Nigeria’s Oil Conflict Needs Neutral Mediator, U.K. Church Says

By Dulue Mbachu

Feb. 10 (Bloomberg) -- The conflict in Nigeria’s southern oil-rich Niger Delta, which has pitched government troops against various armed groups, requires a neutral international mediator to be resolved, a U.K. church group said.

“A lack of trust between parties is the biggest obstacle to peace,” Coventry Cathedral’s peace and reconciliation ministry said in a report on the region published yesterday. The Niger Delta, which is home to the country’s oil industry, is unlikely to see “sustained peace” without such mediation.

Armed attacks, including kidnappings and the hijacking of vessels, have cut crude oil exports by more than 20 percent since 2006. Nigeria is Africa’s leading oil producer and the fifth-biggest source of U.S. oil imports.

The Movement for the Emancipation of the Niger Delta, or MEND, the main armed group in the region, says it’s fighting for the region’s poor. Some other armed groups engage in kidnapping for ransom.

The report said widespread corruption in the nation of 140 million people is an “important conflict driver.”

“Efforts must be made to make peace seem the more attractive option to all parties,” said the 296-page report. “There must be efficient, fair and equitable delivery of justice.”

Coventry Cathedral has been involved in worldwide peace and reconciliation work since it was bombed during World War II.

MEND has said it will disarm if the government agrees to a formal peace process, according to the report. The group confirmed by telephone that was its position.

The government didn’t immediately respond to an e-mailed request for comment.

To contact the reporter on this story: Dulue Mbachu in Lagos at dmbachu@bloomberg.net

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Shell Plans ‘Large’ Shutdown at Anacortes Refinery

By Timothy Coulter and Nidaa Bakhsh

Feb. 10 (Bloomberg) -- Royal Dutch Shell Plc, Europe’s biggest oil company, said it’s planning a “large” shutdown for maintenance at its Anacortes oil refinery in the U.S. northwest.

The maintenance and repairs will last from late February to early April, and will reduce fuel production, Shell said in a statement on its Web site. The company will bring in additional supply to prevent shortages, according to the statement.

The Puget Sound refinery in Washington state has a capacity of 145,000 barrels a day, according to data compiled by Bloomberg.

The Shell shutdown follows a full halt for 30 days at Tesoro Corp.’s 121,000 barrel-a-day Anacortes refinery that began in mid-January.

About 1,400 contract workers will be at the Shell site during peak activity, the company said. The shutdown may result in extra flaring, or burning of gases into the air, Shell said.

Gasoline for March delivery on the New York Mercantile Exchange rose $1.18, or 1 percent, to $1.2589 a gallon at 7:41 a.m. London time.

To contact the reporter on this story: Nidaa Bakhsh in London at nbakhsh@bloomberg.net

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Sanyo to Build Solar-Power Battery Factory, Double Production

By Junko Hayashi

Feb. 10 (Bloomberg) -- Sanyo Electric Co., Japan’s second- largest solar-battery maker, will build a factory in Osaka, western Japan, as part of plans to double output of the devices.

Sanyo, also the world’s largest maker of rechargeable batteries, plans to start operations by the end of 2010 at the plant, to be built alongside an existing facility in Kaizuka city, Kumiko Makino, a Tokyo-based spokeswoman at Sanyo said today by telephone.

The company plans to double production of solar batteries to 680,000 kilowatts by the end of March 2011, by raising output at other existing plants in Gifu and Shimane prefectures, Makino said.

Sanyo will spend more than 10 billion yen ($109 million) to build the plant, the Nikkei newspaper reported today, without saying where it got the information. Sanyo’s Makino declined to disclose the investment.

The shares added 0.7 percent to 139 yen as of the 11 a.m. trading break in Tokyo, compared with a 0.2 percent advance by the benchmark Nikkei 225 Stock Average.

To contact the reporter on this story: Junko Hayashi in Tokyo at juhayashi@bloomberg.net; Hiroshi Suzuki in Tokyo at Hsuzuki5@bloomberg.net.

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King’s BOE Should Print Money, Change Mindset, Fathom Says

By Svenja O’Donnell

Feb. 10 (Bloomberg) -- Bank of England Governor Mervyn King should print money now and abandon economic assumptions that have failed to save the U.K. from its worst recession since World War II, a group of former central bank economists said.

King and his colleagues are too reliant on an economic model that doesn’t pay enough attention to credit and housing bubbles, said Danny Gabay, director of Fathom Financial Consulting and a former author of the bank’s quarterly inflation report. Ignoring these key drivers of the downturn bears “some responsibility for the current malaise,” he said.

The Bank of England has so far stopped short of increasing the supply of money even after cutting its benchmark rate to a record low of 1 percent this month. Officials should now cast off the mindset of “the Threadneedle Street establishment” in favor of faster action and “bold, fresh thinking,” Fathom says, referring to the central bank’s address.

“The bank should be printing money by now, and should have started doing it some time ago,” said Gabay, who will present an alternative approach to the crisis in London today. “The framework at the Bank of England is based on an economic nirvana. If you assume, as we feel they did, that it represents reality, you end up in the kind of mess we’re in now.”

Buying homes on the verge of repossession to add money to the economy may prove an effective tool to fight the recession, Fathom says. U.K. economic prospects may be even “bleaker” than those released in the Bank of England’s quarterly inflation report tomorrow, it forecasts.

Cracks

The Bank of England’s inflation-targeting approach, which King helped draw up in the 1990s, is showing cracks after successfully helping policy makers keep consumer prices under control for most of the past decade. Inflation breached the Bank of England’s upper 3 percent limit last year after a surge in oil prices. The credit crisis has now sparked fears among policy makers that inflation will turn negative in coming months.

“The Bank of England’s analytical framework worked well in terms of anchoring inflation between 1997 and 2007 but its inability to respond to the housing bubble and the subsequent crisis of the last 18 months has exposed its shortcomings,” said Gabay.

U.K. gross domestic product will drop 2.8 percent this year, the most since 1946 and more than any other industrialized country, the International Monetary Fund said on Jan. 28. The Bank of England said last week there’s a “substantial risk” inflation will undershoot its central 2 percent target.

Home Purchases

Purchases of homes by the Bank of England would help put a bottom on the decline in the housing market and help fight deflation by pumping money into the financial system, Fathom says. Housing sales in Britain dropped to the lowest level since at least 1978 in the quarter through January, the Royal Institution of Chartered Surveyors said today.

“The underlying problem in the economy lies in falling asset prices, notably housing,” Fathom said in the report. “The government should buy houses directly and instruct the Bank of England to print the money to pay for them.”

The Bank of England on Feb. 5 cut the benchmark rate to 1 percent, the lowest level since the bank was founded in 1693. The Treasury last month granted it unprecedented powers to buy assets, as rates head towards zero, forcing the bank to adopt less conventional monetary policy tools.

