IMF Forecasts South Korea’s Economy Will Contract 4% in 2009

By Seyoon Kim

Feb. 3 (Bloomberg) -- The International Monetary Fund expects South Korea’s economy will contract this year for the first time since the Asian financial crisis a decade ago, according to a statement from the nation’s finance ministry.

The economy will shrink 4 percent in 2009, the IMF forecast, compared with its November prediction of a 2 percent expansion, according to the statement distributed by the ministry in Gwacheon. The IMF expects a recovery in 2010 with growth of 4.2 percent, the statement showed.

Declining exports and weakening consumer spending prompted the Washington-based fund to reduce its forecasts for Asia’s fourth-largest economy, the ministry said. Overseas shipments tumbled by a record 32.8 percent last month and industrial production fell an unprecedented 18.6 percent in December as exporters Hyundai Motor Co., Hynix Semiconductor Inc. and LG Display Co. reduced output to cope with faltering demand.

“The IMF expects the South Korean economy to hit the bottom in the second quarter and start to pick up in the third quarter,” Vice Finance Minister Hur Kyung Wook told reporters yesterday in comments that were embargoed until today. “We have sufficient room both on the fiscal and financial side to increase spending and cut rates if needed.”

South Korea has allocated about 140 trillion won ($102 billion), or 15 percent of gross domestic product, in liquidity injections, tax cuts and stimulus spending. The central bank cut its interest rate to a record low of 2.5 percent in January.

“The main reason for the IMF revision is the export drop and weakening domestic demand following the global slump,” the ministry said. “The IMF said they are fundamentally optimistic about South Korea’s medium- and longer-term outlook.”

The IMF expects the economy will shrink 0.8 percent this quarter from the previous three months and stagnate in the second quarter, Hur said. The fund forecasts growth of 0.7 percent and 1.1 percent in the third and fourth quarters of 2009 respectively, he added.

South Korea’s gross domestic product declined 5.6 percent in the fourth quarter of last year from the previous quarter as exports, consumer spending and business investment dropped.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net

Read more...

Pending Home Resales in U.S. Probably Unchanged in December

By Timothy R. Homan

Feb. 3 (Bloomberg) -- The number of Americans signing contracts to buy previously owned homes was probably unchanged in December, snapping a three-month drop, economists said before a report today.

The National Association of Realtors’ index of pending home resales held at 82.3, a record low, after falling 4 percent in November, according to the median forecast in a Bloomberg Survey of 28 economists.

Record foreclosures are pushing down home values, making homes more affordable for those buyers able to get financing. Still, restrictive lending rules and further price declines are likely to scare away the majority of purchasers, indicating the real-estate recession will persist for a fourth year in 2009.

“Deep discounting from foreclosures has enticed some homebuyers,” said Julia Coronado, a senior U.S. economist at Barclays Capital Inc. in New York. Still, “the economic environment and distressed mortgage market contribute to weak sales.”

The real estate agents’ report is due at 10 a.m. in Washington. Survey estimates range from a drop of 5 percent to a gain of 2 percent.

The Realtors group, whose pending sales data go back to January 2001, started publishing the index in March 2005.

Pending resales are considered a leading indicator because they track contract signings. Closings, which typically occur a month or two later, are tallied in NAR’s monthly existing-home sales report. That report for January is scheduled to be released Feb. 25.

Sales Climbed

Purchases of previously owned homes, which account for about 90 percent of the market, climbed 6.5 percent in December from the prior month as foreclosures helped drive median prices down 15 percent from a year earlier.

December sales of new homes, which account for the remainder, dropped to a record low, a report from the Commerce Department showed last week.

Lower mortgage rates are also making homes more affordable. The rate on a 30-year fixed mortgage averaged 5.33 percent in December, down from 6.09 percent the previous month, according to data from Freddie Mac.

Still, foreclosures continue to mount. Delinquency filings increased 41 percent in December from a year earlier, RealtyTrac Inc., a seller of default data, said last month.

Lower Prices

Average house prices have fallen by about a quarter from their peaks in mid-2006, according to the S&P/Case-Shiller home price index. Property values in 20 U.S. cities declined 18.2 percent in November from a year earlier, the fastest drop on record, according to a report last week.

The slow pace of sales is hurting companies that supply homebuilders. DuPont Co., the third-biggest U.S. chemical maker, last week reported a fourth-quarter loss of $629 million.

Profit in the Wilmington, Delaware-based company’s safety and protection business fell 62 percent as sales declined for housing products such as Tyvek weather barrier and Corian countertops. The company said it will eliminate 8,000 contractor jobs, twice the target announced in December.

A report from the Commerce Department yesterday showed spending on U.S. private residential construction fell 3.2 percent in December after a 4.1 percent decline the previous month. Last year, spending on home building plummeted a record 27 percent.

                        Bloomberg Survey

===================================
                          Pending
                            Homes
                             MOM%
===================================

Date of Release              02/03
Observation Period            Dec.
-----------------------------------
Median                        0.0%
Average                      -0.2%
High Forecast                 2.0%
Low Forecast                 -5.0%
Number of Participants          28
Previous                     -4.0%
-----------------------------------
4CAST Ltd.                    1.5%
Action Economics              0.6%
Ameriprise Financial Inc     -1.6%
Barclays Capital              1.0%
BMO Capital Markets          -2.0%
Briefing.com                 -0.5%
Commerzbank AG                1.0%
DekaBank                     -0.5%
Deutsche Bank Securities     -5.0%
Dresdner Kleinwort            0.0%
DZ Bank                       0.5%
Fortis                        0.0%
High Frequency Economics     -2.0%
HSBC Markets                 -1.0%
IDEAglobal                   -0.5%
Informa Global Markets        1.0%
ING Financial Markets         2.0%
J.P. Morgan Chase             1.0%
Moody’s Economy.com           1.0%
Ried, Thunberg & Co.         -2.0%
Schneider Foreign Exchang    -0.6%
TD Securities                 1.0%
Thomson Financial/IFR        -1.6%
UBS Securities LLC           -1.0%
University of Maryland        1.0%
WestLB AG                     0.0%
Westpac Banking Co.           2.0%
Wrightson Associates         -2.0%
===================================

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

Read more...

U.S. Property Owners Lost $3.3 Trillion in Home Value Last Year

By Dan Levy

Feb. 3 (Bloomberg) -- The U.S. housing market lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes were worth as the economy went into recession, Zillow.com said.

The median estimated home price declined 11.6 percent in 2008 to $192,119 and homeowners lost $1.4 trillion in value in the fourth quarter alone, the Seattle-based real estate data service said in a report today.

“It’s like a runaway train gaining momentum,” Stan Humphries, Zillow’s vice president of data and analytics, said in an interview. “It’s difficult to say when we’ll see a bottom to the housing market.”

The U.S. economy shrank the most in the fourth quarter since 1982, contracting at a 3.8 percent annual pace, the Commerce Department said on Jan. 30. Record foreclosures have pushed down prices as unemployment rose. More than 2.3 million properties got a default or auction notice or were seized by lenders last year, according to RealtyTrac Inc., a seller of data on defaults.

