ECB Approaches Zero Rates by Stealth With New Weapon

By Jana Randow

March 12 (Bloomberg) -- European Central Bank President Jean-Claude Trichet’s new weapon to battle the recession is taking him closer than it seems to zero interest rates.

Trichet is allowing the ECB’s deposit rate, which lenders earn on overnight deposits with the central bank, to usurp the benchmark refinancing rate and become the main driver of short- term borrowing costs. At just 0.5 percent, the deposit rate matches the Bank of England’s key setting and is only a step away from the zero-to-0.25-percent range the Federal Reserve uses.

That is pushing interest rates for banks down, helping Trichet answer critics who accuse him of not doing enough as the euro-region economy sinks into its deepest recession since World War II. The deposit rate is “very, very low,” Trichet said three times in an hour at a press conference on March 5.

He “is implicitly admitting that the deposit rate has now become the key barometer of the ECB’s policy,” said Nick Kounis, chief European economist at Fortis in Amsterdam. “The ECB has become more and more comfortable in pointing that out, not least because it’s been accused of keeping interest rates too high.”

The euro overnight index average, or Eonia, fell to 0.85 percent yesterday after the ECB’s latest rate cuts took effect -- about 0.7 percentage point below the 1.5 percent benchmark rate. Overnight deposits dropped to 56.3 billion euros, the lowest amount since Oct. 8.

Unlimited Cash

The ECB’s decision to offer banks unlimited amounts of cash, announced on Oct. 8, has culminated in the deposit rate setting the new de facto cost of short-term money. The move removed the need for banks to borrow in the money market to meet their reserve requirements.

Banks have been reluctant to lend to each other since Lehman Brothers Holdings Inc. went bust on Sept. 15, preferring to stash excess money with the ECB instead of taking the risk.

As demand dried up, interbank-lending rates dropped toward the deposit rate. The Eonia rate averaged 106 basis points above the deposit rate in the seven years before the ECB started providing unlimited liquidity in October. Since then, the gap has shriveled and yesterday stood at just 35 basis points.

Unlimited cash “results in refinancing costs for banks well below the current benchmark interest rate,” ECB council member Axel Weber said on March 5. “We expect banks to pass this on to consumers and companies to stimulate the economy.”

Boost for Economy

The overnight Eonia rate “is a very important starting point for all market expectations,” said Julian Callow, chief European economist at Barclays Capital in London. “Any further reduction in Eonia expectations would lower Euribor rates and so be a considerable benefit for the real economy.”

The euro interbank offered rate, or Euribor, that banks say they charge each other for six-month loans dropped to a record low of 1.8 percent yesterday. Market rates of the same maturity traded at 2.08 percent in the U.K. and 1.93 percent in the U.S.

While Trichet hasn’t ruled out further rate cuts, officials are hesitant to go much lower. There is “no reason to see the refinancing rate below 1 percent,” Weber said on March 10. “I also see a problem with lowering the deposit rate to zero. I would prefer to leave it at 0.5 percent.”

That reticence may be linked to Japan’s experiment in the 1990s, when it lowered its key rate to zero to revive its economy in what became known as the “lost decade.”

Japan shows that keeping rates too low for too long “will cause interbank trading to run dry, despite the ECB’s efforts to revive it,” said Michael Schubert, an economist at Commerzbank AG in Frankfurt.

‘Excessively Low’

Some ECB officials are concerned that too-low market rates will become counterproductive because they will sap banks’ returns and give them less incentive to trade with each other. That would undermine the ECB’s aim to revive interbank lending through its unlimited liquidity operations.

“If we had excessively low interest rates, why would banks start lending to each other?” ECB council member Yves Mersch asked March 10. “It would be much safer to put their excessive funds into the central bank rather than engage in the interbanking market.”

The ECB has cut its main refinancing rate, which is used as a benchmark in money-market operations, by a total of 2.75 percentage points since early October. That is still well above the key rates of the Fed and the Bank of England, which have started buying assets such as commercial paper and government bonds to ease credit tensions and boost their countries’ economies.

Not so Different

So far, the ECB is focusing its efforts on providing unlimited liquidity to banks and said on March 5 it will provide these funds until at least the end of the year.

“With the extension of providing unlimited liquidity, the ECB committed to keep the overnight rate very low for the foreseeable future,” said Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Group Plc in London.

That is allowing Trichet to argue “that the ECB does not have such a different monetary-policy stance from the Fed and Bank of England,” said Gilles Moec, an economist at Bank of America Merrill Lynch in London.

He is “driving home the point that the ECB is doing much more than people think.”

To contact the reporter on this story: Jana Randow in Basel at jrandow@bloomberg.net

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Greenspan Forgets Where He Put His Asset Bubble: Caroline Baum

Commentary by Caroline Baum

March 12 (Bloomberg) -- “Counterfactuals from such flawed structures cannot form the sole basis for successful policy analysis or advice, with or without the benefit of hindsight.”

Even if one missed the headline (“The Fed Didn’t Cause the Housing Bubble”) and the byline (Alan Greenspan) on the op-ed in yesterday’s Wall Street Journal, there could be no confusion over authorship: That “Master of Garblements” and former Federal Reserve chairman was back to defend his legacy.

Greenspan lays out his case that the Fed’s easy money policies can’t possibly be to blame for “the U.S. housing bubble that is at the core of today’s financial mess.” It is long-term interest rates that determine “the prices of long-lived assets,” such as housing, he writes. And those rates, which stayed low as a result of a “global savings glut,” are out of the Fed’s control.

Control, yes. Influence, no.

“Why not try raising short rates if long rates are too low?” asks Paul Kasriel, chief economist at the Northern Trust Corp. in Chicago. “The recession was over in 2001. Why did he take so long to start to raise the funds rate?”

Greenspan is selective in arguing his case. By any measure, the overnight fed funds rate was too low earlier in the decade. The real funds rate, which is the nominal rate adjusted for inflation, was negative for three years, from October 2002 to October 2005, a longer stretch than in the mid-1970s. And we know how well that turned out.

Now we have additional evidence of the effect of negative real rates. When financial institutions are being paid to borrow, borrow they will.

Free-Money Policy

Banks and other mortgage lenders were happy to arbitrage the spread between the free money provided by the Fed and the rate they charged for an adjustable-rate mortgage. The share of ARMs as a percentage of total mortgage loans averaged 10 percent in 2001; by 2004, it was 32 percent, according to the Mortgage Bankers Association. The dollar volume swelled to more than 50 percent that year.