“The framework at the Bank of England assumes markets clear, markets are efficient, consumers are rational and housing markets are not prone to bubbles,” Gabay said. “Over-reliance on this has contributed to the economic mess that the U.K. now finds itself in.”

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

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GTL Resources Halts Illinois Ethanol Plant After Finding Cracks

By Steve Voss

Feb. 10 (Bloomberg) -- GTL Resources Plc said it temporarily shut down its ethanol production plant in Illinois because of structural damage to the corn receiving area, which contains corn storage and grinding operations.

Cracks were identified in the concrete structure of that part of the facility, which has a capacity of 100 million gallons a year and is operated by subsidiary Illinois River Energy LLC.

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Tapping Free Sunlight Will Cost New Jersey Utility $774 Million

By Jim Efstathiou Jr.

Feb. 10 (Bloomberg) -- Public Service Enterprise Group Inc. plans to spend $774 million over five years to install solar panels on power poles and government buildings in New Jersey to meet the Garden State’s requirement for more renewable energy.

The owner of New Jersey’s largest utility will add 120 megawatts of non-polluting generating capacity, enough to power about 100,000 homes, Alfred Matos, vice president for renewable energy, said in an interview. The cost will be recovered by raising rates 10 to 35 cents a month on all customers’ bills.

Regulated utilities, from Newark-based Public Service to Spain’s Iberdrola SA, are taking the lead in developing clean energy as the global financial crisis crimps private investment. PSEG will be guaranteed a 10.3 percent return on equity provided the project wins approval from state utility regulators this year.

“If we as a country are serious about meeting a national or state renewable-portfolio standard, this is a model,” Public Service President Ralph LaRossa said in an interview.

LaRossa must help meet New Jersey’s requirement for 22.5 percent of the state’s electricity to come from renewable generation by 2021, with about one-fifth of that from solar.

That means 1,800 megawatts of new solar capacity is needed, Matos said, enough power for 1.45 million average homes when operating with full sunlight.

“The private sector is not going to fill the amount that we would need,” LaRossa said. The biggest utility in the state of 8.7 million people will borrow half of the project’s cost and finance the rest internally.

Solar Slowdown

The financial crisis has led to private projects being canceled as it swallowed up some of the largest alternative-energy investors such as Lehman Brothers Holdings Inc., now bankrupt, and American Insurance Group., which was taken over by the U.S. government.

“Solar has become a victim of the economic downturn,” Rhone Resch, president of the Washington-based Solar Energy Industries Association, a trade group, said in a January interview.

In Spain, Bilbao-based Iberdrola has about 13,500 megawatts of renewable-energy projects planned or in development that will recover costs with surcharges for clean energy that all customers must pay. The utility is the world’s largest owner of wind farms.

Public Service will be eligible for a 30 percent federal tax credit for its solar investment, which will triple New Jersey’s solar-generating capacity. The credit was offered to utilities for the first time in October’s bank rescue bill.

The effect would be to lower the company’s tax bill by an amount equal to 30 percent of the program’s costs.

Obama’s Goal

President Barack Obama has called for U.S. renewable generating capacity to double in three years and asked Congress for new tax credits for green-energy investments.

Government incentives are opening green-power opportunities for regulated utilities, LaRossa said. “What we’re trying to figure out as we move forward is what’s the utility’s role in this new world.”

One-third of Public Service’s added energy will come from solar panels attached to 200,000 utility poles statewide, Matos said. Another third will be installed on government buildings that will lease space to the utility.

Solar panels funded through the program, including $264 million worth of five-foot by three-foot (1 meter) units on utility poles, will provide power directly to the grid, Matos said. Some solar farms will also be financed by the utility.

The project will create renewable-energy credits for generating solar power, Matos said. The credits, worth about $670 each, are required by power generators to meet state clean-energy mandates.

More than 2 million credits will be created through the program, and profits from their sale will be returned to customers in lower rates, Matos said. The total investment will be recovered in electricity rates over 10 to 15 years.

The New Jersey Board of Public Utilities has 180 days to take action on Public Service’s request.

To contact the reporter on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net

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E.ON Will Take Impairment Charges on U.S., Europe

By Mike Gavin and Nicholas Comfort

Feb. 10 (Bloomberg) -- E.ON AG will take an impairment charge of 1.5 billion euros ($1.9 billion) on goodwill for its U.S. Midwest market unit and a 1.8 billion fair value charge on European operations, reducing its 2008 consolidated net income.

The moves will have no effect on adjusted earnings before interest and tax or adjusted net income, the key figure used to determine its dividend, it said in a statement. E.ON expects adjusted EBIT and adjusted net to rise between 7 percent and 8 percent this year, and is introducing an efficiency program.

Germany’s largest utility bought power assets abroad in June to expand in markets with higher growth, costing the utility 11.5 billion euros. Since then Chief Executive Officer Wulf Bernotat has suspended a share buyback program and said he will consider shelving planned investments to preserve cash.

The European impairment charge relates to the difference between the book and fair value of operations in Italy, Spain and France that the Duesseldorf-based utility bought from Enel SpA, Actividades de Construccion y Servicios SA and Endesa SA.

E.ON said it expects to pay a dividend of 1.50 euros a share, representing an increase of about 9.5 percent on 2007 when adjusted for the stock split.

The company’s U.K. unit said last month that it will cut 450 jobs, or 2.5 percent of its workforce, largely from its retail segment, after reporting a loss supplying power and gas for the last two years.

Job Cuts

While further workforce cuts aren’t a priority, E.ON can’t rule out job losses, Bernotat told Handelsblatt newspaper yesterday. The utility employed 93,000 people at end-September.

E.ON said it is introducing an efficiency program to improve competitiveness, with improved potential of 1.5 billion euros through 2011 having been identified.

E.ON shares fell as much as 2.9 percent to 24.29 euros in Frankfurt and traded down 2.2 percent at 24.48 euros at 8:14 a.m. local time.

RWE AG, which Bloomberg data show to be about half as profitable per employee as larger rival E.ON, may exceed a target of cutting costs by 1.2 billion euros by 2012, according to Chief Strategy Officer Leonhard Birnbaum.

The Essen, Germany-based utility won’t fire workers before 2012, he told reporters in Arnhem, Netherlands last week.

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.netMichael Gavin in Frankfurt on mgavin2@bloomberg.net

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Chevron, BP Locked Into $200 Million Oil Wells Amid Price Slump

By Joe Carroll

Feb. 10 (Bloomberg) -- Chevron Corp., BP Plc and other oil producers are locked into drilling offshore wells that cost as much as $200 million each because of rig contracts that were signed when crude was soaring above $140 a barrel.

Even as energy companies slash billions of dollars in spending to cope with the lowest prices in five years, deep-sea exploration continues unabated because canceling rig contracts would cost as much as finishing the projects, said Candida Scott, a senior director at Cambridge Energy Research Associates who tracks oil-development costs.