About $6.1 trillion of value has been lost since the housing market peaked in the second quarter of 2006 and last year’s decline was almost triple the $1.3 trillion lost in 2007, Zillow said.

Values have dropped for eight straight quarters. They fell in Manhattan for the first time since Zillow began including the New York City borough in its records two years ago.

Manhattan Declines

Manhattan’s estimated median price dropped 5.8 percent to $914,544. Seattle and Portland, Oregon, values tumbled 12.1 percent and 11.7 percent, respectively, the first time those cities dropped more than the national decline, Zillow said.

More than 2.6 million U.S. jobs were cut in 2008 and the unemployment rate rose to 7.2 percent in December, the highest in almost 16 years, the Labor Department said.

“A witch’s brew of economic insecurity, foreclosures and tightened lending standards are helping to keep hard-hit markets down and to widen the scope of markets showing declines,” Humphries said in a statement accompanying the report.

The number of homeowners with negative equity, or those who owed more on their homes than the property was worth, rose to 17.6 percent from 14.3 percent in the third quarter, Zillow said. The company began its quarterly reports in 2006.

More Foreclosures

“Negative equity will trigger new foreclosures, and that will add to inventory and depress prices,” Humphries said.

Almost 90 percent of the 161 metropolitan areas Zillow surveys showed values falling in the fourth quarter, including Rochester, New York and Winston-Salem, North Carolina, which had previously held up, Zillow said.

The company compiles data from multiple listing services, county assessors and recorders, and information from its users.

Estimated median prices tumbled 6.2 percent to $395,478 in the New York-Northern New Jersey-Long Island metropolitan area. They fell 21 percent to $410,692 in Los Angeles. Values dropped 26.8 percent to $182,483 in Las Vegas and decreased 22.3 percent to $179,847 in Phoenix, according to Zillow.

Fayetteville, North Carolina, led the nine Zillow markets showing price increases, with a 6.9 percent gain to a median $112,737. Values in Yakima, Washington, advanced 6.2 percent to $134,545. Utica-Rome, New York, rose 5.3 percent to $107,595, according to Zillow.

To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net

Read more...

BOJ to Buy 1 Trillion Yen in Shares Owned by Lenders

By Toru Fujioka and Keiko Ujikane

Feb. 3 (Bloomberg) -- The Bank of Japan will buy 1 trillion yen ($11.1 billion) of shares owned by financial institutions to shore up their capital, which has been ravaged by the global stock-market rout.

The central bank will purchase stocks until April 2010, resuming a program it ended more than four years ago, it said in a statement after Governor Masaaki Shirakawa and his policy colleagues met in Tokyo today. The bank will hold the shares until at least March 2012.

“This is a good move,” said Jesper Koll, chief executive officer at Tokyo-based hedge fund adviser TRJ Tantallon Research Japan. “It frees the banks to focus on their main business, assessing credit risks rather than riding the fortunes of the stock market.”

The Nikkei 225 Stock Average’s record decline has forced Mizuho Financial Group Inc. and Mitsubishi UFJ Financial Group Inc. to cut earnings forecasts and restricted their ability to lend. Policy makers worldwide are trying to keep their economies afloat as the global recession deepens. Australia’s central bank cut interest rates to the lowest in 45 years today and the government pledged additional spending.

The Nikkei climbed as much as 2.7 percent after the announcement before sliding 0.6 percent to 7,825.51 at the close in Tokyo. Japan’s benchmark stock average lost a record 42 percent in 2008 and has dropped a further 11.7 percent this year. Australia’s benchmark S&P/ASX 200 stock index rose 0.3 percent and the MSCI Asia Pacific Index gained 0.5 percent.

‘Safety Net’

“This measure aims to act as a safety net to stabilize the financial markets,” Governor Shirakawa said at a press briefing in Tokyo. “It’s always appropriate to prepare for the worst factors and the worst-case scenario.”

Shirakawa added that the plan isn’t necessarily focused on boosting the stock market. Rather, he said, the central bank is concerned that banks will become reluctant to lend toward the fiscal year end, when companies settle accounts, out of fear that declining stock values will deplete their capital. The bank will start the purchases after getting the government’s approval.

“The Bank of Japan wants to improve banks’ balance sheets, which would make it easier for them to lend more money to companies,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo, who used to work at the central bank.

In Australia, Governor Glenn Stevens lowered the overnight cash rate target to by one percentage point to 3.25 percent and Treasurer Wayne Swan said the government will spend A$42 billion ($27 billion) for households and on infrastructure.

‘Avoiding Armageddon’

“Such a proactive approach from governments and central banks is the only hope we have of avoiding Armageddon,” said Prasad Patkar, who helps manage $800 million at Platypus Asset Management in Sydney.

The U.S. government is considering guarantees for home loans modified by their servicers, seeking to stem the record surge of foreclosures that’s hammering property values. The proposal is aimed at shielding lenders from default after they loosen loan terms for struggling borrowers.

The Bank of Japan has already reduced interest rates to 0.1 percent and is buying corporate debt from lenders to encourage them to extend credit and prevent a deeper recession. Today’s move comes less than two weeks after the bank said it will buy up to 3 trillion yen of commercial paper and consider purchasing corporate bonds to channel funds to companies.

‘Big Surprise’

“The timing is quite a big surprise,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. “My understanding is the result of the outright purchase of the CP probably wasn’t exactly as the BOJ wanted. So they thought they needed to introduce a new measure earlier than expected.”

The central bank said it will buy stocks of companies with a credit rating of BBB- and higher. To be eligible, banks will need stockholdings exceeding 500 billion yen and a “capital adequacy ratio based on international standards,” it said. The bank will only buy up to 250 billion in stocks from each lender.

Japan’s six biggest banks hold about 11 trillion yen of shares by book value, and plans to buy less than a tenth of that amount would do little to strengthen their finances, Dai-Ichi Life’s Kumano said.

“The measure will contribute to stabilizing the financial system, and we’ll consider it carefully,” said Masako Shiono, a spokeswoman for Mizuho. Sumitomo Mitsui Financial Group Inc. spokeswoman Chika Togawa said the bank may get involved “under certain circumstances, while taking into account the will of share issuers.” Mitsubishi UFJ spokesman Tomohiro Kato declined to comment.

Bank Losses

Mizuho, Japan’s second-largest bank by revenue, last week reported a loss of 145.1 billion yen in the third quarter ended Dec. 31, after booking 204.9 billion in losses on shareholdings. Mitsubishi UFJ, the country’s largest lender, said last month it expects to book 288 billion yen in losses on domestic equities.

“It doesn’t really solve the fundamental problem; the fundamental problem is how much the earnings are being damaged,” said Diane Lin, Sydney-based portfolio manager at Pengana Capital, which oversees about $1.9 billion. “Last week was a total shock to us.”

A collapse in global demand is prompting Japanese manufacturers to forecast losses, cut production and fire workers. Hitachi Ltd. last week projected a record 700 billion yen annual loss and said it may eliminate 7,000 jobs.

Helped to Stabilize

Shirakawa said the central bank’s previous share-buying program helped to stabilize the financial system. The bank bought shares in 2002 to 2004, when it pledged to purchase up to 3 trillion yen in equities as the stock market plunged to a 20- year low and banks were laden with bad debts.