It was Greenspan who sang the praises of ARMs from his Fed pulpit in a Feb. 23, 2004, speech. American consumers “might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage,” which may be “an expensive method of financing a home,” he said.

Greenspan’s op-ed avoids any incriminating evidence of his role in what he calls “the most virulent (crisis) since the 1930s.” (No 100-year flood this!) Instead, he focuses exclusively on what he, as Fed chief, called the “conundrum:” that long-term interest rates barely budged in the face of gradual increases in the funds rate.

Bubble Asymmetry

“If only the Chinese hadn’t been saving so much in the U.S., there would have been no problem,” says Bill Fleckenstein, president of Fleckenstein Capital in Seattle and author of “Greenspan’s Bubbles.” That analysis “flies in the face of all the evidence” that Greenspan took interest rates too low and held them there for too long; that he “cheerled all the securitization products and ARMs; that he told us not to worry about a real estate bubble.”

Even worse, Fleckenstein says, Greenspan “doesn’t discuss the fact that it was Fed’s stated policy to act asymmetrically in regard to asset bubbles,” allowing, or encouraging, them to inflate and cleaning up afterwards.

The clean-up is proving harder than Greenspan imagined.

There were other measures that shouted -- yes, shouted -- “monetary policy is too easy” in 2003 and 2004. Apparently Greenspan wasn’t listening.

Spreading Evidence

The spread between the overnight rate and the 10-year Treasury note ballooned to an historically wide 365 basis points by the middle of 2004, when the Fed started to raise the funds rate in baby steps. A steep yield curve is a sign of an expansionary monetary policy.

Rising long-term rates reflect an increased demand for credit. That same increased demand would push up the overnight rate, too, except when the Fed intervenes, creating as much credit as the banking system demands to keep the rate at the designated target.

The spread between the funds rate and nominal gross domestic product -- a proxy for the difference between the cost of borrowing and the return on investment for the overall economy -- was also emitting a warning sign that policy was too easy. The gap reached a three-decade high of 6 percentage points in 2004, creating an incentive to borrow and lend.

Greenspan’s op-ed is full of explanations, correlations and obfuscations. He defends himself against accusations by “my good friend,” Stanford economist John Taylor, who has argued that “monetary excesses” were the main cause of the boom and resulting bust.

No Mea Culpa

He also ignores the literature on asset bubbles.

“Greenspan is a student of history,” Kasriel says. “Surely he’s read (Charles) Kindleberger’s book on asset price bubbles.”

One element common to all bubbles, according to “Manias, Panics and Crashes,” is cheap credit. With so much cheap credit coming from abroad, Greenspan didn’t need to add to it.

And that’s the point. If he’s satisfied with his explanation of a savings glut -- the idea that there was too much credit being supplied from the rest of the world -- why not reduce the supply of Fed credit? That raises the price and reduces the quantity demanded.

Victim isn’t a role Greenspan plays particularly well, especially when it’s an attempt to exonerate himself from responsibility.

(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)

To contact the columnist on this story: Caroline Baum in New York at cabaum@bloomberg.net.

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Inside Man Geithner Shines When He’s Offstage: Margaret Carlson

Commentary by Margaret Carlson

March 12 (Bloomberg) -- Treasury Secretary Timothy Geithner never looks so tall as when he’s sitting down. Sketching a diagram about the nation’s banks on a legal pad in Bloomberg Television’s green room this week, he showed he’s at his most impressive when the cameras are off.

Geithner had just finished one of his better interviews, an hour-long sit-down with Charlie Rose in Washington. It proved to be a good setting -- Rose’s questions are so long that Geithner looked pithy by comparison.

Here’s Geithner’s problem: He’s an Inside Man. Inside Man has the brain of Einstein and the presence of a flea. Inside Man can’t catch a break in our telegenic age. Even friends are taking after Geithner, from Paul Krugman of the New York Times to Kent Conrad, chairman of the U.S. Senate Budget Committee. On March 9, Obama’s friend, Warren Buffett, said the economy has “fallen off a cliff,” and criticized the message about how to save it as “muddled.”

Last weekend Geithner was lampooned on the “Saturday Night Live” TV show. After describing our dire situation, the actor playing Geithner offered $420 billion to the first person to come up with a plan to solve the banking crisis. He fell for the Nigerian prince, offering to send him an immediate down payment.

Geithner was known as a genius when he was at the New York Federal Reserve Board, ground zero for Inside Man. Washington, however, is the sole province of the Outside Man with a larger- than-life demeanor, utter conviction, and immediate solutions. You don’t have to be right to have a long ride here. Outside Men admire -- and recommend -- each other all the way to the top.

Fierce, Not Bold

Outside Man doesn’t have to come up with bold plans. He just has to be fierce about them. Former Defense Secretary Donald Rumsfeld got sky-high ratings for his televised briefings from the Pentagon and instilled fear in smarter yet quieter Bush administration officials like Condoleezza Rice, not for getting the Iraq War right but for dodging responsibility by waxing poetic over known knowns and known unknowns.

Hank Paulson, playing the football lineman he once was, tried to barrel through a $700 billion giveaway to his pals on Wall Street with no strings attached, on the basis of a three- page proposal. We’re still paying the price for Paulson’s letting the toxic securities stew in their own juices for months by refusing to isolate them in a bad bank or come up with a pricing mechanism.

No Doubt

Doubt is Outside Man’s enemy. CNBC’s Jim Cramer, presently the Obama administration’s most strident critic with a microphone, is funny, quick, entertaining, and frequently wrong as he conveys complete certainty about that which there can be none.

Conducting a carnival of animal, clown and other noises each night with a language only those who belong to the Church of Mad Money can understand, Cramer was a king during the years when the Dow approached 14,000, although he was off on many calls. Recently, he’s been as toxic as the derivatives Paulson left in Geithner’s in-box.

Shortly before Bear Stearns collapsed, Cramer said he believed in the Bear franchise. “At 69 bucks, I’m not giving up on the thing!” he said.

On the network of the Money Honey, which feasts on Geithner’s stumbling performances every day, geniuses extolled the virtues of Lehman Brothers shortly before it went poof.

If you are in favor of doing something to right the sinking ship of the economy (as opposed to the Republican plan of letting it fix itself with a few tax cuts), Geithner’s done nothing worse than express himself poorly and look like Eddie Haskell.

Mumblers, Bumblers

The question remains: Does Geithner need to recover from his halting public presentations and the all-too-accurate imitation on SNL before the economy can?