Demand for rigs that can fetch more than $600,000 a day to rent hasn’t diminished amid the $105-a-barrel tumble in crude from a July record, said Gregory Cauthen, chief financial officer at Transocean Ltd., the world’s largest offshore driller. Exxon Mobil Corp. and other producers use the vessels to search for crude in 50 million-year-old rock formations 6 miles (9.7 kilometers) beneath the Gulf of Mexico and the Atlantic Ocean.

“We haven’t seen any huge cancellation of rigs simply because the day rates that they locked in were so large,” Scott said in an interview from Houston. “I would have thought it is painful” to terminate a rig lease.

Chevron, which last week discovered a prospect in the Gulf of Mexico called Buckskin that may hold 500 million barrels of oil, has no plans to idle any deepwater rigs, said Kurt Glaubitz, a spokesman for the company.

Moving Forward

“We’re going to proceed with moving our vast queue of deepwater projects forward,” Glaubitz said in a telephone interview. In addition to several prospects in the deepest reaches of the Gulf of Mexico, Chevron has drilling projects under way off the coasts of Scotland, Brazil and Thailand.

BP said Feb. 3 that it will add three wells at its Thunder Horse field in the Gulf of Mexico this year, bringing the total number of wells there to seven, pumping the equivalent of more than 250,000 barrels of oil a day.

“It’s very difficult for our customers to just terminate a contract as long as we are performing,” Transocean’s Cauthen said in a Feb. 4 presentation to analysts in Vail, Colorado. “Our long-term view remains fairly bullish” for deepwater-rig demand.

Canceling a $600,000-a-day lease with 12 months remaining could potentially cost $219 million. Oil-industry profits already are under pressure as energy prices slide and costs for rigs and other equipment remain at or near peaks, said David Foley, who helps manage $2 billion at Estabrook Capital Management in New York.

Waiting for Rebound

Energy companies are betting that in the five to 10 years it takes to turn a discovery into a producing field, crude prices will rebound and their finds will turn a profit, Foley said.

The last time prices slumped, explorers’ long-term approach paid off, said Robert Sweet, who helps manage $130 million, including Exxon and Chevron shares, at Horizon Investment Services Inc. in Hammond, Indiana.

BP’s 1.5 billion-barrel Thunder Horse field in the Gulf of Mexico was discovered in 1999, when crude traded as low as $11.26 a barrel. The field began pumping crude in June 2008, when oil topped $143 for the first time. Exxon owns a 25 percent stake in Thunder Horse.

In the final three months of 2008, Shell and London-based BP posted their first losses in 10 years and six years, respectively. Irving, Texas-based Exxon had its biggest decline in quarterly net income since 2002. Chevron, based in San Ramon, California, had its smallest profit gain in more than a year.

Even so, those four companies plan to spend a combined $105 billion this year on exploration, refineries and chemical plants, enough to fund the U.S. space program for half a decade.

Record Dayrate

Ronnie Chappell, a Houston-based spokesman for BP, declined to comment on the company’s rig leases. Exxon Mobil spokesman Alan Jeffers also declined to comment.

“Shell has not planned any major changes regarding our deepwater-leasing contracts in the Gulf of Mexico,” Robin Lebovitz, a Houston-based spokeswoman for Shell, said in an e- mailed message.

Lease rates for the most-sophisticated, durable drilling vessels surged to an all-time high of $652,000 a day in July when Italy’s Eni SpA signed an agreement for Transocean’s Deepwater Pathfinder. That was followed by a deal at an identical rate with Exxon in October.

All of Transocean’s most-sophisticated rigs are booked until at least mid 2010, with some committed through November 2016. The company had a $41.1 billion backlog of orders as of Sept. 30.

‘Deep Pockets’

Anadarko Petroleum Corp., which last week announced two discoveries in 5,000-foot seas, plans to continue searching the Gulf of Mexico for prospects that contain at least 100 million barrels of crude. At current prices, such a find would be worth about $4 billion.

Anadarko, based in The Woodlands, Texas, can make a 10 percent profit on deepwater fields when oil is $30 a barrel, Chief Executive James Hackett said during a Feb. 3 conference call with investors and analysts. The company is devoting 20 percent of its capital budget to exploration this year.

“You have to have deep pockets to play in the deepwater Gulf of Mexico,” Matt Snyder, head of Gulf of Mexico upstream research at oil-industry advisory firm Wood Mackenzie Consultants Ltd., said in an interview in Houston. “We’re just not seeing companies saying they’re going to cut back their drilling programs in the deep Gulf.”

To contact the reporter on this story: Joe Carroll in Houston at jcarroll8@bloomberg.net

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Russia Banks Ask State to Lead $400 Billion Debt Talk

By Torrey Clark and Emma O’Brien

Feb. 10 (Bloomberg) -- Russian regional lenders asked the government to moderate talks initiated by foreign financial firms concerned that banks and companies will struggle to repay some of the $400 billion of debt due in the next four years.

“Several Western banks asked about holding discussions,” said Anatoly Aksakov, head of the Russian Association of Regional Banks, whose 450 members include Citigroup Inc.’s Russia unit, Alfa Bank and VTB Group. “It was their initiative to have talks on this topic to look at restructuring the debts of several companies, so that everyone can be calm.”

Speculation of European bank losses on Russian loans drove declines in the euro against the dollar and yen today. Russia has pledged more than $200 billion in emergency funding as plunging oil prices push the world’s biggest energy supplier into its worst economic crisis since Boris Yeltsin’s government defaulted on $40 billion of domestic debt in 1998.

“I think that so far it is nothing more than just an idea that this Assosiation of Russian banks came up with,” said Mikhail Galkin, head of fixed-income and credit research in Moscow at MDM Bank. “I don’t think that many borrowers themselves have intentions to restructure and are aware of this idea.”

The association wrote to the Russian government after talking with banks including HSBC Holdings Plc that had sought clarity about the capacity of some companies to meet obligations, Aksakov said. The government hadn’t responded, he said.

Smaller Banks

“It would be most effective if the debt were restructured so it’s clear to everyone, creditors and borrowers, how the debt will be paid,” Asksakov said in an earlier interview today. He said some of his comments were “misinterpreted.”

“Banks have accumulated a lot of foreign currency. There are no problems,” he said. “We’re not holding talks about restructuring.”

The central bank expanded the ruble’s trading band against a target dollar-euro basket 20 times since Nov. 11 as the currency tumbled 35 percent against the dollar since August. Russia’s foreign reserves plunged 35 percent in the past six months. The ruble strengthened today by 0.2 percent to 40.6306 against the dollar-euro basket.

The association represents smaller, regional banks, rather than the larger institutions that account for most of the debt, said MDM’s Galkin. “This is a good example of a fly growing into an elephant,” he said.