The bank started selling those shares in October 2007. It stopped the sales the following October, after the collapse of Lehman Brothers Holdings Inc. sparked the global market rout and sent the Nikkei below its 2003 bottom to 7,162.90. The bank held 1.27 trillion yen in shares as of Jan. 31.

The government earlier this decade also bought shares owned by banks, and in December said it will allocate 20 trillion yen for a possible resumption of purchases. The opposition- controlled upper house has yet to approve the proposal.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; Keiko Ujikane in Tokyo at kujikane@bloomberg.net

Read more...

Tokyo Electric to Complete Repair of Reactor Tomorrow

By Megumi Yamanaka

Feb. 3 (Bloomberg) -- Tokyo Electric Power Co., forced by an earthquake to shut the world’s biggest nuclear plant, will complete repairs of a reactor at the Kashiwazaki Kariwa nuclear plant tomorrow, paving the way for a restart.

Kashiwazaki city, in the northern prefecture of Niigata, today lifted a ban on operating the No. 7 reactor, spokesman Manabu Takeyama said by phone today. The utility needs approvals from the trade ministry’s Nuclear and Industrial Safety Agency and local municipalities before conducting a test run.

The reactor is the first of seven to be repaired after the plant was shut July 16, 2007, when a magnitude 6.8 temblor caused a fire and radiation leaks. The company posted its first loss in 28 years in fiscal 2007 because of mounting costs for thermal generation.

“It’s definitely a step forward,” Hirofumi Kawachi, an energy analyst at Mizuho Investors Securities Co., said by phone from Tokyo. “We can expect a V-shaped recovery in the next business year as Tokyo Electric enjoys the double impact of drops in oil prices and reductions in fuel needs.”

A trial run of the reactor will take at least 3 weeks, the company said in December. Tokyo Electric needs to get permission from central and local governments before a full restart.

The company has more than doubled consumption of fossil fuels, especially heavy fuel and crude oil, to make up for declining output caused by the closure of the Kashiwazaki Kariwa nuclear plant, which accounts for about 10 percent of its total generation capacity. The mounting fuel costs prompted the company to forecast a second consecutive loss this fiscal year.

Narrower Loss

Tokyo Electric on Jan. 30 narrowed its forecast net loss to 45 billion yen for the year ending March 31 from 220 billion yen because of lower oil prices. Crude has declined 72 percent since touching a record $147.27 a barrel on the New York Mercantile Exchange in July. It traded at $40.45 a barrel at 1:31 p.m. in Tokyo.

The company may earn 250 billion yen in the fiscal year starting in April, according to a Bloomberg survey of five analysts. All of the analysts predicted at least some output would resume at the nuclear plant.

“Now what investors are watching is how many reactors it can restart in the next fiscal year and how much its nuclear operation rate will increase,” Kawachi said.

To contact the reporters on this story: Megumi Yamanaka in Tokyo at myamanaka@bloomberg.net;

Read more...

Bernstein Cuts Oil Forecast to $50 on Weak U.S., China Demand

By Will Kennedy

Feb. 3 (Bloomberg) -- Sanford C. Bernstein & Co. cut its average oil price forecast for 2009 to $50 a barrel from $70 because of weaker demand in the U.S. and China and spare production capacity. The firm cut its prediction of natural gas prices to $8 a thousand cubic feet from $8.75.

Read more...

Morgan Stanley Sees 2009 Oil Averaging $35 a Barrel

By Christian Schmollinger

Feb. 3 (Bloomberg) -- Crude oil in New York will average $35 a barrel this year as the global economy contracts, limiting demand for fuels, Morgan Stanley said.

The price of West Texas Intermediate crude, the basis for futures traded on the New York Mercantile Exchange, will fall to a low of $25 a barrel in the second quarter, according to the Feb. 2 report by analysts led by Hussein Allidina. Crude will rise to average $55 a barrel in 2010 and $85 a barrel in 2011, he said in the report.

Oil futures in New York have slumped 73 percent since reaching a record $147.27 a barrel in July as the world’s economies have shrunk. The International Monetary Fund said last month gross domestic product in the U.S. will contract 1.6 percent this year, while Japan’s will fall 2.6 percent and the euro-area economy by 2 percent.

“We think that the oil markets are lagging the macroeconomists in understanding the severity of the economic outlook,” the analysts said. “As they catch up, and as the full extent of the demand weakness becomes clear, we expect prices to move lower.”

Crude oil for March delivery gained as much as 63 cents, or 1.6 percent, to $40.71 a barrel in after-hours Nymex electronic trading. It was at $40.56 a barrel at 12:05 p.m. Singapore time.

The recession in developed economies, combined with slowing emerging markets such as China and India, will cause oil demand to fall by 1.5 million barrels a day in 2009, the analysts said.

Asia Weakness

“Recent data refute notions of decoupling and the inevitability of non-OECD oil demand growth,” wrote Allidina and his team. “Economic data point to weakness in Asia meeting or exceeding 1997 levels, when regional oil demand contracted by 2 percent.”

Morgan Stanley’s outlook for West Texas oil is the lowest of 35 analysts’ forecasts tracked by Bloomberg News. Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne, predicts an average of $43.13 a barrel. Gerard Burg, an energy economist at National Australia Bank Ltd. in Melbourne, has the highest estimate at $110 a barrel. The median forecast is $58 a barrel.

Brent crude oil traded in London will perform slightly better, averaging $36 a barrel in 2009, the Morgan Stanley analysts said. It will gain to an average of $55 in 2010 and $84 a barrel in 2011.

Brent for March settlement rose as much as $1.03, or 2.4 percent, to $44.85 a barrel on London’s ICE Futures Europe exchange. The contract yesterday declined $2.06, or 4.5 percent, to settle at $43.82 a barrel.

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

Read more...

BP Posts First Quarterly Loss in Seven Years on Oil

By Eduard Gismatullin and Fred Pals

Feb. 3 (Bloomberg) -- BP Plc, Europe’s second-biggest oil company, reported its first quarterly loss in seven years as the global recession spurred a record plunge in crude prices.

The loss was $3.3 billion, or 18 cents a share, compared with net income of $4.4 billion, or 23 cents, a year earlier, London-based BP said today in a statement. Excluding one-time items and gains or losses from inventories, earnings missed analyst estimates.

Chief Executive Officer Tony Hayward is adding production and refining capacity to boost BP’s earnings, which have lagged behind rivals such as Exxon Mobil Corp. and Royal Dutch Shell Plc. Output rose for the first time in three years as new projects, including the Thunder Horse field in the Gulf of Mexico, were ramped up. Refining availability jumped to a three- year high after the return of BP’s two biggest U.S. refineries.

“Production came in higher than expected and that is positive,” Gudmund Halle Isfeldt, an Oslo-based analyst at DnB NOR ASA who has a “buy” rating on the stock, said in a telephone interview. “Refining was a slight disappointment.”

Excluding one-time items and gains or losses from inventories, profit was $2.6 billion. That missed the $3 billion median estimate of 10 analysts surveyed by Bloomberg News.

BP fell 3.2 percent to 469.5 pence as of 8:34 a.m. in London. The shares have lost about 13 percent since crude futures slipped from a record $147.27 a barrel in July. Shell, its larger rival, is down 12 percent in the same period.

