowing

The central bank, seeking to spur mortgage lending, has begun a program to purchase $600 billion in mortgage-backed securities and agency bonds by June.

“Expansion of this effort, and encouraging greater GSE participation, should encourage borrowers that have equity and reasonable credit scores to purchase or refinance homes,” Rosengren said.

The average rate on a 30-year fixed-rate mortgage dropped for a 10th week to 5.01 percent yesterday, the lowest on record, according to McLean, Virginia-based Freddie Mac.

Fed policy makers have expanded the central bank’s total assets by $1.25 trillion to $2.14 trillion over the past year by increasing loans to banks and corporations through purchases of bonds and other credits in various industries, firms and markets.

“Inflation concerns aren’t going to be as great as concerns about deflation or about concerns that the economy might be quite weak,” Rosengren said in response to an audience question.

Erasing Equity

Falling home prices are erasing homeowner equity, making it difficult to refinance loans. The S&P/Case-Shiller index, which tracks home prices in 20 U.S. metro areas, slid 18 percent in the 12 months to October, after dropping 17.4 percent in the year through September. The gauge has declined every month since January 2007.

One in 10 U.S. home loans were delinquent or in foreclosure in the third quarter of last year, according to Mortgage Bankers Association data.

Many homebuyers with low credit scores can’t get access to credit, Rosengren said. The government could supplement credit for borrowers “facing severe but temporary” financial setbacks by encouraging loan modifications or providing temporary loans or grants, Rosengren said.

Financial institutions have reported $1 trillion in credit losses and writedowns since the credit crisis began in 2007.

Macroeconomic Advisers LLC, a St. Louis forecasting firm, expects growth to contract at a 5.8 percent annual rate in the fourth quarter of 2008, and at a 3.5 percent rate in the current quarter.

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net; Anthony Massucci in New York at amassucc@bloomberg.net.

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Gaza Silence Shows UN Lack of Power: Celestine Bohlen

By Celestine Bohlen

Jan. 9 (Bloomberg) -- Twice in the past five months, the United Nations Security Council has failed to call for an early stop to small wars that put the international community on edge.

It isn’t for want of trying. Last year, ambassadors representing the 15 members of the Security Council met in the middle of the night to discuss the brewing conflict between Georgia and Russia. They adjourned at 2 a.m. on Aug. 8 without producing any kind of declaration, let alone a resolution.

With Israel’s offensive in Gaza, a similar stalemate set in. Since Dec. 27, the Security Council met four times, including on two successive Saturdays and on New Year’s Eve, before finally approving a resolution yesterday for an immediate cease-fire by a 14-0 vote. The U.S. abstained, and Israel is pressing on with its military operation to end rocket fire from the Gaza Strip.

Casualties mounted as the world’s biggest international organization took its time to send a clear message to the combatants, raising concern -- once again -- about its effectiveness. The question is: What else could take its place?

The paralysis at the heart of the 192-nation UN can be traced to the veto power held by the Security Council’s permanent members: the U.S., Russia (formerly the Soviet Union), China, the U.K. and France. This can hold the international community hostage to the five nations’ own interpretation of events, their own national interests and those of their allies.

‘Eternal Conundrum’

“It is the eternal conundrum at the UN,” says Stephen Schlesinger, a senior fellow at the Century Foundation, a public- policy research institute in New York. “As long as you have an international institution made up of states, you will always have state interests controlling the outcome.”

Yet the UN remains the principal door on which governments knock during a crisis. On Aug. 7 last year, Russia’s ambassador to the UN, Vitaly Churkin, called for a late-night emergency session as Georgian rockets were raining on Tskhinvali, the capital of South Ossetia, and Russian troops were poised to cross an internationally recognized border.

“The Security Council must now play its role,” Churkin said as the meeting convened at 1:15 a.m. on Aug. 8. “The council and the international community as a whole cannot remain on the sidelines at this difficult moment, when the fate of hundreds of thousands of people in the region is being decided. Together, we must put an end to the violence.”

On Jan. 7, Palestinian Authority President Mahmoud Abbas went to New York to plead for UN action in Gaza.