Fortunately, there is a long history of less-than-great communicators managing to communicate. People get used to mumblers and bumblers like George W. Bush, Barney Frank, John McCain and Al Gore (the communicating comeback of the decade.) Some great communicators -- Mike Huckabee and Sarah Palin, another victim of SNL -- don’t make it. Sometimes it’s the steak not the sizzle.

By yesterday, things seemed to be looking up, at least on the financial networks. Charlie Rose may be long-winded but he’s also soothing, and in one hour on his program, Geithner came across as someone on top of the situation. Geithner’s been crucified by the Dow slipping. It helped that the index rallied almost 400 points on Tuesday.

Then There’s Obama

And then there is Geithner’s boss, Barack Obama. Although he has the wordiness of a professor -- the classic Inside Man -- he has the charisma of an Outside one. Republicans portray the president, with each passing day and every decline in the S&P, as more and more responsible for the current crisis. Yet when Obama spoke to Congress two weeks ago, people told Gallup afterward that they felt more confident. In a recent Quinnipiac poll, 57 percent said they approve of the job Obama is doing handling the economy.

Geithner wouldn’t sign his bank bailout sketch so I could do my part to stir up economic activity by listing it on EBay. Inside Men don’t make nice, or need to. They’re not running for office, just running to save the world.

(Margaret Carlson, author of “Anyone Can Grow Up: How George Bush and I Made It to the White House” and former White House correspondent for Time magazine, is a Bloomberg News columnist. The opinions expressed are her own.)

To contact the writer of this column: Margaret Carlson in Washington at mcarlson3@bloomberg.net.

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Iran Needs $24 Billion for Oil Projects This Year, Etemaad Says

By Ladane Nasseri

March 12 (Bloomberg) -- Iran needs $24 billion to complete oil projects this year and the lack of sufficient investments is a “challenge,” Etemaad reported, citing a ministry official.

The budget of Iran’s National Iranian Oil Co. for the calendar year starting March 20 has been cut by a third because of the fall in oil prices, Managing Director Seifollah Jashnsaz said, according to the newspaper.

Investment shortage is the state-owned company’s “most important challenge,” Jashnsaz said, without giving details of the projects.

To contact the reporter on this story: Ladane Nasseri in Tehran at lnasseri@bloomberg.net.

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Adaro Shares Advance on Plans to Buy Shipping Service Provider

By Berni Moestafa

March 12 (Bloomberg) -- PT Adaro Energy, Indonesia’s second-largest coal producer, rose the most among mining stocks in Jakarta trading after the company said it plans to buy a shipping service provider to reduce costs.

Adaro climbed as much as 2.6 percent to 790 rupiah and traded at 780 rupiah at the 12 p.m. local-time break, the biggest gainer among the 17 members in the Jakarta Mining Index. The Jakarta Composite index declined 0.2 percent.

Adaro may spend as much as $100 million to buy a barging and ship-loading company, the coal producer said in an e-mailed statement today. The acquisition will help the company reduce costs and improve efficiency, it said. Adaro will also maintain its 2009 coal production target at between 42 million tons and 45 million tons, the Jakarta-based company said.

To contact the reporter on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net

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China Approves Wind, Hydropower Plant Construction

By Winnie Zhu

March 12 (Bloomberg) -- China, the world’s second-biggest energy user, has approved the construction of wind power plants and hydropower stations with a combined capacity of 2,001 megawatts to boost economic growth.

China will build the power stations in the provinces of Sichuan, Guizhou, Jiangsu and Hebei, the National Development and Reform Commission said in separate statements today. These will add to at least $35 billion of energy projects that have been approved or started since November as the government implements a 4 trillion-yuan stimulus plan to spur the economy.

The commission, the nation’s top economic planner, approved the Luding Hydropower Station in Sichuan province, which will include four units of 230 megawatts each, Dongjing Hydropower plant in Guizhou, with four units of 220 megawatts each, Rudong wind farm in Jiangsu and Guyuan wind power station in Hebei, each with 100.5 megawatts of capacity.

China began building the eastern section of the nation’s second west-east gas pipeline, worth 93 billion yuan ($13 billion), in February. At least four other projects were granted provisional approvals in February, including China Huaneng Group’s 4.2 billion-yuan power plant in Hunan and China National Offshore Oil Corp.’s liquefied natural gas storage facility, according to data compiled by Bloomberg.

To contact the reporter on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net

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Mitsubishi to Sell New Turbine, Aims $7 Billion Sales

By Shigeru Sato and Yuji Okada

March 12 (Bloomberg) -- Mitsubishi Heavy Industries Ltd., Japan’s largest heavy-machinery maker, developed what it says is the most efficient gas turbine, targeting annual revenue from the new product of as much as 700 billion yen ($7.3 billion).

Dubbed “J-Series,” the turbine is capable of turning 60 percent of energy into electricity when natural gas is burned, Executive Vice President Yoshiaki Tsukuda told reporters in Tokyo today. That ratio would exceed the energy-to-power conversion ratio of below 60 percent for conventional gas turbines available in the market, he said.

Mitsubishi Heavy aims to capture 30 percent of global gas turbine sales by 2015 in a contest with General Electric Co., the current market leader, Tsukuda said. The Tokyo-based manufacturer currently has a 10 percent market share.

“The sales target is a feasible one,” said Eiji Tomaru, a senior analyst at Mizuho Investors Securities Co. in Tokyo. “But the key is how speedily the U.S. can get its battered economy back on a recovery phase and stimulate demand for power infrastructure.”

Mitsubishi Heavy identified the U.S., Europe and Japan as initial core markets for the newly developed turbine and expects to make its first deliveries in 2011, Tsukuda said. More than 65 percent of U.S. electricity is produced from coal-fired generators, he said. Mitsubishi Heavy will later aim to increase sales in Asian and East European nations.

“Sooner or later, the U.S. will start replacing its outmoded coal-fired thermal power plants, and plants run on cleaner fuels like natural gas and nuclear reactors will become the main sources,” Tsukuda said.

Mitsubishi Heavy declined to disclose the total cost of developing the turbine or its unit sales price.

Tomaru of Mizuho estimates Mitsubishi’s current gas-turbine revenue at about 400 billion yen.

To contact the reporter on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net.

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Reliance Investors to Discuss Petroleum Unit Merger on April 4

By Archana Chaudhary

March 12 (Bloomberg) -- Reliance Industries Ltd., India’s biggest company, said its shareholders will meet on April 4 to discuss and approve the purchase of its petroleum unit.