Shell, Exxon

Shell posted its first quarterly loss in 10 years last week of $2.81 billion after lower oil prices reduced earnings from exploration and production and the value of inventories fell.

Exxon Mobil, the biggest U.S. oil company, reported fourth- quarter earnings of $7.82 billion, beating analyst estimates as higher refining profit softened the impact of falling oil prices.

Crude futures tumbled by a record 56 percent in the fourth quarter. Hayward said last week that crude prices between $60 and $80 a barrel are “appropriate” to sustain investments. Oil prices traded at $40.49 today.

Of the 36 analysts that cover BP, 24 recommend buying the stock, 10 have “hold” recommendations and two advise clients to sell the shares.

Close Gap

In a statement, Hayward said BP has closed about $2 billion of a “performance gap” with rivals in refining and marketing from last year.

“Full economic capability has been rebuilt at the U.S. Texas City and Whiting refineries and refining availability in the fourth quarter rose to 91 percent,” the company said.

BP’s Texas City refinery had been running at reduced capacity since 2005. The company shut the refinery in advance of Hurricane Rita in September 2005, eight months after an explosion that killed 15 workers. The refinery in Whiting, Indiana, has increased production since a fire in April 2007 shut down operations.

The Texas City plant can process 475,000 barrels a day of crude oil. The Whiting refinery can handle 420,000 barrels.

BP said its global refining availability rose to 91.4 percent in the fourth quarter, from 87.7 percent in the third quarter and 84 percent in the year-earlier quarter.

“I also envisage our refining availability will be materially higher this year than last,” Hayward said.

Higher Output

Crude and gas output increased to 3.838 million barrels of oil equivalent a day in 2008, from 3.818 million barrels a year earlier. Fourth-quarter production rose 1 percent to 3.945 million barrels of oil equivalent a day, compared with a year earlier.

BP was expected to report a 1.5 percent drop in oil and gas production to 3.85 million barrels of oil equivalent a day in the quarter, according to the median estimate of five analysts.

BP will maintain investments excluding acquisitions between $20 billion and $22 billion this year.

The company plans to dispose of assets worth about $2 billion to $3 billion. BP spent a total of $30.7 billion last year, of which $21.7 billion was invested in projects, it said today. It also bought assets from Chesapeake Energy Corp. and carried out a transaction with Husky Energy Inc. in 2008.

BP settled a dispute over the running of the company’s joint venture in Russia last year with its billionaire co-owners after Hayward agreed to replace TNK-BP’s CEO Robert Dudley.

The accord left BP with its stake in the 50-50 venture intact while acceding to demands by the Russian billionaires -- Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik, collectively known as AAR -- for a more independent board. TNK-BP accounts for almost a quarter of BP’s global output and reserves.

New Shortlist

Vekselberg said last week that shareholders are in “no rush” to appoint a new CEO after talks with Denis Morozov, the former head of Russia’s biggest mining company, stalled. BP has said it will provide a new shortlist of candidates to run the venture in the next few weeks.

Refining margins, or profits from turning crude into fuels such as gasoline and diesel, have also come under pressure.

BP’s Global Indicator Margin, a broad measure of refining profitability, slipped to $5.20 a barrel in the fourth quarter from $5.69 a year earlier, according to data posted on BP’s Web site.

To contact the reporters on this story: Eduard Gismatullin in London at egismatullin@bloomberg.netFred Pals in Amsterdam at fpals@blomberg.net

Read more...

Indonesian Rupiah Gains on Intervention Speculation; Bonds Rise

By Lilian Karunungan

Feb. 3 (Bloomberg) -- Indonesia’s rupiah rose for the first time in four days after the central bank said yesterday that it may use bilateral swap agreements to help boost the currency. Bonds gained.

The rupiah has declined 6.9 percent so far this year, the second-biggest loser among Asia’s 10 most-active currencies outside Japan, as a deepening global recession eroded demand for riskier assets. Bank Indonesia is concerned about the currency’s slide, said Benny Santoso at PT Bank Rakyat.

“BI has promised they will still be in the market,” said Santoso, treasury manager in Jakarta at the nation’s second- largest bank. “They’re pushing the rupiah to be below 12,000.”

The rupiah rose 0.3 percent to 11,713 per dollar as of 1:52 p.m. in Jakarta, according to data compiled by Bloomberg. The currency, which yesterday touched 12,000, the lowest level since Dec. 5, may trade between 11,500 and 12,000 today, Santoso forecast.

The central bank will sign a currency swap agreement with Japan this month for “additional ammunition from outside our foreign-exchange reserves,” Governor Boediono told reporters in Jakarta yesterday, without providing details.

“Bank Indonesia is threatening to use bilateral foreign- exchange swap lines to help support the rupiah, but this won’t do anything but smooth the moves,” Win Thin, a senior foreign- exchange strategist at Brown Brothers Harriman & Co. in New York, wrote in a note to clients yesterday.

The currency will fall to 12,188, Thin predicted, without providing a timeframe.

Rate Cut

Non-deliverable forwards contracts signal traders are betting the rupiah will weaken to 12,380 per dollar in three months, compared with odds yesterday for a rate of 12,625. Forwards are agreements in which assets are bought and sold at current prices for delivery at a future specified time and date.

Central banks intervene by arranging purchases or sales of currencies to influence an exchange rate. Indonesia’s foreign- exchange reserves fell to $51.64 billion in December from $57.11 billion in late September, a sign that Bank Indonesia may have been buying rupiah.

Five-year government bonds rose for the fifth day in six on speculation the central bank will reduce its benchmark interest rate for a third straight month tomorrow to stimulate economic growth.

The yield on the 11.25 percent note due May 2014 dropped 8 basis points, or 0.08 percentage point, to 11.18 percent, according to midday prices at the Inter Dealer Market Association. The price advanced 0.31, or 3,100 rupiah per 1 million rupiah face amount, to 100.233.

Helmi Arman, a bond analyst at PT Bank Danamon in Jakarta, forecasts the five-year bond will outperform, with the yield falling to 10.25 percent by year-end for a return of 13.5 percent.

The central bank will lower its benchmark interest rate by 50 basis points to 8.25 percent tomorrow, according to 20 of 23 economists in a Bloomberg News survey.

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

Read more...

Asian Currencies Rise, Led by Taiwan Dollar, on Spending Plans

By David Yong

Feb. 3 (Bloomberg) -- Asian currencies rose, with Taiwan’s dollar posting its biggest gain this year, on optimism investor appetite for the region’s equities will increase as governments step up public spending.

Taiwan’s currency rebounded from a four-year low as the island’s government plans to add as much as NT$30 billion ($893 million) to its economic stimulus package, the Economic Daily News reported yesterday. Asian economies have room to adopt counter-cyclical measures by boosting domestic demand, the International Monetary Fund said.

“A strong rebound in stocks is giving an impetus back to the currency market,” said Ko Yun Jin, a currency dealer with Kookmin Bank in Seoul.