Laine Santana, a spokeswoman at HSBC in Hong Kong, was unable to comment. A Deutsche Bank AG official in Singapore declined to comment. Deutsche Bank is among the foreign banks that indicated it would welcome Russian government involvement, Nikkei reported.

Euro Slide

“I don’t see en-masse restructuring at this point,” said Eugene Belin, head of fixed-income, currencies and commodities in Moscow for Citigroup Inc. “Individual restructurings will take place but we’re not in a place now where we need to restructure systematically.”

The euro fell to $1.2865 as of 2:46 p.m. in Tokyo from $1.3003 late in New York yesterday. Europe’s single currency slipped 1 percent to 117.67 yen.

“People expect that part of these debts were from the European banking system,” said Sebastien Barbe, a strategist at Calyon in Hong Kong, the investment banking unit of France’s Credit Agricole SA. “You already have a very weak banking system in Europe. If you have these Russian issues, the next step would be questions about whether similar problems will come out of other Eastern European countries.”

Putin Funds

Russia, the world’s second-biggest oil supplier, will enter a recession and run a federal budget deficit this year for the first time in a decade, according to the government.

Prime Minister Vladimir Putin this month approved a further 400 billion rubles ($11 billion) of aid for Russian banks in the “second stage” of a bailout plan that targets consumers and companies in the “real sector” of the economy.

“No one in the Russian government has ever suggested any debt restructuring was contemplated,” said Eric Kraus, head of strategy at Otkritie Financial Company, a Moscow-based bank and brokerage. “The entire purpose of the slow, stepwise devaluation of the ruble was to allow companies to purchase sufficient foreign currency to repay debts maturing through 2010.”

-- Editor: Gavin Serkin

To contact the reporter on this story: Torrey Clark in Moscow at tclark8@bloomberg.net; and Garfield Reynolds in Sydney at greynolds1@bloomberg.net

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Asian Currencies Drop, Led by Won, on Signs Slowdown Deepening

By David Yong

Feb. 10 (Bloomberg) -- Asian currencies fell, led by South Korea’s won, on concern the slump in the region’s economies is deepening, discouraging investors from buying local assets.

The won traded at a one-week low against the greenback after South Korea’s new Finance Minister Yoon Jeung Hyun today said the economy will contract 2 percent in 2009, reversing an earlier prediction for 3 percent growth. The Indonesian rupiah declined for a second day on concern investors will avoid riskier assets after the Nikkei newspaper reported that Russian banks and businesses may ask foreign lenders to reschedule debt.

“The won’s weakness is economy-led,” said Dwyfor Evans, a currency strategist at State Street Global Markets in Hong Kong. “South Korea is one of the countries most sensitive to the slowdown in global trade.”

Korea’s currency weakened 0.5 percent to 1,386.35 against the dollar as of 12:45 p.m. local time, according to Seoul Money Brokerage Services Ltd. The rupiah dropped 0.3 percent to 11,805 and the Thai baht declined 0.1 percent to trade near a three- week low of 35.02.

The won extended this year’s loss to 9.2 percent as the International Monetary Fund last week said South Korea’s economy will shrink 4 percent this year, the first annual decline since the Asian financial crisis a decade ago, as the deepening global recession takes a toll on demand at home and abroad. MoneyToday website reported on Feb. 5 the Bank of Korea will cut its GDP forecast to 0.3 percent for 2009.

Russian Debt

The MSCI Asia Pacific Index of regional shares fell for a second day as the Nikkei newspaper reported Russian banks are seeking to reschedule about $400 billion of debt owed to foreign lenders including HSBC Holdings Plc and Deutsche Bank AG, spurring demand for safe-haven assets.

The euro declined 1.4 percent to $1.2823 in Tokyo, from $1.30003 late in New York yesterday, ending a two-day advance. The yen rose for a second day to 91.36 per dollar from 91.46 yesterday.

The rupiah has slid 7.6 percent so far this year as stock exchange data showed overseas investors sold more Indonesian equities than they bought. Russia’s central bank yesterday raised the interest rate it charges on repurchase loans to halt a slide in its currency.

“Risk appetite is souring somewhat early in Asia today on news that Russian banks may be seeking to reschedule their loans,” said Emmanuel Ng, an economist at Oversea-Chinese Banking Corp. in Singapore. “The Indonesian rupiah may be centered around 11,750 pending further developments on the risk aversion front.”

Export Slide

The Philippine peso weakened for the first time in six days after a government report showed exports slumped by the most in at least 27 years.

The peso, the best performer this year among the 10 most- active currencies in Asia outside Japan, snapped its longest winning streak in two months as overseas sales in December dropped 40.4 percent, the most since Bloomberg started tracking the data in 1981. Economists in a Bloomberg News survey had estimated a median 23.9 percent drop.

“With exports plunging worse than expectations, there’s really no reason to put a short bet on the dollar-peso,” said Vishnu Varathan, a regional economist at Forecast Singapore Pte. “This strengthens the case for a more aggressive easing from the central bank and increases the urgency for government support.”

Currency Swap

The peso fell 0.2 percent to 47.080 per dollar in Manila, according to Tullett Prebon Plc. The currency may drop to 49 this quarter as exports sustain “double-digit” declines, Varathan said. A short position is a bet an asset’s value will depreciate.

Merchandise exports account for about 27 percent of the Philippine economy, which is set for its worst performance in eight years in 2009.

Malaysia’s ringgit strengthened on optimism a three-year 40 billion ringgit ($11 billion) foreign-exchange swap with China on Feb. 8 will help ease a cash shortage and boost trade with Asia’s fastest-growing economy.

“The swap provides some assurance in terms of liquidity in the market, especially against the backdrop of the recent decline in currency reserves,” said Suresh Kumar Ramanathan, a rates and currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur. “It’s a positive for the ringgit and long-term trade outlook.”

The ringgit rose to 3.5925 per U.S. dollar in Kuala Lumpur, according to data compiled by Bloomberg, versus 3.5965 on Feb. 6. Financial markets in Malaysia were closed yesterday for a holiday.

Elsewhere, India’s rupee dropped 0.2 percent 48.685 a dollar and Taiwan’s dollar gained 0.34 percent to NT$33.860. China’s yuan was little changed at 6.8330 and the Vietnamese dong held at 17,484.

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

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Zhou Says China Will Keep Yuan Stable at ‘Appropriate Level’

By Nipa Piboontanasawat

Feb. 10 (Bloomberg) -- China will keep its exchange rate stable at an appropriate level, central bank Governor Zhou Xiaochuan said.

“There is no new strategy on the exchange rate,” Zhou said today in an interview in Kuala Lumpur. “It’s the same as before -- the exchange rate will be determined by market supply and demand against a basket of currencies. It will be kept stable at an appropriate, balanced level.”