The date of the meeting has been decided according to a Bombay High Court order on March 6, Mumbai-based Reliance said in a statement to the National Stock Exchange on March 9. The exchange was closed for the past two days because of public holidays.

Reliance Industries offered one of its shares for every 16 held in unit Reliance Petroleum Ltd. as it seeks to buy back its crude processing unit and create the world’s biggest refining business. The takeover, announced on March 2, is subject to approvals by the high courts in Mumbai and Ahmedabad, Reliance had said.

To contact the reporter on this story: Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net.

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PetroChina’s Sichuan Link to Restart After Fuel Leak

By Winnie Zhu

March 12 (Bloomberg) -- PetroChina Co. expects to restart a pipeline that transports 70 percent of the oil products in China’s most populous province this afternoon after it was damaged by nearby construction, said China National Petroleum Corp.

The Lanzhou-Chengdu-Chongqing fuel pipeline in the southwestern province of Sichuan is being repaired after a leak was discovered yesterday afternoon, parent China National Petroleum, the country’s biggest oil company, said in a statement on its Web site today.

The pipeline links PetroChina’s refinery in Lanzhou in Gansu province to the Sichuan capital of Chengdu and also services the municipal area of Chongqing, which has provincial status. Sichuan has a population of 86.4 million, four times as many as the number of people in Australia.

PetroChina’s spokesman Mao Zefeng and China National Petroleum’s Liu Wejiang didn’t reply to calls made to their mobile and offices.

The leak was caused by “drilling work related to the construction of a passenger line,” China National Petroleum said in the statement, without elaborating.

To contact the reporters on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net

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Queensland Authorities Tackle Beach Clean-Up After Fuel Spill

By Angela Macdonald-Smith and Madelene Pearson

March 12 (Bloomberg) -- Australia’s Queensland state is coordinating a clean-up of about 20 metric tons of heavy fuel oil that leaked from a container ship yesterday and has washed up along the eastern shoreline of Moreton Island off Brisbane.

About 30 employees from Maritime Safety Queensland, the state Environmental Protection Agency, Port of Brisbane Corp. and Brisbane City Council have been involved in assessing the effect of the spill on a 10-kilometer (6-mile) stretch of beachfront, the Queensland government said today in a statement.

The fuel oil leaked from the MV Pacific Adventurer when 31 containers carrying ammonium nitrate came loose in rough seas and pierced the hull. The containers were part of a cargo of 50 owned by Orica Ltd., the world’s largest explosives maker, each carrying 20 tons of the chemical that was traveling from Newcastle to Indonesia via Brisbane.

“At this stage, Maritime Safety Queensland has not been notified of any extensive oil contamination of wildlife,” Transport Minister John Mickel said in the statement. “However the potential hazard remains significant.”

The outgoing tide on the Sunshine Coast has revealed an “extensive oil film” along beaches from Mudjimba to Coolum and from Point Cartwright to Kawana, the government said.

The ship is berthed at Fisherman Islands wharf at Brisbane port where its remaining cargo of 19 containers have been offloaded and moved to a safe storage site, the government said.

The containers that fell overboard can be considered as “lost,” said Lisa Walters, a spokeswoman for Melbourne-based Orica.

“Once they hit water, ammonium nitrate will just dissolve and dissipate,” she said. “We are working with the Environmental Protection Agency and Queensland Maritime Safety to work out what the best recovery would be if they were to resurface.”

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net

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China’s Electricity Output Fell 3.7 Percent in First Two Months

By Winnie Zhu

March 12 (Bloomberg) -- China’s power production fell 3.7 percent to 488.3 billion kilowatt-hours in the first two months from a year earlier, said the National Bureau of Statistics.

Power generation rose 5.9 percent to 244.9 billion kilowatt-hours in February, the bureau said in an e-mailed statement today. Coal output increased 3.6 percent to 368.9 million metric tons in the first two months. Production of the fuel climbed 16 percent to 196.6 million tons in February.

To contact the reporter on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net

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PetroChina Dalian Refinery Exports First RON 97 Gasoline Cargo

By Winnie Zhu

March 12 (Bloomberg) -- PetroChina Co.’s biggest refinery, in northern China’s Dalian city, exported RON 97 gasoline for the first time after domestic consumption dropped.

The plant shipped 34,000 metric tons, or one cargo, of RON 97 unleaded gasoline to Singapore this month, parent China National Petroleum Corp. said in a statement on its Web site today. The fuel’s quality was adjusted to meet overseas requirements, it said.

PetroChina, the nation’s second-largest oil refiner, typically exports RON 92 or RON 93 gasoline. China National said Feb. 12. Dalian processed 1.07 million tons, or about 250,000 barrels a day, of crude in January.

The refinery’s annual capacity was almost doubled to 20.5 million tons before the Beijing Olympics, China National said in August last year.

To contact the reporter on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net

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Enel Plans EU8 Billion Share Sale to Cut Debt

By Adam L. Freeman

March 12 (Bloomberg) -- Enel SpA, whose 2007 purchase of Endesa SA made it Europe’s most indebted utility, will sell up to 8 billion euros ($10.2 billion) of new shares to reduce borrowings and protect its investment-grade credit rating.

Enel, Italy’s biggest utility, will sell the shares in a rights offering by the end of this year, the Rome-based company said today in a statement distributed by the Italian stock exchange.

The utility was saddled with 55.8 billion euros of debt after buying Endesa with Spanish builder Acciona SA in October 2007. While it cut borrowings to 50 billion euros by last year, an agreement last month to take full control of Endesa will increase debt by 11.7 billion euros.

Standard & Poor’s may cut Enel’s A- rating before the end of the year, it said in January, citing the company’s debt burden.

The company today said it will sell 10 billion euros in assets by the end of 2010 to reduce debt.

Enel has fallen 21 percent in Milan trading since Feb. 26, the day before newspaper Il Sole 24 Ore reported that the utility may sell as much as 7 billion euros of new shares.

Earnings Climb

The company will hold 92 percent of Madrid-based Endesa once it completes the acquisition of Acciona’s 25 percent interest for about 11 billion euros, the Italian company said Feb. 21.

Enel also reported profit rose 35 percent in 2008 after earnings from Endesa were incorporated into full-year results for the first time.

Net income climbed to 5.29 billion euros from 3.92 billion euros a year earlier. Analysts had expected profit of 5.3 billion euros, according to the median of seven estimates in a Bloomberg News survey.