Taiwan’s dollar gained 0.3 percent to NT$33.65 as of 12:18 p.m. in Taipei, the most since Dec. 30, according to Taipei Forex Inc. South Korea’s won climbed 0.3 percent to 1,386 per dollar. The peso advanced 0.5 percent to 47.49 per U.S. dollar in Manila, according to Tullett Prebon Plc.

The MSCI Asia Pacific Index of regional equities jumped 1.5 percent, led by Taiwanese stocks. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, halted a three-day decline.

“In the middle of the year, you will get these shifts in the Taiwan dollar when there’s a shift in risk appetite,” said Dwyfor Evans, a currency strategist with State Street Global Markets in Hong Kong. “The trend is still lower.”

Spending Power

Asian economies have room to adopt counter-cyclical measures by boosting domestic demand to spur growth, IMF Managing Director Dominique Strauss-Kahn told reporters from Washington. There are “grounds for optimism” in the region, he said.

The yen ended a three-day winning streak against the dollar and euro after the Bank of Japan said it will resume a program of buying corporate shares held by banks, helping revive demand for higher-yielding assets. The yen declined 0.4 percent to 89.85 per dollar, from 89.45 late in New York yesterday. The currency dropped 0.6 percent to 115.53 per euro.

The Korean currency, Asia’s worst performer last year, snapped a three-day decline after briefly falling beyond 1,400 per dollar for the first time since Dec. 10. The Kospi stock index jumped 2.4 percent after two days of losses. Currency reserves rose to $201.74 billion in January from $201.22 billion in the previous month, the Bank of Korea said in Seoul today.

Won Forecasts

South Korea’s won will be 16 percent stronger on average this year as the currency’s biggest loss in a decade revives exports and prompts intervention, according to Kia Motors Corp. and Korea Electric Power Corp.

Kia, the nation’s second-largest automaker, Kepco, the biggest power producer, and Korean Air Lines Co., the leading airline, are basing their financial projections on an average exchange rate of 1,200 per dollar, a gain of 16 percent from yesterday’s close of 1,390.

The IMF expects South Korea’s economy will contract 4 percent in 2009 and stage a recovery in 2010 with growth of 4.2 percent, according to a statement from the finance ministry today.

“The IMF expects the South Korean economy to hit the bottom in the second quarter and start to pick up in the third quarter,” Vice Finance Minister Hur Kyung Wook told reporters yesterday in comments embargoed until today. “We have sufficient room both on the fiscal and financial side to increase spending and cut rates if needed.”

Rating Outlook

Malaysia’s ringgit reached an eight-week low after Fitch Ratings cut the outlook on the nation’s local-currency debt rating to “negative” from “stable,” citing the government’s widening budget deficit.

“As long as the U.S. economy and stock market continue to suffer, it will affect currencies like the ringgit and Singapore dollar,” said Hideki Hayashi, chief economist at Shinko Securities Co. in Tokyo. “Investors will prefer to keep their assets liquid and this will sustain the demand for U.S. dollars, at least in the next six months.”

The ringgit fell to 3.6365 per U.S. dollar, the weakest since Dec. 9, before trading at 3.6225 in Kuala Lumpur versus 3.6077 on Jan. 30. Markets were closed yesterday for a public holiday.

Deputy Prime Minister Najib Razak on Jan. 29 said Malaysia will unveil a second fiscal stimulus program to help revive growth. The budget deficit will be revised up from its forecast of 4.8 percent of gross domestic product, he said.

Elsewhere, the Singapore dollar gained 0.2 percent to S$1.5116 and China’s yuan advanced 0.1 percent to 6.8443. The Thai baht was little changed at 34.96, while the Vietnamese dong held at 17,485.50.

To contact the reporters on this story: David Yong in Singapore at dyong@bloomberg.net

Read more...

Vodafone Third-Quarter Sales Rise on Pound’s Drop

By Simon Thiel

Feb. 3 (Bloomberg) -- Vodafone Group Plc, the world’s largest mobile-phone company, said third-quarter sales rose 14 percent as the pound slid and revenue climbed in India.

Vodafone had the biggest gain in more than eight weeks in London trading after raising its sales and profit forecast to reflect the currency’s decline. Sales in the three months ended Dec. 31 rose to 10.47 billion pounds ($14.9 billion) from 9.16 billion pounds a year earlier, the Newbury, England-based company said in a statement today. Analysts predicted 10.29 billion pounds, the average of six estimates compiled by Bloomberg News.

The pound slumped 23 percent against the euro in 2008, increasing the value of Vodafone’s euro-denominated sales when converted into the U.K. currency. Excluding currency swings and acquisitions, revenue fell 1 percent as growth in Asia and Africa failed to make up for a decline in Europe, where the company generates about two-thirds of its sales.

“Our underlying performance showed similar trends to the previous quarter,” Chief Executive Officer Vittorio Colao said in the statement. “In the context of the current economic environment, we have continued to implement our strategy, with an emphasis on customer value, mobile data, enterprise and fixed broadband.”

Vodafone also made progress on its plan to reduce costs by 1 billion pounds by March 2011, Colao said. The measures will have “some impact on headcount,” he told reporters on a conference call today. He declined to say how many jobs may be affected.

Shares Gain

Vodafone gained as much as 5.7 percent to 135.45 pence, the biggest intraday gain since Dec. 8, and traded at 135 pence as of 8:45 a.m. in London.

In November, the company cut its full-year sales forecast for the second time in four months. Today, the company raised its forecast for sales and profit to reflect the pound’s decline.

Vodafone now predicts a full-year adjusted operating profit of 11.5 billion pounds to 12 billion pounds on sales of 40.6 billion pounds to 41.5 billion pounds. That compares with a previous forecast for adjusted operating profit of 11 billion pounds to 11.5 billion pounds on sales of 38.8 billion pounds to 39.7 billion pounds.

In Europe, Vodafone’s sales excluding currency swings and acquisitions dropped 2.8 percent. That compares with a 3.5 percent increase for Africa and Eastern Europe and with a 9.2 percent gain in Asia and the Middle East.

‘Deteriorating’ Market

Service revenue in Spain dropped 5.8 percent amid a “deteriorating market environment” that put pressure on usage in some customer segments.

Vodafone has expanded in emerging markets in the past two years with acquisitions in Turkey, India and Ghana to make up for slower growth in Europe. Vodafone added 9.5 million new customers in the fiscal third quarter for a total of 289 million on Dec. 31.

The company bought a 52 percent stake in Hutchison Essar Ltd., now India’s third-largest wireless provider, for $10.7 billion in May 2007, and purchased Turkey’s Telsim Mobil Telekomunikasyon Hizmetleri AS for $4.55 billion in 2006. On May 28, Vodafone and a local partner said they will pay $2.1 billion for Qatar’s second wireless license.

To contact the reporters on this story: Simon Thiel in London at sthiel1@bloomberg.net.

Read more...

Money Markets Show Return of Dollar Shortage, ABN Amro Says

By Justin Carrigan

Feb. 3 (Bloomberg) -- Money markets are showing the same shortage of dollars that drove the U.S. currency’s gains in September through November, ABN Amro Holding NV said.