‘Save My People’

“The entire world opinion will accept no less than an urgent intervention by the Security Council to stop the fighting and deter the aggressor,” he said. “I call upon this council to take the first necessary steps to save my people in Gaza, a resolution calling for an immediate cessation of Israeli aggression.”

In both cases, these calls ran up against the threat of a unilateral veto that can block any action by the council.

In the UN’s early years, the Soviets were profligate veto abusers, blocking 17 initiatives in 1955 alone. Since the demise of the Soviet Union in 1991, the U.S. has taken the lead, using its veto 13 times, compared with five for the Russian Federation.

“What usually happens is that either the U.S. or Russia tend to protect their client states against UN intervention, or stymie action for other political reasons,” says Schlesinger, author of “Act of Creation: The Founding of the United Nations” (Westview Press, 2003).

U.S. Veto

The U.S. has used its veto mostly in defense of Israel -- 42 times since 1972, more than the total vetoes cast by the other four permanent members in that period, according to John J. Mearsheimer, a professor of political science at the University of Chicago and co-author of “The Israel Lobby and U.S. Foreign Policy” (Farrar, Straus and Giroux, 2007).

“The key point is that Israel is in the driver’s seat,” says Mearsheimer. “Because Israel effectively controls American veto power, it makes it almost impossible to do anything meaningful, such as pushing the two sides toward an agreement.”

Last week, U.S. Ambassador to the UN Zalmay Khalilzad rejected a Libyan resolution, which demanded an immediate cease- fire and called for an end to Israel’s blockade of Gaza. He described the language as “not balanced and therefore, as currently drafted, not acceptable to the U.S.”

It was clear during the Georgia crisis last summer that the Security Council could do nothing since Russia was sure to block any language criticizing its military incursion onto Georgian territory. At a second meeting on Aug. 8, the council could do no more than lament a rapidly deteriorating situation.

Sarkozy Mediation

Ultimately, the role of mediator fell to French President Nicolas Sarkozy, then head of the European Union, who helped negotiate a cease-fire between Russia and Georgia on Aug. 12.

The veto available to the five “Great Powers” is an irritant to the other 187 members of the UN, who see it as “an anti-democratic self-violation of the whole rest of the UN Charter,” wrote Erskine Childers, a UN official, in 1994.

Yet it is also the rock on which the UN was founded, according to Schlesinger. Both the Soviet Union and the U.S. threatened to walk out of the founding conference in San Francisco in 1945 if they didn’t get the veto.

“Great powers are never going to allow international institutions to pursue policies that are not in their national interests,” says Mearsheimer. “As a result, no international institution is ever going to be powerful. They are useful tools, but there are limits.”

Since the end of the Cold War, the international community, led by the Security Council, has at times been able to swing into collective action -- launching the first Gulf War and the 2003 war in Afghanistan, ending the 2006 conflict in Lebanon, as well as supporting 19 different peacekeeping missions.

Then there are times when the UN has fallen down on the job -- in 1994 in Rwanda, and in 1999 in Kosovo. Last year, Russia and China together vetoed a resolution dealing with the deteriorating political situation in Zimbabwe. Then came Georgia, now Gaza -- and again silence.

(Celestine Bohlen is a Bloomberg News columnist. The opinions expressed are her own.)

To contact the reporter on this column: Celestine Bohlen in Paris at cbohlen1@bloomberg.net

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Saudi Aramco Cuts Asian Oil Supplies by 10% for Feb.

By Christian Schmollinger

Jan. 9 (Bloomberg) -- Saudi Aramco, the world’s biggest state oil company, will lower crude supplies to Asia in February, the third month of cuts, as OPEC implements a 9 percent reduction in output.

The Dhahran, Saudi Arabia-based producer will cut shipments by 10 percent from levels agreed in annual contracts with refiners in Japan and Taiwan, said two officials who received notices from the company. They asked not to be identified because of confidentiality agreements.

The Organization of Petroleum Exporting Countries agreed on Dec. 17 to new production targets starting Jan. 1 which are 9 percent lower than its November quotas. The group is trying to stem New York crude oil futures’ more than 70 percent plunge from a record $147.27 a barrel on July 11.

“This shows that they are really serious since this, I think, actually puts them below their quota,” said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “As OPEC cuts back on their term, it means buyers will have to come back to the spot market.”