The central bank has halted the yuan’s gains against the dollar since July as the global recession sends the nation’s exports tumbling. U.S. Treasury Secretary Timothy Geithner said last month that the new administration believes China is “manipulating its currency.”

Zhou declined to say whether China has room to cut interest rates. “Now is not a good time to answer this question,” he said.

“We have to see to what extent the global financial crisis will worsen,” Zhou said, when asked whether China will face deflation.

China’s currency has gained 21 percent against the dollar since the nation ended a fixed exchange rate in 2005. It closed yesterday at 6.8338 per dollar.

China should “actively guide” the yuan’s exchange rate to about 6.93 against the dollar to help maintain economic growth and bolster employment, according to a report by the Ministry of Finance’s research institute, published Feb. 7.

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net

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Australian Dollar Falls on Confidence Data; N.Z. Currency Gains

By Candice Zachariahs

Feb. 10 (Bloomberg) -- The Australian dollar fell from a one-month high against the U.S. currency after an industry report showed business confidence dropped to a record low last month. New Zealand’s dollar advanced.

The Australian currency also declined as Russian banks asked the government to moderate talks on $400 billion of credits to foreign lenders, signaling the global financial turmoil may be deepening. The Australian dollar ended three days of gains versus the greenback as a sentiment index for January fell to minus 32, the lowest since the series began in 1989, according to a survey by National Australia Bank Ltd.

“It certainly suggests that all is not well from a risk perspective and the Aussie dollar is leveraged to the global growth and risk cycle,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. “We’ve also seen pretty bad domestic data with the NAB business conditions and confidence survey showing record lows.”

Australia’s currency fell 0.4 percent to 66.95 U.S. cents as of 5:33 p.m. in Sydney from late in Asia yesterday. It earlier touched 68.49 cents, the highest level since Jan. 13. The currency slid 0.5 percent to 61.22 yen. It may find so- called support at 66.80 cents, Trinh said.

New Zealand’s dollar rose 0.4 percent to 53.43 U.S. cents, after rising as high as 54.47 cents, the strongest since Jan. 20. It bought 48.78 yen from 48.72.

The so-called kiwi may advance toward 55 U.S. cents over the next few days, said Khoon Goh, a senior economist at ANZ National Bank Ltd. in Wellington. “A lot of people were short the New Zealand dollar so we’ve seen a bit of a short-squeeze rally,” he said.

‘Backed Off’

The Australian dollar declined 38 percent against the yen and 25 percent versus the U.S. currency in the past six months as equities and commodities slumped. New Zealand’s currency sank 37 percent and 24 percent versus the yen and dollar during the same period.

“The Aussie has backed off pretty fast from 68.50 cents, so in our view that’s going to be a short-term peak,” said Craig Ferguson, a currency hedge fund manager at Antipodean Capital Management in Melbourne. “We’d expect a move toward 62.50 over the next couple of weeks as long as stocks continue to weaken.”

The so-called Aussie dollar will decline to about 50 to 55 U.S. cents and New Zealand’s will drop to 40 to 45 cents in the next year, Ferguson forecast

Benchmark interest rates of 3.25 percent in Australia and 3.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attract investors to the two South Pacific nations’ higher-yielding assets. The risk in these so-called carry trades is that currency market volatility may erase any profits.

Rescue Plan

Both currencies rose earlier on speculation financial sentiment will improve after U.S. Treasury Secretary Timothy Geithner announces a financial rescue plan in Washington today. President Barack Obama is demanding a stimulus bill on his desk before Congress leaves for the Presidents’ Day holiday Feb. 16.

Australian government bonds advanced for a second day. The yield on the benchmark 5 1/4 percent note due March 2019 fell two basis points to 4.34 percent, according to data compiled by Bloomberg. The price rose 0.185, or A$1.85 cents per A$1,000 face amount, to 107.389.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.48 percent from 3.49 yesterday.

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

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Euro Falls as Russian Banks Seek Government Role in Debt Talks

By Ron Harui and Yasuhiko Seki

Feb. 10 (Bloomberg) -- The euro fell against the dollar and the yen after Russian banks asked the government to moderate talks with foreign creditors on $400 billion of loans, adding to speculation financial turmoil in Europe is worsening.

The yen also rose for the first time in four days versus the euro after European finance ministers signaled increasing concern some governments are finding it harder to borrow in financial markets, and after UBS AG reported a larger-than- forecast quarterly loss. The dollar strengthened on optimism U.S. President Barack Obama’s stimulus and bank-rescue packages will spur growth in the world’s largest economy.

“European banks may face more financial difficulties” given news “that Russian banks may negotiate a debt rescheduling,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank by market value. “This is likely to cause risk aversion. It is natural that the euro is sold and the yen is bought.”

The euro fell 0.9 percent to $1.2889 as of 7:40 a.m. in London from $1.3003 late in New York yesterday. Europe’s single currency slipped 1 percent to 117.78 yen. The dollar was at 91.39 yen from 91.46 yen. The euro may weaken to $1.27 and 117 yen, and the dollar may depreciate to 90 yen today, Saito said.

The British pound climbed to 86.83 pence per euro from 87.28 pence yesterday. The yen advanced 1.2 percent to 61.33 versus Australia’s dollar and 0.7 percent to 48.91 against New Zealand’s dollar.

‘Bigger Exposure’

The euro fell versus 13 of the 16 most-active currencies after Anatoly Aksakov, president of the Russian Association of Regional Banks, said in an interview with Bloomberg News that the group has written to the government after talking with foreign banks. He said $135 billion of the loans are due this year and the remainder of the $400 billion within four years.

The Russian government isn’t planning to restructure corporate foreign debt, and isn’t in talks with foreign banks on restructuring, a Finance Ministry official said by telephone today, declining to be named.

“European financial institutions have a bigger exposure to Russia than their counterparts in other countries,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp., Japan’s largest fixed-line telephone company.

Kazakhstan’s banks may have their ratings cut as the devaluation of the nation’s currency makes it harder for them to repay foreign debt and “substantially increases” credit risk, Moody’s Investors Service said yesterday.

‘Worrying’

The widening spreads between the interest rates that different euro-area nations must pay bond investors are “worrying developments,” according to a “speaking note” prepared for Luxembourg Finance Minister Jean-Claude Juncker and obtained by Bloomberg News.

European Central Bank council member Axel Weber said in Kuala Lumpur today that central banks worldwide must focus on the medium and long term even as they respond to the global financial crisis.

UBS, Switzerland’s largest bank, said today it made 8.1 billion Swiss francs ($6.92 billion) in trading losses and leveraged loan impairments, and said it plans to cut more investment banking jobs this year.

The yen also strengthened after Asian stocks fell, reversing an advance, according to BNP Paribas SA, France’s largest bank.