“The implication is that deleveraging is again a factor creating demand for the dollar,” Greg Gibbs, director of foreign-exchange strategy at ABN Amro Australia Ltd. in Sydney, wrote in a e-mailed report yesterday. “This is all tied up with the confidence the market has in the global authorities to turn around the global credit crisis and prevent a further deterioration in global financial asset prices. Confidence in the effectiveness of government interventions is waning.”

To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net

Read more...

U.K. Pound Declines Against Euro on Speculation Slump Deepening

By Anchalee Worrachate

Feb. 3 (Bloomberg) -- The pound fell against the euro for a second day on speculation a report on U.K. construction will fuel the Bank of England’s need to cut interest rates.

The British currency was also little changed versus the dollar before economic surveys this week that may show house prices, consumer confidence and manufacturing production fell while factories raised prices at the slowest pace in at least a year. The Bank of England will cut its benchmark rate by 50 basis points to an unprecedented low of 1 percent on Feb. 5, according to a Bloomberg News survey of 61 economists.

“The pound is still under a lot of pressure,” said Ian Stannard, a currency strategist in London at BNP Paribas SA. “The economic outlook is not supportive of the currency.”

The pound weakened to 90.17 pence per euro as of 8:36 a.m. in London, from 90.02 pence. It was at $1.4257 from $1.4264.

Vodafone Group Plc, the world’s largest mobile-phone company, said today sales rose 14 percent in the third quarter, partly helped by the pound’s decline.

Two-year gilts fell before a sale of 3.75 billion pounds of 3.5 percent securities due 2011, part of a record 146.4 billion pounds of bonds the government plans to issue in the fiscal year ending March 31.

The yield on the two-year note climbed two basis points to 1.52 percent. The 10-year yield held at 3.69 percent.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

Read more...

Lawmakers Seek to Revise Stimulus Bill as Senate Debate Begins

By Brian Faler

Feb. 3 (Bloomberg) -- Democrats and Republicans are seeking changes worth tens of billions of dollars to President Barack Obama’s economic-stimulus package as the U.S. Senate began debate yesterday on the plan.

Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said lawmakers from both parties are developing plans to redirect at least $50 billion to aid the ailing housing industry. Another Democrat, Ben Nelson of Nebraska, said he and other senators are preparing an amendment to cut “tens of billions” of dollars in spending in the plan, saying they doubt it would do much to help the economy.

Senate Minority Leader Mitch McConnell, a Kentucky Republican, said Democrats are ignoring Obama’s call, made in an interview with NBC television, to incorporate Republican ideas in the plan. “The way to build this package is, indeed, to do it on a bipartisan basis, which doesn’t mean just talking to us but including ideas that we think would work,” McConnell said.

Obama discounted the differences over the stimulus legislation, calling them “very modest.” Democratic congressional leaders met with him yesterday at the White House about the measure. A White House statement said, “They agreed on the urgency of passing effective legislation in the short term and committed to continue working together to achieve the bipartisan consensus” that Obama has sought.

The Senate began work on the bill in hopes of getting a measure to Obama’s desk by mid-February. Senate Majority Leader Harry Reid, a Nevada Democrat, said there will be a number of votes today on amendments. The House passed its version of the bill last week without any Republican votes.

Quicker Impact

Democrats, buffeted by complaints the House plan would take too long to boost the economy, got some good news yesterday when the nonpartisan Congressional Budget Office said the Senate’s version would have a quicker impact. The agency said the Senate’s plan, which it estimated would cost $885 billion, would pump about $700 billion into the economy by the end of next year.

That would amount to almost 80 percent of the package. Obama has said his goal is to have three-quarters of the money funneled into the economy within 18 months. The CBO said the House bill would inject about 64 percent of its package into the economy by the end of 2010.

Reid said lawmakers will vote first on an amendment sponsored by Senator Patty Murray, a Democrat from Washington State, which would increase funding for highway, mass transit and water infrastructure projects by $25 billion. That would boost highway funding in the bill to $40 billion from $27 billion.

Projects on Hold

“Construction projects across the country have been put on hold because states simply don’t have the money,” said Murray. “This amendment invests in tried-and-true projects that get laid-off workers back on the job.”

Jim Manley, a Reid spokesman, said he didn’t know what other amendments would get a vote today.

Conrad said he and about eight other senators form a bipartisan group of lawmakers who want at least $50 billion within the stimulus package for programs aimed at fighting housing foreclosures.

“We are really trying to reduce things that have less value in terms of stimulus and investment and move it into a place where we know we really need the money,” he said. Conrad said the lawmakers haven’t agreed on what they would try to cut in the bill to make room for their proposal.

Cutting Spending

Nelson, who complained the plan includes funds to develop environmentally sensitive spacecraft, said “more than a handful” of lawmakers are working on a plan to reduce spending. Nelson, who said he won’t support the stimulus plan as it is currently written, declined to provide specifics.

McConnell said the plan doesn’t include enough tax cuts or mortgage relief. Republicans are considering offering an amendment that would temporarily offer mortgages with fixed rates between 4 percent and 4.5 percent to homebuyers and homeowners wanting to refinance. The plan would direct Fannie Mae and Freddie Mac to buy the loans to encourage banks to make them.

Republicans believe “that a stimulus bill must fix the main problem first, and that’s housing -- that’s how all of this began,” he said.

McConnell warned Democrats against expanding the stimulus package, saying many of his colleagues believe it is already too big. He also criticized “Buy American” provisions in the bill that would require iron and steel used in projects funded by the measure to be American-made.

“I don’t think we ought to use a measure that is supposed to be timely, temporary and targeted to set off trade wars,” he said. “It’s a very bad idea.”

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net

Read more...

Australia’s Dollar Strengthens After Rate Cut, Stimulus Plan

By Candice Zachariahs

Feb. 3 (Bloomberg) -- The Australian dollar gained after the central bank cut borrowing costs to the lowest since 1964 and the government announced a stimulus package to avoid a recession. New Zealand’s currency rose from near a six-year low.

The Australian dollar ended three days of losses as the government said it will spend A$42 billion ($26.7 billion) on grants and infrastructure to counter the impact of the global financial crisis. The Reserve Bank of Australia lowered its benchmark rate 1 percentage point to 3.25 percent, two hours after the stimulus package was announced.

The combination of fiscal and monetary stimulus “is going to be a positive for the currency,” said David Forrester, a currency economist at Barclays Capital in Singapore. “I wouldn’t be surprised to get above 64 U.S. cents against the dollar but meet resistance there.”

Australia’s currency climbed to 63.71 U.S. cents as of 4:36 p.m. in Sydney from 62.72 cents late in Asia yesterday. The currency advanced 2.6 percent to 57.25 yen after falling 3 percent yesterday. It may advance toward 60 yen, Forrester said.

New Zealand’s dollar gained to 50.50 U.S. cents from 49.92 cents yesterday. It earlier touched 49.62 U.S. cents, the weakest level since November 2002. It rose to 45.21 yen from 44.40 yen yesterday.

Australia’s stimulus package includes A$12.7 billion in grants to families and low-income earners and A$28.8 billion for infrastructure. It will help send the nation’s budget into an A$22.5 billion deficit, the first shortfall since fiscal 2001-02.

Avoiding Recession

The economy would contract in 2009-10 without today’s stimulus, current Treasury forecasts show. The stimulus package will help the economy grow 1 percent this fiscal year and 0.75 in the year ending June 30, 2010, according to the Treasury.