To contact the reporter on this story: Adam L. Freeman in Rome at afreeman5@bloomberg.net

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Babcock Infrastructure Resumes Australia Coal Loading

By Angela Macdonald-Smith

March 12 (Bloomberg) -- Babcock & Brown Infrastructure Group, owner of Australia’s second-biggest coal-export terminal, resumed loading ships today at the Dalrymple Bay port in Queensland after a stoppage caused by a tropical cyclone.

“The first vessel has berthed this morning, with the second about to berth, so we are back to loading ships,” Greg Smith, general manager of operations at the unit of Babcock Infrastructure that owns the port, said today by e-mail. BHP Billiton Mitsubishi Alliance, which owns the neighboring Hay Point terminal, is yet to restart loading, BHP said.

Australian authorities evacuated resort islands off Queensland’s coast during the weekend and put emergency services on alert as Tropical Cyclone Hamish brought damaging winds and high seas. The storm has since abated to a low weather system and is continuing to weaken as it moves northwest back up the Queensland coast, the Bureau of Meteorology said.

Rail deliveries of coal to both Dalrymple Bay and Hay Point, south of Mackay, remain disrupted after a train accident earlier in the week.

Coal rail deliveries, halted March 10 after a train derailment at rail company QR’s Coppabella yard in central Queensland, resumed yesterday afternoon before being stopped again, Smith said in an earlier telephone interview. The rail system supplying the port may be out of action until about 10 p.m. local time tonight, Smith said.

Damaged Locomotives

Rail deliveries to Hay Point are “restricted,” Samantha Evans, a spokeswoman for Melbourne-based BHP, said in an e-mail.

The Coppabella yard was open from about 7 p.m. until midnight yesterday to allow some trains to pass through, and was closed again for the removal of damaged locomotives and wagons, QR spokesman Garry West said in e-mailed comments today.

Work at the yard, the main staging point for coal trains in the regional rail system, may continue after it reopens, potentially causing further delays, West said.

At Gladstone, further to the south of Queensland, coal shipping is back to normal and rail deliveries are continuing, Evans said.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net

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Oil Rises as Traders Close Bets on Decline, Possible OPEC Cut

By Christian Schmollinger

March 12 (Bloomberg) -- Crude oil rose for the first day in three as traders closed out bets that prices would fall amid speculation OPEC may cut output for a fourth time.

Investors purchased contracts to profit from so-called short sales after crude dropped 7.4 percent yesterday as U.S. inventories showed a bigger-than-expected gain. Algerian Energy Minister Chakib Khelil said yesterday OPEC is likely to reduce output again at this weekend’s meeting. Other ministers have called for the group to halt reductions.

“Crude has sold off quite a bit so people are covering their positions,” said Anthony Nunan, an assistant general manager for risk management at Mitsubishi Corp. in Tokyo. Traders are also buying “as insurance if there is an OPEC announcement of a cut. But if OPEC continues saying they want to see how compliance is, we going to see it drift lower.”

Crude oil for April delivery rose as much as 83 cents, or 2 percent, to $43.16 a barrel in electronic trading on the New York Mercantile Exchange. It was at $42.93 a barrel at 3:34 p.m. Singapore time. Yesterday, April futures fell $3.38 to settle at $42.33 a barrel, the lowest since March 3. Prices are down 3.7 percent this year.

U.S. supplies increased 749,000 barrels to 351.3 million barrels last week, the Energy Department said yesterday. Stockpiles were forecast to rise by 250,000 barrels, according to the median of analyst estimates in a Bloomberg News survey. Refineries ran at 82.7 percent of capacity, down from 85 percent a year earlier, as demand slipped.

Gasoline Supplies

Gasoline inventories declined 2.99 million barrels to 212.5 million barrels in the week ended March 6, the department said. Stockpiles were forecast to fall by 1 million barrels, according to the median of analyst estimates in the Bloomberg survey.

Distillate stockpiles rose 2.1 million barrels to 145.4 million, the report showed. A 200,000-barrel gain was forecast.

OPEC has reduced daily production targets by 4.2 million barrels since September. Ministers will meet in Vienna on March 15 to discuss whether to make further cuts.

“The market expects a reduction and we have to reduce, otherwise prices will fall,” Algerian Minister Khelil said in Algiers yesterday. “There will be a debate in Vienna, but I think the consensus will be to seek stability of prices through a reduction.”

Algeria’s call for further cuts differs from the view of Qatari Oil Minister Abdullah bin Hamad al-Attiyah, who said in an interview in Doha this week that “we cannot discuss another cut until we see the compliance at 100 percent,” for previous pledged reductions.

OPEC Output

The 11 OPEC members with quotas, all except Iraq, produced 25.39 million barrels a day in February, down from 29.22 million barrels a day in September, according to a Bloomberg News survey of oil companies, producers and analysts. The group agreed to pump 24.845 million barrels a day starting Jan. 1.

“The market had priced in a cut so if they don’t cut they will be slightly bearish,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore. “But overall, I think they’ll be successful at defending the oil price floor. So far the cuts have been quick and deep.”

Brent crude oil for April settlement rose as much as 90 cents, or 2.2 percent, to $42.30 a barrel on London’s ICE Futures Europe exchange. It was at $42.09 a barrel at 3:33 p.m. Singapore time. The contract yesterday declined $2.56, or 5.8 percent, to end the session at $41.40 a barrel.

Economic Impact

The continued economic contraction in consuming countries is weighing on oil prices.

Japan’s gross domestic product shrank an annualized 12.1 percent in the three months ended Dec. 31, less than the 12.7 percent reported last month, the Cabinet Office said today in Tokyo. The median estimate of economists was for a 13.4 percent decline. The country is the third-largest oil consumer.

U.S. Energy Secretary Steven Chu said he’ll caution OPEC ministers about higher oil prices when he talks with them before their next meeting.

“If the cost of petroleum increases, that will create a huge strain on the ability of the world’s economy to recover,” Chu said after testifying at a Senate hearing in Washington yesterday.

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

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Yen May Weaken to 110 Per Dollar by Year-End, FX Shonan Says

By Kazumi Miura

March 12 (Bloomberg) -- Japan’s yen may weaken to 110 per dollar in 2009, after recording the biggest monthly drop in 13 years in February, said Masamichi Nomura, director at FX Shonan Investment Group.

The currency depreciated as much as 10.11 yen per greenback in February, the most since August 1995, when Japan bought dollars on the market to weaken the yen. This year’s drop indicates a “dramatic change” in supply and demand, because it happened without intervention and as Japanese companies brought home profits toward the fiscal year’s end, Nomura said.