Saudi Aramco sells its supplies only by long-term contracts. Refiners and traders can purchase cargoes for a specific month on the so-called spot market.

Saudi Arabia, OPEC’s biggest producer, agreed to an output target of 7.714 million barrels a day starting in January. The kingdom produced 8.4 million barrels a day in December, less than the previous quota of 8.477 million barrels, according to a Bloomberg survey

Saudi Arabia’s cuts follow similar reductions from the other OPEC members.

Iran, OPEC’s second-largest producer, told Asian refiners on Jan. 7 that it would reduce shipments by 14 percent in February.

Kuwait, OPEC’s third-largest producer in November, will reduce oil supplies by 5 percent starting Jan. 22. Qatar, the group’s second-smallest producer, will slash cargoes by as much as 6 percent in February, compared with 5 percent a month earlier.

Abu Dhabi National Oil Co., the United Arab Emirates state- owned producer, said Dec. 26 it would cut crude-oil exports in January and February.

Abu Dhabi National, known as Adnoc, cut the supply of its Murban grade by 15 percent and the Upper Zakum grade by 3 percent in January, mostly in Asia. In February, Adnoc will decrease the supply of Murban by 15 percent, Lower Zakum by 10 percent, Umm Shaif by 10 percent and Upper Zakum by 15 percent.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.

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Hungary’s Car Workers Desperate as Gas, Recession Threaten Jobs

By Zoltan Simon

Jan. 9 (Bloomberg) -- It’s 10 a.m. on a Thursday and Janos Oklos would normally be on the assembly line, installing dashboards at Suzuki Motor Corp.’s factory in northern Hungary.

Instead, he’s in his slippers, taking out the garbage at the hostel where he and 300 co-workers live in sight of the car plant in Esztergom. A natural-gas shortage caused by the dispute between Russia and Ukraine, forced the factory to close until next week, raising concerns about jobs cuts a month after Suzuki said it was reducing the local workforce by 20 percent.

“I saw the faces when we were told we didn’t have to work this week,” said Oklos, 42, dressed in jeans and a white shirt. “They had desperation written all over them.”

The gas crisis is a further blow to companies that were already shedding workers to cope with the global economic crisis. At least 20 countries have lost supplies this week as Russia and Ukraine fight over prices and allegations that fuel is being illegally siphoned off.

Hungary, which in October secured 20 billion euros ($27.4 billion) in loans from the International Monetary Fund, European Union and World Bank to avert a default, may shed as many as 100,000 jobs in the slowing economy, raising unemployment by about a third, according to Prime Minister Ferenc Gyurcsany. The country’s jobless rate averaged 7.8 percent in the three months through November.

The economy contracted in the third quarter and falling industrial output, which dropped at an annual rate of 10.1 percent rate in November, pushed the country toward a recession. Declines in output were led by production cuts at carmakers, including Suzuki and Volkswagen AG’s luxury brand, Audi AG.

‘Forced Vacation’

The gas dispute erupted when OAO Gazprom, Russia’s gas exporter, offered to sell Ukraine natural gas for $250 per 1,000 cubic feet this year, up from $179.50 in 2008. Ukraine said $201 would be fair. Gazprom first cut supplies to Ukraine through an international pipeline, then suspended transit flows after accusing Ukraine of siphoning off gas bound for other countries.

Gazprom’s Jan. 7 decision forced countries including Hungary, Slovakia and Bulgaria to restrict gas use by companies.

Suzuki shut the Esztergom plant the same day and told workers to return next week, spokeswoman Viktoria Ruska said.

“No one wants to stay at home on a forced vacation if that means earning less money at the end of the month,” Zsuzsa Keresztessy, a Suzuki employee, said in a phone interview.

Hungary relies on imports from Russia for 80 percent of its gas, compared with the European Union average of 25 percent. Forty percent of the economy is powered by natural gas, according to the Energy Ministry.

The double-punch of gas shortages and the global credit crunch dashed Hungary’s economic recovery after growth slowed to a 14-year low for of 1.1 percent in 2007. The economy will probably shrink 1 percent this year, the government says.