“The Australian dollar can rally a bit further up to 64 to 66 U.S. cents,” said Greg Gibbs, director of foreign-exchange strategy at ABN Amro Australia Ltd. in Sydney said after the stimulus was announced. “From there the realities of a slowing global economy and worsening terms of trade will remain important factors driving the currency lower again.”

Australia’s trade surplus narrowed in December by more than forecast as coal and metal exports declined, a government report showed today. The surplus shrank in December to A$589 million from a revised A$979 million in November.

Australia’s currency tumbled 31 percent over the past six months as the central bank has lowered its benchmark from a 12- year high of 7.25 percent since September.

Carry Trades

Higher interest rates in Australia and New Zealand, compared with 0.1 percent in Japan and as low as zero percent in the U.S., attract investors to the South Pacific nations’ higher-yielding assets. New Zealand’s central bank cut its benchmark 1.5 percentage points to 3.5 percent on Jan. 29.

The currencies also advanced against the yen after the Bank of Japan said it will resume a program of buying shares held by financial institutions, raising speculation investors will buy assets offering higher returns. The bank will purchase 1 trillion yen ($11.1 billion) in equities through April 2010 and hold them until March 2012 at the earliest.

The BOJ decision has provided support for higher-yielding currencies, said Sharada Selvanathan, a currency strategist at BNP Paribas SA in Hong Kong. Australia’s dollar will meet resistance at 64.50 and then 64.85 U.S. cents, she said. Resistance is a level at which sell orders are clustered.

New Zealand’s dollar earlier traded near an eight-year low versus the yen as an industry survey showed consumer confidence sank to the least in a decade. Seventy-two percent of 750 people surveyed in late January expect the economy to worsen this year, up from 56 percent in December, UMR Research said.

New Zealand’s economy will remain in recession until at least March 31, the Treasury Department said yesterday.

Australian government bonds declined, pushing the yield on the 10-year note up 12 basis points, or 0.12 percentage point, to 4.22 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 1.060, or A$10.60 per A$1,000 face amount, to 108.397.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 3.32 percent.

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

Read more...

Euro Trades Near Eight-Week Low Before Europe Inflation Report

By Ron Harui

Feb. 3 (Bloomberg) -- The euro traded near an eight-week low against the dollar before a report that may show European producer prices fell for a fifth month, giving the region’s central bank more room to cut interest rates.

The pound may weaken for a second day versus the dollar and the euro on speculation a U.K. report today will indicate construction, which accounts for 6 percent of the economy, shrank last month at the fastest pace in more than a decade. The yen fell against the Australian and New Zealand dollars after the Australian government said it will spend A$42 billion ($26.7 billion) to help prevent the economy from entering a recession.

“European currencies such as the euro and the pound are likely to remain under downward pressure,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “There are still worries over their economies.”

The euro traded at $1.2847 as of 8:07 a.m. in London from $1.2843 late in New York yesterday, when it reached $1.2706, the lowest level since Dec. 5. The European currency was at 115.30 yen from 114.89 yen. The dollar traded at 89.68 yen from 89.59.

The pound was at $1.4250 from $1.4264 in New York yesterday, and weakened to 90.30 pence per euro from 90.03. The yen dropped 1.4 percent to 57.30 against the Australian dollar, and 0.7 percent to 45.39 versus the New Zealand dollar.

Producer Prices

Europe’s single currency may pare gains against the yen as prices of goods leaving euro-area factories may have dropped 1.2 percent in December after a 1.9 percent decline in November, according to a Bloomberg News survey of economists. The European Union statistics office will release the report at 11 a.m. in Luxembourg today.

European Central Bank President Jean-Claude Trichet reiterated in an interview on Bloomberg Television at the World Economic Forum in Davos, Switzerland, last week that the central bank’s next important meeting is in March, signaling policy makers will keep the rate unchanged at 2 percent on Feb. 5.

“As most recent data releases confirmed a further weakening in growth conditions, and inflation fell at a faster pace than initially anticipated, the probability for a policy step this week has risen considerably,” analysts led by Zurich- based Mansoor Mohi-Uddin at UBS AG, the second-biggest currency trader last year, wrote in a research report yesterday. “We expect the euro to remain in a broad downtrend.”

The pound weakened versus 13 of the 16 most-active currencies as a U.K. index based on a survey of purchasing managers at building companies may have dropped 29 in January, the lowest since the survey began in April 1997, a separate Bloomberg survey showed. The Chartered Institute of Purchasing and Supply and Market releases the data at 9:30 a.m. in London.

‘Unconventional Measures’

The U.K. currency may decline for a second day versus the yen as investors maintained bets that the Bank of England will cut interest rates at its next meeting on Feb. 5 to help counter the nation’s recession.

“The central bank is likely to reduce rates further and will probably start taking unconventional measures,” said Masashi Kurabe, head of currency sales and trading in Hong Kong at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest publicly traded bank by assets. “This may weigh on the pound.”

The Bank of England may lower its 1.5 percent benchmark rate an additional 44.7 basis points over the next 12 months, a Credit Suisse Group AG index based on swaps showed on Jan. 30. A basis point is 0.01 percentage point.

The yen snapped three days of gains versus the greenback and the euro, after the Bank of Japan announced today it will buy 1 trillion yen ($11.2 billion) of shares held by financial companies, reviving demand for higher-yielding assets.

‘Positive Impact’

Japan’s currency also weakened against Australia’s dollar after Australian Treasurer Wayne Swan announced the spending package, which includes A$12.7 billion in grants to families and low-income earners and A$28.8 billion for infrastructure. The package will help the economy grow 1 percent this fiscal year and 0.75 percent in the year ending June 30, 2010, government figures show.

“The packages being announced by governments worldwide are likely to have a large positive impact on market sentiment,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-biggest lender. “The yen may be sold.”

The yen remained lower after the Reserve Bank of Australia cut its benchmark rate by 1 percentage point to 3.25 percent at a meeting today. The rate decision was forecast by economists surveyed by Bloomberg.

Benchmark rates are 3.25 percent in Australia and 3.5 percent in New Zealand, compared with 0.1 percent in Japan, encouraging investors to borrow in yen and buy higher-yielding assets elsewhere. In these so-called carry trades, investors get funds in a country with low borrowing costs and invest in another with higher rates. The risk is that market moves can erase those profits.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net.

Read more...

Copper Rises on Global Stockpile Drop, U.S. Manufacturing Data

By Li Xiaowei

Feb. 3 (Bloomberg) -- Copper climbed in London after global stockpiles fell for the first time in seven weeks and as manufacturing in the U.S., the world’s second-largest user after China, shrank less than economists forecast.

London Metal Exchange-monitored inventory fell 325 metric tons to 491,200 tons yesterday, the first decline since Dec. 11. The U.S. Institute for Supply Management’s factory index rose to 35.6 in January from 32.9 in the prior month, as a decline in new orders moderated. Readings less than 50 signal a contraction.

“The unexpected inventory decline and the factory index rebound supported copper,” Chen Yonglin, an analyst with Citic Futures Co., said from Shanghai today.