With the global recession intensifying, “Japanese companies can’t expect overseas subsidiaries, which may be posting losses, to send much profit back home,” Nomura said. Japan also recorded a trade deficit every month since October, leaving companies with less cash to invest abroad, he said.

Japanese authorities stepped into the market to sell 817.4 billion yen ($8.5 billion) in August 1995, according to finance ministry data.

The world’s second-biggest economy posted its first current-account deficit in 13 years in January, while the trade shortfall widened to the most in more than two decades.

More large-scale funds have been set up in Japan this year to invest in foreign bonds, which may also accelerate yen sales, Nomura said.

Nomura Asset Management Co. started the U.S. High Yield Bond Funds in January with 128.7 billion yen in assets, the biggest since 2007.

The yen is also set to weaken further due to Japan’s shrinking economy and rising political turmoil, FX Shonan’s Nomura said.

The economy contracted at the fastest pace since 1974 last quarter, the government said today in Tokyo. Gross domestic product shrank an annualized 12.1 percent in the three months ended Dec. 31, the Cabinet Office said.

To contact the reporter on this story: Kazumi Miura in Tokyo at Kmiura1@bloomberg.net

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Global Confidence Drops as Economies Crumble, Bailouts Needed

By Shamim Adam

March 12 (Bloomberg) -- Confidence in the world economy dropped in March as the slump proved deeper than forecast and the Obama administration launched new rescues of financial institutions, a survey of Bloomberg users on six continents showed.

The Bloomberg Professional Global Confidence Index fell to 5.95 this month from 8.5 in February. A reading below 50 means pessimists outnumber optimists. Sentiment about Europe and the U.S. slid, while respondents in Asia were less pessimistic about their region, the survey showed.

The global economy may shrink for the first time since World War II, with trade collapsing by the most since the Great Depression, the World Bank said this month. The erosion of confidence is exacerbating the decline; U.S. banking stocks are down 26 percent since the last survey despite a third effort by the government to help Citigroup Inc.

“The financial crisis and the economic recession are feeding on each other, and that’s adding to pessimism,” said Martin van Vliet, an economist at ING Bank in Amsterdam who took part in the survey. “We’re still in no man’s land waiting for stimulus packages to take effect. The light at the end of the tunnel is still far away.”

Reports this week indicate the global economy is weakening further. German factory orders fell 38 percent in January from a year earlier, the government said yesterday, while orders for Japanese machinery retreated for a fourth month.

A measure of U.S. participants’ confidence in the world’s largest economy dropped to 5.2 from 8.6, the survey showed. Sentiment declined in most other markets, with the index for Italy dropping to 5.5 from 9.3. The gauge for Western Europe fell to 8.2 from 9.1.

Obama’s Stimulus Plan

The survey of more than 3,600 Bloomberg users was conducted between March 2 and March 6. Since the previous survey, President Barack Obama signed into law a $787 billion stimulus package, the European Central Bank and the Bank of England cut rates to record lows and more Americans filed for jobless benefits than at any time since 1982.

European governments have committed more than 1.2 trillion euros ($1.5 trillion) to protect their banking systems and leaders pledged to spend a combined 200 billion euros to try to lift their economies out of the worsening slump. Asia-Pacific nations have announced more than $700 billion in such plans.

The measures have failed to boost confidence that they will spur a recovery in growth. Global stock markets have lost $5.9 trillion this year, after about $28.7 trillion was wiped from the value of world equities in 2008.

Citigroup Shares

The U.S. government, which has channeled $45 billion into Citigroup, agreed to a third rescue on Feb. 27 that will give it a 36 percent stake in the lender. Once the world’s biggest bank by market value, Citigroup fell below $1 in New York trading last week for the first time.

Citigroup shares jumped 38 percent in New York on March 10 after Chief Executive Officer Vikram Pandit said the bank was profitable in January and February and is having its best quarter since the third quarter of 2007.

Bank of America Corp. has also received $45 billion of bailout funds, while the government committed more money to avoid a collapse of American International Group Inc.

“There’s still concern about failures” of banks, said Jonathan Basile, an economist at Credit Suisse Holdings USA Inc. in New York, a survey participant. “If any of these policy actions don’t work, given the environment, we have to expect more to be done in any way, shape or form.”

Job Cuts

Confidence also worsened in the U.S. as employers eliminated 651,000 jobs last month and the unemployment rate rose to 8.1 percent, the highest level in more than a quarter century. More than 103,000 individuals and companies in the U.S. filed for bankruptcy in February, according to a private report.

“The same old pressures of lacking corporate demand, waning consumer demand are really driving the bus in the U.S. downturn,” said Guy LeBas, chief economist at Janney Montgomery Scott LLC in Philadelphia, and a survey participant. “Most of the world is following suit.”

The situation isn’t better in Western Europe. Manufacturing orders in Germany, its biggest economy, collapsed in January as exports plunged. They dropped almost two fifths from a year earlier and 8 percent on the month, four times as much as economists forecast.

“The annual slump is absolutely catastrophic,” said Alexander Koch, an economist at UniCredit MIB in Munich. “The extent of declines is terrifying.”

ECB Outlook

The ECB last week said the euro-region’s economy may shrink as much 3.2 percent this year, three times worse than expected. It lowered its main refinancing rate by 50 basis points to 1.5 percent on March 5 and wouldn’t rule out more reductions.

In Latin America, confidence rose to 11.6 in March from 10.4 percent last month, while the index for Asia increased to 12.7 from 11.6. The reading for Japan fell to 4.5 from 5.

Respondents around the world still expect short-term interest rates to fall, the survey showed.

The majority of Bloomberg users from Mexico City to Madrid became more pessimistic on stocks, the survey showed. The MSCI World Index has dropped 14 percent in the past month.

The U.S. dollar may rise in the next six months against the world’s most active currencies, with the index climbing to 53.4 compared with 50.2 in February, the survey showed.

Users in Japan are now almost evenly divided on the direction of the yen against the dollar compared with February, when the majority expected an appreciation. U.K. participants expect the pound to weaken against its U.S. counterpart.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

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Yen Will Weaken to Five-Month Low Against Dollar, Goldman Says

By Candice Zachariahs

March 12 (Bloomberg) -- The yen will fall to a five-month low versus the dollar and weaken against the euro as Japan’s currency loses its appeal as a refuge and the economy contracts 6.1 percent, Goldman Sachs Group Inc. said.