Bankruptcies Rise

“The gas crisis will accelerate the rate of bankruptcies and liquidations,” Tamas Pletser, a Budapest-based energy analyst at ING Groep NV, said in a phone interview. “Many companies were already looking to cut jobs or halt production anyway. The gas crisis will be a good excuse to do so.”

Hungary reported a record 11,504 liquidations last year, 17 percent more than in 2007, according to company data provider Opten Kft. Thirty percent of the filings came in the fourth quarter.

The bankruptcies are costing jobs and reducing consumer spending two years after the government raised taxes and cut energy subsidies to reduce the budget deficit, sapping disposable income. Retail sales dropped for the 21 months through October.

“People are buying less and less,” said Judit Horvath, a flower vendor in downtown Esztergom, where red and green one- story houses line the street. “Those who used to buy three flowers now just buy one and spend the rest on heating and food.”

Falling Orders

Others just want to keep their jobs.

Suzuki, Japan’s second-largest minicar maker, in November announced plans to eliminate 1,200 of its 5,500 jobs in Esztergom because of falling orders worldwide. The cuts also affect Slovakians who work at the factory, which is located just across the Danube River that divides the two countries.

As the gas crisis forced the plant to shutdown, the fear of losing their jobs was on the minds of the dozen Suzuki workers huddled in the bar of the workers’ hostel for beers and a smoke as the car factory loomed silent down the road.

Asked about the first word that came to mind on their day off, they said in unison: “Insecurity.”

To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net.

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Russia, EU Agree on Monitors for Ukraine Transit Gas

By Tara Patel and Daryna Krasnolutska

Jan. 9 (Bloomberg) -- Russia and the European Union clinched a deal on monitoring gas shipments through Ukraine, paving a way for the resumption of deliveries to EU countries.

Russian Prime Minister Vladimir Putin reached an accord with Czech Prime Minister Mirek Topolanek, who holds the EU’s presidency, on deploying a monitoring commission. Russia and Ukraine still have to resolve their dispute over gas prices, fees and debt that’s hit supplies to at least 20 nations.

Since a previous dispute over gas prices in 2006, European Union nations have diversified their sources of fuel and improved inventories. They are also using more gas, the source of 24 percent of the world’s energy in 2007, to reduce emissions linked to global warming. OAO Gazprom suspended transit flows on Jan. 7 after accusing Ukraine of siphoning off gas destined for other buyers, a charge the country denies.

“It’s high time the EU gets serious about gas security and presses ahead with the creation of a single gas market,” Pierre Noel, senior policy fellow at the European Council on Foreign Relations, said in an e-mailed statement. “The EU must be instrumental in the push for investment” in eastern states.

The deal came after talks in Brussels involving Gazprom Chief Executive Officer Alexei Miller, his counterpart at NAK Naftogaz Ukrainy, Oleh Dubina and EU Energy Commissioner Andris Piebalgs stalled as the EU sought to negotiate an end to the dispute.

‘Full Access’

The agreement “should lead” to Russian gas supplies to the EU being restored, the Czech presidency said on its Web site.

EU monitors scheduled to arrive in Ukraine today have been assured of “full access” to pipelines, Piebalgs said earlier. Yesterday, Putin said Russia was prepared to pay a higher transit fee to send gas through Ukraine should its neighbor pay European prices for its gas. Naftogaz said it was ready to “guarantee 100 percent” of Russian gas transit supplies to Europe.

The accord is for “all locations that are relevant for the flow of gas” and “should lead to the Russian supplies of gas to EU member states being restored,” the Czech presidency said. Topolanek spoke with Putin and with German Chancellor Angela Merkel before reaching the accord, it said.

Border Supervision

Ukrainian President Viktor Yushchenko spoke with European Commission President Jose Barroso yesterday by telephone and confirmed Ukraine is prepared to immediately resume Russian gas transit, according to a statement from Yushchenko’s office.

“In the event that a multilateral committee is formed, Gazprom is ready to give monitors access to its gas-measuring stations in Russia,” Miller said in a comment in response to Bloomberg enquiries. Putin’s press service said Russia was insisting on having monitors on both its border into Ukraine and at exit borders.