Copper for three-month delivery rose 1.6 percent to $3,225 a ton on the London Metal Exchange at 12:43 p.m. in Shanghai.

April-delivery copper on the Shanghai Futures Exchange rose 3.2 percent to 25,970 yuan ($3,797) at the same time.

“As the premium of Shanghai prices over London has narrowed, we’d expect closure of arbitrage positions,” Citic’s Chen said.

The improvement in the U.S. ISM manufacturing index was only due to textiles and petroleum and coal, while others sectors including fabricated metals contracted, Anne-Laure Tremblay, an analyst at BNP Paribas, said in an e-mailed report today.

Construction Spending

Construction spending in the U.S. dropped 5.1 percent in 2008, the most since records began in 1993, according to a Commerce Department report yesterday. Non-residential construction slid 0.6 percent in December, showing a collapse in residential building may be spreading to commercial properties.

Builders are the biggest users of copper in the U.S.

Among other LME-traded metals, aluminum fell 0.5 percent to $1,382.50 a ton, zinc added 2.1 percent to $1,137 and lead rose 1.8 percent to $1,125.

Ningbo Sunhu Chemical Products Co., China’s biggest nickel trader, said its post-Lunar New Year sales slumped as 90 percent of its customers remained closed because of a lack of demand.

Sales in the first two days after the week-long holiday dropped 95 percent from the same period last year, Kevin Ji, chief analyst, said in a phone interview from Beijing today.

To contact the reporter for this story: Li Xiaowei in Shanghai at xli12@bloomberg.net

Read more...

China’s Key Stock Index Rises to 2-Month High on Government Aid

By Zhang Shidong

Feb. 3 (Bloomberg) -- China’s stocks rose, driving the benchmark index to its highest in almost two months. Youngor Group Co. and PetroChina Co. gained on speculation they may benefit from new government incentives.

Youngor Group added 5.3 percent after Shanghai Securities News said a stimulus plan for the textile and machinery industries will be submitted to the Cabinet tomorrow. PetroChina advanced 2.1 percent after an official said the government is discussing a stimulus plan for oil refiners. Guangzhou Shipyard International Co., a unit of China’s biggest shipbuilder, climbed the 10 percent daily limit after a report said the local industry increased profit 51 percent last year.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, rose 49.13, or 2.4 percent, to 2,060.81, the highest close since Dec. 10. The CSI 300 Index, measuring the exchanges in Shanghai and Shenzhen, gained 2.5 percent to 2,108.91.

“The market has heightened expectations that more measures and policies will come along to boost economic growth and various industries,” said Zhang Ling, who manages the equivalent of $1.1 billion at ICBC Credit Suisse Asset Management Co. in Beijing.

Aluminum Corp.

Aluminum Corp. of China Ltd. jumped by the 10 percent limit on speculation the nation’s largest producer of the metal may benefit from the potential purchase of Rio Tinto Group’s assets by its parent.

The Shanghai Composite Index, the world’s second-best performer this year, has rebounded 18 percent since the government pledged 4 trillion yuan ($584 billion) of spending to revive economic growth. The central bank has also cut the key lending rate five times since September to support industries and stem job losses. The government said Jan. 14 it would cut taxes and offer subsidies for the auto and steel industries.

Youngor Group, China’s biggest maker of men’s clothing by sales, advanced 5.3 percent to 8.94 yuan. Nanjing Textiles Import & Export Corp. gained 3.7 percent to 4.19 yuan. Shenzhen Textile (Holdings) Co. jumped by the maximum 10 percent daily cap to 5.89 yuan. Luthai Textile Co., a textile maker in the eastern province of Shandong, added 6.7 percent to 7.50 yuan.

The incentives may include raising export rebates for textile companies to as much as 17 percent, Shanghai Securities News said. The current rate is 14 percent. The plan may provide support to help develop the machinery industry, reducing reliance on imports, the report said.

Changsha Zoomlion

Changsha Zoomlion Heavy Industry Science & Technology Development Co., China’s second-biggest maker of concrete- handling machinery, advanced 2.2 percent to 15.90 yuan. Guangxi Liugong Machinery Co., a Chinese maker of construction equipment, rose 2.3 percent to 13.58 yuan.

“It’s just amazing when you look at speed of implementation and announcements,” said Diane Lin, Sydney-based portfolio manager at Pengana Capital, which oversees about $1.9 billion. “The stimulus has been put firmly in place and it will continue to stimulate demand.”

PetroChina, the nation’s biggest oil company, rose 2.1 percent to 10.57 yuan. China Petroleum & Chemical Corp., Asia’s biggest oil refiner, also known as Sinopec, gained 1.5 percent to 7.95 yuan.

The government may enact the stimulus plan for the oil refining and petrochemicals industry before a gathering of the country’s legislature in March, an official at the state-backed China Petroleum and Chemical Industry Association said today.

Guangzhou Shipyard

Guangzhou Shipyard jumped the maximum 10 percent to 18.26 yuan. China State Shipbuilding Co., the country’s biggest shipbuilder, rose 7 percent to 49.55 yuan.

China’s shipbuilding industry posted a 51 percent rise in profit last year to 28.3 billion yuan, Xinhua News Agency said, citing the Ministry of Industry and Information Technology. China’s share of the global shipbuilding market rose to 29.5 percent last year from 22.9 percent in 2007, it said.

Aluminum Corp. of China, also called Chalco, surged the maximum 10 percent to 7.79 yuan. Parent Chinalco, the largest shareholder in Rio, said yesterday it was in “initial talks” to buy some assets from the world’s third-biggest mining company. Chalco said today the company wasn’t involved in the discussions.

“The market may have wrongly believed that Chalco intends to buy Rio Tinto assets,” Peng Bo, analyst at Ping An Securities Co., said by phone from Shenzhen today. “Some funds took it as an excuse.”

The following companies were among the most active in China’s markets. Stock symbols are in brackets after companies’ names.

Shipping lines: The Baltic Dry Index, a measure of shipping costs for commodities, posted a 10th consecutive advance as the end of China’s New Year break spurred business. The index tracking transport costs on international trade routes rose 2.7 percent to 1,099 points, according to the Baltic Exchange.

China Cosco Holdings Co. (601919 CH), the country’s largest container line, added 0.28 yuan, or 3.1 percent, to 9.40. Cosco Shipping Co. (600428 CH), a unit of China’s biggest shipping company, climbed 0.80 yuan, or 9.7 percent, to 9.03.

Bank of China Ltd. (601988 CH), the country’s third-largest bank, added 0.03 yuan, or 1 percent, to 3.10. Bank of China had its stock rating raised to “buy” from “neutral” at Goldman Sachs Group Inc.

China Construction Bank Corp. (601939 CH), the country’s second-largest bank, rose 0.06 yuan, or 1.5 percent, to 4.08. Construction Bank said it received regulatory approval to raise as much as 40 billion yuan selling subordinated bonds to boost capital.

Industrial & Commercial Bank of China Ltd. (601398 CH), the nation’s biggest listed lender, gained 0.07 yuan, or 1.9 percent, to 3.73. The bank said its overseas assets increased by 15 percent last year as the lender curbed losses tied to the global financial crisis.

To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

Read more...