The currency will decline 7.2 percent to 105 per U.S. dollar and weaken by 8.5 percent to 136.5 per euro, the bank said, revising earlier three-month forecasts for 90 and 117, respectively. The yen rose to 87.13 per dollar on Jan. 21, the strongest since 1995, as pressure to repay low-cost loans in Japan that had funded higher-yielding investments escalated after the collapse of Lehman Brothers Holdings Inc. in September.

“In the near-term, the risks are still skewed towards further yen weakness beyond our new three-month forecast of dollar-yen,” a team of Goldman Sachs analysts led by Thomas Stolper in London wrote in a note yesterday. “In conjunction with doubts about whether or not the correlation between the yen and equity markets would be maintained, the macro data has provided evidence that the Japanese economy contracted sharply at the end of last year.”

The yen will trade at 100 per dollar in six and 12 months versus earlier expectations for it to strengthen to 90, Goldman Sachs said. Against the euro, the currency will trade at 140 yen and 145 yen in six months and one year, the analysts wrote.

The yen fell 0.1 percent to 97.37 per dollar as of 8:21 a.m. in Tokyo and was little changed at 124.85 per euro, compared with late yesterday in New York. It last traded at weaker than 105 against the dollar on Oct. 6.

Japan’s currency was the best performing of the 16 most- traded currencies against the greenback last year. It has fallen against eight of the 16 since the start of 2009.

Economy Shrinking

The world’s second-largest economy shrank at an annual 12.7 percent pace in the fourth quarter, the most since the 1974 oil shock, as recessions in the U.S. and Europe triggered a record drop in exports.

Expectations for the yen to strengthen in the next six months plunged after Japan’s economy contracted last quarter, a survey of Bloomberg users showed.

“Given the macro backdrop, there is little doubt that a 14 percent overvalued yen versus the dollar is a challenge for exporters in particular,” the Goldman analysts wrote. “Purely on the basis of financial conditions, therefore, we see a risk that the yen converges faster to fair value,” in the area of 115 yen per dollar, the bank said.

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

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Philippine Peso May Rise 3%, AIG’s Son Keng Po Says

By Lilian Karunungan

March 12 (Bloomberg) -- The Philippine peso may gain 3 percent in the “near term” as central bank data will probably show remittances from overseas held up in January, said Wilfred Son Keng Po, a managing director of AIG Global Investment Corp.

The currency, the second-worst performer in the past month among Asia’s 10 most-active currencies outside Japan, may advance to 47 against the U.S. dollar, said Son Keng Po, a regional stock portfolio manager at AIG Global, which oversees $574 billion in assets worldwide as of end-2008. The peso fell to a three-month low last week on speculation the March 16 report will show falling inflows from workers abroad.

“Personally, I surveyed a lot of the banks,” Son Keng Po said in an interview from Manila. “Most of the banks are actually reporting very strong January remittance numbers. My thinking is that the January numbers might be a blip. February should set the tone of how remittances would be for the rest of the year.”

The peso, which lost 2.3 percent in the past month, rose 0.1 percent to 48.393 as of 10:27 a.m. in Manila, according to Tullett Prebon Plc. Remittances account for about 10 percent of the Philippines’ gross domestic product and help fuel consumer spending, the source of 64 percent of the $144 billion economy.

The central bank reported on Feb. 16 that money sent home by Filipinos abroad grew 0.8 percent in December from a year earlier, the least since April 2006. Banks were closed in the Philippines between Dec. 24 and Jan. 5, which may affect the data, Son Keng Po said.

“The peso might still strengthen near term,” Son Keng Po said. “There might be some pent-up remittances that were given in January instead.”

Stronger Domestic Economy

Barclays Capital, the world’s third-largest foreign- exchange trader, expects the peso will fall to 49 in the next three months before rising to 47.50 by the end of the year as falling import costs bolster the trade balance.

“Exports are weakening this year and we’re also looking for remittances to fall but the decline is going to be more than offset by the impact of weaker commodity prices,” said Nicholas Bibby, an economist in Singapore at Barclays.

More than 8 million Filipinos living abroad sent home a record $16.4 billion in 2008, 14 percent more than the previous year, according to the central bank. That amount may grow at a slower pace of 10 percent or fall 10 percent this year as global economies slump, said Son Keng Po. The last time remittances shrank was in 2001.

Son Keng Po is currently “overweight” on Philippine stocks relative to their weighting on a regional benchmark index and holds telephone and utility companies. He said the peso will also be supported by the nation’s “stronger domestic economy.”

The International Monetary Fund forecasts Philippine economic growth will slow to 2.25 percent this year. Singapore, Taiwan, Hong Kong and Japan are already in recession. AIG Global is a unit of New York-based American International Group Inc.

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

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Korea Won Falls, Ending 4-Day Decline, on Importers; Bonds Gain

By Kim Kyoungwha

March 12 (Bloomberg) -- South Korea’s won fell for the first time in five days on speculation importers are taking advantage of this week’s gains to pay bills. Bonds rose on optimism that the central bank will buy debt from the market.

The won extended its decline after the Bank of Korea left its seven-day repurchase rate at a record-low 2 percent, following six cuts since early October. The currency climbed 6.6 percent against the dollar over the last four trading days, paring this year’s loss to 15 percent, as a rally in global stocks helped revive demand for emerging-market assets.

“There are some dollar purchases by banks and companies after the won’s recent rally,” said Jo Hyun Suk, a currency dealer with Korea Exchange Bank in Seoul. “The central bank’s move had little impact on the foreign-exchange market and the undercurrent is still cautious.”

The won weakened 1.7 percent to 1,496.50 per dollar as of 3 p.m. in Seoul, according to Seoul Money Brokerage Services Ltd. The Kospi stock index was 0.1 percent higher and global funds sold more local shares than they bought after two days of net purchases, according to Korea Exchange.

“There seems to be buying of dollars by importers but the drop in the won may be limited, depending on the performance of stocks and foreign purchases,” said Ko Yun Jin, a currency dealer with Kookmin Bank in Seoul.

The currency’s drop today was also linked to Royal Philips Electronics NV’s sale of its stake in LG Display Co., which increased demand for dollars, Cho of Korea Exchange said. Philips sold its remaining 13.2 percent stake in Seoul-based LG Display at 25,500 won a share yesterday.

Economic Forecast

Twelve of 15 economists surveyed by Bloomberg News before today’s interest-rate decision forecast the central bank would announce a reduction of at least of quarter of a percentage point to help the economy.

South Korea will probably “remain in recession due to the persistent weakness of both domestic and overseas demand,” the central bank said today. It estimated that the current account swung to a surplus in February after a shortfall in January.