“The failure of Asian equity markets to hold onto this morning’s gains supported the views of risk-averse investors, and in turn, provided support to the yen,” analysts led by Hans-Guenter Redeker, London-based global head of currency strategy at BNP Paribas, wrote in a research note sent in an e- mail to Bloomberg News today.

Higher Volatility

The Nikkei 225 Stock Average declined 0.3 percent after earlier gaining as much as 2 percent. The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock-market price changes that is used as a measure of risk aversion, climbed 0.6 percent to 43.64 yesterday.

Benchmark interest rates are 3.25 percent in Australia and 3.50 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 one with higher rates. The risk is market moves can erase profits.

The dollar also strengthened versus 15 of the 16 major currencies on optimism U.S. fiscal-stimulus and bank-rescue packages will help the economy recover faster than countries in Asia and Europe.

Stimulus Plans

U.S. President Obama is demanding an economic stimulus bill on his desk before Congress leaves for the Presidents’ Day holiday on Feb. 16. The Senate voted 61 to 36 yesterday to end debate on the $838 billion measure. Senators will vote today on whether to approve the bill. Treasury Secretary Timothy Geithner’s announcement of a financial-rescue plan is also planned for today.

“There is an emerging view that the worst phase of the financial-system meltdown is over” in the U.S., said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-biggest lender. “Investor sentiment toward the dollar has already changed to favor the currency.”

The ICE’s Dollar Index, which tracks the greenback versus the euro, the yen, the pound, the Canadian dollar, the Swedish krona and the Swiss franc, rose 0.8 percent to 85.444.

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

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De Beers Says Demand to Exceed Supply on U.S. Rebound

By Ron Derby

Feb. 10 (Bloomberg) -- De Beers, the world’s largest diamond producer, said demand is likely to exceed supply for much of the next decade, helped by a strong rebound in U.S. economic growth.

The U.S. historically “rebounds strongly from recession,” said Executive Director Stephen Lussier in a speech at the Mining Indaba conference in Cape Town today. Increased demand is also expected from Brazil, Russia, India and China, he said.

Prices of diamonds and other commodities have slumped as economies in the U.S., Europe and Japan slipped into recession. The U.S. accounts for about half of world demand.

De Beers revised mining plans in South Africa and announced jobs cuts at its mines there due to the slowdown in the global economy, while BRC DiamondCore Ltd. last month said it would extend a shutdown at its operations in the country because of “depressed” prices.

Gem prices have “virtually halved” since mid-July, and prices of “bigger” stones have been affected “heavily,” Petra Diamonds Ltd. Chief Executive Officer Johan Dippenaar said on Jan. 22.

De Beers is 45 percent owned by Anglo American Plc, 40 percent by the Oppenheimer family and 15 percent by Botswana’s government.

To contact the reporter on this story: Ron Derby in Johannesburg at rderby1@bloomberg.net

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Rubber Futures Drop for First Day in Six on Tire Demand Concern

By Aya Takada

Feb. 10 (Bloomberg) -- Natural rubber futures declined for the first time in six days on concern deepening slump in the auto industry will further erode demand for the commodity used to make tires.

Prices in Tokyo dropped as much as 2 percent to the lowest since Feb. 5. Nissan Motor Co., Japan’s third-largest automaker, said yesterday it will slash 20,000 jobs and post its first loss in nine years as the global recession cools car demand. In India, sales of passenger cars fell 3.2 percent in January from a year ago, the fourth straight month of decline.

“The negative news from the auto industry kept investors off the commodity consumed mainly by carmakers,” said Takaki Shigemoto, an analyst at Tokyo-based broker Okachi & Co., said.

Rubber for July delivery, the most-active contract, fell 0.8 percent to 143.3 yen a kilogram ($1,566 a metric ton) on the Tokyo Commodity Exchange at the 11:00 a.m. local time break.

Nissan expects a net loss of 265 billion yen for the year to March 31, compared with its October estimate of 160 billion yen in net income. The company also scrapped its second-half dividend.

Nissan’s sales in the U.S., its biggest market, plunged 31 percent in January as demand for Altima sedans and Xterra sport- utility vehicles dried up. Chief Executive Officer Carlos Ghosn’s elimination of 9 percent of the workforce caps a month in which all of Japan’s carmakers slashed forecasts and Panasonic Corp. and NEC Corp. cut workers.

Thai Supply

Rubber futures also fell on speculation supply may increase in Thailand, the world’s largest exporter, Shigemoto said.

“Latex production was recovering this week after wet weather hindered plantation work,” he said.

Thai shippers offered RSS-3 grade rubber for March shipment at $1.52 a kilogram today, compared with $1.51 Feb. 5, he said.

May-delivery rubber on the Shanghai Futures Exchange, the most-active contract, lost 1.0 percent to 13,640 yuan ($1,997) a ton at 10:09 a.m. local time.

To contact the reporter on this story: Aya Takada in Tokyo atakada2@bloomberg.net

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Corn Rally Stalls Before USDA Crop Estimate Report; Soybeans Up

By Jae Hur

Feb. 10 (Bloomberg) -- Corn declined as investors slowed their purchases before publication of new crop estimates by the U.S. government today. Soybeans climbed for a fifth day, while wheat was little changed.

Corn gained 5.4 percent in the previous three days and soybeans advanced 5.9 percent in the previous four sessions on speculation the U.S. Department of Agriculture will lower its world output estimate after dry weather damaged crops in Argentina and Brazil.

“It’s a kind of position adjustment ahead of the USDA report,” Hiroyuki Kikukawa, general manager of research at IDO Securities Co. in Tokyo, said today.

Corn for March delivery fell as much as 1.1 percent to $3.7325 a bushel on the Chicago Board of Trade and traded at $3.76 as of 2:13 p.m. Singapore time. Futures are down 53 percent from a record $7.9925 on June 27.

Soybeans for March delivery were 0.4 percent higher at $10.06 a bushel after earlier trading as low as $9.985. Futures are down 39 percent from a record $16.3675 on July 3.

Smaller soybean and corn crops may be forecast for Argentina and Brazil, the biggest exporters after the U.S., according to a Bloomberg News survey last week. Smaller crops in South America may boost demand for U.S. supplies.

“I don’t expect a big surprise in today’s USDA report,” Kikukawa said.

While the report is likely to be “supportive” for soybeans, corn may trade between $3.50 and $4.00 a bushel pending a survey due next month on U.S. farmers’ planting intentions for the coming year, he said.

Shipping Costs

Still, recent jumps in shipping costs may slow interest among Asian importers, including South Korea and Japan, said Tomokazu Amano, research team chief at Mitsubishi Corp. Futures & Securities Ltd. in Tokyo.

The Baltic Dry Index, a measure of shipping costs for commodities, rose for a 15th consecutive session on demand to ship iron ore to China and increased port congestion. The index jumped 11 percent yesterday to 1,815 points, according to the Baltic Exchange. The gauge has more than doubled this year and is on its longest winning streak since 2007.