Russian President Dmitry Medvedev spoke with Yushchenko by phone on Jan. 7, the first high-level contact between the two sides since negotiations broke off on Dec. 31. Medvedev also said Ukraine should pay the full market price for its gas and clear its debt with Russia. Each side blamed the other for shutting the transit route.

Russia’s ruble and Ukraine’s hryvnia rallied against the euro following the resumption of talks.

Supply Shortfalls

U.K. natural gas for within-day delivery fell 3.25 pence, or 4.8 percent, to 64.50 pence a therm yesterday, according to data from broker ICAP Plc at 5:30 p.m. London time. That’s equal to $9.81 a million British thermal units. A therm is 100,000 Btus. Earlier in the day it was as high as 76 pence.

French President Nicolas Sarkozy and Germany’s Merkel urged Russia to renew shipments of gas to Europe. Russia must “respect” its contractual commitments, Sarkozy told a joint press conference in Paris yesterday. “Russia has to hold to its obligations,” Merkel said.

Gazprom’s European customers receive 80 percent of supplies through pipelines that cross Ukraine. The Russian exporter, which provides a quarter of Europe’s gas, said its overall deliveries to Europe were cut by about 60 percent on Jan. 7.

“Russia’s motivation isn’t exclusively financial,” David Hauner, a London-based economist at Bank of America Corp., said in a Bloomberg Television interview yesterday. “In this tough time for the Russian government, with lower oil prices and a weaker ruble, they want to show strength. That always comes across well with the public.”

Pipelines Stable

Ukraine, Romania, Bulgaria, Greece, Turkey, Macedonia, Serbia, Czech Republic, Slovakia, Bosnia-Herzegovina, Slovenia, Austria, Hungary, Italy, Croatia, Moldova, Turkey, Poland, Germany and France have all registered supply shortfalls since the cutoff.

The market is still “broadly pricing in a near-term solution to the crisis,” UniCredit SpA said yesterday in an e- mailed note. Industrial stoppages “would spread relatively rapidly if gas supplies remain limited,” it added.

Ukraine’s gas transportation system is stable and no gas is arriving from Russia, Naftogaz Deputy Chief Executive Officer Volodymyr Trikolich said. Naftogaz is supplying gas only to customers in Ukraine, he told a briefing yesterday in Kiev.

Gazprom delivered about 170 million cubic meters of gas to Europe on Jan. 7, compared with 420 million to 450 million cubic meters a day normally, Deputy Chief Executive Officer Alexander Medvedev said on a conference call on Jan. 7. Gas is being supplied through Belarus and from underground storage.

Price Talks

In 2006, Russia turned off all Ukrainian gas exports for three days, causing volumes to fall in the EU, and also cut shipments by 50 percent last March during a debt spat.

Russia halted shipments intended for Ukraine’s domestic market Jan. 1. Gazprom has warned that Ukraine risks amassing a debt of “billions of dollars” if the conflict continues.

Gazprom raised its demands on Jan. 4 as Miller cited a possible price of $450 per 1,000 cubic meters for deliveries to Ukraine, reflecting the average price in countries bordering Russia’s neighbor. Ukraine, which paid $179.50 for Russian gas last year, rejected a Gazprom offer last week of $250 for 2009 and says $201 would be fair.

Putin said yesterday Russia would be prepared to double the fee it pays to send gas through Ukraine, if its neighbor paid market prices for supplies. Russia is ready to pay $3.40 per 1,000 cubic meters of gas over 100 kilometers (62 miles), up from $1.70, Putin told reporters at his residence near Moscow.

The company is still owed $615 million by Ukraine, Gazprom’s Medvedev said earlier this week in London. Ukraine disputes the debt.

Miller and Dubina flew back to Moscow together late yesterday after the Brussels talks.

Ukraine’s leaders, Yushchenko and Prime Minister Yulia Timoshenko, are facing a financial crisis that has forced them to seek a $16.4 billion International Monetary Fund bailout.

The hryvnia yesterday added 3.1 percent to 8.1050 per dollar, from 8.3525 on Jan. 7. The ruble rose 0.2 percent to 30.4325 per dollar in limited holiday trading.

To contact the reporters on this story: Tara Patel in Paris at tpatel2@bloomberg.netDaryna Krasnolutska in Kiev on dkrasnolutsk@bloomberg.net

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