Trade Minister Lee Youn Ho called the won at 1,500 “absurd” given the improving trade balance in a meeting with business leaders in Seoul, MoneyToday reported today.

The Korean currency will strengthen to 1,300 won a dollar by the end of 2009, according to the median forecast of 28 strategists surveyed by Bloomberg. It reached an 11-year low of 1,597 on March 6.

Tourism Boom

The currency’s weakness is helping draw tourists, notably from Japan after the yen rose 61 percent versus the won in the past year. Almost a quarter of a million Japanese visited in January, 55 percent more than a year earlier, according to the Korea Tourism Organization.

Bank of America Corp., the largest U.S. bank by assets, forecast the won will jump to 13.8 against the yen in three months. Standard Chartered Bank Plc, a London-based bank that makes most of its profit in Asia, predicted 13.07 by Dec. 31. The won reached a record low of 16.42 on March 3 and recently traded at 15.31.

Local-currency bonds rose as investors bet the central bank will step in to buy debt as the government increases public spending.

Bank of Korea Governor Lee Seong Tae said he expects the government to propose “a significant” extra spending package, financed through bond sales. The central bank will watch the effect of debt sales on financial markets as it decides whether to purchase bonds, he added.

The yield on three-year government bonds fell seven basis points to 3.62 percent and the five-year yield fell 13 basis points to 4.40 percent, according to Korea Financial Investment Association.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net;

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Dollar May Fall to 95 Yen, $1.33 per Euro: Technical Analysis

By Yasuhiko Seki

March 12 (Bloomberg) -- The dollar may weaken to 95 yen and $1.33 per euro as momentum charts show “sell” signals for the greenback, Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo.

The dollar may extend its decline to 95 yen, or 38.2 percent below the peak of its rally from this year’s low in January, said Osamu Takashima, chief foreign-exchange analyst at Bank of Tokyo-Mitsubishi, citing a so-called Fibonacci chart. Fibonacci analysis indicates the dollar will drop to $1.33 per euro, Takashima said.

“The dollar finished below its opening level against the yen for a second day and below the five-day moving average, suggesting a short-term downward trend,” Tokyo-based Takashima wrote in a research report today.

The dollar traded at 96.23 yen as of 1:01 p.m. in Tokyo, from 97.27 late yesterday in New York. It touched 95.96, the weakest level since Feb. 24. The greenback was at $1.2832 per euro from $1.2837 late yesterday.

Daily momentum charts such as the stochastic oscillator and moving average convergence/divergence are also now showing sell signals for the dollar, Takashima said.

A stochastic oscillator chart measures the closing price of a security relative to its highs and lows during a particular period to try to predict whether it will rise or fall. MACD charts can indicate whether a price shift is a change in trend or a short-term deviation by comparing moving averages based on nine-, 12- and 26-day periods.

The greenback climbed to 99.68 yen on March 5, the strongest in almost four months, after touching its lowest in more than 13 years at 87.13 yen on Jan. 21.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

To contact the reporter on this story: Yasuhiko Seki in Tokyo at Yseki5@bloomberg.net.

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Asia Currencies: Rupiah, Singapore Dollar Advance; Won Drops

By Kim Kyoungwha and Patricia Lui

March 12 (Bloomberg) -- Indonesia’s rupiah and Singapore’s dollar led Asian currencies higher on speculation improving finances at U.S. banks will bolster demand for emerging-market assets. South Korea’s won slid for the first time in five days as recent gains prompted importers to pay bills.

Seven of Asia’s 10 most-traded currencies excluding the yen strengthened versus the U.S. dollar after JPMorgan Chase & Co. and Citigroup Inc. in the past two days said they were profitable in January and February. The ICE’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, declined for a third day.

“We can expect dollar-Asians to trade lower this morning due to better risk appetite,” said Emmanuel Ng, an economist at Oversea-Chinese Banking Corp. in Singapore. “The dollar was weaker against major currencies on improved risk appetite and dollar-Asians will follow.”

The rupiah advanced 0.4 percent to 11,983 per dollar as of 11:04 a.m. in Jakarta, according to data compiled by Bloomberg. The Singapore dollar climbed 0.6 percent to S$1.5292 and Malaysia’s ringgit was up 0.1 percent at 3.6895.

The yen strengthened to 96.30 per dollar in Tokyo from 97.27 late yesterday in New York after a government report showed Japan’s economy shrank less than analysts expected, easing concern the recession will worsen.

The Cabinet Office said gross domestic product shrank an annualized 12.1 percent in the three months ended Dec. 31, less than the 12.7 percent reported last month. The median estimate of economists surveyed by Bloomberg was for a 13.4 percent contraction.

‘Capital Flows’

The rupiah, which has dropped 9 percent versus the dollar so far this year, strengthened this week as global funds bought more Indonesian shares than they sold in the last four trading days. Overseas investors added to their holdings of local- currency government bonds at a March 10 auction of 1.83 trillion rupiah ($153 million) of notes, according to Rully Nova, a currency trader and analyst at PT Bank Himpunan Saudara.

“There are capital inflows to buy government bonds,” said Nova, who is based in Jakarta. “The gains in the rupiah are going to be short-lived. Dollar liquidity is still tight in Indonesia.”

Gains in the Taiwan dollar may be limited amid speculation policy makers will intervene to protect exporters. Central bank Governor Perng Fai-nan said today that order will be maintained in the market when there are trading irregularities. The currency has dropped 7 percent against the U.S. dollar in the past six months, compared with a 25 percent plunge in the won.

Taiwan’s dollar rose 0.1 percent to NT$34.467 versus the greenback today in Taipei, while the won slid 1.2 percent to 1,488.20 in Seoul.

No Rate Cut

The won climbed 6.6 percent against the dollar over the last four trading days, paring this year’s loss to 15 percent, as a rally in global stocks bolstered risk appetite.

The Bank of Korea unexpectedly left its benchmark interest rate at a record-low 2 percent today, following six cuts since early October. Twelve of 15 economists surveyed by Bloomberg News before today’s decision forecast the bank would announce a reduction of at least a quarter of a percentage point to help the economy.

Elsewhere, the Philippine peso rose 0.2 percent to 48.33 per dollar and the Indian rupee added 0.6 percent to 51.5625. India’s financial markets were closed the last two days for public holidays. China’s yuan and the Vietnamese dong were both little changed at 6.8393 and 17,484.5 respectively.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net. Bob Chen in Hong Kong at bchen45@bloomberg.net

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