Wheat for March delivery was unchanged at $5.65 a bushel after gaining 1.4 percent yesterday. Prices have tumbled 58 percent from a record in late February 2008.

China today reduced its estimate of the winter wheat crop affected by the nation’s worst drought in 50 years.

About 130 million mu (8.7 million hectares) of wheat in the eight major producing provinces are affected, the Office of State Flood Control and Drought Relief Headquarters said today. The office had estimated 143 million mu on Feb. 6.

To contact the reporter on this story: Jae Hur in Singapore at jhur1@bloomberg.net

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Copper in Shanghai Drops on Caution Before U.S. Stimulus Plan

By Glenys Sim

Feb. 10 (Bloomberg) -- Copper fell in Shanghai as investors awaited further details on a U.S. economic stimulus plan and amid speculation a two-day surge in the futures was excessive.

Copper in London also declined before an announcement of the U.S. financial-rescue program later today. Treasury Secretary Timothy Geithner is seeking to add private funding as a component of proposals to address the toxic debt clogging banks’ balance sheets. Shanghai futures rose by the trading limit in the past two days.

“It was getting a bit excessive because we haven’t seen an improvement in fundamentals yet,” Pan Jinghua, an analyst at Jinpeng International Futures Co., said from Beijing today. “In one camp we have people who are optimistic about these economic stimulus plans, and in the other camp we have people who think it’s not enough.”

Copper for April delivery on the Shanghai Futures Exchange fell 1 percent to 29,230 yuan ($4,277) a metric ton at 10:30 a.m. local time. London Metal Exchange copper fell 0.3 percent to $3,569.50 a ton after earlier rising 1.2 percent.

China’s inflation cooled to the weakest pace in more than two years and producer prices fell as growth slumped in the world’s third-largest economy, pressuring copper prices lower.

Consumer prices rose 1 percent in January from a year earlier, the statistics bureau said today, after gaining 1.2 percent in December.

Copper prices have been supported by rumors that China’s Strategic Reserve Bureau is rebuilding inventories, Michael Widmer, senior metals market analyst with BNP Paribas, said in a report e-mailed today. “Any re-stocking comes with various caveats, although it is certainly not bearish,” he said.

Among other LME-traded metals, zinc fell 0.8 percent to $1,185 a ton, and lead lost 1.6 percent to $1,180 a ton. Aluminum declined 0.6 percent to $1,437 a ton, while nickel and tin hadn’t traded as of 10:30 a.m. in Singapore.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net

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Gold Climbs for First Time in Three Days as U.S. Faces ‘Crisis’

By Glenys Sim

Feb. 10 (Bloomberg) -- Gold advanced for the first time in three days in Asia as concern at the slowing global economy and the metal’s dip below $900 an ounce lured buyers.

Bullion rose as investors sought haven assets on speculation President Barack Obama’s $827 billion stimulus package won’t lead to a rapid recovery by the U.S. economy. Obama said the U.S. faces a “full-blown crisis.”

“Gold and silver should continue to benefit from falling interest rates, reflation of Western economies and the adoption of unconventional monetary policy,” Robin Bhar, an analyst at Credit Agricole SA’s Calyon investment-banking unit in London, wrote in a report.

Bullion for immediate delivery added as much as 0.7 percent to $900.35 an ounce and was at $897.19 at 1:38 p.m. in Singapore. It has traded above $900 in each of the past 12 days and reached $929.70 on Jan. 30, the highest since Oct. 10.

Silver rose as much as 0.7 percent to $12.9338 an ounce, and stood at $12.89 at the same time.

“For as long as sentiment in the market remains positive towards gold then silver is likely to make further attempts at the upside, but these levels are not fundamentally justified and should be viewed with extreme caution,” said David Wilson and Stephanie Aymes, analysts at Societe Generale in a note yesterday.

“Silver’s industrial base, combined with the economic outlook means that this year’s market is likely to be in a surplus of supply over industrial demand,” the analysts said.

Among other precious metals for immediate delivery, platinum gained 0.3 percent to $993.50 an ounce, and palladium jumped 1.6 percent to $210.75 an ounce.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

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Oil Rises as U.S. Economic Stimulus Package Passes Key Hurdle

By Christian Schmollinger and Samantha Zee

Feb. 10 (Bloomberg) -- Crude oil rose on speculation demand may climb as an economic stimulus package sought by President Barack Obama cleared a procedural hurdle in the U.S. Senate.

Congress is seeking to complete work on the $827 billion package so that it can be sent to the president by the end of the week. The Senate plan would funnel about $655 billion into the U.S. economy, the Congressional Budget Office said yesterday. The country is the world’s largest oil consumer.

“The focus is on the immediate real economic effects on this stimulus package,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. “That’s going to be the dominating factor in terms of how it’s received by the market.”

Crude oil for March delivery gained as much as 67 cents, or 1.7 percent, to $40.23 a barrel in electronic trading on the New York Mercantile Exchange. It was at $39.84 a barrel at 3:56 p.m. Singapore time.

Yesterday, futures fell 61 cents, or 1.5 percent, to settle at $39.56 a barrel in New York. Oil is down 11 percent this year and 57 percent from a year ago.

There is concern that the borrowing needed to pay for the stimulus plan will weigh on the U.S. currency. Dollar-priced commodities are more attractive to investors when the currency weakens.

“With a huge stimulus plan in the works I would not be surprised if the dollar takes a large fall initially due to extreme deficit spending and higher inflationary fears,” said Mike Sander, an investment adviser at Sander Capital Advisors Inc. in Seattle. “This would in turn put pressure on oil to go up in price.”

Stockpiles Gain

Weighing on prices is speculation U.S. oil stockpiles increased for the 18th time in 20 weeks as the global recession curbed demand.

Oil supplies probably climbed 2.5 million barrels last week, according to the median of seven analyst estimates in a Bloomberg News survey. Gasoline supplies probably rose 625,000 barrels. U.S. fuel use has declined in the past year as the economy contracted.

Supplies at Cushing, Oklahoma, where oil traded on Nymex is stored, climbed 2.5 percent to 34.3 million barrels in the week ended Jan. 30, the highest since at least April 2004, when the department began keeping records for the location.

The Energy Department is scheduled to release its weekly inventory report tomorrow at 10:30 a.m. in Washington.

Oversupply Signs

The price of oil for delivery in April is more than $6 a barrel higher than for March. December futures are up more than $15 from the front month. This structure, in which the future month’s price is higher than the one before it, is known as contango, and is often an indicator of oversupply.

“You’ve still got this distortion at the front of the Nymex curve related to the level of inventories at Cushing,” said Commonwealth Bank’s Moore. “The sub-$40 price is maybe not the most accurate reflection of the market.”

Brent crude oil for March settlement rose as much as 56 cents, or 1.2 percent, to $46.58 a barrel on London’s ICE Futures Europe exchange. It was at $46.30 a barrel at 3:59 p.m. Singapore time.

The Organization of Petroleum Exporting Countries has complied with about 80 percent of the 4.2 million barrels a day of production cuts it announced and has 900,000 barrels left to go, Secretary-General Abdalla el-Badri told reporters in London yesterday. That’s left the group with about 8 million barrels of shut-in capacity.

Cutting Forecasts

“The OPEC production cuts are helping to hold a floor for prices,” Moore said. “Overall current indications are that compliance is solid.”

The International Energy Agency, the Organization of Petroleum Exporting Countries and the U.S. Energy Department revised their global demand forecasts lower last month and said global consumption will drop this year.

The IEA will cut its outlook this month because of slowing economic growth, Nobu Tanaka, the agency’s executive director, said on Feb. 2. The Paris-based agency, which advises 28 developed nations on energy policy, is scheduled to publish its monthly report on Feb. 11.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Samantha Zee in Los Angeles at szee@bloomberg.net.

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China Stocks Rise, Led by Gemdale, Developers on Inflation

By Zhang Shidong

Feb. 10 (Bloomberg) -- China’s stocks rose for a third day, led by developers, as inflation cooled to the weakest pace in more than two years, fanning speculation that the central bank may lower interest rates.

Gemdale Corp., a Shanghai-based developer, added 3.1 percent after inflation slowed and a newspaper said the government is seeking to aid the industry. China Cosco Holdings Co., the country’s largest container line, jumped by the 10 percent daily limit for a second day after the Baltic Dry Index, a measure of shipping costs for commodities, rose for a 15th consecutive day.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, rose 40.45, or 1.8 percent, to 2,265.16 at the close, the highest since Sept. 26. The CSI 300 Index, which tracks exchanges in Shanghai and Shenzhen, gained 1.3 percent to 2,326.75.

“The slowing consumer price index has left the central bank with more room for cutting interest rates, and that will help rate-sensitive stocks,” said Wu Kan, a fund manager in Shanghai at Dazhong Insurance Co., which manages the equivalent of about $285 million.

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

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Japan Stocks Decline as Recession Concern Deepens; T&D Climbs

By Masaki Kondo

Feb. 10 (Bloomberg) -- Japanese stocks slumped for a second day as lower earnings projections from Orix Corp. and Japan Steel Works Ltd. overshadowed optimism a bank-rescue plan in the U.S. will ease credit turmoil.

Orix, the nation’s largest non-bank financial company, sank 8.9 percent, while Japan Steel Works, which provides Paris-based Areva SA with nuclear-reactor parts, sank 7.5 percent. T&D Holdings Inc., Japan’s largest listed life insurer, jumped 6.8 percent ahead of the U.S. Treasury’s unveiling of a new bailout package. Nissan Motor Co. climbed 7.3 percent after saying it will cut 20,000 jobs as it tries to return to profit.

“Manufacturers are very likely to accelerate reductions in capital investment in the coming months,” said Hiroshi Morikawa, a senior strategist at Tokyo-based MU Investments Co., which manages about $14 billion. “That will be a large-scale global trend and will affect household incomes and employment.”

The Nikkei 225 Stock Average dipped 23.09, or 0.3 percent, to close at 7,945.94 in Tokyo, after switching between gains and losses 15 times. The Topix index fell 0.80, or 0.1 percent, to 778.10, with 18 of its 33 industry groups slumping.

The Nikkei fell by a record 42 percent last year as losses and writedowns at global financial companies exceeded $1 trillion, tipping the world’s biggest economies into recession. Japanese companies that have reported third-quarter earnings expect net income will tumble 83 percent in the year to March 31, according to Tokyo-based Shinko Research Institute Co.

Japan’s consumer sentiment stayed near its lowest level in at least 26 years in January, the Cabinet Office reported today, indicating households may keep cutting spending.

Stock Losses

Orix yesterday joined Japan’s biggest banks, including market leader Mitsubishi UFJ Financial Group Inc., in reducing earnings projections on share losses. Orix, which runs leasing and consumer-finance businesses, booked a 62.9 billion-yen ($701 million) write-down on security investments in the third quarter, forcing it to cut its annual profit outlook by 86 percent.

Orix sank 8.9 percent to 3,180 yen, while Japan Steel Works slid 7.5 percent to 887 yen after cutting its profit projection by a fifth. Orix and Japan Steel were the second- and third- biggest losers on the MSCI World Index, after Kobe Steel Ltd.

Kobe Steel plunged 13 percent to 117 yen, its sharpest drop since September 1998, leading steelmakers to the biggest decline among Topix groups. Kobe Steel may have made improper political contributions and its president will step down, the steelmaker said after the market closed. It said during trading that it would make an announcement on a “compliance-related” problem.

T&D jumped 6.8 percent to 2,970 yen, and Tokio Marine Holdings Inc., Japan’s No. 1 non-life insurer, rose 3.4 percent to 2,460 yen. Sumitomo Mitsui Financial Group Inc., Japan’s third-largest listed bank, added 4.4 percent to 3,530 yen.

U.S. Financial Plan

Treasury Secretary Timothy Geithner is scheduled to unveil the White House’s financial-rescue plan at 1 a.m. Tokyo time, preceding a Japanese national holiday. The plan will include fresh injections of funds into banks and may also provide for a so-called bad bank to buy illiquid assets clogging lenders’ balance sheets, officials have said.

“There are expectations in the market the U.S. plan to separate non-performing assets from banks’ balance sheets will turn around the current situation,” said MU Investments’ Morikawa. “Financial shares may shoot up, depending on the plan’s details, but people are wary about betting on either direction.”

Nomura Holdings Inc., Japan’s biggest brokerage, rebounded 3.9 percent to 509 yen. Nomura fell by the most in at least 34 years yesterday as its plan to sell common stock sparked concern ownership will be diluted. Daiwa Securities Group Inc., Japan’s No. 2 brokerage, rose 3.2 percent to 447 yen, paring yesterday’s 3.6 percent drop.

Job Cuts

Nissan, Japan’s third-largest automaker, jumped 7.3 percent to 280 yen. The company will reduce its workforce by 8.5 percent to 215,000 globally by March 2010, the company said yesterday after markets shut. Nissan reversed its profit forecast to a net loss of 265 billion yen for the year to March 31 as demand wanes and a stronger yen cripples earnings.

Nissan “is reacting quickly to the crisis,” Shinya Naruse, an analyst at Nomura Securities Co., wrote in a report today. “The labor-cost cutting and overseas production shift show the company is moving toward improving profitability.” Naruse raised his rating on the company to “neutral” from “reduce.”

Nikkei futures expiring in March rose 0.5 percent to 7,950 in Osaka and advanced 0.3 percent to 7,965 in Singapore.

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

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